From the day its Deepwater Horizon rig exploded, Transocean has denied wrongdoing, deflected blame, and paid dividends, not cleanup costs. So far, its hardball strategy is working
A Transocean drilling vessel and platform used in the Gulf spill containment effort Fourteen months after the Deepwater Horizon drilling rig exploded 50 miles southeast of Venice, La., killing 11 men and setting off the largest offshore oil spill in U.S. history, Transocean, the company that owned and ran the ill-fated 32,600-ton vessel, finally issued its official account of what happened and why. It produced a report on June 22 of no fewer than 854 pages, divided into two volumes, and spared no detail. The bottom line, though, isn’t complicated:It was BP’s fault. That Transocean would try to deflect blame isn’t surprising. The Swiss-incorporated, Houston-based drilling contractor is caught in a litigation frenzy involving British Petroleum; Halliburton, which did cement work; and several other companies, including Anadarko Petroleum, one of the minority stakeholders in the well, and Cameron International, manufacturer of a critical piece of safety equipment known as the blowout preventer. They are wrestling over who will get stuck with tens of billions of dollars in environmental and economic damage claims related to the blowout of BP’s Macondo well on Apr. 20, 2010. Since then, Transocean has refused to acknowledge committing any mistakes that may have contributed to the disaster. It has declined to help pay for the cleanup. It has made no apologies. And what is remarkable is that this blame-the-client, admit-no-wrong, take-no-prisoners approach appears to be working. Of 126 people aboard the Deepwater Horizon when it exploded, 79 worked for Transocean (versus only six for BP). Nine of the 11 fatalities were Transocean men. Transocean has settled with several families of those lost in the disaster, for undisclosed amounts, and has said in Securities and Exchange Commission filings that its costs related to the blowout totaled $160 million through Mar. 31, 2011. Yet it hasn’t put a single dime into the $20 billion victims-compensation fund BP established, a fund that is close to finalizing settlements with 17 former Transocean employees, according to Anthony G. Buzbee, a Houston plaintiffs’ attorney representing the workers. Overall, BP has spent $17.7 billion related to the spill as of the end of 2010—more than 100 times as much as Transocean, which last year, according to the U.S. Justice Dept., “actually booked a $270 million ‘accounting gain’ on the difference between the real value of the Deepwater Horizon and the amount it received in hull insurance following the vessel’s sinking.” Transocean’s shrewd, defiant response strategy began almost from the moment the crew lost control of the well. Within 12 hours of receiving medical attention after the calamity, surviving Transocean employees were transported to a hotel in New Orleans, where they were questioned by company lawyers seeking to exonerate the drilling contractor, according to Buzbee and other plaintiffs’ attorneys. In subsequent months, even as BP pledged to “make it right” and raise billions for its relief fund, Transocean worked behind the scenes to minimize liability and convince investors everything was just fine. In May 2010 it filed papers in federal court in Houston seeking to use a 169-year-old maritime statute to cap the company’s liability for deaths and injuries at less than $27 million. (The owners of the Titanic invoked the same law to notable success.) Then, shortly after trying to minimize its payments to widows and survivors, Transocean announced plans to issue $1 billion in dividends to its shareholders. It further declared in its annual report that despite the death and destruction in the Gulf, 2010 had been “the best year in safety performance in our company’s history.” It even handed out safety bonuses to top executives.“You almost have to admire their chutzpah—almost,” Steven Gordon, a plaintiffs’ lawyer in Houston, says of Transocean. Gordon represents eight former Transocean employees who survived the disaster and are suing the company and BP.
