CANADA ECONOMICS

CANADA-US-NAFTA

U.S. Department of the Treasury. 06/09/2017. United States Secretary of the Treasury Meets With Canadian Ministers and Parliamentarians

Ottawa, Ontario, Department of Finance Canada - United States Treasury Secretary Steven Mnuchin met with his Canadian counterpart Finance Minister Bill Morneau and a number of Canadian Ministers and parliamentarians today, on his first visit to Canada as Secretary.

In a roundtable discussion, the group discussed a range of economic issues of mutual interest to both countries, including the millions of middle class jobs on both sides of the border that depend on fair, free and open trade between our two countries.

Ministers and Secretary Mnuchin pledged to continue working together and to keep lines of communication open to enhance collaboration and discussion on all shared priorities, including the upcoming negotiations on the North American Free Trade Agreement, maintaining the security of our shared border, enhancing our trade corridors, investing in infrastructure, the importance of trade in our mutually-beneficial services sector, strengthening anti-money laundering and anti-terrorist financing regimes, and addressing issues related to cyber security.

The group committed to promoting a business-friendly environment that allows industries in both countries to prosper, and discussed the ongoing need to empower women entrepreneurs to ensure a diverse and thriving economy.

Minister Morneau and Secretary Mnuchin look forward to continuing the discussion at a bilateral meeting later today, as well as at the upcoming G20 Summit in Hamburg, Germany.

List of Attendees:

• U.S. Treasury Secretary Steven Mnuchin 
• Elizabeth Moore Aubin, Chargé d'Affaires of the U.S. Embassy to Canada
• Minister of Finance Bill Morneau
• Minister of Public Safety and Emergency Preparedness Ralph Goodale
• Minister of Innovation, Science and Economic Development Navdeep Bains
• Minister of Small Business and Tourism Bardish Chagger
• Minister of Foreign Affairs Chrystia Freeland
• Minister of Transport Marc Garneau
• Parliamentary Secretary to the Minister of Foreign Affairs (Canada-U.S. Relations) Andrew Leslie

ECONOMY

The Globe and Mail. Reuters. Jun. 09, 2017. Economy sees fastest job growth in eight months as hiring surges
LEAH SCHNURR

OTTAWA — Canada’s job growth accelerated in May at its fastest pace in eight months, and annual wage growth improved, prompting economists to suggest the Bank of Canada could raise interest rates sooner than anticipated.

Employers added 54,500 jobs last month, Statistics Canada said on Friday, handily topping the economists’ forecast for a gain of 11,000. Driven by full-time hiring, this was the biggest increase since September.

With hiring in both the service and goods-producing sectors, the report adds to evidence of upward economic momentum after strong growth in the first quarter, analysts said. Bank of Canada Governor Stephen Poloz said on Thursday he was comforted with recent signs of strength.

The unemployment rate rose to 6.6 per cent, as expected, as more people looked for work.

“Certainly, the Bank of Canada will find it difficult to ignore a fairly steady stream of positive indicators we are seeing for the economy and the labor market,” said BMO Capital Markets senior economist Sal Guatieri.

“Clearly the odds are shifting toward an earlier Bank of Canada rate increase.”

A separate report showed industrial capacity rose to its highest level since 2007 in the first quarter.

The jobs data led traders to raise their bets modestly for an interest rate hike by the end of the year, with markets pricing a 24.8 per cent probability of an increase by December. The Canadian dollar strengthened against the greenback.

Nonetheless, many economists expect the central bank to wait until next year to raise rates, particularly given uncertainty about trade policies from the United States, Canada’s biggest trading partner.

Friday’s report showed average hourly wages were up 1 per cent from a year earlier after growing at an annual 0.5 per cent in April. The Bank of Canada has pointed to recent muted pay growth as a sign of slack in the economy.

While wage growth is still slow, economists said the trend was at least improving.

“We’re carving out a bottom on wage growth,” said Bank of Nova Scotia economist Derek Holt.

Statistics Canada’s website went down shortly after the data was released. Communications officer Laurence Beaudoin-Corriveau said a power outage was affecting the statistics bureau’s major systems.

The website has been plagued by outages and delays in recent months. The government said in March that hackers had broken into a web server at Statistics Canada, although they were stopped before they stole any data.

REUTERS. Jun 9, 2017. Strong May Canada jobs growth adds to case for interest rate hikes
By Leah Schnurr

OTTAWA (Reuters) - Canada's job growth accelerated in May at its fastest pace in eight months, and annual wage growth improved, prompting economists to suggest the Bank of Canada could raise interest rates sooner than anticipated.

Employers added 54,500 jobs last month, Statistics Canada said on Friday, handily topping the economists' forecast for a gain of 11,000. Driven by full-time hiring, this was the biggest increase since September.

