By Sarah Marsh and Andreas Rinke

BERLIN (Reuters) -Germany is considering banning certain components from Chinese companies Huawei and ZTE in its telecoms networks, a government source said, in a potentially significant move to address security concerns.

An interior ministry spokesperson on Tuesday confirmed that the German government was carrying out a general review of telecoms tech suppliers, but said that this was not directed at specific manufacturers.

The German government, which is in the midst of a broader re-evaluation of its relationship with top trade partner China, has been wary of expressly singling out Huawei, even while pursuing legislation enabling it to crack down on the firm.

An interior ministry paper on the review obtained by Reuters said that a specific supplier could be banned from providing critical components if it were deemed to be directly or indirectly controlled by the government of another state.

“We cannot be reliant on components of individual suppliers,” Finance Minister Christian Lindner told Welt TV.

The review could lead to Germany asking operators to remove and replace components already built into networks, the interior ministry spokesperson said, adding that current legislation did not foresee compensation for them.

“This is a sign that the German government may finally be taking China-related risks to national security seriously,” said Noah Barkin, managing editor with research firm Rhodium Group’s China practice who specialises in German-Chinese relations.

“But after years of dithering, the German 5G network is deeply dependent on Chinese suppliers. It will take many years to unwind this.”

Critics of Huawei and ZTE say that their close links to Beijing’s security services mean that embedding them in the ubiquitous mobile networks of the future could give Chinese spies and even saboteurs access to essential infrastructure.

Huawei, ZTE and China’s government reject these claims, saying that they are motivated by a protectionist desire to support non-Chinese rivals.

Referring to reports in German media about a possible ban, the Chinese embassy in Germany said in a statement Beijing would be “very puzzled and strongly dissatisfied” if any such decision were taken.

In response to a Reuters request for comment, China’s foreign ministry said in a statement that it hoped Germany would “make an independent decision in line with its own interests, economic patterns and international rules that does not receive interference from a third party”.

Beijing has often suggested that decisions made by European countries that it perceives as hostile are due to pressure from the United States.

A Huawei spokesperson said it did not comment on speculation and it had a “very good security record” during its 20 years of delivering technology to Germany and the rest of the world. A ZTE spokesperson said no evidence had been produced to suggest its products were insecure, but it welcomed external scrutiny.

Asked about the potential ban, two of Germany’s top telecoms operators, Deutsche Telekom and Vodafone Germany, said they fully complied with current regulations but did not respond to political speculation.

GERMANY LAGGING

While several countries across Europe are still formulating telecom policies, only Britain and Sweden have so far banned Huawei and ZTE from supplying critical 5G network equipment.

“The devil is in the details, it would be a major step forward if this included all access network components where operators have made excessive use of Huawei in recent years,” said Thorsten Benner, China expert and director of the Global Public Policy Institute in Berlin.

Germany passed an IT security law in 2021 setting high hurdles for makers of telecommunications equipment for next-generation networks, but stopping short of banning Huawei and ZTE as some other countries have done.

A new report shows that Germany has actually become even more dependent on Huawei for its 5G radio access network equipment (RAN) than in its 4G network, even though operators have avoided using the firm’s technology for the core networks.

The German government was last month unable to answer a parliamentary request about how many Huawei components operators were using in their 5G networks, filed in part in response to the report.

“It’s disconcerting that the government only right now starts to do a thorough mapping of where operators use Huawei and ZTE components and that they don’t have that information in real time,” said Benner.

Sweden’s telecom regulator PTS, which in 2020 banned Chinese companies from rolling out 5G, gave telecom operators taking part in 5G auctions until Jan. 1, 2025 to remove gear from China from their infrastructure and core functions.

Britain, meanwhile, wants telecom firms to remove equipment and services from Huawei in core network functions by Dec. 31, 2023, from an original target of Jan. 28, 2023.

The deadline to remove all Huawei gear from Britain’s 5G networks by the end of 2027 remains unchanged.

