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<ul><li><keyword id="2573" type="CITY" weightage="20" keywordseo="Air-India">Air India</keyword> will make new changes like renovated ‘<keyword id="6388899" type="ORGANIZATION" weightage="20" keywordseo="maharaja">Maharaja</keyword>’ business class seats, new cuisines and uniforms for the crew which have a subtle western touch. </li><li>The objective of the new changes is to become more customer-focused and increase the carrier’s market share. </li><li>The <keyword id="44532" type="PERSON" weightage="20" keywordseo="Disinvestment">disinvestment</keyword> of the airline has been temporarily put on hold by the <keyword id="26362" type="ORGANIZATION" weightage="20" keywordseo="Government">government</keyword>. </li></ul>Air India, which has recently been in news for running in losses, is all set to undergo a makeover of its international flights, with the renovated ‘Maharaja’ business class seats, new cuisines and uniforms for the crew which have a subtle western touch. These changes are to be unveiled this Friday, on the 22 June, by Civil <keyword id="31907" type="COMPANY" weightage="20" keywordseo="Aviation">Aviation</keyword> Minister, Suresh Prabhu and his deputy, Jayant Sinha. The first class and business class seats of the Boeing 777 and 787 aircraft fleet, which operate short and long haul international routes, are expected to be replaced with the Maharaja business class seats. They will be upgraded with better ambience, upholstery, in-style night kits, in addition to other new features. One of the officials told <a href="http://www.ptinews.com/news/9816737_Air-India-set-to-have--Maharaja--class-seats-on-international-flights.html">PTI </a>that the objective of this much needed change is to make the carrier more customer-focussed with enviable services. Another official mentioned that it is just a part of the larger attempt to attract more consumers for the international flights. Understandably, efforts are being made to increase the revenue and the market share of the firm. AI’s current market share is only 17% and it has recently been hit by major losses. The airline has been <a href="https://timesofindia.indiatimes.com/business/india-business/ensure-salary-delays-dont-happen-in-future-air-india-pilots/articleshow/64545982.cms">unable to pay</a> the salary of its crew on time, for months now. AI required the assistance of banks and financial institutions for short-term loans of ₹10 billion, besides soliciting the government for another ₹20 billion. The government was trying sell off 76% of AI’s stakes, however, the bid was closed simply because it had no buyers. One of the major reasons for the same was that the buyers were expected to buy liabilities and pay off loans for the firm once the purchase was done. However, Prabhu has announced that the government is not completely doing away with the idea of AI’s strategic disinvestment. However, the temporary halt put on AI’s disinvestment has given AI employees a reason to celebrate. Prabhu further acknowledged that Air India has a very important role to play in the country’s aviation sector and <a href="https://www.flightglobal.com/news/articles/new-delhi-puts-air-india-privatisation-on-ice-449617/">promised </a>that the government would continue to support AI through this financial crisis.

Air India all prepared to treat its passengers like ‘Maharajas’

<ul><li>The 4,000 paintings in the <keyword id="2573" type="COMPANY" weightage="20" keywordseo="Air-India">Air India</keyword> office, <keyword id="6358070" type="LOCATION" weightage="20" keywordseo="mumbai">Mumbai</keyword> are to be given away to the National Gallery of Modern Art, Delhi next week. </li><li>The artists of these paintings include the celebrated MF Husain, VS Gaitonde, Jatin Das and Anjolie Ela Menon. </li><li>This decision was taken after the prime minister approved the proposal of selling the AI Mumbai office in the process of disinvestment of the airlines. </li></ul> The Maharaja Collection of about <a href="https://indianexpress.com/article/business/aviation/air-india-artworks-paintings-at-mumbai-office-to-ngma-5244893/">4,000 paintings</a> in the Air <keyword id="3658" type="LOCATION" weightage="20" keywordseo="India">India</keyword> office in Mumbai is expected to be given away to the National Gallery of Modern Art (<keyword id="6430853" type="ORGANIZATION" weightage="20" keywordseo="ngma">NGMA</keyword>) in Delhi. The paintings should reach Delhi by the AI planes next week. This decision was taken after the prime minister approved the proposal of selling the AI building at Nariman Point, South Mumbai to the Shipping Ministry. This is being done after the government took a decision of <a href="https://timesofindia.indiatimes.com/business/india-business/ai-disinvestment-process-moving-expeditiously-says-govt/articleshow/62433840.cms">disinvesting </a>in the airlines that has been facing huge debts and losses for a while now. The Maharaja Collection includes paintings by several celebrated artists including MF Husain, VS Gaitonde, Jatin Das and Anjolie Ela Menon. Instances of <a href="https://www.thenational.ae/world/asia/air-india-s-massive-art-collection-comes-under-scrutiny-1.677348">negligence and mismanagement</a> of the expensive art pieces by AI were commonly heard and the paintings had been gathering dust at the office. The Centre had ordered NGMA to collect the artwork as a donation from AI since it is the only institution in India to have the authority to collect and display modern art. NGMA also plans to exhibit some of the pieces at its Jaipur House building. The government of Mumbai had begun taking inventory of the collection in 2014 and had found that some valuable pieces were not properly preserved. Last year, the Minister of State for Civil Aviation, Jayant Sinha, had announced that he hoped to ensure a safe custody for the artwork soon. For the same purpose, setting up of a museum at Nariman Point building was proposed with a budget of ₹ 50 million. However, the tender was never awarded since it was not certain whether the <keyword id="34984" type="ORGANIZATION" weightage="20" keywordseo="airline">airline</keyword> would continue to operate or not. There are no official estimates of the worth of the entire collection of the art at the AI Mumbai office. It has about 7,000 items including the 4,000 paintings, stone sculptures, wooden frames, decorative items and clocks. Some of the items even date back to the 9th century. The collection was built over more than 60 years after Independence and was driven by JRD Tata who wanted to put “a little bit of India” in the offices of the erstwhile Tata Airlines.