With hiring in both the service and goods-producing sectors, the report adds to evidence of upward economic momentum after strong growth in the first quarter, analysts said. Bank of Canada Governor Stephen Poloz said on Thursday he was comforted with recent signs of strength.

The unemployment rate rose to 6.6 percent, as expected, as more people looked for work.

"Certainly, the Bank of Canada will find it difficult to ignore a fairly steady stream of positive indicators we are seeing for the economy and the labor market," said BMO Capital Markets senior economist Sal Guatieri.

"Clearly the odds are shifting toward an earlier Bank of Canada rate increase."

A separate report showed industrial capacity rose to its highest level since 2007 in the first quarter.

The jobs data led traders to raise their bets modestly for an interest rate hike by the end of the year, with markets pricing a 24.8 percent probability of an increase by December. The Canadian dollar strengthened against the greenback. [CAD/]

Nonetheless, many economists expect the central bank to wait until next year to raise rates, particularly given uncertainty about trade policies from the United States, Canada's biggest trading partner. [CA/POLL]

Friday's report showed average hourly wages were up 1 percent from a year earlier after growing at an annual 0.5 percent in April. The Bank of Canada has pointed to recent muted pay growth as a sign of slack in the economy.

While wage growth is still slow, economists said the trend was at least improving.

"We're carving out a bottom on wage growth," said Bank of Nova Scotia economist Derek Holt.

Statistics Canada's website went down shortly after the data was released. Communications officer Laurence Beaudoin-Corriveau said a power outage was affecting the statistics bureau's major systems.

The website has been plagued by outages and delays in recent months. The government said in March that hackers had broken into a web server at Statistics Canada, although they were stopped before they stole any data.

(Additional reporting by Susan Taylor and Alastair Sharp in Toronto, Andrea Hopkins in Ottawa; Editing by Lisa Von Ahn)

BLOOMBERG. 2017 M06 9. Canada Finally Adds Wage Gains to Stellar Jobs Performance
by Theophilos Argitis

• Annual wage rate increases accelerated to 1.3 percent in May
• Gain in manufacturing jobs at 25,300 is the most since 2002

Canada’s labor market continued surprising in May, with a greater-than-expected 54,500 jobs gain that also finally came with signs of a pick-up in wages.

The employment gain -- the third biggest one-month increase in the past five years -- was driven by the addition of 77,000 new full-time jobs, which offset falling part-time employment. Economists had forecast a 15,000 increase in employment.

The employment gains bode well for the continuation of the country’s expansion, which is the fastest among the Group of Seven, as Canada emerges from the oil price collapse and benefits from a soaring real estate market. It also could raise pressure on the Bank of Canada, which has been citing worries about slack in the economy for being cautious, to increase rates sooner.

“Job growth is astoundingly strong in Canada and the data-quality critics face an uphill battle in choosing to ignore what is now a quite long-lived trend,” Derek Holt, economist in Toronto at Bank of Nova Scotia, wrote in a note to clients.

Key Points

• The 316,800 new jobs over the past year is the biggest 12-month gain since February 2013 -- and levels the economy has seldom produced since the 2008-2009 recession.
• The pace of annual wage rate increases accelerated to 1.3 percent in May, after falling to a record low 0.7 percent in April. That may begin to clear up one of the most puzzling recent developments of the country’s labor market -- slumping wage gains in the face of sharp increases in employment. 
• Another sign of potential tightness is that wages for temporary workers are up 4.8 percent year-over-year.
• Manufacturing added 25,300 jobs during the month and the embattled sector has produced a 43,000 employment increase so far this year. The increase in May is the biggest since 2002. Still, services have done the heavy lifting over the past year, accounting for 295,200 of the new jobs

Erik Hertzberg/Bloomberg

Market Reaction

Canada’s currency appreciated after the report, rising 0.3 percent to C$1.3462 at 9:56 a.m. Toronto time. Benchmark two-year government bonds yielded 0.75 percent, up 3 basis points from Thursday. Odds of a rate increase this year climbed to 37 percent, according to Bloomberg calculations on overnight index swaps. They were 7 percent a month ago.

Nick Exarhos, CIBC: “It’s a pretty clear cut message from today’s employment report for Canada: the labor market is in good shape. Over the past year, the Canadian economy has added 317K jobs, equivalent to 1.8% growth. That pace is roughly one-and-a-half times as fast as we would have expected if output in Canada was growing at its economic potential. That’s clearly more good news for the Bank of Canada, which is eyeing how quickly we can close the slack that opened in the wake of the oil shock. That timeline now suggests tightening from the BoC by early 2018—something that isn’t yet priced by the bond market.”

Nathan Janzen, Royal Bank of Canada: “Strengthening in labor markets and stronger recent GDP growth numbers increasingly argue that current ultra-low interest rates may no longer be needed to support the economy. We nonetheless, continue to expect slow wage growth, lack of upward pressure in consumer prices, and uncertainty about U.S. trade policy during the upcoming NAFTA renegotiation will keep the Bank of Canada cautious and don’t expect a rate hike until the first half of 2018.”

