Indian-Air-India merger takes off

New Delhi: The Union Cabinet on Thursday night cleared Air-India and Indian (Indian Airlines Ltd) merger.

The final approval of the Government has set in motion the process to create South Asia's largest airline and enable the combined entity to leverage their assets to take on global competition.

Government will continue to be the sole owner of the merger entity and has made it clear that the public sector character of the merged airline would be maintained.

But the Government may look for IPO after getting approval of a committee consisting of Finance Ministry.

With a fleet strength of over 120 aircraft and a staff of about 30,000, the new entity would not only be the largest in the country, but also one of the largest in the world.

The Union Cabinet, at a meeting chaired by Prime Minister Manmohan Singh, cleared the proposal of the Group of Ministers headed by External Affairs Minister Pranab Mukherjee, Information and Broadcasting Minister P R Dasmunsi said.

The two airlines were set up under the Air Corporations Act in the early 1950s. However in 1994, the Act was repealed and the two companies were registered separately under the Companies Act.

Dasmunsi said Cabinet has authorised the Civil Aviation Ministry to take all consequential and ancillary actions for smooth and time-bound merger of the two airlines.

He said after the legal and procedural formalities are completed in the next 16 weeks, the merger would take 24 months for implementation.

The merger of the two airlines would enable them to leverage their combined assets and capital better and build a strong and sustainable business, Dasmunsi said.

While the estimated cost of integrating the two carriers would be around Rs 200 crore, it is estimated that at the end of the third year of the merger, synergy benefits of over Rs 820 crore per annum would be available to the merged entity.

The potential synergies are expected to enhance the new combined airline's profitablity by over Rs 600 crore, or about four per cent, of their current combined assets. The stamp duty for the merger would cost about Rs 50-70 crore.

By 2010-11, when all the new aircraft ordered by the two carriers are inducted into the fleet, the merged entity's employee-aircraft ratio would come down to about 200:1, comparable with any major global airline.

While Air-India has ordered 68 Boeing planes, Indian has finalised the acquisition of 43 Airbus aircraft.

Consultations with stake holders and employees to continue to ensure a smooth merger and decision on branding and headquarters to be decided in consultation with civil aviation.

Civil Aviation Minister Praful Patel, who has been holding meetings with employees' unions of the two airlines, has assured them that their interests, including employment conditions, wages, seniority and career progression, would be taken care of and a three tier grievance redressal mechanism for employees to be set up to protect their interests.