AI to “donate” its Maharaja Collection of 4,000 paintings

New Delhi, Feb 3 () Terming the Union Budget pragmatic, Niti Aayog CEO Amitabh Kant said the government is determined to take India on a high growth path.
He further said if the government will be able to achieve disinvestment target of 2020-21 then the Budget will be very successful.
"It is a pragmatic Budget. It is pushes for public private partnership (PPP) in many areas. Budget lays lot of emphasis on AI, quantum computing, roadmap for infrastructure sector. The Budget will put India on right track.
"...The government is determined to take India to accelerated high growth," he said at an event organised by industry body Ficci.
Kant, however, also added that the major challenge of the Budget will be reviving animal spirit and credit flow.
He said the finance minister laid emphasis on macro-economic stability.
"For an economy to grow at 8-9 per cent, animal spirit of the private sector is necessary. India's USD 3 trillion economy can't grow only on the back of investment by public sector," Kant stressed.
On disinvestment, Kant said the government is on tract as far as stake sale in BPCL, CONCOR and privatisation of Air India is concerned. BKS BKS BAL
BAL

Govt determined to take country on high growth path: Kant

Mumbai, Jan 21 () Air India on Tuesday constituted a nine-member committee to look into staff-related issues in the wake of proposed disinvestment of the carrier, according to a notification.
 The panel has been set up a day after discussions between Civil Aviation Minister Hardeep Singh Puri and representatives of various Air India unions.
 Puri had asked the airline to set up an internal mechanism committee comprising members from the management and its various trade unions to sort out privatisation-related issues of employees, a source had said on Monday.
 The committee would look into "HR (Human Resources) issues of the employees in the wake of the disinvestment of Air India Ltd," the notification said.
 Apart from three general managers of the airline, there are six representatives from various employee unions, as per the notification.
 The committee will regularly meet to crystallise issues within 10 days, it added.
 On January 7, a group of ministers headed by Union Home Minister Amit Shah approved the draft Expression of Interest (EoI) and Share Purchase Agreement (SPA) for disinvestment of Air India.
 In 2018-19, Air India's net loss was around Rs 8,556 crore. 
 The airline has a debt burden of more than Rs 80,000 crore. IAS RAM RVK

Disinvestment-bound AI sets up panel to look into employees' issues

Mumbai, Jan 27 () Global aviation consultancy firm CAPA on Monday termed the government's decision to sell 100 per cent stake in Air India a "bold reform" and said it expects "significant" response from the prospective bidders.
 "The Centre for Asia Pacific Aviation (CAPA) expects significant response (to Air India's stake sale) as the offer structured by the government is attractive," CAPA India chief Kapil Kaul told .
 He said the time given for due diligence and submitting bids is also reasonable.
 The government on Monday announced sale of 100 per cent stake in debt-laden Air India as it issued the preliminary bid document for the strategic disinvestment and has set March 17, as the deadline for submitting expression of interest.
 As part of the strategic disinvestment, Air India would also sell 100 per cent stake in low-cost airline Air India Express and 50 per cent shareholding in joint venture AISATS, according to a bid document issued on Monday.
 The airline's management control would also be transferred to the successful bidder.
 This is the second time in less than two years that the government has come out with proposal for selling stake in Air India, which has been in the red for long.
 The government has set March 17 as the deadline for submitting the expression of interest.
 AISATS is an equal joint venture between Air India and Singapore Airlines. It offers ground-handling services.
 "Clean exit by the government and entire non-aircraft-related debts taken out of AI (Air India) balance sheet, particularly as entire debt excluding aircraft is taken out and this signals a determined effort to exit Air India to allow taxpayers funds be utilised for social agenda of the government," he said.
 Noting that this may be the single-biggest write-off by the government but for the right reasons, Kaul said, "CAPA see this as a very bold reform." IAS HRS

