>>> Interesting article in the FT on Airlines - sector to watch in 2016

>>> Interesting article in the FT on Airlines - this sector will be interesting to watch as major reshuffle and trasnformation of the industry sector is on its way...low oil environnment is also a catalyst for this sector...

YTD Air France Outperform mkt by 16,5%, LHA by 6%, IAG +4.69%, EZJ +4.55% RYA +8%

FT : Ryanair and easyJet eye work with rivals

Budget airlines consider providing feeder traffic for flag carriers’ long-haul flights

European passengers flying long-haul to the US or further afield could soon find themselves travelling part of the way on a low-cost airline should Michael O’Leary, Ryanair’s chief executive, get his way.
Europe’s biggest budget airline by revenue has signalled a major shift in strategy by targeting tie-ups with flag carriers under which it would provide them with passengers for their long-haul flights. EasyJet is considering a similar move.

This could see Ryanair and easyJet partner with British Airways or Lufthansa, with passengers initially flying on the budget airlines’ short-haul passenger jets and then transferring on to the flag carriers’ long-range aircraft. Through a single transaction with one airline, someone wishing to go from Lyons to New York might in the future fly from the French city to London’s Heathrow airport with easyJet, and then switch smoothly to BA to travel to the US.
It would be a remarkable turn of events — for the past two decades, Ryanair, easyJet and other budget airlines have engaged in cut-throat competition with flag carriers on European short-haul routes. The likes of BA, Air France and Lufthansa have ceded as much as 40 per cent of the European short-haul market to low-cost carriers offering cheap fares.
Furthermore, the willingness of easyJet and Ryanair to countenance partnerships with flag carriers represents a big change for the budget airlines, which have traditionally shunned the idea of providing so-called feeder traffic to other carriers due to the costs and complexity.
But as Ryanair and easyJet search for further growth in an increasingly mature European market, many industry insiders believe that budget airlines will become feeders for flag carriers’ long-haul routes.
“They all say ‘No we would never have Ryanair feed us’ but in the end they will, simply because we can deliver feed into them at €45 a seat, whereas currently they do it themselves at €150 a seat and are losing money hand over fist,” says Mr O’Leary. Ryanair’s average fare was €56 in the six months to September 30.
The advantage for flag carriers would partly be that, by taking feeder traffic from low-cost airlines, they could more easily fill their long-haul aircraft, and therefore ensure some marginal routes are profitable. Just as importantly, the arrangements would enable the likes of Air France to axe some of their lossmaking short-haul routes, where they struggle to compete with easyJet and Ryanair because of higher operating costs.
In recent years, easyJet and Ryanair have increased the pressure on flag carriers by wooing business passengers with flights to key European hubs such as Charles de Gaulle in Paris and Rome’s Fiumicino. EasyJet has even expressed an interest in flying to Heathrow.
Chris Tarry of Aviation Industry Research and Advisory says low-cost airlines realise that offering feeder traffic to flag carriers is an opportunity for them. “As their own networks get more extensive then the opportunity for them to take passengers to and from another airline’s network increases as well,” he adds.
However, several obstacles stand in the way of budget airlines acting as feeders to European flag carriers.
The biggest hurdle to date has been agreeing which company — the budget airline or the flag carrier — would be liable if flights were delayed and connections missed.
Mr O’Leary is adamant Ryanair would not be responsible for any missed connections or baggage — an issue that has already led to the ending of negotiations between the company and Aer Lingus and Virgin Atlantic. Ryanair is still in discussions with Portugal’s TAP and Norwegian Air Shuttle, which offers cheap transatlantic flights.
Under Ryanair’s feeder proposals, customers would be able to buy their tickets for the two flights — one with the budget airline, the second with the flag carrier — in one transaction from the company operating the long-haul flight. This company would be responsible for looking after their bags and taking responsibility for missed connections.
Analysts say there are other matters that could hinder discussions between budget airlines and flag carriers. For example, John Strickland, analyst at JLS Consulting, says the proposed sharing of revenue between the two sides would be a critical part of negotiations.
Another issue that would need to be resolved is improving services at airports, to ensure that passengers transferring from a short-haul to a long-haul flight would not have to go through immigration again, and that baggage was moved between aircraft remotely.
Will Horton, analyst at Centre for Aviation, agrees. “Lufthansa and others are clearly seeking a solution to lower their costs — but is the price point that works for them also favourable to low-cost carriers?,” he asks. “Is it worthwhile to take on complexity, cost and potentially some loss of agility?”
Carolyn McCall, easyJet’s chief executive, admits no one has yet been able to show how low-cost airlines can provide feeder traffic to flag carriers “simply and easily and make money at the end of it”.
Moreover, some analysts believe that feeder partnerships are not crucial for either Ryanair or easyJet’s growth.
Oliver Sleath, analyst at Barclays, says that in the European short haul market, 85 per cent of passengers are flying point-to-point — people starting and ending their journeys within the EU — while just 15 per cent are travellers connecting to long-haul aircraft.
“Low-cost carriers have taken about 35-40 per cent of the overall market so they could double in size doing just what they do in the point to point market without needing to worry about entering the feeder market,” he adds.
Deals between budget airlines and flag carriers such as Lufthansa and Air France are unlikely to happen in the short term because both are engaged in highly sensitive union negotiations over current cost-cutting initiatives.
But some industry insiders believe agreements could be made with smaller airlines. Mr O’Leary says flagship carriers need to “stop messing around and trying to be low-fares airlines” when they can just work with Ryanair or easyJet. “It just becomes the logical thing for them to do,” he adds.

