Barron's : Why Chinese Growth Will Snap Back to 10%

Why Chinese Growth Will Snap Back to 10%
The country’s electricity production, freight traffic, and credit growth all point higher.

China’s premier Li Keqiang has stated that he needs to track only three indicators to have a good appreciation of the state of China’s economy. They are electricity production, railway freight traffic, and bank credit.

The latest report from China’s National Bureau of Statistics, or NBS, says China’s electricity production was 8.5% higher than a year ago in December, the latest monthly report. In the previous six monthly reports, electricity production has ranged from 8% to 9% above the same month a year earlier. Prior to July, we had not seen a figure higher than 8% since December 2013, if you ignore January-February fluctuations related to the timing of the Lunar New Year. Pretty good.

NBS also reports that rail freight traffic was 10.4% higher than a year ago in January, also the latest month reported. Traffic has been from 7% to 13.9% higher than a year ago in each of the five most recently published reports. Rail freight traffic was actually lower than year-earlier levels in every monthly report from January 2014 through last July. Also pretty good.

The People’s Bank of China, the nation’s central bank, reports that domestic credit growth is running at 9.7% year over year, slowing from unsustainable levels over the past decade. Just the same, 9.7% growth in bank lending is pretty accommodative by any standard.

Few forecasts speak in a louder voice than ones that predict some kind of disaster for China’s economy. The usual form indulges in an airplane analogy: a hard landing, a tailspin, or a crash. Lacking from all of these forecasts is any hard basis in fact or theory for expecting such an outcome—other than free-floating anxiety.

Now, the latest data hint at a better outcome.

How fast can China grow? China has a business cycle. All economies do. You can identify three complete cycles in the 39 years for which consistent economic data are available. The average length of a cycle over this period has been a fraction more than 10 years. The present episode—now in its sixth year—is the down phase of a fourth cycle. It is neither deeper nor longer than the ones that preceded it. China demonstrates its sustainable gross-domestic-product growth rate as the average of what it achieves over all of the ups and downs of a complete business cycle.

Remarkably, China’s sustainable growth rate over all cycles has been rock steady at just under 10%. In fact, China’s average compound growth rate over the entire 39 years of its documented modern history has been nearly 10%. The present 10-year moving average of China’s growth rate is 9%, despite 6.7% GDP growth last year. That is because a decade ago, China’s economy grew at a 14.2% rate. This is how averages work.

SO IF YOU BELIEVE in economic cycles, as you should, China’s economy should move back to GDP growth greater than 10% over the next four or five years. Premier Li’s three indicators tell us that China’s economy is ready to blossom back toward trend growth or beyond. Anecdotes from recent travelers to China support that notion, as well.

Why and how can China’s economy grow so fast? It is enjoying growth by modernization. That is a process identified by Nobel laureate Simon Kuznets in the 1970s to describe an emerging economy as it progressively shifts its population out of agricultural employment into the industrial or services sector. Historically, moving a worker in China off the farm and into the city increases his or her contribution to GDP fivefold, although that pickup diminished a bit in the preliminary result published for 2016. Last year, China moved 17 million people from farms to cities, a pace that has varied by 12 million to 22 million per year over the past decades. With 590 million people remaining in rural areas, plenty of scope remains for this migration to continue—and surely there are enough 15- to 30-year-olds to move, despite the one-child-policy experiment. Demographic dividends can and will support modernization.

Perhaps a better analogy for China’s growth ought to be continued steady flight at altitude, in turbulence. Rather than mulling ways in which China’s economy might fail, perhaps it is more productive for investors to look at China’s destination if it continues on its four-decade course toward its historic position as the largest and most dominant economy on Earth. Right now, China’s course is set to resume rapid economic growth.

CARL B. WEINBERG is the chief economist at High Frequency Economics.

WSJ : Alitalia’s Turnaround Strategy Is a Flop

Alitalia’s Turnaround Strategy Is a Flop
Etihad’s three-year effort to improve Italian airline’s service hasn’t translated into profit

Less than three years after Etihad Airways saved Alitalia SpA from bankruptcy, the Italian airline is once again on the brink.
After spending €400 million ($427 million) to buy effective control of Alitalia in 2014, the Abu Dhabi-based carrier launched a much-ballyhooed effort to improve the Italian airline’s service, expand its international routes and make the domestic business leaner.
But the drive has done little to push up passenger numbers or beat back fierce competition from low-cost carriers, leaving Alitalia at risk of bankruptcy. It only weeks away from grounding its fleet and seeking another reboot.

