Airbus faces A330 delivery delays amid HNA Group woes — Reuters sources

This photo taken on July 10, 2018 shows the new Airbus A220-300 parked on the tarmac on July 10, 2018 at the Airbus delivery center, in Colomiers southwestern France. (AFP / PASCAL PAVANI)
Updated 12 July 2018
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Airbus faces A330 delivery delays amid HNA Group woes — Reuters sources

  • Companies belonging to the troubled Chinese aviation-to-finance conglomerate have delayed payments for several months, leading Airbus to withdraw deliveries, the sources told Reuters.
  • “After six months of talks, Airbus took the decision to withdraw the planes as it does not want to play the financier,” said a person familiar with the discussions.

TOULOUSE, France: Airbus faces a logjam of undelivered A330 jets worth well over $1 billion for airlines affiliated to China’s debt-laden HNA Group following a stand-off over late payments, according to industry sources and a Reuters examination of parked aircraft.
Companies belonging to the troubled Chinese aviation-to-finance conglomerate have delayed payments for several months, leading Airbus to withdraw deliveries rather than step in to finance the aircraft itself, the sources told Reuters.
“After six months of talks, Airbus took the decision to withdraw the planes as it does not want to play the financier,” said a person familiar with the discussions on Wednesday.
However, another person involved in the matter cautioned: “It is in the process of being resolved.”
An Airbus spokesman said: “We keep our talks and contractual terms with customers confidential.”
HNA had no immediate comment.
The cluster of undelivered A330 aircraft came to light on the sidelines of a ceremony to present Airbus’s smallest new jet.
Reuters journalists counted five A330s dotted around the delivery center and another parked further away — some with reflective sunshade protectors taped to the cockpit windows and all painted in the flame-red liveries of HNA Group airlines.
These include Hainan Airlines, Beijing Capital Airlines and Tianjin Airlines.
Six A330s would cost a total of $1.6 billion at list prices.

Turbulence
Various semi-finished A320s could be seen parked, though it was impossible to tell whether these were grounded for the same reasons or because of a wider problem of engine shortages for such planes. Airbus has had a stockpile of up to 100 undelivered single-aisle jets, but said last week this had fallen to 86.
The wide-body A330 aircraft has no such engine supply problems and it is the backlog of those more expensive planes that is causing most concern, the sources said.
An aircraft finance source estimated the total financial burden of holding such an asset, in terms of lost value and the cost of storage and maintenance, at $10,000 per plane per day.
Airbus is already having to handle cash shortfalls from the late delivery of dozens of A320 aircraft.
Unraveling the situation could be made more difficult by the death last week of HNA Group chairman Wang Jian, a financial source said, though HNA quickly named co-founder Chen Feng as sole chairman of the highly centralized group.
Wang, regarded as the architect of HNA’s $50 billion acquisition spree that pushed it into debt, died in southern France on July 3 in what local police said appeared to be an accidental fall from a wall while posing for a photograph.
His death complicates the troubled conglomerate’s efforts to restructure and pay off borrowings, and could increase pressure on HNA to reveal more about its oft-criticized opaque ownership.
“Anything like this creates turbulence, so things are difficult with HNA,” the financial source said. Another industry source stressed Chen was nonetheless a heavyweight figure.
Financial sources said earlier this year that some airlines linked to HNA were delaying aircraft lease payments to lessors.
Some of the sources said HNA’s flagship Hainan Airlines and smaller ones including Lucky Air and Beijing Capital Airlines had missed payments, while Tianjin Airlines was seeking to extend the term for payments due this year. (Reporting by Tim Hepher; Editing by Mark Potter)


Saudi Arabia seeks stable, not soaring, oil prices

Updated 22 September 2018
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Saudi Arabia seeks stable, not soaring, oil prices

  • Due to market tightness, Brent rose to nearly $80 per barrel but deteriorated to $78.80 on Friday.
  • The average price for Brent crude per barrel over the past five months has been between $72.11 and $76.98

RIYADH: Oil prices rose this week on continuing market tightness. With the price rise, some Saudi-bashing has begun. Bloomberg reported that increasing prices were due to Saudi Arabia’s comfort with Brent crude above $80 per barrel. Such “analysis” is hogwash.