Vanishing Slack

A separate report released Friday by Statistics Canada showed utilization of industrial capacity at the highest since 2007. Data show manufacturers were operating at 83 percent of their potential level of output, also the highest level since 2007.


Erik Hertzberg/Bloomberg

More Details

• Canada’s unemployment rate increased to 6.6 percent in May, in line with economist expectations, from 6.5 percent in April. The increase in unemployment was due to the entry of 78,400 Canadians into the labor force in May.
• One negative from Friday’s release was a slowing in total actual hours worked, to 0.7 percent annual from 1.1 percent in April. Also, the gain in hourly wages is still well below historical averages -- 2.6 percent over 10 years -- and it’s still lower than inflation.
• Adjusted to the way calculations are made in the U.S., Canada’s unemployment rate was 5.6 percent in May, compared with 4.3 percent in the U.S.
• Quebec’s unemployment rate fell to a record low of 6 percent. Manitoba has the lowest unemployment rate in the country, at 5.3 percent.
• The number of jobs in the finance, insurance and real estate sector dropped by 17,000.

AVIATION

The Globe and Mail. Jun. 09, 2017. U.S. trade watchdog to continue with Boeing’s Bombardier complaint
STEVEN CHASE AND NICOLAS VAN PRAET

OTTAWA/MONTREAL — The United States’ top trade watchdog announced Friday that it believes there is sufficient merit to a complaint of unfair trade against Montreal aircraft maker Bombardier that it will continue investigating the grievance filed by Chicago rival Boeing Co.

In the jargon employed by trade regulators, the U.S. International Trade Commission announced in a bulletin it has made “affirmative determinations in its preliminary phase antidumping and countervailing duty investigations” of Bombardier.

This means an increasingly bitter trade dispute between Canada and the United States, which has the Trudeau government threatening multi-billion reprisals against Boeing, is not going away.

Boeing kickstarted this investigating by complaining to the U.S. government that sales of Bombardier’s new C-series jetliner constitute dumping into the U.S. market, because the plane is subsidized by the Canadian and Quebec governments. The investigation could lead to punitive U.S. duties being slapped on sales of the jet as soon as July.

In its Friday bulletin, the U.S. International Trade Commission said it has voted to continue the investigation.

Trade experts say the bar for proceeding rather than abandoning an investigation at this stage is relatively low and it was not expected the U.S. trade regulator would jettison the complaint at this point in the process.

However the continuation of this Bombardier probe also demonstrates that Boeing has so far been unmoved by Canada’s threat and has made no effort to withdraw its trade complaint against the Quebec aircraft manufacturer.

The Trudeau government last month threatened to cancel a planned multibillion-dollar purchase of Boeing Super Hornet fighters if the United States proceeds with damaging trade action against Bombardier as a result of the Boeing complaint.

This growing trade battle ratchets up the tension between Ottawa and Washington as the two sides gear up for NAFTA talks set to kick off in mid-August, and signals Canada’s willingness to stand up to President Donald Trump.

“Today’s preliminary decision was expected given the very low bar for Boeing in this first step of the process,” Bombardier spokesman Mike Nadolski said. “Going forward, we are confident that a detailed review and analysis of the facts will demonstrate that Boeing’s claim is without merit.”

REUTERS. Jun 9, 2017. U.S. trade body continues probe into dumping claims against Bombardier jets
By David Lawder and Lesley Wroughton

WASHINGTON (Reuters) - The U.S. International Trade Commission on Friday voted to continue an investigation into Boeing Co's (BA.N: Quote) complaint that Canada's Bombardier Inc (BBDb.TO: Quote) dumped its CSeries jet below cost in the U.S. market while benefiting from unfair subsidies.

The vote, which was largely expected, is the first step in a case that could lead the United States to impose steep duties on Bombardier's newest 110- to 130-seat jets.

In voting 5-0 to continue the probe, ITC commissioners found there was sufficient evidence that Boeing may have suffered an injury. The Commerce Department must now determine any preliminary anti-subsidy duties by around July 22, with a deadline for preliminary anti-dumping duties at around Oct. 3.

The case has fueled trade tensions between the United States and its northern neighbor, with Canada calling on Boeing to abandon the anti-dumping challenge, and threatening to scrap plans to buy the company's fighter jets.

Boeing has argued that the CSeries program would not exist without hundreds of millions of dollars in launch aid from the governments of Canada, Quebec and Britain, or a $2.5 billion equity infusion from Quebec and its largest pension fund in 2015. It warned that Bombardier's actions could upset the wider market and erode future sales of Boeing's best-selling 737.

Boeing wants the U.S. government to investigate the 2016 sale of 75 CSeries aircraft to Delta Air Lines (DAL.N: Quote) for what the American planemaker calls the "absurdly low" sum of $19.6 million each, despite the jet costing $33 million to build.