On Thursday, Alitalia’s board examined a new business plan—including cost cuts—and a management shake-up for a former state-controlled airline that hasn’t turned a profit in nearly 20 years. The board is set to approve the plan next week.
When Etihad bought 49% of Alitalia in 2014, many in Italy hoped the Middle Eastern carrier would provide a fresh start to an airline laid low by years of mismanagement and political interference.
With a goal of turning a profit by this year, Alitalia cut unprofitable domestic routes and overhauled its aging fleet. Hoping that better service would lure travelers away from low-cost carriers, Etihad retrained Alitalia employees, teaching them everything from proper make-up application to foreign languages.


But the strategy has flopped. The airline had 23 million passengers last year, 270,000 fewer than when Etihad entered in 2014. Meanwhile, Ryanair Holdings PLC, which overtook Alitalia as market leader in Italy in 2014, saw passengers rise 25% to 32.6 million over the same period. Alitalia’s load factor—or the percentage of seats filled—was about 76% in 2016, below both Ryanair’s about 95% and the 80% target management had set, according to research institute Bruno Leoni.
Alitalia declined to comment on the estimates, and said its revenue was hit last year after terrorist attacks in Europe led to reduced air travel across the continent.
“[Alitalia] expected the market would react better to the improvement of the service,” said Oliviero Baccelli, transportation expert at Milan’s Bocconi University.
Etihad said that Alitalia’s turnaround isn’t yet complete and it is still addressing longstanding issues at the Italian carrier.
One major handicap has been the more lucrative long-haul routes. Alitalia has added just six intercontinental routes in two years. The company said it has struggled to expand further because of the hundreds of millions required to establish new intercontinental routes—they typically lose money for some time—and because a long-standing joint venture Alitalia has with Air France and Delta prevents the Italians from expanding North American destinations, which are among the most profitable for the Italian carrier.

As a result, Alitalia remains focused on routes dominated by low-cost carriers, competing with budget airlines on 70% of its flights. At the same time, Alitalia’s costs are high, even after shedding 2,000 employees since 2014.
For instance, the company typically spends up to 15% more than rivals on leasing aircraft and fuel. Alitalia said in the past its troubled financial condition has made it difficult to negotiate leasing and fuel contracts, but it is planning to look to improve the terms. The company also covers hotel costs for its flight attendants after a flight, unlike some no-frills airlines. Alitalia now loses at least €1.5 million a day, according to Bruno Leoni. Alitalia said it is losing money, but declined to comment on this estimate.
Analysts say the failed turnaround also exposes flaws in Etihad’s strategy of spending heavily to stitch together a network of disparate airlines that would route traffic through its Abu Dhabi hub and enable it to compete with mega-carriers such as Emirates Airlines. Stakes in carriers such as India’s Jet Airways and Virgin Australia Holdings Ltd. and Air Berlin PLC have brought meager returns.

Etihad said that the Italian carrier, as well as Air Berlin, has “required deeper restructuring and change,” but that the investments in those and other companies have also allowed it to save money “by joint procurement activities and other business synergies.” It added that the investments helped generate traffic via its Abu Dhabi hub.
Now, Alitalia—Etihad’s biggest investment—is considering an aggressive new plan involving €1 billion in cost cuts by 2019, a management shake-up and hundreds of layoffs. It wants to segment its passengers more aggressively, with so-called naked, or no frills, seats for penny pinchers and full-service tickets for others, a person familiar with the matter says. Under this plan, the company anticipates turning a profit within three years.
Unions—which staged a strike last month to protest the coming job cuts—reckon the airline needs €2 billion in fresh cash to overcome its troubles and expand its intercontinental routes. Under the plan, shareholders will invest about €1 billion over the next five years, the person familiar said.
Meanwhile, the government has firmly ruled out fresh help for a carrier that gobbled up €10 billion in taxpayers’ money over the years, according to Bruno Leoni. Alitalia declined to comment on the figure.
“Nobody admitted they made mistakes,” says Nino Cortorillo, one union leader. Now “they need to go back to starting point.”

