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A crazy idea, but think it over

By IAG | March 16th, 2007 | Posted in a380, aviation, british airways, ec, heathrow | No Comments

[UPDATE - The UK may cave]
So Fortress Heathrow is under threat and likely will be broken open. The reaction from British Airways and Virgin Atlantic have been quite muted, given that they are staring at 10% to 15% price drops in business class fares. That is going to hurt. Being Europe, pain is dealt with via state aid. Britain is asking a year before the Fortress is opened. That gives them time to cook up a compensation deal.

Nasty American comment? Not really, Europe's farmers scoff greedily at state coffers all the time. (US farmers over here are no better – for example the Corn/Ethanol situation) So there is a precedent for helping EC innocents who hurt. For another example, read the papers to find out about a certain aerospace company that is getting lots of love from France now (more on this below).

Here is our crazy notion – BA is about to make this big airplane order. Since BA (and Virgin) are clearly going to get the short end of the stick, why don't they ask the UK government to ease the pain? The UK government then goes to Great and Good in the EC and asks for an offset. For example it could go something like this; "Our airlines are going to hurt and we want to compensate them for taking it on the chin for EC unity." The gnomes in Strasbourg are very clever. They could make the following offer; "We understand and want to help. How about BA buys A380s and we will provide cheap financing and of course we want to help Virgin Atlantic also. This means we help Britain's airlines and protect jobs across Europe. Its a win-win." If British Airways could get A380s at bargain rates (Airbus will happily help as some its A380s are apparently looking for homes) and if the engines come from Rolls Royce, then the EC finesses an internal problem without using real money. Everyone looks brilliant – big government solves all problems.

Airbus is hurting and it would dearly appreciate BA as a customer because of the halo effect. As Heathrow becomes more crowded with the Americans crowding in (you know they will be all over this airport) BA will need big planes – really big planes to exploit its slots to their fullest. A new Heathrow runway will take nearly a decade to be completed. It is going to be very tight at Heathrow. The A380 is a better "growth" plane than the 747i. So other airlines that have been toying with the A380 and serve Heathrow (like SAA) might be forced to consider buying A380s as well. Do you see a pattern here?

Yes its a crazy notion. But can you dismiss it out of hand? There could be a lot of synergy and the EC wants Open Skies – the challenge now is just to establish the price/cost. This idea, crazy as it is, only has Boeing as the loser and that is obviously a big win in Euroland.

A crazy idea, but think it over

By IAG | March 16th, 2007 | Posted in a380, aviation, british airways, ec, heathrow | 6 Comments

[UPDATE - The UK may cave]
So Fortress Heathrow is under threat and likely will be broken open. The reaction from British Airways and Virgin Atlantic have been quite muted, given that they are staring at 10% to 15% price drops in business class fares. That is going to hurt. Being Europe, pain is dealt with via state aid. Britain is asking a year before the Fortress is opened. That gives them time to cook up a compensation deal.

Nasty American comment? Not really, Europe's farmers scoff greedily at state coffers all the time. (US farmers over here are no better – for example the Corn/Ethanol situation) So there is a precedent for helping EC innocents who hurt. For another example, read the papers to find out about a certain aerospace company that is getting lots of love from France now (more on this below).

Here is our crazy notion – BA is about to make this big airplane order. Since BA (and Virgin) are clearly going to get the short end of the stick, why don't they ask the UK government to ease the pain? The UK government then goes to Great and Good in the EC and asks for an offset. For example it could go something like this; "Our airlines are going to hurt and we want to compensate them for taking it on the chin for EC unity." The gnomes in Strasbourg are very clever. They could make the following offer; "We understand and want to help. How about BA buys A380s and we will provide cheap financing and of course we want to help Virgin Atlantic also. This means we help Britain's airlines and protect jobs across Europe. Its a win-win." If British Airways could get A380s at bargain rates (Airbus will happily help as some its A380s are apparently looking for homes) and if the engines come from Rolls Royce, then the EC finesses an internal problem without using real money. Everyone looks brilliant – big government solves all problems.

