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View Full Version : Let Me Tell You What Is Going To Happen To Qantas....


Sunfish
19th Dec 2010, 06:45
Let me tell you what is going to happen to Qantas.

No, it's not operational doom, it's financial doom if QF is not very very careful.

Some of you have been critical of QF's slash and burn management style, especially its predilection for outsourcing and "user pays" practices, for example the ideas that pilots should borrow money to pay for their own training and endorsements, that employees are easily replaceable by contractors, and that the experience of employees is a worthless commodity.

Well the penny finally dropped for me.....

That entire style of business is based on one simple assumption.

- that debt financing is cheap, and there is plenty of it to go around.

Well I have news for you. Don't just think about Greece and Ireland. The entire world is now entering a period, for at least the next Ten to Twenty years, when debt of any sort is not going to be cheap at all.

You might like to follow the predictions of these little fellows, as far as I can tell they haven't put a foot wrong since they started forecasting trends in 2006.

English | LEAP 2020 (http://www.leap2020.eu/English_r25.html)


What does that mean for Qantas? It means, folks, that cash is going to be king. It means that countries with very high savings rates, like China, are going to see their currencies appreciate. It means that the Eurozone are not going to be able to subsidise the manufacture of Airbus. It means that corporate finance costs are going to double, or triple or quadruple.

To put it another way "stuff" is going to become more expensive; fuel, nuts bolts, aircraft parts, aircraft, engines, blades, vanes, bearings, whatever.

Stuff is going to get more expensive compared to Australian labor costs. If QF hasn't got all its finance needs locked in place right now, it won't even survive, because finance is going to dry up rather quickly now.

What that is going to do is place a premium on skills, most importantly the ability to maintain and repair stuff and extend it's working life to the absolute maximum.

..And as any former and perhaps current aircraft engineering person will know, that takes great skill, and experience, and ingenuity, and innovation.

...and you won't get any of that through outsourcing. To put it another way, paying "one low hourly rate " to get your engines maintained in Singapore is suddenly going to appear very, very, expensive. In fact sending anything out to be maintained is going to be expensive compared to doing it yourself - simply because of finance costs and working capital requirements.

Furthermore, you won't be getting any cadets willing to take on debts of around $130,000 to get a cockpit seat either, if they could even find a bank willing to take on the risk.


It's going to be back to about 1970 folks. I wonder if Qantas can write to all its old retirees and offer them their jobs back, especially the engine folk. Doing everything in house is about to become a much cheaper option than sending stuff offshore....again.

Watch the debt markets.

wateroff
19th Dec 2010, 08:14
Tick Tock, the clock is running - "Roll Program"

Te-be-shure, Te-be-shure

Arnold E
19th Dec 2010, 09:09
I wish that what you were saying was realy true. Why, because, both myself and, more importantly, my son, are both involved in the aviation maintenance industry.
Unfortunately, I dont think what you are saying is going to happen.. I think that engineers (and pilots ) need to stand up and be counted. I know most people here dont agree with me because I am old school, but hey, us guys used to make things happen.

Sunfish
19th Dec 2010, 09:52
Arnie, it's going to happen quicker than you think. Wasn't it the NAB that put its mortgage rates up last week? Above the Reserve bank increase? The long term finance rates are going to go way up, and quickly.

That is going to put cost pressures on everyone, including the outsourcers.

The folk that know how to "make do" and make and mend are going to be in demand because the debt finance is going to be too expensive.

Sending aircraft overseas for heavy maintenance where all they know is how to replace stuff instead of repair it is going to become rather expensive.

ALAEA Fed Sec
19th Dec 2010, 11:05
Sunfish, in some Asian facilities they do not replace or repair. They turn a blind eye. We have dozens of reported cases were cards were signed for completed inspections and the Aussie upon checking noted that the panel to access the inspection area had not been disturbed.

Mr. Hat
19th Dec 2010, 11:21
Here's your chance:

CONTACT NICK - Nick Xenophon - Independent Senator for South Australia (http://www.nickxenophon.com.au/page.php?id=63)

Arnold E
19th Dec 2010, 11:22
Sunfish, in some Asian facilities they do not replace or repair. They turn a blind eye. We have dozens of reported cases were cards were signed for completed inspections and the Aussie upon checking noted that the panel to access the inspection area had not been disturbed.

Why not publish these reports?? (assuming they are true)

Shell Management
19th Dec 2010, 13:02
Its just more union scaremongering!

But back to the OP's question. Qantas is heading downhill. Its disgraceful treatment of the OEMs will come back to bite it. Especially as all the evidence is that they picked the wrong types for their future fleet (A380 and 787) and their maintenace standards are so low.

In 10 years they will be all but a domestic operator.

Crew rest.
19th Dec 2010, 14:22
Another frightening manifestation is that in the USA, car dealers are offering zero deposit, zero security loans for new vehicles. This applies to cars made in the USA as well as imports.

Did the banks learn nothing from the US housing meltdown? They have simply switched into a different market to sell credit. The bonus system of renumeration for bankers remains alive and well. However, this time they are providing credit for cars instead of houses.

Although the car manufacturers will get the benefit of demand, consumers are purchasing assets that depreciate as soon as they leave the shown room. Doesn't this sound similar to the real-estate bubble that burst and left the lenders with bad debts that required the public to bale them out?

ALAEA Fed Sec
19th Dec 2010, 18:46
Why not publish these reports?? (assuming they are true)

We have as much as we can and it is not just scaremongering. The problem is real and it is happening every day. Because the message is coming from a union does that make it ok to cut corners?

airsupport
19th Dec 2010, 20:37
Sunfish, in some Asian facilities they do not replace or repair. They turn a blind eye. We have dozens of reported cases were cards were signed for completed inspections and the Aussie upon checking noted that the panel to access the inspection area had not been disturbed.

And very sadly, I am guessing that the Airline does not really care as long as the check is signed off and at a cheap price. :mad:

breakfastburrito
19th Dec 2010, 20:38
Sunfish is correct. The US long term bond rate, has jumped significantly in the last 2 weeks, commodity prices are way up this year. Inflation comes in a thousand different flavours & the one coming down the line is cost of living inflation - food, energy & materials (things you need to live), whilst simultaneous encumbered asset deflation (real estate, cars, electronics - things you want) due to credit destruction. Money printing(QE.x) by the Federal Reserve is deliberately designed to export inflation to Asia to get it to break the yuan / USD peg, and force the yuan to upward. This "hot" printed money is not being lent to businesses, but used to purchase hard commodities, hence less business lending & commodity price increases. Food price inflation in China is currently running at close to 15%.
http://www.neurosoftware.ro/finance/wp-content/plugins/wp-o-matic/cache/ed042_chart.jpg

This type of inflation will start to show up in other things you need to live over the next 6 to 12 months, & significantly lower lending.

The The
19th Dec 2010, 21:42
Why is it just Qantas Sunfish?

I would expect that the low cost carriers will suffer the most and the quickest in a sustained debt crisis. Most LCC's are debt financed, highly leveraged with very low cash reserves. They rely on growth to sustain their business models.

It will be the major airlines with significant global alliances that that will be in the best position to negotiate the best deal within restrictive debt provisions.

There will also emerge a huge chinese/asian mega-carrier/alliance that will eat up many regional asian airlines. QF needs to be a part of it.

Sunfish
19th Dec 2010, 22:00
It ain't just Qantas. It's any airline that outsourced core functions. As for "Asian Mega Carriers" that is marketing hype that has been repeated at least Seven times since 1935. You do not want to "be part of it" whatever that means. The Asians will skin you alive.

I keep hearing these wonderful strategic mismanagement ideas every few years. Recently we had "Asian Tiger Economies", then there was the "Celtic Tiger". They are now as dead as the Tasmanian Tiger.

Asia has been trumpeted as a "huge growth opportunity" to westerners at least seven times since 1935 by my old dads reckoning he traded in Asia since 1935.

The line is always the same "X zillion Chinese, you sell to ten percent of population, you make lot of money!". Time after time Western businessmen have put their investment and technology in and vastly overcommitted themselves. Then the joint venture goes bad or something else happens. The investment is always lost, as is the technology. One guy I know lost everything and committed suicide.

There is no effing way Qantas or anyone else is going to "be part of it" and walk away with any share of the profits. Nobody gets to profit from the Chinese except other Chinese.. There is no skill or capability Qantas has that would be of the slightest interest to China that is not already available to them elsewhere as far as I can tell.

Please don't kid yourself about China. You will just become another of a long line that have had their fingers badly burnt.

gobbledock
19th Dec 2010, 22:15
Very interesting thread this one.

Sunfish makes a factual argument here. The 'bubble' that burst in 2008 is just a precursor to what is coming. The 2008 bubble saw businesses and banks go bust, not a good situation, but it was the tip of the iceberg. As predicted 18 months ago by astute financial people the next stage would be individual countries going bankrupt. Well it has already started, Ireland is broke, Greece, Italy and Portugal are on the brink, the USA is in a mess and by not raising taxes for another 2 years and printing money will see them digging a deeper hole by the day, the trilions being spent on wars and bailouts is unsustainable. The UK has no money, Australia for all it's mouthing off has a governement that is broke and states that are racking up more debt than can be paid off in 50 years ! Anybody who has their head in the sand and is living the fantasy that all is kosher in the worlds economy is a fool. And China is overheating big time and it is inevitable that they will start slowing right down as the growth rate is unsustainable. We havent even started talking about third world countries yet !
The governments are simply trying to delay the inevitable, they know what is coming and do not want you to see it. Mass panic is never good for elections is it ?

