Germany’s Lufthansa and the airline industry’s representative body provided a gloomy outlook for the sector as carriers around the world struggled to make a profit amid a fierce battle for business.
“Initial signs of a stabilization in volumes are far away from making up for the enormous and unrelenting pressure stemming from the massive fall in price levels,” the German flagship carrier said on Thursday.
Industry body IATA echoed Lufthansa’s warning, saying it was still too early to talk about a recovery. IATA has said it sees the world’s airlines losing $11 billion this year as consumers tightened their purse strings and companies cut travel budgets.
“The worst may be over in terms of the fall in demand, but yields continue to be a disaster and costs are rising,” IATA said.
Airlines around the world have been crippled by a toxic mixture of reduced spending on travel, a drop in global trade and rising oil prices. To cut their bloated cost bases, many have grounded planes and canceled or deferred plane orders.
Lufthansa has rescheduled some aircraft deliveries to save 1 billion euros ($1.5 billion) over the next three years. Plane makers Boeing and Airbus are headed for their worst annual order tally in at least 15 years.
Demand has suffered especially this year in the highly profitable business class segment as companies ask staff to book cheaper seats.
Finnish national carrier Finnair said earlier that it saw third-quarter sales fall sharply due to declining demand for business travel, adding it would continue to make losses during the rest of the year cash till payday advance.
Russian flagship carrier Aeroflot said its first-half net profit fell five-fold to $14.4 million as lower passenger numbers hit revenue, which fell 30 percent to $1.46 billion. The airline said lower jet fuel prices pushed up its margins on pretax earnings to 12 percent from 10 percent.
Aeroflot gave no outlook for the second half but analysts said they expected performance to improve only slightly as better sales from renewed passenger growth at the airline is offset by rising fuel costs.
Air cargo is in even worse shape than passenger demand as global trade remains at low levels, IATA said. Lufthansa, which operates Europe’s biggest air cargo fleet, said revenue in the sector was still falling steeply due to declining prices.
Lufthansa ended the session up 2.6 percent, while Finnair was down 1.3 percent and Aeroflot was up 0.26 percent.
CASH IS KING
“What we have seen so far does not indicate at all that the tough times for the airline industry will be over soon. The environment will remain challenging for some time and we still do not expect significant positive newsflow in the short term,” said MM Warburg analyst Michael Bahlmann.
Japan Airlines, Asia’s largest airline by revenue, is asking the government for a “huge” bailout as it heads for its fourth annual loss in five years, weighed down by $15 billion in debt and crippling pension costs.
Google Inc is adding Garmin Ltd and TomTom to its growing list of rivals as the Internet search giant weaves technology for driving directions into new versions of its smartphone software.
Google said its new Google Maps Navigation product will provide real-time, turn-by-turn directions directly within cell phones that are based on the new version of its Android software.
The navigation product, which features speech recognition and a visual display that incorporates Google’s online archive of street photographs, marks the latest step by Google to challenge Apple Inc’s iPhone and Microsoft Corp’s Windows Mobile software with its Android smartphone software.
It also represents a direct competitive threat to companies like Garmin and TomTom which sell specialized hardware navigation devices. TomTom also makes a software navigation app for the iPhone that sells for $99.99 in the U.S.
Google executives told reporters at a press briefing on Tuesday ahead of the announcement that the company decided to offer turn-by-turn driving directions in its four-year-old maps product because it was the most requested feature by users.
CEO Eric Schmidt said that expanding into a new market with new competitors was not a part of Google’s motivation.
“Those are tactical problems that occur after the strategic goal which is to offer something which is sort of magical on mobile devices using the cloud,” Schmidt said.
The new navigation service will work with Google’s forthcoming Android 2.0 software, the next version of the smartphone operating system developed by Google. The company announced development tools for Android 2.0 on Tuesday, but a spokeswoman said specific details about when Android 2.0 will be available should be directed to phone-makers and wireless carriers savings account payday advance.
Google said the product, which will initially be limited to driving directions in the U.S., will be free for consumers.
Executives said the company was not currently serving ads on the navigation product, though they said Google is constantly looking at innovative ways to advertise in Google maps.
Google Engineering Vice President Vic Gundotra said the company hoped to eventually make versions of the navigation product for non-Android smartphones, but noted that the software has “stringent” hardware requirements.
