Will Airbus Give Up on the A380?

 Two strategic bets
When Boeing committed to the Dreamliner (AKA the B787), it made a very different strategic bet from Airbus which had made its own huge bet on the A380.  Both manufacturers forecast world traffic growth of near 5% per year over twenty years.  The demand for planes is a demand derived from air travel. Thus the straegic question:  How were the duopolists' customers–the world's airlines–going to meet a doubling of passenger miles/kilometers in less than two decades? 

Two different answers
Airbus decided they airlines would move more people through the key international hubs with a bigger jumbo jet that would increase those hubs' throughput capacity.  Their solution was the A380 which could both fly 8-10,000 nautical miles and hold up to 950 people. The massive size of the plane would also allow it to be marketed with a smaller seating capacity and hitherto undreamed of luxuries like an airborne gym, three cocktail lounges, and other amenities.

Boeing predicted that the world's airline would meet the growing demand with more point-to-point flights.  The Dreamliner would have a similar long range, but would hold only 250-350 passengers.  Boeing bet the airlines would try to attract their most lucrative customers with direct flights maximizing the time value of flying executives rather than the luxury that also required large numbers of the unwashed masses to meet load factors. Boeing also committed later than Airbus and may have gone to school on the European's putt.


With hindsight is there a winner?
So are the results in yet?  No, but there is preliminary evidence Boeing may have made the better bet.        
So far Airbus has failed to get a single new buyer this year.  And now in this video, Bloomberg's Benedikt Kammel suggests Airbus's might discontinue its A380 superjumbo as soon as 2018.  

Has Airbus misjudged the market? 


(Source: Bloomberg, Dec. 11)

Kansas Taxes Gasoline More than Missouri, Colorodo, or Oklahoma

The American Petroleum Institute provides a map showing how much tax there is on gasoline by state:

Exxon-Mobil notes its profit per gallon is 5.5 cents.

Mike Lynch Strikes Back & Watch Out for Carly

Who needs the supermarket tabloids?

Hewlett-Packard went from being the only adult in Silicon Valley to its soap opera. Carly Fiorina put together the corporate powerhouse which could provide one stop shopping for Corporate America and provide every CIO a safe route to an ROI on their big bets. HP made a big mistake firing her, but still coasted on her strategy while going through a revolving door of CEOs. Disastrously they bought the British software company, Autonomy. This led to an $8.8 billion write-down and allegations of accounting fraud. Now Autonomy's founder Mike Lynch plans to report HP to the SEC for "false representations to the market." In this FT video (4:46 minutes), Murad Ahmed, European technology correspondent, leads Ravi Mattu through the whole affair.




The story just got more interesting!

And just when you thought Hillary Clinton would become the first female president of the United States, a real executive is hiring key people to make a run.  Tim Alberta writes in the National Journal, "Carly Fiorina is laying the groundwork for what one ally says is an 'imminent' presidential campaign—one that could launch as early as next month."

Hmm, does actual executive competence disqualify one for President?  Time will tell. 

Will Netflix Make Movies Now?

The media mogul, Rupert Murdock's mantra is "Content is King." NetFlix seems to have taken that to heart with series like "House of Cards" and now with its "Marco Polo" and "Crouching Tigers, Hidden Dragon 2." NetFlix chief content officer Ted Sarandos tells Matt Garrahan, the FT's Global Media Editor, talks about the video streaming service's plans and reasoning in this Dec 3rd, 2014 video (4:56 minutes.) 








The movie industry's business model has been evolving rapidly driven by the digital technology revolution.

Will New Lease Accounting Bring On the Apocalyse?

In Monday's Wall Street Journal, congressmen Brad Sherman and Peter King claim that the proposed changes in Lease accounting will cost 3.3 million jobs. This seems a bit extreme. Furthermore Emily Chasan writes that changes are coming soon.  In a separate article she writes the change could add $2 trillion (yes that is with a "T") to corporate balance sheets and that "adding assets and liabilities for store leases, airplanes and the like could force companies to renegotiate the terms of their loans with lenders. Banks and lenders often require companies to maintain covenants, such as a specific debt-to-equity ratio, fixed-asset ratio or earnings metric, which could all be thrown out of whack by such a significant accounting change"

Breaking Up the House Carly Built

Hewlett-Packard Plans to split into two companies: its personal-computer and printer businesses on the one hand and its corporate hardware and services operations on the other:

Simon Caonstable asks JoAnn Lublin about this on WSJ's News Hub:


The Journal further asks whether "TechnologyHewlett-Packard: Will Slimmer Make Stronger?CEO Meg Whitman Says Breakup Makes Firm Nimbler, but the Same Pricing, Competition Problems Persist"  in an October 6th article article by and Rachael King.

