The directors of the two airlines were common, but sat as two separate boards in making decisions for the two carriers. But on Friday, the government decided to reorganise and have two distinct boards with two separate chairmen for the two airlines.

Earlier this week, the board of the two airlines had decided to form a common holding company to synergise operations ahead of a full merger.Government officials and analysts said any steps towards a merger at this stage would not pay a rich dividend as the government plans of partial divestment in the airlines would be affected.

"The merger would not make sense at thisjuncture," said civil aviation secretary PV Jayakrishna.

The government dissolved the board of the domestic and global airlines and appointed a joint secretary in the civil aviation ministry, Anil Baijal, as the chairman and managing director of Indian Airlines. Jayakrishna has been appointed chairman of Air-India. An Indian Airline statement said the two airlines would continue to have day-to-day autonomy in their operations but the apex board would direct matters of synergy.

Civil aviation ministry officials said the apex management board may not be approved by the government as the board had been dissolved and has been reconstituted.

In August, the Disinvestment Commission recommended a partial divestment of Air-India. In June, the government had announced it would restructure Indian Airlines and reduce its stake to 49 per cent in three years.

"A merger would mean that the Disinvestment Commission would have to look at the whole process afresh," said a ministry official. Indian Airlines is notpermitted to have a foreign airline equity partner, under the civil aviation rules. But they do not forbid Air-India to have a foreign airline equity partner, when it disinvests government equity, said the official.

After the disinvestment, the merger might result in a foreign airline holding equity in Indian Airlines, he said. "They may not take a bold merger decision straight away, but they can have an alliance and a co-operative mechanism," said Saligram Bhatt, an aviation expert.

He said such an alliance would also strengthen the two airlines for challenging new airlines, sprouting in India since 1991.

Aviation minister defends decision to disband board

Civil aviation minister Ananth Kumar has defended government's decision to sack the entire common board of Indian Airlines and Air India saying it was part of the restructuring process. Stating that it was "best wisdom" of the government to segregate the common board and set up separate boards for IA and AI, Kumar said the decision was madein view of recommendations of disinvestment commission for financial and organisational restructuring He said the commission had already recommended sale of government stakes in Air India and its subsidiary - Hotel Corporation of India. The minister said divestment in hci was being referred to global consultancy firms.