Pakistan Cuts Taxes, Raises Salaries Risking Deficit Target

By Haris Anwar and Farhan Sharif - Jun 2, 2012

Pakistan cut taxes and raised government salaries in an election-year budget that risks missing a target to narrow the deficit from a three-year high.
The government pledged to narrow the budget gap to 4.7 percent of gross domestic product in the year ending June 30, 2013 from 7.4 percent of GDP in the previous 12 months, Finance Minister Abdul Hafeez Shaikh said in his budget speech in Islamabad yesterday. Opposition lawmakers shouted anti- government slogans, held up placards and scuffled during the presentation.
Prime Minister Yousuf Raza Gilani’s government, facing a general election by February at the latest, is under pressure to counter growing public anger over power blackouts, the fastest inflation in Asia and an insurgency on the Afghan border. The government is relying on domestic borrowings after aid flows from the U.S. and the International Monetary Fund dwindled.
“Raising salaries, reducing duties and increasing expenditure means they are likely to miss the fiscal deficit target once again,” said Saad Khan, fund manager and economist at Askari Investment Management Ltd. in Karachi which oversees 25 billion rupees ($267 million) in stocks and bonds.

Salaries, Pensions

Government salaries and pensions were raised by 20 percent and subsidies were cut by 60 percent to 208.5 billion rupees, Shaikh said. The government will increase cash transfers to the poor to 70 billion rupees from 50 billion rupees this year.
“We kept our promise to honest tax payers by not putting further burden on them and in fact providing relief,” Shaikh said at his post-budget news conference in Islamabad today.
Federal excise duties were abolished on 10 items including livestock insurance, customs duties were reduced to curb smuggling and the turnover tax on businesses was cut to 0.5 percent from 1 percent. A levy on cement was cut by 100 rupees a metric ton, tax relief was provided to voluntary pension schemes and the income tax exemption limit was raised by 100,000 rupees, Shaikh said.
The 2.96 trillion rupee budget was unveiled after the nation’s financial markets closed. The Karachi Stock Exchange 100 Index (KSE100) rose 0.7 percent today and has climbed 14.5 percent in the past year. The Pakistan rupee was at 93.67 against the dollar, having declined 7.7 percent over the past 12 months.

‘Huge Challenge’

“The rising fiscal deficit is posing a huge challenge for policy makers,” said Raza Jafri, head of research at AKD Securities Ltd. in Karachi. “They need to find ways to increase tax income and cut subsidies without hurting growth.”
The government set a tax collection target of 2.38 trillion rupees for the 12 months ending June 30, 2013, a 22 percent increase, Shaikh said.
Pakistan recorded its highest budget deficit of 8.8 percent of GDP in the year ended June 1991, according to government data. The administration estimates 3.7 percent economic expansion in 2011-2012 and has a goal of 4.3 percent growth for the next fiscal year.
Pakistan is trying to mend a fractious relationship with its main aid provider, the U.S., which scaled back funds over differences on how to stop militant groups from operating in the country’s tribal areas and a refusal to re-open supply routes for NATO troops in Afghanistan. The Senate Appropriations Committee has requested $1 billion in aid for Pakistan for fiscal year 2013, down from about $1.5 billion.

Defense Budget

Pakistan raised defense spending by 7 percent to 545 billion rupees for the year starting July 1, according to the budget documents.
With a view to wooing voters ahead of the election, the government on May 24 said it would increase spending on roads, electricity, education and healthcare by 19.5 percent to 873 billion rupees in the 12 months starting July 1. The Prime Minister will move to a “small house,” giving up the official mansion so it can become an institute of advanced studies, Shaikh said.
As aid dried up, the administration borrowed 442 billion rupees from the central bank in the first 11 months of the fiscal year, defeating its zero-borrowing target. That was double the amount borrowed last year, State Bank of Pakistan data shows.

Rising Borrowings

Borrowings may still rise. An $11.3 billion IMF loan to Pakistan expired in September, with disbursements suspended in May 2010 after the country failed to meet conditions attached to it.
The Washington-based lender, which has described the country’s economy as “highly vulnerable,” said in February the government should widen the tax base, curb some subsidies and curtail central bank financing of the budget deficit. Inflation accelerated to a 10-month high of 12.29 percent in May, limiting room to cut interest rates to support the $200 billion economy. The pace of price gains is the fastest in a basket of 17 Asia- Pacific economies tracked by Bloomberg.
The government plans to spend 183 billion rupees to reduce a record shortage of power and is willing to commit ”unlimited resources,” to end this crisis, Shaikh said in his speech, as protesters burned tires and destroyed state property in Faisalabad and Multan, Gilani’s hometown.
Energy shortages are adding to challenges and may slice 4 percentage points off economic growth in the current fiscal year, according to the Planning Commission of Pakistan.
To contact the reporter on this story: Haris Anwar in Islamabad at Hanwar2@bloomberg.net.
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.

