Aurelia Butler

PARIS (Reuters) – Global aircraft leasing faces a new shake-up this week after SMBC Aviation Capital’s deal to buy smaller rival Goshawk Aviation for $6.7 billion.The move comes as firms report a stronger than expected U.S.-led recovery — but one increasingly overshadowed by inflation, rising borrowing costs and the effects of the conflict in Ukraine.SMBC’s deal puts it in the no.2 industry spot globally, leapfrogging Dublin-based rival Avolon, behind AerCap.The long-awaited agreed takeover of Goshawk, which was confirmed by the company on Monday after a Reuters report last week, could increase pressure on smaller rivals to follow suit as funding costs rise with higher interest rates, analysts said.”It means only the biggest and strongest lessors can compete at the levels you need to compete at to win,” consultant Paul O’Driscoll of advisory firm Ishka, told Reuters.Leasing companies now control more than half the world’s fleet of aircraft and bankers say private equity firms are also hovering over at least one lessor as the industry matures.SMBC Chief Executive Peter Barrett, among the crop of leaders that emerged to run the Dublin-led aircraft leasing industry from the roller-coaster empire of Irish tycoon Tony Ryan, has said he expects the industry’s growth to continue.Speaking at the Airfinance Journal conference in Dublin two weeks ago, Barrett told delegates that a series of industrial and economic crises would reshuffle the deck.He did not address longstanding rumours of a tie-up with Goshawk at the event, one of a pair of back-to-back conferences in the world’s air leasing capital.”You need the motivation of sellers and that is going to change, also because of increased funding costs. That’s going to be a factor in whether owners hold these assets or trade them,” Barrett told the conference.SMBC declined further comment on the Goshawk deal after Monday’s announcement.AerCap Chief Executive Aengus Kelly, who shook up the industry by buying ILFC in 2013 and then GECAS last year to secure the no.1 spot, says size brings increased clout in crucial negotiations with repair shops and jetmakers.”You’re just at a different level to the rest of the industry,” Kelly told last week’s Airline Economics conference.”No one wants to do consolidation just to get bigger for the sake of getting bigger… but I would say it’s going to be something that will happen over time.” Leasing pioneer Steven Udvar-Hazy, however, warned against deals for their own sake.”It’s not going to change the total worldwide need for aircraft. It’s just a redistribution of who’s supplying those aircraft to the airlines,” the executive chairman of U.S.-based Air Lease (NYSE:AL) Corp said.”We’d rather add more airplanes than more staff and more bureaucracy…So we’ll continue to look at it and if there’s a golden opportunity will grab it,” he said.HIGHER LEASE RATES, FARESAfter a two-year absence during the coronavirus pandemic, delegates at the Dublin conferences trumpeted rising demand.The speed of the U.S. recovery in air travel has defied expectations, flouting amber warnings from higher interest rates to inflation, high oil prices and geopolitical risk.For now, there are shortages of key aircraft after Boeing (NYSE:BA)’s two-year 737 MAX safety grounding, then COVID-19 and most recently the confiscation of hundreds of planes in Russia.Even wide-body jet markets are seeing more tightness after years of oversupply, Kelly told analysts on Tuesday.Lessors warned airlines they were ready to pass on higher funding costs, which for travellers means higher ticket prices.”The lessors after many years have leverage over lease rates,” said Marjan Riggi, senior managing director for corporate aviation at Kroll Bond Rating Agency.But whether and how quickly inflation and lower disposable incomes could come back to bite the industry is unclear.David Power, special adviser to Aergo Capital and former chairman of Orix (NYSE:IX) Aviation, sees inflation as a hangover from years of central bank stimulus, but still reasonably manageable.”Growth is the cause; inflation is the effect. And the other reason for inflation is massive liquidity put into the system at a very low interest rates,” he told the Airline Economics event.Others fear that could trigger recession and cut traffic. Leasing veteran Norman Liu, who built GECAS out of the ruins of Ryan’s leasing empire in the 1990s, warned financiers over a return to growth-free inflation and questioned how long the travel snapback would last.”While everyone’s talking about a great summer for travel, when you talk to people about the fall…do we get into travel not being a novelty anymore?,” Liu said at the Airfinance Journal conference.”In the stagflation environment, what does that mean for the industry?” Liu added. More

