Global Markets come under the grip of coronavirus

March 9, 2020. The Indian stock markets were in for a rude shock. The benchmark BSE Sensex recording its biggest-ever plunge- at over 2,200 points.

March 12, 2020. The Sensex tanked another 2,919 points. Equity indices witnessed worst ever intra-day fall.

The stock market has now subscribed to the bear territory – a condition when an index falls more than 20 per cent from recent highs – as the World Health Organization (WHO) announced coronavirus (Covid-19) a pandemic.

The 30-share benchmark BSE Sensex has lost more than 9,000 points since 20 January 2020. Rupee against Dollar is now @ 74.50! It is an all-time high.

But what led to this sudden slump, the erosion of investor wealth worth Rs 11,27,160.65 crore?

It all started with the fright carried on by the spread of Covid-19 (coronavirus disease). It already has made an atom-bomb like impact. Since the disease outbreak on the last day of the last decade, more than 4,400 deaths have been reported worldwide. More than 122,000 people in 120 nations have been infected till date.

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The sudden slump in oil prices.

Global crude oil prices have crashed 30 per cent, with Brent crude prices falling to $32 a barrel.

The tremors are being felt in markets all over the world.

Also Read: Airline Flybe May become a Coronavirus Casualty

Under the shadow of the pandemic, people have stopped travelling. Airlines have discontinued their services. A few airlines went bankrupt while others are not able to make any reasonable profits. All such events have led to a major adverse impact on the global economy. The outbreak of Covid-19 has shaken the airline industry fundamentals, discouraging the growth prospects of the sector along with a sharp decline in the fossil-fuel burn.

The Organization of Petroleum Exporting Countries (OPEC) held an urgency meeting in February 2020 in order to recalibrate its production cuts for the rest of 2020. The plan was to cut production. Thus, it reduced global supplies by 3.6 per cent. When Russia refused to align with the deal, Saudi Arabia slashed oil prices enormously.

markets

Markets have come under the clutch of coronavirus

Even a Morgan Stanley report does not give a pleasant picture as the coronavirus will likely amplify the problems.

Lower oil prices may translate to lower retail prices, but this positive benefit may not be necessarily realized, because the consumers will stay away from higher spendings amid an overall pessimism in the economy and the financial businesses.

India may be a significant gainer from the current oil prices slump. India imports 85 per cent of its oil requirement. Clearly, there would be a significant reduction in India’s import bill and easing of the current account deficit and inflation. This will also check the growing inflation and promote the next round of rate cuts by the Reserve Bank of India. Governments will continue to profit from the crude price fall, as they are not likely to pass on the influence of the soft crude prices exclusively to the consumer. The blessing gains for the government can be used to connect the fiscal deficit or spend on well-being projects and infrastructure.




AAI’s Unused Airfields Yet to be Put on Use

Till 2019, the staterun Airports Authority of India (AAI) is left with 126 airports, which include 50 unused airfields, including non-operational ones, which do not generate any productive value. Three years ago, the Government had come up with an ambitious plan named UDAN wherein it proposed to put such airports under some utilisation. But, the scheme could not take off as anticipated.

Also Read: 84 Routes Under the UDAN Scheme Have No Operator Now

Today, the government has realised that the country needs more number of airline pilots. It feels that there is a burgeoning demand for pilots in India and overseas. A new school of thought has emerged in the aviation ministry. That is, more schools for pilots should be opened up because India does have adequate human capital and it can produce enough pilots to meet not just its own demand but also supply pilots to the world!

India’s pilot shortage

India’s shortage of pilots, especially of commanders, is increasing as airlines expand aggressively. According to industry estimates, the country now has about 8,000 pilots and its airlines will require an additional 17,000 in the next 10 years. There is also global demand for pilots, especially from carriers in China and the Middle East.

India’s current pilot producing capacity is not enough to meet the country’s needs. It has 32 training institutes that produce about 300 pilots against the requirement of 800 a year. The country’s fast expanding carriers have to hire foreign pilots otherwise they have to cancel flights at times. Jet Airways pilots, for instance, found jobs quickly with other carriers when the airline went  bankrupt recently.

AAI’s disused airfields may be turned into pilot academies

As such, the government has started work on a plan to turn the AAI’s ideal airfields into pilot academies. It is not considering their Real Estate virtues even after the flopped UDAN show. Those properties could have been utilised much more profitably by recognising its real-estate value and setting up a suitable industry by utilising judiciously the locally available resources.

The said plan envisages to activate as many airports — either non-operational or the ones used only sparingly — as possible. There could be various other airports or airstrips that could be used for pilot training.

Also Read: Republic Airways Offers OU Pilots Job Opportunities

The AAI board has rcently approved the proposal and formed a three-member panel headed by former Indian Air Force chief Fali H Major to decide on the number of airports that can be offered to pilot schools. It has not yet clarified how it will mobilise funds for such a venture. There is still no co-ordination among the general education system, and the Industry. Flying training in India is more expensive than many other countries, and one reason is taxation on fuel for trainer aircraft. The government must come up with a viable plan, it may have to look at the option of providing subsidies to make this scheme a success.

