European Business News (EBN), 97-02-10

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From: The European Business News Server at <http://www.ebn.co.uk/>

Page last updated February 10 1600 CET

CONTENTS

[01] G-7 urges currency stability

[02] UK producer output prices rises 0.2% in January

[03] BA posts record profits

[04] BA and DASA in alliance talks

[05] Avis to raise £250Mn in London listing

[06] Corporate and Economic Briefs

[01] G-7 urges currency stability

On Saturday, the Group of Seven finance ministers said that currency-market misalignments of two years ago have been corrected, that 'excess volatility is undesirable' and that this may be combatted through co-operation 'as appropriate.' But economists say it's not yet in the G-7's interest to give teeth to this thinly veiled warning about the dollar.

'They don't want to reverse gains,' argued David Coleman, chief economist at CIBC Wood Gundy in London. 'The stronger dollar benefits everyone - it's the rapid rise that's not acceptable.'

The dollar - which at its peak last week was up 7.3% against the yen and 8.0% against the Deutsche mark since the start of the year - slipped Friday in the wake of comments from U.S. Treasury Secretary Robert Rubin foreshadowing the G-7 shift. It traded at Y122.80 and DM1.6569 around 1600 GMT in Europe, down from Y124.75 and DM1.6750 just before Rubin spoke.

But with the German and Japanese economies continuing to perform badly, market participants will keep pushing the dollar higher. And central banks will let them - as long as the rise isn't too fast and doesn't go too far.

'Provided the dollar's rise is more subdued as to pace, we're not likely to see coordinated intervention,' said Keith Edmonds, chief analyst at IBJ Bank in London.

Only if the dollar crosses the threshold of Y130 or DM1.70, or if it reaches this level very quickly, are the G-7 likely to 'back up words with action,' Edmonds said.

[02] UK producer output prices rises 0.2% in January

The rise in output prices was less than the 0.4% economists were expecting. The input price figures were also weaker than the consensus forecast, which was for prices to have been unchanged.

The Office for National Statistics also reported that the core output price index - which excludes food, beverages, tobacco and petroleum - fell a seasonally adjusted 0.1% in January from December. It had been forecast to rise by 0.1%.

Unadjusted output prices rose 1.5% in January compared with the year earlier, the lowest rate of increase since October 1986 when they rose by 1.2%.

Adjusted core output prices rose by 0.7% in the year through January, the lowest rate of increase since August 1967 when it rose by 0.5%.

The ONS said the fall in input prices reflected widespread falls in the prices of imported commodities. The 6.3% decline in the input price index in the year through January was the largest year-on-year fall since December 1986 when it fell by 9.4%.

Over the past year, prices of imported metals have fallen 14.9% and prices of pulp and waste paper have fallen by 42.7%.

On the output side, prices of food products and beverages rose 1.0% in the year through January, the lowest rate of increase since records began in 1975.

[03] BA posts record profits

Nine-month pretax profits rose to £583 million fom £534 million a year earlier.

The third-quarter profits rise came despite rising costs. A 33% increase in fuel prices pushed the airline's third-quarter fuel bill up £56 million. This in turn pushed down operating profit to £131 million, compared with £152m GBP a year earlier.

Employee costs also rose 5.6% in the quarter, although the company said productivity was up 3.8%. Engineering costs fell 9%.

Passenger traffic rose 9% in the third quarter, although the strength of sterling forced yields - the amount received for each kilometer flown - down 1.8%.

[04] BA and DASA in alliance talks

Sources close to Daimler-Benz Aerospace and British Aerospace say both companies are discussing merging their missile and combat-aircraft businesses in a move that would foil French dreams of dominating the European defence industry.

Last year, the French government strengthened its position in the defence market by merging all its smaller players first, and then launching cross- border deals. But the first big privatisation stalled last year, and the government's chances of doing a cross-border deal are shrinking daily.

DASA had previously planned to merge its missile and combat-aircraft business with France's state-owned Aerospatiale, but it recently ended those discussions.

Aerospatiale is set to merge with French aircraft maker Dassault. Together, the two wanted to bid for France's $8 billion defence electronics maker Thomson CSF later this spring. France's Lagardere Group also wants to takeover Thomson CSF. Either combination would have given France a powerful bargaining position in cutting deals with DASA and British Aerospace.

But the imminent DASA and British Aerospace deal threatens to out-manoeuvre the French, leaving them late for the party.

[05] Avis to raise £250Mn in London listing

The announcement puts paid to months of speculation surrounding the future of Avis Europe, which is 77.1% owned by Belgian car importer and distributor D'Ieteren.

Avis also said it will use some of the money to buy out General Motors' Corp's stake in the company. General Motors owns 14.2% of Avis Europe.

It will use the remainder of the cash to repay debt and invest in the future development of its core car rental business, Avis said.

In a statement, Avis Europe said the share offer will be initiated at the end of February by means of a U.K. and international placing, and an intermediaries offer in the U.K.

In conjunction with the listing, Avis said it will acquire a new 40-year license to use the name Avis in Asia.

The license will be granted by Wizard Co. Inc., a unit of HFS Inc., which is the parent company of Avis Inc. In return, Avis Europe will make annual royalty payments.

As part of this agreement, Avis Europe will buy out Avis Inc.'s 8.7% stake prior to the listing. ,p> D'Ieteren meanwhile will remain the majority shareholder in the company, Avis said.

[06] Corporate and Economic Briefs

The account, which pays 5% on balances of up to 600 GBP, allows customers to make purchases at Safeway with a debit card while earning 'ABC' points toward discounts on future purchases.

French pharmaceutical company Sanofi, a unit of Elf Aquitaine, said that its 1996 sales totaled FF23.65 billion, up 2.4% from FF23.09 billion a year ago.

The company said that fourth quarter sales rose 4.1% on a constant exchange rate and group structure basis, but it did not provide exact figures.

In October, the company reported that sales for the first nine months of the year were 16.98 billion francs, up 1.5%.

From the European Business News (EBN) Server at http://www.ebn.co.uk/

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