FT : Israel cyber-security expertise lures growing share of investment

FT : Israel cyber-security expertise lures growing share of investment

Israel racked up cyber-security sales worth $3.5bn to $4bn last year and attracted about 20 per cent of global private-sector investment in the burgeoning industry — putting its companies second only to their US counterparts — according to the country’s top cyber official.
The figures underscore the Jewish state’s growing credibility as a world leader in an emerging area where its military capabilities dovetail with a growing private-sector export industry. The country’s share of global investment last year was up from 10 per cent in 2014.
Israeli and foreign online security experts have described the country of just 8m people as one of five emerging “cyber powers” alongside the US, China, Russia, and the UK.
“We think the cyber revolution is the third revolution after the agricultural and industrial one, and it’s going to change all of our lives,” Eviatar Matania, head of Israel’s National Cyber Bureau, told the Financial Times in an interview.
Other countries, including the UK were “adopting our approach and our strategies” in their national cyber-security policy, he said.
Mr Matania said he expected a continuing rise in cyber attacks on industrial systems such as generators, vehicles, aircraft and medical devices.
He also warned of the danger of “cyber network influence” attacks, in which social or traditional media are hacked to sow confusion. A prominent example was the 2013 cyber attack on the Associated Press Twitter account, in which a false report was posted about two explosions in the White House said to have injured US president Barack Obama. The rumour caused the New York Stock Exchange to fall by 1 per cent, temporarily wiping some $136bn off stock prices.
“This is an example of much more complicated things that will happen,” Mr Matania said.

Israel’s proven cyber security expertise — and ability to capitalise on companies’ and governments’ growing vigilance and paranoia about online security — are fuelling growth in civilian cyber-security companies and inward investment.
Microsoft last year bought Adallom, an Israeli cloud security company, for a reported $320m in the latest of several cross-border acquisitions seen in the sector.
Israel is building a hub known as Cyberspark in the southern city of Beer Sheva, where cyber-security companies will be located alongside military intelligence units and Ben Gurion University, one of the country’s five cyber-research centres.
According to the National Cyber Bureau, Israel has 250 cyber-security companies and last year’s exports represent about 5 per cent of the $75bn global market. However, it cautioned that the sales figures were an estimate, with final global sales numbers not yet available.
Israel was discussing strategies to tackle threats from hackers and ways to exploit economic opportunities offered by evolving technologies with a number of other countries, including the US, Germany and Japan, Mr Matania said.
It is also promoting cyber-education down to primary school level through programmes developed with the education ministry.
“Since this is something new, we would like [children] to .... have a feeling for this domain,” Mr Matania said. “Later when they become programmers, they will have the intuition to move in this [area].”
Israel has built up its defensive and offensive capacity in cyber-security because its government institutions and military are under constant attack from hacker groups, some of which Israeli officials claim have support from state actors such as Iran.
In November Check Point, Israel’s biggest cyber-security company, exposed a large-scale cyber attack it said hit businesses and government targets across Saudi Arabia, diplomats in other Middle Eastern countries and a number of people with links to Iran.
The Tel Aviv-based company said it thought the attack, dubbed Rocket Kitten, had “possible ties” to Iran’s Revolutionary Guards.
Israel’s military is widely thought to have been behind the Stuxnet worm, which infiltrated computers powering the centrifuges at Iran’s Natanz nuclear facility in 2009-10. However, Israel never claimed responsibility for the attack.

>>> US Gapping Down

Gapping down
In reaction to disappointing earnings/guidance: SKUL -22.9%, SHOO -1.4%, HTWR -1.4%, IONS -1.4%, RCI -1.2%, NVDQ -0.8%, TISI -0.5%


Select metals/mining stocks trading lower: GFI -1.9%, NEM -1.5%, GG -1.5%, KGC -1.2%, BHP -1.2%, ABX -1.2%, SLW -0.8%, RIO -0.7%, GLD -0.6%, BBL -0.5%, SLV -0.5%

Other news: EGO -8.5% (amended investment plans in Greece), PBR -2.7% (confirms adjustments to the 2015-2019 Business and Management Plan; reduced CapEx by $32 bln), EDR -2.6% (prices offering of 5.5 mln common stock at $35.50 per share), LYG -1.5% (still checking), GOOD -1.3% (filed $500 mln mixed securities shelf offering)

Analyst comments: NGL -2% (downgraded to Hold from Buy at Stifel)

>>> US Gapping up

Gapping up
In reaction to strong earnings/guidance: BURL +12.3%, ELOS +9.7%, HZNP +8.8%, LULU +8.7%, UCTT +5%, ACLS +4.2%, TACO +3.7%, SAP +3%, ABMD +2.5%, EXPR +2.5%, BIG +2.4%, CAH +1.7%, CTSH +1.6%, ASNA +0.7%, CRAY +0.6%, XENT +0.4%

M&A news: APOL +19.7% (following report that Apollo Global Management (APO) nearing deal to buy Apollo Education), PHG +2.8% (Sky News report of potential Melrose bid for lighting unit), SNN +1.8% (announces the acquisition of BST-CarGel)

Select EU related names showing strength: LUX +4.1%, NVO +2.6%, ABB +2%, UN +1.8%, SNY +1.5%, ASML +1.3%, STM +1.1%

Other news: SNOW +28.2% (announces modified 'Dutch auction' self-tender offer to purchase up to $50 mln of common stock with cash), BIOC +19.7% (entered into an agreement with Blue Cross Blue Shield of Illinois allowing its members access to Biocept's menu for liquid biopsy testing), BLRX +17.5% (announces collaboration with Merck (MRK) on Phase 2 study investigating BioLineRx's BL-8040 in combination with KEYTRUDA), BCLI +15.1% (Jama Neurology releases Promising Data from ALS Clinical Trial), PSTI +9.5% (receives FDA approval to begin PLX-R18 clinical trial), CLLS +8% (announced the publication of a study describing the design and development of a new CAR architecture with an integrated switch-on system that permits control over CAR T-cell functions),XONE +8% (to raise ~$13 mln in gross proceeds in a registered direct offering of common shares from its Chairman and CEO), AVP +6.1% (modest rebound following last week's decline), TEDU +3.8% (Strategic Partnership with Alibaba Cloud Computing Co), SUNE +3.3% (modest rebound following last week's decline), BAS +2.8% (reports December op data; expect Q4 revenues to be at the higher end of the range that previously announced), PODD +2.3% (entered into development agreement with Eli Lilly (LLY) for OmniPod delivery of U200 concentrated insulin), TSLA +2% (trading higher with the mkt), SBUX +1.6% (on-track w/ 2K stores in China), JBLU +1.3% (in symp with AAL), NFLX +1% (trading higher with the mkt), AAL +1% (reports Dec traffic)

Analyst comments: SHPG +5.5% (upgraded to Outperform from Neutral at Credit Suisse), CIEN +3.5% (upgraded to Overweight from Equal-Weight at Morgan Stanley), AAPL +1.8% (upgraded to Buy from Neutral at BofA/Merrill), INTC +1.7% (upgraded to Buy at Mizuho), KO +1.6% (upgraded to Buy from Hold at Stifel), AMZN +1.2% (target raised to $800 from $777 at Credit Suisse)

