WSJ : Airbus, Boeing Supplier Urges Caution on Boosting Single-Aisle Jet Product

Airbus, Boeing Supplier Urges Caution on Boosting Single-Aisle Jet Production

CFM executive vice president says engine maker is bound by production limitations

LE BOURGET, France—A key engine supplier to Airbus Group SE and Boeing Co. is urging the two plane makers to move cautiously in boosting output of their most popular single-aisle jetliners, with demand already stretching production capacity.

“There are restrictions to how fast we can ramp up,” said François Bastin, executive vice president at CFM International, a joint venture of General Electric Co. and Safran SA, ahead of the coming week’s Paris International Air Show.

Airbus and Boeing have seen huge demand for their newest single-aisle planes, which form the backbone of global airline operations. Airbus will this year introduce the A320neo, an updated model of its popular jetliner with engines produced by United Technologies Corp.’s Pratt & Whitney unit. Next year, it will deliver a version of the plane equipped with CFM engines. Boeing’s 737 Max jetliner is due to enter service powered entirely by the Franco-American joint venture’s engines in 2017.

Both aircraft manufacturers plan to boost single-aisle output further. Boeing is increasing to 47 planes a month in 2017 from 42 currently and Airbus is advancing to 50. Boeing will boost again to 52 in 2018 and both have indicated output may rise again by the end of the decade. Airbus said it may decide this year to lift production.

CFM, which delivered its first Leap-1A engines to Airbus this year, plans to boost output to more than 1,800 engines around 2020. But ramping up production even more aggressively would be a challenge, Mr. Bastin said. “We have stretched ourselves as fast as we can go,” he said.

CFM has amassed orders for more than 8,900 engines across the Airbus and Boeing models, as well as China’s Comac C919. When it hits its planned manufacturing tempo, the joint venture aims to build a new Leap engine at a rate of one every five hours, according to the company’s global manufacturing plan.

Allen Paxson, another executive vice president at CFM, said the company could support higher single-aisle plane output in the near term if that included current versions of the Airbus A320 and Boeing 737 powered by engines that have been in production for decades.

To keep pace with its plane-maker customers, the company is modernizing its manufacturing processes at assembly lines in France and the U.S., including the introduction of a so-called pulsed line, on which engines move during the build process at specific time intervals. The joint venture is focusing intently on ensuring that each one of the more than 4,000 unique parts inside each engine comes together smoothly.

Mr. Bastin said the new engine would deliver the fuel-burn performance and other features promised to customers. “It is right on target and it will be right at the performance at entry into service,” he said. The Leap-1A-powered A320neo test plane is now flying as often as twice a day.


Greece running out of options to avoid capital controls

Nervous depositors are withdrawing their cash from Greek banks amid fears of restrictions on transactions
Just a few months ago, the possibility that capital controls would be imposed in Greece still seemed distant.

But with the government fast running out of money — and nervous depositors pulling cash from the country’s banks — talk of such extraordinary measures is widespread and analysts are warning Athens may soon be forced to employ them.
“We are four to six weeks away from the possible imposition of capital controls,” said Daniel Gros, director of the Centre for European Policy Studies think-tank in Brussels. “There is always some temporary solution [eurozone politicians] can pull out of thin air, but now we are getting really close.”
Were Greece to default on a €1.5bn payment to the International Monetary Fund due at the end of June, the situation could spiral out of control, forcing the hand of policy makers. Greece could then be forced to repeat the experience of Cyprus and Argentina, which chose to intervene to stop their banks bleeding deposits in order to avoid insolvency.
But imposing capital controls would hardly be straightforward.
Such measures are frowned on by the EU treaties, which sanctify the free movement of capital — together with labour, goods and services — as one of the union’s four pillars.
It would be up to the government to enforce unpopular measures, such as limiting citizens’ cash withdrawals, exposing Athens to political blowback from angry citizens.
“Without co-operation from the Greek authorities, it is impossible to implement capital controls,” said Guntram Wolff, who heads the Bruegel think-tank in Brussels. “You really need to have the co-operation of the Greek authorities.”
From Malaysia during the East Asian crisis in 1998, to Iceland after its banking collapse in 2008, there are several examples of governments imposing restrictions on bank deposits to try to halt sustained capital outflows.
Many investors and policy makers believe the most relevant example for Greece unfolded just off its shore two years ago: the Cypriot rescue in 2013.
“The basic challenge, namely to limit the deposit outflows, would seem quite similar in both cases,” said François Cabau an economist at Barclays. “It is likely, therefore, that restrictions in Greece would look similar to those in Cyprus”.

