BUSINESS
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Saturday, February 20, 2010
Air India gets $173m government cash injection
MUMBIA: Air India aircraft are seen in the background of slums adjoining the international airport in Mumbai. India approved an infusion of $173 million to ailing national carrier Air India Thursday, part of an expected $432 million bailout of a company many once considered a proud symbol of the nation. — AP
MUMBAI: India approved a cash infusion for ailing national carrier Air India, part of an expected $432 million bailout of a company many once considered a proud symbol of the nation. The $173 million injection “would not only ease the cash flow situation of the company but would also preclude borrowings from the markets at a high cost,” the Ministry of Civil Aviation said in a statement. Other carriers have stumbled in the wake of the global financial crisis — notably Japan Airlines which filed for bankruptcy in January. Analysts say many of Air India’s problems are homegrown, born of decades of mismanagement and underinvestment. And some feel the proposed fixes don’t go far enough, largely because political pressures make layoffs difficult. The National Aviation Company of India Ltd. (NACIL), which runs Air India, has agreed to trim costs by 19.1 billion
rupees ($412.7 million) in the fiscal year ending in March. The airline will cull its fleet from 146 aircraft to 105 by March 2011, to save an estimated 9 billion rupees ($194.4 million) in annual maintenance, inventory, personnel and fuel costs, the ministry said. But, unlike Japan Airlines which has said it will lay off 16,000 staff, Air India has not announced layoffs — a politically delicate issue analysts say is necessary for a meaningful turnaround. Instead, the airline plans to farm off staff to newly created subsidiaries. An attempt to trim performance-linked pay resulted in a five day strike by pilots in September, with some 400 canceled flights. “I don’t see in the current political environment how you can have layoffs,” said Kapil Kaul, chief executive of the India unit of the Center for Asia Pacific Aviation, an independent aviation research group. But, he added, “If they
are to do a meaningful restructuring, they will have to first ensure that headcount is substantially reduced.” He estimates that the airline’s 30,000 staffers cost about $800 million a year and should be slashed by half. He said Air India has also accumulated an unserviceable debt burden of about $8 billion, which could rise to $15 billion as the company completes its acquisition of new aircraft. The Ministry said Thursday that Air India managed to reduce its operating loss for the first half of the fiscal year by 23 percent, to 20.3 billion rupees ($438.2 million) from the year-ago period, but Kaul says that’s far from enough. “Air India’s financial troubles are part of their unviable business model,” Kaul said. “Its cost structure is not viable anymore.” It has been a long fall from grace for the airline, which was founded by JRD Tata, one of India’s most revered industrialists, who built the salt-to-SUV Tata Group. In
1932, Tata flew from Karachi to Mumbai in a single-engine de Havilland Puss Moth to inaugurate the first commercial air mail route in his budding corporate empire. After India’s independence, the government took a majority stake and Tata’s airline — which was ultimately christened Air India — became the nation’s flag carrier. Kaul said that when India opened its skies to foreign carriers in the early 1990s, Air India, plagued by years of political interference and underinvestment, could not compete. “It was an international symbol of India before we initiated liberalization,” he said. “It was a world class airline.” Today, he sees only one option left: Privatization. “The only viable option is to privatize the airline,” he said. “If we continue to deteriorate it over the next couple of years, that also might not be an option.” — AP
S&P says Indian firm’s cash flow measures may be affected
Bharti shares resume fall on Zain; down 12% on week NEW DELHI: India’s Bharti Airtel shares resumed their fall yesterday after tw o days of mild gains, w ith a $9 billion potential deal for Kuw aiti telecom Zain’s African assets w eighing on the stock. Rating agency Standard & Poor’s Bharti and Zain are in exclusive talks until March 25 for the Kuwaiti firm’s operations in 15 African countries and have agreed for an enterprise value of $10.7 billion for the assets, including $1.7 billion debt in Zain Africa books. At 0741 GMT, Bharti shares were down 1.6 percent in a weak Mumbai market. The leading Indian mobile operator’s market value has plunged 12 percent, or more than $3 billion, this week since it confirmed the deal to $22.7 billion. Debt is seen as the most likely option for the Indian firm that currently has a low gearing, though media reports have also talked about other funding options such
put Bharti on “creditw atch w ith negative implications”, citing possible significant deterioration in Bharti’s cash flow protection measures and w eakening of its business risk profile after it enters Africa.
