MERGER & ACQUISTION BETWEEN AIR INDIA AND INDIAN AIRLINES

MERGER & ACQUISTION BETWEEN AIR INDIA AND INDIAN AIRLINES

Introduction

Indian Airlines

Indian Airlines was India's premier airline. The fully state-owned airline was administered
by Ministry of Civil Aviation, Government of India. The airline came into existence in 1953,
with the enactment of the Air Corporations Act 1953. Indian Airlines started its operation
on August 1, 1953. It was entrusted with the responsibility of providing air transportation
within the country as well as to the neighboring countries in Asia. Based in Delhi, the
airline focuses at strengthening its dominance in the domestic circuit and providing world-
class services to its international passengers, traveling to and from its neighboring
countries.
Destinations
'Indians' transport network spans from Kuwait in the west to Singapore in the east and
covers 67 destinations (50 within India and 13 abroad). The destinations covered by the
airline in India include Port Blair, Hyderabad, Tirupati, Visakhapatnam, Dibrugarh,
Guwahati, Silchar, Gaya, Patna, Chandigarh, Raipur, Delhi, Goa, Ahmadabad, Jamnagar,
Vadodara, Rajkot, Jammu, Leh, Srinagar, Ranchi, Bangalore, Mangalore, Cochin, Calicut,
Thiruvananthapuram, Bhopal, Indore, Khujraho, Aurangabad, Mumbai, Nagpur, Pune,
Imphal, Aizwal, Dimapur, Bhubaneshwar, Amritsar, Jaipur, Jodhpur, Udaipur, Chennai,
Coimbatore, Madurai, Trichi, Agartala, Lucknow, Varanasi, Kolkata and Siliguri. The Indian
Airlines international network covers Maldives, Nepal, Colombo, Yangon, Kuala Lumpur,
Singapore, Bangkok, Bahrain, Kuwait, Muscat, Doha, Dubai and Sharjah. Presently, Indian
Airlines has a fleet of 70 aircraft, including Airbus A319-100, Airbus A320-200 and Airbus
A321-200.

Air India

Air India is India’s national Airline. Air India’s history can be traced to October 15, 1932. On
this day J.R.D. Tata, the father of Civil Aviation in India and founder of Air India, took off
from Drigh Road Airport, Karachi, in a tiny, light single-engine de Havilland Puss Moth on
his flight to Mumbai via Ahmadabad. Air India was earlier known as Tata Airlines. At the
time of its commencement, Tata Airlines consisted of one Puss Moth, one Leopard Moth,
one palm-thatched shed, one whole time pilot, one part-time engineer, and two apprentice-
mechanics. Tata Airlines was converted into a Public Company under the name of Air India
in August 1946.
On March 8, 1948, Air India International Limited was formed to start Air India’s
international operations. On June 8, 1948, Air India started its international services with a
weekly flight from Mumbai to London via Cairo and Geneva with a Lockheed Constellation
aircraft. In early 1950s due to deteriorating financial condition of various airlines, the
 MERGER & ACQUISTION BETWEEN AIR INDIA AND INDIAN AIRLINES

Government decided to nationalize air transport. On August 1, 1953 two autonomous

corporations were created. Indian Airlines was formed with merger of eight domestic
airlines to operate domestic services, while Air India International was established to
operate the overseas services. The word 'International' was dropped in 1962.
With effect from March 1, 1994, the airline has been functioning as Air India Limited.
Air India's worldwide network today covers 44 destinations by operating services with its
own aircraft and through code-shared flights. Important destinations covered by Air India
are Bangkok, Hong Kong, Jakarta, Kuala Lumpur, Osaka, Singapore, Tokyo, Seoul, Dar-es-
Salam, Nairobi, Frankfurt, London, Paris, Birmingham, Abu Dhabi, Al Ain, Bahrain,
Dammam, Doha, Dubai, Jeddah, Muscat, Riyadh, Kuwait, Los Angeles, Chicago, Newark, New
York, and Toronto. Air India’s fleet consists of 38 aircrafts. These include 12 Boeing 747-
400, 1 Boeing 747-400 COMBI, 2 Boeing 747-300 COMBI, 19 Airbus 310-300, and 4 Boeing
777-200.

MERGER OF AIR INDIA AND INDIAN AIRLINES

After being granted permission from the Government of India, on 15 July 2007, Indian
Airlines and Air India merged and started to operate as a single entity. Post-merger the
new airline will be renamed as Air India. This new airline is also a member of the Star
Alliance, the largest airline alliance.
As part of the merger process, a new company called the National Aviation Company of
India Limited (NACIL) was established, into which both Air India (along with Air India
Express) and Indian (along with Alliance Air) will be merged.
For the amalgamation of AIR INDIA Ltd. (Transferor No 1 Company) and INDIAN AIRLINES
Ltd. (Transferor No 2 Company) with NATIONAL AVIATION COMPANY of India ltd.
(Transferee Company) whereas, National Aviation Company of India Limited is a
Government Company within the meaning of Section 617 of the Companies Act, 1956 and is
under the administrative control of the Ministry of Civil Aviation.
This Scheme proposes the amalgamation of AI and IA in the Transferee Company, which
would result in consolidation of the business of all in one entity (i.e. National Aviation
Company of India Limited, the Transferee Company).

