Boeing to cut commercial airplane jobs to reduce costs

Boeing Co said on Wednesday it will cut jobs at its commercial airplane unit, a move that comes as the company is under intense pressure to lower costs to compete with rival Airbus. 

PHOTO: REUTERS

FEB 11, 20167:28 AM

[SEATTLE] Boeing Co said on Wednesday it will cut jobs at its commercial airplane unit, a move that comes as the company is under intense pressure to lower costs to compete with rival Airbus.

The decision was announced by Boeing Commercial Airplanes Chief Executive Ray Conner in an employee webcast after the company, the world's biggest aircraft maker, saw sales fall and profit margins narrow last year.

Airbus won 57 per cent of new aircraft orders booked by the two airplane makers in 2015. Boeing's narrow profit margin resulted from, among other things, the continuing high cost of producing its state of the art 787 Dreamliner and a charge it took to account for slowing sales of its 747 jumbo.

"To win in the market, fund our growth and operate as a healthy business, we are taking thoughtful steps to reduce the cost of designing and building our airplanes, part of which involves evaluating our employment levels across all of commercial airplanes," Boeing said. "We will start reducing employment levels beginning with executives and managers first."

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The company did not provide a timeframe for the job reductions or an overall target for cuts. It said the number of cuts "will depend on how effectively we bring down costs as a whole."

REUTERS

    
 

Bass says China bank losses may top 400% of subprime crisis

Kyle Bass, the hedge fund manager who successfully bet against mortgages during the subprime crisis, said China's banking system may see losses of more than four times those suffered by US banks during the last crisis. 

PHOTO: ST FILE

FEB 11, 20168:00 AM

[SHANGHAI] Kyle Bass, the hedge fund manager who successfully bet against mortgages during the subprime crisis, said China's banking system may see losses of more than four times those suffered by US banks during the last crisis.

Should the Chinese banking system lose 10 per cent of its assets because of nonperforming loans, the nation's banks will see about US$3.5 trillion in equity vanish, Mr Bass, the founder of Dallas-based Hayman Capital Management, wrote in a letter to investors obtained by Bloomberg. The world's second-biggest economy may end up having to print more than US$10 trillion of yuan to recapitalize banks, pressuring the currency to devalue in excess of 30 per cent against the dollar, according to Bass.

"What we are witnessing is the resettling of the largest macro imbalance the world has ever seen," he wrote. "Credit in China has reached its near-term limit, and the Chinese banking system will experience a loss cycle that will have profound implications for the rest of the world."

Mr Bass said his hedge fund has sold most of its riskier assets since the middle of last year to position itself for 18 months of "various events that are likely to transpire along this long road to a Chinese credit and currency reset." In an e- mailed response to questions, he said about 85 per cent of his portfolio is invested in China-related trades.

"The problems China faces have no precedent," Mr Bass wrote in the letter. "They are so large that it will take every ounce of commitment by the Chinese government to rectify the imbalances. Risk assets will not be the place to be while all of this is happening."

Chinese growth, which averaged 10 per cent for three decades through 2010, has decelerated for five straight years and in 2015 slowed to 6.9 per cent, the lowest rate in a quarter of a century. It will ease to 6.5 per cent this year, according to a Bloomberg survey of economists. The economy continues to transition toward growth driven by services and consumption instead of manufacturing and investment, but the new drivers haven't yet proven sufficient to offset the lagging older ones.

Mr Bass estimates the Chinese economy actually expanded last year at a slower pace than reported, about 3.6 per cent, according to the letter. He estimates that of China's US$3.2 trillion in foreign-exchange reserves, about US$2.2 trillion are liquid.

The banking system, which he estimates swelled 10-fold in assets over the last decade to more than US$34.5 trillion, is fraught with risky products used by financial companies to skirt regulations, wrote Mr Bass.

The nation's expanding shadow banking system - which he says has grown almost 600 per cent in the last three years, citing UBS Group AG data - "is where the first credit problems are emerging."

