(CS) Vivendi : UMG growth not enough to offset uncertainty

* Initiating with an Underperform rating and a €16.60 TP, indicating 9% potential downside: We believe Vivendi's current valuation is too high and see potential risks surrounding our forecasts for subscriber recovery at Canal+. We do not believe the market fully reflects risks around recent M&A and limited synergies between Vivendi's new investments and core assets. Our analysis indicates strong growth for Universal Music Group, but we think the market is too optimistic on UMG's valuation.

* Much to prove with Canal+ transformation: We see risks surrounding execution of the new pricing plan for Canal+'s French pay-TV business and believe there is potential downside to our forecasts if the perceived value of Canal+'s offering does not increase, particularly in light of rising competition for subscribers and content from Altice's new TV offering.

* Music is the bright spot but valuation looks demanding: Increasing adoption of paid streaming should drive growth in UMG EBITA over the long term (CSe +10% CAGR 2015-20E). However, the market-implied valuation of UMG is c.15x 2017E EV/EBITDA, too high vs other subscription businesses including professional publishers, content and pay-TV (average 10x) and European and US media valuations (average 10.9x and 10.8x, respectively).

* Risks and catalysts: Risks to our thesis include: i) Faster growth in music revenues; ii) faster transformation at Canal+; iii) potential value-enhancing M&A; and iv) a potential takeover of Canal+ or Vivendi. Catalysts include: i) the launch of Iliad's Italian mobile offering (expected Q4 2017); ii) the upcoming court case vs Mediaset; and iii) potential value-destructive M&A

* Valuation: Vivendi's 5% free cash flow yield and 23x 2017E P/E (excluding associates) look expensive vs European Media (average 6% FCF yield, 18x 2017E P/E). Our TP is based on a sum-of-the-parts including a 15% conglomerate discount to reflect the complexity of the group and uncertainty over its strategy. Our Blue Sky valuation is €21.10; our Grey Sky is €14.60.

>>> What to look at today - 10th of January 2017

Dow -0.38% S&P -0.35% Nasdaq +0.19% Russell -0.72%
US Market closed mixed with Nasdaq higher & S&P Lower. Eight out of eleven sectors finished the trading day in negative territory, with the energy sector (-1.5%) closing at the bottom of the leaderboard. OPEC, non-OPEC supply cap has been implemented at slower-than-expected pace. In addition, reports indicated that the recent growth in U.S. production was also ruffling some investors' feathers. The commodity closed its trading day 3.8% lower at $51.94/bbl. Financials (-0.8%), industrials (-0.7%), and consumer discretionary (-0.1%) rounded out the cyclical underachievers. On the countercyclical side, four out of five spaces finished in the red. Utilities (-1.3%) retreated the furthest, as telecom services (-1.1%), consumer staples (-0.7%), and real estate (-0.6%) performed slightly better. Heath care (+0.4%) was the lone non-cyclical representative in green territory. US After Hours CUDA +8% following earnings/gudiance, GNVC +57% extending late surge higher... HGG -24%, WDFC -5.5%, HALO -5% among names trading lower following guidance. Asian indices are mixed with Nikkei225 and ASX200 the biggest decliners by nearly 1% each; Nikkei weighed down by firmer JPY, as automakers, retail, and utilities lagged; Australia biggest decliners were in healthcare and energy, while mining names performed stronger. In FX majors, USD was under most pressure against JPY with a 100pip slide as low as 115.20; GBP/USD consolidated US session decline as fears of "hard Brexit" weigh on the pound. China CPI data were the highlight of the economic calendar; While CPI was largely in line with consensus at 2.1%, PPI spiked to a fresh 5-year high of 5.5% - 4th consecutive y/y increase - thanks to accelerating increase in commodity prices that will eventually translate into higher consumer prices; CPI components saw Food CPI at 2.4% v 4.0% prior and non-food at 2.0% v 1.8% prior.

