BAE, EADS And Britain In The 21st Century


The proposed merger between BAE, the British defense conglomerate, and EADS, the multi-country European aerospace and defense giant is more than a merger of two companies.  It could quite literally help dictate whether Britain remains a proud, independent nation in the world or becomes ever more stuck in the quick sand that Europe and the EU have become.  You might ask yourself how could the merger of two companies could determine the fate of not only nations but perhaps even an entire continent?  The answer is simple, if BAE merges with EADS it will destroy what is left of the British owned industrial base in Britain.  Britain will still have a manufacturing sector within its borders but less and less of it will actually be owned by Britain.  Most of the major car manufacturers are owned by foreign companies, Jaguar by Tata, Mini by BMW, etc.  In fact the defense  industry in Britain led by BAE has been one of the few bright spots for British owned manufacturing in the country and the merger with EADS raises serious questions about whether or not there will be any major British owned industrial companies left if it goes through.  Ceding one of your last strong domestic manufacturing industries to the French is not sound policy.

This is because the merger will accomplish two things, first the company will no longer be British, second the new company will stand to lose access to the all important US defense market.  The fact that the company will no longer be headquartered in Britain might not sound like a big deal at first but then you play out a few scenarios in your head like how do companies achieve synergies when they merge.  Well first off they would eliminate redundancies within the new company.  So that means since BAE is the junior partner in this deal then you could expect much of the white-collar jobs in Britain will quickly be eliminated in order to achieve maximum cost savings.  Hundreds, probably thousands of top paying jobs all eliminated.  Second, the current British government has already done its best to destroy its own armed forces by enacting drastic cuts that happen to be one of the reasons BAE is even contemplating this.  Since they are already dismantling their defense industrial base right now does anybody in Britain really think they will have any incentive to carry out big defense projects like the proposed new British nuclear submarines.  One of the few current incentives about doing this is that it will help maintain the defense industry jobs but if the merger goes through will that still be the case since at least some if not a large amount of the work will be done outside Britain.  I think not.

Secondly, roughly 40% of BAE’s profits come from doing work in the gigantic US defense industry.  They are one of the few foreign companies allowed to do this.  Other companies like EADS do business with the pentagon but are not allowed access to advanced technologies to safe guard intellectual property.  This is not the case with BAE because they have special agreements with the US government allowing them to share in this defense work.  The reason for this is simple, they are British.  Because the obvious special relationship they get access that others like the French and Germans don’t and never will.  This alone should give both BAE and EADS pause about the merger.

Finally, if the deal goes through Britain will be drawn closer to Europe at a time when the Continent is in steep decline.  Losing access to the US market will force the new company to look even more to Europe for work.  This in turn will force the UK to get deeper involved with the EU at a time when many in the country want less to do with it.  And if your forced to look more towards Europe they will no longer be able to be that close to the US.  If I were British I would advocate less severe defense cuts both to maintain capabilities but also to maintain an important part of their economy.  I would also focus even more on joint work in the US defense industry because one, it is bigger and two, you don’t have to surrender more of your sovereignty to the failing EU.

Minefields await for EADS-BAE deal

http://www.rusi.org/analysis/commentary/ref:C50534A0EA81CF/

http://www.thisismoney.co.uk/money/markets/article-2202939/BAE-Systems-merger-EADS-faces-flak-sides.html

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Panama Canal, Size Does Matter


In 2014 the Panama Canal will open a new 3rd lane to accommodate ships that are wider, deeper, and longer than were previously able to pass through the older lanes.

“[T]he Panama Canal was always constrained by the size of its locks, permitting no vessel longer than 965 feet, wider than 106 feet and with a draft greater than 39 feet to pass through. Ships suitable for the canal became known as Panamax vessels and could carry nearly 5,000 20-foot shipping containers.

When the third lane opens in late 2014, the canal’s capacity will more than double. Ships as long as 1,200 feet and up to 160 feet wide, with drafts as deep as 50 feet, will be able to transit. The largest vessels will carry as many as 13,200 containers, or at least double the dry weight of bulk cargo that can pass through today.

Panamax vessels are long, slim and require a lot of water ballast to maintain balance. New mega-ships will be wider, more stable and will consume up to 16 percent less fuel – meaning a smaller environmental footprint and lower costs for their operators. Shipyards are seeing a surge in orders for what are called post-Panamax vessels.”

It also remains to be seen how the greater capacity will influence global trade once the new lane becomes operational.  Ports in the US have been told by the US government to prepare accordingly by expanding capacity to meet what seems to be coming.  Beyond the assumed increase in trade there also are questions that need to be answered about how this will change trade relationships?  It now might become more economically feasible to ship certain items to new destinations.  The original story mentioned that coal from Columbia could now be shipped to China, which is just one example how this will impact global trade relationships.  It will be interesting to see what else comes about.  Oddly enough I did not hear any mention on whether or not the largest US Navy ships would now be able to use the canal.

 

This picture illustrates the dramatic impact the new lane will have on shipping.

What
does a wider Panama Canal mean for you?

