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JAL slides to record low on bankruptcy fears

Reuters — Tue, 24 Nov 2009 05:30:00 GMT

Tokyo: Shares of Japan Airlines Corp fell as much as 9.5% to a record low on investor worries the struggling airline could face bankruptcy if it cannot secure an agreement from its pensioners for benefit cuts.

JAL, Asia’s largest airline by revenue, asked retirees and employees on Monday to accept an average 40% cut to their pension payouts and warned a failure to agree on cuts could push it to a court-led restructuring.

The stock price slide also follows news that Mitsui & Co had sold its entire stake of 11.73 million shares in JAL during the six months to 30 September. A spokesman for the trading house did not say why it unloaded its shares, less than half of one% of the company.

JAL shares were down 7.4% at 88 yen after falling as low as 86 yen, their lowest since a relisting in 2002.

The stock has lost more than half its value this year and is down 14% since the close on 17 November after Transport Minister Seiji Maehara rattled investors by saying bankruptcy was still a possibility.

“Maehara has said that bankruptcy is not entirely ruled out, and many retirees appear to disagree with the pension cuts,” said Takashi Ushio, head of investment strategy division, Marusan Securities.

No one at JAL was immediately available for comment.

Wave of debt payments facing US government

Edmund L. Andrews / NYT — Mon, 23 Nov 2009 17:13:00 GMT

Washington: The US government is financing its more than $1 trillion (Rs46.5 trillion) annual borrowing with IOUs on terms that seem too good to be true.

Rising costs: Shoppers in a US mall. Americans find themselves in two deep holes: as debt-laden consumers, whose personal wealth sank in the crisis; and as taxpayers, whose govt debt has almost doubled in two years. Karen Bleier / AFP

But that happy situation—a result of interest rates dropping to extraordinary lows even as the government has had to borrow more and more—may not last for long. Treasury officials now face a trifecta of headaches: a mountain of new debt, a balloon of short-term borrowings that come due in the months ahead, and interest rates that are sure to climb back to normal as soon as the Federal Reserve decides that the emergency has passed.

Even as treasury officials are racing to lock in today's low rates by exchanging short-term borrowings for long-term bonds, the government faces a payment shock similar to those that sent legions of overstretched homeowners into default on their mortgages.

With the national debt now topping $12 trillion, the White House estimates that the government’s tab for servicing the debt will top $700 billion a year in 2019, up from $202 billion this year, even if annual budget deficits shrink dramatically. Other forecasters say the figure could be much higher.

In concrete terms, an additional $500 billion a year in interest expense would total more than the combined federal budgets this year for education, energy, homeland security and the wars in Iraq and Afghanistan.

The potential for rapidly escalating interest payouts is just one of the wrenching challenges facing the US after decades of living beyond its means.

The surge in borrowing over the last year or two is widely judged to have been a necessary response to the financial crisis and the deep recession, and there is still a raging debate over how aggressively to bring down deficits over the next few years.

But there is little doubt that the US’ long-term budget crisis is becoming too big to postpone.

Americans now have to climb out of two deep holes: as debt-loaded consumers, whose personal wealth sank along with housing and stock prices; and as taxpayers, whose government debt has almost doubled in the last two years alone, just as costs tied to benefits for retiring baby-boomers are set to explode.

The competing demands could deepen political battles over the size and role of government, the trade-offs between taxes and spending, the choices between helping older generations versus younger ones, and the bottom-line questions about who should ultimately shoulder the burden.

Circumstances have postponed the day of reckoning to some degree, and a strong economic recovery could again ease the pressure, but as the prospect for a rapid escalation in government interest payments suggests, it will be hard to avoid it forever.

“The government is on teaser rates,” said Robert Bixby, executive director of the Concord Coalition, a nonpartisan group that advocates lower deficits. “We’re taking out a huge mortgage right now, but we won’t feel the pain until later.”

So far, the demand for treasury securities from investors and other governments around the world has remained strong enough to hold down the interest rates the US must offer to sell them.

Indeed, investors have been so hungry for the relative security of treasury bills and bonds that the government’s average interest rate on new borrowing last year fell below 1%. For short-term IOUs such as one-month treasury bills, its average rate was only sixteen-hundredths of a per cent.

“All of the auction results have been solid,” said Matthew Rutherford, the US treasury’s deputy assistant secretary in charge of finance operations. “Investor demand has been very broad, and it’s been increasing in the last couple of years.”

Administration officials and many economists contend it would have been a mistake to prevent the deficit from surging last year. If the government had not tried to rescue the economy with both higher spending and tax cuts, they say, the economic crisis and the budget damage would have been far worse.

The problem, many analysts say, is that record government deficits have arrived just as the long-feared explosion begins in spending on benefits under health and social security.

The nation’s oldest baby-boomers are now approaching 65, setting off what experts have warned for years will be a fiscal nightmare for the government.

“What a good country or a good squirrel should be doing is stashing away nuts for the winter,” said William H. Gross, managing director of the Pimco Group, the giant bond management firm. “The US is not only not saving nuts, it’s eating the ones left over from the last winter.”

At software powerhouse SAS, the good life is under siege

Steve Lohr / NYT — Sun, 22 Nov 2009 18:53:00 GMT

Cary, North Carolina: A tour of its carefully tended, 300-acre corporate campus here leaves little doubt why surveys, year after year, rate SAS Institute Inc., the world's largest private software company, among the best places to work.

There is the subsidized day care and preschool. There are the four company doctors and the dozen nurses who provide free primary care. The recreational amenities include basketball and racquetball courts, a swimming pool, exercise rooms and 40 miles of running and biking trails. There is a meditation garden, as well as on-site haircuts, manicures, and jewellery repair. Employees are encouraged to work 35-hour weeks.

Academics have studied the company’s benefit-enhanced corporate culture as a model for nurturing creativity and loyalty among engineers and other workers. Six years ago, in a report on 60 Minutes, a news magazine on US channel CBS News, correspondent Morley Safer called working at SAS “the good life”.

Nurturing creativity: A day care centre subsidized by SAS in Cary, North Carolina. The US software firm, which encourages employees to work 35-hour weeks, is consistently ranked among the best places to work. Jeremy M Lange / NYT

But that good life is under threat today as never before. SAS’ specialty, a lucrative niche called business intelligence software, is becoming mainstream. Free, open-source alternatives to some of the company’s products are increasingly popular. On the other end of the spectrum, the heavyweights of the software industry—Oracle Corp., SAP AG, Microsoft Corp. and, especially, International Business Machines Corp. (IBM)—are plunging in and investing billions of dollars.

“It will be a dogfight,” says Bill Hostmann, an analyst at Gartner Inc. “SAS has never faced a competitor like IBM And I do think IBM sees SAS as a big, fatted cow.”

