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AirAsia interested in potential Airbus A321neo freighter

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November 3, 2021

By Liz Lee

KUALA LUMPUR (Reuters) -Malaysia’s AirAsia Group Bhd is in talks with Airbus SE about its interest in the manufacturer developing a new freighter version of its A321neo passenger plane, the head of its logistics arm said on Wednesday.

AirAsia would seek to convert a “meaningful chunk” of its 362 orders for the passenger version of the A321neo narrowbody to a dedicated freighter, said Pete Chareonwongsak, CEO of AirAsia logistics division Teleport.

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“For a lot of the markets that we need to reach both in range but also in capacity, it’s a great product,” he told reporters of the potential freighter. “Would we be the launch customer? I don’t know. We’ll see.”

Chareonwongsak cited reports https://www.bloomberg.com/news/articles/2021-10-18/jd-logistics-goes-shopping-for-planes-to-tap-air-freight-demand that China’s JD Logistics Inc plans to have a fleet of 100 freighters by 2030 as an example of the scale that AirAsia could seek in its cargo business as it focuses on growth in e-commerce.

“We think that Southeast Asia, if we focus on this market, can absorb that level of capacity,” he said.

Airbus had no immediate comment.

Industry website Leeham News in August reported Airbus was in talks with customers about a new freighter version of the A321neo.

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Airbus in July announced plans for a freighter version of its A350 widebody jet, in a challenge to Boeing Co’s longstanding dominance of the market for dedicated cargo planes.. Boeing is also expected to launch a freight version of its 777X big jet soon, with Qatar Airways and FedEx seen as potential launch customers, market sources say.

In the narrowbody market, older versions of the A321 and 737 passenger planes are being converted into freighters but there is no new-build freighter plane on offer.

DEMAND DILEMMA

Airbus has looked at the possibility of offering new A320-family freighters in the past. In 2007, for example, Belgian express carrier TNT talked to Airbus about launching such a programme with a large order, Flightglobal reported at the time.

But since then demand for the passenger version of the A320 family has soared and Airbus faces little or no pressure to win freighter sales to add volume, industry sources cautioned. It is debating instead how to manage existing production demands.

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Any new product would also have to overcome the hurdle of justifying a $2 billion or so investment with fresh demand, without simply displacing existing orders for jetliners.

“It is better to facilitate the passenger-to-freight conversion market,” one industry source said.

The coronavirus crisis has nonetheless shed light on opportunities for narrow-body freight traffic as airlines shipped goods using passengers jets as temporary freighters.

Teleport on Wednesday launched its first 737-800 freighter to be based in Bangkok. It plans to grow the fleet to six planes by 2023, Teleport Chief Operating Officer Adrian Loretz said.

Teleport is in talks with investors to raise $50 million to $100 million by the end of the year and would look to list as a separate company in three years, Chareonwongsak said.

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The division, which also carries cargo in the belly of AirAsia passenger planes and has a food and parcel delivery business, is aiming for $1 billion of annual revenue within three years, he added.

(Reporting by Liz Lee in Kuala LumpurAdditional reporting and writing by Jamie Freed and Tim HepherEditing by Kim Coghill and Mark Potter)

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Investors brace for potential hit to earnings because of Omicron

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December 6, 2021

By Caroline Valetkevitch

NEW YORK (Reuters) – As details of a new COVID-19 variant emerge, investors are bracing for a potential hit to U.S. corporate earnings, particularly among retailers, restaurants and travel companies.

News of the Omicron variant comes in the middle of the holiday shopping period, and many businesses are already struggling with higher inflation and supply chain snags because of the pandemic.

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That is putting the focus again on these companies affected by the reopening of the economy, said Kristina Hooper, chief global market strategist at Invesco in New York.

“Are we still going to see traffic into restaurants and retailers, or at least retailers that derive most of their revenue from in-store traffic as opposed to online?” she said. “The other area of vulnerability of course is supply chain disruptions.”

She and other strategists said it’s too early to tell the extent to which the variant could affect earnings.

The Omicron variant that captured global attention in South Africa less than two weeks ago has spread to about one-third of U.S. states, but the Delta version accounts for the majority of COVID-19 infections as cases rise nationwide, U.S. health officials said on Sunday.

Goldman Sachs on Saturday cited risks and uncertainty around the emergence of the Omicron variant as it cut its outlook for U.S. economic growth to 3.8% for 2022. While the variant could slow economic reopening, the firm expects “only a modest drag” on service spending, it said in a note.