Hewlett Packard's proposed split follows similar moves by eBay (breaking PayPal from the auction business) and Kraft (into Kraft and Mondelyse.) Does this latest breakup result from the disruption caused by the new ascendance of mobile technology and cloud computing?  That is the thesis of the Journal's "H-P Move Highlights Disruption in TechShift to Mobile Devices, Cloud Services Slows Pioneers’ Growth" by Don Clark with Shira Ovide 

Koch Industries Launches Its First Ever Ad Campaign To aid Its Recruitment

Koch brothers launch new ad campaign

Sep. 23, 2014 - 2:43 - FoxBusiness interviews Friends University Professor of Finance, Malcolm Harris, on the Koch Industries’ new ad campaign:

The President Sends the IRS Into Battle against Tax Inversions

As the CEO of Hewlett-Packard, Carly Fiorina built a business powerhouse.  Unfortunately, H-P then dumped her.  This led to its soap opera era (2005-11) of revolving CEOs.  Later she ran for the U.S. Senate in California unsuccessfully.  Meg Whitman, formerly the star of eBay, stepped in as CEO from her position as chair on September 22nd, 2011 and has been trying to unrock the ship.

FoxBusiness interviewed Fiorina today on President Obama’s action on Syria, tax inversions, America's economic malaise, and fighting the spread of Ebola. Her remarks on the divide between Main Street and Wall street is spot on!


Deals that go by the ungainly name of "tax inversions" enable a company to reincorporate in a country with a a less onerous corporate tax burden.

John D. McKinnon and Damian Paletta reported in this morning's Wall Street Journal that the U.S. Treasury Department issued new regulations and, specifically, "Treasury officials took action under five sections of the U.S. tax code to make inversions harder and less profitable, removing some of the appeal that has made the transactions more common in recent years, particularly in the pharmaceutical industry."  McKinnon and Paletta further wrote, "The Treasury rules will make it harder for companies that invert to use cash accumulating abroad—a big draw in recent deals. In addition, the government has made it more difficult to complete these overseas mergers."

Money Beat explores this issue with McKinnon in this video:

Wichita Was Lucky to Lose the Tanker Contract

There is little stomach in the West to defend democracy around the world and, as night follows day, those aging republics which constitute the West show little appetite for spending on the weapons of war.

Defense spending is falling throughout the developed world. Prudent firms and metropolitan areas desiring growth will invest in more pacific lines of businesst. There was great outrage in Wichita when Boeing shifted the dwindling jobs for the Tanker contract to Seattle and other cities to satisfy its unions.  Yet when commercial aircraft is waxing and military aerospace is waning, shifting from jobs dependent on defense spending to civilian activity is a sound investment in the future.

Reports from the world of commerce confirm this.  Peggy Hollinger, Industry Editor for the Financial Times, wrote on September 16, 2014 that Airbus will streamline defense and space division by selling or otherwise divesting itself of units.

Doug Cameron and Robert Wall predict in the Wall Street Journal that Boeing may no longer be in the fighter business as orders for F/A-18 run out.  Management shifts toward bombers, drones and trainers. Boeing's revenues from the military side fell from almost 60%  to under 40% over nine years.

As Russia becomes more adventurous and China more assertive, America has grown weary of being the arsenal of democracy.  The capitalists have taken note.

Buying Back Corporate America

Are U.S. corporations pulling up the drawbridge? Finding an alternative to dividends? or Overlevering themselves? 