>>> US Early premarket gappers

Early premarket gappers

Gapping up: APOL +22.4%, CLLS +10.3%, ELOS +9.7%, BURL +9.3%, LULU +8.1%, UCTT +6.3%, XONE +6%, SHPG +5.5%, HZNP +5%, HMY +4.7%, TACO +3.7%, JKS +3.4%, EXPR +3.1%, KGC +2.9%, AU +2.7%, SAP +2.7%, ABB +2.5%, LUX +2.5%, PODD +2.3%, SUNE +2.1%, NVO +2.1%, YNDX +1.9%, AAPL +1.8%, JBLU +1.8%, ABMD +1.8%, UN +1.7%, RIG +1.6%, FIT +1.6%, TSLA +1.6%,ASML +1.5%, STM +1.3%, SNY +1.3%, PFE +1.3%, INTC +1.2%, NFLX +0.8%, BIG +0.8%, TOT +0.7%, ASNA +0.7%

Gapping down: SKUL -22.9%, EDR -3.1%, PBR -3%, EGO -2.9%, BBL -1.5%, LYG -1.5%, HTWR -1.4%, IONS -1.4%, GOOD -1.3%, RCI -1.2%, SDRL -1.1%, SHOO -1.1%, BHP -1%, IHG -0.9%, NVDQ -0.8%, RIO -0.7%, TISI -0.5%, AA -0.4%

FT : EC presses Belgium to recoup €700m from multinationals (Yesterday)

The European Commission has called on Belgium to recoup €700m from 35 multinational companies that have benefited from its generous fiscal incentive scheme, as the EU ramps up its campaign against corporate tax avoidance.
The EC said selective tax advantages granted by Belgium under its “excess profit” tax scheme are illegal under EU state aid rules.
The case is significant as Margrethe Vestager, EU competition chief, is facing increasing pressure from officials in Washington, who accuse her of taking a harder line against American companies than their European rivals, write Christian Oliver and Duncan Robinson in Brussels.
The commission’s move against the Belgian scheme could, however, prove costly for European companies, such brewer as Anheuser-Busch InBev.
The tax scheme was a keystone of plans to attract investment and was marketed to international companies with the tag: “Only in Belgium.”
In one investor presentation from 2012, PwC, the accountant, said companies could benefit from an effective tax rate of just 8 per cent — far below the 33.99 per cent headline corporate tax rate in Belgium.
Other companies involved include British American Tobacco, although the sums involved are said to be much smaller, with the £67bn tobacco group benefiting by €1m over five years.
Ms Vestager said on Monday:
Belgium has given a select number of multinationals substantial tax advantages that break EU state aid rules. It distorts competition on the merits by putting smaller competitors who are not multinational on an unequal footing.
There are many legal ways for EU countries to subsidise investment and many good reasons to invest in the EU. However, if a country gives certain multinationals illegal tax benefits that allow them to avoid paying taxes on the majority of their actual profits, it seriously harms fair competition in the EU, ultimately at the expense of EU citizens.
She added:
Companies could pay substantially less tax simply because they were multinationals.
Ms Vestager most of the companies involved are European. Roughly €500m of the estimated €700m will be paid back by EU companies.
How did the excess profit tax scheme work?
So-called “excess profit rulings” allowed business to discount profits that stemmed from the benefits of being a multinational, such as cost synergies or reputation, from their tax bill.
Instead companies would be taxed on the hypothetical profits of what a stand-alone company would have made without these advantages. This resulted in massive tax savings of between 50 and 90 per cent for some companies, according to the commission.
“The scheme cannot be justified by the need to prevent double taxation,” said Ms Vestager.
“The discounted taxes are not taxed anywhere else.” She added: “This scheme gives carte blanche to double non-taxation.”

FT : Petrobras slashes $32bn from 5-year capex plan

Petrobras, the oil company at the centre of Brazil’s largest ever corruption scandal, has slashed its five-year investment plan by $32bn as it struggles to preserve cash.

The oil producer said early on Tuesday that it planned to invest $98.4bn between 2015 and 2019, down 24 per cent from its original forecast of $130.3bn, reports Samantha Pearson in São Paulo.

Petrobras’s finances have come under strain since a multi-billion dollar kickback and bribery scandal emerged at the company in 2014. The collapse in global crude prices – Brent fell below $32 a barrel for the first time in 12 years yesterday – have reaped further pressure on the company.

With nearly $130bn in debt – the largest of any oil company, Petrobras has rushed to sell assets and cut spending.