Govt's decision to sell 100 pc stake in Air India a 'bold reform': CAPA

Mumbai, Dec 17 () The government is looking to shift more debt from the balance sheet of disinvestment-bound Air India to asset holding company AIAHL to further sweeten the deal for prospective buyers, according to a senior airline official.
 The government plans to sell 100 per cent stake in the loss-making carrier.
 In efforts to make the disinvestment more attractive, the carrier has already transferred Rs 29,474 crore of debt to Air India Assets Holding Ltd (AIAHL), a Special Purpose Vehicle (SPV).
 "We are evaluating if we can take out some more debt from the balance sheet and park it in the SPV. Earlier, our plan was to give debt in proportion to assets. As part of that, we have already transferred almost half of the total debt to AIAHL," the official in the know of the development told .
 The official also said the government is trying to work out some formula to further make the deal more sweeter.
 On Monday, Civil Aviation Secretary Pradeep Singh Kharola said the government is working on the debt issue of Air India to make it more attractive to buyers.
 "However, investors thought that the amount of debt retained by the carrier was not going to sustain so we are working on that also. We will see to it that the debt being parked with Air India is such that any bidder will be able to make it sustainable and if he feels that he can invest and improve profitably," Kharola had said.
 On Tuesday, the official said it is yet to be decided whether the additional debt will be taken out of the aircraft loan or working capital. "It is more or less decided that they will remove some more," the official added.
 Air India has a debt of over Rs 58,000 crore.
 The airline's net loss in 2018-19 is provisionally estimated to be Rs 8,556.35 crore.
 An industry expert opined that the airline cannot be given for free and that any prospective buyer will have to shoulder a part of the total debt.
 "Air India owns over 60 planes of the total 127 in the fleet, which are good assets. You can't give an airline without any debt with such assets," he said.
 On December 12, Minister of State for Civil Aviation Hardeep Singh Puri said that after formation of the new government, Air India Specific Alternative Mechanism (AISAM) has been reconstituted and the re-initiation of the strategic disinvestment of Air India has been approved.
 "AISAM has approved the 100 per cent sale of Government of India stake in Air India for the re-initiated strategic disinvestment of Air India," he had told the Lok Sabha. IAS RAM MKJ

Govt looking to shift more debt out of AI balance sheet before disinvestment

Mumbai, May 7 () The disinvestment process for national carrier Air India looks "very uncertain" in the wake of the coronavirus pandemic that has impacted the aviation sector the most globally, according to rating agency Crisil. In another attempt to sell loss-making Air India, the government, in January this year, sought Expression of Interest (EoI) and the deadline for submission of EoI has now been extended till June 30. Initially, the deadline was March 17 and was first extended till April 30. "With the current kind of environment, for people to bid for a known airline like Air India and the kind of commitment that they would have to make, it looks very uncertain that their process can go through in the current scheme of things," Jagannarayan Padmanabhan, Director and Practice Leader (Transport and Logistics) at Crisil Infrastructure Advisory said on Thursday. However, Crisil expects mergers and acquisitions of airlines in the face of the losses that the domestic carriers are estimated to suffer in the current situation. "The EoI might have been issued but in the current situation, airlines are unlikely to take up any new assets on its books." he said. "The Air India part of privatisation will have to wait for its turn. What is the timeline, I don't know as of now. But the current environment may not be the best time to go through (the sale process)," Padmanabhan said. In 2018, the government's efforts to divest Air India failed to take off. At that time, 76 per cent stake in the airline was to be sold. Under the current disinvestment plan, the government has proposed to sell 100 per cent stake in the airline along with entire shareholding in AI Express and 50 per cent in ground handling joint venture -- Air India-SATS. Of the airline's total debt of Rs 60,074 crore as of March 31, 2019, the buyer would be required to absorb Rs 23,286.5 crore, while the rest would be transferred to Air India Assets Holding Ltd (AIAHL), a special purpose vehicle. Padmanabhan said all airlines irrespective of their size or business model or nature of operations have been impacted due to the coronavirus outbreak and all are looking at how to survive in the current situation. According to him, the domestic aviation industry is expected to incur combined loss to the tune of up to Rs 25,000 crore, with the airline sector accounting for an estimated loss of Rs 17,000 crore. IAS ANUANU

