The Indian aviation sector: scope of consolidation of airline and airport operations

Abstract

Merger is an arrangement between two or more companies when they decided to merge their business (assets, liabilities, and equity) to create a new entity. On the other hand, acquisition is a process when one company takes over another company in exchange for consideration. M&As can be broadly categories into five categories. First one is horizontal, described as an M&A between firms who operate in the same business or the same market. The key benefits arising out of such a merger are from the better product line, distribution lines, economies of scale or increased market power by consolidating the industry and reducing the number of players in the industry (CFI, n.d.). Second, a vertical merger is a merger between two companies operating on the different parts of the same supply chain, generally intending to increase efficiency, better quality control and decreased costs (CFI, n.d.). Next, a market-extension merger is where the companies selling similar products or services in different markets merge to gain access to a larger market. Similarly, a product-extension merger is where companies selling related products in the same market allow them to increase efficiencies and reach of distribution channels, increasing customers' cost of switching by bundling the products or gaining efficiencies in the production process (CFI, n.d.). Lastly, the conglomerate merger is the one between two companies which are unrelated. Mergers and acquisitions have been in the market for more than a century now with almost every industry witnessing a wave of such consolidation at some point. One such industry is the aviation industry which has witnessed increased M&A activity in the last couple of decades. Since the deregulation of airlines in various countries, companies have been involved in M&A activity to gain a better place in a highly competitive market and achieve economies of scale and scope (Nolan, Ritchie, & Rowcroft, 2014).