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News : International Last Updated: Oct 8, 2013 - 6:35 AM


Markets: Airbus in landmark deal with Japan Airlines
By Finfacts Team
Oct 7, 2013 - 3:25 PM

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Japan Airlines (JAL) has signed a purchase agreement for 31 Airbus A350 XWBs (18 A350-900s and 13 A350-1000s), plus options for a further 25 aircraft. This is JAL’s first ever order for Airbus aircraft. It is also the first order Airbus has received from Japan for the A350 XWB, confirming its continuing success with world leading airlines across the globe. JAL and Airbus aim for entry into service from 2019, with the airline’s A350 XWBs gradually replacing its ageing fleet approximately over a six year period.

“We will utilize the A350 XWB to maximum, which offers high level of operational efficiency and product competitiveness, while positively catering to new business opportunities after slots at airports in Tokyo are increased,” said Yoshiharu Ueki, president of Japan Airlines. “In addition to improving profitability with advanced aircraft, we always aim to deliver unparalleled services to customers with the latest cabin and steady expansion of our route network.” 

The deal has a list price of $9.75bn and deliveries will commence in 2019.

ANA, JAL's rival was the launch customer of Boeing's troubled Dreamliner.

Conall Mac Coille, chief economist at Davy, comments -- "On Friday, the IMF released its latest review of Ireland’s programme. The IMF indicated that the government should still plan to hit the overall €5.1bn adjustment planned for 2014-2015. However, this suggests that the IMF is now reconciled to the likelihood that the adjustment in Budget 2014 will fall below the €3.1bn originally planned. The IMF has now pared back its forecasts for Irish GDP growth to just 0.6% in 2013 and 1.8% in 2014 but still expects the government to meet its 7.5% of GDP deficit target in 2013, falling to 4.9% in 2014.

The IMF recommended the ESM backstop should be in place ahead of next year’s stress tests, prepared to meet 80% of any recapitalisation need up to a core tier 1 capital ratio of 4.5%. Furthermore, it advocated European support to help Irish banks “borrow” the high quality balance sheet of a European institution to secure low cost funding against their low yielding tracker mortgages. The IMF review indicated that the Irish authorities were scheduled to complete a technical proposal on this topic by end-September. Interestingly, the IMF appeared to rule out a ‘warehouse’ solution involving extended ECB funding because eurosystem funding might undermine perceptions of bank health.

Irish industrial data released on Friday showed output down 0.8% on the month in August and by 5.7% on the year. However, this fall masks encouraging trends. Output in the traditional manufacturing sector was up 4.3% on the year, benefiting from the up-turn in the broader cycle in European industry. The traditional sector accounts for two-thirds of industrial employment. In contrast, modern sector output, dominated by multinationals and pharmaceuticals, was down by 11.4% in the year to August.

There is a clear divergence in performance between the labour-intensive (traditional) and high labour productivity (modern) sectors of the economy – helping to explain the contrasting performance of employment (up 1.8% in the year to Q2 2013) and GDP (down 1.2% in the year to Q2 2013). The underlying trend is that the euro area recovery will help Irish employment and income growth in industry, but the impact of the pharmaceutical patent cliff will have little negative traction on the domestic economy."

Economic View: Brussels gets a preview of Irish fiscal plans; Dermot O'Leary of Goodbody comments -- "If there was ever evidence needed that the budget process in Ireland has changed entirely, it is contained in this morning’s Irish Times. Ahead of next week’s Budget, it is reported that Irish officials travelled to Brussels over the weekend to discuss fiscal plans for 2014. It is suggested that the motivation for the visit is to identify any weaknesses before a final decision is made on October 15th.

On Friday, the IMF gave its approval for the government to reduce the amount of fiscal consolidation to be implemented in 2014 as long as the cumulative target of €5.1bn for 2014 and 2015 is implemented. European Commission officials have yet to come out in support of altering the targets, but it appears that the Government is working on the basis that it will give its backing. Given the EC’s cautious nature, if its support is given to the Government’s plan, strings are likely to be attached, similar to those mentioned by the IMF on Friday. Nevertheless, this will be seen as a political win for the Irish government.

Will all information now available, Ministers will finalise details of the Budget package this week. Ministers Michael Noonan and Brendan Howlin will present a joint memorandum to the cabinet tomorrow, with a further cabinet meeting planned for later in the week. While agreement on the overall target is important, the difficult part is the implementation of these measures within individual ministries."

Air France-KLM Staff cuts of 2,900 in Transform 2: Dónal O'Neill of Goodbody comments - - "Air France-KLM announced on Friday evening that is has identified necessary staff reductions of close to 2,900 which are required to help it achieve its debt reduction and earnings improvement targets for 2014. Between February and December 2014, 1,826 ground staff will be let go on a voluntary basis across operations at Cargo, Paris-CDG, Paris-Orly and other activities. A further 1050 job losses among pilots (350) and cabin crew (700) will be sought over the course of 2014.

As a result of these measures, a restructuring provision of €200m will be taken in Q313, while there is expected to be a €150m positive impact on full year employee costs. Elsewhere, capacity will be reduced on domestic point-to-point services from Paris-Orly and the regional bases while operations at lower cost arm, Transavia, will be increased. No quantum was given for either. Cargo capacity will also be reduced with operations focused around the Group’s two 777Fs.

