College Woes

College Woes

While Harvard receiving bailout funds made the news, be thankful, you are not a university protest. Higher education in the U.S. is about to experience the most significant disruption ever, and the effects will change the industry forever.

As Scott Galloway has said, “University brands are the premier luxury brands globally, built over centuries, with margins and the illusion of scarcity that renders Hermès vulgar.” Well, for many of the lower-end brands, their stores will close and possibly not reopen. Colleges are facing several threats that will result in the closing or merging of up to 20 – 25% of the countries colleges.


Financial Stress

COVID has arrived and threw a spanner in “the works,” bringing budgetary hits to schools. Many colleges were not financially secure before COVID came. Forbes analyzed all 933 private, not-for-profit colleges in the U.S. with enrollments higher than 500, grading them on balance sheet strength and operational soundness, plus specific other indicators. You can see the results here.

Of the 933 colleges analyzed, 675 or 72.3% received a grade of C or D. These colleges are called “tuition-dependent schools,” meaning they survive year-after-year, often losing money or eating into their dwindling endowments. Things are not likely to improve, and more college defaults are looming. According to a study by Nathan Grawe, the population of high school graduates will drop by 9% between 2025 and 2031. In most of New England and some Mid-Atlantic states, the decline will exceed 15%. Falling demand is only part of the issue, according to a study by Kevin P. Coyne and Robert Witt, “Public colleges have 6.4% excess capacity, growing at about half a percentage point a year. But the private colleges have 12.4% excess capacity, growing at about triple the rate of public colleges. The smaller half of private, not-for-profit colleges, those with enrollments below 1,125, have an overcapacity of 28% and growing rapidly.”

Ignoring the future trends, COVID is already creating havoc. The University of Michigan estimates it may lose up to $1 billion and the University of Kentucky, it’s $70 million by year-end. Hundreds of schools, including those with billion-dollar endowments, i.e., Duke University, Virginia Tech, and Brown, have announced hiring freezes. Other institutions have cut pay and have laid off staff and contractors. The Vermont State Colleges System may close three of its campuses and lay off hundreds as it faces a potential 20 percent drop in enrollment and millions of dollars in losses related to COVID.

Foreign Students

The COVID outbreak has shown universities’ over-reliance on a multi-billion dollar international student market that underpins the finances of many leading institutions. China accounts for about one in six international students, and the Chinese spend an estimated $30 billion a year on overseas tuition alone. If you add in living expenses, the figure is even more significant. With college campuses closed in the U.S., U.K., Europe, and Australia, many Chinese students may not return and will look to attending or finishing college at Chinese institutions.

Nearly a million international students attend U.S. colleges, adding about $45 billion to the U.S. economy in 2018. These students are paying up to three times more than in-state students at public universities. They are thus “effectively subsidizing tuition costs for domestic students and functioning as a bailout for universities,” according to SelfScore. In 2015, public universities earned more than $9 billion in tuition and fees from international students.

If these students stay away because of travel restrictions, colleges closed, and other COVID issues, there it is unlikely that U.S. students can plug this hole. As a result, more financial strain on many schools and expected closings or mergers.

Auxiliary Operations

Schools, on average, earn roughly 10% of their income from auxiliary operations, including food and lodging. While students were forced to leave campuses, schools still owed them the right to use dorm rooms and be provided food under any purchased food plans. Harvard College, Princeton University and the Massachusetts Institute of Technology are among a handful of schools that plan to prorate room and board costs as the coronavirus has forced them to send students home. Other schools will offer refunds, and they will probably approach 2% of annual school revenues.

Declining Enrollments

Recruiting next year’s freshman class is posing a host of issues. First, admitted students cannot tour campuses. Thus students planning on attending will have to make the acceptance decisions based on online tours and presentations if they have not visited the school before. Second, no one knows if schools will be open in the fall and if they are, will they stay that way if a second wave hits. As a result, some commentators are suggesting that students should consider a Gap Year and wait for things to settle before starting college. Finally, for those who are determined to start school in the fall, if school classes are going to be virtual, are they willing to pay thousands more for a private school over a state school which is cheaper and may allow them to live at home? As a result, most people are predicting declining enrollments in the fall —the only issue is how much, possibly double-digit in some cases. As mentioned above, over 70% of schools are tuition-dependent; thus, a double-digit fall in revenue could drive many into bankruptcy.