Mittal Price Squeeze in $960 Billion Steelmaking Industry

By Thomas Biesheuvel - Jun 1, 2012

Lakshmi Mittal, whose $46 billion takeover in 2006 created ArcelorMittal as the world’s largest steelmaker, is getting pushed around.
The U.K.’s richest person can’t stop his iron-ore suppliers from raising prices and can’t pass on higher costs to customers share like Volkswagen AG (VOW), after the Luxembourg-based company’s market fell to its lowest since 2009. The company’s stock slid to a record today, and yields on debt issued this year are close to their highest relative to benchmark bonds.
Even after years of consolidation, today’s five biggest steelmakers including ArcelorMittal and South Korea’s Posco (005490) control no more than 19 percent of the $960 billion global market, too little to defend their prices. In contrast, BHP Billiton Ltd. (BHP), Vale SA (VALE) and Rio Tinto Group mine about 63 percent of the world’s iron ore exported as the main ingredient in steelmaking, while the five biggest automakers that buy ArcelorMittal’s steel make about 51 percent of the world’s cars.
“They really are between two behemoth industries,” said Tim Cahill, an analyst at J&E Davy Holdings Ltd. in Dublin. “They are just one cog in a chain between large suppliers and customers and they are just the middle man with no pricing power.”
ArcelorMittal reported an operating margin of 5.2 percent last year, compared with 49 percent at Vale, the world’s biggest iron-ore exporter. The steel company’s 500 million euros of 4.5 percent bonds due 2018 yield about 380 basis points more than benchmark German government debt. The gap was at a record 387 basis points yesterday, Bloomberg Bond Trader prices show.

European Pinch

ArcelorMittal today dropped 2.7 percent to 10.87 euros by the close in Amsterdam trading, the lowest since the 2006 merger. The Bloomberg Europe Steel Index declined to the lowest since August 2004, as Germany’s largest steelmaker ThyssenKrupp AG (TKA) dropped 3.7 percent.
Spokesmen for ArcelorMittal, Rio and BHP declined to comment when contacted by Bloomberg News. Vale’s press office in Rio de Janeiro declined to comment.
The global pinch is sharpest in Europe. The Bloomberg Europe 500 Steel Index has dropped 80 percent in four years, the worst performance of the 37 industry groups tracked by Bloomberg.
ArcelorMittal is fighting to increase its market share from 6.2 percent last year as the industry faces a 1.8 percent earnings-growth forecast in the next 12 months. That compares with an average 6.7 percent among Europe’s largest 500 companies tracked by Bloomberg.
Mittal has seen his market share eroded by the financial crisis, slipping from 9.5 percent in 2006, when he created a steelmaker with $88.6 billion in annual sales, according to data compiled by Bloomberg. ThyssenKrupp said May 15 that earnings were being curbed by “intense competition” in the steel industry.

‘Party Hangover’

Global steel capacity use is about 80 percent, according to Macquarie Group Ltd., a level too low to give steelmakers pricing power.
World steel demand growth this year is forecast to slow to 3.6 percent from 5.6 percent last year and in Europe there may be a 1.2 percent contraction as the sovereign debt crisis saps purchases. Europe “remains a live concern,” ArcelorMittal (MT)’s Chief Financial Officer Aditya Mittal said last month.
“We are still suffering from the party hangover from the 2005 to 2008 years,” said Christian Georges, a London-based analyst at Olivetree Securities Ltd. “It was a once-in-a- lifetime situation where the steel suppliers had the upper hand on desperate buyers.”
CFO Aditya Mittal, Lakshmi Mittal’s son, said on a conference call last month that the industry has “room to do better” on supply discipline, while ThyssenKrupp said industry price discipline was “weak.”

