You don’t know what you’ve got till it’s gone

Is the UK taking its airline success for granted?

You don’t know what you’ve got till it’s gone

Many people have commented on the difference between the the amount of money which Germany has put behind their main airline group Lufthansa, compared to what has been done by the governments of the UK and Spain for IAG. I thought I would have a look at the figures to explain why Lufthansa needed the support and IAG could avoid going “cap in hand” to the government for a bailout, and also to look at where the huge bailout for Lufthansa leaves IAG from a competitive point of view.

In the case of Lufthansa, a bespoke €9 billion “stabilisation package” has been assembled, all backed by the German government, About 55% of this is in the form of equity from the government, with 45% in the form of government backed debt. For IAG, they have had access to the government guaranteed COVID loan schemes in the UK and in Spain which were available to all companies, adding up to “only” €1.3 billion.

Given the huge disparity, where does that leave the two companies in relative liquidity terms? IAG started from a much healthier position, with liquidity of €9.5 billion at the end of March compared to €4.25 billion at the larger Lufthansa. However, despite being smaller than Lufthansa, IAG seems to me to be burning cash at a somewhat higher rate currently.

It is difficult to compare the companies as they quote figures on a different basis. In their Q1 2020 releases, Lufthansa gave a cash burn figure of €800m a month, whilst IAG cited “normal run-rate cash operating costs” of €200m a week, or €857m a month. To put the IAG number onto a more comparable basis to Lufthansa’s figure, you need to make two main adjustments. Lufthansa’s number includes fuel hedging losses, whereas I believe that IAG’s does not. IAG declared “ineffective fuel hedging” losses of €1.3 billion, versus €950m for Lufthansa. This seems to reflect IAG being more highly hedged in the near term than Lufthansa was. In any case, a large part of the hedging losses will materialise in cash terms in Q2, which will increases IAG’s cash burn in Q2 by around €270m a month based on my estimates. The other adjustment needed is to include the revenue that is being earned. With flights operating at around 10% of normal capacity in Q2, that will be a fraction of the usual €2 billion a month that IAG would normally generate in Q2. However it probably adds about €165m a month, taking IAG’s monthly cash burn to €962m on the same basis as Lufthansa.

So let us do a crude calculation of the predicted liquidity position of IAG and Lufthansa at the end of Q2, by which time both companies are expected to have recommenced “a meaningful operation”. Lufthansa will have liquidity of €4.25 billion (the March position), plus the €9 billion stabilisation package, less three months of cash burn at €800m a month giving €10.9 billion. IAG gave a figure of €10 billion for their liquidity at the end of April, which I think went up from up €0.5 billion from the position at the end of March due to €1.3 billion raised from the UK and Spanish governments, offset by cash burn for April. That suggests a cash burn in April of €836m, slightly below the figure I calculated above. By the end of Q2, they will have burned another €1.9 billion, giving them €8.1 billion. Expressed in terms of their “normal” cash operating expenses when operating at full capacity (where Lufthansa is 1.7x the size of IAG), this gives Lufthansa 115 days of liquidity compared to IAG’s 147 days. Of course they both have many more days of liquidity than this, as this metric assumes zero revenue and full operating costs, but it is a good basis on which to compare the two companies.

Given the amount of assumptions that have gone into these calculations, my conclusion is that both companies will start the third quarter with similar levels of liquidity compared to the size of their pre COVID cost bases, with IAG in a somewhat better position (c 25% better). The big difference, of course, is how much backing it will have required from governments to get to that position. For Germany, it took €9 billion, compared to €1.3 billion for IAG, of which the UK government has only provided €0.3 billion.

I think that UK Government MPs, who have been very critical of British Airways and IAG, would do well to reflect on these differences, As well as being thankful for their good fortune in having such well capitalised airlines based in the UK, I would suggest that they could consider being more helpful going forward if they don’t want to see the lead that UK airlines had over their European rivals going into this crisis being squandered as a result of COVID and the different policy responses.

It should be the case that as the lower cost and more profitable operator pre COVID, IAG should be able to get back to profitability and cash generation at a faster rate than Lufthansa. However, the UK government seems to be doing its best to offset this advantage by the inept way in which it is dealing with the resumption of air travel. The ill thought through introduction of quarantine requirements for arrivals into the UK, just as other countries are relaxing theirs, is the current prime case in point.

I hope this won’t be another example of the UK failing to realise that “You don’t know what you’ve got till it’s gone”. We no longer have a car industry to speak of due to government neglect. Let’s not let the UK’s previously strong global position in the airline and aerospace industries be casualties of this dreadful crisis.

The road to 200Mb/s

Speed test

The road to 200Mb/s

When we moved to our present house six years ago, the only thing that I missed about our last one was the internet connection. That house had been one of the first to get BT Infinity and I’d quickly got used to 50Mb/s speeds. We only moved 1.7 miles, but suddenly we were cast back into the dark ages with a connection speed of 0.8Mb/s.

This clearly wasn’t going to work, so I signed up for an expensive satellite connection. In theory this offered 20Mb/s speeds, but in practice it was about half that and came with 800ms latency (no good for gaming) and nasty data caps (no good for Netflix).

