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Europe’s largest landlord exposed to €8bn hit from Berlin apartment plans

Vonovia vulnerable to compulsory purchase of 120,000 flats under proposals from winners of state election

Europe’s largest residential landlord Vonovia stands to lose more than €8bn from nationalisation plans in Berlin, as the prospective governing parties in the city-state discuss the socialisation of more than 140,000 apartments.

The leftwing Die Linke, winner of the September state election, has agreed to coalition talks with the Social Democrats and the Greens over plans to transfer large apartment portfolios into public ownership in an effort to bring down rents in the capital.

The proposal, which foresees compensation far below market values, could impose losses of more than €11bn on four major property companies relative to the levels at which the properties are held in their books, according to FT calculations.

Berlin is struggling to address a chronic lack of housing, with the city of 4mn people short of an estimated 100,000 apartments, according to the Berlin Senate.

 Under the plans, which rely on an untested clause of the German constitution, real estate companies that own more than 10,000 Berlin apartments would be forced to transfer flats above that threshold into public ownership. More than 144,000 homes are likely to be affected, company disclosures show.

The parties envisage paying no more than €16bn, which would amount to an average compensation of just over €100,000 per apartment. Legislation would be brought forward to 2028.

According to FT calculations based on disclosures from the four companies most likely to be affected — Vonovia, Heimstaden, Adler and Covivio — this would be more than 40 per cent below the average book value of their properties.

Shares in Vonovia, the biggest landlord in the German capital with a portfolio of roughly 130,000 flats, fell to the lowest level since 2023 last week. Its flats have an average market value of €170,000 each, according to company disclosures, which means the 120,000 apartments at risk of nationalisation would be worth €20.4bn.

The company would only receive €12bn in compensation, leaving a loss of €8.4bn — about 60 per cent of its current market capitalisation.

Vonovia’s chief executive Luka Mucic said the plans were “unconstitutional” and would not survive a legal challenge.

Germany needed “reliability, legal certainty and a stable investment environment” to address its housing shortage of 1.4mn apartments, he said. Despite the uncertainty, Vonovia said it planned to invest €539mn this year into its existing portfolio in Berlin and was currently building 1,000 flats.

Privately owned Heimstaden could face losses of €1.5bn on 10,000 apartments worth €2.5bn, according to FT calculations.

Heimstaden co-chief executive Christian Fladeland said he doubted the plans would ever become reality, but warned that the proposed compensation would hit investment.

“Obviously, Germany is uninvestable [for international investors] if this materialises,” he said. As for the company’s own plans, “if you are getting robbed of so much value, then you will definitely not prioritise new investment in such a market.”

Company hopes for state backing of up to £200mn to put towards engine for short-haul aircraft

Rolls-Royce is closing in on a deal for British taxpayer subsidies of up to £200mn to help fund the development of a new engine for short-haul aircraft, with an agreement potentially being announced as early as next week.

The investment would mark one of the biggest financial commitments by UK Prime Minister Andy Burnham towards his promise to reindustrialise the country and create thousands of new jobs in high-value manufacturing. 

The support package of between £100mn and £200mn will help to fund the development and testing of a demonstrator model of Rolls-Royce’s new UltraFan 30 engine, according to two people briefed on the situation. 

Negotiations between the two sides were still ongoing, according to one of the people, who cautioned that the timing of an announcement could yet change.

The FTSE 100 group has been pressing the government for more than a year about taxpayer support for its bid to re-enter the lucrative market for narrow-body aircraft such as the Airbus A320 or Boeing 737, which typically fly on short-haul routes. 

Executives had hoped to secure an initial commitment towards the high-profile project in the first half of the year but an agreement was in part held up by the departure of Sir Keir Starmer as prime minister.

Burnham has made reindustrialisation of the UK a key priority since taking office in July.

Tufan Erginbilgiç, Rolls-Royce’s chief executive, has said the project could be a once-in-a-generation opportunity that could create as many as 40,000 skilled jobs, both at the company and in the wider supply chain, and generate as much as £120bn for the UK economy over the decades-long lifetime of the programme. 

