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Air India, Indian Airlines merger has not progressed as desired: Ajit Singh
PTI May 13, 2012, 01.37PM IST Tags:

indian airlines| IA| Ajit Singh| Air India| AI

NEW DELHI: Acknowledging that the merger of Air India and Indian Airlines has not progressed as desired, Civil Aviation Minister Ajit Singh has said some things had gone "seriously wrong" in the process. "Obviously the merger didn't go as planned, and there is something seriously gone wrong. My job is to see what is the current situation, learn from past mistakes and work to see that Air India succeeds," Singh told a TV channel .

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He said, "We all agree that the merger hasn't progressed or happened as it should have. But at this point of time we have to decide how to implement the Dharmadhikari report which takes care of most of these problems (integration of the human resources)." Asked whether the airline management was not up to the mark in handling the challenge of merger, he said, "We are not here to indict the management, past or present. We are here discussing what the problems are with the airline. Merger didn't take place, we know." To a question whether the government planned to privatise Air India, Singh said, "First, we have to put Air India on right track, make it viable. "If you look around, the days of national carriers have gone. Any countries you look at, those days when national carrier was a reality, have gone. Those facts are before the government, our whole effort is to make Air India a viable entity."

On being pressed further and asked whether the government was making Air India viable to privatise it, he said, "At this point of time, we are not looking at that (making viable for privatisation)." Ads by Google

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Merger of Air India and Indian Airlines hasnt worked out, admits Ajit Singh

Civil aviation minister Ajit Singh has finally admitted that merging Indian Airlines and Air India five years back has not worked out well for the company.

TNN | May 14, 2012, 12.56AM IST NEW DELHI: With crisis-ridden Air India on the verge of a partial shutdown due to simmering differences between pilots of the erstwhile AI and Indian Airlines, the government has finally admitted that merging these two airlines five years back has not worked out well for the company. Stopping short of terming it a mistake, civil aviation minister Ajit Singh told TOI: "The merger has not worked out as planned. Maybe some benefits were foreseen out of this move like synergy and economies of scale, but those did not happen." Both AI and IA were making cash profits till fiscal 2006-07 but have seen losses soaring thereafter. Asked if it made more sense to run AI and IA separately under one umbrella organization, the minister said 70% of the merger process in areas like IT, accounting, flight codes and marketing were complete. "Undoing that will again take many years. Now 30% merger, mainly on HR issues, is left and we are implementing the Dharmadhikari committee report for that. There will be more problems in the way as not everyone will be happy. We need to be firm and patient," Singh said. Acknowledging that the era of national carriers has drawn to an end globally, the minister added that the airline would need to get its cost structure and work ethos closer to service industry norms to survive. "It is difficult for government to run a service industry where customer is king. But in government, everyone is the king. Still some PSUs are profitable. Even AI and IA were profitable before merger and there is no reason why that cannot happen again if everyone cooperates," aviation minister Ajit Singh said.

In its current state, the government has no plans for selling or privatizing AI. In fact the Cabinet meeting which discussed AI's Rs 30,000-crore bailout from public money plan saw many ministers speak against the move. In the end the sense prevailed that the AI mess would first need to be sorted out before a bailout can be announced. "Our priority is to bring AI back on track," Singh said. The contingency plan drawn out by the aviation ministry and airline management to tackle the strike will see many international flights being withdrawn in the short term. "AI is downsizing its international operations and discontinuing many of the loss-making routes. Anyway 80% to 90% of merged AI's total losses come from international flights," said Singh. Some of the biggest loss-making routes (like Amritsar-Delhi-Toronto) are being shut down. A study done by AI late last year had shown that only two out of its 175 weekly international flights were making some money.

http://timesofindia.indiatimes.com/business/india-business/Merger-of-Air-India-and-IndianAirlines-hasnt-worked-out-admits-Ajit-Singh/articleshow/13126598.cms

Complete merger of Air India & Indian Airlines to give the carrier its best chance of recovery