Under pressure from its EU partners, Nicosia agreed to a deep restructuring of its banking sector and a “bail-in” of large depositors — forcing them to accept bank shares for some of their cash — in exchange for a €10bn loan.
The measures took a heavy toll on ordinary citizens: under government orders, Cypriot banks were closed for nearly two weeks. When they reopened, there were tough restrictions on domestic and external payments, including a domestic cash withdrawal limit of €300 per day, a €5,000 limit on credit card payments abroad, and a requirement of central bank permission for any transfer of more than €5,000.
Chart: Greek bank deposits and eurosystems funding
But the measures were ultimately credited with preventing a full-fledged meltdown of Cyprus’ banks and therefore helping to keep the country in the eurozone.
Jeroen Dijsselbloem, president of the eurogroup of finance ministers, evoked this precedent in March, saying that Cyprus had shown how “if a country gets into deep trouble — that doesn’t immediately have to be an exit scenario”.
But not everyone is convinced the “Cypriot solution” can be applied with the same results in Greece. For Cyprus, capital controls were one part of a wider rescue programme agreed with creditors to repair banks and restart the economy. Greece still lacks such a deal, which economists believe is crucial to eventually restore the lenders to health.
Some economists warn that a more plausible comparison for Greece may be the Argentine experience of 2001, which saw the Latin American country crash out of its fixed-exchange rate peg with the dollar, amid widespread financial and political turmoil.
The Argentine crisis began at the end of 2001, when depositors started withdrawing their cash from their banks and converting it into dollars as they feared the peg at par between the greenback and the peso was no longer viable.
To stop the bank run, the authorities in Buenos Aires imposed first a relatively limited set of measures, including a block of withdrawals from dollar-denominated accounts.
Tsipras nears his Brest-Litovsk moment
Alexis Tsipras, the Greek prime minister
Syriza’s behaviour with Greece’s creditors resembles Bolshevik approach to 1918 peace treaty.
Continue reading
The so-called “el corralito” — the small enclosure — was insufficient and soon had to be followed by “el corralón”, which included a freezing of term deposits and a forced exchange of most of them into peso-denominated bonds.
The government was unable to prevent a steep devaluation of the Argentine currency, which hit 3.90 pesos to the dollar by June 2002.
Another concern for the Greek government would be the ability to properly implement and monitor capital controls.
“For capital controls to work, you have to set up a rigorous system of monitoring and enforcement, “ said Friðrik Már Baldursson, an economist at Reykjavik University in Iceland. “If there is a lot of corruption, controls simply won’t work.”
Even if all goes well, there is no guarantee capital controls can be removed quickly. Iceland only this month laid out plans to withdraw such measures — seven years after its crisis.
“It is easier to impose the controls than to lift them,” Mr Baldursson added. “The government needs to convince depositors that they can bring their money back into the banks as controls will not be imposed again. But credibility can disappear very quickly and take a lot of time to be regained.”

(BFW) Aveva Working With Lazard to Evaluate Takeover Options: Times

Aveva Working With Lazard to Evaluate Takeover Options: Times
2015-06-14 08:07:35.965 GMT


By Suzi Ring
(Bloomberg) -- The FTSE 250 engineering software developer
hired bankers from Lazard in Feb., Sunday Times reports, citing
unidentified people.

* Schneider Electric, General Electric, Emerson may bid for
co.
* U.S. technology firm Aspen also said to be looking at co.
* Aspen declined to comment to newspaper
* Aveva CEO Richard Longdon said co. hasn’t received formal
approach
* NOTE: Aveva seen as takeover target since profit warning in
September
* NOTE (May 18): Aveva rises to 8-month high on reports of
possible bid
* NOTE: Aveva market capitalization GBP1.23b at Friday’s close


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To contact the reporter on this story:
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Adveith Nair, Shaji Mathew

WWD : Activist Investors: Still the Big Bad Wolves

The wolves of Wall Street are still around — but now they’re cloaking themselves as “activist investors.”

