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Showing posts from June, 2015

F-35 cannot outfly a 25 year old CF18c...a $180 million disaster?

Years ago I wrote about the debacle that has become the F35 strike fighter aircraft, and its failure as a replacement for the F18-C that the Canadian Air Forces uses today (a very very old fighter aircraft).
I wrote a blog here about the problems and shortfall that the F35 represented for the Canadian Royal Air Force that said all that needed to be said in terms of mission capability, single engine design and weapons load.
The "killer" was last week when the F35 went head-to-head against a American F18C -- the "last" and most modern variant of the type.  In a nutshell the overall comment about the F35 was:  can’t turn, can’t climb, can’t run.  Bottom line the aircraft is underpowered and easily outmanoeuvred which is really bad.  There's a National Post article here.
Now, lets be honest the days of manned fighter aircraft are coming to  a close.  Not that the "drone wars" are a cake walk either.  There have been many reports how poorly designed the f…

So you want to start an airline (part 3)

Funny enough when I talk to future airline CEOs I always ask them what is their business; rarely is it carrying people from point A to point B. The first thing they say is that they are operating an airline with aircraft and expensive pilots and mechanics.
(7)  Philosophy:  This is the boring bit to many airline executives, it is also tremendously important, because your philosophy as a company has a huge impact on your competitive positioning, and while you are the only game in town when you start up, you can bet serious money that if it works out , you will have some company, and competition.  How you react, and deal with these competitive pressures will have an marked impact on your bottom line.
The first thing you have to realise is that in this business there is always going to be competition, how you deal with it will determine how well you do as a company.  You have to know who you are and what you want to do, and under what terms.  Like google's "Do no harm" st…

Greece is it too late?

First, its never too late to walk back from the precipice!  Granted time is now really short, and no one seems to be really interested in solving the problem.  Those like DSK (ex-head of IMF) are able to say the truth, reschedule all Greeks sovereign loans by extending the maturity (to 25 years) reduce the total amount of debt by "forgiving" some of the money.  
Of course this also means that Greece can not borrow a penny without ECB approval -- that maximum debt/GDP is set out in a new Greek constitution... oh look, a "squadron of flying pigs", that's never going to happen.  The Greeks, if Europe forgives the debt will be looking to borrow the next morning, and GS or MS will be more than happy to camouflage these loans into something else.
The true disaster is that Europe's leader seem to believe that contagion will not happen!  These are the same guys who seem to have never noticed that Greece was getting in trouble.
Fundamentally, we are seeing a traged…

So you want to start an airline (Part 2)

Lets say that you found your ideal hub, you have a good front office team lined-up and a bunch of maintenance guys who seem to know what's what.  What else will need to be done?
(4) Business Plan:  This is the hardest and the easiest, because the revenue analysis is easy -- manufacturers will do that for you!  No kidding, its a service they are happy to render, they will calculate all the routes you want to operate, give you estimates of operating costs (fixed and floating) analysis of maintenance reserves.  In a nutshell they will do the top line.  What they will not do is the rest -- the hard bit.  You have to select your destinations, you have to select your repositioning flights, you have to find airports that want you services (usually smaller airport are very very happy to see you arrive), but try getting a landing slot at a major airport, it could take a while.
In a sense, the best thing to do is start operating in regional and secondary airports (you may even provide a bu…

What happens when interest rates rise?

First off, I don't know the answer!

The problem lies with what economic theory predicts and what actually happens.  In a Keynesian system printing additional money will lead to one inexorable outcome:  inflation.  Granted we often think of inflation as the consumer price index -- which has gravitated around the 1-2% mark for the past 10 years.  We have unprecedented low interest rates -- inflation (CPI) is either slightly higher or equal to the interest rates.

On the other hand cars appear to be much much more expensive than they were 10 years ago (granted they all have bluetooth now...).  Computers seem to be cheaper (or at least the price of a MacBook air has not changed in 7 years -- its still around $1,200), but the box is better -- I guess!

So what is the long term impact of ultra low interest rates, of massive money printing?  Where is the hyper inflation, where is the social breakdown?  I don't see it.  I know that pension funds are finding things harder when they have …

Greece a deal is done... not really

It is strange to consider that little has changed over the past 4 months (May is so far away).  The latest (Sunday, ok Monday afternoon) Greek proposal is still far far away from what the IMF/ECB and Germany want.  In fact, the offer from Greece falls short of a certain "line in the sand".  But more importantly nothing here (and I mean NOTHING) looks like negotiations, in so far that there is give an take from both parties.  All the give so far has been from Greece to get "more money" which by the way helps nothing in the long run.  Greece's problem is that it has too much debt that it cannot service.  Moreover, the Euro8/9 billion on offer will be used to pay interest refinance outstanding debt.