Such an airline could have joined any airline alliance leading to further reach, passenger appeal and loads. The merger could also pool resources, rationalise costs and lead to purchase economies. In the airline business, mergers are a dime a dozen. The largest airline in the world has been formed after the merger of two mega carriers in the US: United and Continental. Air France and KLM have merged, so have Lufthansa and Swiss. British Airways and Iberia have walked down the aisle. Some established legacy carriers like Lufthansa, Air France and British Airways are the result of past mergers. The airlines were legally merged in August 2007 but the combined entity has been operating as two airlines long after that. The government and the airline had clear plans to integrate the people and operations of the two wings, along with timelines for each component. The integration was to be completed by August 2009, so it is hard to understand why it has not happened yet. Air India's entry into Star Alliance that had been negotiated by December 2007 ought to have been completed by June 2009. That too has not happened. People are the most important resource in any organisation, more so in a service industry. The non-integration of employees has come at a big cost, with employees' aspirations being neglected. Can any airline afford to keep employees discontented for such long periods and still hope to run profitably? When most costs are not under control, revenue becomes critical. For an airline, reliable flight operations, good service and image are crucial for improving revenue. Integration of reservation systems in Air India was to take nine months, but it took three years. The network is yet to be integrated for the so-called 'seamless transfer', between domestic and international, the raison d'etre for merger. With its financial packages in place, it is high time for Air India to concentrate on completing the merger, with the wholehearted support of employees. Passengers are coming back, its loads are improving with the suspension of most Kingfisher flights. The addition of the Dreamliner will give it more clout. The airline can be turned around now. Perhaps this will be its last opportunity. http://m.economictimes.com/opinion/comments-analysis/complete-merger-of-air-india-indianairlines-to-give-the-carrier-its-best-chance-of-recovery/articleshow/msid-12656839,curpg-2.cms

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Air India, Indian still operate as 2 airlines

Ashwini Phadnis Share Comment (6) print T+

Mr V. Thulasidas, First CMD of merged Air India.

The fact that integration is yet a distant dream has kept the airline from making money. MR V. THULASIDAS, FIRST CMD OF THE MERGED AIR INDIA Air India pilots may have called off their agitation, but their action again raised questions on the merger of Air India and Indian. In an exclusive interview the first Chairman and Managing Director of the merged Air India, Mr V. Thulasidas, outlines the reasons and advantages of the merger and why it has not worked. In the Parliamentary Committee on Public Undertakings 2009-10 report, there are several instances of senior airline functionaries stating that the merger process has not worked anywhere in the world. What promoted the Government to go for it? It was no ones case that the merger of Air India and Indian Airlines was going to be easy. But to say that the merger process has not worked anywhere in the world is stretching facts. Look around, you will find that airline mergers have taken place all over the world successfully and are happening even now. I remember the preliminary discussion on the possibility of merger that was held among senior officers of the two airlines. Every one present stated that the merger was necessary for the survival of the national carriers. There was total acceptance in the Ministry of Civil Aviation and in a meeting held in the PMO. The case for merger was apparently so strong that the entire spectrum of decision making in the Government was in its favour, including the Committee of Secretaries, a Group of Ministers and the Cabinet. The context was unprecedented and increasing competition in the airline business, both in India and globally, by which the fairly secure position enjoyed by the two national carriers had come under severe challenge. The growing economy had led to a significant increase in demand for air travel, foreign airlines had stepped up their capacity in India and private carriers had become strong in the domestic market and were getting into the international market. The national carriers were operating virtually two separate networks, one predominantly domestic with a few international flights, and the other exclusively international with no domestic network. All efforts made in the past, including in my time, to bring the two airlines to align their networks to provide a smooth transition from domestic to international flights and vice versa had failed. Both sides were determined to fight for their turf and not yield an inch. The only option, other than merger, would have been for Air India to start a domestic network and for Indian Airlines to launch long-haul flights. What were some of the other advantages of the merger considered at that time? There were the advantages to be derived through pooling of resources, common marketing and sales, reduction in expenditure through sharing of assets, economies of scale in procurement of stores and, finally, the clout the combined airline could enjoy, apart from the increased load the combined airline could attract by combining domestic and international networks.

