News Archive


Exclusive: ECB to discuss closing door to extra stimulus next week


FRANKFURT European Central Bank policymakers are set to take a more benign view of the economy when they meet on June 8 and will even discuss dropping some of their pledges to ramp up stimulus if needed, four sources with direct knowledge of the discussions told Reuters.

With economic growth clearly shifting into higher gear, rate setters are ready to acknowledge the improvement by dropping a long-standing reference to downside risks in the bank’s post-meeting opening statement, calling risks largely balanced, the sources said. Growth indicators have been outperforming expectations all year.

But they disagree on how quickly the ECB should change its policy stance, including its guidance, with countries on the currency bloc’s periphery fearing that a sharp shift in its communication could induce self-defeating market turbulence, they added.

“After the French election the political risk is clearly down and economic indicators are by and large positive, so it’s time to acknowledge this,” said one Governing Council member who declined to be named.

Having fought off the threat of deflation with years of extraordinary stimulus, the debate within the ECB is shifting to the pace of normalization, pitting doves who want incremental changes against conservatives who fear that the ECB could miss its cue, forcing more abrupt moves later.

“The positive environment has been relatively short compared to the long periods of crises we had,” another source said. “It wouldn’t be responsible to base a major policy shift on such a short upswing.”

A key debate at the June 8 meeting is likely to be whether the bank should ax all or part of its so-called easing bias, a pledge keep rates at their current or lower levels for an extended period and to increase the volume of asset buys if the outlook worsens.

Though many investors expect a decision on this, the sources said that this was far from certain.

“This will be the first time we discuss this so I don’t necessarily expect a decision,” another source said.

Indeed, ECB chief Mario Draghi signaled caution on Tuesday, arguing that due to weak underlying inflation, he was firmly convinced that an “extraordinary amount” of monetary policy support is still needed.

Inflation figures due on Wednesday are expected to show a dip in both headline and underlying price growth, potentially easing pressure on the ECB.

The ECB declined to comment.

Though ECB decisions require a simple majority, votes are not always taken and decisions normally enjoy a full or near consensus.

GRADUALISM

The split among policymakers has become evident even within the six-member Executive Board, putting top allies of Draghi in different camps.

Chief Economist Peter Praet has warned that even incremental changes in communication could send strong signals, while Vice President Vitor Constancio argued that it is better for the ECB to be late rather than early in removing stimulus.

But board member Benoit Coeure has noted that too much gradualism bears the risk of a larger market correction down the road, highlighting the risk of market expectations becoming detached from the bank’s guidance.

“Everybody knows we won’t cut rates, so formally acknowledging that should cause no ripples,” one of the sources said. “There is a credibility problem when your signals are very different than what the market expects. We’re not yet there but it’s a risk.”

Removing the reference to further rate cuts could risk strengthening the euro, a problem as the currency has already gained more than 5 percent since mid-April against the dollar.

While the ECB does not have an exchange rate target, a continued rise would hurt exporters on the periphery and dampen inflation expectations.

But removing the reference to higher asset buys could push yields higher, a worry as the ECB has already highlighted growing debt sustainability concerns. The ECB is also facing political uncertainty in Italy, one of its weaker member, which might not abate until elections are held later this year or early next year.

(Reporting by Balazs Koranyi; Editing by Hugh Lawson)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/c0FFRPvXNHw/us-ecb-policy-idUSKBN18Q181

Novartis has assets to sell, investors wary of what it might buy


ZURICH As Novartis (NOVN.S) considers asset sales that could raise $50 billion, investors are worried any cash raised may give the Swiss drugmaker firepower for another unsuccessful megadeal.

Novartis’s $52 billion takeover of U.S.-based eye care giant Alcon, completed in 2011, saddled it with a business whose sales and profit have faltered two years running.

Now, Chief Executive Joe Jimenez is reviewing Alcon’s surgical devices and contact lens businesses, suggesting they could be valued at $25-$35 billion if he unloads them.

