Confidence at Airbus smacks of complacency

Airbus; Independent MPC; Cable & Wireless
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The Independent Online

It is easier to lift your foot off the pedal when accelerating than it is to hit the brakes harder when slowing down. Boeing demonstrated that yesterday as it ran into a brick wall and announced 30,000 job losses and a 20 per cent cut in production. The response from Airbus? Well, we might not increase deliveries next year by quite as much as planned, but increase them we still will.

Whopping great redundancy programmes are not new in Seattle. Boeing sent a similar chill down the Puget Sound three years ago which ultimately cost the job of Ron Woodard, the then head of its commercial airline business. It is hard to say how much of yesterday's bad news would have happened anyway without the terrorist attack on America. The Boeing production line has been slowing down for the last three years and most analysts were expecting another sharp reduction to be announced next month alongside the third-quarter figures.

Phil Condit, Boeing's chief executive, has left himself with plenty of leeway should the fall out from last Tuesday's outrages prove to be not quite so catastrophic for the aviation world as in the heat of the moment it now seems. The job cuts, large as they may be, are not due to be implemented fully until the end of next year, which means pink slips will not be raining down like confetti just yet.

Even so, Boeing is probably right to prepare itself for the worst. It is much more exposed than Airbus to the US airline market, which is certain to bear the brunt of the downturn in air travel. The symbolic impact of so many job losses in such a high-profile business threatens to knock away any remaining props under American consumer confidence, but what option does Boeing have? To ignore events and hope for the best?

The question for Europe is whether Airbus is right to be quite so complacent. Boeing has always dismissed Airbus boasts about growing market share by arguing that it is deliveries, not orders, which count. Airbus is still much stronger on orders than deliveries. But sooner or later orders turn into aircraft on the production line. With its order backlog, Airbus still believes that it can increase production this year, next year and the year after that. Well, maybe, but if Boeing's actions are truly a response to last week's events and not merely evidence of corporate failure, then Europe has a lot to worry about.

Independent MPC

It is not often that this column sounds a eurosceptic note, but the nonsense being written and said about the Bank of England's quarter point interest rate cut demands the use of some unusual arguments. Just to recap, the Bank of England's Monetary Policy Committee stands accused of being out of the loop and out to lunch in not immediately following the US Federal Reserve and the European Central Bank with a full half point rate cut. Instead it waited a day and then cut by only a quarter point, a response widely condemned as so out of step with others as to be almost wholly pointless. Getting the decision wrong is one thing, but there can be no greater insult than to be thought irrelevant.

Well, the MPC may or may not have been right in its judgement over the size of the rate cut, but what a load of tosh. There was no co-ordination of policy action among central bankers on Monday. Over the weekend, the Fed had leaked the fact that it would cut rates before Wall Street reopened, so the cut when it came was little surprise. However, the later unscheduled cut from the ECB was as much a surprise to the Fed as it was to everyone else. Out of courtesy, the Bank of England was given prior knowledge of the US rate cut, but it knew nothing about the ECB's impending move.

All this is exactly as it should be. If everyone did the same thing at the same time, in pre-coordinated fashion, you might as well give up having an independent monetary policy altogether. Isn't it sovereignty over interest rate decisions which is one of the main arguments in the eurosceptic armoury? These are exceptional circumstances, admittedly, but even in a crisis the one size fits all monetary policy is of questionable validity.

One look at the minutes published yesterday of the MPC's last scheduled meeting, which took place in early September, shows that the MPC was at that stage overwhelmingly against cutting rates, and although nobody voted for a rise, there was a minority that thought rates should be higher than they then were.

Interestingly, the MPC members who held that view, presumably led by the Bank of England's ultra-hawkish deputy governor, Mervyn King (the minutes do not identify which member holds which view), cited as one of its reasons the prospect of recovery in the US economy. Nobody could now believe that possible for the immediate future, but whether the specific circumstances of the UK economy justify any more than a quarter point off rates is more debatable than it might seem.

Britain's economy will grow more strongly than any other G7 country this year, its inflation rate is above target, albeit marginally and with every prospect of falling below target again next month, consumer spending is still buoyant, and the housing market continues to show all the characteristics of a fully fledged mania.

All these things might be brought to a halt by last week's terrible events, but the MPC could have made matters even worse by over-reacting. A half point cut in an economy where until last week's ghastly events consumers remained relatively confident, might have smacked of panic and therefore had the opposite effect to the one intended. The MPC has rightly decided to wait until its next meeting, which is only a couple of weeks away, before deciding whether the gravity of the crisis requires the extra quarter point.

Cable & Wireless

It seemed to be just what the doctor ordered. When Graham Wallace became chief executive of Cable & Wireless two and a half years ago, he set about selling off all the company's consumer interests and refocusing the group on its core offering of business to business telecommunications. The City liked the strategy and marked up the shares accordingly. Since then, of course, the entire telecommunications sector has headed south at a rate of knots and you could argue that but for the Wallace strategy, C&W would be in even worse shape today than it is.

Forgetting the little matter of Hongkong Telecom, which Mr Wallace foolishly sold for the candy floss paper of Richard Li's Pacific Century Cyberworks, he generally got good prices for his disposals, and he's since largely avoided the temptation to blow the money on ill-advised acquisitions. But the core business, C&W Global, hasn't gone anywhere, nor, given that it relies so heavily for its revenues on the commodity business of connectivity, does it seem likely to. Revenue growth forecasts have been revised down from 12 per cent six months ago, to 5 per cent last May and now to minus 5 per cent.

After yesterday's fall in the share price, C&W is capitalised at not much more than the value of its cash. The only case for buying the shares relies heavily on the slender hope that Mr Wallace can find a decent use for it.

j.warner@independent.co.uk

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