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U.S. companies have just wrapped up a much stronger-than-expected third-quarter earnings season, and the rate of fourth-quarter earnings year-over-year growth has been expected to be well below the previous quarter’s.

Analysts see fourth-quarter S&P 500 earnings up 21.6% from the year-ago quarter, while third-quarter earnings growth was at about 43%, according to IBES data from Refinitiv.

That fourth-quarter forecast has not changed since Nov. 26, just after the new variant became headline news.

Omicron may be affecting travel plans. Airline shares have already come under pressure, with the NYSE Arca airline index down 8.3% since the close of the session before Nov. 26.

For companies, “the significance of the impact will depend on how long the Omicron measures last,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia. “There will be some short-term impact… It’ll surely cause some short-term disruption to travel.”

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Colin Scarola, a vice president of equity research at CFRA, wrote in a Dec. 2 note on the airline sector that while details of the variant are still emerging, trends in U.S. air travel over recent months with the Delta variant may give some insight into what could happen to travel under the Omicron variant.

“This recent history tells us that most people have already accepted the material risk of infection with a Covid-19 variant when fully vaccinated. But knowing that risk of severe illness remains very low, they’ve been comfortable flying on airplanes,” he wrote.

Compounding concerns about the 2022 earnings outlook are higher costs for companies, with Federal Reserve Chair Jerome Powell last week signaling that inflation risks are rising and numerous companies citing rising costs during the third-quarter earnings season.

Even before the Omicron news, Tuz said investors were reading “more and more about inflation and wages and other inputs,” and that was expected to continue into 2022.

“I don’t know if the ability to pass along these higher costs is going to exist as much,” he said.

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(Reporting by Caroline Valetkevitch; Editing by Alden Bentley and Nick Zieminski)

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Bank investment chiefs signal China and emerging market caution

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December 6, 2021

LONDON (Reuters) -Market volatility and uncertainty over China’s indebted property sector is making bank investment chiefs cautious about its assets, amid more general nervousness about broader emerging markets.

“I would take a wait-and-see approach on emerging markets,” Credit Suisse global chief investment officer Michael Strobaek told the Reuters annual Investment Outlook Summit.

“I would take a day-by-day, week-by-week approach to China, to see what’s unfolding on the default side and the policy side,” he said, referring to problems in the country’s giant corporate debt sector.

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“Only if I see real deep opportunities, I’d go back in.”

Willem Sels, Global CIO, Private Banking & Wealth Management, HSBC, said clients needed to take a longer term view on emerging markets after many were hurt by recent volatility.

“We have a neutral view on China, we try to diversify,” he said.

“We try to get the confidence of investing in China. We try to align ourselves with what is clear in terms of government policy, and that’s the net zero transmission.”

Investors can still “find some winners” in China by digging down into areas like green tech and 5G-related businesses where the government was showing significant support, said Mark Haefele, CIO at UBS Global Wealth Management.

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(Reporting by Tommy Wilkes, Sujata Rao and Dhara Ranasinghe; Editing by Alexander Smith)

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IMF says euro zone should keep supporting economy, high inflation is temporary

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December 6, 2021

BRUSSELS (Reuters) – Euro zone governments should continue to spend to support the COVID-19 economic recovery, though in an increasingly focused way, and consolidate public finances only when it is firmly under way, the International Monetary Fund said on Monday.

In a regular report on the euro zone economy presented to the group’s finance ministers, the IMF noted, however, that while consolidation itself could wait, a credible way of how it would be done in the future should be announced already now.

“Policies should remain accommodative but become increasingly targeted, with a focus on mitigating potential rises in inequality and poverty,” the IMF said.

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“Fiscal policy space should be rebuilt once the expansion is firmly underway, but credible medium-term consolidation plans should be announced now,” it said.

The Fund also noted that the rise in inflation, which hit a record high of 4.9% on a year-on-year basis in November, was temporary and, therefore, not a big threat because it did not translate into a spike in wages, called a second-round effect.

“Recent inflation readings have surprised on the upside, but much of the increase still appears transitory, with large second-round effects unlikely,” the report said, adding that the European Central Bank’s monetary policy should therefore continue to be accommodative.

“Structural reforms and high-impact investment, including in climate-friendly infrastructure and digitalization, remain crucial to enhancing resilience and boosting potential growth,” the IMF said.

(Reporting by Jan Strupczewski; Editing by Paul Simao)

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