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Ib Ib Presentation Transcript

  • A PRESENTATION ON “Case of Failed Merger” Faculty Guide: Prof. Kshitija Tiwary Submitted by: CHETAN GABANI Enrollment No.:127110592067 TANVIE KHALIFA Enrollment No.:127110592110
  • What does this case talk about?  This case study is to be talk about:  Merger of the two aircraft company or issue  Reasons of the merger  Objectives of the merger  Problems:- Leads to Failure of the Merger  Anatomy of the failed merger.
  • Background to the Case  Air India: Air India, formerly named Tata Airlines was founded by JRD Tata. It was converted into a Public Limited Company on July 29th 1946 and renamed as Air India, primarily operating on international routes. Air India was based out of Mumbai.  Indian Airlines: The airline was set up on 1 August 1953 and operated on domestic routes. The airline was based out of New Delhi and had a pre-merger fleet of over 55 aircraft in 2006.  Interestingly both companies also made an attempt at merging in 1986 as well.
  • On July 15, 2007 Air India (AI) and Indian Airlines (IA) were merged to form a new company, the National Aviation Company of India Ltd. (NACIL)  The merger was brought about to solve certain aviation issues such as dipping profits, increase of fleet, and overcoming competition from new entrants.  Escalating costs of Aviation Turbine Fuel (ATF)  Immense competition from private and low cost airlines.  Increased cost pressures due to acquisition of additional aircraft.  Leadership crisis due to frequent change of the chairman-cum-managing director.  Air India could not fully use the bilateral rights unlike foreign airlines which took maximum advantage.  Declining passenger traffic in the premium class.
  • Merger tried to achieve  Economies of scale in areas such as maintenance, ground operations, the use of landing slots and parking rights etc.  Volume Discounts in areas such as fuel purchase, insurance.  Increased fleet size such that the combined fleet was of over 120 aircraft, currently over 150 aircraft, placing it among the top 10 airlines in Asia, and the top 30 in the world.  World wide airlines which could be achieved by the merger of the international and domestic airlines.  Leverage and pool-in of resources such as manpower, infrastructure and assets, better aircraft and resource allocation.
  • Post Merger Problems  Incomplete integration of official positions, of IT systems and as well as infrastructure due to different aircraft flown by the two companies, and inability of employee unions to accept merger.  Decline of customer service due to integration issues.  Ballooning of losses due to: o increasing prices of aircraft fuel. o decreased passenger traffic during recession. o unnecessary and costly acquisition of aircraft fleet.  Leadership crisis continues due to frequent change of CEOs (4 different CEOs in last 2 years)  Increased competition from domestic airlines as well as international airlines due to unfavorable government policies.
  • Operational Issues  The other operational factor responsible for the failure of the merger was the restructuring of routes.  Industry officials said that since 2007 about 40 routes had been restructured. Revenue creating profitable routes on which AI flights operated were cancelled.  The management cut down about 30 to 40 percent of flight operations. The Committee on Public Undertakings (COPU) had reviewed the slot allocations to all airlines including AI in 2011.  COPU members opined that the public carriers of India like AI were seriously affected because the commercial routes had been largely allocated to private airlines and also to foreign airlines...
  • Other issue  PC Sen former Chairman of AIL and also former CMD of IAL, opined that AIL and IAL had also expressed a similar opinion.  The Parliamentary standing committee on transport, tourism, and culture, in 2010 summarized the problems of the AI merger process.  It said that the first reason for the fall in the morale of the employees was changing the name of IA (Indian Airlines) which had had a good reputation in the market.
  •  Praful Patel, the aviation minister who led the Air India- Indian Airlines merger in 2007, has been keeping a low profile since a pilot strike stalled the airline's cash making international operations.  employees are transferred to new proposed unit for maintenance, repair and overhaul (MRO) operations. But, even here, workers want to be deputed rather than transferred.  No attempts were made to standardise hiring policies and training.  Air India was also hurt by the delay in integrating the two airline reservation systems. A single system allows it to sell tickets under one airline code.
  • Anatomy of failed merger  Appoint a professional CEO backed by a strong board of directors.  the government will have to control of day-to-day running of operations and appoint independent directors (an experiment attempted earlier).  Carry out the planned maintenance, repair and overhaul operations. Offer a voluntary retirement scheme if still necessary.  The government and the airline should be clear that the survival of both the airlines is difficult. But together with incentives, a charismatic leader and conditional support from the government, Air India could fly again.
  • Questions What are the main objectives of merger?  Economies of scale.  Volume Discounts.  Increased fleet size.  World wide airlines.  Leverage and pool-in of resources.  Star Alliance membership. What are the main reasons or problems that leads to failed the merger of two airlines?  Increased competition from domestic airlines.  Decline of customer service due to integration issues.
  • Conti…  Incomplete integration of official positions of IT systems .  Restructuring of routes.The management cut down about 30 to 40 percent of flight operations.  changing the name of IA (Indian Airlines) which had had a good reputation in the market.  losses due to: increasing prices of aircraft fuel decreased passenger traffic during recession  Leadership crisis continues due to frequent change of CEOs.
  • THANK YOU…