PROBLEMS WITH AIR INDIA AND INDIAN AIRLINES MERGER
AIR
Parliament's Committee on
Public Undertakings (COPU) has come up with a report that seeks to identify the
underlying causes of AI’s losses.
It is useful to begin by
listing some perceived causes of Air
Public ownership is the
problem: Governments just can't run commercial enterprises. There is no way
that Air India and Indian Airlines could have survived in the face of greater
competition.
There is a problem with
this story. Several public sector enterprises have successfully weathered
greater competition post-liberalization and are doing better than before. In
the period since 2001, Air
Air
The failed merger is
responsible for non-performance and losses: There is little doubt that the
merger of the two airlines, done in 2006-07, has turned out to be a nightmare.
But it is hard to ascribe the mounting losses to the merger per se. The
synergies expected from the merger were fairly modest in the first place:
around Rs 900 crore. Of these, Rs 500 crore was realised in the first year
itself. The failure of the merger cannot explain losses of over Rs 5,000 crore
in 2008-09 and the even higher losses projected for 2009-10. Merger makes it
more difficult for Air
Thus, none of the
perceived causes can explain the mess Air
It is clear
that the root cause of the present situation is the massive fleet expansion
plan initiated by the two airlines prior to merger. Was such an expansion
necessary? Officials have justified on the ground that the two airlines needed
to replace their aged fleet and also augment their fleet in order to maintain
market share given that the market was expected to grow faster than in the
past.
The market has not grown
as fast as expected. As a result, NACIL is stuck with planes with low utilization
and is having to lease out aircraft. In the case of Air
The second cause of Air
One of NACIL’s new directors, Amit Mitra, also the Secretary-General of the
Federation of Indian Chambers of Commerce and Industry (FICCI), says drastic
workforce restructuring is required. “The cost overhead is high and needs to
change. But if there is an issue of workforce restructuring and it becomes a
politically sensitive issue, one can look at enlarging the customer base.”
But sources within the ministry
say this is just the tip of the iceberg. In fact, many top officials agree in
clear-cut terms with the note COPU sent to Parliament. They say the merger
process was to be completed by mid-2009 but till date, NACIL is just half way
through. The synergy has worked well in the integration of network, cross-utilisation
of aircraft fleet, leveraging scale for joint procurement like insurance and
fuel, and the opportunity to join the global leading airline network Star
Alliance, which offers customers worldwide reach and a smooth travel
experience. But the merger has not worked in areas like manpower, properties
and facilities integration, cross-utilisation of resources, IT augmentation and
launching new subsidiaries such as maintenance, repair, and operations (MRO)
and ground handling. “The have-nots have totally outweighed some of the
benefits the merger achieved,” says
REFERENCE
(Publication: The Economic Times
Mumbai; Date: Apr 15, 2010;Section: Editorial; Page: 16)
Acknowledgment: I thank Ms. Vaishnavi Krishna Mohan, Student of BA(Hons) Economics at Ahmedabad University for her support in content development
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