The term “business intelligence software” applies to a wide range of products and services, but all the technology is aimed at helping businesses mine nuggets of insight from mountains of data. SAS has traditionally specialized in advanced software to analyze huge data sets and to generate predictive statistical models for large corporations and government agencies.

Credit card companies, for example, use SAS to detect unusual buying patterns in real time, and to spot potentially fraudulent charges. Giant retail chains use SAS to tailor pricing and product offerings down to the store level. Telecommunications companies use SAS to identify the few thousand customers, among millions, most likely to switch to another cell phone carrier, and to aim marketing at them. SAS software is also used to parse sensor signals from North Sea oil rigs, combined with weather and structural data, to predict failure of parts before it happens. Of the 100 largest companies worldwide, 92 use SAS software.

But as the stream of firms’ collected data turns into a torrent, SAS and other software companies are trying to find new ways to harness it. The information is generated not only by computerized systems for tracking operations, customers and sales. It also comes from new data sources such as website visits, social network chatter and public records accessible over the Internet, as well as genome sequences, sensor signals and surveillance tapes, all in digital form.

This data explosion, experts say, is an untapped asset at most companies, which lack the tools and skills to exploit it. Yet the long-range potential, they say, is to use this data for far more fine-grained analysis of markets, customer behaviour and operations, making business more of a science and less a seat-of-the-pants art.

”Now, the data is available so business can move toward evidence-based decision-making,” says Erik Brynjolfsson, an economist and director of the Center for Digital Business at the Massachusetts Institute of Technology. “This market is a huge opportunity.”

That opportunity is not lost on SAS. “Our advantage is the incredible depth of our technology, developed over years and applied to specific industries,” says James H. Goodnight, the chief executive and a co-founder of SAS. “No one can match our toolbox.”

Indeed, no one underestimates SAS’ technical prowess. The big question is whether the firm’s seemingly pampered culture can embrace the higher-octane institutional metabolism that it will need to succeed.

“We know we have to change—no question about it,” says Jim Davis, 51, a senior vice-president at SAS. “Our market space has changed dramatically in the last 18 months or so, more than at any time over the 33-year history of the company. We can’t sit back. Things are only going to get faster.”

SAS invested heavily in research and development, and even today allocates 22% of the company’s revenue to research. The formula has paid off in steady growth, year after year. Revenue reached $2.26 billion (Rs10,531 crore) in 2008, up from $1.34 billion five years earlier.

Yet the company also faces the classic challenge of being the innovative pioneer—enjoying rich profit margins but facing new competition from rivals seeking to gain market share with lower prices and substitute technology.

In the last two years, the major software companies have scooped up firms in the business intelligence market. Among the larger moves, SAP bought French firm Business Objects for $6.8 billion, IBM bought Cognos Inc. for $4.9 billion and Oracle picked up Hyperion for $3.3 billion.

Still, those firms compete in the broad business intelligence market for reporting and analysis products. Such data on sales, shipments, customers and operations amount to a numbers-laden portrait of the recent past. The SAS stronghold is a more sophisticated kind of software typically called “advanced analytics and predictive modelling”, which uses historical and current data to try to peer into the future and model likely outcomes.

The competitive thrust that really grabbed SAS’ attention came in late July, when IBM announced that it planned to pay $1.2 billion for SPSS Inc., a maker of predictive modelling software. IBM has placed SPSS and Cognos into a new business analytics and optimization group. That business will be supported by 200 scientists, and the company has said it will retrain or hire 4,000 consultants and analysts to work in the group.

“This is the big growth strategy for IBM, the company's next big play for this decade,” says Ambuj Goyal, a computer scientist who is general manager of IBM’s business analytics software unit. “SAS comes from the legacy world of statisticians and programmers. The real opportunity is in deploying this technology broadly in corporations.”

To counter IBM and others, SAS is looking to forge a tighter relationship with a big technology services company. It is also shortening product development cycles to 12-18 months, down from 24-36. “That’s what the market expects,” Davis says.

The most sweeping change is the company’s move toward the Internet model of software delivery—as a service that customers tap into over the Web, much as Google Inc. and other Internet companies do. SAS has dipped its toe in, with some initial products. But a major expansion is planned, supported by a vast $70 million data center scheduled to begin operating next year.

The remotely delivered software is part of a drive to broaden the market for SAS technology beyond an elite corps of quantitative analysts and into the rank-and-file of corporate professionals.

Analysts say firm’s strategy looks sound, even if the outcome is uncertain. “SAS has to do a lot of things right to succeed,” says Peter Sondergaard, senior vice-president of research for Gartner. “But if it executes correctly, it could be a winner.”

Porsche takeover will make Volkswagen world’s number one

PTI — Sun, 22 Nov 2009 10:26:00 GMT

Berlin: Europe’s auto major Volkswagen is set to become the world’s number one, pushing Japan’s Toyota to the second place, by taking over sports car manufacturer Porsche.

The boards of directors of Volkswagen and Porsche endorsed the acquisition on Friday last week, ending years of takeover struggle between the two German automobile giants, partly owned by two estranged family clans.

Porsche, which made an unsuccessful bid to take over Volkswagen earlier this year, would now become the 10th brand of the VW family.

Until recently, Porsche was controlled by Porsche Holding AG, a listed company owned by the family of VW chairman Ferdinand Piech, a grandson of the Porsche founder Ferdinand Porsche, and by the Porsche family.

Porsche’s attempt to take over the much bigger Volkswagen backfired and its CEO Wendeln Wiedekind had to leave in July. It suffered heavy losses largely due to its unsuccessful bid.

Porsche racked up huge debts to get 51% stake in Volkswagen, but fell short of the 75% stake needed to take over the company when it could not raise the money needed due to the global financial crisis and drop in car sales.

In August, the two families buried their differences and agreed to a fusion in order to protect their stakes in the company.

In terms of the number of cars sold, Volkswagen and Porsche are already the world’s number one, according to a market study. The two companies sold over 4.4 million cars world wide during the first nine months of this year compared to 4 million cars sold by Toyota.

Ford-Mazda had combined sales of 3.7 million cars. Financially troubled former world number one General Motors of the United States sold 3.6 million cars.

The fusion between the two companies is being planned in two Phases. Volkswagen will take-over 49.9% of Porsche till the end of 2009 and it will be completed by 2011. Porsche will continue to operate as an independent company within the VW family.

Besides taking over Porsche, Volkswagen also acquired on Friday the insolvent manufacturer of auto components and convertibles Karmann.

The VW plans to build small cars from 2014 at Karmann’s production plant in Osnabrueck, in northern Germany.

Volkswagen plans to invest 25.8 million euros in the next two years with focus on Germany to build up Porsche and Karmann and to strengthen the company’s position in world markets, VW management announced after the board meeting at its headquarters in Wolfsburg.

It intends to produce a new small new car under the brand name Karmann.

