Boeing Dreamliner Completes First Flight

Boeing completed the long-delayed first test flight of its new 787 Dreamliner on Tuesday, heralding a new era of plastics-based aircraft that promise to save airlines millions of dollars in fuel costs.

The 3-hour flight, cut short by bad weather, brought relief to customers and investors who have watched Boeing postpone delivery of the new plane by more than two years due to production problems, but industry experts warned that the program still faces risks.

"It's the first positive milestone we've seen Boeing achieve on this program in a long time," said Macquarie analyst Robert Stallard. "But they're not out of the woods."

The 787's highly anticipated takeoff was witnessed by more than 12,000 Boeing employees, industry VIPs, airplane enthusiasts and reporters, eager to see the first flight of a commercial aircraft made primarily from carbon-based plastics and titanium.

The 186-feet-long (57 meters) aircraft, painted in Boeing's blue and white livery, took off at 10:27 a.m. local time from a freezing gray runway next to Boeing's plant about 30 miles north of Seattle. It landed 3 hours and six minutes later at Boeing Field, just south of Seattle.

The flight was meant to last five hours or more, but the two pilots were held back by low cloud and bad visibility, going no higher than 15,000 feet (4,572 meters) at a maximum speed of about 207 miles (333 kilometres) per hour.

News of the takeoff buzzed across the radio waves among commercial jets and air traffic controllers, according to chief pilot Mike Carriker.

"Everybody wanted to know if the Dreamliner was airborne, and it was really cool to say, 'You bet, we are airborne today'," said Carriker after the flight, to cheers from Boeing employees.

"Is it a relief? Yes. Was it great fun? Yes. Would I like to go and get another 80,000 pounds of gas and good weather and go again, you bet I would," added Carriker, although he said the next flight would not be for another week as more instruments are added to the test plane.

SHAPE OF THE FUTURE

Airlines like the concept of the twin-aisle, mid-sized plane that can carry about 250 people very long distances. They have ordered 840 of the aircraft, worth about $140 billion (86 billion pounds), since work began on the plane in 2004.

But production has been delayed five times in the past three years, and the first flight has been postponed six times, due to a shortage of bolts, faulty design and a two-month strike at its factory.

Rival Airbus, a unit of Europe's EADS, has been attracting buyers for its competing A350 plane, which will also be made primarily from carbon-composite materials.

Exactly how much profit Boeing can expect to make from the plane is uncertain. Analysts have said the company has invested more than $10 billion in the project, and will have to give some sort of compensation to customers for late planes. How late the planes will be and how they will perform will not be known until flight tests have been completed.

"It's a major step-off point to the ultimate goal which is certification and customer delivery. It's an important milestone but it's not the end goal," Clay Jones, chief executive of Rockwell Collins said at the Reuters Aerospace & Defence Summit in Washington.

Rockwell makes display systems, communications and surveillance systems and pilot controls systems for the 787.

Boeing's shares closed down 38 cents, or 0.7 percent, at $55.67 on the New York Stock Exchange. The company's shares have risen about 90 percent since March, outstripping the rebound in the Standard & Poor's 500 index.

ROUND-THE-CLOCK TESTS

The flight starts at least nine months of airborne tests on a fleet of six 787s running around the clock, which Boeing executives say will be like running a small airline.

The test flight program is designed to push the plane well beyond limits expected in ordinary commercial flights, practicing mid-air stalls, dives and steep banks, as well as seeking out extremes of heat and cold.

Boeing has said the first 787 should be delivered to Japan's All Nippon Airways in the fourth quarter of next year, more than two years after the original target of May 2008.

The plane has been beset by problems partly because of the new materials being used and extensive outsourcing. Early delays were due to shortages of parts and the difficulties of bringing together fuselage and wing structures from Japan, Italy and elsewhere in the United States, aggravated by a two-month strike last year.

The most recent delay occurred when Boeing needed to reinforce the side of the plane where the wing meets the fuselage.

The revolutionary use of carbon fibre and the problems of joining it to other materials mean there could still be snags.

"Just as they (Boeing) found hurdles on the way to first flight, they are going to find hurdles on the way to certification," said Richard Aboulafia, aerospace analyst at research firm Teal Group.

Goldman Sachs Sees ‘Rather Strong’ Growth in 2010-11

The global economy will expand 4.4 percent in 2010 and 4.5 percent the following year as the world recovers from the credit crisis, Goldman Sachs Group Inc. said.

“Our projections suggest that both 2010 and 2011 will be rather strong years,” a team led by Jim O’Neill, Goldman Sachs’s chief economist in London, wrote today in a report in which the bank made eight “top trade” recommendations. “The combination of better-than-expected growth and lower-than- expected inflation should be good news for financial markets.”

Among its new currency recommendations, Goldman Sachs said investors should buy the pound against the New Zealand dollar and the Polish zloty versus the yen. The bank also backed Russian equities and suggested investors should go “long” credit protection on Spain and “short” protection on Ireland.

New York-based Goldman Sachs, the most profitable securities firm in Wall Street history, said earlier today it was ending the last four of its top trades for 2009 after “potential gains” for nine of the 11 bets, including one that the pound would strengthen against the dollar. Goldman Sachs said it had “significant losses” on a recommendation to buy the dollar against the yen, losing 9 percent.

The MSCI World Index of stocks climbed 28 percent this year as the global economic slump eased. Crude oil jumped 75 percent, gold advanced to a record $1,217.23 an ounce and the dollar slid against higher-yielding currencies such as the Australian dollar and Norwegian krone. Treasuries dropped 1.4 percent in 2009, according to Merrill Lynch & Co. indexes, after a resurgence in risk appetite.

US charges Fla. lawyer with $1B investment fraud

A once high-flying attorney who courted politicians and celebrities was arrested Tuesday on federal racketeering and fraud charges alleging he operated a $1 billion investment scheme that used phony legal settlements.

Lawyer Scott Rothstein was led into the Miami FBI office in handcuffs following his early-morning arrest on five charges, including a violation of the Racketeer Influenced and Corrupt Organizations or RICO law often used against the Mafia and other criminal organizations.

Alicia Valle, spokeswoman for the Miami U.S. attorney's office, said Rothstein was also charged with mail fraud, wire fraud, money laundering and conspiracy. The combined maximum prison term for convictions on all counts is 100 years, according to court documents.

Rothstein was scheduled to appear in federal court later Tuesday. A news conference by prosecutors, the FBI and Internal Revenue Service was also planned.

The type of charging document filed by prosecutors, known as an "information," is typically used when a defendant has already agreed to plead guilty. Rothstein's attorney Marc Nurick declined comment Tuesday.

The document cites unnamed "other conspirators" who also played key roles in the fraud, suggesting that more people could face charges. In addition, the document says that Rothstein paid "gratuities" to unidentified police officials "to deflect law enforcement scrutiny" of his activities.

The criminal case was seen as inevitable after Rothstein returned from Morocco early last month amid mounting questions from investors and the FBI about missing money. The FBI has estimated the Ponzi scheme could top $1 billion and asked investors to come forward with information.

Federal agents have seized Rothstein's boats, including an 87-foot yacht, as well as 20 luxury cars and numerous other assets, including his share of the Miami Beach mansion formerly owned by fashion designer Gianni Versace. Prosecutors are also going after 21 homes and other properties linked to Rothstein in Florida, New York and along Rhode Island's Narragansett Bay.

Meanwhile, the once fast-growing law firm Rothstein Rosenfeldt Adler is defunct and Rothstein has been disbarred by the Florida Supreme Court. Several investors have already filed lawsuits seeking their money back, including one case demanding more than $100 million in damages.

Rothstein promised huge returns on investments in legal settlements he said would pay out over time. Prosecutors say most of the settlements never existed and that Rothstein operated a Ponzi scheme, using money from new investors to pay older ones.

Shortly after the scandal broke, the Florida Democratic Party returned $200,000 in contributions from Rothstein and his law firm. The state Republican Party gave back $150,000, and Gov. Charlie Crist returned $9,600 that Rothstein and his wife, Kim, had donated to Crist's campaign for the U.S. Senate.

Rothstein's office is filled with photos of him with politicians from around the country, including former President George W. Bush, former Alaska Gov. Sarah Palin, Arizona Sen. John McCain and California Gov. Arnold Schwarzenegger. He was also close to Miami Dolphins great Dan Marino and many South Florida business and community leaders.

GM board meets on Saab

Saab Automobile faced the threat of closure as the board of U.S. parent General Motors GM.UL met on Tuesday to hammer out plans after a deal collapsed to sell the Swedish brand.

Time is running out for Saab after Swedish luxury car maker Koenigsegg pulled out of bid talks last week, putting in doubt the future of the loss-making GM unit. Analysts have said the most likely outcome is a closure.

"The reality is that to try to get someone in at this stage just looks not feasible," said an auto analyst who sked not to be named. "There is no further quality offer likely to pop up."

Saab and the Swedish government say other investors have approached GM regarding Saab, but in light of the U.S. car maker's vow to drop the brand by early 2010, there is precious little time in which to forge a new deal.

"It is clear that they (GM) have to find a solution as quickly as possible, without high costs and without creating a situation of new competition," said Professor Christer Karlsson at Copenhagen Business School.

