February 22, 2007: The mega merger is finally reaching its last lap. A ministerial panel has approved the merger of state-run carriers Air India and Indian to create a larger entity.

With the aviation market increasingly opened to private and foreign players, the merger is expected to provide the much needed strength to the state run carriers. According to Civil Aviation Minister Praful Patel said a ministerial panel has approved the merger between Air India, which operates on international routes, and Indian Airlines that is mostly focussed on domestic travel and some neighboring countries.

Air India and Indian Airlines have been playing undisputed leaders for decades together, until the government allowed private companies to enter the aviation business in the early 1990s. Following this, several private airlines have since started operations and the market share of the state-run carriers saw an erosion.

With the opening up of the sky, private airliner Jet Airways flew ahead of Indian Airlines, flying the highest number of passengers on domestic routes. While Indian Airlines today has only 24 percent share, Jet commands a 35 percent share of the domestic market. Meanwhile, Air India too took a beating with foreign airlines being allowed to increase the frequency of their flights to India.

Now with the air travel scene zooming ahead thanks to rising middle-class incomes, many an airline has been pumping in money into their operations.

Indian and Air India becoming may also have another side effect, it is felt. The merger between the state-run carriers is also expected to set off consolidation among private airlines, say analysts.

The AI-Indian merger plan had its roots when the two airlines had mulled over overhauling their fleets. While Air India has decided to shop for 68 planes from Boeing Co, Indian Airline has placed an order for 43 Airbus planes. The new planes will be delivered over the next three to five years.

According to a report quoting Patel, the combined Air India-Indian Airlines will have 33,000 employees and there would be no layoffs. The merger is expected to cost Rs 2 billion