A part of the new investments planned will be spent on developing new environment friendly cars, innovative technologies and new production plants, especially abroad.

Market analysts say that both companies will benefit from the deal. With the support of Volkswagen, Porsche will be able to repay its debts amounting to more than 10 billion euros.

Volkswagen would have become susceptible to hostile takeover bids if Porsche had sold its stake.

Porsche is also an asset for Volkswagen because of is good image and experience in marketing, which are important above all in the US market.

The two companies together will have the broadest range of brands and new models among all leading auto makers, the analysts say.

Lakshmi Mittal doubles his stake in Ophir Energy

PTI — Sun, 22 Nov 2009 10:06:00 GMT

New Delhi: Steel magnet Lakshmi N Mittal has paid over $110 million to double his stake in Africa- focused Ophir Energy Plc to 21.2% even as he exited the oil and gas business in the Central Asian nation Kazakhstan.

“We would like to confirm that we recently doubled our investment in this (Ophir Energy) company,” said Sudhir Maheshwari, managing director of Mittal Investment Sarl, the holding company of Mittal family interest.

He however, refused to divulge financial details saying both Mittal Investment and Ophir were private companies.

Industry sources said Mittal Investment had in May 2008 agreed to buy 47 million shares in Ophir Energy at 250 pence a share in two tranches.

In the first tranche it bought 21.1 million shares for $105.3 million in May 2008 and recently it subscribed to the second trance of 26,421,790 new shares for about $113 million to double its stake to 21.2%.

Established in 2004, Ophir is an independent oil and gas exploration company with a diversified exploration portfolio encompasing 16 projects in 8 different African jurisdictions.

With this, Mittal Investment has become the largest shareholder in Ophir Energy, overtaking its Mvelaphanda Holdings Pty Ltd, the South African industrial and resources conglomerate founded by Ophir’s non-executive chairman Tokyo Sexwale. Mvelaphanda now has 17.9%.

Sources said Mittal has appointed Harak Bhantia and Rajan Tandon on the board of Ophir which has assets in Senegal (1 block), Congo Brazzaville (1 block), Equatorial Guinea (1 block), Gabon (4 block), Nigeria - Sao Tome (1 block), Saharawi Arab Democratic Republic (4 blocks), Somaliland (1 block) and Tanzania (3 blocks).

Maheshwari said Mittal Investment has pulled out of a project to develop an oil field in Kazakhstan in partnership with Oil and Natural Gas Corp (ONGC).

“Mittal Investments has decided that it does not wish to pursue the investment opportunity in Satpaev. This will now be developed by ONGC Videsh alone.”

Two years ago, Mittal Investment used Kazakh government to muscle its way into the Satpayev oilfield in the Caspian Sea where ONGC Videsh Ltd, the overseas arm of the state-run firm, was shortlisted for a stake. However, on the eve of signing an agreement for the field, it decided to pullout.

Mittal, which had dumped OVL in April 2007 to acquire 50% stake in Caspian Investments Resources (CIR) from Russian oil firm Lukoil for $980 million, is now looking at selling its interest in the firm.

The stake was first offered to OVL which has declined, Maheshwari said without elaborating.

Sources said Mittal is now looking for buyers including those in China to sell its stake in CIR. LUKOIL which holds the remaining stake in CIR, may also be a potential buyer.

OVL, which in 2007, relented to the Kazakh government’s condition of getting Mittal in the highly prospective Satpayev field, has written to the Kazakh government saying the 25 per cent stake in Satpayev would now be acquired by it and not by ONGC-Mittal Energy Ltd- the joint venture it had with Mittals.

CIR acquisition was also to be done by OMEL but the India-born billionaire went ahead on his own citing opposition to OMEL from LUKOIL.

Sources said Mittal has now decided to exit oil and gas business in Kazakhstan and so offered its stake in CIR to OVL who declined it apparently because it thought the company was a sinking ship with oil production falling and actual reserves not matching the annouced figures.

Sources said OVL had anticipated that Mittal may not continue with Satpayev and so had few months back sought specific permission from the Cabinet to go ahead with its investment the entire $400 million in the field on its own. Kazakh national oil firm KazMunaiGas will be the operator of the field, holding remaining 75 per cent stake.

An Exploration and Production Contract which would be signed soon.

The Satpayev block, situated in the Pre-Caspian Basin of Kazakhstan in Caspian Sea, covers an area of 1,582 square kilometere.

OMEL, and now OVL, is to pay $26 million as signing amount to the Kazakhstan government for 25% stake in Satpayev field. Besides, it would also pay $80 million as one-time assignment fee.

Over and above these, it has committed a minimum exploration investment of $165 million and an additional optional exploration expenditure of $235 million.

Satpayev is situated in highly prospective region of North Caspian Sea and in proximity to at least four fields. A peak output of 287,000 barrels per day is envisaged from the 256 million tons of reserves in the field.

Kazakhstan had initially identified Satpayev and Makhambet blocks in the Caspian Sea for giving 50% stake in either of them to OVL. Later, it reduced the stake on offer to 25% on condition that OVL team up with Mittal, who has steel plants in that country.

OVL relented and in June 2007 made a proposal to KazMunaiGas, but in subsequent negotiations Kazakhstan’s state-run firm did not agree on the percentage of stake OVL would get. It also dererred on giving operatorship to OVL during exploratory and appraisal stages.

CIR owns Nelson Resources, which LUKOIL purchased for $2 billion in 2005. Nelson carries out oil and gas production projects in Kazakhstan. It has oil production assets in the Kazakh oilfields of Alibekmola, Kozhasai, Severnye Buzachi, Karakuduk and Arman.

The current production from the fields, is less than 40,000 barrels per day and is falling.

Shell in talks to buy 10% of Essar Oil

Reuters — Sat, 21 Nov 2009 08:00:00 GMT

Mumbai: Royal Dutch Shell is in talks to buy 10% of India’s Essar Oil as part of a deal where it would sell three European refineries to the Indian firm, the Economic Times reported on Saturday, citing people with knowledge of the plans.

At current market prices, the stake would be worth $364 million, the financial daily said.

Besides the stake sale, Essar is also looking at raising $1.5 billion in debt as working capital for the three refineries, it said.

“We are in exclusive discussions with Shell. It is not our policy to comment on our negotiations and timelines,” an Essar group spokesman told Reuters.

Shell put the plants at Stanlow in northwest England and at Heide and Hamburg in Germany on the market earlier this year and media reports have valued them at between £1 billion-£1.5 billion.

Tight margins and falling fuel demand have prompted many big oil companies to offload European refineries and Shell’s chief executive Peter Voser said last month it was a challenging time to sell refineries.

Essar, which runs a 280,000 barrels-per-day refinery in western India and owns a 50% stake in a Kenyan refinery, is pursuing the deal as part of plans to have a refining capacity of 1 million barrels a day.