In effect, an accord between Greece and the rest of Europe will only "kick the bucket down the road a little more".  Now don't think for one minute I am not aware that Germany sees a more serious game, if they give in to Greece than Portugal/Spain/Italy …

So you want to start-up an airline! (Part 1)

A solid 20 year chunk of my working life has centred around the airline industry.  I've seen my share of crazy proposals and also some brilliant moves.  When investors made a bundle and real economic value was created.  One of the best was South African Express -- management was changed in the late 90s and the airline faced harder time over the past few years, but it remains an example of what a good airline does:  It provides a service and generated economic growth (and profits for the owners). Today the airline is owned by the South African Government, but it was started by a Canadian in 1994, who having travelled to South Africa realised that the national carrier was not providing for the needs of the country's travelling pubic.  
There's an old joke:  "How do you make a small fortune in the airline business, start with a large one".  The business has been cruel, there are no way of securing route rights that can stop competitors from encroaching on the marke…

Update: GRLD -- The orange Grill Cheese Truck $100 million valuation

Several weeks ago I wrote about GRLD -- Grill cheese Truck Inc, that on January 30th 2015 had a market cap of US$ 100 million.  It fell a bit since then... actually it's dropped considerably.  Proof that sometimes the market wakes up.

The new price $1.07 down from an issue price of $6.00 -- so a slight market underperformance.

Turns out the market can see a stupid deal

Texas Building its own gold depository because it doesn't trust Yankee Federal Reserve...except for one small detail

Ok this is a short one, Texas has decided to "repatriate" its gold from the Federal Reserve.  Anyway that's the headline, now the truth:

Texas has no gold at the Federal Reseve
Texas University Pension fund (about 4 years ago) acquired some gold (nearly $3 billion) about half are in real gold the balance are in futures average purchase price about $1,100/oz
Texas University's gold is held by HSBC (in New York) and not with the Federal Reserve.

Now this is the funny bit, Texas University COULD have kept its gold with the Feds, at an annual cost of about $20,000.  Instead it trusted HSBC that charged it....wait for it "1 million dollars" per annum.

Now the funny bit is of course that Texas is making, a "you stinking feds" statement when in fact the Federal Reserve's Texas gold balance is ZERO.  It gets even better, they trusted a "Chinese Bank" more than they trusted the U.S. Federal Reserve.  They paid 50x what it would have cost if …

Could this be it? Greece the end of the end game

Well its been a ride, the on-again off-again negotiations seem to be off for good with Germany taking a very hard and uncompromising position vis-a-vis Greece.  This coming weekend has been dubbed by some as a Lehman Weekend -- where in 2008 Lehman went from being a solvent (ish) investment bank on Friday to "get your stuff out of the office before Monday, because liquidators are at the door.

Like Paul Krugman I believe that a deal is possible -- its not likely, but its possible.  The issues are geo-political as the actions on Greece will determine how things will proceed in Spain (looking at elections soon), Portugal and to a lesser extent Italy.  It is possible that the calculations in Berlin is making is that its not a question of saving Greece but to avoid an expensive end game in Southern Europe. Greece has given plenty of ammunition to Germany from intransigence on reforms to an absolute belief in their righteousness of their cause -- the Greeks have elected a slightly delu…

Greece: Now the Americans are worried of an accident

U.S. officials are generally cautious about intervening in European policy debates. The European Union is, after all, an economic superpower in its own right — far too big and rich for America to have much direct influence — led by sophisticated people who should be able to manage their own affairs. So it’s startling to learn that Jacob Lew, the Treasury secretary, recently warned Europeans that they had better settle the Greek situation soon, lest there be a destructive “accident.” Paul Krugman, New York Times, June 1, 2015
Things are getting serious.  Over the past few days other (many many others) things have been on my mind, and Greece has been off my radar.  Now, it appears that the negotiations are heading towards a breakdown.  For American policymakers the problem is the consequences of a Greek exits are unknown.

Turns out that Greece's hand on "Russian negotiations" is a lot weaker than I had thought -- there are too many governments that are weary of "pissi…