Money laundering?!?!
That’s what has been India’s ludicrous response for so many years

India again seems to be gaining focus to fight against a menace called money laundering. The country established its Financial Intelligence Unit (FIU) in 2004, responsible for scrutinizing the suspected financial transactions to stop money laundering and similar crimes. Realising the fact that money laundering rackets like hawala, smuggling et al involve foreign operatives, the cabinet committee is likely to now approve sharing of information with foreign countries like the United States, United Kingdom, Canada and Australia. But most importantly, India – after years of ludicrous seat of the pants behaviour – is trying to belatedly gain membership of the Egmont Group, a body that was established as an anti-money laundering body in 1995, and which now has 101 countries and their FIUs cooperating with each other, both formally and informally.

However, surprisingly, the failure of anti-money laundering moves will keep haunting India. Thousands of residents, Indian smugglers and criminals have unauthorized bank account in foreign shores. There are an estimated 3,000 international hawala brokers. Worldwide, allegedly, $200 billion worth of hawala trade takes place in a day. Millions of illegal money and Gold are kept in safe havens – Switzerland, Andorra, Cayman Islands, to name a few. These unauthorised funds are allegedly used for funding criminal, terrorism and narcotic activities.

It is quite unbelievable that Indian authorities had to wait for so long to accept that they also require membership of organizations like the Egmont Group. Perhaps money laundering was never a priority issue for the authorities. Even the current move lacks any orientation on how such a membership will be used pro-actively. But as they say, criticisms can come and go, for the Indian government, it’s better late than never...

Liquor vs Coke!
Sadly, liquor wins hands down

The harsh reality is India has millions of drunkard guardians who sacrifice their entire life and family for their obsession with drinking. There is one more reason for such drinkers to be stunned. The most well respected and renowned medical journal Lancet published a report in 2007, which ranked alcohol as being 5th in the list of the 20 ‘most dangerous drugs’ like heroine or cocaine. Liquor is placed higher than some Class A narcotics like Ecstasy for its greater tendency of induction and addiction, effect on families, societies and communities and possibility of causing death. Thousands are estimated to be killed every day from chronic intake.

Let’s look at how hypocritical have been India’s politicians, who ostensibly are extremely well concerned about the health and well being of our citizens. While during the Coke and Pepsi pesticide controversy, some South Indian state governments criticised Pepsi and Coca-Cola and even banned them. But when the debate came around to liquor, the same governments, though banning country liquor, shamelessly promoted Indian made foreign liquor. It’s quite unfathomable how, under the garb of excise and employment, cigarettes and liquor are still considered legal business products.

75% of piracy...
...of global software is in India!

One would think that no one would like to sport a fake painting, brand or would like to have stolen food, or use pirated computer soft ware and movies. Well, the ‘one’ who thinks like that in India, seems to be amusingly just one, as millions seem to be thinking otherwise. According to International Data Corporation (IDC), India accounts for 75% of the global piracy market and is now rated amongst the top pirating countries. IDC claims that there could be 1,150,000 new job openings with even 10% decrease in piracy. They estimate that with every 10% decrease in piracy, almost $15 billion additional revenues and $386 million as tax revenues could be pumped in.

Great words, greater numbers, but try saying that to the ‘pirates’ and to the buyers of such pirated products. Unless the government supports soft ware corporations and movie houses in making high profile arrests under clear media glare, and unless the judiciary ensures that the fines and the prison sentences are prohibitively high, piracy will be as common as jumping a red light in the lovely roads of Delhi and giving bribes to traffic police... Well, that’s another story!

Sex education
Sexual abuse rampant in schools

The game of power equation has enveloped girl children in schools. Increasing violence including aggressive sexual behaviour, intimidation, assault, sexual advances by teachers, corporal punishments and verbal abuse are more becoming a norm rather than an exception in schools. Studies show that even in so-called ‘women-friendly’ states like Punjab, around 39% women have experienced some kind of sexual harassment and a pitiably huge 15% of Secondary school girls have been sexually abused. These incidents get worse in government schools, where currently 58% of schools (out of 800,000) don’t even have any toilet facilities for either sex. Well, it’s of little comfort then that the most dreaded spots of these horror acts have mostly been near the toilets (and empty classroom and even corridors). There have been rampant reports of rape, molestation and even corporal punishment to girl students, from almost all the states of the country. So who is to be blamed? Clearly, a combination of our policing & judiciary that has criminally ensured that rather than painfully fighting a case for years in courts, women simply remain... painfully quiet!