The cancellation of NCAA men’s basketball means that the $600 million the NCAA was going to distribute to Division 1 members school, was reduced to $225 million. Such a significant decrease in income has left athletic departments everywhere scrambling. The fallout has some schools like Old Dominion University canceling its wrestling program, a move it expects will save $1 million in expenses, and Iowa State is cutting departments and suspending coaches’ bonuses and incentives.

Now the looming dread is what happens if the shutdown affects the big moneymaker: football. Jamie Pollard of Iowa State said, “We’re probably in a phase right now that we’re in a long hard winter, but if we can’t play football this fall, I mean, it’s ice age time.” Pollard penned a letter to Iowa fans laying out what they are doing in response to COVID.

According to a Forbes report two years ago, college football’s 25 most valuable teams generated a combined $2.5 billion a year in revenue. A large portion of those earnings goes toward supporting non-revenue sports like softball and swimming, and, to cash-hungry opponents. Last year when Alabama State lost to Florida State, Alabama State got what it wanted, a reported $425,000. Since it was a “Guarantee game,” one where a significant power beats minor football power and pays them a considerable amount to do so. Guaranteed games are critical for the smaller schools as they support the university. Failure to have Guarantee games can detrimentally affect a university. A scenario being considered for this football season, depending on the status of the outbreak, is playing a shortened season with just conference games.

Even for the major schools, cancellation of the football season would be hugely detrimental. At stake is at least $4.1 billion in fiscal-year revenue for the athletics departments at just the 50-plus public schools in the Power Five conferences — an average of more than $78 million per school, according to a USA TODAY Sports analysis.

Take Clemson, for example. Clemson’s “control budget” assumes the virus outlook improves so much that football games are allowed to proceed as planned this fall. Under that scenario, there is a 10% drop each in donations, ticket sales, and marketing revenue. All told, it would be a $7.5 million hit. The school’s more drastic scenarios include a 20% reduction in those primary revenue sources, so a drop of around $15 million. The school will look at the more significant loss scenarios if football can’t happen.

The University of Minnesota this month released its projections for its athletic department, which is roughly the same size as Clemson’s. Minnesota’s estimates were a $10 million hit in the “best case,” $30 million in the “moderate” scenario, and $75 million in the “severe.”

Thus, colleges are going to try their damnedest to have a season of 12 games, regardless of when. While a canceled season would have some cost savings, the revenue losses would be immense. Income from tickets; postseason games; game-appearance guarantees; and various game-day sales would be lost. There would also be a significant impact on payments connected to the right to buy tickets or obtain preferred seating, TV, radio, and digital rights and the value of marketing and sponsorship deals.

Concerning college-sports advertising and school-level sponsorships, everyone is preparing something between two scenarios:

  • The good. An optimistic approach to what still may be able to come to fruition with football and other fall and winter sports. If football takes place, opportunities to sell advertising for companies looking to make up for the lost Q2 will exist.

  • The bad. A canceled football season cancellation would mean a full canceled year of sponsorship activities. Advertising dollars that move out of college sports and would be reallocated in other places and may not return.

Related is the financial effect of football games on schools’ local areas. Public schools use these figures to demonstrate their economic impact to taxpayers and legislators, and it adds up to billions more. On average, an Alabama home football game has a “visitor expenditure impact” of about $19.6 million in the Tuscaloosa area.

Summer Activities

Many schools rent out facilities during the summer when most of the students are away. Writers’ workshops, corporate training events, weddings, and summer school programs rent parts of campuses, and this offseason revenue can account for up to 10 percent of annual income. With COVID, these are all canceled for this summer. Also, COVID canceled many summer abroad programs, which are a huge moneymaker for colleges as they cost way less than the colleges charge the students to attend.


The cancellation of fall sports will be a massive blow for college fundraising activities. However, of concern is other fundraising activities that colleges plan, i.e., parent’s weekend, alumni reunions around the country, and other promotional events. If people cannot get together, it is hard to get them to open their wallets. With many schools facing financial pressure, fundraising pressure will be enormous on alumni. While Sweet Briar managed to survive and raise significant funds from alumni to do so this time, it may be different for many schools. The falling stock market will hamper some contributions, while job losses will undoubtedly make a severe dent.