Then why is the merger being criticised? It is being criticised for other reasons. People need to understand that what has happened so far is just an articulation of the decision to merge. The legal formalities of combining the two companies have been completed, but the two airlines have not been combined. It is five years now but the airlines still operate as two. Cosmetics alone have changed. The people, the most important resource, are still separate and the networks have still not been integrated. If a passenger has to travel on both domestic and international legs of this airline, she still does not enjoy smooth transition, not even smooth confirmation of tickets. Bickering among the employees of the two sides has, if anything, only increased. Does the recent agitation by sections of Air India pilots put a question mark on the entire merger process? Rather than put a question mark on the merger, it underlines the problem created by nonimplementation of the merger process. If manpower integration had been completed as originally envisaged and as per the original timeline, pilots of both wings would have been flying aircraft of both sides as part of an integrated cadre of pilots. How was the merger going to tackle the separate work cultures, timings and seniority rules of the two airlines? If two airlines can be merged only if they have the same work culture, network schedule or HR policies, no merger would have taken place in the world. It was the difference in the networks and their complementarity that was the primary need and justification for the merger. If the two airlines were operating only similar networks, the merger would have been more difficult to manage. Work culture is something to be modified through appropriate re-training, incentives/disincentives and HR policies. There could be some who will refuse to change; they should have no place in the new airline. HR policies have to be unified. Neither side can insist that they should continue to have their own policy in the new set up; there has to be a new set of policies. There are many who feel that demerger and having two separate airlines under a holding company is the only way forward. Will you agree? I do not think that the only option is to demerge, but merger in the form of a holding company and two separate wings under it can be an option. But before that, it is necessary to come to the conclusion that the Government and the airline management do not have the will to complete the merger process as originally planned. The problem is not merger but the fact that the merger has not been achieved. If someone tries to say that the merger has not been achieved because it is not achievable, I do not agree. Merger has not been achieved as it has not even been attempted. I can vouch for it that we had concrete plans to integrate various aspects of the two airlines, including

the manpower, with clear timelines. We were on target when I retired in 2008. Someone should study why this process was not carried forward from April 2008 onwards. Air India and Indian were profitable between 2003-04 and 2005-06. But from 2006-07 the new merged company has only seen its losses mount. Was this anticipated? There are two factors to be taken into account while analysing the losses incurred from 2006-07. First, airlines in India were gradually getting into losses around this time, thanks to rapidly rising costs, increasing competition, overcapacity in the market and falling revenues. Secondly, merger led to a certain amount of strain on the operation of the new airline that ought to have been overcome through effective integration of operations. The fact that integration is yet a distant dream has kept the airline from making money. What were the benefits of the merger which should have kicked in by now? The main benefit ought to have been seamless transfer from domestic to international flights which would have led to an increase in traffic volumes, greater revenues and profits. Merger, implemented properly, would have taken Air India into Star Alliance and that would have added to traffic further. An integrated and re-trained manpower would have been the greatest gain and not the squabbling and disgruntled set of people now. Keywords: merger of Air India and Indian, V. Thulasidas,
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Comments:
How I wish MR V. THULASIDAS,the first Chariman & Manging Director of the Merged Company ,s views were true...The organsiation that conceptualised the merger and its feasibility was done by ACCENTURE,run by UB Group Merged Airline,s Call Centre run by Indigo Rapid changing of CAM,no real moment to merge the 2 identities was carried out in earnest,When he was the CMD till APr 2008 he should have made some progress?what had he done for the merger to work out?Thirdly Indian Airlines was making a profit of 200 crores per year till 2006 and air india loss of 500 crores still you merge both companies and name it as the loss making firm the air india???The entire merger was carried out to kill the domestick market of indian airlines and gift it to the private airlines on a plater,unceremonious withdrawal of all profit making routes by the CAM in collution with the top management is the sole reason why the MERGER has not worked.In India it self merger between sahara nd Jet Airways,was effort
from: S.Balasubramaniam Posted on: Jul 16, 2012 at 05:24 IST

One of the biggest and the last one merger in banking industry was that of New Bank of India with Punjab National Bank. Though the merger was at the diktats of the Ministry of Finance, it was PNB which was called upon to fight court cases etc. and the MOF merely played a very small role, though it was cited as one of the respondents in hundred of court cases filed by the New Bank of India unions. Yet, the merger, in totality, was ensured thanks to the then pragmatic and hard-working management of PNB. What the then top management got in return - the then CMD did not get even a word of praise and the senior executives were flooded with slanderous representations and the Government did not cooperate fully! That is why, after the said merger, there is no merger of nationalised banks for the last nearly 20 years !
from: vc sekar Posted on: Jul 16, 2012 at 17:01 IST

