delta

At Epicenter of Past River Flood, A Town On Edge

by on May 15, 2011

Huffington Post…

GREENVILLE, Miss. — There’s an old saying in this stretch of the South: “The people of the Delta fear God and the Mississippi River.” That phrase has an added significance in this river town of about 35,000 people. It was just north of Greenville that the river burst its seams in 1927, causing the largest levee break in the history of the Mississippi Valley and forever changing the fate of this Delta town. With the peak of the Mississippi’s surge less than two days away from Greenville, there’s an uneasy edge to a town that deeply understands the natural forces at work on the other side of the levees. “The river has been winning all throughout history,” said H. Ben “Benjy” Nelken, a real estate agent and local history buff who presides over the Greenville History Museum, one of several around town with exhibits on the 1927 flood. “It’s just in the last 50 to 70 years that we’ve gotten it somewhat under control. … But you also know that that river can get pissed off.” Over the past few days, Nelken has had more than his fair share of museum vistors peppering him with questions about whether their part of town flooded during the big one in 1927. So far, Greenville and its surrounding areas have been largely spared from the flooding that is engulfing areas farther south, such as outlying parts of Vicksburg and communities along the Yazoo River. There, the sheer height and force of the Mississippi River is literally pushing smaller tributaries backwards, swallowing farmland and submerging rural neighborhoods. Greenville’s primary threat is from a wholesale failure of one of the main river levees, a scenario that the Army Corps of Engineers, local officials and most residents do not believe is possible. But as the town faces the highest river levels in recorded history, no one can ignore the drama that is unfolding. The high water levels have shuttered the town’s river port, slowing transport of fertilizer and fuel to farmers and preventing shipments of some commodities, including wheat. Greenville’s three casinos, built on the river side of the levee because of state laws, are completely swamped. And hundreds of area homes not protected by the mainline river levee are flooded up to the roofline. Flood watchers view two submerged casinos in Greenville, Miss. Reminders of the high river are everywhere. Wild animals driven from their natural habitats along the river have been spotted around town in increasing numbers. A few nights ago a deer tried to get into the local hospital. Residents have been buying mothballs in increasing numbers to prevent snakes from getting into their homes. And for the past three days, a steady procession of residents has been climbing up and down the steps of the levee to catch sight of the spectacle. “It’s scary. I haven’t ever seen anything like this,” said Dorothy Cosie, a lifelong resident of Greenville. She said she trusts in the strength of the levees, but added, “You can’t just depend on man. You can only depend on the Lord for something like this.” At an interdenominational religious service in the town’s synagogue Friday night, the Jewish rabbi and Presbyterian pastor presiding over the service both touched on the river several times. “I heard the Mississippi River referred to as ‘our dangerous neighbor,’ ” said Jonas Hayes, the Presbyterian minister. “Creation … the land and the rivers … can be dangerous. Just as it can be generous and bountiful.” “Benjy” Nelken, who runs a local history museum, shows parts of town that were ceded to the river after 1927 Greenville remains among the top 10 most populous cities in the state. But before the flood of 1927, its star was rising among the fastest in the South. Known as the “Queen City of the Delta,” Greenville was the largest port on the river between Memphis and New Orleans. With cotton rising to chief prominence among the nation’s commodities, the planters along this section of the river became some of the most powerful businessmen in the nation. The 1927 flood brought Greenville — and its rise — to an abrupt halt. After the levee break about 20 miles north of town, floodwaters inundated Greenville and a vast swath of the state stretching nearly 70 miles east. The aftermath of the flood led to one of the more wrenching dramas of the post-Civil War South. Many of the African American sharecroppers were left homeless but forced to stay in tent cities and work on repairs to the levees. Local planters, afraid of losing their labor force, refused to let thousands of African Americans evacuate on steamboats up the river. Author John Barry concluded in his history of the 1927 flood, “Rising Tide,” the flood was a major catalyst for the African American migration from the South to northern cities like Chicago. In the decades since the flood, Greenville has reworked its relationship with nature. The city has retreated from the river, ceding five blocks of the original downtown to the levee and the banks of the Mississippi. Yet the memories live on. Lifelong resident Iris Stacker, whose relatives were among those who worked on the levee in the wake of the 1927 flood, said tales of the flood are handed down each generation like heirlooms. People in town use 1927 as passwords and building access codes. “It’s almost like 1776, or 9/11,” Stacker said. “That’s out 9/11. It pretty much changed our town forever.”

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At Epicenter of Past River Flood, A Town On Edge

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Ben Kessler: AFC Championship Cost Breakdown

by on January 20, 2011

The NFL Season is down to four teams. This coming week, two more teams will end their season just a bit early and two teams will move on to play for the coveted Lombardi Trophy in Super Bowl XLV. A ticket to the AFC Championship — New York Jets vs. Pittsburgh Steelers — is definitely not cheap, going for $604 on average. If you’re trying to get to Heinz Field on a “budget” it would be best if you were already in Pittsburgh so you wouldn’t have to pay for airfare or a hotel. If you are living in Pittsburgh, you can sit in the “cheap seats” for $246/ticket. However, if you’re living in the Tri-State area, it’s going to cost you a pretty penny to get to the game. The cheapest flight from New York to Pittsburgh is a nonstop Delta flight, which will cost you $367/ticket. A 3-star hotel in Pittsburgh starts at $59 a night, so if you are staying for three nights, a hotel will cost you $177. Add that all up and Jets fans will have to pay at least $544 more than Steelers fans to get to the AFC Championship Game. Summary Tickets to the AFC Championship*: • 500 Level – $252/ticket • 100 Level – $353/ticket • Lower End Zone – $353/ticket • 200 Level – $371/ticket • 50-Yard Line Lower Level – $640/ticket • 50-Yard Line Front Row – $1,117/ticket *Best Price for each section Airfare: • New York (LGA) to Pittsburgh on Delta – $367/ticket Hotel: • Cheapest 3-star hotel – $76/night • Cheapest 4-star hotel – $113/night Total: 500 Level – $252/ticket, New York (LGA) to Pittsburgh on Delta – $367/ticket, Cheapest 3-star hotel -$76/night ($228 for three nights) = $847+ Now if money is not an issue… Tickets to the NFC Championship: 50-Yard Line, Front Row – $1,117/ticket Airfare: New York (JFK) to Pittsburgh First Class on Delta – $841/ticket Hotel: Omni Hotel – Premier Suite – $379/night Total: $3,095+ For more insight on what both the Steelers and the Jets need to do to achieve success and advance to Super Bowl XLV, check out the guest commentary below from two devoted fans, and bloggers. Steelers Keys to Victory Over the Jets Guest commentary by Bam Morris Blitzburgh Blog . You can find Bam on Twitter at @blitzburghblog1 Expose the dark side of Sanchez: We all know it is there, even the Jets fans. He’s been solid during most of his playoff games, but there’s no way the Jets would want to see him down by 14 points having to air it out against the Steelers defense. The Steelers need to stop the run and make Sanchez be the difference maker. Solid special teams: The Steelers have a bad history of blowing winnable games on special teams, mostly with poor kick coverage. This area is one of the Jets strengths and a big kick return TD might be all New York needs to walk out of Heinz Field with a ticket to Dallas. Let Roethlisberger do what he does best: The Jets caused chaos all over the field against Tom Brady and he blinked. Ben Roethlisberger is a different beast. He thrives on making great plays out of busted ones and he needs to punch the Jets in the mouth when they come after him. Troy Polamalu: No other safety in the league gets inside a quarterback’s head like Polamalu. He didn’t play during the teams last meeting and his presence alone will make Sanchez think twice on almost every pass. Cut down the penalties: Pittsburgh was one of the most penalized teams in the league this year and can ill afford to be hit with a ton of flags, especially the costly personal foul calls that have become commonplace. This will be a physical contest, no doubt, but cooler heads need to prevail for Pittsburgh to make the Jets earn every last yard. Jets Keys to Victory Over the Steelers Guest commentary by Daniel Krieg of Rex Sanchez . Dominate the Steelers O-Line: The Jets must take advantage of the Steelers beat up offensive line. If they can put the same pressure on Ben that they put on Brady, the defense will dominate. Don’t Respect the Steelers: The Jets cannot give the Steelers too much respect. They play better when they’re filled with anger and hate. I hope that fire continues burning. Do NOT trust Nick Folk: I say this every week because it’s true. It’s a good thing the Jets found the end zone last week because had they needed Folk he would’ve choked. Play it smart on special teams: The Jets punt returners terrify me when they let the ball bounce on kicks. I can see a nonsense fumble like that costing them the game. Also, Weatherford cannot keep booting the ball for touchbacks. Field position will be huge in this game.

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Ben Kessler: AFC Championship Cost Breakdown

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Dorie Clark: Lessons From an Inefficient Costa Rican Airport

January 7, 2011

Almost anyone would agree Costa Rica is a beautiful country, replete with rainforests, volcanoes, a perfect climate, and picturesque vistas. It’s also home to a hopelessly inefficient airport that dampens any joy a traveler might feel upon arrival. Since breaking onto the international scene in 2002 with the arrival of Delta Airlines, the Daniel Oduber Quiros International Airport in Liberia has opened up a new world for Costa Rican tourism. The sandy beaches of the northwestern Guanacaste province were suddenly accessible from the airport (previously, it was an arduous five-hour drive from the capital, San Jose). Let’s hope the airport’s current expansion project helps it improve. But in the interim, there are three major marketing lessons we can learn from it. 1. Customers Hate to Be Confused . The roof is tin. There’s no air conditioning, and the building appears to be a sort of open-to-the-elements warehouse. That’s cool. It’s all part of the charm of exploring new places. There are many things travelers can enjoy, even ones that in our home countries might be bizarre or annoying. But one thing no traveler can countenance is confusion. Waiting in line isn’t too much of a problem if you can read a book or chat with your companions. That isn’t possible, however, when you’re jockeying for position in the customs line against a horde of people surging forward from 10 different directions. Relaxation isn’t an option. Similarly, we need to look at our own companies and ask ourselves: are our processes clear for customers? How can we simplify things? What’s confusing, and how can we remedy it? 2. Customers Hate Needless Bureaucracy . We understand: there are procedures when you enter a new country, and it takes time to go through them. But to wait for over an hour in a customs line — only to be waived through at the end with nary a question or a bag search — feels like time completely wasted. Yes, I suppose I should be thankful my underwear wasn’t riffled through in front of 500 other travelers. But as behavioral psychology demonstrates, what really drives people insane over time is the feeling that their efforts and exertions have been pointless. Why make me wait unless there’s a legitimate reason (preventing me from secretly importing drugs, guns, or mad-cow-disease-infected beef)? Ask yourself: are there any procedures you follow (or you make your customers follow) that have outlived their usefulness? Change them or eliminate them. 3. Customers Hate Needless Repetition . Sadly, leaving the Liberia Airport isn’t much better than arriving. Warned to arrive three hours in advance (just as in Israel, where they legitimately need it to interrogate you and search every pore of your body), we duly complied…and ended up sitting in the overheated airport lounge for 2 ½ hours. Again, perhaps it’s better to be safe than sorry, but I could have used that extra hour by the pool. And why did they now insist on searching every passenger’s bags twice (once at security and once at the gate, prior to boarding)? I’m sure TSA types will insist this is an “international best practice” – but it seems rather hollow when we were simply shrugged through upon entry. What’s the line between a legitimate security need and bad customer service that forces you into redundant steps? When we all come home from our travels, that’s another question we can ponder. How can we streamline operations to reduce inefficiency and still provide excellent, high-quality work? What are your suggestions? And what else do customers hate? Dorie Clark is a marketing strategy consultant who has worked with clients including Google, Yale University, and the National Park Service. Read her blog , listen to her podcasts or follow her on Twitter

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U.S. Airlines Collected $4.3 Billion In Fees In 2010

December 13, 2010

WASHINGTON — U.S. airlines collect more than $4.3 billion in fees for checking baggage and changing tickets so far this year. New data from the Transportation Department on Monday shows that Delta Air Lines Inc. collected the most, hauling in $1.26 billion in fees so far this year. That’s more than the $922 million collected by United Continental Holdings Inc., which is bigger than Delta by traffic. Travelers paid more than $784 million for baggage and ticket changes to AMR Corp.’s American Airlines. Southwest Airlines Co. does not charge to check the first two bags. But it has still collected $22.5 million in baggage fees this year for additional luggage.

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Michael W. Hudson: Alan Greenspan, Animal House and the Scandal That Never Ends

November 19, 2010

As I’ve tried to make sense of the Robo-Signing, Document-Backdating Foreclosure Scandal That Never Ends , a couple of things have popped in my head: Animal House and Alan Greenspan. Stay with me here. Imagine Greenspan as Flounder, the callow freshman trying to pledge Delta House. The Delts persuade Flounder to loan them his father’s car, then take it on a spree, smash it up and return it much worse for wear. The only explanation they have for Flounder: “Hey, you fucked up. You trusted us .” Greenspan was no neophyte back in the 1980s when, between government gigs, he signed on as a consultant to Charles Keating’s Lincoln Savings and Loan. But he did seem to have a sense of innocence about him, that same starry-eyed idealism he’d possessed a few years before when he’d penned an article in Ayn Rand’s journal declaring that no company could afford to risk its “reputation for honest dealings and a quality product” by “letting down its standards for one moment or for one inferior product; nor would it be tempted by any potential ‘quick killing.’ ” As Lincoln Savings came under fire, Greenspan wrote a letter to regulators pronouncing the management of Keating’s S&L as “seasoned and expert.” The S&L, he said, was “a financially strong institution that presents no foreseeable risk” to the Federal Deposit Insurance Fund. Lincoln eventually perished in a conflagration of recklessness and fraud, costing taxpayers $2.66 billion. Now imagine Keating, before heading off to jail, taking Greenspan aside and explaining: “Hey, you fucked up. You trusted me .” In the for-real world, Greenspan told the New York Times : “I don’t want to say I am distressed, but the truth is I really am. I am thoroughly surprised by what has happened to Lincoln.” Despite his distress, the episode didn’t seem to have much of an impact on Greenspan’s thinking. As Fed chairman — the Dean Wormer, if you will, of the financial system — he still maintained a certainty that markets and bankers could be trusted to protect consumers and investors from fraud and folly. His inaction during the housing boom, many critics say, allowed predatory lending and wild speculation to cripple the economy. Greenspan is no longer in the picture. He spends his days as a sort of professor emeritus, explaining there was nothing he could have done to prevent what he calls a “once-in-a-century credit tsunami.” It’s hard, though, not to detect a whiff of Greenspanian idealism in the forces that have helped bring about the current controversy over the tactics used to speed the banking industry’s foreclosure machine. Foreclosure has traditionally been a laissez-faire activity. The feds have mostly left it up to the states to oversee foreclosures. Many state courts and administrative agencies, though, aren’t equipped to handle the flood of filings or to assess the propriety of the paperwork submitted by banks and other “loan servicers.” But why worry? Why worry whether brand-name banks will do the right thing when it comes to taking away people’s homes? Don’t they want to maintain “a reputation for honest dealings”? Why would they be tempted by the potential for a “quick killing” via foreclosure — instead of, say, modifying homeowners’ loans and helping to keep the stream of income from the loans coming in? There’s the problem. The banks often no longer own the mortgages they’re servicing. The rights have been sold off, through securitization, to investors around the world. The banks still service the mortgages, but they earn little simply collecting payments from month to month. The real money is in defaults: late fees, legal fees, inspection fees, pricey insurance. These add-ons can total thousands of dollars per loan, consumer groups say, and sink homeowners who are barely getting by so deep in default they have little chance of recovering. Which is why, consumer advocates claim, the honor system hasn’t worked well in terms of the Obama administration’s effort to get banks to rewrite borrowers’ loans on more affordable terms. It may also be why some banks may have given in to the temptation to flood courts with inaccurate or perjured documentation. The evidence suggests that the foreclosure scandal is more than a few procedural snafus. It’s a serious problem, driven by the “anything-goes” culture of fraud that’s permeated much of the mortgage industry over the past decade. Solving the problem will take more than putting banks on Double Secret Probation. It will take a change in philosophy: Trust — whether among frat boys or bankers and regulators — should be earned, rather than assumed. Michael Hudson is a staff writer at the Center for Public Integrity and author of THE MONSTER: How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America – And Spawned a Global Crisis .

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Northwest Airlines Failed To Follow FAA Safety Orders, Government Watchdog Confirms

July 22, 2010

WASHINGTON — A government watchdog has verified complaints by a federal inspector that Northwest Airlines wasn’t following Federal Aviation Administration safety orders and wasn’t being held accountable by the agency. The report by the Transportation Department’s Office of Inspector General also says the status of the airline’s compliance with more than 1,000 safety order remains unknown. The report was completed in December and released Wednesday by the federal Office of Special Counsel, which handles whistle-blower complaints. Northwest merged with Delta Airlines last year and now flies as Delta. The report says the problem with complying with safety orders continued at least through the budget year ending Sept. 30, 2009.

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Simon Sinek: Spot The Northwest Flight Attendant

July 6, 2010

I flew to London and back on Delta Airlines , which was great because I got to play my new favorite game: spot the old Northwest Flight Crew. Northwest and Delta merged last year to form America’s largest airline. Though the planes are now painted the same and the crews all wear the same uniforms, they do not all act the same way. The cultures of the two companies, more specifically how management treated their people, significantly impacted how their people treat their customers. So much so, you can tell from which company a flight crew came from simply by observing how they treat customers. The rules are pretty basic, when you fly Delta Airlines, try to guess if your crew is native Delta or ex-Northwest. The game goes beyond just a couple of bad eggs – those employees who, no matter what the corporate environment is like, will always do the wrong thing. This game is about identifying a common pattern or theme among a group of employees that provides clues as to how they have been managed or treated in the past. I admit, it’s a pretty easy game. Northwest must have treated its people so badly for so many years that the difference between the two crews is stark. Here are some pointers to help you should you ever decide to play: Impatience: Ex-Northwest employees have no patience for customers. They can regularly be seen rolling their eyes when passengers ask for anything or perform even the slightest infraction of any rule or command. The native Delta crews, in contrast, are more likely to smile if a passenger asks for anything and show a little more patience. Hate Thy Customer: The ol’ Northwesters can often be heard in the galleys complaining about a passenger or two (this among other things they can find to complain about). If someone who has a customer-facing job seems to have such contempt for customers, think about how that will impact their behavior towards the customer. In contrast, you may stumble upon a conversation of Delta folks gossiping about their personal lives or figuring out how to solve some issue that was raised on the flight. Short Fuse: The grumps from Northwest are all on short fuses. It takes barely a squeak from a passenger for a flight attendant to berate that customer. Public shaming of a passenger over the intercom is also a favorite. I find Delta natives to have much more patience for those with whom they are charged to look after and will often address specific customers directly should they need to. Pass the Buck: Despite the ease of this game, you’ll be hard pressed to find a Northwest crew who accept accountability for how they act. Northwest employees, you see, don’t like to take any responsibility for anything that happens. If they are abusive, impatient or generally unhappy, they will justify anything they have done by passing the buck. “It’s not our fault. If we don’t do it that way,” they rationalize, “we’ll get in trouble.” There is a side of me that feels sorry for the old Northwest people. Like abused dogs who become unfit to have as pets, so too have many Northwest employees been so abused over the years, it is actually left many of them unfit for to work with people anymore. Like any person on the receiving end of an abusive relationship, they have completely lost trust in management to help them in anyway. They hang all their hopes on their union to protect them even though, with their union, they received lower pay and poorer benefits than the non-unionized Delta flight attendants. The mistrust runs so deep, that they will work to preserve their unions for fear of what would happen if Delta management had direct influence over their jobs even though Delta crews like their jobs…and their management much better. In this humble passenger’s opinion, if management has the option, axing some of the most abusive staff may not be such a bad thing for all involved. The point is, corporate culture matters. How management chooses to treat its people impacts everything – for better or for worse. Gordon Bethune, the former CEO of Continental Airlines, was able to transform Continental Airlines from the worst airline in the industry into the one of the highest rated without changing the equipment or the people. He did it by focusing not on the customer, but on the employees. He managed the culture and worked to empower his employees. He showed them that keeping a plane clean serves their interests more than the passengers. The passengers leave the planes, the flight attendants often have to stay and fly one, two or more legs on the same aircraft. The same goes for helping people or being nice to them. It makes for a better day at work when you treat people well. Well-treated customers are also nicer to be around. On a recent cross-country trip, I met a Delta flight attendant who plays a similar game to me. It’s called Spot the ex-Northwest Elite Passenger. She told me she can tell if a passenger used to fly Northwest based on how the passenger treats the crew. Apparently, the abused Northwest employees abused their customers for so long that the customers also became combative and mean. Sadly, they tell me, it’s a really easy game to play for them also. The moral of the story: corporate culture matters. A sour corporate culture can actually make an entire society unhappy. This means that a strong corporate culture can have a positive impact on a society. So for the good of the planet – treat your employees well.