Gone are the days of phrases like “hostile takeovers” and “asset stripping.” Instead, agitators insist they are simply pushing to improve corporate governance and management — when in fact they actually want a fast return on their investment. Hedge funders like William Ackman of Pershing Square, James Mitarotonda of Barington Capital Group and Nelson Peltz of Trian Fund Management have become the Naughts equivalent of Henry Kravis, Carl Icahn (both still around) and Michael Milken.

And just as the go-go Eighties fueled the leveraged buyout boom, observers say the timing now is perfect for investor activism, especially in retail — just look at Abercrombie & Fitch and J.C. Penney Corp. Inc.

“Right now activism has a strong hold because the economic factors are in their favor: available cash, low interest rates and strong feelings about corporate governance and corporate democracy,” said Ernest Brod, a managing director at Alvarez & Marsal, who heads up the firm’s business intelligence practice.
According to Kenneth T. Berliner, president at investment banking firm Peter J. Solomon Co., “The level of activism has been increasing significantly across all industries….Activism as a class of money is becoming mainstream. With activist hedge fund assets under management over $100 billion, they are no longer a little niche player in the money management community. In fact, most institutional investors have money invested with some activist somewhere.”

Berliner said any company that’s undervalued relative to its industry peers could be a target, since activists are looking for “situations where they can create immediate value.”

What constitutes value is debatable, and for every success story there’s one that didn’t end so well. And as in everything, there seems to be two approaches: the carrot or the stick.

The contrasting approaches were best seen in the battles at two specialty retailers: Abercrombie & Fitch and The Children’s Place.

Glenn Welling’s Engaged Capital, which touts a constructive approach, pushed for improved corporate practices at A&F and was ultimately successful when chief executive officer Michael Jeffries was stripped of his chairmanship in January 2014 in a nod to better corporate governance. Jeffries retired as ceo in December.
Then there was the tit-for-tat between The Children’s Place board and Barington Capital Group as well as Macellum Capital. In anticipation of a proxy fight (they later settled) each side filed investor presentations, but the retailer’s board also issued numerous press releases, pre-announced first-quarter earnings and shareholder letters repeating the same information to garner support for its own slate of board nominees.

What activist funds have discovered is that their power increases if they work in pairs. The current trend is for two or more activist hedge funds, each having smaller stakes, to join forces to push corporate boards (using public pressure) to their will.

These battles can be as dramatic and confrontational as the corporate raider days. And even when a company ups its corporate governance game and avoids a proxy fight, it may not be enough. Perry Ellis International Inc. last month, after some agitating from activist investors, provided a leadership succession plan to separate the chairman and ceo roles. George Feldenkreis holds both roles, but will step down as ceo in 2016. That quelled some of the activists’ issues, which included a withdrawal of a proposed group of board nominees after Perry Ellis added two new directors. But the activists aren’t giving up: They’re still pushing for a declassification of the existing board.

To be sure, some of the protagonists in activism have changed over time, but one thing hasn’t: They still look for undervalued companies. And it appears that agitation is just as profitable as ever.

Last year, Icahn called for the exploration of “strategic changes” at Family Dollar Stores, typically a euphemism for the sale of the company. In September, after the dollar store’s agreement to be acquired for $8.5 billion by its rival Dollar Tree Inc., Icahn was said to have made a $200 million profit after selling his stake, even though he had been pushing for a deal with another competitor, Dollar General Corp.

Then there is Ackman, a hedge fund manager of Pershing Square Capital whose fund reportedly posted a 40.2 percent gain in 2014 — earning him a whopping $1.1 billion in salary. Not shy about vocalizing his investment positions, Ackman consistently made headlines last year for his views on Herbalife and Allergan.