This article explodes some of the myths that had been propagated all these years on the airlines merger. Whatever may happened

individual efforts of officials of airlines, the situatrion that presents itself is one of utter despair. The commentator has talked of a bank merger which was successful. Even going beyond those days, some 56 years back, 243 life insurance companies, varying in size, operations, etc in almost all aspect of operations were widely different. They were taken over on 19 january 1956, in 8 months period the relevant statutes were passed for the setting up of the state monooply LIC and also the hard task of collecting staff statistics were diligently done and on the appointed day, in just eight months later, on 1 September 1956, LIC was born. In about four years, the entire merger proces was completed. The organisation had not looked back ever.
from: s.subramanyan Posted on: Jul 17, 2012 at 17:20 IST

. It is the same congress minsiters, the same cadre of civil servants and in our own country. Such a mass meger was not done in anycountry in the world and done so in utter secrecy. It was because there was a fine minsiterial vision and leadership, civil servants were ad idem with the roganisation to give them all necssary sustenance and the management and the employees and their unions were of a single midned determination of makiing it a success. That spirit is lacking in the merger of this two organsiations. That is about all.
from: s.subramanyan Posted on: Jul 17, 2012 at 17:21 IST

Some facts about the merger which was never on: 1. It was a merger decided amongst the politico-bureaucratic brass. CMD, Mr Thulasidas was never an airline man and IAS-minister lobby forced the merger on two organisations. 2. The ideology and culture of the two organisations were diagonally opposite and Accenture's report was used as a tool to bring down the AI-IA combine. A well planned design cannot be ruled out. 3. The rank and file of AI-IA were against the merger but it was thrust for unknown reasons from top. 4. If this merger was to be successful, a lateral merger of the two airline staff could only create disaffection. 5. If the CMD (who is normally a bureaucrat) or politicians are really interested in theAirline, the first thing thing they should do is to

remove the incompetent senior management of AI/IC who are just serving the politico-bureaucratic brass rather than running the airline.
from: Rocky Posted on: Jul 19, 2012 at 04:19 IST

Mergers and Acquisitions are notoriously difficult to pull off the world over. The merger of the two state owned airlines in India, with complementary routes and duplicated fixed costs, made perfect sense. (Note also that BOTH Air India and Indian Airlines were generally loss making until 2003). The key prerequisite to make an M&A successful is to meticulously plan and execute integration activity- case in point is the merger of United and Continental that was just completed after more than two years of painstaking work by the employees and resolute leadership by management. Even that merger caused a lot of heartache at both predecessor airlines, but was strategically a master stroke. In AI's case, the government changed horses midstream, by not extending the tenure of Mr Thulasidas, and a good strategy has been poorly executed- the new Air India has not been able to capitalize on the merger, and the coveted opportunity to join the Star Alliance. Adieu Mr. Maharaja
from: Raj G Posted on: Jul 20, 2012 at 18:34 IST This article is closed for comments. Please Email the Editor

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Air India's continuing nightmare

Strike seems to go beyond just the pilots' obduracy
Mihir Mishra / New Delhi Jun 20, 2012, 00:13 IST

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We Recruit A320 Pilots : We Urgently Need A320 Pilots Now Worldwide Contracts. Apply Now! RishworthAviation.com When 310 of Air Indias 450 pilots went on strike, they had little idea many of them would be pleading for their jobs to be given back forty days later. Yet, this is the latest imbroglio that the national carrier finds itself in. The Indian Pilots Guild (IPG), which represents Air Indias pilots, was completely blindsided by an unbending, newly appointed civil aviation minister, Ajit Singh. It had no idea that Singh would simply pick up the gauntlet thrown to him and turn the tables on the hapless pilots. Singh not only terminated the services of 101 of the striking pilots, but also de-recognised the union. This means its representatives will not be called for negotiations by the management. The minister insisted the agitation be called off first, only then would taking the pilots back be considered and, that too on a case-by-case basis. In the meantime, the airline prepared a contingency plan to operate 75 per cent of its international flights.