Public Schools

While the top universities have large endowments that will cushion the blow, public universities are going to be much harder hit. State budgets are turning red daily as they face decreased revenue from sales and income taxes, and increased payments for unemployment and healthcare. As a result, they will be in no position to bail out college. The only solution for many public schools will be with layoffs or closure. Vermont is already considering such steps, but expect many others to follow suit.

As I said, higher education as we know it is gone for most people, and one day we can explain what college was like to our grandkids and why Animal House was real.


Copyright (c) 2020, Marc A. Borrelli

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Airlines, What Does the Future Hold?

COVID is taking a massive toll on the airline industry. The chart below shows the fall in U.S. passenger traffic and airline values.

Finding the right space and conditions for 62% of the world’s planes and keeping them airworthy have suddenly become priorities for 2020. Not only do aircraft need dry climates, which makes finding space difficult, but they need constant attention. Tires need to be rotated, engines run, and aircraft powered up, flight controls checked, and sensors and engines covered to protect inner workings from sand and dust. Hydraulic fluid is put on the landing gear to protect against rust, and giant silica moisture absorption sachets are placed inside engines to keep them dry. At the same time, covering all external holes on the fuselage to block insects and nesting birds entering. All of this costs money, and storing one Boeing 737-800 costs around $3,100 a month, while a 777-300ER is $6,377 a month. Delta could pay $2.0 – $3.5 million a month for the storage of its approximately 600 aircraft. As a result, with all its other expenses, Delta is currently burning through US$60 million a day, and Jet Blue $10 million. Delta just announced a Q1 net loss of $534 million.

As of last week, the inactive fleet of aircraft was approximately 14,400, over two-thirds of the 22,000 mainline passenger airliners, leaving 7,635 in operation. In Europe, less than 15% are operating, while in North America, 45%, and or Asia 49% are working respectively. Narrowbody aircraft are less affected, 37% are operating vs. widebody aircraft 27%. In the U.S., domestic flights are averaging just ten passengers while international flights average 24, according to a trade group.

These costs have already had an impact.

  • Air Canada announced a temporary layoff of 5,100 employees, suspending most of its international flights.

  • Air New Zealand cut its long-haul capacity by 85%, suspending several long-haul routes, and reduced domestic route capacity by 30%.

  • American Airlines is cutting its domestic flight schedule by 80%–90% in May, with only a “handful” of international routes to stay in operation.

  • Cathay Pacific canceled three-fourths of its flights in March 2020, and 96% of passenger flights in April and May, but continued flying some passenger planes empty to transport cargo.

  • Delta suspended about 70% of its flights across its network from the end of March.

  • Emirates stopped all passenger flights from March 25, 2020.

  • Ethiopian Airlines reported a 30% reduction in passenger traffic in March, and in April, the suspension of flights to over 80 countries.

  • Finnair reduced its flight capacity by 90%, starting from April 1.

  • FlyBe, the U.K.’s most significant domestic airline, collapsed last month.

  • International Airlines Group (including British Airways, Iberia and Aer Lingus) announced a 75 percent reduction in passenger capacity for two months in mid-March 2020.

  • Lufthansa grounded its fleet of Airbus A380 aircraft and cut long haul travel capacity by 90% and intra-Europe flights by 20%.

  • Qantas suspended about 60% of domestic flights and all international flights. It put two-thirds of its employees on leave.

  • RavnAir, Alaska’s largest regional airline, collapsed.

  • Singapore Airlines cut 96% of its flights up to end-April.

  • South African Airways has shut down laying off nearly 5,000 people.

  • Southwest Airlines has suspended about 40% of its flights and expects to suspend 50% in June. Also, it stored 50 Boeing 737-700 aircraft

  • Swiss International is taking half its fleet out of service

  • Virgin Atlantic has asked for U.K. Government aid. It is 49% owned by Delta, but Delta cannot help and is expecting a $200MM payment from Virgin Atlanta this quarter.

  • Virgin Australia Holdings Ltd. was Asia’s first airline to fall.

