The post-wedding cleanup: Repenting the failed merger

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 In 2011, Vayalar Ravi, then Civil Aviation Minister set up a Parliamentary committee to analyze the failure of the merger. The committee was chaired by a retired Supreme Court Justice D.M Dharmadhikari. The committee thoroughly examined the integration, structure of employees, working conditions, and various schemes and also made several recommendations relating to the same.


The merger didn’t help the losses that each of the entities had incurred. The merged entity totaled a loss of Rs 2,226 crore in 2007-08 with a turnover of Rs 13,638 crores. In the following financial year, NACIL reported a loss of Rs 5,548. 


When the losses were alarming, SBI caps was appointed to hatch out a road map for the merged entity. SBI prepared a short-, medium- and long-term growth plan for Air India. As per SBI’s reports, the carrier needed at least two years from 2009 to merely break even given the revenue. The annual average revenue was about Rs 16,000 crores. Amongst its several other debts, Air India struggles with its recent, pre-merger fleet acquisition debt. SBI estimated that half of the daily losses of the airline were going towards payment of interests. At that point, Air India bore a loan of Rs 16,000 crores from 15 banks.

As individual entities, Air India and Indian Airlines weren’t unerringly flourishing. The merger just happened to accelerate the doom. Indian Airlines was losing market share consistently from 2003 onwards. Its competitors, Jet Airways, Air Deccan, and Kingfisher had much younger fleets with an average age of 4 to 8 years while the average age of the fleet of Indian Airlines and Air India was between 13 to 22 years.

The company requested the government to aid Air India to stay afloat by providing soft loans worth Rs 3,000 crores and introducing additional equity. In 2012, Air India was incurring operating losses of 15 to 16 crores in a day. The losses had mounted to Rs 30,000 crores and this was despite the infusion of Rs 7,200 crores by the government between 2009 and 2012.

Reference:

https://www.civilaviation.gov.in/sites/default/files/moca_001684.pdf Retrieved on 14th July 2022.

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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