In partnership with

Good morning.  In today’s edition — a sad end to India’s first private airline Jet Airways; facets of Donald Trump’s victory that haven’t received much attention; and smart money plays to help your portfolio as an investor. 

THE TAKE

The Great Indian Asset Waste: The Jet Airways Story

For five years now, while landing in or taking off from Mumbai from the city’s secondary runway, I have seen a few Boeing 777s with the Jet Airways logo and colours gathering dust. Jet Airways shut shop in 2019 and the system, for lack of any other word, has struggled to find a resolution.

On Thursday, the Supreme Court of India ordered the airline’s liquidation, a decision that should finally bring closure for what it’s worth. Jet Airways has 11 aircraft in all, parked in Mumbai, Delhi and Hyderabad, according to reports. 

One Boeing 777 should cost over $300 million or Rs 2,400 crore by current conversion rates. A report in CNBC TV18 said that all its aircraft taken together could fetch around Rs 1,500 crore on the higher side. This is likely the scrap value of the metal and parts, and not a fliable aircraft. There are some other sundry assets like office spaces and assorted equipment running into a few hundred crores of rupees.

The Many Legal Battles Of Jet Airways

Jet Airways closed because there were problems with its books and founder Naresh Goyal had allegedly diverted funds that had been borrowed from banks. It is not what happened before 2019 when the airline stopped flying, but what happened after that matters here. 

The case meandered through the National Company Law Tribunal (NCLT). A consortium of buyers called Jalan Kalrock, with no evident track record in aviation, took over but could never cough up sufficient funds to actually get the airline flying again.

An association of airline employees knocked on various doors to get back the gratuity owed to workers and officers. The previous employer was gone and the new one said they had nothing to do with it, so the matter dragged on.

In another bizarre twist, the tehsildar of a Mumbai suburb, an authority you usually think of in more rural settings, attached four aircraft. How that tehsildar attached the aircraft and what it intended to do with it again wasn’t very clear.

Mumbai suburban collector, Nidhi Chaudhari had told the Hindustan Times at the time, in January 2023, that she was only responding to a labour court that had passed orders about pending dues of Jet Airways. “Since Jet Airways does not have any office in Mumbai, we have restrained sale of their aircraft. Either they can pay the employees, or else we auction the planes and recover the money,” she had said.

Systemic Failure

The story of Jet Airways is the story of collective systemic failure in recognising the time value of assets and the inability to deliver a speedy resolution for a dispute. It’s also an example of how many different arms of the state could entangle you if your business were to go under for any reason. Not exactly the best advertisement for ease of doing business.

This led to assets worth billions of dollars that could have been saved and put to good use had they been in the right hands and did not rot in the corners of different airports. 

When it comes to disputes, the state has refused to recognise depreciating assets, whether it was Vijay Mallya’s Kingfisher Airlines or Jet Airways fleet of perfectly normal aircraft.

In December 2016 the Mumbai International Airport had told the Bombay High Court that an Airbus A319 belonging to Mallya’s defunct Kingfisher Airlines and parked in Mumbai had turned into nothing better than scrap and hence be sold off in scrap. The tax authorities however claimed their estimates valued it at $12 million. 

Earlier, a private jet belonging to Mallya, an 11-seater Hawker 700, was again sold as scrap after being parked for three years.

Once again, both aircraft could have been sold off and the funds been parked in escrow as the cases against Mallya dragged on. 

In both cases, Goyal and Mallya, banks were fighting to get back their loans. They could not or did not see that what they were trying to get back was draining value every minute they grandstanded in the court.

The NCLT was set up to address precisely this lacunae — businesses who face failure can fail and assets can be turned around quickly, like Chapter 11 in countries like the US. It has worked but its failures such as in the case of Jet Airways are also spectacular.

There is a time value to resolving business failures, particularly when there are physical assets involved, like plants, machinery or aircraft. Just because these assets were in private hands doesn’t mean they had no realisable or monetisable value that could have benefited taxpayers of the country.

The lack of accountability for such delays makes things worse because all agencies play football focussing on the principle of keeping something grounded rather than recovering economic value. 

At times like this, you would not be blamed for thinking it is more lucrative and safe to become a scrap dealer in India rather than set up a venture involving physical assets.

JANUS VIEW

How Donald Trump Got Away With His Vague Populist Discourse

Donald Trump has returned to office as the president of the United States based on his promise of making America great again. What’s the problem with America currently? According to Trump, immigrants are stealing jobs and Joe Biden has only damaged the glorious economy he had left behind when he demitted office. Trump denies the reality of climate change but blames Joe Biden for the damage wreaked by hurricanes. Trump claims that Biden diverted funds meant for hurricane relief to shower care on illegal immigrants.