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- Fresh trouble for Air India, 22 executive pilots report 'sick' - AI executive pilots want management to end strike - Foreign airlines give a muted response to higher FDI cap

- Jet soars in cloudy sky - Not waiting for striking pilots to return: govt - Digest of domestic news for the week Some industry experts view this Bismarckian stance in a positive light. This is a welcome approach, since the authority of the Air India management has to be firmly established. Its dilution may lead to more agitations, as we have repeatedly seen in the past, says Amber Dubey, partner and head (aviation) at KPMG, a global consultancy firm. However, the strike seems to go beyond just the pilots obduracy. More than anything else, it is a classic scenario of the complications that may arise due to a failure in troubleshooting a merger of two entities. Here is what lies at the heart of the Air India problem: Even as it had merged with Indian Airlines in 2005, the pilots of the two airlines stuck to flying the aircraft attached to their respective airlines wide-bodied ones used for international legs in the case of Air India, and the more short-haul, narrow-bodied ones in the case of Indian Airlines. What threw the existing state of affairs into a loop was the entry of the much-hyped Dreamlinerswide-bodied Boeing 787s that promised to help turn things around for Air India. The match that lit the tinder hot was a proposal to get an equal number of Indian Airlines pilots and Air India ones to fly the twenty-seven planes that Air India would take delivery of in the next few years. Yet, not all pilots are made equal, apparently. In Indian Airlines, it took six years to automatically become a commander. In Air India, it took ten, but only if there was a vacancy available. Someone in Air India who was waiting in the wings for, say, fifteen years to become commander would probably be enraged to see a six-years-in-service, narrow-body aircraft pilot, substantially junior to him, occupy his turf and deny him his long-awaited promotion. With eight pairs of pilots required for each Dreamliner, as many as 432 pilots would have had to be trained once all the 27 planes were delivered. This would have brought most of the erstwhile Air India pilots their long-awaited promotions. In fact, Air India had hired pilots to handle the increase in the international fleet size, from 23 to around 50 after the induction of the new planes. Industry observers say that the whole problem lies in the very genesis of the union of the two entities. Airlines like Air France-KLM let the pilots function as separate units under one airline. The fact is that Air Indias merger was badly planned and operating it as two separate units under one airline would have solved many of the problems, an industry insider, who does not want to be identified, says. If the airline wanted to bring the pilots together under one entity, it could have asked them to choose from among several options that strived for parity. When British Airways was formed after the merger of four airlines, the pilots flying narrow-body planes and eligible to be promoted as commanders were given an option to either become commanders on narrow bodies, or to

become co-pilots on wide-body planes and then get promoted as commanders, he says, adding that such a solution would have resolved all conflicts. Apparently, IPG pilots say that this issue of competing pilots and aircraft type was to be resolved by the Justice Dharmadhikari committee. But Air India pushed through a policy in October 2011 under which equal number of pilots of the formerly separate airlines would train for the Dreamliner. IPG objected, went to court, and lost. For Air India, this impasse can turn out a sizeable blow, that too when the airline is witnessing a large increase in revenues and an improvement in operations. A substantial part of the airlines sales Rs 15 crore of the daily revenues of Rs 22 crore comes from international operations. This has been hit. Ultimately, the one taking the biggest blow is the taxpayer. Therefore, it is now the governments urgent responsibility to end the impasse, restore confidence in the airline and its staff and allow it to continue with its recovery before it manages to sink it, once again.

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The king is dead; long live the king

While efficiency and quality of customer service suffered, the way Air India chose to implement its merger with Indian Airlines resulted in diseconomies of scale
Tarun Shukla

