‘We are damaging each other in competition’

AI chairman V Thulasidas is on the threshold of making history. Besides helping AI earn a profit since he has been at its helm, he would oversee a path-breaking merger with Indian. The merger has to be completed by March 2007 and it would make the new entity the biggest airline in Asia. In an exclusive interview, Thulasidas shared with Hardnews the philosophy behind the speedy merger. Sanjay Kapoor DelhiWhat is the real compulsion to have a merger in this crisis year?We found that today the two airlines Air India (AI) and Indian Airlines (IA) are performing almost a similar role. There was a time when IA was the only one to fly domestic routes. AI was always in competition with foreign airlines. So these two airlines had clearly demarcated regions and at that point of time and there was no need of merger. With the opening up of the civil aviation sector, IA is now free to go anywhere in the world. AI similarly is free to fly within India. Two airlines owned by the same owner are doing exactly the same thing and the company is paying a price for that. They are damaging each other in the process of competition.Why are they damaging you as the private players are also doing the same thing?No, if the two airlines have the same owner then these two airlines should compete against other private airlines rather than amongst themselves. But there is much bigger competition in the huge international airlines market. The competition from these airlines is much greater because AI faces it day in and day out. The local private airlines and large international airlines market has become so huge that unless you have the latest in terms of technology, networks and the clout to face the competition you won’t survive. We are small airlines and we have 40 odd aircraft, which is nothing compared to other players in the international aviation sector. There are 500 plus aircraft airlines. We are going to become an airline of 125-150 aircraft, which is going to make us one of the biggest airlines in Asia. China has more aircraft because there are four airlines and all of them form a huge fleet.  Similarly, if we also include Jet Airways and other private carriers we become a big unit. The difference is that China is expanding and they order their aircraft in a combined fashion. A lot of airlines who work separately come together and buy their aircraft together, unlike in India. When they buy Boeing aircraft, an entire Chinese team led by the president and prime minister go to Washington to sign the deal. What we need is a larger fleet so that we can negotiate with manufacturers, hotels and suppliers. So these couple of factors provide the logic for this merger. Ministry has already come to AI asking us to engage a consultant on behalf of both airlines. The consultant needs to propose a roadmap for the merger. So when are you going to advertise?We have issued advertisements and are waiting for the proposals.Did you anticipate any kind of employee unrest due to merger in IA and AI?The indications are that employees of both airlines find merger to be as inevitable and essential as the government itself. We have had discussion with employees in AI but it was an informal discussions. Whoever I spoke to about merger agreed and said that it is required. We are at discussions with the senior management in AI and everyone said that inevitably we have to have a merger. The most logical consequence of merger is that people are going to be off loaded.The government has made very clear there will be no loss of employment and no loss of job.Employees do not benefit by merger. Do they? Employees will benefit ultimately because they will be part of much larger entity or much larger organisation. The main motive is to see that at the end of the day employees are there to see if the passengers gain. Ultimately the passengers have to gain and in this case the country has to gain. The national carrier of India to some extent should reflect the mind, strength and power of India. We need many airlines but we must have a national carrier which can truly reflect India. What about short haul routes for AI?That is the problem that AI and IA have to sit down and talk about it. After the merger, the consideration would be different and not which airline flies which route. Small aircraft would fly on small routes and bigger aircraft fly bigger routes.I will give you an example of how we can gain something. Suppose four IA fly to Singapore and AI flies another four so eight flights between India and Singapore. Mostly, what happens is that their load is generally low as we are competing against each other. After merger, we don’t need eight flights and we can rationalise it to six that can carry a greater load and thus save on everything. Do you think that this merger has also been done primarily because of the merger of Jet Sahara airlines? Why talk only about the Jet Sahara merger? Merger and consolidation has been happening in the aviation sector for a very good reason. Lufthansa and Swiss Air have come together. Some two or three airlines in US have come together. So consolidation of merger is happening in the aviation sector because this is a business of very high costs and limited margins. There are airlines in the world that are actually losing money, especially in the US. Airlines need to just stay afloat as there is no real profit there. So in these high cost regime it makes sense to save resources, merge and consolidate.What happens to AI Express?Now that is something we have to decide. If you merge mainstream single airlines then we have to decide what we should do with a subsidiary airline like AI express. Indian has Alliance Air as its subsidiary. When we become one merged airline we can think of a subsidiary airline too. Perhaps, the subsidiary airline can operate internationally and domestically as a low cost airline. The main airlines can operate as a regular premium airline. That could be one way. We are also contemplating having subsidiaries for ground handling, maintenance. The lease of three 747 lease has expired. How will you handle this short term shortage till 2007?  Aircraft these days are not easily availableThose three aircrafts have finished their lease and they have to go back. We have issued a tender and we have received some proposals. I don’t know about the details and we are on the lookout for three aircraft and of course the leasing market is very tight. AI has a lot of old aircraft but I am not in favour of taking on lease anymore older aircraft. In fact, the 737-800 that we have taken on lease for AI express are brand new aircraft. You had a wage revision in April?We did it for certain categories of employees, not for all. Wage revision in a public sector undertaking is done when the company has been earning profits for the past few years. That is the guideline of the government AI has been earning profits for the last five years.