Mittal Versus Chinese

ArcelorMittal “gives one the impression that there is a relatively high degree of consolidation,” Georges said. “The truth is that one big guy can’t change the logic of the industry. What does change it is when you have an oligopoly of three or four guys.”
Under Mittal, the 61-year-old chairman and chief executive who began his industrial career in his parents’ steel company, the company trimmed output about 20 percent from the 116 million metric tons produced in 2007, while Chinese mills have more than doubled volumes since 2004 to 684 million tons last year.
Global steel sales totaled about $960 billion in 2010, according to a report by Research & Markets, a Dublin-based research company.
Rio Tinto (RIO), Vale and BHP posted record operating profit last year, driven by earnings from their iron-ore units. Steelmakers have struggled to adapt to changes in raw-material pricing introduced two years ago as mining companies ended a decades-old system of annual contract talks in favor of quarterly accords or spot pricing.

‘Upper Hand’

That means steelmakers have lost the ability to negotiate the price of their biggest cost base, eroding margins as too much steelmaking capacity and competition for sales makes it difficult to pass on cost increases to their customers.
“There’s no doubt that having three guys controlling the world’s low-cost iron ore means that they have the upper hand,” said Georges. “They can accelerate or slow down their supplies and they will dictate the price level.”
To be sure, ArcelorMittal has focused on buying and building its own iron-ore and coal mines to reduce dependence on the biggest producers. The company plans to produce 100 million tons by 2015, up from 54 million tons last year, as it taps mining assets in countries including Canada, Brazil and Liberia.

Input Costs

“Steel production is essentially a conversion business now, and the days when raw materials made up only 30 percent to 35 percent of costs, compared to 75 percent to 80 percent now, are long gone,” Macquarie Group said in a May 14 report. Given weak demand and overcapacity, “the coming months and even years are set to see relatively tepid price action and thin steelmaker margins.”
ArcelorMittal’s average steel selling price at its Flat Carbon Europe unit, the company’s biggest business by sales, was $861 a ton in the first quarter, down from $928 a year earlier. The unit reported earnings before interest, tax, depreciation and amortization of $17 a ton in the first three months of 2012, down from $64 a year earlier.
European steelmakers have lost about three-quarters of their value from the industry’s pre-crisis peak in 2008. That compares with a 35 percent decline by the automakers from a 2007 high, and a 48 percent drop for mining companies from a 2008 peak, based on the Bloomberg World Auto Manufacturers and Bloomberg World Mining indexes.
“Unfortunately they are just the price taker in this, with customers who are very consolidated and suppliers who are probably the biggest oligopoly in the world,” said Cahill. “It’s hard to know what is going to change.”
To contact the reporter on this story: Thomas Biesheuvel in London at tbiesheuvel@bloomberg.net
To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net

®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.

Asian Stocks Cap Longest Loss Streak in Year on Europe By Nick Gentle - Jun 1, 2012

Asian stocks fell for a fifth week, the regional index’s longest streak of weekly losses in a year, as Spain’s borrowing costs soared and amid further signs that China’s economic slowdown is deepening, dimming the outlook for companies dependent on global demand.

The MSCI Asia Pacific Index fell to levels last seen in December, with Japan’s Topix Index (TPX) recording a ninth week of decline, the longest such run since 1975. HSBC Holdings Plc, Europe’s biggest lender, fell 3 percent. China Railway Construction Corp. (1186) dropped more than 7 percent as China’s industrial production expanded at a slower rate and the country ruled out stimulus measures on a scale similar to 2008.

“Investors are still not convinced about the debt crisis in Europe and that’s being reflected in higher bond yields in Spain and Italy,” said Khiem Do, Hong Kong-based head of Asian multi-asset strategy at Baring Asset Management (Asia) Ltd., which oversees about $8 billion. Europe is “the most significant risk from a global investor view point. Over the past 12 months, the Western world has been trying to find holes in the China growth story.”

The MSCI Asia Pacific Index fell 0.2 percent to 111.38 this week. The gauge dropped 10 percent in May, the most since October 2008, as economic reports showed the economies of China and the U.S. slowing while the debt crisis that began in Greece spreads to larger countries in Europe.

The losses erased $4.5 trillion in global equity value last month, according to data compiled by Bloomberg. That dragged the value of shares on the MSCI Asia Pacific Index to 11.4 times estimated earnings, according to data compiled by Bloomberg. That compares with 12.2 times for Standard & Poor’s 500 Index companies and 9.8 times for the Stoxx Europe 600.

Topix Losses

Japan’s Topix Index declined 1.8 percent as it fell for a ninth week, its longest losing streak since September 1975, as Europe’s crisis crimped the outlook for exporters and sent the yen to its highest level against the euro since 2000. The benchmark Nikkei 225 Stock Average lost 1.6 percent.

