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Danish companies still citing red tape issues

By John Victor D. Ordoñez, Reporter

DANISH companies see potential for improving the Philippine business environment but are still concerned about governance issues and red tape, the Danish Ambassador to the Philippines said.

“The Danish business community is split in the sense they see tremendous potential, they believe the economy will grow, they believe it will remain a strong consumer market, so the potential is there,” Ambassador Franz-Michael Mellbin told BusinessWorld on the sidelines of the Copenhagen Infrastructure Partners (CIP) launch of a Light Detection and Ranging (LIDAR) system intended for its planned offshore wind project in Camarines Sur on May 30.

“But they worry about governance issues, they worry about the customs system, and they worry about red tape. So right now, there is a good opportunity in the Philippines to address those things.”

Last year, CIP, through its subsidiary Copenhagen Infrastructure New Markets Fund Philippines, became the first fully foreign-owned company awarded wind energy service contracts by the Department of Energy after the Philippines opened up renewables to full foreign ownership.

The planned offshore wind projects are in Camarines Norte and Camarines Sur, with capacity projected at 1,000 megawatts (MW); Northern Samar (650 MW); and Pangasinan and La Union (350 MW).

CIP last week launched its LIDARs for its 1-gigawatt offshore wind power project in San Miguel Bay in Camarines Sur, which the company expects to be complete by 2028.

The devices use laser technology to measure wind speeds to assess an area’s capacity to generate wind energy.

The Board of Investments granted CIP’s projects green lane certificates of endorsement to fast-track the processing of permits.

Mr. Mellbin added that more Danish companies involved in renewable energy are keen on investing in the Philippines.

“Red tape is a big issue for investors, but there’s also been a lot of work done to make it easier for people in the renewable sector,” he said.

The envoy said the Philippines has the potential to develop robust renewable energy projects due to its diverse natural resources such as wind, solar and biomass.

“But these energy projects, especially on the wind side, are so large and capital intensive that you need a lot of partnerships,” he said.

“You need partnerships with the government, both the central government and the provincial government, but you also need Filipino business partners.”

PEZA pins US investment hopes on Luzon corridor

Photo from facebook.com/PEZAPH

THE PHILIPPINE Economic Zone Authority (PEZA) said it is looking for more US investments in logistics and infrastructure, many of them likely to be tied to the Luzon Economic Corridor.

In a statement on Sunday, PEZA Director General Tereso O. Panga said that the upcoming Luzon Economic Corridor will boost investment in economic zones.

“We also see our investors taking advantage of the upcoming Luzon economic corridor which will support connectivity among Subic Bay, Clark, Manila, and Batangas as well as facilitate strategic, anchor investments within each hub in high-impact infrastructure projects, among others,” he added.

The US Trade and Development Agency has said that it will aid the Philippines with feasibility studies for projects in developing the corridor.

The corridor is focused on improving infrastructure such as rail and ports, as well as strategic investments in semiconductors, clean energy, and supply chains.

PEZA has said that it was looking at $100 billion in prospective investment deals from the US and Japan in electronic manufacturing services, manufacturing and supply chains, clean energy, agri-business, rail, and port infrastructure.

“We cannot pass up on the current developments and opportunities in ally-shoring as the Philippines is still in the sweet spot for attracting investment,” Mr. Panga added.

He said Ecozone Logistics Service Enterprises could facilitate the entry of more logistics companies to support upcoming new ecozone locators.

It said that the China+1 location strategy being pursued by many companies, the US CHIPS Act, and the US-Japan-Philippines trilateral agreement could be leveraged to attract more investment.

“PEZA remains bullish in increasing its more than 300 companies with US equity in the Philippines and bring in more investment and jobs,” it added. — Adrian H. Halili

Airline recovery, ticket prices holding back PHL travel growth – Trip.com

PHILSTAR

By Justine Irish D. Tabile, Reporter

SHANGHAI — The airline industry recovery and ticket prices remain constraints on hotel and travel industry growth, according to Singapore travel booking service Trip.com Group.

Trip.com Assistant Vice-President for International Markets Yi Ru said the Philippine hotel industry remains slow due to the limited airline capacity for inbound travelers.

“We still need more flight recovery (in the Philippines). We have the honest demand to be able to bring a lot of travelers from all major countries to the Philippines,” she said at a media briefing last week.