The American CEO is also considering disposal of a roughly $14 billion stake in cross-town rival Roche, as well as his over-the-counter (OTC) drugs venture with GlaxoSmithKline (GSK.L), worth some $10 billion.Given Alcon missteps, however, investors are wary about arming Novartis with a pile of cash, for fear managers eager to refocus on cancer drugs as they address a sales hit from patent expiries might blunder into a big takeover.

“We would applaud selling those stakes, generally,” said Stephen Anness of Invesco Perpetual, Novartis’s 23rd largest shareholder, according to Thomson Reuters data.

“But what do you do with that money?” Anness said. “I would be very cautious about selling stakes…in things to raise a war-chest to go and do a massive deal, only for that deal to go and be another poor deal.”

To be sure, Jimenez has said Novartis’s MA focus remains on smaller transactions, including lower-risk drug licensing deals, ranging up to $5 billion.

Still, Jimenez has not dismissed the notion of a larger transaction. He suggested last year the Roche stake – amassed during former chairman and CEO Daniel Vasella’s unrequited merger aspirations two decades ago – could be sold once another, potentially more significant transaction is lined up to absorb the proceeds. “We’re always monitoring what’s going on but have not changed our position regarding our MA strategy or potential disposals,” Novartis spokesman Michael Willi told Reuters.

PORTFOLIO HOLES

Novartis, which is holding a two-day investor event in Boston on Tuesday and Wednesday, has portfolio holes a major deal could help fill.

Where rivals including Roche (ROG.S), Merck (MRK.N) and Bristol-Myers Squibb (BMY.N) have immuno-oncology drugs (I-O) on the market for a range of cancers, Novartis has only investigational molecules in this hot new therapy area.

Vas Narasimhan, Novartis’s drug development chief, could be tempted to look outside the company, some analysts said, especially as competitors including AstraZeneca (AZN.L) near approval for their own I-O molecules.

“We believe that Novartis may be pushed to liquidate assets in order to finance acquisitions in pharma,” said Michael Leuchten, a UBS analyst.

Speculation that Novartis might buy AstraZeneca sparked a brief jump in the British company’s stock last year. There has also been talk of its interest in Bristol-Myers.

PUT OPTION

For its OTC joint venture with GSK that emerged out of their2014 asset swap, Novartis faces a March 2018 deadline to exercise its put option for its 36.5 percent stake.

People familiar with GSK’s thinking confirmed the British group would be a willing buyer of the stake, which added $234 million to Novartis’s profit last year.

Alcon, whose eye drugs portfolio was moved into Novartis’s main pharmaceuticals unit last year, has been trimmed to include surgical equipment for conditions like cataracts as well as contact lenses and solutions.

When Jimenez began his strategic review this year, he said “all options were on the table”. Sales have fallen nine quarters, necessitating a costly program to arrest the fall.

Even Vasella, who bought Alcon as he sought to build up a European healthcare giant akin to Johnson Johnson (JNJ.N), now acknowledges the transaction was a mistake.

Alcon’s problems have coincided not only with the patent expiration of its blockbuster cancer drug Gleevec but also with the lackluster launch of Novartis’s new heart failure medicine Entresto, which in 2016 missed sales expectations. Like Alcon, Entresto has forced the company to step up marketing investments.

A fund manager among Novartis’s top-60 investors said the Alcon and Entresto stumbles raise red flags about managers’ ability to tackle business challenges like a big takeover.

“A big deal might solve some of their issues, but personally I would prefer to see them doing smaller acquisitions,” the investor said. “A cash mountain of $50 billion would definitely make me nervous.”

(Additional reporting by Simon Jessop and Ben Hirschler in London; editing by Anna Willard)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/KUUsJJfd9VI/us-novartis-disposals-idUSKBN18Q0NI

Singapore’s central bank fines Credit Suisse, UOB over 1MDB-linked transactions


SINGAPORE Singapore’s central bank said on Tuesday it had fined Credit Suisse (CSGN.S) and United Overseas Bank (UOB) a total of S$1.6 million ($1.15 million) for breaches of anti-money laundering rules for transactions related to Malaysia’s scandal-ridden state fund 1MDB.