Nikkei -0.79% Hang Seng +0.58% CSI -0.13% Shanghai -0.25%

Eur$ 1.0600 CNH 6.8765 CNY 6.9253 JPY 115.72 GBP 1.2151 CHF 1.0131 RUB 60.08 WTI $52 +0.04%

S&P -0.12% EuroStoxx -0.09% FTSE -0.05% Dax -0.18% SMI -0.01%

Macro :
- U.S. Fired Warning Shots at Iranian Boats in Strait of Hormuz
- Goldman Sachs Sees ‘Structural Break’ in Yuan Fixing Mechanism
- China Dec. Retail Auto Sales Rise 17.1% on Year, PCA Says


Keep an eye on :
- AENA SM : Spain Doesn’t Plan Further Sale of Aena Shares: Expansion
- ATLN VX : J&J Plans to Outline Average U.S. Price Raise of Its Drugs: WSJ
- AIR FP : Airbus May Post 8% Gain in 2016 Deliveries: Reuters
- AIR FP : China Airlines to Cooperate With Airbus on Maintenance
- AI FP : Air Liquide Wins ArcelorMittal Supply Deals in France, Belgium
- AKE FP : Arkema to Invest $90m in Texas Site Acrylic Acid Units Upgrade
- BAYN GY : CNBC: Monsanto CEO: Feeling positive on Bayer-Monsanto deal
- BMPS IM : Monte Paschi, Padoan Said to Discuss Restructuring Today: Sole
- BC IM : Cucinelli Expects Double-Digit Growth of Rev, Profit This Year
- CABK SM : Caixabank Launches ‘Family’ Commercial Drive, Expansion Reports
- CG US : Carlyle Said to Target $5 Billion for New U.S. Real Estate Fund
- CRAY US : Cray Falls After Saying ‘It Will Be Difficult to Grow Over 2016’
- DAI GY : Daimler CEO Expects Mercedes to Retain Lead Over BMW in 2017
- DBK GY : Deutsche Bank to Delay Strategy Decision, Handelsblatt Reports
- RF FP : Eurazeo Stake Held by Credit Agricole Rose to 15.42%: AMF
- ILD FP : Arcep’s Soriano: French V. High-Speed, 4G Coverage ’Disastrous’
- ILMN US : Illumina Jumps 14% Post-Market on Next-Gen DNA Sequencer
- INTC US : Intel Named Best Short Idea on Tough PC Comps After 1Q: Hedgeye
- ITP FP : Inter Parfums Falls as Household, Personal Products Index Slides
- ISP IM : Intesa Sanpaolo Bullish Options Volume Surges While Stock Slides
- PGS NO : PGS Says Vessel Booking ~95% Booked for 1Q, ~60% for 2Q
- SDF GY : K&S’s Salt-Unit Profit Lags Due to Weather, One-Off Effects: FAZ
- MC FP : LVMH CEO Discussed U.S. Expansion in Meeting With Trump: WWD
- MEO GY : Metro 1Q Sales Slightly Below Ests.; Maintains FY Outlook
- NOVN VX : Novartis CEO: Tax Reform May Trigger More Cash Chasing Assets
- ORA FP : Arcep Chief Says Ready to Regulate Orange More on Fiber: Echos
- ORA FP : Orange Invested in Fiber, Didn’t Inherit Network, Louette Says
- ROG VX : Roche Can Meet Its Five-Year Goals on Its Own: Pharma Unit Chief
- SAN FP : Sanofi Says U.S. Drug Pricing System Isn’t Working Properly
- SIKA VX : Sika 2016 Sales Rise 5.6%; Targets 7-8% Increase This Year
- UMI BB : Umicore Acquires NMC Battery Material Patents From 3M
- VOD LN : Vodafone Germany CEO Doesn’t See AT&T-Like Deal in Europe: SZ

>>> Europe : Brokers Upgrades & Downgradres - 10th of January 20

>>> Up
*Ariad Raised to Equal-Weight at Barclays, PT $24
*Atlas Copco Raised to Buy at SocGen, PT SEK335
*Faurecia Raised to Outperform at Exane, PT EU45
*GKN Raised to Buy at SocGen, PT 400p
*Renault Raised to Outperform at Exane, PT EU99
*Richemont Raised to Overweight at Morgan Stanley, PT CHF78
*SCA Raised to Buy at Swedbank, PT SEK285
*Shell Raised to Outperform at BMO
*SKF Raised to Hold at SocGen, PT SEK170
*Sonova Raised to Outperform at Main First Bank AG, PT CHF143
*Terna Raised to Outperform at Macquarie, PT EU4.70
*Tullow Raised to Speculative Buy at GMP, PT 2.90p
*Vodafone Raised to Buy at Goldman
*Whitbread Raised to Outperform at Credit Suisse
*William Demant Raised to Neutral at Main First Bank AG

