Labor and The Economic Jauggernaut

Not being an economist for the Federal Government I don't pretend to know the answers to our national economic policies. Taking the allotted number of economy classes during my University days only made me aware that a force with natural selection moves the economy around to a point of which it exists under the conditions that are presented. The government tries to influence those conditions for optimal political gravitas thus influencing the voters to keep them empowered. The term macroeconomics and microeconomics comes up only during final exams weeks. I remember that Macroeconomics is the result of forces applied to an open and free market throughout the world of making and selling stuff. You know it as the basic supply and demand paradigm. The enters government again but in a more regional or local influence on its industry and taxpayers. This is called microeconomic for the lack of a more precise idea.

Boeing and its union have a labor proposal on the table. This proposal is a response built on economic principals and not Union hubris of getting more for less from Boeing. However, the Macroeconomics trump the union during the prior no vote on Boeing's offer last month. "Boeing could get it done elsewhere with less hassle" in a cheaper housing market. Yes, the union has raised the price of homes in the Seattle market and costs, Through Boeing's more money to hire people to build its airplanes. You know it as $$ per hour, retirement and medical cost for its employee thing, in a market that has exclusive homes available for every worker who makes as much money in a New York minute than what they do in South Carolina. The union is now proposing a second look. Not with its labor force asking price, but the value it offers Boeing as compared to building a new production center, buying property and hiring "skilled labor" at a lower cost. You know it as "with enough people, with enough experience they can do it right." Board Room Momentum", in play.

James Bond came out with a song for one of its movies "Nobody Does It Better".

Carly Simon Union Plea Song.

Micro Economics is on display with this song. High Seattle Mortgages drive this sentiment because Unions have a preferred salary benchmark found in the area. Micro Soft and others around Redmond, Bellevue, and Bellingham. Assembled a cost of living Juggernaut that propels the same players to ask for more in order to keep up with its own self-induced cost of living increases. Minimum wage is a hot topic in the macroeconomic world. If all minimum wage fast food employees receive a $15 dollar an hour level of pay, which would knock against aviation workers around the country whether union or not. So those cities who think they can do it better, well ... better be careful as homes, raise in price and the local government increases its tax base. In the Northwest the workers already have an increased Tax Base, It increases the cost of living every time they raise the Boeing benefit bar another five dollars an hour within the package. This is a never-ending cycle that both labor and Boeing are trying to dance with, without end!

A solution is needed on both parts of the party of the first and second part. Boeing, no matter where they go with faces the microeconomics just showing up in a new state or even a new country. There are moving cost, local impact cost and a changing cost of living for just showing up at a new place. The Union argues they have paid that price in its NW area with microeconomic pricing, they have the skill set, and Boeing has invested so much in real estate. That a move of the 777X is  "Board Room Momentum" (thinking associated with body parts) that will ruin a sweet deal for all parties. The union says by eliminating all those intangible costs of moving, "We", the union give you the best value for the buck and a guaranteed result. Not being a Union fan it is a powerful talking point, worthy of Boeing's consideration.

Now Boeing is in a predicament they would like off its back. No More Union!!.  The problem I see with Boeing and the Unions is a lack of defined roles in this partnership. Labor wants more of Boeing and Boeing wants more of labor.

I say, "stop the nonsense and define your roles with great clarity". The union brings to the table its exceptional workforce which can't be duplicated without a greater cost on a mature idea (777X). Boeing brings forward capital, sales, and marketing, creating, " the demand" for its product.  Management is the demand factor for the 777X, and labor is the supply factor. Boeing and labor need to choose how they will balance these microeconomic factors to optimum results. Moving is senseless if you haven't dealt with what really ails the relationship. The supply side of labor needs to make themselves available, and I think they are gaining ground in doing that today. The Demand side of Boeing's 250 777X's sales is on the table from management. It isn't worth moving only 250 777X for all the bother of moving. Think 1,000+ plus copies made with your best suppliers in the NW, the IAM.

The union needs to get over the 19th-century strike mentality when shutting down everything every time it doesn't get its way. They are in the market of offering the best labor supply you can find anywhere, and here is the price of quality! Negotiation is for the minutia, not the end-all of an agreement. The offer on the table should not be from creating overstated promises to its membership as a  justification for union dues. It should be the sales job of providing the best value to Boeing for its skilled resources for building the best airplanes in the world. This is what is needed to do that job. If Boeing cheapens out, then Boeing go fish for warm bodies elsewhere.

The membership yells out, "what about the cost of living increases?" The answer to that becomes the minimum wage economic syndrome. Raise the wage beyond value and you raise your mortgagee beyond its value. It then it becomes a 2008 housing market do over. Macroeconomics kicks in with government bailouts, ala king. Then a Manufacturer is seeking cover in China. Boeing must get real and not rip off its supply chain (Labor) in the NW. Boeing is talking to the unions this week because they got all the proposals on the table. They would have already jumped at one proposal, if it beat the NW situation by light years, and been assured of all risks of new manufacturing environment are completely retired. They (Boeing) hasn't made a muster elsewhere, unless the Boardroom acts on peer pressure momentum, Taking it to new depths found during 1929.

