Via ATW, selected extracts quoted. Decks are now clear for the merger of Air India and Indian, the country’s two state-owned carriers, which will combine under the newly formed National Aviation Co. Ltd.
No decision has been made on the brand, logo or headquarters location for the new airline. Accenture is advising the government on the merger, which is expected to be complete by June. The 16 unions representing close to 33,000 employees of both airlines have come around to accepting a process that the government said will revive the carriers’ flagging fortunes. The new airline will be listed in the bourses about a year after the merger.
The merger is being mooted on a decentralized model, meaning the new company will float subsidiaries for various operational functions. These will include a full-service airline, a low-cost airline (Air India currently operates Air India Express, a low-cost international airline), an MRO unit, a ground handling company and a cargo carrier.
Both airlines have launched significant expansions and will take delivery of more than 100 aircraft over the next five years. Air India ordered 68 combined 777s, 787s and 737-800s in 2006.
Indian has begun induction of the first of 43 A320 family aircraft ordered from Airbus. The merged airline will have a fleet of 125 new-generation aircraft by 2010 and is expected to emerge among the top 30 carriers globally. Turnover is expected to top $3.3 billion.
Though Air India is the larger of the two with a turnover of INR95 billion ($2.18 billion) in 2005-6, its equity capital of INR1.53 billion is less than Indian’s INR4.32 billion. Air India’s net worth was INR5.5 billion at the end of 2006, while Indian had a negative net worth owing to earlier losses. However, a revaluation of assets is in progress and expected to wipe off this erosion. In addition, both carriers have huge real estate holdings that have not been valued for decades.
by Shruti Pandit
After conversation with a colleague who knows the situation in India very well, this merger looks to be very interesting indeed as it will rotate around all the usual takeover issues but may well display how well India is adapting, and will adapt to further meteoric growth.
Talk to anyone who is trying to operate in this market at the moment; we hear that the infrastructure is under massive pressure but what is worse, there seems not to be the mechanisms in place to kick the bureaucracy into action at anything like the speed and pace that the nation requires.
In light of where they are now, is it possible that this merger can happen in such a way that an, agile, slim and efficient new (group of) carrier(s) can emerge configured to take on the competition with the attitudes and mindset that will see it marked as a winner? It will take an iron hand to control staffing levels and costs in such a diverse, ‘decentralized’ operation.
I hope they can manage it, if they do, they will be achieving something that many legacy airlines in the US and the EU have been unable to do from the top down to their roots.
It isn’t only the Chinese who have ‘interesting times’ engulfing them.
India’s problems – a short (incomplete) outline:
ATC infrastructure – delays into Delhi are now at record levels, well above the major European hubs, often 40 minutes to an hour at ‘rush hour’.
New aircraft arriving at a rate that will fill the available parking space rapidly over the next eighteen months. Little is being done by all accounts to address this ‘simple’ problem. The airlines have precipitated this by trying to jump-start the bureaucracy into action.
A pilot shortage now more acute than almost anywhere else in the world.
A level of overcapacity that is pointing to the potential collapse of a significant number of the new start airlines a little further down the line. Load factors by all accounts are not impressive at the moment across the LCC sector.