Sunday, October 6, 2013

By Richard Cowan
WASHINGTON (Reuters) - As the U.S. government moved into the second week of a shutdown on Monday with no end in sight, a deadlocked U.S. Congress also confronted an October 17 deadline to increase the nation's borrowing power or risk default.
The last big confrontation over the debt ceiling, in August, 2011, ended with an eleventh-hour agreement under pressure from shaken markets and warnings of an economic catastrophe if a default were allowed to occur.
A similar last-minute resolution remained a distinct possibility this time as well.
In comments on Sunday political talk shows, neither Republicans nor Democrats offered any sign of impending agreement on either the shutdown or the debt ceiling, and both blamed the other side for the impasse.
"I'm willing to sit down and have a conversation with the president," said Republican House of Representatives Speaker John Boehner, speaking on ABC's "This Week." But, he added, President Barack Obama's "refusal to negotiate is putting our country at risk."
On CNN's State of the Union, Treasury Secretary Jack Lew said: "Congress is playing with fire," adding that Obama would not negotiate until "Congress does its job" by reopening the government and raising the debt ceiling.
SHUTDOWN, DEBT CEILING ISSUES MERGED
The two issues started out separately in the House but have been merged by the pressure of time.
Conservative Republicans in the House have resisted funding the government for the current fiscal year until they extract some concession from Obama that would delay or defund his signature healthcare law, which launched October 1.
Many of those conservatives want a similar condition placed on raising the debt ceiling, but in his list of debt-ceiling demands Sunday, Boehner did not mention the Affordable Care Act, commonly known as Obamacare.
"It's time to talk about the spending problem," said Boehner, including measures to rein in costs of entitlement programs such as the Social Security retirement system and Medicare, the government-run health insurance plan for seniors.
Harry Reid, leader of the Democratic-led Senate, is expected to decide soon on whether to try to open formal debate on a "clean" bill - without extraneous issues attached - to raise the U.S. Treasury's borrowing authority.
Passage of such a measure would require at least six of the Senate's 46 Republicans to join its 54 Democrats in order to overcome procedural hurdles that opponents of Obamacare could erect.
According to one Senate Democratic aide, the debt limit hike might be coupled with a new initiative to reform the U.S. tax code and achieve long-term savings in Social Security and Medicare, whose expense has soared along with the population of retirees.
Republican lawmakers have floated other ideas, such as a very short debt limit increase, which would create time for more negotiation at the expense of further market uncertainty, and repeal of a medical device tax.
The tax is expected to generate some $30 billion over 10 years to help pay for healthcare insurance subsidies under Obamacare.
Some Democrats favor repealing the tax, but they insist that replacement revenues be found and repeal be considered only after government reopens and the debt limit is raised.
MAJOR PROBLEMS IN HOUSE
Agreement in the Senate would send the snarl of issues back into the House, whose Republican caucus has adopted a hard line on both Obamacare and the debt ceiling.
There may be enough votes in the House for passage of a clean bill, according to some analysts. That would require almost all of the House's 200 Democrats and about 20 of its 232 Republicans to vote in favor. But taking such a vote would require Speaker Boehner to violate his policy against bringing a vote on any legislation that is favored by less than a majority of House Republicans.
In any case, neither side is making any move toward accommodation, and the stakes rise with the passage of time.
For any deal to work, negotiators probably would have to choreograph a multi-pronged approach that allows all sides to declare victory, even if it is one that cues up another battle in mid-November or December.
While the shutdown itself is unlikely to cause major disruption in the markets, a fight over the debt ceiling could. In the last two days of the debt-limit standoff of August 2011, the New York Stock Exchange lost 11.2 percent of its value, and the deadlock led to a downgrade of the U.S. credit rating "AA+" from "AAA" by Standard & Poors.
The outlooks from Moody's and Standard & Poor's, the only agency so far to have lowered its rating on U.S. debt, are both at "stable," but Fitch Ratings has indicated a negative outlook for the U.S. debt rating.
All three agencies have said the U.S. debt profile has improved substantially over the past two years, with gross domestic product growth, while slow, proving to be persistently positive and the budget deficit trending lower.
Fitch said in a note last week that the U.S. rating is at risk in the current showdown over the debt ceiling because failure to raise it sufficiently in advance of the deadline, raises questions about the full faith and credit of the United States to honor its obligations.
Political gridlock remains the greatest risk to the U.S. outlook, Fitch said in its note of October 1, the first day of the partial shutdown of federal government operations.
"This 'faith' is a key underpinning of the U.S. dollar's global reserve currency status and reason why the US 'AAA' rating can tolerate a substantially higher level of public debt than other 'AAA' sovereigns," Fitch said.
Investors have so far been relatively sanguine about the approaching debt ceiling deadline, but measures of anxiety, such as the Chicago Board Options Exchange's Volatility Index, have begun trending up since the shutdown began last Tuesday. The VIX rose 18 percent last week and briefly hit its highest level since June.
(Additional reporting by Thomas Ferraro and Dan Burns; Editing by Fred Barbash, Jim Gaines and Eric Walsh)