>>> BP and Exxon Mobil refuse to comment on talk of bid approach; Shell tipped a

BP and Exxon Mobil refuse to comment on talk of bid approach; Shell tipped as potential bidder - speculative reports

BP [LON:BP], an FTSE-100 oil company and Exxon MobilCorporation [NYSE:XOM], its Irving, Texas-based counterpart, have both refused to comment on Friday, 10 March regarding suggestions that Exxon had made a bid approach to BP shareholders, The Times reported. The newspaper’s market report did not cite a source for the rumour regarding the approach.
The speculation met with scepticism by some investors, who suggested that the Texas-based oil company Anadarko Petroleum Corporation [NYSE:APC] was a more attractive prospect for Exxon.
The item also mentioned talk that FTSE-100 rival Royal Dutch Shell [AMS:RDSA] [LON:RDSB] might get involved, but did not specify which company it might be interested in.
A market report in The Daily Telegraph on Friday, 10 March had noted talk the previous day that Exxon had approached BP shareholders.
The Daily Mail’s market report section on Saturday mentioned talk of an offer exceeding 600p per share, but did not cite a source for the speculation. An offer at that level would value BP at close to GBP 120bn (EUR 136bn), the item said.
The report also mentioned talk that Shell would also make an offer for BP if Exxon proceeds with a bid.
All companies involved dismissed what they described as speculation and emphasised that similar gossip has been in circulation for years, the newspaper said.
The market report section in Saturday’s Daily Telegraph said the limited increase in BP’s share price suggests that traders do not entirely believe the takeover speculation.
BP’s share price closed 16.7p up at 470.7p in London on Friday, valuing the company at GBP 92.07bn (EUR 105.56bn).

Link to The Times
Link to Daily Mail

>>> BT may be interested in takeover of ITV following resolution of Openreach re

BT may be interested in takeover of ITV following resolution of Openreach regulatory review - speculative report

BT Group [LON:BT/A], an FTSE-100 telecoms company, may be interested in acquiring the UK-based television broadcaster ITV [LON:ITV], according to speculation cited by The Times. The newspaper’s market report section cited talk in London’s Square Mile that BT might be interested in ITV now that the telecoms group has reached an agreement with the UK telecoms regulator about its network infrastructure arm Openreach, but did not cite a source for the speculation.
BT has agreed to separate Openreach from the rest of its business but will retain ownership of the unit, the item noted.
The speculation did not boost ITV’s share price, which closed 0.8p down at 207.7p, giving the company a market capitalisation of GBP 8.36bn (EUR 9.52bn).

FT : Hedge funds run by women outperform

Hedge funds run by women outperform
But fewer than one in 20 alternative managers employ a female portfolio manager


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Hedge funds run by women have outperformed a broader benchmark of alternative investment managers over the past five years, raising fresh questions about why there are so few female portfolio managers.

The HFRI Women index has returned 4.4 per cent over the past five years, compared with a 4.2 per cent return for the HFRI Fund Weighted Composite index, a broader gauge of hedge funds across all strategies and genders.

The figures support research by Rothstein Kass, the accounting firm, in 2012 and earlier academic studies that found hedge funds run by women outperform those managed by men.

Nonetheless the number of women in the industry remains small, with fewer than one in 20 hedge funds employing a female portfolio manager, according to a 2015 study by Boston’s Northeastern University.

By contrast, one in five mutual funds employ a female portfolio manager, according to Morningstar, the data provider.

Jane Buchan, chief executive of Paamco, a $24bn fund of hedge funds, said the lack of female hedge fund managers stems from the problems women face when trying to raise money from investors.

She said: “Women [hedge fund managers] have substantially less assets. That is a real issue, and it is not a performance issue. It is hard to win the money.”

“To get that same [level of assets as a man], you have to [outperform by] 200 basis points.”
KPMG, the accounting firm that acquired Rothstein Kass in 2014, last year found 79 per cent of US hedge fund professionals believe it is harder for women to attract capital from investors than for their male counterparts.