Bombardier, which described Boeing's $19.6 million figure as "absurd," has countered that the 110-seat CS100 plane it sold to Delta does not compete with Boeing's smallest 737 model, the 130-seat 737 MAX 7.

Bombardier recently dismissed industry suggestions that the row could slow efforts to accelerate sales of its CSeries jet.

If the U.S. Commerce Department investigation finds that duties on the Bombardier aircraft are warranted, these would be aimed at offsetting any below-cost pricing or subsidies deemed unfair. The International Trade Commission would conduct its own probe with testimony from both sides and vote on whether to confirm or reject any duties.

(Additional reporting by Allison Lampert in Montreal and Eric Walsh in Washington; Editing by Jeffrey Benkoe)

REUTERS. Jun 9, 2017. WTO largely backs Boeing in trade row, faults tax break
By Tom Miles

GENEVA (Reuters) - The World Trade Organization largely cleared the United States of maintaining unfair support for Boeing Co (BA.N: Quote), but said it had failed to withdraw a tax break in its main planemaking state that continues to cause trade fireworks.

The ruling added another page to an exhausting 13-year-old battle between the transatlantic plane giants just as a U.S. tribunal agreed separately to investigate Boeing's concerns about alleged price-dumping by Canada's Bombardier.

The WTO said the United States had failed to remove aid for Boeing, as alleged in a trade complaint brought by the European Union, but ruled that few of the subsidies hurt EU interests.

It found that one U.S. subsidy program, a business tax rate reduction in the state of Washington, where Boeing builds most of its aircraft, had "adverse effects", involving customers from the United Arab Emirates, Canada and Iceland.

Both sides claimed victory after the ruling, which is about whether Boeing complied with a 2012 decision that it had received billions of dollars of subsidies including aid from space agency NASA and tax breaks from Washington State.

"The panel found only one state-level program, which had an average value of $100-110 million in the 2013-2015 period, to be contrary to WTO rules. The United States disagrees and plans to appeal this limited finding," the office of the U.S. Trade Representative said.

European planemaker Airbus (AIR.PA: Quote) insisted the United States had not complied with the WTO's earlier decisions in the case and claimed it had suffered $100 billion of harm when combined with a follow-up complaint.

"The amount of money involved completely distorts trade ... and the WTO should make it clear that no government or company can escape from their international responsibilities,"  Airbus Chief Executive Tom Enders said in a statement.

The WTO said Boeing had failed to comply with part of the earlier 2012 ruling relating to tax breaks in Washington state.

Those tax breaks are now the subject of a new case, having been extended to cover Boeing's newest wide-body jet.

In November, the WTO defined the tax break to help Boeing develop its new 777X jet as a prohibited subsidy.

That decision, contested by the United States, is now working its way through the WTO's appeals tribunal.

The ruling is part of a series of tit-for-tat transatlantic complaints about aircraft subsidies that together make up the world's largest trade dispute, involving mutual accusations of support for Airbus and Boeing.

Bickering over financing for the $120 billion a year civil aerospace industry has widened in recent months as Brazil took Bombardier to the WTO and Boeing asked a faster U.S. tribunal to deal with its pricing complaint against the same company.

BLOOMBERG. 2017 M06 9. U.S. Trade Panel Rules Bombardier Sales May Have Hurt Boeing
by Andrew Mayeda

• USITC says reasonable indication C Series jets may harm Boeing
• Before any duties imposed, panel must issue a final ruling

A U.S. trade court ruled that Boeing Co.’s commercial jet business may have been harmed by sales of passenger planes by Bombardier Inc. at less than fair value. The court decision allows Boeing to continue pressing for tariffs against its Canadian competitor.

The U.S. International Trade Commission ruled Friday that there’s reasonable indication that Boeing’s business may have been hurt or threatened by Bombardier sales in the U.S. of its C Series jets.

The Commerce Department is investigating separately whether to impose duties on the Bombardier planes. A negative ruling by the ITC would have ended the two investigations. Before the U.S. imposes any duties, the ITC would still have to issue a final ruling on the question of how Boeing’s business was affected.

Boeing has accused Bombardier of selling its C Series jets in the U.S. at “absurdly low” prices, while benefiting from unfair government subsidies in Canada. The U.S. planemaker asked the ITC in April to find that the company has suffered injury to its business at the hands of Bombardier and to recommend that the Commerce Department slap duties on the C Series.

Bombardier’s widely traded Class B stock fell 1.6 percent to C$2.51 at 12:07 p.m. in Toronto trading, following the ruling.

Bombardier spokesman Mike Nadolski said in an email that the company had expected the preliminary decision given “the very low bar for Boeing in this first step of the process” and that a more detailed review will show Boeing’s claims are baseless.

