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Airbus’ Global Market Forecast for 2017-2036 offers a forward-looking view of the air transport sector’s evolution – accounting for factors such as demographic and economic growth, tourism trends, oil prices, development of new and existing routes, and ultimately highlighting demand for aircraft covering the full spectrum of sizes from 100 seats to the very largest aircraft over 500 seats. Entitled “Growing Horizons” this new forecast – which serves as a reference for airlines, airports, investors, governments, non-governmental agencies and others – anticipates that air traffic will grow at 4.4 per cent annually, requiring some 35,000 new passenger and dedicated freighter aircraft at a value of US$ 5.3 trillion over the next 20 years. Also covered in the GMF are the results from its “Global Services Forecast” which shows a Maintenance Repair & Overhaul (MRO) business totalling more than US$1.8 trillion and the need for in excess of a 500,000 new pilots over the next 20 years.

‘Inevitable’ sovereign crisis postponed as diaspora props up huge public debt pile

Lebanon’s government is labouring under a debt pile equivalent to 147 per cent of the country’s gross domestic product, rendering it the third most indebted public sector in the world, after Japan and Greece. The IMF estimates this will climb to 165 per cent by 2022, overtaking the economic basket case that is the Hellenic Republic in the debt stakes.

Servicing this debt now soaks up half of government revenues, up from 38.5 per cent in 2014. A current account deficit of 15.9 per cent of GDP, among the highest in the world, means the Middle Eastern country is dangerously dependent on attracting capital inflows to pay its way in the world.

Lebanon’s weak economic growth, just 1 per cent in 2016, according to the IMF’s estimates, hardly seems an obvious draw for this much-needed foreign money.

Moreover, the country’s location in one of the world’s most dangerous neighbourhoods fails to inspires confidence, with Lebanon hosting 1.5m refugees from Syria’s civil war, which its Hizbollah movement is a protagonist in.

Yet Lebanon has never defaulted on its debt in its history and its foreign currency-denominated debt trades at a blended yield of 6.22 per cent, little more than the Middle Eastern average of 5.84 per cent, suggesting few are worried about repayment.

“Lebanon emerges as a prime suspect for facing a debt crisis based on its weak solvency metrics. Standard debt-sustainability models, derived rules of thumb and other countries’ experience suggest that these are early signs of a debt crisis,” says Carla Slim, Middle East and North Africa economist at Standard Chartered, who is herself Lebanese.

“To add to the concerns, both short and medium-term fiscal planning is non-existent given the lack of a medium-term plan to ensure debt sustainability and parliament’s failure to endorse a budget since 2005.”

Gabriel Sterne, head of global macro research at Oxford Economics, a consultancy, adds: “If you look at spreads versus any debt measure, Lebanon is too tight. You are not getting paid enough.”

Yet fears of an impending debt crisis are nothing new for Lebanon, with the country of 6.2m long having successfully juggled seemingly implausible debt metrics. Indeed, its debt/GDP ratio was once markedly higher still, reaching a peak of 185 per cent in 2006.

“When I was at the IMF from 2004-06 working on crisis resolution, the one country that the IMF staff really wanted to work on then was Lebanon,” says Mr Sterne.

“It was the crisis that was going to happen. It had huge debt, really difficult politics and there were concerns that the central bank might be going bust,” because of circular lending, with “the central bank, government and commercial banks all lending to each other”.

“But a colleague came back and said there is never going to be a crisis. The banks will carry on lending to the government because if one goes down they all go down.”

Ms Slim adds that “Lebanon’s debt has long been dubbed unsustainable”. The key question is whether this is about to change.

Lebanon’s finances have long been propped up by its large and reasonably successful diaspora, estimated by StanChart to number anywhere between 5m and 16m, who happily remit money back to Lebanese banks.

These inflows are supported by the pegging of the Lebanese pound to the US dollar, deposit rates of around 3.5 per cent for dollars and 5 per cent-plus for pounds, the prospect of an eventual return to Lebanon, particularly for those living in Gulf states where naturalisation is not possible, and the fact that “the banking system in general in Lebanon has a fairly good reputation”, in the words of Ms Slim.

