As the process to merge Air India and Indian gathers momentum, a business model that is understood to have found acceptance among officials has recommended creation of the post of a group CMD for the merged entity with special business units headed by separate CEOs.
These SBUs or divisions, to be run as independent profit centres, are proposed to be set up in the areas of integrated passenger service covering both domestic and international operations, cargo business, ground handling, MRO (maintenance, repair and overhaul), low-cost carriers and other allied activities, official sources said. This proposal forms the basis of a note for the Union Cabinet, which has to give its final stamp of approval before the merger process can go ahead. The Cabinet would act on the recommendations of a group of ministers, which is meeting in New Delhi on November 13.
The focus of these SBUs would be to maximise revenue in the single operating company by joint sales strategy, common distribution network and outsourcing plans.
This business model also recognises the principle dissimilarities in the career progression, seniority and compensation packages for the employees of the Indian and Air- India, the sources said.
M/S Accenture, the consultants appointed for preparing the roadmap for the merger, are currently working on these issues to develop a unified approach whereby these problems could be corrected without disturbing the pay structure and seniority in both the organisations, they said.
The chiefs of the two state-owned carriers have already written to their respective employees seeking to allay their apprehensions regarding the merger. In similar letters to their staff, the chiefs of A-I and Indian stated that the merger would turn the combined airline into the largest carrier in the Asian region.
They assured them that HR issues were a top priority of the government and categorically ruled out any retrenchment. The two chiefs also assured the employees that due care would be taken to protect their remuneration, perks and status and sought their cooperation in the process.
A major recommendation proposed to be carried out is to merge the financial books of both companies since their shareholders are the same, the sources said, adding that this would set the path for further integration at various levels.
While several merger options have been suggested by the consultant, the most optimal option seems to be the merger of the two airlines into a new company.
The shares of the new company should be issued to the government to the extent of their shareholding in Air India and Indian, the sources said. It has also been proposed that the stamp duty for the merged entity to come into being should be mitigated by a central ordinance.
A suggestion to amend Section 72(A) of the Income Tax Act be amended to include the aviation industry to provide it with concessions in the event of a merger or amalgamation.
The merger is projected to add around Rs 1,200 crore (Rs 12 billion) to the bottomline of the new entity through synergies between the two airlines in different areas.
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