The Monetary Authority of Singapore fined UOB S$900,000 and Credit Suisse S$700,000 as it wrapped up its two-year probe into banks involved in 1MDB-related transactions, which revealed several breaches of anti-money laundering (AML) requirements and control lapses.

“These include weaknesses in conducting due diligence on customers and inadequate scrutiny of customers’ transactions and activities,” it said in a statement, adding that it did not however detect pervasive control weaknesses at UOB and Credit Suisse.

The fines were smaller than those the authority has already imposed on other banks as part of its biggest money-laundering investigation. It has now imposed penalties of S$29.1 million on eight banks.

Last year, MAS fined DBS (DBSM.SI), UBS (UBSG.S), Standard Chartered (STAN.L) and private bank Coutts for breaches of Singapore’s anti-money laundering laws in connection to 1MDB transactions.

Once a pet project of Malaysian Prime Minister Najib Razak, who chaired its advisory board, 1MDB is the subject of money-laundering investigations in at least six countries including Switzerland, Singapore and the United States.

Najib has denied any wrongdoing.

As part of a two-year review into 1MDB-related transactions, Singapore has shut down the local units of BSI Bank and Falcon Bank due to failures of money laundering controls and improper conduct by senior management, frozen millions of dollars in bank accounts and charged several private bankers.

“The price for keeping our financial center clean as it grows in size and inter-connectedness is unstinting vigilance,” said Ravi Menon, managing director of the central bank.

The extensive review uncovered a complex web of transactions involving shell companies and individuals operating in multiple jurisdictions, including the United States, Switzerland, Hong Kong, Luxembourg and Malaysia.

“Credit Suisse takes a very serious view of our obligations in the prevention of money laundering and is firmly committed to upholding the high standards of the Singapore financial center,” the bank said in a statement.

UOB also said it had accepted the findings by MAS.

“We have instituted measures to address the areas of concern, including enhancing our training program to raise risk and control awareness among our staff,” it said.

(Reporting by Anshuman Daga, Miyoung Kim and Masayuki Kitano; Editing by Edwina Gibbs and Stephen Coates)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/ImZ0XSzAxsM/us-malaysia-scandal-singapore-idUSKBN18Q01P

Greece, Italy tensions hit euro, Asian stocks, lift yen, gold


SINGAPORE Concerns about a Greek bailout, early Italian elections and comments by the European Central Bank chief about the need for continued stimulus all kept the euro under pressure on Tuesday.

The European geopolitical fears sapped risk appetite, weighing on Asian stocks and lifting safe havens including the yen and gold, though trading was thin with several markets closed for holidays,

The euro EUR=EBS slid 0.4 percent to $1.11235 after a German press report said Athens may opt out of its next bailout payment if creditors cannot strike a debt relief deal. It was its fourth session of declines.

“The bailout payments are necessary to meet existing debt repayments due in July, so if Greece were to forgo this bailout payment the probability of a default would spike, reopening the discussion around a Grexit from the Euro zone,” said James Woods, global investment analyst at Rivkin in Sydney.

However, Woods cautioned against reading “too much into it” without more details or confirmation, adding that it is unlikely that Greece would opt out of the bailout payment at this stage.

Euro zone finance ministers failed to agree with the International Monetary Fund on Greek debt relief or to release new loans to Athens last week but did come close enough to aim to do both at their June meeting.

Comments by former Italian Prime Minister Matteo Renzi on Sunday in favor of holding an election at the same time as Germany’s in September also pulled the euro lower.

So did a statement by European Central Bank President Mario Draghi reiterating the need for “substantial” stimulus amid subdued inflation.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 0.3 percent, following holidays in the U.S. and Britain overnight.

China, Hong Kong and Taiwan markets are closed for holidays on Tuesday.

Japan’s Nikkei .N225 dropped 0.5 percent, dragged down by a stronger yen.

