Category Archives: Transport

Not from me, on Qantas and Rolls-Royce

From an occasional correspondent who knows about this sort of thing:

RR engines do not like oil in the wrong places because it may stop the air-cooled turbine blades being cooled
All RR “B” checks are supposed to include a look for oil in the wrong places
Qantas seem less good at finding it than Singapore Airlines or Lufthansa
There is a problem with wear on some A380 engine components which is why the need for checks was highlighted in August
Qantas are more likely to have a problem because they operate their A380’s with higher thrust ratings than SQ or LH
The Trent 900 is the first RR engine to introduce contra-rotation, where one of its three shafts runs in the opposite direction to the other two
That massively increases the entertainment value of, say, bits of one broken turbine meeting a turbine rotating in the opposite direction
Since Qantas engineers have now looked at all their T900 engines jointly with RR engineers they have found two more with oil where oil shouldn’t be
Which begs the question why they didn’t find it before…

His words, not mine. Although, much as I respect Ben Sandilands, this is the most convincing analysis I’ve read. Apart from the misuse of “begs the question”, which is unforgiveable.

More fun with marginal tax rates

Here’s Felix Salmon Justin Fox standing in for Felix Salmon, on the economic impact of the socialist Truman government’s evil confiscatory tax policies:

During the Korean War, Congress enacted an excess profits tax meant to keep military contractors from, well, profiteering. In its infinite wisdom, Congress defined excess profits as anything above what a company had been making during the peacetime years 1946-1949.

Boeing was mostly a military contractor in those days (Lockheed and Douglas dominated the passenger-plane business), and had made hardly any money at all from 1946 to 1949. So pretty much any profits it earned during the Korean conflict were by definition excess, and its effective tax rate in 1951 was going to be 82%…

It being 1951, Boeing instead sucked it up and let the tax incentives inadvertently devised by Congress steer it toward a bold and fateful decision. CEO Bill Allen decided, and was able to persuade Boeing’s board, to plow all those profits and more into developing what became the 707, a company-defining and world-changing innovation.

(I’ve deleted some of his sarcastic commentary about how a government enacting a similar measure today would be described, so that mine sounds cleverer.)

Waratah trains: why the NSW government isn’t at fault

The suggestion that the NSW government had done nothing wrong would normally seem unlikely, irrespective of context. Even more so when the context is a $2.6bn capital investment project that’s at risk of collapsing, requiring a massive government bailout, or both.

However, the funding shortfall threatening the public-private partnership (PPP) to build 78 new Waratah suburban trains for Sydney CityRail services is an exception. The NSW government did a good job in managing risks for this deal, and it’s at risk of having to stump up extra taxpayer’s cash for reasons nobody can blame it for not foreseeing.

On the plus side, even if the government does have to step in, it’s unlikely the NSW taxpayer will lose much. The biggest loser is likely to be Downer, the train’s builder, which is exactly where the blame should lie. Unfortunately for the NSW government, the deal is arcane enough that the press and the opposition can easily claim otherwise.
Continue reading Waratah trains: why the NSW government isn’t at fault

Tories, speed cameras, and Voluntary Idiot Tax

There are mild signs of upset at the Coalition opting to cut the number of new speed cameras. There shouldn’t be.

For one: speed cameras are, entirely, a voluntary tax on idiots. Most non-urban speed limits are far lower than the safe speed for the average vehicle on the road in question driven by the average driver; that’s a given. But if you know a road has speed cameras on it, and you don’t drive within the speed limit as a result, you either don’t care about not being fined, or are too inept to drive within the parameters laid down by the law. And if you don’t know a road well enough to know whether it has speed cameras, then you don’t know whether it’ll suddenly turn into something where the speed limit is actually the maximum safe speed.

But for two: the people who hate speed cameras and the way that they impede their slightly-faster progress to wherever they’re going (not the ones who actually get caught, but the ones who do know the road, drive slower-than-required, and wish they didn’t have to) have a reasonable utility argument: why should fairly nebulous claims about accident reduction – and all claims about speed reduction leading to accident reduction in non-urban areas without a pedestrian presence are fairly nebulous – take precedence over people’s time? After all, part of the economic case for high-speed rail consists of the time savings involved – surely we should take them into account here as well?

In short: of course the Tory-led government is going to cut speed cameras, because its support base consists of Tories and Clarksons whose primary concern is “getting there quickly”. Meanwhile, since the last government’s support base consisted of urbanites and people who wanted to raise more tax money from society’s moral dregs, of course they were going to support speed cameras.

If the anti-clampdown is focused on motorways and A-roads, then the real-world effect will be negligible, except that the tax burden will be shifted slightly from Mr Toads to bus-using Sparts. If it also includes mixed-use urban single-carriageways, then kids will die. Hopefully, the impact will be the former – in which case, all we can say is “party rewards its supporters at its opponents’ financial expense; world neutral”.

