“Case of Failed Merger”
Prof. Kshitija Tiwary
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
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
Leadership crisis due to frequent change of the
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
Volume Discounts in areas such as fuel purchase,
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 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
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
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
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
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
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
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
No attempts were made to standardise hiring policies
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
the government will have to control of day-to-day running of
operations and appoint independent directors (an experiment
Carry out the planned maintenance, repair and overhaul
operations. Offer a voluntary retirement scheme if still
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.
What are the main objectives of merger?
Economies of scale.
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.
Incomplete integration of official positions of IT
Restructuring of routes.The management cut
down about 30 to 40 percent of flight
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
Leadership crisis continues due to frequent
change of CEOs.