I agree with The The that pending future financial woes will affect more airlines than just Qantas which is just a grain of sand in the current financial climate. When the real bubble bursts we are all going to be in a world of hurt. Kiss your super goodbye, your house values will be half of what they are now and share portfolios obliterated. At the moment it is true - cash is king ! But only for now. Give it another few years and the governments will be picking the change out of your kids money boxes, it will be that bad.

Crew rest and breakfastburrito in their comments also paint a good picture of the state of things.
People need to start listening and unwrap themselves from the 'hear no evil, see no evil' protective covering they have cocooned themselves in. Things are not as they seem....

illusion
20th Dec 2010, 02:38
Sunfish,

An example of what you are saying was Foster's failed attempt to penetrate the Chinese market.

The Green Goblin
20th Dec 2010, 05:02
There is always the scaremongering glass is half empty type out out there!

To put it another way, Sunfish has been attacking Qantas since he joined this board.

To put it yet another way, it is getting very tiring.

To simply put it another way, Qantas will survive no matter what, it will just be owned by the Australian Taxpayer if the current morons continue on this path.

To put it another way and drive it home, I'm getting very tired of your negativity.

Putting it another way - leave this bored to professional Pilots, if you want to speculate on your conspiracy theories, join a business forum full of your favourite people, narcissists.

Romulus
20th Dec 2010, 05:12
Sunfish,

have to both agree and disagree with you on some points.

1: Slash and burn management is ridiculous, completely agree. I have no problem getting rid of non productive roles, far too often they come to dominate the workforce rather than the other way round and everyone wants to be a corporate type instead of getting involved in the actual work process.

2: I actually think debt will become CHEAPER in the not too distant future. Reason being the banks and other investment houses are sitting on massive piles of cash, be it from being bailed out with our money (they should have been forced to liquidate assets as the penalty the free market imposes rather than being bailed out with tax $$) or from their retail customers or whatever. The problem at the moment is they are currently not lending due to increased "credit concerns" at the "credit committee" who have to sign off on any loan whatsoever.

Currently they regard this as a prudent situation, they call it sound financial management etc.

And the lock up of money means minimal supply which is currently driving rates up.

BUT

Longer term they NEED to place that money somewhere. As confidence returns the lending flow will resume. And once it does those who lend early will lock in place some of the currently quite high rates. But as they do that will signal to the market that certain institutions are prepared to accept risk again and all of a sudden there will be the usual herd like mentality of bankers and they will all rush to try and claim the safest clients as quickly as possible. Qantas will rate as an excellent client and they will be inundated with offers as opposed to various low cost carriers or BA or other airlines who have much larger structurally embedded financial issues.

For confirming evidence on the banks piles of cash Google Krugman and see what he has to say on the matter.

Note that this does not mean it will get better for everyone, just those highly rated clients. Lower rated companies will have to wait until the exuberance of the bankers means they are willing to accept greater risks before they get allowed back into the tent of ultra competitive interest rates.

3: Currency appreciation is not always a good thing in terms of a nation's ability to win work. Taking China as one example you mention if their currency appreciates then they become relatively dearer in a world where the USD is the contract standard.

Equally when the Aus$ appreciates the way it has off shoring starts looking exceptionally cheap. Taking the move of the Aus$ from about US70c to US100c that means things are now about 50% better value (i.e. 30c in 70) for the same number of Aus$. That makes off shoring far more attractive and anything priced in US$ is also looking cheap. Doesn't matter where you purchase those items in the world, the US$ standard applies everywhere.

4: Qantas can now hedge at a far better rate than they have been able to for years. Sure they will have a certain amount of funds hedged at 70c and the like, equally they'll be scurrying around hedging whatever they can at current rates less a risk factor, and given the relative strengths and weaknesses of the Aus economy to the US economy those risk factors are currently less than they have been for years, probably decades. Sure, they may cost themselves a few cents of potential upside, but they can lock in and guarantee there is not 30c or 40c of downside. That's a great risk:reward tradeoff

5: Whilst I agree skills are extremely important we need to understand that cost effectiveness is important as well. In order to earn the $$ from operations to keep paying costs (inc staff costs) there will always be a cost benefit analysis that some people don't like because they disagree with any reduction in expenditure on certain things. Maintenance is one, nurses and school teachers are another. There's a strong emotive argument to be had but the facts are that people will simply not pay what it takes to cover higher maintenance costs or salaries for certain "worthy" professions. We don't necessarily like it but the very existence of low cost carriers (as an aviation example) indicates that a large number of customers ARE price sensitive despite what they say. Surveys will tell us time and again that people WANT to fly Qantas or BA or some other full service airline but they CHOOSE to fly Ryanair, EasyJet, Jetstar etc when they have to open their wallets.

Like it or not there's a tradeoff to be made, and given airlines like Singapore don't have aircraft falling out of the sky it's a very attractive option to have their people do maintenance at lesser costs than the Aus operations cost. As much as we may like to think we do the best maintenance anywhere the simple fact is that plenty of others do it just as well as we do and their planes fly just as well as ours. That's not going to be readily accepted but it is the way of it.

6: When you outsource with a high value Aus$ you get a lower cost on your checks, plus you avoid the need for capital expenditure for new tooling, facilities etc. Sure you pay for it as part of the check cost but that's a one off immediately deductible expense rather than a depreciable asset.

Again, we may not like it but that's the reality, the tax system actually stacks up against certain longer term investment.

7: No argument on training. I have never and will never believe in asking people to pay for their own training. I am perfectly happy with training bonds, if the company invests in the person then the person should pay that back. It's a two way street, the company SHOULD invest in people, the people SHOULD repay the company with some service in return. There's fault on both sides, too many companies don't/won't invest in their people, too many of the people they do invest in then take those skills and go elsewhere. A sensible training bond system covers both parties fairly.

Quick last one for Gobbledock: The Aus Govt broke? Methinks not. For all Howard's faults at least they were relatively prudent managers in the good times and paid off all public debt unlike Blair/Brown. Rudd/Gillard may be/ have been spending like drunken sailors but there's a way to go before they totally screw us up. Not to say they won't, but we're not there yet.

That's enough for now, probably get hit with a character limit or something anyway.

regs

R

7378FE
20th Dec 2010, 06:21
Qantas will survive no matter what, it will just be owned by the Australian Taxpayer if the current morons continue on this path.


Rubbish, QANTAS is a private company, the government isn't going to bail it out, It may however tax other airlines tickets to pay for employee entitlements. :hmm:

QANTAS is a dead man walking, sorry to say that and I wish things would have been different but that the way it goes,, It's called the airline business in the 21st century.

limelight
20th Dec 2010, 06:49
Latest from the 787 mill

Business & Technology | Dreamliner's woes pile up | Seattle Times Newspaper (http://seattletimes.nwsource.com/html/businesstechnology/2013713745_dreamliner19.html)

implications for QF are extreme, you can only keep the 74s and 76s in the air for so long.

TIMA9X
20th Dec 2010, 08:04
Could have something to do with the contents of this video as well ... only been posted for a few days and I have not seen a full western version saying "otherwise." An interesting aviation news angle that may interest LAME's on here who may not have seen it yet ..... link here: YouTube - People & Power - On a wing and a prayer (http://www.youtube.com/watch?v=IaWdEtANi-0) .

or click below.
.

IaWdEtANi-0

moa999
20th Dec 2010, 08:22
No way Qantas has its financing locked in - the current debt is under control but the big bogey (as a shareholder) is capex!!

Per last results Qantas Group presently has 254 aircraft, but has a massive 158 committed aircraft due by 2018

See pg 38 of http://www.asx.com.au/asx/statistics/displayAnnouncement.do?display=pdf&idsId=01087340

This will be a huge financing task
(albeit I cant see 50 787s being in grey or white by Jun-2018)
and one better hope the profit holds up

division1
20th Dec 2010, 09:00
What happened to the hollow log, 3.5 billion was it?
has it been squandered?

Sunfish
20th Dec 2010, 09:24
First, I'm amazed at the perceptive comments this thread has engendered. More tomorrow after a sleep.

LAME2
20th Dec 2010, 09:27
Welcome back Romulus.

Great video guys, suggest all watch and see parallels in Australia

Romulus
20th Dec 2010, 10:12
Hey LAME2, frequent lurker, rare poster tehse days.

Despite what someone else likes to think and say I reckon you guys work in a fantastic industry.

R

Foie gras
20th Dec 2010, 12:08
Prior to the inevitable implosion of this thread, I believe that Gobbledock has summed it up quite accurately.

We can see charts and stats highlighting the general state of play.
We can take on board what the 'fish' says and look at possible likely scenarios.
It's not positive, anyone should by now be seeing what is going on around them in the financial world.

Let's not get too carried away though,we've still got jobs and most importantly we've still got time.

