Issue 224
 

1. WL Ross to buy fresh SpiceJet equity

Budget airline SpiceJet seems to have made some headway in its talks with the American turnaround investor Wilbur L Ross for infusion of capital in the form of equity. A source close to the development said the budget airline is considering issuing fresh equity in the name of the billionaire’s company WL Ross & Co. The source said that the airline board will meet on Wednesday to clear the proposal. “They (SpiceJet) are looking at issuing preferential shares to Ross & Co. The board will be meeting on Wednesday (to clear the proposal),” said the source. The price of the preferential share will be worked out on the basis of the Securities and Exchange Board of India (Sebi) formula 26 weeks average share price or the average share price over the last 14 days, whichever is higher, the source said. SpiceJet executive chairman Siddhanta Sharma did not confirm the deal beyond stating that talks were on with Ross. “We have appointed N M Rothschild & Sons (India) to advise us on raising the funds from the market and they have contacted various investors. Wilbur Ross is one of them,” said Sharma. As regards the board meeting on Wednesday, Sharma said during the June-end board meet, it was decided to meet again in early July. “The final decision on the date (of the meeting) has still not been taken,” Sharma said. What could have turned the deal in favor of Ross must be better valuation and retention of control. Kingfisher Airlines chairman Vijay Mallya, who bought over Deccan from G R Gopinath last year, is also said to be in the fray to acquire the airline. According to reports, the billionaire has offered a 1:3 share-swap deal, which would convert three SpiceJet shares into one share of the merged entity. Another report has said that Mallya has offered all-cash deal. Industry sources say the share-swap deal would not have excited SpiceJet directors as it erodes their small holding in the firm. Promoter Bhupendra Kansagra, along with his family, controls around 13% in the budget airline. The Dubai government’s private equity arm, Istithmar, which has 14% stake, is also looking to divest. “The share swap deal would have diminished their stake too in the merged entity,” said an airline industry expert. However, Ross’ investment in the airlines is also not without problems. Sources said what was coming in the way of the US investor is the cap of 49% on foreign equity capital in a domestic carrier. “This is why there is a limited appetite for foreign funding,” said an industry source. The ceiling on foreign equity will not permit Ross to bring in more than a certain amount of money, especially since Kansagra’s and Istithmar’s investments in the airline also come under the same bracket. That is why Ross will infuse only around Rs 200 crore even though the US investor has far greater financial strength. Also, if Ross’s holding crosses the 15% threshold, it will activate the Sebi rule that would require him to make an open offer for a minimum additional 20% stake.
Source: Tuesday, July 08, 2008, DNA Money

2. Future in futures Speculation isn't a dirty word

A bit strange, but all the more welcome because of it. As the great and the good of India, like their counterparts in other countries, blame speculators for oil price rise, Indian airlines can now trade aviation turbine fuel (ATF) futures on the Multi Commodity Exchange (MCX). The move will allow airlines to hedge against future prices of ATF, and is, therefore, speculation. ATF costs constitute around 40% of an airline's input costs. ATF prices have been increasing and with futures trading, airlines and oil companies can now manage their risks and medium-term strategies better. Also, Indian companies can settle their future contracts in rupees rather than in dollars. So, currency risk is not a big disincentive. Little wonder then that BPCL, HPC, IOC, Nacil, GoAir and Jet Airways have already expressed an immediate interest in ATF futures trading. peculation, which has pejorative connotations in common usage, is a market-based activity designed to anticipate and hedge against the future. So, trading in futures involves two parties entering into a contract for the purchase and supply of a particular commodity at some point in the future. The prices are, of course, based on the expectations of the parties involved, usually accounting for fundamentals. This cannot be presumed to alter the ground reality of supply and demand. Look at it this way: if the price of oil was ‘unreasonably' high, there ought to have been idle stocks of oil lying around. But there are none. Also, critics of future trading must note that the prices of many commodities like iron ore and steel that are not subject to any futures trading are rising as sharply as those which are traded in futures markets. Thus, there is no reason to automatically assume more futures trading lead to rising prices. Indeed, if futures contracts in oil are being done with high prices, it shows the market doesn't anticipate a supply relief or a big demand contraction soon. That's physical reality, not dark designs of high finance. These columns have argued the same, while examining the impact-rather the non-impact-of the ban on futures trading of agricultural goods in recent months. And let's remember governments enter futures contracts all the time-as India did with wheat. The idea is the same: trying to insulate against future fluctuations. Here's wishing plenty of speculation, sorry futures trading, in ATF.