Is the real problem with the Boeing Demand sector:, pride, Principal and paupers, or is it gratitude for where labor has brought the execution of its great corporate plan. I don't think elsewhere would do it better. If that is what Boeing corporate really wants is elsewhere, then so be it, mediocrity it is, and an undefined Charleston it will be. The company value was built with a superior supply-side effort, and company success is made with the demand side leadership.

You can make the best item in the world, but without the appropriate leadership at both home and in the market, that great item becomes a museum piece. However, demand needs making a perfectly made product from its supply chain of labor.

The only time Labor should be dismissed only if it fails in its mission. Unreasonable demands from labor are worthy of that dismissal, and unreasonable supply from the demand part is a corporate failure to do its job.

Oh Canada, What Have You Bought? A 737 MAX Eh?

Air Canada has ordered 61 MAX's in a fleet renewal plan. It also coincides with an order placed multiple years back for 24 787's. Air Canada has A320's (Airbus) in its fleet stable that are aging and need replacement. The order announcement is a victory for Boeing on many levels.

• Air Canada had three years to study the NEO
• Air Canada has had just 18 months to study the Boeing Max proposition.
• Both came to Canada with hat in hand offering a winning price.
• Canada ordered Max as it pairs it with its 787  order just as it is about to receives its first 787.
• This marks a turning point for Boeing in the North American Airplane wars as did the Battle of The Bulge turned in Europe in late 1945. They, the opposition ran out of gas in that battle.

Boeing Statement on Air Canada 737 MAX Commitment:

SEATTLE, Dec. 11, 2013 /PRNewswire/ -- Boeing [NYSE: BA] is pleased that Air Canada announced an agreement today that includes commitments, options and rights to purchase up to 109 Boeing 737 MAXs. When finalized, the firm order for 61 737 MAX 8s and MAX 9s is expected to be worth $6.5 billion at list prices and will be posted to the Boeing Orders & Deliveries website.

Fleet

Number
of aircraft

Boeing

777-300 (77W)

14

777-200 (77L)

6

Airbus

A330-300 (333)

8

Boeing

787-8 (788)

1

Boeing

767-300 (763)

27

Airbus

A321-200 (321)

10

Airbus

A320-200 (320)

41

Airbus

A319-100 (319)

35

Embraer

190 (E90)

45

Total:187

Operated by

Number
of aircraft

Bombardier

CRJ 705 (CRA)

Jazz

16

Bombardier

CRJ 200 (CRJ)

Jazz

26

Bombardier

Q400 (DH4)

Jazz

21

Q400 (DH4)

Sky Regional

5

Embraer

175 (E75)

Sky Regional

15

Bombardier

Dash 8-300 (DH3)

Jazz

27

Bombardier

Dash 8-100 (DH1)

Jazz

36

Beechcraft

1900D (BEH)

Air Georgian

14

1900D (BEH)

EVAS Air

3

Total:163

Number
of aircraft

Boeing

767-300 (763)

2

Airbus

A319-100 (319)

3

Total:5

• New Fleet
• Historical Fleet
• Fin Numbers

http://www.aircanada.com/en/about/fleet/

The bread and butter part of its Airbus fleet works as the key component of its every day service. It has a few long range Boeing's, but by observing this chart you will see that 61 new Max's, plus the additional Air Canada purchase options on the same model, solidifies a Boeing renewal and Air Canada's fleet expansion with this order. Ninety-six Airbus are in the inventory. Many of which are to be replaced, sooner rather than later. The Large 777 and A333 is being replaced with the double niche filler, 787 according to any seating configuration that is required. There is no room in Air Canada for an Airbus order. Boeing has flipped it away from Airbus, a North American significant victory. Air Canada shows that it was sold on the Boeing concept of flying the Boeing family, giving it an edge through its various features of common systems, maintenance and pilot layout and flying feel.

This also underscores that Boeing is not only competing with the Airbus myth spinners but beating the Team Airbus with a ground offensive and breaking its spell. Before throwing Boeing under another "Bus", airlines are now carefull of the long term consequences. Some airlines use mixed orders for leverage with each airline against each other. When Boeing matriculates its master plan of all airplanes are built reaching a high level of standardization, it would be difficult to play that game again of "leveraging with mixed orders".

I still don't understand how an airline would mix its fleet when they find a superior product. Air Canada is taking the approach that Boeing has market answers at all levels. Embraer need not worry because Air Canada has the need for 140 seats and under market in mind, of which they can do nicely with all carriers in that arena. Boeing, by this order have the new 777X as an offering for Air Canada when renewing its 2, 777's in the future. The option amount  of up to 109 MAX's is an Airbus order book downer. Another 49 Max's hang out there for fleet expansion later in its growth. Congratulation to both: Boeing and Air Canada validated the market plan that steps side by side with it Family concept of aircraft.

