TheChek News Flow

European regulators are investigating whether airlines are being forced to enter anti-competitive contracts to keep their 24,000 aircraft flying, as equipment makers seek a slice of the $60bn a year maintenance and repair market.

The European Commission has written to airlines and aircraft component manufacturers, asking for information about the provisions being written into service contracts — terms that could restrict choice when servicing everything from engines to wifi networks.

“They are looking at the third parties that manufacturers licence for maintenance and at the data and information they share with those third parties,” said one airline, which recently received a detailed questionnaire from Brussels and preferred to remain anonymous.

News of the inquiry comes as the airline industry shells out record sums for next-generation passenger and cargo aircraft, to help meet soaring global demand for air travel. Over the next 10 years, the global fleet is expected to grow from 23,927 in 2015 to more than 34,000.

However, carriers have complained openly about increasingly restrictive service contracts and constraints on the choice of equipment that goes on an aircraft.

Willie Walsh, chief executive of airline group IAG, this summer warned of possible legal action after expressing concern that limited competition might be keeping prices for aircraft, engines and maintenance services high.

The European Commission refused to comment on the inquiry, which is at a very early stage and is not yet a formal investigation. However, commission spokesman Ricardo Cardoso acknowledged the industry’s concerns. “The European Commission is closely monitoring competitive conditions as regards maintenance of engines and components for large commercial aircraft,” he said.

Its inquiry is focusing on two specific products, including the CFM56 engine, which is the only choice on the Boeing next generation 737 single aisle aircraft and is made by General Electric and Safran’s CFM joint venture. CFM could not be reached for comment.

Rolls-Royce, which provides the only engine for Airbus’s new wide-body, the A350 XWB, has also been approached by the commission. “We can confirm we have received a questionnaire from the European Commission and are working on our response,” it said.

Honeywell, whose power units are widely used to keep the lights on when an aircraft is on the ground, confirmed it too had received a questionnaire. “Honeywell ... is working to respond. We will co-operate,” the group said in a statement.

The commission’s preliminary inquiry is expected to take several months before a decision on whether to launch a formal investigation is made. Companies will have roughly a month to reply, and further questionnaires could still be sent out.

The maintenance, repair and overhaul market is set for robust growth over the next decade thanks to the unprecedented number of new generation aircraft coming into service. Aerospace consultancies such as ICF International and Technavio estimate the market will grow from $60bn this year to more than $80bn by 2025.

Maintaining and repairing an aircraft accounts for roughly 10-13 per cent of an airline’s operating costs and the complex job of servicing the roughly 30,000 components on an aircraft is often outsourced to a third party.

However, as aircraft manufacturers such as Boeing and Airbus demand that suppliers share more risk on the development of new aircraft programmes, original equipment makers are seeking to recoup some of that investment by expanding in the high-margin business of servicing their products.

Anheuser-Busch InBev needs family on its side to secure beer deal

At the center of SABMiller PLC’s efforts to get a better deal in Anheuser-Busch InBev NV’s takeover bid is a family whose brinkmanship at the negotiating table helped make them Colombia’s richest.

For decades, the Santo Domingo family has controlled a web of enterprises. Their sale of Colombian brewer Bavaria in 2005 to SABMiller saw the clan’s $2.2 billion fortune multiply many times over. The family’s holdings are now valued at $14.8 billion, according to the Bloomberg Billionaire’s Index.

Now the second-largest shareholders in SABMiller, with a 14% stake and two board seats, the Santo Domingos, led by 38-year-old Harvard-educated Alejandro Santo Domingo, are the linchpin InBev needs on its side to ink the $99 billion proposed deal.

AB InBev Chief Executive Carlos Brito said during a media call Wednesday he thought the family was receptive to the deal when the company announced a takeover proposal for SABMiller earlier that day.

He said the cash-and-stock portion of the AB InBev’s proposal “was designed with and for them,” with the understanding that the Santo Domingos would be on board.

Mr. Brito expressed surprise when the family later declined the offer. “At this point, we don’t have their support,” he said.

Mr. Brito noted that a precondition of doing the deal was “an irrevocable commitment” from both BevCo Ltd., the holding company for the Santo Domingo family’s SABMiller beer interests, and Altria Group Inc., the tobacco company, which has a 27% stake in SABMiller and three seats on the board. Altria said Wednesday it supported AB InBev’s proposal.

Alejandro Santo Domingo, reached by phone in New York, declined to comment about the family’s intentions.

Those who know the family say they have a knack for holding out for the best outcome, with the hope of also keeping their influence in a business they have been involved in for decades.

A banker whose firm has worked with the Santo Domingo family said their refusal of the current bid “is a negotiating strategy. They are calling the shots.”

