Discover more from Learning by Proxy with Vivek Srinivasan
Learning by Proxy | Selling Air (India)
The journey of 20 years might be on its last stretch. The Expressions of Interest are in and this time the government is even more keen to get Air India sold.
The world seems to be in suspended animation. After a year, that has taken a lot out of each one of us, everyone is just taking a breather. On the one hand, it felt like everything was forced to transform and change in 2020; on the other hand, did it really?
The year began in India with the NRC and CAA protests and now is ending with the farm protests. Things seem to be on an impasse but both sides have dug in their heels.
The year began with impeachment in America and the uncertainty surrounding it; it ends with a hard-fought election and a loser who is unwilling to concede. Not to mention willing to hold the entire country hostage to put on a good show.
While a Brexit deal has been apparently reached, people on neither side are entirely clear what it means. What it will mean for businesses and how it will affect the continent on the whole.
China was a black box. There was no information about the virus spread in China at the beginning of the year and here we are, still no clue what is going on.
But the wheel keeps turning.
Do you know how a billion dollars fly away from the Indian government every year?
Before the First World War, airlines were meant to ferry mails. They were small, did not have too much range and had to be navigated by sight. The airlines, to make more money, started accommodating passengers. Four passengers and a lot of letter and parcels stuffed in the plane.
Juan Trippe made it possible for people to travel, sans mail, on planes with the launch of the Pan American Airlines (PanAm). Towards the late 1920s flying by air started becoming fashionable, especially for the rich and famous. Airlines in the US outdid one another to ensure that they offered the best service, the best drinks, and the best food in their planes.
The story goes - A group of Texas International executives read about a plane crash in Mexico, the news report said that 90 people had died. The executives exclaimed, “90 people! We have only 60 seats in our planes!!! We need to find a way to put more people on the plane.”
Till the 1950s almost all seats in a plane were first class. Chartered Airlines in America used to buy planes that were condemned by the mainstream airlines and fly at 50% fare. To compete with the chartered airlines, a group of American Airlines executives doodling in the board room drew a line and divided the plane in two. The front half would be the regular corporate fare and the back half would be half price coach seats without the food and the drinks. To this day, most airlines follow this layout.
It was in this climate that J.R.D. Tata founded Tata Airlines in 1932 with a contract from Imperial Airways to carry mail. The airlines spent time ferrying troops during the Second World War and resumed commercial operations thereafter as a public limited company under a new name - Air India. The Government of India acquired 49% of the company in 1948. In 1953, the government passed a law to acquire a majority stake in the company, although JRD Tata remained the chairman till 1977.
After liberalisation, as more companies entered the competitive fray, Air India started to struggle and has since suffered a string of unprofitable years. The government has been trying to privatise the carrier for the past 20 years. There seems to be light at the end of the tunnel!
Last week bids were submitted by three bidders to take over Air India. It is assumed that the winning bid will be that of Tata - Air Asia. In some ways, it would be poetic justice. The government and the people of the country have been haemorrhaging a Billion dollars each year to keep Air India alive.
There are a large number of reasons Air India has not been sold to date. The company has been saddled with billions of dollars in debt to finance the company. There are other structural issues as well.
As Air India is set to be privatised, there are increasing concerns among its employees over their fate once the private owner takes control of the loss-making airline. Amid these concerns, one of its employee unions, Air India Employees Union (AIEU), has written to the civil aviation minister, seeking an urgent appointment to discuss various pending staff issues, including provident funds, medical and welfare facilities.
Source: Hindustan Times
Many of the benefits that the employees currently enjoy are because the airline was founded in a different era, continued to be run by the government and has not been radically altered. These benefits will be the first to go under the chopping block. Employees want these benefits settled.
The airline, on its part, has always maintained that the cut in salaries of pilots has been high due to non-operation of flights, as a substantial part of their salaries are allowances linked to flying.
All airlines had cut salaries of employees, including pilots, as COVID impacted earnings of airlines. Among airlines, market leader IndiGo has been the first among all airlines that has started the process of restoring the salaries of its employees, including pilots.
Source: Economic Times
Pilots have been protesting against pay cuts. With private hands, they can only expect more of the same, especially in a world where airlines have been heavily hit and do not know when they would get back to ‘business as usual’.
A group of Air India employees who have submitted an expression of interest (EOI) for the carrier should only do day-to-day work and not handle policy or strategic issues that may have a bearing on the airline's disinvestment plans, according to an official order seen by PTI.
One of the bidders is the current Chairwoman of Air India and a group of 218 employees! The pilots want them to stay out of policy matters. I am wondering how did employees of the company manage to put together enough money to buy the company.
In the meantime, with an eye on this purchase, Tata which also owns Vistara is consolidating its position.
Prior to the transaction, AirAsia Berhad held a 49% stake in AirAsia India, while Tata Sons held 51%.
As part of the transaction, Tata Sons has the option to pick up AirAsia Berhad's remaining 16.33% after the closure of the current transaction.
But there is a long way to go still for Air India.
“The Transaction Advisor will inform the qualified bidders by January 6 following which the bidders will be given access to virtual data room (VDR) of Air India," an official said.
The share purchase pact will be shared with the bidders, following which financial bids would be invited, the official added.
