1. Air India – Indian Airlines Merger
Analyzing what went wrong in the Air India – Indian Airlines Merger
By Group 3
Utkarsh (8)
Mridu (9
Priyanka (18)
Vaibhav (41)
Mallika (47)
Anirudh (53)

2. What does this case talk about?
 The Issue: 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 Reasons: The merger was brought about to
solve certain aviation issues such as dipping
profits, increase of fleet, and overcoming
competition from new entrants
 The Result: The merger has brought additional
problems for the airlines and the recent
Parliamentary Committee of March 2010 has
termed the merger as a "marriage of incompatible

3. 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

4. Reasons leading to the Merger
 Escalating costs of Aviation Turbine Fuel (ATF)
 Immense competition from private and low cost
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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

5. What the merger tried to achieve
 Economies of scale in areas such as
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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
Hub and spoke system 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

6. Challenges and Obstacles
 Employee opposition due to fear of retrenchment,
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and redundancy of roles
Union issues and distrust as both companies had
strong unions which would oppose any kind of
wage and operational changes
Operational differences as both the airlines
followed completely different pay structures and
airline routes which could result in a conflicts of
interests situation
Different fleet compositions of the airlines would
create complications in inventory management,
maintenance, repair establishments, and pilot
training
IT integration as both airlines had separate fleets
and flight booking operations

7. Merged Entity Logo

8. 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 ATF
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

9. Pre and Post Merger Profit and
Loss

10. Thank You