He would not comment on whether Apple’s iPhone, which offers Google mapping software as part of its standard menu of built-in applications, would offer the new navigation features. He said, in response to a question, that the latest version of the iPhone, the iPhone 3GS, has the horsepower to support the navigation product.
The new navigation product taps into various existing Google products and technology, including Google’s flagship Internet search capability to find the addresses for a particular destination, as well as Google satellite images and Google Street View, for more realistic views of a route.
The product also uses voice-recognition technology, making it well-suited for use while driving, Google said. And the navigation software can display live traffic data that Google collects from various sources, including data it collects on the speed and distance that users of Google mobile maps are traveling.
Gundotra said the company does not collect any personally identifiable information in the Google mobile maps and the navigation products.
(Reporting by Alexei Oreskovic; Editing Bernard Orr)
The United States welcomes the rise in the yuan’s exchange rate in recent years but wants the currency to climb further, visiting Commerce Secretary Gary Locke said on Tuesday.
“We think more progress needs to be made in that area,” Locke told a news conference in Guangzhou, the capital of southern Guangdong province, which accounts for nearly a third of China’s exports.
China has in effect re-pegged the yuan to the dollar since mid-2008 to help its exporters, who were hit hard by a slump in orders as the global financial crisis intensified.
Beijing revalued the yuan by 2.1 percent against the dollar in July 2005 and, over the following three years, gradually let it climb by another 19 percent before calling a halt to its rise.
“We’re pleased with the movement so far, but of course more needs to be done,” Locke said.
The commerce chief will participate on Wednesday and Thursday in high-level trade talks in Hangzhou, along with U.S. Trade Representative Ron Kirk and Chinese Vice-Premier Wang Qishan.
Locke said he expected the meetings to pave the way for “significant improvements and progress in the trade relationship between the two countries” when President Barack Obama visits China next month for talks with President Hu Jintao.
Locke did not delve into detail but said that energy co-operation would be a “big topic” between the two presidents, with U.S. firms seeking easier access to the potentially lucrative China market for clean energy, alternative fuels and energy-efficient products.
The yuan’s exchange rate has dropped down the U.S. diplomatic agenda in the past year as Washington has looked to China for help in hauling the world economy out of recession.
The Obama administration said on October 15 that it continued to believe the yuan is undervalued but declined to declare that China was manipulating its currency.
But the Treasury Department, in a semi-annual report to Congress on currency practices of key trade partners, said China was piling up foreign exchange reserves at a rate that threatens progress in reducing global economic imbalances.
It warned that lack of flexibility in the exchange rate for the yuan might be damaging as stimulus is withdrawn and overseas demand for Chinese-made goods returns.
Currency traders in the non-deliverable forwards market were anticipating on Tuesday that the yuan would be worth 2.4 percent more against the dollar in a year’s time.
PATENT PROBLEMS
Locke said a recent spat over Washington’s decision to slap tariffs on imports of cheap Chinese tires would be discussed in Hangzhou, but he played down the issue.
Commercial real estate company Capmark Financial filed for bankruptcy protection on Sunday, weighed on by declines in the sector and a heavy debt load related to its leveraged buyout.
Capmark, which was created out of the commercial real estate assets of General Motors’ finance arm GMAC in March of 2006, had indicated earlier this year that it might file for bankruptcy.
It had said that it was negotiating with lenders, bondholders and the Federal Deposit Insurance Corp. Its creditors include banks Citigroup and JPMorgan Chase.
The move wipes out the private equity investments of Kohlberg Kravis Roberts & Co, Goldman Sachs Group’s Goldman Sachs Capital Partners and Five Mile Capital, which bought Capmark for $1.5 billion in cash and more than $7 billion in debt.
According to the bankruptcy filing, the group owned 75.4 percent of the company while GMAC, or the General Motors Acceptance Corp, owned 21.3 percent. Employees and directors owned most of the remaining stock. Equity investors are typically wiped out in bankruptcy.
KKR already wrote down its investment in Capmark to zero earlier this year. KKR has had other failed equity investments this year, including its 2005 purchase of doormaker Masonite, which filed for bankruptcy in March and has since emerged from court.