Hershey mulls $17 bn solo bid for Cadbury

Reuters — Sat, 21 Nov 2009 07:29:00 GMT

Philadelphia: US chocolate maker Hershey Co is considering launching a bid of at least $17 billion for British chocolatier Cadbury Plc as it seeks to trump a hostile offer by Kraft Foods Inc, a source familiar with the matter said on Friday.

Hershey has lined up deal funding from Bank of America and JP Morgan Chase & Co to make a solo offer for Cadbury, but is also still weighing a joint bid with Italy’s Ferrero Spa, the source said.

The interest from Hershey could add new pressure on Kraft to sweeten its $16.5 billion offer, which Cadbury rejected last week as derisory.

“It’s still very fluid and there are multiple prongs to this,” the source told Reuters on condition of anonymity. “It’s still very early. But they need at least $17 billion to top Kraft.”

Citing people familiar with the matter, the Wall Street Journal reported on Friday afternoon that the impetus for the Hershey bid comes from the charitable trust controlling the company.

The trust is pushing Hershey chief executive David West to compete with Kraft’s offer, but wants to structure a deal so that it remains in charge of Hershey, the report said.

Officials for the Hershey Trust were not immediately available for comment. Hershey, Kraft and Cadbury declined to comment.

A solo Hershey bid would be the most transformative move the company has made in its 100-year history. The company’s market capitalization stands at $8.3 billion, while Cadbury is valued at $18.1 billion.

“Given that they generate 85% of their sales form the domestic market, gaining access to Cadbury’s platform would be highly advantageous,” said Erin Swanson, analyst at Morningstar, noting Cadbury’s presence in emerging markets.

She added that Hershey would be able to expand its candy and gum business. But a deal would mainly aim to capture new growth as there is little overlap between the companies’ businesses and therefore slim opportunity for cost savings.

A risk averse trust

Hershey’s offer could include at least $10 billion in cash from Hershey and $2 billion in new Hershey shares, plus $3 billion to $5 billion from outside investors in exchange for equity in Hershey, according to the Journal.

That would trump the $6.74 billion in cash indicated in Kraft’s cash and stock offer for Cadbury, though Kraft has secured $9.2 billion in financing and could raise the cash component of its offer.

But one source familiar with the situation questioned whether Hershey was getting ahead of itself.

“Buying a company more than twice its size could be a risk and the Trust has previously shied away from risk, given its mandate,” the source said.

A key figure in any Hershey bid is Byron Trott, a favorite banker to legendary investor Warren Buffett, whose Berkshire Hathaway is the largest investor in Kraft. The Kraft connection goes further, as West is formerly an executive of the world’s No. 2 food maker.

Hershey, which tried and failed to combine with Cadbury in 2007, is also being advised by Jamie Grant, brother to actor Hugh Grant, as well as Watch Hill Partners, a boutique firm acquired by FBR Capital Markets earlier this year.

Earlier this week, Hershey disclosed it was considering a bid for Cadbury and sources familiar with the matter said it was also discussing a potential joint offer with Ferrero.

A source familiar with the situation told Reuters that the two companies have weighed breaking the UK confectioner up into separate businesses as part of a friendly, all-cash bid.

But both Ferrero and Hershey have interest in Cadbury’s chocolate business, while Cadbury may not be keen on a friendly bid if it calls for a break-up of the company.

Ferrero, Hershey would likely break up Cadbury

Reuters — Fri, 20 Nov 2009 11:40:00 GMT

London / Milan: Cadbury suitors Ferrero and Hershey would likely break the UK confectioner up into separate businesses if a mooted bid for the company succeeds, an Italian newspaper reported.

Italian chocolate maker Ferrero and US-based Hershey said on Wednesday they were reviewing a possible offer for Cadbury, which is the subject of a hostile £9.9 billion ($16.5 billion) bid by US food group Kraft.

Unlisted Ferrero is mainly interested in Cadbury’s gum and candy division, a unit worth about €5 billion ($7.4 billion), business daily Il Sole 24 Ore said on Friday. It said the family that controls the Italian firm has historically shown little interest in sharing management.

A source close to Ferrero told Reuters on Friday the company was still evaluating all options concerning Cadbury. Any bid would have to be friendly, an Italian source close to the matter had said on Thursday.

A London trader said traditionally conservative Ferrero would not want to go hostile and would prefer to proceed with the support of Cadbury’s board.

A friendly offer would also give Ferrero access to Cadbury’s books so it could do due diligence, something its financing banks may demand because the company is not active in the gum and candy market, the trader said.

A Ferrero spokesman declined to comment.

The Ferrero family should meet advisers Mediobanca and Rothschild in coming days to discuss a possible deal, the newspaper said.

Ferrero has about €2 billion in cash that could be used in a bid, it added.

Italy’s two biggest banks, Intesa Sanpaolo SpA and UniCredit SpA, could be among those interested in financing the deal, the newspaper said. The banks declined to comment.

However, Ferrero would like to take on little debt in a possible takeover, Il Sole 24 Ore said. Bank financing would pay for about half of Ferrero’s bid.

Newswire Dow Jones cited people with knowledge of the situation as saying Ferrero and Hershey are still deciding whether to bid for all of Cadbury or only a large stake.

Investors ask Goldman to be less greedy

Reuters — Fri, 20 Nov 2009 11:34:00 GMT

Zurich: Big shareholders at Goldman Sachs have asked the US bank, on track to deliver $20 billion in bonuses, to pass more profit to investors after it quadrupled quarterly net profit, the Wall Street Journal reported.

Although investors are not pushing for a huge cut, they feel Goldman, which received $10 billion of taxpayer help during the credit crisis, should better reward them for this year’s rebound, the paper said, quoting people familiar with the situation.

A year after the implosion of former US bank giant Lehman Brothers, there is concern among regulators and politicians that bankers’ bonuses are climbing back to pre-crisis level and shareholder rights’ lobbies have called for closer scrutiny of pay.

“This is particularly of psychological importance because it is self-imposed and not government-imposed. We have to try to all move toward the same approach to maintain the talent pool,” Lutz Raettig, Morgan Stanley’s chairman in Germany, said when asked about investor action at Goldman.

Reacting to public outrage to bankers’ greed and fat-cat pay cheques in the run-up to the crisis, the Group of 20 nations agreed on guidelines for bankers’ pay that would put the focus more on long-term performance rather than short-term gains.

The US bank has repaid the government cash it received, but its robust performance this year is pushing investors to ask for higher returns. Goldman generated net income in in excess of $3 billion in the third quarter.

The shareholders are also concerned about a change in the company’s financial statements that increased the firm’s total headcount by adding temporary employees and consultants, the Wall Street Journal said.

Due to the change, it looked like Goldman employees are on pace to earn $717,000 per person in 2009, the Journal said.

