11/08/2014 Asia Business Report


11/08/2014

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heavy rainfall and strong winds continue over the coming days. Let's

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go to Singapore for all the latest business news. Malaysia Airlines is

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set to receive a radical overhaul. Can its financial fortunes be fixed?

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India's new government is changing its outdated labour laws to help

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boost economic growth. Hello and welcome to Asia Business

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Report. I am Sharanjit Leyl in Singapore.

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Malaysia Airlines joins the unenviable list of national carriers

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forced into painful restructuring. The government investment fund looks

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to take total control. It will soon be delisted from the stock exchange.

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Does it change how travellers feel about the company? We took to the

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streets of Singapore to find out. If the government is taking over

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Malaysia Airlines, I will be more confident. From a consumer point of

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view, it makes no difference to me. As long as the service level is

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maintained. It doesn't make a difference for the safety of flying

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with Malaysia Airlines. It doesn't matter if it is privately owned or

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owned by the government. I told a friend of mine not to fly.

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Avoid the airline. I wouldn't fly. Even if the government decides to

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change the airline, bring change within the airline. I would wait

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three or four years. I don't know. It depends if they

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have the best price or not. What has been the fate of others who have

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been down this route? History is peppered with those who did not pull

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through. Pan Am in the 1990s, Sabena, Swiss Air after 9/11 and

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Indonesia 's Airlines. Malaysia might also look at the experience of

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Japan Airlines, which filed for bankruptcy and delisted in 2010.

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$3.3 billion of public money kept it operating while it restructured.

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And, 2.5 years later, it relisted. Earlier, I spoke with an aviation

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lawyer, Paul nanograms. It requires the approval of minority

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shareholders up to 50%. Restructuring is absolutely

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necessary. To distinguish them from their list of other legacy carriers,

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they have gone to delist because of insolvency, Malaysia Airlines isn't

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insolvent at the moment. They still have cash. But they are burning it

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at around $5 million per day, which isn't sustainable going into 2015.

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Are they anticipating or correcting any of those issues coming up? You

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described it earlier as a pre` bankruptcy move. Malaysia Airlines

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isn't unfamiliar with restructuring. They have tried it three times in 15

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years. They had one reasonably successful restructure with the move

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of assets from the airline, selling it to a leasing company set up by

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the government. There is the possibility of success, obviously.

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But their fortunes have been unprecedented in the aviation

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annuls, having lost a number of lives, equivalent to the last five

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years. What does it need to do in terms of restructuring? Some

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elements have been highlighted earlier this year. But what needs to

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be done specifically? It needs to be more competitive. There is a big gap

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between them and their competitors. Comparing with other legacy carriers

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like Singapore Airlines. On the short haul routes comparing with

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domestic carriers including Air Asia. How do you do that?

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Controlling cost, managing labour, finding cheaper financing. There are

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many things they can do and will probably have to do. A US energy

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giant is combining all it is publicly traded units into a company

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that is worth $70 billion. It follows concerns that the company

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was unable to grow under its current structure. Australia's wine estates

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have received a second takeover offer worth more than $3 billion

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from an unnamed private equity firm. The offer comes after KKR, another

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equity company, raised the bid for the winemaker that owns brands like

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Penfold 's and Lindemanss. I spoke to a market strategist at IAG

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markets. Since wine estates was established, it was part of Foster's

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Group. It has been under a huge amount of scrutiny from private

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equity for a while because of the diversification of assets. It has a

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huge amount of assets in Australia and New Zealand and there are three

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major assets in the US, all of them are very lucrative from the point of

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view that US equity firms on the list look at using it as a way to

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diversify in the US. If you can provide wine and beer, spirits

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particular into someone like TPG, the second takeover player, to move

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into their casinos and other private equity firms. The second part of the

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question is also interesting. The wine industry in Australia is very

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strong despite global downward pressure. Domestically, it generates

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most earnings in Australia and New Zealand, which is why you see good

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upside and reasonable premiums might have been a number of challenges,

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including China's austerity drive and competitors with other

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winemakers. There are challenges ahead in this industry, surely?

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There is an austerity drive. There is and that is why China is key. The

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Australian wine industry is pushing into the Asia region. They get most

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of their income from Asia out of Japan, South Korea and south`east

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Asia. That is where they see their dry. `` drive. The other thing is

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offering the Australian wine industry as a premium. Their

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products are seen like that. Most providers are independent and

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privately owned, rather than Treasury Wine Estates which is

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obviously publicly listed. The brands are higher in terms of

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value. That is why they tend to do OK, because the margins are slightly

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higher. It is a downward treasure market and spending in liquor is

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changing. That is why we see downward pressure. Now, last week

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brought news which has people wondering, could China take

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advantage of changes announced by its neighbour, Moscow? They have

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slapped import bans on items from the EU and the US and others in the

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sanctions battle over the crisis in Ukraine. Could China plug the

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trillion`dollar gap in trade? I posed the question to an economist,

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Tony Nash. China is Russia's largest import

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partner. Given that relationship, China will likely benefit. If you

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look at the goods that Russia sanctioned in the EU and US, it is

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only about $2 billion worth of goods on the food side. Even if China

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absorbed all of that, it isn't a massive amount that will impact

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China's exports. It is the first major reform of the

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Narendra Modi government in India, revamping the labour laws. Something

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foreign companies and domestic companies have demanded. It is a

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plan to revive the economy, boost manufacturing and create jobs. Not

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everyone thinks it is a great idea. Our correspondent reports from the

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state of Haryana. Manufacturing here only makes up

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about 15% of the economy. India wants this to reach 25% within a

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decade. And forcing companies to grow their skilled workforce by

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training apprentices is just one change in labour laws aimed at

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kickstarting the sector. India wants to encourage factories like this one

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to increase their contribution of manufacturing to the economy. While

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businesses like banks and IT companies can lay off employees

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pretty easily, manufacturers face different laws. Labour laws make it

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tough for them to hire or fire employees or even close down a

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factory when they want to. This car parts maker says at the moment it

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cannot adjust the size of its workforce to match the ebbs and

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flows in the business. And so it is welcoming another change in the law

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to make it easier to hire fewer permanent staff and more

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subcontractors, making it more competitive.

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As a businessman, I am looking for flexibility. If businesses are

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fluctuating at 5`10%, it is hard. `` it is easy to handle. But there are

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some segments where you can have a fluctuation of up to 15%.

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Might the prospect of having more casual workers who don't have the

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same legal protection, wages or job conditions cause problems? This is

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the aftermath of violent clashes between workers and management at

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this Suzuki factory in Haryana. Months of strikes cost it more than

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$500 million. Workers' rights were at the heart of the dispute. The

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types of stand`offs some expect to increase as the number of temporary

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workers rises. Some question if factory floors really are the

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long`term answer to more employment in India anyway. In a world ever

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more driven by technology. But in an economic climate changing fast, most

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expect these changes to be the beginning of an overhaul of India's

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industrial landscape. That is the end of this edition of Asia Business

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