The disparity between the number of men and women working in the industry is one of the highest in finance, the Northeastern study found. It found that only 439 hedge funds employ a female portfolio manager, compared with 9,081 that employ a male investment manager.

When expanded to include women in marketing, compliance and administration roles, female representation at hedge fund companies rose to 21.5 per cent.

Because it is harder for women to raise assets when they do branch out on their own, the funds that thrive are ones that tend to outperform, according to the Northeastern research, which was published last year in the Review of Financial Economics.

Although the latest statistics indicate female hedge fund managers outperform over the long term, last year they underperformed the broader hedge fund index significantly. The HFRI Women index was up 2.2 per cent last year, compared with a 5.5 per cent return for the HFRI Fund Weighted Composite index.

Few new funds run by women are springing up. One exception is Margate Capital, run by Samantha Greenberg, a Paulson & Co alumna, which has raised about $200m after launching late last year.

Systematica, the quantitative hedge fund run by Leda Braga, was spun out from Mike Platt’s BlueCrest Capital in January 2015. It has accumulated $10bn of assets since launch, becoming one of the largest hedge funds in the world headed by a woman.

>>> Week End News : 11/03/2017 - 11h

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Barron's Article on Airbus, Peugeot & Norwegian Cruise Line ...all positive

Barron's : Peugeot Turned to M&A to Drive Earnings Growth

Peugeot Turned to M&A to Drive Earnings Growth
By acquiring Opel and Vauxhall from General Motors, the French car maker could become No. 2 in Europe behind Volkswagen.

Car maker Peugeot ’s audacious acquisition of General Motors ’ loss-making European brands looks set to extend the increasingly smooth ride the French company’s shareholders have enjoyed lately.
Peugeot’s (ticker: UG.France) agreement to buy Opel and Vauxhall from GM (GM) is a relatively small deal financially, but strategically smart. It means Peugeot will now overtake local rival Renault (RNO.France) to become Europe’s second-biggest car manufacturer behind Volkswagen (VOW.Germany), with a 17% market share.
That may be personally satisfying for Peugeot CEO Carlos Tavares, who resigned as Renault’s chief operating officer over three years ago after publicly voicing concerns that he might never replace Carlos Ghosn at the helm.
Last week’s GM deal marks a remarkable turnaround in Peugeot’s fortunes since Tavares took over. The car company came close to collapse in 2014 and needed a three billion euro ($3.16 billion) cash injection from China’s Dongfeng Motor Group(0489.Hong Kong) and French taxpayers. Tavares reduced Peugeot’s product range and lifted margins by capping costs, particularly for research and development and salaries. It returned to profitability in 2015 after four consecutive years of losses.

