Tata Airline - fasten seat belts for turbulent weather

 

When the Cyrus Mistry-led Tata group unveiled plans last month to join hands with Malaysia’s low cost airline Air Asia to make yet another bid to enter the airline sector, the lobbying  war which had put paid to Mistry’s predecessor Ratan Tata’s plans to float an airline in the 1990s, erupted all over again.

A flyer from the original Tata airline

It seemed, Mistry had managed to inherit Tata's rivals along with his $ 100 billion-a –year-turnover tea-to-steel-to-cars-to-software empire. If Ratan Tata was truly mauled at any stage in his career as head of the house of Tatas, it was when he tried in 1997 to form a joint venture Indian carrier in collaboration with Singapore Airlines.

The then civil aviation secretary M.K.Kaw claimed in his memoirs  "An Outsider Everywhere - Revelations by an Insider", that lobbying by Jet on airline FDI rules stymied efforts to set up the Tata-SIA airline.

"The history of civil aviation in this country would have taken a different trajectory, if Tata Singapore Airlines had been allowed to float an airline," wrote Kaw.  "The minister (C.M.Ibrahim) did not clear the file, despite several attempts on my part."

In the early 1990s, when private airlines were allowed to be set up in India,  Jet Airways had started with two Gulf-based airlines – Kuwait Airways and Gulf Air – holding 40 per cent equity in the Indian carrier, between them. 

However, when the Tata’s mooted a proposal to set up an airline with just that – 40 per cent stake to be owned by Singapore Airlines -  rules were changed – thwarting the Tata group’s ambitions to get back into a business, with which it had an `emotional’ connect.

Wrote Kaw : "The Tatas had mooted a proposal for a private airline with 40 per cent equity contribution from Singapore Airlines. As this would have been a formidable competitor, Jet tried hard to upset the rules regarding foreign equity contribution … One of the last decisions taken by the outgoing Deve Gowda government had been to disallow such contribution in new proposals. This would block the Tata proposal effectively. Jet was given a time of six months to buy back the equity from its foreign contributors."

A route map of JRD's airline

For the Tatas, a return to aviation, kind of marks a return to their roots. JRD Tata, Ratan’s predecessor had formed the first airline in India, Tata Airlines, which later became Air India. Newly independent India with Nehru’s fabian socialism as its guiding ideology, nationalised the airline in 1953, but asked Tata to continue to run it for the country as chairman.

This strange saga of a state-controlled airline being run by a business tycoon continued till 1978, when in another unexplained `Socialistic’  move, the Janata Dal government of Morarji Desai unceremoniously eased out Tata from this job.  Mrs Indira Gandhi, when she came back to power in 1980, asked Tata to again take over as chairman of Air India, but by then Jehangir Ratanji Dadabhoy Tata no longer had his heart in that job.

So when Mistry decided to try again in 2013, some 60 years after the Tatas’ lost the airline to the government, and a dozen years after Ratan Tata’s bid had come a cropper, everyone sat up to see which way the wind would blow.  

True enough, battle lines were soon drawn over the proposed airline in the corridors of power.  In the run up to the Tatas being allowed an in-principle clearance to set up the airline, it almost seemed that North Block, home to the finance ministry and Rajiv Gandhi Bhawan, home to the civil aviation ministry, were not part of the same government ! 

While North Block, presided over by finance minister P.Chidambaram, eagerly welcomed the plan, which could bring much needed foreign exchange. In sharp contrast, the civil aviation minister Ajit Singh-led Rajiv Gandhi Bhawan fought it tooth and nail, every time and every place, the move came up for discussion or approval.

The civil aviation ministry’s first line of defence were the wordings of Press Note 6 which allows foreign investment in airlines. Its officials initially said the wordings did not allow the investment as neither of Air Asia’s Indian partners had any experience in aviation.

When this was discounted by pointing out that most airlines were launched by business groups which had never ever flown aircraft before, it came up with an interpretation that foreign airlines were allowed to invest in existing airlines and not new ones. Civil Aviation Minister Ajit Singh reportedly told reporters “I am not opposed to the (Tata-Air Asia) alliance… The idea of the policy was to increase investment in Indian carriers. It would have been nice had the Tatas, with their kind of resources, started a new airline.”



Mistry with Ratan Tata

At a dinner held soon after this year's budget was presented, North Block officials revealed that they had to argue incessantly to explain that the intent of the cabinet in September 2012 when it allowed foreign airlines to invest in India’s domestic carriers was not to limit them to buying financially sick airlines that dotted Indian skies. “We told them not everyone wants to buy sick airlines … nor was selling sick airlines our sole reason for changing the FDI rules,” top officials told journalists.