“They have such a loyal diaspora of wealthy people around the region who keep their money in the banks,” says Mr Sterne. “During the global financial crisis banks were going bust elsewhere, and we also had a war in Lebanon [in 2006], but Lebanon sailed through all of that. It’s a fascinating case.”

These inflows not only cover the current account deficit but also provide the funds for the commercial banks to buy government debt, keeping the system afloat

This “virtuous cycle” wobbled last year, however. Growth in non-resident deposits fell to a decade low of less than 3 per cent in the second quarter of 2016, from 10 per cent-plus in the same period a year earlier, says Ms Slim, leading to a 10 per cent fall in foreign exchange reserves to $35bn as assets were sold to cover the current account deficit.

Ms Slim attributes this slump to lower oil prices, which may have hit the fortunes of many Lebanese working in the Gulf and African oil exporters, as well as “low confidence” in Lebanon itself due to “overall policy paralysis”, weak growth, the hosting of the Syrian refugees and a 29-month presidential vacuum, which finally ended in October 2016.

The Banque du Liban, the central bank, reacted by issuing about $12bn of dollar-denominated eurobonds that it sold to the commercial banks, replenishing its FX reserves.

This drained commercial banks’ foreign currency liquidity, which they plugged either by sourcing funds from their correspondent banks abroad or by upping their deposit rates to attract more foreign deposits.

“Some tried to attract existing private bank clients with money in Switzerland or elsewhere by offering them high deposit rates,” says Ms Slim.

This seems to have worked. As of April, the most recent month for which figures are available, deposit growth is back to 7 per cent, year on year.

Given the appointment of President Michel Aoun in October and a national unity government two months later, Ms Slim believes it is unlikely the country will face another political impasse that saps depositors’ confidence, in the near-term at least, even if parliament remains suspended.

Even if that was to happen, she is confident another eurobond issue would work, even if the obvious alternative, a rise in interest rates, remains difficult given the already weak economy.

Nevertheless, given the possibility of an extended period of depressed oil prices and below-trend growth in the Middle East, deposit flows may remain weak by historical standards.

Longer term, Ms Slim believes the only solution to Lebanon’s financial problems is medium-term planning and budgeting to bring the government’s finances under control.

Mr Sterne believes that as long as Lebanon can generate economic growth of, say, 4 per cent it is “probably going to be all right” as its debt/GDP ratio will probably remain stable or even fall. This could be touch and go, though, with growth currently “pitiful” and the IMF forecasting an expansion of just 2 per cent this year and longer-term growth of 3 per cent.

Nevertheless, Mr Sterne warns: “People who call a crisis in Lebanon have been wrong until now but one day something might come along and knock it over. We are still only one shock away from something nasty happening. It’s the sovereign crisis that is inevitable.”

Ms Slim adds: “If one piece of the system goes, the whole system goes. If they lose these deposits then everything falls apart.”

The Dubai-based property operator could be looking to bring the retailer abroad.

Dubai-based retail operator Majid Al Futteim Group is said to have shown interest in the tony, but debt-laden retailer and is exploring avenues to bring the brand overseas, possibly through a licensing deal that would resemble Bloomingdale’s hookup with Al Tayer, according to sources.

Al-Futtaim operates 20 shopping malls, 12 hotels and other properties across the Middle East, Africa and Asia.

Dubai is at least somewhat familiar territory for Neiman Marcus Group chief executive officer Karen Katz, who addressed the World Retail Congress there in April, where she spoke about “Retaining Relevance: The Rejuvenation of Brand.”

There have been rumors of a Middle Eastern player with an interest in Neiman Marcus, but until now there’s been little indication of exactly who and what their involvement might mean for the acquisitive Baker, who has long coveted the company.

A spokeswoman for Neiman Marcus did not immediately respond to a query from WWD.