Due to market tightness, Brent rose to nearly $80 per barrel but deteriorated to $78.80 on Friday. WTI rose above $70 per barrel for the first time in three months and settled at $70.78 per barrel by the week closing.
The average price for Brent crude per barrel over the past five months has been between $72.11 and $76.98. As may be noted in those numbers, the Brent crude price has been resisting the psychological barrier of $80 per barrel. The fact is that, since October 2014, the Brent monthly average has never gone above $80.
The oil price outlook might be raised as a result of this upward tendency and the continuing tight oil market. For instance, with the latest numbers in hand, HSBC has revised its oil price forecast upward with Brent to average $80 per barrel in 2019 and $85 in 2020, before settling at about $75 in 2021.
Bloomberg was inaccurate about Saudi Arabia’s comfort with a Brent price above $80 per barrel. The Kingdom has never been among the bulls when it comes to oil prices. Again and again, Saudi Arabia has been a major advocate for stable oil prices, not increasing oil prices, which it views as unsustainable and damaging to the global economy. Bloomberg is also predicting that Saudi Arabia will follow its allegedly bullish nature and refrain from ramping up production to compensate for the oil lost once the US sanctions on Iran come into effect.
US Secretary of Energy Rick Perry has confirmed that Saudi Arabia, Russia and the US are well able to add enough crude oil supply into the market to compensate for Iran. Indeed, the Kingdom has begun to increase output to adjust for market needs, from 9.87 million barrels per day (bpd) in April to 10.42 million bpd in August.
The upward movement in oil prices came after strong fundamentals showed market tightness that spurred record levels of speculative traders, with nearly all betting on higher prices. The price rise also recognized that total US inventories are below the five-year average for the first time since May 2014. Oil prices have been gradually trending upward with gentle fluctuations. There have not been any steep surges or declines. There is nothing artificial about the trend. In reality, it is boringly predictable.
Last month, the International Energy Agency (IEA) reported OECD commercial crude oil inventories at 32 million barrels below the five-year average. Stocks at the end of Q2 2018 were up 6.6 million barrels versus the end of 1Q 2018, the first quarterly increase since 1Q 2017. The IEA also noted that global refinery throughputs in the second half of 2018 are expected to be 2 million barrels higher than in the first half of the year. These refined products stocks will draw down before building again in 4Q 2018.
Global crude oil inventories peaked in 2016. The OPEC+ agreement that worked for market balance was the reason for a fall in inventories. Since May 2017, global oil stocks have been on the decline and now global crude oil stocks are below the five-year average. Product stocks are also below that level, with strong demand and healthy refining margins.
Inventories have kept falling despite American producers pumping at all-time highs last month. It is only the massive flood of oil from the US which has kept crude oil prices at low levels from early 2015 to the end of 2017 — along with a resulting lack of upstream investment in the oil industry. Therefore, the IEA predicts that in 2022 spare production capacity will fall to a 14-year low.
Global oil markets are rebalancing. Oil prices started their upward momentum from the end of October 2017. They went above the psychological barrier $60 a barrel after 10 consecutive months of tireless efforts by OPEC and non-OPEC nations that started on January 2017. The market rebalancing will continue through the end of 2018, and beyond.
Such upward momentum in oil prices isn’t artificial movement because it came after many months without steep price fluctuations. In 2016, the Brent price average was $43. The 2017 Brent price average was $54, and prices just surpassed $60 in October 2017. The Brent average surpassed $70 in late March 2018 and has been hovering between $72 and $78 since. There is no evidence of a steep fluctuation or an artificial movement.
The claims of an artificial price movement have come just at the time when OPEC and the world are reaping the positive outcomes of 24 nations collaborating in output cuts that managed to successfully rebalance the oil market in a situation where global oil inventories were running at record highs. Also, these false claims came when the oil industry needs capital inflows to reactivate upstream investments for major international oil companies. Such investments are essential for the price stability that benefits oil producers and consumers globally. Low oil prices result in low investment in discovery and production of petroleum resources, which damages various industry sectors and energy needs. That leads to a vicious cycle of up-and-down price fluctuations.