Companies & Sectors
Air India grounds two pilots after engineer's death
Air India on Thursday de-rostered the pilot and co-pilot of an aircraft whose live engine sucked in a maintenance engineer leading to his horrific death, official sources said here.
 
The pilot and co-pilot have been taken off flying duties pending the inquiry being conducted by the Directorate-General of Civil Aviation (DGCA) into the shocking incident of Wednesday.
 
The grounding of pilots is a standard procedure after any such incident and does not constitute any form of action against them, officials said.
 
Air India CMD Ashwani Lohani announced an ex-gratia of Rs.500,000 to the family of the deceased, service engineer Ravi Subramanian.
 
"The funeral shall be performed tomorrow and we have offered a job to a family of the victim," Lohani said.
 
Air India offices observed a two-minute silence at 11 a.m. on Thursday to mourn Subramanian's death, he added.
 
"The DGCA is conducting an inquiry. So it will not be proper to comment... Initially it seems there was some communication gap (resulting in the tragedy)," Lohani said. 
 
"No disciplinary action has been taken against anyone till now."
 
In a freak accident, Subramanian was suddenly sucked into an engine of an Airbus A-319 aircraft at the Chhatrapati Shivaji International Airport here on Wednesday evening.
 
The incident occurred at bay 28 around 8.40 p.m. when the aircraft with around 100 passengers was being prepared for a Mumbai-Hyderabad flight AI-619.
 
The victim was sucked in by the running engine of the aircraft. His badly mutilated body was later recovered.
 
The passengers in the aircraft, many of them dazed after seeing the macabre incident, were deboarded and put on another flight which departed around an hour later.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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Public Interest Exclusive
Mumbai-Ahmedabad High Speed Rail: Will the revenues cover even cost of hedging the Yen loan?
The distance between Ahmedabad and Mumbai is not long enough for HSR to be a decidedly superior alternative for travellers. It may be very difficult to hit 40,000 daily travellers by 2023. If so, forget profits, even the revenue will not cover hedging costs
 
An agreement to build High Speed Rail (HSR) from Mumbai to Ahmedabad has recently been signed. A trail blazing project of this kind generally falls into a high risk, high reward category. It would be interesting to critically examine such projects. Let us first look at the project from the financial angle. The primary funding source (80%) will be a yen denominated loan at 0.1%. While this might look like easy money, there is foreign exchange (FX) risk involved. If the FX Rate moves favourably then a project can look like pure genius. On the other hand, if the FX rate moves adversely, even the most sound project can look like a financial disaster. The standard way to look at the cost of funds is to look at the cost of hedging that is take FX risk out of the equation and look at this as a rupee loan. The present cost of such a conversion is about 6% per annum (p.a.). This interest rate is lower than prevalent interest rates in India, but is nowhere as small as the headline 0.1%.
 
The Japan International Cooperation Agency (JICA) report estimates that 40,000 passengers will use the HSR daily in 2023. With an average revenue per user around the Rs3,000 mark, total revenue will be Rs4,000 crore in the first year of operations. Considering a project cost of Rs1 lakh crore, the interest/ hedging amounts to about Rs6,000 crore per year. Including operational costs will add to expenses. So in pure financial terms, this project is not viable over the medium-term. Longer-term inflation and increasing passenger numbers should help in getting to the breakeven point.
 
However, projects of this nature are seldom profitable. There are other indirect economic benefits that accrue due to infrastructure projects.
 
The quantification of these benefits is more of an art than science. A small change in assumptions will lead to a large variation in these benefits. A key metric to look for economic benefits would be the number of passengers utilising HSR, so we will scrutinise this number further.
 
At present, about 6,000 passengers travel daily in the AC chair car category on the Mumbai-Ahmedabad corridor. This number does not include overnight passengers traveling in AC classes. Fare from Mumbai to Ahmedabad in AC Chair car is Rs660. Fare for Shatabdi Express, which includes a surcharge and catering charges, is Rs955. While it is difficult to predict what fares will be eight years down the line, at present the fares are a fraction of the expected HSR fare for this sector. Thus, it will be a challenge to convert these passengers to HSR consistently.
 
About 7,000 air passengers also travel on the Mumbai-Ahmedabad/Vadodara route daily. These will be key passengers for HSR. However, even here, a significant number of these passengers are transit passengers who use Mumbai as a transit point for onward travel - both domestic and international. This sub category of air passengers will probably continue flying as it will make their transit in Mumbai easier affecting the number that can be moved to HSR.
 