Wealth-management products, which have been used by Chinese banks for off-balance sheet lending and to lure buyers with perceived guarantees and yields that trump the deposit rate, are being brought back onto the balance sheets as they begin to fail, according to Mr Bass. He also said the use of trust- beneficiary rights - the legal rights to trust products - are "ticking time bombs" because they're used by banks to hide loan losses.

"We believe the epicenter of the problem is the Chinese banking system and its coming losses," he wrote. "Until China experiences a significant devaluation, it will not be able to cope with the build-up of credit that has helped fuel its rise, but may, in the short-term, be its undoing."

Mr Bass, 46, scored big in 2007 betting against mortgages. While the world's largest banks wrote off more than US$80 billion in subprime losses, Mr Bass and others racked up billions in profit. Since then his performance has been more mixed, with his main fund returning about 1.6 per cent annualised as of last August, the New York Post reported at the time.

In 2010, Mr Bass began publicly forecasting a collapse in Japan's government-bond market.

The manager, who has challenged dozens of US drug patents since early 2015, recommended shares of the pharmaceutical company Perrigo Co at an investment conference last May. The stock fell about 18 per cent in US trading from May 7, when Bass made his presentation, to Sept 30, when Hayman no longer reported owning the stock in quarterly filings.

In October, Mr Bass said China was facing a cycle of credit contraction, and he predicted an emerging Asia banking crisis.

BLOOMBERG

    
 

Yellen warns of rising risks to US economy

Federal Reserve Chair Janet Yellen warned on Wednesday that the US economy faced risks from tightening domestic financial conditions as well as global economic turmoil. 

PHOTO: BLOOMBERG

FEB 11, 20166:41 AM

[WASHINGTON] Federal Reserve Chair Janet Yellen warned on Wednesday that the US economy faced risks from tightening domestic financial conditions as well as global economic turmoil.

Showing more pronounced concern over the economy than when she last spoke publicly, in December, Ms Yellen's comments lessened the possibility of another interest rate increase in its next policy meeting in March.

"Financial conditions in the United States have recently become less supportive of growth, with declines in broad measures of equity prices, higher borrowing rates for riskier borrowers, and a further appreciation of the dollar," she told the House Financial Services Committee.

"These developments, if they prove persistent, could weigh on the outlook for economic activity and the labour market."

She also singled out China's confusing policy on its yuan currency as stirring more turbulence in global markets including those for vital commodities, also threatening US growth.

But she made no predictions on rates, and stuck to the official view of the Fed's Federal Open Market Committee that the US economy should continue to grow at a moderate pace this year.

Ms Yellen argued that, despite the warning clouds, recent employment gains and a tentative pickup in wages "should support the growth of real incomes and therefore consumer spending." That supported the Fed's pursuit of a "gradual" increase in interest rates, she said.

Her comments disappointed many in markets expecting a more explicit sign that the Fed would back away from December's forecast of four quarter-point rate hikes this year.

Indeed, the Fed chair bluntly dismissed questions of whether there could be a need to actually reduce rates, even into negative territory as the Japanese and European central banks have done.

"I do not expect that the FOMC is going to be soon in this situation where it's necessary to cut rates," she said.

"Let's remember that the labour market is continuing to perform well."

Ms Yellen remained confident that the unemployment rate will continue to fall from the current 4.9 per cent and that inflation, held extremely low by transient factors like the oil price crash, would eventually turn up toward the Fed's 2.0 per cent target.

Analysts said nevertheless that her comments felt more dovish, less confident than when she announced the Fed's first interest rate hike in more than nine years in December.

She told the panel on Wednesday that market turmoil abroad was buffeting US economic momentum, and could drag down US growth.

The sharp fall in commodity prices - which she linked in part to "uncertainty" about China's economy and its currency policies - threatened to "trigger financial stresses" in commodity-exporting countries and companies.

"Should any of these downside risks materialise, foreign activity and demand for US exports could weaken and financial market conditions could tighten further."

Ms Yellen's emphasis on the downside risks to the economy "makes an increase in the funds rate in March very unlikely," said PNC Bank senior economist Gus Faucher.

