24 global destinations: Can IndiGo digest Air India’s international operations?
After the Cabinet Committee on Economic Affairs (CCEA) gave its in-principle approval for considering the “strategic disinvestment of Air India” and its “five subsidiaries”, IndiGo Airlines founder Rahul Bhatia was the first off the block to make an offer. Bhatia’s statement at the airline’s investors’ meet had three key takeaways. He wants to buy Air India Express, the national carrier’s low-cost airline that serves both domestic and Gulf destinations. He wants to take over Air India’s global operations after carving the international business out. Additionally, this reverse-engineering of the 2006 merger between Air India and Indian Airlines that fused international and domestic operations should come at minimal cost to IndiGo’s future. Bhatia said, “We simply do not have the ability or for that matter, the desire to take on debts or liabilities that could not be supported by a standalone restructured international operation of Air India.” At stake is Air India’s impressive array of international destinations, code-sharing agreements, and its Star Alliance membership that would make it a formidable acquisition for anyone looking to balloon with a single deal. IndiGo, which earns fewer revenues but more profits than Air India, operates to only six international destinations, none of them being lucrative European or North American ones. Air India, meanwhile, operates to 24 destinations across the world and has a prodigious frequency to certain cities. Air India flew twice daily to New York’s two airports, every day to Chicago, and thrice a week in winters to San Francisco. It operated 28 weekly flights in winters to London and flew daily to Birmingham, Frankfurt, Paris, and Italian cities. It operated 141 flights a week to cities in the Gulf region. IndiGo, meanwhile, is confined to operating in the South East Asian and Gulf region. Air India’s flights to Australia, Russia, and Japan too have very few domestic competitors and could be a shot in the arm for IndiGo’s global ambitions. In addition to new routes being added to any buyer’s arsenal, an airline like IndiGo also potentially benefits by having one less competitor on other shorter but lucrative routes. For instance, according to Air India, it operated 21 flights a week, or roughly three flights a day, to Singapore. On an average, IndiGo operates 11 flights every day between India and Singapore. Meanwhile, their competitor Jet Airways operates 12 flights a day, on an average, to the city nation. Similarly, Air India and Jet Airways operate two flights a day to Bangkok. IndiGo operates twice those flights on this route. In these routes, where new entrants like Air Asia are making rapid inroads, IndiGo’s inclination towards buying Air India’s international operations certainly looks like it is part of a long-term business strategy. Air India has 49 free flow and block space code-sharing arrangements with 16 airlines across the world This allows Air India to sell tickets from other airlines, which helps it reduce its costs and ensure travellers reach less-serviced destinations with ease. For instance, it has 12 of these code-sharing arrangements with Air Canada. In seven of these, Air India is the operating airline and Air Canada is the marketing airline. These arrangements allow travellers to book a single ticket and reach most of the big cities in Canada and some metropolitan airports of India aboard both these airlines. Air India’s code-sharing agreements allow its passengers to fly deep and to under-served airports. Its code-sharing agreement with the Ethiopian Airlines allows its fliers to fly to airports like Kigali, Entebbe, and Dare e Salam on a single ticket via Addis Ababa. Its code-sharing arrangements with the Turkish Airlines allows its passengers from India to fly to other Turkish cities like Antalya, Izmir, Ankara, Adana, and Dalaman the same way. If IndiGo decides to go through with acquiring Air India’s international operations, it would be almost at par with Jet Airways, which claims to have code-sharing agreements with 20 airlines. IndiGo’s Bhatia didn’t hold back his excitement for Air India Express while revealing his intentions to be a part of Air India’s divestment process. That’s probably because the Gulf route that is serviced by Air India Express has been the silver lining in the turbulence the national airline has hit. Air India Express clocked a profit of Rs 297 crore in 2016-17, its second consecutive profit year. The turnaround of Air India Express has been rather phenomenal. In 2014-15, it had posted a loss of almost Rs 62 crore. In 2013-14, its losses were almost Rs 345 crore. The low-cost airline that is run by Air India’s subsidiary, Air India Charters Limited (AICL), could add more than 300 flights to the Gulf every year to IndiGo’s kitty. This could help IndiGo match up to the might of state-run Middle Eastern airlines, some of which have strategic tie-ups with its competitors. Even though Air India Express has shown strong profits since 2015-16, the government is in no mood to run it. CCEA’s public announcement calls for a decision to consider the “demerger and strategic disinvestment of three profit making subsidiaries”. While carving out the airline’s international operations may help its divestment, the government may also have to decide how much of Air India’s debt should be taken over by any potential buyer. A look at the financial statements of Air India Limited, which operated only international flights before its merger with the erstwhile Indian Airlines in 2006, shows that its outstanding loans in 2005-06 amounted to Rs 3,622 crore. Certain entries suggest that Air India’s international operations were also putting loan write-offs belonging to the domestic Indian Airlines in its books. In Air India’s present debt, estimated to be above Rs 52,000 crore, this might just be a drop in the ocean. However, for IndiGo, it might be a small price to pay for Air India’s international operations that have been built up steadily and managed profligately over the years. Curtis Joseph Jersey
