Air India and Indian Airlines: A Merger Gone Wrong?

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The other operational factor responsible for the failure of the merger was the restructuring of routes. Industry officials said that since 2007 about 40 routes had been restructured. Revenue creating profitable routes on which AI flights operated were cancelled. The management cut down about 30 to 40 percent of flight operations. The Committee on Public Undertakings (CoPU) had reviewed the slot allocations to all airlines including AI in 2011. CoPU members opined that the public carriers of India like AI were seriously affected because the commercial routes had been largely allocated to private airlines and also to foreign airlines...

On the AI merger failure, the CAG committee commented, "The decision was taken in haste, without required homework and consultations. As a result, the entire process has, in fact, been unduly delayed, if not derailed." PC Sen (Sen) former Chairman of AIL and also former CMD of IAL, opined that AIL and IAL had also expressed a similar opinion. The Parliamentary standing committee on transport, tourism, and culture, in 2010 summarized the problems of the AI merger process. It said that the first reason for the fall in the morale of the employees was changing the name of IA (Indian Airlines) which had had a good reputation in the market. The reason was not revealed either to customers or to employees by the management. Sen summed up the views of various reports on mergers and suggested that for a merger to be successful and keep up the morale of the employees, its implementation should be gradual and it should be continued over several years...

The AI management had formed a turnaround committee in 2009 to improve the functioning of the airline. Industry insiders opined that the major objective behind the committee formation was rationalization of operations and restructuring of debt. The turnaround planning committee recommended that AI be placed under special administration to make it function effectively. In this regard, CAPA said, "Air India should be placed under special administration, similar to that adopted for Satyam, if any meaningful progress is to be achieved." The other issues considered were inducting a new fleet (Dreamliner) into operations, staff integration into various sub units based on requirements, and improving the operational efficiency of AI. A financial restructuring committee was also formed in 2009. Vayalar Ravi said the performance of AI could be improved through a Financial Restructuring Plan and turnaround plan which were being revised by senior officials. The Financial Restructuring Plan (FRP) agreement was signed by AI management and SBI through which AI would receive the working capital at low interest rates. As a part of the FRP, the Indian Government agreed to infuse Rs. 300 billion into AI till 2020...

Exhibit I: Profit/Loss Details of Indian Airlines Limited (IAL) and Air India Limited (AIL) before Merger (in Rs. Million)
Exhibit II: Air India Logo and Mascot
Exhibit III: Losses Incurred by AI from 2006- 2011
Exhibit IV: Market Share of Air Lines in 2010 and 2011
Exhibit V: Number of Employees or Crew for Each Flight and Fleet Size of Each Air Line during 2006
Exhibit VI: Wage Differentiation between the Two Air Lines Employees in 2006
Exhibit VII: Time and Reason for Air India Employee Strike
Exhibit VIII: Cancellation Rate of Airlines in 2011
Exhibit IX: Passenger Load Factor of Airlines in 2011

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