Cost cuts and improved pricing also underpinned Peugeot’s solid earnings growth in 2016. Last month it said full-year net profit almost doubled to €1.73 billion from €899 million and declared its first dividend since 2011.
Its shares have risen 35% in the past year and are up more than 25% over three months. They added 2.7% on the day the GM deal was announced.
Tavares’ rationalizing prowess will be key to making the GM deal work. The U.S. company’s European brands have racked up billions in losses in recent years and haven’t turned a profit since the 1990s.
Peugeot will pay €1.3 billion in cash and shares for Opel and Vauxhall, brands that generated €17.7 billion in revenue in 2016. To assuage political concerns in Germany and France—both of which are preparing for elections this year—Tavares promised to lift earnings without job cuts or factory closures.
The deal offers substantial economies of scale and savings from purchasing, manufacturing, and R&D. It should generate annual synergies of €1.7 billion by 2026, with a large portion of that coming before 2020. That would give Opel and Vauxhall a recurring operating margin of 2% by 2020 and 6% by 2026, Peugeot reckons.
Gerrit Smit, who manages the Stonehage Fleming Global Best Ideas Equity fund, says Peugeot has acquired GM’s European business at a knock-down price. “The clear fact is that Peugeot is buying a business that [GM] tried for years to nurse and grow. They haven’t succeeded and are, you could say, a forced seller.”
He says that for relatively little cost, Peugeot has acquired extensive infrastructure, strong brands, and good products. “Clearly, they will have to put a lot of energy and management into it as well, but they couldn’t have wished for a better price,” Smit says.
He notes that structural issues have driven much of the surge in European M&A since the beginning of the year and will likely fuel more consolidation in the auto sector.
“The structural issues for autos include the push toward electric vehicles, driverless cars, and car-sharing that present them with the problem of how to survive in an uncertain industry,” Smit says. “The Peugeot deal is all part of that process of trying to cut costs to be able to survive and grow.”
UNDER THE TERMS OF THE GM DEAL, Peugeot isn’t taking on debt and won’t initially have to pay royalties for GM’s intellectual property. Nor will it be liable for Opel’s net pension obligations, something analysts estimated could have left the French company on the hook for up to $10 billion.
Deutsche Bank analyst Gaetan Toulemonde has Peugeot at a Buy with a €22 price target, about 12% higher than its current value.
Toulemonde says that under Tavares’ stewardship, Peugeot’s operating profit margin rose 900 basis points (nine percentage points) to 6% last year, from minus 2.8% in 2013. “One third of the improvement, or 300 basis points, is attributable to pricing discipline and two thirds is attributable to cost savings, including labor costs. The recovery of Opel should be comparable,” he says.
He reckons that Peugeot’s operating margin targets are conservative, and that if 65% of its proposed synergies are achieved by 2021, the margin could be close to 6% in 2021 rather than the 2026 deadline given by the company.
“Managing four mass-market brands will be challenging. However, increasing its size by 50% gives Peugeot economies of scale, something the group is lacking today,” he says. “And since the acquisition price looks reasonable, it can give the group a great earnings driver for the next few years.”

Barron's : Airbus CEO Tom Enders Has a Flight Plan for Growth

Airbus CEO Tom Enders Has a Flight Plan for Growth
The European aircraft giant is benefiting from popular new planes like the A320neo.

Thomas Enders, chief executive of European aircraft giant Airbus, turned a boyhood obsession with airplanes into a fulfilling career and a thrill-seeking pastime. When he’s not skydiving, the German-born Enders, 58, loves to hang out with test pilots taking the company’s “new toys” for a spin. Test pilots, he says, “really embody the spirit of aviation today.”

Airbus (ticker: AIR.France) offers all the toys Enders could wish for. Based in Toulouse, France, the company is best known for its roster of Airbus commercial jetliners, sold to airlines worldwide. It also makes helicopters, fighter planes such as the Eurofighter Typhoon, and launchers for Ariane space rockets. Airbus reported total sales of 67 billion euros ($70.8 billion) last year.
Since taking the controls on June 1, 2012, when Airbus was still known as European Aeronautic Defence and Space, or EADS, Enders has skillfully engineered much-needed governance changes to reduce the political influence of France, Germany, and Spain, which together own 26% of the stock. He has also presided over a closer integration of Airbus’ corporate structure and workforce, creating what he calls a “truly European company.”
But Enders, a major in the German army reserves, isn’t ready to stop. He wants to build on Airbus’ presence in the Asia-Pacific region, North America, and Europe. “The next prize is to become truly international,” says the CEO, who keeps in a corner of his office three shovels commemorating groundbreakings on new manufacturing facilities, including an assembly line in Mobile, Ala.
Airbus approaches this challenge on a solid footing. It had a backlog of 6,874 aircraft at the end of 2016, worth more than $1 trillion, versus a backlog of 5,715 for Boeing (BA), valued at $416 billion. For Airbus, which delivered 688 planes last year, that’s almost 10 years of production at the current rate. “This company has never had, in its history, such a competitive portfolio,” Enders says.
AIRBUS SHARES, which closed on Friday at €70.06, have tripled in value in the past five years as scheduled passenger traffic has climbed in the recovery from the global financial crisis, forcing carriers to renew or add to their fleets. Airlines worldwide are forecast to carry almost four billion passengers this year, up from three billion in 2012.
The shares trade for 20 times 2017 estimated earnings and 15 times 2018’s projected figure. Boeing fetches 18 times consensus estimates for next year.
Airbus is expected to earn €2.63 billion this year, or €3.50 a share, rising to €4.64 a share in 2018. Cash flow likewise is projected to increase by double digits, as the company puts behind it problems that hampered production of popular, fuel-efficient aircraft last year.
Reported earnings fell 62% in 2016, to €1.29 a share, due to unfavorable currency effects and €2.2 billion in charges for the A400M military transport aircraft. Airbus is being penalized by European governments, its A400M customers, for late deliveries and insufficient “military functionalities” on the planes it has delivered, including a shortage of critical chips for the self-protection system.
The latest charge prompted Airbus to seek a deal that would cap its exposure. “We need to de-risk the A400M program,” Enders told analysts in February.
THE WUNDERKIND of the Airbus family is the A320neo (“neo” stands for new engine option), a single-aisle, narrow-body jetliner that can carry 186 passengers and offer fuel savings of up to 20% compared with previous versions. Airbus has booked more than 5,000 orders for the A320neo family of aircraft since its launch in 2010, making it the fastest-selling commercial-aircraft family in history.
Boeing was caught off guard by the A320neo’s success. It had planned to replace the 737 by 2030, but pressure from customers compelled it to launch its own fuel-efficient model, the 737 MAX.
The Airbus A350, a medium- to long-range wide-body jet that can accommodate up to 440 passengers, also is gaining traction. But the A320neo and the A350 both encountered production problems in 2016. United Technologies ’ (UTX) Pratt & Whitney unit, an engine supplier for the A320, struggled to meet delivery targets for its geared turbofan engine. At the same time, a contractor providing cabin interiors for the A350 couldn’t keep pace with demand.

