The EconomistJune 9th 2018 Business 592 Zhangwei currently receives a couple of
drops each day, each box containing sever-
al packages ordered through JD’s shopping
app. Thanks to JD’s drones, which operate
autonomously with no human guidance
but are monitored remotely, villagers in
Zhangwei can expect delivery on the same
day that they place an order, like urban
shoppers in Beijing, New York or London.
The practicalities of drone delivery
only make sense in rural settings. Flying in
chaotic urban environments is too difficult
for existing drone technology. Densely
populated cities generate sufficient orders
over a small area that they can be aggregat-
ed into daily, or even more frequent, deliv-
eries by van. Batching sparser rural orders
in the same way would result in multi-day
or week-long delivery times.
Some 600m Chinese live rurally and
their shopping habits are encouraging the
e-commerce boom, according to official fig-
ures. Online retail in rural areas grew by
39% in 2017, up to 1.24trn yuan ($183bn). JD
sees upside in providing fast, reliable deliv-
ery to the countryside, helping it to take a
larger slice of this business.
It is still waiting to earn back its invest-
ment in drone-delivery infrastructure, al-
though it says that making a delivery by
drone costs a fifth of the price than by man-
and-van, once the driver’s labour is taken
into account. Liu Qiangdong, JD’s chief ex-
ecutive, says drone delivery will cut costs
by 70% once it is scaled up across the coun-
try. Villagers tend to buy washing powder,
accessories for their phones, maternity
goods and fresh food. The firm has made
20,000 such deliveries to date.
Suqian, which is near Zhangwei, was
chosen asJD’s first drone delivery hub be-
cause of the region’s flat terrain, which
makes drone flight easier. The city is also
the home town of Mr Liu, JD’s chief execu-
tive, who started the programme there in
an effort to speed its development. The
firm runs two drone-dispatch centres.
They cover 15 villages between them.
There are more drone bases in Shaanxi
province, covering a total of100 villages.
Once the drone’s cargo hits the ground,
its contents pass over to the “drone post-
man” for delivery. This is either a local JD
promoter, whose primary job is teaching
villagers how to use JD’s shopping app, or
a worker hired on China’s leading crowd-
working platform, Dada. In Zhangwei JD’s
local promoter, Zhang Xiaoyan, takes pos-
session and rings the owners of the pack-
ages to see if they are at home. Only one is,
so he leaves the other two at the local shop
and sets off on foot to the Jiang household.
The son, who placed the order, is not at
home, so his mother accepts it for him. It is
a phone case, ordered the previous day.
Mrs Jiang says she likes the drone-deliveryprogramme because it can get products to
her door so quickly, but she would not
want there to be many more of them flood-
ing the skies.
JDmay have added drones to daily Chi-
nese village life, but whether they will
make financial sense for the company over
time remains to be seen. Current models of
drone are pricey, althoughJDsays the cost
will gradually come down as it scales up
the network and builds more drones (it
plans to sell those it makes to other firms,
as well as use them for its operations). The
government approves of its operations in
rural areas, and is planning to build a new
train station in Suqian next to JD’s drone
base. IfJDcan use drone delivery to cut its
costs and attract rural shoppers, that will
help the firm compete with its arch-rival in
e-commerce, Alibaba, which has not, as
yet, seen the value of drone delivery. JD
hopes that will prove to be a mistake. 7Delivering the goodsAir IndiaGrounded
A
FTER a plane crash, air-safety in-
vestigators are dispatched to the
wreckage site to find out what went
wrong and ensure it never happens
again. Their financial counterparts have a
similar job to do with the Indian govern-
ment’s proposed sale of Air India.
Mooted for nearly a year, the first round
of preliminary bids ended on May 31st
having attracted not a single offer.
Bureaucrats running the divestment
process had expected many suitors.
Domestic aviation is booming. Air India
has a modern fleet, an enviable brand
and valuable landing rights in many
foreign airports. No fewer than 160 que-
ries had come in from interested parties,
said to include local and foreign airlines
as well as Tata, a conglomerate. Might a
bidding war ensue, some wondered?
Not quite. Bidders were seemingly
never as keen as government leaks to the
media suggested. For one, Air India came
saddled with unwanted cargo in the form
of 334bn rupees ($5bn) of debt. And a
potential buyer would also be expected
to fund the airline’s ongoing losses, of
around 50bn rupees a year.
The financial performance hints at an
airline that has seen better days. From a
position of monopoly until 1994, Air
India now has just 12% of the domestic
market and falling. Lower-cost rivals offer
vastly better service. Truculent unions—
which cheered the failed sale—mean
even the most hard-nosed buyer would
have a hard time carrying out the restruc-
turing the authorities admit is necessary.Officials blamed a lack of private-
sector animal spirits for the bidding
no-show. Yet even the most bullish
bosses had reason to stay clear. Suspi-
cions ran high that the government
would keep meddling after the sale to
stop job losses ahead of next spring’s
general election. Its plan to keep a 24%
stake in Air India, and presumably board
seats, spooked people further. An edict
preventing any suitor from integrating
Air India into its existing operations was
greeted with bemusement.
Narendra Modi, India’s prime min-
ister, proclaimed while campaigning for
the job in 2014 that “government has no
business to be in business.” Four years
on, only one of over 200 state-owned
enterprises has been sold—to another
state-owned enterprise. Even those
nationalised firms with outside minority
shareholders are treated as government
departments. ONGC, an oil group, for
example, may be lined up to sell fuel
below cost, in effect paying for a state
subsidy out of its own pocket.
The failed Air India sale means the
Indian government will probably have to
rekindle a recurring bail-out that has cost
it over 260bn rupees over the past seven
years. Talk now is of government car-
rying out a restructuring and putting the
airline back up for sale in a year or two.
That assumes the cast of bureaucrats that
have run the carrier poorly develop a
sudden knack for management. Just
about anybody would likely do a better
job—if only someone would place a bid.MUMBAI
Plans to privatise India’s flag-carrier have run into predictable turbulence