“What we need to see is inflation coming down in a clear and convincing way and we’re going to keep pushing until we see that,” Powell said at a Wall Street Journal event. “If we don’t see that we will have to consider moving more aggressively” to tighten financial conditions. The Fed will not hesitate to move beyond a neutral policy, if needed, he said. COMMENT:IAN LYNGEN, HEAD OF U.S. RATES STRATEGY, BMO CAPITAL MARKETS, NEW YORK“One of the biggest takeaways from our perspective, and this is why we’re seeing the front-end of the (Treasury) market sell off, is he observed that neutral rates do not represent a stopping or looking around point. So, we’ve always known that neutral is very difficult to estimate, and so the idea that the Fed was going hike a while and then pause and look around was out there, and it was on the table, but he just told us that isn’t going to occur. Now this is very consistent with what we’ve seen in the past, which is once the Fed starts hiking, they continue to hike until something breaks. Now the question becomes is what we should be looking at as a potential break the equity market? is it credit? is it housing? I think that’s going to be this cycle’s big unknown. It’s clearly not the equity market given the price action so far year-to-date and Powell effectively said we’re going to continue hiking until inflation eases.”“I think it was confirmation that they’re going 50 and 50 in June and July … and the big question is whether they will go 50 in September, that is the unknown.” More

FRANKFURT (Reuters) – European Central Bank President Christine Lagarde has given national central bank chiefs a bigger say in policy meetings, asking her own board to speak less and set aside more time for debate, sources familiar with the process said.Lagarde has told chief economist Philip Lane and fellow board member Isabel Schnabel to limit their presentations and leave more space for the central bank chiefs of the euro’s 19 countries to air their views, six sources told Reuters.Marshalling consensus among different countries has always been a tricky task for the Frankfurt-based central bank and complaints about the structure of the meetings, where a few voices typically dominate, predate Lagarde’s tenure.Such criticism has grown since last summer as Lane and his staff repeatedly underestimated the size and duration of inflationary pressures. The surge in prices, which some ECB policymakers warned were persistent, eventually prompted the central bank to change tack and open the door to higher interest rates this year.Lagarde has now decided to limit board member presentations to 20 pages and told staff to wrap up seminars by lunchtime on the first day of the ECB’s policy meeting, the sources said.On top of that, the two-day policy meeting now starts on Wednesday morning rather than the afternoon and the Thursday session begins 30 minutes earlier than previously, all with the aim of leaving more space for debate, the sources said.The changes, which have not previously been reported, were already in use at the April 14 meeting.”We are now providing more comprehensive analysis in supporting documents prior to the meeting so that presentations can be more concise to avoid repetition,” an ECB spokesperson said. “By starting meetings earlier, the Governing Council has given itself more time to reach a shared assessment of the economic outlook and take collective monetary policy decisions.” As the person who oversees economic forecasts and the author of policy recommendations at the ECB, Lane’s presentations and proposals are the centre piece of its policy meetings, which include an informal dinner on the Wednesday evening attended by the national bank chiefs and the six ECB board members.Before the changes where introduced, some of Lane’s presentations ran to over 60 pages, three of the sources said, leaving little time for discussion.Although the new directive also applies to Schnabel, the other board member who addresses the meeting and who is head of the ECB’s market operations, her presentations on financing conditions tend to be relatively short, three sources said.Lane, who had inherited the meeting structure from his predecessor under Mario Draghi’s presidency, has recently been sending briefing materials to governors ahead of meetings, freeing time for others to speak.He declined to comment for this story.Inflation in the euro zone is currently nearly four times the ECB’s target and may not fall back below 2% for years, according to a host of public and private sector projections.Some policymakers had publicly warned that price surges could be bigger and more durable than the ECB predicted and disputed Lane’s view that the record jump would ease without tougher action. Some policymakers said privately they felt the contrasting views were given short shrift by Lane.”Philip has an oversized voice in the discussion so it’s good to balance that out,” one of the sources said. None of the sources wished to be identified due to the sensitivity of the matter.Lane and all other ECB policymakers who have spoken in public have now recognised that high inflation was here to stay at least until next year and rate hikes are likely needed.JOACHIM?In what one source saw as a possible change of approach at the April policy meeting, Lagarde called on Bundesbank chief Joachim Nagel in the early exchanges of the debate, even though Nagel had not yet appeared to ask to speak.Nagel, who started on the job in January, has repeatedly called on the ECB to curb stimulus and raise rates several times this year as high inflation, now at 7.5%, was at risk of getting entrenched.”Lagarde said ‘I think Joachim wanted to say something,'” one of the sources said.The ECB has acknowledged errors in its inflation projections but has noted that other forecasters looking at the euro zone were similarly wrong and errors in “conditioning assumptions”, particularly for energy prices, accounted for three-quarters of the mistake.Other central banks including the U.S. Federal Reserve and the Bank of England have also failed to predict the recent price surge which has been stoked by successive waves of the coronavirus pandemic and Russia’s invasion of Ukraine. However, both were quicker to admit that inflation is not as transitory as once hoped.The errors in the ECB’s forecasts forced the bank into an unprecedented policy pivot, with Lagarde first saying that a rate hike this year is highly unlikely, then just months later cementing expectations for a move around mid-year.Frustration that the bank had to switch gears so abruptly and as well the format of debate at policy meetings have prompted some policymakers to leak details of the policy meetings, the sources said.”Christine (Lagarde) is really annoyed by the leaks and this is another step in trying to stop them,” one of the sources said.When she took office in late 2019, Lagarde pledged to make the policy-making process more inclusive after the fractious final months of Draghi’s presidency – when a number of policymakers vocally opposed policy decisions.Her move to restructure meetings is seen as part of this commitment.Shortening presentations in favour of discussion brings the ECB closer into line with the practices of other central banks, including the Fed. More