"For instance you can't sell it to anybody who wants to sell Saab on the Chinese market because then it will compete with GM's own products, since the new Buick is more or less the same car as the new Saab."

STILL HOPE

Swedish government officials met with GM this week ahead of the board meeting, which is likely to last all Tuesday, to underline that it is ready to provide loan guarantees to a new owner though it has ruled out taking a stake in Saab.

State secretary Joran Hagglund told Swedish news agency TT after the meeting with GM in Detroit that he remained hopeful that a closure of the 60-year-old brand might be avoided.

Beijing Automotive Industry Holding Corp (BAIC), which tied up with Koeningsegg in October, could still be among the possible contenders to take over Saab, which has not made a profit since 2001.

Merbanco Merchant Banking Co, based in Wyoming, has also said it remains interested in Saab.

U.S. financier Ira Rennert and his Renco Group had also expressed interest in pursuing a deal for Saab before GM struck a preliminary deal with Koenigsegg earlier this year.

Pfizer deal moves Gaucher drug stocks

The NYSE Arca Pharmaceutical Index (INDEX:DRG) rose 1.3% to 310.22 and the NYSE Arca Biotechnology Index (INDEX:BTK) inched up 0.3% to 890.31.

Shares of Pfizer (NYSE:PFE) were up over 2% at $18.59.

Pfizer said early Tuesday that it will co-develop Protalix's (AMEX:PLX) Gaucher treatment GCD. Protalix is in the process of applying for U.S. regulatory approval for the product.

Under the deal, Pfizer will pay Protalix $60 million upfront, plus up to $55 million in milestone payments. Pfizer and Protalix will share in the product's future revenue and costs on a 60/40% basis.

Shares of Protalix were down 14% at $8.47 on word of the deal. Shares of the biotech group had been bid up substantially in recent weeks in part on speculation that it would be bought outright by Pfizer.

Shares of Shire plc (NASDAQ:SHPG.Y) were also up 1% at $59.60. Shire has a treatment for Gaucher disease awaiting regulatory approval.

Protalix's drug is currently available to the public on an emergency basis as the leading medication to treat the disease, Genzyme Corp.'s (NASDAQ:GENZ) Cerezyme, is in short supply. The Cerezyme shortage was triggered by a temporarily shut-down earlier this year of a key Genzyme manufacturing plant due to contamination concerns. See story on Gaucher drug market.

Early Tuesday, Genzyme announced that it has resumed shipping of Cerezyme from the plant, along with the medication Fabrazyme. Both products are major revenue drivers for Genzyme.

Shares of Genzyme were up 1% at $51.14.

Shares of Human Genome Sciences, HGS (NASDAQ:HGSI) , were down 3% at $26.91.

Late Monday, HGS said announced it has commenced a public offering of 12.5 million of its common shares. The company said it plans to use part of the proceeds to fund commercialization of its eagerly-anticipated lupus drug Benlysta.

Fed reduces AIG's debt by $25 billion

AIG announced Tuesday that it completed a deal wiping out $25 billion of its debt to taxpayers by selling stakes in two subsidiaries to the Federal Reserve Bank of New York.

The troubled insurer gave the New York Fed preferred shares of two of its international life insurance companies, including $16 billion of American International Assurance Co. and $9 billion of American Life Insurance Co. The deal was originally announced in March.

The deal brings the New York-based insurer's debt to the New York Fed down to $17 billion. AIG also still owes the U.S. Treasury $44.8 billion from a separate Troubled Asset Relief Program (TARP) loan, so the insurer still owes taxpayers just under $62 billion.

AIG Chief Executive Bob Benmosche said, in a press release, that the debt reduction "sends a clear message to taxpayers: AIG continues to make good on its commitment to pay the American people back."

AIG's (AIG, Fortune 500) stock rose more than 4% on the news in morning trading.

"The agreements further the goals of enabling AIG to fully repay the assistance that it has received from U.S. taxpayers and advancing the company's global restructuring process," the New York Fed said in a statement when the deal was first announced in March.

The Federal Bank of New York initially provided $85 billion worth of support to AIG in September 2008, when the company was on the brink of collapse. AIG's government rescue plan has since been restructured three times, and its total bailout is now worth up to $182 billion.

But much of that bailout has come in the form of government asset purchases that AIG does not need to repay. In addition to the $25 billion announced on Tuesday, the government in March bought up nearly $40 billion of insurance agreements and mortgage-backed securities held by AIG and its business partners.

To pay back the remaining $62 billion it owes the government, AIG will continue to sell off its assets. Despite recording two straight profitable quarters, AIG has said it will not generate enough earnings to repay taxpayers with profits alone.

AIG said Tuesday's transaction will force the company to take a hefty $5.7 billion restructuring charge in the current quarter, which will likely wipe out any profits AIG would have registered in the last three months of 2009.

Despite the government support, the company still faces a steep uphill battle to return to health. Shares of the insurer tumbled 15% Monday, after Bernstein Research analyst Todd Bault told investors that he cut the 12-month price target to $12 a share from $20 because the insurer's "loss reserves are significantly deficient again, much sooner than we would have forecast two years ago."

On Nov. 25, AIG announced that it had resolved its legal dispute with former chairman Maurice "Hank" Greenberg.

DUBAI INVESTORS PANIC

Dubai's leader tried to calm panicky investors Tuesday as regional markets tumbled for a second day on news that the city-state's chief conglomerate needs to delay payments on its $60 billion debt for six months.

Government-owned investment company Dubai World — the United Arab Emirates' main engine of growth — gave anxious investors the first bit of clarity they were hoping for on how it might meet its debt obligations. It said it had begun discussions with creditors on $26 billion of its debt that would include restructuring about $6 billion.

The conglomerate is involved in international projects from Gulf banks and ports in 50 countries to luxury retailer Barney's New York and a grandiose six-tower hotel-entertainment complex in Las Vegas. Its potential for a debt default sent jitters through world markets on concerns of new setbacks for Dubai World's large international bank creditors just as they are recovering from the global financial crisis.

Dubai is one of seven highly autonomous statelets that make up the United Arab Emirates and the crisis has sent the UAE's two biggest markets into a tailspin. The Dubai Financial Market sank another 5.61 percent on Tuesday after plunging 7.3 percent on Monday and Abu Dhabi's bourse closed down 3.57 percent following an 8 percent slide a day earlier.

Dubai's ruler, Sheik Mohammed bin Rashid Al Maktoum, tried to reassure investors in his first public statement about Dubai World's debt crisis.

"Our economy is strong and solid and consistent," he told Al-Arabiya satellite television, adding markets were overreacting because of "a lack of understanding about what is happening in Dubai." He did not elaborate.

UAE President Sheik Khalifa bin Zayed Al Nahyan also maintained his country's economy was healthy.

However, analysts say Dubai World's debt crisis is a symptom of a broader malaise in the city-state. Dubai has no oil resources. But for the past decade, it has been the freewheeling boomtown, racking up debt as it built extravagant artificial residential islands, malls complete with indoor ski slopes and the world's tallest tower.

The troubles raised concerns in international markets that the large international banks that extended credit to the conglomerate could now face a new setback if it defaults just as those big banks are starting to emerge from the global financial crisis. The big fear is that Dubai's problems could be indicative that the global recovery is not on as solid a footing as many had hoped and there could be other toxic debt problems still to come in developing countries.

World stock markets rose sharply Tuesday on the announcement that Dubai World was in talks to restructure a large chunk of its business. Investors were eagerly awaiting clarity on how it would deal with its debts, specifically reassurances that the company was sitting down with creditors to refinance its debt.

Saurabh Dhall, an independent broker in Dubai, said there is a lot of uncertainty about how the debt crisis will play out. He said it was raising credibility concerns both about Dubai's ability to stand behind its debt obligations and the possibility, however, remote, that the crisis could impact broader government debt in the UAE.

"The major concern is not so much the dollar amount ... of the payments, it's the concern about how this will affect credibility," he said.

Investors were not reassured on Monday when Dubai officials indicated they had washed their hands of Dubai World's debts, arguing that it was an independent company that happened to be owned by the emirate.

The news rattled investors and raised more questions about whether neighboring Abu Dhabi, the oil-rich seat of the UAE's federal government, would step in with a bailout of sort and what such a step would mean for Dubai.

Dubai World said Tuesday in a statement the restructuring would include about $6 billion in Islamic bonds issued by its real estate arm, Nakheel PJSC, the company behind Dubai's iconic, palm-shaped artificial islands. About $3.5 billion of the bonds come due on Dec. 14, and Nakheel was viewed as the litmus test for how Dubai World will deal with its debt woes.

It did not deal with the broader issue of how it would meet its entire crushing debt burden.

Dubai World's statement Tuesday said the restructuring would include Dubai World and certain subsidiaries, including Nakheel World and Limitless World. Excluded from the talks are debts from Infinity World Holding, Istithmar World and Ports & Free Zone World, which includes ports and terminal operator DP World, Economic Zones World, P&O Ferries and Jebel Ali Free Zone.

The conglomerate said all those subsidiaries are on "stable financial footing," and in a statement posted on the Nasdaq Dubai Web site, Jebel Ali Free Zone said it paid a roughly $2 billion Islamic bond, or sukuk, on time Tuesday.