Panama Canal Expansion – Diagram of Panama Canal Locks

Boeing Unveils New 747-800


 

Boeing has just unveiled an updated version of its venerable 747.  The new model is longer by about 18 feet for the fuselage, and the upper deck has been lengthened by about 13 feet.  It also features brand new engines and redesigned wings which both should allow for the 747-800 to be more fuel efficient.

 http://www.couriermail.com.au/travel/gallery-fn301512-1225714654376?page=1

Boeing goes long with new 747-8 jet – USATODAY.com

 

Riding In Style, Your Tax Dollars At Work


 

Within 2 short years of being elected president the Obama administration had seen the number of limousines in the  federal governments inventory shoot up 73% according to the GAO (General Accounting Office).  Recognizing a problem of perception with the 2012 election coming up the Obama solution was not to get rid of all the new limos but rather to change the definition so the new number would not appear so large.  Then they asked the GAO to do another count which of course reflected smaller numbers because of the change in definition.  Your tax dollars at work, thanks Obama.

How many limos does the U.S. government actually use?

Saudi Arabia Pumps It Up


In a very informative article over at www.foreignpolicy.com by Steve Levine entitled The Coming Oil Crash he details the problems petro states like Russia, Iran, and Venezuela among others face with the recent fall in oil prices.  The article gives estimates on what each state needs the price of a barrel of oil to be to balance their budgets.  Russia, for example, is said to require a price of $110 per barrel to stay in the black, oil was going for around $96 a barrel on Monday.  In fact many of the other petro states are in a similar position to Russia, so our gain is their pain so to speak.  Many analysts expect the pain to go up for the petro states for the obvious reasons: global economic slowdown reducing demand, US and Canadian shale oil deposits, and Saudi Arabia insisting on producing 10 million barrels a day when all they appear to be doing is hurting themselves by producing so much.

  All of the reasons seem to make sense except for the Saudis, why on earth would they purposely drive down the price of oil when all it does is take money out their own pockets?  Well, that is where it gets interesting.  According to the article the Saudis are intentionally trying to drive the price of oil down for several different reasons.  First, they believe cheaper oil will help the global economy weather this rough patch.  They also apparently liked all the prestige they gained by driving down the price of oil in the late 90’s during the Asian financial crisis.  Second, they feel threatened(the original article used the word terrified to describe how they felt) by the shale oil deposits in the US and Canada.  They recognize that shale oil is harder and more expensive to obtain than normal liquefied deposits.  Because of that oil has to be at a certain price to make going after shale oil worth it.  Last but certainly not least, the Saudis are trying to impose their will on both Russia and Iran on two key issues.  The first would be Iran’s attempt to get the bomb.  The Saudis and Iran are natural competitors because one is Sunni and the other is Shia.  The Saudis feel that a nuclear armed Iran would be unacceptable so they are purposely driving down the price of oil to put the squeeze on Iran to force them to give up the pursuit of the bomb.  The second issue is with Russia blocking a deal being made on Syria.  The Saudis once again feel they can pressure Russia into playing ball on Syria by driving down the price of oil.  It will be interesting to see how long and how painful the Saudis are willing to make this.  As the article points out they have one of the largest financial reserves in the world at around $700,000,000,000 so suffice it to say that they can keep this up for some time.  If I was Russia and Iran I would be worried.

The Coming Oil Crash

This Is Not A UFO


 

For the second time in a short span people have seen one of the US military’s newest drones being transported by truck and thought they were witnessing a UFO in transit.  No folks it is just the X-47B, a carrier launched stealth drone that is still in the testing phase.  Should it eventually join the fleet on active duty it would mark a milestone finally achieved for the US Navy because while the air force has had stealth capabilities for literally decades the navy has been left with conventional aircraft to get the job done.  This would be a serious upgrade for the navy greatly increasing their reconnaissance and strike capabilities.  Since the US Navy will be in the lead in confronting China this is also something they can’t afford to be without.

X-47B Completes Cali Flight Testing, Moves to th

 

Something Positive For Once


 

If you have read this blog before you probably have realized that it tends to be somewhat negative sometimes because it reflects what is going on in the wider world.  So after reading a fascinating article over www.foreignpolicy.com entitled The End of the Asian Miracle I wanted to share some of the author’s insight on some very positive things happening right now for the US economy.  The article is fairly long but does go in-depth about how China is beginning to lose some of its competitive advantage versus the US and is worth reading but for the sake of time I’m only going to address what is actually happening in the US instead of the rest of the world. 

Perhaps the biggest new development happening in the US is the discovery and extraction of shale gas that is allowing the US access to large quantities of domestically produced cheap energy for the first time since probably the 1960’s.  Yes, we have had the Alaskan oil discoveries since then but this has the potential to be much bigger and because of this its impact will be much more beneficial.  The effects of this are already being felt in manufacturing with some US companies returning production back to the US from overseas because of the cheap energy, but also foreign companies moving their operations from their home countries to also access this energy.  According to the article the US now is supplying gas to domestic customers at about $2-2.50 per 1 million BTU.  Compare this with China which imports gas at a price of about $13-17 per 1 million BTU.  As you can see that is quite the advantage for us.  I’m sure you are wondering about how this relates to oil?  The article states that the $2-2.50 price is equivalent to an oil price of about $12-15 per barrel.  But the size of the deposits discovered in America mean that this will be an enduring advantage, one so great that this gas will not only power energy intensive manufacturing plants but also provide electricity and perhaps even fuel cars and trucks.  Obviously fueling are personal vehicles is some way off because of the lack of infrastructure (the technology to convert our vehicles already exists and is relatively cheap) but it certainly is not unreasonable to see fleet vehicles that operate out of a terminal being able to take advantage of this much sooner than cars.  Cheaper transportation costs mean cheaper goods at the store, we all win.  In fact the reserves of gas are so large that the idea of the US once again being energy independent may become a reality, now that really is something positive to move forward with.

The End of the Asian Miracle