Ultimately, an ingenious interpretation of  a comma used in the Press Note was used to convince the civil aviation ministry that their understanding of the rules was incorrect. The civil aviation ministry proved to be a bad loser. Officials again told reporters that they had doubts about whether the `No Objection Certificate’ needed by the new entity to start operations could be given under current rules.

Other voiced objections to any future plans the Tata-Air Asia airline might come up with to buy “too many” new aircraft or to start “price wars which could bleed the already loss-making sector.” Ominously, the ministry disbanded an aircraft acquisition committee which had at least one independent member,  the chairman of Airports Authority of India and the financial advisor of the ministry,  besides ministry officials last week. New aircraft purchases will be cleared by the DGCA, a bureaucrat reporting to the ministry.

Was this a re-run of the lobbying war that had scuttled Ratan Tata’s plans? Many believe this was. Will Tatas’ manage to have better luck this time round? One hopes they will, but then only the future will reveal whether Mistry will be luckier than Ratan Tata.

India bets big on Africa

India's $ 1.9 tril Elephantine economy 

India’s elephantine economy is getting to be noticed across the Monsoon waters of the Indian Ocean in mineral rich-Africa, with investments touching $ 50 billion and two-way trade some $ 70 billion.

India Inc.’s very best is in a race with Chinese companies to be part of a growing market and resource supplier. Tatas, Mahindra, Bharti, Essar, Godrej, ONGC and Kirloskar are among the big names flocking to the continent. And Africa seems to want more of it. At a India-Africa Conclave in Delhi this week, the venue was thick with Prime Ministers, Vice Presidents and Economy Ministers from African nations. "Arguably, Cameroon is one of Africa's best destinations for investments from India", said Philemon Yang, prime minister of gas-rich Cameroon to a gathering of Indian business leaders.

The three-day Conclave saw some 30 African countries coming up with 475 project proposals worth $ 65 billion, for Indian companies to invest in, ranging from farming to consumer durables to infrastructure to energy, transport, mining, finance and telecom.

India has been trying to woo Africa

Tatas have already invested some $ 1.7 billion, in chemical and automobile plants, hotels, infotech centres among others. “The way Africa is growing … there can be no caps on potential future investments,” said Raman Dhawan, managing director of Tata Africa Holdings. Tatas will continue to set up new automobile plants and bid for projects to set up telecom networks but its future investment focus will be on resources – coal and iron ore to start with – which its plants world-wide require.

If China is workshop for the world and India its services centre, Africa is emerging as the miner for the global economy. Much of India’s investment into Africa is in oil acreages, coal and gold.

Oil accounts for roughly 60 per cent of the trade between the two. Surat gobbles up South Africa’s diamonds while jewellery parks in Calcutta and South India’ tonnes of gold from the continent, accounting for another 10 per cent of the trade. South Africa and Mozambique's coal fuels power stations. India has tied up for uranium from Malawi and Niger to run new nuclear power plants.

But where India differs from China is in the way it’s been doing business. “China’s investment is mostly locked onto resources and state driven … ours is enterpreneur-driven and diversified. Look at Tatas, we have invested in telecom and software … set up chemicals plants,” pointed out Dhawan. India’s biggest investment into Africa is Bharti Airtel’s buy-out of Zain at an estimated $ 9 billion not a gold mine or oil acreage purchase. Airtel’s African operations now cover some 19 countries.

India's Airtel in Africa

Indians also differ by investing in the host society. “We have invested heavily in training African colleagues,” adds P.K Ghosh, Chief Financial Officer of Tata Chemicals. Indians tend to hire a mix of African and Indians, with more Africans than Indians. The Chinese tend to do the opposite.
“What one can readily say is that India’s public relations with Africa is far better,” said veteran Ghanian journalist Francis Kokutse. “Both India and China need resources, we know that but there is a difference in the way the two have gone about.”

Chinese firms in Africa have been known to be less than sensitive about local culture and sensitivities. Sinopec, has explored for oil in a Gabonese national park, causing an uproar. Two years back, Chinese mine managers used shot-guns to disperse agitating workers in Zambia, creating a volatile situation.

India also tends to add value rather than just ship away minerals. Essar took a 80 per cent stake in a mineral venture in Zimbabwe and along with it took controlling stake in a steel plant in the Southern African nation for $ 750 million where it will process iron ore into steel, some two years back. It then followed it up earlier this month with announcement of a $ 275 million investment in a port to handle exports.

However, China still pygmies Indian business effort. Its trade with Africa is three times India’s. China’s diplomatic presence in Africa is far larger. Its staff better trained in the languages that Africa speaks, despite India’s centuries old links with the continent.

