International
Monday Newspaper Review - Irish Business News and International Stories
By Finfacts Team
May 23, 2005, 07:13

Timing will be everything in terms of maximising the benefit to the company and possibly to the Exchequer, but it is already beyond calculation just how much the Government's ridiculous time-wasting will have cost.

Either way, in the case of the privatisation of part of the State airline, as ever the staff participating in the Employee Share Ownership Programme (ESOP) will be the big winners. Just as they were big winners last year. In a year when Aer Lingus made operating profits of €107m and actual pre-tax profit of less than €2m, due to exceptional charges, the staff 'loot pot' benefited to the tune of nearly €17m. This was made up of 10pc of operating profits (€10.7m) and a share premium payment of €6m.

The most likely mechanism for executing the part-privatisation will be a placing of shares by the Government and a subsequent issue of new shares. As this takes place, the staff's 14.9pc stake would become diluted unless it contributes to the purchase of its pro-rata share of the new stock in the company.

Some weekend reports have suggested that if the airline is valued at €700m, then the staff will have to find around €60m to ensure there is no dilution of their stake. Anything is possible here. The Government could find a way of coming up with the money for them.

Furthermore, the staff's agreement entitling it to 10pc of operating profits, which is quite scandalous, will have to come to an end after the airline is privatised. The ESOP will be in a strong negotiating position as to what it might receive in return for giving up this sweetheart deal.

But if the worst comes to the worst and they can't find a way of extracting the money from somewhere else, they can always just pony up the funds themselves. The staff have already nearly half the requisite €60m built up from its profit share. The bottom line is that it won't be that much of a stretch for them to find the funds.

Look at how successfully the Eircom ESOP leveraged up its position to become the biggest shareholder in the former State telecommunications company.

On the question of the second terminal, the other major plank of the aviation policy package announced by Martin Cullen, as predicted in this column some weeks back, there has been a 'fudge' on who will operate the new terminal. We have a commitment to an open and competitive tender process, but one in which the Dublin Airport Authority will be allowed to participate. At this stage, the smart money is on the DAA sweeping the decks here and ending up with everything.

People are so tired of the whole thing that they are just glad a decision of sorts has been made. Looking at the outcome of a part-privatisation of Aer Lingus, a DAA-owned second terminal and a tender as to who should operate it, I see no reason why any of those decisions could not have been reached three years ago.

The Irish Independent also reports that the yawning US trade deficit will probably weigh down economic growth this year, business economists say.

The US economy, as measured by gross domestic product, is projected to expand by 3.4pc in 2005, compared with an earlier estimate of 3.6pc, according to the latest outlook from the National Association for Business Economics.

The lower forecast mostly reflects economists' beliefs that the trade picture will worsen. The US trade deficit, which ballooned to a record $617bn last year, is a politically-sensitive subject for the Bush administration.

"Virtually the entire reduction in the panel's estimate of GDP growth in 2005 was due to a much deeper projected trade deficit of $662bn this year," Carl Tannenbaum, who oversaw the survey, said.

If the projections being released today prove accurate, they would mark a slowing in growth from the 4.4pc increase in GDP in 2004. That was the strongest showing in five years.

GDP, which measures the value of all goods and services produced in the US, is considered the broadest barometer of the economy.

The Irish Times reports that up to two million private health insurance subscribers face the possibility of having to pay balance or top-up bills to doctors for medical treatment in hospitals from next month following the effective collapse of a long-running scheme which guaranteed comprehensive cover for such fees.

The largest body representing hospital consultants is to pull out of "total cover" schemes with the main insurance companies such as the VHI, Bupa and Vivas after legal advice that such arrangements will be found illegal in a forthcoming Competition Authority ruling.

The current agreement on fees for medical procedures between hospital consultants and the largest insurer, the VHI, expires at the end of next month.

The Irish Hospital Consultants' Association will tell its members and the company this week that it will not be involved in the renegotiation of the scheme.

For the last five years, the Competition Authority has been carrying out an investigation into the "total cover" deals - under which doctors agree to take a higher-than-normal fee for each procedure from the insurance company in return for a commitment not to send any balance or top-up bill to the subscriber.