Other UAE markets also felt the weight of Dubai's problems. Qatar's bourse fell 8.27 percent while Kuwait's was off 2.71 percent on Tuesday.

Markets in the Emirates will be closed Wednesday and Thursday for a national holiday and will reopen Sunday after the weekend.

NABUCCO PIPELINE

Northern Iraqi gas production from the Pearl Production Co. could be available in five years to feed into the Nabucco gas pipeline and supply Europe, Austrian oil company OMV AG (OMV.VI) said Friday.

"Pearl is very important because they have access to a major gas field. It has the capacity to produce an important part of the supply of Nabucco," said the company's Chief Executive Wolfgang Ruttenstorfer at a press briefing in London. "The gas is there and could be available in five years."

OMV owns a 10% stake in Pearl.

The 3,300 kilometer Nabucco pipeline is an ambitious project that aims to open a new supply route for Central Asian and Middle Eastern gas to Europe via Turkey, Bulgaria, Romania, Hungary and Austria. The project has the backing of the European Union, which sees it as a way to reduce dependency on imports of Russian natural gas.

OMV, Germany's RWE AG (RWE.XE), Turkey's Botas, Bulgarian Energy Holding, Romania's Transgaz and Hungary's MOL Nyrt. (MOL.BU) are members of the Nabucco consortium. They plan to decide whether to proceed with the project in the fourth quarter of 2010, with operation due to commence in 2014.

Gas fields in northern Iraq could be developed in several years and linked fairly quickly to Turkey through an inexpensive feeder pipeline, Ruttenstorfer said. He added that he is confident that political tensions over energy exports from the Kurdish region of Iraq will have been resolved within the time frame of the Nabucco project.

The economic downturn that has left Europe with a surplus of gas has not fundamentally changed the viability of Nabucco, said Ruttenstorfer. "We are going to have an oversupply of gas in Europe for the next three to five years," he said, but after that the region will see its need for gas imports rising again.

The downturn has also had little impact on the projected EUR7.9 billion cost of the pipeline, said Ruttenstorfer.

Partners in the Nabucco consortium will need to secure around half of the pipelines planned 31 billion cubic meter a year capacity in order for the project to get the go-ahead as scheduled for the fourth quarter of 2010.

In addition to Iraq, around half this gas will probably have to come from Azerbaijan, so the decision from BP PLC (BP), Azeri state oil company Socar and their partners on whether to proceed with the second phase of the Shah Deniz gas project will be crucial, Ruttenstorfer said.

Many Nabucco consortium members are talking to the Azeris about gas supply, he said.

Ankara and Baku should resolve issues related to the price for natural gas in order to move forward with the Nabucco gas pipeline, U.S. officials said.

Richard Morningstar, the U.S. special envoy for Eurasian energy, warned that Nabucco companies could look for alternative options if Baku and Ankara cannot resolve their issues, the Azeri Press Agency reports.

"A failure to find an agreement would lead energy companies to search for different routes," he said.

Baku has considered raising the price of the gas purchased by Ankara from the Shah Deniz gas field.

The offshore Shah Deniz field has the capacity to produce 318 billion feet of gas from its initial phase, with another 706 billion cubic feet expected from Phase 2 by 2012.

Partners to the Nabucco gas pipeline for the European Union aim to diversify the regional energy sector by courting Central Asian and Middle Eastern suppliers to the project.

Morningstar told an audience at the European Policy Center in Brussels that outstanding price negotiations were moving forward, but the importance of a resolution could not be underestimated.

"We strongly encourage Turkey and Azerbaijan to agree on pricing terms because the agreement is needed to win the trust of the participating companies in the Nabucco pipeline project," he said.

Nabucco partners are eyeing Azerbaijan, Turkey and Iraq as potential suppliers for the project. Morningstar stressed that Iranian gas is not a consideration.

"Territorial integrity of Azerbaijan is as sacred as our own integrity.

The signed protocols will promote the restoration of relations between Armenia and Turkey and pave a way to peace and ensure territorial integrity of Azerbaijan. The protocols have already been submitted to the parliament and it is for parliament to decide when to ratify them", ANS-TV quoted Turkish FM Ahmed Davutoghlu as saying answering the question of the Turkish deputy from opposition People’s Republican Party Janan Aritman.

"The events that occurred in the Caucasus in August 2008, proved that the situation threatening to security, stability and interaction, is prevailing in the region. In this view, we have proposed the Caucasus Stability and Cooperation Platform and invited all the countries which are parties to the conflict, including Armenia, to join the platform. We have initiated a dialogue with Armenia which has accelerated recently. The Turkish-Armenian protocols signed on October 10 are not harmful for the Azerbaijani interests", he said.

Janan Aritman asked whether Nabucco project will be stopped with the opening of the Turkish- Armenian border. When answering the question, Davutoghlu said Nabucco project has nothing to do with normalization of relations with Armenia.

Kazakhstan wants to leave politics out of the equation and make a profit when dealing with the transport of hydrocarbons, the country’s foreign minister told five visiting western journalists at his lavish ministry in Astana. “The fundamental principle from which we are proceeding on exporting our resources is the principle of economic feasibility - no politics there. We have exported and will be exporting in any direction that is profitable for us,” Kanat Saudabayev said on 23 November. He was responding to a question from New Europe on whether the energy-rich former Soviet republic had any preference over Russian, Chinese or EU-bound projects competing for its rich oil and gas resources.
The relatively new foreign minister reminded that the Turkmenistan-Kazakhstan-China gas pipeline is due to be inaugurated on December 15 and there is already an oil pipeline from western Kazakhstan to western China. Kazakhstan also exports its oil through a whole system of pipelines running through Russia (CPC). Moreover, Kazakhstan ships oil through the Aktau-Tbilisi-Ceyhan pipeline system.
“Given that we will be producing 170 million tons of oil out of which 130 million tons of oil will be available for exports it is in our deep interests to see the multiple export pipelines realized,” Saudabayev said. The bulk of the new volumes would come from Kashagan’s massive oil field, which plans to start commercial production around 2015. “Kazakhstan is and has been turning into a more significant player on the energy market for the European consumers and we will continue to export oil resources through those means that are profitable for us. Kazakhstan as a partner has always been distinguished by its reliability and predictability,” Saudabayev said.
The question is how this oil will be transported. There are several options, including the expansion of the CPC pipeline to Novorossiysk and also using the route to China.
Regarding the issue of bypassing the crowded Bosporus, the Burgas-Alexandroupolis oil pipeline seems to have stalled. Russia seems to prefer the Samsun-Ceyhan pipeline route through Turkey due to foot-dragging by Bulgaria but also to lure Turkey into supporting the South Stream gas pipeline over Nabucco, Chris Weafer, chief strategist at Uralsib bank, told New Europe from Moscow.
“I assume that both by-pass pipes will eventually be built to cut congestion in the Bosporus. Russia will want to send more shipping with non-oil cargos via the narrow channel as it expands the economy and operations at Novorossiysk port. So it needs to divert as much oil into pipes as possible as quickly as possible,” Weafer said. Kazakh President Nursultan Nazarbayev supported Samsun–Ceyhan during his latest visit to Turkey.
Asked by New Europe if Kazakhstan was economically interested in the Nabucco pipeline, Kazakhstan’s Minister of Economic Affairs and Budget Planning Bakhyt Sultanov said that his country is interested in different ways to export its oil and gas resources. “In the case of Nabucco the main question is resources. If we’ll have resources we can sell through Russia, through Nabucco, though our partners,” he said at the sidelines of a forum to discuss Kazakhstan’s OSCE chairmanship and its priorities.
For now, it seems as if Nabucco has been out-maneuvered by Russia and China and is in real danger of having nowhere to turn to for gas supplies. “The commercial case for South Stream and Nabucco looks increasingly unsound,” Weafer said. “They are both now political projects.”

DUBAI OVERBLOWN

Dubai media and several business leaders rallied to support the Gulf Arab emirate's efforts to manage its debt crisis, saying problems have been exaggerated and the impact of restructuring overblown.

Riad Kamal, chief executive of Arabtec ARTC.DU, said he had no doubt about Dubai's commitment to settle its debt.

"Dubai should be given time to restructure its debt. I'm not going to lose sleep over this issue," he said.

The crisis began on Wednesday when Dubai, part of the United Arab Emirates federation, asked to delay payment on billions of dollars of debt issued by conglomerate Dubai World and its main property subsidiary Nakheel, developer of palm tree-shaped islands that once attracted celebrities and the super-rich.

"I am very relaxed. Dubai has never defaulted and it will not default," Khalaf Al Habtoor, chairman of Al Habtoor Group, told Reuters by phone. "I am confident the government will meet its commitments and help the companies."

An executive at Emirates NBD ENBD.DU, one of the region's largest banks, also sought to minimise the impact, saying: "It's business as usual and there's nothing to worry about."

Nevertheless, Dubai's share index fell 5.9 percent in early trading, while DP World DPW.DI plunged 14.9 percent when UAE markets opened for the first time since the debt repayment delay was announced. Abu Dhabi's bourse also declined, losing 7.1 percent to 2,703 points.

