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CIVETS Watch: Boeing's Big Deal Anticipates Southeast Asian Travel Boom


The deal in Indonesia will make the most of the coming cross-border "free skies" agreement that should boost trade and travel throughout the region.

Aerospace manufacturer Boeing Co. (BA) announced its biggest commercial order ever last week, a deal so big that President Barack Obama turned up in Bali to watch the formal signing ceremony. It's all good news for the US: Indonesia's Lion Air is buying 201 Boeing 737 MAX jets and 29 of its 737-900ERs. List price is $21.7 billion, though the airline might have gotten a volume discount. It means 110,000 new jobs for Americans. And Lion Air has an option to buy 150 more jets for $14 billion more.

The deal dwarfed a simultaneous announcement by General Electric (GE) of a $1.3 billion sale of CFM56 jet engines to Garuda Airlines of Indonesia. Manufacture of the fuel-efficient engines, made by a joint venture of GE and French manufacturer Snecma, will employ about 5,000 people in Ohio and North Carolina.

Which raises the question: Where are all these Indonesians going? Well, there are 240 million of them, spread across more than 900 inhabited islands. Air travel is one of Indonesia's many rapidly growing industries. The number of air travelers jumped 22% in 2010, to 53 million, and this year's number is expected to continue that trajectory.

But Lion Air, one of a couple dozen airlines in Indonesia, is looking further ahead, to 2015, to a policy change that is known in Southeast Asia as "open skies."

The change was decided by the Association of South East Asian Nations, or ASEAN, which since its 2003 creation has mostly smoothed over political quarrels among its 10 member nations. Unofficially, it also is "The Coalition Against Chinese Hegemony," as The Wall Street Journal put it in an editorial.

But now the association is turning increasingly toward economic cooperation. A key piece is its creation of the "open skies" policy, due to take effect in 2015. The change will lift regional flying restrictions on passenger and cargo flights, now a tangled mass of agreements between each nation.

The intention is to boost travel, trade, and tourism throughout the region. And Tiger Air's intention is to capture 30% of the business that Indonesia gets out of it, an executive told The Jakarta Globe.

American companies like Boeing want a piece of that pie, too. The company expects demand for 11,450 planes in the Asia-Pacific region over the next 20 years, more than any other region in the world. At least in Indonesia, it just won a big one over its rival, European manufacturer Airbus.

CIVETS in Brief:

Ecopetrol Plans $11 Billion Investment
Ecopetrol SA (EC) plans to invest $11 billion next year on oil exploration and production, mostly in Colombia, according to a report in Businessweek. The company also will invest in projects in Brazil, the Gulf of Mexico, and Peru. The plan is part of an expected $80 billion expenditure through 2020, designed to increase daily crude output from 800,000 barrels next year to 1.3 billion barrels in 2020.

Ecopetrol, which is state-controlled, is Colombia's largest company.

A Day of Optimism in Egypt
Egyptians got a rare day of optimism on Tuesday, a day after the country's parliamentary elections got off to a smooth start. The country's benchmark stock index, the EGX30, rose 5.8% to 3,987, its best result in weeks. It is still down 44% for the year. The broader EGX100 rose so fast at the open of trading that it triggered a temporary trading halt. It closed the day 6.7% higher.

A massive voter turnout was reported for what may turn out to be the first true free election in Egypt's long history. The parliamentary elections follow weeks of turbulent protests against the military rulers who succeeded ousted President Hosni Mubarak in early 2011.

The real outcome of the election won't be known for many months. Voting for parliamentary seats is scheduled to continue for the next six weeks. A new president will not be elected until June 2012.

Europe Impedes Turkish Growth
The booming Turkish economy will continue to grow in 2012, but at a slower pace, due to the virtual economic stagnation facing its neighbors to the west in Europe, HSBC's chief economist told Turkish news site Today's Zaman. The eurozone is currently Turkey's biggest trading partner.

Economist Melis Metiner said she estimates Turkish growth for 2012 at 3%.

The country's economy is projected to grow at 7% for the current year. However, the Istanbul Stock Exchange has dropped more than 25% since May, and the Turkish lira has been diving in value against the dollar. Both moves have been blamed on investors' "flight from risk" as sovereign debt problems snowball across Europe.

South Africa GDP Disappoints
The economy of South Africa grew less than forecast, at an annualized rate of 1.4% compared with expectations of 1.8% among a group of 20 economists surveyed by Bloomberg. The shortfall in gross domestic product in the third quarter was partly caused by steep losses in the mining sector due to labor strikes. Short-term future growth is expected to be further hurt by the debt crisis in Europe, which buys about one-third of South Africa's manufactured goods.

There is a "best-case scenario" for South Africa and other emerging nations, outlined by economists interviewed for South African site Business Live. It suggests that demand for goods from Asia will keep their economies humming while the eurozone gets its economic act together. Eventually, they argue, investors looking for growth will get over their aversion to risk and look toward emerging nations for opportunities.

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