The development of a fully certified aircraft engine ready to go into production could cost up to £3bn, with additional funding needed for full-scale manufacturing. 

The research and technology money for the demonstrator is expected to come via Britain’s Aerospace Technology Institute, which allocates state funding for innovation in the industry. 

Rolls-Royce and the Department for Business, Science, Innovation and Trade both declined to comment. 

Rolls-Royce has previously received UK government backing for engine programmes, including research and development funding and launch support. 

Erginbilgiç, who has driven a sharp turnaround of the group since taking the helm in 2023, defended the company’s request for state aid in February after unveiling plans to return up to £9bn to shareholders over the next three years. 

This type of state support was not uncommon in the industry, he said at the time, noting that his competitors — America’s Pratt & Whitney and GE Aerospace, and France’s Safran — received significantly greater sums. 

The company would also invest substantial sums itself. An agreement with the government is expected to include commitments from Rolls-Royce on jobs. 

The company had warned it could move production of the engine to Germany, where it builds business jet engines. It made the gearbox for the UltraFan programme at its facility in Dahlewitz, near Berlin, and some work is still expected to take place there.

Airbus and Boeing are expected to decide on engines for their next-generation narrow-body aircraft by the end of the decade, a lucrative opportunity in a market that Rolls-Royce left more than a decade ago to concentrate on wide-body planes.

How a transatlantic mega-merger fell apart over a leadership tug of war

Smith & Nephew was in talks to combine with J&J’s orthopaedics unit but refused to agree to former CEO leading combined business

A deal to combine Johnson & Johnson’s orthopaedics business with Smith & Nephew to create a $34bn transatlantic medical technology company unravelled after the London-listed group refused to agree to its former chief executive leading the merged business.

Talks were at an advanced stage and both companies were aligned on the main financial terms and structure of a transaction but collapsed at the last minute after disagreement over who would run the enlarged company, according to people familiar with the matter.

FTSE 100 group Smith & Nephew refused to agree to the combined group being led by its former chief executive Namal Nawana, who left in 2019 after just 18 months in the role because the UK medical devices company could not meet his pay demands.

US drugmaker J&J had sought to install Nawana — the head of its orthopaedics division — as the merged group’s new boss. However, its smaller UK rival refused, saying it would only agree to a deal if its own boss Deepak Nath remained CEO, the people said.

Smith & Nephew chair Rupert Soames, who would have continued to lead the board, made the demand a red line in negotiations, causing J&J’s interest to cool.

The UK-listed business approached J&J earlier this year with the offer to combine with the US group’s orthopaedics division, the people said. The proposed deal valued the hip and knee replacement unit at as much as $22bn — almost double Smith & Nephew’s £9.4bn ($12.6bn) market capitalisation.

The offer came after J&J announced last year it was intending to spin off or sell the division, formerly known as DePuy Synthes, as part of a move by the $645bn company to shift focus to faster-growing areas.

At its third-quarter earnings last week, J&J’s finance chief Joe Wolk said the company was now “leaning towards” spinning off the unit as a separate listed group, crediting Nawana for a recent improvement in its performance. Sales for the division rose by 3.2 per cent over the quarter.

The merger talks reveal how close the London stock market came to another of its largest companies tilting its centre of gravity towards the US. Smith & Nephew would likely have elevated its US listing as part of the merger while retaining its London listing, some of the people said.

The companies had been eyeing a mid-October announcement before talks collapsed several weeks ago.

The proposed deal could have offered Smith & Nephew a path out of years of weak growth. It has come under pressure from activist investor Cevian and faced calls from other investors to spin off its own orthopaedics division due to poor performance.

Nath has rejected calls for a break-up and told the FT earlier this year the division was now better run. Shares in the company are down 21 per cent over the past 12 months, compared with a 13 per cent rise in the FTSE 100 index.