(note: *safety*-neutral. Obviously, shifting the tax burden from Mr Toads to bus-using Sparts will also tend to shift it from rich to poor. File under “well, yeah, check out the blue rosettes”).

We have just OneWorld, but we live in different ones

Within a few years, there will only be about five real long-haul airlines, all based around the current alliance systems. The non-alliance airlines will stop flying long-haul, or where national egos won’t allow that to happen they’ll cut down to a couple of planes on flagship routes that nobody in their right mind would use unless their ticket cost fifty quid (good example: Nigeria’s Arik Air) [*]

Once you’re in the air, the best alliance currently going is OneWorld, which features most of the world’s most likeable airlines, plus America’s least awful major one.

BA are the BBC of airlines; I’ve posted before about why I like them. In short, old-school Britishness is a good counterpart to the unpleasantness and sheer weirdness of long-haul flying.

AA aren’t as awful and generally customer-averse as the other US airlines (although they’re not good, reflecting the general impossibility of finding an airline to fly on in the US that is good. I haven’t had the chance to try Virgin America [**]. They may be an exception).

Cathay Pacific and Qantas are desperate to outperform BA for obvious, post-colonial reasons. And they do, a bit: Qantas has newer planes, because Australia is richer than the UK, and Cathay has prettier stewardesses. But the general experience across the three airlines is pretty similar.

Then here’s Iberia, who aren’t as bad as you’d expect: they’re the least worst airline with serious numbers of flights from Europe to South America, which is Useful.

Unfortunately, as I’ve posted before, British Airways spent most of the 2000s being run by an idiot. So when BA and airport operator BAA built their new terminal at Heathrow, which is OneWorld’s most important hub, they only made it big enough to accommodate BA flights – not to accommodate all OneWorld flights.

Terminal 5 is one of the best airport experiences in the world. It is architecturally stunning, it is massively useable; overall, it’s really not a bad place to pass a few hours. Or even a week. But flying into Heathrow on a OneWorld partner flight and out on a BA flight is a massive pain in the arse, and involves losing the far-from-lovely Terminal 3, and Heathrow’s terrible internal transport links.

Given that everyone’s endgame at the time T5 was being planned – even Rod Eddington’s – was to run OneWorld as an integrated airline, this is the most insanely stupid thing ever.

It means that for any long-haul journeys that don’t start or end in London, you’d do better to buy a Star Alliance ticket rather than a OneWorld ticket. And because BA and Qantas have integrated their UK-Australia routes and there’s no room to bring Qantas over, all BA flights to Singapore and Australia (so not important destinations or anything) also leave from Terminal 3, so again you’d be daft to use them or to try and transfer onto them.

The Star Alliance partners (the big ones are Lufthansa, United, Singapore and Air India) mostly aren’t as good as the OneWorld airlines, apart from Singapore, who are better. But they’ll have a single, integrated terminal at Heathrow that’s just as good as Terminal 5, as well as good hubs in Frankfurt and Singapore. So they’ll kick OneWorld’s arse on Europe-Asia/Pacific and Europe-US flights, despite offering mostly-German levels of customer service once you’re onboard.

This is what is known as “the kind of obviously stupid, even at the time, short-termist idiocy that could only be implemented by the management of a quoted UK company”.

[*] Obligatory footnote: if Jim Bliss is right about the scale of the impending oil crash, then none of the above applies. On the plus side, Terminal 5 will then easily be big enough to accommodate what’s left of OneWorld…

[**] It’ll be interesting to see what happens to Virgin alliance-wise and as ownership rules change. In theory, Virgin Atlantic, Virgin Blue/V Australia and Virgin America could be a decent global airline in their own right for primary routes, in the same way that at least one of the Middle Eastern carriers will survive. The problem here is that Star’s Singapore Airlines owns 49% of Virgin Atlantic. Integrating Virgin Atlantic into Star would kill it as a brand, and would leave the Aussie and US businesses as basically domestic/local carriers, which would be a terrible shame. But Richard Branson doesn’t have the cash to buy the stake back, and I can’t think of anyone else who’d be willing to fund the deal. For a start, the last company to back Branson on a major airline investment lost over a billion dollars and then quit passenger aviation for good….

Those British Airways strikes

While there’s been a lot of commentary on the British Airways strikes, the analysis (whether pro-company or pro-union) tends to miss two major points.

The business model is unsustainable – but that’s the management’s fault, not the unions’

BA’s model before the global financial crisis was to charge a fortune for excellent service in Club World and First, while matching its competitors’ prices and service levels in World Traveller. Together with BA’s massive global coverage and its excellent connections between the financial boom centres of London, New York and Singapore, this business model allowed BA to attract a lot of passengers and make a lot of money.