Boeing Wants The 777X Built In A Place Just Like Everett Without The Union

Boeing  is house hunting for all the reason's a person wants a new home. The Union has given Everett a case of dry rot.  Even though the Union has performed well when not on strike. Boeing is gaming the union in an attempt to abate Union's ownership in Boeing by moving offshore away from a Union state. The IAM has been dismissed much to the chagrin of Boeing as it tries to find a new home with new timbers. Boeing values this new program of the 777X higher than most of its NW regions other programs. That is how high the stakes are for Boeing. They want to retain company control over its work force and have essentially fired the contract between Boeing and the IAM, goodbye! As mentioned before on this blog, the NW synergy of suppliers and engineers give Everett an outside chance. It could be that Boeing is still having Seattle's Best Coffee with the Union representative as a side show. I doubt it, but it is possible.

The sticking point is how a benefit is managed over sending a contribution back to the Union leadership for a members retirement and medical. Contracting a work force today is about the whole package rather than forcing the corporation into supplying the benefit.. Many corporations today hire a manpower type human resource and internalize a benefit to that hired workforce. This model erodes Union power from negotiating an all inclusive agreement for its workforce. Or the unions see it as an end of collective bargaining leverage. Boeing doesn't want collective bargaining it wants workforce contracting from  a manpower source. Who hires and redistributes that work force upon demand from the contracting corporation. What is lost by that scheme is a portion of quality control of its labor  force that Union was able to provide. However, if Boeing where to come back to the table and have more input and control over the workforce, they may consider a new playbook with Union in Everett.

• That playbook would eliminate any threat of strike. 
• It would include a benefit package cost within its contract, provided by the union.
• Contract negotiation automatically go to arbitration during a renewal period.
• Contract is one dollar value as a whole from the Union bid or Contracted body.
• Workforce guarantees are in place as to quality and competence.
• Failure by either party is a breach of contract and is subject to legal remedy.
• New contract negotiations is offered in a competitive environment and will be require to adhere to an RFP proposal that all parties must meet in the RFP DOCUMENTS.

and so forth and so forth...

What it essential does is put parties in a no strike mode which must meet workforce standards and put both party in control of its offering. The RFP would spell out competencies  in a not too confining construct for either parties. Minimum standards must be met for completing standard  production work. Minimum standards must also have a certified expertise for said work capabilities and so forth.

A book needs to written on competency ratings for new line of technology where t Boeing would provide education for meeting those new lines of technology.  The workforce is governed by an arbitrator as a third partner where Both Boeing and the contractor are  subject to its determination throughout the work process. Unions try to gain an advantage as well as the corporation. An independent judging board is needed for any work force body greater than, say a 20  person work body within a company.. Both the corporation and the contractor contribute to the financial support of judging body with a pre-agreed amount based on existing contracts.

This idea of of course would open up the labor market and install standards required to complete the work. A Licensed plumber is certified to a certain level of work where  a newly untrained high school grad would have to go specific training to be available work pool of a contractor to work for  a corporation doing that type of work. Companies are required to train those certified workers for specific work on new technology, whether they are formally educated or from a technical certification school. A Boeing worker may have to have multiple credential in a variety of disciplines and apply those qualifications on the production floor. Engineers would have a formal education or an advanced technical educations to be eligible  for an advanced engineering contract firm that would bid on a project like the 777X. However the RFP would lay down required competency for each position within the contract proposal. Its now a big book for the thousands of workers detailing what Boeing would need and what the contractor would provide in a lump sum price. 

It would force people back to school at many levels if they didn't have a certifies minimum competency from the RFP. In fact, work experience is part of that competence. What is eliminated is the union's control over some arbitrary workforce that is told to strike when there is a more up-to-date concept than the union one, from the 19th century. Both players must be responsible for its care of labor. Its not about cheaper is better or more benefits is better. Its about of providing value for its most cherished asset, its workforce! Both are on trial as Boeing tries to shop its way out of this labor mess. One throws back on Boeing the other just walks away in a new direction. Problem solved!

Boeing's problem have just begun on this endeavor as it not have solved anything. It needs to devise a better way taking care if its future people and future plans. They have not side- step a thing. Twenty thousand people in the Northwest in trained and more ready than any other place in the North West. They have a Union between them and a solution. They will move out just to remove the Union. The Union will collapse as people are starved out and replaced by people needing work every where else out side of Washington. Problem is not solved, and will show up later as production tries to ramp up with a handful of old school assemble people brave enough to move somewhere in a effort of salvaging their lively hood.

Its not hard to say these things, since its been done before throughout the history of manufacturing. The young people coming on in the North West, will be defiant. The old hands will move with the Job. The young ones will seek jobs in a slowly shrinking work pool in Seattle, WA work area. Short straw loses. Its simple.