Bite this, you dog!
India has the highest rabies cases

Stray dogs can be a horror and annoyance for common people. But stray dogs are a greater menace in our drive against rabies, as they are the major carriers of this near incurable and usually lethal disease.

India is cursed with the highest number of rabies cases in the world. Bite this – more than 70% of the world’s rabies cases occur in India. Veterinary scientist Professor, A. P. Galhotra, conducted a study under the aegis of the Punjab Agricultural University on the same issue. The survey revealed that around 3 million people are annually bitten by dogs in the country and nearly 30,000 of those die (due to rabies). Investigations revealed that Punjab and Haryana reported 2,327 cases of dog bites, of which 1,804 dog bite cases were rabies infected. Surprisingly, even after such a high casualty rate, India produces only 120 litres of anti-rabies serum as against the projected national requirement of 1,500 litres.

Killing stray dogs might appear cruel, but measures like sterilisation and other means of controlling canine population can also be actively pursued. After all, this is the case where the bite is worse than the bark... much worse!

The Enemy Lies Within

While the whole nation was watching wide-eyed for the first bird to fall from the domestic skies, Naresh Goyal seized the opportunity and proved yet again why Jet Airways is such a hit with the media. Is the Sahara deal a brilliant strategic move to remain afloat? Or some unavoidable curse? For now, what matters is that Jet seems to be losing altitude... and fast!

Friday the 13th! Cursed, you said? Sure it is in Western culture, but could the association with this day find a parallel in the Indian aviation sector? For it is this fateful day in the year of 2007 that Jet Airways Chairman Naresh Goyal chose to finally announce that Jet & Sahara have finally decided to make it to the aisle; a move that has industry experts shaking their heads in candid disapproval of the strategic logic.

This one’s a no-brainer: What would you call a company that’s publicly-listed, but one in which the Chairman (who fits the title of ‘king’) commands a filthy 80% of total voting power, while the very public owns a practically negligible and hopelessly heart-rending 3.05% of total shares? Yes, it’s the erstwhile mighty Jet Airways we’re referring to, which survived when all other private fliers closed shops, led by its king and today a top(pled) gun, Naresh Goyal! Both form the perfect mishmash that proved ideal for a resounding malfunction on the bourses ever since it came out with its IPO. Ever since it got listed on NSE, Jet shareholders have found their total worth deplete by a dishonourable 54.7% to just Rs.45.5 billion as on April 13, 2006. So where is Jet headed in a business environment that’s nothing short of a bloody battle?

The dry, dry sahara!
After the acrimony that reverberated in the media throughout 2006-07, Naresh Goyal raised many eyebrows when he accepted Sahara’s hand in marriage yet again! Surely, only a few could see it coming, after the unceremonious break-up & bitter legal proceedings following an equally hasty affair – one that finally forced Naresh to accept the cursed ring, and an expensive one at that!

As Surbhi Chawla, Aviation Analyst, Angel Trade reveals exclusively to B&E, “Yes, it is a more of a compromise... the overall competitive environment hasn’t improved since last one year when the deal was first announced.” Certainly, Jet seems to have understood that instead of paying Rs.5 billion for nothing, they could shell out (a lot) more and get at least the limited brand equity, some parking bays & the biggest loss-making domestic airline in India. Binit Somaia, Regional Director, Centre for Asia-Pacific Aviation (CAPA), spoke to B&E, “If one was to start with a clean sheet today, it is unlikely that Jet Airways would be interested in acquiring Air Sahara... Given the history of last year, the alternative to this latest deal could possibly have been even more costly. But Air Sahara is making signifi cant losses, likely the highest in India...”

The ‘king’ does look a tad confused, considering his public announcement of having acquired Air Sahara for “a price representing a 40% discount to the originally agreed price of Rs.22.50 billion”. Here are the numerics – In addition to the Rs.5 billion already lost through the escrow account, Jet spent an enormous Rs.1.8 billion (CAPA estimates) for running Sahara’s operations. Also, during the past year, while all other domestic airliners were adding aircraft s, Sahara actually reduced their fleet strength from 27 aircraft s to 24 by withdrawing assets valued at a total of Rs.1.2 billion. It’s understandable why the competition doesn’t appear as concerned as it was last year, when the deal was announced. Capt G. R. Gopinath, MD, Deccan Aviation exclusively disclosed to B&E, “Jet got into talks with Sahara because at one point, arch rival Kingfisher was keen on acquiring Sahara... It made sense then. Personally, I wouldn’t pay so much, probably they see an upside I cannot!”