This was lucky, as BA’s cost base is and remains far higher than that of its competitors. Not on planes, or marketing, or even management – but on staffing. At the time, the money that bankers were willing to pay to fly to Singapore in a bed whilst being served champers by reassuringly camp gentlemen was so vast that BA could get away with paying long-serving cabin staff double the national median wage.

However, this wasn’t a sustainable business model unless you believed the boom times would never end. BA should have taken advantage of the good times to stuff its current crews’ mouths with gold (pay rises, massive early retirement packages, one-off bonuses), in exchange for permission to hire new recruits under less generous contracts so that the long-term cost base was more sensible. Virgin Atlantic pays new recruits gbp15,000 ranging up to about gbp30,000 for senior crew, and anyone who’s flown on Virgin will confirm that this is enough to attract motivated people who provide excellent customer service.

Unfortunately, BA’s CEO for most of the boom – Rod Eddington – had approximately no aptitude for long-term strategic thinking, so kept with the status quo for an easy life (my assessment of his aptitude is supported by his report on UK transport policy two years ago, which managed to miss out high-speed rail completely. I’ve only just discovered via Google that he’s done much the same half-arsed job in Melbourne). Willie Walsh has a better track record, but by the time he’d taken over and settled in, the recession was already imminent. Now, BA has to cut costs for long-term survival, but doesn’t have the money to bribe its staff to accept the cuts.

The unions are in a far stronger position than most commentators realise

BA’s enterprise value – the amount that its assets plus goodwill are worth, before taking into account its financial liabilities – is something like GBP7bn. The reason its market cap is only GBP3bn is because it also has a GBP4bn pension deficit. In other words, money that BA owes to its workers and former workers accounts for more than half of the company’s total value.

This has two policy implications.

One is that Red Tory Philip Blond’s suggestion that the government should mutualise BA isn’t quite as insane as it looks – more than half the company is already owned by the workers, and if things were to get worse then the pension fund has priority over the shareholders as a creditor. A deal like the one the US government brokered for GM, leaving the workers as majority shareholders, isn’t totally implausible.

The other consequence of this ownership pattern is something which should make BA shareholders rather nervous.

If the industrial action were to turn into a major, long-term dispute that drove down passenger numbers and revenues to such a severe extent that BA had to go into administration, then the pension fund would have priority over BA’s assets (including not only its physical assets, but also its brands, goodwill, systems, etc). It’d be hard work to rebuild BA as a global brand after that kind of collapse, but it wouldn’t be impossible – particularly with worker ownership ending the company’s labour crisis overnight. The shareholders, however, would lose everything.

So while the “nobody backs down” outcome isn’t good for either side (as the workers lose salary in the short term, and in the long term their pensions end up secured on a much less valuable asset), it’s a lot more optimal for the workers than it is for the shareholders. This makes negotiations, erm, challenging.

Conclusions? None really, except that I wouldn’t want Willie Walsh’s job, and Rod Eddington shouldn’t be put in charge of the strategic direction of a whelk stall (although he’s probably competent to administer one day-to-day).


Update: another conclusion is that if you blame the strikes on Gordon Brown’s ‘weakness’, you’re so utterly clueless that you shouldn’t even be allowed to assist Rod Eddington at his whelk stall…

Update 2: Jim notes that BA’s business model is also unsustainable in the sense that the oil’s going to run out. This is true, and worth a read (I’m not yet totally sold on Jim’s view on precisely when the oil’s going to run out, but that’s mostly based on sheer incredulity that if the oil’s really going to start running seriously short by 2015, governments and large companies haven’t done more to mitigate that. The GFC highlights that this may be over-trusting of me…).

We love Admiral Scrumptious

Lord Adonis‘s retort to Boris on the Tube Lines PPP arbitration is quite superb:

Under devolution, it is for the Mayor and TfL to deliver the Tube upgrades within their generous budget – not for me to bail them out if they fail to do so.

If Boris wants me to take charge of TfL then he should say, and I would start with more sensible priorities like not cancelling the Western congestion charge zone and not replacing a modern bus fleet needlessly – both of which are costing Londoners hundreds of millions of pounds which could be spent on upgrading the Tube.

At some point, I’m going to post on why Tube PPP was a Good Thing (at least, given 2000s capital market conditions – it’s possible that credit availability over the next 10 years will mean that PPP/PFI is no longer as good an idea as it was during the Blair years). It boils down to “the government is committed to paying the money whether it wants to or not, rather than buggering about with the budget year-on-year as happened from 1945-1997”.

(yes, this kind of long-term commitment sacrifices democratic decisionmaking in favour of efficiency. As regular readers will hopefully have picked up, this blog has no moral attachment to the concept of democracy, or “rule by a mob of ignorant idiots”; the only reason I’m not actively opposed to it is the empirical one that other means of governance generally seem to turn out even worse.)