Air India divestment process looks very uncertain amid COVID-19 crisis, says Crisil

New Delhi, Feb 24 () The government has extended the time till March 6 for bidders to pose additional queries regarding sale of its 100 per cent stake in Air India. The government has issued the first set of clarification on Air India disinvestment answering queries of interested bidders on the 'confidentiality undertaking' listed out in the Preliminary Information Memorandum (PIM) issued on January 27. The last date for submission of written queries on PIM and Share Purchase Agreement (SPA) was originally set at February 11, following which the Department of Investment and Public Asset Management (DIPAM) on February 21 issued a set of 20 clarifications on the queries raised. The additional time period for submission of written queries on PIM and SPA is till March 6, 2020, the DIPAM said. The government in January restarted the divestment process of Air India and invited bids for selling 100 per cent of its equity in the state-owned airline, including Air India's 100 per cent shareholding in AI Express Limited and 50 per cent in Air India SATS Airport Services Private Ltd. The last date for putting bids is March 17 and interested bidders for Air India should have a net worth of Rs 3,500 crore. After its unsuccessful bid to sell Air India in 2018, the government this time has decided to offload its entire stake. In 2018, the government had offered to sell its 76 per cent stake in the airline. Of the total debt of Rs 60,074 crore as of March 31, 2019, the buyer would be required to absorb Rs 23,286.5 crore, while the rest would be transferred to Air India Assets Holding Ltd (AIAHL), the special purpose vehicle. As a precursor to Air India sale, the Cabinet in February 2019 approved setting up AIAHL to transfer Rs 29,464 crore worth loans of the national carrier and its four subsidiaries-- Air India Air Transport Services (AIATSL), Airline Allied Services (AASL), Air India Engineering Services Ltd (AIESL) and Hotel Corporation of India (HCI). Also non-core assets - painting and artefacts - as well as other non-operational assets of the national carrier too will be transferred to the SPV. JD MRMR