The Irish are having a bad day, in particular the Leprechaun, huge loss of revenue with A380 and European Flight cancellations.
To be sure, he gets well rewarded for his headaches.
Nothing like predecessors and bankers though!
Whatever you say, don't say banker to this Irishman:-

YouTube - An Irishman abroad tells it like it is !! :-) (http://www.youtube.com/watch?v=koY6kXhQDQo&feature=player_embedded)

Sunfish
20th Dec 2010, 19:28
Romulus, I don't believe Debt is going to be cheaper at all. If you go back through the forecasting website I linked, you can look at the Government debt funding requirements of the rest of the world.

The situation is basically that Europe can look after itself. Don't believe the "financial porn" in all American originated news stories. That is part of an orchestrated campaign to both sink the Euro and deflect attention form Americas problems.

As for Britain, the IMF has enough to bail them out, just.

However the entire world does not have enough money to bail out the United States Of America. They are going to go over the falls. Please note that this is not about budget deficits as some politicians would have you believe, it is about maturing debt that has to be rolled over in 2011 - 2012. There simply isn't enough money for it.

That means, in my opinion, that corporate debt is going to be similarly hard to come by, particularly for airlines that have exposure to a collapsing tourist industry.

My opinion in part is driven by personal biases and experience. As an Engineering "concrete thinker" my strategic worldview tends to get built fomr the ground up - look after the pennies and the pounds will look after themselves, focus on customers and frontline staff to the exclusion of management, focus on maximising safety and minimising waste. Build in a measure of self sufficiency with enough in house engineering capacity to whether most, if not all shocks.

On that last point, suppose the North Koreans had responded to South Koreas artillery drills yesterday, last night American jets took out North Korean gun positions and today shells are falling in Seoul and the Chinese and Americans are rattling sabres at each other? Outsourcing to Hong Kong and Singapore still sounds good? You know what a tip grinder is? There used to be one at Fishermans Bend, not sure if QF had one, talk about strategic capability!

But this is just personal opinion. "Grand Corporate Strategy" brings me out in a rash because each time I've seen it, it descended into miserable farce and ruin. I watched a software company make the decision that computer mainframes and COBOL programmers were "Legacy systems". I watched as dozens of Cobol programmers with huge experience in their Forties and fifties and even Sixties were "let go".

They were let go because COBOL was a "Legacy Computer programming Language" and we are now going to a "Modern, Object Oriented language whose fundamental concepts are unlikely to be able to be understood by COBOL programmers". I was told they would "Pollute the culture" - the young dynamic Twenty something, sexy advanced culture we wanted to promote.

Guess what? We spent a fortune making people redundant and embittering them at the same time. We hired, at vast expense, a whole array of new talent that cost far more than the poor COBOL programmers. We invested millions in fancy new workstations, software, software architects, business transformation analysts, you name it.

All very sexy. The Twenty somethings got their doctorates writing our code, which turned out to be as buggy as the object oriented language we wrote it in. The analysts made the mistakes a Twenty something analyst would make. The VAX computers we tried to run these mission critical infrastructure systems couldn't take the load. In the end it was back to Industrial strength, but boring, COBOL and mainframes to provide a rock solid foundation for the business. There was no other choice. Then they had to hire COBOL programmers back, at vast expense, as they took their revenge on the company.

So when I hear words like "Legacy Airline", "pollute the cuture", "Asian Mega Carriers", "Jetstar", "Jetstar Asia", and the Qantas Group. I just shake my head and grin sometimes. I would currently assess QF's future as being a minor brand name for Singapore airlines or some other carrier in a few years time. While management will have suitable Golden parachutes, probably being topped up as we speak in advance of any Gillard Government reform, the reality is that Australia will be left where it was around 1935. No independent aviation capability in a what may well be a rapidly un-globalising world with distinctly nasty things going on.

Romulus
21st Dec 2010, 00:42
Romulus, I don't believe Debt is going to be cheaper at all. If you go back through the forecasting website I linked, you can look at the Government debt funding requirements of the rest of the world.

Got that, bear in mind that debt is a nil sum equation, when it becomes due it gets paid back, so someone somewhere always has a balancing entry. If there’s a default then the entry goes into a bucket that can’t be reloaned but there’s still the same sum of money out there. If debt gets paid back then that means the original lender then has capital available they want to make a return on so they start looking for places to put it. Ultimately they do the risk:reward tradeoff depending on their risk appetite and how much they want to earn, at present minimising risk is the preferred option but sooner or later those who take higher risk will make higher returns and the funding will go out again to those prepared to pay for it.

I accept that the conventional wisdom is that debt will get more expensive, equally there are a couple of relatively new factors at play that change things at the structural level.

The situation is basically that Europe can look after itself. Don't believe the "financial porn" in all American originated news stories. That is part of an orchestrated campaign to both sink the Euro and deflect attention from Americas problems.

As for Britain, the IMF has enough to bail them out, just.

However the entire world does not have enough money to bail out the United States Of America. They are going to go over the falls. Please note that this is not about budget deficits as some politicians would have you believe, it is about maturing debt that has to be rolled over in 2011 - 2012. There simply isn't enough money for it.

This is one of the keys. There IS enough money, the question comes down to what price will be extracted. If people bought the “too big to fail” argument about the banks then the world simply cannot afford for the USA to fail. Money will be found, whether we like to admit it or not the USA is still the key driver of economic activity for the globe

But where will the money come from?

Most likely, for the majority of it, the Chinese.

And as we are already seeing they are flexing their muscles in exchange for anything they do. The USA may not like it but then it’s what the USA did before, during and after WW2. It’s the nature of capital and the Chinese have experience in it as well. The Opium Wars were a direct result of China producing the goods that Western middle classes wanted. They were so successful that they held so much of the world’s foreign reserves they were distorting the market. Simply put, the West had nothing China wanted so we couldn’t get our hands on any of the hard currency and the trade flows were starting to lock up due to a paucity of finance

Sound familiar?

Ultimately Opium was introduced as a good that not only attracted a high price but built in a recurring market. Leaving the ethics of the drug trade aside it was a brilliant solution. Devastated the locals but achieved the aim of liberating global trade from the credit crunch. Ultimately the devastation was so bad the Chinese took up arms and got caned, the terms of settlement kept the terms of trade flowing and away the world went.

If you look through history many wars, in fact the majority of wars, come down to trade. Rome vs Carthage was a classic. The Opium wars. Japanese involvement in WW2 was a direct result of American oil and other embargoes. Religion usually cops a lot of the blame but ultimately it usually comes down to money.

The Golden Rule applies: “He who has the gold makes the Rules”

Right up to the point he who hasn’t got the gold but has the muscle decides he wants the gold in the old fashioned way of might is right.


That means, in my opinion, that corporate debt is going to be similarly hard to come by, particularly for airlines that have exposure to a collapsing tourist industry.


In some ways yes.

Bear in mind a couple of factors directly related to this specific case however:

1: China needs Australian raw materials to keep their own economy growing. This is incredibly important to the Chinese because having given the masses a taste of (comparative) wealth there will be an open revolt and the ruling party will be toppled.

Which they don’t want.

2: Australia needs China to need our raw materials, it’s the key reason we have great trade at present.

3: That trade leads to a potential inflationary spiral which in turn means the RBA keeps our interest rates relatively high in global terms. And that keeps our $ high.

4: That high $ protects us from a lot of issues such as cost of fuel, cost of materials etc that we would otherwise have to pay more Aus$ for in order to pay the same number of US$.

5: That high Aus$ also makes us the “new USAmericans” in terms of world travel. Our dollar lets us go anywhere because all of a sudden holidays are 50% cheaper when we get there. Right now people are taking shopping trips to the USA.

Shopping trips.

That’s just insane, but it works. Globalisation of finance and communications technology coupled with cost effective airlines, allows us the means (money and perhaps more importantly credit card interoperability allows us to purchase goods anywhere), to take advantage of our knowledge (the internet allows me to compare prices of Zegna suits in Italy, LA, New York and London and find that I can get them at about half of the local Aus$ cost as an example) and the ability to get there to check it out (globally competitive airlines mean everyday people can afford international travel).

So right now Qantas as the biggest Australian carrier is carting loaded up Aussies off to the USA to spend money and buy stuff. That gives them a base load of utilised capacity that is protected to a significant degree by certain government agreements and positions.

And that makes Qantas a lower risk than other premium airlines like BA who don’t have similar benefits driving them forward whilst also maintaining the credit worthiness advantages of being a full service carrier rather than one of the new low cost carriers.

All of which means when money starts flowing again Qantas will be pretty close to top of the pile of preferred clients for the money lenders

On that last point, suppose the North Koreans had responded to South Koreas artillery drills yesterday, last night American jets took out North Korean gun positions and today shells are falling in Seoul and the Chinese and Americans are rattling sabres at each other? Outsourcing to Hong Kong and Singapore still sounds good?

This is in part the old world paradigm. What effect did Kuwait/Iraq/Afghanistan have on outsourced activities?

In the modern globalised world it would take a major conflict between at least two of the USA, NATO, China and Russia to make a truly global impact.

And they know it.

And they know if they pull the trigger against each other they are the ones with the most to lose. Because they will destroy the world economy which is what now drives and provides the improved living benefits.

The key exception is the USA because in any non nuclear war they win. Simple as that, they have the technology, they have the military capability, they have massive advantages in the military field right now. Sooner or later they’ll get caught up, but the investment in military technology to get there is massive.