The consultant association's national council was told last week by its legal advisers that the Competition Authority investigation will find that the agreements were in breach of section 4 of the Competition Act, 2002.

A spokesman for the Competition Authority told The Irish Times last week that its investigation into total cover deals was "ongoing".

On foot of the legal advice, the national council decided that the organisation would not negotiate with the VHI on a new schedule of inpatient and day-case procedures.

Traditionally the representative bodies for consultants have been closely involved in negotiating new schedules although individual members had ultimately to sign a personal agreement with the insurance company.

The schedule of fees agreed between consultants and the VHI - under which the company pays more than €200 million annually to doctors - has traditionally been followed in general by the other insurers in the industry.

For the patient, the development means that there will be no longer a guarantee that their insurance package will provide comprehensive cover for doctors' bills for inpatient or day-case treatment in hospitals.

It is expected that the VHI and the other insurance companies will offer a new schedule of fees to consultants.

However, there will be no involvement of their representative bodies in the process or no endorsement of the fee increases offered. It will be up to each doctor to decide whether or not to accept.

In cases where consultants do not accept the new schedule, it is likely that the patient will face the choice of either paying a balance or top-up fee in addition to the amount paid out by the insurance company or shopping around to find another doctor.

The Irish Times also reports that up to 10,000 people are likely to come forward to declare a potential tax liability in relation to certain life assurance products as a major investigation by the Revenue Commissioners gets under way.

Today is the deadline for preliminary disclosures. More than 2,500 people have already made a preliminary or "qualifying" disclosure, but this figure is likely to be significantly exceeded. The Revenue Commissioners believe thousands of people over the last 25 years may have channelled untaxed income or "hot money" through various life assurance products. Some estimates have put the amount of tax, interest and penalties likely to be paid back to the State at €1 billion.

Tax experts indicated yesterday that 10,000 people was the most likely figure based on previous Revenue investigations. For example, the investigation into bogus non-resident accounts prompted 11,000 people to come forward, while the investigation into offshore assets has generated 14,000 case files. The Revenue does not expect to have firm figures on the numbers coming forward until later this week. Ciaran Medlar, a tax partner with BDO Simpson Xavier, said that estimating the number of people likely to come forward was difficult at this point, but based on previous trends, as many as 10,000 could be expected.

He said the vast bulk of disclosures in these type of investigations usually came in on the last day. He said his firm was being contacted by a large number of people, although many of them were just making sure they had no liability.

Those coming forward today must make what is known as a "qualifying disclosure". This is a very preliminary disclosure which may, or may not, lead to tax being repaid.

Once these disclosures are submitted the person has until July 22nd to make a full disclosure and submit payment of outstanding taxes, penalties and interest.

The benefit of coming forward at this point, claims the Revenue, is that people will be able to benefit from reduced penalties and will not have their names disclosed publicly. They will also not face a criminal prosecution.

The initial period of the Revenue investigation is likely to impact on more affluent people. This is because it will target those who invested €20,000 or more in their life assurance products.

The Irish Examiner reports that more than half of Special Saving Incentive Account (SSIA) holders will reinvest all or part of their money when their accounts mature next year.

A new survey by the Irish Insurance Federation (IIF) says 53% of the 1.2 million account holders plan to save their funds, but an increasing number will spend the money. Some 19% of SSIA holders plan to splash out all or some of their cash, more than double the figure in a previous survey by the IIF.

While there are fears that the country will go on a spending spree when the accounts begin to mature from the middle of next year, more than two-thirds of those surveyed believe the Government should put some incentive in place for those looking to transfer their money to a pension plan. 

The Federation’s chief executive Mike Kemp said he was concerned at the increase in those planning to spend rather than save their money.

“We believe that the opportunity created by the SSIA scheme will be lost if measures are not introduced to incentivise individuals to transfer some or all of these funds into pension or similar savings products.”

He said the IIF has already proposed to Government that financial incentives be introduced to encourage SSIA account holders to reinvest in retirement savings.

“In our last pre-Budget submission we recommended a waiver of the SSIA tax liability of 23% if the saver puts at least 50% of the total SSIA maturity value in a personal pension,” Mr Kemp said.

