Published On: Mon, Oct 7th, 2013

Honesty

Nelson RamizIn a recent facebook post, Jacob Gelt Dekker shared a message from a former consultant of the defunct Dutch Antilles Express (DAE), Nelson Ramiz, who signaled that prices had increased after failure of DAE and that he was contemplating incorporating another airline to compete on the Curaçao market. That may or may not be good news for the Curaçao market, time will tell.
The first reaction on Jacob's post expressed that Ramiz was not honest because he was also involved in the company that wet leased out aircraft to DAE, and therefore he had a profit anyhow. I do not know Mr. Ramiz and am not involved in any of this, but use of the word "honesty" struck me.
First of all honesty has nothing to do with being involved in more than one company.
A start-up airline must solve a few big issues: obtaining aircraft, getting pilots authorized to fly them, getting necessary approvals, and getting enough passengers on the planes to generate income of course. For a new airline, wet-lease solves both obtaining the aircraft and having them actually flown. Training and recruiting of pilots is a lengthy process involving approval and certification by aeronautical authorities. These are big problems to solve and may take a long time, during which no income is generated.
Wet lease of aircraft provides an instant solution for a start-up airline, the aircraft come fully operational with certified pilots flying them, and operations can concentrate on generating revenue. By attracting people like you and me to buy a seat at the airline. We are consumers who have a choice, and therefore we will spend our money only if we find the price/performance attractive. In other words, the company provides a service that we want and will, under the right circumstances, spend money on. We benefit from the existence of this company. So do the people who work there - the vast majority of people everywhere work at companies, which need to run a profit in order to stay in business.
If Mr. Ramiz is involved in both a wet-lease company and an airline that is leasing these assets he is not exactly hedging his bets. If the airline fails, the aircraft will need to be leased out to another airline, but where is the instant demand? In the mean time finance and loan payments need to continue every month or the assets will be repossessed (if the lease is secured on the asset). Being involved in both the leasing company and the airline means that the focus of income generation is shifted, from business-to-business into consumer income. There is no dishonesty or deceit involved. Whether the aircraft are the right ones for the job is a different matter altogether.
Running a business is *hard*, starting up a business is *very hard*, especially if it involves equity intensive assets. The lease will need to be paid every month, no excuses. Income needs to be generated every month to cover the lease and other recurring payments, otherwise the business fails. A profit needs to be generated, from consumer income, which means that every and any problem will need to be solved immediately otherwise we the consumer will stop buying the service. And some of the problems are external and cannot be solved by the company: governments, hurricanes, a SARS epidemic, bad economic times. There is nowhere to hide and no time to rest, and very little time to spend watching television with the rest of the family. And this is why there are not many people who have successfully set up and grown a business. Like Steve Jobs said: a sane person would not do this and just go home.
Why would a person work so hard for a long time and forego a normal family and social life? Why does he not just find a risk-free job, a fixed salary at the end of the month and all risks and problems are for someone else? Because there is a possibility of extra reward at the end of the line. We need to celebrate the entrepreneur and wish him well, his success benefits us too, either as a consumer, as an employee, or our financial wealth if we have cash to spare and put our trust and money in his company.
Most people understand this aspect of business and have sympathy for the hard-working starting entrepreneur, however in some countries (notably many in continental Europe) the good feelings end when discussing bigger companies. With so much money flowing and big banks involved, there must be something obscene and inherently deceiving about the profits being made. All everyone with a stake in such a company must be a rich person stealing from salaried persons. They can and should make less profit because why do they need all this money. Right?
Consider this. The biggest companies are biggest because they are the most successful in selling things that we want. We, the consumers, are buying their products. There is a demand for their products that they are fulfilling very well, thereby scaling up the business. Meaning that the profits rise, and the number of people employed, and the costs, and the investments. Unless they are monopolists, their profits are under pressure because the competition is trying to do a better job. We need not only small businesses, we need medium and big businesses as well, and because they make the products that apparently we need most. And they make it because we buy it.
Companies are useful: they provide the goods or services we need and most people work there. Banks serve a useful function in doing business. Please have a go at starting your own business, or becoming a shareholder in one that is already running. And everyone who has a car and has ranted about oil companies, please stop and think about your own honesty.

By: Gerrit Jan Kooij

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