The Economist argues that share buybacks may be encouraging shorttermism and that by "reducing the number of shares outstanding, buy-back schemes can also artificially boost a firm’s earnings per share."  Based on its survey, buyback activity "in the S&P 500 index" reached $500 billion in 2013, "close to the high reached in the bubble year of 2007:" that is a third of U.S. corporate cashflow. Furthermore, the Economist notes that "buy-backs have usurped dividends as the main way listed American firms give money back to their owners, accounting for 60% of cash returns last year." 

James McIntosh stresses the levering that buybacks are driving and warns investors, in this September 9th video,  that equity markets may seem calm but the cashflow, and debt raising seem ominously like 2007: the calm before the storm. Mackintosh, the FT's investment editor, charts the close relationship among buybacks, debt raising, and cashflow. Corporate share repurchases have been converting cashflow surpluses into deficits which firms are financing with ever more debt.  The result is more levered balance sheets.

Was Janet Yellen's goal in driving down interest rate to relever corporate balance sheets?




 

Housing Is Being Held Back By a Shortage of Skilled Labor: the Fruits of Malinvestment

How slack are labor markets? Looking at the overall unemployment rate, 6.1% in august according to the Bureau of Labor Statistics,  it would appear there is significant slack still justifying the Fed's draconian  war on interest rates.  Yet evidence indicates that in specific market segments, labor is short.  Here Bloomberg's Mike Mckee reports on home builder's lack of laborers since the recession in this August 19th “Market Makers” video. 



How are we to interpret this?   The huge overhang of housing stock and the mismatch of units built and units demanded depressed housing starts.  The housing bubble had drawn in workers who invested in skills that became redundant when the housing stock was overbuilt.  Their newly acquired human capital became stranded and these skills atrophied during the long resulting recession when the unsustainable levels prior to 2007 could not be maintained. Those workers have retired, gone on to other fields, or joined the ranks of the disabled.

A Different Take on the Two Tier Corporate Jet Market

Michael Stothard, the FT’s Paris correspondent, reports from the Farnborough air show: Business Jets on the Rise (see the 3:51 minute August 13, 2014 video below.) After a 30 per cent fall in revenue following the financial crisis, the global business jet market is pulling out of its dive.  But as he explains in his article, there is a big difference between the market for big expensive jets and smaller ones.





Big Birds, Little Birds 

What lies behind the more horrendous drop in small plane demand (down 56%) and their continued weakness? I would argue it is yet further evidence of the root causes of America's weak recovery. The large corporations, the Fortune 500 and the next rank down have been very profitable and have gained enormously from the loose monetary policies of the Bernanke and Yellin Fed. Smaller firms have not fared well and the business climate is definitely hostile to unglamorous start-ups. Big Corporate America is buying big jets. The smaller guys are either not starting up in the first place (for the first time since the statistics have been kept more business went out of business than started up) or they can not grow to the point where a small plane would be cost effective.

In a recent Economist interview, President Obama disputes

And You Thought the World Cup Was About Soccer! Dance Time!

rts & Entertainment Learn Brazilian Dance for the World Cup With the World Cup right around the corner, you're likely to hear some sizzling sounds that will make you want to sway those hips. After all, dancing is as much a part of the Brazilian soul as soccer. WSJ's Tanya Rivero learned some Brazilian steps at "Dancing in the Park," part of a free dance series held in New York City's Bryant Park.

A world awash with debt

Andrew Smithers warns in the Financial Times (March 11, 2014) of the danger of economy-wide debt: "A combination of sharp falls in asset prices and debt levels has caused financial crises. This was the case in the US in 1929, in Japan in 1990 and worldwide in 2008."

A Cold New York and Its Cool Fashions

The New York Fashion week may have run into snow and more snow, but it did not stop fashions heading down the runway. From turtlenecks to winter tones, WSJ's Elizabeth Holmes gives tips for your cold-weather wardrobe. (Plus, two bonus buys for next year.)
 1:56 2/14/14

Beware: the Aussie Air-to-Phone Drone is on the way: Flirty

Some young Aussies have come up with an aerial device, a sort of drone that looks like a beanie designed by aerospace engineers, that can deliver a package right to where your smart phone is and presumably you are. They have teamed up with a textbook renter, Zookal to provide the service as you can see on this video off the News Corp. Australia site produced courtesy Zookal and the PR Group.


We do have a few questions:

Is it scalable?

Can it deliver indoors?