Travel |Update|
Issue 264
Source: June 01,
2009, The Economic Times
2. No more privatisation of airports, says Patel
The government would not privatise any existing airports, civil aviation
minister Praful Patel said on Monday, after taking charge of the ministry for
the second consecutive term. Spelling out the likely contours of the aviation
policy, Patel said, “We are not going to go for any more disinvestment or take
the PPP (private-public partnership) route for any more airports.” This means a
partial reversal of PPP-style modernisation of airports that Patel championed in
his previous term as aviation minister, when he went aggressively to rope in
private players in airport development as well as in airlines. This is being
seen as a move to add muscle to the state-owned Airports Authority of India
(AAI), though it will deprive the private sector from participating in
modernisation and development of non-metro airports. AAI is currently developing
two major airports of Kolkata and Chennai and 35 non-metro airports. The
previous government wanted to privatise the Kolkata and Chennai airports, along
with the Delhi and Mumbai airports, but backed off on strong opposition from its
Left allies. The country’s passenger traffic is projected to touch 54.78 million
this year and go up to 85.30 million by 2016-17, requiring massive investments
in airport development. Patel also said the government would consider an initial
public offer (IPO) for the state-owned carrier Air India in the near future,
while he cautioned private airlines against ‘reckless expansion’ and ‘financial
misadventure.’ The share sale would bring in much-needed equity to the
loss-making company and make it more accountable, Patel said. About the IPO
plans of the National Aviation Company of India Ltd (Nacil), which owns the Air
India brand and is supposed to have suffered losses of Rs 4,000 crore in
2008-09, Patel said much will depend upon the state of equity markets. Even
though Nacil has suffered record losses for the past three years, merchant
bankers said the pubic issue can still succeed. The Sebi rules mandate that a
company going for an IPO should have a track record of distributable profits for
three out of preceding five years, besides four other key conditions. However,
an exception is allowed to a company not satisfying any or all of the five
conditions. Such a company would have to go through a ‘mandatory book building
issue’, wherein qualified institutional investors (QIPs) need to subscribe a
minimum of 50% stake being offered for sale, said SMC Capitals’ equities head
Jagannadham Thunuguntla. Nacil, which was carved out after merging Air India and
Indian Airlines more than two years ago, is in desperate need of funds. It is
also struggling to integrate the two companies that have employee strength of
nearly 33,000. The aviation ministry has asked the government for an equity
infusion of Rs 1,231 crore and a soft loan worth Rs 2,750 crore for the troubled
carrier. Sources said the finance ministry is apprehensive of granting a soft
loan to NACIL, which at present has a paid-up capital of Rs 1,450 crore and an
authorised capital of Rs 1,500 crore. “We will try to get AI the money from the
government that has been promised, but I can’t speak on behalf of the finance
ministry and neither can I comment on the (impending) Budget,” Patel said. While
advising the private airlines to hunker down, the minister said Air India will
carry out its largest fleet acquisition plan. Air India has placed orders for
111 new planes worth over Rs 45,000 crore. Patel said he would be ‘happy to
associate with the national carrier for another five years’, adding that ‘time
and history’ would tell whether the merger of Air India and Indian Airlines was
a right decision. “These are testing times and everybody will have to rise to
the occasion,” he said.