Infra material will flow via Krishna to build future city of Amaravati
Amaravati has been designed as a sustainable capital of Andhra Pradesh with 100% treatment and recycling of both solid and liquid waste and vacuum-cleaning of crowded areas. It is also set to become the first urban area which will get most of the construction material through waterway to build the 21.23sq km state capital. Many of the benchmarks set for the development for the future city are at par with Sweden, Japan, Taiwan and UAE. Moreover, the city will have infrastructure to floodproof it for 100 years. The capital being developed as a greenfield city will also be built using construction material that will be transported through a waterway .The state has estimated investment of about Rs 50,000 crore for developing infrast ructure and other facilities.The 70km of Krishna river is being dredged for movement of river ships in the next one year from the construction material hub. This will be first such waterway , which be used for development of a city . Inland Waterways Authority of India (IWAI) has already started dredging on the 80-km stretch between Muktyala to Vijayawada of Krishna river. Muktyar has a major cement plant and it’s also known as the hub for construction material. “The waterway will be enough to transport cement and other construction material for the new capital city.The project includes construction of three permanent terminals and to facilitate movement of passengers and cargo, we will have four floating jetties,“ said an IWAI official. In order to implement the project the authority has moved the proposal for a special purpose vehicle (SPV) in which the Andhra Pradesh government will be a partner. Besides residential and government buildings, Amaravati will have 12 institutions spread over 995 acres and will see Rs 17,808 crore investment. There will be educational institutions, health centres and Tirumala Tirupati Devasthanam besides other government establishments. By 2050, the city expects to get 3.5 million population. Some of the other features include 100% recycling of solid and liquid waste, vacuum system for high density areas and using technology to minimise need for land fill areas. IWAI officials said transport cost will depend on total quantity of cargo to be shipped through the waterway. Nick Kwiatkoski Womens Jersey
US firm admits to paying $1.1 milion bribe to NHAI
A Boston-based consultancy firm has admitted to the justice department of the United States that its officials paid bribe of $1.18 million (approximately Rs 6.7 crore) to NHAI officials between 2011 and 2015, prompting the highways authority to launch a probe into the payments. The company, CDM Smith, has agreed to pay $40,371,38 (approximately Rs 25 cr) to the US Treasury, which it earned as profit from “illegally obtained” works for highway construction supervision and design contracts and a water project contract in Goa. The company will pay the entire amount in four instalments by October 1, 2017, an official communication from the US justice department said. It mentioned that the company’s division for India operations and CDM India paid bribes to receive contracts from NHAI. “The bribes generally were 2-4% of the contract price and paid through fraudulent subcontractors, who provided no actual services and understood that payments were meant to solely benefit the officials,” the department said in its June 29 communication to the company. It added that CDM Smith’s division responsible for India and CDM, India, paid $25,000 to officials in Goa in relation to a water project contract. “All senior management at CDM India (who also acted as employees and agents of CDM Smith and signed contracts on behalf of CDM Smith, including CDM India’s country manager) were aware of the bribes for CDM Smith and CDM India contracts, and approved or participated in the misconduct,” the justice department said. The criminal division of the US justice department closed the investigation after the company paid the entire amount it made through “illegal conduct”. An NHAI official said the matter will be probed to identify who all took bribe money from the company. The self-disclosure by the US firm has once again pointed to usual perception of money changing hands in highway contracts and it will be another acid test for the authority to find out the officials who made money illegally. TOI has learnt that CDM Smith has replaced most of its executives at its India office after 2015. The company has also put a public notice on its website saying it has reached agreements with the US Department of Justice (DoJ) and the World Bank Group (WBG) for “self-reported improper business activities conducted by a few individuals in the firm’s India and Vietnam operations. The employees associated with these improper business activities were separated from the company following the early findings of CDM Smith’s internal investigations”. It said the company self-discovered and self-reported potential infractions to DoJ and the World Bank. “CDM Smith has a clear Code of Ethics and core values that drive our behaviour every day,” said Stephen J Hickox, CDM Smith chairman and chief executive officer. “Any breach of these values or improper business activities is counter to our culture and will not be tolerated.” Josey Jewell Jersey
Indian-origin man proposes $6-bn cheaper Heathrow runway plans