South Korea’s KOSPI .KS11 fell 0.6 percent, and the Korean won KRW= lost 0.2 percent against the dollar.

South Korea said on Tuesday it had conducted a joint drill with a U.S. supersonic B-1B Lancer bomber, after North Korea’s state media accused the U.S. of staging a drill to practise dropping nuclear bombs on the Korean peninsula.

European blue-chip stocks .STOXXE fell 0.2 percent on Monday, with Italy’s banking index sliding 3.4 percent, its biggest loss in nearly four months, after two lenders sought help to cover a capital shortfall.

Sterling GBP= retreated 0.2 percent to $1.281 after British Prime Minister Theresa May’s lead over the opposition Labour Party dropped to 6 percentage points in the latest poll to show a tightening race since the Manchester bombing and a U-turn over social care plans.

The dollar declined 0.4 percent to 111.815 yen JPY=.

The dollar index .DXY, which tracks the greenback against a basket of trade-weighted peers, however, advanced 0.25 percent.

In commodities, oil prices were muted, as concerns lingered about whether the extension of output cuts by OPEC and other producing countries will be enough to support prices.

U.S. crude futures CLc1 were little changed at $49.82 a barrel.

Global benchmark Brent LCOc1 fell 0.3 percent to $52.14.

Gold XAU= advanced 0.2 percent to $1,268.76 an ounce.

(Reporting by Nichola Saminather; Editing by Shri Navaratnam and Kim Coghill)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/EC3JytqtVH8/us-global-markets-idUSKBN18Q01D

Strong start to summer driving season pushed U.S. oil rises towards $50


SINGAPORE U.S. crude oil prices rose toward $50 per barrel on Tuesday as a strong start to the summer driving season in the United States suggested strong fuel demand in months ahead.

U.S. demand for transport fuels such as gasoline used in cars and diesel in buses tends to rise significantly as families visit friends and relatives or go on vacation during the summer months, with the so-called summer driving season officially kicking off on the Memorial Day holiday at the start of this week.

U.S. West Texas Intermediate (WTI) crude futures CLc1 climbed above $50 per barrel in early trading on Tuesday, and were at $494.97 per barrel at 0032 GMT, still up 17 cents from their last settlement.

“The start of the U.S. driving season … boosted confidence in the market that stockpiles would start to fall in coming weeks,” ANZ bank said on Tuesday.

The American Automobile Association (AAA) said ahead of Memorial Day that it expected 39.3 million Americans to travel 50 miles (80 km) or more away from home over the Memorial Day weekend.

“That is 1 million more travelers than last year taking to the roads, skies, rails and water, creating the highest Memorial Day travel volume since 2005,” the AAA said.

With no such driving taking place in Asia or Europe at this stage, international benchmark Brent crude futures prices were not pushed up as strongly.

Brent crude futures LCOc1 were at $52.26 per barrel, up 3 cents from their last close.

The main price factor for Brent is whether a decision led by the Organization of the Petroleum Exporting Countries (OPEC) to extend a pledge to cut production by around 1.8 million barrels per day (bpd) until the end of the first quarter of 2018 will have the desired effect of significantly tightening the market to end years of oversupply.

An initial agreement, which has been in place since January, would have expired in June this year, and the production cutback has so far not had the desired effect of substantially drawing down excess inventories.

(Reporting by Henning Gloystein; Editing by Joseph Radford)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/0NlXYxnW4Go/us-global-oil-idUSKBN18Q01B

Dollar firms against sterling, euro amid political uncertainties


TOKYO The dollar firmed on Tuesday, taking back ground against the euro and sterling which were pressured by political uncertainties in the UK and eurozone.

The dollar index, which tracks the greenback against a basket of six rival currencies, rose 0.3 percent to 97.706 .DXY, pulling further away from a 6-1/2-month low of 96.797 plumbed last week.

U.S. and UK markets were closed for holidays on Monday, giving investors fewer directional clues to follow.

