New Delhi, Oct. 19: Prime Minister Manmohan Singh has formed a group of ministers headed by finance minister P. Chidambaram to look into the merger of the two state-run carriers — Indian Airlines and Air-India. The GoM will also decide on ways to turn these airlines into world-class carriers.

The civil aviation ministry’s plans to merge the two airlines have raised questions on the viability of such a move. There have been discussions on ways to tap the synergy between the two airlines.

The GoM has been formed even as unions of these two airlines protested the merger plans and civil aviation minister Praful Patel pulled up the two carriers for poor performance. Patel said, “I am personally not very happy with the way the two carriers are performing... Government support is only to an extent. Beyond this, the airlines would have to retain their performance standards.”

“We would not like to see things going in a drift. I want to tell each and every employee of Indian and Air-India to come up to the expectations of people,” the minister said.

“By the end of this fiscal, the two carriers will merge into a single entity to become a strong airline to take on domestic and international competition,” he added. The proposals of the civil aviation ministry have been sent to the GoM for deliberations instead of being cleared by the cabinet.

The newly constituted GoM will have defence minister Pranab Mukherjee, company affairs minister P.C. Gupta, public enterprises minister Santosh Mohan Dev, law minister H.R. Bharadwaj and deputy chairman of Planning Commission Montek Singh Ahluwalia as members. It will look at all the five proposals for merger submitted by a consultant hired by the civil aviation ministry. It will also consider older merger plans and views of members of an inter-ministerial group on the issue.

The proposals submitted by the consultant — Accenture — suggests forming a holding company with six strategic business units, merging Indian Airlines with Air-India or vice versa as well as not merging the two airlines.

Many members of the inter-ministerial group considered merging the two airlines as a messy business that could create managerial and organisational problems, hampering realisation of economies of scale.

A section of government officials dealing with the issue has also favoured reframing Accenture’s proposal. They want to set up one holding company and three to four strategic business units which would include Indian Airlines, Air-India, the merged entity of their engineering divisions and also possibly another entity managing low-cost operations of these two airlines.

The GoM will also take into account the protests voiced by airline unions. They have raised questions on pay and seniority parity. Air-India managers earn far more than those of Indian Airlines.