‘The Merger Was Well Thought Out’

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Barely a week after the Parliamentary panel severely criticised the Air India- Indian Airlines merger, Union Civil Aviation Minister Praful Patel came out strongly to defend the decision. In an exclusive interview to Manav Chopra, Patel said he would still not call it a failed marriage and was confident that the merger would eventually work

 

Photo: Shailendra Pandey

You clearly do not like the Parliamentary panel’s note.
The merger of Air India and Indian Airlines was a well-thought-out process and a collective decision of all government agencies. There have been some problems, compounded by the global downturn and rise in fuel prices, due to which not only Air India, but airlines worldwide took a major hit. However, we are focussed on sorting out the problem areas.

But what was the idea? What prompted the merger?
The merger was to provide an integrated international and domestic footprint to significantly enhance customer proposition and allow easy entry into one of the three global airline alliances. It was to enable optimal utilisation of existing resources through improvement in load factors and yields on commonly used routes as well as deploy freed-up aircraft capacity on alternate ones. It would also facilitate leveraging of assets, capabilities and infrastructure and create strong ground-handling services as well as improve maintenance, repair and overhaul businesses. The merger would enable the merged entity to command better valuation, operate India’s largest combined fleet-strength — comparable to other airlines in the region — and provide the flexibility to achieve some financial and capital restructuring.

But didn’t the two managements have different views on the merger?
The government was the owner of both airlines and the decision to merge the two was taken at the highest level after consulting all the stakeholders.

What sort of problems have arisen from the merger?
There have been integration problems in certain areas like IT. These are being sorted out.

Since the airlines were already in the red before the merger went through, what guarantees were there that the merger would solve all the problems?
The synergies derived from the merger were expected to ramp up over the years as the extent of integration increased. These include revenue synergies driven primarily by the network integration of both airlines and cost and capital synergies driven by consolidation and better negotiation. Special aviation business models were planned for the airline to help create better business opportunities and carrier prospects — in MRO, cargo and ground handling, for example.

Since the merger took place around the same time as the global downturn, would you say that Indian’s woes are not entirely because of the merger?
Definitely. The merger is not the only issue. As I have mentioned time and again, the global downturn, compounded by high fuel prices, added to the problems significantly. It is not just happening with Air India, it has happened with other airlines as well. Take a look at the losses of Jet Airways after it acquired Sahara. See what’s happening to Kingfisher after acquiring Air Deccan.

Would splitting the airlines help?
The government is not considering splitting National Aviation Company of India Ltd (NACIL).

Is the government equipped to manage a company that should be run privately? There is a parallel theory that the government should not be in the business of running airlines.
Everybody is entitled to their views and theories. However, since it is a strategic decision of the government to have a public sector airline, it will ensure that NACIL is a well-run company and Air India emerges as one of the best airlines in the world. I am working towards that.

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