In order to raise cash, the company signed a deal in September to sell its loan servicing and mortgage business to Berkshire Hathaway and Leucadia National for $490 million. That deal can still take place in bankruptcy.
Capmark listed $20.1 billion in assets and $21 billion in liabilities as of June 30, 2009 in the bankruptcy filing, which was made in U.S. Bankruptcy Court in Wilmington, Delaware.
(Reporting by Caroline Humer; Editing by Richard Chang)
eBay Inc. may be trying to unload its Skype Internet phone business, but the division’s 29% revenue growth helped bolster the company’s third quarter results.
Overall, the company said revenue grew 6% to $2.24 billion, which trounced analysts’ expectations of $2.14 billion.
"The year-over-year revenue growth was driven primarily by the continued growth in PayPal, Skype, the company’s classifieds business as well as growth in eBay’s fixed-price format," the company said. .
Shares of eBay (EBAY, Fortune 500) fell more than 5% in after-hours trading, however, as the commerce company also announced that its profits for the quarter fell 29% from last year to $350 million.
eBay said it earned 27 cents per share in the quarter ended Sept. 30, lackluster compared to the 37 center per share that analysts polled by Thomson Reuters expected.
The company said the drop was due to a decrease in operating margins for the quarter caused primarily by the recently acquired payment system Bill Me Later.
But eBay’s chief executive John Donahoe remained optimistic. "These are strong results for a strong company getting stronger," Donahoe said during a conference call with investors. "And our eBay strategies are beginning to work."
The positive results were the outcome of changes eBay has been implementing since 2008, said Sandeep Aggarwal, a senior Internet research analyst at Collins Stewart. The modifications include altered fees for merchants to encourage fixed-price sales and an improved search engine.
The marketplace unit, which includes eBay’s core auction business, posted $1.4 billion in revenue, down 1% since last year. But the total amount of goods that eBay sold, excluding vehicles, also known as GMV, rose 7% to $12.2 billion in the quarter.
"The single biggest thing we found most positive was that GMV is showing signs of growth acceleration. Even if you include auto sales, it was still up 2% on a year-to-year basis," said Aggarwal, who expected the figure to decline by 1%.
The company’s PayPal business also grew, and the company’s efforts to expand the online payment unit to merchant stores has been successful, according to Aggarwal.
The PayPal business reported $668.1 million in revenue, up 15% compared to last year, and the number of active registered accounts grew 19% in the quarter.
In September, eBay announced that it will sell 65% of its Skype Internet phone business to a group of private investors for $2.75 billion, but the deal is pending a lawsuit against Skype’s founders.
The exiting segment added 40.3 million users in the quarter and contributed $185.2 million in revenue, representing 29% growth compared to last year.
eBay is forecasting fourth-quarter revenues between $2.20 billion and $2.30 billion, in line with analysts’ expectations of $2.26 billion, but higher than the $2.04 billion revenue posted in the fourth quarter of 2008.
But the revenue outlook assumes the sales of Skype in the middle of the fourth-quarter.
OPEC Secretary-General Abdullah al-Badri said on Monday he knew of no plans to shift international oil trade away from its dollar denomination.
When asked if he was aware of any such moves, Badri said: “No, no, this is a 100 percent member country policy.”
Reiterating that oil trade denomination issues were the concerns of individual OPEC members rather than group policy, Badri also said dollar weakness was a concern for exporters.
“This is a member country policy but it is a concern for us,” Badri said.
Sweeping rule changes meant to shed light on so-called dark pools, where stock-trading is done anonymously, could ultimately hurt the traditional investors that regulators are trying to empower, trading executives warned over the past few days.
The U.S. Securities and Exchange Commission meets in the coming week to consider changes that the industry widely expects will bring some order to the way dark pools communicate, force them to display more quotes, and publicly reveal more data about the amount of trading taking place outside the formal exchanges.
Executives at a conference said political pressure had a hand in pushing new regulations. They argued that although some changes may be needed, a lack of understanding the way orders circulate among the more than 40 U.S. trading venues could lead to poorer prices and executions for mutual funds, pension funds, and individual retail investors.
“Does the public understand that (new rules are) actually going to have real negative consequences to larger orders that are generally made up of a lot of small retail interest?” Shane Swanson, head of transactions at Citigroup Inc’s Lava unit, told the Security Traders Association conference.
