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Indian-AI merger, a buyout?

With more questions than answers, the biggest merger in recent times is something that is drawing a lot of attention.

india Updated: May 11, 2006 01:47 IST

The Rs 6,020 crore Indian wants to keep its accounting tight and pricing right as it goes into merger mode. Indian CMD Vishwapati Trivedi says it is business as usual till then.

As Indian CMD, Trivedi is on the board of directors of Air India and was part of the committee which was set up to appoint a consultant that will provide the tentpoles for the merger of the two national carriers.

Talking to the Hindustan Times, Trivedi said, “The merger, if done correctly, is certainly a great idea. The expressions of interest have been put up for this process to be taken forward. Within 21 days, the bids will be called for.” Trivedi said that no merger model could be ruled out at this stage. Various paradigms would be suggested and the consultant would be chosen on the strength of its skillsets in the aviation domain, legal process and evaluation methodology, he said. A valuation committee headed by N Vaghul, former ICICI chairman will then evaluate the bids and finalise the consultant.

So, what is the way forward because the complexities involved are enormous. Trivedi said, “There are a few models floating around. On of them is that a holding company is created for the two entities which is listed. The other parts of the company function as divisions for operational purposes. If that is not the model pursued, then the entire company can be listed. At this stage, one cannot say, although it is clear that the IPO will be of the combined entity.”

The question that begs an answer is what will the proceeds be used for? Trivedi reckons that the IPO could be used to pay for new purchases, setting up of new MROs and expansion of jet shops. Indian is expected to make a net profit of Rs 68 crore for March 31, 2006.

Trivedi also thinks that the merger process itself could be through a buyout, with Indian buying out Air India shares. The merger of the two behemoths will create a Rs 13,500 crore enterprise, but its margins are under intense pressure. What are imponderables before such a gargantuan exercise? At the kernel of any merger are human resources-related issues. While Civil Aviation Minister Praful Patel has told the Hindustan Times categorically that no employee would lose his job, there is a sense of trepidation.

With more questions than answers, the biggest merger in recent times is something that is drawing a lot of attention. Trivedi thinks that with Indian Airlines having undergone a brand transformation recently and turned into Indian, “it needs to continue in the overarching corporation in a prominent form, otherwise the brand arbitrage will be lost.” He is also of the opinion that, “the combined entity should have a new brand which is fresh. After all it is a merger of Indian and Air India, two equal partners. If the latter is allowed to prevail, then it will be demoralising for the other.”

First Published: May 11, 2006 01:47 IST