“The transaction will be concluded only in next fiscal as we are expecting bidders to have a lot of queries once they get access to VDR and before they put in their financial bids," the official told PTI.
Despite all this, the hope is that this time the transaction will go through. The government needs this inflow of capital especially since tax collection took a huge hit in 2020. Further, they would get rid of an asset that has only been consuming more money from the government every year. It would also go a long way in helping the government meet its disinvestment target.
The job of the government is not to run businesses but to regulate them. In the post-independence era, airlines were an industry considered to be of strategic importance. Also, having a 'flag' career was a matter of esteem, but the people of the country have paid a lot for this.
The Sino-American relationship has seen better days. It seems to me that it is about to see worse days. Trump has been constantly tightening the screws on China with more and more taxes on products being imported from China. They have been working with Japan, Australia and India for defence co-operations and earlier in the year conducted war games in the Bay of Bengal. Now, they are passing a law which will take exception to China appointing a Dalai Lama for Tibet.
Among the most significant amendments is that the TSPA makes it US policy to oppose attempts by Beijing to install its own Dalai Lama “in a manner inconsistent with Tibetan Buddhism in which the succession or identification of Tibetan Buddhist lamas, including the Dalai Lama, should occur without interference…”
Source: Indian Express
The only thing remaining is to recognise Taiwan as an independent country. In some ways, Tibet was the original sin. The first territory occupied by China and that behaviour has continued to extend to the South China Sea, Hong Kong and India. Remains to be seen how this plays out.
Perhaps the greatest similarity between America and Russia are - Trump and Putin - Lying Authoritarians. But the greatest difference is the press. While the ‘fake news’ was calling out Trump at every turn and making fun of him day in and day out; Putin successfully made it look like everything was fine in Russia. He even managed to move the theatre of attention outside of Russia by poisoning Navalny and making the press follow that trail. It came as a surprise then…
After months of questions over the true scale of the coronavirus pandemic in Russia and the efficacy of a Russian-developed vaccine, the state statistical agency in Moscow has announced new figures indicating that the death toll from Covid-19 is more than three times as high as officially reported.
From the start of the pandemic early this year, the health crisis has been enveloped and, say, critics, distorted by political calculations as President Vladimir V. Putin and Kremlin-controlled media outlets have repeatedly boasted of Russian successes in combating the virus and keeping the fatality rate relatively low.
Source: New York Times
The agency said that 230,000 more people had died in Russia making it number 2 in terms of fatalities across the globe. The surprise was not that this fact was hidden, the surprise is that it managed to find its way out!
Also, in another surprising turn of events.
In Wuhan, a city of 11 million people, official tallies put the number of coronavirus infections at just above 50,000, with 3,869 deaths. But blood samples taken from residents after the pandemic’s first wave reveal that the number of infections could be as high as 500,000 — 10 times higher than the official count.
Source: New York Times
Everyone knew this, the only surprise is that they allowed this data to be published.
One of the toughest struggles that families of those needing organ transplantation need to suffer through is the wait. Waiting for a suitable organ donor to be available. In the case of the heart, often you need something unfortunate to happen to someone, for an organ to become available. In extreme cases, this has also resulted in various black market organ trades.
Shares in Carmat SA posted their biggest gain in more than seven years after the company got approval to sell the first-ever total artificial heart in Europe, the culmination of a 27-year effort that began with a pitch from a French cardiac surgeon to an aerospace company.
Europe approved the use of artificial heart in humans. This is a huge success and has the potential to change the lives of thousands of rich people. The rest will continue to wait or die, just as they used to. But over the next decade, the cost of this technology is certain to come down and it would become possible to save many more lives.
It also portends the possibility to develop similar artificial organs such as kidney, pancreas, etc. In the long run, this will considerably increase the life expectancy of people. Further implies that we need to think about pensions and how to support people who live much longer lives.
Snapping up users
It was only a few years ago when the founder and CEO of the Snapchat commented on India. He said - India is such a poor country that the users from the country did not matter. Indians were upset. He was not wrong. Facebook has an ARPU of $40 in the USA and only $4 in India. Even though India represents the largest user base for Facebook in the world, it contributes a small portion of the company’s revenue.
Even so, Snapchat saw its shares shoot up thanks to the growth that they saw in India. In some ways, Snapchat should thank the Modi government for the ban on TikTok.
Snapchat’s user base has grown 75% in the two years since it plateaued during a disastrous 2018. In that inauspicious year, the app began losing users, prompting a string of company executives to quit and elegies from both Fox News and Kylie Jenner. Snap Inc.’s stock price sank to $5 a share, down from the $17 it commanded during an ebullient 2017 IPO.
The lion’s share of Snapchat’s Rest of World growth appears to come from India, although Snap doesn’t officially report country-by-country data. The company did say, however, that it saw a 150% jump in Indian users between the third quarters of 2019 and 2020. India has reportedly supplanted the US as the biggest source of new Snapchat users on earth.
Poor or not, investors do chase vanity metrics and showing a 75% growth in 2 years for a listed company does make them look good. And for a share market that is has been moving in bizarre ways, this is still more reason to continue on that path.
It is probably a sign of the times…
Away from the earth, scientists are making greater strides - growing radish.
The argument against plastics was that we are killing sea creatures. NO. We are killing ourselves.
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