as a rights issue and a preferential allotment of shares to SingTel, which currently owns 32 percent in Bharti. Bharti is yet to detail its funding plans. The company is also keen to participate in India’s planned auction of third-generation spectrum, which analysts see costing between $1 and $1.5 billion for each phone firm to win pan-India radio waves. S&P said a potential debt-funded acquisition and the spending for the 3G auction could increase the Bharti’s pro forma consolidated debt in 2010/11 to about 3 times EBITDA, from 1.4 times for the 12 months ended December 2009. “Bharti’s business risk profile could weaken because of the macroeconomic and political risks
associated with, and the lower profitability of Zain Africa’s operations,” S&P analyst Yasmin Wirjawan said. S&P, however, noted the proposed deal would provide growth opportunities in Africa, which has a low mobile penetration than India, and that the combined entity with more than 163 million users would benefit from economies of scale. Separately, the Economic Times reported Bharti may sell shares to SingTel to partly fund its purchase of Zain assets and avoid taking on too much debt. Bharti’s shares were the second-worst performer in 2009 among the benchmark index that rose 81 percent, as a price war in India clouds earnings growth potential. — Reuters
Analysts: ECB, Fed will march to different monetary rhythms
TOKYO: Toyota Motor Corp Executive Vice President Akio Toyoda (center) joins hands with President Katsuaki Watanabe (left) and Chairman Fujio Cho after a press conference in Tokyo, Japan, when they announced Toyoda, the grandson of Toyota’s founder, was named president of the Japanese automaker. Toyoda, known as ‘the prince’ in Japan, was groomed for years to head the automaker his grandfather founded. — AP
Toyota chief to face US Congress over safety crisis TOKYO: The head of embattled Toyota has bowed to calls to testify in US Congress as lawmakers demand a whistleblower lawyer hand over potentially damning internal company documents on alleged safety defects. A key congressional committee has subpoenaed former Toyota lawyer Dimitrios Biller, who has accused the world’s biggest car maker of hiding and destroying evidence of safety problems and of “a culture of hypocrisy and deception”. Toyota is recalling more than eight million cars worldwide for defects linked to more than 30 deaths in the United States that have sparked a host of US lawsuits which could cost the company billions of dollars in damages. Akio Toyoda, the usually publicity-shy grandson of the company’s founder, was initially reluctant to appear before the US Congress but relented following an invitation by Representative Edolphus Towns to testify next Wednesday. “Since I received an official letter, I decided that I’m pleased to go. I want to speak there with all sincerity,” Toyoda told reporters. “What I want to stress most is our cooperation in determining the causes (of the problems) and our firm stance on safety,” he added. His announcement came as the committee asked Biller, a top US lawyer for the Japanese carmarker from 2003 to 2007, to bring all documents he has relating to Toyota’s “handling of alleged motor vehicle defects and related litigation”. Biller says the internal company documents show the beleaguered firm was hiding evidence of safety defects from consumers and regulators. The lawyer, speaking to ABC News, has accused Toyota of hiding and destroying evidence and of “a culture of hypocrisy and deception”. Toyota has denied Biller’s claims, describing him as a disgruntled former employee, and both sides are locked in a legal battle. The iconic company, whose global expansion pushed it past General Motors in 2008 as world number one, is facing a litany of complaints ranging from unintended acceleration to brake failure in its Prius hybrid cars. US safety officials are probing whether Toyota dragged its feet on tackling the problems, and President
