Advanced Financial Management

A report on
Mergers in the Aviation industry

Professor-in-charge: Diwahar Nadar

Date of submission: 22nd August 2016
TYBBA D Group 3
Anvit Baliga
Apoorve
Awal Singh Gandhi
Bhaktee Modgil
Bhaveen Doshi

Introduction
Indian Airlines
Indian Airlines was a state owned airline administered by the ministry of civil aviation. It
commenced operations on the 1st of august 1953. The airline was based in Delhi and focused on
domestic routes & international routes in neighboring Asian countries. Indian airlines was
rebranded as Indian in 2005 to revamp its image in preparation for an IPO. Britains financial
times described Indian airlines as the worlds third largest domestic carries in the mid-1980s. The
airline has many firsts to its credit, like the introduction of the wide-bodied A300 aircraft on the
domestic network, the fly by wire A320, Domestic shuttle service, and walk in flights. Its fleet
consisted of 52 aircrafts in 2000. The airline carried 10 million passengers in 1987 and earned a
profit of Rs. 630 million.
Nine new independent airlines were launched in the early 1990s after deregulation. There were
pilots strikes in Indian Airlines because a rival airline called East west airlines offered much more
attractive wages, this happened during 1992 peak winter tourist season and lost Rs 2.11 billion
because of this. The reputation of Indian airlines dropped severely after this, prompted by a series
of accidents, big and small, happening time and again. In 1998, a plan was proposed to merge Air
India and Indian airlines, along with the Helicopter Corporation of India and Indian subsidiary
alliance air. Both airlines were losing money and needed a major upgrade to their fleets, and the
merger was planned in hopes of saving some money on various functions. However the ministry of
civil aviation dismissed these plans.
Indian airlines earned $ 60.2 million from its cargo operations and later decided to make cargo a
separate profit center. In 2001, during reorganization, the airline trimmed many positions from its
managerial staff but still had a loss of Rs. 175.25 cr in 2000-01 majorly because of rising fuel costs
in India. It could have made profits of Rs.50 cr otherwise.
In 2001, the government put up the company on sale but only got 2 buyers, Videocon international
and hinduja group. Both were problematic because video con was suspended from the capital
market for allegedly rigging its share price and the latter was under investigation for an alleged
scam. In November of the same year, the civil aviation ministry announced that it would grand
Rs.9000 cr to Indian Airlines so that 40 new planes could be bought.
State-Owned Company
Incorporated:1953 as Indian Airlines Corporation
Employees:22,500
Sales:Rs 3,755 crore ($1 billion) (2001)
NAIC:481111 Scheduled Passenger Air Transportation; 481112 Scheduled Freight Air
Transportation; 481211 Nonscheduled Chartered Passenger Air Transportation; 481212
Nonscheduled Chartered Freight Air Transportation

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ndian-Airlines-Ltd.html#ixzz4HQ3eq9gz
Air India
Air India began operations named as Tata airlines, in 1932 carrying mail and passengers between
the Indian cities of Ahmedabad, Mumbai, Bellary, Madras and Karachi. In 1946, it was renamed to
Air India limited, after it became a public company and within two years with a 49% government
2

stake, it started flying out to Cairo, Geneva and London, and renamed itself to Air India
international limited.
It enjoyed a lot more success in the aviation sector than most other developing companies,
because it hired native pilots and skilled Indian staff rather than hiring ex-pats.
In 1953 too many airlines came up and to handle this problem the government took control of all of
them and created two corporations, Indian Airlines Corporation and air India International
Corporation. In the 1970s it went through a tough phase and suffered net losses because of the
downtrodden economy.
These problems didnt stop air Indias productivity which was at a high and doubled
from 1974-75 to 1983-84. In 1985 air India flew 8.1 billion passenger-kilometers ,
which was the reason the International air transport association ranked the airline 15th
out of 136 member airlines. The airline still had major staff and structural problems, where in pilots
refused to fly longer than 9 hours due to which they had too many stops during a flight, and most
refueling was done outside Indian borders because of the cost of fuel being too high in the country.
in the 1990s air India suffered major losses, and gained the now well known reputation of having
poor service and bad on time performance. The company lost $171 million. Air India was know for
dropping and adding routes to its network to cut costs. The company planned on raising cash by
selling Hotel Corporation of India subsidiary worth at least $220 million and some older Boeing
747-200s valued at $60 million. However the company still owed $900 million on new aircraft
purchases & found itself short of medium sized aircrafts too.
After the planned merger was cancelled, even more cost cutting measures were to be
implemented, like reducing its annual payroll costs of $40 million, and Air transport world reported
that $23 million was trimmed from other areas.
Attempts to privatize air India were made in 2000-01, but it did not work out. The ministry of civil
aviation charged the MD at that time with corruption, and he was later suspended.

State-Owned Company
Incorporated:1946
Employees:18,700
Sales:Rs 3.81 billion (US $1.01 billion) (1997)
SICs:4516 Air Transportation, Scheduled

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ir-India-Limited.html#ixzz4HQ3kePHm
The Merger
Air India and Indian airlines were merged into Air India Limited and was incorporated under the
companies act 1956 on the 30th of March 2007. The government of India owns it and is head
quartered in Mumbai. On completion of the merger on 26 th February 2011, there is now one primary
airline called Air India, with 2 subsidiaries, Air India express and air India region and AIL carriers for

cargo operations.