Govt extends time till March 6 for bidders to pose queries on Air India sale

<ul><li>India's former telecom regulator Pradip Baijal has explained how India has had trouble managing its spectrum roll out for next-gen communications technology over the last few decades.</li><li>The latest in this telecom - 5G - is also facing similar hurdles in India, with the government yet to finalise guidelines and announce auction of airwaves.</li><li>He also explained how different use-cases of 5G are relevant and important to India - from the point of view of consumers as well as the industry.</li></ul>India always had problems in dealing with spectrum. We wasted valuable wireless spectrum for fixed line services in 1995, unlike any other country, after the erroneous decision that expensive mobile phones were not for the poor Indians. The decision was reversed in 2004, but led to a lot of inspired criticism by mobile incumbents. Earlier, the government approved a Convergence Bill in 2001, for more efficient use of spectrum, but was not approved. The government/regulator, therefore, approved a Unified Access License in 2004, reduction in interconnect charges and tariff forbearance. But, it took inefficiently long to bring in these changes (it had to be done in stages, by many regulatory efforts). Unified License reduced tariffs 50 times, but increased government revenues. Mobile numbers growth immediately increased 10 times, and gradually 200 times, three times ever the leader, China. 3G spectrum auctions were efficient later, though delayed, and showed the huge loss in 2G allocation and crony capitalism involved, the basis of the CAG report. The allocations led to litigation and differing and controversial judgments by the Supreme Court/CBI Court, the issue still remaining open, but this was one of the issues on which the UPA lost heavily to NDA, in the ultimate court of elections in 2014. 4G auctions were conducted efficiently, even though they were delayed, and now we have come to 5G auction issues, with an ET news item commenting, "India is set to miss the '5G bus' following the lack of preparedness, unavailability of sufficient spectrum, absence of encouraging use cases, and uncertainty around radio waves sale for the next generation of telecom services." This is despite India appointing A.J. Paulraj (winner of the Marconi Prize) Committee to give the recommendations to the steps required. They gave the report in mid-2018, and despite giving the schedule, we have not moved fast. In the past, Prime Minister Modi-led government maintained that it "won't afford to miss 5G bus" like in the case of 2G, 3G, and 4G technologies that were deployed in India way later than many countries, thus losing the many early user advantages. 5G and India Before we discuss, let us understand the nature of use of 5G. For a layman, 5G is just next generation wireless infrastructure which will provide them voice and data services. However, it will impact much more due to its bit-level intelligence characteristics. 5G will provide an array of network intelligence which will get translated into precise and demand-led resource allocation. 1G came in 1980s and provided basic voice services, 2G in 1990s and enabled voice and SMS services due to its digital standards, 3G came in 2000s and introduced data services along with voice and SMS that enabled multimedia services. 4G pure IP network, came in 2010s, and enabled the application services and partially merged the telecom and information technology which gave boom to platform services. The architecture of 5G is designed to handle the connection of billions of devices including industrial machines with seamlessness and reliable data transfer with much faster speed. 5G is not only about high speed boost but it is about the intelligence at the bit level and low latency which will make it the foundational tech for multiple new tech., including self-driven cars, AR &amp; VR, telemedicine, robotic surgery, powering future smart cities, IoT, m2m, AI and manufacturing. 5G will change the future war fighting too due to increased situational awareness to increase the command and control of the battlefield. Once these networks come, 2G and 3G networks can be abolished, like in other countries for better overall spectrum utilization. We have not started. Industrial revolutions and change It has been shown that industrial revolutions change the world. Hirschman had said that these revolutions occur every 70 years. This was proved in IR 1.0, 2.0 and 3.0. The US and the West's GDP went up five to six times in IR 1.0 &amp; 2.0, while India and China went down 10 times (colonial loot was also the reason). Growth reversal with IR 3.0 But IR 3.0 changed the world with the technology being on a connected net and with globalization, available to the Third World (right from the beginning). Of course, the US helped China a lot post 1980, in technology dispersal, and helping China with accelerated WTO membership in 2001. This led to China growing eight times and India 2.5 times in a few years. IR 4.0 and 5.0 The world is now moving to the fourth and the fifth industrial revolutions in quick succession. Providentially, these revolutions are also happening on the same wire or