Australia’s S&P/ASX 200 Index gained 0.9 percent and South Korea’s Kospi index increased 0.6 percent. Indonesia’s Jakarta Composite Index (SHCOMP) slumped 2.6 percent as coal miner PT Bumi Resources plunged 20 percent on the reduced outlook for fuel demand and the prospect of quotas on production.

Hong Kong’s benchmark Hang Seng Index slipped 0.8 percent and Shanghai Composite Index, which tracks shares on China’s biggest stock market, increased 1.7 percent amid speculation that slowing manufacturing activity and lower home prices give the government room for additional measures to support the economy.

Europe Declines

Companies that do business in Europe declined. Canon Inc., the Japanese camera maker that counts Europe as its largest market, dropped 5.6 percent to 3,050 yen in Tokyo. HSBC fell 3 percent to HK$60.85 in Hong Kong. Hutchison Whampoa Ltd. (13), the port operator that gets about 55 percent of revenue from Europe 3.8 percent to HK$64.

China has no plan to introduce stimulus measures on the scale deployed during the global financial crisis to counter this year’s economic slowdown, the official Xinhua News Agency reported. The government has cut banks’ reserve ratios three times since November and vowed to fast-track infrastructure projects to boost growth.

No Monetary Stimulus

“The Chinese government will continue to cut the reserve ratio but I don’t think they will implement any monetary stimulus,” Cedric Ma, Senior Investment Strategist at Convoy Asset Management Ltd. “There is no emergency right now.”

China Railway Construction Corp., a builder of train lines and other infrastructure, dropped 7.3 percent to HK$5.86. BYD Co., a maker of electric cars that’s partly owned by Warren Buffett, dropped 3.1 percent to HK$15.70.

PetroChina Co., the country’s biggest listed company, slipped 3.9 percent to HK$9.78 as oil entered a bear market after falling more than 20 percent from its high for the year.

Materials and energy companies were among the industries with the biggest declines on the Asia-Pacific gauge this week.

Bumi Resources dropped 20 percent to 1,410 rupiah in Jakarta. JX Holdings Inc. (5020), a Japanese petroleum company, dropped 6.3 percent to 375 yen in Tokyo, its lowest level since at least 2010.

To contact the reporter on this story: Nick Gentle in Hong Kong at ngentle2@bloomberg.net

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net

®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.

Mittal Price Squeeze in $960 Billion Steelmaking Industry By Thomas Biesheuvel - May 31, 2012

Lakshmi Mittal, whose $46 billion takeover in 2006 created ArcelorMittal as the world’s largest steelmaker, is getting pushed around.
The U.K.’s richest person can’t stop his iron-ore suppliers from raising prices and can’t pass on higher costs to customers like Volkswagen AG (VOW), after the Luxembourg-based company’s market share fell to its lowest since 2009. The stock slid to a record in May this year, and its bond yields are close to record highs.
Even after years of consolidation, today’s five biggest steelmakers including ArcelorMittal and South Korea’s Posco control no more than 19 percent of the $960 billion global market, too little to defend their prices. In contrast, BHP Billiton Ltd. (BHP), Vale SA (VALE) and Rio Tinto Group mine about 63 percent of the world’s iron ore exported as the main ingredient in steelmaking, while the five biggest automakers that buy ArcelorMittal’s steel make about 51 percent of the world’s cars.
“They really are between two behemoth industries,” said Tim Cahill, an analyst at J&E Davy Holdings Ltd. in Dublin. “They are just one cog in a chain between large suppliers and customers and they are just the middle man with no pricing power.”
ArcelorMittal reported an operating margin of 5.2 percent last year, compared with 49 percent at Vale, the world’s biggest iron-ore exporter.
Spokesmen for ArcelorMittal, Rio and BHP declined to comment when contacted by Bloomberg News. Vale’s press office in Rio de Janeiro declined to comment.
The global pinch is sharpest in Europe. The Bloomberg Europe 500 Steel Index has dropped 80 percent in four years, the worst performance of the 37 industry groups tracked by Bloomberg.

Sluggish Profit Growth

ArcelorMittal is fighting to increase its market share from 6.2 percent last year as the industry faces a 1.8 percent earnings-growth forecast in the next 12 months. That compares with an average 6.7 percent among Europe’s largest 500 companies tracked by Bloomberg.
Mittal has seen his market share eroded by the financial crisis, slipping from 9.5 percent in 2006, when he created a steelmaker with $88.6 billion in annual sales, according to data compiled by Bloomberg. Germany’s largest steelmaker ThyssenKrupp AG (TKA) said May 15 that earnings were being curbed by “intense competition” in the steel industry.
Global steel capacity use is about 80 percent, according to Macquarie Group Ltd., a level too low to give steelmakers pricing power.

