Monthly Archives: March 2010

An aircraft worth its weight in gold?

Airbus announced last January that it had raised the list prices of its commercial aircraft by an average of 5.8%. It had not updated its prices since 2008. You may see the current prices here: Airbus list prices

Boeing also discloses in its website the range of list prices of its aircraft. Those prices haven’t been increased in the last two years.  

Few years ago, I saw for the first time a comparison of prices of aircraft per kilogram. It was prepared by a teacher I had at EOI Business School in Seville, Felipe Moran, who later has become a co-worker. With this post I will start a series of comparisons, the first one being precisely that one: an update on price per kilogram of aircraft. 

We already saw where to get the prices from. The other input we are going to use is the weight of the aircraft, what is called: Operating Empty Weight (OEW). You may find this information in various places, I recommend you to pay a visit to Boeing’s “Airplane Characteristics for Airport Planning”, where you will find very detailed data of all its commercial aircraft.  (While gathering this info I also came across the following section dedicated to fun facts of the legendary Jumbo 747).  

Combining these inputs we can build the following table. 

Price per kg of commercial aircraft.

Some facts may counter intuition: 

  • There doesn’t seem to be a clear discrimination between older and newer aircraft (A380 and some 787 models rank among cheapest, while A350-900 and 787-9 are among the most expensive).
  • Smaller Airbuses rank among the most expensive aircraft in a per kg basis despite the suggested price war that was reported by the specialized press in the recent years.

With the exceptions of A350-900 and 787-9 there seems to be a very slight trend in bigger aircraft being cheaper in this per kg basis. One may argue that once the frame of a certain size is built, building a bigger one might not cost that much

Now, let’s talk about the Military Transport business. Do we think those aircraft are more or less expensive? On one hand, those aircraft are not carrying systems such as the in-flight entertainment and, on the other, the scale of the market is smaller (with few exceptions such as the C-130) and they do carry diverse military systems, protections, etc. What is the trend weighting more in the balance? 

Military transport aircraft price per kg.

As you can see, military transport aircraft are on average 25% more expensive on a per kg basis. There is much more technology in them than people tends to think… they are clearly not just flying trucks. 

As you may have noted I have not included any sources for the prices of these aircraft, since they are rarely disclosed. I have used prices reported by the press and US budgets. 

Let’s stretch the argument a bit more… What is the trend for fighter aircraft? This time scales are bigger than in military transport. Does this make them cheaper? See the table. 

Fighter aircraft price per kg.

Not even close. Fighters are around 3.2 and 4 times more expensive than military transport and commercial aircraft, respectively, on a per kg basis.  

We can see in the following graphic all these aircraft together and maybe spot those trends. 

Aircraft prices per kg.

Now that we have an idea of how much aircraft cost per kg (1,700$ commercial aircraft, 2,100$ military transport aircraft and 6,700$ fighter aircraft)… is this expensive? Expensive compare to what? 

Let’s relate these prices to something closer to us. 

Cars: 

  • The best-selling car in Spain in 2009, was the Renault Megane (with 52,156 cars sold). It costs about 17,700 € (or 24 k$) and weighs 1,150 kg, this yields: 21 $/kg, clearly cheaper, about 80 times cheaper than commercial aircraft on a per kg basis. 
  • More up-scale cars such as the Mercedes Class E 350 CDI (56,000€ and 1,825 kg) or the Audi Q7 4.2 TDI (85,000€ and 2,605 kg) are more expensive per kg, 41$/kg and 44 $/kg, respectively. This is 40 times cheaper than commercial aircraft.

It may be worthy to note that in the cars we see the completely opposite trend than that we saw in airplanes: the bigger the car the more expensive on a per kg basis. 

Let’s compare this yet again with some other unrelated luxury item: Jamón Ibérico Puro de Bellota de Jabugo 5J. Today it was on offer in El Corte Ingles website for only 449€, a piece of about 7 kg, yielding: 87 $/kg. This is twice more expensive than buying a Mercedes (this may be the reason why it was an offer from Sanchez Romero supermarkets) but still 20 times cheaper than a commercial airliner. 

To end this post, let’s answer the question posed in the title of the post: 

The kilogram of gold is in the order of 35,400$, clearly more expensive than any aircraft. 

After all, nowadays, we may find no aircraft worth its weight in gold.

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A Kiva success story

Kiva’s mission is to connect people, through lending, for the sake of alleviating poverty.

A friend recently wrote in his blog a post about Kiva, therefore I will refer you to it for a deeper explanation of what Kiva is (in Spanish), or to Kiva’s website to know about it in English.

For those of you who like statistics and facts, these are the ones shown in the latest newsletter:

  • 53 months old
  • $124,156,585 raised
  • 98% repayment rate
  • 312,345 entrepreneurs funded
  • 681,527 Kiva users
  • 193 countries represented

Kiva’s slogan is: “Loans that change lives”. I wanted to write about how it changes both borrowers and lenders lives.

I believe that the two main “selling points” that Kiva has are:

  • The fact that you are lending money instead of donating it.
  • Being able to chose one specific project to which you want to loan money.