wireless lines as in IR 3.0, and we have bright Indian minds working in the digital sector like Nadella, Pichai, Arvind Kuar, Banga, Tata, Kohli, Nilekani, Narayana Murthy, Patni, Soota, Premji, and millions of others located in Silicon Valleys around the world. The most exciting additions to the list are Mukesh Ambani, Sunil Mittal and Kumar Mangalam Birla. They have kept the mobile sector alive despite crony capitalism, and given the appropriate ambience, should do very well now. Through them, and despite Covid, the world has shown confidence in the Indian economy. China should do well because of enormous investment, past technology thefts, uninhibited US support till 2015, and R&amp;D. The fifth IR will happen with IT getting connected to human minds (AI and beyond). IR 5.0 having reached the human mind, perhaps cannot move beyond, and the 6th IR has to be in another area, maybe the planets, as visualized by Jeff Bezos. Again, India is well-placed. Creating an appropriate environment is the key. Role of private sector It may also be recalled that the 2G rollout had created strong private sector companies and from 10 per cent private network, it had gone to 80 per cent (though the public sector had grown too). Later, despite crony capitalism, they had survived, and are today, India's main hope to take us forward. With 5G networks being more powerful, they will surely impact GDP growth much more than the earlier generation networks and move the country towards Namo's $5 trillion economy in 2024. Fiscal pressure on the government - we can ill-afford to ignore: We are today also hit by Covid, huge bank NPAs, financial crisis, fiscal deficits and fall in investments. 5G rollout is an opportunity for huge network (and downstream) investments by existing private sector companies and their networks all over the country, without putting any fiscal deficit pressure on the government. I had, therefore, anticipated in my China book and articles, that the present is 'providence' for India, like it was 'providence' for China in the 80s with an imaginary 'cold war'. Pricing issues A word about pricing here - our entire 2G revolution came after tariff forbearance, and liberal availability, connectivity and regulatory reforms. Obviously, once 5G revolutions get moving, the disruptions would be higher. Indian economy/GDP did well during IR 3.0, its DNA being more IT-centric, demonstrated by high growth in these sectors during some periods of IR 3.0, when regulations were right (2004 to 2010), particularly vis-a-vis China, and also the Indian minds being more IT-centric, demonstrated by the success of IT (software) and mobile revolutions. World digital economy In 2019, the world celebrated the first full year when more than half of the world (51.2 per cent, or 3.9 billion people) had begun to participate in the global digital economy by logging onto the internet, from almost zero a couple of years back. The world is turning fully digital, and networks converging very fast. China has touched 840 million subscriber base and will be 1 billion at the end of 2020, with superior speed, whereas India has only touched 600 million broadband subscribers. The world will thus transform itself to a form that during IR 4.0 and 5.0 the versatile 4 and 5G networks will be more valuable than all other infrastructure, like roads, rail and air transportation systems etc. Looking at the future, China has created companies which are leading in 5G, AI, quantum computing and other digital products and shaping up the digital behaviour of the people because they are deploying networks faster and learning by doing it. China is also leading in the standardization and patents of the digital ecosystem, manufacture of equipment etc. In contrast, the Indian 5G process is yet to commence (allocation of spectrum and installation of 5G equipment), though we have done extremely well despite late start in the past. India can grow in IR 4.0 given its human capital pool, the start in the use of algorithm prowess and an established IT hub, only if we install 4G and 5G systems adequately. But expensive and presently unviable (for India, since IR 4.0 and 5.0 industries and services have not started) 5G systems are likely to come in slow. Also, the spectrum and equipment prices are anticipated to be high. Unless both spectrum and equipment prices are low and heavily backloaded, I do not see India coming out of the jigsaw puzzle, and not falling back severely in the digital war. And if we miss India's turnaround moment, India's vast market and trained manpower will be used by advanced countries to develop 5G / IR4.0 and 5.0 networks fast. The Paulraj Committee recommended that 5G will mature between 2019 and 2024. India should take lead and become an innovator in 5G applications. (Pradip Baijal is former Secretary, Disinvestment and former Chairman, TRAI. This article is in continuation of his book, Containing the China Onslaught, published by Quadrant, and available on amazon.in and walmart, and further to a review of China's growth in Defensive Offence) <div type="Youtube" id="gFmRP3whXmU" title="Pradip Baijal Explains History of China's Economic Rise." thumbUrl="https://i.ytimg.com/vi/gFmRP3whXmU/mqdefault.jpg"></div>