British Prime Minister Theresa May’s lead over the opposition Labour Party dropped to 6 percentage points in a poll published on Tuesday, the latest to show a shrinking lead for the ruling Conservatives ahead of June 8 elections since the Manchester terrorist attack.

Sterling slipped 0.2 percent to $1.2812 GBP=, moving back toward a three-week low of $1.2775 touched on Friday.

The euro was also on the defensive after former Italian Prime Minister Matteo Renzi said on Sunday that it makes sense “from a European perspective” for Italy’s next election be held at the same time as Germany’s, scheduled for September. His comments led to a selloff in Italian government debt on Monday.

“The euro is under downward pressure following Renzi’s comment that he would favor snap elections,” as well as proportional representation that could lead to a hung parliament, said Masafumi Yamamoto, chief forex strategist at Mizuho Securities.

“It seems the market has begun to realize there’s political uncertainty in Italy,” he said. “The dollar/yen, meanwhile, is waiting for clarification on balance sheet reduction by the Fed.”

Markets are mostly pricing in the possibility that the U.S. central bank will hike interest rates by a quarter point to 1.00-1.25 percent at its June 13-14 policy meeting, with attention turning to clues on the timing of when the Federal Reserve intends to begin paring its $4.5 trillion balance sheet.

The dollar edged down 0.1 percent against its Japanese counterpart to 111.17 yen JPY=, but remained solidly mired in its recent narrow range between last week’s high of 112.13 and May 18’s low of 110.24.

The euro slipped 0.3 percent to 123.82 yen EURJPY= after drifting as low as 123.71, its weakest since May 19.

(Reporting by Tokyo markets team; Editing by Shri Navaratnam)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/-RWE4xYyC2k/us-global-forex-idUSKBN18Q00S

‘We are not amused’: Belgian monarchy angered by Burger King


BRUSSELS Burger King is in trouble with Belgium’s monarchy over an advertising campaign asking Belgians to vote online to “crown” the global fast-food giant the true ruler of the country where the U.S. brand will launch next month.

Representatives of Belgium’s King Philippe on Monday asked the local unit of Burger King, owned by Restaurant Brands International (QSR.TO)(QSR.N), to explain itself.

“We told them that we were not happy with them using an image of the king in their campaign,” palace spokesman Pierre-Emmanuel De Bauw told Reuters, adding that the monarch’s image — he appears in cartoon form — could not be used for commerce.

Shana Van den Broeck, a spokeswoman for Burger Brands Belgium, said that the company is considering whether to make changes to the advertising.

“We are deliberating on how to proceed,” she said. “Should we make a change to our campaign we would communicate that.”

The animated advert, noting that King Philippe was crowned in 2013, announces the brand’s launch in Belgium this month and asks: “Two Kings. One crown. Who will rule? Vote now … “

Anyone clicking to vote for the 57-year-old monarch then faces a series of questions such as: “Are you sure … ? He won’t cook you fries.”

The spoof poll may have touched a nerve in Brussels. In 1950 Belgians held a real referendum on a proposal to abolish the monarchy in light of the role of King Philippe’s grandfather, Leopold III, during Nazi occupation. Leopold was forced to abdicate in favor of his son, Philippe’s uncle.

(Writing by Alastair Macdonald; Editing by David Goodman)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/Xa92IMCKniA/us-belgium-burgerking-idUSKBN18P1TW

British Airways vows ‘never again’ after costly IT collapse


LONDON British Airways (BA) said it would take steps to ensure there was no repeat of a computer system failure that stranded 75,000 passengers over a holiday weekend and turned into a public relations disaster.

BA had been forced to cancel all its flights from Heathrow, Europe’s busiest airport, and Gatwick on Saturday after a power supply problem disrupted its operations worldwide and also hit its call centers and website.

The airline was returning to normal on Monday, planning to run more than 95 percent of flights from London Heathrow and Gatwick, with only a handful of short-haul flights canceled.

BA Chief Executive Alex Cruz said the root of the problem, which also affected passengers trying to fly into Britain, had been a power surge on Saturday morning which hit BA’s flight, baggage and communication systems. It was so strong it also rendered the back-up systems ineffective, he said.