Things improved three years ago when BT upgraded the cabling, but the distance from the exchange still limited the fastest speed we could get to about 12Mb/s. Upload speed was particularly constraining at 1Mb/s, which is a big problem with a house full of people uploading their photos and backing up their phones to the cloud.

Back in February 2015, I went to Israel to look at the tech/startup community and we were accompanied by friends from the BT Innovation group. Inevitably, the BT folks grouched about their airline problems and we complained about our broadband issues. This set in motion what proved to be a two and a half year joint quest to sort out my internet.

Many possible solutions were explored with BT over the ensuing couple of years, but it was frustratingly difficult to get real options. I think one of the problems was the regulatory restrictions that BT is forced to operate under. The people who could do the actual work (BT Openreach) weren’t allowed to talk to end customers. The people who were couldn’t fix my problem. Somehow we went round and round in circles for months, which stretched into years.

Finally, I got some real options on the table and decided to get a dedicated leased line from BT Local Business. A full fibre to the premises service, which understandably came with an associated high price tag and required me to register as a business. Rather than go for the “Managed Service” option, I decided to go for the slightly less expensive “wires only” option. “How hard can it be?”, I thought.

Well actually quite hard! BT’s “user guides” seem to assume that you are a qualified telecommunications engineer. Unusually, the internet wasn’t much help. So I thought I’d make a few notes on how to get things working for anyone who is mad enough to attempt the same thing.

I’d opted for a 200Mbps speed, delivered over a 1000Mbs fibre bearer. The following section in the BTNet “No Router Option (NRO) User Guide” describes how to connect things at the customer end:

4.1.4. 1000Mbps

1000Mbps services are presented to the customer as 1000Mbits/s Gigabit Ethernet conforming to IEE802.3z[25]. The customer connection is via a port on the WES1000 NTE.

The EAD1000 NTE customer interface is 1000Base-SX optical presentation via a Multimode dual LC optical connector as specified in the Gigabit Ethernet IEEE802.3z[25] specifications.

The customer must provide the necessary fibres to connect their equipment to the BT NTE.

The optical fibre patch cords to be used must be 850nm wavelength, 62.5/125 or 50/125 micron multimode fibre with LC connectors. The maximum fibre length is 550 metres for 50/125 micron or 220 metres for 62.5/125 micron.

It took me quite a while to decipher this and figure out what I needed to do.

Step 1: Which port do I need to plug into?

“WES1000” stands for “Wholesale Extension Service 1000”, with the 1000 referring to the 1,000Mb/sec speed of the line.

“NTE” stands for “Network Terminating Equipment”, which at least in my case was a box made by ADVA with a model number of FSP150CP FSP-ORNT-11-B. Here is a picture of one, which I have annotated to show the “Multimode dual LC optical” port referred to above.

What they mean by a WES1000 NTE

Step 2: What cable do I need?

You need a fibre cable like this one, shown below.

Duplex multimode fibre cable with LC connectors

Step 3: How do I turn this into something I can connect to my router?

You need a media convertor, which will connect optical fibre to regular copper 1000Base-T. I used a TP-LINK MC200CM Gigabit Multi-Mode Media Convertor.

Media convertor

You will also need a 1000Base-SX module like this one to provide the right socket for the fibre cable to plug into.

1000Base SX Module

Step 4: Connect your router

All that remains is to link the media convertor to the WAN port on your router with a standard ethernet cable and configure your router to use the static IP addresses that BT provides you with for your router, the gateway and BT’s DNS servers.

And that is all there is to it. 200Mb/s up and down and a happy household.

Sharing my photos

Dreamliner delivery flight
Dreamliner delivery flight

Sharing my photos

Going through my twitter feed this morning, I came across a tweet from British Airways suggesting that people upload their “stunning cloud photos taken from a British Airways flight” to the BA Business Life gallery. OK, I thought, I’ve got a couple of good ones, including this shot I took from on board BA’s first Boeing 787 delivery flight, just after leaving Seattle. Going to the Business Life site I clicked on the terms and conditions. The first clause was pretty much as expected:

1. By submitting your photographs you agree to grant Cedar Communications and British Airways a perpetual, royalty-free, irrevocable, non-exclusive, sub-licensable right and license to use, reproduce, modify, adapt, publish, create derivative works from, distribute, make available to the public…. etc etc

But then I got to clause 1.2:

1.2. To the extent permitted by law, you waive your moral rights (e.g. the right to be identified as the author or to object to derogatory treatment) in your Content.

WTF? No attribution is already a pretty nasty clause. But waiving my rights to object to derogatory treatment? Well, since British Airways is part of International Airlines Group, my employers, I won’t criticise them. I guess the terms and conditions are spelt out clearly and nobody is obliged to submit their photos if they don’t want to. But it certainly put me off and so I am sharing this photo via my blog, where I don’t have to waive my rights just to share a photo with the world.

And on the off-chance that BA would like to reuse this photo and is prepared to discuss less onerous terms, I think you know where to find me!