The United States in June appointed “pay czar” Kenneth Feinberg to review pay at some of America’s biggest companies.

Regulators in European countries such as Britain, France and Switzerland are already taking steps to introduce new new rules on bankers’ compensation. Some banks, like Swiss lender Credit Suisse, moved fast to adapt their pay structure to fit with the new international guidelines.

But Swiss-based investment fund Ethos, which has a keen interest in corporate governance practice, says the key to changing compensation schemes is empowering shareholders.

Ethos and eight Swiss pension funds are planning to repeat this year initiatives they undertook in the aftermath of the crisis to force large companies to accept a “say on pay” by shareholders.

The Wall Street Journal quoted a Goldman spokesman saying shareholders “have historically been more focused on the absolute return on equity and on book value per share growth” than per-share earnings.

Goldman could not be immediately reached for comment outside regular US business hours.

Norwest raises $1.2 bn Venture Fund

Bloomberg — Wed, 18 Nov 2009 16:46:00 GMT

New York: Norwest Venture Partners raised a $1.2 billion (around Rs5,550 crore) venture-capital fund, the biggest to be completed this year, to expand in Israel and India while broadening the range of companies it backs.

The fund, Norwest’s 11th since its founding almost 50 years ago, will give the firm more money to fund larger companies, managing partner Promod Haque said in an interview.

Microsoft told to stop some Windows sales in China

AP — Wed, 18 Nov 2009 09:59:00 GMT

Beijing: A Beijing court has ordered Microsoft Corp. to stop selling some versions of its Windows operating system in China in a licensing dispute with a local supplier.

The order Monday said Microsoft exceeded its rights under licensing agreements with Zhongyi Electronic Ltd., a Beijing company that developed Chinese character fonts used in the software.

Microsoft must stop selling versions of Windows 98, Windows 2000, Windows XP and Windows Server 2003 with Zhongyi’s fonts, the Beijing People’s No. 1 Intermediate Court said in its ruling, a copy of which was released by Zhongyi.

Microsoft said it would appeal.

“Microsoft respects intellectual property rights. We use third party IPs only when we have a legitimate right to do so,” the company said in a statement. “We believe our license agreements with the plaintiff cover our use of the fonts.”

Microsoft did not respond to a question about what proportion of its products sold in China use Zhongyi fonts or how many copies might be affected.

Zhongyi said its agreement with Microsoft allowed the Seattle-based software producer to use its fonts only in Windows 95 and they were added to later products without permission.

China is a leading source of pirated copies of software, movies and other goods and its government has long been accused of failing to do enough to stop the thriving underground industry.

China’s small but ambitious technology companies say they are among the biggest victims of piracy and are turning to the courts to help defend their intellectual property.

In December, a group of 11 people who were convicted of selling unlicensed copies of Microsoft software were sentenced by a Chinese court to up to 6 1/2 years in prison.

Hershey, Ferrero in talks over Cadbury: source

Reuters — Wed, 18 Nov 2009 07:58:00 GMT

Philadelphia: Chocolate makers Hershey Co and Ferrero SpA are considering a joint bid for Cadbury Plc that could help the British confectioner fend off a hostile takeover by Kraft Foods Inc.

A source familiar with the talks between US-based Hershey and Italy’s Ferrero said on Tuesday the discussions between the two sides were “very preliminary. Very early in the process.”

The talks are the strongest sign yet of a possible rival bid to Kraft’s $16.7 billion offer, which Cadbury rejected and said was “derisory”.

The Wall Street Journal said Hershey may weigh a bid with Ferrero or on its own. Hershey has been in talks with JPMorgan Chase & Co and Bank of America Corp to line up financing for a potential bid for Cadbury, the newspaper reported on its online edition.

The newspaper said easing credit markets have emboldened Hershey that it could arrange the funding for a possible bid to counter Kraft’s offer.

Ferrero and Cadbury both declined comment. Hershey and Hershey Trust officials could not immediately be reached.

Cadbury has not been contacted by Ferrero but would consider any attractive offer, a second source familiar with the situation told Reuters.

“Cadbury has heard nothing from Ferrero or people acting for it. Cadbury is not up for sale, but the company would give proper consideration to any offer that valued it properly and would be of interest to shareholders,” the person said.

Although Cadbury’s assets are very attractive, “it doesn’t appear that either Ferrero or Hershey is in the financial position of taking on Cadbury all by themselves,” said Erin Swanson, an equity analyst with Morningstar.

Hershey shares slipped 6 cents to $38.35 in extended trading on Tuesday following news of its talks with Ferrero. Earlier, the shares gained 1 cent to end at $27.64.

Ahead of the news, Cadbury shares closed up 0.8 % at 788 pence on Tuesday. That was above Kraft’s cash and stock offer, which is currently valued at about 718 pence.

Earlier on Tuesday, Italian business daily Il Sole 24 Ore said family-owned Ferrero, which makes Nutella chocolate spread and Ferrero Rocher chocolates, could join financial investors and private equity players considered friendly to Cadbury for a possible alliance.

“We believe that if this scenario were proposed as a potential defence measure by Cadbury, the potential value the market might be prepared to award it would not be materially different to that of a revised Kraft offer,” at 820 pence per share, Nomura analyst Alex Smith said of a Cadbury-Ferrero combination.

Another advantage for Cadbury shareholders is that they would continue to hold shares in a high-growth confectionery group -- with a potentially retained UK listing -- rather than being paid around 50 percent equity in a low-growth US-listed conglomerate, Smith added.

Ferrero, which has annual sales of €6.2 billion ($9.3 billion), 18 factories and over 21,600 employees worldwide is also known for its Kinder chocolates and Tic-Tac candy.

Cadbury is the world’s second-largest confectionery company after Mars-Wrigley, making brands such as Dairy Milk chocolate and Trident gum. It had full-year revenues of £5.4 billion ($9.1 billion) in 2008.

Ferrero was founded in 1946 by Pietro Ferrero in Italy’s northwestern province of Piedmont. He invented Gianduja cream using local hazelnuts as an alternative to chocolate which was in short supply after World War II.

His son Michele, named by Forbes magazine earlier this month as the richest man in Italy, took control in 1957 and the company is now run by his sons, Pietro and Giovanni, who are chief executives and live in Belgium.

Coca-Cola eyes emerging middle class for growth

Emily Fredrix / AP — Tue, 17 Nov 2009 17:16:00 GMT

Atlanta: Soft-drinks maker Coca-Cola Co. seeks to double its business in the next decade as it caters to the expected billion people worldwide who will join the middle class by 2020.

The world’s largest soft-drink maker told analysts and investors at a meeting on Monday that its system-wide revenue will reach $200 billion (Rs9.26 trillion) by 2020. The firm hopes to make more money off those sales as it sells more soft drinks in emerging markets and reduces costs.

