Grains, Airlines

Sydney, Dec 1, 2008 (ABN Newswire) - Grain companies, AWB and ABB Grain have confirmed they are in merger discussions.

AWB said on Friday its discussions with ABB Grain were ongoing and that any deal still was subject to regulatory approval and due diligence.

If successful, the merger would combine AWB's wheat focus to the barley business of ABB, which is based in Adelaide, the country's major barley exporting port.

The two companies are almost identical in capitalisation - $1.295 billion for ABB and $1.12 billion for AWB.

AWB shares ended at $3.41, for a rise of almost 7% on the day, ABB shares jumped $1.07, or 16.5%, to $7.56.



In a statement to the ASX, AWB said it was "in discussions regarding a possible friendly merger with ABB Grain Ltd.

These discussions are ongoing," AWB said.

"The transaction will only progress if appropriate terms can be agreed and due diligence is completed to each party's satisfaction."

AWB said any merger would be by a scheme of arrangement and would be subject to shareholder, court and regulatory approvals and other conditions agreed by the parties.

AWB has lost its wheat export monopoly, and ABB dominates barley, the country's second most important grain export.

AWB made a profit of $64.286 million in the year to September 30, up 136% as it recovered from the impact of the drought.

Adelaide-based ABB Grain made a net profit in the year to September 30, of $48.8 million, up more than 500% as it too picked up more business after the drought of the previous year eased.

On Friday Virgin Blue joined the increasing group of airlines cutting capital expenditure, costs and capacity for next year.

Cathay Pacific, Qantas and Air France were other major carriers that cut back last week.

Virgin Blue's CEO, Brett Godfrey, told shareholders at the airline's annual general meeting on Friday that non-essential capital expenditure had been deferred.

Spending for the second half of the year will be cut to $800 million, down around $100 million from the previous target.

Mr Godfrey told the meeting that the airline's 2008 fiscal year was dominated by the high cost of fuel. This year, the industry faces weakening demand and Virgin Blue would have to report the impact of losses on its fuel hedging (paper based losses at this stage).

Mr Godfrey said softer demand was likely to be partly offset by falling fuel prices.

Virgin Blue's chairman, Neil Chatfield, said there were tough times ahead.

"We expect the operating environment for the 2009 financial year to be the most difficult Virgin Blue has yet experienced.

"Despite a recent easing of global oil prices, which has brought some relief, the softening economic conditions are presenting a continuing challenge to our business."

Mr Chatfield said that accounting rules requiring the airline to mark its hedge positions to market had resulted in a pretax accounting charge of $200 million but this would not affect its cash position.

"Ironically, shareholders should also note that the company has, based on current exchange rates, an unrealised foreign currency gain, also about $200 million which, as required by [accounting standards], has not been recorded through the profit-and-loss account."

At October 31, the airline's cash balance was $602 million, which was steady from the end of June.

Mr Chatfield said that Virgin Blue was looking forward to the launch of its international long-haul airline V Australia early next year.

Domestic capacity growth would fall next year 8%, 4.5% in 2010 and 1.7% in 2011.

"FY09 capacity growth budgeted at +20%, reflecting aircraft delivery profile secured in 2005/6 & consistent with major competitor," Virgin Blue said.

The airline said to reduce capacity next year, four 737-800s would be assigned to new and international markets and two 737-800s re-allocated to maintenance and operational spares

Delivery of two smaller regional planes would be deferred into 2010, but there had been no redundancies to date, unlike Qantas which had sacked 1500 people and cancelled 1200 new jobs.

VBA shares closed up 1c at 32c on Friday.

Qantas revealed plans to cut domestic capacity to just 2% next year.

It said last week that "Second half 2008/09 capacity will be 4% lower than pcp (full year -2%). Planned 2009/10 capacity growth will be cut from 10% to 2%."

Cathay Pacific cut its forecast for 2009 passenger capacity growth to less than 1% on Friday, from 6-7%. Cathay is feeling the impact of the crunch on its freight business, which accounts for about 30% of its revenues.

The airline will ground two Boeing 747 cargo aircraft and delay the US$620 million new Hong Kong cargo terminal. It will also offer cabin and cockpit crew unpaid leave next year.

Cathay is talking to Boeing about delaying 42 new passenger and freighter aircraft from Boeing.

Air France-KLM also announced that it would postpone taking delivery of new aircraft from both Boeing and Airbus.

The global slowdown has hurt Qantas and could see Virgin Blue change the launch of its trans-Pacific operations if the slowdown continues.

International air passenger traffic fell in October for a second month in succession as airlines grounded a growing number of aircraft in the face of deepening recession.

The International Air Transport Association said late last week that passenger traffic fell 1.3% year on year in October following a fall of 2.9% in September


 

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