Source: June 02,
2009, The Financial Express
3. Kingfisher gets Rs 2,000 cr funding from banks
Vijay Mallya-promoted Kingfisher Airlines has got crucial funding of Rs 2,000
crore from State Bank of India and a consortium of other banks to meet working
capital requirements. While Rs 950 crore has been given by State Bank of India,
the rest of the amount has been arranged from Bank of India, Bank of Barocla and
Punjab National Bank, according to sources. When contacted, the company
spokesperson said: "Fund raising is an ongoing process and because we are bound
by confidentiality/non disclosure agreements, it will be inappropriate to
comment at this stage". Earlier this year, the airline's parent company United
Breweries Holdings had sought shareholders' approval to authorise the board to
provide corporate guarantee worth up to Rs 12,000 crore to lenders of UBH's
subsidiary Kingfisher Airlines (KFA), by pledging shares and mortgaging its
movable and immovable properties. Kingfisher has also been targeting an equity
infusion of around Rs 2,000 crore through strategic and financial investors. The
equity investment will be used to de-leverage the balance sheet, the company
told investors in January. The large part of the funding, raised from SBI and
other banks, could go towards clearing of fuel bills ; of the airline and other
airport related charges. The Indian aviation industry has been struggling with
the availability of credit as banks have been reluctant to lend to airlines on
account for falling passenger traffic and losses suffered by "them in the recent
past. Kingfisher operates services to 69 cities currently with a fleet of 75
aircraft with around 400 flights a day. It covers all segments off air travel
from low fares to premium service.
Source: June 05,
2009, The Financial World
4. United Airlines bucks trend with big plane order
United Airlines has sought bids from the two largest plane-makers for a 150-jet
order, possibly jump-starting demand from embattled U.S. carriers as the
industry wades through an economic recession, a source with direct knowledge of
the request said on Thursday. United, a unit of UAL Corp, has solicited the
competing bids from Boeing Co and its European rival Airbus, the source said.
The top bid would win the entire order. UAL, Boeing and Airbus declined to
comment. United has not ordered new aircraft since 1998, and the average age of
its fleet is 13 years. US airlines lag foreign rivals in fleet replenishment,
and some experts say the carriers are suffering as they fly outdated planes that
burn more fuel than modern aircraft. Most airlines are shedding capacity to cope
with a steep fall in demand, and many have deferred orders to conserve cash and
in the absence of financing for final delivery payments. The head of global
airlines body IATA told Reuters earlier that plane orders could fall 30 percent
in 2010. The possible contest at United echoes an epic battle between Boeing and
Airbus, then a relative newcomer to the US market, in 1992 at the cusp of
another economic and industry recession. The battle saw United break its
reliance on Boeing and opt for dozens of Airbus aircraft for domestic routes.
That sparked a rethink that helped push the US plane maker into modernizing its
737 short-haul plane, now the world's most-sold aircraft.
Source: June 05,
2009, The Indian Express
5. Indian Airlines flies into heavy flak
The major reason for the dislocation of air schedule in Indian Airlines is the
unprecedented growth of traffic during the last one year, when the number of
passengers transported increased from 4.37 million in 1977-78 to 5.3 million in
1978-79. This growth has exerted a tremendous pressure on air and ground
facilities," says Air Chief Marshal (retd.) P.C. Lai, joint chairman of Air
India and Indian Airlines. Growth in Indian air traffic over the past few years
has led to capacity expansion. Passenger traffic at Indian airports is set to
grow at 15 per cent annually, from 102.73 million in 2008 to 290.19 million by
2014. But AAI's growth forecast has lately been toned down to 6 percent.
National Aviation Company of India has almost doubled its losses for 2008-09 to
Rs4,000 crore from Rs2,226 crore in 2007-08.
Source: June 05,
2009, Business India
6. Airline industry losses set to rise: IATA
Losses from the world’s airlines will be worse than forecast this year and will
cause a knock-on effect on suppliers, with Boeing and Airbus orders next year
looking to be down 30 per cent, the industry’s top body said on Thursday. The
International Air Transport Association (IATA) Managing Director, Mr Giovanni
Bisignani, told Reuters in an interview that the body would revise its forecast
of $4.7 billion of losses at its annual meeting on Monday. “We are going to
revise them for the worse because the numbers we have seen in passengers and in
freight are not showing any improvement,” Mr Bisignani said, adding that it
would take 3-4 years before revenues recovered to pre-crisis levels. The
industry lost $8 billion in 2008. “Freight has probably touched the bottom, it
is minus 21 per cent (year-on-year) since the last two or three months... but we
do not see any kind of improvement. But the passenger (sector) where we generate
90 per cent of our revenues is still roughly 10 per cent down,” he said.
