Let Me Tell You What Is Going To Happen To Qantas....
 

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


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.

Tick Tock, the clock is running - "Roll Program"

Te-be-shure, Te-be-shure

Sunfish
 

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.

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.

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.

Here's your chance:

CONTACT NICK - Nick Xenophon - Independent Senator for South Australia

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

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.

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?

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?

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:

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/...d042_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.

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.

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.

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....

Sunfish,

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

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.

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

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.

without aircraft you are down and out
 

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