“We also recommended a one-off lifting of pension contribution limits to facilitate such reinvestment of SSIA funds. Given that more people are now planning to spend their SSIA savings we call again on Government to consider these proposals.”

The Government has not yet decided whether to devise a successor to the SSIAs or allow a tax-friendly contribution to pension funds.

The IIF survey also found that 59% of workers would like to retire before they are 55. However, it found that many people expect to have to remain in employment until they are 65, if not longer.  

The Irish Examiner also reports that an American private equity group is said to be circling the Jurys Doyle hotel chain, which last week rejected a takeover approach from a group of property developers.

Blackstone, one of the world's largest private investment companies, is reportedly interested in bidding for Jurys.

Mergermarket.com, an online financial news agency, says Blackstone and "at least one US hotel and one or more stateside private equity firms were taking an interest in developments at Jurys."

Shares in the hotel group rose by over 5% on the Irish stock exchange last week despite the rejection of the offer by Precinct Investments, the investment vehicle that last year took control of the Gresham Hotel group. In a brief statement last week Jurys said the €15.25 offer by Precient "fails to reflect the value of Jurys Doyle and its prospects." The fact that the Jurys share price rose indicates the market is expecting Precinct to come back with a higher offer or for other parties to enter the race.

The Financial Times reports that with just a week to go campaigners fighting Europe's constitutional treaty are heading for victory in French and Dutch referendums, according to opinion polls this weekend an outcome that threatens to stall the integration process among the EU's 25 members.

The No camp may have received a further boost yesterday after the election setback of Gerhard Schröder, Germany's chancellor, in North Rhine-Westphalia. It could encourage a stronger French protest vote on May 29 against President Jacques Chirac and the government of Jean-Pierre Raffarin, the prime minister.

In a sign of the increasing concern among Europe's political leaders, Mr Schröder plans to attend a socialist Yes rally in Toulouse on Thursday night, his third intervention in the French debate in a month. José Luis Rodr´guez Zapatero, Spain's prime minister, is due to campaign for the constitution in Lille on the same day.

The AFP news agency said Mr Chirac will also make a fresh intervention in the debate this week in spite of pleas from some fellow Yes campaigners not to do so. Pro-constitution campaigners from the opposition Socialist party have warned that his campaigning could backfire.

According to the latest opinion poll published on Sunday, the No camp commands 52 per cent support in France.

Dutch opinion polls show resistance to the treaty hardening. On Friday a poll by TNS NIPO, for RTL television news, had the No campaign with 54 per cent and Yes at 27 per cent. The same day a poll by Interview NSS for Nova television gave No 63 per cent and Yes 37 per cent.

The FT also reports that Germany faced political turmoil on Sunday night after Gerhard Schröder, the chancellor, suffered a crushing electoral setback in a one-time regional stronghold and said he would seek an early general election.

The surprise decision to bring forward the national poll by a year came after Mr Schröder's Social Democratic party lost North Rhine-Westphalia, the country's most populous state, to the Christian Democratic Union, the largest opposition party, after nearly four decades in power.

The scale of the SPD's defeat reflected popular resentment at Mr Schröder's economic policy - viewed as far too business-friendly - and his cuts to the country's traditionally generous welfare state.

But defiant in defeat, Mr Schröder made clear that he would seek renewed popular support for the tough social security and labour market reforms he has introduced in the past three years.

"With the bitter election result for my party in North Rhine-Westphalia the political support for our reforms to continue has been called into question," Mr Schröder said. Pursuing these policies required "clear support from a majority of Germans".

However, with many in the SPD demanding a shift to the left in a bid to win back core voters, Mr Schröder could face a bruising battle with his grassroots as he draws up the party's election platform. In recent weeks senior party members have vilified short-term investors as "swarms of locusts" descending on German companies and many party members credit that aggressive rhetoric with its success in closing the gap with the opposition in the run-up to yesterday's vote.

Announcing the decision to bring the federal election forward, Franz Müntefering, chairman of the SPD, said: "We must decide swiftly what kind of policies we want to conduct between now and this autumn. The Social Democrats cannot be brought to their knees by electoral defeats like today's."

Having repeatedly warned of political standstill ahead of next year's election, economists are likely to welcome the news of an early poll.