Airlines carry 38 per cent of the world’s freight traffic and demand has been
hit hard by the downturn that is expected to see global output fall by 1.3 per
cent, according to the International Monetary Fund. While there has been a
recovery in stock markets and in the oil price, this has not been matched by the
prospects of a return to growth in the global economy, Mr Bisignani said. “We
don’t see any real recovery of the real economy... the goods traded around the
world is still 21 per cent lower,” he said. The price of oil recently hit a
seven-month high of $69.05 and IATA’s forecast of losses this year is based on
oil at $50 a barrel. Oil at $50 a barrel would cost the airline industry
$100-120 billion this year, less than last year’s $180 billion, IATA forecasts.
ORDERS TO DRY UP
According to Reuters estimates, some $500 billion of airline orders have been
placed for this year. Difficulties in getting banks to finance purchases could
see the number of planes delivered by Boeing Co and its European rival Airbus
Industry drop by 30 per cent next year, Mr Bisignani said. “On the demand side
(for planes), we have seen numbers dropping, in order to recover the same level
of revenues we would take between 3 and 4 years, so probably there will be a
shift in the need for capacity,” he said. The current downturn has hit carriers
across the globe from wounded national giants such as Deutsche Lufthansa and
British Airways. Even nimble budget airlines such as Ryanair which this week
posted its first loss in 20 years thanks to a write down on an investment in Aer
Lingus, have cut fares in order to try to grow passenger numbers at the expense
of national carriers. Mr Bisginani called for an end to sweetheart deals for
some low-cost carriers which see them paying lower fees for airports, but
rejected calls for a bailout of the airline industry. “When an industry is
losing billions and billions of dollars, we are not asking for bailouts, we are
just asking, give us the opportunity to run this as a normal business and see if
we are able to start making some money.” He said that a wave of industry
consolidation would be unleashed if the US ended ownership caps by foreigners on
its airlines and said he believed the industry could create value for
stockholders. “The value chain shows that everybody makes money except the
airlines. Manufacturers make money, make money in spare parts especially,
airports make money because they run a monopoly service,” Mr Bisiginani said.
Source: June 05,
2009, The Hindu Business Line
7. Praful Patel, aviation chiefs may talk reforms today
Civil aviation minister Praful Patel is likely to meet airline and airport
chiefs on Monday to discuss issues including a new ground handling policy and
airport modernization. Also on the agenda will be speeding up the integration of
Air India with the erstwhile Indian Airlines under the National Aviation Co. of
India Ltd, or Nacil. Arvind Jadhav, an Indian Administrative Service officer,
was recently appointed as Nacil’s chairman and managing director to pilot the
merger. The ground handling policy becomes effective on 1 July. The policy
mandates that airlines outsource ground handling at the airports to private
operators selected for the job. Its implementation has already been delayed.
Under the new policy, only Air India, the airport operator and a third private
operator will be allowed to provide ground handling services from July. A person
close to the development who did not want to be named, said the tenders for
modernizing Udaipur and Amritsar airports would be floated as early as July as a
part of the ambitious programme of modernizing 35 non metro airports. In April
2008, the ministry of civil aviation shortlisted companies, including Larsen
and Toubro Ltd, Tata group and GMR Infrastructure Ltd to develop the vast land
banks at these airports. The bidders’ list was scrapped because of protests by
airport employees who were against giving the additional mandate of developing
terminal building to private parties. Another executive with a private company
that was shortlisted in the first selection said it had been told that tenders
are likely to be floated around July. The executive didn’t want to be named. An
Airports Authority of India, or AAI, board member, who requested anonymity, said
the tenders will be floated “in a month” but the operator will retain management
of terminal buildings. Several employees of the Delhi and Mumbai airport have
been moved to these smaller airports after the two were privatized in 2006 and
chose not to work under the new private management.