While those investment bets still have to play out, a black mark on Ackman’s record is his failed attempt to bring organizational change to Penney’s. That failure — the retailer lost $1.39 billion for the year ended Feb. 2, 2013; Ackman’s choice of ceo, Ron Johnson, was pushed out and succeeded by his predecessor Myron “Mike” Ullman 3rd, and Ackman is believed to have lost $475 million on his investment — is representative of what can go wrong when investor interests and management’s knowledge of an industry collide.

The key question is whether all this agitating is as good for the companies as it is for the activists’ paydays.

“Some companies need some pushing where their boards and management are insular, but I do not believe that most companies fall into this category,” said Andrew L. Sole, managing member of Esopus Creek Advisors LLC, the adviser to the hedge fund Esopus Creek Value Series Fund. “The real questions one must ask are ‘What is motivating the activist and is [his or her] agenda, one that truly benefits long-term shareholders? What are the inherent risks shareholders bear when they vote to support the financial alchemy proposed by an activist?”

Although Esopus isn’t an activist fund — it did take an activist position in Syms Corp. in 2009 — Sole isn’t exactly keen on activism. “Many of these activists simply use a rote playbook that push for stock buybacks funded by debt or by raiding the company’s available cash and this reduces the balance sheet liquidity. What if there’s a downturn? That new debt load will certainly limit a company’s options during a recession. And the activist? He will likely be long gone leaving the true long-term investors, such as pension funds and others, left holding the bag.”

Sole noted, “Activist firms gain attention when they run in and buy up a reportable stake and then send a nasty letter to the board demanding some type of ‘Rube Goldberg’ corporate re-engineering. Activism seems to be a sexy term today yet I would ask if this activity is about helping the long-term shareholders, or is it really about a strategy to elevate the activist’s profile for fund-raising purposes.”

Alvarez & Marsal’s Brod said that as activists have become more accepted, “sometimes they can be helpful to a company, and many boards have become smarter about how to react.”

Activist-turned-passive investor Robert Chapman of Chapman Capital, known for his acerbic criticisms of management in 13D filings, knows a thing or two about engaging public company boards. He doesn’t believe that corporate directors are better at working with activists for the supposed reason that they have a better understanding of their fiduciary responsibilities.

“It would be giving Corporate America far too little credit for IQ points and too much credit for integrity to ascribe higher receptivity to activists to a ‘better understanding.’ The fiduciary duties of due care, loyalty and good faith are simple, well-known and easily understood. Directors now just understand that they should fear the repercussions of shirking those duties,” Chapman said.

FT : Huge growth in China’s money funds poses risk

Huge growth in China’s money funds poses risk

Bullish: Chinese money funds look likely to retain strong retail investor interest
China’s asset management industry has had explosive growth in the last two years following the arrival of online money market funds, which have transformed the way millions of Chinese invest their savings.
The booming popularity of money funds, however, has led several investment experts to raise serious concerns about risks developing in the industry as a result.

The funds’ appeal is strong given that most of them offer annual returns of 4-6 per cent, compared with the 3 per cent Chinese individuals receive on their bank deposits. The returns have helped money market funds’ assets under management grow nearly 15-fold in the past four years to Rmb1.9tn ($306bn) at the end of 2014, according to Goldman Sachs Asset Management.
Robert Pozen, senior lecturer at Harvard Business School and former chairman of MFS Investment Management, the oldest US mutual fund company, fears investors are being drawn to the high interest rates without any understanding of the risks.
The funds offer high interest rates, he says, but “they are not explaining that in many cases this type of paper is not top quality. This is essentially what we would call primary junk funds in the US — paper that’s usually below investment grade, fluctuates daily in terms of interest rates and from time to time defaults.
“The big risk is selling to relatively unsophisticated investors over the internet who probably do not know what they are getting into. There is a real possibility of loss here.”
The biggest winners from the influx of cash into online money funds have been large Chinese internet companies like Alibaba, Tencent and Baidu. They were quick to recognise that selling money funds over the internet to consumers who were comfortable with online transactions could translate into big business.
Alibaba’s money fund Yu’E Bao (Leftover Treasure), which is marketed to users of the group’s online payment platform Alipay, has been particularly successful. Cash transfers from bank accounts to Yu’E Bao take just one click. Its assets have risen from zero to Rmb578bn in less than two years.
Rating agency Fitch has highlighted the level of retail investor cash flowing into the funds as a cause for concern. It noted in a report written last month that yield-hungry retail investors are prone to herding patterns of behaviour when markets become stressed, which could lead to “periods of mass fund exodus”.

