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Thursday September 27th 2001 |
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Business this week September 27th 2001 From The Economist print edition The federal government agreed an aid package for America's airlines to protect them from the aftermath of the terrorist attacks on America which left cabins nearly empty. The airlines, most of which were in trouble before September 11th, were promised grants and loans totalling $15 billion, to be distributed by size rather than long-term health. See article: A business in search of customers Governments worldwide agreed to cover national airlines after insurers limited liabilities on third-party damage for similar terrorist incidents to $50m per aircraft. Many airlines said that they could not afford to fly unless governments intervened. Airlines responded to falling business by cutting staff and services. America's Delta Air Lines cut its workforce by 13,000, some 16% of the total, and reduced schedules by 15%. Italy's Alitalia announced that it would lay off 17% of its workforce and ground some planes. Air Canada said it would shed 5,000 staff and cut 20% of its schedule. KLM Royal Dutch introduced a surcharge on ticket prices and increased prices on fares to the Middle East. America's insurance industry, also hard hit, is likely to get help against the risk of future terrorist incidents. Lawmakers are considering legislation that would make the government the insurer of last resort in the event of further assaults. See article: Risk's new dimension Lloyd's of London, the insurance market, estimated that its net share of the insurance bill for the attacks would be £1.3 billion ($1.9 billion). This would be Lloyd's biggest-ever single loss. Profits at big investment banks are on the wane. Lehman Brothers said its profits were down by 32% in the past quarter compared with a year ago. Goldman Sachs reported a decline of 43%, Bear Stearns one of 26% and Morgan Stanley one of 41%. On the wane
America's economy appeared to be foundering. The Conference Board's measure of consumer confidence—only partly accounting for feelings after the terrorist attacks—fell sharply in September. Car makers said that they expected sales, an informal leading indicator, to fall by up to 20% in September compared with a year earlier. See article: Cheap, but not cheerful The IMF predicted further gloom for the world economy. In its World Economic Outlook it forecast global growth of 2.6% this year, down from a previous estimate of 3.2% six months ago. But this forecast was not updated to take account of the terrorist attacks on America. The IMF's chief economist, Kenneth Rogoff, suggested that a recession in America was a “done deal”, though he later withdrew the remark. European Union leaders decided that budget deficits should be allowed to rise above pre-agreed limits this year to cushion member countries as the world economy worsens. The European Central Bank said that this was within the terms of the “stability pact”, which is meant to penalise member countries that allow deficits to rise above 3% of GDP. GE force
Jeffrey Immelt, who succeeded Jack Welch as chief executive of General Electric in early September, forecast that profits this year and next would rise by 10% or more despite the terrorist attacks and the struggling world economy. He claimed that GE was “built to outperform” but noted that a large-scale war could harm the company's prospects. Kvaerner, a heavily indebted Anglo-Norwegian engineering company, teetered on the brink of bankruptcy. Banks agreed to extend short-term loans but the company's plans to raise some NKr2 billion ($230m) with a rights issue were met with little enthusiasm by investors. The company's shares lost 80% of their value over the past week. EMI revealed that pre-tax profits for 2001 would be down by around 20% compared with the year before; its shares responded by plummeting 35% in one day. The British music group, which failed to clear regulatory hurdles in merger attempts with both Bertelsmann and AOL Time Warner, looks an invitingly cheap target for a takeover. Advanced Micro Devices, the world's second-largest chip maker, announced that it would cut 2,300 jobs, some 15% of the total, after Gateway, a big PC maker, phases out its line using AMD's chips. Procter & Gamble, the world's leading consumer-goods company, abandoned a health-drink and snack joint-venture with Coca-Cola, the world's biggest soft-drink firm. After reconsidering the much-heralded deal, claimed as a trailblazer for the future of global distribution and marketing, the two firms decided to pursue separate strategies.
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