“Flights are our bottleneck; if they don’t recover first, then hotels won’t be able to recover. So I think specifically for the Philippines, maybe flight capacity is the challenge,” she added.

She cited the need to add more capacity to and from China to bring more inbound tourism to the Philippines.

“As long as there are few direct flights and limited capacity, that means prices will be high. And customers, during their whole booking journey, always look at how much the cost of the flight is first and then only think about the other expenses,” she added.

Trip.com has communicated to airlines and the government the need to add capacity, she said.

Asked about which other countries need to add capacity, she said: “Japan, Korea, Thailand, Singapore, Malaysia, Indonesia… we see the huge demand from Vietnam, which is being limited by flight capacity.”

She said airlines are nearly there in returning to pre-pandemic capacity levels, at least in the top destinations, led by visa-free entry countries like Singapore, Malaysia, and Thailand.

On the sidelines of the Envision Conference last week, Jane Sun, chief executive officer of Trip.com, said that the group is looking to grow faster than the industry average in terms of recovering its 2019 levels of business.

“The travel market recovered by 70% based on flight capacity. The industry estimates the market to recover 80%, and Trip.com hopefully will far exceed that number,” she added.

Ms. Sun said that some regions have still not fully recovered in terms of airline capacity, such as the US, which is at 40% recover, and Europe, which is at 60–70%.

“But there are certain regions that do very well, such as the GCC (Gulf Cooperation Council) countries, which include Abu Dhabi, the United Arab Emirates, Qatar, and Saudi Arabia,” she said.

DA bans cattle, beef imports from UK

REUTERS

THE Department of Agriculture (DA) said on Sunday that it ordered a temporary ban on live cattle and beef imports from the UK due to a case of Bovine Spongiform Encephalopathy (BSE) or Mad Cow Disease detected in the British herd.

In a statement, the DA said that shipments of live cattle, meat, meat products, bovine processed animal proteins, and cattle semen originating from the UK will not be allowed entry.

“The temporary import ban was issued due to an occurrence of classical strain, C-type BSE which was detected in South Ayrshire, Scotland on May 10,” the DA said.

It added that the UK government reported the case to the World Organization for Animal Health and an official letter was sent to the DA.

Mad Cow disease can cause fatal nerve damage in cattle and its entry or possible spread in the country could undermine the livestock industry and compromise food safety.

BSE is also zoonotic and may pass from animal to humans causing Creutzfeldt-Jakob disease in humans, which causes brain shrinkage and deterioration.

“In order to facilitate continuous trade while mitigating the possible risk of spread of BSE infection, all shipments coming from the United Kingdom that are already in transit, loaded or accepted unto port shall be allowed provided that the products were slaughtered or produced on or before April 10,” the DA added.

The DA added that it would implement more stringent inspections of all arrivals of meat and meat by-products derived from cattle, including live animals and bovine processed animal proteins at the ports of entry. — Adrian H. Halili

Building efficient and resilient supply chains with GenAI

IN BRIEF: 

• Businesses are focused on advancing their AI supply chain pilot projects into fully functioning applications.

• GenAI can serve as a dynamic tool and a force multiplier in fortifying supply chains.

• Despite its limitations, GenAI provides a multiplier in what technology and humans can achieve together in building efficient and resilient supply chains, whether in planning, sourcing, making or moving.

In the wake of the global pandemic, businesses remained focused on advancing their artificial intelligence (AI) supply chain pilot projects into fully functioning applications. Companies are turning more to AI for demand planning and procurement within their supply chains, and are also investigating its potential for streamlining processes and enhancing efficiency in final-stage delivery. However, the rapid emergence of Generative AI (GenAI), brought to prominence by ChatGPT, has dramatically shifted perceptions about the capabilities of AI.

GenAI is adept at producing new content that includes images, text, audio, or video, drawing from its training data. This technology isn’t new, but recent developments have streamlined its use and enhanced its practical value. As funding flows into this technology, leaders are swiftly assessing how it affects their operations and business structures, aiming to capitalize on its benefits. For those who diligently and strategically engage with innovation while maintaining an awareness of its limits — rather than impulsively chasing trends — GenAI can serve as a dynamic collaborative partner and a force multiplier in fortifying supply chains.