(Reporting by Sarah Marsh, Andreas Rinke, Friederike Heine and Hakan Ersen; Additional reporting by Supantha Mukherjee and Liz Lee; Editing by Alexander Smith and Stephen Coates)

By David Shepardson

WASHINGTON (Reuters) -JetBlue Chief Executive Robin Hayes strongly defended the airline’s $3.8 billion plan to buy ultra-low cost carrier Spirit Airlines despite the Justice Department’s lawsuit Tuesday challenging the deal.

“Of course we’re going to continue to offer low fares,” Hayes told Reuters in an interview. “This argument that we’ll take seats outs and fares are going to go up. We’re going to put capacity back,” by doing things such as using larger planes on existing routes and by flying planes more often.

He said that JetBlue will still serve Spirit customers buying very low-cost tickets after a merger and rejected the idea that fares will go up.

“I fully recognize that very price-conscious customer and it’s very important that the larger JetBlue continues to cater and provide a service to that customer and we absolutely will,” Hayes said. “We will not be successful here if we just do not have a product to offer to those customers.”

The Justice Department said the deal would eliminate half of the ultra-low-cost capacity in the United States, resulting in higher fares and 10%-15% fewer seats to airplanes and “harming millions of consumers on hundreds of routes.” If the merger was completed “JetBlue would likely increase prices on every route where Spirit flies today,” it said.

Hayes noted the Federal Aviation Administration is studying whether to set minimum seat requirements and President Joe Biden has criticized so-called “junk fees” like some airline costs.

“The government needs to be clear about what the priorities are,” Hayes said. “JetBlue is the gold standard of leg room and then we don’t like junk fees but we’re thinking an airline that has more ancillary fees is innovative,” referring to the Justice Department’s praise of Spirit.

JetBlue reached a deal with the Florida Attorney General Monday to boost seats on flights to the state by 50% over seven years. “A bigger JetBlue now in Florida means all the airlines flying to Florida to compete with us are going to lower their fares,” Hayes said.

(Reporting by David Shepardson; Editing by Leslie Adler and Stephen Coates)

By Anne Marie Roantree and Donny Kwok

HONG KONG (Reuters) -Cathay Pacific Airways Ltd is ready to rebuild the airline and Hong Kong’s hub status as it emerges from the pandemic, the carrier’s chief executive said on Wednesday after it reported a 2022 loss at the low end of its forecast range.

Cathay shares rose as much as 1.4% to HK$7.95 after the results were released, reversing the morning’s declines as investors bet on a turnaround following heavy losses during the pandemic. The stock closed down 0.3%, compared to a 2.4% drop for the benchmark Hang Seng Index.

“We were very encouraged to see a bright light at the end of the tunnel in the second half of 2022, and the positive momentum has continued into 2023,” Chief Executive Officer Ronald Lam said in a statement.

“After three brutal years of the COVID-19 pandemic, we have finally entered into a new exciting phase, in which we will rebuild Cathay Pacific for Hong Kong.”

The airline reported an annual loss of HK$6.55 billion ($834.4 million) for the 12 months ended Dec. 31, wider than the previous year’s loss but near the bottom of its January forecast for a loss of between HK$6.4 billion and HK$7 billion.

Analysts had expected an average annual loss of HK$4.4 billion, according to Refinitiv data. They forecast a HK$3.9 billion profit for this year now that Hong Kong and mainland China have ended border restrictions.

Hong Kong’s flagship carrier said at a media briefing its recruitment drive announced in October to hire 4,000 more staff over the next 18 to 24 months was on track and it had sufficient pilots and cabin crew to support demand.

It said it aims for passenger and cargo levels to return to pre-pandemic figures by the end of 2024.

Cathay had parked much of its fleet in the desert during the pandemic due a lack of demand and its recovery has lagged behind traditional rival Singapore Airlines Ltd, which faced less strict rules last year.  

The airline was badly hit by COVID-related flight cancellations, border closures and strict quarantine measures for crew, resulting in drastic headcount reductions.

Cathay said it was operating about one-third of pre-pandemic passenger flight capacity by December and ended the year operating passenger flights to 58 destinations, double the 29 destinations the airline flew to in January 2022.

