January 22, 2010 : A Parliamentary panel on Thursday endorsed what most aviation experts have long believed — that the decision to merge erstwhile Air India and Indian Airlines was taken due to "irrational and misplaced" policies of the government.

The Parliamentary Standing Committee on Transport, Tourism & Culture chaired by Sitaram Yechury has recommended that the government atone for this haste and irrational behaviour by writing off all of the merged entity's losses.

At last count, the merged entity, which is housed under National Aviation Company of India (Nacil) but called Air India, was losing about Rs 15 crore a day and losses for 2008-09 stood at Rs 5,548.26 crore, more than double compared to 2007-08.

Air India has been seeking Rs 5,000 crore equity support from the government and has already received Rs 800 crore as first tranche this fiscal. The carrier's working capital loans stand at over Rs 16,000 crore.

But after the Parliamentary panel's recommendations, will the government now consider a demand, from some sections within itself and from the employees of both carriers, to "reverse" the merger? Top officials in the Ministry of Civil Aviation had mooted a proposal a few months ago to allow the two carriers to operate as separate entities without really undoing the merger. But the fate of this proposal remains unknown.

In a related recommendation though, the Parliamentary panel has said that the Nacil should be converted into a holding company with Nacil-A and Nacil-I as "separate functional units".

Observing that Air India should defer its ambitious aircraft-buying plan "to reduce the debt burden", the panel also recommended a probe into this plan "to fix responsibility for taking such ambitious decision that has become a big financial liability." Air India's aircraft purchase order is worth about Rs 45,000 crore.

Yechury says in his report that the decision to merge erstwhile AI and IA was "taken in haste, without required homework and consultations. As a result, the entire process has, in fact, been unduly delayed, if not derailed. Nacil's turnaround is not possible by shifting the burden of the crisis on the employees and blaming them for the ills of the company."

Taking the ministry to task for granting bilateral air traffic rights, the panel expressed dismay that even after Air India's "earnest plea" to check the unrestricted entry of foreign airlines in India, "the government looked the other way and decided to grant further bilaterals to various foreign airlines, thus making Nacil more vulnerable to operational difficulties and losses."

Pointing out that Air India and Indian Airlines had different fleet consisting of Boeing and Airbus planes and had separately worked out their acquisition plans, the report said that Nacil also continued to lease aircraft or renew their leases, even when new planes were being delivered to it.

"Such decisions taken by the management and the Civil Aviation Ministry ultimately resulted in big financial loss to the company," it said.