The president of Emirates airline told London's Sunday Telegraph in an interview that he was shocked by the global fallout, but said: "Dubai will navigate itself out of this, as will we." He said the carrier would not be affected.

The English-daily Khaleej Times newspaper said the Dubai government had taken a hard look at the way Dubai Inc. operates, and will fix what has not worked.

"The need to restructure Dubai World is for real, and the decision to go ahead with it indicates maturity on the part of the emirate's decision-makers," the paper said in an editorial.

Khaleej Times defended the goverment from critics who said the announcement, made just before a four-day Eid al-Adha holiday, had undermined Dubai's credibility and transparency. "The timing of the announcement of a possible six-month delay in repaying the group's debt can be debated by market-makers, but not the intention behind it," it wrote.

OVERBLOWN

Some bankers and investors also believe last week's Dubai World restructuring announcement was blown out of proportion.

"The crisis itself has been exaggerated. It is very much localised in one sector and one group. It has been escalated to a much bigger issue," Suresh Kumar, chief executive of Emirates NBD capital said.

Ajman Bank AJBNK.DU, one of the UAE's smallest banks, said it would pursue its plan to open a Dubai branch in December.

"Since the start of the global crisis, this is not the first time a postponement has been announced in a world economy like Dubai," Ajman Bank's acting CEO Ali Alshaqoosh Al Mueen told Reuters. "The decision will certainly have been taken after a thorough review of all resulting benefits and outcomes."

Some executives at international banks active in the region also voiced confidence in Dubai.

Michael Geoghegan, HSBC Group chief executive, said in a statement at the weekend he was "confident that the leadership of Dubai and the UAE will overcome any short-term issues they face, which appear to have been somewhat sensationalised, and continue to lay the foundations for sustainable growth."

Mounir Husseini, Deutsche Bank's chief country officer for the UAE and Qatar, said in an email statement: "It is clear to me that the leadership of Dubai, supported by Abu Dhabi, is committed to taking the right steps for the UAE."

Amid a global financial-market rout, Dubai's announcement Wednesday that it would seek to delay debt payments represents the latest setback for the city-state's ruler, Sheik Mohammed bin Rashid Al Maktoum.

Last week's market mayhem was compounded by a lack of transparency from Dubai over the standstill request. A five-paragraph statement from the Dubai Department of Finance provided few details. A spokesman for the department said he couldn't comment further. A spokesman for the ruler's court didn't respond to a request for comment.

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Associated Press

Sheik Mohammed bin Rashid Al Maktoum, front right on Nov. 15, was briefed as Dubai World's troubles emerged.

Late Thursday night, Sheik Ahmed bin Saeed Al Maktoum, a senior Dubai finance official and the chairman of the Emirates airline, said in a statement that the standstill announcement had been carefully planned and promised more details this week. "This is a sensible business decision," he said.

Over the last several decades, Dubai's debt piled up as government-related companies borrowed to fund development at home and acquisitions abroad. Bankers and credit analysts assumed government support from Sheik Mohammed -- and from the federal government in Abu Dhabi -- if they ever overextended.

But when the global financial crisis hit, foreign investors fled Dubai's property market, a pillar of the economy. Unease over Dubai's debt turned into global concern, and the cost of insuring Dubai debt against default started to rise sharply. Developers, many of them state-owned, saw their cash flow disappear. Buyers, who could put as little as 10% down, stopped paying installments. Builders started complaining about missed invoices.

In February, Dubai orchestrated a novel $20 billion bond program, of which the first $10 billion tranche was fully subscribed by the U.A.E. central bank.

Dubai said it would use the money to meet its own debt obligations and unpaid bills by developers. The U.A.E. offered more, but Dubai turned down the offer, according to one person familiar with the situation.

But just as investors started to breathe easier because of the big show of federal support, Sheik Mohammed dumped his new finance chief with no explanation.

Still, Dubai made its debt payments on time. In June, Dubai World, the biggest of Dubai's corporate entities, brought in restructuring outfit Alix Partners Ltd. to advise on an overhaul.

In mid-October, Dubai World said it would shed thousands of jobs and launch a major cost-cutting effort. Selling assets quickly wasn't a real option. Many of the company's businesses were still valuable but illiquid, according to a person familiar with the situation. The company wanted to avoid a fire sale, this person said.

Amid the restructuring effort, Sultan Ahmed bin Sulayem, the chairman, was aloof, according to this person. His deputy, Jamal bin Thaniah, appointed chief executive in October, took on a more active role, this person said. Mr. Sulayem hasn't responded to requests for comment. A spokesman for Dubai World said he wasn't available.

A $3.5 billion sukuk, or Islamic bond, was coming due in December. While Dubai World signaled in the spring that a debt restructuring was an option, investors and analysts continued to expect a bailout.

In a letter to employees of Dubai World earlier this month, Mr. Sulayem said the Dubai government had assured the company "full support as an iconic company serving its role in the government's vision for the future."

A Dubai World spokesman declined to comment on the letter, except to say the company would continue to communicate with staff about the restructuring. "A restructuring process has been under way for some time and it continues," he said.

Earlier this month, Dubai's top officials gathered for a meeting of Sheik Mohammed's royal court, according to a person familiar with the situation. At Zabeel Palace, surrounded by manicured gardens, statues of prancing horses, and flittering peacocks, Sheik Mohammed was briefed on the extent of Dubai World's troubles, this person said.

In the days that followed, Sheik Mohammed announced the removal of several top economic advisers from key positions. Then on Wednesday, Dubai announced it had raised $5 billion in debt commitments from two Abu Dhabi-controlled banks. Investors interpreted the move as another indication that the federal government would come to Dubai's rescue if needed. Two hours later, Dubai came out with its standstill announcement.

U.S. stocks fell more than 1 percent in a truncated session on Friday as a possible debt default by a Dubai state-owned conglomerate led to fresh concerns about the global financial system.

The sell-off was broad, with selling concentrated mainly in the financial and commodity-linked sectors as investors trimmed positions in areas of the market most sensitive to economic uncertainty.

That hit stocks like aluminum producer Alcoa Inc , down 2.6 percent, and Bank of America , down 3 percent.

But after a slide of more than 2 percent at the open, the flight to less risky assets seemed to be subsiding, helping the major U.S. stock indexes ease back up off their lows. The U.S. dollar, which had jumped sharply as investors looked for a safe haven, pared gains and commodity prices stabilized.

The news out of the Middle East coincided with the desire by many investors to lock in 20 percent year-to-date gains in the S&P 500 after a terrible year in 2008.

"It is at least an early indication of whether investors believe this is one-time bad news or the tip of something really bad," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. "Right now, it looks like investors are taking the optimistic stance."

The Dow Jones industrial average <.DJI> dropped 154.48 points, or 1.48 percent, to end at 10,309.92. The Standard & Poor's 500 Index <.SPX> fell 19.14 points, or 1.72 percent, to 1,091.49. The Nasdaq Composite Index <.IXIC> lost 37.61 points, or 1.73 percent, to 2,138.44.

For the week, the Dow dipped 0.1 percent, while the S&P 500 edged up 0.01 percent and the Nasdaq slipped 0.4 percent.

Volume was light on the day after Thanksgiving. The U.S. stock market shut on Friday at 1 p.m. (1800 GMT), which was three hours shy of its normal closing bell, but the number of declining stocks still towered over those advancing.

Standard & Poors Puts Four Dubai Banks on Credit Watch

Dubai banks Emirates Bank International PJSC, National Bank of Dubai, Mashreqbank PSC and the Dubai Islamic Bank PJSC have all been put on credit watch by Standard & Poor's rating agency after the city state's largest corporate entity, Dubai World, asked creditors for a six-month standstill on debt repayments.

The agency has placed its CreditWatch on the the 'A-' long-term rating for the four banks while affirming its 'A-2' short-term ratings on Emirates Bank International, National Bank of Dubai and Mashreqbank.

"The rating actions reflect the large exposure these banks have to Dubai World and Nakheel, and more generally to Dubai-based government related entities, and the risks that the standstill agreement would pose to these banks," said S&P credit analyst Mohamed Damak.

"This comes at a time when the deteriorated economic environment, including the fall of real-estate prices, has already started to weigh on the financial profile of these banks," he added.

Asset quality indicators are also expected to worsen as some of these banks have exposure to Ahmad Hamad Al Gossaibi Brothers and Saad Group, which defaulted on their obligations earlier in 2009.

Dubai's Woes Shake U.A.E. Region

Investors remained rattled, two days after the government said it would take charge of restructuring its corporate flagship, Dubai World, and asked creditors to accept delayed payments.

The dollar and the yen roared higher Friday as the fallout from the Dubai debacle continued to resonate through global financial markets. Proving that gold doesn't always benefit during bouts of risk aversion, gold fell 4% along with a decline in crude oil and a drop in equities.

Meanwhile, equities markets across Asia fell sharply Friday. Japan's Nikkei 225 Average fell 3.2% to 9081.52, its lowest close since July. In Hong Kong the Hang Seng Index plunged 4.8% or 1075 points to 21134.50, led down by banking stocks. HSBC Holdings shares in Hong Kong fell 7.6% and Standard Chartered shares closed down 8.6% on news the banks were directly exposed to Dubai's debt problems.