Global thrust: Coca-Cola’s plant in Atlanta, US. The firm hopes global growth can make up for weak US sales, which have been declining as consumers cut their spending in recession and switch to juices and teas. Chris Rank / Bloomberg

Chief executive Muhtar Kent said that sales have doubled in the decade since 1997, and they’ll do so again because of growth in India, China and other countries.

The company hopes global growth can make up for weak US sales, which have been slipping as consumers limit their spending in recession and switch to juices and teas.

Kent said the company must pay attention and react to changes in the world, which it didn’t do from 2000 to 2004. “We were too busy looking at the dashboard in front of us and not sufficiently paying attention to the world outside our windshield,” he said.

The company believes that the world will be a different place in the next decade, with more consumers in the middle class and more living in urban areas. Coca-Cola said people—many of them young consumers the company will target—will also want their brands to show that they have values, such as being environmentally responsible.

“Consumers now value and are defining themselves more and more by their identity, their values and their beliefs, and they are insisting that companies do the same,” said chief marketing and commercial officer Joe Tripodi.

For example, the company plans to highlight its environmental efforts, he said, such as the PlantBottle. On Monday, the company said it is using the new bottle, which is partially made out of plants, in some markets such as Denmark and western US. Coca-Cola plans to have two billion of the bottles in production by the end of next year.

Coca-Cola plans to focus on its namesake brand, which Kent calls the “oxygen” of the company. Key markets such as China and Russia have low consumption rates, meaning there will be room for Coca-Cola to grow. But it also plans to have more big brands.

It currently has around a dozen brands worth $1 billion each, such as Coke Zero and Fanta, which both grew to that size in the last decade. In the next decade, Coca-Cola expects to have 30 brands worth that much as it sells more of its brands to the rising middle class around the world.

The company said because it operates in at least 200 countries, it will be better able to grow in these new markets while still keeping its costs down. It eyes annual savings of $500 million from general and administrative costs by 2011.

Coca-Cola’s comments come as the company faces a rapidly changing industry, as its main rival—PepsiCo Inc.—buys up its two largest bottlers. PepsiCo announced the $7.8 billion deal to buy Coke’s bottlers over the summer, saying the move will allow it to react more quickly to changing consumer tastes by being faster to market with new products because it will control distribution. The move can also help PepsiCo save on costs.

But Kent said Coca-Cola remains committed to its franchise system, which sells concentrate to bottlers who make and distribute Coca-Cola products, rather than the firm selling them itself. Kent said the system allows the firm to focus on its brands while also giving it the benefits of scale.

The company will be able to keep growing if the emerging markets it’s targeting do keep growing and people have more disposable income, said John Sicher, editor of trade publication Beverage Digest. “As consumers get wealthier, Coke becomes more and more affordable and the growth becomes more achievable,” he said.

Lehman estate sues Barclays for $5 bn

Tiffany Kary / Bloomberg — Tue, 17 Nov 2009 12:48:00 GMT

New York: The bankrupt estate of Lehman Brothers Holdings Inc. and a trustee for its brokerage both sued Barclays Plc, seeking the return of a $5 billion (Rs23,150 crore) windfall.

Lehman seeks a trial to recover the money, along with damages, according to the lawsuit, filed as an adversary proceeding in Lehman’s main case in a US bankruptcy court in Manhattan. Undisclosed features of the sale included $5-7 billion in excess collateral under a repurchase agreement, $2.7 billion added while a sale hearing in court was in progress, and $2.3 billion in margin deposits added after the sale was approved, lawyers for Lehman said.

The sale transaction was secretly structured from the outset to give Barclays an immediate and enormous windfall profit, lawyers for Lehman said, claiming some Lehman executives knew the information without revealing it to the company’s management, board or attorneys.

Barclays also failed to pay about $500 million in bonuses and paid only $238 million of $1.5 billion in other obligations, according to the lawsuit.

Separately, James Giddens, the trustee liquidating Lehman’s brokerage on behalf of the US Securities Investor Protection Corp., filed a lawsuit alleging cash and other assets worth $6.7 billion weren’t sold to Barclays. He also seeks to recover all other undisclosed benefits that Barclays obtained at the expense of the Lehman estate.

In a third lawsuit filed, Lehman creditors seek a ruling that the transaction that gave Barclays the $5 billion was never approved by the court. They say a clarification letter, dated 20 September, wasn’t presented in court when US bankruptcy judge James Peck approved the sale on 19 September.

The letter crystallized Barclays receipt of a secret, undisclosed, $5 billion block discount on the assets it bought from Lehman, creditors said in the complaint.

Lehman previously said in court documents that executives including Ian Lowitt, Paolo Tonucci and Bart McDade knew that Barclays was getting securities valued at about $50 billion for $45 billion in cash.

Lehman’s $1.75 billion sale to London-based Barclays was approved following the biggest bankruptcy in US history. Peck overruled creditors’ objections that the sale was moving too quickly. He said it was clear there were no other purchasers, and that the deal was needed to help stabilize global financial markets.

Harvey Miller, Lehman’s bankruptcy lawyer, said at the time that the Barclays deal needed to close as soon as possible or employees would flee and there wouldn’t be anything left to sell.

Michael O’Looney, a Barclays spokesman, declined to comment.

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Time Warner to spin off AOL on 9 December

Reuters — Tue, 17 Nov 2009 11:51:00 GMT

New York: Media conglomerate Time Warner Inc said on Monday it will spin off its AOL unit to shareholders on 9 December, nine tumultuous years after one of the most disastrous corporate mergers in history.

Time Warner shareholders of record on 27 November will receive an AOL stock dividend for every 11 shares of Time Warner common stock they hold.

Based on the closing price of Time Warner’s stock at $32.35 and its 1.17 billion outstanding shares, the ratio would effectively value AOL’s market capitalization at around $3.44 billion.

When AOL’s plan to merge with Time Warner was announced in January 2000, the Internet company was valued at $163 billion.

The combination was meant to herald the future of content distribution via the Internet, but the promised benefits were never achieved and Time Warner executives gradually regained control of the business.

Time Warner, which owns media brands such as CNN, HBO and Warner Bros, said back in May it planned to spin off AOL as it focuses on being a content company. Last year, it spun off its cable distribution unit, Time Warner Cable Inc.

In March, Time Warner appointed former Google Inc sales executive Tim Armstrong chief executive of AOL to prepare the company for life as an independent business.

Armstrong will spend most of the next few weeks on a road show speaking with Time Warner shareholders and Wall Street analysts about the prospects for AOL in Web advertising, online content and communications, where he sees the company’s future.

“This is a chance for Tim to show he truly excels at sales,” said Colin Gillis, an analyst at Brigantine Advisors. “He needs to sell to investors that AOL can recover and be relevant.”

