The Union cabinet has agreed to a proposal to merge the two state-owned airlines, Air India and Indian, into one mammoth airline that will tower over its competitors in both fleet size and revenue, capping off a nine-month process championed by Praful Patel, the minister for civil aviation.
“It is expected that ministry of civil aviation and the two airlines would be able to do all necessary legal formalities for merger within 16 weeks. After legal merger it will take 24 months for implementation,” information and broadcasting minister Priya Ranjan Dasmunsi said after a cabinet meeting. The civil aviation ministry can “take all other consequential and ancillary actions” to ensure the merger is as planned, he added.
The yet-to-be named airline will count amongst the ten biggest in Asia, and minister Patel has said he was convinced that its combined operations, coupled with the 111 new aircraft that it will induct, will increase profits by about Rs600 crore in the next three years.
But labour issues, a debt burden of Rs45,000 crore and competition -- both on domestic and international routes -- remain challenges for the new entity. Indian (formerly Indian Airlines), which once flew almost all of India’s domestic passengers, now carries one in five. Air India has seen its share of international passengers shrink to 25%.
In spite of all the advantages that the new airline might enjoy, it will start off with major handicaps. The airline’s annual loan payments -- Rs4000 crore for each of the next 12 years -- on its new aircraft will eat up a third of the airlines’ combined revenue at 2005 levels. If the wages for workers at Indian are hiked by 15% to match the salaries at Air India, it will cost at least Rs150 crore a year, effectively wiping out the profits generated by both Air India and Indian in 2005, the last year for which audited results are available.
The merger could face significant opposition from labour unions, representing most of the over 33,000 workers at Air India and Indian. The Air Corporations Employees Union, the biggest group at Indian, said it was reserving judgment until a meeting next week with the airline management. The ACEU met Patel last week but was not entirely convinced. Rohan Kailasam, president of a 700-strong pilots union at Indian said the group intends to use the Right to Information Act to get the recommendations made by a consultant hired by the ministry.