(ZH) In "Very Unusual" Move, Avenue Capital's Junk Bond Fund Stops Reporting Ass

In "Very Unusual" Move, Avenue Capital's Junk Bond Fund Stops Reporting Asset Levels

A month after we first noted the major redemptions at Avenue Capital Group's credit fund (note this is a different fund from Third Avenue), and just one trading day afterCEO Marc Lasry strolled arrogantly on to CNBC and told the public that "I don't think it's a time to panic, I think it's actually a time where you've got opportunities out there," Morningstar reports the Avenue Credit Strategies Fund has failed to report asset levels since about mid-December.


What is just as surprising is that among its investments, Lasry does have a mutual fund, in fact two of them - the Avenue Credit Strategies Funds, anopen- and close-ended fund, which as we first showed last Friday using the following Morningstar table, are not only among the worst performers year to date, but have tumbled by a whopping 9% in the past three months.



Fast forward to last night when according to Reuters, Avenue's founder, billionaire Marc Lasry, was forced on Monday to back the junk bond mutual fund hemorrhaging assets at his Avenue Capital Group "as jittery investors exit high-yield bonds amid a market rout."As a result, the size of the fund has been cut by more than half, sliding from $2 billion to just $884 million according to Lipper, roughly the same size where Third Avenue's own high yield fund was when it announced it would liquidate and gate investors.

Despite his defensive posture, Lasry hardly sounded too enthusiastic about the pace of outflows: "I think overall redemptions at some point are going to slow down across the market," Lasry said. "I'm not sure if that will be tomorrow or next week, but people are going to start putting money back into the market at some point."
And then just last Friday, CEO Lasry ventures on to CNBC to calm the panic and claim all is well as his fund was imploding...


...despite recent worries, Lasry struck a cautiously optimistic tone on the U.S. economy.



"I don't think we're going into a recession, I think it's whether we're growing at 1 or 2 percent," he said. "So the fact that you've got lower GDP, that's fine, but at the end of the day the U.S. economy is doing fine."

In fact, the hedge fund manager said, there are good openings for discerning investors.

"I don't think it's a time to panic, I think it's actually a time where you've got opportunities out there. Invest in solid companies and you'll end up doing pretty well," Lasry said.

The expert investor said he sees "a ton of opportunities" in the energy sector — but not in equities. Instead he said his firm is buying debt that sees a coupon of about 12 percent "while you're getting paid to wait."

He projected that, in the next two to five years, "you're either going to get paid off, or you'll end up owning these companies" as debt is converted into equity.
We were not the only one to notice Lasry's hypocrisy...

And now, as Reuters reports, in what is clear evidence of a run on his fund,


A junk bond fund run by billionaire Marc Lasry's Avenue Capital Management, which has experienced heavy investment losses and investor withdrawals, has stopped voluntarily reporting daily asset figures to the mutual fund industry's top two tracking firms.

Research chiefs for Morningstar and Lipper said on Monday they had not received daily asset under management figures from the Avenue Credit Strategies Fund since about mid-December. The fund is not required to report the figures, but not doing so is "very unusual," said Jeff Tjornehoj, head of Americas research for Lipper, a Thomson Reuters unit.

People familiar with the situation said outflows from the Avenue Capital fund had become a distraction after an unrelated junk bond fund in early December imploded. Junk bond investors already were on edge, pulling $3.6 billion from high-yield funds in November, according to Morningstar data.

The Avenue Credit Strategies Fund has lost about 40 percent of its $1.2 billion in assets since the end of October. The fund currently has about $650 million to $700 million in assets, with about 15 percent in cash holdings and less than 5 percent in illiquid investments, according to people familiar with the situation. Avenue Capital was not immediately available to comment.
And so another one bites the dust and the forced expulsion of assets into an already illqiuid market continues (unless, like Third Avenue, the SEC grants them exemption from providing liquidity to their clients - the moms-and-pops of America - who were forced by Fed repression into these risky assets, only to eat the losses on the way out)
The only question is whether Lasry, who is a close personal friend of the Clintons - recall Chelsea Clinton launched her "career' by working as an "analyst" at the very same Avenue Capital in the mid-2000s - and who was slated to become US ambassador to France until his ties to a shady poker ring were exposed in 2013, will use his executive privilege and request special treatment by the former, and soon future, first family.
If so, that will be the first case of a hedge fund bailout by the presidential family in history, and will make the political farce that are US capital markets even more comical.