The Dog Days Of Delay "The Glitch's That Steals Christmas"

A Christmas tale comes our way with a dark slant towards, "The Glitch That Stole Christmas", is a real reality that plagues airlines like Air India.  Boeing moved its overly complex 787 to market without testing the supply chain completeness from its suppliers to real world flow of five to ten 787 a month. Coming out of its factory (X's 2). During the testing phase all parts came across in a carefully considered, and tested manner for each test aircraft LN1-LN6.  Production floor of real time assembly was not part of tests that would measure reliability for all its supplying partners. Everybody came across and said "A OK",  and no problem man! Or welcome to Jamaica! Or something clear like that when asked about how they will do when asked about productivity of the 787, and its output each month. Battery was A-OK and checked in 2010 and ready to come out and play.

Air India became a constant complainer that I have taken shots at as they managed the excuse flow in a constant stream every time a delivery was ready on the Boeing board. It seemed the Glitch would steal a delivery and make India's financial planners gleeful as the next 787 would sit another 3 weeks before a delivery. It made the cash flow operations of Air India flexible.

Air India’s Dreamliner fleet has had 136 ‘minor’ problems: Ajit Singh

One hundred thirty-six Minor's hit its fleet during 14 months,, breaks down to about 10 glitches a month with its fleet of 8, 787. Or about one glitch a month for each aircraft if your an averaging type of person. The glitches that stole Christmas for Air India was wide a varied suggesting production is not spot on or its suppliers have consistently provided that Boeing depends on. ANA has had problems too as well as JAL Where JAL has demonstrated a loss vote of confidence through its Airbus A350 order earlier this Fall. Those 31 Airbus were a symbolic block number that Boeing expected and did not receive when considering it would get a follow-on order from JAL, as JAL continued building of its wide body fleet, only with Airbus. However Air India does lend support to the glitching as not something insurmountable and something that can be manage. Many of Boeing's customers are in the same condition as Air India with the "Glitch That's Stealing Christmas" problem. 

Note from India:

"New Delhi: Air India’s Dreamliner fleet suffered 136 “minor” technical problems between their delivery since September last year and till late last month, civil aviation minister Ajit Singh has said.

All these problems were fixed by the airline’s and Boeing’s technical teams, he said in Lok Sabha. Observing that a Boeing team was currently in India to upgrade the software in these planes, he said each Boeing 787 Dreamliner is being grounded for ten days since the beginning of this month for maintenance and these upgrades.

Since September 2012, when the plane’s induction began, till 27 November this year, “136 minor technical snags have occurred on these aircraft which were fixed by Boeing/Air India technical teams with alacrity,” he said in reply to questions.

Observing that Air India was constantly in touch with Boeing on the issue of technical reliability of these new aircraft, he said a team of engineers and technicians from the American manufacturer was installing a reliability enhancement package involving upgrades to the software and components in the aircraft. The Boeing team is also involved in the root cause analysis and evolving remedial measures, he said."

Another Glitch related gremlin remark follows:

"Regarding a panel falling out of the belly of one Dreamliner as it landed in Bengaluru few months ago, Singh said the Directorate General of Civil Aviation (DGCA) was probing the incident and its report is awaited.

On the overseas battery-fire incident this January involving the same aircraft operated by a Japanese carrier and consequential grounding of Dreamliners the world over, the minister said the requisite rectification was carried out on the battery units of the aircraft of Air India, following which the planes were put back in service in May."

Air India is ready to move forward with its investment. It is interesting to note how subdued the Indian response is for all those 136 glitches on its fleet. Perhaps all that irritated posturing before each delivery from a glitch was a an exhale and a sigh of relief they purchased a winner. The glitch wants to steal Christmas as the press eagerly awaits its next problem found in an emerging aircraft. The sanctification of the Boeing 787 is not long in the wait. Boeing has tasked itself with an all hands on deck assembly of its most expert team members for tracking down anomalies found on the 787. The first 787-9 will be light years ahead of the LN10 aircraft sitting in Everett's EMC warehouse awaiting upgrades to the level of the last 787 built this week. Those aircraft in the EMC are sitting for a long while more since both the customer  and Boeing are waiting together for a completeness delivery time. That time is driven by the customer as to when it will take delivery. Those terrible teens are deeply discounted early production numbers. Each month that goes by, is one more month in EMC catching up those aircraft with today's out the door delivery. Once the customer signals ready for delivery, they will be delivered within two months of that call out.

The Glitch that Steals Christmas is any lack of patience in this process of meeting original expectation. Expectation starts with this short list.