European shares, which droped sharply Thursday, rebounded from early session lows Friday ahead of the U.S. stock market open, suggesting that the selloff on Dubai World's debt worries was overdone. The U.S. stock market is reopening Friday after the Thanksgiving holiday on Thursday. (See complete markets updates at WSJ.com/markets.)

A Wednesday announcement of a six-month standstill in debt payments took investors and analysts by surprise. It followed months of positive moves and comments from government officials suggesting Dubai and the federal government of the United Arab Emirates were willing to step in to plug financing holes.

"The most negative effect of [the] announcement is a major shock to confidence in the U.A.E. and the region more generally," said Richard Fox, a credit analyst at Fitch Ratings in London. "People will now question government support."

Amid a scramble by international bankers and analysts to assess global exposure to Dubai, the company said Thursday that its cash-generating ports division, DP World, wouldn't be included in the restructuring.

Company executives and representatives didn't respond to requests for comment. Sheik Ahmed bin Saeed al Maktoum, head of Dubai's finance committee, said in a statement Thursday that "our intervention in Dubai World was carefully planned and reflects its specific financial position," according to Zawya Dow Jones. "We understand the concerns of the market and the creditors in particular. However, we have had to intervene because of the need to take decisive action to address its particular debt burden," he said, promising more details next week.

Dubai's standstill request is one more troubling development for international banks, which turned in recent years to the oil-rich Middle East as a source of income. Both local and international banks also are licking their wounds from the debt troubles this year of two big family-run Saudi Arabian conglomerates, which owe more than 100 lenders a conservatively estimated $15 billion.

Dubai World is seeking a six-month moratorium on interest payments, a person familiar with the matter said. During that time, it could negotiate with creditors a restructuring that would pare liabilities, which include $20 billion of loans and bonds coming due in the next 18 months, according to estimates. If the lenders don't agree, Dubai World will default on the notes, the person said.

The banks with the greatest exposure to Dubai World are Abu Dhabi Commercial Bank and Emirate NBD PJSC, people familiar with the matter said. Executives at the two banks weren't available for comment Thursday.

Among the international banks that have large exposure are the U.K.'s Royal Bank of Scotland Group PLC, HSBC Holdings PLC, Barclays PLC, Lloyds Banking Group PLC, Standard Chartered PLC and ING Groep NV of the Netherlands, the person said.

RBS has lent roughly $1 billion to Dubai World, another person said.

Barclays's exposure to Dubai World is roughly $200 million, and that exposure is effectively hedged, according to people close to the matter.

Despite the surprise, people close to the banks said they still believe Dubai, or its neighboring emirate, Abu Dhabi, won't risk tarnishing their images further by leaving foreign creditors in the lurch, and will agree to a reasonable plan.

Standard & Poor's put four Dubai's banks on credit watch because of their exposure to Dubai World. The cost of insuring against a Dubai default rose to $547,000 a year per $10 million in debt from $318,000 on Tuesday, according to CMA, a credit-data provider.

Holders of a $3.5 billion sukuk, or Islamic bond, issued by Dubai World property subsidiary Nakheel, due next month, face the most immediate threat. Nakheel bonds dropped from about 110 cents on the dollar before the news Wednesday to about 70 cents.

Investors assumed that the cash coming from the United Arab Emirates would give Dubai ample ability to pay off the Nakheel bond, and Dubai also had sent signals that it was willing to support its corporate entities.

A problem now, observers said, is that the circumstances behind Dubai's moves are murky, making it hard to gauge the exact risk to the bonds and Dubai's own general creditworthiness.

"The uncertainty may drag on for some time yet, before we have a clear idea as to how issues will be resolved," said Huw Worthington, an analyst at Barclays Capital in London.

On Wednesday, the government of Dubai said in a statement that it appointed Deloitte LLP to spearhead an overhaul of the company, effectively sidelining current management. All year, Dubai World has been shedding jobs and cutting costs. That didn't appear enough for government officials.

A spokeswoman for the Dubai government's Department of Finance said on Wednesday that "the Dubai government decided it needed to take a more proactive role."

Dubai World Chairman Sultan Ahmed bin Sulayem would remain in place, she said.

Dubai World has served as Dubai's main driver of growth, operating a globe-spanning ports and transportation group and spearheading real-estate and infrastructure projects at home and abroad.

Real-estate subsidiary Nakheel built Dubai's iconic palm-tree-shaped island, packed with luxury villas and hotels, many still under construction. With little oil, Dubai financed much of this with debt.

Sony Bets On 3-D To Drive TV Sales

Sony Corp. expects new 3-D compatible televisions will account for up to half the TVs it sells in roughly three years, as it outlined details of its effort to prop up its slumping electronics business.

Hiroshi Yoshioka, Sony's executive deputy president and the head of its consumer products and devices group, also said the company is holding talks with several auto makers to enter into the promising but crowded market for lithium-ion car batteries. He didn't name the auto makers. Most of a $1 billion investment in battery technology over the next few years will go toward car battery development, he said, adding that Sony has also increased staffing in that area.

A Sony Corp. 3-D television and videogame demonstration in October.

the Japanse company offered last week, when Sony outlined plans to rely heavily on 3-D technology and online content to reach an operating profit margin of 5% in the fiscal year ending in March 2013.

Sony has already said it targets revenue of more than one trillion yen (about $11.4 billion) from 3-D related products, including televisions, disk players and game consoles, in that fiscal year. The company plans to introduce a 3-D compatible television next year, and Mr. Yoshioka said Thursday those types of sets will account for between 30% and 50% of all televisions sold by the fiscal year ending in 2013. The technology lets viewers choose to watch in the current two-dimensional mode or three dimensions on their TVs while wearing special glasses.

Sales results will depend on available 3-D content, Mr. Yoshioka said, adding that he sees strong potential in videogames. Sony said 3-D television models will be priced at a premium, but it says the glasses required for viewing would be the most costly part for Sony, not the actual production of the television.

In batteries, Sony plans to play up the products' safety. Mr. Yoshioka said the batteries that the company developed after its battery problems of the past enabled Sony to create a safer product. Sony and a number of other companies were plagued in recent year by instances of batteries in consumer products like notebook computer catching fire.

Sony believes the market for batteries is big and promising enough for it to enter, even if it is currently lagging other manufacturers. "We have lots of room," said Mr. Yoshioka. Sony says it currently has about 2,000 employees working in the battery business, but plans to increase that figure.

Under Chief Executive Howard Stringer, Sony is moving to shake up a company plagued by shortcoming in the content and software side of the business and high costs on its manufacturing side. It has forecast an operating loss of 60 billion yen (about $684 million) for the current fiscal year, but Mr. Stringer said the company is striving to break even through cost cuts and other initiatives.

Chinese economic growth

China's top leaders pledged Friday to continue focusing on economic recovery next year and to maintain a basically accommodative policy stance, a statement that will likely reassure domestic businesses and financial markets that it supports continued growth.

The assurance comes amid growing calls from economists for Beijing to start scaling back its moderately loose monetary policy as the economy has staged a robust rebound.

While saying it will continue its monetary policy stance and active fiscal policy next year, the Political Bureau of the Communist Party, or Politburo, has nonetheless left itself some wiggle room.

"We will maintain the continuity and stability of macro-economic policy," the Politburo concluded in a meeting chaired by President Hu Jintao, according to a report on the state television Web site.

"We will maintain our basic macro-economic policy stance, managing well the intensity, pace and focus of implementing policy...to increase the stability, balance and sustainability of economic growth."

As part of efforts to improve the composition of economic growth, the Politburo said it will pay closer attention to transforming how China grows and to economic restructuring, and will also work to boost domestic consumption next year.

The renewed emphasis on restructuring comes as economic growth has returned to pre-crisis levels. The Politburo said the recovery trend has continued to firm.

Despite signs of stabilization in the global economy, U.S. and Chinese academics have urged Beijing to rely less on exports to the U.S. and more on domestic consumption for economic growth, an objective Beijing has also said it shares.

China will also maintain "reasonable" investment growth next year and improve policies to encourage private-sector investment, the report said. Because public investments have driven the rebound in growth this year, economists say a further pickup in private investment will help sustain growth even after the stimulus program ends at the end of next year.

Additionally, China will improve its policies to stabilize external demand for Chinese products and seek to expand imports, in an attempt to promote a steady increase in foreign trade, the report said.

The government will nurture new sectors, including the services industry, encourage the participation of smaller firms in the economy, and increase its efforts to support innovation in China, as part of broader economic restructuring.

It will continue to improve its policies to help farmers and "do a good job of regulating the market for agricultural produce," the report said. Food prices can be major driver of inflation in China as they have a large weighting in the consumer price index, though the statement didn't mention inflationary risks.

Toyota, Sony, Exporters Are on ’Edge of Cliff’ on Yen

Toyota Motor Corp., Canon Inc. and Sony Corp. are among Japanese exporters that may miss their forecasts as the yen strengthens more than they anticipated, eroding their earnings from cameras, televisions and cars sold overseas, investors said.

Toyota, Sony and Canon, which generated more than 70 percent of revenue outside their home country last fiscal year, had projected the yen would average 90 to 95 to the dollar in the current period, based on their latest financial statements.

