Flying Investors
Pfäffikon SZ, Switzerland – From an investment standpoint investing in an airline company is challenging. An airliner is capital intensive, the competition is brutal and the personnel list is long. For a shareholder this is not an attractive mixture of facts. Yet, there are still successful entrepreneurs in this area, with Richard Branson capturing the imagination of many. Recently it was became known that KLM pilots would receive a 4.5% share in the mother company.
Trail of Misery
Over the years pilots have left a trail of misery behind them. At Lufthansa the developments are starting to look like a soap opera. The battle between the German airline company and her pilots has moved to the courts where the rulings are akin to a traffic light on tilt. Fact is that due to the strikes Lufthansa has lost more than 320 million euros over the backs of the shareholders. As far as I know this is one of the few professions in the world that puts itself above its employer and its customers.
Bus Driver
In my view pilots are nothing more than bus drivers in the air. The airline branch has grown enormously which has led to pilots becoming more of a commodity. However, some pilots would disagree with that label, which leads to all kinds of consequences. In the Netherlands it seems pilots are being more cooperative and are agreeing with the employer’s demands in exchange for stock options and a commission chair. Whether this is a good development – I can’t help but wonder.
Two Hats
Because of this construction the pilot has to wear two hats. On the one hand it’s his responsibility to guarantee safe flights, on the other hand the shareholder interests haunt him. In my view this can lead to conflict situations, which no one wants. Moreover, it is remarkable that through this construction the cabin and ground personnel are left by the sidelines. In my view the unwieldy airliners have a competition problem. The pilot cannot – save for his excessively high compensation – change that. It is locked up in the DNA of the company in question. Then there is the case of Air France-KLM, which is even more precarious because KLM’s share has been squandered to the French at an earlier stage. On the Amsterdam stock exchange we’ve seen this sequence of events before, but that’s an aside.
It’s likely that the average pilot has no clue what they’re investing in. History is replete with financial accidents that were the cause of betting on a single horse. The construction chosen by KLM can, therefore, in many ways be labeled as unfortunate. The future will show if the pilot is a resolute investor – yours truly is not convinced.
It remains for me to wish you a good weekend.
Jan Dwarshuis is a senior asset manager at Thirteen Asset Management AG, where he is responsible for the Thirteen Diversified Fund. Dwarshuis writes his columns in a personal capacity and is not paid for them. Nor is he paying for his columns to be placed. Professionally, he holds positions in major European, American and Russian stock funds. The information in his columns is not intended as professional investment advice or a recommendation to make certain investments. At the time of writing, he has no position in the other above mentioned shares and has no intention of doing so in the next 72 hours.
