28-Apr-2006 10:00 AM

Air India and Indian Airlines merger will create shareholder value - CAPA

Press Release

(Mumbai: 27 April 2006) Andrew Miller, CEO of the Centre for Asia Pacific Aviation (CAPA), predicted the Indian Government would succeed in creating an internationally competitive carrier by merging Air India and Indian Airlines, but warned that several challenges lie ahead.

Miller, the architect of several successful airline turnaround projects, stated the Government is in an ideal position to utilise the most successful components of previous airline restructuring efforts.

"The ideal outcome for any merger is that revenue is maximised through built-in synergies and costs lowered through economies of scale. However, many airlines don't manage to achieve this. The Indian Government's advantage is that it can learn from previous mistakes in other countries," stated Miller.

Miller cited previous mergers in the UK, Australia and New Zealand as examples of successful results, while warning that those merger processes took too long. The reduction in staff and overlapped resources has been a key area of underperformance in previous consolidation efforts.

"Mergers are not new and it is important to learn from international precedents, but the Government must remain conscious of the difficulty of resolving important operational issues. The time taken to complete a successful merger is also often underestimated," warned Miller in his much-anticipated presentation.

Miller noted the tremendous growth opportunities of India's air travel market, particularly with government policies supporting long-term growth through deregulation.

However, Air India and Indian Airlines, are "currently not well placed to create shareholder value" from this deregulation, he said. The carriers are constrained by limited capital, over-regulation and lack of market power.

"Aside from the serious infrastructure constraints faced by Indian carriers across the board, Air India and Indian Airlines will face increased competition in an environment of rising costs. This is not a formula for financial success and the creation of shareholder value," stated, Mr Miller.

"It is better [for the Indian Government] to promote India overseas with one airline, and one voice", concluded Mr Miller at the CAPA Summit.

The Centre's Middle East and Indian Subcontinent Aviation and Tourism Investor Summit, held in Mumbai, features high level participants, including the Hon Shri Praful Patel, Minister for Civil Aviation. It concludes today.