There is another unique factor, which needs to be looked at closely. The Mumbai suburb of Borivali in particular and the Western suburbs in general have a high concentration of Gujaratis. Thus, residents of these localities will be important customers for an HSR that connects main cities of Gujarat with Mumbai. The planned HSR route however starts from Bandra Kurla Complex (BKC) and continues to Thane and Virar and misses Borivali completely. A passenger, say from Vadodara will have a choice of taking a normal train and reach Borivali in four to five hours. Alternately, she can take the HSR from Vadodara that will take two hours to reach Virar and take an additional hour to transfer and travel to Borivali on a Mumbai suburban local. Many passengers will take the former option. This option is compelling with little difference in travel times for all stations along the HSR except maybe Ahmedabad.
 
The same situation though to a lesser extent applies to Mumbai Central and BKC. While BKC has grown significantly in a short period, South Mumbai continues to be a major commercial destination and Mumbai Central - the current end point for trains seems to be more conveniently located. Thus, the patronage of customers will be divided.
 
While overall passenger numbers will rise with time, the possibility of this number to be anywhere near 40,000 daily by 2023 looks difficult. Getting to these numbers will be a key challenge for the project.
 
A successful implementation of the Mumbai-Ahmedabad HSR will open up the possibility of HSRs on other sectors, somewhat similar to what Delhi Metro did to Metros around the country. Conversely, an HSR service looking for passengers will have a negative effect on other HSR projects in the country.
 
Please note that in absence of concrete data, some of the numbers are qualified guesses.
 
(Nemi Jain studied Engineering at IIT Bombay. He has spent a major part of his career working in banks)

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COMMENTS

PRAKASH D. BASRUR

1 year ago

What a tragedy that the author of this article is basically an Engineer but his article is all about financial paper acrobatics derived out of his later grooming as an MBA ! This kind of building a "paper railway" goes on and on before and after the physical railway is built by engineers like E.Shreedharan of Konkan Railway fame ! I am sure whwn the Gritish built the Mumbai-Pune rail route there was no such "paper railway" built ? See how many decades the Mumbai-Pune railway has been running and where is that "network of Paper Trail" post martem of fodder of financial jugglers with their myriad calculations of DCF / NPV et al ?

Arvind Agarwal

1 year ago

The 20% funding from Indian government can come from rebates on taxes and share of land holdings. Some Rs 55,000 Cr will be spent on basic infra, which is India-based spending. This money will boost the economy and Government will get its share. I expect the 20% will be easily covered. Also it will give employment - & a boost to GDP - at no extra cost to GOI.

The yen loan is over 35 years and repayment of roughly 2.8% of loan or Rs 2,240 Cr. Whilst rupee depreciates against the yen, it also loses value due to inflation. As rupee inflation is higher than rupee depreciation vs yen (hedged), the net effect is a NEGATIVE REAL INTEREST RATE.

PS. Use last 10 years as a reference. Rs: Yen depreciation was 3.5%. Hedged is 4%. Rs inflation was 6-7%. If future inflation is 4%, then Rs will also be much stronger. A case of Make in India built into the scheme also helps.

The Indian Railways makes a loss on passenger service, because of very low fares, and because it runs uneconomical routes and does populist schemes. Here the route is a profitable one and the operations are more profit-orientated (more Delhi Metro than IR).

The fares will be 5-8 times higher. Whilst there is higher maintenance and better services, the system is more man-power efficient. It doesnt even require drivers and there is less crowd control issues. Also there is scope to add premium freight. The operating surplus could be as high as 50% (excluding the lease payments for traction equipment?).

The net requirement for revenue to cover repayments would be Rs 4480 Cr. This is in line with projections made by writer.

Of course profit surpluses in the first few years can be retained for operational use or used to payback GOI equity.

Arvind Agarwal

1 year ago

The 20% funding from Indian government can come from rebates on taxes and share of land holdings. Some Rs 55,000 Cr will be spent on basic infra, which is India-based spending. This money will boost the economy and Government will get its share. I expect the 20% will be easily covered. Also it will give employment - & a boost to GDP - at no extra cost to GOI.

The yen loan is over 35 years and repayment of roughly 2.8% of loan or Rs 2,240 Cr. Whilst rupee depreciates against the yen, it also loses value due to inflation. As rupee inflation is higher than rupee depreciation vs yen (hedged), the net effect is a NEGATIVE REAL INTEREST RATE.

PS. Use last 10 years as a reference. Rs: Yen depreciation was 3.5%. Hedged is 4%. Rs inflation was 6-7%. If future inflation is 4%, then Rs will also be much stronger. A case of Make in India built into the scheme also helps.

The Indian Railways makes a loss on passenger service, because of very low fares, and because it runs uneconomical routes and does populist schemes. Here the route is a profitable one and the operations are more profit-orientated (more Delhi Metro than IR).