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China Reaching a Lewis Turning Point as Inflation Overtakes Low-Cost Labor

June 10, 2010

By Bloomberg News June 11 (Bloomberg) — Shenzhen Jufeng Handicraft Co. was so eager to ensure employees returned to work after February’s Lunar New Year holiday that it threw them a party, handed out gifts and bused workers to homes 1,000 kilometers away. “We needed to do more to make them stay,” said Sunny Jia, sales manager of the Shenzhen-based company, which makes linen, leather bags and cabinets for such customers as Oscar Collections Ltd. in the U.K. “All our customers wanted orders shipped within a month.” China, once an abundant provider of low-cost workers, is heading for the so-called Lewis turning point, when surplus labor evaporates, pushing up wages, consumption and inflation , said Huang Yiping , former chief Asia economist at Citigroup Inc. The result may prompt manufacturers to switch to cheaper countries such as India and Vietnam. “If the first decade of the 21st century saw China rapidly rising as a global manufacturing center, the post-Lewis turning point could see the opposite,” said Huang , an economics professor at Peking University in Beijing. “Global manufacturing activities concentrated in China today may find their way elsewhere.” Shenzhen Jufeng’s efforts to retain workers, strikes at Honda Motor Co. factories and a 100 percent wage rise at Hon Hai Precision Industry Co.’s Shenzhen plants are signs of the watershed, named after the late Nobel Prize-winning economist W. Arthur Lewis . The point marks where manufacturing competitiveness and the pace of growth begin to turn down as labor costs rise. Restrained Growth China’s potential annual economic growth rate may slide to 9 percent by the middle of this year, from 11 percent, as the impact of a shrinking young labor force bites, said Lu Ting , an economist with Bank of America-Merrill Lynch in Hong Kong. As growth soaks up cheap labor and wages rise, China is losing the competitive advantages it had previously, said Robert L. Tignor, a professor of modern and contemporary history at Princeton University in New Jersey and author of the book “W. Arthur Lewis and the Birth of Development Economics.” “Arthur would have been really pleased to see that his theories have proven to be pretty valid when it comes to countries like China,” he said in a telephone interview. Countries with lower wage costs such as India and Vietnam stand to benefit in attracting manufacturing. Minimum wages in Shanghai are $141 a month, compared with $77 in Mumbai and $74 in Hanoi, according to Morgan Stanley calculations based on Japan External Trade Organization data. Vietnam Competition “In lower-end export industries there’s already a case for China having lost competitiveness against places like Vietnam,” said Jim Walker , Asianomics Ltd.’s chief economist in Hong Kong. Regional labor shortages begin when the ratio of job openings to job seekers rises above 0.96, according to Ha Jiming , Hong Kong-based chief economist at China International Capital Corp. In eastern China in May the ratio reached 1.01, while in the Pearl River Delta region bordering Hong Kong it hit 1.26 and in Fujian province 1.14, according to Beijing-based CICC. The surplus of rural workers suitable for labor-intensive work has fallen to about 25 million from about 120 million in 2007, squeezing job markets in eastern provinces, said Ha, a former International Monetary Fund economist. “I don’t know exactly when there won’t be enough workers,” said Wang Gang Qiang, president of Ningbo-based Ningbo Ocean Textiles (Group) Co. Ltd. “I do know shortages will get worse.” Far to Go China’s wages are still far below those in developed competitors such as Japan, and income gains will boost consumer spending, helping put a floor under the nation’s growth, said Qu Hongbin , chief China economist at HSBC Holdings Plc in Hong Kong. Companies serving “the bottom of the food chain” are those poised to benefit, said Russell Hoss , who manages the EPH China Fund from Newport Beach, California. Menswear retailer China Lilang Ltd. and restaurant chain Ajisen (China) Holdings Ltd., both based in Hong Kong, are stocks the EPH China Fund owns that Hoss says are likely to benefit. “The future trajectory is that China is not only an export country,” said Johnny Yu, foreign trade manager at China Crown Textile Co. in Shanghai. “With rising wages consumption will rise.” Local governments have announced increases in minimum wages this year ranging from 5 percent in Hunan province to 27 percent in Ningxia, according to Morgan Stanley. Worker Strife Hon Hai’s Foxconn Technology unit said it will raise salaries at Shenzhen factories to 2,000 yuan a month in October from 900 yuan in May, after a spate of worker suicides. The increase prompted Macquarie Group Ltd. and Daiwa Securities Group Inc. to cut their investment ratings on Hon Hai. Honda, based in Tokyo, raised pay by 24 percent at a parts- making factory in Foshan, Guangdong province, last month after a strike crippled its production in China. Two more facilities were hit by strikes this week. Wages in privately owned companies will rise as much as 17 percent annually over the next three years, said Jun Ma , an economist at Deutsche Bank AG in Hong Kong. A construction boom fueled by 4 trillion yuan ($586 billion) of stimulus and record bank lending has boosted job opportunities in western and central China. Manufacturers including Ningbo-based Dejin Textile Co., Shanghai-based China Crown Textile and Shenzhen Jufeng say that’s made it harder for them to attract migrants to coastal factories. “Workers don’t want to leave their children and wives” now that more jobs are available near home, said Shenzhen Jufeng’s Jia. “The inland regions are booming because the government is spending so much.” Chongqing’s Lure Ningbo Ocean Textiles’s Wang cites the city of Chongqing, 2,400 kilometers (1,492 miles) up the Yangtze river from Shanghai, as an example of the difficulties he faces recruiting. Chongqing’s economy expanded 14.9 percent last year. “Chongqing workers used to go to the east coast to work,” he said. “Now their home is a booming city, and lots of companies have moved there. Why do people there need to leave?” China’s export recovery is also tightening labor markets. Shipments abroad surged 48.5 percent from a year earlier in May, the most in more than six years after excluding distortions caused by the Lunar New Year holiday. The number of people hired last year in eastern China’s provinces, the backbone of the country’s three-decade economic growth, fell by 8.8 million because job seekers had been lured to inland areas by rising wages, according to the National Bureau of Statistics in Beijing. The pay gap between the eastern region and inland China is now 5 percent, down from 15 percent five years ago, according to Ha at CICC. “Wages in the eastern areas aren’t attractive enough,” statistics bureau spokesman Sheng Laiyun said. “Younger peasant workers are demanding better work conditions and welfare.” — Kevin Hamlin . With assistance from Rich Miller in Washington. Editors: Adam Majendie , Anne Swardson To contact the Bloomberg News staff on this story: Kevin Hamlin in Beijing on khamlin@bloomberg.net

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Kerviel Says in Court He Faked Trades, Exceeded SocGen’s Limits for Years

June 9, 2010

By Heather Smith and Carol Matlack June 9 (Bloomberg) — Former Societe Generale SA trader Jerome Kerviel told a Paris court he began faking transactions as early as 2005 and regularly exceeded trading limits the French bank set. Kerviel, on trial for abuse of trust, faking documents and computer hacking related to a 4.9 billion-euro ($5.9 billion) trading loss, said he fabricated hedging trades “to cover my positions.” He said yesterday he “hid nothing” from the bank when taking positions in European stock market index futures. The 33-year-old today described how he made successful bets in 2005 on the stock movements of Germany’s Allianz SE . “I used a trading strategy that worked,” Kerviel said. “The results were growing.” Kerviel worked for Societe Generale, France’s second- largest bank by market value, for more than seven years, rising to trader in 2005. The Paris-based bank disclosed his unauthorized bets on Jan. 24, 2008, with then-Chief Executive Officer Daniel Bouton calling Kerviel a “terrorist.” Kerviel faces as many as five years in jail and 375,000 euros in fines if found guilty. Under questioning by Judge Dominique Pauthe, Kerviel said he began making larger bets in 2005 and started falsifying transactions indicating he had covered his bets. Exceeding Limits Kerviel said he continued to exceed the 125 million-euro trading limit set for the Delta One trading desk where he worked in the years after 2005. “Seventy percent of the time, limits were exceeded,” Kerviel said when a prosecutor said he was the only one who exceeded limits. He said that the controls on his computer were “deactivated,” allowing him to fake transactions. The head of his trading desk knew as early as April 2007 that Kerviel was making fictitious transactions, Kerviel said. Jean-Pierre Mustier , the former head of Societe Generale’s Corporate and Investment Banking Division, testified that he was unaware of the unauthorized trades and that he had “never seen Jerome Kerviel” before the fraud was discovered. ‘The Most Money’ “He can’t say that management knew,” Mustier told the court. “Jerome Kerviel is the trader who lost the most money in the world.” Kerviel’s lawyers have argued that the trading loss rose to 4.9 billion euros because the bank decided to liquidate the portfolio over three days. The former head of the French market regulator Jean- Francois Lepetit earlier today testified that the bank had to unwind Kerviel’s unauthorized trades immediately after discovering them. Lepetit said it would have been “indefensible” to maintain the positions to trim losses. “Societe Generale made not just the right decision, but the only decision,” Lepetit, the ex-president of the Autorite des Marches Financiers, testified. “I think that it was probably vital, for Societe Generale, and at the same time for the market, that the operation was started right away.” Kerviel worked on the Delta One trading desk, specializing in European stock market index futures. His job was to arbitrage small price differences between futures contracts, not to take bets on the markets’ direction. Trading Losses His positions, mostly on Germany’s DAX Index and the pan- European Euro Stoxx 50, had losses of 1.4 billion euros when Societe Generale discovered the fraud. The bank said it lost an additional 3.5 billion euros liquidating the stakes as European markets fell. “When an institution like Societe Generale is exposed, when there is a problem, all the financial instruments issued by the bank will be immediately sold by investors,” Lepetit told the court. Lepetit, under questioning from Kerviel lawyer Olivier Metzner and judges, criticized assertions that Kerviel didn’t need to report that he had surpassed his trading limits. “When you exceed a limit, transparency says ‘I tell my boss,’” Lepetit said. “There is no justification for silence.” To contact the reporter on this story: Heather Smith in Paris at hsmith26@bloomberg.net

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Ex-Goldman Banker Walujo Emerges as Indonesia’s Busiest Dealmaker With TPG

June 7, 2010

By Netty Ismail June 8 (Bloomberg) — Patrick Walujo , a former investment banker at Goldman Sachs Group Inc., has emerged as Indonesia’s busiest dealmaker since teaming up with U.S. buyout firm TPG almost four years ago. TPG passed over other candidates when it began scouting for a partner in the nation in 2005. The 34-year-old’s Northstar Pacific Partners shared TPG’s plan to invest in plain vanilla equity of resources firms and companies set to benefit from growing consumption in Southeast Asia’s largest economy, said Ashish Shastry , TPG’s head for the region in Singapore. Other private-equity firms seemed to focus on more complex mezzanine debt or structured deals, he said. “Indonesia seemed to us to be an interesting emerging market for investment, and Patrick and his colleagues seemed to be the best there,” said David Bonderman , founding partner of the Fort Worth, Texas-based private-equity firm with $45 billion of capital. Buyout firms including Washington-based Carlyle Group and the U.K.’s CVC Capital Partners Ltd. are venturing into the world’s most populous Muslim nation, where private-equity investments could increase fivefold to as much as $3 billion this year, from $570 million in 2009, according to estimates by the Centre for Asia Private Equity Research Ltd. ‘Building Mode’ Walujo, with TPG’s backing since September 2006, has helped expand Northstar’s assets under management to more than $1 billion from $200,000. Two-thirds of that is from co-investors including Government of Singapore Investment Corp. , manager of Singapore’s foreign reserves. The fund has also attracted money from pension funds, endowments and other institutional investors. Northstar’s biggest holdings include PT Bank Tabungan Pensiunan Nasional, in which it agreed to invest ahead of the bank’s initial share sale in 2008. Northstar seeks to make three to five times the money it invests in a company within five years, Walujo said. “We have been in building mode,” Walujo, the son-in-law of Indonesia’s 15th richest man, said in an interview at his office in Jakarta, where a framed photograph with Bonderman adorns a side cabinet. “This year is going to be a year of a few exits; next year is going to be a busy year for exits.” Northstar and TPG invested about $1.3 billion in five transactions between 2006 and 2009, the most deals on record by a private-equity investor in Indonesia in the period, according to the Hong Kong-based Centre for Asia Private Equity Research. Bonderman Walujo, who holds a Bachelor of Science in operations research and industrial engineering from Cornell University, got to know 67-year-old Bonderman, who attended Harvard University’s law school and studied Islamic law at the American University in Cairo, after inviting TPG to participate in a leveraged buyout of coal producer PT Adaro Indonesia in 2005. The value of the equity investment in Adaro has risen more than 100 times to exceed $5 billion, said Walujo, who wanted to return home after working as an investment banker at Goldman Sachs in London and New York, and in the Tokyo finance, merger and acquisition team at PCCW Ltd. , Hong Kong’s biggest phone company. Two months after Northstar started the fund with TPG, Bonderman, Walujo and Timothy Dattels , Walujo’s former boss at Goldman Sachs, had the first of their annual meetings with President Susilo Bambang Yudhoyono at his Merdeka Palace office in central Jakarta. Dattels oversees TPG’s investments in Asia. “We saw the opportunity in the private equity space in Indonesia because at that time, there were not many people,” said Walujo, wearing a traditional batik shirt. Palm Oil Indonesia is the world’s biggest palm oil producer and holds some of the largest deposits of natural gas and minerals such as coal and copper. Consumer confidence has been buoyed by political stability under Yudhoyono not seen since the ouster of former dictator Suharto in 1998. “Private equity is fast becoming a very astute way of investing and profiting from the upswing in the Indonesian economy,” said Karim Raslan , a Kuala Lumpur- and Jakarta-based consultant whose clients include private-equity firms seeking to invest in Southeast Asia, and who has known Walujo since 2004. “Because of the enormous surge in interest in Indonesia, guys like Patrick, who have had substantial experience outside Indonesia at leading investment banks, become a logical port of call.” CVC agreed to buy the retail unit of PT Matahari Putra Prima in January, the London-based buyout firm’s first foray into Indonesia. Carlyle, the world’s second-biggest private- equity company, is “actively exploring opportunities” for its first investment in the nation, Anand Balasubrahmanyan , a Singapore-based managing director said in December. Perception The Jakarta Composite Index is the best performer in Asia after Sri Lanka this year, according to data compiled by Bloomberg. The economy will probably expand 6 percent to 6.5 percent in 2011, central bank Senior Deputy Governor Darmin Nasution said on June 1. Still, Walujo said it remains challenging to convince people to look at Indonesia “because of the perception problem that we are still suffering from.” While the country’s rank in Transparency International’s corruption perception index rose to 111 last year from 126 in 2008, Indonesia remains in the category of nations perceived as corrupt. Coal Mines Walujo and Glenn Sugita , a former corporate finance banker at PT Bahana Securities, which was Goldman Sachs’s partner in Indonesia, started Northstar in 2003 with capital of less than $200,000. “One thing that we really like about them is that they want to operate Northstar at the same standard as any world class investment firm,” TPG’s Shastry said. In 2008, along with TPG, Northstar bought a 71.6 percent stake in Bank Tabungan , originally a lender to retired civil servants, which opened about 500 micro banking branches last year. The value of the investment has risen almost threefold as the bank’s loan growth outpaced the Indonesian industry’s following its expansion into micro-lending, Walujo said. The fund’s biggest exposure to Indonesia’s resources boom is through PT Delta Dunia Makmur , which acquired coal mining contractor PT Bukit Makmur Mandiri Utama, or Buma. Northstar bought a 40 percent stake in Delta Dunia in November when the property firm raised equity to fund its purchase of Buma, Indonesia’s second-largest coal mining contractor. Father-in-Law Northstar flew prospective U.S. investors on a chartered Beechcraft 1900D to South Kalimantan province on Borneo island in February and gave them a tour of the Tutupan mine where Buma carries out coal excavation and hauling for Adaro, the nation’s second-biggest coal producer. “We have contracts in all of the top coal mines, which are projecting double their production within three to five years,” Walujo said. Both keen tennis players, Walujo and Sugita organize six tennis tournaments a year in Indonesia to encourage local players to improve their competitiveness. Walujo’s “commitment, his persistence to pursue, is incredible,” said Bank Tabungan Chief Executive Officer Jerry Ng , who has known Walujo since 2003. “It blends into his level of energy as well.” Walujo counts his father-in-law, Theodore Rachmat , the former president-director of PT Astra International and the 15th richest man on Forbes’s Indonesia list , as one of his mentors. Walujo is married to Ayu Rachmat and has a 20-month-old daughter. Astra, the nation’s biggest auto retailer, is the sole distributor of Indonesian-assembled Toyota Motor Corp. cars in the country and has a motorcycle venture with Honda Motor Co. Rachmat co-invests with Northstar in some deals, Walujo said. “I try to draw a parallel between what we are trying to do and what Astra International did: they learned all the best practices from their foreign partners,” Walujo said. “We have our partnership with TPG, the best of class, we learn from them. Eventually we want to create an Indonesian entity that we are proud of, just like Astra.” To contact the reporter on this story: Netty Ismail in Singapore nismail3@bloomberg.net .

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PayPal Founder Musk Tests Rocket NASA Wants to Haul Space Cargo

June 3, 2010

By Chris Dolmetsch June 3 (Bloomberg) — Elon Musk changed the way people shop on the Internet when he helped start the online-payment service PayPal. Tomorrow, he will try to take a step toward changing the way NASA carries supplies and people into space. Musk’s Hawthorne, California-based Space Exploration Technologies Corp. is scheduled to launch its Falcon 9 on an initial test flight from Cape Canaveral, Florida, during a four- hour window that begins at 11 a.m. The company plans to use the rocket to carry into Earth orbit its Dragon spacecraft, which is intended to take cargo to the International Space Station after the space shuttles are retired and may later ferry astronauts. “If it is successful, it is an important initial step toward the creation of a new kind of industry,” said John Logsdon , founder of the Space Policy Institute at George Washington University in Washington. SpaceX’s vessels are part of President Barack Obama ’s new strategy for the National Aeronautics and Space Administration, which calls for the agency to develop systems capable of taking humans to Mars while helping entrepreneurs build vessels to carry astronauts to the space station. NASA Administrator Charles Bolden told a Senate panel last month that he expects SpaceX to be able to fly its first manned mission in 2015. Musk said the company may be able to take astronauts to the station as early as 2013 if it receives a contract this year. Obama’s plan scrapped Constellation, the program that would send U.S. astronauts to the moon as a precursor to missions to Mars. The shift drew criticism from space travelers such as Neil Armstrong , the first person to walk on the moon, and lawmakers from states with NASA operations. Musk Companies The South Africa-born Musk, 38, founded closely held SpaceX in 2002 after selling other companies that he helped start — directory provider Zip2 Corp., sold to Compaq Computer Corp. for $300 million in 1999, and PayPal, bought by EBay Inc. for $1.2 billion in 2002. Musk is also chief executive officer of Tesla Motors Inc., an electric-car maker planning to raise $100 million in an initial share sale. Musk helped inspire the film version of Tony Stark, the billionaire in the “Iron Man” movies, director Jon Favreau wrote in Time magazine in April. Musk plays a cameo in “Iron Man 2,” and parts of the film were shot at SpaceX headquarters. Falcon’s Competition The 180-foot-tall (55-meter) Falcon 9 is intended to compete with the Delta IV and Atlas V from United Launch Alliance, a Boeing Co. and Lockheed Martin Corp. joint venture, and Orbital Science Corp.’s Taurus II, set for its first flight next year. The Atlas and Delta rockets have an advantage over the Falcon 9 in the race to become the next vehicle to take astronauts to the space station because they have a track record of successful launches, Logsdon said. The shuttles and European vessels have carried cargo and people to the station since construction began in 1998. The shuttle program is scheduled to shut down this year, and NASA signed a $335 million contract extension with the Russian Federal Space Agency in April to buy transport for U.S. astronauts to the outpost through 2014. In 2008, NASA awarded contracts valued at as much as $3.5 billion through 2016 to SpaceX and Orbital to deliver cargo to the outpost. On Feb. 1, the day Obama announced his new strategy, NASA said it was giving $50 million to a group of companies to develop concepts for a station ferry, including United Launch Alliance and Blue Origin LLC, founded by Jeff Bezos , chairman and CEO of Amazon.com Inc . NASA expects as much as 70 percent of its cargo delivery to the station to be handled by Orbital and SpaceX, with the rest delivered by Japanese and European ships. SpaceX’s 2008 contract calls for at least 12 flights, with an option for more missions. SpaceX launched Falcon 1 in September 2008 after three failed attempts, and Musk said there is likely to be an anomaly that will postpone tomorrow’s test. “There’s a very good chance of something delaying the launch that we just don’t know right now,” Musk, the company’s chief executive, said in a May 26 interview. “That’s just the nature of the beast.” To contact the reporter on this story: Chris Dolmetsch in New York at cdolmetsch@bloomberg.net .

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US Air, UAL Help Push Airline Index to Five-Week High After Revenue Report

June 2, 2010

By Mary Schlangenstein June 2 (Bloomberg) — US Airways Group Inc. and United Airlines parent UAL Corp. rose, pushing an industry index to a six-week high, after Continental Airlines Inc. beat analysts’ estimates for monthly unit revenue. The Bloomberg U.S. Airlines Index of 12 carriers climbed as much as 5.7 percent to its highest intraday value since April 20. Continental said late yesterday that May revenue from each seat flown a mile rose in a range of 23 percent to 24 percent. Continental’s report, the first issued for May among major U.S. carriers, signals a stronger return of business travelers who pay higher fares. The results topped estimates for a 17 percent increase from Jamie Baker , an analyst with JPMorgan Chase & Co., 17 percent to 18 percent from CRT Capital Group LLC’s Michael Derchin and 22 percent by Kevin Crissey at UBS AG. The results “were driven by higher-than-anticipated prices, which we attribute to a rebound in higher fare-paying business travelers and fare surcharges implemented during peak travel days,” Derchin wrote in a report. Yield, or average fare per mile, gained as much as 20 percent in May, he estimated. Continental also benefitted from lower jet-fuel prices last month, said Derchin, who rates Continental “fair value.” Continental’s revenue “has positive implications for all of the U.S. airline stocks, but particularly those with international exposure,” Crissey, who recommends buying Continental shares, wrote in a report. US Airways climbed 69 cents, or 8 percent, to $9.33 at 2:56 p.m. in New York Stock Exchange composite trading, while Continental rose $2.15, or 11 percent, to $22.44; American Airlines parent AMR Corp. increased 55 cents, or 7.3 percent, to $8.12; and Delta Air Lines Inc. rose 55 cents, or 4.1 percent, to $14.09. UAL increased $2.23, or 12 percent, to $21.58 on the Nasdaq Stock Market. US Airways reached a 52-week high of $9.55 today, as did Alaska Air Group Inc., at $49.75. Alaska, the parent of Alaska and Horizon airlines, rose $3.54, or 7.7 percent, to $49.72 at 2:56 p.m. Bank of America Corp. restarted coverage of both carriers today with “buy” recommendations. To contact the reporter on this story: Mary Schlangenstein in Dallas at maryc.s@ bloomberg.net

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China Real Estate Bubble Bursts in Bond Market Credit Markets

