Fuel suppliers demand airlines pay cash in advance

From The TimesMay 26, 2008

Carl Mortished and Amanda Andrews
Airlines are being forced to pay cash in advance for jet fuel as the major oil companies tighten the screws on an industry that is being crushed by an extraordinary surge in the price of crude oil.

Sources within the airline industry indicate that credit is being denied to most of the leading American carriers and the practice is moving to Europe and Asia. So uncertain is the cash solvency of the industry that jet fuel suppliers insist on prepayments into special bank accounts.

A credit controller at a leading European multinational oil company told The Times that the oil industry was moving to jet fuel prepayment. “It’s common in the US and it is moving to Europe. We have been moving to prepayment since Swissair went bust.”

The need to put up money before delivery of fuel is a huge financial burden that has been shifted from the oil companies to the airlines. According to John Armbrust, a US jet fuel consultant, the oil industry had $5 billion (£2.5 billion) of jet fuel credit outstanding to airlines before the 9/11 terrorist attacks. Now they are demanding that airlines leave cash on deposit.

“The airlines can’t afford it. Traditionally, oil companies extended credit for 14 or 21 days and some as long as 30 days. Now, most American airlines are on prepay. South West is one of a few likely to still get credit.”

The extent of the cash squeeze was highlighted last week when American Airlines said that it would charge $15 per bag checked even as it revealed plans to shed 75 aircraft, shrinking the airline’s capacity by 12 per cent.

The price of jet fuel has risen by 60 per cent since January and American Airlines paid $665 million more for fuel in the first quarter of this year than in the same period of 2007.

The credit crunch is likely to worsen and a number of financial institutions will fail, according to research from Atradius, the credit insurance group which conducted a global survey of its customers’ views of the financial outlook. Although Atradius said that companies expect the number of failures to be small, about 65 per cent expect there to be failures.

The group added that direct exposure to sub-prime lending is higher in Europe than in the United States even though the bulk of the sub-prime mortgage defaults are in the US and many of the securities these loans are packaged into would have originated from US-based mortgage companies.

“Some explanation for this may be investments by European companies in US securities offering higher returns and more frequent use of secondary financial markets to securitise receivables by European countries,” it said.

Atradius added that only 12 per cent of companies across the world do not expect an economic slowdown in the next year. In Britain, more than 90 per cent of companies surveyed expect a slowdown, the highest percentage. About one in six companies expects a slowdown of only the national economy; a quarter expect a slowdown of the global economy and half expect a slowdown of both. The expectation of a slowdown is also high in Mexico, the United States, Spain, Italy, France and Belgium and lowest in Sweden and the Netherlands.

Atradius found that larger companies are more likely to have been affected by the credit crisis. Although fewer than 30 per cent of small companies reported an impact, almost half of all large companies (with more than €1 billion annual gross sales) said that they had felt the credit-crisis pinch.

Companies operating within the energy industry have been especially affected, but those in the healthcare and services industries reported a relatively low frequency of impact.

IAEA: No N-weaponization found in Iran

Tue, 27 May 2008


IAEA Director General Mohamed ElBaradei
The IAEA has not detected the use of nuclear material linked to Iran's "alleged studies" of weaponization, the agency's latest report says.

The findings are part of a restricted International Atomic Energy Agency report forwarded to the UN Security Council and to the 35 board members of the agency on Monday, May 26.

“The Agency has been able to continue to verify the non-diversion of declared nuclear material in Iran. Iran has provided the Agency with access to declared nuclear material and has provided the required nuclear material accountancy reports in connection with declared nuclear material and activities,” said the report, a copy of which was obtained by Press TV.

The IAEA holds the view that clarification of the alleged studies "on the green salt project, high explosives testing and missile re-entry vehicle project" is critical "to an assessment of the nature of Iran's past and present nuclear program."

"Iran has agreed to address the alleged studies," it said.

According to the report, Iran's response to a May 9 request by the UN nuclear watchdog to provide "additional clarifications" on the nuclear drive is currently being assessed by the agency.

Director General of the UN nuclear watchdog Mohamed ElBaradei called on Iran to "implement all measures required to build confidence in the peaceful nature of its nuclear program," the report added.

The West has been at loggerheads with Iran over the country's nuclear drive. Washington and its allies accuse Tehran of pursuing nuclear weaponry; claiming that Iran's uranium enrichment program is aimed at producing fuel for a nuclear weapons progmra - such substance could also be used to produce electricity in nuclear power plants.

IAEA's latest report came a week after ElBaradei said that there is no 'concrete evidence' that Iran is developing a nuclear bomb.

"We haven't seen indications or any concrete evidence that Iran is building a nuclear weapon and I've been saying that consistently for the last five years," ElBaradei said speaking at a May 20 session of the World Economic Forum on the Middle East.

The IAEA boss referred to a Dec 3 joint assessment by 16 US spy agencies, which conceded with 'high confidence' that Tehran is not running a nuclear weapons program, and said that the US intelligence report confirmed his agency's assessment on Iran.

McBush

S&P: US home prices tumble a record 14.1 pct in 1Q

By J.W. ELPHINSTONE, AP Business Writer

U.S. home prices dropped at the sharpest rate in two decades during the first quarter, a closely watched index showed Tuesday, a somber indication that the housing slump continues to deepen.

Standard & Poor's/Case-Shiller said its national home price index fell 14.1 percent in the first quarter compared with a year earlier, the lowest since its inception in 1988. The quarterly index covers all nine U.S. Census divisions.

Prices nationwide are at levels not seen since the third quarter of 2004, according to Maureen Maitland, a S&P vice president. However, the index is still up 60 percent versus 2000.

The narrower indices also set record declines in the first quarter. The 20-city index tumbled 14.4 percent, the lowest since that index was started in 2001. The 10-city index plunged 15.3 percent, a record in its 20-year history.

"There are very few silver linings that one can see in the data. Most of the nation appears to remain on a downward path," said David Blitzer, chairman of S&P's index committee.

Nineteen of the 20 metro areas reported annual declines, with 15 of them posting record lows. Six metro areas lost more than 20 percent.

Las Vegas had the worst quarterly performance, falling 25.9 percent, followed by Miami and Phoenix. Only Charlotte, N.C., stayed above water, gaining less than 1 percent over the previous year.

Last week, the Office of Federal Housing Enterprise Oversight said home prices fell 3.1 percent in the first quarter, the largest drop in its 17-year history and only the second quarter of price declines recorded.

The OFHEO index is narrower in scope and is calculated using mortgages of $417,000 or less that are bought or backed by Fannie Mae or Freddie Mac. That excludes properties bought with some of the riskier types of home loans.




Copyright © 2008 The Associated Press.