>>> Down
*3i Cut to Neutral at Macquarie, PT GBP7.42
*Air France Cut to Underweight at Barclays
*BP Cut to Market Perform at BMO
*Deutsche Telekom Cut to Neutral at Goldman
*Elior Group Cut to Neutral at Credit Suisse
*GN Cut to Neutral at Main First Bank AG, PT DKK160
*Michelin Cut to Neutral at Exane, PT EU108
*Wienerberger Cut to Hold at Berenberg

>>> PT Change


>>> Initiation
*Innogy Rated New Outperform at Bernstein, PT EU38.50
*JERONIMO MARTINS RATED NEW ’BUY’ AT COMMERZBANK
*Vivendi Rated New Underperform at Credit Suisse, PT EU16.60

>>> Call
>> Stock
*SAIPEM REMOVED FROM CONVICTION LIST AND FOCUS LIST: GOLDMAN

Reuters - Japan's Takeda ready for fresh acquisitions after $5.2 billion Ariad d

Japan's Takeda Pharmaceutical Co (4502.T) said it has the financial capacity for fresh acquisitions to bolster its drug portfolio after agreeing on Monday to acquire cancer drug maker Ariad Pharmaceuticals (ARIA.O) in a $5.20 billion deal.

The Ariad deal, at a 75 percent premium, is the latest example of pharmaceutical companies paying handsomely to snap up promising drugs owned by rivals in a bid to secure revenue growth. Pfizer Inc (PFE.N) agreed in August to pay $14 billion for Medivation Inc, the maker of the $2.2 billion-a-year cancer drug Xtandi.

Takeda's Chief Financial Officer James Kehoe said that the Japanese company's acquisition spree may continue.

"Should the right deal come along we have the capacity," Kehoe said during a conference call after Takeda announced the Ariad purchase. The company was in a position to limit its debt burden and retain a strong credit rating, he said.

At the end of its last business year that ended on March 31, Takeda had 438 billion yen ($3.79 billion) in cash and cash equivalents.

Takeda's Chief Executive Officer Christophe Weber said on the same call that while there were not many opportunities to buy cancer drugs and central nervous system drugs, such as Alzheimer remedies and bipolar treatments, the company, nevertheless, would make acquisitions "that make sense."

Takeda's move comes as it readies to face imminent generic competition for its top-selling blood cancer drug Velcade, with other key products slated to go off patent later from 2020.

Weber said the potential returns from Ariad's lung cancer treatment, Brigatinib, and its leukemia drug, Iclusig, along with other formulas in its pipeline justified the high premium.

Takeda predicts annual sales from Brigatinib, which the U.S. Food and Drug Administration is expected to decide on by April, could exceed $1 billion.

"It has the potential to be the best in class," Weber said

>>> Asian Update

Asia Mid-Session Market Update: China wholesale inflation hits new 5-year highs; NDRC sees more uncertainty in 2017

***US Session Highlights***
- (US) Fed's Rosengren (moderate, non-voter in 2017): median rate projection for 2017 of three rate hikes seems reasonable if real GDP growth is robust
- (US) FHA reportedly plans to cut fees on government-guaranteed home loans - Politico
- (US) Fed's Lockhart (moderate, non-voter): gradual rate increases will continue; it's time for the Fed to shift to more of a support role

***US markets on close: Dow -0.4%, S&P500 -0.4%, Nasdaq +0.2%***
- Best Sector in S&P500: Healthcare
- Worst Sector in S&P500: Utilities
- Biggest gainers: GPN +7.2%, VRTX +4.4%, NVDA +4.1%, HCA +3.0%, UHS +2.8%
- Biggest losers: AYI -14.7%, SWN -4.9%, DVN -4.3%, RRC -4.3%, AA -3.9%
- At the close: VIX 11.6 (+0.2pts); Treasuries: 2-yr 1.19% (flat), 10-yr 2.38% (-4bps), 30-yr 2.97% (-4bps)

