Several previous governments have considered merging the two carriers only to decide against it in the face of opposition from unions and "left-leaning" politicians. But the Indian air transport market has changed dramatically over the past three years following the launch of new carriers. Civil aviation minister Praful Patel has said a merger is necessary for the state-owned carriers to compete in the long term with fast-growing privately owned airlines.
Consulting firm Accenture India was hired to assist in preparing a "roadmap" for a merger and in November its recommendations were considered by a so-called Group of Ministers, which will decide how to proceed and make final recommendations to Cabinet.
At their initial meeting the ministers decided a group of ministry secretaries would be tasked with drawing up recommendations covering specific details related to the planned merger, such as staff integration, and legal and taxation issues. How the enlarged airline will be branded is also under study and is a particularly sensitive subject.
The government says it wants a merger to be completed by the end of the financial year to 31 March. It reportedly has the support of the prime minister. Patel has told Parliament that the government has already decided that "the salary, status etc of every employee" will be protected under a merger.
Patel says a merger would greatly increase the value of the airlines in the long term and make them more attractive to a global airline alliance.
Oneworld, SkyTeam and Star Alliance have all said they hope to eventually have an Indian airline as a member, but none of the country's carriers have committed to any particular grouping.
Patel also says a merger would "provide an opportunity to fully leverage strong assets, capabilities and infrastructure" of the airlines and allow "high growth and profitability businesses" to be established, such as those providing ground handling as well as maintenance, repair and overhaul services.
In addition, he says, a combination of the two airlines would "potentially enable [the] merged entity to command [a] better valuation", as it would provide "maximum flexibility to achieve financial and capital restructuring".
Mumbai-based Air India operates international services using widebody aircraft while Delhi-based Indian Airlines operates domestic services as well as short- and medium-haul international flights, mainly using narrowbodies.
Air India also has an international low-cost subsidiary known as Air India Express while Indian Airlines has a domestic subsidiary called Alliance Air.
A merged entity would have a combined workforce of more than 30,000. The merged fleet would comprise more than 100 aircraft, with dozens of Airbus and Boeing aircraft on order.
The heads of both airline groups favour a merger to create a true "network" carrier operation.
Source: Airline Business
