As predicted, BA's Chairman Martin Broughton had no problems with reluctant or recalcitrant shareholders at yesterday's meetings to approve the company's move into oblivion as a standalone financial entity and into the hands of IAG,- International Airlines Group. Two hours to the south west and not on the direct onward path to anywhere other than South America, Iberia's shareholders were just as enthusiastic to get their hands on the new paper. At the three public meetings which took place, the lowest percentage in favour of the merger was 99.88%. The small number of individual investors (about 50 according to The Times)who turned up despite the bitter weather and the London tube strike need not have bothered. Thanks to the institutional investors it was all over before it started and their small percentage of shareholdings would make not a jot of difference.
By all accounts the Chairman was in a bullish and not too cuddly mood, confidently tossing aside questions he didn't like with something approaching apparent contempt.This was despite several questions from the floor being very valid and the concerns expressed reasonable and worthy of considered and considerate replies. This rumbustuous knockabout stuff is a worrying sign. Once Chairman and Board start treating what they see as the little people without genuine understanding and some degree of empathy it is a straight run to dealing with all who question or disagree the same way,-investors, customers and staff alike. Shareholders are also usually BA customers and they wil be concerned that the same "policy" driven high handedness, already a feature of some BA dealings with its customers, will become a dominant and dangerous culture. Never mind the icy patches outside yesterday. Even on a warm day there are enough bananaskins around for the Board to avoid throwing more in its own path.
In the words of the 1960's folk song: "If I had a hammer,I'd hammer out danger............"
Footnote: One of the advantages of registering IAG in Spain was said to be the tax breaks available there. Does this mean that UK Plc is about to see a large chunk of UK corporate tax move outside its grasp along with its erstwhile "national carrier".
Tuesday 30 November 2010
Friday 26 November 2010
BA/Iberia. The Galleon Sails On.
Next Monday,November 29th,BA's shareholders meet to vote their old company into oblivion as "a publicly quoted financial entity" and together with their Iberia equivalents sign up for compensatory shares in the new Spanish registered IAG,- International Airlines Group. BA's Chairman , writing in Overview, the magazine for shareholders,claims in an article headed "Still British to the core" that he "can reassure shareholders that British Airways will not have its strength drained by this merger". The front cover proclaims boldly "Everything you need to know about the merger". From this we can deduce that the Board thinks we need to know very little.Its 16 pages including covers are surprisingly unrevealing.It is a million airmiles from "Everything there is to know about the merger". There is absolutely nothing in it about the proposed organisational and financial structure for a start.
Mr Broughton says "Now British Airways will be more an airline brand". Nothing is said about its ongoing legal persona,if any. It is reasonable to assume therefore that it will indeed simply be a brand or division of IAG rather than a wholly owned subsidiary. He mentions airlines joining IAG "to retain their identity for the long term", but does not explain how this will be achieved or what guarantees there will be. If it is just a brand then BA will have lost control of the ultimate test of independence,- could it walk away from IAG if it found it didn't like the way things were turning out? It appears not. In that case BA and Iberia will be dead and gone for ever as separate businesses. All that will remain will be two facades, hollow shells,for the time being the frontage for IAG.
If this reasoning is correct and we haven't missed anything, there are a whole host of unstated facts and unasked questions behind the corporate smokescreen theme that this is an unmissable deal for BA's shareholders,customers and staff. What are the specific strategies and financial objectives of IAG? How do they differ from what the individual companies might reasonably have expected to achieve (bearing in mind that BA has been remarkably free of a global geographical strategy for the last 10 to 15 years)? Is the initial 55/45% split between the holdings of former BA and Iberia shareholders relevant for a second beyond the start of trading on the first day? How will the starting price of IAG shares be determined? If BA and Iberia have gone as separate entities ,who will mastermind staff issues, recruitment, career progresion etc? Will the two brands have any independence in strategy, route development and aircraft aquisition or will they have to bid against each other for turf and resources in an annual IAG budgeting process? If they do,as would be normal in a straight merger then surely the Group HQ will grow EU style and become another tier of management above the two brands. Decision making will be slower and complexity and costs higher?