Rishi Sunak has stepped up his warnings to Britain’s oil and gas industry that unless companies announce increased investment plans for the UK “soon” they face a potential windfall tax on their profits.The UK chancellor is under pressure from his political opponents — and some prominent members of his own Conservative party — to impose a one-off levy on energy groups, which have seen profits soar thanks to the higher price of gas. On Tuesday Labour used a debate on the recent Queen’s Speech to force a Commons vote on whether to impose a windfall tax — an opposition move designed to highlight the government’s reluctance to impose one. The vote was lost by 310 to 248.Although the motion was not supported by a single Tory MP, there is disquiet on the Conservative benches that the government has not convinced the public that it is doing enough to tackle the cost of living crisis. According to a new YouGov poll, some 72 per cent of Britons think the government is handling the economy badly.

For months Sunak has resisted the idea of a windfall tax, arguing that it could deter investment in the North Sea at a time when the government wants to enhance UK’s energy security. Yet in recent weeks, as companies have smashed analysts’ profit forecasts, the chancellor has shifted his language. Now he has made clear that unless companies such as BP and Shell lift their investment targets for the UK beyond existing plans, he will hit them with a levy. The funds raised could be used to help alleviate the growing cost of living crisis. Ed Miliband, Labour’s shadow energy secretary, told the House of Commons that Sunak’s resistance to a levy did not make sense given that previous Tory governments had levied windfall taxes. Margaret Thatcher’s Conservative administration raised taxes on the oil and gas sector in the 1980s, and hit banks with a windfall levy in 1981. “However large the crisis, however huge the windfall, taxation should not change?” Miliband asked. He also cited several prominent figures who have backed the idea. They included Lord William Hague, former leader of the Conservatives, Lord John Browne, one-time chief executive of BP and John Allan, chief executive of Tesco. “The usual leftie suspects,” Miliband joked.Sunak told MPs he would take a “pragmatic” approach to the issue. “What we want to see are energy companies who have made extraordinary profits at a time of acutely elevated prices, investing those profits back into British jobs. Growth and energy security,” the chancellor said. “But as I have been clear, and as I have said repeatedly, if that doesn’t happen soon and at significant scale, then no option is off the table.”The chancellor said it was “irresponsible” to suggest he had not taken action to help people with the rising cost of living, as inflation has soared.He told MPs that the government had cut fuel duty, given a council tax rebate to millions, cut the taper rate on universal credit and increased the warm homes discount. “This government has always acted to protect this country at times of challenge,” Sunak said.