Centre for Asia-Pacific Aviation, a Sydney based global airline consulting and analytics firm, concluded without government financial aid, half of the world’s approximately 800 airlines would be bankrupt by the end of May. Based on its analysis of cash flows. CAPA estimates that in less than 75 days, half the globe’s airlines will be technical insolvency.  Airlines, because of their financial structure, are heavily dependent on cash flow. Their primary assets, aircraft, are 20-plus year assets, financed via 20- to 25-year term loans or 12- to 15-year leases. As a result, airlines must receive enough cash to meet their monthly loan or lease payments. To cut costs, airlines are cutting fleets and other expenses.

American Airlines is accelerating the retirement of its oldest planes, Boeing Co. 767s and 757s, and it’s fleet of 20 Embraer SA E190s and some 50-seat regional jets. It’s also considering to retire its oldest Boeing 737s. Delta is studying the early retirement of its oldest Boeing MD80 and MD90 aircraft, while United expects its oldest Boeing 757s and some 767s to be grounded permanently. As a result, U.S. airlines could shed 800 to 1,000 aircraft, which could result in a reduction of 95,000 to 105,000 airline jobs. In the U.S. under the terms of the $50 billion government bailout, airlines are barred from cutting jobs through September 30; however, airlines are warning staff that cuts are coming. Southwest has said that it will be a much smaller airline going forward and for the foreseeable future.

If the airlines get through the next 75 to 90 days, what then? Well, the initial news from China is not favorable. According to Bloomberg, around 35,000 domestic flights are operating in China daily, compared with 80,000 before the COVID-19 crisis, according to the International Air Transport Association. The figure has been stalled at that level since services resumed in early March. While there was an increase in business confidence and journeys to visit friends and family, there’s been no resurgence in the vital tourism market, according to Brian Peace, IATA’s chief economist.

In the U.S., the future is even bleaker, with a return to travel inhibited by health concerns and the increasing economic impact. An IATA-commissioned survey said that 40% of respondents would wait six months or more to fly again following the containment of the pandemic. From a purely anecdotal perspective, this agrees with the majority of my clients, who are cutting travel budgets and don’t expect them to increase after infections fall. Thus, the high paying road warriors will be MIA for a while as companies have learned to function via Zoom, which is much cheaper than a business class seat. Even when business travel returns, long-haul international flights will take longer to revive. The airlines foresee an uptick in bargain-hunting leisure travelers this summer; however, historically, those seats have been subsidized by the road warriors. Delta’s Chief Executive, Ed Bastian, expects the recovery to take two to three years and that Delta will be a smaller airline for some time.

Since most of the European carriers, i.e., British Airways, rely on long haul high paying passengers to subsidize short-haul flights, their business models will have to change. In the U.S., the major carriers have also built on the ability to connect U.S. second tiers cities with other second-tier cities in the U.S. and worldwide as their business model, with falling business travel and especially international travel, their models will also need a reevaluation.

Overall expect the number of flights to fall and smaller planes on many routes, with overall increased fares. For many people flying will once more become the luxury it was before deregulation. Many flights to secondary markets may disappear altogether. The only upside is that for the moment, the dreaded center seat is no more! While Europe will not be as severely affected due to its rail network, in the U.S., the effects could be devastating for smaller communities that lose all airline service. Loss of airline services to these markets will have many knock-on effects, which will further limit their ability to recover from COVID. How much damage will Congress and the U.S. be willing to accept?

With government aid, comes the question, will we revert to the nationalization of airlines again? Since the 1970s, many airlines were privatized, new airlines entering the market, many went bankrupt, and there was much consolidation. Overall, airlines have been terrible investments, and most have lost money. In the U.S., bankrupt airline corpses litter the aviation sector. However, many countries, including the U.S., have claimed that domestic airlines are essential to national security, so what to do? If there are just bailouts, there will be a public revolt at an industry whose shareholders and management kept the gains and socialized the losses. Many expected a pandemic of some sort, and according to public health officials, COVID is unlikely to be the last. Thus, can airlines survive in a world of shutting down? Airlines suffered from SARS and the eruption of Eyjafjallajökull in Iceland. To have another hit soon after this, it may finish them off for good. If governments take equity as part of the bailout, is this the first step in nationalization?

I think the questions to be asked are:

  • Do we need national/regional airlines?

  • What do we expect from a national/regional airline in terms of service, market coverage, performance, costs?