Possibly the answers will be appear during Monday's meetings, but given the fact that the institutional investors, tired of years of few dividends and depressed share prices, have already indicated that they will vote "Yes" ,it looks all over bar any shouting from individual investors .Numerically they will be heavily outvoted anyway.
All that apart,recent events in Euroland and Ireland in particular should furrow the brows. Putting aside Greece, already in the sin bin,Spain is third after Ireland and Portugal in the list of Euro countries which could end up calling for the cash dispensing fire brigade. Unlike the other two it looks too big an economy to be rescued in the same way. That being the case,is this a good time for a UK company to be throwing in its lot with a Spanish one whose domestic market could end up with all sorts of problems were its homeland to get into serious difficulties? What if the needs of the Spanish side of the business drained cash from the needs of the UK operation? If you were piloting BA at this moment might you not be thinking of quickly hitting the "Go Round" button on the control panel?
Mr Broughton says "Now British Airways will be more an airline brand". Nothing is said about its ongoing legal persona,if any. It is reasonable to assume therefore that it will indeed simply be a brand or division of IAG rather than a wholly owned subsidiary. He mentions airlines joining IAG "to retain their identity for the long term", but does not explain how this will be achieved or what guarantees there will be. If it is just a brand then BA will have lost control of the ultimate test of independence,- could it walk away from IAG if it found it didn't like the way things were turning out? It appears not. In that case BA and Iberia will be dead and gone for ever as separate businesses. All that will remain will be two facades, hollow shells,for the time being the frontage for IAG.
If this reasoning is correct and we haven't missed anything, there are a whole host of unstated facts and unasked questions behind the corporate smokescreen theme that this is an unmissable deal for BA's shareholders,customers and staff. What are the specific strategies and financial objectives of IAG? How do they differ from what the individual companies might reasonably have expected to achieve (bearing in mind that BA has been remarkably free of a global geographical strategy for the last 10 to 15 years)? Is the initial 55/45% split between the holdings of former BA and Iberia shareholders relevant for a second beyond the start of trading on the first day? How will the starting price of IAG shares be determined? If BA and Iberia have gone as separate entities ,who will mastermind staff issues, recruitment, career progresion etc? Will the two brands have any independence in strategy, route development and aircraft aquisition or will they have to bid against each other for turf and resources in an annual IAG budgeting process? If they do,as would be normal in a straight merger then surely the Group HQ will grow EU style and become another tier of management above the two brands. Decision making will be slower and complexity and costs higher?
Possibly the answers will be appear during Monday's meetings, but given the fact that the institutional investors, tired of years of few dividends and depressed share prices, have already indicated that they will vote "Yes" ,it looks all over bar any shouting from individual investors .Numerically they will be heavily outvoted anyway.
All that apart,recent events in Euroland and Ireland in particular should furrow the brows. Putting aside Greece, already in the sin bin,Spain is third after Ireland and Portugal in the list of Euro countries which could end up calling for the cash dispensing fire brigade. Unlike the other two it looks too big an economy to be rescued in the same way. That being the case,is this a good time for a UK company to be throwing in its lot with a Spanish one whose domestic market could end up with all sorts of problems were its homeland to get into serious difficulties? What if the needs of the Spanish side of the business drained cash from the needs of the UK operation? If you were piloting BA at this moment might you not be thinking of quickly hitting the "Go Round" button on the control panel?
Wednesday 24 November 2010
Airbus, Boeing and Airline strategists all need painkillers,- but which ones?
Airbus and Boeing must at this moment be giving more praise than ever for their evergreen cash producers, the A320 and 737 series. With these having high delivery rates and long order books the manufacturers will be wondering just how long they can spin them out without having to go through the cash drain of developing real sucessors.Airbus said at Shanghai that they will re-engine the A320 but if Boeing were to trump them with a true 737 replacement how long could a re-engined 1970s design hold its own before they would have to take the same expensive route? At the same time the airlines will be asking themselves how long they can order more of existing models without finding themselves to be the last customer before shiny, new and more economical replacements overtake them?
For now though these cash machines are the saviour of both companies, enabling them to absorb the A380's very slow production buildup and the 787 "Nightmareliner"'s ongoing delay into service, three years late and counting.