The fact that you are lending money instead of donating it. This aspect is positive again in a twofold way: you incentivize the borrower to use the money in building a sustainable business and when you get the money back, you can lend it again, and again, etc… therefore with the same amount of money you may help many different people.

The minimum amount you can lend in Kiva is 25$. It’s obvious that if you lend only 25$ you will have to wait until this loan is fully repaid before lending these 25$ to someone else. But, if you are lending to several people the picture changes.

Let’s see an example in which you start lending 25$ to 4 different projects (e.g. handicraft in Peru, a food market in Tanzania, a grocery store in Viet Nam and a small restaurant in Nicaragua).

Let’s imagine that all four projects will repay their loans in 10 months, starting from the next month of the loan disbursal.

You can see in the graphic that since you are collecting 10$ in the first 3 months, in that third month you can already re-loan 25$; in the fifth month you will be able to re-loan other 25$… Before the end of the 10 months you’re already helping 8 different projects. From that moment on you will be always be supporting between 6 and 7 different projects at every time.

Loans repayment "money creation".

And believe me: it’s both entertaining and rewarding to read the stories of these people, trying to grasp how they’re trying to improve their business.

Being able to chose one specific project to which you want to loan money. We are attracted by this for whatever reason: we identify ourselves with the person, we find the business especially interesting, we think it’ll have a larger impact in the community… we “put a face” to the act of lending money.

Last year I went on holidays to Peru. Since I had funded some projects in Peru I thought it would be a good idea to learn from one of those business first hand and see how Kiva is making an impact.

Reynita de Belen de Ccorao is a community founded 7 years ago in the village of Ccorao, near Cusco. It is formed by more than ten people, each of them dedicated to a different business. Together they requested through Kiva 3,950$ to “purchase more supplies for their handiwork and to buy seeds and dry grains”. They would repay in the following 8 months.

Once I was in Peru I was quite flexible about the plan of whether to visit or not this community, since I didn’t know where Ccorao was and also in the Kiva description another name was given  for the name of the village, “Corroa”, which didn’t appear in any map (it seems that Ccorao is a Quechua name, being Quechua mainly used in the Altiplano region).

Ccorao in the World.

Luca and I were going to spend some days in Cusco and surroundings, with an intermediate escape to the Amazon Basin. During those days we wanted to visit the city of Cusco with a guided tour including the ruins of Sacsayhuaman, we would go to Machu Picchu, and make an excursion to the Sacred Valley ending in the fortress of Ollantaytambo, all these under continuous threats of transport strikes.

The day of the Sacred Valley excursion, on the way to Pisac we passed through a village with a sign post that read “Ccorao”; that immediately rang a bell and I told Luca: “This is the place”. That day in the afternoon I went to an internet cafe to check the names of the people that we would look for the next day.

The plan was simple: we had 3 hours in the morning before taking the flight back to Lima, we would use them. The following morning we took a taxi and went back to Ccorao, and with the help of the taxi driver we tried to find that group. Of course, the taxi driver had never heard of it.

I tend to be lucky: although the first stop we made wasn’t successful, in the second one we completely hit the target. We reached Mariano Choque Raya, “Mariano”. We introduced ourselves as what we were: a couple of tourists that had lended money to a group through Kiva. Mariano had never heard of Kiva, or if he had he didn’t recall the name, but he knew very well Arariwa, the field partner Kiva works with in that region. He not only had taken loans from Arariwa but had received certain financial education from it.

Reynita de Belen, Mariano and our way to Ccorao.

The group had taken several loans from Arariwa and from other lending institutions. This particular loan was fully repaid in November 2009.

He showed us their handicraft exhibition and went on explaining how they had grown their business. The first loans he used were employed in buying grain and feeding cuys (guinea pigs) that he would grow to later sell them to restaurants in Cusco. Then, as tourism grew, they focused on the handicraft business and he advanced in the value chain of the cuy business: he continued to grow them but instead of selling them he started running an eatery post that opened only during the weekends and there he would cook and serve his cuys, retaining more margin for himself.

With time, more and more buses filled with tourists were stopping in Ccorao in their way to Pisac. Other groups started their handicraft exhibitions along the road, so competition became fiercer (though be sure that the items we purchased came from his shop).

Thanks to Mariano’s entrepreneurship and skills, and partially to the loans offered to him, as he said: now, his children are attending to school, something his generation couldn’t afford to, and he is able to save some money for his retirement as he won’t have any pension when that moment comes.

Kiva: loans that change lives.

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A ‘Gol’ to Ryanair

Luca and I are planning a trip to Brazil at the end of March. Two days ago I received an email from Gol, the airline which will take us to 4 different places in six different flights. They informed us that one of our flights had been re-scheduled. We just needed to accept the change by clicking to a link in that email. So far it was like the process with other airlines.

The problem was that with the new flight we would be arriving to Sao Paulo Congonhas airport 5 hours later than the departure of another flight we had booked also with Gol. I had previously introduced some changes of flight dates once booked in the Gol website, so I just went on.