India's former telecom regulator shows how much India is lagging behind in the 5G pursuit

Except the mediocre onesGas Company Tower was once a gleaming model of downtown America's ascendancy. Located squarely in Los Angeles' central business district, the 52-story skyscraper has a strong pedigree. It's home to a collection of major corporate tenants, including the Southern California Gas Company, the white-shoe law firm Sidley Austin, and Deloitte, one of the Big Four accounting firms. Its owner, Brookfield, is an $800 billion investment firm <a href="https://www.businessinsider.com/industrial-outdoor-storage-ios-hottest-commercial-real-estate-sector-2023-2">known for its blue-chip portfolio</a> of real-estate assets. The tower's lobby even had a Hollywood cameo when it was featured <a href="https://www.imdb.com/title/tt0111257/locations?ref_=tt_dt_loc" target="_blank" rel="noopener">in the opening shot of the 1994 film</a> "Speed."More recently, though, the glassy office property has become an example of the alarming financial turmoil that is engulfing once-bedrock real-estate assets. Brookfield disclosed <a href="https://www.sec.gov/ix?doc=/Archives/edgar/data/1575311/000110465923018637/tm236337d1_8k.htm" target="_blank" rel="noopener">in a February filing</a> that a <a href="https://www.dtlaofficefund.com/" target="_blank" rel="noopener">subsidiary it controls</a> had defaulted on $753.9 million worth of debt tied to the tower and another nearby office building — one of the largest since the great financial crisis. But as Brookfield grapples with its lenders, it's also facing a potential exodus of the building's most visible occupants.The Southern California Gas Company, the Gas Company Tower's namesake tenant, is in the market to relocate its 360,000 square feet at the property. Sidley Austin, which has about 136,000 square feet in the 1991-vintage building, is also prowling the market for new space, according to two people with knowledge of both tenants' real-estate decision-making. Spokespeople for Sidley and Brookfield declined to comment. A spokesperson for the Southern California Gas Company did not reply to a request for comment.Brookfield has slim chances of holding on to the occupants, market experts say, without promising the perfunctory upgrades that landlords often rely on to entice tenants, such as improvements to the building's lobby, amenity spaces, and outdoor areas. With its future control of the tower in jeopardy, the investment giant is hardly in a position to lavish the millions of dollars necessary to undertake such renovations. The situation at the Gas Company Tower is the latest example of the doom loop taking hold in America's office market, where snowballing disinvestment and financial distress have ensnared a growing number of buildings.<div type="image" title="Gas Company Twoer" height="1987" width="2649" msid="99115863" hostid="261" sizebytes="552532"></div>The brewing problems can be traced to a fundamental shift in office demand. Remote and hybrid work has transformed office attendance and allowed companies to cut back on their physical footprints. It has also made tenants more choosy about the spaces they do take, favoring offices with the "wow factor" to draw employees back in. It's not only staid properties that risk being left behind — even offices that do boast amenities can fall short of tenants' rising expectations."For years, office owners have been in an amenities war, spending millions of dollars on upgrades," Michael Soto, the head of US office research at Savills in Los Angeles, said. "The competition has reached the point where an owner can complete these upgrades and it might not even be enough to push leasing activity."Rising interest rates, higher operating costs, and reticent lenders, meanwhile, present another financial hurdle for landlords who are contemplating spending tens of millions of dollars on upgrades. Those owners may have to spend huge sums to pay down expiring mortgages that have become outsized in the current lending market as commercial properties fall in value. A huge swath of America's office market is vulnerable to these twin threats of being under-equipped with amenities and underwater financially. Seventy percent of the country's 5.56 billion square feet of total office space was built before 1990, according to a recent report issued by the real-estate giant Cushman &amp; Wakefield, and is more likely in need of substantial upgrades to remain competitive. Almost $400 billion of office debt, meanwhile, is set to come due in the next 5 years, saddling owners simultaneously with refinancing costs that are likely to tally in the tens of billions of dollars.<h2>'Tenants are taking less space'</h2>Landlords insist that the pessimism in the sector is overblown and that diminished office attendance will be a pandemic-era fad. A <a href="https://www.businessinsider.com/companies-making-workers-employees-return-to-office-rto-wfh-hybrid-2023-1">growing number of companies</a> are forcing <a href="https://www.businessinsider.com/companies-making-workers-employees-return-to-office-rto-wfh-hybrid-2023-1">workers back</a>. But there is also growing evidence that remote work could become a permanent offshoot of the pandemic. Placer.ai, a real-estate-data firm that tracks office attendance, <a href="https://www.placer.ai/blog/placer-ai-office-index-february-2023-recap" target="_blank" rel="noopener">said in a recent report</a> that there are currently about 40% fewer workers in the office on an average workday than before the pandemic. That rate has held steady since mid-2022, signaling "the entrenchment of a new hybrid normal," the report stated."We had been seeing a steady recovery of occupancy, but now it's flattening," Ethan Chernofsky, a senior vice president of marketing at Placer.ai, said. "What it tells me is the current situation is far closer to the new normal than I had expected it would be."This behavioral shift has deeply cut into demand for office space. Cushman predicted that 1.1 billion square feet, or nearly a fifth of the entire US office market, would be empty by the end of the decade — a 55% increase in vacant space compared to the end of 2019, just before the pandemic began. Space reductions created by remote and hybrid work would account for about 330 million square feet of that vacancy, the report said. There's also been a major uptick in companies subleasing parts of their offices as their needs for space shrink, the real estate services firm Colliers said. Sublease space is often offered at a discount compared to spaces being marketed directly by landlords, putting more downward pressure on the leasing market — and by extension, building values. The amount of sublease space nationally more than doubled from 118.5 million square feet at the end of 2019 to 242.8 million square feet at the end of 2022, Colliers stated."There's no doubt that tenants are taking less space now," Aaron Jodka, a research director at Colliers, said. "Anecdotally, we're seeing many users take about 20% less space during lease renewals."The tenants that do remain in the market for offices have become more particular