On December 7, the common board of directors of both airlines took a decision to merge both Indian Airlines and Air India by setting up a holding company with a common balance-sheet. This crucial decision was taken notwithstanding the Civil Aviation Ministry and few other directors including Ajit Kerkar were not present in the board meeting.

The aviation minister, Ananth Kumar, had to later clarify in the Parliament that there was no proposal to merge the airlines. As the government had earlier announced privatisation of both airlines as separate entities, any merger would have given stake to a foreign entity in the domestic carrier, Indian Airlines, which has been prohibited by the present government.

The objective of the government'sFriday decision to have two distinct boards with two separate chairmen for both airlines is also due to the fact that the government is serious about the imminent disinvestment plan.

In fact, sources say, the merger decision taken by the board last week, was more to derail the privatisation process rather than attaining any actual synergy of operations. In August, Disinvestment Commission recommended a partial divestment of Air India. In his budget speech, finance minister, Yashwant Sinha, announced that they would restructure Indian Airlines's equity and reduce its stake to 49 per cent in three years.

A merger would have meant that the Commission would have to look at the whole disinvestment proposal in a different perspective. Thus, delaying the privatisation further.

"We were expecting this move for quite some time now," says an Air India-Indian Airlines director from New Delhi. The term of the common board of directors was ending in March 2000 but yesterday's move caught the directors unawares astheir term has been cut short by over one and a half years. "Till now our job was to just sign on the management's various proposals. The board did not have any power or say in the running of the airline," said the director.

Besides, massive losses made by both the airlines in spite of various attempts by the present managements for a revival is being cited as other reasons behind the reconstitution, aviation sources said.

The dye was cast, say sources, when Indian Airlines slipped into losses again in the first six months of the current fiscal despite other private airlines making huge profits. Air India, on the other other hand, continues its fall into a financial abyss by making a loss of over Rs 300 crore in fiscal 1999.

The decision to hike fares by Indian Airlines contributed more to the airline's losses rather than helping its bottomline as many corporate travellers decided to reduce travel, say sources.