Armstrong has been been cutting staff and restructuring the company ahead of the spin. On 12 November, AOL said in a regulatory filing that it expects to take $200 million in additional restructuring charges between the current quarter and through the first half of 2010.

New stock

AOL common stock will begin trading on a ‘when-issued´ basis on the New York stock Exchange on 24 November and will start trading under the ‘AOL’ symbol on 10 December.

Time Warner said fractional shares of AOL will not be distributed to stockholders. Instead, they will be aggregated and sold in the open market, with the net proceeds distributed pro rate in the form of cash payments to Time Warner holders who would otherwise have been entitled to fractional shares.

The AOL spin-off has been structured so shareholders will receive the AOL stock as a tax-free dividend, but cash received in lieu of fractional shares will be taxable.

Separately, Time Warner said it will pay a regular quarterly cash dividend of $0.1875 per share on 9 December.

UBS targets return to profit, says will take time

Reuters — Tue, 17 Nov 2009 07:56:00 GMT

Zurich: UBS boss Oswald Gruebel is targeting an annual pretax profit of 15 billion Swiss francs ($14.9 billion) as he aims to put the subprime crisis and a US tax row behind the loss-making bank and win back clients.

Chief executive Gruebel said on Tuesday the new strategic plan was a “revolution” for UBS and reaffirmed his commitment to an integrated banking model twinning traditional wealth management strength with a broad investment banking offering.

But he said the turnaround would not come immediately.

“The transformation we are undertaking is a fundamental one and will not happen quickly,” he said ahead of UBS’s first strategic presentation since his February appointment.

“I am determined, however, that we build a firm for sustainable profit and not one to focus only on short-term expectations,” he said in a statement ahead of the bank’s investor day.

Gruebel also said he was aiming for a cost-to-income ratio of 65 to 70% and return on equity of 15 to 20%, as the main targets over a period of three to five years.

“Pre-tax of 15 billion certainly sounds good. But who knows what will happen in five years, and will the targets be reached in three or five years? UBS says themselves that they need time. There is a long and stony path before them,” one trader said.

Since his 26 February appointment Gruebel, the 65-year-old former Credit Suisse boss, has been pushing through a tough restructuring that involved selling Brazilian unit Pactual for $2.5 billion, boosting UBS’ capital strength and cutting costs.

But UBS shares consistently underperformed rivals in 2009 and fell again after UBS posted a larger-than-expected third quarter loss on 3 November, the seventh out of eight straight quarters the Swiss bank has been unprofitable.

UBS shares have risen just 18% this year while the wider DJ Stoxx European banking sector has gained nearly 60%, and domestic rival Credit Suisse’s stock has doubled in value.

Banking veteran Gruebel, a former trader with no university education, said he wanted UBS to boost its number one position as banker to the super rich and remain the number one bank in Switzerland.

“Our strategy represents an evolution in terms of the business portfolio but a revolution in the way we will operate,” he said.

He gave no targets for reversing wealthy client withdrawals, but a presentation for the investor day said it would take time to restore positive net new money growth in wealth management.

The wealth management division, to which UBS owes much of its fame, is still losing net client money at all of its divisions, including in the core Swiss market.

Road To Recovery

Gruebel took on his toughest challenge to date earlier this year when he agreed to come out of retirement to steer UBS through a subprime and tax storm.

The no-nonsense CEO, seen in Switzerland as a turnaround guru after he managed to restructure Credit Suisse in his 2002-2007 tenure there, has also brought in new executives to head up nearly all of UBS’s key divisions.

His latest addition, ex-Merrill Lynch private banking veteran Robert McCann, faces the challenge of making UBS’ American wealth management division profitable in the aftermath of a bitter US tax row and amid stronger competition in the US private banking arena.

Gruebel said the recovery of UBS’ investment bank, blamed for bringing the whole group to its knees after risky bets on the US subprime market, was “already evident”.

He stressed that the rebuilding of the investment bank would go through the fixed-income division, the segment which led UBS to make more than $50 billion of writedowns.

UBS’ investment bank made $4.3 billion revenues since the start of this year, nearly eight times less than sector leader Goldman Sachs, which had revenues of $33.5 billion, and one fourth of the $16.7 billion reported by Credit Suisse.

UBS also said it expected net new money at the asset management division to be positive again in 2010.

Underdog Palm takes on giants in smartphones

Saul Hansell / NYT — Mon, 16 Nov 2009 19:26:00 GMT

In a land of cellphone giants, Palm Inc. is a mouse.

Palm is tiny compared with Apple Inc., Research in Motion Ltd, Samsung Electronics Co. Ltd, Google Inc., Microsoft Corp. and Nokia Oyj, which are battling to control the future of smartphones.

Palm invented the category of an Internet-surfing pocket-computer phone with its Treo line in 2002. But more recently it lost its way in the market as some of its rivals developed more innovative phones.

Its new management team, heavily laden with talent from Apple, introduced a new generation of smartphones in June with the $199 Palm Pre (Rs9,174) on Sprint’s network. The second phone in the line, the $99 Pixi, went on sale on Sunday.

Track record: Palm chief and former head of Apple’s iPod unit Jon Rubinstein believes Palm doesn’t need to be as big as its rivals to thrive. Jim Wilson / NYT

Both phones got good reviews for being easy to use and great for Web browsing. But in recent weeks, Google’s Android operating system for smartphones has grabbed the attention of the public, as Verizon Communications Inc. heavily promotes the Motorola Droid phone.

While no one expected Palm’s sales would rival the sales of iPhones or BlackBerrys —and they have not—developers have not rushed to write applications for the phone as they have for the iPhone and Android phones.

A lack of traction could prove important. If the market will have room only for a few smartphone standards, Palm, as the smallest company, could well find itself struggling as the perpetual also-ran.

Jon Rubinstein, Palm’s chief executive who was the top Apple engineer and the first head of its iPod division, said in an interview that Palm does not need to be as big as its rivals to thrive. His former employer, after all, was long able to carve out a lucrative niche in the computer business.

“One of the key things we need to do as a company is to get to scale,” he said. “We need to bring on more carriers and more regions.”

Analysts expect that Palm will sell an upgraded version of the Pre with Verizon early next year and add AT&T later in the year. It sells phones in six countries and is steadily expanding to others in Europe and North America.

Investors trying to read the mood of the consumer are unsure whether Palm will prevail. The volatility in Palm’s stock is a sign of the uncertainty over its ability to challenge the iPhone and BlackBerry. Palm’s shares bounced up to $12.40 on Friday on speculation it would be acquired by Nokia, a prospect many analysts find unlikely.

Palm looks particularly small if smartphone applications are tallied. Apple’s App Store has at least 100,000 apps. No other phone operating system comes close, though there are about 10,000 apps for Android. Palm has about 300. “You develop for the iPhone first and for Android second, then for Palm or not,” said Philip Cusick, an analyst with Macquarie Securities. Cusick suggested that a large portion of phone buyers do not care about applications even though Apple has based the marketing campaign for its iPhone on selling the apps. “If applications become important, then Palm is going to have trouble,” he said.