May 30, 2010

By Katrina Nicholas May 31 (Bloomberg) — Dollar bonds sold by China real estate companies this year are the worst performers among Asian non-financial corporate debt denominated in the U.S. currency amid concern the nation’s property market is overheating. Yields on the $3.9 billion of bonds issued by Kaisa Group Holdings Ltd. , Country Garden Holdings Co. and seven other developers since January widened by an average 2.26 percentage points relative to Treasuries as of last week, according to data compiled by Bloomberg. That’s more than the 2.05 percentage- point increase in spreads for the seven dollar-denominated bonds sold by other companies in Asia outside Japan. Investors are demanding greater yields to lend to China property firms, a sign they expect borrowers will have a harder time meeting debt payments amid a government clampdown down on lending. Goldman Sachs Group Inc. and Credit Suisse Group AG cut their profit estimates for Chinese real estate companies after a 12.8 percent jump in real estate prices in April from a year earlier spurred the state to increase regulation. “New issues by Chinese developers will stall for the time being,” Vince Chan , the Hong Kong-based chief credit strategist with Amias Berman & Co. LLP, a fixed-income advisory and brokerage firm founded by two former Citigroup Inc. bankers, said in a phone interview. “Investors need handsome rewards for getting exposed to weaker fundamentals.” Widening Spreads The amount of dollar bonds issued by China developers represents 45 percent of all corporate dollar debt sales in Asia outside Japan this year, Bloomberg data show. The yield spread on $350 million of 13.5 percent notes sold by Shenzhen-based Kaisa last month widened the most of the nine issues, expanding to 16.52 percentage points from 11.07 percentage points, Nomura Holdings Inc. prices on Bloomberg show. Kaisa is developing 18 projects in Shenzhen, Dongguan and other cities in the Pearl River Delta, most of them high-rise residential complexes that combine recreational and commercial space, according to its website . An investor who bought the company’s 2015 bonds at par would have lost 15.5 percent. Elsewhere in credit markets, the extra yield investors demand to own company debt instead of Treasuries widened 5 basis points last week to 193 basis points, or 1.93 percentage points, Bank of America Merrill Lynch index data show. The spread, which peaked at 511 on March 30, 2009, is up from this year’s low of 142 on April 21. Average yields rose to 4.06 percent, the highest based on weekly closes since the period ended March 5. Sales Slow Corporate bond issuance worldwide slowed this month to $66.1 billion, down from $183 billion in April and the least since December 2000, according to data compiled by Bloomberg. “Companies have to be prepared to strike and strike quickly,” Rick Martin, the London-based director of treasury at Virgin Media Inc. , the U.K.’s second-largest pay-television company, said at a May 28 briefing in London. “The key is to have the team ready and primed and able to pull the trigger at short notice. I can’t think of a time when the forces have been so polarizing.” The cost to insure U.S. corporate debt against default rose last week. Credit-default swaps on the Markit CDX North America Investment Grade Index Series 14, which investors use to hedge against losses or to speculate on creditworthiness, increased 25.1 basis points this month to a mid-price of 117.2 basis points. The index typically rises as investor confidence deteriorates and falls as it improves. Bond risk rose in Asia today, with the Markit iTraxx Asia index up 4 basis points, according to Royal Bank of Scotland Group Plc. The Markit iTraxx Japan index rose 5 basis points, Morgan Stanley prices show. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year. Emerging Market In emerging markets, spreads narrowed 16 basis points last week to 321 basis points, trimming the monthly increase to 63, according to the JPMorgan Emerging Market Bond Index. China has added to regulations designed to cool the property market several times this year, including raising banks’ reserve requirements three times since January, restricting pre-sales by developers and curbing loans for third- home purchases. It also raised minimum mortgage rates and tightened down-payment requirements for second homes. Shanghai’s plan to begin a property tax on residential real estate was submitted to the central government for review, the China Securities Journal reported today, citing unidentified people. Demand ‘Premium’ Goldman Sachs lowered its 2010 net income estimates for Chinese developers by an average 13 percent and reduced earnings forecasts for the next two years by 25 percent, analysts led by Yi Wang wrote in a May 19 report. Credit Suisse pared earnings- per-share estimates by as much as 15 percent for 2010 and 20 percent for 2011, citing the government’s clampdown. “With the negative headlines coming out of this sector, investors are less likely to be drawn to participate in new issues because of a high coupon,” Tan Chew May , a credit analyst for Aberdeen Asset Management Asia Ltd., which oversees $1.5 billion of Asian dollar debt, said in a phone interview from Singapore. “With the trend of widening spreads, new names are forced to come at premium.” China property developers paid coupons as high as 14 percent to issue dollar debt this year, compared with an average 9.2 percent for other companies in Asia and 6.2 percent for U.S. property companies. On average, Chinese property companies are paying a 10.875 percent coupon. Renhe’s Delayed Sale Glorious Property Holdings Ltd ., which has 26 real estate projects in cities including Shanghai, Beijing, Harbin and Changchun, postponed its first sale of dollar-denominated bonds in April. The Hong Kong-listed company cited poor credit market conditions for the delay. Renhe Commercial Holdings Co ., a developer of underground shopping centers based in Harbin, China, sold five-year, 11.75 percent dollar notes on May 18 to yield 974 basis points more than Treasuries after delaying the sale for two weeks. The relatively strong finances of China developers means some companies can afford to pay double-digit coupons, according to Andy Mantel , Hong Kong-based founder of hedge fund manager Pacific Sun Investment Management Ltd. Country Garden , which builds villas, townhouses and apartments in China, sold bonds in April with an 11.25 percent coupon. The company, controlled by China’s second-richest woman, Yang Huiyan , said contracted revenue in the first quarter rose 82 percent on sales in the Guangdong area. Fantasia’s Coupon “The sector is relatively better financed than it was two years ago when there were serious liquidity issues,” Mantel said in a phone interview. “Investors might not make any money on the actual bond, but they’ll get their interest payments.” Fantasia Holdings Group Co .’s $120 million of five-year bonds pay the highest coupon at 14 percent. The company develops commercial and residential complexes in China’s Pearl River Delta and Chengdu-Chongqing Economic Zone regions. It raised HK$3.18 billion ($408 million) from an initial share sale in Hong Kong in November, boosting cash reserves to $497 million from a deficit, Bloomberg data show. “Sales and pre-sales have increased cash balances for most companies by over 20 to 30 percent while fresh debt issuance has extended maturity profiles,” analysts led by Raghav Bhandari at CreditSights Asia Research Ltd. wrote in a note to clients May 20. “Companies are in a much better position to handle this period of strain than they were a year ago.” High Yield “People are attracted by the high coupons of the sector, but are fearful of the regulatory announcements and how it might affect the credits,” Sean Henderson , head of Asia debt syndication at HSBC Holdings Plc, said in a phone interview from Hong Kong. “More recently, the overall market backdrop has taken the whole high-yield sector lower.” The yield spread on speculative-grade company dollar bonds in Asia rose 174 basis points this month as of May 28, compared with 50 basis points for investment-grade companies, JPMorgan indexes show. High-yield debt is rated below Baa3 by Moody’s Investors Service and BBB- by Standard & Poor’s. Credit-default swaps insuring against Country Garden defaulting on its debt rose 343 basis points to 10.39 percentage point this month through May 18. The contracts suggest investors are pricing in a 50 percent chance of default. Similar contracts insuring Agile’s debt have soared 3.85 percentage points since mid-April, when China’s central bank pledged to implement new lending rules to cool real estate “madness.” At current rates investors are pricing in a 48 percent chance of default. Chinese property bonds are unlikely “to recover meaningfully anytime soon,” Amias Berman’s Chan said. “If we start to see the regulatory measures taking effect in the next few months then there may be a reversal of fortunes. But optimistically I think it’ll be the third or fourth quarter before things stabilize.” To contact the reporter on this story: Katrina Nicholas in Singapore at knicholas2@bloomberg.net

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United to Fight Delta Wooing New York Business Fliers With Upgrades, Perks

May 28, 2010

By Mary Schlangenstein and Mary Jane Credeur May 28 (Bloomberg) — New York business travelers may see a flurry of seat upgrades and free airport lounge passes as carriers fight for the most valuable passengers when Continental Airlines Inc. and United Airlines merge. United, Delta Air Lines Inc. and AMR Corp.’s American Airlines will probably step up their pursuit with better seats and perks like greater access to last-minute tickets on overbooked flights, said Chris McGinnis, a consultant and travel-blog editor in San Francisco. At stake is a bigger slice of the $13.6 billion spent each year by passengers who start or end trips in New York, which no carrier dominates. More than 100 million people, including the corporate travelers who pay the most for business-class and walk-up tickets, flew through the world’s largest aviation market last year. “The airlines are going to have to shower these passengers with free lounge access or upgrades if they want their loyalty,” said McGinnis, who flies to New York several times a year. Spokesmen for Continental, UAL Corp.’s United, Delta and American declined to discuss specific plans to win business at Kennedy, LaGuardia and Newark airports. One service the merged United-Continental should expand is United’s P.S. three-class flights from New York to Los Angeles and San Francisco, which include lie-flat seats in first class, business-class cradle seats and as much as 5 more inches of legroom in coach, said McGinnis. He flies P.S. several times a year and pays as much as $3,000 per trip. ‘All the Difference’ “Those extra inches of legroom make all the difference in the world, and it’s kept a lot of travelers faithful to United,” he said. Delta recently added a perk for its American Express SkyMiles card holders that allows travelers to check one bag for free, a savings of about $50 per round trip. Continental has a similar offer through its Chase credit card. The competition will create “one of the best times for a traveler to belong to a frequent-flier program,” said Henry Harteveldt , a senior analyst at Forrester Research Inc. in San Francisco. United-Continental will displace Delta as the world’s biggest carrier, and be the largest U.S. airline across both the Atlantic and Pacific, offering more direct service from its 10 hubs. The carriers announced their all-stock merger on May 3, and say the deal will be completed by year-end. The company plans to keep United’s name and Chicago headquarters, and be run by Continental Chief Executive Officer Jeff Smisek . Biggest Market New York differs from most hubs, where one carrier dominates. Delta accounts for 70 percent of passengers in its hometown of Atlanta, while American handles 85 percent at Dallas-Fort Worth. Continental flew 29 percent of New York area travelers in 2009, while United had 4 percent, according to U.S. Bureau of Transportation Statistics. Delta handled 23 percent, JetBlue Airways Corp. had 16 percent and American had 15 percent. “This is going to become a gloves-off, brutal, three-way battle between United, American and Delta,” said Harteveldt. “You better get the emergency services on standby, because blood is going to be shed.” The new United will focus on corporate sales accounts, especially in Manhattan, in a bid to win business from Delta and American, United CEO Glenn Tilton said yesterday after speaking at a hearing in Washington. “What this combination does is makes us competitive with American, both in Latin America and in New York,” Tilton said. “That’s just something we lacked, and that’s something Continental brings.” Top Travel Agencies The two companies also reached out to their top travel agencies. Within hours of announcing the merger, Continental executives called and e-mailed Jennifer Wilson-Buttigieg, co- president of Manhattan-based Valerie Wilson Travel Inc. , which books travel for business clients on American, British Airways Plc, Delta and Continental. United officials visited that week. “It made all the difference in the world when they simply said, ‘Thank you for your business,’” said Wilson-Buttigieg. “Something as simple as how they handle a meet-and-greet with clients or work with us on sales calls lets us know how important we are.” The stiffest competition will be for business fliers who buy first-class and walk-up tickets, often determining whether a flight makes or loses money. Continental charges $6,149 for a walk-up ticket in business or first class from Newark to London Heathrow, while an advance- purchase coach ticket to Los Angeles is $482, according to the Houston-based carrier’s website. ‘Hotbed for Competition’ “The $3,000 to $5,000 ticket range is going to be a hotbed for competition,” said Rick Seaney , CEO of Dallas-based FareCompare.com, a ticket pricing and research firm. “If there’s discounting, that’s where you’re going to see it.” The carriers have also invested to spruce up facilities. Continental spent $1.5 billion at Newark over the past 25 years, primarily for a new concourse and international arrivals center because that airport is “one of our key strengths,” said Julie King , a spokeswoman for the carrier. American spent $1.3 billion on an international terminal at Kennedy that opened three years ago, and is investing $30 million at LaGuardia. In March, American proposed a flight slot- swap with JetBlue to expand at Kennedy. Best Customers “We want to be sure we’re big in the markets that matter most to our best customers — New York to London, for example,” Dan Garton , American’s executive vice president for marketing, said in an interview. Delta established an international hub at Kennedy airport with service to 30 new cities abroad, and is trying to expand at LaGuardia by swapping flight-slot rights with US Airways Group Inc. Delta hasn’t yet renovated its facilities in New York, and Treasurer Paul Jacobson last month likened its 1960s-era Kennedy terminal to “third-world” conditions. Delta is in talks with the airports about improvements, said Heather Faulkner, a spokeswoman for the airline. “New York will remain the most contested and competitive aviation market in the world, and we are and will continue to be fiercely competitive,” Faulkner said. The winner will be whoever can lure an extra three to five passengers per flight and take market share profitably, said Michael Derchin , an analyst at CRT Capital Group LLC in Stamford, Connecticut. He recommends buying Delta shares, and holding American, United and Continental. “We’ll have three hungry airlines who all want this corporate business, and whoever is the most aggressive will win,” Derchin said. To contact the reporter on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net ; Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net .

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Honda Shuts Down All China Auto Output as Workers Strike at Parts Factory

May 26, 2010

By Bloomberg News May 27 (Bloomberg) — Honda Motor Co. , Japan’s second- biggest carmaker, halted production at its four Chinese auto plants after workers at a parts factory went on strike demanding a pay raise. Honda closed two plants in Guangzhou, Guangdong province on May 24 and factories in Guangzhou and Wuhan, Hubei province, yesterday, Tomoko Uchida, a spokeswoman for the Tokyo-based company, said by phone today. Workers making transmissions and engine parts at Honda Auto Parts Manufacturing Co. in Foshan, Guangdong province, went on strike May 17, said Zhu Linjie , a Beijing-based spokesman for Honda. The walkout is the first to affect Honda ’s production in China, said Yasuko Matsuura , a Tokyo-based spokeswoman for the carmaker. Trade unions and employers appear to be reporting a growing number of strikes in China, although there are no official numbers, said Chang-Hee Lee, a Beijing-based industrial relations specialist at the International Labor Organization. “China is experiencing a labor shortage that’s shifting the natural bargaining power to workers,” Lee said in a telephone interview today. More than 90 percent of companies based in China’s Pearl River Delta region, which includes Guangzhou, reported labor shortages that added up to about 2 million workers, China’s Southern Metropolis Daily reported in February. Lost Output Honda doesn’t yet have an estimate of output lost to the strike and can make up for it later, Zhu said. The affected factories, joint ventures between Honda and its Chinese partners, make models including the Accord sedan and Civic compact and have combined annual capacity of 650,000 units. Honda fell 0.8 percent to 2,721 yen as of the 11 a.m. trading break in Tokyo. The benchmark Nikkei 225 Stock Average declined 0.6 percent. The 1,850 workers at the parts plant are demanding monthly pay be boosted to between 2,000 yuan ($293) and 2,500 yuan, from 1,500 yuan, Honda’s Matsuura said. The strike is continuing and the workers union is following labor laws and regulations, its chairman, who identified himself only by his surname, Wu, said when reached by phone today. He declined to comment further. The parts factory, a wholly owned Honda subsidiary, started production in 2007 and makes transmissions for the Accord, City Odyssey and Fit models, according to the company. Honda plans to raise production capacity in China by 28 percent to 830,000 vehicles a year by the second half of 2012 and introduce two new models as car demand grows in the country, Chief Executive Officer Takanobu Ito said in Guangzhou this week. The company may increase China sales 9 percent this year to 630,000 vehicles, Ito said last month. China’s vehicle sales may rise 17 percent this year to 16 million as annual demand for automobiles may eventually exceed 30 million, according to an official at the State Information Center. — Tian Ying , Yuki Hagiwara , Liza Lin , Makiko Kitamura . Editors: Terje Langeland , Ian Rowley To contact the reporter on this story: Makiko Kitamura in Tokyo at mkitamura1@bloomberg.net

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Kerviel Says Societe Generale Superiors `Helped’ Him Make Disputed Trades

May 26, 2010

By Ryan Chilcote and Heather Smith May 26 (Bloomberg) — Jerome Kerviel , who goes on trial next month over his role in Societe Generale SA’s 4.9 billion- euro ($6 billion) trading loss, said his superiors “helped” him make the futures bets at the center of the case. “I’m innocent,” Kerviel, 33, said in a Bloomberg Television interview yesterday outside his lawyer’s Paris office. “I want to prove to everybody that my superiors knew what I was doing and helped me to do it, to make more money for the bank.” Societe Generale, France’s second-largest bank by market value, disclosed the loss in January 2008, saying it occurred after unwinding unauthorized positions taken by a lone employee. While Kerviel has previously said the bank knew about the trades, he now explicitly says his supervisors helped him. “The more money you get for the bank,” Kerviel said in the interview two weeks before the trial is scheduled to start in Paris. “The more the bank asks you for. My only objective was to make money for the bank.” Kerviel is charged with abuse of trust, falsifying documents and hacking into bank computers. He faces as many as five years in prison if found guilty at the trial that starts June 8. Waiting for Kerviel Jean Veil , a lawyer for Societe Generale, said in a telephone interview that he is “waiting for Mr. Kerviel to prove” that his superiors aided him in his bets. Paris-based Societe Generale will ask the court to make Kerviel pay it 4.9 billion euros as “reparation for the financial cost of unwinding the fraudulent operations, as well as the cost of the recapitalization,” Veil said. The June trial will bring the banking sector and the trading culture under the judges’ scrutiny, as well as the question of his own guilt, Kerviel said. “My first goal is to defend myself and to prove” that the bank hierarchy knew of his activities, said Kerviel, wearing blue jeans, a black v-necked shirt, and gray pinstriped jacket on a sunny day with temperatures of 86 degrees Fahrenheit (30 degrees Celsius). “I hope perhaps one of the upsides of the trial will be to expose the practices” of traders. Kerviel worked on Societe Generale’s Delta One trading desk, specializing in European stock market index futures. His job was to arbitrage small price differences between contracts, not to take bets on the markets’ direction. His positions, mostly on Germany’s DAX Index and the pan-European Euro Stoxx 50, had losses of 1.4 billion euros when Societe Generale discovered the fraud. The bank said it lost an additional 3.5 billion euros liquidating the stakes as European markets fell. Part-Time Consultant Kerviel earned less than 100,000 euros a year before the bank fired him in March 2008. He has been working as a part-time consultant for a computer services firm while preparing for the trial. Societe Generale raised 5.5 billion euros from shareholders in March 2008 to offset the trading loss. The bank announced a first-quarter profit aided by a rebound in its investment- banking unit on May 5, saying it expects to reach 2010 targets. Kerviel called his actions “a practice of the bank.” A Societe Generale manager wrote that “a good guy, a good employee should break the rules,” Kerviel said. “Your superior asks you to break the rules every day.” France’s Banking Commission fined Societe Generale 4 million euros in July 2008 for risk control failures, a conclusion supported by an internal review commissioned by the bank’s board. Book Release Kerviel denied having hacked into the bank’s computers or using coworkers’ identifications to log in, a story Kerviel said was part of the reason he wrote a book about the affair that was released May 5. “There were a lot of things that were wrong, that have been said for two years now,” Kerviel said in the interview. “Everybody was thinking that I used some colleague’s ID on the computer to enter trades — that’s completely wrong. Everything I did, I did it with the rights, the computer rights that SocGen gave me.” To contact the reporter on this story: Heather Smith in Paris at hsmith26@bloomberg.net ; Ryan Chilcote in London at rchilcote@bloomberg.net .

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Gold Rising as Euro Weakens Spurs More Speculation

May 24, 2010

By Nicholas Larkin, Claudia Carpenter and Millie Munshi May 24 (Bloomberg) — Speculators are buying gold faster than the world’s biggest producers can mine it as analysts forecast a 27 percent rally that may extend the longest run of annual gains since at least 1920. Exchange-traded products backed by bullion added 41.7 metric tons in the week to May 14, the most in 14 months, data from UBS AG show. China, Australia and the 15 other largest mining nations averaged weekly output of 41.6 tons last year, researcher GFMS Ltd. estimates. Even though prices have fallen 5.1 percent to $1,185.30 from a record $1,249.40 an ounce May 14, the median in a Bloomberg survey of 23 traders, analysts and investors shows it will reach $1,500 by the end of the year. Buying accelerated as the MSCI World Index of 23 developed nations’ stocks tumbled as much as 16 percent since mid-April and the euro weakened to a four-year low against the dollar. Holders of ETPs, including George Soros and John Paulson , accumulated a record 1,938 tons by May 21, eclipsing all but four of the biggest central-bank holdings. “You could see gold go up another $1,000,” said Evan Smith , who helps manage $2 billion at U.S. Global Investors Inc. in San Antonio and in 2006 correctly predicted that gold would reach $700 within two years. “All of the turmoil and problems we’ve seen in Europe is just another reminder that there’s a lot of value in gold as a safe haven.” The risk to gold bulls lies in economic growth, which should buoy the prospects of metals linked to industrial demand, such as copper and silver . The world economy will expand 4.2 percent this year, the International Monetary Fund said April 21, raising its January projection from 3.9 percent. Industrial Metals Astor Asset Management LLC, with $520 million under management, held as much as 10 percent of its assets in the SPDR Gold Trust, the biggest ETP backed by bullion, according to Bryan Novak , managing director of the Chicago-based company. The firm sold the stake in the first quarter. China, the biggest consumer of industrial metals, will expand 10.1 percent this year, more than three times the pace of the U.S.’s anticipated 3.2 percent gain, according to as many as 77 economists surveyed by Bloomberg. “The feeling now is as we move into the expansion phase of economic growth, we want to be diversified in economically sensitive metals,” Novak said. “We’re not negative on the economy now.” ‘Afraid of Debasement’ While gold is favored by investors when the dollar weakens and inflation gains, the metal can also advance at other times. Gold rose 5.8 percent in 2008 as U.S. consumer prices gained 0.1 percent. The metal added 18 percent in 2005 when the U.S. Dollar Index , a measure against six counterparts, advanced 13 percent. Gold rose 8 percent this year as the U.S. Dollar Index jumped 11 percent. U.S. consumer prices dropped in April. “People are afraid of the debasement of all the currencies,” said Peter Schiff , president and chief global strategist for Darien, Connecticut-based Euro Pacific Capital, whose clients have more than $2 billion in assets. “What’s surprising is that gold is still as low as it is,” he said, predicting $5,000 to $10,000 an ounce in the next five to 10 years. Since the last week of April, ETPs have been adding bullion at a pace not seen since the first quarter of 2009, in the wake of the collapse of Lehman Brothers Holdings Inc. Buying rose as European policymakers agreed on an almost $1 trillion emergency loan package to prevent sovereign defaults. Half the Peak Assets in gold-backed products increased 18.3 tons last week, according to UBS data. The bank revised its estimate for the previous week’s holdings. Gold is still at half the peak set in 1980, after adjusting for inflation. Then, prices rose to $850, equal to $2,266 today, according to a calculator on the website of the Federal Reserve Bank of Minneapolis. Supply from mines, which peaked in 2001, fell in five of the last eight years, data from London-based GFMS show. Companies are digging deeper to extract dwindling reserves, with mines in South Africa extending as far as 2.35 miles (3.8 kilometers) down. Investment, including bars and coins, almost doubled to 1,901 tons last year, exceeding jewelry demand for the first time in three decades, according to GFMS. Jewelry will jump 19 percent to 2,100 tons this year and industrial use 8 percent to 398 tons, Sydney-based Macquarie Group Ltd. says. Central Banks Muenze Oesterreich AG, the Vienna-based mint that makes the Philharmonic, the best-selling gold coin in Europe and Japan, on May 12 said it had sold 243,500 ounces since April 26, more than the 205,300 ounces sold in the entire first quarter. Central banks and governments are also buying gold, adding 425.4 tons last year, for a combined 30,116.9 tons, the most since 1964 and the first expansion since 1988, data from the World Gold Council show. Official reserves of central banks and governments may expand by another 192 to 289 tons this year, according to CPM Group, a research and asset-management company in New York. The net-long position in Comex futures, or bets on higher prices, is within 13 percent of the record reached in November, U.S. Commodity Futures Trading Commission data show. The most widely held option gives owners the right to buy gold at $1,500 an ounce by December, data from the bourse in New York show. Economists’ outlook may be too rosy, said Michael Pento , chief economist at Delta Global Advisors in Holmdel, New Jersey, who correctly predicted the 2008 commodity collapse. Some investors judge that a debt crisis in Greece may spread elsewhere in the euro zone, including Spain and Portugal. Billionaire Managers “The second half of this year will likely show very anemic growth on a global basis,” he said. “The crisis in Greece is going to spread to Spain and it’s going to be very difficult to deal with. They are bailing out debt with more debt and it isn’t sustainable. It’s a wonderful scenario for gold.” Billionaire John Paulson’s New York-based Paulson & Co. hedge fund is the SPDR gold trust’s biggest investor , with 31.5 million shares, or about 96 tons, a May 17 regulatory filing showed. Kyle Bass , the head of Dallas-based Hayman Advisors LP who made $500 million in 2007 on the U.S. subprime collapse, bought gold this month, according to a letter to clients. Buying at the start of a bubble is “rational,” Soros said in January. His New York-based Soros Fund Management LLC was the sixth-biggest investor in the SPDR fund in the first quarter, a May 17 filing with the Securities and Exchange Commission shows. He trimmed his holding by 9.6 percent from the previous quarter. “People still want a store of wealth,” said Andrew Karsh , co-manager of funds for the Credit Suisse Total Commodity Return Strategy team. “A lot of the fundamentals are still in place.” To contact the reporters on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net ; Claudia Carpenter in London at ccarpenter2@bloomberg.net ; Millie Munshi in New York at mmunshi@bloomberg.net .