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New Delhi: Praful Patel, 52, the civil aviation minister, has been quick to wash his hands of the mess in Air India. On Wednesday, he said at a media conference that he wasnt responsible for the airlines problems. The airlines 31,000 employees were, he added. And its senior managers were. Click here to watch video Thats why we have seen a change of management; a change of guard at the top. Indeed, Air India has seen four chief executives since the appointment of Vasudevan Thulasidas as the chairman and managing director of the merged entity in August 2007. Still, while many of Air Indias problems predate Patel, who has been aviation minister since 2004, at least some part of the current crisis at the airline can be attributed to the solution he came up with in 2007the merger of Indian Airlines Ltd, the state-owned carrier that flew largely to destinations within the country, and Air India Ltd, which flew international routes, into one company, the National Aviation Co. of India Ltd, or Nacil, which uses the Air India brand. Patel was also the man behind the 2005 decision by Air India and Indian Airlines to buy aircraft for Rs44,000 crore, a move that can explain some of the current financial problems at the airline. Ground realities: (top) An Air India B707 aircraft; civil aviation minister Praful Patel (left); and Nacils Arvind Jadhav. Both Patel and Jadhav will have a considerable effect on Air Indias future. Harikrishna Katragadda / Mint
While Air Indias problems are many and complex, they can be summed up pretty simply: The airline has run out of money to handle its operations, and expects to be bailed out by the government.

This is the first time in its history of 60 years that the airline will be looking at equity support, Patel said on Wednesday, soon after meeting Prime Minister Manmohan Singh to seek financial support for Air India. No handout, however large, can help the airline, said one expert, who says there is little option but to restructure the operations he has seen from close quarters. For the glory days of Air India to return, it would undoubtedly call for some very harsh measures which may not be palatable to all but have to be taken in the long-term interests of the

airline, M.S. Balakrishnan, former director of finance and board member of Indian Airlines. He retired in 2007. And the merger, which looked so good on paper, hasnt delivered because of delays in the total integration of the two airlines, say Air India executives and aviation experts who have closely watched the merger unfolding. The problems Air Indias numbers paint a picture of decay. The airline employs one in three people working in Indias aviation sector and has 210 employees for each of its 147 aircraft. In comparison, British Airways has 175 workers for each of its 228 aircraft and Lufthansa, 196 for each of its 545 planes. Some, such as Malaysian Airlines, have more employees235 each for its 81 planesbut as Air India itself admits, overstaffing results in limited scope to boost productivity and accountability. Since March 2006, as expenses related to aircraft purchase, fuel and staff soared, the working capital needs, or funds needed to run annual operations, at Air India jumped nearly seven times to Rs16,300 crore as on 31 March 2009. That this happened without much change in revenue (which has remained more or less flat at Rs15,000 crore in fiscal 2009, compared with Rs14,600 crore in 2005-06) has made lenders wary of recouping debts from the airline. Accumulated losses have ballooned to Rs7,200 crore as of end-May, with at least Rs600 crore logged just in April and May. Latest financial data such as debt and net worth were not immediately available, with Air India and Indian Airlines having published their balance sheets and financial results only until March 2007. Air India uses its 147 planes to fly to 70 destinations within the country and 47 destinations (including code-share routes) outside. Even Air India regulars have stopped flying the airline because of the quality of service. Kolkata resident Sumit Mazumdar is one such. Of the nearly 70 domestic flights and a dozen international trips he makes a year, just one in six today is on Indian Airlines and Air India, down from four in six two years ago. I was (an) ardent fan of Indian Airlines because the crew were more experienced, I felt the checks before flight clearance were much (more) stringent, chances of getting another aircraft in case of problems in remote routes were much higher, and the timings were more convenient, says the managing director of tractor maker TIL Ltd. The first class service of Air India was much superior to other airlines (three-four years ago). But after the merger of Indian Airlines and Air India, that has changed, says Mazumdar. The morale of the staff is so low...its almost like they are just going through the motions. This is not the Air India I used to know. Somebody needs to wake up and smell the coffee, he says.

