Air India Indian Airlines Merger

Analyzing what went wrong in the Air India Indian Airlines Merger
College Code: Name: CC09 Shreyans Desai

What does this case talk about?

The Issue: On July 15, 2007 Air India (AI) and

Indian Airlines (IA) were merged to form a new company, the National Aviation Company of India Ltd. (NACIL)
The Reasons: The merger was brought about to

solve certain aviation issues such as dipping profits, increase of fleet, and overcoming competition from new entrants
The Result: The merger has brought additional

problems for the airlines and the recent Parliamentary Committee of March 2010 has termed the merger as a "marriage of incompatible

Background to the Case

Air India: Air India, formerly named Tata Airlines

was founded by JRD Tata. It was converted into a Public Limited Company on July 29th 1946 and renamed as Air India, primarily operating on international routes. Air India was based out of Mumbai.
Indian Airlines: The airline was set up on 1

August 1953 and operated on domestic routes. The airline was based out of New Delhi and had a pre-merger fleet of over 55 aircraft in 2006.
Interestingly both companies also made an attempt

at merging in 1986 as well

Reasons leading to the Merger

Escalating costs of Aviation Turbine Fuel (ATF)

Immense competition from private and low cost

airlines Increased cost pressures due to acquisition of additional aircraft Leadership crisis due to frequent change of the chairman-cum-managing director Air India could not fully use the bilateral rights unlike foreign airlines which took maximum advantage Declining passenger traffic in the premium class

What the merger tried to achieve

Economies of scale in areas such as

maintenance, ground operations, the use of landing slots and parking rights etc Volume Discounts in areas such as fuel purchase, insurance Increased fleet size such that the combined fleet was of over 120 aircraft, currently over 150 aircraft, placing it among the top 10 airlines in Asia, and the top 30 in the world Hub and spoke system which could be achieved by the merger of the international and domestic airlines Leverage and pool-in of resources such as manpower, infrastructure and assets, better aircraft

Challenges and Obstacles

Employee opposition due to fear of retrenchment,

and redundancy of roles Union issues and distrust as both companies had strong unions which would oppose any kind of wage and operational changes Operational differences as both the airlines followed completely different pay structures and airline routes which could result in a conflicts of interests situation Different fleet compositions of the airlines would create complications in inventory management, maintenance, repair establishments, and pilot training IT integration as both airlines had separate fleets and flight booking operations

Merged Entity Logo

Post Merger Problems

Incomplete integration of official positions, of IT

systems and as well as infrastructure due to different aircraft flown by the two companies, and inability of employee unions to accept merger Decline of customer service due to integration issues Ballooning of losses due to
o increasing prices of ATF o decreased passenger traffic during recession o unnecessary and costly acquisition of aircraft fleet

Leadership crisis continues due to frequent change

of CEOs (4 different CEOs in last 2 years) Increased competition from domestic airlines as well as international airlines due to unfavorable government policies

Pre and Post Merger Profit and Loss

Thank You