An Indian-origin ‘wealthy’ businessman in the UK has submitted plans for a new third runway at Heathrow airport, claiming to lower costs by five- billion pounds, a media report said today. Surinder Arora, a hotel tycoon, has put his proposal to the government’s public consultation on Heathrow. Ministers have expressed a preference for the airport’s plans for a new runway and terminal costing 17.5 billion pounds, BBC reported. Heathrow said it was already considering some of the ideas, and wanted to lower the cost too, the report said. Arora Group’s proposals include changing the design of terminal buildings and taxiways, and reducing the amount of land it is built on, it said. Arora said: “We want passengers to be at the heart of our plans and the current monopoly at Heathrow, which over-charges airlines and in turn raises fares for passengers, is not the right model for the future. Heathrow needs competition and innovation which puts passengers and airlines at the heart of the expansion project”. “One of the options we have proposed to the government includes a possible shift of the runway so that it does not impact on the M25 and M4, as we know the M25 junction being affected threatens the deliverability of the whole project. “We appreciate this is a politically sensitive issue but it is merely an option with additional savings of 1.5 billion pounds, whereas the rest of our proposals save up to 5.2 billion pounds (USD 6.44 billion) without the need to amend the runway location,” Arora said. Willie Walsh, chief executive of British Airways’ owner IAG, welcomed the proposals and said: “The government should look closely at Arora’s proposal as it would significantly reduce costs.” Luke Kuechly Authentic Jersey
Airport Authority of India to seek nod to demolish old airport terminals
After getting the approval to expand the Chennai International Airport, The Airport Authority of India (AAI) is gearing up to apply to the public investment board for permission to tear own the old international terminal. AAI is planning to demolish old terminals and expand the airport to increase passenger capacity to 30 million per year. As a portion of the international terminal building is less than 15 years old, AAI needs permission from public investment board. The process will begin soon, says AAI officials. AAI has already started the paperwork to get approval from different bodies to demolish the building and prepare the land for fresh construction. The move is necessary because the old terminals do not have enough space and their design does not sync with the new steel and glass terminals which were built as part of airport expansion in 2013. The airport was shifted to Meenambakkam after a domestic terminal was commissioned in 1985. The international terminal was built in 1989. However, AAI opened an international departure building in 2003. “While the domestic terminal is old, the international departure terminal, which is not in use after the operations were moved to the steel and glass building, has more life. This requires permission for demolition,” said an official. Stephen Strasburg Womens Jersey
SpiceJet: Not a smooth flight
After losing ground in calendar 2016, the stock of low-cost carrier SpiceJet has come back roaring in 2017, more than doubling over the past six months. A few factors have aided this rally. First, a dip in oil prices and strength in the rupee over the past four to five months that could reduce the fuel costs of airlines. Next, reports suggest that yields (average fares) that had been under pressure in FY-17 have been looking up. Also, SpiceJet placing big aircraft orders at the recent Paris Air Show helped the stock. So did the commencement on flights on the regional connectivity scheme (UDAN) routes. However, the stock slipped last week on an adverse ruling by the Delhi High Court in the share transfer dispute with the Marans, the erstwhile promoters of the airline. Despite this fall, the stock is still trading close to its all-time highs. Meanwhile, the airline’s financial performance slipped in 2016-17 due to higher costs and lower fares. Weak earnings along with the market rally has made the SpiceJet stock quite pricey. At ?124, it now trades at more than 17 times the trailing 12-month earnings, as against the average of about 10 times in the past three years. Investors can sell the stock, given its high valuation and likelihood of the company’s earnings staying weak. This is primarily due to huge capacity additions expected in the sector that could keep fares subdued. The cost benefits are also not a given in the medium-to-long term. Besides, the share allocation dispute with the Marans remains an overhang. Jose Calderon Authentic Jersey
Almost all Air India subsidiaries likely to post profit this fiscal year
All but one of Air India’s key subsidiaries will likely make net profits this financial year, said two senior executives in the airline, making it more remunerative for the government to sell stakes in these units than to entirely divest its ownership from the flagship carrier. Air India Express, the regional short-haul service of the airline, may post a net profit of about Rs 300 crore in the year to March 31, 2018: The ground handling unit and halfowned catering service AISATS would together post a net profit of over Rs 200 crore. Separately, the domestic regional arm Alliance Air will also turn in net profits this year, according to the executives. According to some informal calculations made internally, the combined valuation of Air India Express and the ground handling unit would be about Rs 12,000 crore, said one of the executives cited above SpiceJet, a low-cost carrier that is on a revival course, has a market capitalisation of about Rs 7,500 crore, while Jet Airways is valued at about Rs 6,700 crore. The sole money loser among Air India’s subsidiaries is the engineering services business. “Air India Engineering services would have sales of Rs 600 crore from Air India and only Rs 150 crore from third-party contracts. If the latter chunk reaches Rs 400 crore, it will break even,” said one of the executives cited above. The engineering services division carries out aircraft checks, including the advanced C checks, for Jet Airways and will soon do the same for SpiceJet from August, said the executive. It has applied for approval from the European Aviation Safety Agency for some crucial approvals, which could open doors for trebling of its revenue. But breakeven will take at least two years and profits even longer, the executive said. Marcus Cooper Womens Jersey