“Once the disruption is over, we will carry out an exhaustive investigation into what caused this incident, and take measures to ensure it never happens again,” Cruz said.

Over the weekend, some stranded passengers curled up under blankets on the floor or slumped on luggage trolleys, images that played prominently online and in newspapers.

“Apologizes all well and good but not enough. BA has lost another loyal customer #disgraceful,” tweeted Tom Callway, who had been due to fly to Budapest.

The company was left counting the cost of the disruption, both in terms of a one-off impact to its profit and the longer term damage to its reputation.

Spanish-listed shares of parent company IAG, which also owns carriers Iberia, Aer Lingus and Vueling, dropped 2.8 percent on Monday after the outage. The London-listed shares did not trade because of a public holiday.

Flight compensation website Flightright.com said that with around 800 flights canceled at Gatwick and Heathrow on Saturday and Sunday, BA was looking at having to pay around 61 million euros ($68 million) in compensation under EU rules. That does not include the cost of reimbursing customers for hotel stays.

BA would fully honor its compensation obligations, Cruz said. Of the 75,000 passengers who missed out on flights, around two-thirds would have been flown to their destinations by the end of Monday, he added.

COST CUTTING

BA has been cutting costs to respond to competition on short-haul routes from Ryanair and easyJet and recently faced criticism for starting to charge passengers for their in-flight snacks.

Ireland’s Ryanair was quick to seize on the marketing opportunity, tweeting “Should have flown Ryanair” with a picture of the ‘Computer says no’ sketch from the TV series “Little Britain” to poke fun at BA.

Ryanair said it had seen a spike in bookings over the weekend but gave no further details.

The GMB union said that BA’s IT systems had shortcomings after they made a number of staff redundant and shifted their work to India in 2016.

“This could have all been avoided. BA in 2016 made hundreds of dedicated and loyal IT staff redundant and outsourced the work to India,” Mick Rix, GMB National Officer for Aviation, said.

Cruz rejected the union criticism.

“They’ve all been local issues around a local data center, which has been managed and fixed by local resources,” he told Sky News.

Several passengers complained about a lack of information from BA staff at the airport. Others said their luggage had been lost.

The airline said it was working to get reunite passengers with their luggage after many items were left at Heathrow over the weekend, although staff on Twitter warned this “could take some time”.

While other airlines have been hit by computer problems, the scale and length of BA’s troubles were unusual.

Delta Air Lines Inc canceled thousands of flights and delayed many others last August after an outage hit its computer systems.

Last month, Germany’s Lufthansa and Air France suffered a global system outage which briefly prevented them from boarding passengers.

(Reporting by Alistair Smout; Additional reporting by Victoria Bryan in Berlin, Costas Pitas in London and Ismail Shakil in Bengaluru; Editing by Keith Weir)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/yp0hgwyDCfU/us-britain-airports-heathrow-idUSKBN18P01O

New Russian jet heralds carbon manufacturing shake-up


PARIS Russia’s new jetliner, which conducted its maiden flight on Sunday, may have a hard time challenging the sales duopoly of Boeing and Airbus, but it does point the way to radical changes in how they could be building jets in the future.

The MS-21, a new single aisle airliner produced by Russia’s United Aircraft Corporation, is the first passenger plane borne aloft by lightweight carbon-composite wings built without a costly pressurized oven called an autoclave.

The manufacturing process provides a test for a technology already being assessed by Western rivals, who are looking for cheaper and faster ways to build some of their aircraft with composites, according to aerospace executives and suppliers.

Even as it sets up the world’s largest autoclaves to make wings for its giant 777X, Boeing is exploring alternatives for its “New Midsize Airplane” (NMA), in the middle of the market between its big wide-body jets and best-selling 737.

“There’s a good chance part of the NMA will be built without autoclaves,” a person familiar with the project said.

A Boeing spokesman said it was studying mid-market opportunities and declined further comment.