Canon Chief Executive Officer Fujio Mitarai, who heads the nation’s biggest business lobbying group, said Japan is “standing on the edge of a cliff” as the yen trades at its strongest against the dollar in 14 years, climbing to as high as 84.83 today. The stronger yen may widen the earnings rift between Japanese and South Korean manufacturers after Samsung Electronics Co. and Hyundai Motor Co. reported record quarterly profits.

“Intervention is necessary,” said Koichi Ogawa, chief portfolio manager at Tokyo-based Daiwa SB Investments Ltd., which manages $39.4 billion in assets. “Companies may be forced to cut their forecasts if the yen continues to gain further.”

The Topix Electric Appliances Index, which includes Sony, Canon and Panasonic Corp., fell as much as 3.5 percent and led the broader Topix index lower. The Topix Transportation Equipment Index tumbled as much as 3.1 percent to a four-month low.

‘Breaking Point’

Japan’s electronics companies lose a combined 31.8 billion yen ($369 million) in annual operating profit for each 1 yen appreciation against the dollar, according to a Daiwa Research Institute Ltd. estimate of 44 companies in September.

“We’re at a breaking point,” said Jesper Koll, chief executive officer of hedge fund TRJ Tantallon Research Japan. “There’s a point beyond which businesses don’t work.”

Canon’s Mitarai told reporters today Japan needs “urgent steps to counter this critical situation.” Canon would lose 4.4 billion yen in sales and 2.5 billion yen in operating profit in the three months ending Dec. 31 for every 1 yen gain against the dollar, according to the company.

“If the stronger yen becomes a long-term trend, it may affect our earnings,” Mami Imada, a Tokyo-based spokeswoman at Sony, said by phone today.

Limited Immediate Impact

Sony’s Imada and Sharp Corp. spokeswoman Miyuki Nakayama said the impact on earnings may be small for the current fiscal year because they use forward contracts to hedge currency risk. Panasonic probably won’t be affected through the end of the year even if the yen were to stay at 85 per dollar, spokesman Akira Kadota said.

Still, Panasonic PresidentFumio Otsubo told a government panel yesterday that he didn’t want to look at newspapers because of the strengthening yen and weakening South Korean won.

Should the Japanese currency stay at about 85 yen to the dollar, Toyota’s operating loss may widen by 90 billion yen in the fiscal second half and force the world’s largest carmaker to move more manufacturing outside Japan, said Mamoru Kato, an auto analyst at Tokai Tokyo Research Center in Nagoya, central Japan.

Yuta Kaga, a spokesman at Toyota, which estimated the yen will average 90 yen against the dollar during the six months ending March 31, said the current exchange rate may push down earnings. The company’s annual operating profit, or sales minus the cost of goods sold and administrative expenses, is reduced by 30 billion yen when the Japanese currency rises 1 yen against the dollar, according to the company.

Japan vs. Korea

The currency appreciation may spur corporate bankruptcies early next year by hitting domestic demand-based industries in Japan, said Nobuo Tomoda, an official at Tokyo Shoko Research Ltd. “While personal spending is in a slump amid deflation, companies such as retailers and services industries may struggle to survive.”

A stronger yen weighs on prices by making imports cheaper, pressuring domestic producers to discount goods to avoid losing customers.

Not all carmakers may reduce their estimates. Honda Motor Co., Japan’s second-largest automaker, and Nissan Motor Co. based their second-half earnings forecasts on the assumption the yen will trade at 85 to the dollar.

Korean Exporters Helped

The won has fallen 20 percent against the dollar and 37 percent against the yen in the past two years, helping South Korean exporters gain U.S. market share from Japanese rivals.

Sony and Panasonic, the world’s two largest makers of consumer electronics, have eliminated more than 48,000 jobs since September last year, as they struggle to compete against Samsung, Asia’s largest maker of chips and flat screens. Suwon, Korea-based Samsung reported record profit in the second quarter, citing a global economic recovery that spurred a rebound in prices.

Toyota and Honda, Japan’s two biggest automakers, have said they may increase overseas production as the stronger yen makes exports less competitive. Japanese carmakers have lost market share to South Korea’s Hyundai, which posted a record profit in the second quarter.

Shift Production Overseas

Toyota Executive Vice President Takeshi Uchiyamada said last month the company must “think about producing overseas what is now being produced in Japan.” Nissan, Japan’s No. 3 automaker, will fully use its production capacity in the U.S. and Mexico in the “very short term,” Nissan Chief Executive Officer Carlos Ghosn said at last month’s Tokyo Motor Show.

“An impact would be inevitable if the yen strengthens more,” Shigeru Jibiki, a spokesman for Mitsubishi Motors Corp., said today. “We’ll continue to cope with the situation by promoting cost reduction.”

“We’re not very concerned about a higher yen,” said Megumi Tezuka, a spokeswoman at All Nippon Airways Co., Japan’s second largest airline, which projects the local currency will average 95 yen a dollar in the fiscal second half. “We may have a drop in revenue but that should be covered by cheaper purchasing costs from abroad.”

Jet kerosene, priced in dollars, was ANA’s largest operating expense last fiscal year, accounting for 25 percent of its air transportation costs, according to the company’s figures.

Dubai’s Debt-Payment Delay

Ten-year Treasury yields fell to the lowest level in eight weeks as the yen strengthened to a 14-year high versus the dollar, boosting speculation the Bank of Japan will intervene in the currency markets. Treasuries headed for a third weekly gain as economists forecast the Federal Reserve will keep interest rates near zero until the third quarter of next year. U.S. markets were shut yesterday for the Thanksgiving holiday.

“There is a spike in risk aversion and Dubai was the trigger for that,” said Karsten Linowsky, a fixed-income strategist at Credit Suisse AG in Zurich. “It’s bullish for Treasuries and this will likely dominate today.”

The yield on the benchmark 10-year note fell 8 basis points to 3.20 percent as of 10:18 a.m. in London, according to BGCantor Market Data. It slid earlier 12 basis points to 3.15 percent, the biggest decline since Oct. 30. The yield has declined 17 basis points this week. The 3.375 percent security due November 2019 rose 21/32, or $6.56 per $1,000 face amount, to 101 16/32.

Dubai World, the government investment company burdened by $59 billion of liabilities, will ask all creditors for a “standstill” agreement as it negotiates to extend debt maturities, Dubai’s Department of Finance said two days ago in an e-mailed statement.

Stocks Slide

The MSCI World Index of shares slid 0.7 percent today after dropping 1.4 percent yesterday. Futures on the Standard & Poor’s 500 Index dropped 2.5 percent.

The cost of protecting European corporate bonds from default rose, according to traders of credit-default swaps.

Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings increased 23 basis points to 564, according to JPMorgan Chase & Co. prices at 7:18 a.m. in London. The index is a benchmark for the cost of protecting bonds against default and an increase indicates a deterioration in perceptions of credit quality.

Japan’s currency rose to 84.83 per dollar today, the strongest since July 1995, increasing concern the nation’s monetary authorities will intervene to curb further appreciation of the currency.

“People are scared and concerned about possible intervention,” said Yasutoshi Nagai, chief economist at Daiwa Securities SMBC Co. in Tokyo. The BOJ may sell the yen “and buy Treasuries, which will be a plus for Treasuries.”

Yen Intervention

Japan’s most recent intervention took place on March 16, 2004, when the central bank sold the yen. Finance Minister Hirohisa Fujii said on Nov. 26 the government needs to take action on “abnormal” currency movements, and Prime Minister Yukio Hatoyama said the same day the yen’s appreciation was due to weakness in the dollar.

Demand for Treasuries increased this week as Fed policy makers indicated the benchmark lending rate would remain near zero “for an extended period” as long as inflation expectations are stable and unemployment fails to decline.

“Most members projected that over the next couple of years, the unemployment rate would remain quite elevated and the level of inflation would remain below rates consistent over the longer run with the Federal Reserve’s objectives,” according to minutes of the Fed’s November meeting released Nov. 24.

Yield Curve

The difference between rates on 10-year notes and Treasury Inflation Protected Securities, or TIPS, which reflects the outlook among traders for consumer prices, narrowed to 2.14 percentage points from 2.19 percentage points last week.

The difference between two- and 10-year rates, known as the yield curve, widened 4 basis points to 2.56 percentage points today, according to data compiled by Bloomberg. Two-year year yields tend to follow what the Fed does with interest rates, while those on longer-maturity securities are more influenced by the outlook for inflation.

Treasuries of all maturities have gained 1 percent so far this month, according to indexes compiled by Merrill Lynch & Co.

The securities have handed investors a loss of 1.5 percent in 2009, headed for the first decline since 1999 as President Barack Obama borrows record amounts to fund spending programs and service deficits. U.S. marketable debt totaled $6.95 trillion in October, after climbing to a record $7.01 trillion in September.

Asian Markets and Dubai Worries

Stock markets fell across Asia on Friday as investors, spooked by news that Dubai was seeking to suspend some debt repayments, piled out of assets they considered risky.