It would operate at about 70% of its pre-pandemic passenger flight capacity by the end of 2023, with an aim to return to pre-pandemic levels by the end of 2024. It was operating about two-thirds of pre-pandemic cargo flight capacity levels by the end of 2022.

($1 = 7.8498 Hong Kong dollars)

(Reporting by Anne Marie Roantree, Donny Kwok and Twinnie Siu; Editing by Jamie Freed, Stephen Coates and Muralikumar Anantharaman)

By William Schomberg

LONDON (Reuters) – British finance minister Jeremy Hunt looks set to keep his grip on public finances in next week’s budget, holding off on any big tax cuts or spending increases until the next election comes closer into view.

Lawmakers in Hunt’s governing Conservative Party want him to halt April’s sharp jump in the corporate tax rate to kick-start an economy on the verge of recession.

Meanwhile, trade unions and opposition parties are demanding bigger pay rises for nurses, teachers and other public sector employees whose incomes have been hit by double-digit inflation.

A 30 billion pound ($35.6 billion) windfall in the public finances has added to the pressure on Hunt to relax the fiscal stance he took when he was parachuted in as finance minister in October, after former Prime Minister Liz Truss’s “mini-budget.”

UK borrowing set to undershoot https://www.reuters.com/graphics/BRITAIN-BUDGET/gkplwlzmovb/chart.png

Her plans for sweeping, unfunded tax cuts triggered a bond market meltdown, leading to her replacement in Downing Street by Rishi Sunak. He and Hunt told investors that Britain was not ripping up the economic orthodoxy after all.

Their pledge to have Britain’s 2.5 trillion-pound debt mountain falling as a share of the economy in five years’ time will constrain Hunt in his March 15 budget statement.

About two thirds of the 30 billion pounds of wiggle room in his existing plans comes from one-off factors, according to the Resolution Foundation think tank.

UK debt close to 100% of GDP https://www.reuters.com/graphics/BRITAIN-BUDGET/xmvjknxdepr/chart.png

The remaining 10 billion pounds, from stronger-than-expected tax revenues, would be enough to pay for another three months of subsidies for households hit by soaring energy bills and another 12-month freeze on fuel duty, but little else to ease the cost-of-living squeeze in the approaching 2023/24 financial year.

However, Hunt’s restraint now is also seen as a political choice: the Conservative Party will need all the help it can get next year to overcome the opposition Labour Party’s big opinion poll lead before a national election expected in 2024.

“The reason he’s waiting until next year isn’t really the fiscal rules, is it? It’s the election timetable,” Resolution Foundation Chief Executive Torsten Bell said in a panel discussion about the budget this week.

Analysts at BNP Paribas also said keeping room for tax cuts ahead of the next election would be a priority for Hunt, meaning he would probably use only half of the 30 billion-pound windfall in the public finances in next week’s plan.

GLOOMY OUTLOOK?

Hunt’s future room for manoeuvre could be further constrained if Britain’s fiscal watchdog turns gloomier about the economic outlook in its forecasts that underpin the budget.

Until now, the Office for Budget Responsibility (OBR) has been less pessimistic about growth than the Bank of England (BoE).

The OBR said in its last forecasts in November that gross domestic product would slump by 1.4% this year, but expand by 1.3% and 2.6% in 2024 and 2025.

Last month, the BoE said GDP would show no growth at all over 2024 and 2025 after a 0.5% fall in 2023.

Even if the recent drop in gas prices softens the expected recession this year, a shortage of workers, long-standing productivity problems and the after-effects of Brexit risk hobbling the economy.

Britain is the only Group of Seven country whose economy has yet to recover its pre-pandemic size.

Hunt has said he will lay out economic growth measures in the budget, including ways to address the fall in the size of Britain’s workforce. Business groups and researchers argue that among the possible moves he could make, acting on childcare would do more to unlock greater economic growth.

Hunt is also expected to announce tax incentives to get businesses to invest more, boosting productivity, even as the corporation tax rate jumps to 25% from 19% in April.

($1 = 0.8430 pounds)

(Writing by William Schomberg; Graphics by Vincent Flasseur; Editing by Josie Kao and Alexander Smith)

By Jan Schwartz

HAMBURG (Reuters) -Volkswagen is waiting to hear what Europe’s response to the U.S. Inflation Reduction Act will be before progressing with plans to build further battery plants in Europe, the company said on Wednesday.