Source: June 01,
2009, Mint
8. The future lies in networks and cooperation
The global financial crisis has increased protectionism in some countries,
raising questions about whether international business and global cooperation
will recede. The past 25 years celebrated a culture of corporate triumphalism
based on competition and profit-seeking. But, beneath the veneer of such a
popular corporate ideology, a different economic trend has taken root — one that
makes a return to protectionism or isolationism unlikely. Cooperation, as much
as competition, is slowly being recognised, by evolutionary scientists and
behavioural economists, as an engine of progress. Cooperation among companies is
an integral part of the new model for business in a globalised economy. Today,
the largest economic grouping is not the multinational corporation but the
global industry network, consisting of companies that simultaneously compete and
cooperate. The knowledge and service economy of the 21st century relies on a
model of corporate “alliances” and “networks,” by breaking down the sequence of
research, production and distribution — previously done in-house within the same
company — over separate enterprises that take joint risks and share rewards over
longer periods of time. Boeing used to build aircraft itself, with parts
purchased from thousands of suppliers with whom its relationship was
adversarial. Today it is a cooperative process. While Boeing guards proprietary
technologies, the 787 ‘Dreamliner’ is built with major inputs from partners in
seven nations, all part of the research and development team from the beginning,
sharing in development costs and providing specialist knowledge that Boeing did
not have. Each network “partner” incurs research and development costs based on
faith and trust, with no assurance of recouping these outlays for a decade or
more. Forgoing immediate gain, good ideas and technology are altruistically
shared within the “network” of suppliers, even though there may be no immediate
gain for that partner. However, the whole network gains. The altruistic member
firm, sharing good ideas or incurring costs, does not demand immediate
recompense, anticipating eventual reward because the other companies remember
its contributions. The new network economy is based on forbearance and trust
among cooperating firms, long-term memory and social networks, rather than
formal contracts or directed hierarchies. Cooperating networks range from
strategic to operational to tactical, with thousands of cooperative
relationships worldwide. For many industries, a global scale of operations is
mandatory for efficiency reasons. The huge costs of R&D or production in
high-tech sectors make it too difficult for a single company to develop the
product or brand, bear the risk and span all segments of the value chain on a
global basis. The new alliance network economy provides more flexibility, lowers
risk for each member company, and speeds response to changing markets or fashion
conditions, more than is possible within a single firm. The value chain is
outsourced over several companies, in different nations.
REVISED BUSINESS MODEL
Consequently, the basic model of business is being revised. The predominant
model today is for each firm to find its core competence while collaborating
with partners occupying other parts of the value chain. Each partner specialises
in a function it does best or cheapest. For example, Nike specialises in design
and marketing, outsourcing the production of shoes to its partners. Most
outsourcing is not an arms-length transaction, but entails an intimate,
cooperative relationship between the managements and engineers of the network
firms. The better managed the relationship, the greater the performance of the
alliance. The cooperative revolution is also aided by sweeping changes in the
global regulatory environment such as the liberalisation of foreign direct
investment rules, the international spread of intellectual-property enforcement,
the harmonisation of standards and the codification of business functions.
“Codification” simply means that companies make an effort to document management
processes and engineering techniques that formerly resided in the minds of
engineers and managers in the semiconductor, steel, chemical and many other
industries. Another form of cooperation involves partners pooling resources for
the same business function or piece of the value chain. More diverse talent is
thereby tapped, costs are lowered and good ideas are gleaned — especially if the
research is done abroad. Another motivation is simply to spread risk. The cost
of a semiconductor fabrication factory being as much as $4 billion, few single
firms can justify the investment. The entire pharmaceutical industry is evolving
in that direction with ideas, costs, benefits and risk shared between large
firms and their smaller biotechnology partners. To a degree unimagined just two
decades ago, development risks are driving industries to recognise that global
returns are mandatory for survival. Budgets for Hollywood movies are never set
without an estimate of the non-US market profit potential. Besides codification
of corporate knowledge and the IT revolution, a series of global institutional
developments have also fostered international corporate alliances: Increased
patenting makes technologies more visible to prospective allies. Better patent
enforcement reduces fears that allies may engage in opportunistic behaviour. The
old economy of objects emphasised mass production and ownership, control and
vertical integration within a single company. An economy of ideas favours
flexibility, customisation, rapid response and risk, reward and idea sharing
within networks. Cooperating entities in a network attract others, which in
itself increases value, reduces costs and promotes common standards.
