How Budget helps Air India, Indian

In a move to make their merger financially more viable, the government on Wednesday proposed to allow Air India and Indian to carry forward their accumulated losses and depreciation by amending the Income Tax Act.

The proposal, made in the Union Budget, came amid reports that the Union Cabinet, at its meeting on Thursday, is likely to take up the proposal of the Group of Ministers to merge the two public sector carriers.

A section of the Act provides for accumulated losses and unabsorbed depreciation of amalgamating companies to be set off against the profits of the merged firm.

The provision is now applicable to state-owned banks, industrial undertakings, shipping firms or hotels. The budget proposed to amend Section 72(A) to extend the benefit of carrying forward and setting off accumulated losses and unabsorbed depreciation to those PSUs, which are "engaged in the business of operation of aircraft".

The amendment would take effect from April one, 2008, and apply to 2008-09 financial year, which would be in time for the process of merger of Air India and Indian to be completed.

A week ago, the Group of Ministers headed by External Affairs Minister Pranab Mukherjee, decided to complete the process by March 31. The GoM had also made clear that the new merged entity would have Public Sector Undertaking character and there would be no dilution on this count.

The GoM proposal is likely to be taken up by the Union Cabinet at its meeting tomorrow, sources said.

The merger would turn the new entity into a mega airline, with a fleet of over 120 aircraft by 2010-11, to take on global competition from large cariers like Singapore Airlines, Emirates and British Airways. Its employee-aircraft ratio would come down to about 200:1, comparable with any major global airline.

The legalities of the merger process would be completed within two to three months after the Cabinet approval, Civil Aviation Minister Praful Patel had said.

Patel, who has been holding a series of meetings with employees' unions of the two state-owned airlines, has assured them that their interests, including employment conditions, wages and seniority, would be taken care of and a mechanism would be in place to protect their interests.