Dark pools, private venues primarily used to match large trades, have proliferated this decade as institutions sought safe places to buy and sell “blocks” of stock. They now account for an estimated 10 to 15 percent of U.S. equity volumes.
The SEC, having last month proposed a ban on so-called flash orders, has now turned to dark pools as it cracks down on an increasingly opaque and complex marketplace that some say favors the most sophisticated players at the expense of others.
Commissioners, who meet in Washington on Wednesday, are expected to require from dark pools real-time post-trade transparency so that the public has a better idea where trading actually takes place.
Brett Redfearn, global head of liquidity at JPMorgan Securities, said new data would matter little to the public but would be a boon for high-frequency trading shops — the market’s fastest players that use lightning-fast algorithms to seek out market imbalances, and who could take advantage of the dark pool information.
Swanson added: “That will result in worse impact for those orders. And quite honestly, the small retail orders that are going into the market today already interact with these dark pools. That’s the point that seems to be missed.”
Similar objections were raised over a likely SEC proposal to lower the threshold at which dark pools must publicly display quotes and allow fair access to 1 or 2 percent of market share in a particular stock from 5 percent.
WHAT’S A QUOTE
The SEC is also expected to decide that most so-called actionable indications of interest, or IOIs, should be treated as regular quotes and added to the public quote stream.
Dark pools, exchanges, and other market players send or receive IOIs to sniff out trading interest elsewhere. They vary, but can include the stock symbol, order size, and the price, much like a public quote, raising concerns over a two-tiered market favoring those in the know.
“Depending on how you define IOIs, you may find that many dark pools are not so dark. And that is a little bit scary for institutional orders,” Jeromee Johnson, vice president at BATS Exchange, said in an interview. “If they can’t execute in a dark pool, where do they go?”
Len Amoruso, senior managing director at Knight Capital Markets Group, told the conference: “There could be a host of very legitimate, very bona fide reasons people are using those IOIs to help execute their underlying orders.”
The U.S. economy is recovering but the upturn will be slow and it makes no sense to raise interest rates in this climate since inflation is not a risk, a top Federal Reserve official said on Thursday.
“I am worried about unemployment and I see an enormous amount of slack. I hear it everywhere,” Federal Reserve Bank of Dallas President Richard Fisher told Reuters in an interview.
“I am super-hawkish on inflation. I don’t think that is where the risks are right now,” Fisher said, speaking from his spacious top-floor office overlooking downtown Dallas.
His comments will reinforce the impression that the U.S. central bank is in no hurry to raise interest rates, despite guarded optimism that the U.S. economy is healing.
Fisher, who takes pride in a reputation as an anti- inflation policy hawk, said the U.S. central bank would not lose sight of its long-term obligation to keep price pressures at bay. But he stressed that this was not the current issue.
“Right now that is not the risk. The risk is a disinflationary/deflationary risk,” he said.
The U.S. central bank has cut interest rates to almost zero to protect the economy from the worst recession in 70 years and sees exceptionally low rates for an extended period.
Fisher, who is not a voting member of the Fed’s policy-setting committee this year, said it would take “a while” to work off excess capacity in the economy.
“I don’t see a ‘V’-shaped recovery. I see a couple of quarters of growth and then the question is where do we go from there. That is the real key question in 2010 and 2011.”
Minutes of the Fed’s September 22-23 meeting released on Wednesday showed staff at the Fed Board in Washington raised their forecast for growth.
Fisher said his own prediction was not as optimistic as the staff estimates. He was thinking in terms of third and fourth quarter growth rates in an annualized range of 2-3 percent.
“But then the question is, what happens next? And I don’t see the economy growing at a rate that gobbles up slack so quickly that it creates inflationary pressures,” he said.
Fisher also stressed the Fed’s exit from this accommodative monetary policy stance will be dictated by how growth evolves.
“The extended period will be determined by economic circumstances,” Fisher said. “I agree the time to tighten is not now.”
“I will always err on the side of fighting inflation … but I don’t see the logic of tightening presently and I’m in the majority on that one,” he said.
U.S. chemical makers are poised to post stronger-than-expected third-quarter earnings, but demand for their products could cool later this year as government stimulus programs unwind, industry experts say.
