“We are damaging each other in competition.”

Air India  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 Delhi

What is the real compulsion to have a merger in this crisis year?

We found that today the two airlines Air India (AI) and Indian (Formerly known as Indian Airlines) are performing almost a similar role. There was a time when Indian 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.

How is competition between the two airlines damaging? Aren't the private players also doing the same

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 and  AI is facing it on a daily basis. 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. We are a small airline having only 40 aircraft, which is nothing compared to other players in the international aviation sector. There are airlines with 500 plus aircraft. Soon 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 the prime minister goes to Washington to sign the deal. What we need is a larger fleet so that we can negotiate better with manufacturers, hotels and suppliers. All these factors provide the logic for this merger. The ministry has already asked AI to engage a consultant on behalf of both the 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 of Indian and AI?

The indications are that employees of both airlines find merger to be as inevitable and essential as the government itself. We have talked with employees in AI but it was an informal discussions. We also discussed this issue with the senior management in AI and everyone was agreed to the idea of a merger.

The most logical consequence of merger is that emplyoees get off loaded.

The government has made it very clear that there will be no loss of employment. Infact the 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 the passengers gain from the merger and the country also has to gain.We need  many airlines but we must have a national carrier of India that reflects the mind, strength and power of India.

What about short haul routes for AI?

That is one problem that AI and Indian have to sit down and talk about. After the merger, the considerations would be different from what we are facing today like which airline flies which route. Small aircraft will fly on shorter routes and bigger aircraft will fly longer routes.

I will give you an example of how we can gain something. Suppose four Indian aircraft fly to Singapore and AI flies another four then together we fly eight flights between India and Singapore. Presently what is happening is that their load is generally low as we are competing against each other. After the 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 good reasons. Lufthansa and Swiss Air have come together. Some two or three airlines in US have come together. So consolidation of airlines is happening in the aviation sector. 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 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 among others.

The lease of three 747 aircraft has expired. How will you handle this shortage till 2007?  Aircraft these days are not easily available.

Those three aircraft 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 as you rightly say 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. So a wage revision wa justified.