An attempt by their joint board of directors to bring Air-India and Indian Airlines together under a single holding company has provoked a furious response from the Indian Government. Heading off what it saw as a management attempt to begin merging the two state-owned carrier's, the government swiftly dissolved their joint board and sacked its chairman.
A senior civil aviation ministry official, P V Jayakrishnan, has been appointed chairman of a new Air-India board - although Michael Mascar-enhas remains as managing director. Another official, Anil Baijal, is chairman and managing director at Indian Airlines.
Civil aviation minister Ananth Kumar sought to justify the sacking of the joint board, saying it is part of the restructuring. "The joint board's decision to set up a holding company as a precursor to full merger would have put up a hurdle in the path of disinvestment and the turnaround of the two airlines," he claims.
The minister adds that the merger of two unprofitable airlines did not make good commercial sense and would have hit the turnaround strategy. "What we brought about by restructuring is a systemic change where individuals do not matter," he adds.
The joint board's proposal had aimed to bring the two carriers under the same umbrella company with a single balance sheet - a structure designed to achieve "synergy in the short-term, leading to a merger in the long-term". Ministry officials objected to the proposals at the board meeting but were outvoted.
The officials claim that the merger decision was in fact intended to derail the privatisation process rather than to achieve a synergy of operations. "Disinvestment is the top priority and the process will be expedited," says new chairman P V Jayakrishnan.
The disinvestment commission, a government body, has recommended a 40% sell-off of Air-India equity to a strategic partner with 10% earmarked for financial institutions and another 10% for the airline's employees. The government also intends to sell a 51% stake in Indian Airlines over three years.
The government's swift action, took the directors by surprise, cutting short their term by one and a half years. - it was due to end in March 2000.
Source: Airline Business
