The joint board of Air-India and Indian Airlines has shelved the the two airlines' planned merger in favour of a holding company which will integrate the airlines' operations.
'An immediate merger of both airlines would be a disaster. Synergy and close cooperation is a must for the two organisations to survive,' says joint chairman of Air-India and Indian Airlines, P C Sen.
The board's decision to abandon the merger and set up a new holding company follows recommendations made by consultants, Ferguson & Co. Under the plan, Air-India, Indian Airlines and Alliance Air, Indian Airlines' low-cost subsidiary, would be brought under a single holding company, responsible for broad policy matters. The three airlines would maintrain separate administration and accounts but with a joint balance sheet, airline sources say. All three airlines would also have separate managing directors. Ground support, engineering, and ticketing units would be merged into a new profit centre.
Although talk of merging the two airlines has been rife for some four years, Indian Airlines has never been in favour of the move, contending that merging two financially beleagured companies does not result in a stronger entity. Indian Airlines also opposed the merger due to fears over potential trade union conflict.
Besides presenting a united front in the wake of stiffening competition, the integration of operations is aimed at reducing mounting maintenance and administrative costs. The two state-owned airlines are burdened by high staff expenses and low productivity. Indian Airlines' staff costs have tripled over the past four years, increasing from Rs3.7 billion in 1994/5 to Rs8.3 billion (US$228 million) in 1997/8. Yet current productivity levels at the airline are worse than 10 years previously, the airline reveals, and its load factor during September 1997 is the worst for the last 15 years. The airline has adjusted net profit estimates for 1997/8 to $12 million, as opposed to previous forecasts of Rs26 million.
Air-India tells a similar tale of high wages and low financials. The airline's staff expenses have almost doubled over the past four years, from Rs4.7 billion in 1994/5 to Rs8 billion in 1997/8 and load factors fell to 64 per cent at the end of 1997, the lowest for 20 years. The airline registered a loss of $28 million for the period April-September 1997.
Air-India is facing the 'worst ever financial crisis in its 65 year history,' admits managing director Michael Mascarenhas. Losses are expected to deteriorate further in the second half because of a sharp drop in the airline's revenues from Southeast Asia. The airline withdrew its flights to Seoul and reduced flights to Osaka and Tokyo in February in response to Asia's economic crisis, and also plans to withdraw from Tel Aviv and Geneva.
Source: Airline Business