India revisits merger of state airlines

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The Indian government has revived a controversial proposal for state-owned Air India and Indian Airlines to be merged.

Calls for a merger between Air India and Indian Airlines arise every few years but they have been consistently shot down due to opposition from employees and many politicians, who fear job losses.

Back in August there were fresh calls for a merger to help the two carriers compete better with the more efficient and fast-growing private carriers. However, late last year civil aviation minister Praful Patel told Parliament that a merger was “not on the cards at the moment”. Now Patel’s tune has changed and in mid-March he told reporters that “it is an absolutely logical proposal to consolidate and optimise the use of the assets of the two public sector airlines”.

The civil aviation ministry says Patel made a presentation to prime minister Manmohan Singh late in March, when he put forward four proposals, one being a full merger. The government says Singh has given his in-principle approval for such a merger, as he determined it was in the best interests of the two companies.

Patel said Cabinet approval for a merger of the two airlines was likely sometime during the current fiscal year ending 31 March 2007.

The two airlines are relatively small national carriers as they have been prevented from growing over the years due largely to government bureaucracy. Now they are both going ahead with aggressive fleet expansions, as they have been facing much more intense competition from privately owned carriers. This has come both on the domestic front following the establishment of new airlines as well as on the international front as a result of the government’s progressive easing of restrictions to allow more foreign carriers to serve the country.

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 known as Alliance Air.

Many in the industry believe the two airline groups will be able to compete more effectively against local and foreign airlines if they are brought together to create a true “network” airline operation. The two carriers are wholly owned by the Indian government, although each has said it plans to sell a minority stake through an initial public offering sometime this year to raise cash for expansion.

It remains unclear whether share offerings are still being looked at given the fresh merger suggestions. ■

NICHOLAS IONIDES / SINGAPORE