Friendly Skies Get More Competitive

0 Comments | Insight on the News, Oct 27, 2003

Byline: Jamie Dettmer, INSIGHT

LONDON - Friendly Skies Get More Competitive

U.S. airlines closely are monitoring the Air France takeover of Dutch carrier KLM, a $3.5 billion deal scheduled to be signed and sealed by Oct. 15. The takeover the first major cross-border deal in European aviation history will create Europe's biggest airline with $19.2 billion of sales, serving 226 destinations, operating 540 aircraft and employing 106,000 people.

The deal could have major implications for struggling U.S. airlines, which are likely to face greater competition on trans-Atlantic and international routes. The takeover reflects confidence in the European Commission's ability to negotiate an "open-skies" agreement with the United States. "Airlines know the current structure of the industry cannot be maintained. Our transaction is at exactly the right time," said Leo van Wijk, the boss at KLM who will become vice chairman of the new merged airline.

Delta and Northwest, which are in alliance with Air France and KLM, could benefit from the merger in terms of increased trans-Atlantic business, but some analysts believe that European and U.S. regulators are likely to look closely at the ticketing alliance joining all four airlines. British Airways, the biggest European airline before the merger, already is warning that it will protest if it finds its trans-Atlantic business slackening. The new airline could get bigger next year Italy's hard-pressed carrier Alitalia is interested in a merger, too.

U.S. Consumers' Confidence Shaky

Two pieces of data taken together suggest that the debt-burdened U.S. consumer may not be robust enough to keep growth going if business investment doesn't pick up the slack soon.

The September measure of U.S. consumer confidence came in below forecasts (76.8 compared with expectations of 80, and against 81.3 in August) while a manufacturing survey, the Chicago PMI, was even further below (51.2, compared with forecasts of 58.5, and against 58.9 in August).

The consumer-confidence figures combined with the Chicago PMI prompted renewed fears among analysts both in the United States and Europe about the fragility of the U.S. economy.

Dealers are sniffing more trouble to come in the foreign-exchange markets following recent interventions by the Bank of Japan to push down the value of the yen, whose rise in recent days has threatened to choke that country's exporters. The interventions serve to highlight the dramatic recent decline by the dollar.

There's Trouble in Ford Co.'s Future

Iconic Ford Motor Co., known as the company that put the world on wheels, has acknowledged it is mired in a financial crisis that threatens its future. In October, Ford announced it was stepping up a fierce cost-cutting drive that would see it shed 12,000 jobs and cut salaries.

Along with the rest of the auto industry, Ford recently signed deals with organized labor that allow for plants to be closed. That union leaders agreed to these terms is being widely seen as acceptance of the threat to the very survival of some carmakers, including Ford. A bitter price war between carmakers this year has taken its toll on the main players and sent a shiver through Detroit.

Ford first faced claims that it risked bankruptcy last spring a suggestion the company dismissed as absurd. Since then, Wall Street analysts have predicted that at least one of the big three U.S. carmakers could go bust before the end of the decade. This summer Ford's top management ordered a 10 percent reduction in salary costs by the end of the year. Chairman Bill Ford Jr. is working for no salary as he tries to turn the company around, though he did pick up share options potentially worth $ 21 million.

Ford, which employs 45,000 people in the United States and another 40,000 worldwide, has pledged to make profits this year of $1.3 billion, a target it must reach if it is to avoid a disastrous downgrading of its credit rating. It already has cut costs by $2.5 billion a year through an efficiency drive.

London Police Revisit 'God's Banker' Case

British police have offered their regrets to the family of Roberto Calvi, the Italian banker found hanging under London's Blackfriars Bridge 21 years ago, after reopening their investigation into his death. Calvi was known as "God's banker" because of his role as head of the Vatican-controlled Banco Ambrosiano.

The findings of a lengthy Italian investigation in recent years have suggested that Calvi was killed after fleeing to London from Rome, where he faced arrest, in an attempt to save his foundering bank. Italian investigators have identified at least four suspects.

Good News Surfaces In Latest Job Figures

There was good economic news in September: U.S. corporate job-cut announcements were surprisingly low, suggesting the labor market may at least have stopped hemorrhaging jobs.

U.S. companies announced 76,506 job cuts in September, compared with 79,925 in August, according to Chicago outplacement firm Challenger, Gray & Christmas, which publishes a monthly compilation of downsizing plans. It was the lowest monthly total of announced job cuts since 68,623 in May.