  • What are we (the government) willing to pay for those needs?

  • If so, how do we structure a private/public model that meets national needs and generate sufficient return for the private market?

  • If we can’t, should airlines be nationalized to protect a vital asset? If so, would we want an airline modeled on Singapore Airlines or Alitalia?

An interesting discussion to be sure, and if we cannot make a private, public model work, nationalization will undoubtedly return. Airlines may return their model in the 70s and before.


Copyright (c) 2020, Marc A. Borrelli

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Actions to Take When Leading Your Organization through Covid-19

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In looking back at the Spanish Flu pandemic in 1918, the one major lesson that we learned was the importance of planning to protect your organization’s greatest asset—its people.


Make the Workplace Safe

From your organization’s perspective, the pandemic represents a readiness issue—the availability of your workforce—not a medical problem. To ensure you have the maximum workforce available, first make the workplace as safe as possible. Vaccines and anti-viral medications will not be available for some time, so classical, non-medical public health measures will offer the most significant security. To ensure a healthier workspace do the following:

  • Emphasize basic personal hygiene practices, such as hand washing.
  • Disinfect and sterilize work surfaces.
  • Rearrange the workspace to place distance between people.
  • Restrict or limit movement, activities, and gatherings.

Additional measures that will add to workplace safety preparedness include:

  • Use of alcohol-based hand sanitizers (not to be confused with anti-bacterial soap).
  • Ensuring an ample supply of tissues and disposal receptacles.
  • Moving to a “paperless” society—avoiding the circulation of unnecessary documents.
  • Designating home and remote work locations (telecommuting).
  • Inserting “infectious disease control” clauses in contracts—ensuring that those with whom you do business have tight controls to prevent the spread of disease (particularly crucial for companies serving multiple buildings, such as contract cleaning crews).


Manage your Workforce

Managing the available workforce poses tremendous challenges due to the following three psychological responses:

  1. Fear. Everyone will have a level of anxiety and fear about contracting the disease.
  2. Discrimination. There will be blatant and subtle discrimination against groups who are thought of as spreading the disease, i.e., Chinese, Asians, and foreigners.
  3. Psychological trauma from hearing or reading about Covid-19 incidents.

At the group level, various “tipping points” may be reached, such as loss of faith in leaders and the belief that available assets are not being distributed fairly which could significantly influence group behavior. Right now, gun sales are through the roof as people are concern that those without jobs will come and take their “Stuff.” Identify informal group leaders to help keep the workforce organized, and those leaders may serve as trusted sources of information. Consider establishing helplines and providing grief counselors to give the employees assistance through this time.


Communicate with the Workforce

As I have written about elsewhere, the most important is the style of communication to the workforce and external constituents. Excellent communication involves four very sophisticated steps:

  1. Avoid errors in decisions and messages.
  2. Maintain trust in the sources of information.
  3. Avoid amplifying the risk.
  4. Encourage individuals, communities, and families to use coping mechanisms.

By keeping your workforce well informed, you will help to reduce the level of anxiety and fear. Thus, how you handle risk communication is critical. Risk communication, as I mentioned before, is not just telling people the “facts;” it is about the “Plan,” the prospect of loss, and about relationships. 


Establish a Covid-19 “War Room” Team

Appoint a senior, entirely dedicated COVID-19 “War Room” team, to focus on this all day, every day. As CEO, you must be out in front with a planned cascade of possible actions based on which scenarios unfold. These scenarios need to be more aggressive than your team can imagine right now.


You NEED a Plan

A pandemic is not a terrorist or natural catastrophe, and those plans cannot be adapted to fit the flu. Natural disasters, i.e., Hurricanes and floods, are usually characterized by being isolated in time and space, with extensive infrastructure damage. However, the Covid-19 is worldwide and will last longer lasting than a natural disaster. The 1918 pandemic lasted 18 months, with three distinct peaks of increased morbidity and mortality. Current estimates by Imperial College show that by “Flattening the Curve,” the healthcare systems will not be overwhelmed. Still, it will take about 18 months to achieve protection for a vaccine or herd immunity. Thus, your response to the Coronavirus will be distinctly different from the response to a singular, catastrophic event.

