Aircraft Recycling - The Life and Times of an Aircraft

By M H Ahssan

With 12,000 new aircraft worth $1.3 trillion due to be delivered by 2020, recycling the discarded models has become a crucial issue.

Stockholm Arlanda airport is home to one of the more unusual sights in aviation. An old Boeing 747-200 sits brightly painted in its grounds having been converted into a 25-room hostel. Not all discarded planes have such a happy retirement, however. Many lie abandoned in remote corners of the world or have been sent to landfills.

Such poor prospects could soon be a thing of the past. According to the Aircraft Fleet Recycling Association (AFRA) up to 12,000 aircraft could be scrapped in the next 20 years. By 2016, it aims to perfect processes that will recycle 90% of an aircraft. Currently, around 80–85% is the maximum, but this is up from less than 50% just a few years ago. Air France agrees with the estimate and is now working on dismantling its old aircraft rather than selling them on.

But more airlines need to get involved. Record orders mean more aircraft will be scrapped especially as there are fewer markets to sell on old models. Recycling aircraft could be important to airline business going forward and will form an integral part of aviation’s environmental plans.

The value of a decommissioned aircraft varies enormously. Engines and avionics in good working order are obviously worth something. But if an aircraft can’t fly, an airline may well end up spending money as there are no companies offering mobile recycling facilities. Ships can get towed but aviation doesn’t have that luxury.

An important part of the valuation process is the paperwork. Good service records will up the value of parts. If an aircraft has passed through several hands and records have been lost then an aircraft loses a lot of its value. Aviation’s accounting practises mean that stored aircraft are recognized as assets long after they can economically or safely fly, further delaying decommissioning and reducing the aircraft’s value as scrap.

Another potential pitfall is impending legislation. There is nothing specific to aviation in any of the major markets yet but the European Union does have strict regulations regarding product life cycles in other areas, such as automobiles and white goods.

Olivier Malavallon, PAMELA-life (Process for Advanced Management of End of Life Aircraft) Project Director, Environmental Affairs, Airbus, says selective dismantling can maximize the value of materials sold for further recycling while insuring compliance to applicable environmental, health & safety regulations. “However, dedicated facilities and specific approvals are required to perform these tasks in developed countries like Europe,” he notes. “The only viable and safe way for aircraft owners is to get the aircraft dismantled in an approved centre.”

IATA is working now with all interested parties to enshrine best practices before legislation hits so that the regulators can follow industry guidelines. Currently, approaches to dismantling an aircraft vary with some placing a greater emphasis on protecting the aviation-grade materials. Harmonizing working standards will be an important step forward.

Industrial scale

The manufacturers will obviously have an important role to play. Airbus started the ball rolling in 2005 with PAMELA, the first full scale project researching dismantling a commercial jet. PAMELA successfully tested recycling techniques from other industries, developing best practices in the process. The manufacturer is a comparative novice in recycling aircraft though. Since starting production more than 40 years ago it is estimated that fewer than 400 Airbus aircraft have been scrapped.

Since 2007 though, the entire range of Airbus aircraft have been taken apart to test the recycling options. When PAMELA began dismantling an Airbus A300, it found it was able to reduce the amount of material sent to landfill to just 15%. Airbus has now moved on to TARMAC-Aerosave (Tarbes Advanced Recycling and Maintenance Aircraft) in partnership with five other companies. The OEM claims that TARMAC -which aims to move the findings of PAMELA on to an industrial scale- has outperformed its initial targets.

Airbus’s endeavors have also made clear the work left to do. TARMAC predicts it will handle 11 aircraft in 2011 when actually its facilities are capable of up to 30 operations. Clearly, aircraft recycling is in need of further marketing efforts. Also revealing is that the 15% of an aircraft going to landfill is largely cabin interior.

The major manufacturers are all working on the interior problem but breakthroughs are scarce. Boeing recently came up with recyclable carpet tiles. Southwest is testing the idea and the product could be commercially available later in the year.

But many of the materials used in the interior still aren’t suited to recycling or simply aren’t worth much when they are processed. Airbus is looking to redesign its cabin interiors with a view to recycling but in the meantime is suggesting that storage is the preferable option until such time as new technology makes their break-up possible.

“Glass fiber is used in much of the cabin lining,” explains Malavallon. “Basically, it has no recycling value whatsoever. There are other issues too, such as the chemicals used to make materials flame retardant.”

New materials

The latest aircraft will not necessarily be any easier to recycle. Materials such as carbon fiber have yet to find a commercially active salvage market. Although using recycled carbon fiber is far less energy intensive and hence less expensive, the facilities able to recycle on a commercial basis are few and far between. The expensive alloys found on engines such as nickel and cobalt also require highly specialized facilities.

And ironically, the very composites that make an aircraft lighter and improve fuel efficiency are also very difficult to deal with environmentally. The resins they contain are nearly impossible to dispose of cleanly. Malavallon insists that recycling is improving all the time and the final by-products are getting close to original materials. The bigger problem, he suggests, is identifying the right customers for the final by-product.

Like new Airbus aircraft, the Boeing 787 has actually been designed with its afterlife in mind. Boeing has worked with its manufacturing sites and suppliers to collect carbon fiber scraps and develop processes to return this material back into aerospace manufacturing. Recovered 787 carbon fibers are being used to build several prototype aircraft interior components that are currently undergoing testing. It has also tested the feasibility of using recycled carbon fiber for tooling used in the production of aerospace parts.

Recycling new materials could be lucrative in the future. Raw materials are going up in price and an aircraft will remain a valuable asset at the end of its commercial life. Current airframes aren’t necessarily so rewarding. The aluminum on an old Boeing 747 weighs around 70 tons, just under half the aircraft’s total weight. But aluminum’s price -like many commodities- is volatile. Not so long ago the price was low enough to make dismantling an old 747 a less than attractive proposition. Fortunately, there has been an upward shift. Given the CO2 savings from using recycled aluminum as opposed to working the raw material, there are obvious environmental benefits too.

The finances are also affected by shipping. Many aircraft are scrapped or rusting away in parts of the world with few recycling facilities. The financial and environmental cost of getting them to the requisite sites for break-up is too great to justify.

Several initiatives will tackle the challenges and put aircraft recycling on a firmer footing. For example, there are also plans being headed by Airbus to establish a network of recycling centers. Malavallon concludes by noting that the industry must prepare for a change in the aircraft end of life paradigm. “The success of TARMAC proves that attitudes are already changing because an aircraft remains valuable even once it has finished flying. There is an opportunity to develop a real business here.”

Tablet Wars: Can Rivals Unseat the iPad?

By M H Ahssan

As the buzz builds for tablet computers, both tech savvy consumers and the tech impaired are hoping to find one under the Christmas tree. And companies that run the gamut from BlackBerry maker Research in Motion to Barnes & Noble are hoping to unseat Apple from the Santa role.

Apple has essentially had the tablet market to itself since April 30, the day the iPad became available in the United States. Since then, the company reports selling more than seven million of the 10-inch devices -- which combine the portability of a smartphone or e-reader with the power of a laptop or desktop computer -- including 4.19 million in the quarter ending September 30. Distribution channels for the iPad are growing as well. Since July, Apple has been selling the device at Best Buy, Target, Wal-Mart and Amazon.com, in addition to company-owned stores and its website. Expansion into international markets, including China (where the iPad launched on September 17) is expected to fuel more growth, according to a research report by Stifel Nicolaus analyst Doug Reid. Reid estimates that Apple will sell 6.5 million iPads in the fourth quarter of 2010.

Apple's head start is formidable, industry observers point out, and creates major challenges for other companies hoping to cash in on the tablet craze. While some competitors are hoping the lure of smaller size or special features will give their devices an edge over the iPad, others are targeting niche markets, including business executives and health care workers. But all will need time to work out the kinks involved with introducing new technology. And while Wharton experts and others acknowledge that the market is large enough to support multiple players, they say it is unclear whether these new entrants will have the right formula for success in this age of device experimentation.

"It's not too late for new tablets," notes Saikat Chaudhuri, a management professor at Wharton. "You can compete on technology or distribution as you try to reach your installed base. You can also compete in a niche segment if [that segment is] large enough."

Experts at Wharton say the tablet market is shaping up similarly to the smartphone industry: Apple creates a popular device in the iPhone, defines the features that consumers come to expect, and rivals follow, attempting to capture the market with gadgets of their own. Competitors have been gaining ground in that market -- smartphone devices powered by Google's Android operating system, for example, have surpassed Apple in market share, according to Nielsen. A third of smartphones sold in the past six months have been powered by Android; Apple captured 25% of sales during the same period. "Smartphones are a multi-vendor space and tablets will likely be the same," notes Kendall Whitehouse, director of new media at Wharton.

The iPad accounted for about 95% of global tablet shipments in the third quarter of 2010, while only 2% were devices powered by Android, according to a study by Strategy Analytics reported in The Wall Street Journal. Overall shipments of tablets increased by 26% in the same period, the study said. The study's authors expect the percentage of non-Apple devices to rise as other companies enter the tablet market. During Apple's earnings conference call on October 18, however, CEO Steve Jobs delivered the opposite view about what is often predicted to be an influx of tablets set to hit store shelves in the coming months. "First, it appears to be just a handful of credible entrants, not exactly an avalanche. Second, almost all of them use seven-inch screens, as compared to iPad's near 10-inch screen," Jobs said. "We think the current crop of seven-inch tablets [is] going to be DOA -- dead on arrival."

Although it is hard, if not impossible, to recreate the iPad's buzz, the device itself is not invincible, experts warn. "How do you attack the iPad?" asks Wharton marketing professor Peter Fader. "There are a lot of ways the iPad leaves you short," including a lack of support for multi-tasking and the absence of Adobe's Flash player, which is used to power multimedia on many websites. Although Fader warns that "fighting with features isn't a winning battle," Wharton marketing professor Eric Bradlow advises competitors to "try to find attributes that make your tablet a superior product."

Beyond the Buzz
Among the players preparing to break into the market is Research in Motion, which will launch the seven-inch BlackBerry PlayBook in 2011. The device, which features multimedia management software and security tools for corporations and can connect wirelessly to BlackBerry phones, is "screaming business executive," according to Gartner analyst Matthew Davis. Research in Motion officials hope the PlayBook will entice BlackBerry users with the incentive of more screen space than the phone offers to work with documents, e-mail and other business-related needs. Because the two devices use the same wireless connection, customers would not have to purchase a separate data plan for 3G services. "The BlackBerry is successful for what it does more than the brand," Fader notes. "The more RIM moves away from the BlackBerry features, the more risk it faces."

Samsung is looking for mass-market appeal with its soon-to-launch seven-inch tablet, the Galaxy Tab. In addition to selling a Wi-Fi only model, the company has forged deals to sell versions of the Android-powered device that are price-subsidized when bundled with two-year data plans through wireless carriers AT&T, Sprint, T-Mobile, U.S. Cellular and Verizon. While data plans for Apple's iPhone are offered exclusively through AT&T, the company recently completed a deal that allows Verizon to begin selling iPads bundled with its data plan. Part of Samsung's marketing pitch is that the Galaxy Tab provides the same features as the iPad in a less bulky package. The Samsung Tab has two cameras, a feature Apple's gadget lacks, and like RIM's PlayBook, supports media using Adobe Flash. "If rivals can fill [the iPad's] functional gaps quickly, they can get traction," Chaudhuri points out. "There's a crowd that just wants something functional and doesn't care if it's Apple."

Samsung has the best shot at competing with the iPad, according to Kartik Hosanagar, a Wharton operations and information management professor. "I really like Samsung's approach. It can leverage Android's success in the smartphone market. Samsung is sticking to its strengths and bringing in a dominant software partner." Bradlow notes that because Android is used on devices from a number of manufacturers, tablets running that system can position themselves as the more versatile choice in terms of content available. "At the end of the day, an open architecture leads to better apps," he adds. "That's where the gold is."

Hybrids, Niches and Cost-Cutters
The iPad's starting price of $499 sets the price for the high-end of the market, experts at Wharton say. Samsung's Wi-Fi only Galaxy Tab will also start at $499, while Research in Motion has not disclosed pricing for its Playbook. Other competitors are entering the market with lower priced options like Barnes & Noble's NOOKcolor, a seven-inch Android-based e-reader/tablet hybrid currently for sale at $249.99.

At an even lower end of the spectrum is Cherrypal's seven-inch CherryPad for $188. Dell's five-inch Streak tablet starts at $299.99 with the purchase of a two-year data plan (without the plan it is $549.99). The Streak, one of the more diminutive tablets entering the market, is being promoted by Dell to the health care market as the perfect size to fit in the lab coat pocket of a doctor or nurse. "We are making electronic patient information accessible to physicians and clinicians in a form ... that is easy for them to use," Jamie Coffin, vice president of Dell Healthcare and Life Sciences, said in a statement.

While Hosanagar acknowledges that tablets like Dell's or RIM's can be tailored to be effective in specific industries, he notes that the real money is in mass adoption. "I can see how a firm can dominate a vertical by focusing on specific industry applications. But I don't see how focusing on niche verticals will help large companies like Dell. The spoils are in the consumer market. I don't think success in some niche area will translate to success in the mainstream consumer market." Bradlow, however, suggests that "one gets product adoption one niche or one segment at a time. This approach builds on RIM's [and Dell's] strengths."

With many new tablets hitting the market -- a number of which are slated to launch in early 2011 -- the field could quickly become saturated. Cisco, Toshiba and Hewlett-Packard are also planning to begin selling their answer to the iPad in the near future. As the tablet battles play out, experts expect the market to take plenty of twists and turns.

When Apple introduced the iPad, the device quickly began to overshadow the markets for e-readers and netbooks. The e-reader is of similar size to the iPad but was introduced as a single function device for reading books, magazines or newspapers. The iPad has its own bookstore and an interface for reading digital books, but is a multi-function device that also allows users to play games, peruse their e-mail and surf the Internet. In addition to Barnes & Nobles' e-reader/tablet hybrid, Hosanagar expects that Amazon -- which started the e-reader trend when it introduced the Kindle in 2007 -- may also become a potential iPad competitor. "I am betting that Amazon is going to come up with a next generation device that not only transforms the Kindle, but perhaps bundles it with services in a manner that is classic Amazon."

Netbooks -- smaller, more lightweight and lower-priced laptop computers -- dominated electronics advertising during the last few holiday seasons but have since waned in popularity. A recent survey of 3,108 consumers by market research firm ChangeWave found that 14% of those who planned on buying a laptop in the next 90 days said it would be a netbook. That is compared to 18% at the beginning of this year and down 10 points from the peak netbook buying period in June 2009. During the same period, buying plans for traditional laptops and desktop computers remained largely unchanged, the firm reported. In addition, 26% of those surveyed said they were likely to buy a tablet in the future (80% of that number planned to purchase an iPad).

Fader suggests that one way for competitors to stand out in the tablet field is to take a cue from what made netbooks successful initially. "These rivals could step away from the touch tablet form," Fader says. "What if Apple's rivals [introduced] a netbook done right, with a touch screen and keyboard? You couldn't call it a netbook, but one way to beat the iPad is to ... make something small, fast and differentiated." Indeed, by the end of the year Dell plans to introduce the Inspiron Duo, a 10-inch tablet with a flip lid that allows the device to be converted into a netbook with a keyboard.

According to Chaudhuri, the next few months will provide clarity as to which customers are buying tablets and which features are most attractive to them. "People are used to having multiple devices depending on the scenario. The netbook wasn't a substitute for the laptop, and the tablet may not replace the netbook," he says. "My wish list is to have everything in one device that could expand or shrink. Absent massive changes in physics, that's not going to happen."

Is RIM Riding on the Edge?

By M H Ahssan

This fall, Research in Motion (RIM) is launching an armada of new smartphone devices based on its BlackBerry 7 operating system -- 147 launches with 90 carriers in 30 countries -- in a big bet that it can reverse an ongoing slide in market share.

Once so popular among corporate customers that its products were dubbed "CrackBerry" by addicted users, RIM has lost significant ground since the launch of Apple's iPhone and Google's Android-based devices. In fact, experts at Wharton say that the Canadian firm's recent slump in market share and earnings may not be reversible. "This is a dangerous period for RIM," says David Hsu, a management professor at Wharton. "The company has to renew itself" to avoid being overtaken by its rivals, "and that's not an easy thing to do."

This month, a Forrester Research survey revealed that BlackBerry has 42% of the market among smartphone-toting information workers, but Apple and Android combined have 48%. In addition, 81% of those information workers cited e-mail as their primary work application, according to Forrester. That bodes ill for RIM, which at one time set the standard for e-mail features on smartphones. "There's nothing RIM can point to where it has a distinct advantage," says Peter Fader, a marketing professor at Wharton and a BlackBerry customer. "At this point, people are staying with their BlackBerry devices for the wrong reason: inertia. Customers aren't excited about the products."

"RIM had a killer app -- corporate e-mail. What created its distinct value was the security that it provided relative to what one would have on a more open system," says Wharton management professor Dan Levinthal. "In the world before app stores with thousands of apps to download on your smartphone, that was a winning proposition. However, as the app stores of Apple and Android/Google got more appealing, the market starting tilting."

One of RIM's biggest problems is that it is being hit by "consumerization," or the growing use of consumer technologies in the workplace. "RIM is getting swept up in the trend of consumer devices driving the adoption of mobile platforms in the enterprise," says Kendall Whitehouse, director of new media at Wharton. "RIM may have all the inroads to corporate IT managers, but if everyone is walking in the door with an iPhone, none of that matters." According to Forrester, 48% of workers pick a phone without considering what their companies support, and only 23% are given smartphones by their companies. And a recent survey by Nielsen reveals that in August, 56% of smartphone buyers chose an Android device, followed by an iPhone at 28%. BlackBerry devices were chosen by 9%.
RIM's key figures show the strain.

On September 15, the company reported net income of $319 million for the second quarter, down from $797 million a year ago. Revenue in the same quarter was down 15% from a year ago to $4.2 billion. The company shipped 10.6 million BlackBerry smartphones during that period, after promising to ship 11 million to 12.5 million three months earlier. It also shipped 200,000 of its newly launched PlayBook tablet devices -- half of what Wall Street expected. Speaking on a conference call, RIM co-CEO Jim Balsillie said that the company's older products didn't sell well, and new BlackBerry devices were launched too late in the quarter to boost sales meaningfully.

In recent quarters, RIM has relied on growth in Asia, but the company has seen global sales slow ahead of the recent rollout of its BlackBerry 7 devices. Sales outside of the U.S., U.K. and Canada represent 56% of RIM's revenue. RIM's global smartphone market share in the second quarter was 11.7%, down from 18.7% a year ago, according to research firm Gartner. Android market share was 43.4% in the quarter, up from 17.2% a year ago, and Apple's share was 18.2%, up from 14.1% a year ago.

"With new [BlackBerry 7] smartphones that already are available in North American channels, and with more to come this quarter, we believe we are well positioned to take advantage of the upcoming holiday season," said Balsillie. For fiscal 2012, RIM projected adjusted earnings toward the low end of $5.25 to $6 a share. On March 24, RIM had told Wall Street to expect annual earnings of $7.50 a share.

'Seize the Reins'
The company's troubles have sparked intense scrutiny. On September 6, RIM shareholder Jaguar Financial urged the company's board of directors to "seize the reins" at the company. "The status quo is not acceptable; the company cannot sit still. It is time for transformational change," said Jaguar in a letter to the board. "While its rivals have demonstrated an ability to develop and market products with features that inspire consumer enthusiasm and drive higher adoption rates, RIM has clearly fallen short. Its failure to offer products with innovative features, combined with its limited selection of applications, has resulted in RIM losing market share to its competitors."

Hsu largely agrees with Jaguar's assessment. "RIM never thought about being a platform," says Hsu. "RIM is a pioneer in the real-time push e-mail service, but faces the same problem as all technology oriented companies: It had to cannibalize [existing products with new ones]. It's unclear whether RIM has the ability to look ahead."

Fader says he wonders if RIM was merely lucky in its heyday. The company built a large installed base because it had the push e-mail field to itself. "A lot of success is about being in the right place at the right time," he says. "RIM was the only player for a time, but it wasn't equipped for a competitive market."

Analysts have also questioned RIM's management structure. The joint CEO position, which RIM has had since its inception, can be a handicap in the long run because it muddles decision making, says Wharton management professor Lawrence Hrebiniak. "It might work in the short term. When things are going well, none of this is questioned. When RIM was dominant, it could have had five CEOs and been fine." RIM co-CEOs Balsillie and Mike Lazaridis have defended the company's structure and say replacing them would only derail a turnaround.

Another reason why RIM is so heavily scrutinized is that the company's hype surrounding its recent product launches hasn't matched the reality. Its PlayBook tablet is one example: The device was described by Balsillie as "really quite magical for the consumer and the enterprise," and yet it never took off in either arena. Over the years, RIM has heavily promoted new devices, "super apps" to spur software developers, and BlackBerry OS 6, which quickly gave way to the next version of the operating system. The problem, according to Wharton faculty, is that the company is increasingly reliant on product home runs. However, that strategy can backfire if the products fail to live up to the publicity surrounding them. "The danger is that RIM becomes the boy who cried wolf," says Hrebiniak.

Whitehouse notes that RIM's promotion of forthcoming products is part of an effort to keep its base of customers engaged. "I understand the pressure they are under to communicate that RIM is making progress and new features are coming in order to retain their current customers," he says. Fader is less charitable. "Chronic overpromising and under-delivering is a sign that management can't get its act together," says Fader. "From the outside looking in, it just looks like chaos."

'A Great Deal of Value Left'
Given the level of criticism facing RIM, Hsu says he "wouldn't be surprised to see a shake-up" at the company, but it is unclear what a restructuring would entail.

Hrebiniak suggests that, as a starting point, RIM could hire one CEO who is responsible for marketing as well as technology. Today, Balsillie is in charge of sales and marketing, and Lazaridis oversees technology and development. "The board could look for one strong CEO inside or outside the company to develop a turnaround strategy," he says. "A lot of time, a change gets analysts on your side."

But Fader isn't so sure. "Cleaning house won't do much now. So much damage has already been done to the brand. The best hope would be to sell out to a stronger player." Kevin Werbach, a Wharton legal studies and business ethics professor, agrees that a takeover of RIM is one possible way to keep the company moving forward. "RIM pioneered mobile e-mail, but that market has been subsumed by smartphone platforms. Relationships beyond mobile and developer adoption are critical to success in the new environment," he says. "There is a great deal of value left in RIM. It's just hard to imagine a scenario in which it's still the growth company that its management envisions."

For the near term, however, "RIM has to keep its base and stick to its knitting with a measured and structured approach," says Hrebiniak, adding that the company should start with persuading existing customers to upgrade to new devices. Whitehouse agrees, suggesting that incremental product upgrades and improvements -- as opposed to launching overhyped "home runs" -- could keep many enterprise customers in the fold. "Trying to out-Apple Apple is futile. But RIM could be good enough at providing corporate solutions to remain viable in that market." If RIM can accomplish that goal, it will maintain its current market share and possibly poach customers in the future, especially if Apple or Google stumble.

And RIM may have a reasonable chance at keeping existing customers. A recent Morgan Stanley survey of 1,852 cell phone users found that 46% of U.S. BlackBerry owners plan to upgrade in the next six months. Sixty percent of that group says they plan to buy a BlackBerry 7 device. The survey also reveals that 7% of existing Android owners plan an upgrade to BlackBerry 7, and 5% of current iPhone owners will follow suit.

According to Levinthal, a bolder strategy could also be in order: RIM could ultimately decide to drop software or hardware. Since RIM's biggest advantage is its secure e-mail system, "one possible out for RIM is to untether its e-mail functionality from the physical device," he says. "Could you provide a RIM 'app' for an Apple or Android phone? This would also free RIM from the tremendous expense of developing next generation physical products which are likely to do poorly in the marketplace."

One potential boon on the horizon for RIM is that wireless carriers have indicated the need for a third mobile platform (beyond Apple's iOS and Google's Android). Speaking at a Goldman Sachs investment conference on September 21, Verizon CEO Lowell McAdam noted that in terms of contenders, "Microsoft is a possibility. RIM is a possibility. And I think that over the next 12 months ... you will start to see one emerge as a legitimate third [wireless] ecosystem."

But Fader says that it's more likely that a new player would become the third mobile platform. Werbach is betting on Microsoft and places RIM in an underdog role. "RIM simply doesn't have the assets to catch up to Apple, Google's Android and Microsoft/Nokia," he says. "For example, Apple controls the cutting-edge hardware supply chain and iTunes. Google can give away its mobile OS and link it to other services. And Microsoft has the massive Windows cash cow. Developers can only support so many platforms."

O.P Jindal Global University with a global focus!

IT’s a three-hour drive from South Delhi to O.P. Jindal Global University. But the sheer visual delight or opulence that greets one at the university makes the long drive worth it. Be it the crisscross iron framework surrounding the main building, the extraordinarily beautiful Buddha sculpture, or the plush sofas in the library – here’s a campus that takes comfort and ambience quite seriously.
AcademicsThe University comprises three schools-law, management and international affairs. While the law school is up and running with two batches, the management school has just opened and the school of international affairs is still nascent. But collectively, they would emerge as a public university with global standards, says Prof. Raj Kumar, Vice Chancellor. Currently, very few universities in India have active international affairs schools. Exploring profiles of the other faculty, one is pleasantly surprised to find an alumni of world renowned universities like Harvard, Yale, Oxford and Cambridge. In fact, all faculty members of the law school and most of the business school have an international degree or work experience.

The law school, has a yearly intake of 180 for its flagship five-year integrated BA LLB programme, which started in 2009. The school has 110 and 130 students in the second and first year, respectively. The Business School kicked off in 2010 with a batch of around 50 students.

ResearchThough a young campus, the internationally acclaimed faculty do research and publish. Prof. Raj Kumar claims proudly, that two faculty members published in Harvard Business Review, a prestigious management journal. The law school has its own journal - Jindal Law Review.

The recent training programme that Jindal Global Law School did with Cambridge University for IPS officers is probably a sign of things to come. But the sheer amount of administrative work, some of these fine scholars have to do, to get the schools going might impinge upon their research and publishing activities.

The university takes the word ‘global’ in its name, seriously. It has inked collaboration agreements with Yale, Harvard, Indiana University, New York University, University of Michigan, Queen’s University and York University amongst others. And they go beyond mere agreements, Prof Raj Kumar points out. Each one of them have been followed up seriously and have an activity or two to their credit, he asserts.

Campus life and beyondA plush, spacious and well-stocked library, excellent food at the dining hall (albeit purely vegetarian, like the whole campus), and the helipad for the Chancellor further affirm the hypothesis. But education at the Jindal Global Law School is not an easy proposition.

The fee for both the five-year law programme as well as the MBA programme is Rs. 5 lakhs per annum, and an additional Rs one lakh per annum for lodging, board and laundry.

The other courses like LLM are in the range of Rs. 2-3 lakhs per annum. There are a number of scholarships on offer as well. On the whole, about 75% of the students avail one scholarship or the other which averages to around 20% waiver. As the student intake increases, getting adequate faculty might prove to be the biggest challenge for JGLS. And for that the university has to scout both international and domestic shores.

FAST FACTS
Established: 2009
Location: Sonipat, Haryana
Vice-Chancellor: Prof. C Raj Kumar
Programmes: BA LLB, LLM, MBA, PhD
Approval/ Accreditation: UGC notified Private University
Selection: Written test, Merit
Full-time faculty: 46
Top recruiters: NA Seminar: NA
Student activities: Intramural tournament, Invicita
Website: www.jgls.org

Mudra Institute of Communications, Ahmedabad (MICA)

Divergent thinking, creativity and an out-of-the-box solutions approach

“Mudra Institute of Communications, Ahmedabad as an entity wishes to distinguish itself firmly as a Communications Management School, differentiated by creativity, divergent thinking and out-of-the-box solutions approach,” says Professor Ashok Ranchhod. He adds, “We wish to be identified as the best C-School (Creative School), globally.”

Students are exposed to core courses in their first year to develop a general management perspective. The second year they need to specialise in any of the four broad themes: Brand Management, Marketing Research, Advertising Research and Media management. Course work also comprises rural research projects, understanding communication in the urban context, corporate venturing and entrepreneurship.

Factors that point towards an effort to build up a good resaerch base include steady tie-ups with good institutions in the UK (Southampton Solent), USA (Southern Methodist and Georgia), and Singapore (Nanyang), encouraging faculty members and students to engage in writing research papers, and the introduction of a PhD programme this year.

While the library, better known as KEIC (Knowledge Exchange and Information Centre) is resourceful especially in media & communications, market research, brand management and advertising, one wonders why they are not as aggressive on publishing. KEIC, open 24 hours a day, houses the best online resources, be it the databases of the World Advertising Research Centre, TV commercials, Luerzer’s Archive or Euromonitor Intelligence.

Post tea at Micafé, Vivek Shah, a final year student, takes us on a tour of the campus. First, MICORE (the research division) and then the entrepreneurship cell. We walk through Chhota, the 24-hour canteen, the only smoking zone in the campus and then reach the hostel Silveroak, meant for exchange students and entrepreneurship cell scholars, which has rooms little better than the twin-sharing rooms in other hostels. Other MICA centres of excellence consist of Management Development (MDC) and Development Communications (CDC).

The gym and football field spring to life post 5 p.m. And you have post-dinner meets to discuss projects etc.

MICA Radio also focuses on issues relevant to residents of the neighbourhood, and has MICAns generating their own content and music. Another eye-catching feature is the not-so-well lit gallery where students showcase their intellect and creativity.

Professor A F Matthew, who has an interest in Development Communication, is literally a campus USP. His lecturing-style includes screening films. Jyoti Sudhir, Communications Manager, MICA quips, “It’s a myth that MICA is only for those who wish to pursue careers in media and advertising. It also offers courses in market research, retail, creative communication and more.”

FAST FACTS

Location: Shela, Ahmedabad
Director: Prof. Ashok Ranchhod
Flagship programme: PGDM (Communications)
Approval/ Accreditation: AICTE approved
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'BANDH' MAKES HYDERABAD HELL!

By M H Ahssan

Come Friday, Hyderabad will face another shutdown -- the 13th this year and perhaps, more than any other city in the country. This figure doesn’t include the innumerable strikes like the ongoing RTC and small and medium-scale industries’ stir, which gives a measure of the crisis gripping the State capital.

Claims of loss caused to the economy vary from one industry body to another. The Federation of Andhra Pradesh Chambers of Commerce and Industries (FAPCCI) put the loss since Sept 13 when the Telangana Sakala Janula Samme began at around Rs 3,000 crore.

“Each day of the strike has cost the industries Rs 120 crore to Rs 150 crore. Due to the industrial shutdown over the last two days, the cumulative loss suffered is in the range of Rs 1500 crore to Rs 1800 crore,” says VS Raju, president, FAPCCI.

Citing difficulties caused by revised tax norms, interest rates and volatile markets, he points out that political turmoil has only aggravated the decline of the industrial sector. “The current situation has led to the disruption of the supply chain and the industries have been unable to meet orders. This has long-term implications as it weakens customer confidence, causing diversion of orders to other states. The investor sentiment has been negatively affected and the image of Andhra Pradesh in general and Hyderabad in particular as a viable investment destination has been ruined,” he explains. According to him, the situation is likely to cause a further 10-15 per cent loss to the industries.

L Suresh, President, ITsAP, the IT industry association, says, “though� there’s not much of violence, operations are certainly affected. More importantly, if the ambiguity continues for long, the profitability factor in Hyderabad will be questioned. The city will lose its charm as an attractive investment destination.”

The job market has also been shaken as companies have been holding up expansion plans. “The estimated loss of job opportunities over the last one-and-a-half years� is huge. In the manufacturing sector it could be around 20,000 jobs and nearly 40,000 in the service sector. The frequency of bandhs is� unprecedented in a single state, except for West Bengal in the past,” exclaims Devendra Surana, senior vice-president, FAPCCI and managing director of the Bhagyanagar India Limited. “I supply hardware to the automobile industry. Due to frequent bandhs, I have had to ship my orders by air-freight to meet deadlines and suffered heavy losses. It is my appeal to the government to resolve the issue as soon as possible,” he says.

How to Test Hotel Feasibility?

By M H Ahssan

When designing a hotel, the architect and development team need to create a project that is ultimately economically feasible. Unless the hotel's owner is ego driven rather than economically motivated, most investors are looking for a return on their invested capital. Since feasibility means different things to different people, and as a hotel consultant having prepared thousands of feasibility studies, I have been asked to provide my perspective on this topic.

The process I like to use for determining whether a proposed hotel is economically feasible is to compare the total project cost (including land) with the hotel's estimated economic value on the date it opens. A feasible project is one where the economic value is greater than the cost. Accurately estimating the total project cost is a relatively simple process for the architect and development team. However, determining the economic value is much more complicated.

The first step in the valuation process is to perform a market study where the local hotel demand is quantified and allocated among the existing and proposed supply of lodging facilities. The allocation of roomnight demand is based on the relative competitiveness of all the hotels in the market. The end result is a projection of demand captured by the proposed subject hotel, which is then converted into an estimate of annual occupancy. A similar procedure is used to project the average room rate.

The second step is to project the hotel's operating revenue and expenses based on the previously estimated occupancy and room rate. This results in an estimate of annual net operating income. Most consultants use a five- to 10-year projection period, so this process needs to be repeated for each year.

The last step is to convert the projected NOI into an estimate of value using a weighted cost of capital discounted cash flow procedure. The end result is an estimate of economic value that can be compared to the total project cost.

Some consultants will substitute a net present value calculation or determine the internal rate of return (IRR) for the last step. However, I prefer using the economic value approach because you end up comparing "apples with apples" - i.e. cost with value.

As you can see, this process of determining economic value requires local market knowledge, hotel financial expertise and experience with valuation methodology. Luckily for architects and hotel developers, there are two simple rules of thumbs that will provide a rough approximation as to whether a project is economically feasible.

The first thumb rule tests the cost of the land to determine whether it exceeds a supportable economic land value. The following formula calculates economic land value:
Occupancy x ADR x Rooms x 365 x .04 / .08 = Economic Land Value.

As example, a proposed hotel is being considered on a parcel of land that can be acquired for $3,800,000. Zoning permits the development of 200 rooms. Based on local market conditions, the proposed hotel should achieve a stabilized occupancy of 70% and an average room rate of $150. Using these inputs the Economic Land Value would be calculated as follows:
.70 Occupancy x $150 ADR x 200 Rooms x 365 x .04 / .08 = $3,832,500.

The calculation shows the Economic Land Value is above the cost of the land so the developer is not overpaying for the land. If the land cost was $4,000,000 or above, the developer needs to re-evaluate the project because it's not supported by the hotel's underlying economics. Perhaps additional rooms could be added, which would increase the room count or a higher quality of hotel developed would increase the average room rate. This Economic Land Value formula works well in most markets. For prime center city locations the .04 factor can be moved up to .08.

The second rule of thumb is the Average Rate Multiplier formula. This is a very simple way to approximate a hotel's total economic value. The formula is as follows:

ADR x Rooms x 1,000 = Economic Value
Using the numbers from the example above produces the following Economic Value:
$150 x 200 x 1,000 = $30,000,000

If the hotel's total development cost is over $30,000,000, there could be a feasibility problem. In most cases where the development cost is significantly higher than the economic value it is because the local market's average room rate is too low to support the contemplated improvements. In these situations the proposed plans and specifications need to be scaled back in order to produce a lower total project cost, which might then create a feasible project.

One additional point of reference looks at the percentage relationship between the hotel's land cost and the economic value. In this example, the value of the land is approximately 13% of the overall economic value ($3,832,500/30,000,000 = 13%). This relationship should be no more than 15% to 20%. In other parts of the world where labor cost is low, this percentage relationship can be higher.

Using these hotel feasibility rules of thumb combined with a professionally prepared study will insure the architect and developer are not creating a project that has no economic viability. As with any rule of thumb, there are numerous exceptions that need to be factored into the evaluation. Before abandoning a project because the rules don't produce the desired results, it is a good time to call in a professional consultant to prepare a more in depth analysis to either verify or dispute the conclusions produced by the rules of thumb.

Will India-China Economic Dialogue Help Exporters?

By M H Ahssan

Will China really open up its market further for Indian exporters? This question has again come to the fore with yesterday's first-ever Strategic Economic Dialogue between the two nations. During the India-China Joint Group on Economic Relations last year, China had said that it would give India access to some sectors such as pharmaceuticals and IT, but the promise is hardly kept, at least till now. It is expected that that the new round of talks would spark fresh interest for businesses from both the sides.

In the last few years, India-China trade has witnessed a robust growth, crossing the target of $60 billion in 2010. The two nations have set a trade target $100 billion by 2015, which seems achievable considering the recent pace of bilateral trade growth. But despite this growth, India's trade deficit with China, which stood at $20.02 billion in 2010 increasing from $15.87 billion trade in 2009, is still a concern.

Clearly, the recent growth in India-China bilateral trade is favouring the latter. Another worry is that India's exports to China are primarily non-manufactured goods, particularly raw materials, of which only iron ore comprises a whopping 50 percent, but China's exports to India mostly include value-added finished and semi-finished products. This is, needless to say, against the interest of our economy.

Yesterday's dialogue, held against the backdrop of India's growing trade deficit with China, seems to hold some promise as both the countries have agreed "to deepen bilateral investments, further open up markets and share developmental experiences". According to news reports, the two sides have agreed to strengthen cooperation in infrastructure development, energy efficiency, and communication on macro-economic policies. These are certainly very good developments, and if steps are implemented as proposed, both the countries will benefit from these greater commercial interactions.

I feel that India and China, two of the fastest growing economies in the world, should think beyond the history of rivalry and move faster towards greater collaboration as there is a huge scope for both the economies to benefit from each other. For example, there is a lot for India to learn from China in areas like urban development, power projects, and infrastructure. China, on the other hand, can learn from India's success story in the field of information technology and IT enabled services. Also, there is enough scope for Indian and Chinese businesses to participate in infrastructure, transportation and power distribution projects in both the countries .  
 
As far opportunities that could arise for our exporters from greater India-China collaboration are concerned, I also think that China's large domestic automobile market offers huge opportunities for the Indian automotive sector. Moreover, Indian auto companies can also consider to use China as a low cost manufacturing base. In addition, I feel, with China's recently unveiled 12th Five Year Plan, which signals to the nation's gradual policy shift to a domestic consumer-driven economy, Indian exporters can expect a lot from the Chinese market in the coming days.