***US movers afterhours***
- ILMN: Says new 'Novaseq' DNA sequencer will be able to sequence a human genome in one hour (vs current technology that takes over 24 hours) - JP Morgan conf comments; +17.3% afterhours
- CUDA: Reports Q3 $0.22 v $0.15e, R$88.8M v $86.9Me; Guides Q4 $0.13-0.15 v $0.13e, R$87-89M v $86.7Me; +8.1% afterhours
- HALO: Guides FY17 R$115-130M, ex-Rev from any new ENHANZE global collaboration and licensing agreements - ahead of JP Morgan conf; -4.1% afterhours
- CRAY: Reports preliminary FY16 R$630M v $630Me (prior $620-650M); Believes to be difficult to grow in 2017 over 2016 - Needham conf; -4.2% afterhours
- WDFC: Reports Q1 $0.82 v $0.87e, R$89.2M v $96.3Me; affirms FY17 $3.64-3.71 v $3.67e, R$395-404M v $397Me; -5.8% afterhours
- FRSH: Reports prelim Q4 R$35.5M v $38.7Me, SSS -7.8% - ahead of ICR conf; reports prelim FY16 R$126.9M v $130Me, SSS -5.2%; -7.1% afterhours

***Asia Key economic data:***
- (CN) CHINA DEC PPI Y/Y: 5.5% V 4.6%E (4th straight positive print and a 5-year high)
- (CN) CHINA DEC CPI M/M: 0.2% V 0.1% PRIOR; Y/Y: 2.1% V 2.2%E
- (AU) AUSTRALIA NOV RETAIL SALES M/M: 0.2% V 0.4%E (4-month low)

***Asia Session Notable Observations, Speakers and Press***
- Asian indices are mixed with Nikkei225 and ASX200 the biggest decliners by nearly 1% each; Nikkei weighed down by firmer JPY, as automakers, retail, and utilities lagged; Australia biggest decliners were in healthcare and energy, while mining names performed stronger.
- In FX majors, USD was under most pressure against JPY with a 100pip slide as low as 115.20; GBP/USD consolidated US session decline as fears of "hard Brexit" weigh on the pound.
- China CPI data were the highlight of the economic calendar; While CPI was largely in line with consensus at 2.1%, PPI spiked to a fresh 5-year high of 5.5% - 4th consecutive y/y increase - thanks to accelerating increase in commodity prices that will eventually translate into higher consumer prices; CPI components saw Food CPI at 2.4% v 4.0% prior and non-food at 2.0% v 1.8% prior
- Chair of China State Planner spoke at length about economic performance this year, estimating 2016 GDP at 6.7% and CPI at 2%; NDRC added that 2017 will face increased uncertainties, but the govt will handle risks and maintain smooth growth using some of the recent policy tools such as debt-equity swaps.
- China Yuan fix was slightly firmer after yesterday's biggest weakening in months; Local press op/ed called for the govt to take measures to improve guidance for Yuan outlook to break cycle of depreciation expectations
- Australia retail sales grew just 0.2%, missing estimates, as department store spending remained flat while consumer staples grew by the biggest margin. JPMorgan economist notes the slowdown is not indicative of an overall decline in Q3, but does pose a concern.

China:
- (CN) China NDRC chairman Xu: China 2016 GDP may grow over 6.7%; CPI is growing moderately at 2%
- (CN) China will simplify approval procedures and ensure financing for key water and railway projects this year - China press
- (CN) China govt should take measures to improve guidance for Yuan outlook to break cycle of depreciation expectations - Chinese press
- (CN) China Passenger Car Association (PCA): China Dec retail auto sales at 2.76M units, y/y: +17.1% v +19.8% prior; 2016 sales +15.9% y/y

Japan:
- (JP) Japan Fin Min Aso confirms he spoke with George Soros, no comment on contents of talk

Australia:
- (AU) JPMorgan: Australia's weak Nov retail sales unlikely to signal q/q decline in Q3 - Australian press

***Asian Equity Indices/Futures (00:30ET)***
- Nikkei -0.8%, Hang Seng +0.6%, Shanghai Composite -0.1%, ASX200 -0.8%, Kospi -0.3%
- Equity Futures: S&P500 -0.2%; Nasdaq -0.2%, Dax -0.1%, FTSE100 flat

***FX ranges/Commodities/Fixed Income (00:30ET)***
- EUR 1.0570-1.0625; JPY 115.20-116.20; AUD 0.7340-0.7385; NZD 0.7005-0.7050
- Feb Gold flat at 1,189/oz; Feb Crude Oil +0.2% at $52.06/brl; Mar Copper +1.1% at $2.56/lb
- GLD: SPDR Gold Trust ETF daily holdings fall 8.6 tonnes to 805.0 tonnes; 28th straight decline; Lowest since Apr 29th
- USD/CNY: (CN) PBOC SETS YUAN MID POINT AT 6.9234 V 6.9262 PRIOR
- (CN) PBOC to inject combined CNY120B in 7-day and 28-day reverse repos v CNY110B prior