Airbus to announce landmark jet order with Japan Airlines - sources

Reuters – 1 hour 10 minutes ago

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By Tim Hepher and Tim Kelly
BARCELONA, Spain/TOKYO (Reuters) - Airbus will announce its first jet order from Japan Airlines Co Ltd on Monday, three sources familiar with the matter said, breaking open the last major aviation market dominated by rival Boeing Co (NYS:BA - News).
Japan's flagship carrier will buy Airbus A350 wide-body aircraft following an intense battle between the planemakers as Japan's two top carriers seek dozens of new long-haul jets over the next decade, the sources said. JAL and Airbus will hold a joint news conference at 0600 GMT in Tokyo. Neither company said what would be discussed.
The sources gave no details on the number of planes to be sold, but industry analysts previously told Reuters they expected JAL to order around 25 aircraft in a contest that pitted the A350 against Boeing's yet-to-be-launched 777X.
"It looks as though JAL has decided to go with Airbus," one of the sources said, declining to be identified because of the sensitivity of the matter.
For decades, U.S. planemaker Boeing has seen off attempts by Airbus to secure an order with JAL, benefiting from links with Japanese suppliers and deep political ties between Tokyo and Washington to maintain a market share of more than 80 percent.
Delays to its 787 Dreamliner and its subsequent grounding after its batteries overheated have, however, tarnished its image and cast doubt on Boeing's ability to deliver aircraft on time, industry experts said. Both JAL and its domestic rival ANA Holdings Inc are major Dreamliner buyers.
At the same time, bureaucratic and political influence over the fleet purchases of JAL, which the government bailed out in 2010, has waned since it went public again a year ago and the Democratic Party government that rescued it lost power.
"This is seriously bad for Boeing. They need to do a little soul searching," said Richard Aboulafia, airline analyst with the Virginia-based Teal Group. "(The 787 problems) inevitably led to doubts about execution, resources and time."
The expected deal and its impact on wide-body competition is likely to dominate a major aviation industry gathering in Barcelona this week.
In a sign of how JAL's once cosy government ties have become strained, particularly in the wake of its taxpayer-funded rescue, the carrier on Friday complained that it was unfairly treated over landing rights at Tokyo's Haneda airport after ANA received twice as many new slots.
The battle between the two aircraft makers will now shift to ANA, which is also looking for around 25 new jets to replace its aging fleet of long-haul Boeing 777s from 2020.
ANA is still gathering information on the 777X and the A350, Ryosei Nomura, a spokesman for the airline, said.
A deal for around 25 of the A350 aircraft would be worth $7 billion to $8 billion at list prices, depending on the type.
JAL said its president, Yoshiharu Ueki, and Airbus Chief Executive Fabrice Bregier would attend the news conference later on Monday in Tokyo. In France, Airbus said it would give a telephone briefing. A spokesman for EADS (PAR:EAD.PA - News) subsidiary Airbus declined further comment.
Boeing declined to comment.
DELIVERY RISKS
If they chose Boeing's 777X, both JAL and ANA would have to commit to being a launch customer again for a new Boeing jet.
Delays to the 787, which is one-third built in Japan, and its subsequent grounding may have made JAL wary of buying an aircraft that Boeing has yet to officially commit to building. That concern has given Airbus a rare opening in Boeing's best market.
"It's the price to be paid for passivity, by not launching this plane one year ago," said Aboulafia, referring to the 777X.
ANA's boss, Shinichiro Ito, told Reuters last month that his airline would consider possible delivery delay risks when choosing replacements for its older long-haul 777 jets.
With the world's biggest fleet of Dreamliners and the first to fly the innovative carbon composite plane, ANA has been most affected by delays and the aircraft's grounding this year resulting in millions of dollars of losses.
Helping Airbus's sales pitch have been orders for its A350s from marquee customers such as Cathay Pacific Airways , Singapore Airlines (SES:C6L.SI - News), Qatar Airways, Emirates Airline and Deutsche Lufthansa (LHAG.DE). The base model of the A350 enters service in 2014.
Boeing, which is working on deals with Gulf carriers, also counts Lufthansa as a customer for its 777X.
Japanese suppliers including Mitsubishi Heavy Industries Ltd and Kawasaki Heavy Industries Ltd , which account for one-third of the 787, are expected to join the 777X programme too, although Boeing has yet to say how much work they will get.
JAL's shares rose as much as 3.4 percent in early trade to 5,830 yen, compared with a flat Tokyo benchmark Nikkei average. Market sources attributed the rise to the carrier digging in its heels with a call on Friday for the government to revise its allocation of landing slots at Haneda Airport.
(Editing by Ed Klamann and Dean Yates)

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