A general election in four months could mean the resumption of economic reforms as soon as the autumn - either by a freshly legitimised Mr Schröder or by a conservative-led government. It would also dispel fears that the nation could be doomed to spend the next 16 months in a paralysing pre-election limbo.

First, however, the chancellor must ask members of parliament from his coalition to withdraw their confidence in his government. Then the approval of Horst Köhler, the federal president, will be needed and the matter could be referred to the constitutional court.

Official results in North Rhine-Westphalia showed the SPD had scored 37.1 per cent of the vote, down 5.5 points from 2000, against 44.8 per cent for the CDU.

Together with its Liberal Democratic ally, the CDU was estimated to have garnered 51 per cent of the votes, against 43.3 per cent for the SPD and its Green coalition partner, giving the opposition 101 seats in the 187-strong regional parliament.

Mr Schroder's decision to seek a fresh national mandate was seen as a daring gamble last night, given the considerable lead of the conservative opposition parties in nationwide opinion polls.

Sunday's defeat was the latest in a series of regional electoral reversals since Mr Schröder was re-elected in September 2002. Having trodden water for most of this time, the SPD now has popularity ratings of about 30 per cent nationwide, well below the CDU's.

The New York Times says that BBDO Worldwide in New York, General Electric's longtime advertising agency, was not getting the message.

The NYT also reports that Scott McClellan, the White House press secretary, added a new role to his portfolio last week: journalism professor.

After singling out Newsweek for its article, now retracted, on reports that interrogators at Guantánamo Bay, Cuba, had flushed a Koran down the toilet, Mr. McClellan broadened his critique of the magazine's journalistic practices to apply to those at the rest of the mainstream news media.

There is "a credibility problem in the media regarding the use of anonymous sources," Mr. McClellan said on Tuesday during a regular White House press briefing.

"That's one of the issues that concerns the American people when they look at the media," he added, "and I think sometimes the media does have difficulty going back and kind of critiquing itself."

Criticism of the media by the White House press spokesman is nothing new. What is different is how many national news organizations seem to agree with him.

Concerned that they may have become too free in granting anonymity to sources, news organizations including USA Today, The Washington Post, The Los Angeles Times, NBC News and The New York Times are trying to throttle back their use.

But some journalists worry that these efforts could hamper them from doing their jobs - coming in a hothouse atmosphere where mistrust of the news media is rampant, hordes of newly minted media critics attack every misstep on the Web, and legal cases jeopardize their ability to keep unnamed news sources confidential.

"Right now, the pendulum is swinging too far in the wrong direction," said Stephen Engelberg, managing editor for enterprise at The Oregonian in Portland. "Most newspapers, if they're honest," he declared, "would say that all of this taken together has probably created a climate that is not encouraging for the type of reporting we need to be doing."

The use of anonymous sources in news articles has long been part of journalism, as have the periodic attempts to restrict them. After Watergate, when a source who became known as Deep Throat helped Bob Woodward and Carl Bernstein expose a White House cover-up, the practice grew from being mainly a useful tool to coax reluctant sources fearful for their livelihoods to being a condition that sources increasingly demanded, according to Tom Rosenstiel, director of the Project for Excellence in Journalism, an institute affiliated with the Columbia University Graduate School of Journalism.

"Regardless of what journalists may think of the utility of sources," Mr. Rosenstiel said, "it's a source of friction in restoring trust with readers."

The practice became almost reflexive, whether it was a matter of covering Washington, Hollywood or sports. "It's like this bad seed that grew into an ugly animal," said Sandy Johnson, Washington bureau chief of The Associated Press.

A series of journalistic scandals in the last two years, including the revelation that Jayson Blair, a reporter for The New York Times, had fabricated or plagiarized more than three dozen articles, has shocked news organizations into reviewing their existing journalism guidelines, particularly on matters of sources.

Last year, The New York Times adopted a more stringent approach to its treatment of confidential sources, including a provision that the identity of every unidentified source must be known to at least one editor. A committee of the paper's journalists recently recommended that the top editors put in place new editing mechanisms to ensure that current policies are enforced more fully and energetically.