• 15% fuel economy over current aircraft. Done= 20%
• All electric architecture is the answer= Battery issue is a RIP issue today
• Systems Update requirements. Ongoing for the life of computer systems and airplane

These are of the few of the major issue not defined after the first dozen delivered aircraft. The Glitching really going down and has permanent installations or solutions driving each glitch away from the aircraft. Software upgrades, installation procedures correcting weaknesses revealed during long term operation, and changes in the supply chain. All these are the maturation of any aircraft model. Overstating for what it really is, is how the news works. The 787 is made with millions first time parts and systems is doing well as expected. Millions of opportunities exist out there with this overly tested aircraft. But the right combinations of conditions come up on the 787 during daily operations. 

That is where safety measure anticipate any kind of failure and report. Once the 787 lands a s system reports that 136th glitch to Air India and Boeing is brought in to perfect the 787 one more time. The 787 is being cured as a fine piece of art fused with science and engineering. The glitch report makes it one step closer too perfection watching those millions lines of code, million parts, and the all new architecture  never before used. Now the customer have its say through how the 787 speaks to them. Boeing relies on the 787 feedback after its rigorous testing program. Because of the glitching the customers are building a better aircraft. Airbus can't say that at this time. The best aircraft will emerge in two years at which time the 787 maturation is dependent on what the 787 reports. 

It will heal itself by flying more and more. The systems are there to keep it so safe and dependable. The battery glitch is the prime example. In another era you would have seen a sky bound fire ball without any solution. The 787 landed safely multiple times with battery issues, enabling a battery solution of major importance. The longer the 787 flies in this stage the greater Boeing sets a lead over it competition with its gamble.

When The MAX Flies Will The NEO Flee?

It’s coming to the point of Boeing's pre-flight (fight) bravado will soon enter the ring for the knock down drag out fight for single aisle supremacy of the world. As the Max enters the market ring, it will have to demonstrate to its customers if it has the chops to defeat the NEO. In a knock down drag out fight to the bitter end. Its own customers are the fans around the flight ring. The ring announcer is now reciting the exploits of each contender. Boeing has announced its "Tale of the Tape".

In this corner is the MAX:

• The Boeing Max has 13% better fuel than current or similar models flying
• The Boeing Max carries more seats than its competitors.
• The Boeing Max has the "Edge Program".
• The MAX new CFM, is a purpose built high efficiency engine.
• The MAX has dual feathers that will take where you need and want to go.
• The MAX commonalities sync with the worlds most advanced aircraft.
• The support staff can do its job quicker and more effectively with the MAX.  

And in this corner is the NEO:

• The NEO is a New Engineered Offering.
• It has the majority of the fans in the house at 60%
• It is 5% more efficient than current models flying
• It doesn't have the Boeing Edge
• It holds less seats than the MAX.
• It maintains commonalities with the A-350 that hasn't reached the market.
• The support staff cannot train it to keep up with its competitor. 

This fight will not allow price gouging, no order holds, and finally no grounding biting. Shake hands and may the best single aisle win! The is the preview for the fight during the next 20 years for certainly something new will come of age by 2030 as manufacturing technology catches up with today's plastic designs. 

The brave new world of Boeing took the first big step in making an all plastic hull. Even though other airplane makers made smaller versions of plastic aircraft, but not on this scale or technological enhancements. 

The problems that the 787 have become lessons learned. While other airplane makers try to avoid by not installing that technology. Making those competitors airplanes less robust, but more manageable during operations. Once the 787 matures (it’s almost there in that maturity) it will be light years ahead of its competitor. The year 2014 promises full maturation for the 787. 

The maturation of the 787 transcends to the MAX and  the 777. The full circle of Boeing's goals will be achieved in 2014 through a 787 completeness process during operational cycles. Always improving will not retire, but makes its original vision achieved for the Boeing's aircraft family during 2014. 

Much work remains, but the "much work" is more purpose directed through its retired risks from its most advanced program. That completeness process will continue until that day the 787 receives its championship heavy weight belt. 

The coming of the MAX is bringing forward what really exceptionally works from all of Boeing's programs. The funnel of Boeing's intellectual capital flows down to its multi funneled tips, whether it’s the MAX program, 787 or 777. 

I don't mention the 747-8i, because it’s a forgone conclusion that Boeing is waiting on the market development, before it tries its next big Jumbo project. The 747-8i is just a sponge, in that it sponges off from everything from Boeing’s project to keep it relevant and operational. 

There is not enough market remaining to go all-in and battle the A-380's share of the market. However, it is a staunch niche airplane type that has a shelf life within that its special market. Keeping the 747 alive is a strategy that maybe the market will come back to it as the A-380 flounders eventually. I would expect a 747 class twin as the next right sized Jumbo. The 777-9 is a progression towards that end. A 450 seat Jumbo twin with a 747 moniker is a possibility today but will wait after they 777 is relaunched.

Boeing can only make the 787-8i better as each new proven technology can advance to it. The 777 is really the big player, more than the supersized A-380 play. The A-380 has to redesign airports as they proudly clog terminal areas. The 777 dual engines will retire the Jumbos from passenger use. 