“We have thousands of suppliers,” says Enders. “It is inevitable that some suppliers will face challenges. It doesn’t help when you are in a critical situation to just beat up on suppliers, or insist on contract. You can only increase the ramp-up if your supply chain can follow.” He notes that Airbus has tried to help suppliers that faced issues.
In addition to the A400M, Enders’ other big headache looks to be the A380, a double-decker, wide-body plane powered by four engines and designed to carry more than 500 passengers. It is a big hit with travelers—fan-produced Websites and blogs laud its comforts and amenities—but high operating costs mean that orders have been hard to land. Only 208 A380s have been delivered since the model entered service in 2007, and 109 are in the order backlog.
Ninety-three A380 planes, or half of those flying, are operated by United Arab Emirates-based carrier Emirates; the airline has 49 remaining in the order book. The list price of an A380 is $436.9 million.
Airbus last year said it planned to scale back A380 production, but Enders says the company is committed to the plane even though it isn’t suitable for every carrier. “You need to fill these aircraft,” he says. “If you fill it 80% or more, it is a money-making machine. We are hanging tough with the A380.”
AIRBUS WAS CONCEIVED in the late 1960s by European aerospace executives, who considered a joint development and production program the most effective way to combat U.S. dominance of the industry. The company’s first project was the A300, a short- to medium-range twin-engine aircraft. Plans were drawn up to share the work, bringing the parts together for assembly, with France building the cockpit and control systems; Britain, the wings; Germany, the forward and rear fuselage; and the Netherlands, moving wing parts such as flaps and spoilers. Spain, which joined the group later, built the horizontal tail plane.
Today, Airbus competes chiefly against Boeing, a rivalry that Enders considers fierce and “mostly not unfair.” For more than 20 years, Boeing and Airbus have been feuding over state subsidies each manufacturer receives, with the World Trade Organization adjudicating disputes. Each side has scored victories; in the latest ruling, the WTO ordered the U.S. last year to withdraw tax benefits extended to Boeing related to the production of the 777X. Boeing argues that European government assistance has unfairly enabled Airbus to capture half of the global airplane market.
“Frankly, we need Boeing to drive our competitiveness,” Enders says. “If one of us was way ahead of the other, I don’t think that would be good for our products or for the airline industry that we serve.”
Disruption of the duopoly might not be far off, however. Enders foresees a challenge from a Chinese competitor in the next 10 years, at least in the market for single-aisle planes. That could help to explain why he has been so keen since becoming CEO to reduce Airbus’ reliance on commercial aircraft, which generate more than 70% of revenue.
Just months after taking office, Enders launched a bid to merge Airbus, then EADS, with Britain’s BAE Systems (BA.UK) in a deal that would have created the world’s largest aerospace and defense company. Negotiations were sunk by German Chancellor Angela Merkel, who questioned sales projections and feared that Germany would be marginalized as an EADS owner. It’s a rare instance of Enders being outmaneuvered.

