I’m finally home from my European tour, with many great memories and new insights into the world.
One of my favorite stops that I haven’t written about yet was Berlin. In 1892, Mark Twain wrote of Berlin, “It is a new city; the newest I have ever seen.” His observation seems even truer today in a Berlin that had to be largely rebuilt after World War II.
You don’t have to possess the perceptiveness of the famous correspondent William L. Shirer, who covered Berlin during the 1930s and 1940s, to recognize that Berlin is a modern miracle—a mere 66 years ago, Allied bombers reduced the city to little more than smoking rubble. Today, this rebuilt and reunited city is a vibrant business hub and hip cultural center, boasting the reclaimed mantle of capital.
One of the best things I saw in Berlin was the East Side Gallery, the longest remaining section of the Berlin Wall. The 4,000-foot section of wall has been covered in over 100 murals by artists from all over the world, first painted in 1990 and just recently restored to their original condition. Many of the murals have themes of freedom, peace and other contextual messages. It was very moving to see an edifice with such a terrible and tragic history turned into a canvas for wonderful artwork and uplifting messages. I highly recommend visiting if you go to Germany.
Seeing the wall and being in Berlin inspired me to learn more about the city’s recent history, and on the flight home I finished a book about the Berlin Airlift.
The Airlift began in June 1948 as an ad hoc solution, and was originally only expected to last a few weeks. Instead, it lasted 15 months, until it was no longer necessary, and delivered over two million tons of supplies to blockaded West Berliners, going down in history as a spectacular humanitarian triumph.
Like the rest of Germany, Berlin had been split between the Soviets, Britain, the United States and France at the end of WWII, and the Soviets had a slightly different idea of what to do with the country than the other occupying powers. Most significantly, the Soviets were working to expand their communist empire around the world, while the British and Americans hoped to restore the status quo before the war. Allied control of a significant portion of Berlin, which was otherwise within the Soviet zone of Germany, put a hitch in the Soviets’ plans. And so in June 1948, the Soviets took the most drastic step yet in their campaign to drive the Allies out of Berlin, and cut off all ground and water access to the Western sector of the city, preventing food, coal or any other supplies from being delivered.
Because Berlin was far from self-sufficient even in peacetime, and was still badly crippled by bombing, the blockade would have amounted to slow starvation of the entire population of West Berlin. The Soviets’ hope was that the West Berliners would blame their occupying powers for the situation and revolt, forcing the Allies out and allowing the Soviets to swoop in. Alternatively, they thought the Allies might balk at the idea of allowing 2.8 million civilians to starve, and either ask the Soviets for “help” or withdraw voluntarily, again allowing the Soviets room to swoop.
The British and American occupying forces came up with a stunning alternative. On June 26, American and British planes began flying food, medicine and coal from West Germany, over the Soviet zone and into West Berlin.
The Allies faced plenty of challenges, and there were many in Britain and the U.S. who were convinced the Airlift would fail. Even in perfect conditions and with plenty of planning, supplying a city of 2.8 million people with all of their food, coal and supplies entirely by air would have been challenging. And the conditions the Allies faced were far from perfect. The most serious challenges were the lack of planes, pilots, aircrews and ground crews. For the first several months of the Airlift, these shortages were acute, and those working on the Airlift slept very little.
There was also a lack of infrastructure, like adequate runways and housing for all those personnel. Crews who had been sent to West Germany on a moment’s notice often arrived to find they had nowhere to sleep, or were stationed in attics or tents. Runways, particularly at West Berlin’s two airports, quickly began to degrade under constant use by overloaded planes.
Also lacking was organization: The Airlift was being conducted jointly by the British and American air forces with the British and American occupation forces, and at the beginning there was no clear chain of command in place. It was also being run with little-to-no scheduling—ad hoc aircrews would scramble to the nearest available plane and take off as soon as possible with no advance notice. It wasn’t until after several weeks of flying by the seat of their pants, when it became clear that the Soviets weren’t about to lift their blockade anytime soon, that the Airlift finally got some organization.
The key player in turning the Airlift into a professional operation was Air Force General William Tunner. Tunner had been critical to the success of the 1942 to 1945 airlift over “The Hump,” which flew supplies over the Himalayas from India to supply U.S. and Chinese armies in China. Tunner was summoned to Germany in late July 1948, when it became apparent that the Berlin Airlift needed to be turned into a long-lasting, professional operation.
Tunner’s turnaround was nothing short of amazing, and demonstrates clearly the potential of great management.
First, he created a unified command structure for the Airlift, with British and American representatives. He also persuaded the U.S. military to send every plane and pilot it could, from every corner of the world. Once the Airlift was somewhat better supplied, Tunner implemented a new block system of takeoffs and landings, so pilots and crews knew when and what they were flying, and a new laddered flight pattern to fit the maximum amount of planes in the limited airspace granted by the Soviets. He also mandated that flights never be allowed to stack up over West Berlin—if a plane missed its designated landing slot, it had to fly back to West Germany before trying again. Together, the measures ensured that planes made as many trips as to Berlin as possible, and time, runway space and resources weren’t wasted.