So there’s no point letting the USA fail because they have the ultimate power to resort to – superior military capability. Sure, others can go nuclear but that is a guaranteed loss for everyone, the only nation with the current power to win at global war is the USA.

So there’s no way on earth anyone would pick that global war. Do it via proxy in limited conflicts but overall as long as the USA doesn’t back people into a corner they can do pretty much what they want and the world has to support them or everyone loses.

So the money will be found.


There was no other choice. Then they had to hire COBOL programmers back, at vast expense, as they took their revenge on the company.

No argument that skills need to be maintained

So when I hear words like "Legacy Airline", "pollute the culture", "Asian Mega Carriers", "Jetstar", "Jetstar Asia", and the Qantas Group. I just shake my head and grin sometimes.

Equally if a company doesn’t progress and move with the times where does it end up?

The old story of how many of the Top 100 companies in 1910 are still around applies.


I would currently assess QF's future as being a minor brand name for Singapore airlines or some other carrier in a few years time.


I guess we have to agree to disagree. Whilst I’m not saying Qantas is perfect or even close to it (I hate the new Sydney check in system for instance – it reeks of low cost carrier whilst I pay premium full service rate – and on the first day it came into service I gave a mouthful to some suit wearing smug type who was surrounded by his band of flunkies because it was so pathetic) they will be around for a long time. I prefer the A380 to any other plane currently flying and book my schedule around when I can travel on one, the 747 is rubbish in comparison from a customer viewpoint (not surprising given it’s decades old and there’s only so much refits can do), and when the 787 comes along I have no doubt that will be just as brilliant a customer experience.

Given Qantas will be the major carrier using those types in and out of Australia (and let’s be honest there’s no way Boeing are not going to do whatever it takes to get ETOPS accreditation) they have set themselves up to gain an inherent competitive advantage in customer service which they can afford for the reasons outlined above.

My belief is Qantas will be around for a long while yet, they will gain a lot of customer loyalty based around the new aircraft types creating an excellent customer experience (even the 777 is a poor comparison from a customer experience point of view to the A380 and the customer specs for the 787 are better again although more of an incremental improvement over the A380 rather than the full step change the A380 is over current aircraft), they have the financial capability backed by a resource driven economy with the resulting strong currency offsetting US$ costs and they’re prepared to take unpopular decisions. As I said, I don’t agree with all of them but that’s what their senior guys are paid to do.

Overall I see Qantas being around for a long time as a successful airline. What that means for individuals is less certain, the high Aus$ makes outsourcing more attractive and that’s a simple fact. The customer will decide what they want to pay and the rise of LCCs indicates cost is a key factor for enough people to make it a concern for Qantas. That means, like it or not, we need to find ways to be more effective in Australia in order to keep the work onshore. In the global environment we need to justify our superior wages and conditions, we need to provide that value and it can be done, we just have to make sure that we don’t give the buggers an excuse to take it offshore.

And that DOESN'T mean we shouldn't pay people well, it means we should build a system that provides such a massive value for money benefit that they can't get better anywhere else

gobbledock
21st Dec 2010, 09:42
Some very informative discussion about finance, business, economies and aviation here, and the varying degree of personal opinion has not yet degenerated into a slinging match which is truly fantastic, excellent work.
Romulus -
This is one of the keys. There IS enough money, the question comes down to what price will be extracted. If people bought the “too big to fail” argument about the banks then the world simply cannot afford for the USA to fail. Money will be found, whether we like to admit it or not the USA is still the key driver of economic activity for the globe
The USA is desperately trying to hang on to it's title, but the title is slipping away. They have the worlds highest default on housing loans, currently over 10% or closer to 11%, spiralling unemployment, printing money, massive debt, expenditures that are outgrowing input, a refusal by government to at least raise personal tax at the high end so as to offset some of the inbalance, they are borrowing huge amounts from China just to keep afloat, and have a dropping dollar value because investors are seeing a weakness in the value of their currency ! This is not a good situation. The real 'bubble' is expanding and I give it two years at the most, and when it bursts we won't be debating the financial health of Qantas, we will be consumed by a more sinister world crisis.

The Golden Rule applies: “He who has the gold makes the Rules”

That will be China.

2: Australia needs China to need our raw materials, it’s the key reason we have great trade at present.
3: That trade leads to a potential inflationary spiral which in turn means the RBA keeps our interest rates relatively high in global terms. And that keeps our $ high.
4: That high $ protects us from a lot of issues such as cost of fuel, cost of materials etc that we would otherwise have to pay more Aus$ for in order to pay the same number of US$.
Yes they do need our raw materials. But for how long ?? China is overheating, China is growing at a rate they can no longer sustain, once China rapidly cools off ( and most likely within 2-3 years rather than 20-30 years) Australia is in deep sh#it. The bubble for us will have well and truly bust with ramifications that are simply unfathomable.

Cheers

Foie gras
21st Dec 2010, 12:05
Game's over, it's only inertia that's keeping the ship afloat.
System was insolvent in 2008, AND still is!

A Confidential Report on 17th March 2008, by Mervyn King, Bank of England Governor states:-

"SUBJECT: BANKING CRISIS NOW ONE OF SOLVENCY NOT LIQUIDITY"

The story continues in one of the Wikileaks cables, as reported in the Guardian:-

US embassy cables: Mervyn King says in March 2008 bailout fund needed | Business | guardian.co.uk (http://www.guardian.co.uk/world/us-embassy-cables-documents/146196)

T-Vasis
21st Dec 2010, 12:14
Doesn't Qantas have some 15 + billion in cash?

If so, that will provide Qantas with some buffer to counter any "crisis"...

Romulus
21st Dec 2010, 18:22
As for corporate liquidity and thus cash reserves that will need to be invested sooner or later (even if that is done in the form of capital returns to shareholders which gets the cash cycle flowing again) here's a pretty good report

Roubini Global Economics - U.S. EconoMonitor (http://www.roubini.com/us-monitor/259217/corporate_america___s_pile-o-cash)

All that cash is available to be used when corporations need it. Whilst the rabid right (bear in mind most would consider me a free marketeer member of the right so rabid in this context is whee some of Sarah Palin's more extreme types sit) might dispute it the reason corporate aren't spending is because they have plenty of curent capacity caused to a significant extent by lack of demand in times of a depressed global economy. When they need to spend they will, when Qantas needs to fund new aircraft they will. They just don't need to right now because beyond the odd A380 rolling off the line they've got nothing to pay for. When the 787 is ready to roll then they will spend. If they need additional spares and capital equipment they will spend.

Same for other industries. I don't know why anyone who would build a new commuter motor vehicle plant at the moment, but I do know that certain vehicle plants associated with the mining industry are being built. Simply because the demand is there. China has brought huge production volumes on line for all sorts of commercial goods, until that capacity is absorbed by consumer demand then capital investment will remain lower than during the period this equipment was constructed. Simple as that.

So, in my opinion, there's plenty of cash out there to undertake whatever capital works are needed to be undertaken, and if not invested in capital works to obtain a reutrn for the shareholders/investors then it will need to be placed somewhere else for somebody to undertake some fom of capital investment and as the graphs in the linked article show there is so much of it that once confidence retruns at a trickle there will be an almighty rush to secure the most credit worthy clients to earn a good and superior return on the currently stockpiled cash.

Qantas is one of those clients.

Sunfish
21st Dec 2010, 19:30
Romulus, I hope you are right for the sake of QF, but I'm not so sure.

I've recently become aware of just how corrupt international financial markets are and I am very concerned at the assumptions people keep making.

For example, "Australian labour costs are high" - compared to what? What is really important is labour productivity, and when you factor that in, the difference is not necessarily that great. Then factor in the known behaviour of outsourcing contractors. Outsourcing costs only ever increase, unless you are outsourcing into a market where there is plenty of competition and competitors.

I am concerned that the world is reaching a tipping point very quickly, as are other commentators such as the ones I first linked to, and that America is not in a "normal" cyclical recession. There are subterranean changes going on, revolving primarily around the fact that India and China are developing middle classes comparable in size and appetites to America and Europe. There are simply not enough natural resources on this planet to cater for their wants. Something has to give. There is a seismic shift coming.

In my opinion, the American ruling class are in the process of lowering their citizens expectations, impoverishing millions of them, and girding themselves for domestic unrest. China is dealing with its perpetual problem - maintaining internal order while seeking natural resources in support of increasing living standards. As far as I can tell, India is doing the same. Russia is trying to reassert itself.

...So here we sit, fat and happy, and the "Qantas Group" is blithely talking about limitless growth, and grand strategic visions, with Rolls Royce Powered European built aircraft, filled with American avionics, sweeping into Shanghai to pick up loads of affluent Chinese and take them to the holiday of a lifetime in Australia? Half a dozen hedge fund managers on Wall Street can destroy that vision in a few weeks.

If it was me, I'd be closing Jetstar Asia, working out how to integrate Jetstar and Qantas mainline. Praying that the B787 works as advertised and arrives soon. I'd be shoring up finances right now and working out how I was going to maintain a fleet in a thin market. I'd be looking very hard at B787 initial provisioning and ensuring that I could do as much "in house" maintenance as possible. I'd be thinking about selling the A380 off and focussing on the 747 - 800 if I could satisfy myself that there was more than a little commonality.