Barack Obama’s Transportation Secretary Ray LaHood has vowed “to hold Toyota’s feet to the fire” to make sure its cars are safe. The auto giant’s president has faced mounting criticism about his handling of the crisis, the worst in the company’s history. “President Toyoda should have announced his attendance much earlier as he has no choice but to appear before Congress under the current circumstances,” said Mamoru Kato, an analyst at Tokai Tokyo Research Centre. “Toyota Motor hopes to calm the issue with his appearance, but it’s unlikely,” he said. “There is no sign of this blowing over as distrust in Toyota is quite serious, particularly in the United States.” Japan’s transport minister yesterday criticized Toyoda for not being more decisive on whether to face the US Congress. “It’s regrettable that there were flip-flops and talk that he would not attend,” Seiji Maehara told reporters. Toyoda, 53, was long groomed for the top job and became the first member of the founding family in 14 years to take the reins last June. The avid motor racing fan was criticized for being slow to appear in public after the mass recalls went global, but has now appeared before the media four times in about two weeks. “He will likely come under heavy attack (in Congress), but there are matters only the top executive can provide an answer to,” a unnamed senior Toyota official told Japan’s Kyodo News agency. “It is important to obtain an understanding that we have responded in line with the law.” Toyoda is the grandson of Kiichiro Toyoda-who founded the automaker in 1937 — and the son of former president Shoichiro Toyoda. When he was named last year to take the helm of the automaker, Toyoda said he was “sobered by the heavy responsibility”. The family scion has put the brakes on Toyota’s rapid expansion, which left it vulnerable to the global economic crisis and-critics say-led to a weakening in its once-legendary quality control. —AFP
FRANKFURT: The European Central Bank has already begun to undo exceptional measures taken amidst the global financial crisis but will go more slowly than the US Federal Reserve owing to the eurozone’s fragile state, analysts say. The Fed raised on Thursday the rate it charges for emergency loans to banks, a surprise move seen as the start of an exit strategy from radical measures begun in mid 2007 that sought to jolt the US economy from recession. The ECB began in December to unwind what it calls “enhanced credit support,” mainly unlimited loans to commercial banks, and does not need to take specific steps but can just let measures run out according to an established timetable. The last 12-month loans of central bank cash took place in December and the last six-month operation has been set for late March. “The ECB can simply go back to normal three month refinancing operations, this already takes a lot of liquidity out of the markets,” ING senior economist Carsten Brzeski said. The 16-nation eurozone economy is much weaker than that of the United States, which might allow the Fed to move more quickly than the ECB. “We have the impression that if there is a bias on the US side, it will be towards an accelerated unwinding of the support measures,” Deutsche Bank economist Gilles Moec said. Global Economics chief international economist Julian Jessop stressed however that “the normalization of some monetary policy tools (whether the restoration of usual interest rate spreads or the withdrawal of emergency facilities) does not mean that key policy rates are going up any time soon.” The Fed announced its decision after leading US economic indicators rose for the 10th consecutive month in January. Yesterday however, a closely-watched survey of eurozone private business activity showed a “worrying slowdown” in the all-important services sector, reinforcing worries over what is expected to be a hesitant recovery. The eurozone is also struggling with deficit and debt crises in several member states that have raised the question of its ultimate credibility and cohesion. That has forced governments to announce strict fiscal belt-tightening moves which will influence ECB policymakers when they meet in two weeks to mull changes to the bloc’s monetary policy. Moec resumed their position as “I don’t have a very good economic climate, I probably also have budget tightening, I therefore don’t really want to accelerate the pace” of normalizing money supply and interest rates. Brzeski did not believe the ECB would change its exit strategy just because of the fiscal crisis in Greece. But he acknowledged a question mark remained over whether Greek banks now depended on the ECB’s generous allocations of cash loans. “If the ECB now withdraws the liquidity, could this mean that Greek banks could get into trouble,” he asked. At the same time, the ECB has made it clear since December that “the times of free refills are over,” the ING economist noted. “Like the Fed the ECB will withdraw now and test the interbank market a little bit,” but Brzeski stressed that within the eurozone, “it has to be very gentle.” Moec felt the Fed’s move “confirmed it wants to withdraw exceptional measures at a relatively rapid pace.” — AFP