What might have once been considered fictional is now part of serious conversations. AI applications are already being put into practice in real-world scenarios throughout the entire supply chain. These are made possible by GenAI’s capabilities to organize and sort information based on visual or textual inputs, rapidly assess and adjust strategies, plans, and the distribution of resources in response to live data, produce various types of content on-demand, leading to quicker reaction times, summarize vast amounts of data while highlighting essential insights and patterns, and quickly help retrieve relevant information and deliver immediate responses, whether through voice or text.

While it does have its limitations, GenAI provides a multiplier in what technology and humans can achieve together in building efficient and resilient supply chains, whether in planning, sourcing, making or moving.

PLANNING
GenAI streamlines engagement across technology-driven planning activities. Modern GenAI applications are also capable of proposing multiple strategies in case of unforeseen complications. The area of risk management stands out as particularly promising, especially in anticipating risks that supply chain planners might not have previously contemplated. Numerous organizations are leveraging AI to sift through extensive historical sales data, market movements, and other factors to construct real-time models of demand. In addition, GenAI enables the formulation of ideal inventory quantities, manufacturing timetables, and distribution strategies to efficiently satisfy consumer needs.

AI can assist in orchestrating production and timetabling by taking into account elements such as changes in customer orders, production capacity, resource availability, and the priority of orders. Similar to its capabilities in forecasting demand, GenAI can devise production plans, scheduling sequences, and efficiently allocate resources to reduce bottlenecks and optimize production efficiency.

Currently, AI can be utilized to scrutinize historical data, market dynamics, climatic trends, and geopolitical occurrences, among other information sources, to pinpoint potential risks within the supply chain. Rather than relying on preset dashboards, for instance, GenAI can be prompted to generate on-the-spot risk evaluations, simulate various scenarios, and craft strategies for risk mitigation to aid planners in proactively overseeing and reducing risks.

SOURCING
Beyond negotiating, GenAI offers a chance to enhance supplier engagement and oversight, providing guidance on subsequent actions. These useful tools can quickly pull information from extensive contracts, potentially helping prepare for discussions about contract renewals. In managing suppliers, companies can utilize natural language processing to derive insights from supplier communications and various data points. It can support the supervision and analysis of supplier interactions, pinpoint potential problems, and foster stronger supplier partnerships.

Moreover, GenAI can assist in the process of choosing suppliers by evaluating a broad spectrum of supplier data and producing insights. By considering aspects such as supplier performance, capabilities, pricing, and risk assessments, GenAI algorithms can offer suggestions or rankings to support well-informed decision-making.

MAKING
GenAI is revolutionizing the supply chain by significantly accelerating the journey from concept to commercialization, even when it involves new materials. Organizations are educating algorithms on their proprietary data and then employing AI to uncover methods to enhance productivity and efficiency. Predictive maintenance is yet another area where GenAI can pinpoint which machinery or production lines are at risk of malfunctioning and when, thereby enhancing overall equipment effectiveness (OEE) — a critical metric in manufacturing.

In product design, GenAI can rapidly generate and assess numerous design alternatives based on set criteria, drastically accelerating the innovation cycle. This approach can be applied to a wide range of design challenges, from engineering new components for industrial machinery to creating consumer goods that are more efficient, robust, or visually attractive. Informed by data from factory machinery, GenAI models can also devise new maintenance strategies that align with predicted failure times of equipment. This enables manufacturers to fine-tune their maintenance timetables to intervene only when necessary, minimizing operational interruptions and expenses while also prolonging machinery lifespans.

In addition, GenAI can be used to unearth new materials and refine existing ones. By analyzing extensive data on material characteristics and experimenting with various combinations, it can recommend new materials with specific desired traits or enhance the properties of current materials. This innovation could lead to the development of materials that are more efficient, sustainable, or durable for manufacturing purposes.

MOVING
Although GenAI application in the field of logistics isn’t new, the generative aspect introduces new levels of adaptability. For example, it can be used for route optimization for reduced fuel usage, the prioritization of specific shipments, or integration of various factors into an accessible platform.

GenAI can optimize global trade by assessing a wide range of factors, such as tariffs, customs rules, trade agreements, and shipping expenses, to propose the most effective and economical routes and strategies. This helps businesses to maneuver through intricate global trade networks, ensuring compliance while cutting costs. Additionally, GenAI can improve the design of logistics networks by considering elements such as warehouse locations, transportation links, and demand patterns to generate efficient configurations. This results in shorter delivery times, decreased expenses, and heightened service quality.

