thekeeling.com|Blogging from Julian A. Keeling

I have long advocated that there is too much sensitivity and protectionism when it comes to how governments view their national carriers. Every nation, right down to tiny Nauru Island (population less than 10,000) has an international airline. Most are government-owned and if they aren’t, the largest shareholder is the government. The vast majority of airlines don’t even make money in the best of times and again the others are just marginally profitable. The most glamorous present day airline is Emirates and the Dubai government using its petro-dollars has built a huge network. Management literally sits back comfortably knowing it will never fold no matter how much money goes down the gurgler running it. There are one or two other countries like Dubai, where countries can prop up their ailing national carrier, but most throw good money after bad subsidizing a business enterprise all for “power and glory” and definitely not for profit.

The merger of British and Qantas makes absolute sense. I would throw Air NZ into the mix too. It looks like BA’s takeover over Iberia maybe a done deal and I see nothing but blue sky should the Qantas-British merger go ahead as well. Sure there will be huge redundancies, particularly in management, but on the other hand maintenance for Qantas will be brought back to Australia, making it a far safer airline. There will be huge economies of scale by in-sourcing so many other parts of the operations that recently have been handed over to outside contractors. Cargo, for instance, is an area where the merging of the terminal operations would be hugely beneficial both cost and service-wise for the new entity.

Unfortunately, there are many regulatory obstacles to overcome and every little tin-pot airline and/or government will be objecting along the European Union. There is no question the merger will be mired in lengthy and costly negotiations that probably will go the same way as the ill-fated BA/KLM (later bought by Air France) merger and the BA/AA alliance. What a crazy world we live in, where an industry that is barely hanging on, cannot lift itself up by the bootstraps to return to viability, because of an emotional issue - nationalism.

A week or two back I included Trump in my list of billionaires along with Kerkorian and Redstone whose fortunes are headed for disaster. I couldn’t help but notice the media darling never got a mention that Deutsche Bank wants it bridging loan for a huge development in Chicago gone bad, immediately paid up together with the $40 million personal guarantee Donald signed in order to obtain the funding. A month or so ago, Trump tried to have the “force majeure” clause of the contract invoked through the courts. Force majeure basically means the building would have to be felled by a huge earthquake or similar such natural disaster. Trump tried to claim the recession that has killed the sales of the condominium part of the project as an act of God! I thought this guy projected himself as God and above all human beings so what’s the problem? The fact of the matter is you, Lord Trump of Taj Mahal, don’t have the $40 million in a bank account to meet your obligation. Thank goodness the courts saw no merit in your claim.

The reality is this self promoter of greed and avarice has lived off OPM (other people’s money) for too long and has leveraged himself to the hilt by basing his personal wealth on the previously ever climbing real estate values. Well Trumpy, unlike the last recession where the banks did not want to become property owners and had the funds to support you over the crisis, this time banks are calling their money in and blokes like you are going to have to use your own money to back your investments or you go broke. Maybe all those smart Alec “apprentices” you had on your T.V. shows can come out of the woodwork and show their mettle on how to rescue your empire. For me, like those lowlifes on Wall Street, the world will be a better place without an egomaniacal blowhard like you.

If I were you right now, like many of your compatriots around the world, I would be selling off assets to repay debts while there is still an opportunity.

The experiment of globalization has been a failure. Not even the Third World nations who were huge beneficiaries of industrialization have seen their countries make huge improvements to their internal infrastructure where the lot of the masses enjoyed better living standards, education and healthcare. Look at what is happening to China. Millions of poor “undocumented” workers left their family-owned rice paddy fields to make their “fortunes” as construction and factory workers in the big cities are now returning to their homes in the same numbers, as penniless as when they originally made the move.

One of the huge problems was trade became only one way. China, India and their friends couldn’t export enough of their junk to us but were simply not interested in buying anything back. They were protectionists. They are allowed their trade surpluses to grow in the hope they would become economic power houses and this way in their own minds, they would start controlling the world. For a while it worked. China moved into Africa, particularly countries that had oil and minerals in the ground, using diplomacy only Chinese are adept at and offered all sorts of “incentives” in the hope they would manipulate their mineral wealth into Chinese hands. To a degree, there was some success, but now the recession has hit China so hard, it is now mired in huge internal problems, which demands its time and resources. Civil unrest in China could rise to the levels of another revolution.

Like China, the western world is fighting for its very survival. The only way out is to create jobs. That means re-investment back into their home countries and governments setting up tariffs to protect key local industry. And that is why, sad but true, I believe the era of protectionism is returning and unless the rules of globalization are completely re-written, the Third World from the top down will revert to life as it was fifty years ago.