I'd be talking to the Federal Government about our relationship with Singapore and our common interests in maintaining high technology equipment as well.

Call me a scare monger, I probably am, but bear in mind that before WWI and WWII, knowledgeable people advanced the argument that conflict was unthinkable because the economies of France, Germany and Britain were so intertwined. All it takes is a few demarches to be exchanged and American technology won't be going into European aircraft, Rolls Royce engines won't be going to China and we will be back to Bretton Woods and a Gold standard.

WorthWhat
21st Dec 2010, 20:24
Closing Jetstar Asia and working out how to integrate Jetstar and Qantas mainline..
Is a bloody Big Call Sunfish.

Wouldn't advocating that Qantas own only 49% of Jetstar create sufficient independence whilst still protecting its flanks.

Captain Sherm
22nd Dec 2010, 00:04
Some excellent and thought-provoking thinking on this thread and the parallel "Invincibility" thread....should be merged really.

I finally found a quote which has been going round in my head for a while.....not sure if it's been on Prune before, apologies of it has. But I think it's relevant.


“There is scarcely anything in the world that some man cannot make a little worse, and sell a little more cheaply. The person who buys on price alone is this man’s lawful prey. It is unwise to pay too much, but it’s worse to pay too little. When you pay too much, you lose a little money — that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing it was bought to do. The common law of business balance prohibits paying a little and getting a lot — it can’t be done. If you deal with the lowest bidder, it is well to add something for the risk you run, and if you do that you will have enough to pay for something better.”


John Ruskin, English critic, essayist, & reformer (1819 – 1900)

My very best wishes to all Pruners and their families for a happy and blessed Christmas and safe skies for 2011.

Sherm

Sunfish
22nd Dec 2010, 05:39
Capt Sherm:

Some excellent and thought-provoking thinking on this thread and the parallel "Invincibility" thread....should be merged really.

I finally found a quote which has been going round in my head for a while.....not sure if it's been on Prune before, apologies of it has. But I think it's relevant.


“There is scarcely anything in the world that some man cannot make a little worse, and sell a little more cheaply. The person who buys on price alone is this man’s lawful prey. It is unwise to pay too much, but it’s worse to pay too little. When you pay too much, you lose a little money — that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing it was bought to do. The common law of business balance prohibits paying a little and getting a lot — it can’t be done. If you deal with the lowest bidder, it is well to add something for the risk you run, and if you do that you will have enough to pay for something better.”


John Ruskin, English critic, essayist, & reformer (1819 – 1900)

My very best wishes to all Pruners and their families for a happy and blessed Christmas and safe skies for 2011.

Sherm

The Ruskin Quote - about the seeker of the cheapest price being lawful prey, was cast in bronze on a paperweight produced as a desk ornament by Burlington Mills, a major American cotton spinner circa 1960, that graced my Dad's desk. I think we still have it somewhere.

People forget the message.

Merry Christmas to All.

Capt Fathom
22nd Dec 2010, 09:38
Sunny,

Following on from your Qantas predictions, any chance of getting the winning Lotto numbers for next week? Ta. :E

ampclamp
22nd Dec 2010, 11:26
That my dear captain is pure crystal ball stuff.Sadly just chance.:sad:

I disagree with some of sunny's hypotheses but I do respect him for thinkng about it and offering his experience.Most of all he has stuck his neck out leaving himself open to all and sundry for comment and ridicule.Right or wrong that deserves respect.:ok:

oicur12.again
25th Dec 2010, 01:43
“In my opinion, the American ruling class are in the process of lowering their citizens expectations, impoverishing millions of them, and girding themselves for domestic unrest.”

I suspect you are correct.

First you make them scared, then you make them poor . . . .

“ . . . and we will be back to Bretton Woods and a Gold standard.”

I agree. The wheels came off back in 1971.

teresa green
25th Dec 2010, 09:15
Perhaps Sunfish, you would be kind enough to tell us, what is going to happen to this country, (never mind QF) if this God awful hybrid Govt. continues on its merry way (I am really looking forward to the Greens controlling the senate in July, NOT) because what happens to this country is going to affect every airline in this country, not just the QF group. The Question should be: How will QF and other airlines survive this govt.? (Make that along with the rest of us).

breakfastburrito
25th Dec 2010, 09:44
A (long) thought provoking talk by James G Rickards (http://outerdnn.outer.jhuapl.edu/rethinking/VideoArchives/MrJamesGRickardsPresentationVideo.aspx) recently covering the global economic outlook, focused in particular on the US/China economic situation & the likely outcomes for money printing, debt defaults,inflation .
This guy is no dummy, here's his bio.
Prior to Omnis, Mr. Rickards held senior executive positions at "sell side" firms (Citibank and RBS Greenwich Capital Markets) and "buy side" firms (Long-Term Capital Management and Caxton Associates). Mr. Rickards has been a direct participant in many significant financial events including the 1981 release of U.S. hostages in Iran, the 1987 Stock Market Crash, the 1990 collapse of Drexel and the LTCM financial crisis of 1998 in which he was the principal negotiator of the government-sponsored rescue. He has been involved in the formation and successful launch of several hedge funds and fund-of-funds. His advisory clients have included private investment funds, investment banks and government directorates. Since 2001, Mr. Rickards has applied his financial expertise to a variety of tasks for the benefit of the national security community.

ampclamp
25th Dec 2010, 20:48
I know politics is not the thing here but if the major parties joined forces every now and again the greens would control SFA.
So blame the majors they still control the vast majority of votes.
Greens policies need the full public acid test.Some are clearly silly others fine.

QF pax numbers well up domestically and not as bad as thought on the OS side considering the 380 probs.Things travelling OK.
Debt is getting more expensive but the big corporate world is cashed up, the USA is recovering.Funding from cashflow was the call from the QF camp a while back.

teresa green
25th Dec 2010, 22:26
Ampclamp, it is impossible to seperate Govt. and Airlines. If this country goes down hill, it has always been the airlines that first show thats things are not travelling well. I admire your optimism, but hell will freeze over before the major parties will agree on anything, much less what to do with the loony left. I and most of you, in my opinion, have every reason to be concerned about what is happening to this country, and what we are going to leave in debt to our children and grandchildren. Anyway, time for the most important thing of all, The Boxing Day Test. At least we might get a win there!

standard unit
25th Dec 2010, 22:46
and what we are going to leave in debt

Perhaps you'd like to do some research on Australia's debt levels as a proportion of GPD and get back to us.........:rolleyes:

teresa green
26th Dec 2010, 06:41
Spending a 85 milllion dollar surplus, on crazy schemes of which most were and still are a disaster, bleeding 100 million dollars a day, how long do you think we are going to continue before the birds come home to roost? It might look ok at the present time compared to the US and some European countries, but it cannot continue. With a govt incapable of organising a grape vine over a fence, and the country heading up the proverbial creek, with the Labor Party paddling one way, and the Greens paddling another, we are going around in ever increasing circles. And yes the Airlines as always, will be the first victims. Thats your job mate, and many others. I really hope I am wrong, but I would like to be as sure as winning Lotto.

gobbledock
26th Dec 2010, 12:09
The next collapse will be different. There was significant financial reform following the crisis of the 1930s but so far the Obama administration has not completely fixed Wall Street. While the reform package approved by Congress recently might make crises less frequent and milder, critics point out that derivatives have not been completely brought out from underground, banks will remain big and interconnected enough to present risks to the system with new financial tricks, and regulators have been left with the same discretion they had, and failed to use before the crisis. History tells us it will happen again.


An interesting point was when Paul Volcker, the former chairman of the Federal Reserve who was named by President Obama to lead the President's Economic Recovery Advisory Board put it bluntly to The New York Times: ''People are nervous about the long-term outlook, and they should be.''


I have stated previously, the bubble of 2008 was a precursor to what is coming. Nothing is fixed, only a patch up job has been done to buy time. Don’t believe what you see. Australia in comparison to the rest of the world escaped reasonably unharmed, but that does not mean that under the surface the cauldron isn’t ready to spill. The majority of people are at financial breaking point, yet banks are still lending to those who cannot afford to pay it back! Look at this Xmas as an example, billions racked up on credit cards while people’s utility bills go unpaid. And as for those certain retailers advertising 36/48 month interest free and no repayments , well those greedy businesses are actually contributing to a mini subprime crisis all of its own.


When the biggest of all bubbles bursts, I give it two years, there will be unimaginable pain. What will the government do then? Corporations bankrupt, a country teetering on bankruptcy, no money in the pot to spend on stimulus?? As for the airlines, well……

Sunfish
26th Dec 2010, 21:07
Gobbledook, the tea leaves I'm reading show exactly the same thing as you suggest.

The issue at this stage is debt - specifically American debt. There is not enough money in the world to finance its rollover as it matures, let alone borrow more.

What I see happening in America is tragic. Obama is a disaster and the very rich special interests run the country. They blame the poor and unemployed for their own predicament and are busy establishing an Orwellian authoritarian capability to deal with, and suppress, the domestic political unrest that is going to inevitably occur.

For example, the American action of creating "fusion centres" where Government, corporate and local law enforcement data is seamlessly joined to create a complete profile of a person is lethal to democracy. One does not even have to commit a crime to be on the watch list as airline travellers have already found out. Simply attending a political demonstration is enough to do it.

