European Business News (EBN), 97-07-11

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From: The European Business News Server at <http://www.ebn.co.uk/>

Page last updated Fri, July 11 3:48 PM CET

CONTENTS

[01] BA calls for new talks as catering staff threaten new strike

[02] MCI Communications issues profit warning to BT

[03] German cabinet approves $10 billion extra borrowing

[04] Thyssen, Preussag to combine ship building operations

[05] UK frees GEC to buy Plessey's radar and defence system

[06] US June wholesale prices fall 0.1% compared to May

[07] European Union says that some leeway should be given to countries trying to meet the Maastricht criteria

[08] EU to widen first group of new entrants to six

[09] Steven Jobs is 'not interested' in taking over as Apple CEO

[10] World News Briefs

[11] Corporate and Economic Briefs

[01] BA calls for new talks as catering staff threaten new strike

The BA catering staff union, which rejected the sell-off plan by a vote of 551-178, will meet on Monday to decide whether to call their own 24-hour strike which could also involve check-in staff and baggage handlers. As the strike by cabin crew against newly-imposed pay structures and conditions entered its third day, the airline was anxious to avoid more strike woes.

Thousands of passengers have been stranded as hundreds of flights were cancelled since the 72-hour cabin crew strike, which began on Wednesday and will continue until early Saturday, started. Cabin staff are unhappy with BA's plans to cut 42 million pounds ($71 million) from its operating budget.

The Transport and General Workers Union (T&G) union said cabin crew were prepared to help the airline find the money, but they were not prepared to have new terms and conditions imposed on them. Union leaders said they wanted talks to solve both disputes.

'What we want to do is find a solution to the two problems,' Bill Morris, the general secretary of the T&G told the BBC early on Friday. 'The only way to do that is to get it across the table. That is why we are inviting the airline to come along with us to explore all the options to find a sensible and long lasting resolution to the problems we face,' he added. Morris said the catering staff rejected the offer because it didn't give them adequate protection and guarantees.

'Our members want more discussions about it. I don't think that is unreasonable,' Morris said.

BA said it expected to see continued improvement in flights on Friday after it increased its services by 25% on Thursday from Wednesday. But the airline expected disruptions to spill over into the weekend before services got back to normal.

[02] MCI Communications issues profit warning to BT

In response, British Telecommunications have said they can not rule out the possibility of re-negotiating its $24 billion merger with MCI Communications, but said speculation at this stage was premature.'At this stage we are simply looking at the figures and anything beyond that is premature,' a company spokesman said.

MCI Communications, which helped break up AT&T's Bell System monopoly more than a dozen years ago, said the Bells aren't complying with landmark legislation passed 17 months ago to open local markets to competition.

The long-distance carrier cited a number of what it called 'anticompetitive practices' by local phone companies. It noted that since passage of the Telecommunications Act of 1996, local phone companies have signed interconnection agreements with MCI in fewer than a third of the cases that have been arbitrated across the country. MCI, which has made hefty investments of more than $1 billion in local networks, had expected pretax losses to total $400 million this year, Davis said.

Now, however, the company is forecasting red ink of as much as $800 million, which could cut MCI's earnings by as much as 40 cents a share in the second half. Still, Davis said, MCI expects its results for this year's second quarter to align with analysts' estimates of 40 cents a share.

'This is a bomb, a major bomb,' said Blake Bath, telecommunications analyst at Lehman Brothers Inc., of MCI's announcement. He noted that analysts have been expecting MCI to earn between 80 cents and 85 cents a share in the second half. 'Now that number might be 30 cents to 40 cents,' he said.

MCI is counting on its purchase by United Kingdom giant British Telecommunications to even the score somewhat with the Bells, a transaction it hopes to complete by the fourth quarter. The combination will make BT- MCI the second largest carrier of long-distance traffic in the world next to AT&T and give MCI a tremendous boost in cash flow with which to wage war against the Bells. 'With BT they won't have to worry as much about near- term earnings,' Bath said.

[03] German cabinet approves $10 billion extra borrowing

Many economists say the added debt - part of a revised 1997 budget passed by the Cabinet - will make it difficult for Germany to qualify for the planned European currency by putting its deficit above the limit set for countries that want to be in the single-currency bloc. Kohl's government, however, insists the extra borrowing will not push Germany past the euro deficit limit.

Meanwhile, German finance minister Theo Waigel confirmed that the German government foresees a 1997 budget deficit of 3.0% of gross domestic product.