"Yellen's testimony left open the door to a March hike, but laid out plenty of reasons for inaction too," said Ian Shepherdson of Pantheon Macroeconomics.

Mr Shepherdson said her ambiguity left room for the FOMC to wait for more economic data on the US and global economies over the next month to choose its path.

Markets initially showed disappointment that Ms Yellen did not spell out slower pace for rate rises, but were little-changed by the end of the day.

The dollar traded late Wednesday slightly lower at US$1.1291 per euro, after having strengthened immediately after her statement.

On the stock market, the S&P 500 ended virtually unchanged helped by a tech stock rebound while the Dow Jones Industrial Average fell 0.6 per cent.

AFP

    
 

Qatar and Pakistan sign US$16b gas deal

FEB 11, 20166:45 AM

[DOHA] Qatar signed a long-term deal with Pakistan on Wednesday to export liquefied natural gas, according to state media in the Gulf.

The deal will see Qatar export up to 3.75 million tonnes of liquefied natural gas a year, according to Pakistan's petroleum minister, Shahid Khaqan Abbasi.

This represents around 20 per cent of the south Asian country's gas requirements.

The Qatar News Agency (QNA) confirmed the deal had been signed in a statement posted on its website.

Supplies of the gas could start as early as March, according to the QNA.

Media reports in Pakistan estimated the deal was worth US$16 billion.

Mr Abbasi told Pakistan media that the deal was a "game-changer" for his country, and the deal would help save the country US$1 billion annually.

Pakistan currently faces a severe shortage of natural gas, both for its electricity generation and industrial use.

The deal was signed on the first day of two-day visit to Qatar by Pakistani Prime Minister Nawaz Sharif.

AFP

    
 

EU pushes Greece on migrant crisis

FEB 11, 20166:59 AM

[BRUSSELS] The EU piled pressure on Greece on Wednesday over the migrant crisis, telling Athens to improve conditions for refugees to shore up its borders or risk a suspension of the bloc's passport-free zone.

Brussels said Athens must treat asylum seekers better so that other overstretched European Union states can send back migrants who had originally landed in Greece, in line with EU rules.

Greece is bearing the brunt of concerns that the failure to deal properly with the biggest movement of migrants to Europe since World War II threatens the very fabric of the 28-nation bloc.

One million people entered Europe in 2015 with 3,500 people dying on sea crossings, while another 70,000 have arrived this year with more than 400 deaths.

EU migration commissioner Dimitris Avramopoulos, unveiling a report on the crisis ahead of a summit next week, urged Greece and other states to do more before a new surge of refugees this summer.

"We have lost time already - this is a fact. And this is not acceptable," Mr Avramopoulos told a news conference at the European Commission, the executive arm of the EU.

The EU's Dublin regulations on migration say people must apply for asylum in the country where they first land - but that system has been thrown into chaos by the conditions in Greece and the fact many asylum seekers do not want to stay there.

A ruling by the EU's top court in 2011 at the height of Greece's debt crisis said conditions for asylum seekers in Greece were degrading, meaning that other countries could not send them back.

"There are still key areas in the asylum process that need to be improved before the Dublin regulation can be fully applied to Greece again, notably in the areas of reception capacity and conditions, access to the asylum procedure, appeals and legal aid," the Commission said.

EU states are due next month to debate changes to the Dublin rules.

EU ambassadors in Brussels meanwhile backed demands by the Commission for Greece to secure its sea and land border with Turkey, the access point for around four-fifths of migrants to Europe.

If Greece fails to comply with the recommendations, Brussels could authorise EU member countries to exceptionally extend border controls within the Schengen area - including with Greece - for up to two years.

Greece has been told to improve registration procedures, including making sure migrants are properly fingerprinted and their documents checked against security data bases.

The envoys nodded through the plans which must now get final approval from EU ministers on Friday, European sources told AFP.

But anger is growing in Greece too, with hundreds of people on the island of Kos protesting on Wednesday against plans to build a migrant registration facility voicing fears about its impact on tourism.