The two companies had agreed that J&J shareholders would own 50.1 per cent of the combined company, with Smith & Nephew shareholders owning the rest, they added. Smith & Nephew would have paid J&J a dividend of roughly $10bn to account for the discrepancy in valuations, by raising debt.

Both Texas-based Nath and Nawana have previously been embroiled in debates over executive pay. At the time of Nawana’s departure in 2019, Smith & Nephew said it had “become clear that we couldn’t meet Namal’s expectations on pay and reward, relative to what US devices companies pay”. Soames, a City grandee who is grandson of Winston Churchill, did not serve on the board during Nawana’s tenure.

The company this year cited the risk of losing another boss due to pay disparities with the US as part of the rationale for increasing Nath’s maximum deal to $15.3mn from 2027, from $7.2mn last year. That followed a major shareholder revolt over his remuneration in 2024.

J&J and Smith & Nephew declined to comment.

Mike Waltz warns Tehran it must reach a ‘meaningful agreement’ on its nuclear programme

The US is preparing for a protracted conflict with Iran, even as the Trump administration hopes its bombing campaigns and economic sanctions will force major concessions from the Islamic republic.

Mike Waltz, Donald Trump’s ambassador to the UN, acknowledged that a year from now the US could still be mired in a stalemate with Iran, without a deal on Tehran’s nuclear programme or a return to prewar shipping through the Strait of Hormuz.

“I’m not going to put out hypotheticals. One would hope that they’ll come to the table in a meaningful way before that,” Waltz told the FT in an interview.

But “the president and the US Navy can maintain this blockade [on Iranian ports] for the foreseeable future,” he said, and the administration is “tightening” its economic pressure campaign.

Waltz spoke to the FT as Trump and Israeli Prime Minister Benjamin Netanyahu renewed threats to launch a fresh offensive on Iran following US midterm elections on November 3.

The war Trump initially said would last for “four to five weeks” is now approaching its ninth month. It has triggered record-high fuel prices, as well as fertiliser and commodities shortages, with Iran striking critical energy infrastructure across the Gulf states, the world’s top oil-producing region and crippling export routes.

The war is unpopular with the US public and Trump’s approval ratings have dipped to around 31 per cent, less than two weeks before the midterm elections, with his Republican Party at risk of losing control of Congress amid voter frustration with high prices.

In an effort to reduce the cost of fuel, Trump this month struck a deal with Vladimir Putin to allow the sale of Russian diesel after years of sanctions, triggering a backlash from European and Ukrainian leaders who warned that revenue from the sales would give Moscow a lifeline to extend its war against Ukraine.

Waltz, who as a member of Congress in 2024 had pushed for the US to support the Ukrainian government, justified Trump’s deal as necessary to offset the “global shortage of refined products” that has hit industries “from aviation to farmers” this year. “It’s causing a humanitarian crisis in east Africa. It’s a lack of fertiliser,” he said.

Trump is “balancing the needs of the world in terms of energy, in this case, diesel,” he added.

Waltz suggested the cash would also serve as “an incentive for the Russians to come to the table in a meaningful way” to end the war.

Democrats and some Republicans have urged Trump to focus on ending the Iran war with an agreement that returns the Strait of Hormuz to prewar shipping levels and allows the region’s energy sector to rebuild.

But Waltz said the US will not have accomplished its strategic objectives in the conflict until it has disposed of Iran’s highly enriched nuclear material and reached a “meaningful agreement on their domestic enrichment” with Tehran.

Waltz served briefly as Trump’s national security adviser but was sacked last year after using the Signal messaging app to discuss sensitive military operations in a chat that inadvertently included a journalist.

As ambassador to the UN, Trump has charged him “with putting reforms in place, putting it on a diet, so to speak,” Waltz said.

He told the FT the US has cut its funding of UN agencies in an effort to force “needed” reforms, including cuts to long-running peacekeeping missions, some of which “have been sitting around for 30, 40, 50 years” or “cost a billion dollars a year” and “are freezing conflicts in place” instead of resolving them.

