Jeremy Warner's Outlook: Airlines never die: like Alitalia, they are just kept alive on a steady drip-feed of state aid

Paying for rising public sector pay; How far will Saint-Gobain go with BPB
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The other half is coming from bankers in a deeply discounted issue of shares, but they wouldn't have put up anything at all but for Rome's largesse. The Government has already underwritten a €400m loan to help keep the airline airborne. Giancario Cimoli, Alitalia's chief executive, hopes the money will both provide the funds to keep flying and persuade his peers at Air France-KLM Group that he's solvent enough to join them.

Even with the Government handout, the sponsors struggled to get the package away. It seems unlikely that the Air France chief executive, Jean-Cyril Spinetta, will be rushing to include Alitalia within the fold given its still plainly parlous state.

The airline industry is almost unique in that its flag carriers are never allowed to go bust. Even when they've been privatised, as with Alitalia, they are regarded as badges of national honour, more a tool of international diplomacy than a commercial enterprise. With the advent of the low cost carriers and a more open skies approach to airline regulation, this is beginning to break down, but old habits plainly die hard, and here's the Italian government again chucking good money after bad in an attempt to keep its national flag carrier in the skies.

Lest this be thought a peculiarly European phenomenon, the Americans do it too, only in the US, it is Chapter 11 bankruptcy protections which allow essentially bust airlines to keep going by freeing them of past debts and obligations.

Terrorism, war, Sars and sky high fuel prices - the airline industry has had more than its fair share of woes over the past four years. But with accumulated losses of around $50bn over that period, it's also had more than its fair share of financial assistance. Many of the full service flag carriers shouldn't still be in the air. They've been shown to be bloated and out of date by nimbler, low-cost carriers. Yet no one has the guts to turn off the life support.

Paying for rising public sector pay

Newspaper comment writers have been in full flood this week over Office for National Statistics data showing that public sector workers are continuing to widen their pay lead over the private sector. Only a few years back, the private sector still led government workers by some distance.

The reversal has been widely condemned as iniquitous. Who's paying for whom, the leader writers have thundered, and with some justification. The civil servants have more job security than us, their jobs are less stressful, they retire earlier, they have better pensions, they can apparently expect to live longer than their private sector counterparts, and now it appears they even earn more.

Who in their right mind would want to carry on labouring away in the private sector paying for the better conditions and earnings of the public sector when you can go and work there yourself? Quite so.

Yet as ever, the bald statistics hide a more complex picture. One of the main reasons for the reversal - possibly the major reason - is the large number of low paid, unskilled jobs that have been transferred from the public to private sector through outsourcing. This obviously depresses average pay in the private sector while raising it in the public.

What's more, many public sector jobs, particularly those in healthcare and education, are of a type which are bound to see very considerable wage inflation in any case. These are high skill jobs providing services for which there is burgeoning public demand. If they were provided through the private sector, with the services bought directly by consumers rather than paid for through taxes, it is almost certain that rates of pay would be higher - possibly, as in the privately funded American healthcare system, a lot higher. That we might also get better value for money from such an approach is a different issue.

Most, though by no means all, public sector jobs still lag their direct private sector counterparts on pay by some distance. A human resources director in a major government department is likely to be paid a lot less than the equivalent at Goldman Sachs or even B&Q.

True, wage inflation in the public sector is approximately twice that of private sector workers, but this is what you would expect given that the public sector is now far and away the biggest recruiter in the labour market. The Government has been forced to offer more in order to compete.

All this helps explain the reversal in the historic relationship between public and private sector pay. Yet it hardly justifies the phenomenon if what is going on is essentially unaffordable. These are, of course, the $64,000 questions. Can Britain really afford these massive increases in public spending and are they in any case the best way of delivering the services provided?

The second of these questions is political in nature, but the first is very much economic. If they prove unaffordable, then eventually the markets will punish Britain for its profligacy and everyone will end up the worse for it. There is something self-evidently wrong about a system that makes those who provide the taxes earn less than those paid for by them. Any such disparity must ultimately be unsustainable, if only because the tax paying private sector will eventually rise up in rebellion against it. The wealth creators will vote with their feet and their employees will vote for another government.

How far will Saint-Gobain go with BPB

No apologies for returning for the second day in a row to the battle for control of BPB. Plasterboard is hardly an industry to set the pulse racing, but BPB is the world's largest manufacturer of the stuff, it's British, and it is being bid for by the French in the biggest contested takeover situation of its sort in absolutely ages. The battle comes to a head next week when the bidder, Saint-Gobain, must decide whether to raise its offer or beat a hasty retreat.

The present offer of 720p a share is certain to fail if it is made final. The question for Saint-Gobain's chairman, Jean-Louis Beffa, this weekend is by how much he needs to raise it to succeed. There's a point beyond which he's not prepared to go, and to the disappointment of some in the City, it's unlikely to be much above 750p a share. Will that be enough to do the trick? The early part of next week will be spent sounding out shareholders in an attempt to establish the answer. If it is not, then he probably won't bother to raise the offer at all.

The final stages of the battle therefore become like a game of poker. If the institutions demand too much, then he'll pack his bags and head back to Paris. But how much is too much? He's in deadly earnest when he intimates he won't pay £8 a share, yet is he really serious in refusing to go beyond 750p? About 25 per cent of the stock is owned by hedge funds and other short-term holders. They will accept almost anything, so he only has to win over another 25 per cent to win.

At 750p, the outcome would be uncertain, but Peter Cousins, the BPB chief executive, would be ill advised to open the champagne if that's the final offer; it might just succeed.

Key to the outcome, it seems to me, is whether Mr Cousins is right to insist that BPB has thrown off its cyclical characteristics and can achieve a further five years of double-digit earnings growth on top of the three it has already had, or whether like most other building materials, plasterboard sales are again approaching a cyclical peak from which there is only one way they can go. If investors choose to take the latter view, then he's a goner, the only consolation being that Saint-Gobain would almost certainly have overpaid.

j.warner@independent.co.uk

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