BA's cheap rivals are cheerful but the premiums are stratospheric

Nostradamus mauls Marconi; Furse past the post
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The Independent Online

The cheapo airlines took a deep intake of breath last week and said things would be okay. In stark contrast to BA – which since 11 September has cut the number of aeroplanes, routes and staff – the likes of easyJet, Ryanair and Buzz predicted a rosier future. They believe, probably correctly, that passengers will stop holidaying in America and Canada and instead make shorter trips to Spain and France. Even Buzz, the weakest of the trio, said it would benefit from BA's decision to withdraw from some short flights.

But there is still a big unknown for the airlines in the shape of insurance. Ray Webster, chief executive of easyJet, told me last week that the insurance for his airline would rise from £2.4m a year to £10.8m as a direct result of the terrorist attacks on America.

But how did the insurance companies calculate these whopping premiums? This is a question the European Competition Commissioner, Mario Monti, is looking into following a series of complaints by the airlines. EasyJet has written to the competition supremo asking if there was any collusion between the insurance companies when dreaming up the new rates. Mr Webster smells a rat: "We all received the same letter on the same day proposing similar charges. There appears to be a smoking gun."

The European Commission, while admitting it is investigating, is naturally cagey. But if anyone can root out cartels and collusion then Mr Monti can. In the past couple of years he has proved to be a fastidious and meticulous operator. Mr Monti and the commission, having earned a reputation for excessive bureaucracy, have been impressive in the face of the crisis. Brussels has sensibly shunned knee-jerk state aid payments to the beleaguered airlines and instead come up with a decent list of measures to help them without having to meddle too much with the free market economy.

The danger now is that the member states may not act in accord.

Some people see a glass half full, others see it half empty. Some, it would seem, see it as completely empty even when there is a little dribble left at the bottom.

Nobody is trying to deny that Marconi is up to its neck in strife, but to go so far as to declare the old dog worthless is probably a bit over the top. Dresdner Kleinwort Wasserstein's recent doomsaying note made persuasive reading, but so does Nostradamus and he wasn't always right. Surely the point of unpredictable markets is that, occasionally, good things can happen too.

Marconi's problem, so far as the market is concerned, is its debt. Sure enough, if you tot up the bank loans and the bonds it does all look pretty desperate, but who says that is the best way to judge this company's value? A lot of Marconi's debt is accounted for by its corporate bonds, some five-year, some 10-year and some 30-year. What some more positive analysts are now saying is that the market can afford to leave those 10-year and 30-year bonds out of their thinking. Radical, yes, but it does make sense. The telecoms industry is one that everyone knows will be spectacularly different in just a few years' time. As WestLB Panmure's Robin Hardy says: "That same debt could be a very different thing in spring 2003."

Once you start looking at things from that perspective, the problem doesn't look quite so dire, especially if Marconi does what a lot of people think it will and redeems some of its bonds. Getting enough credit to buy back its bonds, which are currently trading well below par, is not straightforward but would probably get the green light. By buying back half of its bonds, Marconi would wipe £600m of debt from its balance sheet – significant inroads on the larger burden.

In two weeks Marconi will have its third-quarter data to hand, and should make its move by then. With all the other telcos furiously buying their bonds, it could even be seen as a fashion statement.

The markets may be dreadful at the moment, but the stock market seems pretty perky. A lot can happen in a year and the London Stock Exchange has undergone an impressive transformation.

Almost from the moment of flotation, the exchange looked like a ripe takeover target, and there was an unseemly European bidding jostle to prove it. Consolidation looked like the future, but the LSE's independence did not appear to be part of that. However, under the multi-lingual Clara Furse, the LSE has become much less of a victim and much more a credible force. Its approach to Liffe, and the prospect of becoming a unique one-stop-shop for equities and derivatives, could turn out to be the first in a series of bold moves. Liffe may get other bids from the LSE's old sparring partners on the Continent, but most investors will probably warm to the idea of an all-Brit deal.

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