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Merger between Air India and Indian Airlines

INDIAN AIRLINES

The former Indian Airlines Limited or presently known as Indian, was India ‘s first province owned domestic air hose. Indian Airlines was set up under the auspices of federal Union Ministry of Civil Aviation and based in New Delhi. Its chief bases were the international airdromes in Chennai, Mumbai, Kolkata and New Delhi. It has now been merged with Air India for corporate intents, though for now, continues to publish its ain tickets.

.Indian Airlines came into being with the passage of the Air Corporations Act, 1953. It was renamed “ Indian ” on December 7, 2005. Indian Airlines started its operations from 1st August, 1953, with a fleet of 99 aircraft and was the result of the amalgamation of seven former independent air hoses, viz. Deccan Airways, Airways-India, Bharat Airways, Himalayan Aviation, Kalinga Air Lines, Indian National Airways and Air Services of India. The twelvemonth 1964 saw the Indian Airlines traveling into the jet epoch with the debut of Caravelle aircraft into its fleet followed by Boeing 737-200 in the early 1970. Along with its entirely owned subordinate Alliance Air, it flies a fleet of 70 aircraft including Airbus A300, Airbus A320, Airbus A319, Boeing 737, Dornier Do-228, ATR-4, Airbus A319, A320 & A ; A321. Along with Indian metropoliss, it flies to many foreign finishs which include Kuwait, Singapore, Oman, UAE, Qatar, Bahrain, Thailand, Singapore, Malaysia, and Myanmar besides Pakistan, Afghanistan, Nepal, Bangladesh, Sri Lanka and Maldives.

Indian Airlines Flight free tally over the Indian skies ended with the entry of private bearers after the liberalisation of the Indian economic system in the early 1990 ‘s when many private air hoses like Jet Airways, Air Sahara, East-West Airlines and ModiLuft entered the disturbance. The entry of low-priced air hoses like Air Deccan, Kingfisher Airlines and Spice Jet has revolutionized the Indian air power scenario.

Indian has been a innovator in the air power scene in India. It was the first air hose in India to present the wide-bodied A300 aircraft on the domestic web, the fly-by-wire A320, walk in flights and easy menus. It flies to 76 finishs – 58 within India and 18 abroad. It has a entire employee strength of around 19,300 employees along with Alliance Air and carries over 7.5 million riders yearly, along with Alliance Air.

The chief base of the Indian air hoses are Chatrapati Shivaji International Airport, Mumbai ; Indira Gandhi International Airport, Delhi ; Netaji Subhash Chandra Bose International Airport, Kolkata ; Chennai International Airport, Chenna I.

After being granted permission from the Government of India, on 15 July 2007, Indian Airlines and Air India merged and started to run as a individual entity. Post-merger the new air hose will be renamed as Air India. This new air hose is besides a member of the Star Alliance, the largest air hose confederation. The authorities allowed the formation of a few new limited service air hoses in the seventiess: Air Works India, Huns Air, and Golden Sun Aviation. None of them had long life spans. Around 1979, IAC dropped the word “ Corporation ” from its name.

Britain ‘s Financial Times described Indian Airlines as the universe ‘s 3rd largest domestic bearer in the mid-1980s. With concern turning at better than 10 per centum a twelvemonth, it was increasing its capacity as portion of a program to unify Indian Airlines with Air-India, the province ‘s international bearer, two taking immature industrialists were appointed to chair the boards of the two companies in fall 1986. Neither these programs nor the new presidents lasted really long. In 1987, Indian Airlines carried 10 million riders and earned a net income of Rs630 million ( $ 48 million ) . However, the quality of its service was confronting unfavorable judgment, to be heightened by the coming entry of new bearers into the market.

Amalgamation of Air India Limited and Indian Airlines Limited with National Aviation

Company of India Limited

The Government of India, on 1 March 2007, approved the amalgamation of Air India and Indian Airlines. Consequent to the above, a new Company viz National Aviation Company of India Limited ( NACIL ) was incorporated under the Companies Act, 1956 on 30 March 2007 with its Registered Office at Airlines House, 113 Gurudwara Rakabganj Road, New Delhi. The Certificate to Commence Business was obtained on 14 May 2007.

