The Hindu Business Line : Air India, Indian merger may add Rs 1,200 cr to kitty

Merger benefits
Cut in costs and increase in revenue
Better career opportunities for personnel
Better equipped to face competition and declining industry profitability

New Delhi , Oct. 27

The proposed merger of Air India and Indian, which is to be fully completed within the next 2-3 years, is likely to add around Rs 1,200 crore to the bottomline of the new entity through synergies between the two airlines.

Sources told Business Line that the report prepared by Accenture suggests that there could be a 3-4 per cent saving in costs and increase in revenue that initially could work out to be around Rs 600 crore and progress up to Rs 1,200 crore over the next two-to-three years.

"The major savings would come from route rationalisation, common sales distribution network and booking offices. Besides, the creation of a hub and spoke system would also help cut down on costs and increase the revenue of the merged entity. At this moment it would be difficult to predict which areas of synergies would provide how much additional revenues," sources said.

Increase in profit

The merger would lead to a manifold increase in the net profits with the two airlines reporting a combined net profit of Rs 84.79 crore during 2005-06, sources said. The Accenture report has identified sales and distribution network, fuel procurement, material procurement, passenger amenities, ground handling and parking facilities, among others, as the possible areas in which synergies between the two airlines were possible.

To facilitate the merger it has been suggested that the financial books of both the companies should be merged especially since the shareholders are the same.

GoM meet

A clear picture on the way forward is likely to emerge after November 13 when the first meeting of the Group of Ministers set up for the merger is scheduled. "The merger would result in a single code on the global reservation systems as against two codes for separate airlines at present. This alone should result in an increase in bookings. Besides, a passenger would also benefit by lower fares especially for those travelling from secondary cities," sources added.

Benefits outlined

Meanwhile, the Chairman and Managing Director of Air India and Indian have written to the employees outlining the advantages and benefits from the proposed merger.

The communication points out that the merger will help create an integrated domestic and international footprint that would significantly enhance customer proposition and enable the airline to participate in global alliances.

"As the two networks and assets are integrated over the next two-three years, it is expected that significant revenue and cost synergies will accrue to the merged entity which would enhance profitability. This would help position and equip the merged entity to better face the current and future changes arising out of intense competition and declining industry profitability. This in turn would translate into improved growth and better career opportunities for our personnel," the communication adds.

The two top officials have also assured the employees that there would be no retrenchment of staff as a result of the merger. "The process would be tailored to ensure that no employee is worse off as a result of the merger. Due care will be taken to protect remuneration, perquisites and status of employees," the airlines have said.

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