Source: Tuesday, July 08, 2008, The Financial Express

3. AirAsia goes daily to Krabi, Palembang, Banda Aceh

AirAsia will increase frequency from Kuala Lumpur to Krabi in Thailand, and Palembang and Banda Aceh in Indonesia. AirAsia previously offered four weekly flights to Krabi and Palembang and three weekly flights to Banda Aceh from Kuala Lumpur. Daily flights to these destinations will start today with promotional fares as low as RM3. AirAsia regional head of commercial, Kathleen Tan said, “Currently we are the only airline to offer daily direct flights from Kuala Lumpur to Krabi, Palembang and Banda Aceh. We have always championed routes where no other airlines from Malaysia fly.“ The booking period for special promotional fares is 8 – 13 July 2008 for the travel period of 7 August 2008 – 30 April 2009.

Source: Business Standard;8.7.2008

4. Singapore Airlines to double daily flights from Delhi

Singapore Airlines is working on an aggressive expansion plan in India, beginning with doubling its daily flights from New Delhi from September. At present, the airline operates nine flights a week from Delhi using the Boeing 777-200 aircraft, with a three-class configuration. The new flights will be called ‘Sunrise’ services, and will be operated in the morning. “Our new Sunrise services will provide connectivity to people traveling to and beyond Singapore to destinations in South-East Asia, Australia and New Zealand,” said Singapore Airlines GM in India CW Foo. Additionally, Singapore Airlines plans to operate three flights daily from Mumbai. Currently, it operates 14 flights per week.

Source: Tuesday, July 08, 2008, The Economic Times, Language

5. Malaysia Airlines cuts 15 loss-making routes

Malaysia Airlines has axed 15 loss-making routes, mostly to China and India, as it streamlines operations to survive high fuel prices, the official news agency 'Bernama' said on Tuesday. Transport minister Ong Tee Keat said the carrier would cease operations between the Malaysian capital Kuala Lumpur and Manchester, Vienna, Zurich, Fukuoka, Nagoya, Ahmedabad, Kolkata, Pontianak, Xian, Chengdu and Cairo. Flights to Perth and Sydney from the Borneo island city of Kuching, and the Langkawi-London and Penang-London routes will also be closed in stages, Ong told parliament.

Source: Wednesday, July 09, 2008, Mint

6. Air China, China Southern raising fuel surcharges

Air China Ltd and China Southern Airlines Co said they will raise their fuel surcharges on international routes starting Thursday. The airlines said in separate statements their fuel surcharges for certain long haul flights will rise to yuan 1,100 a passenger from yuan 800, a 38 per cent increase. They said the fuel surcharges for shorter haul flights, including to South- East Asia and India, will rise to yuan 550 a passenger from yuan 420, a 31 per cent increase. Hainan Airlines Co, a smaller Chinese airline, also said in a statement it was raising its fuel surcharges by the same amount. The increase in surcharges on international routes comes after the Chinese government said July 1 it would allow airlines to raise passenger fuel surcharges on domestic routes, taking the edge off a domestic jet fuel price hike. On June 20, the government said it was raising domestic jet fuel prices by yuan 1,500 a tones to yuan 7,450, effective July.

Source: Wednesday, July 09, 2008, The Hindu Business Line

7. Thai Airways plans additional flights on Mumbai-Bangkok route

Thai Airways plans to launch three additional day-time flights between Mumbai-Bangkok from July 17. With the introduction of these flights, the number of the airline’s weekly services will increase to 10, a company release said today. The airline would deploy an Airbus 330 with 42- seats in the royal executive class and 263-seats in the economy class, it said

