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.