“We’re reforming the way peacekeeping is done,” he said, adding Washington was seeking to end peacekeeping operations in Lebanon, Somalia and Western Sahara.

“We think it’s time to go,” Waltz said of the decades-long United Nations Interim Force in Lebanon (Unifil), which has failed to prevent multiple wars between Israel and the Lebanese militant group Hizbollah.

He added that the US government was in “active consultations” with France, Israel, Lebanon and others on what a future Lebanon peacekeeping mission could look like.

“But the current form Unifil will not continue, or, we do not believe it should continue.”

The Journal analyzed flight paths on some of the world’s busiest routes, which are shifting around conflicts in Ukraine and the Middle East

Passenger planes have been shot out of the sky, airport terminals leveled and parked aircraft destroyed on the tarmac.

Deadly global conflicts have completely disrupted civil aviation, leaving options for safe journeys—particularly between Europe and Asia—fewer and farther between. Houthi strikes on Saudi airports over the past month upended one of the last few remaining routes used by airlines including British Airways and FedEx, tracking data from Flightradar24 shows.

Outside of complete airspace closures and foreign bans, which are generally rare, airlines are left to make their own decisions on where to fly. Airlines face a patchwork of often differing advisories, including from regulators, intelligence agencies and private-security consultants.

In some cases, rerouting flights has added hours to flight times; in other cases, airlines have opted for shorter alternative routes that carry their own risks.

This year has posed an unprecedented challenge to find safe routings, according to Mark Zee, the founder of New York-based OpsGroup, an independent aviation security advisory group. “The conversation is no longer about what’s 100% safe, it’s what is the least risk,” said Zee, a former pilot and flight dispatcher. “And of course, least risk is not low risk.”

Here are some examples of how flights have changed:

British Airways Flight 198: Mumbai to London

British Airways this year has shifted some of its flying through Saudi airspace, which despite repeated Iranian strikes was deemed largely safe to use by aviation safety regulators. The recent Houthi strikes changed that equation, prompting the airline to fly more via Central Asia.

That routing avoids the Saudi airspace and didn’t change the overall flight time. But it comes with its own perils, such as potential spillover from the Russia-Ukraine war or the continuing border war between the Taliban and Pakistan. Afghanistan also lacks active air-traffic control.

Air India Flight 162: London to Delhi

India’s airlines, currently banned from entering Pakistan, now have few good options for their European routings. After initially flying via central Saudi Arabia, Air India now opts for a route that skirts closer to its northern border and the area around Damascus, Syria.

Despite some regulators designating parts of that route as unsafe, it has become an increasingly popular option in recent weeks for airlines including Emirates, Qatar Airways and Turkish Airlines to avoid the Houthi militia threat.

FedEx Flight 5042: Paris to Dubai

It isn’t only passenger jets that are battling to find safe routings. FedEx is among the cargo carriers that have added hours to flights to get to places such as Dubai. The freight giant’s new route—which flies closer to China to minimize time in both Afghan and Pakistani airspace—adds an extra five hours.

“FedEx continues to monitor the situation in the Middle East and adjust our operations for continued service to and from the region,” a company spokesman said.

Qantas Flights 9 and 219: Perth to London

Since 2018, Australia’s biggest airline has operated one of the world’s longest nonstop flights: Perth to London. It dropped the flight path in March, after adjusting the route via Central Asia and finding the distance was untenable. Qantas has been operating the route with a fuel stop in Singapore, adding about four hours to the total journey time.

Zee, who in 2014 was flying the same flight route over Crimea as Malaysia Airlines Flight 17 when it was shot down, started OpsGroup after it emerged that a handful of airlines had received warnings about the risk of passenger jets being targeted over Crimea but hadn’t disseminated the intel.

The organization now has about 10,000 members, including pilots, air-traffic controllers and workers in airline safety and operations departments across the globe. Last week, OpsGroup said Saudi airspace wasn’t safe at any altitude.

“We can’t find a zero-risk route option any longer through the Middle East. It just isn’t there,” Zee said.