The 747- 8F can reconfigure to haul basketball gym size cargo loads as exampled by the 747-400 dream lifting mission for the 787 project. The 747 has a future with a specific purpose. The A-380 future is in question by its customers. The Middle East has a scheme that desires nothing but capacity for people.

The world cannot accommodate a wide spread use of the A-380 with its current airports unless those airports expand. Doing so would literally scatter traffic in its wake on final approach. Not a happy proposition for airports that has heavy traffic. London Heathrow and LAX to name a few, wedge those flights in. It isn't for the likes of San Diego or the Caribbean. 

This article is about the fly and the flea. The Max will fly as the NEO will flee in time. The early orders for the NEO during its inception, did not have a MAX as a contender. So loyalty customers for Airbus poured in the orders. Even some new customers were septet-up in that first year. 

The MAX arrived 18 months later and has been on a steady march forward and is closing the gap. What will be interesting are those neutral customers in a head to head sales competition, for which type they will choose. I admit I haven't looked at those types of competition at this time, but is a worthy project to do so. 

My next 737 vs the NEO project is to look at the split order sales and try to look at the customer on how they ordered and for what reason.

Looking at the pre-flight Boeing Bravado, makes me feel they actually have a winner. However, I never underestimate a worthy contender like Airbus. If what Boeing says about the MAX, if in fact is not fiction about the MAX, then the Market place will validate the MAX with follow-on orders after both airplanes are in operation. 

Right now it’s a loyalty battle and a curiosity endeavor for those who are unsure, but want to find out. The NEO has a strong order book from loyal customers, the curious and bargain hunters. Even though Boeing was late into the game they have made up substantial ground, and have saved its single aisle program from the flight of the Do-Do Bird. The Max will in deed fly, and the NEO will take its respectful place in the market when all is finished.

The Great Middle East Airplane Heist

In Real Estate its always been about location, location, and Location! All others will just have to pound sand since they don't have location. The Middle East or the "Gulf States", as known to everyone else. Has three important things going for it.

• Sand
• Location
• Oil

After hiring, "the brightest minds", with its vast amounts of cash, and showing those minds, the vast amounts of sand, they asked, 

"what about your location?  

This is not much of a business bringing people into 120 degrees, six months of the year", 

...was the answer from those bright minds. 

Then it was asked again, "what about Location?? "  

Answer:  "We could bring 100,000 of thousands of people in (for just pounding sand), while in the 120 degree temperature. It worked well for Las Vegas where we dropped a lot of oil money on those showgirls and blinking lights on the strip."

One bright mind in the back of the room, was playing with "his personnel device", much to astonishment of those gathered in that hot place.

This air conditioned palatial room, was built on a hot piece of sand blown real estate. It sits next to the Gulf of Arabia. All eyes in room turned to that "mind", of which those were hypnotised on him, and him playing the device. He looks up startled, and shouts out, 

"what about location!!!"

The whole room erupts into laughter, since it was the "third location reference" in as few same minutes.

Embarrassed and sheepish, that bright mind seeks a quick recovery from his aloof statement,

"I'm not just holding an IPod, I'm holding a Magellan GPS, and an air travel mapping system."

More laughter erupts!

This poor guy can't catch a break, and he will probably be sent out on a long errand looking for for desert water.

Thinking quick with his Harvard MBA, school educated mind, he makes a quick schooled response, while referencing his laser pointer, and the big screen showing the world map.

"Dubai and Doha are in the center of that map.  In fact it is placed on the center of all wall maps."

Smugly and silently thinking to himself, 

"I'm not going for "no stinkin water" in the desert, I'm in it to win it today".

"Dubai is located here on the map, right dead center of the travel world! Just when people think they want to go somewhere by flying around the world, they fly over Dubai or Doha. London doesn't have anymore real estate, nor does Los Angeles or Frankfurt. For that matter we can buy satellite feeder locations throughout the world, as in Australia, or through Qantas airlines, using a code sharing scheme. Let us begin to market the Middle East as a world center for your dreams, by getting people in and out to their destinations in an efficient cheaper manner, than trying to buy new centers in already congested airports regions, found around the world."

You could hear a pin drop in the silent room. In fact someone dropped their platinum diamond studded writing pin in on the floor. Everyone acted annoyed, because it interrupted the room full of minds trained on thought. The roomful of minds knew he grabbed onto something, then he blurted out, 

"We have the location, the money and the courage!" 

The room erupted in cheers and applause. Dubai was whispered about as the fifth course of food and drink was brought in. The mind that dared play with personnel device, was asked by many if they could look at his GPS, you know, that same device that he had just played with a few minutes ago.