It's lethal because its easy to construct a "watch list" that allows anyone with access to it to harass others at will because of their political affiliations. This is already happening on a small scale in America to air travellers, but the screening system is going to be extended to train and bus travellers soon. Number plate recognition cameras are already available that control road movement. Experience shows that such technology is inevitably misused, as it has been in Australia already.

We already have such technology in Australia. The Victorian police use number plate cameras and laptops as part of their "random" breath testing regime. They park the car with associated dashboard camera a kilometre before the checkpoint, the laptop contains the full details of the Victorian (possibly Australian) criminal and misdemeanour database. If the registered owner of the car has a drink driving conviction, a drug conviction, driving while unregistered conviction in fact whatever profile they set, the laptop will beep, pull up the details which are then radioed ahead to the "random" checkpoint. It is absurdly easy to transform this database into a "sh1t list".

The issue for Australia is to "decouple" from the American economy as much as possible and as fast as possible. We then have to ensure that our political parties of both types are given the political will to reject the American Orwellian tendencies that invariably cross the Pacific after a few years.

I'm just praying that we are far enough away from America that we can avoid getting trampled in its death throws. Then we have to deal with China, at which point we may very well have to construct our own nuclear deterrent.

breakfastburrito
27th Dec 2010, 02:16
Sunfish +1000. Good summary of the coming Facist state. Your comments about debt has a certain irony. The trap has already been sprung shut. What the vast majority don't realize is that the "money illusion" that is fiat currency (paper,coin & bank accounts) is actually a debt instrument (it is a zero maturity bond). In essence, it is an IOU, its acceptance by others is based only on the faith that others, in turn will accept it for their labours.

Since the 15 August 1971, the world has operated officially on a pure fiat money system (Bretton Woods II), with backing only in the full faith & credit of the US. Unofficially, under BWII we have been operating on the oil standard -USD can be exchanged for oil (Saudi & ME producers will accept USD for oil, in return for military protection provided by the US).

However, since the official restrain of the need to back the currencies with gold was removed by Nixon, the global credit creation system has essentially run unchecked. However, much of this currency inflation has been in the asset side (reserves) of the economy, thus not raising "official inflation". Peter Warburton provides an excellent summary of this process in Peter Warburton: The debasement of world currency: It is inflation, but not as we know it. (http://www.gata.org/node/8303) There has been so much credit created, that it cannot possible purchase all physical assets, there simply aren't enough available.

In essence, the insiders (China included) are trading in their paper IOU's for hard physical assets, and once this process is complete, fiat currencies will be allowed to fail & a new commodity backed currency will emerge as a reserve currency, backed with the assets of those insiders. The aim is to create a private global reserve currency, controlled by a very small group of wealthy families.

Those left holding paper assets will then have worthless paper IOU's (think superannuation, bonds & bank account) and be totally dependent on the state for the essentials of life. They will provide the slave labour for the global corporations. Just look at how South America has worked for the last 500 years, with continuous currency debasement. Argentina in 2001 was a poster child, with insiders converting their peso's to USD, gold & silver shortly before their crisis & hyperinflation (un-pegged to the USD). The wealthy (insiders) became wealthier, and 98% of the population became destitute in a couple of months. This same process has been repeated thousands of times (3800 at last count) with all fiat currencies throughout the record history of paper money failing. The average life expectancy of a fiat currency is 15 years, with very few lasting more than 40 years. Guess what, the pure US currency is 39 years old.


If you think I sound like a nut job, then you are not paying attention to the jungle drums.
World Bank President Robert Zoellick reaffirmed his proposal to use gold as a "reference point" to reform the current international monetary system on Wednesday in Paris.

"What I suggested is that gold serves as a key reference point to allow people to assess the relations between different currencies," Zoellick told the press here at the end of his meeting with French President Nicolas Sarkozy in the Elysee Palace.

"It's an approach that we can take, others also estimate that we can establish a benchmark against prices of principal commodities," the World Bank president said in response to a journalist's question.

"I didn't propose a gold standard, which is an important distinction because it would directly link currency to gold," said Zoellick, denying reports that he had called for a return to the " gold standard" to modify the present monetary system, which he called "Bretton Woods II."

"The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values," Zoellick wrote in an article published in Monday's Financial Times.

Some media said Zoellick's proposal to revive gold's role in guiding exchange rates worked as a shock wave to current discussions and disputes over the international monetary system.

The "gold standard" is a system in which the standard economic unit of account is a fixed weight of gold.

Under the Bretton Woods system, which was set up in 1944 in the United States, the U.S. dollar was directly pegged to gold -- 35 dollars equaled per ounce -- while other currencies were pegged to the dollar. The Bretton Woods fixed exchange rate regime broke down in 1971, when the United States unilaterally terminated convertibility of the dollar to gold.

gobbledock
27th Dec 2010, 02:24
The aim is to create a private global reserve currency, controlled by a very small group of wealthy families.
Enter the Illuminati.

mmciau
27th Dec 2010, 02:28
Sunfish,

If we didn't know better, we'd think that the USA's TSA is a classic example of a 'watch list' organisation at play and for every reason other that its charter - homeland security.:eek::eek::eek:


mike

gobbledock
27th Dec 2010, 02:42
You can add this to Sunfish last post -

Little Johnny snuck this ‘special’ in back in 2005;
‘Schedule 7 of the Anti-Terrorism Bill (No.2) 2005, passed by the Upper House on 6 December 2005, repealed Sections 24A to 24E of the Crimes Act (1914) and reintroduced them, along with several new classes of offence, in a Division 80—Treason and sedition. Crimes in this division now attract a maximum penalty of seven years' imprisonment’.

Sedition laws are another measure introduced in an attempt to seize and control the masses if and when required. Don’t think this was introduced just to prevent future terrorist activities, it goes way deeper than that.

FGD135
27th Dec 2010, 02:45
Sunfie,

You assert that Qantas will go broke because of their prediliction towards outsourcing. You associate outsourcing with debt and it is this debt that you claim will sink Qantas.

The premise of your assertion is flawed, I respectfully suggest. Outsourcing does not require debt. An expense from outsourcing is no different to an expense arising from a function performed internally - the only question is whether you have enough dough to pay for it.

You seem to have a major objection to the idea of outsourcing. Perhaps this is because it wasn't in the widespread use in your day as it is today.

The theory of outsourcing is perfectly sound. It holds that the outsourcing of a particular function will be cheaper than to perform that same function internally.

Whether this is actually true for every application of outsourcing is debateable - as you would appreciate.

Arnold E
27th Dec 2010, 02:51
Isn't it true that if you do something internally you have an asset, but if you outsource you have a debt.:confused: Maybe I am wrong, I am not a financial wizz like some here, it just seems that way to me.

oicur12.again
27th Dec 2010, 03:34
"a new commodity backed currency"

The Amero maybe?

The Triffin dilemma is upon us.

Zapatas Blood
27th Dec 2010, 03:52
Brekky

"Unofficially, under BWII we have been operating on the oil standard -USD can be exchanged for oil"

This is true and this is why we have seen the start of the never ending resource wars in the ME.

Oil price must be controlled, its transportation must be controlled and it MUST enter the market priced in USD to slow the decline of the US economy.

Sep 11/terrorism is NOT why conflict is happening.

The crunch will come when Iran convinces KSR to go off script and sign oil deals with major importers priced in yen/euro etc.

Thats when the real fighting will start but the lemmings will be duped into thinking its because of the terrorists or the communists or the chinese or the men from mars and history will be taught as such.

Global geopolitics right now is the mad scramble to prepare for a new financial world order. Everything from NK to Iran/pak/Iraq/Afgh/russia is about oil and gas.

breakfastburrito
27th Dec 2010, 03:53
Triffin paradox indeed oicur, And Larry Summers and crew thought they had solved the dilemma in that famous paper. A commodity back currency conveniently sidesteps this problem for the "host" country. However, the host country cannot gain advantage from seinerage.

Sunfish, they are now proposing to have the military in soft targets
US to step up security at hotels and malls
The United States is stepping up security at "soft targets" like hotels and shopping malls, as well as trains and ports, as it counters the evolving Al-Qaeda threat, a top official said Sunday.

A year after a foiled plot to bomb a US-bound passenger plane, Homeland Security Secretary Janet Napolitano told CNN's "State of the Union" program that other places and modes of transportation must now be scrutinized.

"We look at so-called soft targets -- the hotels, shopping malls, for example -- all of which we have reached out to in the past year and have done a fair amount of training for their own employees," Napolitano said.

Since an attempted bombing on a packed Saturday night in Times Square in May, New York (Xetra: A0DKRK - news) , for example, has installed hundreds of security cameras as part of a plan to triple the number of cameras to 3,000.

In September, the city activated some 500 new surveillance cameras at its three busiest subway stations -- Times Square, Penn Station and Grand Central (5592.KL - news) .

"The overall message is everything is objectively better than it was a year ago, particularly in the aviation environment. But we're also looking at addressing other areas," Napolitano said.

As extremists struggle to circumvent tighter security at airports and search for new avenues, she said US officials were looking to step up broader measures.

"What we have to do is say, well, what other ways are they thinking to commit an act, because our job is not only to react, but to be thinking always ahead, what could be happening," Napolitano said.