Rudolf Hommes, a former Colombian finance minister who knows the family, described it as clan of deal makers who have historically been able to adroitly multiply their wealth many times over. Alejandro Santo Domingo’s grandfather, Mario, had expanded his fortune and left it for his son, Julio Mario Santo Domingo, Mr. Hommes said.

Now, that fortune—largely controlled by Alejandro Santo Domingo, who succeeded his late father—could mean an even broader stake in a business that Mr. Hommes says the Santo Domingos have long been passionate about: beer.

The younger Mr. Santo Domingo, a tall and dashing entrepreneur who lives in New York and whose social life and recent engagement to British aristocrat Lady Charlotte Wellesley is splashed on the society pages here, shares his father’s business acumen, say people who know the family.

“I see that he’s very capable,” said Fabio Echeverri, former president of ANDI, a group representing industrialists.

Mr. Santo Domingo’s father had been known for turning down juicy overtures. In 1996, Brazilian Jorge Paulo Lemann—now a top shareholder in AB InBev—made a bid for the family’s Bavaria brewery, which the family rebuffed.

Violy McCausland-Seve, who advised the Santo Domingo family until about a decade ago, said it rejected the offer because it undervalued the company’s potential—given that its margins were lower than comparable brewers. It opted to improve those, raising them to 40% from 20%, and then it used its increased cash flow to acquire brewers in Panama and Peru.

Ms. McCausland-Seve said the company ultimately sold to SABMiller in 2005 because it recognized that the beer industry was consolidating globally.

She said she didn’t know how the family views the AB InBev offer, but she noted that SABMiller was better-positioned for growth in Latin America and Africa. “Turning it down would not be a crazy decision,” she said of AB InBev’s overtures.

Julio Mario Santo Domingo, an imposing figure in Latin America’s world of business until his 2011 death, had his hands in an array of sectors, from Colombian television to radio to tourism and the country’s main airline. He was also close to the country’s political elite. In the 1990s, he became a lightning rod for criticism after publicly backing Colombia’s then-President Ernesto Samper, who was accused of taking campaign money from one of the country’s powerful drug cartels. Mr. Samper denied taking money from traffickers, and was absolved in a congressional vote.

Critics said that the Santo Domingo family had their media outlets go soft on the president, charges Julio Mario Santo Domingo denied at the time.

When Bavaria merged with SABMiller in one of the continent’s biggest deals ever, it resulted in $3.5 billion worth of stock for the Santo Domingos. The family was sharply criticized by some members of the Colombian government and the public for successfully arguing that the Bavaria-SABMiller deal was a merger, not a sale, which enabled the family’s to avoid paying millions of dollars in taxes.

Since Julio Mario Santo Domingo’s death, Alejandro has been in control of a vast portfolio, along with his cousin, Carlos Alejandro Perez Davila, a former Goldman Sachs Group Inc. banker. Mr. Santo Domingo is also managing director of New York-based venture-capital firm Quadrant Capital Advisors Inc.

Mr. Perez Davila declined to comment.

- US economy is down shifting a bit, will see some inventory drag in 2H 2015

- Sept labor report was weaker but over 100K jobs is sufficient to maintain unemployment level

- Other scenarios see nuclear operators with more than sufficient provisions for wast disposal

In accordance with Rule 2.6(a) of the Code, NMC is required, by not later than 5.00 p.m. on November 6th, 2015, to either announce a firm intention to make an offer for the Company in accordance with Rule 2.7 of the Code or announce that it does not intend to make an offer, in which case the announcement will be treated as a statement to which Rule 2.8 of the Code applies. This deadline can be extended with the consent of the Panel in accordance with Rule 2.6(c) of the Code.

The progress in the US economy is still consistent with a Federal Reserve rate rise "relatively soon" said Dennis Lockhart, the chief of the Atlanta Fed.

In a speech in New York, he said a hike from current near-zero levels was likely going to be appropriate in either the October or December meetings, reports Sam Fleming.

However Mr Lockhart also acknowledged that the evidence had become more ambiguous because of mixed economic readings of late, and that there was "a touch more downside risk" than a few weeks ago.

He said the recent economic numbers, including weaker job growth data last week "have not provided much confirmation that my narrative still holds."

Mr Lockhart said:

I believe the economy remains on a satisfactory track, and, speaking for myself, I see a liftoff decision later this year at the October or December FOMC meetings as likely appropriate.

However, the data are giving off varied signals, and there is more ambiguity in the current moment than a few weeks ago. In my opinion, the situation calls for especially diligent monitoring of incoming data with particular attention to consumer activity."

Mr Lockhart is seen as a centrist on the Federal Open Market Committee so his views are carefully watched by markets.

He added:

My staff and I are always paying attention to incoming data, but the ambiguity of the moment reinforces the need to closely watch the vital signs of the economy over the coming weeks to determine if the outlook has changed.