This time I encountered a problem. At some moment in the process the website switched from English to Portuguese, which was not a problem until the payment page, where I was asked to introduce my CPF, a fiscal code that I don’t have since I’m not a resident in Brazil. Then I tried to proceed with the payment through other method… but that also didn’t work. When I tried to perform again the whole process, I found that the current status of my flight was the new one but appeared a ‘Payment: pending’ status. Nothing else that I could do. No way to proceed, to cancel or to change again the flight data. A kind of dead-end situation.

I wrote an email to Gol customer services about this situation. Late in the afternoon I phoned their Call Center in Brazil. I was explaining the whole situation to a lady… ‘and now I would like to know how can I proceed to pay this remaining amount (20R$, about 8€)’. She paused for less than one second… ‘ok, I’ll proceed to cancel this extra payment of 20R$, so you don’t have to pay more, confirm the new flight, and send you emails of confirmation of the two last changes of flights, the one that originated the issue and this new one’. I could only muster an ‘oh, that would be ok’. One minute later everything was arranged and I had already received those emails. One hour later I got a reply from customer services to my email of the morning: they had gone through my records and seen that everything was correct now and would archive they case.

Let me show you the ‘Terms and Conditions’ of Ryanair related to Flight and name changes:

Flight dates, times and routes are changeable (subject to seat availability). If booked online the change rate of £25/€25 per one way flight/per person applies or if booked at an airport or reservation centre the rate of £55/€55 per one way flight /per person applies. In addition, to these flight change fees, any price difference between the original total price paid and the lowest total price available at the time of the flight change is charged. Please note that if the total price on the new flight is lower, no refund will be made.

One may argue: Ryanair model is based on charging little money on the original flight and adding up revenues with other services, changes, penalties, etc… The Gol flight I was changing cost: 119R$ per person, about 45€, as little as a flight with Ryanair may cost. Gol doesn’t charge anything for changes made with at least 7 days in advanced of the flight (see above what Ryanair does). The 20R$ related simply to the different fare of the new flight…

It is not about money or the abusive clauses of Ryanair that I wanted to write about but I wanted to point the difference that makes having people trained, empowered and customer-oriented in Call Centers.

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From Ramstein to Pandora moon

At the beginning of December 2009, I took part in a conference on Military Airlift Operations in Frankfurt. The day after, we were offered a visit to Ramstein US Air Force and NATO base. In the different ramps of the base, there were several C-130Js Super Hercules (first USAFE squadron), the last remaining C-130E, half a dozen C-17 Globemaster, the same amount of C-5 Galaxy and some other contractors B-747 and DC-10. So far, so good.

Some weeks later, back in Madrid, I went to the movies to see Avatar, latest James Cameron film. The movie went along well… but it really got me when in the final battle appeared the huge airship carrying a pallet with a bomb to be air dropped. As soon as I saw the seats within the cargo hold, I thought it had to be a C-17. Then came a view of the ramp, and when the plane was crashing, the rear fuselage.

Since then I have tried to find evidence in the web, searched in forums, etc., but I have not found any evidence of it. Then I reviewed the movie and went back and forth through those last minutes. In fact it is a C-17.

Here I post some pictures of the C-17 for you to compare…

Compare the interior of the cargo hold with the seats seen in Avatar when soldiers start pushing the pallet.

Compare these other pictures with the ramp seen in the movie.

Now see the rear fuselage and compare it with the images seen when the plane in Avatar is about to crash.

Luckily the Na'vi did not face with these fleet of C-17 loaded with bombs...

… I wonder when will the A400M make its debut in Hollywood?

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Not just another letter

Last Saturday Warren Buffet’s letter to the shareholders of Berkshire Hathaway was released.

I encourage you to read it. In the best case it will raise some interest for this guy within you, and that may be translated in further readings and wiser investments decisions. If it doesn’t go that far, it’ll provide some fun reading. Let me give you some hints of this year’s letter:

“An old Wall Street joke gets close to our experience:

  • Customer: Thanks for putting me in XYZ stock at 5. I hear it’s up to 18.
  • Broker: Yes, and that’s just the beginning. In fact, the company is doing so well now, that it’s an even better buy at 18 than it was when you made your purchase.
  • Customer: Damn, I knew I should have waited.”

“If Charlie, I and Ajit are ever in a sinking boat – and you can only save one of us – swim to Ajit.”

“GEICO’s managers, it should be emphasized, were never enthusiastic about my idea. They warned me that instead of getting the cream of GEICO’s customers we would get the – – – – – well, let’s call it the non-cream. I subtly indicated that I was older and wiser.

I was just older.”

“It’s clear that I failed you in letting NetJets descend into this condition. But, luckily, I have been bailed out.”

“Big opportunities come infrequently. When it’s raining gold, reach for a bucket, not a thimble.”

“Charlie and I enjoy issuing Berkshire stock about as much as we relish prepping for a colonoscopy.”

“If you decide to leave during the day’s question periods, please do so while Charlie is talking. (Act fast; he can be terse.)”

“If pushed, we would gladly pay substantial sums to have our jobs (but don’t tell the Comp Committee).”

It’s only 19 pages…

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