Thanksgiving was responsible for light tonnages moving over the past seven days, but we’re out there trying our hardest to move any “scrap” of freight we can find. No, we have no giveaway rates to Mexico or Brazil, but we’re dealing to the market we know best, the South Pacific. More than ever it is so important to keep to our knitting and remain truly focused.

Presently the New Zealand All Blacks rugby team is touring Great Britain playing a series of games against the “home” nations. Every country in the world, except New Zealand, is happy to stand in the middle of the field singing their nation anthems with pride and dignity. What started as a joke decades ago was after the anthems were played, the All Black side (which in those days were 95% pakeha” - Maori for European) would gather together and perform this “haka” as it is known to the mirth of the crowd and their opponents. And so it was meant to be, pure entertainment and fun.

Over the last fifteen years Pacific Islanders and Maoris now constitute the majority of the All Black team. During this time the New Zealand government has handed over $billions in reparations for the “bad deeds” to Maori tribes that occurred after the turn of the nineteenth century. This capitulation, devoid of any common sense or reality has created a nationalism that is now virtually on the same dimensions as Al Qaeda is with Islam. History has proven that Maori tribes were nothing but savages intent on wiping out their opposition. Had the missionaries not arrived in the late 1700’s, the largest tribe, the Ngapuhis, would have wiped out all their enemies. Contrary to what New Zealand children are now being taught, the British literally saved the Maori from self destruction and then created one of the most beautiful countries on this earth, where all until the late twentieth century lived in harmony, prosperity, good health and happiness.

If any reader has seen the movie, “Once We Were Warriors”, they would have a knowledge of what has ended up happening to the Polynesian populace in New Zealand; gangs that would make the Bloods and Crips in America look like saints and social workers, child and spousal violence which no country in the western world has ever seen or experienced, and communities where entitlement takes precedence over working for a living. Maori culture as invented by modern day “academics” and accepted by mainstream New Zealand has resulted in a country which is so divisive that Kiwi’s are leaving the country in droves. Even the immigrant Chinese, who for a while replaced every emigrating New Zealander, have been warned that New Zealand is no longer a friendly place for incoming Asians because of the fear of becoming victims of violence at the hands of the Polynesians. Immigration from Asia has now declined to a trickle.

With that as a background, and the majority of the All Black team now tattooed like a bunch of rap gangsters, some with dreadlocks and all with the look of thugs, can you imagine how the “haka” is currently performed? If the ordinary New Zealander possessed of plain simple normality stood up for what is decent and proper, this war dance would never have become an insult and an offence to the dignity of all Kiwi’s. Maori “activists” as they are known have even introduced a slitting of the throat gesture into the All Black “dance” routine to further browbeat their opposition. The world is tiring of being constantly confronted by unnecessary violence and intimidation and this act by an angry bunch of in the main Kiwi ignoramuses is evidence of how gutless this world has become to confront the real issues that are the root cause of so many of our social problems. This global display of so-called Maori culture being televised to the world every time the All Blacks play, demonstrates to our children we are simply condoning the behavior of primitive savages. .

I agree with those Brits who let New Zealand know they can save future performances for other nations who might see some entertainment value from such. For me, if the All Blacks over the last twenty years had concentrated on just playing the game as good sportsmen on and off the field, they may have won more than just one World Cup. The sports field has no place for the demonstration of purely anti-social behavior. Unfortunately, rugby has descended into a game, when played at national level in New Zealand is nothing but an eighty minute brawl, with the All Blacks leading the way in physical violence and debauchery. William Webb-Ellis, the pupil of the famed private (called Public in England) school, Rugby, from which the game is named, would turn in his grave if he were to learn the sport he invented (and for over 150 years was played like cricket by gentlemen) has stooped to the barbaric levels the All Blacks and their “haka” have brought to the game.

My blood boils every time I switch on the T.V. and see that stuttering and nervous twitching Henry Paulsen take the podium to defend his actions for sending America down the same road as King Caligula did to the Roman Empire two thousand years ago. Mind you, I feel almost the same every time that Barney Frank and Nancy Pelosi explain their prognostications of the financial meltdown that has descended America into near depression. Five years ago Bush told us Social Security would be doomed by 2027 because it would need an input of $50 billion, money that would be impossible to find. That is when he started spending $10 billion a week on Iraq! Now we have Uncle Sam writing out a check for minimum $7 trillion all because of Paulsen ex colleagues, but still good friends, exercising their greed and avarice upon unsuspecting and gullible middle America.