about the spaces they take, according to real-estate experts, and for good reason. Companies have found that <a href="https://www.axios.com/2023/03/06/when-it-comes-to-office-buildings-its-survival-of-the-fanciest" target="_blank" rel="noopener">employees are more willing to trek</a> into the office if a space and the building it's in are <a href="https://www.businessinsider.com/employees-back-to-office-work-from-home-build-better-offices-2022-6">compelling enough to make the commute worth it</a>."We're seeing tenants move out of commodity spaces and into the very best offices they can afford," David Smith, Cushman &amp; Wakefield's head of global occupier insights, said. "It's left older spaces that haven't seen reinvestment less likely to find takers."The double whammy of businesses needing less space and wanting only the nicest offices means that competition for tenants is even fiercer. For older buildings trying to survive, a physical overhaul may be the only option to remain relevant. <h2>A different formula</h2>Transforming a building with older bones into a high-quality, modern office tower has never been easy, but it generally followed a well-worn blueprint: borrow money for the work, hire brand-name architects, install the latest amenities and shiny upgrades that businesses want, and then wait for those tenants to rush through the door.Rockefeller Group, a New York-based real-estate-development firm owned by the Japanese real-estate conglomerate Mitsubishi Estate Group, executed this playbook with the office tower it owns at 1271 Avenue of the Americas in midtown Manhattan. Rockefeller spent $600 million renovating the 2-million-square-foot property between 2016 to 2020, redoing the building's block-wide lobby and replacing its facade with a new glass exterior. All that investment paid off, as a collection of top-tier tenants filled virtually all of the tower's space: the corporate offices of Major League Baseball, the law firm Latham &amp; Watkins, the Japan-based bank Mizuho, and others.<div type="image" title="1271 Avenue of the Americas office tower" height="1785" width="2380" msid="99115867" hostid="261" sizebytes="995834"></div>But Bill Edwards, an executive vice president at Rockefeller who helps oversee its New York portfolio, said that it might have reconsidered the scale of such a thorough and costly makeover today. "We would probably have reconsidered that dollar amount given how leasing costs have increased tremendously," Edwards said, referring to the incentives landlords award tenants to take space, including periods of free rent, rent discounts, and contributions to the costs of setting up their offices. "The fact that tenant improvement and free rent periods are much more elevated would affect the math."At 1221 Avenue of the Americas, an almost identical-looking office tower a block away that the company also owns, Rockefeller has recently completed a more modest $50 million makeover of the building's expansive outdoor plaza along Sixth Avenue, where it has 65,000 square feet of retail space it hopes to lease to a mix of stores, fitness centers, and restaurants that will serve as a draw for tenants. It previously upgraded the plazas on the north and south sides of the tower and, in 2015, redid the lobby. About 20% of the building's leased space, totaling roughly 500,000 square feet, is set to expire beginning in 2025, meaning the tenants in those spaces could depart. For now, the company doesn't have any further work planned to lure takers."This is a time in the market where you want to be cautious about investments and make sure you're managing the downside risks," Edwards said.<h2>Spiral to the deep</h2>The financial gambit of lavishing money on upgrades has become even more challenging as cracks have formed in the financial foundations that underpin a growing number of office properties. About $80 billion of office mortgages on bank balance sheets are coming due in 2023, according to data from Trepp, and $400 billion will expire in the next 5 years, more than any other segment of the commercial real estate market.Commercial real-estate financing is generally structured differently than residential mortgages. The loans often don't amortize and include only interest payments, meaning that when they expire, usually after a period of 10 years, owners must replace them with mortgages of commensurate size. In a market where building values have fallen — the National Council of Real Estate Investment estimated that average office values reported by its members fell 7.4% in 2022 — and lenders have become more cautious, that swap has become increasingly difficult. Data from Trepp suggests that at least a quarter of the roughly $68.3 billion of securitized mortgages tied to office buildings and set to expire in the next two years is too large to be fully replaced, considering the rental income of the office buildings they're tied to. The disconnect leaves owners with huge sums to pay down. If a landlord has, for instance, an expiring $100 million mortgage, but can only find $70 million of debt to replace it because of the lower value of their building and the more cautious lending standards of banks, that owner must pay the $30 million difference or risk turning the property back to its lender. "If a property is underwater, investing in more cash can be seen as putting good money after bad," Soto said, explaining why even landlords like Brookfield, which faced a debt maturity at the Gas Company Tower in February, have chosen to default rather than pay up.This leaves owners, their buildings, and the wider office market in a precarious position. Robert Verrone, a principal at Iron Hound, a commercial real-estate-financing firm and advisor, said he now spends the majority of his time working on ailing debts. Lenders are often reluctant, he said, to seize office buildings because of the costs and expertise required to operate the properties. In some cases, a compromise can be struck in which an owner pays back a portion of their loan in exchange for forgiveness on some of the debt by the lender. Few lenders have been in a forgiving mood so far, but that could change, Verrone said."They're being tougher now than in 2010," Verrone said, referring to the workouts that became commonplace in the aftermath of the great financial crisis. "But you can get a deal done if you negotiate."Lenders with troubled loans may also resort to selling off those debts to investors who are intent on seizing properties through foreclosure. But the discounts will be steep. On a call Wednesday hosted by CBRE, Spencer Levy, a global client strategist and senior economic advisor at the company, said that it has increasingly been called on by lenders to help them value their commercial real estate loan portfolios and identify potential debts to sell. "We are currently valuing those deals in an enormously wide band," Levy said of office loans, in particular. "50 to 90 cents on the dollar." <a href="https://www.businessinsider.com/author/daniel-geiger">Daniel Geiger</a> is a senior real estate correspondent for Insider.

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