What led to the Merger?

Since the turn of the 21st century, both Air India and Indian Airlines had been suffering losses due to competition from private airlines and the growing popularity of low-cost airlines. The revenues of both entities were severely affected, leading to deterioration of financial health of the two companies. To withstand the competition, the idea of merging AIL and IAL was put forth. Informal discussions toward this end began in December 2004. The sections below analyse the forces for change contributing towards this merger in detail: Forces for Change Competitive Forces: Prior to the liberalisation of the Indian economy, both AI and IA were operating in a largely protected environment. After the aviation sector was opened up, they were faced with fierce competition from domestic, private and global Airlines companies. Significant increase in competitive activities eroded historical advantage of both carriers as leading international carriers had increased coverage and frequency to major cities in India and domestic carriers also significantly ramped up operation. The merger was intended to increase the competitive positioning of the two airlines. Economic Forces: Both AI and IA were in deep financial distress prior to merger. The merger was to provide an integrated international and domestic footprint to significantly enhance customer proposition and allow easy entry into one of the three global airline alliances. It was to enable optimal utilisation of existing resources through improvement in load factors and yields on commonly used routes as well as deploy freed-up aircraft capacity on alternate ones. It would also facilitate leveraging of assets, capabilities and infrastructure and create strong ground-handling services as well as improve maintenance, repair and overhaul businesses. The merger was supposed to enable the merged entity to command better valuation, operate Indias largest combined fleetstrength comparable to other airlines in the region and provide the flexibility to achieve some financial and capital restructuring. Global Forces: With the increasing access to markets of aviation businesses across the world, the two airlines were faced both with the opportunity of tapping the global markets as well as the challenge of competition in the domestic market. It was felt that in an increasingly consolidating global aviation environment, where critical mass/size is a key success factor, combining the two state owned airlines into a single merged entity would better equip them to survive and prosper amidst fierce global and domestic competition as it would provide an opportunity to leverage combined assets and capital better and build a stronger sustainable business. Human Resources: It was felt that merging the two airlines would provide an opportunity to leverage skilled and experienced manpower available with both the companies to the optimal potential. In April 2007, AIL and IAL merged to form AI. Post-merger, AI was one of the top 30 airlines in the world with a fleet size of more than 140 and employee strength of 33,000. The brand name Air India was retained as also the Maharajaas the mascot of the merged entity.The logo of AI was a red colored Swan shaped image with an orange colored Konarc Chakra placed inside. The logo was placed on the tail of the aircraft.