“De facto it is the case that we are getting ahead far faster in North America,” a person close to the matter said to Reuters, declining to be named.

The Financial Times previously reported that Volkswagen was pausing plans for a battery plant in eastern Europe, the next expected plant in the region, and prioritising building a plant in North America where it could reap 9-10 billion euros ($10.54 billion) in subsidies.

Asked about the report, a Volkswagen spokesperson said the carmaker was “still evaluating suitable locations for our next cell factories in Eastern Europe and North America. No decisions have been made yet.”

Under former chief executive Herbert Diess, Volkswagen said in March 2021 it would build 6 gigafactories in Europe with total capacity of 240 gigawatt hours.

“We stick to our plan to build cell factories for about 240 GWh in Europe by 2030, but for this we need the right framework conditions. That is why we wait and see what the so-called EU Green Deal will bring,” Wednesday’s statement said.

The first of the six plants is a Northvolt plant in Sweden, in which Volkswagen holds a 20% stake. A second in Germany will be built by 2025 with China’s Gotion High-Tech, in which Volkswagen owns 26%.

Last March the carmaker picked a site near Valencia, Spain for a third plant.

The company said in October last year it planned to firmly settle on a location for a plant in eastern Europe in the first six months of 2023.

Volkswagen board member Thomas Schmall posted on LinkedIn last week that Europe risked losing “the race for billions of investments that will be decided in coming months and years” to the attractive conditions offered by the IRA.

Schmall said he participated in a discussion with EU officials via the European Battery Alliance last week on what conditions were needed in Europe for battery production.

These included state aid in line with China and North America, a raw materials strategy and affordable renewable energy, he said.

($1 = 0.9489 euros)

(Reporting by Victoria Waldersee and Jan Schwartz; Editing by Friederike Heine and Bernadette Baum)

((This March 7 story has been corrected to clarify lenders will release pledged shares, not promoters, in paragraphs 4 and 5) )

BENGALURU (Reuters) – Embattled Indian conglomerate Adani Group said it prepaid share-backed financing of 73.74 billion rupees ($901.16 million), as it looks to allay fears over leverage and debt since a U.S. short seller’s critical report sparked a stock rout.

Hindenburg Research had in its Jan. 24 report alleged stock manipulation and improper use of tax havens by Adani, and flagged “substantial” debt levels, which the group has denied.

The billionaire Gautam Adani-led group recently held road shows in Hong Kong and Singapore, and is expected to hold another set of fixed income meetings in Dubai, London and the United States, starting Tuesday, according to a document seen by Reuters.

Lenders will release 31 million pledged shares of Adani Enterprises, worth a 4% stake in the company, and 155 million shares, worth an 11.8% stake, of Adani Ports, the group said in a statement on Tuesday.

Lenders will also release pledged shares equivalent to a 1.2% and 4.5% stake in Adani Green Energy and Adani Transmission, respectively.

In a similar move, the group in February pre-paid $1.11 billion. With Tuesday’s repayment, the group has so far repaid around $2.02 billion of share-backed financing, it said.

Last week, Reuters reported that the conglomerate told creditors creditors it had secured a $3 billion loan from a sovereign wealth fund.

That was shortly followed by a $1.87 billion stake purchase from Australia-listed and Florida-based investment firm GQG Partners Inc in the four group companies mentioned earlier, whose shares have since risen between 10.2% to 23.4% so far.

GQG’s founder Rajiv Jain will meet clients and investors in Australia this week to explain its investment in the Adani group, the company said in a separate statement on Tuesday.

($1 = 81.8280 Indian rupees)

(Reporting by Nandan Mandayam in Bengaluru; Editing by Rashmi Aich)

BERLIN (Reuters) -Germany auto parts maker Continental predicted rising sales would boost margins this year, as it moves beyond supply chain disruption and Russian asset impairments that in 2022 contributed to a fall in net income of nearly half.

