Air India Faces Dire Financial Troubles
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Air India Faces Dire Financial Troubles
vin2basketball Sat Aug 21, 2010 2:26 pm
This is an article from the Oct. 1st edition of Business Week.
We sat down with Raj Chaupati, a leading Indian stock analyst, to talk about Air India.
BW: So Raj, tell our uninformed readers, just who is Air India?
R: Air India is the Indian national carrier. They operate their homebase and largest hub in New Delhi, and carry 11,060 passengers a day to 44 regional destinations. They are owned 30% by the public, 30% by the government, 20% by the employees, and 20% by CEO Vinay Bhaskara.
BW: And why is that ownership structure a bad idea?
R: First off all, anything owned by the Indian government is bound to be inefficient... They have imposed their will by forcing Bhaskara to hire more employees than he needs, creating cost inefficiencies across the board. And if the employees own part of the company, then they can block Bhaskara from making necessary staff and salary cuts during downturns in the economy.
BW: So how do you suggest they fix this problem?
R: Simple. Buy the government out of their share, and sell that portion in sort of a second IPO. Then have Bhaskara buy out the employees.
BW: So what do you think Air India's earnings will be like?
R: For the fiscal year, I am projecting that they will make a profit of 240 millions euros, excluding aircraft purchases (the industry standard for earnings reporting in AM). However, revenue is only going to be around 350 million euros.
BW: Those seem like extraordinary margins.
R: They are, but those will come down as the airline expands.
BW: So what's the trouble with Air India?
R: There are two main problems. The first, is that cash levels have deteriorated so rapidly, that they only have 5 million Euros on hand. Without a Serious Capital Infusion, they may go bankrupt within a year. The second, is that revenue growth is going to slow down, as they start to have to move further and further away from their Delhi base within India.
BW: Then how does Air India stock rate.
R: You could make a lot of money in the short term by selling, but overall, I'm a big believer in Bhaskara so its a long term buy...
We sat down with Raj Chaupati, a leading Indian stock analyst, to talk about Air India.
BW: So Raj, tell our uninformed readers, just who is Air India?
R: Air India is the Indian national carrier. They operate their homebase and largest hub in New Delhi, and carry 11,060 passengers a day to 44 regional destinations. They are owned 30% by the public, 30% by the government, 20% by the employees, and 20% by CEO Vinay Bhaskara.
BW: And why is that ownership structure a bad idea?
R: First off all, anything owned by the Indian government is bound to be inefficient... They have imposed their will by forcing Bhaskara to hire more employees than he needs, creating cost inefficiencies across the board. And if the employees own part of the company, then they can block Bhaskara from making necessary staff and salary cuts during downturns in the economy.
BW: So how do you suggest they fix this problem?
R: Simple. Buy the government out of their share, and sell that portion in sort of a second IPO. Then have Bhaskara buy out the employees.
BW: So what do you think Air India's earnings will be like?
R: For the fiscal year, I am projecting that they will make a profit of 240 millions euros, excluding aircraft purchases (the industry standard for earnings reporting in AM). However, revenue is only going to be around 350 million euros.
BW: Those seem like extraordinary margins.
R: They are, but those will come down as the airline expands.
BW: So what's the trouble with Air India?
R: There are two main problems. The first, is that cash levels have deteriorated so rapidly, that they only have 5 million Euros on hand. Without a Serious Capital Infusion, they may go bankrupt within a year. The second, is that revenue growth is going to slow down, as they start to have to move further and further away from their Delhi base within India.
BW: Then how does Air India stock rate.
R: You could make a lot of money in the short term by selling, but overall, I'm a big believer in Bhaskara so its a long term buy...
vin2basketball- Posts : 48
Join date : 2010-08-16
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