In reality though, the American economy is the envy of the rich world, growing at close to 3% and unemployment is barely above 4%, at historic lows. The Biden administration inherited a fiscal deficit of 25% of GDP, feeble industrial capacity in electric mobility, renewable energy, climate mitigation including via carbon dioxide removal, and advanced semiconductors. How will Trump make things better? His solutions are vague at best. But he was able to canvas his populist discourse through a change in strategy. Trump did not do much of TV or newspaper interviews. He preferred, instead, to appear on several popular podcasts. Trump’s strategy has lessons for India as well. 

CO:RELATION

Smart Money Plays

JB Pharma, a maker of domestic formulations and active pharma ingredients, reported strong growth in sales and improved profit margins for the quarter ended September 2024. That was when domestic formulation companies witnessed slow sales growth as of September 2024, according to India Ratings, an affiliate of global ratings agency FITCH. It was also reported on Thursday that KKR, a global private equity firm with a controlling stake in the company, would sell shares worth $750m in the open market through block transactions.

In July 2020, KKR acquired the stake from promoters at Rs 750 per share. The current market price is just under three times that price. If you are interested in the stock market, you must track the entry and exit movement of private equity firms like KKR. These companies drive efficiencies to derive the maximum benefit out of the transaction and set up companies for a profitable exit in the future. In four years, KKR has shown the way. There is a method to their entry and exit from a company. As an investor, such smart money plays can help you strengthen your portfolio.

CORE NUMBER

2,15,000

This is the total number of ATMs currently active in the country, which has declined from around 2,19,000 a year ago. Despite record-high cash circulation used for transactions, Indian banks are shuttering down ATMs and cash deposit machines. Experts said the rising popularity of digital payments coupled with the non-lucrative costs of operating ATMs have also forced banks to close down these cash touch points. Economic Times reported that the current cash in circulation in India hit Rs 34.7 lakh crore, a 100% increase since demonetisation.

MESSAGE FROM OUR SPONSOR

Learn how to make AI work for you.

The Rundown is the world’s largest AI newsletter, with over 700,000+ early adopters staying up-to-date with the latest AI news, and learning how to apply it in their work in just a 5 minute read per day.

1. Their expert team spends all day researching and talking with industry experts.

2. They send updates on the latest AI news and how to apply it in 5 minutes a day.

3. You learn how to become 2x more productive by leveraging AI.

Sign up.

FROM THE PERIPHERY

—🧑‍🌾Rural India’s consumption story seems to have come as a breather for Fast Moving Consumer Goods (FMCG) companies which have struggled to meet revenue expectations due to rising input costs and inflationary headwinds. Demand for FMCG products in rural markets grew 6% in the July-September quarter which surpassed that of urban India's 2.8%, said a report from NielsenIQ on Thursday. Overall, rural demand for FMCG products increased by 5.7%  in value and 4.1% in volume during the same quarter.  Roosevelt D’souza, of NielsenIQ, pointed out in the report that small manufacturers rebounded after the recent decline, while key FMCG players trailed in value growth.

—🪓SaaS firm Freshworks just announced its fourth round of layoffs ever since the mass downsizing wave gripped the tech industry in 2022. The NASDAQ-listed company on Thursday informed employees that it will let go of 660 employees globally across the US, India and other geographies impacting 13% of its employees. Freshworks CEO Dennis Woodside in a letter to employees also announced a $400 million share buyback program without detailing a timeline. He also added the firm will pay out severance worth $11-$13 million with the current round of layoffs. The firm had gone through turbulent times especially after its recent IPO in 2021 with several C-level and senior employees exits and a change in the CEO itself.

—🛒High-street locations have beaten malls as go-to locations for retailers looking to set up new outlets. Retail leasing volumes in high-street locations registered a 15% growth in Q3-CY2024. According to a report by Cushman & Wakefield, high street locations led the leasing activity in Q3-CY2024 accounting for 68% of the total 1.6 million square feet (MSF) leased in the same quarter. Cities including Hyderabad, Delhi-NCR, and Chennai accounted for 70% of the total mainstreet leasing volume in the quarter. On the other side, leasing activity in malls remained comparatively low amounting to just 32% of the overall volumes. Declining launches of new mall launches mostly contributed to this trend.

Correction: The Co:Relation section of the November 7 edition of the newsletter said, “The automaker’s shares have underperformed like its peers such as Tata Motors, Mahindra & Mahindra, and the Nifty Auto index.” It should have said, “Shares have underperformed all peers like Tata Motors, Mahindra & Mahindra.”

SPONSORED

• TechInsights AI Newsletter explore AI's full spectrum: trends, tech, policies, funding, innovations, and business impacts. Subscribe

SUPPORT THE CORE

Dear Readers,

Some of you have written to us expressing your intent to contribute to The Core’s journalism. While we currently do not have a subscription or membership plan, you can still support us by clicking the link below.

Another way to support The Core is by sharing this newsletter with like-minded people in your communities, colleagues, friend and family.

Was this email forwarded to you? Subscribe