India Flying: The Indian Airlines and Air India way
Thursday, 22 February 2007, 06:00 Hrs
New Delhi: The merger of two state-owned carriers, Indian Airlines and Air India, has the potential to create a strong global player but only if it is followed by thorough restructuring and a public issue, experts said Friday. "The two state-owned carriers have both suffered from years of under-investment in their fleet and products," said Kapil Kaul, chief executive for South Asia for Centre for Asia Pacific Aviation, a leading airline industry think tank. "A combined Air India-Indian Airlines has the potential to become a major global player if the merger is completed quickly. A full restructuring must also follow to allow them to realise their potential," said Kaul."Finally, there must be partial sale of equity by way of an initial public offer to help induce professionalism and market dynamics, followed by privatisation over the next five years or so." Over the next five years, Air India and Indian Airlines, that now operates under the brand name 'Indian', expect to induct as many as 111 new aircraft and, after the merger, they expect to regain the dominant market share they once enjoyed. "The government will create a mega carrier with the precision and reliability of Lufthansa and in-flight service of Singapore Airlines," Civil Aviation Minister Praful Patel said Thursday after a group of ministers approved the merger. According to industry experts, the merged entity will have a fleet size of 125 new generation aircraft by 2010 after new aircraft are added and some of the existing ones are phased out to emerge among the top 30 carriers globally. The turnover will also top 150 billion ($3.3 billion). "We want to see a big, strong national carrier. That's our intention," Patel said, even as the civil aviation ministry began preparations to formalise the merger that is expected to start April 1 and will take two years to conclude. But experts said the merger would also pose some serious challenges in the months to come, especially in integration of two companies that have had completely divergent operations. "We are not talking about 10-15 employees but north of 33,000 who are spread all over the world," said Harry Dhaul, director general of AviationWatch, a consumer awareness organisation in the aviation industry. "The two carriers also have a different fleet composition, so some vital aspects like managing spares and pilot training will pose fresh challenges," Dhaul said, referring to Air India's order for 63 Boeing aircraft and Indian's plans to acquire 43 from rival Airbus Industrie. At a macro level, experts say the merger between the two state-run carriers will see the beginning of the process of consolidation in the Indian aviation space - the fastest growing in the world followed by China, Indonesia and Thailand. According to a study commissioned by the Federation of Indian Chambers of Commerce and Industry (Ficci), Indian carriers ferried 25.5 million domestic passengers in fiscal 2006, up 27.9 percent over the previous year, and 22.4 international passengers, up 15.1 percent. "But despite the bullish growth potential, overseas experience shows that it is extremely difficult for a market to absorb this many new entrants, particularly in such a short space of time," the study said, adding that the losses by airlines industry is expected to top $500 million in the current fiscal year. Also, till 2003, there were only three scheduled domestic carriers, Indian, Jet Airways and Air Sahara. But today, they are joined by Air Deccan, Kingfisher, Go Air, SpiceJet, Paramount, IndiGo and Indus, with Easy Air, Trans India and Air Dravida awaiting government approval. "A merger of Indian Airlines and Air India will set the ball rolling for further consolidation and mergers," Kaul said. "Jet saw the need rather early when it sought to acquire Air Sahara. Kingfisher and SpiceJet are expected to follow."