SHARE CAPITAL

As per the latest audited accounts on March 31, 2006 the capital structure of the Transferor
Companies is as under:

AIR INDIA

AUTHORIZED SHARE CAPITAL AMOUNT

42, 56, 36,820 Equity Shares of Rs. 10 each Rs. 425, 66, 38,200/-
74, 36,318 Redeemable Preference Shares Rs. 74, 36, 31,800/-
Rs. 100 each
Total Rs. 500, 00, 00,000/-
 MERGER & ACQUISTION BETWEEN AIR INDIA AND INDIAN AIRLINES

ISSUED, SUBSCRIBED & PAID-UP SHARE

CAPITAL
15, 38, 36,427 Equity shares of Rs. 10 each Rs. 153, 83, 64,270/-
fully paid

As on April 1, 2007 the Authorized Capital, the Issued, Subscribed and Paid up Share
Capital of AI remains the same.

INDIAN AIRLINES

AUTHORIZED SHARE CAPITAL AMOUNT

94, 99, 58,200 Equity Shares of Rs. 10 each Rs. 949, 95, 82,000/-

50, 04,180 Redeemable Preference Shares Rs. 50, 04, 18,000/-

Rs.100 each
Total Rs. 1000, 00, 00,000/-
ISSUED, SUBSCRIBED & PAID-UP SHARE
CAPITAL AMOUNT
43, 21, 36,489 Equity shares of Rs. 10 each
fully paid Rs. 432, 13, 64,890/-

As on April 1, 2007 the Authorized Capital, the Issued Subscribed and Paid up Share Capital
of IA remains the same.
As on April 1, 2007 the capital structure of the Transferee Company is as under:

Transferee Company – National Aviation Company of India Limited (NACIL)

AUTHORIZED SHARE CAPITAL AMOUNT

50,000 Equity Shares of Rs. 10 each Rs. 5, 00,000/-
ISSUED, SUBSCRIBED & PAID-UP SHARE
CAPITAL
50,000 Equity Shares of Rs. 10 each Rs. 5, 00,000/-
 MERGER & ACQUISTION BETWEEN AIR INDIA AND INDIAN AIRLINES

Reasons of Merger

Merger of the Transferor Companies with the Transferee Company, along with a
comprehensive transformation program, is imperative to improve competitiveness. It will
provide an opportunity to leverage combined assets and capital better and build a stronger
sustainable business. Specifically, the merger will -

• Create the largest airline in India and comparable to other airlines in Asia. The merger
between the two state-run carriers will see the beginning of the process of consolidation in
the Indian aviation space - the fastest growing in the world followed by China, Indonesia
and Thailand.

• Provide an Integrated international/ domestic footprint which will significantly enhance

customer proposition and allow easy entry into one of the three global airline alliances,
mostly Star Alliance with global consortium of 21 airlines.

• Provide an opportunity to leverage skilled and experienced manpower available with

both the Transferor Companies to the optimum potential.

• Provide a larger and growth oriented company for the people and the same shall be in
larger public interest.

Potential to launch high growth & profitability businesses (Ground Handling Services,
Maintenance Repair and Overhaul etc.)

FINANCIAL CRISIS

Around 2006-2007, the airlines began showing signs of financial distress. The combined
losses for Air India and Indian in 2006-07 were 770 crores ( 7.7 billion).
After the merger of the airlines, this went up to 7,200 crores ( 72 billion) by March
2009. [5]
This was followed by restructuring plans which are still in progress. [6] In July 2009, SBI
Capital Markets Ltd was appointed to prepare a road map for the recovery of the airline. [7]
The carrier sold three Airbus A300 and one Boeing 747-300M in March 2009 for $18.75
million to survive the financial crunch. [8]

To prove that Air India was on a growth path, the carrier has further informed that its
higher passenger carriage and improved load factor during October-December 2009 has
contributed to reduction in its losses by 25 per cent from Rs 1,152.44 crore in October-
December 2008 to Rs 864.33 crore in October-December 2009.
Air India carried 3.17 million passengers in October-December 2009, as against 2.54
million in the like quarter the earlier year. Similarly, its load factor rose from 55.3 per cent
in October-December 2008 to 69.7 per cent in October-December 2009.
 MERGER & ACQUISTION BETWEEN AIR INDIA AND INDIAN AIRLINES

NACIL currently has 111 aircraft on order. These include Boeing and Airbus aircraft, of
which it has already received 54 so far. While Air India (international) will get 68 Boeing
aircraft, Air India (domestic) will get 43 Airbus jets.
The cash-strapped national carrier posted a loss of Rs 7,200 crore last fiscal. The airline,
which has been incurring losses since 2004-05, had problems paying salaries to 31,500
employees last year.
The airline, which approached the government for a bailout package, has been assured of
an equity infusion of Rs.400 crore by this month-end. But it has been asked to adopt cost-
cutting measures and reduce costs by at least Rs.2,000 crore by the end of the current
fiscal.