Customer service has eddied down alarmingly, agrees a travel industry insider. The success of any merger must be assessed by the quality of service provided to its customers, and the new Air Indias inability to provide satisfaction is its most significant failure, said Robey Lal, the former country head of the International Air Transport Association, or Iata. Lals father, late retired Air Chief Marshal P.C. Lal, took over the reins of Air India in 1978 from the airlines founder chairman J.R.D. Tata. And so, while efficiency and quality of customer service suffered, the way Air India chose to implement its merger with Indian Airlines resulted in diseconomies of scale. Meanwhile, the government has been lenient in allowing foreign airlines to operate flights to and from India. These are done through agreements called bilaterals, and the government hasnt just allowed foreign airlines to fly more to and from India, but also to more destinations in the country. The increase of seats to Gulf carriers has been over 250% in the last four years, and they operate to over 15 destinations in India. In addition, many low-cost Gulf carriers have been permitted to operate to India, which will kill Air India Express, says a senior government official with close knowledge of the situation at Air India, who didnt want to be named. Air India Express is the low-cost subsidiary of Air India. No other country allows such reckless entitlements. A detailed report was sent to the ministry for consideration, which was ignored and also not appreciated. Recently, Chandigarh and Lucknow were also given to flydubai, even without formal discussions, this official added. A merger gone wrong The idea was good: merging the state-owned domestic and international carriers into one giant airline to drive home economies of scale, at the same time making this giant part of a global alliance to streamline service standards. The merger, midwifed by consulting firm Accenture Ltds Indian arm, was expected to result in savings between Rs600 crore and Rs1,200 crore from 2010. Yet, the airline continues to lose more money. The biggest problem is the lack of continuity of a chief executive. In under two years, you have had four CEOs at the airline, says a senior Accenture executive, declining to be named. We had suggested a five-year term for the CEO (running the merged airline). This executive points to Jean-Cyril Spinetta, who took over as chief executive officer (CEO) of Air France-KLM after the two airlines merged in 2004. Spinetta, chairman and CEO of Air France since 1997, is credited with making the merger one of Europes most profitable airlines (since January, he has held only the chairmans position, making way for a new CEO).

At Air India, there has been some change. For instance, Mumbai and Delhi have become hubs from which passengers checked in at Chennai, Hyderabad, Bangalore, Kochi, Ahmedabad and Kolkata can fly out of the country. And the senior managementexecutive directors and general managersof the two airlines has been integrated. Even as it is roiled by financial trouble, the airline is working on doing this at the level of deputy general managers. That may seem easy, but combined, Air India and Indian Airlines have at least 750 managers between the levels of deputy general manager and chairman, and integrating their functions is proving to be a tall order. As a member of Air Indias board says on condition of anonymity, In the true sense, there is little change. The two airlines havent come together, on the ground or in the air. Technically, only some things have merged: There is one balance sheet, common directors, some schedule planning and a common CEO for both the companies, this person says. The inability to complete this merger, rather than the merger itself, may be responsible for some of the airlines current woes, although there is enough evidence to show that even the merger wasnt entirely thought through. Analysts say one prerequisite for such mergers to work is that the airlines use common equipment. And Air India and Indian Airlines have always flown different aircraftmade by Boeing Co., in the case of the former, and Airbus SAS for the latter. That distinction cascades into different equipment at every level, say the analysts. In effect, the new Air India is two different airlines desperately wanting to be one. IT woes and more The incompleteness of the merger is evident in the backend reservation system on the airlines website. Passengers struggle with different windows that eventually lead them to entirely different websitesone for domestic and the other for international. And because these reservation systems are still disparate and use the old codes, IC (Indian Airlines) for domestic and AI (Air India, for international), there can be no merger of the flight codes. The result? Analysts say a merger in the skies will have to wait. The original plan was that the IT (information technology) integration would happen within 18 months; they havent even finalized the contract, says the Accenture consultant. Without this, he explains, a passenger travelling from, say, London to Kochi is presented with two separate tickets: London to Mumbai on Air India and Mumbai to Kochi on Indian Airlines. If the IT systems had been merged, Air India would have been the first option on the GDS (for the London-Kochi reservation), says the consultant. GDS is short for global distribution system, a term used in the travel business to refer to computerized reservation systems, such as Sabre or Amadeus, that book tickets on multiple airlines. And a new reservation system is nowhere close to being put in place, partly because of the way government contracts are tendered.