Air Force chief Fali H Major is an independent member of the AAI board. The others on the committee, which is to submit its report in three months, are Vineet Gulati, AAI’s member (air navigation services), and Anil Gill, deputy director, Directorate General of Civil Aviation (DGCA).

The idea came from director general of civil aviation Arun Kumar, also a member of AAI’s board, said persons with knowledge of the matter.

The team headed by the former IAF chief Fali H Major now has a challenging task in hand. It has to justify the government’s decision of opening up more pilot schools like this on three main counts:

  • the pilot training program must be cheaper than the prevailing rates
  • a commercially better utilisation of the land that other real-estate schemes could have provided
  • should not depend upon the government’s sops, subsidies or any other form of concessions

This has become more significant since the UDAN scheme has flopped miserably before. In all probability, the Team Fali may like to consider an option which stems from the potential of non-aeronautical revenue which is inherently associated with every airport – functional or non-functional. 

Experts said the initiative will need to be augmented by other measures. Shakti Lumba, a former pilot who used to head operations at Air India and IndiGo says, “There are things like weather, visibility and Air Traffic Control factors that should be taken into account while deciding on the airports that will be shortlisted for flying institutes. The government should also provide incentives.”




Air India sale: Government to prepare a fresh proposal

The Finance Ministry is preparing a fresh proposal for sale of Air India, incorporating issues like crude oil prices and exchange rate volatility, flagged by analysts last year on possible reasons of the government failing to attract bidders for the national carrier.

The ministry’s proposal, to be placed before Air India Specific Alternative Mechanism (AISAM), will also include option of selling either 100 per cent or 76 per cent government stake in Air India.

The AISAM, which is basically a Group of Ministers, have to be reconstituted as Arun Jaitley and Suresh Prabhu are no longer ministers in the new government. They will be replaced by Finance Minister Nirmala Sitharaman and Civil Aviation Minister Hardeep Singh Puri. Transport Minister Nitin Gadkari is likely to continue in the panel when it is reconstituted.

The government last year invited bids to sell 76 per cent stake in Air India, along with transfer of management control. However, it did not attract any bidder. Following that transaction advisor EY prepared a report citing probable reasons that led to failure of the sale process.

The reasons cited include 24 per cent government stake and corresponding rights, high debt, volatile crude oil prices, fluctuations in exchange rate, changes in macro environment, profitability track record of bidders and restriction on bidding by individuals.

During the meeting, which was presided over by the then Finance Minister Jaitley, it was also decided to infuse more funds into the carrier and take steps to lower debt of Air India by selling its subsidiaries and non-core assets.

“We will present a fresh proposal for Air India sale to AISAM. It would include updates on the issues raised when Air India disinvestment failed last year. It would be left to the AISAM to decide whether the government should go in for 100 per cent or 76 per cent stake sale,” an official told .

The government has already asked Air India to finalise its accounts for 2018-19 by June 30.

Once the updated accounts are available and AISAM gives a go-ahead for Air India sale, the Department of Investment and Public Asset Management (DIPAM) and Ministry of Civil Aviation will draft the Preliminary Information Memorandum (PIM) giving details of about the company and stipulating conditions for eligibility of bidders.

In 2018, AISAM had earlier decided to sale 76 per cent in Air India and the buyer was required to take over Rs 24,000 crore debt of the carrier along with over Rs 8,000 crore of liabilities. However, the stake sale failed to attract any bidder when the auction process completed on May 31, 2018. At that time, Air India’s total debt burden stood at Rs 55,000 crore.

As precursor to the strategic disinvestment of Air India, the Cabinet in February approved setting up of a special purpose vehicle (SPV) – Air India Assets Holding Company – to transfer Rs 29,464 crore worth loans of the national carrier and its four subsidiaries.

The official said that the process of transfer of Rs 29,464 crore to the SPV is not yet complete.

“The Department of Economic Affairs, Civil Aviation Ministry and the banks are still working out the modalities of debt transfer. The process is likely to take some time,” the official added. JD CS BAL




Jet Airways pays December salary partially, pilots unhappy

Jet Airways on Saturday cleared the pending salaries for December, but pilots maintain they would stop flying from April 1 if full dues are not settled. The pilots’ union has called for a meeting on Sunday to decide further steps.

The airline is yet to pay full salaries for January and February to its pilots, engineers and senior management. So far, only 12.5 per cent of December salary was paid and on Saturday the airline credited the remaining 87.5 per cent for the month.

“The board of directors and the management team are working as fast as possible to implement the resolution plan agreed with the consortium of Indian lenders to quickly restore the much-needed stability to our operations and build a sustainable future for the airline,’’ chief executive officer Vinay Dube said in an email to staff. Stating that these are complex processes and that it has taken longer than expected, Dube wrote, “We are only able to remit your remaining salary for December 2018”.

Founder Naresh Goyal stepped down as chairman of Jet Airways on March 25 as lenders agreed to provide Rs 1,500 crore in emergency funding as part of a resolution plan. His wife, Anita, too, resigned as director on the Jet board.