Other changes were smaller, but had just as large an effect. Tunner noticed that aircrews going to the terminal for food dragged out turnaround times in Berlin. Consequently, he outfitted some jeeps as mobile snack bars and staffed them with young German women, then forbade crews from leaving the side of their planes while in Berlin. They didn’t mind.
Tunner also changed how and where aircraft maintenance was performed, moving some 200- and 1,000-hour inspections closer to Germany and implementing an assembly line system for regular maintenance in Germany, where aircraft were moved among specialized ground crews, rather than having mixed ground crews come to the aircraft.
A month after Tunner’s arrival, the Airlift was supplying Berlin with 4,500 tons of supplies a day, five times the original amount.
Of course, the Airlift still faced plenty of challenges, not least of which was the impending winter weather. In addition to making flying more difficult, the cold would increase the amount of coal that needed to be delivered to Berlin for heating. And of course, while 5,000 tons (the amount delivered daily in September) was an astronomical amount of supplies to airlift, it still wasn’t enough to keep West Germans from getting cold and hungry. The rations supplied by the airlift allowed for only 1,700 calories a day, electricity was only available for a few hours a day and most private homes didn’t receive heat.
Despite this, the West Germans resisted all Soviet attempts to “help.” When the Soviets began offering West Berliners Soviet rations—which included real potatoes, rather than the dehydrated ones the Airlift was flying in—less than 5% of the population signed up. The Soviets had not only demonstrated extreme cruelty when they conquered Berlin by land several years earlier, they had also spent the ensuing years stealing everything that wasn’t nailed down as “reparations.” West Berliners could also see the Soviet system at work in the Eastern sector, where elections were regularly rigged or stolen by the Communist party, dissent was not tolerated and people regularly disappeared.
While the British and Americans had also participated in the final battle against Berlin, dropping hundreds of bombs on the city, the Airlift quickly turned the occupiers into saviors in the eyes of most West Berliners. And in addition to food and coal, the Allies also offered a path of freedom and eventual self-determination. Elections in West Berlin were free and fair, and West Germany, which the Western Occupation Powers were developing into a self-governed Federal Republic, represented Berlin’s potential destiny.
Furthermore, the American Marshall Plan, which was providing money and supplies for rebuilding all over Europe, promised recovery for Berlin’s ravaged economy. The Western Occupation Powers had also introduced a stable and viable currency to West Germany and West Berlin, allowing Germans to buy supplies and build an economy for the first time in years.
Eventually, in May 1949, when the Airlift was bringing more cargo into Berlin than had been delivered by rail before the blockade, the Soviets realized they were beaten. The blockade officially ended on May 12, although planes kept bringing goods into Berlin until a large supply surplus was built up in September.
Today, the Airlift is remembered as one of the first international crises of the Cold War, creating a tidy bookend opposite the fall of the Berlin Wall. Tellingly, both were triumphs of civilians demanding freedom, self-determination and economic prosperity. They provide valuable lessons today, especially in the context of this year’s Arab Spring. The Tunisian and Egyptian people have recently demanded and at least partially secured the same rights for themselves, and other populations are fighting for them.
Taking a page from Secretary of State George Marshall’s book, the leaders of the Group of Eight wealthy industrialized nations recently pledged $20 billion of aid and investment to Tunisia and Egypt. Just as in 1948, sometimes all people need is the promise of economic prosperity and an example of freedom to follow, and they can stand up and grab their rights for themselves.
Which brings me to today’s Investment of the Week. It might seem a frivolous choice in the context of today’s historical topic, but this company is a major player in what I consider America’s number one export industry: entertainment. While movies, TV shows and music might not seem like powerful weapons of international politics, I believe that our massive output of romantic comedies, action-adventure flicks and summer blockbusters are actually a strong force for freedom. They’re a shining beacon of how good life can be, courtesy of the United States of America. And just as in 1948 and 1989, the American example can inspire people around the world to seize freedom for themselves.
And with that lofty introduction I give you DreamWorks Animation (DWA), as profiled by Barry Arnold, Editor of The Primary Trend, in the latest Dick Davis Investment Digest:
“The entertainment guru trio of Spielberg, Katzenberg and Geffen have built DreamWorks Animation into a premier animation powerhouse. A film production company is akin to an annuity: a blockbuster hit not only generates substantial earnings immediately, but its ‘shelf life’ creates a revenue stream for years to come with pay-per-view, home video sales and, of course, TV showings. DreamWorks Animation currently has a library of 21 films and is ramping up production to three films per year, to include 2011’s highly anticipated Kung Fu Panda 2 and Puss in Boots. DWA trades at a low 13.6 times trailing EPS of $1.83. Disney (DIS) bought Pixar for 45 times EPS in 2006. Based on that transaction, DWA is potentially worth $7 billion to $8 billion, yet its market cap totals $2.2 billion today. With zero debt, an ongoing share repurchase program and free cash flow of $200 million to $225 million per year, DWA is very attractive. The stock is down 40% since early 2010. Buy DWA common up to 30.”
Right now, DWA is down in the dumps, but Arnold thinks it’s a good value play. If you’re a growth investor, wait for the chart to turn around first.
Wishing you success in your investing and beyond,
Chloe Lutts