The allegations opened a new front in trade tensions between the U.S. and Canada, which have intensified since President Donald Trump took office vowing to renegotiate the North American Free Trade Agreement. The U.S. earlier this year imposed duties on Canadian lumber, reigniting a longstanding dispute, and Trump has complained about Canadian protections for dairy farmers. Talks to revamp Nafta are expected to start after mid-August.

Following the ruling on Friday, Canadian Foreign Affairs Minister Chrystia Freeland said the government will defend Bombardier’s interests, adding that a review is underway over military procurement that relates to Boeing.

Winning Customers

Tariffs could hurt Bombardier’s efforts to win customers for its largest-ever jetliner. The last major firm order for the plane -- Delta Air Lines Inc.’s for at least 75 jets -- dates to April of last year.

Boeing said that sale set a “new, low price ceiling” that was depressing its U.S. jetliner prices. The Atlanta-based carrier agreed to purchase the cutting-edge Bombardier jets for $19.6 million apiece, less than the $33.2 million cost of manufacturing the airplanes, Boeing said. Bombardier disputes the $19.6 million figure.

The tussle echoes longstanding U.S.-Europe disputes stemming from the rivalry between Boeing and Airbus SE.

The Canadian government earlier this year pledged C$372.5 million ($275 million) to Bombardier to finance two jet programs, including the C Series. Last year, Quebec’s provincial government invested $1 billion in the jetliner.

The Globe and Mail. Jun. 09, 2017. World Bank probing Bombardier railway deal
MARK MACKINNON

LONDON — Bombardier Inc. is facing a World Bank audit that is seeking to determine whether bribery or collusion played any role in helping a Bombardier-led consortium win a $340-million (U.S.) contract to supply railway equipment to Azerbaijan. The company also says it is freezing its relationship with a shell company whose links to a former Kremlin insider were exposed by a Globe and Mail investigation last year.

The 2013 Azerbaijan deal – which involved Bombardier Transportation’s Swedish unit – was already under scrutiny by Sweden’s National Anti-Corruption Bureau, which has jailed one Bombardier employee as prosecutors continue to build their case.

The World Bank audit could have even larger implications for the Montreal-based transportation giant. If the auditors conclude the company engaged in any corrupt practices, Bombardier would be forced out of the Azerbaijan project and barred, under World Bank rules, from participating in “any other project financed, in whole or in part, by the bank.”

Both the World Bank audit and the Swedish prosecution are focused on the consortium’s successful bid to win a contract to install computerized signalling systems along a main railway line in Azerbaijan.

The deal was 85 per cent funded by the World Bank, with the Azerbaijani government putting up the remainder of the $340-million.

The company itself is looking into how its railway division, Bombardier Transportation (BT), did business in the former Soviet Union. Mike Nadolski, Bombardier’s vice-president of communications and public affairs, said two employees of Bombardier Transportation Sweden – Evgeny Pavlov, the Russian national now sitting in a Swedish prison, and Peter Cedervall, president of the company’s Rail Control Solutions division – had been suspended pending an internal review.

Mr. Nadolski said Bombardier had also suspended its business relationship with Multiserv Overseas, a murky entity that was founded by an associate of former Russian Railways boss Vladimir Yakunin, himself a long-time member of Russian President Vladimir Putin’s inner circle.

The London-registered Multiserv Overseas – which played an intermediary role on the Azerbaijan deal, as well as more than 120 other Bombardier transactions, most of them involving Russia – has also drawn the attention of both Swedish prosecutors and the World Bank auditors.

Those inquiries came in the wake of a Globe report that found Multiserv Overseas had no functioning office or staff, and used a constantly shifting management and ownership structure, involving multiple offshore havens, to disguise its true owners.

Court documents introduced by Swedish prosecutors earlier this year show Bombardier Transportation Sweden sold signalling systems destined for Azerbaijan to Multiserv Overseas for $20-million before the shell company sold the systems on to the Bombardier-led consortium for $104-million. Sweden’s National Anti-Corruption Unit believes that at least some of the $84-million gap went to pay off Azerbaijani and Russian officials in order to win the contract.

If Bombardier were to be barred from participating in projects connected with the World Bank, it would be a huge blow for the company, and specifically its rail unit. The World Bank spent $1.5-billion in 2015 alone subsidizing railway-building projects around the globe, many of them in developing markets such as China, India and Brazil that are crucial to BT’s growth strategy.

“Bombardier is co-operating with the World Bank on their audit of the Azerbaijan project,” Mr. Nadolski said in response to e-mailed questions. “As the audit is ongoing it would be inappropriate to speculate on any potential outcome. It would also be inappropriate to comment on our own internal review until it is completed.”

The audit of Bombardier is being conducted by the Integrity Vice Presidency, an independent unit within the World Bank that investigates allegations of corruption and fraud related to World Bank-financed projects.