The chemicals industry — which makes the base products that go into thousands of everyday items like electronics, automobiles and clothing — is expected to show a strong uptick in earnings.
But major stock moves, which often immediately follow big earnings beats or misses, might be in short supply this quarter as investors look for solid evidence that the economy has begun to right itself and demand for chemicals has returned.
Data from heavyweights like Dow Chemical Co, DuPont Co and Ashland Inc will be important indications about the health of the rest of the U.S. economy.
“The third quarter is going to look good — probably a lot better than most people expect,” Greenwich Consultants analyst Mike Judd told Reuters.
Government programs, like the so-called “Cash for Clunkers” autos program and a first-time home buyer’s rebate, boosted business in the sector during the June-to-September period, industry observers say.
Other positive indicators include low energy costs — especially for the important feedstock natural gas — and a steady improvement in railcar loadings, a popular way to ship chemicals.
Many of the industry’s largest players have also been able to launch successful debt or equity offerings to finance acquisitions or repay debt.
Going forward, the question is whether or not those gains can be sustained. Cash-for-clunkers is over, the home buyer’s credit is expiring in December and the winter is cyclically the worst time for chemical makers.
The clunkers program depleted carmakers’ vehicle inventories, so they will have to ramp up production for a bit. But, eventually that increase would taper off should demand not be sustained.
“I think we’ll see good activity (in the chemical sector) through the end of November,” Deutsche Bank analyst David Begleiter told Reuters. “But December looks uncertain right now.”
For investors unsure about what to do right now, Greenwich Consultants’ Judd sees a clear path:
“Why wouldn’t you want to sell on the good news, and then wait to see what happens?”
ONE STEP AT A TIME
While many chemical makers were able to report second-quarter profits largely due to draconian cost-cutting, investors and analysts are eager this time to see income generated from actual sales.
American International Group is to sell its Taiwan life insurance unit for $2.15 billion, marking the largest disposal since a U.S. government bailout saved the insurer from collapse last year.
The sale of Nan Shan Life on Tuesday was another step in AIG’s effort to repay U.S. taxpayers after the government injected $80 billion into the company, but the insurer faces two more sales processes in Asia and others across the globe.
The sale is to two little-known buyers — a start-up financial group run by a former Citigroup banker and an obscure, publicly traded Hong Kong holding company with a market value of $111 million.
“It (deal) has to be approved by Taiwan’s investment commission first,” said Lee Chi-Chu, vice chairperson of the Financial Supervisory Commission, adding the regulator has not received an application from AIG. “We have told AIG that we do not welcome investors backed by China fund,” she said.
Taiwan’s business ties with China have picked up since President Ma Ying-jeou took office last year.
The agreement will likely to bring a sigh of relief to the AIG camp as, at one point, it looked liked the process would not succeed.
Primus Financial, the firm founded by Citi’s former Asia investment banking head, together with China Strategic Holdings, are to buy Nan Shan Life, ending a five-month auction that involved private equity firms and local financial groups.
Nan Shan, a top three Taiwan insurer, has assets of $46 savings account payday loans.4 billion and employs 36,000 sales agents in Taiwan and has a market share of 10 percent with its 4 million customers.
Primus will own around 20 percent of the business and China Strategic 80 percent, according to the companies.
The sale allows AIG to check one business off its list of units to sell in fund-raising efforts.
Hong Kong-based life insurer AIA is seeking a more-than $2 billion initial public offering and sources said American Life Insurance Co, which generates half its revenue in Japan, could fetch $5 billion in an IPO. [ID:nN08285471]
Both companies have also attracted acquisition interest, though nothing has materialized yet.
China Strategic, whose businesses include battery production and securities investments, had said it planned to raise about HK$7.8 billion ($1.0 billion) to fund a possible joint acquisition.
“The deal priced Nan Shan at about 1 time price to book, which is fair when you compare 1.9 times for Cathay Financial and Fubon Financial, and 1 time for smaller rival Shin Kong Financial,” said Dexter Hsu, an analyst at JP Morgan in Taiwan.
An executive from Deutsche Bank, which is Primus’s financial advisor, told Reuters that Primus would be using bank loans to pay up to 35 percent of the $2.15 billion.
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