Hudson’s Bay has been seen as Neiman’s most interested suitor for some time, but no deal is close.

Hudson’s Bay and Neiman’s private equity owners are said to still be too far apart on price. Ares Management and the Canada Pension Plan Investment Board bought the company for $6 billion in 2013, but luxury retail softened and the company is struggling to carry the $4.7 billion debt load that came on the heels of two successive private equity buyouts.

Ares and the CPPIB had hoped to exit their investment through an initial public offering, but pulled the plug on that effort in January and launched a more formal sale process. The partners are assumed to be under water on the investment, but with no significant debt maturities until 2021 when $2.9 billion comes due, they can hold out for at least a while longer as they try to salvage something in a transaction.

That could be where Al-Futtaim comes in. A lucrative deal to take the 42-door Neiman Marcus to the Middle East, for instance, could help stabilize the company’s finances and buy Ares and CPPIB more time.

Al-Futtaim’s interest and the possibility of some sort of move abroad by Neiman Marcus adds one more moving part to an already complicated financial backdrop at the company.

Already a potential deal with Baker was made tougher by the retailer’s move in March to shift the Mytheresa business and three Neiman’s stores into “unrestricted subsidiaries.” That distanced the assets from increasingly nervous debt holders, but also muddied the waters some from a deal perspective.

Still, it might be some time before the market gets what it most wants from the situation — clarity.

Brands rely on the department store, as a key account and because they still can convey a sense of legitimacy to the fashion crowd and the lenders and factors who fuel the back end of the designer business.

Landlords also have a stake in the game, particularly since other retailers often have clauses in their leases that let them jump ship early if a key anchor leaves a mall.

Real estate firm Related Cos. met with Neiman Marcus last month in New York to get a read on the retailer’s status and some peace of mind, according to sources. The firm was also looking to see if there was a way for it to “strategically help” the retailer.

Related signed on Neiman Marcus to be a central draw at the Hudson Yards mall on Manhattan’s West Side.

The drama at Neiman Marcus is heightened by the fact that American retail is in the midst of dramatic sectoral change, with decades of overbuilding finally coming to a head and retailers of all stripes stepping back and closing stores as e-commerce gains ground and shoppers look for new types of experiences.

Most of the 2,000 workers were let go on Thursday.

The Hudson’s Bay Co. announced a sweeping “transformation” plan on Thursday, involving 2,000 layoffs, new leadership at the department store divisions and 350 million Canadian dollars in annual savings.

Liz Rodbell, formerly president of the Hudson’s Bay department store division in Canada and the Lord & Taylor chain in the U.S., will now be solely in charge of L&T.

Alison Coville has been named president of Hudson’s Bay and Home Outfitters in Canada. She was most recently senior vice president and general merchandise manager for the department store group that includes Hudson’s Bay and L&T and has held leadership positions in merchandising at HBC since 2005.

HBC is now decentralizing its department store group to have separate senior-level merchants and store operations executives. Previously, one senior team oversaw both divisions, while there were always separate buyers for each division.

“This transformation plan is a very thoughtful strategic approach. We’ve been working on this for six months,” HBC’s chief executive officer Jerry Storch told WWD.

Most of the 2,000 layoffs occurred Thursday, though there were some cuts made in February, Storch said. “Today was the major day of activity — jobs across the company were affected, both in headquarters and stores, with a large percentage in the U.S.”

Storch said layers of management were removed “to streamline the decision-making process. In these rapidly changing times, you need to react fast to the market.”

The 2,000 workers represent 4 percent of HBC’s North American workforce. HBC’s operations in Europe, which include the Galeria Kaufhof department stores in Germany, were not impacted in the transformation plan.

HBC said annual savings from the plan are expected to total more than 350 million Canadian dollars, or $259 million, by the end of fiscal-year 2018, with about 170 million Canadian dollars, or $125.8 million, anticipated to be realized this fiscal year. Of that, the actions necessary to secure 125 million Canadian dollars, or $92.5 million, were complete as of Thursday.