Sources say Boeing’s choice of technology for its two-aircraft NMA family will lay the foundation for the next generation of its money-spinning 737, expected to appear from 2030 and last well into the second half of the century.

Boeing has not yet discussed this part of its strategy publicly, but industry sources said it may include a trio of jets seating 160 to 210 people and built using broadly the same production system as the one developed for the NMA.

Both families of planes are likely to be built for 30 years and stay in service for another 20-30. So today’s technology choices represent a colossal 75-year bet.

Airbus too is monitoring the technology as it considers how to respond to Boeing’s mid-market jet, CNN reported last month. Airbus has declined to comment on the report.

PIVOTAL DECISION

Composites have been used in aviation since the 1970s but achieved a breakthrough in the past decade as the Boeing 787 Dreamliner and Airbus A350 entered service, promising to save money on fuel by replacing most metal parts with lighter carbon.

Those are long-haul jets, which means that the savings on fuel are worthwhile even though the planes are expensive to build. For short-haul planes that burn less fuel, like the NMA or future 737, it is more important to find cheaper ways to build them, and avoiding the need for autoclaves could help.

Betting on technology that does not require an autoclave is a gamble also for composite suppliers like U.S.-based Hexcel (HXL.N), Solvay (SOLB.BR) of Belgium and Toray (3402.T) of Japan, whose share of aerospace manufacturing is growing.

At a recent JEC composites fair in Paris, Hexcel and Solvay showcased out-of-autoclave prototype parts as they gear up to supply manufacturers on a bigger scale.

“It’s one of the big questions now in aerospace: how to produce out-of-autoclave on a large scale and at high speeds,” said Henri Girardy, business development manager at Hexcel Composites, adding jetmakers would accept no cut in performance.

Boeing’s Dreamliner and the Airbus A350 are built from carbon fiber already impregnated with resin, called “prepreg”, which is supplied to jetmakers, tailored by machines into plane parts and cured inside giant pressure-cooking autoclaves.

Analysts say these parts cost around 30-40 percent more to produce than aluminum.

Under the new technology, instead of using fiber that is pre-impregnated with resin, parts are made from a dry-fiber engineered textile which is placed in a mould and then infused with resin under a vacuum.

The parts can then be cured in an oven without pressure, a process estimated to cost 25 percent more than metal. Ultimately, that gap needs to narrow significantly or disappear.

Boatbuilders and windfarm makers have used this method for years. Secondary airplane parts have also been made that way.

But although Canada’s Bombardier partly used the technique for its CSeries, it was rare for flight-critical parts before the designers of the new Russian plane chose it for the wing.

The MS-21 has yet to score large sales but has been able to catch onto the latest manufacturing wave at a time when Western giants are starting to think beyond their recently upgraded models to future designs.

“This is an excellent technology demonstrator because it is on a real programme and a primary-structure part,” said Frank Nickisch, global director of strategic projects at Solvay Composite Materials, which provided materials for the MS-21.

He noted that the wings on the MS-21 are of comparable size to a Boeing 737 or Airbus A320.

Still, more needs to be done to bring down costs. And composite firms are not yet ready to support output at speeds planemakers have in mind.

Industry sources say Boeing is expected to build 20-30 of its proposed mid-market planes a month, about twice the rate for the 787. Future 737 and A320 replacements are likely to be closer to the 60-80 mark.

Nickisch said the proposed new Boeing middle-market aircraft would be a good test case for whether the industry can switch to a higher tempo using the widely expected composites.

Yet tough planemaker targets on cost, performance and output require progress on three fronts: cheaper materials, wider automation and computer simulation to ensure new technology works first time, following widespread delays with new jet programmes.

“Prepreg technology has been developing for 40 years, based on day-to-day knowledge. But to bring in a new process we need to be able to predict it first, with databanks,” Girardy said.

For graphic on how single-aisle jets compare tmsnrt.rs/2qyEV0W

(Writing by Tim Hepher; Editing by Peter Graff)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/6X0LJsFOoMI/us-aerospace-composites-analysis-idUSKBN18P1X0