How long can the customers hang on? The A380's delivery rate which was at last about to reach 20 in a calendar year could be hit again by the need to redistribute new build engines to replace ones affected by the recent uncontained failure. This could knock on into at least the first part of 2011. The 787 meanwhile looks to be sliding towards a late 2011/early 2012 service introduction.
For the A380 the blip may not be too serious as the slow production has meant that these are early days for the type and the backlog is healthy despite the dearth of recent new confirmed orders. The type is also young as its massive wing shows it to be in effect the "SP" of the series,- the smallest version of what could become a much larger aircraft. Emirates and Cathay in particular want to see the -900 sooner rather than later. The 787,particularly the -8,faces a different problem. Airlines tend to go for an aircraft whose size will be optimum at about midpoint of its front line service life. Had deliveries started on time three years ago the -8 would have been fine. Now,assuming a planned 10-12 years front line service, we are already 20-30% into that. Meanwhile projected growth will have pushed the midlife capacity requirement higher. OK,-there is the -9 to cover that. Fine for the original -8 customers who can make the switch but what next for the existing -9 ones? Boeing are reluctant to prematurely shorten the life of its other cash cow, the 777, by stretching the 787 still further and even if they did that would only achieve the capacity of the -200 model, leaving the -300 slot uncovered and very vulnerable to the A350. For the first time in its jet history, Boeing faces having a gap in its product range and being outflanked by Airbus with the A350 and 380 covering all needs from about 240 seats upwards. How did this happen? Management upheavals?Industrial strife? Managing extensive production outsourcing? Too many distractions?
For the airline strategists and planners the A380 delays may be irritating but are manageable as the aircraft is unchallenged in its very large aircraft slot. The 747-8 might attract a few sales at the bottom of its capacity range but Boeing has nothing above that. In some cases, despite all the noise, the global financial problems have meant that the delays are almost certainly welcome. The late arrival of the 787, originally a 767/A310 replacement poses different problems and some opportunities. Again, Boeing may be less well placed to deal with and benefit from this situation than Airbus.Airbus can offer a package of reasonably priced A330s,probably shorn of already amortised development costs ,now and A350s later ,whereas few would be interested in adding new 767s with low eventual resale values to plug the gap until 787s actually arrive. Refurbishing existing 767s is a possibility and may have to be done, but unless paid for by Boeing the payback time is too short to stack up financially.
Both of these possibilities produces further headaches down the track.The semi-widebodied 767s will simply have very little market in three to five years time unless Boeing buys them back for tanker conversions, while fleets of relatively new A330s flooding into the used market would mean low prices and the opportunity for low cost and niche competitors to buy them cheap, offsetting higher operating and engineering costs against low ownership costs.Scrapping them to keep them off the market is an option but an expensive one so would require a very low initial aquistion cost. Engine and component manufacturers wouldn't like that either as they need aircraft to age so as to make their money on spares.
All round then it looms like something of an Alka-Seltzer year end but on the face of it Airbus may be a bit more cheerful than Boeing.For the airlines, some clever footwork will be required but for the wise and nimble all is not lost and there could be some creative opportunities out there. Do we hear another "Ouch" from the manufacturers? They might consider stopping wasting time and money on suing each other over alleged subsidies and instead focus simply on producing quality aircraft on time and on spec.
For now though these cash machines are the saviour of both companies, enabling them to absorb the A380's very slow production buildup and the 787 "Nightmareliner"'s ongoing delay into service, three years late and counting.
How long can the customers hang on? The A380's delivery rate which was at last about to reach 20 in a calendar year could be hit again by the need to redistribute new build engines to replace ones affected by the recent uncontained failure. This could knock on into at least the first part of 2011. The 787 meanwhile looks to be sliding towards a late 2011/early 2012 service introduction.
