case-ino royale case

CASE-INO

ROYALEC A S E C O M P E T I T I O N

THE TATADILEMMA

This document consists of one case study followed by a question. Teams can use real-world data to back up their analysis, provided thatsuch data is sourced (Wikipedia not allowed). Please mentionassumptions wherever required. Teams will be judged based on innovation, originality, creativity,presentation, competency, and feasibility of solutions. The solution must be made in presentation format (Word Documentsare not allowed). The solution must be a maximum of 10 pages (exclusive of title andconclusion page). Teams must send their solution to [email protected] by 11:59PM, 20th October 2021. Late submissions will not be accepted. The solution document and the subject of the mail must be in thefollowing format: “SSCBS_MIC_Team Name_Case-inoRoyale” The body of the mail, as well as the presentation, must include theteam name, the names of all the team members, and their contactdetails (phone numbers and email addresses). All solutions must be mailed in PPT Format. The decision of the organizers shall be final and binding on allparticipants. This case may not be transmitted, photocopied, digitized, or otherwisereproduced in any form or by any means without the permission of theorganizers.In case of any queries, kindly contact -

RULES

Aryan Chowdhry: +91 9310035498 Divyansh Malhotra: +91 9210100748

@mic.sscbs Management Interaction Cell, SSCBS

The TATA Dilemma : EV or Airlines

Tata MotorsTata Motors Group (Tata Motors) is a $44 billion organisation. It is a leadingglobal automobile manufacturing company. Its diverse portfolio includes anextensive range of cars, sports utility vehicles, trucks, buses and defence vehicles.Tata Motors is one of India's largest OEMs offering an extensive range ofintegrated, smart and e-mobility solutions.Part of the USD110 billion Tata group founded by Jamsetji Tata in 1868, TataMotors is among the world’s leading manufacturers of automobiles. Tata believesin ‘Connecting aspirations’, by offering innovative mobility solutions that are inline with customers' aspirations. They are India's largest automobile manufacturer,and they continue to take the lead in shaping the Indian commercial vehiclelandscape, with the introduction of leading-edge powertrains and electric solutionspackaged for power performances and user comfort at the lowest life-cyclecosts.Their new passenger cars and utility vehicles are based on Impact Designand offer a superior blend of performance, driveability and connectivity.

Their main focus is on connecting aspirations and their pipeline of tech-enabledproducts keeps them at the forefront of the market. They have identified six keymobility drivers that will lead them into the future – modular architecture,complexity reduction in manufacturing, connected & autonomous vehicles, cleandrivelines, shared mobility, and low total cost of ownership. Their sub-brandTAMO is an incubating centre of innovation that will spark new mobilitysolutions through new technologies, business models and partnerships.


Electric Vehicle Market

The Electric Vehicle Market is projected to reach 27M units by 2030from an estimated 3.2M units in 2019, at a CAGR of 21.1% (2018 ASBASE YEAR) during the forecast period. The electric vehicles markethas witnessed rapid evolution with the continued developments withinthe automotive sector. Favorable government policies and support interms of subsidies and grants, tax rebates and other non-financialbenefits within the sort of carpool lane access, and new car registration.The electric vehicle market is dominated by globally established playerslike Tesla (US), BYD (China), BMW (Germany), Volkswagen(Germany), and Nissan (Japan). These companies have developed newproducts, adopted expansion strategies, and undertook collaborations,partnerships, and mergers & acquisitions to gain traction in this high-growth electric vehicle market. Mid-Priced segment is expected to growat the highest CAGR rate.

The Asia Pacific market is predicted to witness the fastest growth,followed by Europe and North America. The automotive industry incountries like China, Japan and South Korea is inclined towardinnovation, technology, and development of advanced electric vehicles.


Cost

Charging infrastructure

Battery technology

Handling industry opposition and legislation

Potential Problems that TATA will face inthe EV Market

Manufacturing and selling cars at a profit will be a major challenge for Tata. As a point ofreference, Tesla took 17 years before it could generate sustained profits.

Electric vehicles are more common in global roads than ever before and yet, remain out ofbudget for many. The cost of a battery inside EV forms the major chunk of the final price ofthe vehicle itself.

