Air India and Indian Airlines: A Merger Gone Wrong?

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"The success of the merger (Air India Ltd. and Indian Airlines) depends on how it is implemented, how fast it is implemented, and how comprehensively it is implemented. Also, on how far the people in the two organizations understand the merger and work for its success". ¹

- V. Tulasidas, CMD Air India, in 2007.

"The so-called merger is a kind of marriage between incompatible individuals having wide variances with hardly any meeting ground." ²

- V.Kishore Chandra S.Deo, Secretary, House Panel ³, in 2010.

India-based airline, Air India (AI), a merged entity of international carrier Air India Limited (AIL) and domestic carrier Indian Airlines (IAL), had been facing a profound human resource management and a financial crisis from the time of its merger in 2007. AIL and IAL had a history that was decades long and enjoyed a great reputation in the Indian aviation sector. However, since the turn of the century, both had been suffering losses due to competition from private airlines4 and the growing popularity of low-cost airlines. The revenues of both entities were severely affected since 2004.5 Their market shares declined.6

To withstand the competition, the then civil aviation minister (2004-2011), Praful Patel⁷ (Patel), put forth the idea of merging AIL and IAL. Informal discussions toward this end began in December 2004.⁸ The rationale for the merger was to boost the revenues of both the state-owned airlines. In April 2007, AIL and IAL merged to form AI. Post merger, AI was one of the top 30 airlines in the world with a fleet size of more than 140 and an employee strength of 33,000. ⁹

But the merger pushed both airlines into a non-recoverable financial crisis. From 2007, AI's revenues started to dwindle and it faced severe problems in managing its human resources. Several employees left the company. Industry insiders opined that many of the employees had quit because of the airline's poor management practices and the pay disparities among the staff of the two merged entities.¹⁰ The employees went on a series of strikes, which hampered the operations of the airline. With the strikes leading to frequent flight cancellations, passengers were left fuming. Industry insiders, who analyzed the instability and disturbances prevailing in AI, expressed skepticism over AI's survival.

Unplanned Takeoff - Next Pages >>

1] Sudipto Dey, "The Maharaja's Unhappy Subjects," www.business.outlookindia.com, May 2, 2009
2] Ajmer Singh, "Pilots Stir: Air India Slept on ICPA's Demands," www.indiatoday.intoday.in, April 28, 2011
3] House Panel refers to the committee set up by the Government of India. V.Kishore Chandra S. Deo acted as a Secretary to Parliamentary Committee on Public Undertakings (CoPU).
4] The private airlines in India at that time were Jet Airways, Air Sahara, Kingfisher Airlines, Air Deccan, GoAir, Spice Jet, IndiGo, Jagson Airline, and Paramount Airways.
5] "Air India Losses Plane Mess," www.tehelka.com, April 3, 2010
6] "NACIL Director Report," https://docs.google.com/www.airindia.in/SBCMS/downloads/Directors_report_0708.pdf
7] Praful Patel was a Member of Parliament of the Lok Sabha of India. He was the most prominent person responsible for designing the unsuccessful merger between Air India Limited and Indian Airlines Limited.
8] "Merger of AIL and IAL into NACIL," www.saiindia.gov.in, 2011
9] "Air India and Indian Merger Attains Official Status," www.airindia.in, August 23, 2007
10] R N Pathak, "Air India Crisis - A Carefully Crafted Design," www.boloji.com, May 9, 2011

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