***Asia equities / Notables / movers by sector***
- Consumer discretionary: Chow Tai Fook Jewellery Group 1929.HK +5.2% (Q4 result); Fast Retailing Co 9983.JP -3.1% (Dec Uniqlo SSS); Intime Department Store Group Co 1833.HK +34.3% (privatization); SJM Holdings 880.HK +3.5%; Pou Sheng International Holdings 3813.HK +6.8% (CEO to step down)
- Financials: Future Land Development Holdings 1030.HK +0.6% (profit alert)
- Industrials: Tiangong International Co 826.HK -1.0% (profit alert); Shenzhen Zhongjin Lingnan Nonfemet Co 000060.CN +1.2% (9-month result speculation)
- Technology: Seiko Epson Corp 6724.JP -7.6%
- Materials: Xinjiang Zhongtai Chemical Co 002092.CN +3.5% (raises guidance); Paladin PDN.AU -17.9% (bond issue and share raising); Northern Star NST.AU +2.0%, Evolution EVN.AU +2.3%, Saracen SAR.AU +1.8% (gold rises)
- Healthcare: Primary Health PRY.AU % (CEO charged with falsifying company documents)

FT Lex : Luxury carmakers: score draw ahead


Luxury carmakers: score draw ahead
VfB Stuttgart have not beaten Bayern Munich in the German football league for 10 years. But in the corporate arena, the Swabians have reason to crow over their Bavarian rivals. Daimler on Sunday said it sold 2.08m Mercedes-Benz cars in 2016. That should push its volumes above those of Munich-based rival BMW, and fulfil a pledge made in 2011 to retake the crown of world’s biggest luxury car manufacturer by 2020. Dieter Zetsche, Daimler’s chief executive, should enjoy the moment while it lasts.

His triumph has been to focus on what matters to customers rather than engineers, sometimes a hard trick to pull off at an engineering company. This has underpinned six years of double-digit percentage growth in Mercedes volumes. Like peers, Daimler benefited from robust demand in China and strong growth in leasing.

None of that is about to change. But last year’s sweet spot in terms of product range — with every major model recently renewed — will be harder to repeat. Daimler’s push into compact cars worked well; its earlier boxlike A-class was a poor effort, its curvy new one is a vast improvement. It has also caught up in high-margin SUVs, which now account for a third of sales, about the same as BMW.

All this success means comparatives will be tough in 2017. BMW, by contrast, is still to reap the benefits of its new 5-series (on sale this year) and 3-series (in 2018). It has also been selling pure electric vehicles, albeit in small volumes and at very little profit, for some time. Mercedes has been slower to market with electric cars, though will launch new ones in 2018.

Non-German rivals are upping their game, too. Jaguar Land Rover sold 580,000 vehicles in 2016, more than double its 2011 sales volume. Tesla remains a niche player, shifting 76,000 cars in 2016. But its orders are up 50 per cent on last year.

Bigger volumes are not necessarily a winning formula for better returns. Net of leasing-related debt, Daimler is valued slightly more highly (relative to earnings before interest, tax, depreciation and amortisation) than BMW, reflecting its better margins. But the latter’s shares have outperformed Daimler’s since Mr Zetsche made his pledge (and the Dax has beaten both).

In football terms, 2016 could be considered a 2-1 victory for Daimler over BMW. Expect something more akin to a 1-1draw this year.

>>> After Hours Summary: CUDA +8% following earnings/gudiance, GNVC


After Hours Summary: CUDA +8% following earnings/gudiance, GNVC +57% extending late surge higher... HGG -24%, WDFC -5.5%, HALO -5% among names trading lower following guidance

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: CUDA +7.7%, MDRX +2% (ticking higher; reaffirms Q4 guidance and provides initial outlook for 2017), TACO +1.7% (light volume; preannounces Q4 sales with comps +5.5%, just above estimates)