Announcing results on Wednesday, CEO Nikolai Setzer also said the company was selling its operations in Russia including its factory in Kaluga.

“The war is the reason for our controlled withdrawal from Russia. This means the sale of our activities, including our factory in Kaluga. We are in advanced stages of the sales process,” Setzer said.

Last year’s performance was undermined by asset impairments of 87 million euros ($91.70 million) from its Russia operations, as well as negative special effects of around 1 billion euros due largely to high interest rates.

Continental’s share price rose 6.1% in early trade.

“2022 was particularly challenging for us… The war against Ukraine drove up the prices for raw materials, semi-finished products, energy and logistics,” Setzer said.

Continental suspended production at its Kaluga plant in Russia after Moscow began its invasion of Ukraine in February last year. It also stopped imports and exports from the country, but said in April it had temporarily resumed operations to protect local workers from criminal charges, without elaborating.

The company forecast a 5.5-6.5% margin for this year on higher consolidated sales of 42-45 billion euros, up from 39.4 billion last year. In January, it had reported preliminary results, saying its 2022 margin was at the lower end of its outlook at 5%.

It incurred 3.3 billion euros in extra costs in 2022 and expected an extra 1.7 billion this year from the increased cost of materials, energy, logistics, wages and salaries.

Net income fell to 67 million euros from 1.4 billion last year.

The auto market globally saw some recovery last year from the impact of the pandemic and economic weakness. Global car production rose 7% and Continental’s order intake from the automotive sector gained 26%.

On Wednesday the company predicted a rise in global auto production of 2%-4% in 2023, in line with a forecast in January by Germany’s autos association. Car production is still lower than before the pandemic.

($1 = 0.9488 euros)

(Reporting by Victoria Waldersee; editing by Barbara Lewis and Jason Neely)

SHANGHAI (Reuters) -Ford Motor said on Wednesday it was offering a discount of 40,000 yuan ($5,700) on its Mustang Mach-E electric SUVs in China until the end of April.

Mustang Mach-E cars were now available in China at prices starting at 209,900 yuan in China after the discount, a company representative at Ford China said.

The U.S. automaker had already slashed Mach-E prices by as much as $5,900 in its home market following rival Tesla’s price cuts for the best-selling Model Y crossover.

Ford said in November it was accelerating Mustang Mach-E production and targeting a global annual output rate of 270,000 by the end of 2023, including its China production. It builds the Mach-E in Mexico and China.

Ford sold 39,458 Mach-Es in the U.S. last year, 45% more than in 2021.

However, Mach-E sales last year in China, the world’s largest auto market, were minimal – just 7,782 units. Tesla sold 455,091 Model Ys in China in the same year, according to data from China Association of Automobile Manufacturers (CAAM).

($1 = 6.9636 yuan)

(Reporting by Zhang Yan and Brenda Goh; Editing by Tom Hogue and Bradley Perrett)

BERLIN (Reuters) -German industrial production rose significantly more than expected in January, increasing by 3.5% on the previous month, the federal statistical office said on Wednesday.

In a Reuters poll, analysts had pointed to an increase of 1.4% for the month.

The positive development “was driven in particular by strong growth in the manufacturing of electronic equipment … and chemicals,” the statistics office said.

In contrast, motor vehicle and motor vehicle parts manufacturing, as well as pharmaceutical products manufacturing, had shown a strong negative trend.

January’s rise should be seen in the context of the marked decline in production in December, down 2.4% following an upward revision, the economy ministry said commenting on the data. In the more meaningful two-month comparison, there was a decline of 0.6%.

Still, the ministry described the trend as “cautiously optimistic” citing surveys showing improved business outlook and declining supply chain bottlenecks.

“Combined with the still well-filled order books, the economic downturn at the beginning of the year should be mild,” it added.

Also on Wednesday, the statistical office said that German retail sales had fallen unexpectedly in January by 0.3% in real terms compared to the previous month.

Analysts polled by Reuters had forecast a 2.0% rise in

price-adjusted terms.

The office offers more detailed data on its website.

(Reporting by Friederike HeineEditing by Paul Carrel, Matthias Williams and Tomasz Janowski)