The big three auto makers last week received the two thumbs down from the democrat-led congress and right now up to ten million jobs are on the line. This is madness. For me, I couldn’t care less that Bear Stearns and Lehman Brothers are no longer. If Citibank folded, so what? In fact when I think of my youth in New Zealand, the then government-owned BNZ had branches in every small town/community in the country and still handed a handsome dividend each year to its sole shareholder. Maybe every troubled U.S. bank should be nationalized if we are to bail them out! It is appalling how Pelosi/Frank/Paulsen et al have turned their backs on the Big Three when directly and indirectly ten million plus people will lose their means of support should they fail. If, as the politicians say, bankruptcy is a better option for G.M., Ford and Chrysler, then why not the same for Citibank (just been handed for starters a quarter $billion), Morgan Stanley, Merrill Lynch, Goldman Sachs and Wachovia? Maybe if (we are already being told China now owns us) we had a few Chinese banks in America to take their place, we might as a welcome change obtain some good customer service!

President-elect Obama has so much goodwill on his side, but he needs to tell Bush that it is over for him and his band of jerks and he also needs to pull these idiot headline grabbing grandstanding colleagues of his in line. The Big Three could go under if current trends continue until his inauguration and hard working Americans just cannot be held to ransom any longer. What the auto manufacturers need is postage stamps compared to what is being doled out to the bastards that created this unholy mess for us. Where is the justice in all this? and what about the sanity of the people we have elected to look after our best interests? Quite frankly, Pelosi is about as loony as her and Barney Frank’s best friends who run her home town, San Francisco!

Most carriers are acting sensibly by reducing flight schedules and grounding aircraft, rather than competing on price to fill their aircraft. In the New Year, aided and abetted by Chinese New Year, air cargo may witness the start of huge downsizing of all cargo/combination carriers. Contrary to what people with vested interests are saying, it is over for China. All those factories that are or about to be shuttered will forever remain tombs to the good old days, when they could sell any piece of junk to an insatiable global market willing to by rubbish.

As I have said on several occasions we are in for interesting times. For my money, well run small to mid-sized forwarders should hold no fears. Their resilience and ability to survive, no matter what, will see them in at worst a holding pattern over the next year or so. Not so for DHL. The closing down of domestic U.S. operations has sapped morale and I think the rot is quickly setting in. DHL’s airline subsidiary Atlas/Polar may be the next asset on the chopping block as demand for ACMI leasing grinds to a halt. Ever since Panalpina was forced out of Nigeria through corruption, they are at sixes and sevens, now they have lost their cash cow. The only large forwarder I see hanging in there will be Expeditors, all because Peter Rose, the CEO, is a tough cookie capable of running a large company in tough times.

At CII, we are redoubling our efforts to be as good communicators as we can possibly be. All customers are being regularly contacted and updated with what is happening inside our world. All team members are conscious our rates must be cutting edge competitive and our service must remain at the highest of levels. To date, our revenues are holding up. “Fingers crossed” as we start to prepare for Christmas and 2009!

Rob Fyfe, that loony bike to work, pseudo greenie CEO of Air NZ who conducts daily touchy-touchy, feely-feely management meetings with all his followers sitting in bean bags around a coffee table is at it again. He is knifing several hundred jobs in answer to the downturn in business. I wonder if this is a ruse to transfer more jobs to Asia or is it as I have previously predicted part of a bigger plan to become the first virtual airline? Many years ago I laid claim that the best thing that could happen to Air NZ is if it were taken over by its Australian competitor, Qantas. I went quiet on the idea because the soon to retire Qantas CEO, Geoff Dixon, started tampering with the culture of the “Flying Kangaroo” with grand designs to sell it off to a greedy private equity firm, all the while personally pocketing nearly $100 million for sending his employer down the garden path to certain bankruptcy . With him out of the way and the Qantas stock register solid as a rock, if I were the newly elected N.Z. Prime Minister, John Keys, I would just handover Air NZ, lock, stock and barrel to Qantas in return for a share of the action.

It is obvious that this small multi-cultural, left leaning country has little ability in effectively governing and protecting its peoples, let alone control assets which clearly should be in the hands of private enterprise experts. Fyfe and his band of followers are just not capable of steering this once proud and very profitable airline through this recession. Unlike Australia, N.Z. lost its identity as a nation decades ago. It no longer needs a flag carrier. That’s what socialism does. Apart from pandering to the native Maoris, Kiwis have watched their country slide into oblivion by successive governments heavily investing in mediocrity. Each year more New Zealanders (all skilled) leave the country never to return than the compensating flow of arriving immigrant Chinese to take their place. Not one local industrial company has its manufacturing base left in N.Z. It is a sad and sorry tale.

Yes, Air N.Z. is waiting for its leased 787 aircraft to roll off the Boeing assembly lines, but in the meantime the average age of its gas guzzling fleet approaches twenty years. It has sent most of its highly trained engineering staff down the road, cabin crew demographics have changed from Kiwis to mainland Chinese and aircraft whenever possible are serviced there. In spite of making all these savings and in light of the collapse of oil prices, Fyfe still needs to apply more surgery. Air NZ has been a penny stock ever since the meltdown over the takeover of the now defunct Ansett Airlines of Australia eight years ago and is now 85% owned by the government. Do us a favor, Fyfe, move on, but before doing so plead with the incoming administration that Air NZ is better off folded into Qantas than remaining an entity of its own. Hack-slashing jobs, only creates more misery and in your case does little to help the bottom line.