Source: Wednesday, July 09, 2008, The Hindu Business Line

8. Bleeding AI seeks hike in equity, debt to stay afloat

Air India is flying through a real bad weather. The national carrier is likely to seek an equity infusion of Rs 1,300 crore, along with a generous dose of loans or grants from the government to compete with the domestic airlines. Hit by high cost of jet fuel, the airline is expected to report a loss of over Rs 4,000 crore in the current financial year, doubling the Rs 2,160 crore estimated earlier and accounting for almost half of Rs 9,000 crore estimated loss of the domestic aviation industry. In 2007-08, it had already suffered a loss of Rs 2,144 crore. This bleak picture was revealed in Mumbai last week when aviation minister Praful Patel and secretary Ashok Chawla reviewed the ‘progress’ of merger of A-I and IA. According to highly placed sources, the airline’s financial position is in doldrums. “The working capital requirement of Rs 6,500 crore has now shot up to over Rs 10,000 crore. Ideally this requirement should be met from revenues, but all airlines, including AI, are now struggling to meet rising costs with falling revenues,” said a source. What worried the ministry honchos was the fact that the merged AI-IA’s load factor is falling, averaging 60% now, compared to industry figure of 68% to 70%. Its market share in domestic skies is about 14% with much higher capacity. “This just showed that despite more planes and flights, AI is not getting domestic passengers while private players with even smaller fleets are able to use their fleet more in terms of revenue generation,” said the source. AI is looking for a mix of debt and equity. Its paid-up capital is nearly Rs 150 crore while the authorized capital is Rs 1,500 crore. “During the presentation, it was informally conveyed that the airline wants the paid up figure to be closer to the authorized one which would require an infusion of nearly Rs 1,300 crore as equity.

Source: Wednesday, July 09, 2008, The Times Of India, Language 

9. ATF futures trading volume

The Aviation Turbine Fuel (ATF) futures contract launched on Tuesday by Multi Commodity Exchange (MCX) saw hectic activities on the very first day with airlines and oil companies actively participating in the trading. According to traders, the ATF trading volumes reached Rs 34.80 crore on the first day. The futures contract of more than 42,000 barrels was firmed up on Monday. MCX is only the second commodity exchange in the world to launch ATF futures after the Tokyo Commodity Exchange. ATF contracts for July, August, September, October, November and December are being offered in the MCX platform. The trading unit for ATF contract is 100 barrels, with the maximum order size is fixed at 10,000 barrels. The prices of ATF saw a high of Rs 7,800 per barrel, which eventually closed Rs 7,655 per barrel. “With the launch of ATF futures on MCX, aviation companies can hedge their ATF requirement plus refiners can hedge their refinery margins by crack spread,” a MCX official said. Under the ATF futures contract, the delivery centre is in Mumbai and the contract has both, sellers’ and buyers’ option. Bharat Petroleum Corporation, Hindustan Petroleum Corporation, Indian Oil Corporation, National Aviation Company of India, Go Airlines and Jet Airways have already evinced interest in hedging on the MCX platform. India’s consumption of ATF has increased by almost 77% in 2007-8 compared with 2000-01. ATF accounts for around 40% of an airline’s input costs.

Source: Wednesday, July 09, 2008, The Financial Express

10.  Suite returns for Air China with Amadeus

Amadeus has confirmed the successful implementation of Air China’s international e-business suite in 25 international markets. Air China is utilizing the fully hosted and customised Internet booking engine solution to help them manage extra international online traffic generated by the Olympic Games in Beijing. The partnership with Amadeus allows Air China to offer its international customers in many markets a fully localized online booking product in the native language and local currency. Air China director, e-commerce, Lui Dong said, “As a carrier operating worldwide with a vastly diverse customer base, Air China opted to build a local web site presence in each of its international markets, thereby offering our customers the best online experience locally. “This will help grow our international online business, especially during the increase in passenger traffic before the Beijing Summer Olympics .“We can clearly see an impact on our results for the past few months, with a growth rate of our online bookings of over 50% during the first quarter this year." David Brett, president, Amadeus Asia Pacific, said, “I believe our leadership position in China is due to our ability to provide international reach, leading functionality as well as our proven record as technology partner to airlines.”

Source:Business Standard;8.7.2008

Prepared by
Jennifer Kumar, BBA (NAU) Alumni
Skyline Business School
Hauz Khas Enclave, New Delhi 110 016
Tel: 2686 4848, 2652 4399
http://www.skylinecollege.com