Rubinstein said Palm would never need as many applications as the iPhone. “We are focused on quality over quantity,” he said.

Palm is still testing its app store, called the App Catalog, with a small group of developers. It will open to anyone who wants to write an app next month—six months after the Pre was introduced.

Rubenstein says he expects developers will write for Palm devices, in part because Palm’s operating system, called webOS, is based largely on the same languages used to design websites. Android, by contrast, is based on Sun’s Java language, and Apple uses a variation of the C computer programming language.

This year, Palm is hoping for a tactical advantage with the Pixi, which will sell for a lower price than most Android phones—$99 directly from Sprint and as low as $30 at Wal-Mart Stores Inc. That puts it in direct competition with other phones with keyboards such as RIM’s popular BlackBerry Curve. Verizon’s second Droid phone, the Eris made by HTC, also sells for $99, but it lacks a physical keyboard.

“We think the Pixi is in the sweet spot of the market now,” he said. “It was designed for people who are transitioning from feature phones and getting their first smartphone.”

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Glimmers of progress at a leaner Newsweek

Richard Perez-Pena / NYT — Mon, 16 Nov 2009 17:13:00 GMT

Six months ago, Newsweek embarked on a bold effort to staunch its losses in a brutal economic time, with a major redesign, price increases, a steep reduction in circulation, and a continuation in a long series of steps away from weekly news and toward commentary and analysis. From the legion of people in the media who write about one another’s organizations, there was plenty of scepticism, even some derision.

Last week, Newsweek laid off 13 people from its already depleted editorial staff, but the reaction from the professional media watchers was muted, notably lacking in declarations that the strategy had failed and that the magazine was doomed.

After quoting the editor, Jon Meacham, as saying that the future remained promising, even the reliably sardonic Gawker.com added only this comment: “Can’t blame him, really. Tough times.”

Whether Newsweek’s plan pays off eventually, this is a time when even smart strategies can fail, and Newsweek has plenty of company in the struggle.

Through the first nine months of the year, the volume of advertising in American magazines fell 27.2% from the period a year earlier—29.2% for Newsweek—and dozens of magazines have closed, including big names such as Gourmet, Domino, Vibe and Hallmark Magazine.

Newsweek decided to stop the expensive pursuit of high circulation and focus on a smaller readership of higher-income people who appeal to advertisers. Many publications have made similar moves, but few have gone as far; Newsweek lowered its rate base, the minimum circulation promised to advertisers, from 3.1 million to 2.6 million in early 2008, then to 1.9 million in July. It will go to 1.5 million in January.

With the combination of fewer ad pages and fewer copies, the magazine’s owner, the Washington Post Co., reported that Newsweek’s ad revenue in the third quarter was down 48% from last year.

But because of cost-cutting and price increases, the outlook appears, if not good, then a little less bad than it did earlier this year.

The Washington Post Co.’s magazine division, which is primarily Newsweek, had a third-quarter operating loss of $4.3 million (around Rs20 crore), after losing $25.4 million in the first half of the year.

“It’s been a disgusting economy, in case nobody else noticed,” said Thomas E. Ascheim, the chief executive of Newsweek.

He said revenue per subscriber was up, adding that in 2010 “we expect to operate less in the red” and holding out a hope of profitability in 2011.

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Aircraft makers see West Asian carriers leading industry pickup

Martina Fuchs and Tim Hepher / Reuters — Mon, 16 Nov 2009 17:07:00 GMT

Dubai: Demand from West Asia carriers will top 1,400 new jets over the next 20 years, the world’s biggest plane makers said on Monday, driven by economic growth and ambitious state development plans.

Even in the near term, the requirements of West Asian carriers are expected to generate steady business for manufacturers as the region largely defies the global trend of slumping passenger travel.

“The Middle East market encompasses all aircraft segments and is a barometer for the rest of the world,” said John Leahy, chief operating officer of EADS NV unit, Airbus SAS.

“The recovery begins here.”

Boeing Co., the No. 2 plane maker behind Airbus, projected the region would need 1,710 new jets over the next 20 years, valued at around $300 billion (Rs14 trillion). Boeing said it expected West Asian carriers to double their fleet from 840 in 2008 to 1,860 in 2028.

Boeing said it expected passenger traffic to grow at a rate of 4.9% each year over the next 20 years.

In a presentation at the Dubai Air Show, Boeing said growth and rising incomes in emerging markets in West Asia as well as China and India would balance global aircraft demand.

Meanwhile, Airbus projected carriers in West Asia will need 1,418 new passenger aircraft, valued at $243 billion, to satisfy the demand, which is above global average.

Airlines in the region include the United Arab Emirates’ Emirates, the Arab world’s biggest airline, Abu Dhabi carrier Etihad Airways PJSC and Royal Jordanian, the only Arab carrier in the international airline One World Alliance.

Airlines around the world have been crippled by reduced spending on travel, a drop in global trade and rising oil prices. To cut their bloated cost bases, many have grounded planes and cancelled or deferred aircraft orders.

In contrast, some carriers in West Asia—especially the Gulf Arab region—have been adding to fleets and expanding routes.

Emirates said earlier on Monday it was considering placing more orders with Boeing and Airbus.

“We are in discussions... there won’t be anything at the airshow (but) we are talking to Boeing and Airbus,” Sheikh Ahmed bin Saeed Al-Maktoum told reporters at the air show. “It would be in the 10s of planes... I think we can say 777s (from Boeing) and could be A330s on the Airbus side.”

Industry players saw airlines returning to profitability over the next two years underpinned by a recovery in global economic growth and passenger traffic.

Emirates, which bucked the downward trend in aviation with earnings surging 165% in its fiscal half-year results, said profit would be around $544.5 million for the year.

Etihad Airways said it expected revenues of about $3 billion in 2009, despite pushing back its profitability target to 2011 from 2010 due to the financial crisis.

Boeing said it expected West Asia and Asia Pacific air travel market to grow 6.3% between 2008 and 2028, and predicted that West Asian carriers alone would require around 150 freighters over the next 20 years.

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Sistema taps Temasek to develop Asia biz

Bloomberg — Mon, 16 Nov 2009 16:47:00 GMT

Moscow:AFK Sistema OAO, owner of Russia’s biggest mobile phone operator, is asking Temasek Holdings, Singapore’s government-owned investment company, to help it develop its Asian business.

“We would like Temasek to cooperate with us,” Sistema chairman Vladimir Evtushenkov said, adding that Sistema wants to expand its telecommunications business to Indonesia, Myanmar and Vietnam.

The company is completing a pan-Indian telecommunications network, he said.