A spokesperson for the Integrity Vice Presidency also said there would be no comment until the audit was completed.

Bombardier, in its 2016 annual report to shareholders, declared that one of its subsidiaries was facing both a police investigation “alleging unethical actions,” as well as an outside audit “by a multilateral financial institution.” However, the company did not specify that it was the World Bank conducting the audit, nor outline the potential ramifications.

A source familiar with the World Bank audit said a key focus is Trans-Signal-Rabita, a previously unheard-of company that became Bombardier’s local partner in the consortium that successfully won the contract to install upgraded signalling systems along a 503-kilometre rail line running from the Azeri capital of Baku to the country’s border with Georgia, another ex-Soviet state.

The consortium – which was known as Bombardier-TransSignal and also included Swedish and Russian branches of Bombardier Transportation – won the contract despite offering the fifth-best price among eight competitors. That fact drew the attention of Sweden’s National Anti-Corruption Unit, which earlier this year detained three Bombardier Transportation Sweden employees on suspicion of “aggravated bribery.”

The contract between the consortium and Azerbaijan’s state railways company was signed by Mr. Pavlov, who at the time was director of sales and business development for Bombardier Transportation (Signal) Ltd., the Russian arm of Bombardier Transportation, as well as the head of the company’s Azerbaijan office. Most recently, he worked as head of sales for the northern region at Bombardier Transportation Sweden.

The other two Bombardier Transportation Sweden employees, who have not yet been formally named, were released after questioning by the National Anti-Corruption Unit while the investigation proceeds. Both are Swedish citizens.

Internal Bombardier e-mails made public in Swedish court earlier this year suggest that Mr. Pavlov was working closely with someone at the state-owned Azerbaijan Railways to make sure Bombardier’s consortium won the bid. Mr. Pavlov’s e-mails also suggest that forming a joint venture, or JV, with Trans-Signal-Rabita was the idea of someone on the Azerbaijani government’s side.

“It was suggested by AZ to have a JV with local Azerbaijanian company (TransSignal),” Mr. Pavlov wrote in December, 2012, to two colleagues whose names were redacted by Swedish prosecutors.

In the e-mails entered into the Stockholm court, Mr. Pavlov repeatedly used AZ as shorthand for Azerbaijan, AZD for Azerbaijan Railways, and BT for Bombardier Transportation.

“The partners such as AZD want to keep all this activities in secret. So, we need to keep it in the top-secret inside of BT,” he wrote in the same 2012 e-mail.

Other internal Bombardier e-mails submitted to court by the Swedish prosecution show there was concern within the company about whether Trans-Signal-Rabita and the newly formed consortium met the World Bank’s requirements for winning the contract, particularly since the Azeri company was slow in providing its financial statements to Bombardier.

“We need to understand whether Transsignal is the right partner to team up with, and if not, we need to have time to find another appropriate partner,” says a February, 2013, e-mail sent by someone in the contracts and legal affairs team of Bombardier’s Rail Control Solutions division.

Nonetheless, the bid proceeded three months later, and the consortium signed its contract with Azerbaijan Railways in September, 2013. In a news release at the time, Mr. Cedervall said the deal “reflects our commitment to provide our state-of-the art technology to Azerbaijan and to continue to deliver our signalling solutions to the region through our well-established engineering and manufacturing joint ventures in Moscow.”

World Bank auditors have already visited Trans-Signal-Rabita’s address in Baku, and are now in the process of auditing the Moscow and Stockholm offices of Bombardier Transportation, the source with knowledge of the investigation said.

The source also said that Multiserv Overseas – which is registered in London, but has a Cyprus-based director, and an ownership structure that has moved between Belize, Panama and the Seychelles since its founding in 2010 – refused to co-operate with the World Bank team.

One Bombardier internal e-mail submitted to the Swedish court described Multiserv Overseas as “a shell with no true trading,” with one employee writing that Mr. Pavlov had described Multiserv Overseas to his colleagues as “a vehicle to siphon monies from the public sector into private pockets.”

REUTERS. Jun 9, 2017. Airbus predicts $5.3 trillion jet demand, trims traffic outlook
By Tim Hepher and Cyril Altmeyer

TOULOUSE, France (Reuters) - Airbus (AIR.PA: Quote) raised its forecast for deliveries by 6 percent to 34,899 aircraft worth $5.3 trillion over the next 20 years, creating jobs for more than a million pilots and technicians as China surges past the United States to dominate air travel.

The number of people taking a plane is expected to triple over the same period as the size of the world's middle class doubles to 5 billion people, Airbus sales chief John Leahy said.

But Airbus trimmed its forecast for air traffic growth to 4.4 percent a year from 4.5 percent on Friday, taking a more cautious view on the Americas while boosting the Middle East, despite political disruptions in the Gulf.

Even at the lower growth rates, Airbus said its forecasts contained more traffic and deliveries thanks to more tourism, liberalization and a surge in private consumption.