This is particularly worrying because Chinese retail money funds invest heavily in deposits and bonds with long maturity dates in order to keep yields competitive, say Fitch analysts Alastair Sewell and Li Huang. The money funds have a minimum investment threshold of just Rmb1 and investors can redeem their holdings at any time, potentially creating a large liquidity mismatch.
“Since e-commerce money market funds are retail-focused, they tend to have a less stable investor base,” say the Fitch analysts. Meeting redemptions in a stressed market “may challenge those funds with higher exposures to less liquid securities, larger funds and those with more concentrated investor bases”. Meeting large outflows “could be problematic”.
Flows to online money market funds have slowed in 2015 but most commentators agree that they will continue to attract large numbers of retail investors in the next two years. Stephen Tu, vice-president at rating agency Moody’s, says Chinese money funds have “only captured a relatively small percentage of the total savings and liquidity in China”. The pool of investors drawn to such products is likely to expand given new technology companies with big customer networks continue to enter the money fund industry.
Xiaomi, the world’s third-largest smartphone maker, is the latest. It said last month it would team up with asset manager E Fund Management to sell a money-market fund through a finance app bundled on the technology company’s operating system.
“It’s a nascent environment now and there are likely to be more entrants,” says Mr Tu. “In the long run, we could see a handful of key players providing these services.” Online money market funds are more convenient than traditional bank accounts, he adds.
Mr Tu agrees that the rapid growth of the industry is a potential concern but believes other areas of China’s financial services industry — notably shadow banking and private lending — require more immediate attention.
Chris Powers, analyst at Z-Ben Advisors, the Shanghai-based asset management consultancy, adds that the focus by some on money funds is perhaps misplaced. “It’s difficult in China to really isolate money market funds,” he says. “There is concern about all financial products in China and money market funds would probably be considered the most secure. I don’t think there is any concern [among] investors here about the risks.”
The Chinese government may be stalling on applying more rigorous oversight to money funds partly because the industry’s growth is considered a success for China’s market liberalisation. “I think the authorities are hesitant to [increase] regulation of the funds as it is one of the most exciting areas of Chinese finance,” says Mr Powers. “They are accomplishing a lot of their goals here.”
But the People’s Bank of China has expressed concern about how some money funds are being marketed, notes Mr Powers. “You do see aggressive 8 or 9 per cent guarantees.”
The Chinese authorities should be more proactive, according to Mr Pozen. “Do investors in China know what kind of fund they are getting into?” he asks. “Do they realise it is a fluctuating junk bond fund and not a safe money market fund? “I bet a lot of people do not understand those risks.” These funds need to be labelled properly, he adds, and the value of their underlying holdings needs to be “disclosed properly”.

FT : China's hedge fund industry blooms as stocks boom

China's hedge fund industry blooms as stocks boom

Commercial and residential buildings stand in the Luohu district of Shenzhen, China, on Wednesday, Dec. 18, 2013. New home prices in China•s four major cities rose, with the southern business hub of Shenzhen posting the biggest gain in almost three years, as property measures by local governments failed to deter buyers. Photographer: Brent Lewin/Bloomberg©Bloomberg
More than 4,000 new Chinese hedge and private equity funds have launched in the last three months, fuelling a mass exodus from traditional investment houses, as ambitious fund managers seek to profit from the country's booming stock market.
The number of private investment funds — including securities, private equity, and venture capital — totalled 12,285 by the end of May, up from 7,989 three months earlier, figures from China's securities regulator show. Assets under management increased by $75bn to $433bn.