One of the significant challenges in logistics is real-time routing, which GenAI can address by constantly refining and enhancing delivery or collection routes in response to evolving conditions such as traffic, weather, and delivery priorities. This leads to heightened efficiency, lower fuel usage, and greater customer satisfaction.

REALIZING VALUE WITH GENAI
GenAI is a potent instrument with its own set of constraints, but it should not be mistaken for a strategy in itself. Organizations must focus on the business benefits and establish a roadmap, guided by the following steps:

Focus on domain-wide transformation. Identify use cases with significant potential, aiming to create an integrated ecosystem that complements traditional business practices and unlocks new opportunities.

Coordinate and collaborate. Discuss the broader implications of using GenAI and pinpoint the competencies needed across various departments, extending beyond just the technical roles.

Maintain an open mindset while being mindful of risks. Launch exploratory pilot projects to gain insights, secure early successes, and work towards a model that can be expanded and adopted on a larger scale.

Utilizing AI in supply chain management can help organizations become more resilient and sustainable while transforming cost structures. With recent developments that make AI easier to use and more effective in realizing value, organizations must evaluate how its advances can impact their sectors.

This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.

 

Jan Ray G. Manlapaz is a consulting partner and Mary Andrea T. Bacani is a Supply Chain and Operations (SCO) senior manager of SGV & Co.

Zelensky dominates conference as China, Taiwan trade barbs

Ukrainian President Volodymyr Zelensky speaks at the Shangri-La Dialogue in Singapore, June 2, 2024. — REUTERS

SINGAPORE — Ukrainian President Volodmyr Zelensky’s unscheduled appearance at Asia’s biggest security conference dominated proceedings on Sunday after China’s defense chief slammed “separatists” in Taiwan, drawing a sharp response from the government in Taipei.

Dressed in his trademark olive green T-shirt, Mr. Zelensky addressed the last day of the Shangri-La Dialogue forum in Singapore, asking for support and participation at a summit in Switzerland later this month aimed at bringing peace to his war-ravaged nation.

“We are convinced that our world wants to be united and be capable of acting in complete harmony,” he said to a ballroom packed full of delegates in formal business wear and military uniforms.

Reuters was first to report that Mr. Zelensky would make an unscripted appearance at the conference, his second visit to Asia since Russia’s invasion of Ukraine in 2022.

Earlier, China’s defense chief, Dong Jun, warned that prospects of a peaceful “reunification” of Taiwan were being eroded, and promised to ensure the island would never gain independence.

China views democratically governed Taiwan as its own territory, over the strong objections of the government in Taipei, and last month staged war games around the island in anger at the inauguration of President Lai Ching-te, who Beijing calls a “separatist.”

“Those separatists recently made fanatical statements that show their betrayal of the Chinese nation and their ancestors. They will be nailed to the pillar of shame in history,” Mr. Dong said.

He added that although China was committed to peaceful reunification with Taiwan, the People’s Liberation Army (PLA) “will remain a strong force for upholding national reunification.”

Taiwan’s China-policy making Mainland Affairs Council said in response that it deeply regretted the “provocative and irrational” comments, and reiterated that the People’s Republic of China has never ruled the island.

China has repeatedly threatened force against Taiwan at international venues, and its threats violate the United Nations charter, the council said in a statement.

A US official, speaking on condition of anonymity because of the sensitivity of the matter, said Mr. Dong’s speech covered little new ground.

“Every year for three years, a new Chinese defense minister has come to Shangri-La,” the official said. “And every year, they’ve given a speech at complete odds with the reality of the PLA’s coercive activity across the region. This year was no different.”

Mr. Dong’s speech came a day after US Defense Secretary Lloyd Austin told delegates the Indo-Pacific region remained a key focus for the United States, even as it grappled with security assistance for Ukraine and the war in Gaza.

“Let me be clear: The United States can be secure only if Asia is secure,” Mr. Austin said. “That’s why the United States has long maintained our presence in this region.”

Mr. Dong and Mr. Austin met for more than an hour on Friday on the sidelines of the conference, their first face-to-face meeting. — Reuters

North Korea sends 600 more trash balloons over border, South says

REUTERS

SEOUL — North Korea sent some 600 balloons carrying trash into South Korea overnight, Seoul said on Sunday, in Pyongyang’s latest move to rile its rival neighbor.

The balloons carrying garbage such as cigarette butts, cloth, paper waste and plastic were found across the capital from 8 p.m. to 10 a.m. (1100 GMT on Saturday to 0100 GMT on Sunday), South Korea’s Joint Chiefs of Staff said.