Something has to give. There is no question all cargo-combination, especially Asian carriers, are very worried right now. How are their fleets going to be deployed now China is slowing to a crawl and the world is starting to look inwards for its very survival? It is now becoming clear that globalization has not attained its lofty goals in sharing the wealth and countries like China are at the end of the day going to end up being worse than when they embarked upon the course of opening up factories to produce in the main billions of tons of junk. As nationalism and protectionism becomes the order of the day for the western world, third world countries are going to be left out in the cold. Yes, some countries such as China and India created some wealth over the past fifteen years, but at what expense? Every river is polluted with toxic waste, the air quality will reduce the life span and health of its populations and the poor will now become poorer. It is hard to see any long-lasting benefits.

I am still bullish on America being the first to move out of recession, followed quickly by Europe. There is hope some South American countries, especially Brazil will continue on the path of economic expansion, once the financial markets return to stability. This is where I see America’s future and unlike most experts, who are still betting on Asia, I believe the great experiment of Globalization is over, history. Rampant consumerism has rapidly disappeared never to return because banks have seen to that by massively reducing credit. How many more flat screens can fill a house, how many more cheap George Foreman grills can clutter kitchen benches, how many more pairs of Nikes can fill a closet floor, how many more garages can be converted to store rooms filled with junk never used toys? America is speaking with its wallets. Circuit City is in bankruptcy, Best Buy is heading for trouble and every department store chain says they are going to be in for their worst Christmas Season in history.

How we emerge from this recession poses more questions right now than there are few answers. One thing for sure is Maersk super-container ships will be leaving Chinese ports with only their cargo holds full with containers and Chinese airports will be cluttered with parked up 747 freighters. China’s latest announcement of huge investment into infrastructure at home better work for them as export related jobs are already rapidly drying up. India allowed its entrepreneurs to borrow and buy up large and develop all sorts of businesses. Now the chickens are coming home to roost. Mr Tata, who has made antiquated cars for fifty years thought he could buy into modern technology by borrowing his way into taking over Jaguar/Rover from Ford. Bad decision; His “savvy” business acumen for years may have worked in dumping poorly made vehicles onto the local market, but the western world cannot get its head around such exclusive brands now being in the hands of a third worlder. Both brands are doomed to oblivion unless some enterprising Briton buys them back.

It is a rapidly changing world with my recommendation to place your bet on protectionism becoming the norm. If I were a retail forwarder, I would be strengthening up my network of partners in Western Europe, looking to opportunities in South America and leaving China to the multi-nationals to carve up what’s left amongst themselves. As a wholesaler, I am still banking on the South Pacific as my niche market. It’s a case of first up, best dressed!

Had FedEx not made the move into trucking and UPS expanded its portfolio of services, they could have been confronting the same dilemma as DHL. In a nutshell, the small package/envelope business has been shrinking over the past ten years and as each year goes by, the Internet is making further inroads into its decline. UPS and FedEx were clever enough to suck up to the USPS after the Emery fleet was grounded several years back and this has enabled both integrators to maintain profitable loads on their aircraft fleets. UPS has done well expanding into forwarding, not so much with the acquisition of nearly bankrupt Fritz, but definitely with the $200 million and a little debt it invested in buying Menlo, the old Emery. FedEx’s foray into trucking is a true success story in how to take over relatively unsophisticated trucking companies and re-engineer them to perform as well as their famed overnight service.

I liken DHL’s decline to a “what if” question. What if the USPS were allowed to purchase UPS or FedEx? The result would have been identical to the demise of DHL. Neither would have survived. Government-controlled Deutsche Post, owner of DHL may be a publically traded company, but its management thinks and conducts business like a team of government, worse still German government bureaucrats. Airborne was always a mystery to me; it appeared half in and half out of everything it did, but somehow or other it always managed to survive. DHL quickly found out it actually had procured a basket case of a company and the planes Airborne owned quickly became an albatross around DHL’s neck. DHL spent hundreds of $millions trying to gain greater market share in the States, but it was throwing good money after bad. Red ink tallied into $billions trying to hold on and expand into the domestic market.

Wilmington Ohio was dependent upon the survival of DHL and now by the end of January ten thousand families will have been thrown to the wolves. Another city joins the growing list of rust belt ghost towns of the Mid-west. Unfortunately DHL domestic operations were doomed recession or no recession. It now comes as a double whammy.