"And so we have enhanced measures going on at surface transportation, not because we have a specific or credible threat there, but because we know, looking at Madrid and London, that's been another source of targets for terrorists."

Suicide bombers killed 52 people aboard a bus and three London Underground trains in 2005.

And in Europe (news) 's worst terror attack, 191 people were killed and nearly 2000 injured in Madrid in March 2004 when 10 backpacks filled with nails and explosives went off on four trains during morning rush hour.

"It means, as we make the land borders harder to cross from a land border crossing standpoint, that we need to be looking out into our coasts and to the waters," said Napolitano.

Last Christmas, Umar Farouk Abdulmutallab, a young Nigerian who claims to have been trained by Al-Qaeda operatives in the Yemen, failed to detonate explosives concealed in his underwear on a packed transatlantic airliner as it came in to land in Detroit.

The US authorities responded by installing new screening machines and initiating draconian body searches at airports.

Napolitano said international travelers in the United States also face tight intelligence screening even before they reach the boarding gate.
source (http://uk.finance.yahoo.com/news/US-step-security-hotels-malls-afp-1121918413.html?x=0)
"Work camps" to follow perhaps?

bubble.head
27th Dec 2010, 04:17
Qantas wants its image to take off after a tough year | The Australian (http://www.theaustralian.com.au/business/qantas-wants-its-image-to-take-off-after-a-tough-year/story-e6frg8zx-1225976464234)

Article on Qantas and abit of quotation from AJ in The Australian.

Funny how he failed to mention to invest in his own employee to improve the image. :ugh:

No Idea Either
27th Dec 2010, 04:30
The theory of outsourcing is perfectly sound. It holds that the outsourcing of a particular function will be cheaper than to perform that same function internally.

Initially......Sunfish did mention (as have others) the fact that the whole industry has been de-skilled (manpower) and de-tooled (plant and machinery)(is that a word?). The way I see it, nice low price for 5-10 years, its a medium to long term plan, suck them in, let them get rid of their people and machinery and then hike it up....WAYYYYYYY up. What choice do you then have. If you want your machines serviced you pay. You might try and look around but the only alternatives will be in ca-hoots by then. This has been talked about for the last 15 odd years since serious outsourcing began. It will be a problem in the very near future. I would almost go further into debt and place a wager on that one!!!!!!!!!!!!!!!

Just my two bobs........

TIMA9X
27th Dec 2010, 07:24
The way I see it, nice low price for 5-10 years, its a medium to long term plan, suck them in, let them get rid of their people and machinery and then hike it up....WAYYYYYYY up. What choice do you then have.Yep, spot on..... That is exactly what they are thinking in Singapore & Hong Kong. In line with what Kerry Packer once said about Alan Bond when he sold Channel 9, "you only get one "Alan Bond in your business life." A few years down the track he bought it back for under half the price...

Probably when AJ departs QF with a rather fat bonus his successor may be battling a new front.... the high cost of offshore maintenance! :ugh:

By then, I suppose our friends in Asia will be saying.... "those Australians, you only get one QF in your business life" hook line and sinker! :p

mmciau
27th Dec 2010, 07:38
No Idea Either,

In my last job, i tried my darnedest to preserve the organisation's "Intellectual proprietorship" and "industrial Advantage" but there were Managers with an agenda that left a lot to be desired.

I give my old organisation 3 years and it will have lost a lot of its market place position.

You sell off your skilled persons advantage, their infinite wisdom and skills and you will pay the penalty.

Mike

Foie gras
27th Dec 2010, 08:17
December 27, 2010
AUSSIE banks, once held up as the envy of the world, are now at the mercy of foreign lenders.

Despite the Federal Government's measures to boost competition in the banking market, little has been done to address the huge reliance on overseas lenders to fund our mortgage market.

Official figures show our banks now owe overseas investors a record $352.7 billion, equivalent to 27 per cent of the country's entire economic output.

The extraordinary figure, contained in data from the Australian Bureau of Statistics, is fuelling concerns Australia's financial system is becoming over-stretched.

Homeowners could be vulnerable to rate hikes both by our banks and the foreign investors that help fund them.

Global fund managers are already getting nervous about Australia's overheating property market - a fact that could lead them to charge a higher interest rate for money they lend to our banks - or withdraw funding all together.

"If the global economy recovers strongly that could push interest rates up a lot, and that's a real risk for Australia's because rates are already high and house prices are becoming an issue," said Trevor Greetham, asset allocation director at Fidelity Investments in the UK, which has $3.4 trillion under management.

Analysts said if Mr Greetham and others like him withdraw funding, then our banking system will be plunged into a catastrophic credit crunch. Mortgages will be rationed, minimum deposit sizes will be forced up and property prices are likely to collapse.

The massive foreign debts have been built up as a result of the unprecedented demand for mortgages over the past two years, largely as a result of the Government's First Home Owners Grant.

The stimulus payments enticed huge numbers of borrowers into the market, and because banks did not have enough money on deposit from domestic customers, they had to turn to overseas lenders.

"Everybody is looking for the first signs that overseas investors have had enough," one banking analyst said.

Gerard Fitzpatrick, global fixed income portfolio manager for Russell Investments, said he was increasingly cautious about lending to Australian banks.

Speaking from London last week, he cited the recent catastrophe in Ireland, where the house price bubble effectively broke the banks.

"I'm not saying Australia is the same as Ireland, but there are definitely similarities," Mr Fitzpatrick said.

"You've had a booming housing sector and rapidly increased lending by banks.

"The two situations have enough in common for bond investors to consider the consequences for the Australian housing market - and the banks that are supporting it."

Foreign lenders get the property jitters | Herald Sun (http://www.heraldsun.com.au/ipad-application/foreign-lenders-get-the-property-jitters/story-fn6bn9st-1225976177345)

Chimbu chuckles
27th Dec 2010, 08:54
Was talking to a knowledgeable mate in Oz recently and he told me that at least two Banks. NAB was one and I can't remember which the other was - other than it wasn't my bank, received bail outs from the US Fed at the same time US banks were being bailed out. All kept very hush hush.

These are the same banks that were having a drama a few weeks ago with their ATMs not handing out cash - apparently also EFTPOS transactions were being delayed several days rather than being almost instantaneous.

That sounds like liquidity problems to me.

breakfastburrito
27th Dec 2010, 09:23
Chimbu, both Westpac & NAB (http://www.moneymorning.com.au/20101203/nab-and-westpacs-secret-bailout-revealed.html) were bailed out by the FED.

Foie gras
27th Dec 2010, 09:29
Correct CC,

NAB and Westpac, as per SMH

NAB, Westpac tapped into US Fed's emergency funds (http://www.smh.com.au/business/nab-westpac-tapped-into-us-feds-emergency-funds-20101202-18i89.html)

Things aren't what they seem!

Angle of Attack
27th Dec 2010, 09:35
Meanwhile I have my home loan rate at 2.9% via a Japanese bank, yes there may be problems re currency rates but I am laughing atm! I have free reign to move at will, tell the rapist Aussie banks to explain their international funding costs? Haha cant meanwhile Aussies get totally raped.
Loving it~!

Sunfish
27th Dec 2010, 10:01
FGD:

You assert that Qantas will go broke because of their prediliction towards outsourcing. You associate outsourcing with debt and it is this debt that you claim will sink Qantas.

The premise of your assertion is flawed, I respectfully suggest. Outsourcing does not require debt. An expense from outsourcing is no different to an expense arising from a function performed internally - the only question is whether you have enough dough to pay for it.

You seem to have a major objection to the idea of outsourcing. Perhaps this is because it wasn't in the widespread use in your day as it is today.

The theory of outsourcing is perfectly sound. It holds that the outsourcing of a particular function will be cheaper than to perform that same function internally.

Whether this is actually true for every application of outsourcing is debateable - as you would appreciate.

1. Outsourcing requires working capital.

2. I was a group general manager in one of the first outsourcing supplier companies.

3. Outsourcing works fine where a vibrant competitive free market for your requirements already exists. Take photocopiers for example. Why would you possibly employ a photocopier mechanic or actually own a photocopier? You have dozens of choices and options in that market.

....however RR Trents are not photocopiers. There is no "competition". Adam Smith will therefore apply, and you will be royally screwed since you have foregone any other option. The "outsourcing" option is therefore entirely artificial. There are not Sixty plus RR Trent overhaul and maintenance companies competing for your business. Maybe there would be for the CFM 56, but I wouldn't know.

gobbledock
27th Dec 2010, 11:24
Meanwhile I have my home loan rate at 2.9% via a Japanese bank, yes there may be problems re currency rates but I am laughing atm! I have free reign to move at will, tell the rapist Aussie banks to explain their international funding costs? Haha cant meanwhile Aussies get totally raped.Loving it~!
Respectfuly, do you think that borrowing through a Japanese financial institute at a lower rate is going to benefit you when the real bubble bursts ?? Good luck to you on that score my friend.
Your loan structure you quote is likely a component from the current subprime mess. Yes I said current, not past. I tell it the way it is with no government or finance institution spin attached.
Japan has been an economic mess for at least a decade, propped up and kept afloat by all and sundry in an attempt to keep the Yen tangible, but you can't keep up the smoke and mirrors for ever, they are another tangled web ready to unravel.