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Washington’s fight over the debt ceiling has obscured a larger reality: Government has lost its ability to influence the economy
As Americans celebrate the 235th anniversary of their independence, the country is embroiled in a typically noisy debate. This time, the argument centers around whether Congress should raise the ceiling on national debt in the interest of preventing a potential government default. The issue has proved to be partisan catnip. The GOP opposes any new taxes to pay down the U.S. debt, which is close to 95 percent of the country’s gross domestic product, on the basis that government has created this problem and that more government cannot be the answer. The U.S. debt burden, House Speaker John Boehner says, “can be traced to a misguided belief by politicians that the American economy is something that can be … influenced positively by government intervention and borrowing.” Republicans want deep cuts in government spending to be part of any deal to raise the debt ceiling. Democrats counter that such measures would imperil the recovery. And they insist that robust government remains a key element of future growth. “We can’t cut our way to prosperity,” President Barack Obama recently said. Government as the problem, government as a solution: The impasse over the debt is new, but the debate is old. From the Progressive Era of the late 19th century through the laissez-faire of the 1920s, from the New Deal and the Great Society to Ronald Reagan’s declaration that “government is the problem,” perhaps the only thing the left and the right have agreed on is that government matters. Liberals believe that if government does its job well, prosperity will follow. Conservatives argue that good government is less government, but they are no less obsessed with the role that Washington plays. Our entire political and economic debate takes place in the context of a shared assumption that government determines the nation’s collective economic success or failure, either because of the harm it does or because of the good. But what if this assumption is wrong? What if government is neither a solution nor a problem? What if, when it comes to dealing with the economic challenges facing the U.S. today, government actually doesn’t matter? When Herbert Hoover refused to intervene in the wake of the financial crisis in 1929, he was adhering to a 19th century worldview: Government’s role in the life of society was less important than the natural ebbs and flows of the market. The Great Depression and New Deal banished that philosophy to the extreme periphery. In the decades since, the consensus among policy makers pretty much everywhere—from Washington to Brussels, from the former Soviet Union to present-day China—is that government pulls the levers that determine economic health. That’s no longer true. Today, the ability of any state to govern and control its own domestic economy is severely constrained. One key area is interest rates. In 2005, Alan Greenspan, then chairman of the Federal Reserve, confessed that he was stumped. Under his direction, the Fed had been steadily raising short-term interest rates, with the expectation that long-term rates would rise in response, thereby moderating economic activity, reducing the risk of inflation, and cooling off the steady rise in home prices in the U.S. Yet, long-term rates refused to budge much, staying stubbornly in the range of 4 percent. Greenspan dubbed this anomaly a “conundrum.” Actually, the conundrum was the product of static models trampled by a changing world. When the U.S. economy was a closed system, as it was for the bulk of the 20th century, the decisions of the central bank shaped the cost of capital and interest rates along the entire curve. Now, however, a global market of buyers and sellers sets interest rates, and short-term rates (which are all the Fed can directly control) are only one factor. This became even more evident after the 2008 financial crisis, when the Fed slashed short-term rates to zero. Again, long-term rates remained in the range of 4 percent. Although they have since declined to around 3 percent, they have done so because that is the level at which capital is priced by a global market of institutions and not because any single government has pegged them there.
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Published 27th June 2011 |
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Published 24th June 2011 |
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June 21, 2011, 2:09 PM EDT By Andrea Rothman and Susanna Ray (Updates with TransAsia order in third paragraph. Hit SHOW GO for more stories on the Paris Air Show.) June 21 (Bloomberg) — Airbus SAS reached a goal of topping 500 orders for its upgraded A320neo aircraft by the end of the Paris Air Show on the second day of the event as carriers put pressure on Boeing Co. to respond with an all-new airliner. U.S. leasing firm CIT Group Inc. signed an outline order for 50 single-aisle neos worth $4.6 billion at list price, propelling the model to Airbus’s pre-show target, and a 10-plane deal from PT Garuda Indonesia gave the re-engined jet a first contract from a client until now loyal to Boeing Co.’s rival 737. JetBlue Airways Corp. of the U.S. also bought 40 A320neos and TransAsia Airways Corp. of Taiwan ordered six A321neos, while Boeing won 15 737 orders from Norwegian Air Shuttle ASA plus 10 from Malaysian Airline System Bhd. that were pre-booked. The contrasting fortunes in the single-aisle market, the biggest in the civil airframe business, underscore Airbus’s success in peddling the re-engined A320 as a more efficient take on its bestseller as Boeing ponders its next move. The U.S. company should skip an engine fix and build a new jet, clients including industry doyen Steven Udvar-Hazy’s Air Lease Corp. said. “I’m not talking to too many airlines, in fact none, zero, that think a