By creating separate leadership teams for Hudson’s Bay and Lord & Taylor, “This will enable market specific strategies,” Storch said. “The environments and business conditions are different in the two countries.” He characterized Hudson’s Bay as “one of our best performing banners,” adding that “Lord and Taylor faces a much more competitive environment. Liz can focus much more heavily on the U.S. market and driving the digital business.”

The plan also entails integrating digital functions through the organization to develop and maximize all-channel solutions for marketing, operations and technology, and realigning resources involving IT and digital, store operations and visual merchandising, buying and planning and marketing, to increase efficiencies and leverage scale.

In other personnel changes, Janis Leigh has been promoted to chief human resources officer from senior vice president of human resources; Janet Schalk, chief technology officer, will lead the newly created HBC Technology group; Ian Putnam, chief corporate development officer, has added responsibilities as chief operating officer for HBC’s ventures and will lead the real estate team; Kerry Mader, executive vice president of store planning and operations, has taken on additional responsibility for store operations across North America and for visual merchandising; Andrew Blecher has been named chief communications officer, and Erik Caldwell has assumed additional responsibility for digital operations and procurement, and has been named senior vice president, supply chain and digital operations.

HBC continues to search for a chief financial officer.

The company also disclosed Thursday results for the first quarter, including an increase in the net loss to 221 million Canadian dollars, or $163.5 million, versus 97 million Canadian dollars, or $71.8 million, in the year-ago period. Adjusted earnings before interest, taxes, depreciation and amortization were 168 million Canadian dollars, or $124 million, compared to 250 million Canadian dollars, or $185 million, in the prior year.

Total retail sales in the quarter decreased 3 percent to 3.2 billion Canadian dollars, or $2.37 billion, and comparable sales fell 2.9 percent.

“This was a tough quarter for HBC,” said Richard Baker, HBC’s governor and executive chairman. “While the retail apparel market remains particularly challenging, we are taking steps to adapt, beginning with our transformation plan announced today. This initiative will reshape our organization to accelerate delivery of a best-in-class all-channel experience to our customers while improving our cost structure.”

Comparable sales were flat at HBC Europe and declined 2.4 percent at the North American department store group, 4.8 percent at Saks Fifth Avenue and 6.8 percent at HBC Off Price, which includes Saks Off 5th and Gilt. The first Saks Off 5th unit in Germany opened in Düsseldorf on Thursday to “large crowds,” the company said. HBC believes it could open up to 40 Saks Off 5th units in Germany.

Comparable digital sales increased 5.4 percent, and 13.2 percent at the department store banners.

Although overall comparable sales at the department stores declined, sales increased at Hudson’s Bay, primarily driven by strong overall digital sales. Active and ladies shoes continued to perform well, while handbag sales declined and growth in home was lower year-over-year, the company said. Ongoing initiatives at Hudson’s Bay include an increased focus on active, dresses, home and men’s, as well as “focused” digital marketing designed to drive all-channel sales.

At Lord & Taylor, in-store traffic remains challenging, executives said, though there has been improvement in overall conversion. Lord & Taylor continues to heighten its focus on active, dresses, denim and fine jewelry, and digital.

Baker said the transformation plan would make the company “more agile and better able to respond to evolving customer preferences and a rapidly changing retail landscape. We strongly believe that our model of combining world-class real estate assets, which are less impacted by short-term trends, with our diverse retail businesses, provides long-term value for the company and our shareholders.”

“We know we can do better and we are taking bold, decisive action,” Storch added. “Rather than chase the rapid industry changes, our transformation plan will reposition HBC to get ahead and stay ahead.”

Storch said the transformation plan includes “significant improvements to our organizational structure, store operations and procurement strategy.”

In other changes, HBC is realigning in-store sales coverage across its North American banners to better serve customers, including implementing additional training for store associates. Store operations across HBC’s North American banners will be centralized to share best practices. And the buying and planning teams have been restructured to reduce layers and create a more flexible and nimble merchant organization. Marketing support functions have been centralized.