It said the military was monitoring the starting point and conducting aerial reconnaissance to track down and collect the balloons, which have large bags of trash suspended beneath them.

North Korea on Wednesday sent hundreds of balloons carrying trash and excrement across the heavily fortified border as what it called “gifts of sincerity.” Seoul responded angrily, calling the move base and dangerous.

South Korea’s Defense Minister Shin Won-sik said during a meeting with US Defense Secretary Lloyd Austin on the sidelines of the Shangri-La security dialogue in Singapore on Sunday that the balloons violated the armistice agreement, according to South Korea’s military.

The two reaffirmed a coordinated response to any North Korean threats and provocations based on the South Korea-US alliance’s combined defense posture, it added.

Emergency alerts were issued in North Gyeongsang and Gangwon provinces and some parts of Seoul on Sunday, urging people not to come into contact with the balloons and to alert police.

South Korea’s National Security Council standing committee will meet on Sunday afternoon to discuss whether to resume blasting loudspeakers at North Korea in response to the trash balloons, Yonhap news agency reported, citing the presidential office. 

South Korea stopped blaring propaganda across the border in 2018 after a rare summit with North Korean leader Kim Jong Un. — Reuters

China lands on moon’s far side in historic sample-retrieval mission

THE Chang’e 6 lunar probe and the Long March-5 Y8 carrier rocket combination sit atop the launch pad at the Wenchang Space Launch Site in Hainan province, China, May 3, 2024. — REUTERS

BEIJING — China landed an uncrewed spacecraft on the far side of the moon on Sunday, overcoming a key hurdle in its landmark mission to retrieve the world’s first rock and soil samples from the dark lunar hemisphere.

The landing elevates China’s space power status in a global rush to the moon, where countries including the United States are hoping to exploit lunar minerals to sustain long-term astronaut missions and moon bases within the next decade.

The Chang’e-6 craft, equipped with an array of tools and its own launcher, touched down in a gigantic impact crater called the South Pole-Aitken Basin on the moon’s space-facing side at 6:23 a.m. Beijing time (2223 GMT), the China National Space Administration said.

The mission “involves many engineering innovations, high risks and great difficulty,” the agency said in a statement on its website. “The payloads carried by the Chang’e-6 lander will work as planned and carry out scientific exploration missions.”

The successful mission is China’s second on the far side of the moon, a region no other country has reached. The side of the moon perpetually facing away from the Earth is dotted with deep and dark craters, making communications and robotic landing operations more challenging.

Given these challenges, lunar and space experts involved in the Chang’e-6 mission described the landing phase as a moment where the chance of failure is the highest.

“Landing on the far side of the moon is very difficult because you don’t have line-of-sight communications, you’re relying on a lot of links in the chain to control what is going on, or you have to automate what is going on,” said Neil Melville-Kenney, a technical officer at the European Space Agency working with China on one of the Chang’e-6 payloads.

“Automation is very difficult especially at high latitudes because you have long shadows which can be very confusing for landers,” Mr. Melville-Kenney added.

The Chang’e-6 probe launched on May 3 on China’s Long March 5 rocket from the Wenchang Satellite Launch Center on the southern island of Hainan, reaching the lunar vicinity roughly a week later before tightening its orbit in preparation for a landing.

Chang’e-6 marks the world’s third lunar landing this year: Japan’s SLIM lander touched down in January, followed the next month by a lander from US startup Intuitive Machines.

The other countries that have sent spacecraft to Earth’s nearest neighbor are the then-Soviet Union and India. The United States is the only country to have landed humans on the moon, starting in 1969.

SAMPLING THE MOON
Using a scoop and drill, the Chang’e-6 lander will aim to collect 2 kg (4.4 pounds) of lunar material over two days and bring it back to Earth.

The samples will be transferred to a rocket booster atop the lander, which will launch back into space, tag up with another spacecraft in lunar orbit and return, with a landing in China’s Inner Mongolia region expected around June 25.

If all goes as planned, the mission will provide China with a pristine record of the moon’s 4.5 billion-year history and yield new clues on the solar system’s formation. It will also allow for an unprecedented comparison between the dark, unexplored region with the moon’s better understood Earth-facing side.

