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Aviation History
1997
1997 - 3302.PDF
BUSINESS NEWS IN BRIEF M AERSPATIALE CASH CALL Aerospatiale urgently needs new investors to shore up its limited cash reserves, ac cording to a French Par liamentary report on the state of the defence industry. The report says that the group needs an extra FrlO billion ($1.7 billion) for reserves, which started the year at only Fr4.8 billion. It concludes that the state is "...unable to support" the financing, needed in part to help support Airbus research and development commit ments, arguing for an "open ing of capital". • BAe WINS BOEING WORK British Aerospace has con firmed a contract from Boe ing to supply "machined components" for the Next Generation 737. The deal marks a coup for BAe's aerostructures business, which has be pushing hard for more work from Boeing, although the group points out that its Airbus agree ments prevent it taking any major risk-sharing positions. TRW/BDM To Merge TRW HAS agreed a $1 billion cash acquisition of BDM International, a US systems inte gration house widi major defence interests, which will boost the group's existing fast-growing space and defence division. The enlarged division will have sales of $4-5 billion, representing more than 40% of TRW, the rest of which is in the automotive sec tor. Chairmanjoseph Gorman says that the move is a significant step in achieving a long-term goal of dou bling the group's overall sales. BDM, which employs around 9,000 worldwide, has been averag ing 24% annual growth over the past five years. It was acquired in 1990 by The Carlyle Group invest ment company, after a brief spell as part of Ford Aerospace, and then went public in 1994. Carlyle still owns 26% of the company, but will sell the stake to TRW. J Alitalia on path to privatisation as state and IRI cut back stake KEVIN O'TOOLE/LONDON ITALY'S GIANT state-holding company, IRI, has agreed to cut its stake in Alitalia to 60% in what is being billed as the first step towards die flag carrier's privatisation, which could now come in 1998. The deal, agreed at a meeting of die IRI board on 2 6 November, will see the holding company cut its stake from the present 86.4%, to be com pleted by April 1998. Around 20% of die shares will go to employees under die deal struck widi die Alitalia unions in mid-year as die price for seeing dirough a crucial cost-cutting scheme. The remainder of die IRI shares will be floated on die Italian stock market, where 13.6% of die com pany is already traded. The share price has risen sharply since the restructuring plan was pushed through in June under Alitalia's new top-management team, including approval for IRI's recap italisation of the group. Shares have regularly had to be suspended because of soaring prices and trad ing was again halted ahead of the IRI board meeting as diey gained more dian 8% on expectations of die deal. IRI's stake could cede control of die airline in 1998 if, as planned, die next phase of Alitalia's recapitalisa tion is taken up by outside commer cial shareholders. Under die restructuring deal, approved by die European Commission earlier diis year, IRI has poured L2,000 billion ($1.2 billion) into die airline to wipe out its debt mountain. Another L750 billion is due over 1998/9, which would be enough to dilute IRI's state below the 50% mark. Alitalia's chief executive, Dominico Cempella, is pushing for privatisation as soon as possible in the hope of loosening the three- year constraints on growdi placed by die EC as a condition of approv ing the IRI state aid. Although Alitalia is due to decide on a European alliance partner in December (with KLM and Air France jockeying for position), Cempella suggests diat this would not involve equity. As anodier condition of die EC approval, Alitalia is to sell its five- year-old stake in Hungarian airline Malev. The Italian airline owns 30% widi another 5% in the hands of an IRI financial vehicle. • Asia's earners are filling capacity, but at what cost? Asia-Pacific economic crisis hits South Korea SOUTH KOREA'S carriers have become die latest of Asia- Pacific's airlines to be marked down by financial analysts as eco nomic problems continue to rever berate throughout die region. Analysts warn diat flag carrier Korean Air (KAL) and its competi tor, Asiana, are facing hefty end-of year losses, as die Soudi Korean economy slides into a recession and die value of die won continues to plummet against die US dollar. The South Korean Government in response is urging die carriers to restructure and reduce dieir debts. The Korean currency has slipped by more than 15% since die start of die year against the US dollar to reach almost Wl ,000 and is expected to slip by another 15% as the economic crisis deepens. Jason Kim, Asian-airline analyst widi securities house James Capel, says that, on these exchange-rate predictions, it is "virtually guaran teed" diat KAL losses for the year will exceed the W210 billion which it posted in 1996. Asiana also ended 1996 with a deficit of W54 billion after heavy exchange-rate losses. Cathay Pacific has already been severely marked down by analysts, following die collapse of passenger traffic to Hong Kong since the mid-year hand-over to China. Concerns are echoed by the Association of Asia-Pacific Airlines (AAPA), which represents 18 of die region's main carriers. In its latest annual review, director-general Richard Stirland warns that carri ers face an "extremely difficult period" over die next 12-18 months as die underlying econom ic problems rebound on lower business traffic, falling yields and rising competition. The prospect of in-bound tourism being stimu lated by weaker exchange rates has also been "dashed" by worldwide reporting of die "...haze blanket ing much of die region". The comments follow latest fig ures, showing diat AAPA members saw a collective 25% fall in operat ing profits for the financial year to March 1997. Net profits were down by more dian $400 million at $1.27 billion. Aldiough passenger trafficgrewby8.6%,aheadof6.3% capacity rise, die sharp fall in yields left sales virtually unchanged. Costs were also largely kept down, but airlines had to contend with an average 16.6% rise in fuel costs, worsened by a strong US dollar. • See Feature, P25 14 FLIGHT INTERNATIONAL 3 - 9 December 1997
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