The fares will be 5-8 times higher. Whilst there is higher maintenance and better services, the system is more man-power efficient. It doesnt even require drivers and there is less crowd control issues. Also there is scope to add premium freight. The operating surplus could be as high as 50% (excluding the lease payments for traction equipment?).

The net requirement for revenue to cover repayments would be Rs 4480 Cr. This is in line with projections made by writer.

Of course profit surpluses in the first few years can be retained for operational use or used to payback GOI equity.

Harsh Modi

1 year ago

If they can create a stop somewhere between Ahmedabad and Mumbai, and monetize using real estate, that would be terrific. They could create some daily passengers who would treat this like a daily long distance travel.

Deepak Mehta

1 year ago

I did not understand.
a) There is a 15-year moratorium. How does hedging start before that?

b) If there is a 50-year repayment, why does the entire amount have to be hedged every year?

Deepak K Mehta



PRAKASH D. BASRUR

1 year ago

Then what made Modi go in for the route ? Obviously , to make Mumbai a satellite town of Gujarat ? Is this a precursor to what Modi would be planning for the development of Gujarat as a @remote control" C.M. of Gujarat? Will such actions of Modi increase the fear of Shiv Sena ?

Bapoo Malcolm

1 year ago

A close friend visited Japan some years ago. He travelled on the high speed train. The train keeps precise time. If it's late, you get a refund. It is compensation for missing a connection.

This train was a few minutes late. My friend went to the counter to collect his money. He soon walked away, embarrassed. The only two people in the queue were Indians!

My friend also had this to say. He met an old man on the train. The person was stitching a torn seat. It turned out that it was not a railway employee but a passenger. The man explained that he always carried a needle and thread and would repair any seat that needed it. After all, he had so much time on his hands.

Do we have that culture?

In fact, in the olden days, the green rexine seat covers had the following seal embossed on them; "STOLEN FROM I R".

Sad, but true.

Baskaran

1 year ago

Where is the need to move people at high speed in Internet age when video conferencing and data transfer will suffice.The High speed trains are meant for passenger transportation.What India needs is dedicated freight corridor with 140 KMPH goods train service.HSR and Express highways are not required.I thnink cost benefit and supporting local technology and manufacturing are more important.People should use RTI to question the Government about its authority to just like commit the country and the future generations with mounting debt.We have to spend our limited resources to improve irrigation and water shed management.

Mohan Krishnan

1 year ago

I am an Engineer who had worked both in China (2yrs) and Japan (8 yrs). I can tell you confidently that India is not Technologically as well as Culturally prepared to absorb this high tech train technology. It will require Japanese Management to run/maintain these trains. Although the plan fits nicely into Japanese efforts to beat deflation it will be foolhardy for India to fall into this trap.

REPLY

Narendra Doshi

In Reply to Mohan Krishnan 1 year ago

Dear Mr. Mohan,
Do you feel assured that Japanese Management can run/maintain, IN INDIAN CONDITIONS? What about additional costs for this?
Why do you think Indians will NOT be able to run/maintain? Please give 2/3 important reasons you visualize.

Mohan Krishnan

In Reply to Narendra Doshi 1 year ago

Let me tell you that I am a B Tech from IIT Kharagpur. I have offered consultancy in my field as a freelance to Engg firms all over the World. During my long stint of 8 years in Japan, I had the opportunity to interact from shop floor workers to higher Management. Based on my experience I can list the following key differences between our 2 systems.
1. Mindset: Japs are traditionally trained from childhood to perform tasks to perfection. Indians "as long as chalta hai quick fixes". Further loyalty of Japs is still very fierce both for their Employer as well as to their Country. Dispute resolution from family to Industry is mostly mutual and amicable.

2. Many times Senior Mgt.used to say privately that Indian labour laws, land laws and extreme red tape, corruption are preventing them to invest aggressively. So they are mostly resorting to CKD and using India just do screw driver technology. They also said if there was a real political will like in China, Singapore then foreign investment will automatically flow. Till then they see India as consuming market.
3. As far as Shinkansen is concerned the Technology is constantly being upgraded and large number of subcontractors are involved. From rails to electrical/control systems and even daily external washing requires army like discipline to maintain highest quality. I think India is way behind.

