Many Indians think that India is unique. Going by the way our governments fail to get even simple things right, they may well be right. Such incompetence is truly unparalleled.

Consider, for instance, the way in which a whole series of them have been waffling on and on and on, for the last 15 years no less, about merging Air-India and Indian Airlines.

Contrast this with the speed with which Air France and KLM merged and you begin to get an idea of how unique our governments really are.

Even more mortifying is that while IA and A-I have the same owner, Air France and KLM were two different international. That makes the contrast even starker.

India has still to appreciate that there is a movement worldwide to merge airlines, that is, towards capital consolidation in the airline business.

This is because deregulation has resulted in massive fragmentation in the industry. British Airways and American Airlines have been trying for the last several years to join together.

They have been prevented only by the fear of European regulators that the merger would harm competition.

Now BA is talking of a merger with Iberia, the Spanish carrier, and Alitalia wants to join the Air France-KLM arrangement.

The Italian government wants to sell a part of its 62 per cent stake. There are dozens of such initiatives about.

This is not surprising. That capital and associated labour had to be consolidated has not been in doubt for the last decade and a half.

Deregulation has created global overcapacity and cut-rate airlines are cutting the ground away from under the behemoths.

Air France, for example, needed a FF 22 billion government bailout in 1994, but for which it would have perished the way Swissair did in 2001 and Sabena a few years earlier. KLM had been making losses through most of the 1990s.

But the problem was how best to consolidate. There were all sorts of hurdles: regulatory issues, competition issue, staff issues, valuation, gate-use at airports etc.

The Air France-KLM deal has found a brilliant solution to all of these problems.

The two have agreed to create a holding company called Air France-KLM that will have two brands. This is the heart of the solution. So easy and so simple when you come to think of it.

The new entity will be Europe's largest airline on all counts and the world's largest by sales income. It will own 100 per cent of Air France and 49 per cent of KLM.

The combined revenues are around $ 20 billion. By traffic volume it will be the world's fourth largest after American, United and Delta. There is to be a share swap. Air France, in which the government has 54 per cent stake, has used its own shares to take over KLM.

It has paid around € 900 million to acquire 80 per cent of the shares in KLM. This means that KLM is getting a premium of 40 per cent, although it has been running at a loss. KLM is to own about 19 per cent of the new company but I don't hear Dutch nationalists protesting.

Overall, though, the deal itself was worth a mere billion dollars. Indeed, as a friend suggested when I discussed this with him, had someone in India been imaginative and bold enough, India could have bought KLM for a billion dollars, merged Air-India into it and, presto, we would have had a proper airline as well as a gateway into the rest of the world. But our imagination and gumption don't extend to even contemplating something like this.

"Yeh sab India mein nahin chalega," is the standard response.

But think: what really prevents the government from forming a multi-brand holding company for IA and A-I? The minister for civil aviation should explain. After all, as the Air France-KLM deal shows, it wouldn't cost much, perhaps around Rs 3,500 crore (Rs 35 billion).

If the government drops its shareholding down to 49 per cent, it would mean new equity of about Rs 1,800 crore (Rs 18 billion).

And more would flow in. That holding could be distributed in any way the law permits.

Such an arrangement would lead to at least two major benefits. One is simply that the new company would be big enough to raise capital.

More importantly, because of the minority government stake, it would be able to use it more efficiently.

The other benefit is that it would permit the two airlines to operate as they are until, over time, the merger becomes more than just a convenient financial arrangement.

To the extent that it is pilots' seniority and their 'fitment' that is holding up the merger of IA and A-I, this is something well worth doing.

After all, the employees of Air France and KLM had raised the same issues. The aviation business is highly capital intensive. It is also highly risk prone, as the 9/11 attack and SARS showed.

This means only the markets can provide the required risk capital. It is also highly service oriented. Governments cannot provide the required quality. Once this is appreciated, the rest is easy.

But for reasons that are well know, these simple, straightforward solutions never work in India.

Thus, back in 1983, I had written an article in the Financial Express, where I worked then, saying that MMTC with its large profits from canalised imports, should invest in ports that were being starved of funds in the Sixth Plan.

MMTC had its offices in the same building and, a few days later, I bumped into its chairman. He said what I said was right but would never happen because the minister for ports would not allow the commerce ministry, under which MMTC fell, to invest in ports.

A couple of years later Swaminathan Aiyar wrote in the Indian Express that ONGC should raise capital abroad for expansion by listing overseas.

He was told that the finance ministry would not allow the petroleum ministry to do so for turf reasons. The obvious answer, of course, is to wind up most of these ministries. Politicians can find some other juicy bone to gnaw.

What I cannot understand is that if banks, which in business terms have the same problems as airlines -- high capital intensity, high variable risk, high service orientation, to name just a few similarities -- can be allowed to merge, why can't IA and A-I merge?

Like IA and A-I, banks come under the same ministry.

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