SCHEME OF AMALGAMATION

Nether SECTIONS 391-394 OF THE COMPANIES ACT 1956

For the merger of AIR INDIA Ltd. ( Transferor No 1 Company ) and INDIAN AIRLINES Ltd. ( Transferor No 2 Company ) with NATIONAL AVIATION COMPANY of India limited company ( Transferee Company ) whereas,

National Aviation Company of India Limited ( the Transferee Company ) is a Company incorporated under the Companies Act 1956, holding its registered office at Airlines House, 113 Gurudwara Rakabganj Road, New Delhi 110 001.

National Aviation Company of India Limited is a Government Company within the significance of Section 617 of the Companies Act, 1956 and is under the administrative control of the Ministry of Civil Aviation. National Aviation Company of India Limited has been established as a Government Company to be engaged in the concern as an air hose for supplying air conveyance and allied services.

This Scheme proposes the merger of AI and IA in the Transferee Company, which would ensue in consolidation of the concern of all in one entity ( i.e. National Aviation Company of India Limited, the Transferee Company ) .

( a ) The Scheme proposes to mix each of the Transferor Companies ( viz AI and IA ) with

the Transferee Company ( viz. National Aviation Company of India Limited ) .

Share Capital

2.1.1 As per the latest audited histories on March 31, 2006 the capital construction of the Transferor

Companies is as under:

A. Transferor Company No 1 – Air INDIA

AUTHORIZED SHARE CAPITAL

Sum

42, 56, 36,820 Equity Shares of Rs. 10 each

Rs. 425, 66, 38,200/-

74, 36,318 Redeemable Preference Shares Rs. 100 each

Rs. 74, 36, 31,800/-

Entire

Rs. 500, 00, 00,000/-

ISSUED, SUBSCRIBED & A ; PAID-UP SHARE CAPITAL

Sum

15, 38, 36,427 Equity portions of Rs. 10 each to the full paid

Rs. 153, 83, 64,270/-

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

AI remains the same.

B. Transferor Company No 2 – INDIAN AIRLINES

AUTHORIZED SHARE CAPITAL

Sum

94, 99, 58,200 Equity Shares of Rs. 10 each

Rs. 949, 95, 82,000/-

50, 04,180 Redeemable Preference Shares Rs.100 each

Rs. 50, 04, 18,000/-

Entire

Rs. 1000, 00, 00,000/-

ISSUED, SUBSCRIBED & A ; PAID-UP SHARE CAPITAL AMOUNT

43, 21, 36,489 Equity portions of Rs. 10 each to the full paid Rs. 432, 13, 64,890/-

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

Iowa remains the same

As on April 1, 2007 the capital construction of the Transferee Company is as under:

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

AUTHORIZED SHARE CAPITAL

Sum

50,000 Equity Shares of Rs. 10 each

Rs. 5, 00,000/-

ISSUED, SUBSCRIBED & A ; PAID-UP SHARE CAPITAL

Sum

50,000 Equity Shares of Rs. 10 each

Rs. 5, 00,000/-

Transportation of Assetss

With consequence from the Appointed Date and upon the Scheme going effectual, the Transferor Companies shall be transferred to and be vested in and/or be deemed to hold been transferred to and be vested in and managed by the Transferee Company, as a traveling concern, without any farther title or act, together with all its belongingss, assets, rights, benefits and involvement therein, capable to bing charges thereon in favour of Bankss and fiscal establishments or otherwise, as the instance may be and as may be modified by them, capable to the commissariats of this Scheme, in conformity with Sections 391-394 of the Act and all other applicable commissariats of jurisprudence, if any.

Without bias to Clause 3.1 above in regard of such of the assets of the Transferor Companies as are movable in nature or intangible belongings or are otherwise capable of transportation by manual bringing or by indorsement and bringing including works, aircraft, machinery and equipments, the same shall be so transferred or shall be deemed to be so transferred to the Transferee Company and shall upon such transportation become the belongings and an built-in portion of the

Transferee Company. In regard of such of the said assets other than those referred hereinabove, the same shall, without any farther act, instrument or title, be vested in and/ or be deemed to be vested in the Transferee Company in conformity with the commissariats of Section 394 of the Act.

Transportation of Liabilitiess

( a ) With consequence from the Appointed Date and upon the Scheme going effectual, all debts, liabilities, responsibilities and duties, secured or unbarred, and whether or non provided for in the books of histories of the Transferor Companies, whether disclosed or undisclosed in the balance sheet, shall be the debts, liabilities, responsibilities and duties of the Transferee Company and the Transferee Company undertakes to run into, discharge and fulfill the same.

( B ) Where any of the liabilities and duties attributed to the Transferor Companies on the Appointed Date has been discharged by the Transferor Companies after the Appointed Date and prior to the Effective Date, such discharge shall be deemed to hold been for and on behalf of the Transferee Company.

All loans raised and used and liabilities incurred by the Transferor Companies after the Appointed Date but before the Effective Date for operations of the Transferor Companies shall be loans and liabilities of the Transferee Company.

Any guarantee/letter of comfort/commitment missive given by the Government or any bureau or bank in favour of the Transferor Companies with respect to any loan or rental finance shall go on to be operative in relation to the Transferee Company

Contracts, Deeds, Approvals, Exemptions etc

( a ) With consequence from the Appointed Date and upon the Scheme going effectual, all contracts, workss, bonds, understandings, strategies agreements, insurance policies, insurances, warrants and other instruments of any nature in relation to the Transferor Companies, or to the benefit of which the Transferor Companies may be eligible, and which are existing or holding consequence instantly before the Effective Date, shall be in full force and consequence on or against or in favour of the Transferee Company and may be enforced as to the full and effectually as if, alternatively of

the Transferor Companies, the Transferee Company had been a party or beneficiary or oblige

thereto.

( B ) With consequence from the Appointed Date and upon the Scheme going effectual, all rights and licences associating to hallmarks, know-how, proficient know-how, trade names, descriptions, trading manner, franchises, labels, label designs, Sons, emblems, and points of such nature, colour strategies, public-service corporation theoretical accounts, holographs, saloon codifications, designs, patents, right of first publications, privileges and any rights, rubric or involvement in rational belongings rights in relation to the Transferor Companies to which the Transferor Companies are a party or to the benefit of which the Transferor Companies may be entitled /eligible shall be in full force and consequence on, or against, or in favour of, the Transferee Company as the instance may be, and may be enforced as to the full and effectually as if, alternatively of the Transferor Companies, the Transferee Company had been a party or beneficiary or oblige thereto.

( degree Celsius ) The Transferee Company shall be entitled to the benefit of all insurance policies which have been issued in regard of the Transferor Companies and the name of the Transferee Company shall be substituted as “ Insured ” in the policies as if the Transferee Company was ab initio a party

( vitamin D ) With consequence from the Appointed Date and upon the Scheme going effectual the Transferee Company shall replace the Transferor Companies in the several Air Services Agreements as the designated bearer of India.

With consequence from the Appointed Date and upon the Scheme going effectual, all licenses including runing licenses, quotas, rights, entitlements, licences including those associating to occupancies, clip slots ( including those at foreign airdromes hallmarks, patents, transcript rights, privileges, powers, installations of every sort and description of any nature in relation to the Transferor Companies, including specifically, licences and licenses for operating as air hoses and bearers of riders, lading and mail, and all rights associating thereto to the benefit of which the Transferor Companies may be eligible and which are existing or holding consequence instantly before the Effective Date, shall be and stay in full force and consequence in favour of or against the Transferee Company, and may be enforced to the full and effectually as if, alternatively of the Transferor Companies, the Transferee Company had been a beneficiary or oblige thereto.

With consequence from the Appointed Date and upon the Scheme going effectual, any statutory licences, permissions, blessings, freedom strategies, or consents required to transport on operations in the Transferor Companies, severally, shall stand vested in or transferred to the Transferee Company without any farther act or title, and shall be suitably mutated by the statutory governments concerned therewith in favour of the Transferee Company. The benefit of all statutory and regulative permissions, licences, environmental blessings and consents including the statutory licences, permissions or blessings or consents required to transport on the operations of the Transferor Companies shall enthrone in and go available to the Transferee Company pursuant to

the Scheme. The Transferee Company, at any clip after the Scheme going effectual in conformity with the commissariats hereof, if so required under any jurisprudence or otherwise, will put to death workss of verification or other Hagiographas or agreements with any party to any contract or agreement in relation to the Transferor Companies to which the Transferor Companies are a party in order to give formal consequence to the above commissariats. The Transferee Company shall, under the commissariats of this Scheme, be deemed to be authorized to put to death any such Hagiographas on behalf of the Transferor Companies and to transport out or execute all such formalities or conformities, referred to above, on behalf of the Transferor Companies.

Reasons of Amalgamation

Amalgamation of the Transferor Companies with the Transferee Company, along with a comprehensive

transmutation plan, is imperative to better fight. It will supply an chance

to leverage combined assets and capital better and construct a stronger sustainable concern.

Specifically, the amalgamation will –

aˆ?

Make the largest air hose in India and comparable to other air hoses in Asia. The amalgamation between the two state-run bearers will see the beginning of the procedure of consolidation in the Indian air power infinite – the fastest growth in the universe followed by China, Indonesia and Thailand.

aˆ?

Supply an Integrated international/ domestic footmark which will significantly heighten client proposition and let easy entry into one of the three planetary air hose confederations, largely Star Alliance with planetary pool of 21 air hoses.

aˆ?

Enable optimum use of bing resources through betterment in burden factors and outputs on normally serviced paths every bit good as deploy ‘freed up ‘ aircraft capacity on surrogate paths. The amalgamation had created a mega company with combined gross of Rs 150 billion ( $ 3.7billion ) and an estimated fleet size of 150. It had a diverse mix of aircraft for short and long draw ensuing in better fleet use.

aˆ?

Supply an chance to to the full leverage strong assets, capablenesss and substructure.

aˆ?

Supply an chance to leverage skilled and experient work force available with both

the Transferor Companies to the optimal potency.

aˆ?

Supply a larger and growing oriented company for the people and the same shall be in

larger public involvement.

Potential to establish high growing & A ; profitableness concerns ( Ground Handling Services,

Maintenance Repair and Overhaul etc. )

aˆ?

Provide maximal flexibleness to accomplish fiscal and capital restructuring through

reappraisal of assets.

aˆ?

Supply an increased push and concentrate on air hose support concerns.

aˆ?

Economies of graduated table enabled paths rationalisation and riddance of path duplicate. This resulted in a economy of Rs1.86 billion, ( $ 0.04 billion ) and the new air hoses will be offering more competitory menus, winging seven different types of aircraft and therefore being more versatile and utilizing assets like existent estate, human resources and aircraft better. However the amalgamation had besides brought near to $ 10 billion ( Rs 440 billion ) of debt.

aˆ?

The new entity was in a better place to deal while purchasing fuel, spares and other stuffs. There were besides major operational benefits as between the two they occupied a big figure of parking bays and hangers, installations which were normally in acute short supply, at several big airdromes in the state. This worked out to be a major advantage to be after new flights at most convenient times.

aˆ?

Traffic rights – The protectionism enjoyed by the national bearers with respect to the traffic right entitlements is likely to go on even after the amalgamation. This will guarantee that the merged Airlines will hold adequate range for continued enlargement, necessitated due to their combined fleet strength. The protectionism on traffic rights have another angle, which is aimed at guaranting higher intrinsic value, since the Government is likely to deprive certain per centum of its retention in the close hereafter.

Gross synergisms will be driven by integrating of the ‘complementary ‘ webs of the Transferor Companies. Cost and capital productiveness synergisms will be driven by chances for leveraging economic systems of graduated table and chances for apologizing overlapping installations and substructure. In add-on to these synergisms, the merger will besides supply an chance to originate a comprehensive transmutation plan to better the overall fight of the incorporate air hose i.e. the Transferee Company. This, while bettering the fiscal place would assist place and fit the incorporate entity to better confront the current and future challenges originating out of intense competition and worsening industry profitableness.

In promotion of the aforesaid, this Scheme of merger provides for the transportation and vesting of all the projects, belongingss, assets and liabilities of each of the Transferor Companies to and in the Transferee Company.

Post-Merger Scenario -Revenue public presentation of NACIL

( Beginning: Magic Carpet Official Magazine of AIR INDIA )

Integration is uncomplete

Accenture, the adviser that inked the design of Air India-Indian amalgamation in 2006, had advised the Centre to incorporate 748 functionaries up to the degree of deputy general director ( DGM ) within nine months of the Cabinet clearance, to guarantee that the amalgamation pays off. Twenty-five months subsequently, NACIL has been able to incorporate 44 functionaries up to the degree of executive manager ( ED ) , harmonizing to two board members of NACIL.

Hit by recession

NACIL, like other air bearers, is hit hard by the lag crimping rider and lading traffic. Air rider traffic fell for the 7th month in a row by 11 per cent year-on-year in January 2009. In that month, NACIL ‘s burden factor, the figure of tickets sold in proportion to the entire figure of available seats, was the lowest ( domestically ) at 60.2 per cent. The nucleus cost drivers – including line care, land handling, terminal services, flight operations/ despatchs and ticket gross revenues – should hold been merged foremost for synergisms to interpret into existent benefits. NACIL ‘s employee-to-aircraft ratio, a gage of efficiency, is the highest among its equals at 222:1 ( the planetary norm is 150:1 ) , ensuing in a excess employee strength of about 10,000. The pay measure of the merged company, which was 23 per cent of entire outgo at the clip of incorporation, is expected to lift aggressively due to a grade re-alignment.

Fleet Expansion

NACIL ‘s fleet enlargement seems out of sync with the times, as most air hoses are really rounding their fleet and call offing orders for new planes. While other Indian air hoses have withdrawn over a 3rd of their aircraft orders slated for bringing in 2009, NACIL plans to invest 30 aircraft in this financial and another 45 by March-end 2012. This means NACIL would confront a wall of debt traveling frontward. A NACIL board member informed that the company ‘s entire debt in the average term is estimated at Rs 79,000 crore. “ It will necessitate Rs 44,000 crore for plane purchases. It has Rs 22,000 crore in long term loans and another Rs 13,000 crore as working capital loans, ” he said.

Common Distrust and strong brotherhoods

The misgiving between the two sides of Air India and Indian Airlines is about tangible. For certain, many occupations will go excess when maps are unified. Many of those appointed are from Indian Airlines, fuelling bitterness among Air India employees. Integration has become a tightrope walk for the direction. Strong resistance from brotherhoods against direction ‘s cost- film editing determinations through their wages have led to work stoppages by the employees/

Increased Competition

The flux at the top has led to holds in decision-making at a clip when demand for air travel has dropped around 8-10 % over the last twelvemonth and competition has heated up in the sector. The national bearer ‘s domestic market portion has been under force per unit area of all time since budget bearers and new private air hoses took flying. Air India ‘s domestic market portion dropped from 19.8 % in August 2007, when the amalgamation took topographic point, to 13.9 % in January 2008 before lifting to 17.2 % in February 2009.

Lower burden factor

Though the overall operating public presentation has been steady, Air India rider burden factor of 63.2 % , which was the company ‘s record, lags the industry norm of 75 % in 2006-07.The burden factor difference is even greater when compared to other low menus bearers such as Air Deccan. The company ‘s burden factor is diminishing twelvemonth by twelvemonth, in 2005- 06 burden factor is 66.2 % which is more than present load factor. Air India burden factor is likely to be low because of the much higher frequence operated on each path. Lower burden factor could diminish the company ‘s borders.

Decision

The amalgamation of Air India and Indian is the most important recent development for India ‘s air power sector. Managed right, the combined entity has immense potency as the largest air hose in one of the universe ‘s largest and fastest turning economic systems. Global confederations will be attracted by its extended web in an untapped portion of the universe ( and so Star Alliance is due to vote on Air India ‘s rank subsequently this hebdomad ) . However, the complexness of supervising a amalgamation taking topographic point against such a ambitious environment can non be overstated, albeit there was no other option. Ultimately, Air India will necessitate to be privatized over the following 3-5 old ages to present commercial subjects. A partial IPO, scheduled for 2008/09 would be the first measure, although the value that can be achieved will be extremely dependent on the consequences from the integrating procedure over the following 12-18 months. A

Heavily debt-laden leger will non do that procedure easily, unless profitableness is strong. Introducing a strategic spouse would ideally predate this first measure, but would likely follow. Yet an Indian spouse might raise competition concerns, and an abroad spouse would necessitate alterations in the ordinances which presently prohibit foreign air hoses from keeping a interest in Indian bearers. If Air India can successfully voyage through the following twosome of old ages, it has the possible to go a major Asiatic air hose, but 2008 will be critical.

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