Govt. denies move to demerge Air India, Indian Airlines

Air India

The Ministry of Civil Aviation today denied any plans for the demerger of Air India and Indian Airlines and asserted that the merger of the two national carriers in 2007 was a carefully thought out proccess and a collective decision of all agencies of the Government of India.

The statement came after a report in the Times of India this morning which said that the Ministry of Finance had mooted a proposal to undo the decision to merge the two airlines into a single entity.

According to the report, the merger has actually not moved much beyond a common billboard and a holding company, the National Aviation Company of India Limited (NACIL).

It said the Finance Ministry was "increasingly nervous over the viability of bailout plans for the floundering carrier" and justified the demerger by pointing ut that international and domestic markets behaved differently. It also said the merger had not been "thought through".

"The Ministry of Civil Aviation has no move afoot for the AI-IA demerger. The merger was a carefully thoughtout process and a collective decision of all agencies of the Government of India," the statement by the Government said, without referring to the newspaper report.

According to it, the merger of Air India (erstwhile) and Indian Airlines was approved by the Government on 1 March, 2007 and a new company, the National Aviation Company of India Limited (NACIL) was incorporated on 30 March, 2007 with the brand name of "Air India".

It said the merger of two the airlines was envisaged to provide the following benefits:

• Provide an integrated international/domestic footprint which will significantly enhance customer proposition and allow easy entry into one of the three global airline alliances;

• Enable optimal utilization of existing resources through improvement in load factors and yields on commonly serviced routes as well as deploy freed up aircraft capacity on alternate routes;

• Provide an opportunity to fully leverage strong assets, capabilities and infrastructure;

• Potential to launch high growth & profitability businesses (Ground Handling Services (GHS);

• Maintenance, Repair & Overhaul (MRO) etc;

• Potentially enable merged entity to command better valuation;

• Operate a combined fleet strength which will be largest in India and comparable to other airlines in Asia/region;

• Provides maximum flexibility to achieve financial and capital restructuring. Above benefits leading to improvement in the prospects of the company are expected to translate into better prospects for all the employees.

NNN