Further detail will be provided at the airline’s Q313 results on October 31st and while we welcome these measures, we remain very sceptical on its ability to achieve its stated target of €2.5bn EBITDA in FY14. The French economy remains weak, competition is increasing on domestic and Europe short haul services and we find it hard to believe that the unions will accept these job cuts without a backlash. We re-iterate our SELL recommendation on Air France-KLM with a price target of €5.00."

Petroceltic Sontrach pre-empts, sees value: Gerry Hennigan of Goodbody comments - - "Petroceltic (PCI) released a statement this morning on the guided 18.375% farm-down in its Algerian development asset (Ain Tsila), which indicated that Sonatrach (state oil & gas company) has exercised its pre-emption rights and will acquire the stake previously agreed with an unnamed third party. Payment of $20m on completion, $140m in the form of a development carry, and two contingent payments of $10m each, assuming certain milestones are achieved, is in line with prior speculation. On completion, PCI will remain Operator with a holding of 38.25%, the remaining equity will be shared between Sonatrach (43.375%) and Enel (18.375%).

While a surprise given that Sonatrach rarely pre-empts, it underpins the level of confidence that the state company has in the development and suggests value over and above that offered by the third party. On a 70% risk weighting Ain Tsila accounts for 64% of our total risked NAV for Petroceltic of £3.27."

Justin Doyle of Investec Bank Ireland, commented:

1.Shutdown continues: The US shutdown continues with Republican House Majority leader Boehner stating on Sunday that the US is headed for its first default unless President Obama starts negotiating with the Republicans. He said that Republicans will not pass a “clean” debt limit increase (one without additional concessions from Democrats).

2.Default looms: Some analysts have estimated that default is likely by 1 November when the Treasury Department is scheduled to make nearly $60 billion in payments to Social Security recipients, Medicare providers, civil-service retirees, and active duty military service members. It is difficult to pinpoint exactly how this will be resolved. However we suspect that lower poll ratings will cause one side to blink ahead of the final date, resulting in a move towards a compromise.

3. US data: The current impasse means that we may have no official US economic data. But private sector figures such as the Michigan survey should still be published. In addition the start of the Q3 corporate earnings season kicks off with Alcoa and Yum! on Tuesday.

4. G20: G20 Finance Ministers and central banks chiefs start a two day meeting on Thursday in Washington, ahead of the IMF and World Bank later in the week.

5. BoE up this week: In the UK the MPC announcement is due on Thursday (although the meeting itself will be held earlier to allow BoE officials to attend G20). We expect no changes to the policy stance. Industrial production and construction data for July will unveil further clues on the pace of growth of the economy through Q3 against a background of robust survey evidence.

US Markets

In New York Monday, the Dow fell 125 points or 0.83% to 14,948.

The S&P 500 slid 0.53% and the Nasdaq slipped 0.82%.

Asia Markets

The MSCI Asia Pacific Index fell 0.8% Monday.

Japan's Nikkei 225 fell 1.22%; China's national day holidays end on Tuesday; Korea's Kospi index fell 0.132%; Australia's S&P/ASX 200 dropped 0.90% and in Mumbai, the Bombay Stock Exchange the S&P BSE India Sensex Index slipped 0.10%.

Europe Markets

In Europe, the Dow Jones Stoxx Europe 600is down 0.04% in mid-morning trade Friday.

In Dublin, the ISEQ is off 0.27%.

Ryanair is down 0.88%.

European Benchmarks

Irish Share Prices

Key Index Performance Statistics

Euribor Rates

AIB Daily Report

Bank of Ireland Daily Report

Currencies

The euro is trading at $1.3570 and at £0.8436.

For live currency updates, check the right-hand column of the Finfacts home page.

The US dollar fell to $1.6038 per euro on Tuesday, July 15, 2008 - an-all time record.

Commodities

The Baltic Dry Index, a measure of shipping costs for dry commodities, hit an all-time High of 11,771 on the 21st of May, 2008. From that time it reversed and on the 5th of December, 2008 it hit a low of 663 - - close to a 1986 low.

On Thursday, July 15, 2010, the index fell for the 35th straight session, by 9 points, or 0.537%, to 1,700 points, Bloomberg report.

On Friday, the BDI rose 37 points or !.81% to 2,084.

Global rebalancing — the tanker scrapyard index?

Crude oil for November 2013 delivery is currently trading on the Chicago York Mercantile Exchange (CME/Nymex) at $102.49 down $1.35 from Friday's close. In London, Brent for November delivery is trading on the International Commodities Exchange at $108.46. The North Sea benchmark accounts for two-thirds of the global market.

Finfacts, July, 15, 2013:  US West Texas Intermediate oil benchmark jumps in July - - margin between WTI and Brent falls.

Gold spot price

The spot price of an oz of gold is trading on the CME in Chicago at $1,311.80 up $2.20 from Friday's closing.

Gold had hit a record high of $1,921.15 a troy ounce on Sept 06, 2011.

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