"No to the hotspot on our island," read the banner leading the demonstration by traders and tourism business owners, referring to the facilities the EU wants built on the island of 30,000 inhabitants.

Mr Avramopoulos, a former Greek minister, had earlier called on both Greece and Italy to "urgently" complete all the planned hotspots on their territory - with Greece having completed just one of five.

The criticism is certain to anger Italian Prime Minister Matteo Renzi, who on Wednesday compared the EU to the orchestra playing on the deck of the doomed ocean liner Titanic.

Mr Avramopoulos meanwhile also hit out at European Union members for dragging their heels on easing the refugee burden for Greece and Italy, as just 479 out of a planned 160,000 people have been relocated to other states so far.

He said he had written to EU interior ministers with a "clear and strong message" on the "very poor" figures despite a deal agreed last September.

The migration crisis has pushed key tenets of European unity such as the Schengen free travel area and the Dublin migration agreements to the brink of collapse.

The EU has pinned high hopes on the deal it signed in November with Turkey to cut migrant numbers in exchange for three billion euros (S$4.7 billion) in aid and faster EU membership talks.

But the commission said Turkey must "as a matter of urgency" make "significant progress."

AFP

    
 

Thai government's US$7b efforts to help rural economy fall flat

FEB 11, 20167:18 AM

[BANGKOK] Billions of dollars in government spending aimed at revitalising Thailand's ailing rural economy have failed to reach farmers hit by weak commodity prices and drought, fuelling disaffection with the military government ahead of elections expected next year.

Loss of income and rising costs mean farmers are feeling the pinch in Southeast Asia's second-largest economy, where rural areas have been in recession for over a year.

The junta, which took power in 2014, had pledged to wean farmers off expensive subsidies used by the government it overthrew, including a rice scheme that cost billions.

But it changed its tune as the rural economy contracted for five straight quarters.

Over the past five months the government has announced measures worth around 258 billion baht (S$10.1 billion) to help rural Thailand, which accounts for half of the population.

That included US$1 billion in October for rice farmers, many of whom voted for ousted former Prime Minister Yingluck Shinawatra in her 2011 general election victory.

Thailand's agricultural labour force has been a key battleground in a bitter divide that has seen the country split along north-south political lines since the ouster of Ms Yingluck's brother, former prime minister Thaksin Shinawatra, in 2006.

On one side is the Bangkok-based royalist-military establishment, supported by parts of the south, which sees former telecommunications billionaire Thaksin as a threat.

On the other are the Shinawatras' rural supporters in the north and northeast.

The junta has cracked down on political activity and sought to reconcile the deeply splintered society. But critics say divisions are as sharp as ever and will re-emerge when the country moves back toward democracy. Prime Minister Prayuth Chan-ocha has said an election will take place in 2017.

The junta also has had to try to appease rubber farmers, who typically support the Bangkok-based establishment but demanded help after their incomes collapsed with a slowdown in demand from China. So far, rubber farmers have avoided direct confrontations with the junta, which has banned gatherings of more than five people for political reasons.

Farmers whom Reuters spoke to said the support schemes have not worked and payments have been slowed by bureaucracy. "The scheme is a failure," said Saksarit Sriprasart, a farmers' leader in southern Trang province, referring to a US$152 million plan to buy rubber from farmers to support prices.

The expected return of Thailand as the world's top rice exporter is cold comfort to farmers at the other end of the country. They saw prices fall to eight-year lows in late 2015. "The government is so late with disbursement. What are they doing?" said Chalerm Sanaedee, 60, in the northeastern province of Udon Thani.

A failure to solve rural problems was eroding any confidence in the junta, said Kan Yuenyong, an analyst at the Siam Intelligence Unit think-tank. "The honeymoon period is over and people are less forgiving with the junta," Kan told Reuters. "These problems are really damaging their legitimacy." Lack of personnel to oversee projects and disbursement is hampering efforts to get aid to rural areas quickly, said Manas Jamveha, head of the Comptroller General's Department, which oversees public expenditure.