"It's the tyranny of large numbers," Leahy said of the lower growth forecast, adding the estimate might be conservative.

The world's second largest planemaker after Boeing also predicted a surge in repairs, training and upgrade work for manufacturers as the world's fleet tops 40,000 jets by 2036.

The 20-year rolling forecast for airplane deliveries, which includes 733 freighters, was up from 33,070 aircraft a year ago as a further year of strong deliveries gets swept in.

Demand will be led by narrow jets like the Airbus A320neo family or the Boeing 737 MAX, for which Airbus expects 24,807 deliveries worth $2.4 trillion, buoyed by low-cost airlines.

Leahy said that budget carriers could reach half of the market, and supported their long-haul drive.

"Low-cost long-haul will work," he told a media briefing at the planemaker's Toulouse headquarters.

TWIN-AISLE DEMAND

Airbus sharply revised up its estimate for demand for small twin-aisle aircraft but lowered its forecast for very large planes like its A380 superjumbo, where demand is weak.

A battle is looming in the 220-270-seat market as Boeing fine-tunes plans for a mid-market wide-body jet, which Leahy dismissed a re-run of a poor-selling early Airbus model.

Airbus is pushing its hot-selling A321neo narrowbody for many missions targeted by Boeing's proposed new mid-market jet.

For the A380, Leahy acknowledged that a reduced forecast for 1,184 very large passenger planes contradicted a gap in sales, but insisted the mammoth jet would come into its own as traffic and congestion make bulk travel unavoidable.

Rival Boeing says that segment is on the way out as airlines switch to smaller and efficient twin-engined planes.

Chief Operating Officer Fabrice Bregier said Airbus is considering improving the A380 with vertical wingtips to make it cheaper to fly, as reported by Reuters in March.

The boom in aircraft demand and a step-up in engine technology has led to some bottlenecks and delays and Bregier warned suppliers that they risk a group-wide boycott if they fail to come up to standard.

Airbus officials reaffirmed a target for more than 700 deliveries in 2017, but said a higher target of more than 720 given by the company's finance chief was also achievable.

(Editing by Leigh Thomas and Alexander Smith)

ENERGY

The Globe and Mail. Reuters. Jun. 09, 2017. Oil’s price fall stalls despite supply glut
CHRISTOPHER JOHNSON

LONDON — Oil prices steadied on Friday after steep falls earlier in the week under pressure from widespread evidence of a fuel glut despite efforts led by OPEC to tighten the market.

Brent crude oil was up 5 cents at $47.91 a barrel by 1315 GMT, but still 12 per cent below its opening level on May 25, when an OPEC promise to restrict production was extended into 2018. U.S. crude was 5 cents higher at $45.69.

The Organization of the Petroleum Exporting Countries and other big producers have agreed to pump almost 1.8 million barrels per day (bpd) less than they supplied at the end of last year, and hold output there until the first quarter of 2018.


But world markets are still awash with oil.

“The challenge OPEC is facing is bigger than anyone thought a few weeks ago,” said Tamas Varga, analyst at London brokerage PVM Oil Associates.

U.S. data this week showed a surprise 3.3-million-barrel build in commercial crude oil stocks to 513.2 million. Inventories of refined products were also up, despite the start of the peak-demand summer season.

“Crude oil prices are testing lows last seen in (the fourth quarter of) 2016,” analysts at U.S. bank Jefferies wrote, pointing to the United States as the main pressure on prices.

U.S. refined oil product inventories are now back above 2016 levels and well above their five-year range, reflecting an unexpected slowdown in U.S. demand for gasoline and distillate fuels, Jefferies said.

Asian markets are also oversupplied, with traders putting excess crude into floating storage, an indicator of a glut.

The Brent forward curve shows a clear “contango” shape, with oil for use now at deep discounts to future prices. This typically indicates a well-supplied market.

Brent for January 2018 is worth around $1.50 a barrel more than Brent for August 2017, making it profitable for some traders to put oil into tankers and wait for a later sale.

Thomson Reuters Eikon shipping figures show at least 25 supertankers sitting in the Strait of Malacca and the Singapore Strait, holding unsold fuel.

Those are similar amounts to May and April, indicating that even in Asia, with its strong demand growth, traders are struggling to clear inventories.

And more production is coming. Libya’s 270,000-bpd Sharara oilfield has reopened after a workers’ protest and should return to normal production within three days, the National Oil Corp said on Friday.

REUTERS. Jun 9, 2017. After oil drop, some OPEC delegates question if supply cut deal enough
By Alex Lawler

LONDON (Reuters) - Two weeks after an OPEC-led deal to extend oil output cuts until March, some OPEC delegates are questioning whether the agreement will be enough to reduce a glut in supplies and lift prices.