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Senators Want to Spare U.S. Insurers From Paying to Unwind Financial Firms

May 8, 2010

By James Rowley May 8 (Bloomberg) — Financial regulation legislation that would require property, casualty and auto insurers to help pay to liquidate failed banks may be altered by the U.S. Senate to exempt companies that don’t contribute to a future market collapse. Companies that write property, casualty, auto and business insurance say they shouldn’t be required to help pay for bank failures because they didn’t cause the 2008 financial crisis. The firms also say they already contribute to state funds to guarantee that claims against insolvent insurers are paid. An amendment with bipartisan sponsorship would excuse companies such as Boston-based Liberty Mutual Group Inc., Berkshire Hathaway Inc.’s Geico Corp. and other property, casualty and auto insurers from being assessed to help finance liquidations of banks if the insurers didn’t engage in practices that caused another market failure. “Roping them into this thing is pretty foolish,” said Senator Judd Gregg , a New Hampshire Republican who is one of the amendment’s sponsors. “The only reason it’s being done is A) somebody doesn’t like them or B) somebody is looking for money or capital” to finance the program that would deal with failed financial firms. ‘Rainy Day’ Fund As originally drafted by the Senate Banking Committee , the financial regulation bill would have required banks and insurance companies to contribute to a $50 billion “rainy day” fund to pay for the orderly liquidation of failed firms. The fund was eliminated in a compromise amendment approved earlier this week after Republicans argued that it would only perpetuate future bailouts of institutions “too big to fail.” Still, property, casualty and automobile insurers with assets of more than $50 billion would be obligated to pay assessments for the liquidation of failed firms under the amendment adopted May 5. The assessments would be imposed by the Federal Deposit Insurance Corp. to amass working capital for orderly liquidation. Such a requirement is unfair to insurers because “our consumers are well protected” by state regulations against insolvency of insurance companies, said Ben McKay , a Washington-based lobbyist for Property Casualty Insurers Association of America. ‘Reverse Isn’t True’ “We have already been obligated to pay into the guaranty funds to cover the failure of insurance companies,” he said. “The reverse isn’t true” because “investment banks don’t have to pay into our fund.” Assessing insurers for the cost of liquidating Wall Street firms means “you could have your grandmother in her Delta 88 paying for the failure of some investment banker who has the two houses in the Hamptons,” McKay said. If the proposed amendment were adopted, McKay said property and casualty insurers would “really be much more comfortable with” the overall bill. The chief sponsor of the financial regulations measure, Democratic Senator Christopher Dodd of Connecticut, said of the insurer’s concerns: “Hopefully, we will address some of that.” Another sponsor of the insurers amendment, Democratic Senator Jeanne Shaheen of New Hampshire said “there is still a discussion” about whether the proposal, among more than 170 amendments offered, would be accepted. Senate Majority Leader Harry Reid , a Nevada Democrat, has vowed to try to finish Senate debate next week and then seek a vote on the bill’s final passage. It then would have to be reconciled with a House version passed in December. New Powers The legislation would give federal financial regulators new powers to supervise banks and investment firms. The Senate yesterday rejected a proposed amendment to alter a proposed consumer financial protection bureau and another to force the largest banks to shrink in size. Other sponsors of the amendment affecting insurers are Massachusetts’ two senators, Democrat John Kerry and Republican Scott Brown . Liberty Mutual Group shouldn’t have to pay to unwind banks that “were the cause of the financial crisis” in 2008, or firms “by definition systemically risky,” said company spokesman Paul Mattera. In the last decade, Liberty Mutual, which employs almost 10,000 people in New Hampshire and Massachusetts, has paid $250 million into guaranty funds in the states where it does business, Mattera said. If a firm is declared systemically risky, it would be subject to an assessment, Mattera said. American International Group Inc., whose products include property-casualty insurance, was rescued by the U.S. government in 2008 after losses from bad housing bets drained the company of cash. To contact the reporter on this story: James Rowley in Washington at jarowley@bloomberg.net .

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Senators Want to Spare U.S. Insurers From Paying to Unwind Financial Firms

May 8, 2010

By James Rowley May 8 (Bloomberg) — Financial regulation legislation that would require property, casualty and auto insurers to help pay to liquidate failed banks may be altered by the U.S. Senate to exempt companies that don’t contribute to a future market collapse. Companies that write property, casualty, auto and business insurance say they shouldn’t be required to help pay for bank failures because they didn’t cause the 2008 financial crisis. The firms also say they already contribute to state funds to guarantee that claims against insolvent insurers are paid. An amendment with bipartisan sponsorship would excuse companies such as Boston-based Liberty Mutual Group Inc., Berkshire Hathaway Inc.’s Geico Corp. and other property, casualty and auto insurers from being assessed to help finance liquidations of banks if the insurers didn’t engage in practices that caused another market failure. “Roping them into this thing is pretty foolish,” said Senator Judd Gregg , a New Hampshire Republican who is one of the amendment’s sponsors. “The only reason it’s being done is A) somebody doesn’t like them or B) somebody is looking for money or capital” to finance the program that would deal with failed financial firms. ‘Rainy Day’ Fund As originally drafted by the Senate Banking Committee , the financial regulation bill would have required banks and insurance companies to contribute to a $50 billion “rainy day” fund to pay for the orderly liquidation of failed firms. The fund was eliminated in a compromise amendment approved earlier this week after Republicans argued that it would only perpetuate future bailouts of institutions “too big to fail.” Still, property, casualty and automobile insurers with assets of more than $50 billion would be obligated to pay assessments for the liquidation of failed firms under the amendment adopted May 5. The assessments would be imposed by the Federal Deposit Insurance Corp. to amass working capital for orderly liquidation. Such a requirement is unfair to insurers because “our consumers are well protected” by state regulations against insolvency of insurance companies, said Ben McKay , a Washington-based lobbyist for Property Casualty Insurers Association of America. ‘Reverse Isn’t True’ “We have already been obligated to pay into the guaranty funds to cover the failure of insurance companies,” he said. “The reverse isn’t true” because “investment banks don’t have to pay into our fund.” Assessing insurers for the cost of liquidating Wall Street firms means “you could have your grandmother in her Delta 88 paying for the failure of some investment banker who has the two houses in the Hamptons,” McKay said. If the proposed amendment were adopted, McKay said property and casualty insurers would “really be much more comfortable with” the overall bill. The chief sponsor of the financial regulations measure, Democratic Senator Christopher Dodd of Connecticut, said of the insurer’s concerns: “Hopefully, we will address some of that.” Another sponsor of the insurers amendment, Democratic Senator Jeanne Shaheen of New Hampshire said “there is still a discussion” about whether the proposal, among more than 170 amendments offered, would be accepted. Senate Majority Leader Harry Reid , a Nevada Democrat, has vowed to try to finish Senate debate next week and then seek a vote on the bill’s final passage. It then would have to be reconciled with a House version passed in December. New Powers The legislation would give federal financial regulators new powers to supervise banks and investment firms. The Senate yesterday rejected a proposed amendment to alter a proposed consumer financial protection bureau and another to force the largest banks to shrink in size. Other sponsors of the amendment affecting insurers are Massachusetts’ two senators, Democrat John Kerry and Republican Scott Brown . Liberty Mutual Group shouldn’t have to pay to unwind banks that “were the cause of the financial crisis” in 2008, or firms “by definition systemically risky,” said company spokesman Paul Mattera. In the last decade, Liberty Mutual, which employs almost 10,000 people in New Hampshire and Massachusetts, has paid $250 million into guaranty funds in the states where it does business, Mattera said. If a firm is declared systemically risky, it would be subject to an assessment, Mattera said. American International Group Inc., whose products include property-casualty insurance, was rescued by the U.S. government in 2008 after losses from bad housing bets drained the company of cash. To contact the reporter on this story: James Rowley in Washington at jarowley@bloomberg.net .

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House Transport Panel Chairman Oberstar Opposes United-Continental Merger

May 6, 2010

By John Hughes May 6 (Bloomberg) — United Airlines ’ merger with Continental Airlines Inc. should be rejected by the U.S. Justice Department because it would reduce competition, House Transportation Committee Chairman James Oberstar said. The merger would lead to higher fares, less service and more market power by “global mega-carriers,” Oberstar, a Minnesota Democrat, said on a conference call with reporters. “This transaction fundamentally alters the nature of competition in the domestic and international marketplace and should be stopped,” he said today in Washington. “I would not support any minuscule alterations, or even apparently larger ones” aimed at making the plan palatable. “This is wrong.” United parent UAL Corp. and Continental said May 3 they plan to merge in a stock swap that will create the world’s biggest airline. The plan will test President Barack Obama’s administration, which will consider its first airline merger after George W. Bush ’s administration approved three in a row. Oberstar, 75, said he expects Obama’s Justice Department “to be more serious” and to “use its authority of its antitrust powers.” He said he outlined his concerns in a letter to the Justice Department. Continental Chief Executive Officer Jeff Smisek would retain his title in the new company and United CEO Glenn Tilton would be nonexecutive chairman. United’s name and Chicago headquarters would be kept, as would Continental colors and logo. Each Continental share would be exchanged for 1.05 UAL shares. ‘Golden Parachutes’ This isn’t the first time Oberstar has used his role to criticize mergers. He opposed Delta Air Lines Inc.’s purchase of Northwest Airlines Corp. in 2008, saying it would lead to other deals and leave only three network carriers. “Hell no,” Oberstar said of mergers while Delta and Northwest were discussing a possible deal. “We did not enact deregulation in order to create golden parachute opportunities for airline executives, and that’s what results from mergers.” Oberstar said airlines were “whining” last year when they opposed his legislation, which is still pending, to place limits on carriers’ antitrust immunity for international alliances. “They don’t want to have to stand up and justify their getting a piece of the antitrust law of the nation?” Oberstar said then. “That’s nonsense. That’s un-American.” United and Houston-based Continental are the third- and fourth-largest U.S. airlines by traffic. The carriers had almost $29 billion in combined revenue last year. The airlines employ more than 88,000 workers. To contact the reporters on this story: John Hughes in Washington at jhughes5@bloomberg.net ;

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Wen Conflicted as Yuan Advance Moving Chinese Teddy-Bear Jobs to Vietnam

May 5, 2010

By Bloomberg News May 6 (Bloomberg) — Lovely Creations Corp., the supplier of talking teddy bears to Wal-Mart Stores Inc. , may move some of its 800 Chinese assembly jobs to Vietnam because the currency is eroding profits. “The yuan’s appreciation would mean we lose our profit margin,” said Poh-Heng Toh, general manager at Lovely Creations, a Taipei-based manufacturer with factories in the coastal provinces of Guangdong and Zhejiang. “We also have higher labor costs in China because, as the economy develops, workers demand better lives while our end customers like Wal-Mart won’t raise what they pay us.” As the U.S., India and Brazil raise pressure on Premier Wen Jiabao to end the yuan’s almost two-year peg to the dollar, business leaders say they’re ready to relocate where costs are lower. Haier Group, the biggest Chinese appliance maker, built plants in India and Thailand. U.S. shoemaker New Balance shifted orders to Indonesia. Li & Fung Ltd. , a leading supplier to Bentonville, Arkansas-based Wal-Mart, bought 5 percent fewer consumer-goods in China in 2009 and 20 percent more in Bangladesh. The yuan’s relative weakness and minimum wages still at least 86 percent lower than in the U.S. underpinned exports that powered 10 percent annual growth in the past two decades and made China the world’s third-largest economy. Currency gains may hurt light-manufacturing, textile, electronics and machinery industries that account for 70 million jobs and 70 percent of industrial exports, Zhu Hongren , chief engineer of the Ministry of Industry and Information Technology, said April 22. ‘Lobbying Extensively’ Allowing the currency to appreciate would help reduce costs of the nation’s $1 trillion in imports and boost spending power for its 1.3 billion people. It also would add another challenge for Wen, who is attempting to quash property speculation at a time when investors are already skittish about prices of financial assets. The benchmark Shanghai Composite Index has fallen 14 percent this year, more than any market in Asia. Hedge fund manager Jim Chanos said in April China’s real-estate market is a bubble that may burst as early as this year Wen, 67, probably will avoid a “mega-revaluation” and cap yuan gains at between 3 percent and 5 percent in the coming year to balance these goals, said Edwin Gutierrez , who oversees $5 billion of emerging-market debt for Aberdeen Asset Management Plc. “Chinese policy-makers always move in gradual steps,” Gutierrez said in an April 29 interview from London. “Margins for many coastal manufacturers, especially in rust-belt industries like textiles, toys and shoes, are pretty thin already and they’ve been lobbying extensively not to revalue.” Yuan Forwards China halted the currency’s 21 percent, three-year advance against the dollar in July 2008 to help exporters weather recessions in the U.S., Europe and Japan. Twelve-month non- deliverable yuan forwards traded at 6.6649 per dollar as of 10:11 a.m. in Hong Kong, reflecting bets the currency will gain 2.4 percent from the spot rate of 6.8266 in the coming year. While Wen froze the exchange rate against the dollar, the yuan has continued to appreciate, rising 16 percent against the euro in six months as Greece’s debt crisis threatened to slow an economic recovery in the region that has become the biggest buyer of Chinese goods. The currency also strengthened 45 percent against the Vietnamese dong in the past five years. Gross domestic product per capita in China has risen to $6,600, compared with $4,000 in Indonesia and $2,900 in Vietnam, according to Central Intelligence Agency estimates. Guangzhou , the capital of China’s richest province Guangdong, raised its minimum wage 28 percent on May 1 to the equivalent of about $1 per hour, compared with $7.25 in the U.S. Seeking a Delay Sales at Lovely Creations, which has surveyed sites in Vietnam and Indonesia in case it is forced to move, dropped 16 percent in 2009, Toh said at last month’s Hong Kong Electronics Fair. Li & Fung, Hong Kong billionaire William Fung ’s trading company, said sales fell 6 percent last year, the first decline since the company went public in 1992. Runliu Willow Arts & Crafts Co., a fence maker in the eastern province of Shandong, said its revenue fell about 50 percent between 2007 and 2009. “We have to raise prices by 20 percent after raw-material costs quintupled and labor costs gained 5 percent this year,” Zhang Ranzhong, a manager at Runliu Willow, said last week at the Canton Fair in Guangzhou. “We hope yuan appreciation can be delayed until the autumn.” Global Expansion Runliu may join a tour for executives to seek investment opportunities in Southeast Asian nations organized by the government, which is encouraging global expansion, said Zhang. Haier’s decision to open factories around the world made it “less exposed to the negative impact of the yuan’s appreciation,” said Zhang Tieyan , director of global branding at the Shandong-based company. New Balance, the closely held Boston-based maker of athletic shoes, plans to find sub-contractors in Indonesia to augment four plants in China and one in Vietnam, Judith Mackay , Asia apparel and license compliance manager, said in a March interview. It’s among four global shoemakers close to reaching similar sourcing agreements, Eddy Widjanarko, head of the Indonesian Footwear Association, said in an April 30 interview. Treasury Secretary Timothy Geithner said April 23 in Washington that it is in China’s own interest to shift to a more flexible currency to help bolster domestic demand. Central bank governors in India and Brazil said on April 20 a stronger yuan is needed to rebalance the global economy. Benefits to China A stronger yuan benefits companies selling into China with costs in foreign currencies, Terry Ho , chief financial officer at Xtep International Holdings Ltd., a Hong Kong-listed sportswear maker part-owned by Washington-based Carlyle Group, said in an April 28 interview. Xtep sales may grow about 20 percent this year as it opens as many as 1,000 stores in China, he said. Manufacturers prefer to move factories inland because they can tap growing affluence in China, said Mark McCombe , chief executive officer for Hong Kong at HSBC Holdings Plc, Europe’s largest bank. Domestic consumption added 6.2 percentage points to China’s 11.9 percent growth in the first quarter from a year earlier, while net exports cut 1.2 points, according to the state statistics bureau. “Traditionally factory owners producing goods in China would look for the shortest, most-efficient supply route out of the country,” McCombe said in an April 27 interview. “Now they’re investing much more time and energy in researching internal supply chains.” Supply Chains The pace of the migration depends on the yuan’s appreciation, Danny Lau, chairman of the Hong Kong Small and Medium Enterprises Association, said in an April 30 interview. Hong Kong manufacturers in Guangdong’s Pearl River Delta fell to 50,000 from 70,000 in two years. About 20 percent of his group’s 800 members may move inland or abroad, he said. Lufeng Fu He Industrial Co., which makes wooden chairs and tables, will open a wood processing factory in Jiangxi province, west of its base in Guangdong, reducing costs by 10 percent, according to General Manager Xue Shuoxun. “I would jump off a building to kill myself if the yuan has a one-time revaluation,” he said at the Canton Fair. “It should be, as everyone has said, a 3 to 5 percent gradual appreciation by the end of this year.” — Bob Chen , Judy Chen , Lilian Karunungan , Patricia Lui , Frederik Balfour, Achmad Sukarsono . Editors: Sandy Hendry , James Regan To contact the Bloomberg news staff on this story: Bob Chen in Hong Kong at bchen45@bloomberg.net ; Judy Chen in Shanghai at Xchen45@bloomberg.net .

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UAL-Continental Merger Revived at `Right Time’ After Failure of 2008 Talks

May 3, 2010

By Mary Jane Credeur and Mary Schlangenstein May 3 (Bloomberg) — United Airlines parent UAL Corp. and Continental Airlines Inc. agreed to merge in a stock swap valued at more than $3 billion to create the world’s largest carrier , reviving a deal that fell apart two years ago. United’s name and Chicago headquarters will be retained, while Continental Chief Executive Officer Jeff Smisek , 55, will become the CEO and United’s Glenn Tilton , 62, will be nonexecutive chairman, the companies said today in a statement. Each Continental share will be exchanged for 1.05 UAL shares. United and Continental together would take the top spot in global traffic from Delta Air Lines Inc. , and operate hubs in New York and Washington. Negotiations resumed last month after Continental pulled out of talks in April 2008 as fuel prices rose and the recession deepened. “With the recovery of the economy, fuel prices moderating, capital markets opening and both companies having solid liquidity, it was the right time to get involved in merger discussions,” Smisek said today in an interview. Tilton said he told UAL’s board: “Right deal, right time.” Annual cost savings and new revenue from the tie-up should reach $1 billion to $1.2 billion by 2013, the airlines said. The transaction requires approval by shareholders and regulators. Existing travel reservations won’t be affected, and customers won’t see any operational changes until after the deal closes near the end of this year, the companies said on a website set up to share merger information. Workforce Impact “We expect minimal impact to our front-line employees, with any reductions coming principally through retirement, attrition and voluntary programs,” Tilton told United workers in a message today. There will be “some reductions” in the salaried and management workforce at both airlines, he said. UAL shareholders will own 55 percent of the combined company. Based on UAL’s April 30 closing price, the deal values Houston-based Continental at about $3.17 billion, according to data compiled by Bloomberg. The companies’ combined value as of that date was about $6.8 billion, with UAL and Continental ranking third and fourth among U.S. carriers . UAL rose 56 cents, or 2.6 percent, to $22.16 at 9:34 a.m. in New York on the Nasdaq Stock Market, while Continental gained 40 cents, or 1.8 percent, to $22.75 on the New York Stock Exchange. In addition to Smisek and Tilton, the merged airline’s 16- member board will include 6 directors from each carrier as well as 2 union representatives. The airlines said Tilton’s position as non-executive chairman will run through Dec. 31, 2012, or the second anniversary of the deal’s closing, whichever is later. Name, Livery The parent company will be named United Continental Holdings Inc. The airline will operate under the United name, and aircraft will have the Continental logo and colors, the companies said. “This is what happens in a merger of equals,” Smisek said. “You take the best of both companies and carry them forward. The United name is very well recognized internationally, Continental’s logo is symbolic of great culture and service.” Together, the airlines fly to 370 destinations in 59 countries and plan to continue service to all those points. United and Continental are now ranked third and fourth in the U.S. by traffic, behind Delta and AMR Corp. ’s American Airlines. The carriers’ frequent-flier programs will be combined, and members’ miles will be put into one account when the merger closes, United told customers in an e-mail. Before then, each program will continue and the points can be used under existing rules. Combined Revenue United and Continental had almost $29 billion in combined revenue last year. Their main jet fleets total 700 aircraft, and they now employ more than 88,000 workers. Besides Washington and New Jersey’s Newark airport, their other hubs include Chicago, Denver, San Francisco, Los Angeles, Houston, Cleveland and Guam. “This is transformational,” Vicki Bryan , a debt analyst at New York-based Gimme Credit LLC, said in an interview before the announcement. “This has really been two years in the making. They did all the heavy lifting in 2008.” JPMorgan Chase & Co. ’s J.P. Morgan Securities Inc. and Goldman Sachs Group Inc. acted as financial advisers for United, with Cravath, Swaine & Moore LLP providing legal advice. Lazard Ltd. and Morgan Stanley advised Continental, with Jones Day, Vinson & Elkins LLP and Freshfields Bruckhaus Deringer LLP providing legal counsel. 2008 Talks Delta vaulted to the top of the worldwide industry by traffic after buying Northwest Airlines Corp. in 2008, spurring talks on consolidation across the U.S. industry. At the time, Continental came within hours of approving a merger with United before walking away. Smisek was chief operating officer then, and succeeded Larry Kellner as CEO in January. Those talks collapsed because “it was a more risky environment at that time” when oil prices exceeded $120 a barrel and economic growth was slowing, Bryan said. Crude traded at $86.26 on April 30 on the New York Mercantile Exchange. “This was something that’s always been in the best interest of both companies,” Smisek said today in the interview. “But the time was not right, the opportunity was not there.” U.S. air traffic has begun to rebound as the recession eases, giving airlines the chance to push up fares they slashed to lure vacationers when corporate travel waned. Benefit of Waiting “The two years’ experience has been good for both companies to see opportunities we previously hadn’t imagined were there,” Tilton said today on a conference call with analysts and investors. United initially revived talks with US Airways Group Inc. , a reprise of those two carriers’ discussions from 2008 after Continental backed out. The US Airways conversations stayed under wraps until an April 7 New York Times report. Tilton said Smisek reached out two days later. “I saw the news release go by that my best partner for the future potentially was marrying somebody else,” Smisek said in the interview. “I called Glenn and said I was a much prettier girl.” To contact the reporters on this story: Mary Jane Credeur in New York at mcredeur@bloomberg.net ; Mary Schlangenstein in Dallas at maryc.s@bloomberg.net .

