“The fact that integration is yet a distant dream has kept the airline from making money.” — MR V. THULASIDAS, FIRST CMD OF THE MERGED AIR INDIA

Air India pilots may have called off their agitation, but their action again raised questions on the merger of Air India and Indian. In an exclusive interview the first Chairman and Managing Director of the merged Air India, Mr V. Thulasidas, outlines the reasons and advantages of the merger and why it has not worked.

In the Parliamentary Committee on Public Undertakings 2009-10 report, there are several instances of senior airline functionaries stating that the merger process has not worked anywhere in the world. What promoted the Government to go for it?

It was no one’s case that the merger of Air India and Indian Airlines was going to be easy. But to say that the merger process has not worked anywhere in the world is stretching facts. Look around, you will find that airline mergers have taken place all over the world successfully and are happening even now.

I remember the preliminary discussion on the possibility of merger that was held among senior officers of the two airlines. Every one present stated that the merger was necessary for the survival of the national carriers. There was total acceptance in the Ministry of Civil Aviation and in a meeting held in the PMO.

The case for merger was apparently so strong that the entire spectrum of decision making in the Government was in its favour, including the Committee of Secretaries, a Group of Ministers and the Cabinet. The context was unprecedented and increasing competition in the airline business, both in India and globally, by which the fairly secure position enjoyed by the two national carriers had come under severe challenge. The growing economy had led to a significant increase in demand for air travel, foreign airlines had stepped up their capacity in India and private carriers had become strong in the domestic market and were getting into the international market.

The national carriers were operating virtually two separate networks, one predominantly domestic with a few international flights, and the other exclusively international with no domestic network. All efforts made in the past, including in my time, to bring the two airlines to align their networks to provide a smooth transition from domestic to international flights and vice versa had failed. Both sides were determined to fight for their turf and not yield an inch. The only option, other than merger, would have been for Air India to start a domestic network and for Indian Airlines to launch long-haul flights.

What were some of the other advantages of the merger considered at that time?

There were the advantages to be derived through pooling of resources, common marketing and sales, reduction in expenditure through sharing of assets, economies of scale in procurement of stores and, finally, the clout the combined airline could enjoy, apart from the increased load the combined airline could attract by combining domestic and international networks.

Then why is the merger being criticised?

It is being criticised for other reasons. People need to understand that what has happened so far is just an articulation of the decision to merge. The legal formalities of combining the two companies have been completed, but the two airlines have not been combined. It is five years now but the airlines still operate as two. Cosmetics alone have changed. The people, the most important resource, are still separate and the networks have still not been integrated. If a passenger has to travel on both domestic and international legs of this airline, she still does not enjoy smooth transition, not even smooth confirmation of tickets. Bickering among the employees of the two sides has, if anything, only increased.

Does the recent agitation by sections of Air India pilots put a question mark on the entire merger process?

Rather than put a question mark on the merger, it underlines the problem created by non-implementation of the merger process. If manpower integration had been completed as originally envisaged and as per the original timeline, pilots of both wings would have been flying aircraft of both sides as part of an integrated cadre of pilots.

How was the merger going to tackle the separate work cultures, timings and seniority rules of the two airlines?

If two airlines can be merged only if they have the same work culture, network schedule or HR policies, no merger would have taken place in the world. It was the difference in the networks and their complementarity that was the primary need and justification for the merger. If the two airlines were operating only similar networks, the merger would have been more difficult to manage.

Work culture is something to be modified through appropriate re-training, incentives/disincentives and HR policies. There could be some who will refuse to change; they should have no place in the new airline.

HR policies have to be unified. Neither side can insist that they should continue to have their own policy in the new set up; there has to be a new set of policies.

There are many who feel that demerger and having two separate airlines under a holding company is the only way forward. Will you agree?

I do not think that the only option is to demerge, but merger in the form of a holding company and two separate wings under it can be an option. But before that, it is necessary to come to the conclusion that the Government and the airline management do not have the will to complete the merger process as originally planned. The problem is not merger but the fact that the merger has not been achieved. If someone tries to say that the merger has not been achieved because it is not achievable, I do not agree. Merger has not been achieved as it has not even been attempted. I can vouch for it that we had concrete plans to integrate various aspects of the two airlines, including the manpower, with clear timelines. We were on target when I retired in 2008. Someone should study why this process was not carried forward from April 2008 onwards.

Air India and Indian were profitable between 2003-04 and 2005-06. But from 2006-07 the new merged company has only seen its losses mount. Was this anticipated?

There are two factors to be taken into account while analysing the losses incurred from 2006-07. First, airlines in India were gradually getting into losses around this time, thanks to rapidly rising costs, increasing competition, overcapacity in the market and falling revenues. Secondly, merger led to a certain amount of strain on the operation of the new airline that ought to have been overcome through effective integration of operations. The fact that integration is yet a distant dream has kept the airline from making money.

What were the benefits of the merger which should have kicked in by now?

The main benefit ought to have been seamless transfer from domestic to international flights which would have led to an increase in traffic volumes, greater revenues and profits. Merger, implemented properly, would have taken Air India into Star Alliance and that would have added to traffic further. An integrated and re-trained manpower would have been the greatest gain and not the squabbling and disgruntled set of people now.

(This article was published on July 15, 2012)
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