The upheaval prompted questions about Enders’ suitability to lead the company, but also paved the way for him to push for changes to reduce government meddling. The gambit paid off. In 2013, the French and German governments agreed to retain equal stakes of up to 12% (they currently hold 11% each) and restrict their influence to certain matters of national security. They have no decision-making role at Airbus. Previously, France owned 15%, similar to the interest held by Germany’s Daimler Aerospace, or DASA, a proxy for the state. Spain controls 4%.
OVERCOMING MISTRUST among European neighbors has been a major challenge for Enders and his predecessors. “Everything between the French and Germans can easily be political,” he says. “They have a mantra on both sides of the Rhine—balance. They say it must be balanced.”
Until 2007, he notes, the company had two chairmen and two CEOs, because the French and German governments insisted on having leaders with passports from both nations. “That was ridiculous,” Enders says.
Enders’ announcement in 2012 that Airbus would move its headquarters from Paris and Munich to Toulouse also riled German politicians, but he stuck to the plan. “The headquarters should be where the main activity is, and that is Toulouse,” he says.
The move made life more complicated for Enders, whose family lives near Munich. He maintains an apartment in Toulouse and commutes to his home in southern Germany on weekends. The son of a shepherd, he describes himself as a country boy.

IN THE PAST FOUR YEARS, Enders has taken steps to streamline the business and rebrand it: EADS became Airbus Group and, more recently, just Airbus. The space and defense divisions have been combined, and the corporate headquarters has been merged with the commercial-jet unit. “Merging the largest division fully with the corporate structure should make us leaner, accelerate decision making, and reduce structural costs,” Enders says.
Outsiders laud Enders’ drive to consolidate Airbus, which could also help the company cope better with rapid technological changes. “He was instrumental in changing the way the company works,” says Bernstein analyst Douglas S. Harned. “He did a lot to turn it into a more economic and shareholder-driven company.”
Enders joined Deutsche (later Daimler) Aerospace in 1991 following a couple of years in the German defense ministry. He rose to head of corporate strategy, and was at the forefront of preparations to unite DASA with its French and Spanish counterparts as one company in 2000. He was appointed CEO of the defense and security systems division in the new entity, and co-CEO of the whole company in 2005. Following governance changes in 2007, he was put in charge of the commercial-aircraft business, a position he held for five years until becoming CEO.
Enders learned to fly helicopters about a decade ago. “I figured I should try to learn to fly at least one of these machines that we are building,” he says.
Nowadays, he pilots a helicopter about twice a month and indulges his passion for skydiving about 20 times a year. Even so, he sounds envious of one of his sons, who jumps about 200 times a year. All four of Enders’ sons have connections to the aviation industry.
“There is a famous saying among skydivers: Once you leave an airplane, you are dead—until you do something about it,” Enders says.

Barron's : Norwegian Cruise Line Stock Could Rise 20%

Norwegian Cruise Line Stock Could Rise 20%
The company’s shares should sail ahead, aided by a growing fleet and cruising’s expanding popularity

Investors in Norwegian Cruise Line Holdings shouldn’t give up the ship. The company’s shares may have badly trailed its competitors’ in the past year, but its outlook is improving.
As of late last week, Norwegian’s stock (ticker: NCLH) had returned 5% over the past 12 months, compared with 24% for Carnival (CCL) and 39% for Royal Caribbean Cruises (RCL).
Weaker 2016 bookings on European cruises after a series of high-profile terrorist attacks on the Continent hurt the company. Initially guiding to earnings of $5 a share for 2017, Norwegian had to ratchet down its forecast. The consensus now calls for $3.83—still considerably higher than last year’s $3.41.