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Hong Kong Air Pollution Worst on Record, Dissatisfaction Grows

May 3, 2010

By Debra Mao May 3 (Bloomberg) — Hong Kong’s air pollution was the worst on record during the past two quarters, sparking regular government health warnings and growing discontent among the city’s 7 million people. Roadside pollution was either “very high” or “severe” 13.6 percent of the time from January to March and 23.8 percent of the time in the October-December period last year, compared with a previous high of 13.4 percent in the fourth quarter of 2008, Environmental Protection Department data show. The oldest quarterly air pollution index figures showed it breaching “very high” levels 1.9 percent of the time in the third quarter of 1999. Then-Chief Executive Tung Chee-hwa declared in his 1999 policy address that fighting pollution would be a priority. Eleven years later, it has gotten worse, at times forcing schools to cancel sporting events and stirring concerns it could harm companies’ efforts to recruit overseas workers to the city. “There aren’t too many other financial hubs where you have to check the pollution index before deciding whether to run outside or on the treadmill,” said Ben Hoad , a sales trader from Australia who’s lived in Hong Kong for five years. Hong Kong’s Air Pollution Index reached a “very high” 102 today in Causeway Bay, a congested shopping area east of the main business district. Public Discontent Hong Kong people are the most dissatisfied in the world with their air quality, according to a Gallup survey of adults in 153 countries. Seventy percent of the city’s residents expressed the highest level of dissatisfaction with air quality. The next most disgruntled population was in Chad, where 59 percent of adults were highly dissatisfied with their air, as well as water and other basics, said Gallup research director Bob Tortora. Singapore had the lowest dissatisfaction with air quality, 3 percent, according to the survey released April 22, the 40th anniversary of Earth Day. Information Officer Y.F. Chau of the Environmental Protection Department acknowledged the recent rise in roadside air pollution. While Chau said he could not provide an immediate explanation for the increase, he said the government is taking measures to fight back including vehicle emission controls. Health Warnings The government classifies readings above 100 as “very high.” When it’s that level at general stations, the government discourages people with heart and respiratory diseases from outdoor activity and physical exercise. With readings above 100 at roadside stations, officials urge people with heart or respiratory diseases to avoid staying in heavy traffic areas. “Studies show that if you have long-term exposure to fine particulates generated from diesel engines, then your risk of death from a respiratory disease rises over 10 percent,” said Wong Tze Wai, a professor in public health at the Chinese University of Hong Kong. Wong has researched the health effects of air pollution for more than 20 years. At levels above 200, the pollution is called “severe” and the warnings apply to the general public. Pollution is often cited as an issue for people thinking of moving to Hong Kong. “It gets brought up in every conversation I have with people we try to bring out here,” said Yash Rana, a partner at law firm Goodwin Procter. Rana moved to Hong Kong a year and a half ago and installed an “industrial strength” air-filtering system in his home for his asthmatic daughter. Topping Pollution Index Hong Kong’s pollution index rose to the top reading of 500 at 10 of 14 monitoring stations on March 22 as winds from sandstorms in northern China carried particles to Hong Kong. Pollution had never been so high in the city. Alexis Lau, an assistant atmospheric math professor at the Hong Kong University of Science and Technology, said this year’s increased frequency of high roadside pollution had nothing to do with sandstorms. “It has to do with the high nitrogen dioxide ,” said Lau, referring to the light brown gas produced by vehicle engines. Lau periodically analyzes concentration levels published by the government. The Hong Kong and Guangdong province governments released a report April 29 on air quality of the Pearl River Delta in 2009, citing lower levels of sulphur dioxide, nitrogen dioxide and breathable suspended particles compared with previous years. Scrapping Old Buses “There is absolutely no reason to rejoice,” wrote Joanne Ooi , chief executive officer of independent advocacy group Clean Air Network , which sends e-mail alerts when the index rises above 100. “What matters is the level of pollution to which people are actually exposed to at street level,” Ooi wrote in response to the Hong Kong-Guangdong report. Since 1999, the Hong Kong government has implemented control measures to reduce vehicle emissions, Chau wrote in an e-mailed statement April 30. In March, Secretary for the Environment Edward Yau said Hong Kong may accelerate replacement of old buses, change transit routes and set up low-emission zones to cut pollution. Old buses are expected to be eliminated from city roads by 2019, according to Yau. In April, the department submitted a proposed law to Hong Kong’s Legislative Council requiring drivers to switch off their engines while their vehicles are idling. “Actions are in hand to promote the use of electric vehicles, ban idling vehicles with running engines and to implement a statutory specification for using biodiesel as motor vehicle fuel,” Chau wrote. Hong Kong lawmakers will debate a motion May 5 on improving air quality, urging the government to improve early-warning signals for heavy pollution and to make specific guidelines for closing schools and suspending outdoor work when it hits severe levels. Legislator Kam Nai-wai wants Hong Kong to adopt more stringent air-quality guidelines and to be more prompt about taking high-emission buses off the streets. “If it gets much worse, I think people will leave,” said Rana. “And you might have to pay more money to get people to come here and replace those people.” To contact the reporter on this story: Debra Mao in Hong Kong at dmao5@bloomberg.net

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United, Continental May Win U.S. Support by Ceding Some Flights

May 3, 2010

By John Hughes and Jeff Bliss May 3 (Bloomberg) — United Airlines and Continental Airlines Inc. may need to cede some flights to win U.S. approval for the first proposed airline merger reviewed by the Obama administration. The U.S. Justice Department may question whether the deal would limit competition on routes to China and Japan and from New York to Europe, prompting the airlines to give up routes or airport takeoff and landing slots, Mike Goldman, a Washington aviation attorney, said in an interview. United parent UAL Corp. and Continental agreed yesterday to merge in a stock swap valued at $3.7 billion, said people with knowledge of the deal. The combination may test President Barack Obama’s antitrust policies after the Bush administration cleared three mergers, most recently Delta Air Lines Inc. and Northwest Airlines Corp. in 2008 to create the world’s biggest carrier. Democrat Obama’s Justice Department is “likely to be somewhat more skeptical” than George W. Bush’s was, said James Burnley , a partner at Venable LLP in Washington and transportation secretary under Republican President Ronald Reagan . “It’s by no means going to get automatic approval.” The department may require the carriers to yield some take- off and landing slots at airports such as Liberty in Newark, New Jersey, where competition is restricted because total flights are capped, Burnley said. Jean Medina , a spokeswoman for United, and Continental’s Julie King declined to comment yesterday. The deal may be announced today, said the people who requested anonymity because the deal hasn’t been made public. The companies’ combined equity value would be about $8.3 billion, one person said. Not ‘Very Serious’ Paul Mifsud, a Washington consultant and former airline executive, said he doesn’t “see the antitrust issues as very serious.” While the Justice Department will examine routes for overlapping service, Mifsud said, “I would see this approved in fairly short order, 30 to 60 days.” United , based in Chicago, and Houston-based Continental are the third- and fourth-largest U.S. airlines by traffic. Antitrust authorities have previously approved Delta-Northwest, buyout firm TPG Inc.’s takeover of Midwest Air Group Inc. in 2008 and US Airways Group Inc.’s merger with America West Holdings Corp. in 2005. The Justice Department’s antitrust division, now led by Christine Varney , has raised questions about airline alliances that stop short of mergers. Last June the department called for limits on Continental’s request to coordinate flights overseas with United, saying the plan was “unprecedented in scope and breadth, sanctioning collusion.” ‘Very Skeptical’ The department “signaled quite strongly, in my view, that it would be very skeptical of a complete merger between United and Continental,” said Mark Popofsky , co-head of antitrust at Ropes & Gray in Washington and a senior counsel in President Bill Clinton’s Justice Department. The Transportation Department approved the Continental- United alliance in July, with limits sought by the Justice Department. Varney’s agency in December also urged limits on British Airways Plc’s alliance with AMR Corp.’s American Airlines. “I come to this job not timid about using antitrust authority,” Varney said in a February interview. Among United-Continental domestic routes that may draw scrutiny are Chicago-Houston, Cleveland-Washington and New York- Chicago, said Goldman, a partner at Silverberg Goldman and Bikoff LLP. Three Network Airlines “The concern is that we are consolidating to an industry with three big network carriers” and low-fare airlines, said Goldman, whose clients include European carriers SAS Group and Spanair SA. “The question is whether that is good for competition. Will it result in higher prices?” Of the 100 largest U.S. cities, the merger would increase market concentration in four — Washington, San Diego, Seattle and New Orleans, according to an April 19 note by Jamie Baker , a JPMorgan Chase & Co. analyst in New York. The two carriers have overlapping non-stop flights in 13 markets, one more than Delta and Northwest had when their merger was proposed, according to Baker. “The precedent of Delta and Northwest will have an impact,” said Mifsud, former vice president of government and legal affairs for Dutch carrier KLM. The growth of low-fare carriers such as Southwest Airlines Co. also will help assuage concerns, he said. Continental has U.S. hubs in Newark, Houston and Cleveland, while United’s are in Chicago, San Francisco, Denver and Washington. Hub City Review “The scrutiny will be the effect of the hub cities on competition domestically,” said Makan Delrahim, an attorney with Brownstein Hyatt Farber Schreck in Washington. “One potential area could be the effect of the merger with respect to Newark,” said Delrahim, a deputy assistant attorney general in the antitrust division under George W. Bush. A United-Continental combination would surpass Delta for the top spot among U.S. airlines for flights across the Atlantic, with 40 percent of passenger traffic, and would handle 53 percent of traffic across the Pacific, where United leads, based on data compiled by Bloomberg. “Even if the government determines that certain aspects of the transaction are anticompetitive, the parties will have the opportunity to offer a settlement,” said Andre Barlow , a partner at Doyle, Barlow & Mazard LLC in Washington and a former Justice antitrust lawyer. “That could possibly remedy those antitrust concerns.” To contact the reporters on this story: John Hughes in Washington at jhughes5@bloomberg.net ; Jeff Bliss in Washington at jbliss@bloomberg.net

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United, Continental May Cede Air Routes to Win U.S. Clearance for Merger

May 2, 2010

By John Hughes and Jeff Bliss May 3 (Bloomberg) — United Airlines and Continental Airlines Inc. may need to cede some flights to win U.S. approval for the first proposed airline merger reviewed by the Obama administration. The U.S. Justice Department may question whether the deal would limit competition on routes to China and Japan and from New York to Europe, prompting the airlines to give up routes or airport takeoff and landing slots, Mike Goldman, a Washington aviation attorney, said in an interview. United parent UAL Corp. and Continental agreed yesterday to merge in a stock swap valued at $3.7 billion, said people with knowledge of the deal. The combination may test President Barack Obama’s antitrust policies after the Bush administration cleared three mergers, most recently Delta Air Lines Inc. and Northwest Airlines Corp. in 2008 to create the world’s biggest carrier. Democrat Obama’s Justice Department is “likely to be somewhat more skeptical” than George W. Bush’s was, said James Burnley , a partner at Venable LLP in Washington and transportation secretary under Republican President Ronald Reagan . “It’s by no means going to get automatic approval.” The department may require the carriers to yield some take- off and landing slots at airports such as Liberty in Newark, New Jersey, where competition is restricted because total flights are capped, Burnley said. Jean Medina , a spokeswoman for United, and Continental’s Julie King declined to comment yesterday. The deal may be announced today, said the people who requested anonymity because the deal hasn’t been made public. The companies’ combined equity value would be about $8.3 billion, one person said. Not ‘Very Serious’ Paul Mifsud, a Washington consultant and former airline executive, said he doesn’t “see the antitrust issues as very serious.” While the Justice Department will examine routes for overlapping service, Mifsud said, “I would see this approved in fairly short order, 30 to 60 days.” United , based in Chicago, and Houston-based Continental are the third- and fourth-largest U.S. airlines by traffic. Antitrust authorities have previously approved Delta-Northwest, buyout firm TPG Inc.’s takeover of Midwest Air Group Inc. in 2008 and US Airways Group Inc.’s merger with America West Holdings Corp. in 2005. The Justice Department’s antitrust division, now led by Christine Varney , has raised questions about airline alliances that stop short of mergers. Last June the department called for limits on Continental’s request to coordinate flights overseas with United, saying the plan was “unprecedented in scope and breadth, sanctioning collusion.” ‘Very Skeptical’ The department “signaled quite strongly, in my view, that it would be very skeptical of a complete merger between United and Continental,” said Mark Popofsky , co-head of antitrust at Ropes & Gray in Washington and a senior counsel in President Bill Clinton’s Justice Department. The Transportation Department approved the Continental- United alliance in July, with limits sought by the Justice Department. Varney’s agency in December also urged limits on British Airways Plc’s alliance with AMR Corp.’s American Airlines. “I come to this job not timid about using antitrust authority,” Varney said in a February interview. Among United-Continental domestic routes that may draw scrutiny are Chicago-Houston, Cleveland-Washington and New York- Chicago, said Goldman, a partner at Silverberg Goldman and Bikoff LLP. Three Network Airlines “The concern is that we are consolidating to an industry with three big network carriers” and low-fare airlines, said Goldman, whose clients include European carriers SAS Group and Spanair SA. “The question is whether that is good for competition. Will it result in higher prices?” Of the 100 largest U.S. cities, the merger would increase market concentration in four — Washington, San Diego, Seattle and New Orleans, according to an April 19 note by Jamie Baker , a JPMorgan Chase & Co. analyst in New York. The two carriers have overlapping non-stop flights in 13 markets, one more than Delta and Northwest had when their merger was proposed, according to Baker. “The precedent of Delta and Northwest will have an impact,” said Mifsud, former vice president of government and legal affairs for Dutch carrier KLM. The growth of low-fare carriers such as Southwest Airlines Co. also will help assuage concerns, he said. Continental has U.S. hubs in Newark, Houston and Cleveland, while United’s are in Chicago, San Francisco, Denver and Washington. Hub City Review “The scrutiny will be the effect of the hub cities on competition domestically,” said Makan Delrahim, an attorney with Brownstein Hyatt Farber Schreck in Washington. “One potential area could be the effect of the merger with respect to Newark,” said Delrahim, a deputy assistant attorney general in the antitrust division under George W. Bush. A United-Continental combination would surpass Delta for the top spot among U.S. airlines for flights across the Atlantic, with 40 percent of passenger traffic, and would handle 53 percent of traffic across the Pacific, where United leads, based on data compiled by Bloomberg. “Even if the government determines that certain aspects of the transaction are anticompetitive, the parties will have the opportunity to offer a settlement,” said Andre Barlow , a partner at Doyle, Barlow & Mazard LLC in Washington and a former Justice antitrust lawyer. “That could possibly remedy those antitrust concerns.” To contact the reporters on this story: John Hughes in Washington at jhughes5@bloomberg.net ; Jeff Bliss in Washington at jbliss@bloomberg.net

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United-Continental Merger Will Create World’s Largest Airline

May 2, 2010

MINNEAPOLIS — Directors at Continental and United airlines have approved a deal that would combine them into the world’s largest airline, a source with knowledge of the situation said on Sunday. The stock-swap deal values Continental at some $3.2 billion. Combining Continental and United would leave the U.S. with three big international airlines – the new United, Delta, and American. US Airways Group Inc. also flies internationally, but its 2009 international traffic was less than one-third the size of American’s. The Sunday board actions were described by a person with knowledge of the votes, who declined to be identified because the companies plan an announcement on Monday. The combined airline will be called United, based in United’s hometown of Chicago, and run by Continental CEO Jeffery Smisek. United CEO Glenn Tilton will be chairman. United, a unit of UAL Corp., is the nation’s third-largest carrier by traffic. Continental Airlines Inc., in Houston, is the country’s fourth biggest. Any deal would need the approval of antitrust regulators. The Justice Department approved Delta Air Lines Inc.’s purchase of Northwest in 2008, which turned Delta into the world’s biggest carrier. Another key issue in putting the two airlines together will be integrating the pilot workforce. A union hot line message to United pilots on Sunday said the “union remains engaged in this issue, and if a merger is announced by United and Continental,” union officials “are fully prepared to protect and defend the interests of all United pilots.” Continental and United both trace their roots to air services founded by Walter Varney in the 1920s and 30s. One of United’s main attractions is its Pacific routes, which it bought from Pan-Am in 1985. It was already the biggest carrier in the U.S., and the Pan-Am deal made it a major international carrier for the first time. Northwest’s Pacific routes were one reason Delta pursued that deal two years ago. Continental jumped in size in 1987 by swallowing Frontier, People Express and New York Air. Both airlines shrank to cope with the recession. United cut capacity 7.4 percent last year, and Continental shrank 5.2 percent. And they’ve both been losing money. Continental reported a 2009 loss of $282 million as revenue plunged 17.4 percent to $12.59 billion. UAL lost $651 million for the year as revenue fell 19.1 percent to $16.34 billion. The market capitalization for UAL Corp. on Friday was $3.62 billion, while Continental’s was $3.12 billion. Just two years ago, American Airlines was the nation’s biggest carrier. First Delta surpassed it, and now United might. More than pride is at stake. Corporate travelers gravitate toward airlines with the most routes. On April 8, when there was talk that United and US Airways were discussing a deal, American CEO Gerard Arpey said the company was “not in any way threatened” by the merger talk involving other carriers. “We think we’re in a very good position irrespective of what may happen,” he said at the time.

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United Airlines, Continental Are Said to Consider No-Premium Stock Merger

April 22, 2010

By Zachary R. Mider, Mary Schlangenstein and Mary Jane Credeur April 22 (Bloomberg) — UAL Corp. ’s United Airlines and Continental Airlines Inc. are considering a stock-for-stock merger with no market premium, said two people with knowledge of the talks, creating a company valued at more than $6 billion. UAL Chief Executive Officer Glenn Tilton , 62, would become chairman while Continental CEO Jeff Smisek , 55, would become CEO, said the people, who asked not to be identified because the details are private. The terms aren’t final and a deal may be more than a week away, the people said today. Putting together United and Continental would create the world’s largest carrier by passenger traffic, surpassing Delta Air Lines Inc. The discussions were described after US Airways Group Inc. said it had ended merger talks with United, leaving United and Continental as the focus of industry consolidation. “United and Continental would make a great combination and give them market mass against Delta,” said Ray Neidl , an independent airline analyst in New York. “Their route combination would be just about the best in the industry.” Other directors and executives at the combined airline besides Tilton and Smisek also may be drawn from the board and management at both companies, the people said. Market Values Based on today’s closing stock prices, the merged carrier would have a market value of $6.6 billion. UAL ’s value was about $3.64 billion and Houston-based Continental ’s was about $2.98 billion, ranking them third and fourth in the U.S. industry, according to data compiled by Bloomberg.      UAL jumped as much as 89 cents, or 4.1 percent, to $22.60 at 4:42 p.m. after the close of regular Nasdaq Stock Market trading. Continental slid as much as 46 cents, or 2.1 percent, to $20.97 on the New York Stock Exchange. Jean Medina , a spokeswoman for Chicago-based United, declined to comment. A message left with Continental’s Julie King wasn’t returned. “We are examining Continental’s options and will take whatever action we believe to be in the best interest of our stockholders, customers, employees and the communities we serve,” Smisek told analysts earlier today on a conference call. United and Continental are the third- and fourth-largest U.S. airlines by traffic, trailing Delta and AMR Corp. ’s American Airlines. Three Airlines Their discussions began this month, after talks got under way between United and US Airways in February, people have said. Tempe, Arizona-based US Airways pulled out after concluding that United was more interested in pursuing a tie-up with Continental, people familiar with those talks said today. “Over the past several months, we have studied a transaction with United,” US Airways CEO Doug Parker told employees in a letter. “However, those talks have not progressed to a merger agreement, and for the foreseeable future we intend to remain a stand-alone carrier.” The United-Continental negotiations restart conversations that collapsed in 2008 when Continental decided to stay independent. Continental later joined the Star Alliance group of airlines led by United. Together, United and Continental would leapfrog Delta for the top spot across both the Atlantic and Pacific among U.S. airlines, with 40 percent and 53 percent of traffic, based on data compiled by Bloomberg. The merged carrier would be No. 2 in Latin America behind American . Blending their route systems would produce two hubs at U.S. East Coast business centers, United’s at Washington Dulles and Continental’s at Newark, New Jersey. United’s routes include flights between Washington and Moscow, a city not served by Continental. To contact the reporter on this story: Zachary R. Mider in New York at zmider1@bloomberg.net ; Mary Schlangenstein in Dallas at Maryc.s@bloombeg.net Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net

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United Airlines, Continental Are Said to Consider No-Premium Stock Merger

April 22, 2010

By Zachary R. Mider, Mary Schlangenstein and Mary Jane Credeur April 22 (Bloomberg) — UAL Corp. ’s United Airlines and Continental Airlines Inc. are considering a stock-for-stock merger with no market premium, said two people with knowledge of the talks, creating a company valued at more than $6 billion. UAL Chief Executive Officer Glenn Tilton , 62, would become chairman while Continental CEO Jeff Smisek , 55, would become CEO, said the people, who asked not to be identified because the details are private. The terms aren’t final and a deal may be more than a week away, the people said today. Putting together United and Continental would create the world’s largest carrier by passenger traffic, surpassing Delta Air Lines Inc. The discussions were described after US Airways Group Inc. said it had ended merger talks with United, leaving United and Continental as the focus of industry consolidation. “United and Continental would make a great combination and give them market mass against Delta,” said Ray Neidl , an independent airline analyst in New York. “Their route combination would be just about the best in the industry.” Other directors and executives at the combined airline besides Tilton and Smisek also may be drawn from the board and management at both companies, the people said. Market Values Based on today’s closing stock prices, the merged carrier would have a market value of $6.6 billion. UAL ’s value was about $3.64 billion and Houston-based Continental ’s was about $2.98 billion, ranking them third and fourth in the U.S. industry, according to data compiled by Bloomberg.      UAL jumped as much as 89 cents, or 4.1 percent, to $22.60 at 4:42 p.m. after the close of regular Nasdaq Stock Market trading. Continental slid as much as 46 cents, or 2.1 percent, to $20.97 on the New York Stock Exchange. Jean Medina , a spokeswoman for Chicago-based United, declined to comment. A message left with Continental’s Julie King wasn’t returned. “We are examining Continental’s options and will take whatever action we believe to be in the best interest of our stockholders, customers, employees and the communities we serve,” Smisek told analysts earlier today on a conference call. United and Continental are the third- and fourth-largest U.S. airlines by traffic, trailing Delta and AMR Corp. ’s American Airlines. Three Airlines Their discussions began this month, after talks got under way between United and US Airways in February, people have said. Tempe, Arizona-based US Airways pulled out after concluding that United was more interested in pursuing a tie-up with Continental, people familiar with those talks said today. “Over the past several months, we have studied a transaction with United,” US Airways CEO Doug Parker told employees in a letter. “However, those talks have not progressed to a merger agreement, and for the foreseeable future we intend to remain a stand-alone carrier.” The United-Continental negotiations restart conversations that collapsed in 2008 when Continental decided to stay independent. Continental later joined the Star Alliance group of airlines led by United. Together, United and Continental would leapfrog Delta for the top spot across both the Atlantic and Pacific among U.S. airlines, with 40 percent and 53 percent of traffic, based on data compiled by Bloomberg. The merged carrier would be No. 2 in Latin America behind American . Blending their route systems would produce two hubs at U.S. East Coast business centers, United’s at Washington Dulles and Continental’s at Newark, New Jersey. United’s routes include flights between Washington and Moscow, a city not served by Continental. To contact the reporter on this story: Zachary R. Mider in New York at zmider1@bloomberg.net ; Mary Schlangenstein in Dallas at Maryc.s@bloombeg.net Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net

