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Aviation Sector Problems:MERGE THE TWO NATIONAL AIRLINES by Dr Vinod Mehta,8 September 2005 Print E-mail


NEW DELHI, 8 September 2005

Aviation Sector Problems


By Dr Vinod Mehta

 Our two nationalized airlines have been in news for a long time, mostly for the wrong reasons. Air India, which was once a pride of the country, is today the last choice of the international traveler. Indian Airlines, which till a few years ago enjoyed virtual monopoly is today facing serious competition from the domestic private airlines. 

 Relatively speaking, the two public sector airlines are not economically in sound shape and their financial performance varies from year to year. Many a time in the past the Government had infused funds to shore up the capital base of both the airlines.  Had they been a private airline they would have gone bust a long time back, as they did not change with the time. 

When these airlines were set up more than four decades ago, the competition at the national as well as international level was almost non-existent.  It was easier for Government monopolies like Air India and Indian Airlines to operate as good, efficient and profitable airlines.  However, with the scientific advances in the aviation industry and the entrance of many commercial airlines in the aviation industry the competition has intensified.

Many airlines around the world have been able to survive the competition, while others have closed down because of their inability to face the competition. Not a few have merged to become mega airlines. Air India and Indian Airlines have survived only because of the government backing. 

 Besides, it would be too much to expect from a Government to divert its scarce resources to the airlines when there are urgent and competing demands for development and other projects. We are already committed to invest heavily in rural areas as well as on national highways.  It may be noted that being wholly owned by the Government both Air India and Indian Airlines were functioning more as government departments rather than commercial organizations. With the result that appropriate decisions regarding the replacement of old aircrafts, expansion of air fleets etc. could not be taken at the appropriate time.  Thus, our two Government-owned airlines are saddled with old aircrafts and have degenerated into third class airlines.

 Since the competition is intense, most of the airlines in the world have gone for restructuring and partial disinvestment.  For instance, Thai International Airways, which compares to Air India, was an unknown identity 25 years ago. Today it is one of the best and well-managed international airlines.  When it was a wholly owned Government enterprise, it was going into losses, and now as a limited company, with some percentage of shares still owned by the Thai Government, Thai International Airways is a profitable company.  So is the case with other international air carriers like Singapore Airlines, KLM of Holland, United Airlines and so on. 

 In India, though the Disinvestment Commission had recommended disinvestments in the two airlines, and the Government has also made up its mind to do so, yet it has not been able to muster political courage to disinvest in these airlines. The Kelkar Committee had also made certain recommendations for the restructuring of the airlines. However, before we go for disinvestment and restructuring in the airlines, one basic question needs to be answered.

 What is the rationale of having two commercial airlines with two separate managements, two separate engineering departments, other support facilities and two separate staff cadres?  Specially when commercial airlines the world over are merging to save on costs. But Air India and Indian Airlines are not even ready to have some kind of a working relationship with each other.  Why?

Since most of the airlines  the world over are constantly trying to cut their operational costs through mergers and other ways, there is a big rationale for merging Air India and Indian Airlines into one national airline to cater to national and international air travel.  As a single entity they would be reaping the benefits of the economies of scale. 

 The unions of both the airlines are going to oppose this merger but the question to be asked is: Are the airlines being run as a commercial proposition to provide services to travellers or are they being run for the benefit of the employees as an employment generation programme.  Obviously, the running of airlines cannot be an employment generation programme, like the Jawahar Rozgar Yojana for the poor workers. Since it is a commercial proposition, the Government has to be firm with the unions and ask them to cooperate in the merger of the two airlines in the best interests of the country.       

Once the merger has been achieved the disinvestment can be taken up seriously.  In fact, the disinvestment in the airlines should be more than 51 per cent so that it comes out of the purview of the Government.  It should be managed by a professional body which should be empowered to take all the decisions including the decision to purchase new aircrafts and arrange for the financing of the new purchases.  Only in this way can the new merged airline be turned into a world-class airline like Singapore Airlines or Thai Airways. 

It must be underlined that in this highly competitive airline business, the top class airlines of the world today replace their aircrafts after every five to six years.  As a result, most of their aircrafts offer modern comforts to the travellers which are not available in older aircrafts being operated by Air India and Indian Airlines. 

For instance, the new aircrafts have personal television systems with each seat, information systems that constantly show the speed of the aircraft, the height at which it is flying, the temperature outside the aircraft, as well as maps of the route as it flies.  None of the Air India and Indian Airlines aircrafts has these facilities on board as most of them are two decades old.  With these kinds of glaring gaps, very few people would like to fly our airlines.

It is amazing that for the last ten years, three successive Governments had not been able to take a decision on the purchase of new aircrafts to replace the old ones.  It is only recently that a decision has been taken to purchase new aircrafts for Air India and Indian Airlines.  

In the cargo business too, the foreign airlines operating in India are doing roaring business, while our own airlines are not even in a position to make money.  This again is due to our inability to find resources for the purchase of new cargo aircrafts and our failure to take a decision in time. 

Clearly, it is high time that we take a decision on the merger of the two nationalized airlines. If a merger is not possible at this stage, at least there can be a holding company. It is ridiculous that both Air India and Indian Airlines fly to the same destinations like Dubai, Bangkok etc., and compete with each other. This needs to be avoided.  

Air India should also take wise decisions to work out its route charter to its advantage. For example, the flight on Delhi-Moscow sector has been discontinued by Air India; on the other hand, Aeroflot, the Russian airline, is minting money on this sector. This kind of ill planning should stop. ---- INFA


(Copyright India News and Feature Alliance)


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