Source: June 01,
2009, The Hindu Business Line
9. Ahmedabad-Frankfurt AI flight from June
State-run Air India will introduce direct flights from Ahmedabad to Frankfurt
from June. With the introduction of the direct flight passengers travelling from
Ahmedabad will be able to reach Frankfurt in 9 hours 15 minutes instead of the
earlier 12 hours SO minutes.
Source: June 01,
2009, Hindustan Times
10. Airlines
will now fly high with Wi-Fi
By
the end of this year, about 1,000 airplanes flying domestic routes will have
Wi-Fi service, according to Aircell, the company that has done nearly all the
Wi-Fi installations so far. By the end of next year, 2,000 planes will have the
service, Aircell says. That is roughly two-thirds of the mainline domestic
fleet, which excludes regional jets. So Wi-Fi is clearly going to become a new
standard, even though there is no compelling evidence that more than a fraction
of passengers will pay for the connection. With prices running as much as $12.95
a flight, it is unclear if customers will be receptive to another extra charge.
In the initial stage, the goal is just to encourage more business travellers to
use Wi-Fi, once they know it’s going to be reliably available. Delta Air Lines,
which says it will have more than 300 aircraft converted to Aircell’s Gogo Wi-Fi
service by September, plans to offer discounts. “This summer we’re going to
launch a pricing concept where you can buy a monthly membership, with a pricing
scheme designed for frequent travellers,” said Ranjan Goswami, Delta’s director
of customer experience. But airlines are looking at a possible second-generation
market: Using that connection for enhanced in-flight entertainment. It costs
about $100,000 a plane to install the Aircell system, which adds only 300 pounds
of weight. Considering the far higher cost and weight for seatback digital video
systems, financially struggling airlines face a tantalizing question. As more
people tote personal hardware on board, whether laptop or notebook, can airlines
avoid the cost of installing expensive seatback video? Aircell’s Wi-Fi system
uses a large-capacity server, “so don’t be surprised in the future to see more
and more content being added,” said Jack W Blumenstein, the chief executive.
That means movies and other entertainment can be packaged on the ground and
piped to the plane for viewing on passengers’ personal electronic devices, he
said.
Source: June 01,
2009, Business Standard
11. Bidding
for new airports by 2010 latest
Civil aviation minister Praful Patel on Monday hinted at floating an IPO for
national carrier Air India “Fund infusion will be good for AI and bring in more
accountability. There will be no privatisation or complete disinvestment of the
national carrier, just partial,’’ he said, while not setting a time-frame. AI
has sought an equity cum-soft loan to the tune of nearly Rs 4,000 crore. The
merged AI-Indian Airlines entity has placed orders for 111 planes worth Rs
45,000 crore on an authorised capital of Rs 1,500 crore, while the paid-up
capital is Rs 145 crore. In 2008-09, AI’s loss is expected to touch Rs 4,000
crore, up from Rs 2,226 crore in 2007-08. Patel said that UPA-II would not go in
for brown field airport privatisation or modernisation via private-public
partnership. “AAI will not be divested of any its airports. New airports can
come up under the greenfield policy.’’ He added that bidding for constructing
the new Navi Mumbai, Pune and Kanpur airports would start “latest by 2010’’.
Source:
June 02, 2009, The Times Of India
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