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Schumer: 5 Airlines Won’t Charge For Carryon Bags

April 18, 2010

ATLANTA — In a remarkable gesture to fee-weary air travelers, five major U.S. airlines are committing to actually not charge a fee for something – the sacred carryon bag. The announcement Sunday comes despite the fact that some of those same airlines are expected to report first-quarter losses next week amid significantly higher fuel prices and the beating they took from the heavy February snowstorms. Add-on fees for things like checked bags, pillows and food are a key revenue stream for them. For 26 large U.S. airlines, so-called ancillary fee revenue accounted for 6.9 percent of their total operating revenue in the third quarter of 2009, up from 4.1 percent a year earlier, the most recently available government data shows. But major carriers risk alienating customers if they follow Spirit Airlines’ lead and impose a fee on carryon bags. The small Florida airline in August will begin charging customers up to $45 to place a bag in an overhead bin. Other fees haven’t stopped people from flying, but many of those fees can be avoided. It would be hard for many travelers to avoid a carryon bag fee. “We believe it is something that’s important to our customers and they value, and we will continue making that available to them at no charge,” American Airlines spokesman Roger Frizzell said. New York Sen. Charles Schumer said Sunday that American, Delta Air Lines, United Airlines, US Airways and JetBlue Airways each have committed to him that they would not institute fees for carryon bags. He said he was hopeful other carriers would follow suit. Notably absent from the list was Continental Airlines, which is said to be in merger talks with United. It wasn’t immediately clear how long the airlines had pledged not to charge for carryons. Frizzell couldn’t say, and a spokesman for Delta declined to comment. Schumer said he planned to meet with Spirit Airlines leadership in the coming week. He will have an uphill battle changing Spirit’s mind, however. Ben Baldanza, Spirit’s president and CEO, told The Associated Press on Sunday that his airline still plans to go forward with its carryon bag fee. “Our plan was never predicated on anyone matching us,” Baldanza said. “The fact that other people are saying they won’t has never changed our view that this is right.” He said the decision by the five major carriers actually puts pressure on those airlines because Spirit has lowered its fares more than the price of the new fee. “We knew we took a risk with this strategy, but we believe on balance it’s one that our customers will buy into,” Baldanza said. Schumer and five other Democratic senators – Jeanne Shaheen of New Hampshire, Ben Cardin of Maryland, Amy Klobuchar of Minnesota, and Robert Menendez and Frank Lautenberg of New Jersey – are supporting legislation that would tax airlines if they charged carryon bag fees. Schumer said the legislation would move forward until it becomes clear that no airline will institute the charges.

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Zimbabwe’s Stocks Post Longest Rally This Year on Review of Ownership Law

March 26, 2010

By Janice Kew and Brian Latham March 26 (Bloomberg) — Zimbabwe shares posted their longest 2010 rally as the government reviews forcing companies to transfer ownership to black citizens. Exotix USA Inc. and Kingdom Stock Brokers Ltd. said further gains may be limited. The 75-stock ZSE Industrial Index , which climbed 51 percent last year, rose for the past five days, increasing 9 percent. The index is still 9.6 percent lower than when President Robert Mugabe signed the Indigenization and Empowerment Act into law on Feb. 5. The indigenization law affects companies with more than $500,000 of assets, including Anglo Platinum Ltd. , Impala Platinum Holdings Ltd. and Aquarius Platinum Ltd. , three of the world’s four-biggest producers of the metal, which all own mines in Zimbabwe. The country has the world’s second-largest reserves of platinum after South Africa. Old Mutual Plc , Africa’s biggest insurer, also owns properties and a life-insurance operation in the country. “The stocks have gained on talks to review the indigenization act and how this will be implemented sector by sector,” Patrick Saziwa , an equity trader at Kingdom, said by phone from the capital Harare. “Stock gains may be limited from here until there is more clarity.” The law stipulates black ownership must be completed within five years, without providing a clear mechanism for the transfer of shares to black Zimbabweans. Rally Zimbabwe’s benchmark index has surged 75 percent since resuming trading in February last year after the Movement for Democratic Change, led by Morgan Tsvangirai , formed a coalition government with Mugabe’s Zimbabwe African National Union- Patriotic Front party. Shares have fallen 7.9 percent this year as the MDC accused Mugabe of repeatedly violating the power- sharing accord and making several key appointments without consultation. South African President Jacob Zuma this week urged Western nations to lift sanctions including travel bans and asset freezes targeted against Mugabe and his allies, saying they were undermining the nation’s coalition government. Clarity on Zimbabwe’s “coalition government and recent proposals to empower local business ownership is necessary and could act as a catalyst toward further investment interest, and a rise in the stock market as well as much needed capital from western donors” Ashley Bendell , a New-York based associate director at Exotix, said in an e-mailed response to questions. A failure to make “significant changes” may cause stocks to decline between 10 and 20 percent from current levels this year, Bendell said. The economy is recovering from a decade of recession that followed Mugabe ’s seizure of white-owned commercial farms to redistribute to black subsistence farmers deprived of land during colonial rule. The program slashed exports. The benchmark measure may increase to 178 by the end of December if the political environment stabilizes, according to Kingdom. Econet Wireless Zimbabwe Ltd. , a mobile phone company, is the biggest company by market capitalization on the exchange, with a value of $783 million. Delta Corp. is the second biggest with a value of $498 million. To contact the reporters on this story: Janice Kew in Johannesburg at jkew1@bloomberg.net ; Brian Latham in Johannesburg at blatham@bloomberg.net .

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AMR Flight Attendants Take Step Toward First U.S. Carrier Strike Since ’05

March 16, 2010

By Mary Schlangenstein March 16 (Bloomberg) — American Airlines ’ flight attendants requested federal approval to end contract talks, a step toward the first strike at a major U.S. carrier in almost five years. The Association of Professional Flight Attendants asked the National Mediation Board to declare bargaining with AMR Corp. ’s American at an impasse, union President Laura Glading said. Only the board can approve a halt to negotiations, putting the parties into a 30-day “cooling-off” period before a walkout. Glading’s proposal to break off talks made the attendants union the second labor group at American to try to trigger a countdown toward a strike. The Transport Workers Union , which represents ground workers, asked permission last week to be freed from contract discussions. “I can’t imagine anyone really wants to strike,” William Swelbar , a research engineer at Massachusetts Institute of Technology’s International Center for Air Transportation, said before the attendants made their request. He said a walkout would disrupt cash flow in the busy U.S. summer travel season. Federal law sets out the mediators’ role in airline labor talks. No large U.S. carrier has suffered a strike since 2005, when 4,200 Northwest Airlines Corp. mechanics and aircraft cleaners walked off the job. Northwest, which was acquired by Delta Air Lines Inc. in 2008, responded by hiring replacements. A telephone message left with American’s media office for comment wasn’t immediately returned. Talks between American, the world’s second-biggest airline behind Delta, and the APFA began June 10, 2008. The union, which represents 16,550 active attendants and 1,450 on furlough, has said it will conduct a strike authorization vote. Three Unions Attendants, ground workers and American’s pilots union are all in contract negotiations, trying to recoup $1.6 billion in pay and benefits given up in 2003 to save the Fort Worth, Texas- based carrier from bankruptcy. American wants to reduce its industry-leading labor costs and raise productivity. Mediators haven’t decided on the TWU’s March 11 request to be freed from talks with American. The TWU represents ground workers including mechanics and bag handlers. Should the board conclude that further talks wouldn’t yield a contract, American and the attendants would be offered binding arbitration. Rejection by either side would start the “cooling- off” period, which would still allow for further discussions. The board also may order the airline and union to resume talks, or decree a recess in negotiations. Opposing Views American refused to “bargain in good faith,” Glading said in a March 12 statement. American said yesterday in a Web-site update about the talks that “we made progress and look forward to getting back to the table and back to work.” AMR fell 18 cents, or 1.8 percent, to $9.66 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have gained 25 percent this year. American has told the Federal Aviation Administration that it was considering training managers and other employees as replacement attendants in the event of a strike. In 1993, American trained about 1,300 replacements to try to keep some planes flying during a five-day walkout. The strike ended when then-President Bill Clinton intervened. It cost American about $10 million a day. To contact the reporter on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net

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Crab Soup Shows U.S. Airlines Wooing Premium Fliers as Travel Slump Abates

February 26, 2010

By Mary Jane Credeur and Mary Schlangenstein Feb. 26 (Bloomberg) — Delta Air Lines Inc. and AMR Corp.’s American Airlines , the world’s two largest carriers, are counting on lie-flat seats and Tahitian crab soup to help win back their most-profitable customers. With the easing of an 18-month global slump in first- and business-class travel, Delta’s seats that recline 180 degrees into beds and American’s Asian-fusion appetizers are lures for the corporate passengers whose ranks dwindled when the global recession ravaged budgets for international flying. Filling the premium seats at the front of airplane cabins is pivotal to U.S. airlines’ efforts to return to profit in 2010 after weak demand forced them into discounting to woo vacationers. Business fliers are prized because they typically pay the highest prices and take to the air more often. “If you’re flying to Japan or Seoul, it makes all the difference in the world to put your legs up and really sleep and arrive rested and ready to go,” said Chris McGinnis, editor of The BAT , a San Francisco-based newsletter and blog for frequent travelers. “You’re going to feel really taken care of.” U.S. airlines have been playing catch-up in recent years with overseas competitors such as Virgin Atlantic Airways Ltd. that moved more quickly to add amenities including seats that convert into beds. Shrinking Pool The recession shrank the pool of first- and business-class fliers for airlines worldwide, with December’s 1.7 percent increase in premium bookings the first for the global industry since May 2008, the International Air Transport Association trade group said on Feb. 16. While those passengers made up only 7.7 percent of 2009’s overseas total, they produced 26 percent of the revenue on those flights, IATA said. For example, Delta charges $4,998 for a walk-up, business-class ticket between New York’s Kennedy airport and London Heathrow. A discounted coach seat is $1,175 next month. International premium-ticket sales slid to $68 billion worldwide last year, down 20 percent from 2007. That contributed to losses at Delta, AMR, United Airlines parent UAL Corp. , Continental Airlines Inc. and US Airways Group Inc. Now, investor optimism is improving. The Bloomberg U.S. Airlines Index of 12 carriers has gained 9.7 percent this year, compared with a 46 percent plunge in the same period in 2009 as the economy weakened. Atlanta-based Delta fell 9 cents to $12.66 yesterday in New York Stock Exchange composite trading , while AMR rose 6 cents to $8.93. ‘Starting to Rebound’ “We continue to see signs that business travel trends are starting to rebound,” Matthew Jacob , an analyst at Majestic Research LLC in New York, told clients yesterday in a note. Delta is spending $1 billion on fleet upgrades through 2013, including lie-flat seats and quilted duvet comforters on 90 planes that fly international routes. Delta and Houston-based Continental both sought fliers’ input in designing new seats. “Seat comfort is among the highest factors in purchase drivers and satisfaction,” said Joanne Smith , Delta’s senior vice president of in-flight service and product development. Meals are important as well, as evidenced by Delta’s plans to add tarts to dessert options that include cheese and sundaes; the business-class menu at Continental revamped in December with help from New York chef James Canora of Delmonico’s restaurant; and American’s Asian cuisine unveiled Feb. 1. American flights between Tokyo and four U.S. airports, including Kennedy, offer first- and business-class fliers choices including the crab soup and gingered scallops with lobster sauce. The Fort Worth, Texas-based airline also improved its business-class seats and in-flight entertainment. Minimize Hassles The intent is to create “the best possible mix of things we can give to our customers to minimize their hassles and maximize their time,” Dan Garton , American’s executive vice president for marketing, said in an interview. At British Airways Plc , Chief Executive Officer Willie Walsh said Feb. 10 he is considering whether to add more U.S. destinations for his all-business-unit that serves Kennedy from London City Airport because the five-month-old route is “performing really well.” That would put pressure on carriers including Delta, because London-based British Airways already is the No. 1 operator of flights across the North Atlantic, the world’s biggest market for corporate travel. Qantas Airways Ltd. , Australia’s largest carrier, signaled its business-class strategy last week with a plan to drop first- class seats to some cities. Business First Qantas’ revamping of 29 wide-body jets to expand business- class cabins is “a commercial decision that you can generate more revenue allocating that space to business rather than first class,” said David Swierenga , president of aviation consultant AeroEcon in Round Rock, Texas. The affected routes include the 14-hour flight between Sydney and Johannesburg, for which Qantas now charges A$13,812 ($12,346) for the costliest round-trip ticket in first class. That’s almost twice as much as for business class. “Business class has become so luxurious with seats that lie flat and unlimited drinks and terrific food,” said Alan Bender , a professor of airline economics at Embry-Riddle Aeronautical University in Daytona Beach, Florida. “How can I justify another big sum of money for just a marginal increase in luxury for first class?” Bender said the industry standard for first-class service is still being set by the Asian carriers flying the longest intercontinental trips, including Singapore Airlines Ltd., Cathay Pacific Airways Ltd. and Japan Airlines Corp. ‘Greatest Wealth’ “Most of their routes are international business cities where there is the greatest wealth in the world, so naturally you have more people who want the very best service when they fly,” he said. Singapore Airlines is the first carrier to fly the double- decker Airbus SAS A380, which features private suites with sliding doors and the widest available business-class seats. The airline also spends S$11 million ($8 million) a year on wine and Dom Perignon champagne for first-class passengers. Delta and Continental are among the U.S. airlines that ditched their three-cabin configuration years ago in favor of plusher business seating along with coach, according to Bender. On United, one of the U.S. carriers still using three cabins on some routes, the menu developed by celebrity chef Charlie Trotter includes sea bass with a three-onion ragout in first class, while business-class choices include grilled mahi- mahi with a sweet-and-sour vegetable stir-fry. The trick for U.S. airlines is balancing that luxury service with the fare-cutting pressure on domestic routes from discounters such as Southwest Airlines Co., JetBlue Airways Corp. and AirTran Holdings Inc. , Bender said. “It’s very hard to do both well, so over time we’ve seen the U.S. carriers focus more on the middle ground of having a really nice business class,” he said. To contact the reporters on this story: Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net ; Mary Schlangenstein in Dallas at maryc.s@bloomberg.net .

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New York City May Get Up to 13 Inches of Snow, Making Travel `Hazardous’

February 25, 2010

By Brian K. Sullivan and Alex Morales Feb. 25 (Bloomberg) — New York City may receive more than a foot of snow in a storm that’s forecast to hit in rush hour, disrupting travel, the National Weather Service said. The service issued a winter storm warning that starts at 6 a.m. and runs through 6 p.m. tomorrow, and forecast as much as 13 inches (33 centimeters) of snow. “Snow is expected to develop around the start of rush hour Thursday morning then continue through Friday,” the National Weather Service said in a statement on its Web site. “This will make travel very hazardous or impossible.” Continental Airlines Inc. and Delta Air Lines Inc. canceled some of their flights into the area, while Amtrak canceled some trains. It was raining at about 5 a.m. in New York City. “Expect the steadiest and heaviest snow to fall from mid- morning Thursday through Thursday evening,” the weather service said. “Snow may mix with rain for brief periods of time on Thursday. If no mixing-in occurs, amounts will be up towards the higher end of the range, if not more.” Winter storm warnings, meaning heavy snow, ice and freezing rain are imminent, were issued for a swath of the Northeast, including parts of Maine, Vermont, New Hampshire, New York, Pennsylvania, New Jersey and Maryland. In Washington, snow was forecast before 10 a.m., and winds may gust as high as 37 miles (60 kilometers) an hour, the weather service said. The Washington-Baltimore corridor may receive as much as five inches of snow in the storm, according to Brandon Peloquin, a weather service meteorologist in Sterling, Virginia . Flights Canceled The system is the latest from an El Nino-driven weather pattern that has pushed moist air across the southern U.S., where it has mixed with colder air coming down from the Arctic, Matt Rogers , president of Commodity Weather Group in Bethesda, Maryland, said. The result has been record snows from Washington to Philadelphia. El Nino is a warming of the Pacific Ocean that occurs every two to five years and lasts about 12 months. Continental , the fourth-largest U.S. carrier, canceled all flights today from Newark Liberty International Airport by regional partners including Continental Express and Pinnacle Airlines Corp.’s Colgan unit, said Mary Clark , a spokeswoman for the Houston-based carrier. The cancellations involve “several hundred” flights, Clark said. She didn’t have a more specific number. Delta , the world’s largest carrier, canceled 65 flights in the New York area for today, said Susan Elliott , a spokeswoman for the Atlanta-based company. UAL Corp. ’s United Airlines scrapped 70 flights yesterday because of weather and was considering plans for today, Sarah Massier, a spokeswoman, said. The three airlines issued travel waivers allowing passengers to re-schedule their plans for free, according to statements on their Web sites. Canceled Trains Amtrak canceled eight trains on its Empire Service lines in the upstate New York area, said a spokeswoman, Karina Romero . In northern New Jersey , as much as 18 inches of snow may fall, the weather service said. Parts of Maine, Connecticut, Massachusetts, New York, New Hampshire and Rhode Island were issued with flood watches, with as much as 3 inches of rain forecast. Today’s will be from the second storm to hit the area this week. A system brought rain to New York City and almost two feet of snow to western Massachusetts starting Feb. 23, disrupting air traffic in Newark, Boston, Baltimore and New York. “The Northeast is being impacted by one storm now, and the monster storm is going to impact the region tomorrow into Friday,” Eric Wilhelm of private forecaster AccuWeather.com . said yesterday. “A really complex situation is developing in the Northeast.” Power Failures Likely On the Massachusetts coast, sustained winds of 30 mph are expected, with gusts as intense as 50 mph, according to a weather service high wind watch issued for the area. “There could be real problems with power outages,” Wilhelm said. “That could be the real legacy of this storm.” More than 50,000 customers in the Albany area and western Massachusetts were left without power by the storm that moving north through New England yesterday, according to utilities. High winds may also create wind-chill problems that will boost energy consumption, Rogers said. Temperatures in the region are expected to be in the 30s Fahrenheit, while the wind will make it feel colder. Demand for heating oil may be 8 percent higher than normal through March 3, according to Weather Derivatives , a Belton, Missouri, forecaster. Heating oil for March delivery rose 0.98 cent, or 0.5 percent, yesterday to settle at $2.0421 a gallon on the New York Mercantile Exchange. To contact the reporter on this story: Brian K. Sullivan in Boston at bsullivan10@bloomberg.net ; Alex Morales in London at amorales2@bloomberg.net

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China’s New Village Makes Chanos See Dubai

February 22, 2010

By William Mellor (Corrects lending figure in eighth paragraph to 1.39 trillion yuan.) Feb. 22 (Bloomberg) — The township of Huaxi in the Yangtze River Delta is a proud symbol of how Chinese communists embraced capitalism to lift 300 million people out of poverty during the past three decades. Its leaders took a farm community with bamboo huts and ox carts in the 1970s and transformed it into an industrial and commercial powerhouse where today many of its 30,000 residents live in mansions and most have a car. Per-capita income of 80,000 yuan ($11,700) — almost four times the national average — allows Huaxi to claim it’s China’s richest village. Huaxi is also emblematic of the country’s construction and real estate boom. Communist Party officials there are building one of the world’s 30 tallest buildings, a 2.5 billion yuan, 328-meter (1,076-foot) tower. The revolving restaurant atop the so-called New Village in the Sky offers sweeping views of paddy fields, fish ponds and orchards, Bloomberg Markets reports in its April issue. Marc Faber , publisher of the Gloom, Boom & Doom Report, says China is overdoing it. “It does not make sense for China to build more empty buildings and add to capacities in industries where you already have overcapacity,” Faber told Bloomberg Television on Feb. 11. “I think the Chinese economy will decelerate very substantially in 2010 and could even crash.” Huaxi has an even more ambitious project coming up: a 6 billion yuan, 538-meter skyscraper that would today rank as the world’s second tallest. The only loftier building is the new Burj Khalifa in Dubai. Dubai Times a Thousand Such undertakings figured in warnings hedge fund manager Jim Chanos delivered in January that China is Dubai times a thousand. The costs of wasteful investments in empty offices and shopping malls and in underutilized infrastructure will weigh on China, Chanos, president of New York-based Kynikos Associates Ltd., said in a speech at the London School of Economics. “We may find that that’s what pops the Chinese bubble sooner rather than later.” China has defied the global recession of the past two years and remained the fastest-growing major economy. Gross domestic product soared 10.7 percent in the fourth quarter. The government has provided 4 trillion yuan in stimulus spending and encouraged banks to lend a record 9.59 trillion yuan last year, trying to bridge the gap until demand for exports rebounds or domestic consumption takes off. Risk for Commodities Last month, banks lent a further 1.39 trillion yuan — almost one-fifth of the target amount for the whole of 2010. Also in January, foreign direct investment climbed 7.8 percent to $8.13 billion. While China’s resilience has helped support the world economy, raising demand for energy and raw materials, the bursting of a bubble would have the opposite effect. Government efforts to wean the economy off its extraordinary support may roil markets. In January, the central government ordered banks to curb lending, which put China’s stock market into reverse. In a sign, in part, of how dependent the world has become on China, stocks and currencies slumped in places such as Australia and Brazil that supply commodities to the People’s Republic. On Feb. 12, the eve of the one-week Lunar New Year holiday, China for the second time in a month ordered banks to set aside more deposits as reserves. The Shanghai Composite Index has fallen 8 percent year-to-date, after gaining 80 percent in 2009. Bidding Up Prices “If the Chinese economy decelerates or crashes, what you have is a disastrous environment for industrial commodities,” said Faber, who oversees $300 million at Hong Kong-based Marc Faber Ltd. The stimulus tap that Beijing turned on has flowed to projects such as its 2 trillion yuan high-speed-rail network. The 221 billion yuan Beijing-Shanghai line has surpassed the Three Gorges Dam as the single most expensive engineering project in Chinese history. Some beneficiaries of the government efforts have plowed their loans into real estate and stocks. Property prices across 70 cities jumped 9.5 percent in January from a year earlier, according to government data. Bridge of Strength Instead of concentrating on their core businesses, giant state-owned enterprises, or SOEs, have bet on real estate, according to Zhang Xin , a former Goldman Sachs Group Inc. analyst who’s chief executive officer of Soho China Ltd. , the biggest property developer in Beijing’s central business district. “All the SOEs are bidding the prices up to the sky,” Zhang told China International Business, a magazine backed by China’s Ministry of Commerce, in December. That’s despite office vacancies in China’s capital being at record highs, according to Boston-based commercial real estate company Colliers International. Chanos, a short-seller who was early to warn about Enron Corp., is one of a growing number of investors sounding the alarm. “Right now, the Chinese market is overheating,” George Soros said in a Jan. 28 interview. Local-government officials have wasted stimulus funds by replacing infrastructure that was fine in the first place. State media complained in May 2009 that party chiefs in Jianyang, Sichuan province, decided to help boost the local economy by rebuilding a bridge that was in such good condition it had emerged unscathed a year earlier from the earthquake that killed 70,000 people. The so-called Bridge of Strength withstood a demolition crew that tried to blast it to pieces with dynamite, the official China Daily reported. Real Estate or Soybeans? Another example Chanos has cited is the city of Ordos, where party officials have built an entire new downtown on the windswept grasslands of Inner Mongolia , 25 kilometers (15 miles) outside the existing municipality of 1.5 million people. Mark Mobius , meanwhile, is sticking with China. The executive chairman of Templeton Asset Management is encouraged that the government is pulling back some of its extraordinary economic support. “We see the government’s tightening of lending as a positive because it moderates the risk to some degree,” says Mobius, who oversees $34 billion. “This is a correction in an ongoing bull market.” Chris Ruffle , who helps manage $19 billion for Edinburgh- based Martin Currie Ltd., also remains confident China will avoid a bust. “It’s not a highly leveraged situation,” says Ruffle, who works in Shanghai. “I was in Japan in the 1980s, and that was a bubble. Here in China, we are nowhere near that.” Still, even Mobius says investors have to be wary. He got rid of an investment in a Chinese food company after discovering that it was using funds to buy apartments instead of to process soybeans. To contact the reporter on this story: William Mellor in Sydney at wmellor@bloomberg.net