re-engine is the way to go for Boeing,” John Plueger, the co-founder and business partner of Udvar-Hazy at Air Lease, said in an interview at the Paris show yesterday. General Electric Co.’s air-leasing unit and SAS AB of Sweden ordered a total of 90 A320neos from Toulouse, France- based Airbus on the first day of the Paris Show yesterday, while Boeing didn’t secure any firm orders for the 737, other than a two-plane deal from Mongolian Airlines announced in Washington. ‘Total Panic’ The neo has become Airbus’s fastest-selling aircraft since it was announced at the end of last year, with 232 commitments announced at the Paris show, taking the total to 594. Chief Operating Officer John Leahy said yesterday he’s now confident of securing more than 600 deals by the time the French expo ends. Airbus’s success will be of concern to Boeing, which should already have mapped out its thinking on the single-aisle market, Tim Clark, president of Emirates, the world’s biggest international airline, said yesterday in an interview in Paris. “They’re in a total panic, of course they are,” Clark said. “We’ve just seen 90 neos ordered and Leahy is going around with a big grin on his face.” While Emirates isn’t a narrowbody operator, the 737 delay will be a concern if it affects Boeing’s thinking on a replacement for the 777 long-haul model, he said. No Rush Boeing has maintained that it won’t be rushed by Airbus into a decision, and that a choice between new engines and a redesigned plane will come only at the end of the year. Airbus markets the A320neo as 15 percent more fuel efficient than a factory-fresh version of the jet on sale today. The new variant goes on sale at the end of 2015 and has two new engine choices. “The story at the show is the neo,” said Norman Liu, chief executive officer of GE’s leasing unit, which placed an order for 60 of the planes yesterday. The order has a value of about $5.5 billion at list price, though customers typically get discounts on larger or multiple deals. SAS bought 30 neos. Hazy’s Air Lease announced preliminary agreements yesterday that call for firm orders for 14 737-800s plus four options and the conversion of options for six more in a deal Boeing said has yet to be completed. The leasing firm also has an outline accord for 36 A320neos plus 14 options. New Entrants Boeing is weighing its options at a time when the duopoly with Airbus in the single-aisle market for jets with 100 to 149 seats is poised to crack open. Bombardier Inc. is marketing its CSeries single-aisle jet, and the Canadian company completed the first day of the show by announcing an order for 10 CS100 planes worth $616 million at list prices, with options for six more. Embraer SA, the Brazilian airframe producer specializing in regional jets, is awaiting Boeing’s next move before deciding whether to go ahead with a possible 150-seat model. “Once Boeing has decided what to do, the shape of the market will be clear,” CEO Frederico Curado said in an interview after announcing orders and commitments for more than 50 of Embraer jets at the Paris show. While the A320neo has outshone Boeing’s single-aisle announcements at the Paris event, the U.S. manufacturer pulled ahead on more lucrative orders for larger aircraft. Boeing yesterday signed orders and commitments for 17 747-8 Intercontinental jumbo jets valued at $5.4 billion at list prices from two undisclosed customers. GE’s GECAS leasing arm today ordered two freighter variants, together with eight of the Chicago-based manufacturer’s 777-300ER long-range aircraft. Last year at the Farnborough Air Show, which alternates with Paris, Airbus picked up 130 firm orders worth $13 billion and Boeing secured 103 valued at $10 billion. Bombardier’s CSeries, slated to enter service in 2013, won none. Older Design Airbus went through months of intensive studies before unveiling its A320neo strategy, as CEO Tom Enders fretted over the engineering resources the project would absorb. Airbus is still optimizing production of the A380 superjumbo, which missed its first delivery by years and will remain an unprofitable program at least until 2014 or 2015. Boeing’s original 737 design is more than three decades old, while Airbus spearheaded innovation including fly-by-wire technology on its A320, which debuted at the end of the 1980s. Boeing revamped the design of the 737 at the end of the 1990s. Output Issue Both companies are lifting single-aisle output to meet demand. Boeing is planning to churn out 42 units a month, as it aims to cut the overall production backlog to three or four years from seven, Commercial Airplanes President Jim Albaugh said at the show. Airbus is considering a similar rate. Market forecasts suggest the U.S. company will need to build 60 to 70 narrowbodies a month by 2030, almost twice the current monthly rate, Albaugh said yesterday. That’s coloring Boeing’s calculations, Nicole Piasecki, head of business development, said in an interview in Paris. “We’re comfortable with the technology around the new small airplane,” she said. “The work we’re embedded in now is around the production system and the engagement with customers on the definition of the airplane.” Albaugh said Boeing is taking the time necessary to consult with airlines and make the right decision. “While some may think we’re dithering, it’s because we’re working with customers to truly understand what their needs are,” he said. “It’s no surprise to me that we have good customers that are talking about the neo. I would expect all of our customers to take a hard look.” –With assistance from Nicole Itano and Rachel Layne in Paris and Benedikt Kammel in Berlin. Editors: Chris Jasper, Benedikt Kammel. To contact the reporters on this story: Andrea Rothman in Paris at aerothman@bloomberg.net; Susanna Ray in Paris at sray7@bloomberg.net To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net Ed Dufner at edufner@bloomberg.net
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