Prices have fallen more than 10 percent to below $50 a barrel since the Organization of the Petroleum Exporting Countries and allies agreed on May 25 to prolong a deal to cut about 1.8 million barrels per day (bpd) until the end of March. The deal was initially due to run during the first half of 2017.

Even a political dispute between Gulf states, the source for most of OPEC's crude, has failed to drive prices higher.

Instead, eyes are trained on Nigeria and Libya, two OPEC states that were excluded from the regime of cuts to help them recover from years of unrest that had hurt production. Both now report rising output.

This is adding to concerns among some in OPEC about the effectiveness of the accord to reduce output, whose impact is already being eroded by surging U.S. shale production.

One OPEC delegate told Reuters that a deal to curb production "without freezing Libya and Nigeria is useless."

Nigeria's exports are expected to reach a 15-month high in June of about 1.75 million bpd. Libyan output has hit its highest since October 2014, rising above 800,000 bpd.

At the May meeting, OPEC discussed whether to assign output caps to Nigeria and Libya but agreed not to. The group also considered a larger production cut, an idea that it could revive in future, delegates have told Reuters.

A second OPEC delegate also said on Friday that it was not clear that the level of existing cuts was enough.

"It's difficult to say. We hope so," the delegate said. "We need to wait another month to see how it develops. There are a lot of factors involved."

A third delegate said oil-market fundamentals were improving, indicating the current drop in prices was not driven by supply and demand but rather by speculators.

However, two other delegates said the oil price drop was temporary and the current supply cut pact was enough.

"It is not a cause for alarm - it is normal," one of them said of the price fall, adding that he believed the market would still rebalance in the second half of the year.

Oil prices have recovered from below $30 a barrel in 2016, helped by the pact. But with the price hovering below $50 now, it is half its level of mid-2014 and less than the $60 top exporter Saudi Arabia has said it would like to see.

(Additional reporting by Rania El Gamal; Editing by Edmund Blair)

HOUSING BUBBLE

The Globe and Mail. Jun. 09, 2017. Home Capital fielding private-equity takeover offers
ANDREW WILLIS

Mortgage lender Home Capital Group Inc. is fielding preliminary takeover offers and is in negotiations to settle regulatory allegations as Canada’s largest alternative mortgage lender bounces back from a financial crisis.

Home Capital recently received proposals from groups led by Toronto-based private equity firms Onex Corp. and Brookfield Business Partners LP, a unit of Brookfield Asset Management Inc., according to sources familiar with the situation. Spokespeople for Brookfield, Onex and Home Capital declined to comment.

A number of U.S. private equity funds are also in talks with Home Capital and its financial advisers, sources say.

The offers received to date are “speculative, conditional and not that attractive,” said a source close to the process playing out at Home Capital, which experienced a run on the bank in April in the wake of Ontario Securities Commission allegations that the company failed to disclose problems in its mortgage business. The company was close to collapse in early May, before securing an emergency $2-billion line of credit.

Home Capital hired investment banks RBC Capital Markets and BMO Capital Markets in April for advice on its “financing and strategic options,” which started the process that led to the takeover proposals.

However, Home Capital’s board and its advisers are also moving forward with plans to restore the company’s financial health and remaining independence through steps that include raising capital by selling smaller lines of business and hiring a new CEO. One source close to the company said the decision in April to entertain takeover offers was made in haste when the company’s survival was at stake, and with Home Capital now stabilized, “a takeover may not be the best outcome for shareholders.”

Private equity firms are targeting Home Capital, which currently has a market capitalization of $707-million, because it is the market leader in loans to home buyers who cannot get mortgages from the big banks, a large pool of clients that includes the self-employed, recent immigrants and individuals with poor credit history.

Alternative lenders hold an estimated 13 per cent of the $1.3-trillion Canadian residential mortgage market.

Home Capital has an $18.5-billion mortgage portfolio, focused on homeowners in Ontario and British Columbia.

The run on the bank at Home Capital came as clients pulled their money out of high-interest savings accounts and guaranteed investment certificates (GICs) that fund the company’s mortgages. A deep-pocketed private equity fund could line up additional sources of low-cost funding for the mortgage lender, which could dramatically increase the company’s profitability.

Home Capital, as with all lenders, needs to keep renewing deposits or find other sources of funding to stay in business, and the company has more than $6-billion of GICs maturing in the next 12 months. Home Capital recently hiked the interest rates it pays on these deposits in an attempt to win market share.

Since April, Home Capital has been backstopped by a $2-billion credit facility from the Healthcare of Ontario Pension Plan that comes with an onerous 10-per-cent interest rate, and a 2.5-per-cent standby fee on undrawn funds. Replacing that debt with lower-cost financing, something that private equity owners could easily undertake, would also improve the company’s results.

Home Capital’s stock price rose more than 10 per cent on Thursday to $10.65. Home Capital shares peaked at above $50 three years ago and plunged below $6 in April.

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LGCJ.: