The Telegraph
Since 1st March, 1999
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Airline duo to catch merger flight

New Delhi, April 4: Civil aviation minister Praful Patel today said the merger of the two national carriers ' Indian Airlines and Air-India ' would take place this year. The proposal will be sent to the cabinet for approval after which the companies will be formally merged.

“The government has decided in principle to merge the two airlines,” he told reporters at a function organised to sign the agreements to privatise the Delhi and Mumbai airports.

Patel said the Prime Minister's Office had given the go-ahead to the formulation of a plan to synergise the services of the two government-owned airlines.

Patel and senior officials of the two airlines had discussed the issue with Prime Minister Manmohan Singh last month. Senior airline officials had made presentations on the economics of the merger.

The civil aviation minister said no holding company would be set up for the merger. “It doesn't work that way. It has to be a merger. One culture, one company,” he added.

Asked whether the proposed initial public offers (IPOs) of the two carriers would take place before the merger, Patel said, “We are considering that. We will know about it and the road forward in the next few months.”

The A-I and Indian Airlines merger will result in a Rs 13,000-crore flagship carrier that will have a fleet strength of over 130 aircraft. The fleet size will exceed 200 planes as both airlines have already initiated the process to acquire over 100 Airbus and Boeing planes between them during the next few years.

Patel also said the government would not interfere in the Jet-Sahara deal and would let the private management decide whether to merge the two airlines or set up separate companies.

“If they want to run a separate company, they can. If they want to merge, they can. It really does not matter to me,” he told reporters when asked whether the government would allow Jet Airways to set up a new company in its Rs 2,200-crore deal to acquire Sahara Airlines.

“Consolidation and mergers are now the order of the day and they will take place. That is none of the government’s business,” he said.

Last week, the ministry had approved fresh guidelines on mergers and acquisitions.

Both Indian Airlines and Air-India have been losing market share as they do not have enough planes to meet the rising passenger demand. The inordinate delay in buying new aircraft has forced them to depend on ageing fleets, which has further affected their performance.

The fact that size has become an advantage in the aviation business is reflected in the trend of mergers of even giant airlines like KLM-Air France and Lufthansa-Swissair.

Indian Airlines and Air- India are expected to become a sizeable regional airline, even if not a global giant. This would enable them to take on the merged Jet and Sahara Airlines entity which is expected to give it stiffer competition, especially in the domestic sector.

The other argument in favour of merger is economies of scale in several areas like maintenance, ground operations, use of landing slots and parking rights.

But the most powerful argument is that a merged company can effectively deliver the classic hub and spoke system that the largest airlines have been operating: Emirates in Dubai, Lufthansa in Frankfurt and Munich, British Airways in London, and Delta in Atlanta.

The domestic leg will bring passengers to the two main gateways of Delhi and Mumbai. Air-India's domestic flights can be dovetailed with the Indian Airlines schedule.

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