SRM

In Reply to Mohan Krishnan 1 year ago

So what if u are an IITian, the esteemed renowned Shri E Sreedharan is more knowledgeable and qualified, experienced than urs. He never uttered that introducing HSR is beyond India's capacity due to its peoples mind set. He even advised the Kerala Govt to have HSR from Thiruvananthapuram to Mangalore. Every technology is new and initially will take time and also will be costly. People like u are only responsible for our countries plight and demoralizing any mega project of the nature of HSR. Even I know once upon time the introduction of metro rail was also criticized by many people. However, the esteemed Shri. E Sreedharan showed how the project could be completed in time even before time and also function in profit from the day of its operation. Now lacs of people are using the same transportation mode daily not only in Delhi but in other cities of India also. Though I respect being calling urself as IIT qualified. However, qualifying from any premier institute does not make u an expert in analysing or coming into conclusion that particular project is wastage of money or beyond the viability in Indian context etc. etc. Though HSR Bullet trains are need of the hour in our Country India and it must be implemented and everyone should cooperate for implementation of such project. SO my request is that either contribute in speedy implementing such project by selflessly serving the nation by using the your qualifications and knowledge and experience rather than criticizing any such move by the Government.

Guruprasad

1 year ago

The article is based on deep financial analysis. No doubt the financial analysis concentrates only on the monetary part of project viability. However, there are other serious considerations involved in this case. One such project could boost the confidence in people, improve skill sets, it can act as readily available prototype to be deployed elsewhere in the country. Why should we always assume numbers based on historic travel patterns? The very fact of traveling in this train could boost tourism. It supports lot of ancillary industries and services. One would agree that a thorough social cost benefit analysis is required besides technical and financial analysis.

Deepak Mahulkar

1 year ago

I think it would be inappropriate to make cost-benefit analysis to such highly technically complex project. Do we carry out the same analysis when we develop long range missiles or sending satellite to Mars? What is the probability of using them? We have to train our engineers to build such projects. No developed country will allow our engineers to participate in their building programme. Mumbai-Ahmedabad project could be beginning. Once we are successful, government may plan to extend it beyond Ahmedabad with marginally extra cost. May be we can acquire expertise to develop similar infrastructure in other developing countries at much lower cost.

Prasanna Rane

1 year ago

Bullet train only for gujaratis. Narendra modi is only PM of Gujarat.will not let this happen. Jai Maharashtra

REPLY

Gupta

In Reply to Prasanna Rane 1 year ago

You should first check your own comment. You say "Jai Maharashtra", not "Jai Hind". How do people like you have to audacity to make such comments. And by the way, for the record, the train is from Mumbai to Ahmedabad and Mumbai is part of your "Jai Maharashtra". It is narrow minded mentality like this because of which our country is in the dumps. Appalling mentality.

Kumar Swamy

1 year ago

Why so negative? Why should government hedge? Have some confidence in future of India. Who knows if present policies continue, Rupee may be more valuable than Yen. Have you con sidered the possibility of NEGATIVE interest rate payment (in effect Japan giving more money to India for using its Yen?!!!!)?

satdin.in

1 year ago

every one knows what is the performance of rail. now and than we heard derailment or accident at unmaned level crossing .before dreaming of bullet traing pl tell our leader to travel in a locla train or sl or general compartment of train

Sudhir Jatar

1 year ago

I am sure feasibility and detailed project reports would be prepared. That will give a better idea of the NPV and economic and financial rates of return.
Public transportation rarely is in profit unless the SPV has other sources of income.
In such cases there are other intangible factors to be taken into account such as the pride that the citizens would feel and the prestige that India will get.
I was with an American when a US citizen landed on the Moon. I could see the sense of pride bordering on superiority complex that he was displaying in the conversation.

ED grills Rose Valley official in chit fund scam
The Enforcement Directorate (ED), which is probing the chit fund scam in West Bengal, on Thursday grilled Seema Singh, a top official of the Rose Valley group which is alleged to have illegally raised public money.
 
Seema Singh, the head of the company's human resource department appeared before the ED office here in the morning.
 
"She is being grilled about the financial transactions made by the company," said an ED source.
 
Seema Singh is said to be helming the company in the absence of Chairman Gautam Kundu who was arrested by the ED in March under the Prevention of Money Laundering Act.
 
Company Managing Director Shibomoy Datta is also behind bars after being nabbed by the Central Bureau of Investigation (CBI) which too is probing the scam.
 
The corporate affairs ministry in 2013 had named Rose Valley as one of the 73 companies involved in ponzi schemes in Bengal.
 
Having cast its net across the states of Bengal Tripura, Assam, Odisha, Jharkhand and Maharashtra among others, the company is alleged to have raised close to Rs.15,000 crore.
 
Found guilty of running "collective investment scheme" without necessary approvals, the SEBI in June 2014 had ordered the company to refund the money to the investors and barred it barred from accessing the securities market.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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COMMENTS

Koteshwarachary Naroju

4 months ago

Hai

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