“We realise that this remittance does not lift the financial hardship that each of you are facing and we do not take your sacrifices for granted. We continue to work on additional funding on an urgent basis and shall advise you about the release of the remaining salary arrears as the funds come in,” Dube has told the Jet staff in his latest email communication.

The pilots’ union has made it clear that the partial payout is not acceptable. “There will be no flying unless the company pays us substantial salaries and provides a road map,” the National Aviators Guild, the pilots’ union, said in a message to its members.

ALSO READ | Over 1,000 Jet Airways pilots to go ahead with no flying call from April 1

Just a day ago, around 200 pilots had individually written to the airline CEO, threatening to go on leave of absence and warning of legal action for non-payment of dues. Engineers too have threatened to stop work if salaries are not paid.

Cash-strapped Jet Airways has grounded many planes and also defaulted on repayment of debt, including ECBs.

Lenders’ consortium is preparing for an open auction for Jet, which has a debt of around Rs 8,500 crore. The expression of interest for the auction is likely by April 9 and final bids are expected by end of May. Goyal, whose stake has been halved from 51 to 25.5 per cent is learnt to be scouting for strategic partners for the airline he had founded more than 25 years ago. Abu Dhabi-based Etihad, which owned 24 per cent in Jet and now is left with 12 per cent, is expected to decide at a board meeting on Sunday, whether it wants to exit the airline completely or not.




Cash-strapped Jet Airways looks to raise up to $150 million

In July 2017, Jet Airways had asked its junior pilots, who joined the brand in 2016, to take a 30 percent pay cut or leave

In another attempt to keep its operations up and running, debt-laden Jet Airways is looking to borrow $150 million from an external bank. The private carrier has requested its partner Etihad Airways to become the guarantor for the loans.

According to Economic Times, the beleaguered airline has made this proposal at a time when an attempt to bring in more equity investments is stuck with Etihad over the issue of majority shareholding. But the Abu Dhabi-based airline, which has a 24 per cent share in Jet Airways has not yet agreed to the proposal made by Jet.

Etihad has argued that it would very risky to invest in Jet Airways as India’s second largest airline by market share is undergoing a forensic investigation directed by its top local lender, State Bank of India (SBI). One of the sources aware of the development said that “The risks would be extremely high in backing such loans.”

It has now been a while since Etihad has been approached by Jet Airways chairman Naresh Goyal to put in fresh equity. However, Etihad has made some conditions that are not acceptable to Jet Airways.

Etihad has shown its willingness to make an equity investment, but with a condition of buying 49 per cent stakes in Jet that is the maximum a foreign carrier is allowed to own in an Indian peer. The proposed sharing holding pattern would mean the current promoters led by Goyal may have to dilute his controlling stake in Jet.

Since the option of equity infusion is witnessing a deadlock, debt raising is the only immediate option for Jet which is reeling under heavy debt and huge losses. The cash levels in the private player are so low that it is struggling to even salaries or plane lease rentals regularly. The airline is staring at a debt of around Rs 8,000 crore on its balance sheet.

Moreover, the airline is also facing a forensic audit by consultant Ernst & Young (EY) by the direction of state-owned, State Bank of India (SBI). It is to be noted that Such an audit is typically being carried out when there is suspicion of fund diversion.




In another bail out, Modi government seeks fresh capital for cash-strapped Air India

It seems that the center’s love for “Maharaja” is far from over as in a fresh development, the Modi led government has sought from Parliament for equity infusion worth Rs. 2,345 crore.


Moreover, the government has sought for an additional Rs. 1,300 crore for Air India Asset Holding. Center is leaving no stone unturned to revive the national carrier, as the part of the plan, it has decided to transfer debt worth Rs. 29,000 crore to Air India Asset Holding Company, a special purpose vehicle. The debt of Air India has been piling for a long time and currently, it is somewhere around Rs. 55,000 crore.

Finance Minister Arun Jaitley tabled the request in the second batch of supplementary demands for Grants 2018-19. In the request, the finance ministry has sought for Rs 2,345 crore equity infusion into the airline under a turnaround plan.

Since the start of the year, the government has planned for strategic stake sale offer in Air India but the offer failed to attract any bidder. Apart from the strategic sale, it has been exploring other options to improve the financial position of the national carrier.

It is not only the Bharatiya Janata Party (BJP) led NDA which has been trying to bail out Air India. The UPA government in 2012 had announced a 10-year bailout package of up to Rs. 30,000 crore for the cash-strapped airline. The bailout was to be disbursed in a phased manner till 2022. Additionally, for the current fiscal, the incumbent BJP has also sought for an additional gross expenditure of Rs. 85,948.86 crore.

This year, the national carrier had also requested the government for an amount of Rs 2,000 crore on an immediate basis after the government’s plan to divest a 76 percent stake in Air India found no takers.

The government has already injected around Rs 980 crore into the airline as equity and granted the airline sovereign guarantee to raise Rs 2,000 crore from banks. Out of the given window, Air India has already raised Rs 1,500 crore.