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In
May 2007, India's Ministry of Civil Aviation announced that Air
India Limited (AI), India's national flag carrier and Indian
Airlines Limited (IA), the government owned domestic airline,
would merge with effect from July 15, 2007.1
The new airline formed by the merger was to be called 'Air
India,' and would operate in both the domestic and international
sectors. The proposal to merge AI and IA had been first mooted
in the 1990s.2 In February
1999, a Parliamentary Standing Committee on Transport and
Tourism had recommended the merger of AI and IA in its report on
the 'Functioning of Air India'.3
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However, the process had formally been initiated only
in September 2006, when the Indian government assigned the duty of
preparing the roadmap for the merger to Accenture Inc., a management
consulting, technology services and outsourcing company.4
After being endorsed at various levels of the administrative hierarchy,
the plan for the merger was finally approved by the Union Cabinet in
March 2007.5
A new company called the National Aviation Company of India Ltd. (NACIL)
was incorporated on March 30, 2007 under Sections 391 and 394 of the
Indian Companies Act, 1956 to facilitate the merger.6
Under the terms of the merger, all the undertakings, properties, and
liabilities of AI and IA were to be transferred to NACIL.7
The AI-IA merger was expected to create one of the biggest airlines in
the world in terms of the fleet size. As of May 2007, the two airlines
had a combined fleet of 122 aircraft and 34,000 employees including
1,315 pilots.8 The combined fleet
size placed the merged entity among the top 10 airlines in Asia, and the
top 30 in the world. It would also be India's first airline with more
than 100 aircraft.9
The motives for the merger were widely discussed in the media. India was
the fastest growing aviation market in the world, ahead of China,
Indonesia and Thailand, as of early 2007.10
The number of people traveling by air had been increasing rapidly in the
country.11 The main reason for
this was thought to be the advent of low cost airlines like Air Deccan
and SpiceJet in the country in 2003-2004, which brought air travel
within reach of India's large middle class. The entry of a number of new
airlines had intensified the competition in the aviation sector by 2004.
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1]
"Indian Airlines To Merge Operations from July 15," Financial Express, May 11.
2007
2] R. Krishnan, "A Long Haul Solution,"
Business Line, April 12, 2006
3] www.rajyasabha.nic.in
4] "Accenture to Assist Air India, Indian
Airlines Merger," www.efytimes.com, September 27, 2006
5] Vinay Kumar, "Cabinet Nod for Air India,
Indian Merger," The Hindu, March 2, 2007
6] Sections 391 to 394 of the Companies Act,
1956 deal with mergers and amalgamations through schemes of arrangement approved
by the High Courts. A resolution to approve the scheme of arrangement has to be
passed by the shareholders in the general meetings. The shareholders have to
vote on the resolutions on the schemes of arrangement on the basis of the
disclosures in the notice/explanatory statement. Section 393 of the Companies
Act, 1956 specifies the broad parameters of the disclosures which should be
given to the shareholders / creditors, for approving a scheme of arrangement.
7] "Formalities for Merging IA And AI to be Completed
by July 2007," www.pib.nic.in, May 3, 2007
8] "Merged Air India-Indian Revenue Projected at Rs
15,000 Crore by 2010," www.domain-b.com, February 22, 2007
9] "GoM Clears Merger of Air-India, Indian; Formal
Clearance by March," February 21, 2007
10] "Merged Air India-Indian Revenue Projected at
Rs15,000 Crore By 2010," www.domain-b.com, February 22, 2007
11] The airlines in domestic sector flew 25.5
million passengers in 2006 which was 27.9% more than in 2005. Similarly the
number of international passengers was 22.4 million in 2006 which was 15.1% more
than in 2005 (www.domain-b.com) |