Then comes Sahara’s total equity valuation of Rs.14.5 billion (what Jet agreed to pay as fair value for ‘all Sahara shares’ on April 13, 2007), Rs.500 million in interests paid over last year and an added Rs.1.5 billion worth of Sahara’s liabilities absorbed by Jet. Add to all these Sahara’s full-year losses of Rs.4.0 billion, and we have the mighty Naresh shelling anywhere close to a colossal Rs.28.50 billion! Now, did someone confuse the word “premium” for “discount”?!?! Surely, a deal deserving a ‘tip of the hat’ from CEOs who’ve ‘successfully’ led the worst and the most over-valued mergers ever! For what corporate high-flying logic does it make to shell out such a colossal sum for an entity that possesses zero assets (with all 24 aircraft s being leased till just 2010 and which have depreciated over last year)? Surely the answer is clear. As Praveen Vetrivel, Aviation Analyst, International Bureau of Aviation states, “The deal will mark a compromise for Jet... In short, an additional burden that Jet could have done without...”

During the first three quarters of financial year 2006-07 alone, Jet posted net quarterly losses of Rs.450 million, Rs.551 million & profits of Rs.400 million respectively. And with rapidly falling market shares and rising number of low cost carriers, margins would drop further. In addition, while the debt-to-equity ratio for the entire sector globally stands at a healthy 0.78, Jet Airways’ figure stands at a dangerous 2.5 (according to Edelweiss on June 30, 2006). More discouraging is the fact that the ratio is estimated to reach an alarming 4.3 by 2007-08 (SSKI)!

‘jet’-lag redefined... A year back, the acquisition would have led to a thumping control of 47% of the domestic market. Today, the situation appears cheerless. With Sahara’s market share having fallen to 8.2% coupled with Jet’s market-hold plummeting to 25.5% (on January 31, 2007), the combined entity commands just over 32.7% – less than what Jet alone could boast of last year! Adds Capt. Gopinath, “Sahara’s market share of 6-8% is on account of indiscriminate & unsustainable pricing. It will not really add to Jet’s market share...” The only clear benefit is that Jet gets parking bays, especially on the Mumbai-Delhi route, which is also the busiest in India.

Two short-term capital requirements are likely to make matters worse. There’s the much-needed Rs.4 billion infusion to revitalise the Sahara (for maintenance, repairs, upgradation & re-branding of the airline) added to its $2.1 billion investments for acquisition of twenty new aircraft s by 2008-09. Jet’s international operations suffered from losses of $8 million for the nine months ended December 2006. Surbhi Chawla reveals, “Jet has debt on its books of around Rs.50 billion & with CAPEX of around Rs.100 billion, its latest actions would strain the already leveraged balance sheet & also defer its international plans...”

On the other hand, converting Air Sahara (to be rechristened Jet Lite) into a “value carrier” sounds sensible. CAPA forecasts that by 2010, LCCs will control 70% of market share. But then, even the value route is not a cakewalk, so Jet has to be very careful on its approach on how to counter established LCCs like Air Deccan.

Surely, the rules of the game have changed, and for Jet, it’s audacity will prove the greatest enemy, the ‘enemy that lies within’. And for all that Jet didn’t realise, this very audacity might have just sealed its fate through the historical Sahara deal… all on one fateful ‘Friday the 13th’!

(MIS)Management?!

The recent management churning has also upset Jet Airways with five top officials departing (at one go!), understandably creating a panic. But talk of efficient management and some questions arise here too, with the airline left with something to prove where return on assets (ROA), return on investment (ROI) and return on equity (ROE) are concerned – parameters which highlight management efficiency. As compared to global ROA, ROI & ROE standards of 15.29, 18.27 & 26.17 respectively for the 5-year period till 2006, the management has reported pathetic figures of 2.92, 5.49 & 18.86 respectively! Also its net profit per employee of a disgraceful Rs.0.19 million is below global standards of a handsome Rs.4.78 million per head – truly sub-world class management!