Location is what the Middle East has, there are only a few other places in the world that could pull this plan off. The major airlines of the world will have to come to them in a code share exchange. Chicago O'Hare has congestion and is wintered. Where they will accept long legged 777-8's and 9's carrying 350-407 passengers to the Gulf, and then onto another A380 bus ride. The Gulf would send a mix of passengers coming in from many airline arrivals, and them  out onto high density destinations with its larger seat count (525). A mass quantity elsewhere. Direct flights from A to B around the world doesn't necessarily need the A380 all the time, but it will need the 777-9 or 8 most of the time. The other airlines will will be dance partners found on its dance card. United airline can't buy this location nor can Singapore Air. They can only share this location on our terms. The desert here has added value more than just oil.

A Las Vegas type synergy is is not a Gulf State plan. Vegas was a gas stop in the desert during the 1950's. So Vegas marketed things that adults would not like the folks back home to know about. That Vegas synergy built it a bigger airport, and a bigger city of over a million. Connecting like minded pleasure seekers to its desert isolation.

The Gulf states has its own synergy built on its location, and can choose to build business and geopolitical attractions as an adjunct to that location. Las Vegas does not have location. It just has... well you know, it has Vegas, and Hoover Dam. So its synergistic tendencies are limited to sun, sand and sin, and is certainly not the center of the world on the wall map. The Gulf states are poised for globalization transits and can be a facilitator for the worlds Global meetings. Hosting the world on a grand scheme, without distractions, but with plush amenities is perfect for this Globalized world that most people are not aware during these last ten years.

Whereas, The Gulf states, because how the globe is positioned with people all over the place, is in the central location to make world ends meet its means in Dubai. The synergy is phenomenal. The Arab states realize this, and the all the remaining airline world can do is buy hub busters like the 777 and 787's as a competitor. The Arab states are Super Hub Compliant. The crowded Northern metros are overbuilt and can't add many more Super Hubs expansions for its airspace and its available land. Both of which the Arab states have in abundance for synergistic growth. Location, Land and Logistical Skies. This will also bring a second tier of expansion to the Gulf States. A place to meet and greet and do business on a world's largest scale class. The goals of the Gulf states are not even on the radar screen yet as evidenced by the world press. The massive purchases at Dubai for the 777, 787 and A380 are the small steps taken for that ultimate goal of being the major world player; dominating travel and commerce from its Super Hubs, and purpose built flight lines for that end. Finally, Dubai and Doha are leaving its competitors pounding sand in its wake.

Dubai Is A Sand Station That The Others Will Begin Pounding Together For ITs Share Codes as the Gulf States Dominate. Jet A fuel is not the only thing it produces. Location is the new Oil.


So the heist is all those airplanes the Arab states will pull in from other airlines as code shares. 

Why Convience Stores, Fast Foods and Supermarkets Sell Soda Water as "Pop"

My early years saw me as a manager of a small convenience and gas station store. I got used to the terminology  of "lost leaders" Gross profit margins and marketing stimulus. The whole concept is based on your inventory and how it contributes to profitability. Today's aircraft are much like that convenience store. Buy a large Slurpee for $1.99 and get a free Hot dog. At first I didn't understand the salesmanship in that lost leader (Slurpee/Dog Deal) drives the aviation industry. Configuration is simply packaging appeal. JetStar fills its seats like popcorn with 335 seats on one 787-8. Then ANA orders  46 business seats of Slurpee's with its 112 Vienna sausage tins back in economy for its marketing scheme. Before you let loose of your cookies and milk, via a nose/food transfusion. I got into my convenience store 101 mode and came up with a Tokyo to Frankfurt or Slurpee and sausage route.

The Slurpee is only crushed ice with a flavoring of syrup squirted on top, making a drink selling for $1.99. As store manager, I read those labels coming off the delivery truck seeing what is contributing to the stores gross product margin. Those slurpees' came in at an astounding .18 cent cost factor, selling for a 1.99 per cup during a hot day crises, that's what it made the store money. Those lousy Vienna sausages in a tin were sold for a 1.99 and made the store only 18% profit margin or 36 cents on a two dollar purchase.  The Slurpee made the store $1.61 shoving out those drinks that cost the store only 38 cents on the drink.

Let us take 112 Vienna sausages to Frankfurt as well, analyzing what those 112 seats will do?


*That $1,000 seat (sausage tin) will buy a lot of things on this flight.

787 full tank of trip fuel (Trip Fuel amount necessary for the route, payload weight, conditions)

• Crew cost up to the business class.

• Ground crew and airport fees.

• Overhead cost from the flight. (Fixed on each flight)

• Maintenance allocation of cost for each flight.

• All Other Incidental costs I am not aware of:

*(The bullet points is what it will buy for the airline as a lost leader seat)

Total revenue pool from ANA's Economy Sausages. 112 * 1,000 tickets = $112,000 Revenue with a Profit margin of 18 % or 91, 820 in cost allocation from Economy.

Business Class ANA: The Slurpee's 46 Revenue seats of $1,800 =$82,000 ttl and a cost 18% = 14,760.

Gross profit Slurpee dollars at 82%= 62,240
Gross profit Vienna Sausage Dollars= 20,160

Total flight Gross Profit Dollars= $82,400 receiving $194,000 in revenue.

