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Aviation History
2003
2003 - 0495.PDF
BUSINESS ANALYSIS ALEXANDER CAMPBELL/ LONDON Second-tier suppliers ride storm Results show Europe's smaller manufacturers faring better than primes in downturn, boosted by defence spending Europe's second-tier aerospace con tractors appear to be weathering the industry downturn better than their larger counterparts. Although many smaller manu facturers have been hit by the slump in civil aircraft deliveries, a series of results suggest that govern ment spending on defence and the growing security market have helped offset the downturn. Second-tier suppliers benefit from the fact that they incur less risk on major programmes. While they lack the multi-billion dollar contract wins of the primary manufacturers, they are also less likely to suffer crippling losses in a downturn. With cash flow from the military and security markets fairly secure, analysts predict there will be more consolidation among the second- tier suppliers. Ultra Electronics of the UK main tained profits and sales growth in 2002 on the back of several defence contracts. The company's revenue rose by 9% to £260 million ($414 million) and pre-tax profit was up by 11% to £30 million. French manufacturer Sagem saw revenues fall slightly, but sales of avionics and security products were up: avionics and Optronics sales rose 7% to €443 million ($476 mil lion), and security was up 37% to €343 million. Meanwhile, Netherlands-based Stork saw little change in aerospace revenues, which are down to €411 million from €421 million in 2001. However, the company was hit by the termination of the Fairchild Domier 728 regional airliner pro gramme, forcing it to make a major one-off provision against its con tract to supply the wiring system. TRADE SANCTIONS Tax dispute threatens US exports Aerospace companies could be among the victims of the US tax haven dispute as the European Union (EU) prepares a final tar get list for punitive sanctions. The list has not yet been pub lished - it needs to be cleared by EU member states - but alu minium is believed to be one of the products set to be subject to punitive tariffs, which could be set as high as 100%. However, other aerospace products are likely to be exempt after Airbus lobbied the EU not to harm US companies which also supply the European manu facturer (Flight International, 15-22 October 2002). The dispute stems from a 30- year-old tax loophole that has, the World Trade Organisation (WTO) believes, given US exporters a $4 billion advantage over their European rivals. The WTO judged in favour of the EU last year and cleared the Europeans to impose sanctions. EU trade commissioner Pascal Lamy is in Washington this week to discuss the issue, but despite the appeals of US trade representative Robert Zoellick to Congress last week to comply with WTO rules, Capitol Hill is wary of raising taxes on troubled manufacturers such as Boeing. RESTRUCTURING KAREN WALKER / WASHINGTON DC US majors slip deeper into crisis as labour cost-cutting moves slowly Fears continue to grow for the future of American Airlines and United Airlines as desperately needed cost cuts at both airlines remain slow in coming. Speculation that American could follow United into Chapter 11 bankruptcy protection later this year were further fuelled last week by a leaked study, apparently con ducted on behalf of the carrier's pilots' union, saying American may run out of cash by the end of May. The Allied Pilots Association (APA) and American dismiss the report. However, the airline has lost $5 billion over two years and con tinues to lose $5 million a day, a situation chief executive Don Carty admits is "unsustainable". While American says negotia tions with labour groups aimed at saving an additional $1.8 billion are "going well", the carrier must act fast to avoid bankruptcy. United, meanwhile, is wading through the Chapter 11 process. Negotiations with union groups continue to be difficult, prompting some in the financial community to speculate that the carrier might ultimately be liquidated. Some welcome the prospect, highlighting that United's liquida tion would be a windfall for American. "While a Chapter 7 filing [for liquidation] by United will not solve all the airlines' problems overnight, it could put them on a path to recovery," says There is speculation that American could follow United into Chapter 11 JP Morgan's Jamie Baker. A union-leaked document pur porting to be United's restructuring plan, called the Plan For Transformation, calls for the cre ation of a low-cost carrier compet ing head-to-head with Southwest Airlines and operating 134 narrow- body aircraft. It also aims for several billion dollars more cost savings through additional labour concessions and renegotiated contracts with regional affiliates, and scrapping current pilot scope clauses. • US Airways pilots may strike if the bankrupt carrier replaces its current pension account with a less expensive plan. The airline aims to eliminate the current pension plan, which is underfunded by $1.6 bil lion, and invest $850 million in an alternative plan over the next seven years. The carrier insists it needs to resolve the problem to receive crucial financing and emerge from bankruptcy at the end of March. The Air Line Pilots Association (ALPA) says such a move "would give us the right to strike". US Airways responds that the union was "woefully misinformed". US | bankruptcy court judge Stephen | Mitchell is expected to rule on the | pension plan issue within days. i ADDITIONAL REPORTING BY MARY KIRBY IN WASHINGTON DC 20 4-10 MARCH 2003 FLIGHT INTERNATIONAL www.flightinternational.com
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