The state-owned Bank for Agriculture and Agricultural Cooperatives (BAAC), which approves loans for farmers, said it took time to process applications properly. "It takes time to check farmers' eligibility and some of them aren't eligible," said assistant manager Supat Eawchai.

Desperate farmers say the measures are simply not helping. "Loans and subsidies don't solve our problems," said Mayom Wongsawa, 61, in Singburi, 142 km (88 miles) from Bangkok. "Instead, reduce our costs and raise market prices."

REUTERS

    
 

With TPP advancing, India pins hopes on China-backed trade bloc

FEB 11, 20167:21 AM

[NEW DELHI] India, concerned at being sidelined from the US-led Trans-Pacific Partnership (TPP), is stepping up efforts to reach agreement with an alternative trade bloc centred around China, and hopes to reach a deal this year.

New Delhi has long been seen by many countries as an intransigent player at the World Trade Organization (WTO), a multilateral forum that has struggled to find the consensus it needs to move forward.

Now, after 12 advanced economies accounting for 40 per cent of the global economy signed a TPP deal this month, India's trade negotiators feel they need to get a move on.

Prime Minister Narendra Modi has backed an export-focused 'Make in India' drive as the path to prosperity for Asia's third-largest economy, where per capita output is US$1,688 a year, one fifth that in China.

With TPP out of reach - India was not invited to join - India's negotiators are focusing instead on a Chinese-led grouping called the Regional Comprehensive Economic Partnership (RCEP) that would improve its access to Asian markets.

Trade representatives meet in Brunei from Feb 15-19 to iron out differences on tariffs.

A senior New Delhi official, who asked not to be named, told Reuters that India was hopeful of striking a tariff-cutting deal this year, in the clearest indication yet that India wants to accelerate progress on a bloc first launched in 2012.

Ganeshan Wignaraja of the Asian Development Bank said a breakthrough on RCEP would help mitigate the competitive disadvantage of India being absent from the TPP. "Concluding an RCEP agreement would mark a key milestone for the Modi government," he said.

Experts caution that India has shown little appetite to open its market to imports, even as it seeks to ramp up exports, not least because of a gaping trade deficit with China. "India is worried about opening up to China," said Professor Bernard Hoekman, a trade expert at the Robert Schuman Centre for Advanced Studies in Italy, adding he very much doubted an RCEP deal would happen this year.

With the TPP lacking votes in Congress and likely to be put on hold if a Republican is elected US president, any sign China is seizing the initiative in the trade arena could raise concerns over Washington's declining clout in Asia.

Beijing has already redrawn the financial map by launching the Asian Infrastructure Investment Bank, with backing from close US allies like Britain.

LOSING BUSINESS

New Delhi fears the TPP, although years away from reality, could mean losing some textile and drugs exports to countries like Vietnam, which has embraced both the TPP and the RCEP.

It could also raise barriers to entry on labour, environment and intellectual property when it comes to seeking access to other markets, officials said. "The TPP will certainly have an impact on India's exports,"Commerce Minister Nirmala Sitharaman said. "It is most likely to affect sectors like leather goods, plastics, chemicals, textiles and clothing." Talks on creating the 16-member RCEP could be the last hope for some Indian companies to break into the global supply chain.

The group comprises the 10 members of the Association of Southeast Asian Nations (Asean), China, Japan, South Korea, India, Australia and New Zealand.

If signed, the regional free trade agreement would create an economic bloc with a population of 3.4 billion and trade volume of over US$17 trillion. "We can't waste time," said Chandrajit Banerjee, director general of the Confederation of Indian Industry, which represents manufacturers. "TPP will basically change the landscape of global trade." Successful export industries, particularly garment and drug makers, are urging Modi to speed up RCEP talks and wrap up trade deals with the European Union and Australia.

But steel, tyre and chemical firms want him to go slow, saying they have been undercut by free trade pacts already done with Asean, South Korea, Thailand and Japan.

Indian merchandise exports have fallen for 13 months in a row, depressed by weakening global demand and slumping commodity prices. To boost its stagnant 1.7 per cent share of global exports, India needs to raise productivity and move up the value chain, economists say.

REUTERS