A simulation lab for the Chang’e-6 probe will develop and verify sampling strategies and equipment control procedures, China’s official Xinhua news agency said. It will use a full-scale replica of the sampling area based on exploration results on the environment, rock distribution and lunar soil conditions around the landing site.

China’s lunar strategy includes its first astronaut landing around 2030 in a programme that counts Russia as a partner. In 2020 China conducted its first lunar sample return mission with Chang’e-5, retrieving samples from the moon’s nearer side.

The US Artemis programme envisions a crewed moon landing by late 2026 or later. NASA has partnered with space agencies including those of Canada, Europe and Japan, whose astronauts will join US crews on an Artemis mission.

Artemis relies heavily on private companies, including Elon Musk’s SpaceX, whose Starship rocket aims this decade to attempt the first astronaut landing since NASA’s final Apollo mission in 1972.

On Saturday Japanese billionaire Yusaku Maezawa canceled a private mission around the moon he had paid for, which was to have used SpaceX’s Starship, citing schedule uncertainties in the rocket’s development.

Boeing and NASA postponed the company’s first crewed launch of Starliner, a long-delayed capsule meant to become the second US space taxi to low-Earth orbit. — Reuters

Global pandemic treaty to be concluded by 2025, WHO says

IMAGE VIA WHO/P. VIROT

LONDON — Talks aimed at reaching a global agreement on how to better fight pandemics will be concluded by 2025 or earlier if possible, the World Health Organization (WHO) said on Saturday.

The WHO’s 194 member states have been negotiating for two years on an agreement that could increase collaboration before and during pandemics after the acknowledged failures during COVID-19.

The United Nations-agency had initially aimed for an agreement this week, but talks have been extended amid deep divisions between rich and poorer countries on issues like vaccine-sharing and preparedness.

Countries did, however, reach a parallel deal to update existing legally-binding health rules, known as the International Health Regulations (IHR), which includes a new category of “pandemic emergency” for the most significant and globally threatening health crises.

“The historic decisions taken today demonstrate a common desire by member states to protect their own people, and the world’s, from the shared risk of public health emergencies and future pandemics,” WHO Director-General Tedros Adhanom Ghebreyesus said in a statement.

“With this agreement, we take steps to hold countries accountable and strengthen measures to stop outbreaks before they threaten Americans and our security,” said US Health and Human Services Secretary Xavier Becerra on Saturday.

The changes to the global health rules were aimed at shoring up the world’s defenses against new pathogens after COVID-19 killed more than 7 million people, according to WHO data. — Reuters

Beneficial Life Insurance Company, Inc. to hold 2024 Annual Stockholders’ Meeting on June 28

 

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US-China meeting, Marcos speech in spotlight at security summit

PHILIPPINE STAR/KRIZ JOHN ROSALES

SINGAPORE – The Shangri-La Dialogue summit began on Friday with the US and China defense chiefs holding their first face-to-face meeting in two years and the Philippines’ president set to give a speech expected to touch on sensitive South China Sea claims.

The fraught US-China relationship is expected to loom over Asia’s top security meeting, as are the wars in Ukraine and Gaza, and the South China Sea tensions.

US Defense Secretary Lloyd Austin arrived in Singapore early on Friday. He went into a meeting with China’s defense minister, Dong Jun, in the afternoon that was to discuss contentious issues such as Taiwan and the South China Sea, but also the importance of keeping communications open, Pentagon officials said.

Austin is scheduled to deliver a speech at the forum on Saturday; Dong will speak on Sunday.

“China believes that high level China-US strategic military communications helps stabilize military to military relations; China maintains an open attitude towards this,” Chinese defense ministry spokesperson Wu Qian said on Thursday.

Friday night, however, the spotlight will be on Philippine President Ferdinand R. Marcos Jr, who is expected to discuss the legal and geopolitical position of the Philippines on the South China Sea and note the importance of the waterway to global trade.

China claims sovereignty over the shoals and almost all of the South China Sea, including parts claimed by the Philippines, Brunei, Malaysia, Taiwan and Vietnam, despite a 2016 ruling by the Hague-based Permanent Court of Arbitration that found Beijing’s sweeping claims have no legal basis.

Dong and Austin are likely to discuss those issues, as well as Taiwan. Austin will reiterate the United States’ longstanding “One China” policy but also bring up China’s military activities near Taiwan, which recently inaugurated its new president, Lai Ching-te, the Pentagon officials said.