The crunch will come when Iran convinces KSR to go off script and sign oil deals with major importers priced in yen/euro etc.
They better act quickly then, at this rate the Euro will gone within 2 years !

Foie Gras - Excellent post.
Australia has at least 3-4 of the most expensive house priced cities in the world. And with no disrespect, Mackay is one of those cities !! Now don't get me wrong, I love Mackay, it is a great place, but as an example only, to have s#itbox fibro shacks valued at plus 600k is ludicrous. For these same houses to be valued higher than houses in Toronto, Sydney, New York and Germany is absolute evidence that Australia is riding a housing bubble that is going to burst leaving a horrendous mess in it's wake. WHen the US subprime imlpoded it took around 1 week for the top end financial institutes to collapse, but hey, no problem, Uncle Sam will print out some extra notes and slap the culprits on the wrist.
I would like to put a wager on the fact that when Australia's bubble bursts ( which will be linked to a catastrophic global collapse) it will take much less than 1 week for the top end to crumble.

MR MACH
27th Dec 2010, 21:24
Sunfish,
Could you please tell me when this is likely to happen so that I can put the date in my desk calendar.

I do remember at Uni that one of the lecturers said: "If you can find three economists that can even agree on the day of the week then you are doing well"

Each morning I go out to pick up the paper and look for the man who tolls the bell and yells : " The end is nigh!" But he never seems to come down our street!

Afraid I have heard it all before.

Romulus
30th Dec 2010, 08:23
Isn't it true that if you do something internally you have an asset, but if you outsource you have a debt.http://images.ibsrv.net/ibsrv/res/src:www.pprune.org/get/images/smilies/confused.gif Maybe I am wrong, I am not a financial wizz like some here, it just seems that way to me.

You only have an asset if something remains, be it tangible (essentially you can touch it) or intangible (non touchables in the sense they are ideas, capabilities etc).

Tangible assets are easy - engines, planes, vehicles etc

Intangibles are much harder to define - what is the quantified value of the Qantas brand, what is the value of Intellectual Property etc. Many accounting games get played with this category and it is being tightened up as a result.

Outsourcing is only a debt until it is paid for. Most likely if you are thinking of a longer term contract (eg power by the hour for engines, maintenance services etc) then you're talking about a liability, not a debt.

One of the funny thiongs about the tax system is that outsourcing is a tax deductible immediately upon payment of the invoice, i.e. if I spend $10M a month on power by the hour engines I can claim it as an expense, reduce my profit accordingly and thus pay no tax on $10M of earnings.

On the other hand if I purchase the very same engines for $100M (or whatever) I cannot claim an immediate tax deduction, I must depreciate the engines over a period of time (whatever the appropriate schedule determines the usable life of the engine to be).

And that is one of the clear benefits of outsourcing, you get an immediate tax "refund" on your monthly spend without having to outlay all the cash for the engine either. So you theoretically have an extra $100M of cash flow in your pocket which means no borrowing costs (interest plus opportunity cost more or less = weighted cost of capital) etc. You also don't have the cost of all those pesky things associated with maintaining the engines such as engineers, tools, facilities, and associated costs such as staff travel, training, most of the compliance and QA work (beyond minimal external audit requirements), OH&S issues, greedy landlords etc.

Everything gets wrapped up into a nice easy invoice which means all your admin costs are minimised as well, you get rid fo everyone and replace them with a mid level (at best) manager who is called a "contract administrator" or somesuch.

Outsourcing has a lot of financial benefits, but the cost is almost always operational. You lose control of your operations, after all, that's exactly what outsourcing is. You can audit and have technical staff there but that's about it. For one of the worst scenarios in outsorucing refer to the 787 program. If that had worked it would have been brilliant but somehow it has become such a clusterf*ck that Boeing don't really know when they'll be in production. If you want to see outsourcing at its best look at Mazda at their prime, basically they counted the number of vehicles that rolled off the production line and paid each of their suppliers based on that. If 20,000 cars were produced then they paid for 100,000 tyres, no more no less as the supplier knew exactly what they had to deliver in what timeframe and order and it worked wonders.

So the benefits are there but they can be damn hard to realise in actuality because the bean counters have to realise that cost minimisation does not equate to overall optimisation.

Hope that helps

R

Romulus
30th Dec 2010, 08:29
Meanwhile I have my home loan rate at 2.9% via a Japanese bank, yes there may be problems re currency rates but I am laughing atm! I have free reign to move at will, tell the rapist Aussie banks to explain their international funding costs? Haha cant meanwhile Aussies get totally raped.
Loving it~!

Smart move would be to pay that baby down whilst the Aussie $$ is high.

Of course, if you borrowed when it was low (say 66c to make the maths easy) then you're in real superbonus territory as each $1 pays back 33c more, a 50% win.

If it goes the other way and you've recently borrowed with the strong Aus$ and it reverts to 66c then no manner of interest rate savings will cover your loss.

Either way, hope it works out well for you!

R

GADRIVR
30th Dec 2010, 22:56
"already getting nervous about Australia's overheating property market"

and that my friends is the major problem with Australias economy!!!
Get rid of negative gearing for residential property and the property pricing market will collapse.....as it should.
The rest is just guff!

Romulus
30th Dec 2010, 23:40
Get rid of negative gearing for residential property and the property pricing market will collapse.....as it should.

Paul Keating did that and the rental market imploded resulting in not enough stock for renters and not enough new development coming on line to house owner occupiers as the economies of scale were not there.

Removing neegative gearing sounds like a good idea from a certain perspective, teh reality is somewhat different.

And if you like the thought of a collapsing property market how would you feel about collapsing Australian wages?

Or is it only collapses in your favour that you like?

Jabiman
30th Dec 2010, 23:49
The Australian property market is due for a 'correction' as it is still overvalued.
While it was never as much a bubble as say the Irish, it is still overpriced now especially when compared to the US.
Thread relevancy: It will be going the way of the Qantas shareprice.

Sunfish
31st Dec 2010, 19:55
"Everybody is looking for the first signs that overseas investors have had enough," one banking analyst said.

Gerard Fitzpatrick, global fixed income portfolio manager for Russell Investments, said he was increasingly cautious about lending to Australian banks.

Speaking from London last week, he cited the recent catastrophe in Ireland, where the house price bubble effectively broke the banks.

"I'm not saying Australia is the same as Ireland, but there are definitely similarities," Mr Fitzpatrick said.

"You've had a booming housing sector and rapidly increased lending by banks.

"The two situations have enough in common for bond investors to consider the consequences for the Australian housing market - and the banks that are supporting it."

Be aware that this is "financial pornography". It is also possible that the author of the statements has an interest in seeing the Australian dollar decline in value.

Be aware that if the banker boyz in New York and London see an opportunity to short the Oz dollar and then talk its value down, they will take it in a heartbeat. This is a game to them and it makes them hundreds of millions of dollars if they can get it right.

MR WOBBLES
31st Dec 2010, 20:10
Happy new year to our friends at Sun State
Remember the future of aviation safety will be made over the few

Romulus
1st Jan 2011, 05:47
Be aware that this is "financial pornography". It is also possible that the author of the statements has an interest in seeing the Australian dollar decline in value.

Be aware that if the banker boyz in New York and London see an opportunity to short the Oz dollar and then talk its value down, they will take it in a heartbeat. This is a game to them and it makes them hundreds of millions of dollars if they can get it right.

Sunny,

Absolutely. Although I must also add that, just like interest rates where people had the option to lock in cheaper fixed rates, people and companies will have no right to complain if they do not take action based on the current strength of the Aus$. It may appreciate somewhat but the odds, in my opinin, are now on the Aus$ declining over the medium to longer term if not before. We all have the opportunity to buy stuff online or from the US, once our dollar declines and we get slugged with foreign exchange rate price rises there's going to be a LOT of unhappy people bceause we will have destroyed large sectors of our economy by purchasing from OS and putting our people out of business.

I'm not legally allowed to give financial advice, I would suggest to anyone considering investing that they should see their professional advisor. But if you can lock in longer term payments in US$ right now then that MIGHT be a good strategy. I'm looking to buy properties with a very high (in Australian terms) rental yields. Here in Aus we negatively gear investment property i.e. we take a tax loss during ownership whilst allowing a capital gain to occur, in the US there's the option of positively geared property which pays more in rent than the mortgage costs, but you need the security to back it up. Longer term that could provide a good source of US$ income when the world settles back down to a more natural order.

R

standard unit
1st Jan 2011, 11:41
http://smh.domain.com.au/real-estate-news/buyers-warned-of-risks-in-bargain-us-homes-20110101-19ciy.html

Romulus
2nd Jan 2011, 03:11
Yep, as with all investments it is important to do good due diligence. If it was as easy as plonking down cash and getting 20% return then there would be a stampede. If you're going down the US property path (and bear in mind the key point was to get a natural hedge against Aus$ depreciation) then most of them seem to have 4 key areas they market and it doesn't take too much to figure out where are "bad" areas and where there are "reasonable" areas.

gobbledock
7th Jan 2011, 10:53
Ron Paul: "The U.S. Government Must Admit It Is Bankrupt" | zero hedge (http://www.zerohedge.com/article/ron-paul-us-government-must-admit-it-bankrupt)