ANA 46 seats are the Slurpee's purchased at the convenience store, and the Vienna sausages are just impulsive grocery purchases. Jet Star philosophical business strategy is to fit as much sausages into  its 787-8, and make money in a mono blend seating regimen for profit. Configuration in the variable item to make money as the 787  is the constant (C) in this formulation. Ability for Variable configurations maximize the profit margin in a more robust market for business travelers, than a market just for people moving on vacations or visits to friends around the world. ANA penchant for a "heavy" configuration for its passengers (whales) allows everybody else to hang out on these flights just like in Las Vegas. Casinos can afford tourist because of the "whales" on the floor.

This brings me to a conclusion, All 787's are ordered up for company variables and business strategy depending on the 787 configuration. All 787's provide a foundation that is a constant in this formula even with the headwinds. The question before customers (airlines) is not what can the 787 do for you, since you already know that a constant has been defined, but how many Slurpee's or Vienna Sausages  do you want on your aircraft?

Next time you get a coupon at McDonalds hamburger stand that invites you to buy an extra large drink for $2.49 with a free quarter pound cheese burger. The $2.49 spent buys both and becomes a lost leader until you want fries with that! The "that" part becomes pure profit.

A very rough interpretation of general and basic costs and revenue relationships, but this illustration helps visualize why ANA went with its mix of seating on long haul flights and why Jet Star stayed with "the sausage is -in-the-can", business.

Leases and Wet Leases and Other Boring Stuff

In Financial matters we were directed to the lease opinions that would effect both balance sheets and and operational financials or Revenue to EB IT processes. These slight but important adjustments are seen as mechanism to avert capital risk or benefit the cash models used to extend a company's value. The first part of leasing is knowing what current revenue streams and costs of operations affect the bottom line. A company identifies the two cash streams towards its growth as a viable company.


Part I is ownership of your primary revenue asset.. Buying the 787 was very expensive for Air India, a cash flow deprived Airline in need of assets for making them more money when digging it out of debt. Air India bought 27, 787's from now into the future. The Cash account is infused with borrowed money. The Asset to Liability balance expands in symmetrically fashion as the fleet receivers more 787. Air India in not a bottomless pit of financing and credit. As interest expense expands so does the ability for retiring debt as a constant stream of cash is parsed off to either debt interest or the reduction if principal. The next airplane comes from Boeing next month and whoa, another hit to financial credit card, and the interest or principal payment plan expands. Air India is all so aware of this is going to sell some of its Boeing 787 off the books and replace it with a lease on that same airplane. The leasing company takes on the asset as a risk in return for an income stream through its lease payment. Air India doesn't loose the asset and continue flying it in its revenue stream as always. The cash flow for Air India is given a reprieve through lower expenditures servicing a leased airplane, over servicing a purchased airplane.

A few of the benefits for Lessor vs the Lessee

Lessor.                                                      Lessee (Air India)

End lease ownership of asset             New accounting advantage from an asset
Valuation loss applied to Lessee        Greater Expense controls affecting bottom line
A financial/Revenue mechanism       Full Maximum Use of an asset Value
Opportunity to sell at end lease         Opportunity to buy a replacement Lease end


These few points really shake up the Balance Sheet and or Income Statement allowing fleet expansion to continue to its full objective of filling the market with 27 787's and meeting its goals. The 787 is hoped to resuscitates Air India. They are quietly tweaking its inventory through leasing or buying. There are so many more implications at this point, like expanding your status for future purchasing or leasing returning value from a revenue source as the 787 with less up front cash. The 7 units leased 787 or conversions from a buy program, opens up Air Iindia for more acquisitions of 787. Seven are moved in a different spot in accounting match the value flow of the aircraft with the expense flow and not  weighing down its financial picture as a steep burden it could never recover from in the cash flow department.

Wet Leases:

I own an airplane and a operational staff to fly it. You can lease my team and airplane, and stuff, if you need a hauler until you get your own toy. That is what LOT is doing during the winter months is providing a 787 for some charter company or vacation scheme for the winter. Cash flow is important for the off season in LOT's operational scheme. Flying from Warsaw Poland to Chicago IL during winter is a slow period for all Northern tier destinations in North America ffrom Poland. Providing  a wet lease is ideal for shoring up cash flows year around, but preferable during "off peak periods".


Short Term leasing hits the books differently than a Long term lease. Its a 30 day rental period and you won't find airlines doing this unless its in Hollywood on a movie set doing an airplane movie.

Long Term lease works when buying a 787 from a customer, then leasing back to that same customer, i.e. the likes of Air India. The customer uses the same signing day agreements without the airplane ever leaving your hanger. Theyy have made a profit on that day selling the 787 and leasing it back. Welcome aboard to Air India.
Air India accounting spread sheet ajusts and "viola", the books look better for buying more aircraft.