While the Federal Government is behind on this issue, States and cities have stepped up and started implementing their plans for Coronavirus. These plans call for all sectors of their societies to prepare. Specifically:

  • Individuals Must Actively Participate. Simple infection-control measures, including handwashing and staying home when ill, are critical. Individuals should actively participate in their communities’ responses.

  • State and Local Governments Must Prepare. State and local governments to varying degrees implementing community-wide measures, such as school closures and suspension of public gatherings, to halt the spread of disease.

  • The Private Sector Must Prepare. The private sector must develop plans to provide essential services, even in the face of sustained and significant absenteeism. Businesses also should integrate their planning into their communities’ planning.

Once your organization has written its Coronavirus plan, you must test it. Simple “tabletop” exercises are an excellent way to look for points of “friction.” Several tabletop exercises may be necessary, using the employees who wrote the plan to role-play more senior officials, until they determine it is ready. Once the plan is prepared, a tabletop exercises including senior-level players, preferably your fully dedicated COVID-19 “war room” team, is required.


Additional Considerations

There is a multitude of other considerations, and your organization will have its unique challenges. However, things to consider include:

The Workload

Determine the tasks required for your organization to continue operating and prioritize them. Ensure that “mission essential” tasks can be met, even with only half your staff. Cross-train employees so that everyone is familiar with the mission-essential tasks and can perform them.

Proportionate Absenteeism

If your organization can perform remotely, then office absenteeism does not necessarily mean that an employee’s absenteeism will cost eight hours of work. While some workers will be ill at home and unavailable for work, others will be well, but needed at home to care for those who are sick. Depending upon the circumstances, (i) severity of illness, and (ii) the number of infected people at home, an absent employee may be able to complete a few hours of work during a day. Other workers who are well may be unavailable because they need to care for children out of school. However, they may still be available for a full or partial day’s work.

24-Hours a Day

If possible, establish a 24-hour work cycle. By moving to eight-hour shifts, you reduce the number of people at your workplace by two thirds, significantly aiding the effort to establish social distancing.

Establish Helplines

Dedicate phone lines and numbers as employee helplines. Identify individuals to man the hotlines and train them now. Establish hotlines at the lowest possible level, i.e., each distinct group within your organization would have a specific number to call, and the group members would know the person answering the phone.

Review of Personnel Policies

Check there are no legal or regulatory implications to your plan. Also, make sure your workforces fully understand the policies on leave and telecommuting.

The Golden Egg

The U.S. public and private sectors spent an estimated $114 billion preparing for Y2K, and some estimates are that worldwide Y2K expenditures may have exceeded $600 billion. As companies corrected their computer code to avoid the Y2K problem, they found and eliminated unnecessary code, resulting in substantial savings in data storage and processing costs. As Y2K preparation resulted in unexpected benefits for corporate America, there may be an upside to the preparation for Covid-19. Revisit all your processes and ask the following questions:

  • “If we didn’t do it this way already, how would we do it?”

  • “If you had to do what you do a budget = 50% of the current budget, how would you do it?”

  • “Where can we cut waste?” Look at Toyota’s Seven Wastes for an understanding of where there is waste in your organization

While the instinctive reaction of most employees is to say, “Not possible,” I ask you to think of Apollo 13 when they had to restart the command module. There was no easy way, but they worked a team and figured it out. That is what is required now!

Preparing the workplace for telecommuting may require additional expenses on IT upgrades that will eventually result in increased productivity. You may need all employees to have high-speed Internet connections, and improvements in web-based applications may improve usage and performance.

Getting Started

Prepare for the worst and be thankful if it doesn’t eventuate; “A Wait and See” approach is a non-starter. YOU DO NOT HAVE THE LUXURY OF WAITING.

Several websites provide plans for specific organizations. It is doubtful that any of these plans will meet your organization’s needs. However, plagiarism is not a crime in this instance! Use the smorgasbord approach, pick to choose form what looks applicable to create something you can use. 

Tabletop Exercises

Several websites provide tabletop exercises that can be adapted to fit your organization’s particular needs.

Organizational Tabletop Top Exercises – Customizable Hazard Specific Scenarios

Tabletop exercise template By the Editorial Staff of SearchDisasterRecovery

Tabletop Exercises – Some thoughts from DHS

Designing, conducting, and evaluating tabletop exercises: A primer on optimizing this important planning tool

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