Chinese colours on Africa!

It throws largesse by underwriting large railway, roadways and civil construction projects in African nations. No wonder bids by Chinese state-run firms knock out Indian competition when bidding for oil, coal or other mineral resources concessions.

However, Indian business practices may still win more friends and in the process more business in the long run. Said Guy Scott, Zambia’s vice president “African countries can learn from India’s promotion of family business, long term investments and innovation which have proved to be sustainable … and we believe that partnership with Indian investors is a prime means to get there.”

Drive in Growth

Ratan Tata poses with the iconic Jaguar

Mercedes Benz Class

BMW brings the Mini Cooper  to India

Indians bought roughly 2.5 million cars in calendar year 2011, worth some Rs 150,000 crore or $ 30 billion. Another half a million were exported during the year.

In 2012, if car loan rates were to go down, this market could grow by 10-12 per cent. If rates remain static and annual economic growth drops below 7.5 per cent, analysts say the car market would still grow by 5-7 per cent.
Of course that's not much compared to the 30 per cent growth in sales which automakers clocked in 2010, when interest rates were still low and the economy was booming. Or for that matter the double digit annual car sales growth through the 2000s.
No wonder every auto-maker is scrambling to be at the Delhi Auto Expo now on at the sprawling Pragati Maidan (Progress Gardens) show-launching some 60 new glitzy models.
Japanese shipping line NYK, which among other things specialises in bulk transportation of cars, estimates India will  make about 5 million cars by 2015. It bases its projections on plant capacity being set up by various automobile giants.

Almost all cars and sold in India are `made in India’. Typically, as General Motors’ India chief Lowell Paddock, says most cars have between 70-98 per cent Indian components. The more `Indian’ the car is, the cheaper it is. Partly because it’s cheap to manufacture in India, partly because the tax structure is skewed in favour of domestic manufacture.
That’s a result of shrewd planning on the part of Indian policymakers who in the 1990s sought to lure global automakers to India with the bait of its huge market, but cleverly brought in a tax structure which discouraged imports of built up and knocked down car kits. What one industry secretary in those days had told me was “we don’t want to see screwdriver assemblies in India. We want full scale car manufacturing plants.” India has had full scale car plants since the 1950s. But without technological innovations, they kept churning out ‘50s and ‘60s era cars till Maruti, a joint venture with Japan’s Suzuki Motors brought out the M800, a simple 4-seater mini, in 1984.
The auto policy crafted in the 1990s, brought in global auto majors starting with the now defunct Daewoo to General Motors, Honda, Mercedes Benz and Audi and forced the global biggies to make huge investments through the 1990s and 2000s to set up factories, develop Indian vendors who could make quality spare parts. Most of them have still kept the most important or key elements of their cars, a `secret’ from their Indian engineers. For instance, Maruti-Suzuki, India’s largest carmaker, just wouldn’t trust Indians with gear box technology and had a running battle with the industry ministry on this issue through the 1990s.
Tatas and Mahindras have however broken that tech barrier by simply buying their way in. Tatas, who used to make horrible cars like the Indica, with gears which felt like they had been lifted out of trucks, have bought Jaguar-Land Rover (JLR) and now have access to some of the best car designs and engineering secrets in the world. Ratan Tata today told reporters he would be manufacturing the iconic JLR cars in the country. Besides, pepping up the civilian car market, versions of the Land Rover, an all terrain vehicle, could well try to be a replacement for Jonga, a 1960s design jeep-type vehicle, which the Indian Army still drives around in.   
Mahindras have bought Korean car-maker Ssangyong. Its cars are not considered great in terms of design but are grudgingly accepted as value for money, robust vehicles. BBC’s Top Gear says “This is not some Korean epiphany, it’s a bunch of very badly designed cars indeed. They’re cheap, but if you buy one, so are you,”   but also adds “This much SUV at these prices? Too good to be true? Well, yes, in the sense that it all feels cheap and a bit nasty, but you can’t escape the allure of a poor man’s M-Class.” Mahindras are now trying to buy up Saab, a Swedish-Dutch automaker, which at one time was owned by General Motors.
But before Indians can start bringing out the champagne in celebration, they should also note that the Chinese have taken a similar route to building up their own automotive industry and produce a mind boggling 17 cars million a year. The Brazilians who make about 3.5 million cars annually, are already ahead of the Indians, in many respects. My own guess is that by 2025, the battle royale in the autoworld will  be between Indo-European and Japanese-Indian firms on the one hand, Sino-American and Sino-Euoropean firms on the other and US-Latino firms at the third corner of the global car Triad.