Air India and Indian Airlines: A Merger Gone Wrong?

<< Previous

The history of AIL goes back to 1932 when Tata Airlines was started by JRD Tata, who was considered as the father of the Indian aviation industry. In July 1946, Tata Airlines was nationalized and was taken over by the Indian Government. It was turned into a public enterprise and renamed as AIL.11 The origin of IAL dates back to 1953 when seven domestic airlines were merged12 to form Indian Airlines Corporation (IAC). IAC's domestic carrier was IAL. IAL enjoyed a monopoly as the domestic air carrier till the Indian economy was liberalized in 1991.13 With the entry of private airlines, IAL's monopoly began to decline.

With both these flagship air carriers (AIL & IAL) performing poorly, the idea of a merger between the two began to gain ground. Praful Patel submitted the merger plan to the Union Cabinet in March 2006 for approval.¹⁴ The Government of India ordered Accenture Inc (Accenture)¹⁵ to formulate a road map for the proposed merger.¹⁶ According to Accenture, net synergy benefits of Rs¹⁷ 8.2 billion (against the integration cost of Rs 2 billion) was envisaged, potential recurring synergies were expected to enhance profitability by Rs 6 billion at the end of the 3rd year of merger.¹⁸

The merger was approved on March 1, 2007, by the Union Cabinet and the merged body was called the National Aviation Company of India Limited (NACIL).¹⁹ It was incorporated on March 30, 2007.²⁰ The merger became effective from August 22, 2007.²¹ The brand name "Air India" was retained²² as also the "Maharaja"²³ as the mascot of the merged entity.²⁴ The logo of AI was a red colored "Swan" shaped image with an orange colored "Konarc Chakra" placed inside. The logo was placed on the tail of the aircraft.

Contrary to expectations, the merged entity started incurring huge losses right from 2007. Thus, the major objective of the merger, i.e. gaining profits, was not fulfilled. AI incurred a loss of Rs 280 billion from April 1, 2007, to March 31, 2012.²⁵ Employee unrest due to unresolved HR issues further aggravated the airline's problems. AI also faced fierce competition from private airlines like IndiGo Airlines, Jet Airways, and Spice Jet, which were quick to take advantage of the troubles at AI and the resulting flight cancellations. These airlines made profits and gained a huge market share at the cost of AI. In addition to these, inconsistent leadership also affected the fortunes of the merged entity adversely.

Excerpts - Next Pages >>

11] "The Rise, Fall, & Rise Of Indian Business Families," www.businessandeconomy.org
12] The seven domestic airlines were Deccan Airways, Airways India, Bharat Airways, Himalayan Aviation, Kalinga Airlines, Indian National Airways, and Air Services of India.
13] The economic liberalization policy was approved by P.V Narasimha Rao the then prime minister of India in 1991 under the supervision of the then Finance minister Dr. Manmohan Singh. Through the policy India opened its doors to international trade and investment, initiation of privatization, tax reforms. The major reason for adopting the policy was to improve the GDP rate of India and to control inflation. The economic liberalization policy led to Indian businesses facing huge competition from their rival international companies. AI was one among of the PSUs that faced such competition.
14] "Strategic Alliances and Joint Ventures in Civil Aviation," www.dspace.iimk.ac.in
15] Accenture is a global management consulting, technology services, and outsourcing company. It collaborates with clients to help them become high-performance businesses and governments. It has a global presence and about 246000 employees serving clients in about 120 countries. The revenue of Accenture in 2011 was US$ 25.5 billion.
16] Naresh Nalla," Air India Indian Airlines Merger," www.scribd.com, October 20, 2009
17] Rupee (Rs) is the Indian currency value. US$1= Rs. 54.71 as on July 2, 2012.
18] "Merger of AIL and IAL into NACIL," www.saiindia.gov.in
19] "The King is Dead; Long Live the King" www.livemint.com, June 28, 2009
20] "Amalgamation of Air India Limited and Indian Airlines Limited with National Aviation Company of India Limited," www.home.airindia.in
21] "Merger of AIL and IAL into NACIL," www.saiindia.gov.in/english/home/Our_Products/Audit_Report/Government_Wise/union_audit/recent_reports/union_performance/2011_2012/Civil_%20Performance_Audits/Report_18/chap4.pdf
22] Gaurav Choudhury and Samiran Saha, "Air-India, Indian Airlines Merger Complete," www.hindustantimes.com, August 24, 2007
23] The Maharaja mascot adopted by AIL in 1946 symbolized an Indian Maharaja welcoming passengers from all across the world.
24] "Merged Airline to Retain Air India Title, 'Maharaja' Mascot," www.zeenews.india.com, May 22, 2007
25] "Air India's international operations post losses: Minister," www.thehindubusinessline.com

---

Custom Search

---

Introduction to Human Resource Management Textbook Textbooks Collection	Introduction to Human Resource Management Workbooks Collection	Case Studies in Human Resource Management Volume V Case Study Volumes Collection