‘Party Hangover’

World steel demand growth is forecast to slow to 3.6 percent this year from 5.6 percent last year and in Europe there may be a 1.2 percent contraction as the sovereign debt crisis saps purchases. Europe “remains a live concern” ArcelorMittal’s Chief Financial Officer, Aditya Mittal, said last month.
“We are still suffering from the party hangover from the 2005 to 2008 years,” said Christian Georges, a London-based analyst at Olivetree Securities Ltd. “It was a once-in-a- lifetime situation where the steel suppliers had the upper hand on desperate buyers.”
The CFO Aditya Mittal, Lakshmi Mittal’s son, said on a conference call last month that the industry has “room to do better” on supply discipline, while ThyssenKrupp said industry price discipline was “weak.”
ArcelorMittal (MT) “gives one the impression that there is a relatively high degree of consolidation,” Georges said. “The truth is that one big guy can’t change the logic of the industry. What does change it is when you have an oligopoly of three or four guys.”

Mittal Versus Chinese

Under Mittal, the 61-year-old chairman and chief executive who began his industrial career in his parents steel company, the company trimmed output about 20 percent from the 116 million tons produced in 2007, while Chinese mills have more than doubled volumes since 2004 to 684 million metric tons last year.
Global steel sales totaled about $960 billion in 2010, according to a report by Research and Markets, a Dublin-based research company.
Rio Tinto (RIO), Vale and BHP posted record operating profit last year, driven by profit from their iron-ore units. The steel producers have struggled to adapt to changes in raw-material pricing introduced two years ago as mining companies ended a decades-old system of annual contract talks in favor of quarterly accords or spot pricing.

‘Upper Hand’

That means steelmakers have lost the ability to negotiate the price of their biggest cost base, eroding margins as too much steelmaking capacity and competition for sales makes it difficult to pass on cost rises to their customers.
“There’s no doubt that having three guys controlling the world’s low-cost iron ore means that they have the upper hand,” said Georges. “They can accelerate or slow down their supplies and they will dictate the price level.”
To be sure, ArcelorMittal has focused on buying and building its own iron-ore and coal mines to reduce dependence on the biggest producers. The company plans to produce 100 million metric tons by 2015, up from 54 million tons last year, as it taps mining assets in countries including Canada, Brazil and Liberia.
“Steel production is essentially a conversion business now, and the days when raw materials made up only 30 percent to 35 percent of costs, compared to 75 percent to 80 percent now, are long gone,” Macquarie Group said in a May 14 report. Given weak demand and overcapacity “the coming months and even years are set to see relatively tepid price action and thin steelmaker margins.”

Price Decline

ArcelorMittal’s average steel selling price at it’s Flat Carbon Europe unit, the company’s biggest business by sales, was $861 a ton in the first quarter, down from $928 a year earlier. The unit reported earnings before interest, tax, depreciation and amortization of $17 a ton in the first three months of 2012, down from $64 a year earlier.
European steelmakers have lost about three-quarters of their value from the industry’s pre-crisis peak in 2008. That compares with a 35 percent decline by the automakers from a 2007 high, and a 48 percent fall for mining companies from a 2008 peak, based on the Bloomberg World Auto Manufacturers and Bloomberg World Mining indexes.
“Unfortunately they are just the price taker in this, with customers who are very consolidated and suppliers who are probably the biggest oligopoly in the world,” said Cahill. “It’s hard to know what is going to change.”
To contact the reporter on this story: Thomas Biesheuvel in London at tbiesheuvel@bloomberg.net
To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net

®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.

Air India Pilot Squabbles Mar Dreamliner Debut: Corporate India

By Karthikeyan Sundaram - May 28, 2012

Air India Ltd. will receive its first Boeing (BA) Co. 787 this week as a pilots’ dispute over who should fly the aircraft triggers cuts in international services and more than 100 dismissals.

Air India is taking delivery of one 787 aircraft and flying it to the country this week, according to a civil aviation ministry official who declined to be identified citing rules. The carrier will start using the jet with services to Melbourne, Aviation Minister Ajit Singh said May 25.

“The induction of the 787 should have been a major and positive milestone,” said Binit Somaia, a Sydney-based director of CAPA Centre for Aviation, an industry consultant. “Instead, there is a possibility that the new plane may be temporarily grounded due to human-resources issues.”

Travelers have suffered three weeks of disruptions because of protests rooted in a merger five years ago that has left the state-owned airline with duplicate resources and warring unions. It has also caused losses, with the government this year agreeing to 300 billion rupees ($5.4 billion) of bailouts through 2020.

The fuel-efficient plane is about three years late because of production delays, which have prompted Air India to seek about $1 billion in compensation from Chicago-based Boeing. Wilson Chow, a spokesman at the planemaker, declined to comment on the deliveries.

Dinesh Keskar, senior vice president of sales for Boeing Commercial Airplanes in India and Asia Pacific, didn’t immediately reply to two calls to his mobile phone and an e-mail seeking comments. G. Prasada Rao, an Air India spokesman, also didn’t respond to two calls to his mobile phone.

Indian Airlines

The introduction of the 787 has sparked protests as Air India has given training on the new aircraft to pilots who previously worked at Indian Airlines, the state-owned domestic operator that combined with Air India in 2007.

Pilots who worked at Air India before the merger say they should be the only ones to fly the aircraft as the planes were ordered before the combination. All the 43 Airbus SAS planes bought by Indian Airlines are operated by pilots from that company even after the merger, according to the Indian Pilots’ Guild, which represents about a third of Air India’s 1,500 current pilots.

An Air India pilot will have to work at least 14 years before earning promotion as a commander if pilots from Indian Airlines are also allowed to fly the new jets, said Amit Jain, a member of the Guild.

Calling in Sick

Members of the union have called in sick since May 7, forcing the carrier to cut flights to Hong Kong, Osaka and Toronto. Domestic services have largely been unaffected. Minister Singh canceled plans to attend the 787 handover because of the pilots dispute.

The carrier sent 30 pilots each from Air India and the old Indian Airlines to Singapore for training on the 787, according to Singh. The company will have 8 pilots for each Dreamliner, the first wide-body aircraft to join Air India’s fleet in more than two years.

The Dreamliners were part of a wider fleet expansion plan that was meant to turn Air India into a major international carrier. The government combined the company with Indian Airlines to bolster its network and help it expand overseas.

Instead, the merger has left Air India mired in 438 billion rupees of debt, struggling to integrate different businesses and weighed down by labor disputes. Last year, the carrier canceled more than 1,000 flights as former Indian Airlines’ pilots stayed away from work for 10 days to complain about being paid less than their colleagues from old Air India.

‘Driven From Top’

India’s national auditor said in a report on the Ministry of Civil Aviation in 2011 that the merger was “ill-timed” and was decided without considering the difficulties involved in areas such as staff integration. The decision was “driven from the top,” said the Comptroller and Auditor General of India.

“The integration has been badly managed,” said CAPA’s Somaia. “The resolution of such human-resources issues is central to Air India’s turnaround.”

The carrier, once India’s biggest, has slipped to fourth- place behind newer private carriers, Jet Airways (India) Ltd. (JETIN), IndiGo and SpiceJet Ltd. (SJET), which have lower costs and fewer staff. The airline had 17.6 percent of the market in April, according to data published by the Directorate General of Civil Aviation.

The carrier may also post a loss of 70 billion rupees in the year ending March, the worst performance nationwide, CAPA said in a report last week. Air India probably lost 78.5 billion rupees last fiscal year, Minister Singh said in a written reply in parliament on April 25.

Billionaire Mallya

The government has injected 72 billion rupees into Air India since April 1, 2009. That support has weighed on other Indian carriers including Jet and billionaire Vijay Mallya’s Kingfisher Airlines Ltd. (KAIR), which have made losses while competing with the state-subsidized company.

The 787s may help Air India to start turning around its reputation, domestically and overseas, as the company is only the third carrier to receive one. All Nippon Airways Co. (9202) got the first in September followed by Japan Airlines Co. in March.

The Dreamliner marks a breakthrough as it’s the first aircraft to be built with a large plastic fuselage. That helps cut fuel usage as much as 20 percent and has allowed carriers to open new routes that were previously weren’t profitable with larger planes.

“The 787 will make a qualitative difference to Air India’s image and position,” said Harsh Vardhan, chairman of Starair Consulting, a New Delhi-based company that advises carriers. “But any strike creates a terrible damage to the brand value of an organization.”

To contact the reporter on this story: Karthikeyan Sundaram in New Delhi at kmeenakshisu@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net

®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.