The Washington Post now pushes its reporters to be more assertive with news sources to get them on the record. When it does grant anonymity, an editor has to know the source's identity and the paper tries to explain more fully to the reader the reasoning behind that decision.

At NBC News, which is reviewing its guidelines, reporters and producers are, more than in the past, encouraged to provide the viewer with as much information as possible about the source's location and motivation (a liberal Democratic Congressman rather than a Congressman, for example), said Bill Wheatley, executive vice president of NBC News. "We discourage hiding behind anonymity to carry out an attack," he said.

CBS News, which earlier this year acknowledged that it could not authenticate the documents on which it based a "60 Minutes" Wednesday report on President Bush's Texas Air National Guard service, is also reviewing its reporting standards.

One of the more stringent policies was adopted at USA Today last year by Kenneth A. Paulson, who became editor in April 2004, in the wake of revelations that Jack Kelley, one of its star reporters, had fabricated parts of at least 20 articles. All anonymous sources must now be identified to a managing editor, who considers whether the paper should trust the source and whether the news value of the article warrants the practice, Mr. Paulson said.

As a result, the newspaper, through last Thursday, has used 63 anonymous sources this year, a little more than three a week, primarily in national and business articles. Mr. Paulson estimates that the paper has reduced its use of anonymous sources by 75 percent.

Still, the outright banning of anonymous sources is decidedly a minority view. There is no executive at a big news organization pushing through such a policy as Allen H. Neuharth did when he founded USA Today in 1982. Although theoretically the top editor was allowed to bless the use of anonymous sources, "I told the editor in chief if he approved any, he'd be fired," Mr. Neuharth said. (The de facto ban against unidentified sources was relaxed in the years after Mr. Neuharth's retirement in 1989.)

His reasoning came from his time as a working journalist before his move into the executive suite. "My experiences as a reporter," he said, "convinced me there are sources who are cowards who tell more than they know."

While many top editors plan to use confidential sources, if more judiciously, the tacking back could have repercussions. "In my view, there is clearly a risk that as we tighten policies, there's the potential organizations will go too far," Ms. Johnson of The Associated Press said.

Some editors and reporters who cover beats like national security, politics, mergers and acquisitions, even Hollywood, worry that strict compliance would put them at a disadvantage if their competitors did not work according to the same rules.

"I can't see how any reporter can handle a sensitive beat, particularly one involving classified information, if he's not willing to rely on trusted sources," said Bob Zelnick, an ABC news correspondent for 21 years who is now chairman of the journalism department at Boston University.

Editors and executives at a cross-section of news organizations said stricter guidelines regarding confidential sources had not hurt their news-gathering efforts. "I know of no problems in our reporting because of that," said Leonard Downie Jr., executive editor of The Washington Post. Mr. Paulson of USA Today said the new policy had kept some secondary elements out of the paper, but had not cost it any scoops.

Several other developments, though, complicate the journalistic issue at stake. Some news outlets, print and television, are facing severe economic pressures. That and the increased partisanship in the nation's political and cultural battles could further inhibit the work of mainstream journalists, some of whom are themselves starting to feel like targets.

The uproar over Newsweek's short article played right into this state of affairs. This administration, said David Remnick, the editor of The New Yorker, "is particularly intense in the way it plays on what it sees as the public's distrust of much of the media in terms of accuracy and ideological biases."

Mr. McClellan was traveling and was not available for comment.

David Frum, a fellow at the American Research Institute, a columnist for National Review Online and a former speech writer for President Bush, said about the administration: "They rightly feel that the American press has become infatuated with stories that do harm to the country's war efforts. Abu Ghraib is a story, but it's not the only story."

The debate over the use of anonymous sources is also inextricably linked to continuing legal battles over whether journalists have a right to keep their promises to confidential sources. In one case, Judith Miller of The New York Times and Matthew Cooper of Time magazine face 18 months in jail for refusing to testify about conversations they may have had with government officials about an undercover C.I.A. agent whose name was disclosed by the syndicated columnist Robert Novak.

The lack of a federal shield law, many journalists say, could keep prospective sources from coming forward, and important news stories may never see the light of day. "Its effect on journalism is direct and potentially chilling," said Steve Coll, an associate editor of The Washington Post.