The stock seems to be making up some ground with encouraging 2017 booking trends in Europe and the Mediterranean, in particular, and strong fourth-quarter results. “We have more passengers on the books and higher prices than we’ve ever had before,” CEO Frank Del Rio told Barron’s.
Europe, which accounts for about 25% of the cruise outfit’s revenue, is a crucial market for Norwegian. More so than Carnival and Royal, it relies heavily on U.S. travelers for those cruises, and they tend to spend more on profitable amenities like day excursions than European customers do.
However, “we’re seeing a sharp recovery in travel demand for Europe,” wrote Daniel McKenzie, an analyst at the Buckingham Research Group, last month. He raised his price target on the stock to $63 from $60, following the company’s good fourth-quarter results. That’s 26% above the shares’ recent quote of about $50.

The company earned 56 cents a share in the fourth quarter, versus 51 cents a year earlier, on a 8% revenue gain to $1.13 billion. Still, the stock sports the cheapest valuation of the big three cruise operators, trading at 13 times this year’s profit estimate. That’s below Carnival’s P/E of 15.7 times and Royal Caribbean’s 13.6. Yet Norwegian Cruise Line offers superior yields—essentially the revenue for available berths over a specific period—the youngest fleet, and faster growth than they do. Its return on invested capital was 9.7% last year, up from 8.1% in 2014.
Mark Finn, portfolio manager of the T. Rowe Price Value fund, which owns the shares, sees Norwegian Cruise Line as a good value.
“In a market where it’s harder to find things, being patient with a consumer-discretionary name that has had some struggles, but seems to be getting back on course, is a good place to be,” he says.
THE SMALLEST OF THE THREE major U.S. cruise operators, Norwegian operates 24 ships, versus Carnival’s 102 and Royal’s 49. It runs three units; the largest uses the parent company’s name, has 14 vessels, and accounts for some 85% of the company’s total capacity.

This unit offers traditional cruises, often popular with families, with an average customer age of 55. One of the brand’s popular features is freestyle cruising, which gives customers flexibility as to where and when they can dine on the ship. This contrasts with the traditional approach, in which meals typically are served at designated times.
THE COMPANY, headquartered in Miami, also operates two higher-end brands, Oceania Cruises (premium) and Regent Seven Seas Cruises (luxury). Norwegian got them in 2014 when it acquired Prestige Cruises International from Apollo Global Management (APO) for about $3 billion. Cruises on these lines use smaller ships and tend to last longer, often well over a week. Their average customers are in their late 60s.
To secure the deal, which diversified its portfolio, Norwegian Cruise Line had to assume a lot of debt, but it has been whittling that down. As of Dec. 31, debt amounted to about 60% of capital, not an unreasonable percentage. What’s more, the company, which doesn’t pay a dividend, is considering returning more capital to shareholders, possibly this year.
Norwegian’s relatively nimble size, compared with its big competitors, does have advantages. When it adds the Norwegian Joy to the China market this summer, the vessel, which can hold 3,900 guests, will account for roughly 8% of the cruise line’s overall capacity. So a new route, assuming it’s successful, can move the revenue dial for the company more than it can for its larger rivals.
SOME INVESTORS WORRY that the China cruise market, which Norwegian was late to enter, is too cluttered. But Del Rio calls China, the world’s most populous nation and the “next great frontier in cruising.” The Norwegian Joy is one of the first ships custom-built for that market; it has amenities such as gambling onboard.
Norwegian plans to boost its capacity at an annual clip of about 8% through 2020, ahead of the industry’s roughly 5% pace—a plan that some skeptics consider too aggressive. But the cruise company, which is expanding off a smaller base than its competitors, wants to add about one ship a year. That looks manageable. Del Rio asserts that he is “very confident this is a very reasonable pace of new-ship additions.”
The expansion comes at a time when cruise industry fundamentals look sound, with so many baby boomers retiring. Industrywide, the passenger base grew at a 4.5% annual clip from 2009 to 2015, going to 23.2 million from 17.8 million. Expansion is expected to continue at a similar pace this year, according to Cruise Lines International Association, a trade group.
Another promising market is Cuba, partly because of its proximity to Miami, Port Canaveral, and other Florida ports.
“Cuba is tailor-made for the cruise industry,” says Del Rio, a native of that country. His company plans 41 cruises to the island nation this year, the first of which docked in Havana on March 9. Bookings for the initial 10 sailings have commanded “meaningful” premium prices, he adds.
If Norwegian’s overall business continues to firm up, its stock should sail ahead.