Airbus is hurting and it would dearly appreciate BA as a customer because of the halo effect. As Heathrow becomes more crowded with the Americans crowding in (you know they will be all over this airport) BA will need big planes – really big planes to exploit its slots to their fullest. A new Heathrow runway will take nearly a decade to be completed. It is going to be very tight at Heathrow. The A380 is a better "growth" plane than the 747i. So other airlines that have been toying with the A380 and serve Heathrow (like SAA) might be forced to consider buying A380s as well. Do you see a pattern here?

Yes its a crazy notion. But can you dismiss it out of hand? There could be a lot of synergy and the EC wants Open Skies – the challenge now is just to establish the price/cost. This idea, crazy as it is, only has Boeing as the loser and that is obviously a big win in Euroland.

Thoughts on Open Skies with EC

By IAG | March 5th, 2007 | Posted in ec, open skies | No Comments

There is lots of excitement today – open skies – cool! Delta, Northwest and Continental all going to fly into Heathrow – right? Not quite yet. The London market dropped BA's stock quickly. Slow down and lets look this over a bit more.

  • Its not a done deal – yet. Approvals required on both ends.

  • There is supposed to be an opening of Heathrow. Great, but who is going to give up slots to allow the new carriers in?
  • If the US gets fifth freedom rights (flying between say Paris and Rome), then EC airlines also get this. So BA, for example, could fly LHR-LAX-SYD. Think about that before you dismiss it. Singapore Airlines certainly is thinking that one through. You can draw your own conclusions as to whether the EC is "one state" by its own view based on the fifth freedom matter.
  • How will service fragment? For instance as Heathrow starts to congest further, does it give the A380 a boost because bigger planes should use slots more efficiently? Or do we see Heathrow traffic "depeak" as there are flights all day long on smaller planes?
  • How will this move affect fleet renewal plans at BA and Virgin? You can bet this has an impact – do they go for bigger planes at fortress Heathrow? Or do they go for smaller long haul planes for new service across the EU? Or both?
  • How will legacy EC carriers handle the vastly (its hoped) increase in competition? Prices are going to fall – big time, you would think.
  • How do the Greeks and Italians feel when Lufthansa starts Athens-New York and Virgin Atlantic starts Rome-Chicago? We think this ratification might seriously impact these countries plans in selling their national airlines. Investors are going be see a radical change in their risk, wouldn't you say?
  • The incumbents are going to yell and scream. The barbarians at the gate are rubbing their hands with glee. Put Michael O'Leary in that mix and see what you get; a 400-seater 787 – maybe Boeing will come out with stand up "seats" first! (Its a joke)

Thoughts on Open Skies with EC

By IAG | March 5th, 2007 | Posted in ec, open skies | No Comments

There is lots of excitement today – open skies – cool! Delta, Northwest and Continental all going to fly into Heathrow – right? Not quite yet. The London market dropped BA's stock quickly. Slow down and lets look this over a bit more.

  • Its not a done deal – yet. Approvals required on both ends.

  • There is supposed to be an opening of Heathrow. Great, but who is going to give up slots to allow the new carriers in?
  • If the US gets fifth freedom rights (flying between say Paris and Rome), then EC airlines also get this. So BA, for example, could fly LHR-LAX-SYD. Think about that before you dismiss it. Singapore Airlines certainly is thinking that one through. You can draw your own conclusions as to whether the EC is "one state" by its own view based on the fifth freedom matter.
  • How will service fragment? For instance as Heathrow starts to congest further, does it give the A380 a boost because bigger planes should use slots more efficiently? Or do we see Heathrow traffic "depeak" as there are flights all day long on smaller planes?
  • How will this move affect fleet renewal plans at BA and Virgin? You can bet this has an impact – do they go for bigger planes at fortress Heathrow? Or do they go for smaller long haul planes for new service across the EU? Or both?
  • How will legacy EC carriers handle the vastly (its hoped) increase in competition? Prices are going to fall – big time, you would think.
  • How do the Greeks and Italians feel when Lufthansa starts Athens-New York and Virgin Atlantic starts Rome-Chicago? We think this ratification might seriously impact these countries plans in selling their national airlines. Investors are going be see a radical change in their risk, wouldn't you say?
  • The incumbents are going to yell and scream. The barbarians at the gate are rubbing their hands with glee. Put Michael O'Leary in that mix and see what you get; a 400-seater 787 – maybe Boeing will come out with stand up "seats" first! (Its a joke)