The Hang Seng index in Hong Kong sagged 4.8 percent and South Korea’s key market gauge, the Kospi, fell 4.7 percent. The Nikkei 225 index in Japan and the Taiex in Taiwan dropped 3.2 percent. Banking shares were among the worst hit amid concerns about potential exposure to Dubai’s billions of dollars in debt.

Stock markets in Europe also headed lower during the morning, extending the falls they had suffered during the previous session. And Wall Street — which had been closed Thursday for the U.S. Thanksgiving holiday — was also set for a rocky day when markets reopen Friday.

The root of the latest turmoil was a surprise announcement on Wednesday from Dubai, one of the seven members of the United Arab Emirates, that it was asking banks to allow its main investment vehicle, Dubai World, to suspend its debt repayments for six months.

The announcement — the global high finance equivalent of a homeowner asking the bank to allow six months of skipped mortgage payments, presumably because the homeowner was out of cash — sowed fear of a contagion of instability that could roil markets that are only now recovering from the near cataclysm of the last year.

“This has sent shockwaves through the markets, even though the problems in Dubai have been known about for two years,” Emil Wolter, a Hong Kong-based strategist the Royal Bank of Scotland, said by phone from Paris.

“But it is not the trigger for a brand-new crisis. Yes, the magnitude of the situation is dramatic for Dubai. But Dubai is not America — and a property crisis in Dubai will not cause the same global crisis as a property crisis in the States.”

Still, the news stunned investors and caused markets around the world to swoon even as analysts struggled to explain which fears of contagion were legitimate and which were overwrought.

Some market experts noted, for instance, that while banks that have lent money to Dubai World could suffer significant losses if the company were to default on all or part of its $59 billion debt, worries about the sovereign debt of Middle Eastern countries swimming in oil reserves were unfounded.

Paul Schulte, head of multi-strategy research at Nomura in Hong Kong commented in a note on Friday: “Dubai was a carbon copy of Thailand’s disastrous foray as an ‘international financial center’ in the 1990s. Happily, the U.A.E. has oil. Thailand did not.”

Christopher Davidson, an expert in Gulf politics at Durham University in Britain, said Thursday: “Dubai was fairly much the worst example of overextension. It had the worst debt per capita in the world by far. I would like to put it down as a really enormous white elephant that doesn’t have much in common with the regular economy of a regular state.”

Still, in the mentality of the market, guilt by association can be a powerful force. Referring to the unexpected move by Dubai World, Mr. Davidson said, “It will tarnish the reputation of the Gulf region a bit, and it will certainly make investors more bearish again about emerging markets.”

Bank shares were among the worst hit by the global nervousness amid concerns that some might have sizeable exposures to the affected debt.

In Hong Kong, HSBC and Standard Chartered — British banks that both have large operations in the Middle East — fell 7.6 percent and 8.6 percent, respectively. Both declined Friday to comment on what exposure they had to Dubai, and Standard Chartered added that it would issue a statement “if there was anything material to disclose.”

Mr. Schulte said he believed the two banks had “insignificant exposure to Dubai.”

Like many Western consumers during the good times, Dubai gorged on debt and borrowed too much to finance a building boom that has gone bust in the downturn. When credit markets froze last year, Dubai, like Iceland, found itself overextended. But Dubai, which has little oil, was backed by its Arab emirate neighbors. At least that is what investors had assumed.

The shock announcement on Wednesday upended the assumption that Dubai would stand behind Dubai World and that other emirates, especially Abu Dhabi, would stand behind Dubai.

Saud Masud, head of research at UBS in Dubai, said Thursday that negotiators would feel pressure to reach some kind of deal to present to the markets before trading in the region resumes next week after the Eid holiday. The Dubai government’s total debt is estimated at about $80 billion, of which, Mr. Masud estimated, about two-thirds is held by local investors.

Mr. Schulte of Nomura commented in his note that, in his view, “it is not a matter of when but at what price Abu Dhabi will bail out Dubai.”

And Mr. Wolter of RBS said he believed Abu Dhabi would have no choice but to ultimately come to Dubai’s rescue. Until that becomes clear, though, he said, markets would remain extremely nervous.

On Friday, the price of oil, already undermined by the uncertain outlook for global recovery, fell to below $74 per barrel.

On the foreign exchange markets, the Japanese yen briefly hit ¥84.82 to the dollar — its strongest level against the U.S. currency in 14 years — prompting the country’s finance minister, Hirohisa Fujii, to say that he was “extremely nervous and watching the market carefully.”

“There’s no doubt the market has moved too far in one direction. Moves right now are extreme, and it would be possible to take appropriate measures,” he added, according to Reuters.

The dollar’s weakness has been broad-based, but is causing especial jitters Japan, whose economy is still struggling to emerge from a deep recession. A strong yen — which makes exporters’ good more expensive for consumers in the United States — is something Japan’s export-oriented economy can ill afford.

By late afternoon in Tokyo, the dollar had recouped some ground to trade at around ¥86.30, but it remains strong in comparison to earlier this year.

The dollar has fallen against Japanese currency for years, in part because of longstanding worries about the United States’ chronic trade imbalances and debt.

At the same time, the yen often strengthens in times of uncertainty, when Japanese investors tend to pull back on overseas investments and move their assets back to Japan. This explains why the yen has continued to appreciate despite the fact that the Japanese economy is in a deep funk, and interest rates there are ultra-low, said Patrick Bennett, a strategist at Société Générale in Hong Kong.

Mr. Bennett said he expected politicians to “ratchet up their tone” before potentially intervening in the markets. At the same time, he said, many exporters had by now learned to live with a stronger yen, meaning that the fall-out for them — and the overall economy — may not be as overwhelmingly negative as is commonly believed.

BRITISH AIRWAYS

After the markets closed on Thursday night, the British Airways board marched into a meeting in its head office, close to Heathrow, for what would prove to be a defining moment for the airline.

Earlier in the day, the board of Iberia had met in Madrid to agree the terms of a deal with the British carrier, 16 months after the two sides had announced that they were in merger talks. BA chief executive Willie Walsh had previously suggested that corporate governance – the make-up of the board – had been a sticking point in the discussions. But the talks accelerated after a change in management at Iberia over the summer. Antonio Vázquez, who took over the Spanish carrier, sold tobacco firm Altadis to Britain's Imperial Tobacco in 2008 and has a reputation as a dealmaker.

It also seems likely that huge losses incurred by both airlines had sharpened the focus of the two companies on getting a deal done. After little more than an hour, the BA board emerged and the agreement was in place. An announcement was put out by 8.30pm that evening.

The two sides hope the deal will return the combined group to profitability, allowing them to slash costs and improve buying power on the likes of fuel and aircraft, generating savings of €400m (£357m) a year. It would also create potential for higher revenue by offering a far wider range of routes to passengers, combining BA's strength across the Atlantic with Iberia's network across South America. "Consolidation is happening in our industry and it is critical that BA starts participating in that," Walsh said on Friday.

That is, if BA can sort out its pension deficit – thought to be about £2.6bn. Its schemes are subject to a valuation later this year, after which pension trustees and BA management will need to negotiate how much cash the airline needs to pump in to keep them afloat. Even then, the agreement will need rubber-stamping by the pensions regulator, which is not expected to make a ruling until next September, and the merger will not be completed until the issue is resolved. It has been a long courtship, and it will be a long engagement.

"It was a deal that was waiting to be done and that needed to be done," said one source close to the agreement. "Europe will ultimately be divided up into three or four full-service airlines and one or two low-cost carriers. Nine months ago, BA was talking about a merger with Qantas, a deal with Iberia and a transatlantic alliance with American. Qantas has fallen away … and Willie needed to pull off at least one of the others."

By Walsh's own admission, BA has been in a "fight for survival" for much of this year. Over the past decade, the airline industry has lurched from one crisis to another: the terrorist attacks of 2001, the threat of liquid bombs, Sars, swine flu and a soaring oil price. BA itself also suffered the troubled opening of its new base at Heathrow, Terminal Five, which most agree has now been turned into a success.

But it has been the global recession that has wrought the most damage: BA is losing £1.6m a day. Earlier this month, it reported half-year losses of £292m on top of record losses of £401m for the previous year. This will be the first time in the carrier's history that it has recorded two successive years in the red.

The deal with Iberia was broadly welcomed by the City. The new firm will generate annual revenues of £13.5bn – making it the third-largest airline in the world – carry 61.5m passengers and fly to 205 airports. It will be headquartered in London, although domiciled in Madrid for tax purposes, with Walsh chief executive and Vázquez as chairman. Both brands will continue to exist.

John Strickland, an airline consultant, says BA had been "feeling more and more left behind" as rivals Air France and KLM merged and Lufthansa absorbed Swiss International Airlines in 2005 and subsequently Brussels Airlines, Austrian Airlines and the British carrier BMI.

"Air France-KLM is the shiny example of an airline merger," he says. "It was a deal that wasn't blood-laden for staff. Whether it was pragmatism or foresight, they kept two brands and two functioning head offices. They looked at cost savings but it wasn't brutal in human terms and customers have been kept happy. But there has been an enormous upturn in revenue. It really has been a case of one plus one equals three… It is a model that has worked and is something that BA and Iberia will have learned from."

