Finance ministry moves for AI-IA demerger: The Times of India

Last Updated: Thursday, January 28, 2010 - 09:55

New Delhi: If you can`t fix it, merge it. And if you still can`t fix it, demerge it. This seems to the government`s prescription for Air India and Indian Airlines which were merged in August 2007 despite widespread criticism. Interestingly, the merger has actually not moved much beyond a common billboard and a holding company.
With a rehab plan for Air India proving to be a fraught task, a proposal to undo the decision to forge Air India and Indian Airlines into a single entity has been mooted by the finance ministry. The ministry, which has to foot the bill for any revival package, is understood to be increasingly nervous over the viability of bailout plans for the floundering carrier.

Sources said the proposal has been placed by the expenditure secretary in the finance ministry before the E-GoM on Air India and other ministries are to get back with their comments on February 3 when the group meets again. PMO is understood to agree that the merger has been largely on paper but feels that demerger should be "thought through" just as the merger was not.

The merger was mooted and carried through by civil aviation minister Praful Patel. Asked what he now thought of the demerger move, the minister clearly indicated his disagreement, if not disbelief. "Aisa kuch nahin hai (there is nothing like this)," he told TOI when reached on phone in London. However, sources in the ministry admitted that the domestic and international operations of Air India would continue to function as separate units.

Finmin officials justify the demerger move arguing, "International and domestic aviation markets behave differently. Their problems are specific and have to be different." The parliamentary standing committee on transport, tourism and culture headed by CPM leader Sitaram Yechury had also sharply criticised the merger as a terrible decision that had not worked.

"The manner in which the merger was implemented and the manner in which various issues connected to the merger were tackled has led to an unfortunate situation," the CPM leader had said while releasing the report. Some of the trade unions in Air India have also demanded a demerger, arguing that it will be easier to manage two companies separately.
An official said the high-powered panel also decided on infusion of fresh equity before end of the current fiscal in two instalments. But the final decision will be taken only after clearance from cabinet committee on economic affairs.

Though Air India`s affairs are being closely monitored by PMO, there is a growing sense that bailouts will only keep the concern afloat without addressing key cost, employee productivity and business model issues. In October last year, a Rs 2000 crore infusion was considered for the current fiscal. This was whittled to Rs 800 crore but even this had not been transferred.

The airline, that operates under the National Aviation Company of India Ltd, had put up a Rs 20,000 crore bailout plan, including funds for the ongoing fleet expansion and an equity infusion. The transfers being currently considered by the government are essentially limited to running expenses till March as there is no clarity on the long-term restructuring of the airline.

Well-placed sources point out that demerger would mean formally acknowledging the reality -- Air India and Indian Airlines have just not meshed; they do not even have a common webpage so as to make it possible to plan travel from a foreign destination, say Vancouver, to Amritsar through the same web platform. The idea behind the merger was to "leverage" the strengths of AI and IA. AI has signed up with the Star Alliance but this has not been operationalised due to lack of an integrated website.

The salary and promotional structures of the two airlines remain different and reconciling these has not proved easy. They continue to use different codes for their flights and there is no synergy in terms of sharing aircraft and rationalising routes. They continue to operate different offices in the same cities, often duplicating or even triplicating functions. In short the merger has not worked.



First Published: Thursday, January 28, 2010 - 09:55

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