ATHENS: Protesting taxi drivers march to the Finance ministry in Athens yesterday during their 24-hour strike to protest against the debt-burdened government’s fiscal reforms. — AFP
Fuel shortage haunts Greece amid strikes ATHENS: Greek drivers queued for gas at the few stations still open yesterday as a nearly weeklong customs strike protesting government austerity measures left many pumps running dry, while taxi drivers stayed off the streets in a 24hour walkout. Customs workers initially walked off the job for three days Tuesday to protest salary freezes and cuts in bonuses and stipends. But on Thursday, their union declared three 48-hour rolling strikes that will keep customs offices shut through next Wednesday, when Greek workers across the country will hold a general strike. The customs walkout has hampered imports and exports, but the supply of fuel has been the most affected. Many gas stations in Athens had run out of all fuel, while those that were still open were rationing the amount of gas given to each
driver, with some imposing a 20 euros ($27) limit per customer. Traffic policemen were posted at some gas stations in Athens as cars queued for hundreds of meters (yards). Taxis also held a 24hour strike yesterday, protesting parts of the austerity package that increased fuel tax and will force them to issue receipts. Greek unions have been opposing the new Socialist government’s harsh austerity measures, which were imposed in an effort to pull the country out of its worst debt crisis in decades — one that has seen its deficit swell to a massive 12.7 percent of economic output. European finance ministers warned Athens this week that it would have to impose even tougher budget cuts if its current measures don’t manage to reduce the deficit to 8.7 percent this year. Athens has until March 16 to report back to the EU on its progress. — AP
SINGAPORE: Promoters hold balloons against the backdrop of Singapore’s financial district yesterday. Singapore raised its 2010 GDP forecast and now expects the city-state’s economy to grow as much as 6.5 percent after contracting last year. — AP
Union loses legal battle with BA LONDON: British Airways cabin crew have lost a legal battle to overturn changes to pay and working conditions that sparked an acrimonious dispute between workers and management, culminating in a narrowly averted Christmas strike at the airline. Britain’s High Court said yesterday it had declined to grant a permanent injunction that would have scrapped the cost-cutting changes. The cuts include a pay freeze this year, a switch to part-time working for some staff and a reduction in cabin crew numbers from 15 to 14 on long-haul flights. The Unite union, which represents some 13,000 BA cabin crew, had argued that the airline was in breach of its contracts with staff because it did not properly consult with them before imposing the changes the changes in November. High Court Judge Christopher Holland rejected that argument, ruling against the union. BA has long argued that the changes, first flagged to the union more than six months ago, were necessary to counter falling demand for air travel after the global financial crisis. It also dismissed suggestions from the union that the changes would harm the health and well-being of both staff and passengers, saying the slight increase in work for the crew entailed no safety
or security risk. BA said yesterday it was pleased the court had determined that the “modest changes ... were reasonable.” “Unite’s central demand over the last three months has been that we reverse these changes, despite the severe financial impact this would have on the company at a time when we are facing a second year of record annual losses,” the airline said in a statement. Chief Executive Willie Walsh said earlier this month that the cost-cutting drive has put the carrier on the right course, but won’t save it from posting record losses in the current year. It made an operating loss of 86 million pounds ($135 million) for the first nine months, compared to a profit of 89 million pounds a year earlier. The carrier has been one of the airlines hardest hit by the global recession because of its heavy running costs and reliance on increasingly unpopular premium fares. Unite is currently holding a new strike ballot after its planned Christmas and New Year strike was stopped by a separate High Court action. The results are due on Monday, meaning that a strike could be called for as early as March 1,although Unite has pledged not to walk out over the busy Easter holiday period. —AP