But he added that the causes of rising prices were global in nature and that “no honest chancellor” could tell the public that they would not rise further. “There is no measure any government can take, any law you can pass, that can make those global forces disappear overnight.”Household energy bills in Britain are expected to remain high, despite proposals by the regulator Ofgem to review the country’s energy price cap every three months so any decreases in wholesale prices can be passed to consumers faster. Energy consultancy Cornwall Insight said on Tuesday that it expected the price cap to rise by more than £600 when it next changes in October, to more than £2,600 a year per household on average. Mel Stride, chair of the Treasury select committee, said on Monday he believed “there is a case” for a windfall tax.Robert Halfon, chair of the education select committee, said he would abstain on Tuesday’s vote. He said the government should consider a windfall tax, arguing that oil companies “are not passing the [fuel duty] cuts to the pumps, [and] they take ages to reduce the price when the international cost falls”. Meanwhile Kwasi Kwarteng, business secretary, wrote to petrol retailers urging them to pass on the recent 5p-per-litre cut in fuel duty to customers as soon as possible.Kwarteng said in his letter that the government has asked the Competition and Markets Authority, the regulator, to ensure that the industry is not “infringing competition or consumer law”.After the Commons vote, Jenny Stanning of trade body Offshore Energies UK said the Treasury was predicted to take £5bn more from oil and gas companies than it expected last October, due to the high global price and high tax rate.“Offshore oil and gas companies are already taxed at 40 per cent, double that of the UK’s other industries,” she said.“A windfall tax risks harming investment, which would lead to less home-produced energy, a drop in investment into green energies and a big hit to jobs.”Additional reporting by Nathalie Thomas More

(Reuters) – A joint venture between Lockheed Martin Corp (NYSE:LMT) and Raytheon Technologies (NYSE:RTX) Corp has been awarded two contracts worth $309 million by the U.S. army for its Javelin missiles, the antitank weapon that has helped Ukraine fight Russia’s invasion, Lockheed said on Monday.The Javelin missiles are made jointly by Lockheed and Raytheon (NYSE:RTN)’s missile unit.Demand for Javelin missiles remains high as the war in Ukraine worsens, where they were used to stop Russian tanks from advancing on the capital, to an artillery battle in Ukraine’s east.So far, the United States has sent more then 5,500 Javelin systems to Ukraine.The defense contractor added that the contracts include more than 1,300 Javelin missiles funded from the recent Ukraine Supplemental Appropriations Act and orders for several international customers including Norway, Albania, Latvia and Thailand.Lockheed also said that it is working to increase its missile production rate beyond the current 2,100 per year. More

Growth in the range of 2.5% to 3% is “fast compared to the long run potential rate of growth for us,” which may be just below 2%, Bullard said in comments that appeared to downplay possible recession risks from tighter Fed monetary policy. “That’s where we are…U.S. labor markets are super strong…Household consumption is expected to hold through this year.”People “want to put the pandemic behind them and they have lots of plans about spending,” Bullard said in comments to an energy investor conference. Retail sales rose faster than expected in April and were revised higher for March, showing U.S. consumers sloughing off the impact of the highest inflation in 40 years, and showing no signs of cutting back in the face of rising interest rates. Bullard said Fed plans to continue raising the target federal funds rate by half a percentage point in coming meetings remained “a good plan” to bring inflation down, and said the Fed hoped that could be accomplished with “the least amount of disruption we can get.” More