That's higher than the government's previous estimate of a 1997 deficit at 2.9% of GDP. The new prognosis exactly matches the Maastricht Treaty's reference value for countries to qualify for the launch of Europe's planned 1999 single currency. The treaty requires a budget deficit of no more than 3.0% of GDP, except in special and temporary circumstances, or when it is nearing that.

Germany now expects a deficit of 71.2 billion marks this year, compared to 53.3 billion in the original 1997 budget, according to official figures. Along with 1997 spending plan revisions, Kohl's Cabinet also approved a draft of the 1998 budget, government officials said.

Next year's budget calls for the deficit to drop to about 58 billion marks. Waigel's 1998 proposal allocates federal spending of 461 billion marks, with the most notable increases going toward interest payments, pension fund subsidies and preparations for the government's planned move to Berlin in 1999 and 2000.

Waigel stressed that the 3.0% deficit limit is attainable in 1997. 'The estimates of the economic institutes have swung up to 3.2% recently,' Waigel said. 'I believe the deficit will be less than 3.2% (of GDP), and that 3.0% is reachable.'

Waigel in Bonn announced his proposal for the 1998 budget and a 1997 supplementary budget, as well as the country's financial plan until the year 2001. The details matched those leaked yesterday by a government official.

[04] Thyssen, Preussag to combine ship building operations

But a Thyssen spokesman said that there is no clearly defined goal on changing the structure of company holdings.

He added that talks will take place between the two companies' managing boards, and these are set to begin next week.

An earlier report had said that the merger would create the largest German ship building company, with about 6,500 employees and annual sales of about 3.5 billion marks ($1.9 billion).

The article quoted a Thyssen spokesman as saying the companies are aiming for 'an intensive cooperation' and a change in the structure of company holdings. There were no specific details.

In the planned company, Thyssen will bring in its subsidiaries Blohm & Voss and Thyssen Nordseewerke. Preussag will integrate Howaldtswerke-Deutsche Werft into the new company, the article said.

In the medium term, there are no plans to reduce employees, the newspaper reported. The venture is aimed more at Thyssen and Preussag complementing one another's ship building operations rather than canceling out any overlapping activities.

[05] UK frees GEC to buy Plessey's radar and defence system

UK based GEC bears no relation to the General Electrical Company of the U.S. These restrictions were put in place in 1989 after GEC and Siemens of Germany acquired Plessey.

UK competition authorities raised concerns at the time that the acquisition had implications for competition in defence radar, military communications and traffic control equipment, as well as potential risks for national security.

However, the DTI cleared the deal after both GEC and Siemens gave undertakings that they wouldn't try to influence Plessey's management of these businesses.

President of the Board of Trade Margaret Beckett said that circumstances in the defence industry and the traffic control industry have changed sufficiently that it was no longer appropriate to maintain restrictions on GEC beyond the normal consideration to which they would be subject under competition legislation.

However, separate restrictions regarding national security requirements and access to technology and licenses for the production of joint tactical information distribution systems equipment remain in force.

[06] US June wholesale prices fall 0.1% compared to May

Excluding volatile food and energy costs, wholesale prices rose 0.1% last month after a 0.3% decline in May.

Reacting to the news, the dollar was down slightly. At 1236 GMT, the dollar was quoted at 1.7604 marks and 113.70 yen, compared with 1.7615 marks and 113.76 yen just before release of the indicator.

And US Treasurys rose slightly but retreated quickly early Friday following the release of government data showing that wholesale prices fell in June.

Energy costs turned up last month, rising by 0.7 percent, after declining steadily for much of this year. Gasoline prices rose unexpectedly, although heating oil costs dropped, by nearly 6%. Prices of a variety of other products also rose modestly last month. Car prices increased by 0.3 percent, tobacco gained 0.1% and alcoholic beverage prices were up 0.5%. Computer prices, which have been falling steadily, also rose in June, by 0.6%, after a steep drop in May.

The producer price report showed there is little in the way of inflation in the pipeline. Prices of intermediate goods, which are used to make finished wholesale products, were unchanged in June. Prices of crude goods, materials at the start of the production process, fell by 3.3% .

[07] European Union says that some leeway should be given to countries trying to meet the Maastricht criteria

Speaking to a newspaper, De Silguy repeatedly refused to rule out countries with budget deficits above Maastricht targets as not fit for economic and monetary union.

''For me, there are no doubts about the timetable,'' De Silguy said, adding that he wants a ''strict, but not stupid'' interpretation of Maastricht. The treaty allows for interpretation as long as countries are making progress in the right direction, he said.