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Tepper’s Appaloosa Raises Citigroup Stake, and Buys Stock in Four Airlines

February 13, 2010

By Miles Weiss Feb. 13 (Bloomberg) — David Tepper , the money manager with one of last year’s top-performing hedge funds, bought four U.S. airline stocks and raised his Citigroup Inc. stake by 73 percent in the fourth quarter, a regulatory filing shows. His Appaloosa Management LP’s holdings in Citigroup rose to 138.1 million common shares at yearend from 79.7 million shares at Sept. 30, according to a Form 13F filed yesterday with the U.S. Securities and Exchange Commission. The shares of New York- based Citigroup had a market value of $457.2 million, making it the second-biggest position with about 13 percent of the holdings reported in the filing. Tepper invested in bank stocks as they declined during the market rout of early 2009, then pocketed gains when the financial industry recovered in April and May. That helped his flagship fund, Appaloosa Investment LP, deliver a 117.3 percent return for the nine months ended Sept. 30, the best showing among hedge funds with assets exceeding $1 billion, according to Bloomberg data. Appaloosa also acquired 11 million common shares of Wells Fargo & Co. in the quarter, supplementing its holdings of the bank’s preferred stock. According to Bloomberg data, financial stocks comprised 86 percent of the $3.4 billion in holdings listed in the Form 13F as of Dec. 31. The SEC requires money managers who oversee more than $100 million in U.S. equities to report their holdings on a Form 13F within 45 days of the end of each quarter. The filing must include all holdings in stocks that trade on U.S. exchanges, as well as options and convertible debt. Airlines Appaloosa’s hedge funds invested in four U.S. airline companies during the quarter: AMR Corp., Delta Air Lines Inc., UAL Corp. and US Airways Group Inc. The firm’s shares in the airlines had a combined market value of about $133 million at yearend. AMR, based in Fort Worth, Texas, is the parent of American Airlines, while Chicago-based UAL owns United Airlines. Delta is based in Atlanta and US Airways is in Tempe, Arizona. Tepper, whose firm is based in Short Hills, New Jersey, didn’t immediately return a telephone call for comment. To contact the reporter responsible for this story: Miles Weiss in Washington at mweiss@bloomberg.net

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U.S. Government Shuts a Fourth Day After Record Snow as Airports Recover

February 11, 2010

By Brian K. Sullivan Feb. 11 (Bloomberg) — The U.S. government will close for a fourth day while a blizzard moves out over the Atlantic Ocean after setting snowfall records from Washington to Philadelphia and triggering power outages and havoc for commuters. Schools along much of the Washington to Boston corridor as well as federal agencies in the nation’s capital will remain shut for another “snow day” after the second of two back-to- back storms crippled air, rail and road traffic. The U.S. National Weather Service lifted its blizzard warning for New York before dawn. Schools in New York City will re-open today after the Department of Sanitation deployed 1,600 snowplows and 2,100 workers to clear major roads. Clear skies and temperatures just above freezing are forecast to start the melting process along the eastern seaboard, where an average of 12 inches (30 centimeters) fell from New York to Baltimore, said Andy Ulrich , a meteorologist with AccuWeather.com in State College, Pennsylvania. “The sun will be out fully and there won’t be a cloud in the sky,” Ulrich said in a telephone interview. “The sun is getting stronger as we approach spring so there will be some melting.” Grounded Flights, Outages The storm yesterday caused the cancellation of 5,700 flights across the U.S. and at least 1,100 more today. It also caused power outages from North Carolina to Pennsylvania and New Jersey for at least 178,000 customers, according to utilities. UBS AG , Switzerland’s largest bank, sent home an estimated 3,000 workers in New York, New Jersey and Connecticut amid the blizzard, advising them to take public transport if possible. New Jersey Transit was set to resume normal services for commuters today while Long Island Rail Road said it was preparing for regular rush-hour services after blizzard conditions created chaos and delays for commuters. Exelon Corp. ’s Peco utility said today that about 106,000 customers remain without service in southeastern Pennsylvania after the second storm of the week dumped almost two feet of snow on the region. Delaware and Maryland were also hit hard, with 27,000 Delmarva Power customers without power by nightfall yesterday, said Bridget Shelton , a spokeswoman for the company, a subsidiary of Pepco Holdings Inc. It may take several days to restore power to all of them, she said. “This is clearly a multiday event,” Shelton said in a telephone interview. “The weather and the roads are contributing to an extended restoration effort.” Natural gas futures fluctuated as heating oil climbed on higher demand and crude oil rose for a fourth day in New York. Crude for March delivery gained as much as 76 cents, or 1 percent, to $75.28 a barrel on the New York Mercantile Exchange. Airlines Scramble Delta Air Lines Inc. , the world’s largest carrier, expects operations in Washington and Philadelphia to be almost entirely halted through midday. At least 460 more Delta flights are canceled for today, said Trebor Banstetter , a spokesman for the Atlanta-based company. At Washington’s Dulles International Airport, the snow was 26 inches deep, according to the National Weather Service, with 11 inches on the ground at Kennedy International Airport. AMR Corp. ’s American Airlines scrapped 180 flights today, said Tim Wagner , a company spokesman. US Airways Group halted 478 as well, said Valerie Wunder , a spokeswoman. Cost to Taxpayers In Pennsylvania, closed interstate highways were expected to reopen by dawn even with the setting of annual snowfall records, Governor Edward G. Rendell said. Two tractor-trailer trucks that jackknifed on I-78 yesterday left 170 vehicles stuck in the snow, said Robert French , Pennsylvania Emergency Management Agency director. The federal government announced the closing of agencies in the Washington area for a fourth consecutive day. Washington received 10 inches of snow yesterday, pushing the seasonal total to 54.9 inches, surpassing the mark set in 1898-99. The record snowfall that brought the U.S. capital to a standstill is costing taxpayers about $100 million each day the federal government is shut in productivity loss and other costs, the Office of Personnel Management said. Snow Records In Baltimore, 11.9 inches fell through the evening rush- hour, setting a new annual tally of 72.3 inches. That surpassed the 62.5 inches that fell in 1995-96, according to the National Weather Service in Sterling, Virginia. A winter weather advisory for hazardous travel as a mix of rain and sleet turns to snow was issued until midnight today for the Dallas area by the National Weather Service. Snow in some areas north of Interstate 20 could reach four inches, it said. The U.S. southern states of Louisiana, Mississippi and Alabama may get a sampling of what the Northeast has endured when a storm bearing snow moves through there, Ulrich said. The National Weather Service in New Orleans issued a winter storm watch for sleet that could turn to snow for tonight through tomorrow afternoon. The watch was expanded to include all areas south of the Louisiana-Mississippi border to the Interstate 10/Interstate 12 corridor. Ulrich said it is too early to forecast accurate totals for those states, which seldom see snow, though the weather service said amounts could reach as much as six inches. To contact the reporter on this story: Brian K. Sullivan in Boston at bsullivan10@bloomberg.net .

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Flat-Bed Pioneer British Air Turns to Egyptian Cotton in First-Class Fight

February 10, 2010

By Chris Jasper and Steve Rothwell Feb. 10 (Bloomberg) — British Airways Plc revamped its first class cabins with wider bed seats, leather desks and linen made from Egyptian cotton as it seeks to close the gap to the standards of luxury set by rivals in the Middle East and Asia. The 100 million-pound ($157 million) makeover, which debuts today on a flight to Chicago, is the first for BA’s premium seats in almost 10 years as the London-based airline seeks to persuade people to carry on paying fares that can top $10,000. British Airways pioneered flat-bed berths in 1996. That design has since become commonplace even for business seats and competitors such as Qatar Airways Ltd. have differentiated their first-class products with limousine pickups, restaurant-standard meals and feather duvets. The Gulf carrier is one of six with a five-star rating from Skytrax Research, which surveys more than 620 airlines. BA is in the second tier with four stars. “This is quite significant in that the old first class was becoming faded and it was beginning to look like British Airways didn’t believe in it any longer,” said Nick Cunningham , an analyst at Evolution Securities in London. “It’s also a sign that they think the recession is coming to an end.” BA, whose long-haul premium traffic rose for a third straight month in January, ranks as the No. 1 carrier across the north Atlantic, the busiest route for premium travel. A Boeing Co. 777 is the first aircraft to be fitted with the new cabin and the majority of 777s and 747 jumbos are to be upgraded over the next two years, British Airways said. ‘Private-Jet’ Experience The makeover seeks to create an “intimate private jet experience” taking inspiration from high-end U.K. carmakers, BA said, its designers previously having created leather-rich interiors for Jaguar and Aston Martin. The revamp features bed seats that are 60 percent wider at the shoulder, a personal wardrobe, leather-bound writing tables that convert into dining tables, a 15-inch entertainment screen, noise-cancelling headsets and the first electronic blinds on a commercial airliner, London-based BA said in its statement. The design harks back to the 1920s and earliest days of luxury air travel, the carrier said, featuring its coat of arms throughout and a color scheme in cream and “Quink blue,” a shade named after fountain-pen ink brand. The beds will incorporate a sprung mattress that moulds to the body and 400- thread Egyptian cotton sheets, quilts and pillows. Passengers will also get an Anya Hindmarch washbag and toiletries from 200-year-old London pharmacist D.R. Harris & Co. Evolution’s Cunningham said first-class passengers tend to be older than business travelers, comprising senior executives, celebrities and high net worth individuals, and that cabin designs need generally to be more muted and “less jazzy.” Private Space “The beds are pretty similar to those in business, so the real difference is the more private environment, the extra space and the more ‘clubby’ feel,” he said. “BA is also playing up its Britishness, which is probably right as despite all their problems the brand still carries quite a lot of cachet.” Europe’s third-biggest carrier last revamped its costliest cabins 10 years ago, when it hired British interior designer Kelly Hoppen and Terence Conran , who refitted the all-first class Concorde supersonic fleet before its withdrawal in 2003. Air France’s first class “La Première” cabin is installed on the carrier’s 777 aircraft and the Airbus SAS A380 route to New York, spokesman Cédric Leurquin said. The service is available to 28 destinations, versus 40 at British Airways. Lufthansa Plans Deutsche Lufthansa AG will unveil a new first-class design in May, when the German carrier takes delivery of its first A380. The overhaul will be the first since 1998 and will take as many as four years, spokesman Jan Baerwalde said. Lufthansa currently offers first-class seats to about 80 destinations. Along with Qatar Airways, Skytrax ranks Singapore Airlines, Cathay Pacific, Malaysia Airlines, India’s Kingfisher Airlines and Asiana Airlines of South Korea as “five-star carriers.” The second level of 28 airlines includes BA and European competitors Air France, Lufthansa and Virgin Atlantic. U.S. carriers American Airlines, Delta Air Lines and United Airlines are in a group of more than 120 companies with three stars. North Korea’s Air Koryo is the only one-star carrier. To contact the reporters on this story: Chris Jasper in London at cjasper@bloomberg.net ; Steve Rothwell in London at srothwell@bloomberg.net

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Washington Closes Down, Flights Canceled in Northeast as Snowstorm Looms

February 9, 2010

By Brian K. Sullivan Feb. 9 (Bloomberg) — The U.S. House of Representatives has canceled votes for the week, hundreds of flights have been scrubbed and Amtrak still isn’t running a full schedule as a “paralyzing” storm packing as much as 20 inches of snow bears down on the East Coast. The storm, the second for the Washington-Baltimore area in less than a week, will be accompanied by cold and winds gusting from 35 to 55 mph (56 to 88 kph) in the Northeast, forecasters said. Ten to 20 inches could fall in Washington, where federal offices were closed for a second full day today, while 8 to 13 are forecast for New York. “Unfortunately, everything is coming together for another paralyzing winter storm event from D.C. up to Philadelphia, but this time it won’t spare New York City,” said Jim Rouiller , a senior energy meteorologist at Planalytics Inc. “This will probably shut down the East Coast cities for the next couple of days. This is definitely going to be one for the record books.” Heating oil advanced on speculation demand will increase as temperatures plunge in the U.S. Northeast, which consumes four- fifths of home heating fuel. Contracts for March delivery gained 5.18 cents, or 2.7 percent, to settle at $1.9373 a gallon on the New York Mercantile Exchange. Heating demand in Washington and Baltimore was 16 percent higher than normal last week and New York was up 6 percent, David Salmon , a forecaster for Weather Derivatives of Belton, Missouri, said in a note to clients. Amtrak Schedules Disrupted Amtrak canceled 14 of its Acela trains between Boston and Washington, as well as more than 20 out of New York, Chicago and other Northeast cities, according to a statement. The national passenger railroad hasn’t run a full schedule since last week’s storm, said Cliff Cole , a spokesman. The biggest air carriers including UAL Corp. ’s United Airlines and Delta Air Lines Inc. canceled at least 1,300 flights today in cities including Washington, New York and Chicago. Spokesmen for the airlines said more flights would likely be scrubbed tonight. US Airways Group Inc. halted 1,300 flights for tomorrow, or 42 percent of its entire schedule, while Delta said it cut “several hundred” and AMR Corp. ’s American Airlines trimmed 120. Continental Airlines Inc. said it will suspend all 400 of its Newark flights tomorrow. Heavy snow, from 10 to 20 inches and as much as 24 inches in some isolated areas, may fall from Washington to New York, Rouiller said in a telephone interview from Berwyn, Pennsylvania. Boston is likely to receive 6 to 10 inches, along with Chicago and Detroit, he said. Winter Records “The snow we are predicting for this will lift places like Philadelphia over the record for snowfall over the course of any winter,” Rouiller said. Washington is likely to get about 10 inches tonight and tomorrow, while the snowfall will deepen closer to Baltimore , where 20 inches are possible, said Jared Klein, a weather service meteorologist in Sterling, Virginia. A system moving in from the west is forecast to spark the creation of a major low pressure system off the mid-Atlantic coast that will drive the snow northward and into the cities, Rouiller said. “They call this a bomb in the meteorological community,” Rouiller said by telephone. Washington Snarled A winter storm warning was posted for Washington starting at noon today. Federal government offices remain shut, after more than 20 inches fell on parts of the city over the weekend, the Office of Personnel Management said in an e-mailed statement. The U.S. Senate won’t meet tomorrow because of the storm, Senate Democratic Leader Harry Reid announced on the floor today. The House has canceled votes for the rest of the week. In the New York City area, a winter storm warning goes into effect at midnight. The snow is expected to be heavy at times before tapering off tomorrow evening, the National Weather Service in Upton, New York, said. New York Mayor Michael Bloomberg said public schools will close tomorrow so parents don’t have to face half-day cancellations. “The forecast is for a much worse situation with blowing snow and possibly blizzard conditions by mid-afternoon tomorrow and we don’t want to subject students to those conditions as they travel home,” said the mayor, founder and majority owner of Bloomberg News parent Bloomberg LP. Watches, warnings and advisories stretch across much of the eastern half of the U.S. from Minnesota to New Hampshire and south to Kentucky, according to the weather service. Snow Costs In New York City, 365 plow-equipped salt-spreaders will begin operating at first snowfall tonight, said Kathy Dawkins , a spokeswoman for the Sanitation Department . The plan calls for some 1,600 plows to start work when 2 inches pile up. Snow removal usually costs the city about $1 million per inch of accumulation, Dawkins said. Delaware has spent $3.9 million since Jan. 30, which almost depletes its snow removal budget of $4.1 million, said Jim Westhoff, spokesman for the state Department of Transportation. If Delaware goes over budget from the storm, it will automatically shift funds from the state’s Transportation Trust Fund. “At no time are we ever out of money for snow removal and to keep our roads safe,” Westhoff said. Alpha Natural Resources Inc. , the third-largest U.S. coal company, said today that its Cumberland operation in Waynesburg, Pennsylvania, has been idled for three days because of power disruptions. The mine has capacity to produce about 7.3 million tons of coal annually, according to the company’s Web site. Dominion Virginia Power has just about restored all power to customers who lost it during the last storm and are now positioning crews to be ready for the next, said Karl Neddenien , a company spokesman in Richmond, where snow has begun to fall. “This is quite a string of challenges and we are prepared, but we would like to see some blue sky for a while too,” Neddenien said by telephone. To contact the reporter on this story: Brian K. Sullivan in Boston at bsullivan10@bloomberg.net .

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AIG’s Udvar-Hazy Retires as Plane-Leasing CEO Amid Effort to Sell Business

February 5, 2010

By Susanna Ray Feb. 5 (Bloomberg) — American International Group Inc .’s Steven Udvar-Hazy stepped down as chief executive officer of the bailed-out insurer’s plane-leasing unit he founded 37 years ago as the parent company prepares to sell jets to help repay debt. John Plueger , president and chief operating officer, will take over today as acting CEO of International Lease Finance Corp. , AIG said in a statement last night. Udvar-Hazy, who sold the company to AIG in 1990, gave up the chairmanship of the unit to AIG board member Douglas Steenland in December. ILFC, based in Los Angeles, has been unable to tap its usual sources of funding since the insurer’s bailout, forcing AIG to prop up the unit with a $1.7 billion credit line in March and $2 billion in October. Udvar-Hazy was in talks to buy as much as a $4.5 billion chunk of ILFC’s fleet to start a new firm, people familiar with the matter said in October. “We anticipate selling some ILFC assets in the future,” AIG CEO Robert H. Benmosche said in the statement. “We continue to review other options, including accessing the capital markets through secured debt financing.” Udvar-Hazy, 63, and Plueger, 55, declined to comment. Mark Herr , a spokesman for New York-based AIG, also wouldn’t discuss the matter. Private-equity firms Onex Corp. and Greenbriar Equity Group LLC backed Udvar-Hazy in his bid to start a new company, the people said. ILFC has about 1,000 aircraft in its fleet valued at more than $44 billion. An Outsider “Maybe Steve has to actually step out and become an outsider before he can step back in to what’s a new, recast organization,” said George Hamlin , president of Fairfax, Virginia-based Hamlin Transportation Consulting. “There’s a very strong chance that Steve will stay in the business, but maybe he’s got something else entirely in his mind.” AIG is selling assets to repay a $182.3 billion government rescue. The company has struck deals to raise more than $12 billion, divesting a U.S. auto insurer, an equipment guarantor and a Japanese office tower. MetLife Inc., the biggest U.S. life insurer, is in talks to buy a non-U.S. life unit from AIG. ILFC, the biggest customer for both Boeing Co. and Airbus SAS , has more than $4 billion of debt maturing in the first nine months of 2010. It was cut to the lowest investment-grade level by Standard & Poor’s on Jan. 25 on the prospect the insurer may take “several years” to sell the business. Moody’s Investors Service cut the company to junk in December on concern that AIG may cut off funding this year. What’s Next? “The factors that were beating up most of ILFC’s portfolio were taking place with or without him,” said Richard Aboulafia , an analyst at the Teal Group, a Fairfax, Virginia-based aviation consulting firm. “What he does next will have an impact on perceptions of ILFC’s value.” The uncertainty around ILFC’s ownership and financing prevented the company from placing any orders last year and weighed on sales at Airbus and Boeing. In prior slumps in air travel, leasing companies increased their pace of buying as airlines scaled back. As of Sept. 30 , ILFC had contracts to buy 125 aircraft from the two planemakers through 2019 with a purchase price of $14 billion. The company had about $31 billion in total debt at the end of the third quarter. Plueger has worked at ILFC for 23 years and has been president and COO since 1995, responsible for worldwide sales and marketing efforts and relationships with the manufacturers, AIG said. Steenland, who will remain non-executive chairman, was CEO of Northwest Airlines Inc. until the carrier was bought by Delta Air Lines Inc. in October 2008, and became a director of AIG in June 2009. Udvar-Hazy is among more than 50 AIG managers to leave after the 2008 bailout. Edmund Tse stepped down in 2009 as a senior vice chairman after 48 years with the firm. Matthew Winter was named by Allstate Corp. in October to run its life insurance business after being AIG’s vice chairman of transition planning and administration. Kevin Kelley left AIG in 2008 to become CEO of Ironshore Inc. To contact the reporter on this story: Susanna Ray in Seattle at sray7@bloomberg.net

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Udvar-Hazy Leaves AIG Plane-Leasing Unit He Founded; Replaced by Plueger

February 4, 2010

By Susanna Ray Feb. 4 (Bloomberg) — American International Group Inc .’s Steven Udvar-Hazy stepped down as chief executive officer of the bailed-out insurer’s plane-leasing unit that he founded 37 years ago. John Plueger will take over as acting CEO of International Lease Finance Corp. , New York-based AIG said today in a statement. Plueger served as chief operating officer since 1995. Udvar-Hazy, who sold the company to AIG in 1990, gave up the chairmanship of the unit to AIG board member Douglas Steenland in December. He retirement is effective tomorrow. ILFC has been unable to tap its usual sources of funding since the insurer’s bailout, forcing AIG to prop up the unit with a $1.7 billion credit line in March and $2 billion in October. Los Angeles-based ILFC, the biggest customer for both Boeing Co. and Airbus SAS , has more than $4 billion of debt maturing in the first nine months of 2010. The plane unit was cut to the lowest investment-grade level by Standard & Poor’s on Jan. 25 on the prospect the insurer may take “several years” to sell the business. Moody’s Investors Service cut the company to junk in December on concern that AIG may cut off funding this year. AIG is selling assets to repay a $182.3 billion government rescue. The company has struck deals to raise more than $12 billion, divesting a U.S. auto insurer, an equipment guarantor and a Japanese office tower. Udvar-Hazy was in talks to buy as much as a $4.5 billion chunk of ILFC’s fleet to start a new firm, with backing from private-equity firms Onex Corp. and Greenbriar Equity Group LLC, people familiar with the matter said in October. ILFC has about 1,000 aircraft in its fleet valued at more than $44 billion. Executive Departures Udvar-Hazy is among more than 50 AIG managers to leave after the 2008 bailout. Edmund Tse stepped down in 2009 as a senior vice chairman after 48 years with the firm. Matthew Winter was named by Allstate Corp. in October to run its life insurance business after serving as AIG’s vice chairman of transition planning and administration. Kevin Kelley left AIG in 2008 to become CEO of Ironshore Inc. The uncertainty around ILFC’s ownership and financing prevented the company from placing any orders last year and weighed on sales at Airbus and Boeing. In prior slumps in air travel, leasing companies increased their pace of buying as airlines scaled back. As of Sept. 30 , ILFC had contracts to buy 125 aircraft from the two planemakers through 2019 with a purchase price of $14 billion. The company had about $31 billion in total debt at the end of the third quarter. Steenland was CEO of Northwest Airlines Inc. until the carrier was bought by Delta Air Lines Inc. in October 2008, and became a director of AIG in June 2009. To contact the reporter on this story: Susanna Ray in Seattle at sray7@bloomberg.net .

