B. S. Raghavan

Indian-Air India merger plan

In yet one more of those instances of misplaced priorities typical of governance in India, the Minister of Civil Aviation, Mr Praful Patel, has mooted the idea of merging Indian (Indian Airlines) and Air India, the state-run domestic and international airlines. And this, when there are so many vital and unresolved problems bedevilling the aviation sector and clamouring for attention.

One of the classical ploys of persons overwhelmed by pressures on all sides to deliver is to take to some diversionary tactic. Since the image of Mr Patel is that of a dynamic and clued-on Minister, one presumes that he has not broached the scheme as an exercise in escapism. Going by his public stand, he seems to have convinced himself that it is "an absolutely logical proposal to consolidate and optimise the use of the assets of the two public sector airlines... (and) synergise their operations".

It will "create a major airline with 125-130 aircraft" capable of facing " (the) growing competition from private carriers ". So sold is he on the proposition that he has even fixed the current financial year as the deadline within which he would like the merger to be over and done with.

Highest priority

His good intentions are laudable, but he needs also to be reminded that the road to Hell is often paved with them. For all the gloss he puts on it, it is not an idea whose time has come. In fact, it is an idea which deserves to be squelched right away as unjustifiable, untenable and even detrimental to the managerial and operational efficiency of the outcome of the merger.

The highest priority of the Ministry under his charge right now is to improve the creaking and near-obsolescent aviation infrastructure, which is unable to bear even the existing modest traffic, let alone being equal to the breath-taking predictions on both the scale and magnitude of future growth.

The Minister cannot be unaware that the Director-General and CEO, International Air Transport Association (IATA), Mr Giovanni Bisignani, has described the overall situation in India as an invitation to disaster, on the following counts: Decrepit state of metro airports, Mumbai being rated the worst; unmentionable conditions of non-metro airports; woefully poor service and inadequate amenities for passengers; deficient airport and airspace capacity; chronic delays due to bottlenecks and want of parking and other facilities; overcrowding in many important routes (for example, he points out, 80 per cent of the flights between Europe and Asia funnel through only two crossing points between India and Pakistan, whereas there is need for at least four); and lack of purposeful advance planning. His fear is that the delivery of the new aircraft ordered by the airlines, instead of mitigating the crisis, will only be a prelude to utter chaos, unless remedial measures are set afoot to ward it off.

He notes the Government's decision to entrust the upgradation of Mumbai and Delhi to private players and adds cryptically: "We have followed privatisation in other parts of the globe. There are more failures than successes." What is important, in his view, is not who owns or runs the airports, but whether they benefit all stakeholders, primarily, the government, the airport, shippers, passengers, local communities and airlines; result in greater efficiency and lower costs; and provide world class service.

Finally, whoever owns or runs the airports must be brought under the discipline of an effective regulator constituted on the model of Australia and the UK to forestall any tendency towards monopolistic and unfair trade and costing practices.

reasons against merger

Thus there are compelling concerns aplenty relating to infrastructure and quality of passenger services that demand Mr Patel's whole-time attention, and it is inadvisable for him to enmesh himself in escapades of no immediate relevance which may prove to be totally unwanted and unnecessary distractions. There are other weighty reasons too against the merger of the two national carriers. With all the purported boom in the civil aviation industry, neither Indian nor Air India has touched even a fringe of the immense potential of both domestic and international passenger and freight traffic.

Even on an "as-is-where-is" basis, Indian on the domestic front logged only 7,562 flights in 2005, having been pushed behind by Jet Airways (8,168 flights) which started operations nearly 50 years after. This only shows that grit and gumption have more to do with being a go-getter than glib and impulsive solutions.

As per available data, in a country exceeding one billion in population and with the middle-class surging past 350 million, the number (20 million) of domestic air passengers is only half that of Australia, with a population of less than 20 million, and a fraction (one-seventh) of China's 140 million, with almost the same population and size of middle-class that India has. According to one estimate, by 2010, 100 million new urban middle-class consumers will become potential air travellers.

A rule-of-thumb is that the rate of growth of the aviation sector is twice the GDP. This means a whopping jump in growth touching 20 per cent in air travel, if only India can put in place all the facilities and amenities measuring up to the full expectations of the tourists, professionals, the Diaspora, and the those sections flying on business or for pleasure. Air tourism accounts for 11 per cent of the global GDP, and over 40 per cent of the value of goods traded internationally are transported by air. There is no justification for India to be content with an infinitesimal portion of the cake, when the sky is the limit.

Mismatch

With imaginative leadership, forward-looking business models and aggressive efforts at enlarging the market share, Indian and Air India can hope to capture enough traffic that will make each of them a mega corporation in its own right. It may well be that when each of them has finished exploiting the full extent of the available domestic and global business, they may even need to be split further for better governance, more effective management and greater operational efficiency.

An entity resulting from a merger at a stage when the development of the merged units is way behind the prospects for each of them will become Brobdingnagian in size when it peaks and its collapse under its own weight will be a matter of time.

The mismatch between the nature of operations, functions, roles, structures, cultures, pay scales, perks and so on of Indian and Air India is so staggering that blending them into a homogenous whole is next to impossible. At every turn, whether in the matter of laying down operational requirements, rationalising the staff pattern, unifying the pay scales, or allocation of duties to, and fixing the entitlements of, pilots while maintaining the distinction between domestic and overseas flights, the economies of scale will end up becoming a chimera. The Government would have on its hands a grotesquely grafted freak of an organisation, defying all principles of management and all attempts at smooth changeover, perpetually at odds against itself.

The case, therefore, is strongly in favour of enabling each of the two public sector carriers to come into its own, and giving it a free hand to advance to the outermost limits of the traffic potential within its own turf, without minding concomitant adjustments such as the withdrawal of Indian from its external routes.

What is imperative now is for the Civil Aviation Minister to set up a high-power technical Task Force to advise on the best way of bringing about the symbiosis between the two airlines with the simultaneous realisation of their growth potential, and identifying and completing all the infrastructural improvements within a prescribed time-frame to meet the challenges of that growth.

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