The commissioner's comments come as Germany and France, among others, struggle to meet the criteria, especially the budget deficit-gross domestic product ratio of 3.0%.

Asked if he could rule out EMU participation of a country with a deficit- GDP ratio of 3.5%, he said ''I can't answer for one criteria without all the elements.... But I can say we have to be close to the treaty reference value.''

Delay of EMU, set to begin in 1999, would be a ''catastrophe.'' Equally, though, he said EMU entry criteria must be applied strictly enough because ''we cannot take risks with the credibility of the euro.

''Each day we have a problem,'' he admits, ''but then we solve the problem.''

[08] EU to widen first group of new entrants to six

The first group of six entrants has become bigger than initially expected because EU Enlargement Commissioner Hans van den Broek has convinced the 20- member EU executive to include Estonia and Slovenia.

The formal decision to open membership talks will be made by the EU leaders at a summit in Luxembourg in December. Missing out on the first round of expansion will likely be Slovakia, Romania, Bulgaria, Latvia and Lithuania, countries deemed unready for membership, 'either politically or economically, or both,' said one official who asked not to be named.

These countries will be promised an annual review of their membership applications, added the official. Still undecided was the fate of Turkey which applied to join in 1987. The EU said in 1989 Turkey was not ready for membership. It suffers from an economy incompatible with the EU's, a dubious human rights record and a fractious political system of secular and Islamic parties.

In addition to recommending countries with which the EU should open membership negotiations, European Commission President Jacques Santer will unveil detailed proposals on July 16 to reform the EU budget as a whole, EU farm spending and aid programs to poor regions. Reforms in these areas are considered crucial to a successful expansion of the union.

Of no less importance will be the ability of current EU members to reform EU institutions before new members join. That issue was left unresolved at a mid-June EU summit in Amsterdam where the leaders squabbled over sharing out votes among big and small members in a bigger union.

[09] Steven Jobs is 'not interested' in taking over as Apple CEO

Gilbert Amelio's abrupt resignation as Apple chairman and chief executive officer on Wednesday fanned speculation that Jobs might succeed Amelio.

'At this point in time, Steve has indicated he does not want to be considered for the CEO job,' Edgar Woolard, chief executive officer of DuPont and a member of the Apple board, told the business cable TV channel.

[10] World News Briefs

Northern Ireland's main Protestant fraternal group yesterday cancelled or rerouted several parades that threatened to trigger street violence versus Catholic protesters. The Orange Order wanted to parade through a Catholic section of south Belfast, the mainly Catholic city of Londonderry and two other Catholic towns as part of its annual pro-British celebrations across Northern Ireland.

Bosnian Serbs boosted security for their senior officials Friday to forestall any more efforts by NATO-led peace forces to seize war crimes suspects. Bosnia was reportedly calm a day after British soldiers grabbed three people, including one indicted suspect, and killed another suspect who resisted arrest. Serbs were angry about yesterday's mission in northwest Bosnia but said they would maintain contacts with international officials. During the mission, a NATO-led peace force captured one Serb, Milan Kovacevic, and killed another, Simo Drljaca. Both men had been indicted on war crimes charges by a United Nations tribunal.

In a show of bravado belying Cambodia's desperate economic plight, leaders of the bloody weekend coup dismissed cutoffs in international aid as unimportant. Meanwhile, thousands of Khmer Rouge guerrillas insisted they will stay neutral in fighting between coup leader Hun Sen's forces and the co-premier he deposed, Prince Norodom Ranariddh. The United States announced a temporary halt in its $25 million in aid to Cambodia. Japan and Germany have already cut aid.

[11] Corporate and Economic Briefs

MEMC Electronic Materials is investing about $250 million to expand its production capacity and accelerate development of its 300mm diameter wafer. In a press release, the silicon wafer producer said it started construction in June on a 11,000-square-meter facility adjacent to its plant in Utsunomiya, Japan. MEMC said it expects to commence operations in mid-1998.

The Philippines unnerved currency markets in Asia after it caved in to unbearable pressure and effectively devalued the peso.

Another marginal improvement in the gold price is being celebrated with considerable fervor on the Johannesburg Stock Exchange, with gold stocks leading the way higher in early trading. Industrial stocks are continuing to bask in the gold sector's reflected luster, with stock-picking pushing several blue chip issues higher.

From the European Business News (EBN) Server at http://www.ebn.co.uk/

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