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American Air Vows to `Aggressively’ Fight Any Delta-JAL Immunity Request

January 20, 2010

By Mary Schlangenstein Jan. 21 (Bloomberg) — American Airlines , vying to keep Japan Airlines Corp. in the Oneworld alliance, vowed to resist any move by the Asian carrier and Delta Air Lines Inc. to win regulators’ approval to coordinate flights and fares. Talks with Japan Air continue even as interest in a capital investment is now being “downplayed” by the airline and Japanese government officials, American Chief Financial Officer Tom Horton told investors on a conference call yesterday. Delta and American, the world’s two largest airlines, are jockeying for access to Japan Air’s routes in Asia, undeterred by the Tokyo-based carrier filing for bankruptcy earlier this week. An aviation treaty recently agreed to by the U.S. and Japan would let alliance partners seek authority to link flights and fares, lowering costs and boosting revenue. “We would move aggressively to block any form of cooperation between dominant carriers in the region,” American Chief Executive Officer Gerard Arpey said on the call. “I would be astonished if such a partnership could come together and pass any type of antitrust scrutiny, let alone antitrust immunity. It would make a farce of the whole process.” Losing Japan Air would leave American’s Oneworld alliance without a partner in the world’s second-largest economy and bolster Delta in Tokyo. Japan Air is likely to switch to Delta’s SkyTeam group from Oneworld as part of its turnaround plans, people familiar with the situation have said. ‘Best Proposal’ When Arpey was asked whether his comments yesterday signaled that Fort Worth, Texas-based American expects its Japan Air bid to fail, he said: “No, not at all. Nothing could be further from the truth. We have by a wide margin the best proposal.” A Delta spokeswoman, Betsy Talton , said the airline is confident that a Japan Air alliance would meet U.S. rules for an antitrust exemption. “Japan Airlines has not yet selected an alliance partner,” said Carol Anderson , a U.S.-based Japan Air spokeswoman. She declined to comment further. Japan Air filed for the nation’s fourth-largest bankruptcy on Jan. 19 with 2.32 trillion yen ($25 billion) of debts. The carrier plans to shed almost a third of its staff and ax 31 routes as part of a 900 billion yen restructuring plan, backed by a government-affiliated fund and a state-owned bank. American parent AMR Corp. rose 41 cents, or 5.1 percent, to $8.49 yesterday in New York Stock Exchange composite trading, extending its gain for this year to 9.8 percent. American, TPG American and private-equity firm TPG have offered to invest $1.4 billion in Tokyo-based Japan Air, while Delta and its SkyTeam partners have offered $1 billion, including a $500 million investment. Both U.S. airlines have said they would ask federal regulators for immunity from antitrust laws to collaborate on schedules and pricing in an expanded alliance with Japan Air, also known as JAL. The existing ties between American and Japan Air don’t include that protection. “We continue to have an active dialogue with JAL, with the government, with the banks, with everybody who is relevant,” Horton said. A cash infusion for Japan Air is no longer as important a consideration as it once was, according to Horton, citing discussions with the airline, Japan’s government and the state- affiliated fund overseeing the carrier’s restructuring. “The Japan Airlines situation has been very fluid and has changed by the day,” he said. “What I’m telling you today may be different tomorrow. It would seem today that the appetite for an initial capital partnership is much diminished.” To contact the reporter on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net

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Japan Airlines, Delta reach tie-up deal

January 17, 2010

Japan Airlines, Delta reach tie-up deal

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Japan Airlines Says It Hasn’t Made a Decision on Delta, American Alliance

January 15, 2010

By Chris Cooper and Mary Schlangenstein Jan. 16 (Bloomberg) — Japan Airlines Corp. said it hasn’t decided on alliance proposals from Delta Air Lines Inc. or AMR Corp.’s American Airlines as it moves toward a probable filing for bankruptcy restructuring. “We haven’t reached a decision,” Sze Hunn Yap , the JAL’s spokeswoman, said after the Yomiuri Newspaper reported today that the company and Delta Air Lines Inc. reached a basic agreement on a tie-up covering code-sharing services. A state-backed fund is set to decide on a turnaround plan for JAL on Jan. 19 after the carrier sought help reorganizing following three losses in four years. The program will probably include a bankruptcy filing, according to three people familiar with the situation, which may wipe out investors. Delta has offered a $1 billion package to lure Tokyo-based JAL into its grouping, while American and partner private-equity firm TPG have offered a $1.4 billion investment to safeguard access to flights in Japan and China. Both of the U.S. carriers have said that bankruptcy wouldn’t deter them. “We continue to be in discussions with JAL,” Betsy Talton , a Delta spokeswoman, said in an e-mail. Japanese Transport Minister Seiji Maehara has said he doesn’t expect a decision on JAL’s alliance partner this month. “We have no reason to believe this unsubstantiated and speculative report,” Charley Wilson , a spokesman for the AMR unit, said regarding the Yomiuri report. Operations to Continue Government-affiliated Enterprise Turnaround Initiative Corp. of Japan will make a final decision on its restructuring plan for JAL on Jan. 19, Maehara told reporters in Tokyo yesterday, without elaborating. The carrier will continue operations, he reiterated. “Bankruptcy worked well for the U.S. majors,” said Richard Aboulafia , an analyst at the Teal Group in Fairfax, Virginia. They “used it as an effective tool to cut costs, capacity, and debt.” The yield on JAL’s 10 billion yen ($110 million) in 2.94 percent notes due 2013 reached 69.7 percent yesterday, after tripling the previous week, according to Japan Securities Dealers Association prices on Bloomberg. The notes yielded about 9.5 percent a year ago. JAL shares closed at 7 yen in Tokyo trading, yesterday, having slumped 90 percent this month. The carrier has built up at least 1.5 trillion yen of debt, and a bankruptcy filing may be Japan’s sixth biggest. Bridge Loans Under the proposed turnaround plan, JAL will receive 600 billion yen in bridge loans from the government-backed turnaround body and state-owned Development Bank of Japan, according to a person familiar with the situation. Creditors will be asked to waive 358.5 billion yen of 710.3 billion yen in loans provided to the airline, the Daily Yomiuri reported yesterday, without citing anyone. JAL, which reported a first-half loss of 131 billion yen, received three state bailouts in nine years before Japanese Prime Minister Yukio Hatoyama ended half a century of almost continuous rule by the Liberal Democratic Party last year. To contact the reporters on this story: Chris Cooper in Tokyo at ccooper1@bloomberg.net ; Mary Schlangenstein in Dallas at maryc.s@bloomberg.net

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Japan Airlines prepares to file for bankruptcy

January 10, 2010

Airline will reject offers of equity investment from US rivals American and Delta Airlines and undergo state-sponsored restructuring Japan Airlines is expected to be declared bankrupt, possibly as early as this week, despite offers of aid

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Obama to Adopt More Air-Security Steps as Terrorism Screening Increases

January 5, 2010

By John Hughes, Mary Schlangenstein and Roger Runningen Jan. 5 (Bloomberg) — President Barack Obama today will announce changes to the government’s terrorist watch-list system as well as additional steps to improve airline safety, an administration official said. More than half of U.S.-bound international fliers already are undergoing tighter screening such as pat-down searches and full-body scans after the Christmas Day attempt to blow up a Northwest Airlines jet, a Transportation Security Administration official said yesterday. Those getting extra scrutiny include all passengers flying from or through 14 countries as well as other travelers chosen at random, said the official, who asked not to be identified because the agency hasn’t disclosed the scope of the effort. Obama will meet in the White House with 20 top advisers from his security, defense, legal and intelligence teams before making a public statement at 4 p.m. Washington time on plans to improve the country’s ability to thwart future terrorist attempts, the administration official said. White House spokesman Bill Burton said yesterday that thousands of people whose names appear on a government terrorism-related database had been “scrubbed” since Dec. 25 and that “dozens” of people had been shifted to either “no- fly” lists or a “selectee” list that requires special screening or stepped-up investigation. TSA Rules “Probably thousands upon thousands upon thousands of names were scrubbed, and probably dozens were moved to different lists,” Burton told reporters on Air Force One as Obama returned to the White House after Hawaii vacation over the holidays. TSA’s new rules significantly increased the percentage of passengers on flights to the U.S. subject to pat-downs or scans from before the failed attack, said the TSA official, who declined to estimate how many people previously received such screening. The procedures also include swabbing luggage for explosives. “Spotty delays” occurred at some airports yesterday as the latest safety procedures took effect, said Steve Lott , a spokesman for the Montreal-based International Air Transport Association trade group that represents 230 carriers. Security was ramped up after the Dec. 25 attempt to bomb a Detroit-bound flight by Delta Air Lines Inc. ’s Northwest unit. Umar Farouk Abdulmutallab , a 23-year-old Nigerian, is charged in the U.S. with smuggling explosives onto the flight from Amsterdam’s Schiphol Airport. Millions of fliers may be affected by the changes. The Federal Aviation Administration’s 2010 travel forecast estimated that about 159 million passengers will fly to and from the U.S. this year. Industry Response The new measures “are being implemented with the least amount of customer inconvenience possible,” said Victoria Day , a spokeswoman for the Washington-based Air Transport Association trade group whose members include Delta Air Lines Inc. and AMR Corp.’s American Airlines, the world’s biggest carriers. Eight of the 13 carriers in the Bloomberg U.S. Airlines Index fell yesterday. That gauge has declined 3.8 percent since Dec. 24, compared with a 0.6 percent increase in the Standard & Poor’s 500 Index. TSA ordered airlines to ensure the security directive is carried out, whether through government-provided screening outside the U.S. or checks done by the companies’ own contractors, the official said. Carriers that fail to comply can be barred from flying to the U.S., the official said. On the TSA’s list of designated countries are four the U.S. considers as state sponsors of terrorism — Cuba, Iran, Sudan and Syria — and 10 more deemed to be of interest, the official said. The latter group includes Saudi Arabia and Yemen. ‘Known for Years’ Focusing on the 14 nations is “probably something they should have been doing before,” said Michael Boyd , president of aviation consulting firm Boyd International Inc. in Evergreen, Colorado, in an interview. “We’ve known for years those were terrorist countries. Why are they just acting now?” Spokesmen for the five largest U.S.-based carriers with overseas flights declined to comment yesterday on security procedures. American and Continental Airlines Inc. said it was too early to gauge whether the stepped-up screening would damp demand. Deutsche Lufthansa AG , Europe’s second-largest airline, hasn’t seen any increase in ticket cancellations due to the new measures, said Andreas Bartels , a spokesman based at the carrier’s main hub in Frankfurt. No Backlash “Most people are very familiar with the security requirements, that security is very important, so they don’t have a problem with” the increased time needed, Bartels said. Janine Doy, a spokeswoman for U.K.-based Virgin Atlantic Airways Ltd. , said the carrier was asking people to allow more time to clear security checks, though it had only experienced “minor delays” on flights to the U.S. The TSA has always used random searches and screenings to increase security by simply announcing an expansion of those checks, said Hans Weber , chief executive officer of San Diego- based consultant Tecop International Inc. Weber said he “certainly wouldn’t count on” the revised security measures meaning quicker checks at airports. “I’m not terribly hopeful because the TSA is just pervaded by this attitude that everyone ought to be treated the same,” Weber said. Extra security hassles may result in “a little less” recreational travel and business travel, said Richard Bloom , director of terrorism, intelligence and security studies at Embry-Riddle Aeronautical University in Prescott, Arizona. “My hope is that won’t be prolonged or have a significant impact,” he said. To contact the reporters on this story: John Hughes in Washington at jhughes5@bloomberg.net ; Mary Schlangenstein in Dallas at maryc.s@bloomberg.net .

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Delta’s Flight 253 Passengers Get Travel Vouchers From Delta After Foiled Terror Plot

December 30, 2009

ATLANTA — Delta Air Lines Inc. is offering travel credits to passengers on the Amsterstam-to-Detroit flight that a suspected terrorist tried and failed to blow up on Christmas. Spokeswoman Susan Elliott told The Associated Press on Wednesday the world’s biggest carrier is notifying passengers about the vouchers. The amount wasn’t disclosed. According to authorities, a Nigerian man who said he was an agent for al-Qaida tried to blow up Northwest Airlines Flight 253 as the plane was preparing to land in Detroit on Friday. It was carrying 278 passengers and 11 crew members. Delta is offering its gratitude to one of the passengers who subdued the suspect. Elliott declined to say whether that passenger would receive additional compensation beyond the travel voucher. Delta, which bought Northwest in 2008, is expected to obtain a single operating certificate from the FAA by Thursday. That would allow the airline, based in Atlanta, to put its code on Northwest flights and phase out the Northwest name. The 23-year-old suspect, Umar Farouk Abdulmutallab, arrived in Amsterdam on Friday from Lagos, Nigeria, on a KLM flight. Air France-KLM has a joint venture with Delta that involves sharing costs and revenue on trans-Atlantic flights. After a layover of less than three hours in the international departure hall, the suspect passed through a security check at the gate in Amsterdam, including a hand baggage scan and a metal detector, and headed to the Northwest flight. He did not pass through a full-body scanner. Officials said Abdulmutallab apparently assembled the explosive device, including 80 grams of Pentrite, or PETN, in the aircraft toilet, then planned to detonate it with a syringe of chemicals. Passengers intervened, and the plan failed. Abdulmutallab’s name was in one expansive database, but he never made it onto more restrictive lists that would have caught the attention of U.S. counterterrorist screeners, despite his father’s warnings to U.S. Embassy officials in Nigeria last month. Those warnings also did not result in Abdulmutallab’s U.S. visa being revoked. U.S. investigators said Abdulmutallab told them he received training and instructions from al-Qaida operatives in Yemen. Abdulmutallab, charged with trying to destroy an aircraft, is being held at a federal prison in Milan, Mich.

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Passenger Questioned After New Incident on Northwest Flight To Detroit

December 27, 2009

By Jonathan D. Salant Dec. 27 (Bloomberg) — A disruptive passenger on a Northwest Airlines international flight to Detroit was taken into custody today after the plane landed, according to a spokeswoman for parent company Delta Air Lines Inc. The Federal Bureau of Investigation said in a statement that the incident was not serious. Susan Elliott, a spokeswoman for Atlanta-based Delta, said the flight crew asked law enforcement officers to meet the plane “out of an abundance of caution.” The plane landed without incident. The unnamed passenger had spent a long time in an airplane lavatory, the FBI said. The flight has the same number, 253, and flew the same route, Amsterdam to Detroit, as the one taken by Umar Farouk Abdulmutallab , a 23-year-old Nigerian, who allegedly attempted to light an explosive as the flight neared the Detroit airport on Christmas Day. The jetliner carried 257 passengers and 12 crew members, Elliott said. With airline security heightened since the attempted bombing, President Barack Obama was told of the latest incident, White House spokesman Bill Burton said in a statement. Burton said Obama requested a briefing as soon as possible. “The president stressed the importance of maintaining heightened security measures for all air travel,” Burton said. To contact the reporter on this story: Jonathan D. Salant in Washington at jsalant@bloomberg.net .

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Passenger in Custody in Detroit After New Incident on Flight, Delta Says

December 27, 2009

By Jonathan D. Salant Dec. 27 (Bloomberg) — A disruptive passenger on a Northwest Airlines international flight to Detroit was taken into custody today after the plane landed, according to a spokeswoman for parent company Delta Air Lines. Susan Elliott, a spokeswoman for Atlanta-based Delta, said the flight crew asked law enforcement officers to meet the plane when it landed “out of an abundance of caution.” The plane landed without incident. The flight has the same number, 253, and flew the same route, Amsterdam to Detroit, as the one taken by Umar Farouk Abdulmutallab , a 23-year-old Nigerian, who allegedly attempted to light an explosive on the plane on Christmas Day. The jetliner carried 257 passengers and 12 crew members, Elliott said. To contact the reporter on this story: Jonathan D. Salant in Washington at jsalant@bloomberg.net .

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Northeast U.S. Cleans Up After Snowstorm Cancels Flights, Delays Packages

December 21, 2009

By Chris Dolmetsch Dec. 21 (Bloomberg) — The U.S. East Coast struggled back into the work week today after a weekend blizzard that left as much as 2 feet of snow in some areas, snarled travel for thousands and delayed package deliveries days before Christmas. At least six deaths were attributed to the storm, including three in Virginia, two in Ohio and one in Pennsylvania, according to the Associated Press. More than 3,000 flights were canceled over the weekend by airlines including Delta Air Lines Inc. and U.S. Airways Group Inc. because of the storm, which also delayed Amtrak and commuter trains throughout the Northeast. Travel throughout the region had improved by this morning, with the Federal Aviation Administration reporting no major delays at U.S. airports. The storm gave Baltimore and Washington record daily snowfalls for the month of December, according to AccuWeather.com Inc . The highest reported amount was in East Patchogue, New York, on Long Island, which had received 27.5 inches as of noon yesterday, said the National Weather Service. The storm also slowed holiday shopping in some regions on the last weekend before Christmas. Government agencies in the Washington area, including the office of Washington Mayor Adrian Fenty , urged people to stay indoors. Federal government offices in Washington are closed today as the area recovers, the U.S. Office of Personnel Management said. The 10 days before Christmas have typically made up 40 percent of total holiday sales for November and December, according to Joseph Feldman , managing director at Telsey Advisory Group in New York. Shipping Delays The blizzard caused delays for FedEx Corp. and limited operations in some areas, spokeswoman Sandra Munoz said in an e- mail. There may be more delays today depending on local road conditions, she said. The Memphis, Tennessee-based company planned to start some delivery services several hours earlier than usual. “We were quite fortunate that the big storm actually hit over the weekend and that allowed us to actually continue operations yesterday to move packages to their destination so that we could be out on the streets early this morning making deliveries,” said Mike Glenn , executive vice president for market development. United Parcel Service Inc. stopped making pickups and deliveries in Washington, parts of Maryland, Delaware, New Jersey, Pennsylvania, West Virginia and Virginia on Dec. 19 because of the weather, the company said on its Web site. UPS doesn’t deliver on Sundays. The 23.2 inches of snow that fell at Philadelphia International Airport was the second-highest total for the city since records started being kept in 1884, said Kristin Kline , a forecaster with the National Weather Service ’s Mount Holly, New Jersey, office. The record was set on Jan. 7 and 8, 1996, when 30.7 inches fell. Amtrak canceled one of its Acela high-speed trains between Boston and Washington and four trains in Pennsylvania to reposition equipment and ease congestion, while East Coast commuter railroads were reporting minor delays. To contact the reporter on this story: Chris Dolmetsch in New York at cdolmetsch@bloomberg.net .

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U.S., Japan Reach `Open-Skies’ Agreement Letting Airlines Deepen Alliances

December 12, 2009

By John Hughes and Chris Cooper Dec. 12 (Bloomberg) — The U.S. and Japan have agreed on the draft of an “Open Skies” treaty, clearing the way for carriers including United Airlines and All Nippon Airways Co. to seek antitrust immunity to deepen trans-Pacific alliances. The accord outlines plans to erase government limits on flights between the two nations, including restrictions on the prices carriers can charge and markets they can serve, Japan and the U.S. said today in separate releases. Open Skies “is good news for air travelers and businesses on both sides of the Pacific,” Secretary of Transportation Ray LaHood said in a release. “American and Japanese consumers, airlines and economies will enjoy the benefits of competitive pricing and more convenient service.” The U.S. Transportation Department requires “Open Skies” agreements before it will approve antitrust immunity, which lets carriers act more like a single company for pricing, scheduling and marketing international flights. The two nations aim to sign the treaty by next October, the release said. Today’s deal means that United, Continental Airlines Inc. and Tokyo-based All Nippon can seek immunity in their alliance, which is now limited to selling seats on one another’s flights and sharing some revenue. Japan Airlines Corp. will be able to seek antitrust protection with Delta Air Lines Inc. or American Airlines, depending on which of the two companies the carrier selects after negotiations that are now under way. The current round of talks began Dec. 7 in Washington. A final agreement would be the first major overhaul of a 1952 aviation treaty between the U.S. and Japan since 1998. About 178 million international airline passengers traveled in and out of the U.S. last year, and 56.5 million did so in Japan, according to the International Air Transport Association . Star Alliance All Nippon, Asia’s second-largest carrier, is already part of the Star Alliance , the world’s largest airline grouping. Star also includes Chicago-based UAL Corp.’s United, and Houston-based Continental. Japan Airlines, or JAL, now works with AMR Corp.’s American in Oneworld , the third-biggest global alliance. Delta is trying to lure Tokyo-based JAL to SkyTeam , the second-largest. Delta, based in Atlanta, is the world’s biggest airline, followed by Fort Worth, Texas-based American. JAL is Asia’s largest. Restrictions that would be wiped away under “Open Skies” includes one that lets the U.S. and Japanese governments veto fare increases for flights originating in their nations. Another limit lets only three U.S. carriers, Delta, United and FedEx Corp ., serve all Japanese markets with unlimited flights. United Parcel Service Inc., American, Continental, US Airways Group Inc ., Hawaiian Holdings Inc . and Atlas Air Worldwide Holdings Inc. are among carriers that would no longer face flight limits under “Open Skies.” To contact the reporters on this story: John Hughes in Washington at jhughes5@bloomberg.net ; Chris Cooper in Tokyo at ccooper1@bloomberg.net .

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