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The Shanghai Composite Index closed at a seven-year high on Friday and is up 150 per cent over the past year. The small-cap, tech-focused ChiNext board in Shenzhen has more than tripled in the last year.
Feng Gang, chairman of WinSure Capital, says the government is encouraging entrepreneurship in finance. He launched his fund in January after 14 years at Chinese mutual fund companies, most recently China International Fund Management, a joint venture with JPMorgan Chase.
"In the past 14 years I've never seen regulators so encouraging of innovation. In the investment industry, we're taking the lead."
Last February the government switched to a streamlined registration procedure for PE and hedge funds, abandoning the more onerous approval process.
Employees at hedge and PE funds have risen by over 60,000 in three months, topping 199,000 by end-May.
"More than half of our research team has left over the last year to join hedge funds," said a vice-president for institutional business at a large Chinese securities brokerage in Shanghai.
"It's the same with our [mutual fund] clients. Now all the fund managers are 'post-80s'," she said, referring to those born after 1980.
Chinese hedge funds differ from western counterparts in key respects. Where western funds mainly rely on institutional investors, Chinese hedge funds draw from retail investors, using banks and brokerages as sales channels.

A typical Chinese hedge fund has a minimum investment of only $161,000 and a lock-up period of 12 months, while western hedge funds typically require an investment of at least $1m and longer lock-up periods.
Chinese hedge funds are also small on average. Of the 12,285 registered funds, only 56 manage more than Rmb10bn ($1.6bn) in assets.
Most Chinese hedge funds follow long-only strategies, as short-selling is possible in China only for large-cap shares. Even that it is difficult due to limitations on securities lending.
In addition, an absence of available derivatives products hinders fund managers' ability to use hedging strategies common in developed markets.
Higher pay is the biggest factor luring asset managers away from brokerages and fund houses and into hedge funds.

Chinese funds use a pay structure similar to that of western funds, taking a 20 per cent cut of profits. Some more established fund managers also take a fee worth 1-2 per cent of assets under management, as in the west.
Despite the proliferation of new funds, industry observers say many are now struggling with a wave of redemptions as investors seek to lock in profits after a year of strong gains.
Asset returns, rather than net inflows, likely account for the bulk of the $75bn increase in assets under management since March.
Analysts suspect re-allocation of savings from a now richly valued stock market back to the property market helps explain why housing sales have rebounded and prices have stabilised following months of decline.

>>> President of German BDI industrial federation Grillo: Losing

President of German BDI industrial federation Grillo: Losing patience with Greece; Country cannot stay in eurozone at all costs - German press 
- Says: Greece needed to "immediately" come to terms with its creditors.



Greece Can't Stay in Eurozone at All Costs, Says BDI President

FRANKFURT--The president of Germany's BDI industrial federation, Ulrich Grillo, said he is losing patience with Greece, adding that the country can't stay in the eurozone "at all costs."

In an opinion piece for daily newspaper FAZ published Saturday, Mr. Grillo said Greece had to realize it could no longer pursue a "national-only development path"--financially and socially--while at the same time being part of the eurozone. A member state that is tainted by "chronic indebtedness and lack of competitiveness," he said, has no option but to adjust significantly to the other eurozone countries.

In his opinion, Greece needed to "immediately" come to terms with its creditors. Another option, he said, would be to make it possible for a member state to voluntarily exit the eurozone in an "honorable and worthy" way.

In 2013, Mr. Grillo suggested Greece should start selling state-owned property and companies to help pay back its debt.

In comparison with the BDI, other German industry associations have been reserved in their criticism of Greece.

>>> Greek PM Tsipras has sent a team of top advisers to Brussels to help negotia

Greek PM Tsipras has sent a team of top advisers to Brussels to help negotiate a deal and avert a Greek default - financial press 
- Says: Athens is prepared for a 'difficult compromise' with creditors.
- Greek Dep Fin MIn: "We will have a deal... The fact that the Greek delegation is going to Brussels is a good sign." 
- Eurozone official: "In discussions, a default was mentioned as one of the scenarios that can happen when everything goes wrong."

>>> Iran Pres Rouhani: Many differences remain over details of a nuclear deal -

Iran Pres Rouhani: Many differences remain over details of a nuclear deal - financial press 
- Says: "The general framework that the Islamic Republic of Iran wants is accepted by the P5+1 group but there are still many differences in the details that must be addressed... We are very serious in the negotiations. We do not seek to gain time, but at the same time we are not captives of time. We are not in a hurry but we try to use every opportunity to reach a good deal."