Asian airlines to weather war storm - Update

Business Asia, Feb, 2003

As airline share prices tumble the world over, Cathay Pacific and other Asian carriers say booming cargo business and cost cuts dating back five years will help them weather rising fuel prices from a potential war in Iraq. At Cathay, Hong Kong's only long-haul airline, cargo revenue rose more than five per cent in the first six months of 2002 as it trimmed its workforce 1.4 per cent. It expects a "reasonable" profit in 2003 as US and European airlines lose money, says chief executive David Turnbull. Most Asian carriers outside Japan stayed profitable as travel demand sank following the 2001 terrorist attacks, because they had already cut costs after the 1997-1998 financial crisis. Intra-Asia freight traffic will rise at an annual 8.4 per cent pace through 2021, according to Boeing Co, faster than the 7.5 per cent in North America and seven per cent in Europe. The price of jet fuel, which can account for 10 per cent of an airline's costs, has risen 11 per cent over the three months to January to US$35.20 ($59.70), its highest level since December 2000. Japan remains the exception in Asia. High costs such as landing fees at Tokyo's Narita airport, the world's most expensive, and other Japanese airports will make it tougher for Japan Airlines System Corp and others to lower costs, analysts said.

* Hong Kong

Hong Kong consumer prices fell for a 50th month in December as rising unemployment and sliding property prices curbed spending, forcing retailers to discount in order to win business. Prices fell 1.5 per cent from a year earlier last month, according to a Government statement. In November, prices fell 3.6 per cent from a year earlier. The fall was the smallest decline in 13 months, as last month's figures were compared against a relatively low base. Prices fell in December 2001 at almost triple the rate of the previous month after the Government waived public-housing rental payments. Since the 1997-1998 Asian financial crisis, Hong Kong's jobless rate has more than tripled, reaching 7.2 per cent last month, the highest in North-East Asia.

* Indonesia

The Indonesian bank rescue agency plans to take the country's recalcitrant debtors to court after they failed to settle a combined 2.2 trillion rupiah ($422.5 million) in debt owed to the Government, the agency said. The debtors include Fadel Muhammad, a former owner of PT Bank Intan; Trijono Gondokusumo, who once controlled PT Bank PSP; Baringin Panggabean, former owner of PT Bank Namura Internusa; and Santosa Sumali, who once controlled PT Bank Bahari and PT Bank Metropolitan. All the banks were among the 38 liquidated in March 1998 by the Government, which assumed their bad debts. The Indonesian Bank Restructuring Agency, whose mandate will expire next year, was established four years ago to take over bad loans from liquidated banks and prevent a banking system collapse during the financial crisis of 1997 and 1998.

* Japan

Resona Holdings Inc, Japan's fifth-largest lender, said it would seek 100 billion yen ($1.4 billion) from investors to counter loan losses, joining Mizuho Holdings Inc and rivals in seeking to top up capital. Resona said last month its bad loan-related costs may swell by two-thirds in the year ending March, based on its own estimate of the likely impact of a Government plan to halve the level of bad debt at Japan's biggest banks by March 2005. Some of the funds may come from Bank of East Asia Ltd, says Resona spokesman Yasushi Kodama. The Hong Kong lender this month said it would sign an agreement with Resona to help the Japanese lender serve customers in China.

* Malaysia

Malaysia may consider selling global or local bonds to help fund its "pump priming" package aimed at bolstering domestic activity and fuelling economic growth. Prime Minister Mahathir Mohamad will decide in March whether the Government will need to tap the global or local markets for funding, said Second Finance Minister Jamaludin Jarjis. Malaysia has raised US$1.75 billion ($2.9 billion) in global bonds since July 2001. It last sold bonds in March 2002 when it increased a bond offer by half to US$750 million. The Government is seeking to prevent the economy from losing momentum as consumer sentiment wanes amid concerns over war and terrorism. Those concerns weighed on Malaysia's stock market, whose benchmark Composite Index tumbled 7.2 per cent last year.

* Philippines

Philippine Finance Secretary Jose Isidro Camacho forecast that benchmark interest rates may surge by as much as a third this year, making it harder for the Government to avoid a record budget deficit for a sixth year. The yield on 91-day treasury bills may rise to as high as nine per cent this year from an average of just under six per cent in 2002, he says. That would make it more expensive for the Government to borrow at home to finance a forecast 202 billion pesos ($6.3 billion) deficit this year. Last year's deficit reached 213 billion pesos, 64 per cent higher than originally projected. Camacho says "a slight up tick in interest rates" has been factored into next year's deficit estimate. The widening deficit prompted the top three international credit rating companies--Standard & Poor's, Moody's Investors Service and Fitch Ratings--to cut the outlooks on their ratings for the Philippines in the last three months.