For the A380 the blip may not be too serious as the slow production has meant that these are early days for the type and the backlog is healthy despite the dearth of recent new confirmed orders. The type is also young as its massive wing shows it to be in effect the "SP" of the series,- the smallest version of what could become a much larger aircraft. Emirates and Cathay in particular want to see the -900 sooner rather than later. The 787,particularly the -8,faces a different problem. Airlines tend to go for an aircraft whose size will be optimum at about midpoint of its front line service life. Had deliveries started on time three years ago the -8 would have been fine. Now,assuming a planned 10-12 years front line service, we are already 20-30% into that. Meanwhile projected growth will have pushed the midlife capacity requirement higher. OK,-there is the -9 to cover that. Fine for the original -8 customers who can make the switch but what next for the existing -9 ones? Boeing are reluctant to prematurely shorten the life of its other cash cow, the 777, by stretching the 787 still further and even if they did that would only achieve the capacity of the -200 model, leaving the -300 slot uncovered and very vulnerable to the A350. For the first time in its jet history, Boeing faces having a gap in its product range and being outflanked by Airbus with the A350 and 380 covering all needs from about 240 seats upwards. How did this happen? Management upheavals?Industrial strife? Managing extensive production outsourcing? Too many distractions?
For the airline strategists and planners the A380 delays may be irritating but are manageable as the aircraft is unchallenged in its very large aircraft slot. The 747-8 might attract a few sales at the bottom of its capacity range but Boeing has nothing above that. In some cases, despite all the noise, the global financial problems have meant that the delays are almost certainly welcome. The late arrival of the 787, originally a 767/A310 replacement poses different problems and some opportunities. Again, Boeing may be less well placed to deal with and benefit from this situation than Airbus.Airbus can offer a package of reasonably priced A330s,probably shorn of already amortised development costs ,now and A350s later ,whereas few would be interested in adding new 767s with low eventual resale values to plug the gap until 787s actually arrive. Refurbishing existing 767s is a possibility and may have to be done, but unless paid for by Boeing the payback time is too short to stack up financially.
Both of these possibilities produces further headaches down the track.The semi-widebodied 767s will simply have very little market in three to five years time unless Boeing buys them back for tanker conversions, while fleets of relatively new A330s flooding into the used market would mean low prices and the opportunity for low cost and niche competitors to buy them cheap, offsetting higher operating and engineering costs against low ownership costs.Scrapping them to keep them off the market is an option but an expensive one so would require a very low initial aquistion cost. Engine and component manufacturers wouldn't like that either as they need aircraft to age so as to make their money on spares.
All round then it looms like something of an Alka-Seltzer year end but on the face of it Airbus may be a bit more cheerful than Boeing.For the airlines, some clever footwork will be required but for the wise and nimble all is not lost and there could be some creative opportunities out there. Do we hear another "Ouch" from the manufacturers? They might consider stopping wasting time and money on suing each other over alleged subsidies and instead focus simply on producing quality aircraft on time and on spec.
Friday 5 November 2010
The Qantas A380 Incident- Australia Hits UK Number One News Slot for the first time in living memory?
See our sister blog: Twigaview at www.twigaview.blogspot.com for this one,-or just Google it at Twigaview Blog.
Wednesday 3 November 2010
KLM Extends Entebbe services to Kigale. What it means for the KLM/Kenya Airways partnership
KLM's announcement that it will extend its Amsterdam-Entebbe A330-200 service to Kigali this winter is interesting. The Dutch airline originally took its 26% share in Kenya Airways as a means of strengthening its position on the continent by being able to feed its business from Amsterdam to points in East, Central and Southern Africa through KQ's Nairobi hub.This would counter particularly BA's strong presence achieved both via direct flights from London and, later, its new Nairobi based franchise operator RegionAir.In the event the BA franchise was short lived and KLM's potential particularly for extending its Amsterdam-Nairobi code share arrangements throughout Kenya Airways' regional operation has never been as vigorously persued as expected.
While the KLM Kigali operation bypasses Nairobi and will inevitably draw some long haul business to Europe and beyond away from Nairobi ,it is unlikely to seriously undermine the general level of KL/KQ cooperation and the feed of other business over Nairobi. Both carriers probably see it as far less of a problem than would be presented by the arrival of a Gulf operator.
While the KLM Kigali operation bypasses Nairobi and will inevitably draw some long haul business to Europe and beyond away from Nairobi ,it is unlikely to seriously undermine the general level of KL/KQ cooperation and the feed of other business over Nairobi. Both carriers probably see it as far less of a problem than would be presented by the arrival of a Gulf operator.
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