It was a very technically complex project and the tender process took nearly one year to finalize, from August 2007 to August 2008, says the government official quoted earlier. However, just as the process was nearing completion in January 2009, the L2 vendor (the company with the second lowest bid) made some complaints, as is usual in such projects, and the CVC wanted a report. A report has now been sent by CVO, Air India, to CVC. The constraints that a public sector undertaking has to work under have to be appreciated in such projects. The Central Vigilance Commission, or CVC, oversees award of contracts by government and state-owned companies to ensure that the process is fair and transparent. Each government department or company has a chief vigilance officer, or CVO. The member of Air Indias board quoted in the first instance says the tender is out again and will be awarded by September. Around 10 months after that, Air India will have a single flight code. Without this flight code and a new reservation system, Air India cannot join Star Alliance because a key benefit of being part of such groupings is the ability to book tickets across member airlines. Theres also a peculiar problem that arises from the dual codes the airline currently uses. Around 30-40 senior managers who used to be with Indian Airlines, which was based in New Delhi, fly to the capital from Mumbai every week because there are decisions only they can sign off on. Worse, they man two offices with support staffin Delhi and Mumbai. The union angle That Air India has more people than it needs is evident in the numbers. Last year, 17% of the airlines expenditure went towards salaries; the comparable figure for private carriers was 9.5%. Still, the merger didnt involve any retrenchment. Nor do any of the current recovery measures being discussed. Thats because Air India has 14 recognized worker unions and several unrecognized ones for its 31,000 employees. While the unions say they are open to doing what needs to be done to revive the airlines fortunes, they do not support privatization of the airline or retrenchment. The chairman and managing director (of Air India) has told us that the Prime Ministers Office has given the assurance that there will be no privatization and there will be no retrenchment, said J.B. Kadiyan, the general secretary of the Air Corporation Employees Union, one of the airlines largest unions. Retrenchment apart, employees are also worried that the new structure adopted by the airline will work against their interests. This structure is the so-called strategic business unit, one where a large organization is broken up into smaller units, each of which is run almost like an independent company. In Air Indias case, the problem is that the strategic business unit structure isnt perfect, says an Air India official who retired earlier this year and does not want to be identified. According to this person, under this structure, a Delhi airport manager reports to his strategic business unit head, while his performance will actually be reviewed by the executive director of the northern

region. Worse, adds this official, the decision on rewarding this airport manager with a foreign posting is in the hands of the commercial director, who is based in Mumbai. His recommendation is that this entire structure be done away with. Accenture says it only gave a set of options on how to go about staff integration and it is up to Air India to choose from them and implement. The future Not everyone is convinced there is a future for Air India in its present form. One employee who does not want to be identified said it might be a good idea to separate Air India and Indian Airlines. At least one company will survive. For a lot of people on both sides, suddenly the woes will come to an end. That isnt an option before the government, which has set up a committee of secretaries headed by cabinet secretary K. M. Chandrasekhar, with members including finance secretary Ashok Chawla, civil aviation secretary Madhavan Nambiar, and T.K.A. Nair, principal secretary to the Prime Minister, to revive the airline. Instead, the government wants to appoint a new consultant to help turn around the carrier in the next nine months. Accenture, blamed by some people such as Kadiyan, has bid for this, as have eight other firms. Accenture, whose initial mandate was for a year, will only say that it has been asked to advise Nacil chairman and managing director Arvind Jadhav for some more time for continuity reasons. Despite all the ills that plague it, there are a few things going for Air India. In the next two years, Air India will emerge as an airline with one of the youngest fleets in the world. The scrapping of old planes will reduce maintenance costs. And the airline has already created a European hub in Frankfurt. It will also need money and has asked the government for a lifeline of Rs10,00015,000 crore. A final decision on the amount has not been made, but the money will have to come from the state, says Patel. There is no point in going to the market, he adds, because people invest (only) in good companies. There is another thing that works in Air Indias favour, says the board member quoted earlier its new chairman Jadhav, who took over on 4 May. Every department has been told to cut costs by 20% and increase revenues by 20%. Every Tuesday, there is a meeting and to prevent people from travelling, this is done through video conferencing... The new chairman says he does not know what has happened in the past. He will start on a clean slate, the board member says. Jadhav has written to the civil aviation ministry saying that apart from money, the airline needs policy support from the government, including an immediate freeze on the capacity being

given to foreign carriers and prohibiting access to foreign carriers into multiple domestic points. Patel said on Wednesday there was no question of rolling back such permissions. Jadhav will also do well to start with some math. According to Robey Lal, Air Indias share of the $9 billion (Rs43,650 crore) loss airlines will incur this year, by Iata estimates, is around 9%. Its share of world traffic, he adds, is a mere 0.4%. http://www.livemint.com/2009/06/28230233/The-king-is-dead-long-live-th.html