Taiwan’s Defense Minister Wellington Koo told reporters in Taipei on Friday that increased tensions around the democratically governed island claimed by China as its own territory would diminish if Beijing’s military drills ceased.

“If China stops its provocation and intimidation then peace and stability can be maintained,” he said.

The region has seen a sharp uptick in such exercises in recent years, according to a report by the London-based International Institute of Strategic Studies (IISS) released on Friday.

Although both the United States and China have significantly increased the volume of military exercises across Asia, Beijing’s drills still lag in scale and complexity, the study found.

The security forum, in its 21st iteration, is held every year in Singapore by IISS, gathering military and political leaders to discuss security issues. It ends on June 2. – Reuters

Aircraft shortages turn into cash bonanza for some airlines

CHICAGO – Aircraft shortages are turning into a moneymaker for some airlines as the dearth of supply allows carriers to sell new planes to leasing companies at much higher prices than they paid.

Carriers such as Denver-based Frontier Airlines and Hungary’s Wizz Air have reported gains up to hundreds of millions of dollars through selling planes after taking delivery and renting them back for their own use. These sale-and-leaseback transactions have long been a way for airlines globally to generate liquidity and ease the strain on their balance sheets.

The tight airliner market has made these deals far more attractive, with US airlines this year accounting for 24% of global sale-and-leaseback transactions, up from 10% in 2022, according to Cirium Ascend Consultancy.

Passenger carriers will receive 19% fewer aircraft this year than expected because of production issues at Boeing and Airbus, according to AeroDynamic Advisory. In addition, roughly 350 Airbus A320neo jets are expected to be grounded between 2024 and 2026 to deal with a flaw with RTX’s Pratt & Whitney engines.

As a result, new aircraft prices are 20% higher than the pre-pandemic period, said John Heimlich, chief economist at Airlines for America (A4A), an industry group that represents major US carriers.

Frontier this month reported a gain of $71 million in the first quarter from these deals, up 78% from last year. It will likely see similar gains in the current quarter, said Rob Morris, head of global consultancy at Cirium.

Wizz Air booked a gain of about 245 million euros ($266.5 million) in its most recent financial year, up about 146%.

Mr. Morris described the sale-and-leaseback market as “very competitive” where pricing power sits with the selling party.

Some carriers are also benefiting more than others by getting the timing of orders right. Frontier, for example, placed a big order in 2021 when inflation was relatively lower and air travel demand had not recovered.

US airlines such as Delta, American and United have also done deals, but not as often as Frontier. The discount carrier has more than 200 new Airbus planes on order for deliveries through 2029.

Frontier said this month while it is getting the planes from Airbus at a “material discount to the market,” it is selling them to lessors at a much higher price.

That bit of financial engineering allowed the ultra-low-cost carrier to nearly break even in the first quarter, worrying some analysts who said the airline’s business appears to have become more reliant on these deals than flying passengers.

“We remain concerned that outsized sale-leaseback gains are increasingly core to Frontier’s profitability,” said JP Morgan analyst Jamie Baker.

But Frontier sees its aircraft order book as a “major asset” in a supply-constrained market as production challenges at planemakers are expected to persist.

“It’s a core part of the business, the cash is real,” CEO Barry Biffle told investors this month.

Lessors share that view. Aengus Kelly, CEO of aircraft leasing giant AerCap this month predicted that tightness in global jet markets will last through the rest of the decade.

 

LEASE PRICES SURGE

Surging prices for new aircraft also mean soaring rents. Airlines are spending 30% more on aircraft leases than before the pandemic, A4A’s Heimlich estimated.

The lease rate for an Airbus A321neo has hit $455,000 per month, Cirium data shows, up 30% since 2020. Airlines are not only required to pay monthly rents for the duration of their lease contracts, but also maintenance compensation and a security deposit.

Delays in aircraft deliveries can also leave airlines in a spot, especially those dependent on these deals to generate cash and manage their expenses, said Courtney Miller, founder of consultancy firm Visual Approach Analytics.

Brazilian airline Gol, which filed for U.S. Chapter 11 bankruptcy protection this year, struggled to manage high leasing and interest expenses after Boeing failed to deliver planes at a rate that could fund its operations.

Frontier’s situation is not as dire, but it has reported profit in just one of the last five quarters.

“The delivery treadmill has to keep running to fund the airline,” Mr. Miller said. “What happens when the deliveries can’t keep up?” – Reuters

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