This leads us to an important point: Tata cannot just focus on designing and building a car. Italso needs to design and build a proper infrastructure to support that car. And if Tata decidesto go with this, then a huge investment is waiting for them.

Sticking with the point of electric car technology, Tata would do well to look at improvingthe battery technology itself. How will they manufacture the Battery? If they opt for Lithiumion batteries which are lightweight, from where will they get the reserves from, China orLithium Triangle.The latest and best efforts have changed things for the better. The Tesla for example, is ableto travel 130 miles on a 20-minute charge, and 300 miles when fully charged.

Tata has been able to make swift progress in the automobile (both private and commercial),steel, aviation and telecom industry. In most of these industries Tata seeks to face reams oflegislation, not to mention opposition from established manufacturers. If Tata also wants tomake its cars self-driving, it will simultaneously find itself running up against a whole newlegislative headache. People - and hence governments - are still understandably jittery aboutthe prospect of handing over the steering wheel to a computer, so Tata will need to get thisspot on straight away.


About the Company : AIR INDIAAir India is an airline service provider in India. It is owned by theGovernment of India. It is a member of Star Alliance, which is one of thelargest airline alliances in the world. When it was founded in 1932, it wasoriginally owned by TATA sons. It became a public limited company in1946.

49% of the airline was acquired by the Government of India in 1948. In1953, Government of India passed the Air Corporations Act and purchaseda majority stake in the carrier. The company was renamed as Air IndiaInternational Ltd and domestic services were transferred to Indian Airlines.

In May 2004, Air India launched a wholly owned low cost subsidiarycalled Air-India Express connecting cities in India with the Middle Eastand Southeast Asia. In 2007, Air India was merged with Indian Airlinesand the airline took the delivery of its first Boeing 777 Aircraft. It wasincorporated on 30 March 2007 as the National Aviation Company of IndiaLimited (a statutory corporation that functioned under the jurisdiction ofthe Ministry of Civil Aviation), by the Government of India to oversee thismerger. The combined losses for Air India and Indian Airlines in 2006-2007 were 7.7 billion which after the merger went up to 72 billion byMarch 2009. The carrier sold 3 Airbus A300 and 1 Boeing 747-300M inMarch 2009 for $18.75 million to finance the debt.


The Government of India infused Rs. 32 billion into Air Indiain March 2012. In 2013, the then Civil Aviation Minister AjitSingh stated privatization was the key to the airline's survival.The Indian government planned to delay equity infusion ofRs.2300 billion that was slated to be infused into the airlineslowly over a period of eight years in January 2013, Air Indiacleared a part of its pending dues by selling and leasing backthe Boeing 787 Dreamliners.

In March 2013, the airline posted its first positive EBITDAafter almost six years and 20% growth in its operating revenuesince the previous financial year. Air India Limited split itsengineering and cargo businesses into two separate subsidiaries,Air India Engineering Services Limited (AIESL) and Air IndiaTransport Services Limited (AITSL) in 2013. Air India becamethe 27th member of Star Alliance on 11 July 2014. In August2015, it signed an agreement with Citibank and State Bank ofIndia to raise $300 million in external commercial borrowing tomeet working capital requirements. Currently Air India has afleet of 127 planes and serves 42 international destinations.


Inconsistent Pricing: The pricing strategy was not in line with “Full service carrier” positioning. Theycompeted with low cost carriers at times and would shift towards higher prices at other times. Whilethey rolled out updated lounges and cabin interiors to improve the company’s image among customers,they also cut fares drastically and provided two-for-one discounts.

Improper Fleet Management: Most of its debts were due to purchase of 110 large planes, and thispurchase happened while most of its planes were too large to be profitable on their particular routes.

Failed Merger: Air India (Government owned International Airline) was merged with Indian Airlines(Government owned Domestic Airline) in 2007. Their combined loss was $100 Mn at that time, and intwo years it escalated to $1.1 Bn. The two merged entities were competing with each other for routesand they largely operated as two separate airlines without leveraging any synergies.

Improper Route Management: Frankfurt was made a hub in 2009, but it was shut down a year later dueto high operating costs. They were running 3 leased Boeing 747s to Los Angeles and one leased Boeing767 to Bangkok which were running at less than 40% load. The merged entities were competinginternally for domestic routes.

High Agent Commission: Sales Agents were given 3% share on revenue and an additional 9% share onticket sales. Additional bonuses were given to specific agents in London, which resulted incommissions of $8.5 Million in 1997.

Poor People Management: Air India had a bloated head count of 214 employees per plane whileSingapore airlines has 160 and British Airways has 178. Also, inadequate training of existing pilotsresulted in hiring expatriate pilots who were paid more than double the salary. The domestic pilots wereasking for equal compensation as international pilots and the international pilots did not want thedomestic pilots to be trained on the new Boeing 787 Dreamliner fleet. The pilot strike resulted in a lotof last minute flight cancellations, disillusioned customers and bad press.

Excessive Freebies: It offered up to 24 free tickets each year to each of their 24000+ employees andeven their extended families could use it. An employee whistle-blowed one such scam, whereemployees would often buy tickets from external agents at inflated prices and claim reimbursementwhile the agents would provide employees with perks like travel packages in exchange and earncommission from the sales.

Model that led to its downfall


Recent Deals

January 2020:Government floats EoI for Air India privatisation. Government to fully exit Air India byselling 100 per cent. The deal would also include 100 per cent in Air India Express and 50 percent in ground handling arm AISATS. As per the EoI, of the airline's total debt of Rs 60,074 crore as of March 31, 2019, the buyerwould be required to absorb Rs 23,286.5 crore. October 2020: Government sweetens deal; gives flexibility to investors to decide on the amount of Air Indiadebt they want to absorb.

December 2020: DIPAM Secretary said Air India EOI received "multiple bids".

March 2021: Hardeep Singh Puri, the then Civil Aviation Minister said: "...There is no choice, we eitherprivatise or we close the airline. We run a loss of Rs 20 crore every day despite Air Indiamaking money now."

April 2021: Government starts inviting financial bids for Air India. September 15 last date to put in bids.

September 2021:The Income Tax department allows new owners of Air India to carry forward losses and set itoff against future profits.

September 2021: Tata Group, Spicejet Promoter Ajay Singh put in financial bids October 2021: Air India Limited was recently sold to Talace Pvt Limited, a special purpose vehicle ownedby Tata Sons, on 8th October, 2021. TATA bought Air India at a bid price of Rs.18000 Crorewhich includes a cash payment of Rs.2700 crore to the government and absorbing Rs.15300Crore as debt of Air India.


Civil Aviation Scenario

WORLDThe year 2019-20 started with robust forecasts and great expectations forthe global aviation industry. The year witnessed unexpected changes,transitions and economic crisis during the last quarter of FY2020, due to theCOVID-19. The airline industry during 2020 suffered an estimated loss ofUSD 118.5 billion. As per TATA, the full year passenger traffic for 2020,the demand fell by 66% as compared to 2019. Bookings for future travelsmade in January 2021 were down 70% compared to the previous yearputting further pressure on cash positions and partially impacting the timingof expected recovery. Passenger figures are not expected to return to 2019levels until 2024 at the earliest.

INDIA Indian aviation witnessed turmoil in the Indian aviation scenario withclosure of Jet Airways in the beginning of 2019 and ending with completelockdown due to spread of Covid-19 pandemic in India. Air India addedsome capacity into the system with which they have been able to launch thenon-stop Delhi-Toronto, Mumbai-Kuwait, Delhi-Doha, Delhi-Seoul andMumbai-Nairobi flights. The global outbreak of COVID-19 pandemic andthe lockdown imposed from 25th March 2020 and followed by multipleextensions in lockdown/restrictions imposed by Central/State Governmentshave majorly impacted the aviation industry.


PROBLEM STATEMENT Your team is part of the Top level Management of Tata Group who hasbeen assigned the task of taking a decision relating to the future of theGroup where they can either venture into the Electric Vehicle market or theAviation Sector.Assume that the company has sufficient funds for only ONE of the twoventures.Undertaking a qualitative and a quantitative (with appropriate financials)analysis, prepare a powerpoint presentation in not more than 10 slides(excluding cover, index and appendix) stating why the venture chosen byyou will be a better fit for TATA and also the possible challenges (alongwith solutions) associated with the same.

Note: You may also submit an excel for the quantitative analysis portion, ifrequired. Also, please state all the assumptions that you have made.


IN ASSCOCIATION WITH
