Merged Air India-Indian revenue projected at Rs15,000 crore by 2010

By Rajiv Shankar
22 February 2007

The merger between Indian Airlines and Air India is the latest shake-up in the Indian aviation sector. For almost a decade, various governments at the centre have talked of merging the two former monopoly carriers, only to shy off under pressure from airlines' unions and rival politicians.

The decision to merge the two is based on compelling logic. The merger will create one of the largest airlines in the world in terms of the number of aircraft as the two currently have a combined fleet of 122 aircraft and over 34,000 employees, including 1,315 pilots.

The government expects the merged entity to save around Rs5,000 crore ($113 million) annually from synergies in operations and sharing common facilities.

However, the two carriers have suffered from years of under-investment in their fleet and services and over the years they have been steadily losing market share to private and overseas rivals; with the domestic carriers' market having shrunk to 20 per cent.

After the empowered group of ministers' decision to merge the two entities yesterday, civil aviation minister Praful Patel had said, "The government will create a mega carrier with the precision and reliability of Lufthansa and in-flight service of Singapore Airlines."

The combined entity could emerge as a potent force only if the merger is treated as just the first step. There is no denying that a merged entity has the potential to create a strong global player, as Patel hopes, but the merger alone will not lead to the emergence of a mega carrier.