Companies trading higher in after hours in reaction to news: GNVC +56.7% (continued strength), ILMN +16.9% (confirms the introduction the NovaSeq Series and Illumina and Bio-Rad Laboratories launch of the Illumina Bio-Rad Single-Cell Sequencing Solution), SSI +5.7% (modestly rebounding), PTCT +3.2% (light volume; EC ratifies positive CHMP opinion for renewal of translarna marketing authorization for the treatment of nonsense mutation Duchenne Muscular Dystrophy), CNDT +2% (higher in after hours after Carl Icahn affirmed 9.77% active stake in the Xerox spin-off), KITE +0.6% (Kite Pharma enters into a strategic partnership with Daiichi Sankyo Co for axicabtagene ciloleucel) BIO +0.6% (light volume on Illumina news)

CUDA peers higher in after hours: FEYE +1.3%, CYBR +1.1%, FTNT +0.7%, PANW +0.6%

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: HGG -23.7% (HHGregg sees fiscal Q3 sales of ~$453 mln vs. $564.3 mln Capital IQ Consensus Est; co expects to incur a non-cash charge for asset impairment of $7-12 mln of certain locations in the quarter ended December 31, 2016), FRSH -7.1% (issues downside Q4 revenue guidance), WDFC -5.5%, BOOT -5.3% (Boot Barn Holdings reports light prelim Q3 results ahead of ICR conf), HALO -5.2% (guides 2017 revenue below expectations), VOXX -4.7%, CRAY -3.7% (anticipates 2016 revenue to be in previously provided range; believes it will be difficult to grow over 2016 in 2017), SCVL -2.3% (sees FY17 $1.36-1.38 vs $1.49 Capital IQ Consensus Estimate; sees revs $1.000-1.003 bln vs $1.00 bln Capital IQ Consensus Estimate), ABMD -2.2% (offers prelim Q3 rev results, reaffirms FY17 outlook ahead of presentation at the Annual J.P. Morgan Healthcare Conference), SHOO -2.1%, ZLTQ -2.1% (discloses commercial leadership transition, provides prelim Q4 results, FY17 guidance), ICLR -0.5% (issues financial guidance for FY17 EPS in-line, FY17 revs below consensus, reaffirms FY16 guidance),

Companies trading lower in after hours in reaction to news: WMB -8.2% (announce financial repositioning for long-term, sustainable growth; Both cos announced an agreement to permanently waive payment obligations, commenced an underwritten public offering of 65 million shares of Williams common stock), WPZ -6.4% (announce financial repositioning for long-term, sustainable growth; Both cos announced an agreement to permanently waive payment obligations), ATW -5.5% (commenced an underwritten public offering of 13,500,000 shares of common stock), CIO -3.3% (commences 4 mln common stock offering), DM -1.5% (Dominion Midstream files for offering of 25,383,348 common units representing limited partner interests by selling unitholders)

WSJ : U.S. Pilots See Close Calls With Russian Jets Over Syria

U.S. Pilots See Close Calls With Russian Jets Over Syria
As planes share crowded airspace fighting parallel wars, militaries struggle to minimize threat of an accident

One night this past fall, a U.S. radar plane flying a routine pattern over Syria picked up a signal from an incoming Russian fighter jet.

The American crew radioed repeated warnings on a frequency universally used for distress signals. The Russian pilot didn’t respond.

Instead, as the U.S. plane began a wide sweep to the south, the Russian fighter, an advanced Su-35 Flanker, turned north and east across the American plane’s nose, churned up a wave of turbulent air in its path and briefly disrupted its sensitive electronics.

“We assessed that guy to be within one-eighth of a mile—a few hundred feet away—and unaware of it,” said U.S. Air Force Col. Paul Birch, commander of the 380th Expeditionary Operations Group, a unit based in the Persian Gulf.

The skies above Syria are an international incident waiting to happen, according to American pilots. It is an unprecedented situation in which for months U.S. and Russian jets have crowded the same airspace fighting parallel wars, with American pilots bombing Islamic State worried about colliding with Russian pilots bombing rebels trying to overthrow Syrian President Bashar Al-Assad. Russian warplanes, which also attack Islamic State targets, are still flying daily over Syria despite the recent cease-fire in Moscow’s campaign against the anti-Assad forces, according to the U.S. Air Force.

The U.S. and Russian militaries have a year-old air safety agreement, but American pilots still find themselves having close calls with Russian aviators either unaware of the rules of the road, or unable or unwilling to follow them consistently.

“Rarely, if ever, do they respond verbally,” said Brig. Gen. Charles Corcoran, commander of the 380th Air Expeditionary Wing, who flies combat missions in a stealth fighter. “Rarely, if ever, do they move. We get out of the way. We don’t know what they can see or not see, and we don’t want them running into one of us.”

Complicating the aerial traffic jam, the Russian planes don’t emit identifying signals, flouting international protocols.

One of the most serious mishaps so far was caused by the U.S. In September, an American airstrike intended to hit Islamic State militants in Deir Ezzour, Syria, killed dozens of Syrian government troops instead.

The incident highlighted vulnerabilities in the colonel-to-colonel hotline. The day of the strikes, Col. Manning was away from the Qatari base that houses the American air operations center. After the strikes began, a Russian officer called on the hotline and asked to speak to another U.S. colonel he knew. That American wasn’t available. The Russian hung up, and 27 minutes passed before the Russians called back to warn the Americans they were bombing the wrong target, according to U.S. defense officials.

At the time, the Russian military issued a statement saying: “If the airstrike was caused by erroneous coordinates of targets, it is a direct consequence of the stubborn unwillingness of the American side to coordinate with Russia [on] its actions against terrorist groups in Syria.”

Col. Manning said the current coordination efforts are making the war safer.

“We continue to assess that the Russian have no intent to harm coalition forces in the air or on the ground,” he said. “Because we believe there is no malign intent towards the coalition forces, we’re able to de-conflict.”

But things look different from the cockpit, and U.S. pilots say the Russians sometimes seem to be pushing the limits just to see if they can get away with it.

It’s a situation further complicated by the soup of aircraft conducting combat missions, including Americans, Russians, Syrians, Australians, Britons, Danes, Turks, Emiratis, Saudis and Jordanians. On any given day, there are usually 50 to 75 manned and unmanned coalition aircraft over Raqqa, the Islamic State stronghold in Syria, and another 150 or so over heavily contested Mosul, Iraq, according to one U.S. radar officer. The 64-member coalition—Russia is not a member—had conducted more than 51,500 sorties against Islamic State, two-thirds of them by U.S. aircraft, as of mid-December.

The 2015 agreement between the U.S. and Russia led to negotiation of what Americans call the “rule of threes.” Pilots should keep at least three nautical miles of separation horizontally, or 3,000 feet vertically. Should they get closer, they’ll remain for no more than three minutes.

“We’ve agreed to coexist peacefully,” said Gen. Corcoran.

But the Russians are prone to ignoring the conventions of air safety, according to the American pilots. Planes world-wide carry transponders that emit a four-digit code allowing air-traffic controllers to identify them, a practice called squawking. Russian planes over Syria don’t squawk, and they appear as an unidentified bleep to allied radar installations.

Nor do the Russians usually answer “guard calls,” urgent summons on a common emergency radio frequency. In one eight-hour shift on Dec. 11, for instance, the crew of a U.S. radar plane, called an AWACS, made 22 such calls to some 10 Russian planes and received not a single response. A few of the Russians approached within five miles of allied aircraft.

The controller aboard the AWACS scattered U.S. planes to keep them clear of the Russians. “We’ve had several co-altitude incidents,” the officer said, referring to planes flying too close together.

Russian pilots have sometimes broken their silence when contacted by a female air-traffic controller.

In early September, a female U.S. air-surveillance officer spotted an unidentified plane approaching allied aircraft over Syria. “You’re operating in the vicinity of coalition aircraft,” she warned the pilot.

A heavy Russian accent emerged through the static: “You have a nice voice, lady. Good evening.”

“Some of the closest calls I’m convinced they don’t know we’re there,” said Gen. Corcoran.

That’s not always the case. In September, an Su-35 shadowed an American F-15 fighter as it ended a bombing run over Syria and pulled up to a tanker plane to refuel. The U.S. pilot filmed the Russian running alongside the American planes, about a mile-and-a-half away, said Col. Birch.

At times, Russian planes plow through tightly controlled groupings of allied aircraft over Raqqa. Russian bombers, flying to Syria via Iran, have crossed Iraq and disrupted allied flight patterns over the battlefields of Mosul.

Lt. Col. August “Pfoto” Pfluger, a stealth-fighter pilot, witnessed such an incident over Iraq in August. He compared the Russians’ behavior to jumping out of the stands at a professional football game and bolting onto the field.

“You just don’t do that,” he said.