Air India ² Indian Airlines Merger
Analyzing what went wrong in the Air India Indian Airlines Merger
By Group 3
Utkarsh (8) Mridu (9 Priyanka (18) Vaibhav (41) Mallika (47) Anirudh (53)
and overcoming competition from new entrants
y The Result: The merger has brought additional problems for
the airlines and the recent Parliamentary Committee of March 2010 has termed the merger as a "marriage of incompatible individuals"
. increase of fleet. 2007 Air India (AI) and Indian
Airlines (IA) were merged to form a new company.What does this case talk about?
y The Issue: On July 15. (NACIL)
y The Reasons: The merger was brought about to solve
certain aviation issues such as dipping profits. the National Aviation Company of India Ltd.
The airline was based out of New Delhi and had a pre-merger fleet of over 55 aircraft in 2006. Air India was based out of Mumbai. primarily operating on international routes. It was converted into a Public Limited Company on July 29th 1946 and renamed as Air India.
y Indian Airlines: The airline was set up on 1 August 1953
and operated on domestic routes.Background to the Case
y Air India: Air India.
y Interestingly both companies also made an attempt at merging
in 1986 as well
. formerly named Tata Airlines was
founded by JRD Tata.
Reasons leading to the Merger
y Escalating costs of Aviation Turbine Fuel (ATF) y Immense competition from private and low cost airlines y Increased cost pressures due to acquisition of additional aircraft y Leadership crisis due to frequent change of the chairman-cum-
managing director y Air India could not fully use the bilateral rights unlike foreign airlines which took maximum advantage y Declining passenger traffic in the premium class
ground y y
y y y
operations. the use of landing slots and parking rights etc Volume Discounts in areas such as fuel purchase. placing it among the top 10 airlines in Asia. insurance Increased fleet size such that the combined fleet was of over 120 aircraft. currently over 150 aircraft.What the merger tried to achieve
y Economies of scale in areas such as maintenance. and the top 30 in the world Hub and spoke system which could be achieved by the merger of the international and domestic airlines Leverage and pool-in of resources such as manpower. better aircraft and resource allocation Star Alliance membership (Air India has been invited to join the 21 member consortium)
. infrastructure and assets.
and pilot training IT integration as both airlines had separate fleets and flight booking operations
. maintenance. and y
redundancy of roles Union issues and distrust as both companies had strong unions which would oppose any kind of wage and operational changes Operational differences as both the airlines followed completely different pay structures and airline routes which could result in a conflicts of interests situation Different fleet compositions of the airlines would create complications in inventory management.Challenges and Obstacles
y Employee opposition due to fear of retrenchment. repair establishments.
1956 to facilitate the merger y As of May 2007. the two airlines had a combined fleet of 122 aircraft and 34. 2007 under Sections 391 and 394 of the Indian Companies Act.000 employees including 1. (NACIL) was incorporated on March 30.315 pilots
.Carrying out the Merger
y In May 2007. prepared the roadmap for the merger y A new company called the National Aviation Company of India Ltd. India's Ministry of Civil Aviation announced that
the airlines merger would be effected from July 15. 2007 and was to be called 'Air India¶ y Accenture Inc.
Merged Entity Logo
Post Merger Problems
y Incomplete integration of official positions. and inability of employee unions to accept merger y Decline of customer service due to integration issues y Ballooning of losses due to
o increasing prices of ATF o decreased passenger traffic during recession o unnecessary and costly acquisition of aircraft fleet
y Leadership crisis continues due to frequent change of CEOs (4
different CEOs in last 2 years) y Increased competition from domestic airlines as well as international airlines due to unfavorable government policies
. of IT systems and as
well as infrastructure due to different aircraft flown by the two companies.
Pre and Post Merger Profit and Loss
Southwest Airlines y Revenue generation through allied businesses like cargo. flight operations and training activities y Partial sale of equity through initial public offer (IPO) followed by privatization over the next five years or so
. maintenance. Some of the solutions to help the merged entity come of losses could be:
y Advisory support from airlines like Lufthansa.Proposed Solutions
In 2009 Air India sold three aircraft and further SBI Capital Markets Ltd was appointed to prepare a road map for recovery. engineering y Expansion of international routes and connectivity y Increased synergies between senior management from both airlines y Effective Customer Relationship Management (CRM) practices y Standardization of aircraft models to simplify processes like
000 crore govt.The Way Forward
y y y y y
Air India released a plan on 25th July 2010 stating that it will take the following steps: AI plans on reducing the cost of debt or working capital loan which currently stands to the tune of 18. 1200 crores AI will boost Air India Express to cope with competition from low cost carriers AI will set up a separate change management division AI will work with unions to ensure smooth functioning and carrying out of objectives
. will infuse equity to the tune of Rs.
y Annual Reports 2009 y LiveMint y Economic Times y Scribd y Rediff y ICMR.