Walsh, 48, who joined BA in 2005, made his mark at Aer Lingus, where he joined as a pilot and worked his way up to chief executive. He turned the business into an aggressive low-cost operator and while he was there spent two years in Mallorca, where he ran Futura, a charter airline owned by the Irish group. His Spanish, apparently, is not so bad.

It seems unlikely that Walsh will have much pause for breath after sealing the deal. BA cabin crew have threatened a strike over job losses and changes to their terms; the airline is already cutting 4,900 posts. The unions are also a potential obstacle in the Iberia deal, seeking assurances that there will be no further compulsory redundancies in return for lending support. And BA is still awaiting a verdict from Washington and Brussels on its alliance with American Airlines.

"BA's problems are serious but they are arguably no worse than anyone else's," says Strickland. "And they are not paralysed, or twiddling their thumbs; they are working in a wide range of fields to improve the situation… And in the main, the staff have bitten the bullet and seen the need for change. Willie Walsh is very well regarded by investors and the deal with Iberia is a key plank in moving forward. It is a feather in his cap."

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British Airways plc is the flag carrier airline of the United Kingdom. It is headquartered in Waterside near its main hub at London Heathrow Airport and is the largest airline in the UK based on fleet size, international flights and international destinations. Its second hub is London Gatwick Airport. British Airways has discontinued all direct overseas flights from UK airports other than Heathrow, Gatwick and London City Airport. BA's UK passengers originating at non-London airports must now connect via London or use other airlines with direct services.

The British Airways Group was formed on 1 September 1974 through nationalisation by the Labour Government of the time. BA was formed from two large London-based airlines, BOAC and BEA, and two much smaller regional airlines, Cambrian Airways Cardiff and Northeast Airlines Newcastle upon Tyne. All four companies were dissolved on 31 March 1974 to form British Airways (BA) and almost thirteen years later, in February 1987, the company was privatised. The carrier soon expanded with the acquisition of British Caledonian in 1988 and Gatwick-based carrier Dan-Air in 1992. Despite being a primarily Boeing customer, British Airways placed a major order for Airbus aircraft in November 1998 with the purchase of 89 A320 Family aircraft. In 2007, the carrier placed its next major order, marking the start of its long-haul fleet replacement, ordering Airbus A380s and Boeing 787s. The centrepiece of the airline's long-haul fleet is the Boeing 747-400; with 54 examples, British Airways is the largest operator of the type in the world.

The formation of Richard Branson's Virgin Atlantic Airways in 1984 began a tense relationship with BA. In 1993, the fierce rivalry led to "one of the most bitter and protracted libel actions in aviation history" in which British Airways apologised "unreservedly" for a “dirty tricks” campaign against Virgin leading to them paying damages and legal costs. Until 2008 British Airways was the largest airline of the UK, measured by passenger numbers. In 2008 the airline carried 35.7 million passengers. Rival UK carrier EasyJet carried 44.5 million passengers in the same year, taking the title from British Airways.

British Airways is listed on the London Stock Exchange and is a constituent of the FTSE 100 Index. On 31 March 2009 the airline celebrated its 35th anniversary.

On 12 November 2009, British Airways confirmed that it had reached a preliminary agreement to merge with Iberia Airlines. The combined airline will become the world's third-largest carrier (after Delta Air Lines and American Airlines) in terms of annual revenue.

British Airways (BA) was created in 1972, when the British Overseas Airways Corporation (BOAC) and British European Airways Corporation (BEA) managements were combined under the newly formed British Airways Board. This effectively made British Airways into the national airline for the United Kingdom and due to the lack of competition, the new company began to exert its position and significance. BA was one of only two airlines to operate the supersonic Aerospatiale-BAC Concorde; inaugurating the world's first supersonic passenger service in January 1976. The final commercial Concorde flight from New York to London was on 24 October 2003.

Sir John King, later Lord King, was appointed Chairman in 1981 with the goal of preparing the airline for privatisation. King was credited with transforming the loss-making giant into one of the most profitable air carriers in the world, boldly claiming to be "The World's Favourite Airline", while many other large airlines struggled. The flag carrier was privatised and was floated on the London Stock Exchange in February 1987 by the Conservative government. In July 1987, British Airways effected the controversial takeover of Britain's "second" airline, British Caledonian.

During the 1990s, BA became the world's most profitable airline under the slogan "The World's Favourite Airline". In 1993 BA formed British Asia Airways, a subsidiary based in the Republic of China (Taiwan), to operate between London and Taipei. BA also purchased a 25% stake in Australian airline Qantas, and acquired Brymon Airways to form BA Connect all in the same year.

Lord King stepped down as chairman in 1993 and was replaced by former deputy Colin Marshall while Robert Ayling took over as the CEO. Benefits under his management included cost savings of £750m and the establishment of Go in 1998. However, one year on, in 1999, British Airways reported an 84 percent drop in profits, its worst since privatisation at the time. In March 2000, Robert Ayling was removed from his position and British Airways announced Rod Eddington as his successor. Eddington set about cutting the workforce further, in response to the slump caused by the 11 September attacks in 2001. On 8 September 2004, British Airways announced that it was to sell its 18.5 percent stake in Qantas.

In September 2005, new CEO Willie Walsh, former Aer Lingus boss, took charge of the company. In January 2008, BA unveiled its new subsidiary OpenSkies which takes advantage of the liberalisation of transatlantic traffic rights, and flies non-stop between major European cities and the United States. On 30 July 2008, British Airways and Iberia Airlines announced a merger plan that would result in the two airlines joining forces in an all-stock transaction. The two airlines would retain their separate brands similar to KLM and Air France in their merger agreement.

British Airways serves nearly 150 destinations, including 6 domestic. Along with Delta Air Lines, Emirates, Korean Air, Malaysia Airlines, Qantas and South African Airways - is one of only seven airlines that fly to all six inhabited continents.

With the exception of the Boeing 707 and Boeing 747 from BOAC, the airline as formed in 1972-4 inherited a mainly UK-built fleet of aircraft. The airline introduced the Boeing 737 and Boeing 757 into the fleet in the 1980s, followed by the Boeing 747-400, Boeing 767 and Boeing 777 in the nineties. However, with the exception of 29 of its 777 fleet, it has often equipped its aircraft with British-made Rolls-Royce engines, examples including the Trent 800 on its Boeing 777s, the RB211-524 on its 747-400s and 767s, and RB211-535s on its 757-200s. Boeing-built aircraft for British Airways are allocated the customer code 36, which appears in their aircraft designation as a suffix, such as 737-436, 747-436, 777-236.

Although it had a large Boeing fleet it has always operated other aircraft. British built aircraft were transferred from BEA (e.g. Trident) and BOAC (e.g. VC10), and in the 1980s the airline bought the Lockheed L-1011. It has also acquired through the buyout of British Caledonian Airways in the 1980s the McDonnell Douglas DC-10 and Airbus A320. In the late 1990s British Airways placed its own first direct Airbus order, for over 100 A320/A319s to replace its own aging fleet of Boeing 737s. In September 2007 BA placed its first order for long-haul Airbus jets, 12 Airbus A380s with 7 options.

British Airways has 32 outstanding options with Airbus, which may be taken as any member of the A320 family. Secured delivery positions on 10 Boeing 777 aircraft are held.

On 27 March 2007, British Airways placed a firm order for four 777-200ER aircraft with an option for four more, with the order totalling more than US$800 million at list price. The company has stated that these are for fleet expansion. BA's first batch of 777 were fitted with General Electric GE90 engines, but BA switched to Rolls-Royce Trent 800s for the most recent 16 aircraft. This has been continued with the most recent four orders as Trent 800 engines were selected as the engine choice.

On 27 September 2007, BA announced their biggest order since 1998 by ordering 36 new long-haul aircraft. The company ordered 12 A380s with options on a further seven, and 24 Boeing 787s with options on a further 18. Rolls-Royce Trent engines were selected for both orders with Trent 900s powering the A380s and Trent 1000s powering the 787s. The new aircraft will be delivered between 2010 and 2014. The Boeing 787s will replace 14 of British Airways' Boeing 767 fleet and the Airbus A380s will replace 20 of BA's oldest Boeing 747-400s and will most likely be used to increase capacity on routes to Bangkok, Cape Town, Hong Kong, Johannesburg, Singapore, and Sydney from London Heathrow.

On 1 February 2008, it was announced that BA had ordered two Airbus A318s to operate a premium service out of London City Airport (LCY) to New York. The two A318s used for the service are fitted out with 32 lie flat beds in an all business class cabin, and the service began in September of 2009. The A318 is the largest aircraft able to operate out of London City Airport. On 4 February 2008 the engine selection was announced as the CFM International CFM56. Most of BA's fleet of A320 family aircraft are powered by International Aero Engines V2500, however these engines are not available to power the A318. It was subsequently announced that, because of runway length limitations at LCY, this route will include a westbound fuel stop.

On 1 August 2008, BA announced orders for six Boeing 777-300ERs and options for four more as an interim measure to cover for delays over the deliveries of their 787-8/9s. On 12 January 2009 CEO Willie Walsh stated that BA's purchase of six 777-300ERs did not indicate that they had ruled out purchasing the A350 for their fleet renewal program and "that the airline expects to reach a decision towards the end of the year."