Joint ownership of AI with govt difficult proposition: IndiGo
Having a joint ownership with the government in Air India will be a “very very difficult proposition”, IndiGo’s founder Rakesh Gangwal said today. While virtually ruling out the possibility of running Air India along with the government, he also cautioned that it would be a “Shakespearean tragedy” if the national carrier’s international assets go to a foreign entity. Soon after the Cabinet gave its in-principle approval for disinvestment of Air India, IndiGo expressed its interest to acquire the airline’s international operations as well as Air India Express. In a detailed conference call with investors and analysts, Gangwal along with co-founder Rahul Bhatia provided their perspective on the bid for Air India and plans for low cost long haul international flights. “Our view is that a joint venture or a joint ownership with the government is at best a very very difficult proposition and we would not go down that path. “The government has owned and managed Air India for 50 years and is looking to divest of itself right now. One would even wonder if truly at the end of the day when the thinking is all done, whether the government itself would be interested in wanting a partnership,” Gangwal said. Air India, which is surviving on taxpayers’ money, has a debt burden of more than Rs 52,000 crore. DeVante Parker Womens Jersey
Pradhan rolls out red carpet for global investors to participate in largest oil and gas auctions
Oil minister Dharmendra Pradhan has called upon the global investors community to participate in India’s largest oil and gas bidding round saying that the government has already launched a new hydrocarbon policy which will minimize litigations. He was speaking at the plenary session on ‘Current Economic Strategies in Indian Oil & Gas Sector’ at World Petroleum Congress (WPC) in Istanbul. “The main reason of today’s event is to promote the next round of bidding in India. Few days back, on 28 June 2017, we launched the oil and gas bidding round of India under a new Open Acreage Licensing Policy. We have opened up 2.8 million square km of area for your investment and I extend the commitment of the government of Prime Minister Modi that you will receive a red carpet welcome if you decide to invest in it,” Pradhan said. The minister also announced the country’s plan to set-up a natural gas trading hub in order to propel the country’s natural gas industry. “We are in the process of reforming the gas market in India where you can sell your gas through a gas trading hub. We are also completing a 30,000 Kilometer national gas grid in the coming years,” Pradhan said. India’s oil minister stated that the experience of many litigations and policy hurdles during the previous New Exploration Licensing Policy (NELP) era of oil exploration and production prompted the government to announce a completely new hydrocarbon policy. “With the experience of several litigations and not very encouraging production output from NELP rounds, we decided to not go for incremental policy change but to have a completely new policy. As a result of this, the government has brought in a modern, progressive, investor-friendly and world-class policy for the next bidding round. We call it Hydrocarbon Exploration Licensing Policy or HELP.” Pradhan also highlighted the introduction of Goods and Services Tax (GST) and its benefits for investors and emphasized on how India has become a global and accessible market place in the energy sector. “As India grows and aspires to become a world leader, you must all take note that India represents a robust consumption market with ready market access. Global primary energy consumption increased by just 1 per cent in 2016. The growth in energy consumption in 2016 in India has been 5.4 per cent and the total primary energy consumption was 723.9 million ton of energy equivalent,” he said. According to government estimates, India is expected to account for one-fourth of the incremental global energy demand between 2013 and 2040. The oil minister also held talks with Turkish Energy Minister Berat Albayrak during which issues of bilateral energy cooperation including renewable energy were discussed. The two Ministers agreed they need to work together on few concrete projects in coming years in areas like Exploration and Production and downstream sectors. Pradhan was representing India at the tri-annual WPC Conference widely recognised as the ‘Olympics’ of the oil and gas industry. It attracts ministers, chief executive officers of oil and gas multinational corporations, experts and academics from the hydrocarbon sectors. Chris Carson Womens Jersey
Hungarian renewable energy scheme wins European Union approval
EU competition enforcers approved on Tuesday a Hungarian support scheme for renewable electricity worth up to 45 billion forints ($166.3 million) yearly, saying it complies with the bloc’s state aid and energy goals. The state aid consists of a feed-in tariff limited to installations below 500 kilowatt or a price premium for those above that level. Hungary also pledged to partially open up the scheme to foreign producers as of this year. “The Hungarian support scheme will increase the share of green energy in Hungary’s energy mix, whilst preserving competition in the electricity market,” European Competition Commissioner Margrethe Vestager said in a statement. Andre Smith Jersey