A Standing Parliamentary Committee has recommended that NACIL be converted into a holding company and the two airlines, Air India and Indian, be re-designated as NACIL-A and NACIL-I to function as independent entities

Latest reports suggest Air India and Indian (erstwhile Indian Airlines) may well be heading for splitsville. Operating as separate entities since their inception, the two national carriers, under orders of the central government, merged in February 2007 to form a single mammoth entity under the banner of National Aviation Company of India Limited (NACIL). Since the merger, the new company has been operating under the brand name “Air India”. Nearly three years later, the Standing Parliamentary Committee on Transport, Tourism and Culture headed by Sitaram Yechury in its report has concluded that “the decision in this regard was taken in haste and that the merger of the two carriers was ordered without adequate homework and consultations”. The committee has recommended that NACIL be converted into a holding company and the two airlines be re-designated as NACIL-A and NACIL-I to function as independent entities.

The decision to merge the two airlines was taken with ostensibly noble intentions. Faced with stiff competition from airlines in the private sector and mounting losses, especially in Air India, it was evident that the government-owned airlines would have to either perform or perish. Merger of the two public sector airlines presented lucrative opportunities to turn the loss making establishments around by trimming costs through optimisation of manpower/infrastructural resources, leveraging individual strengths, route rationalisation and economy of scale. But the plans seem to have gone awry.

Prior to the merger, in the financial year 2006-07, Air India and Indian had recorded losses of Rs 447.93 crore and Rs 240.29 crore, respectively. Post merger, loss reported by the combined entity rose from Rs 688.22 crore to around Rs 2,500 crore in 2007-08 and Rs 5,400 crore in 2008-09. Although the global economic meltdown contributed to aggravating the financial crisis, it was abundantly clear that the objectives of the merger had not been realised and the financial state of the airline had in fact worsened. Despite the proclaimed merger, both the airlines continued to operate as individual entities as before with considerable duplication in infrastructure and manpower. There were no tangible steps taken to resolve issues related to financial, administrative and operational aspects arising out of the merger. Equipped with different types of aircraft, the two airlines had widely differing salary structures, perks, promotional avenues, work ethos and operational paradigms. The process of merger actually never got off the ground or beyond mere cosmetic levels and in retrospect, it is being seen as “a thoughtless exercise undertaken without considering all aspects and a whimsical decision meant only to serve vested interests”.

Although there was awareness all along even at the highest levels of the government that the merger had actually been a paper exercise, it was only when Air India approached the government for a Rs 20,000-crore bailout package that the finance ministry was galvanised into action and decided to restrain the endless and ruinous financial drain. The expenditure secretary in the Finance Ministry has mooted a proposal to reverse the process of amalgamation. There has been a similar demand from some of the trade unions as well who have always held that it would be easier to manage two smaller companies than one huge monolith.