>> good morning, everybody. welcome. you're watching "the pulse" live from bloomberg's european headquarters. i'm guy johnson. cementing a deal. holds profits steady as it drives toward a merger. we're live with the company's c.e.o. lots to talk about there. now u.k.'s seven lean years finally open. we're going to look at britain's ounce back and its biggest infrastructure project, cross rail. and the data. not that rosy. we saw better p.m.i. data out of germany yesterday. the forecast was 109.4. somehow the your owe reacting? a weakness this morning. let's take a look at the pair. this is euro/dollar. which is coming up any second now. there you go. session lows. definitely down toward the bottom end of the range. ok. let's talk about the corporate news. a lot it today. it has rate some of the biggest stories we have been talking about over the last few days. time for another bloomberg exclusive this morning. shares in europe's biggest airline very much on the up today. operating profit has tripled at air france. they announced another five-year plan to drive down expenses but that is not the story we're talking about today. .e'll talk about it in a moment first of all it is about what's happening in the aviation industry and the crisis affecting it at the very moment. as i say, let's put the earnings to one side. what do you have to say about what's happening to geopolitical risk, aviation risk? >> well, of course he says there has been one of the worst weeks for the aviation industry but we shouldn't be overwhelmed by emotion. the s what he told me in exclusive interview he gave me today. he wants to remind passengers that flying remains the safest meanors transportation. have a listen. >> i have to say that it is a black week for air transport. he point is that these three catastrophes are totally different. different companies, different origins, different environment, different aircraft. you cannot draw a general conclusion that the air transport is less safe. or should be avoided. i can understand that passengers can be worried. of course. that is perfectly understandable. ut have i to tell them it is the safest. >> though, of course, he understands that passengers might be worried to fly, but he doesn't say that he is seeing at e moment any impacted on bookings, future bookings ings. he said we'll have to wait to see if this has a financial impact on bookings. for now, as you were mentioning, the company reported earnings with operating profit that tripled in the second quarter. >> talk to me a little bit about the wider picture here a little bit more. we've had the downing of mh 17 related to a conflict zone. we have had the f.a.a. saying u.s. airlines should not fly into tel aviv. that has a financial impact on airlines. it has a perception impact on airlines. what did he have to say about that? >> exactly. especially the perception. that is exactly the question i asked him, whether the international burden for air transport should change view, the conflict zones and change the routs. t is very important. you had 11 passengers who died in the tragedy who bought their tickets with air france as part of the co-chair agreement. i asked whether we should not fly over conflict zones and whether this will have an impact on prices of tickets. have a listen. >> well, if you lengthen the routes, of course you -- you use more fuel. no have to say there is compromise. if safety and security is at stake, there is no economical components for us. safety and security, they are the first priority, excluding everything else. at the ends of the day, we'll have to increase likely the price of the ticket on this route. >> the air france carrier is saying that the international -- should review the situation on conflict zones following the tragedy on in israel, air france has suspended flites to israel so far and they will review the situation today. guy? >> thank you very much indeed. karen just finished doing that interview. we're going to bring you more of what he has to say throughout the morning. it is very relevant to so many of the stories we're talking about now. we need to hear what he has to say. we have some other coast coming up on the program as well. -- c.e.o.s coming up on the program as well. one thing happening in the french economy now is good news is very much in short supply. bad news comes on coming. of l hear from the c.e.o. lafarge. i'm interested to get his take. what is it going to take to get the french economy back on track? we'll talk about that a little bit later here on "the pulse". in the meantime, let's talk about some of the other m&a news that we're talking about. there is plenty around this morning. other as agreed to buy businesses. manus cranny joins with us the details. the stock down pretty low at the get-go this morning. are minority investors concerned maybe this deal is serving a higher power and not their best interest? >> for the skeptical audience, you're 100% correct. very accurate take. relative to the rest -- we are at a saturation point in the united kingdom. that would be the view, guy. bskyb is very much there. we're picking up the extra products on the go, download . can they all come together and deliver synergies and a growth that is sort of make this deal convincing to the minority shareholders, the other 71% of people that own bskyb who get to vote because fox doesn't get to vote in this deal. we caught one the c.e.o. and he er jis. mistic on the in >> ultimately there is more head room available to germany and italy. their pay takeover penetration is a t a lower level than in the u.k. something like 7 out of 10 homes has yet to make the switch to pay tv. we expect those markets to show good growth and stronger growth coming through overtime. we expect in ther in term to realize around 200 million of synergies. that will continue to grow. that is just a milestone along the way. >> mr. murdoch. >> he gets a little bit more cash in his swag bag to go back and raise his offer to time warner. me, my own personal view is his motivation for getting fox to go after -- sell the assets and grow the bskyb as it were, business in europe is so that he can come back in a couple of years because he believes the world will have moved on and we will have forgotten about phone hacking and that he will be able to deliver his ultimate dream, which is to own outright bskyb. >> he has bigger fish to fly now. i guess that is why the deal is being done in the way it is. no precedence. strategic rational behind this deal, appears strained and convincing shareholders this is not a transfer. it will prove difficult. >> there you go. that is an analyst who knows better than i. you look at what is going to be paid for bundes league. >> premiere league could be -- >> it is actually -- they are focused on keeping customers that they have acquired, to not run off and leave. >> they have different motivations. manus cranny, thank you very much indeed. the details surrounding the media merger story. we're going to talk to analysts later on the program and get a take on exactly how maybe shareholders should feel about this if their name doesn't start or finish with murdoch. other news, r.b.s. shares soaring today. the bank said their pretax profits almost doubled in the first half. r.b.s. is britain's biggest states-owned bank. we'll have more on this story later on on "the pulse". in the meantime, i want to take you to live pictures coming from the netherlands holding hearings about the shooting down of flight mh 17 over ukraine. that is what's happening currently in the netherlands. a lot of moving parts to this story. ryan chilcote joins us now with the details, all we need to know. we got the resignation of the ukrainian prime minister last night. what does that mean? where does that take us? >> that was unexpected by most of us. he said because he couldn't get the legislation that he wants through the parliament and because the ruling coalition had collapsed earlier in the day, he didn't have the mandate to be prime minister so he was resigning. remember, he is -- has only been prime minister for four months. when i spoke with him four months ago he assured my he would be the most hated prime minister in ukrainian history. he cut the deal with the i.m.f. which required bitter medicine back home including hiking tariffs for gas and little bit and cutting at the same time benefits. it has been very difficult. i'm not sure that he is the most hated politician just yet. some of those reforms have yet to materialize people's daily lives but they certainly will. this is obviously going to cause a lot of chaos in ukraine just as it is fighting a war. this country needs an early parliamentary election like a hole in its head. however, there is more to it that means the eye. we were actually expecting an early parliamentary election. at some point we got the presidential election on the back of that unrest earlier in the year and everyone was waiting for this parliamentary election. what this allows the president to do is to consolidate his power base in the parliament because if you think about it, a lot of people in the parliament were still people that supported the ousted president and it also might mean a hardening of anti-russian sentiment. within the parliament, a lot of those people in there were much more pro russian than those that are going to get voted in now with the general population getting increasingly i guess disappointed and disgusted with what's happening in the east of the country. guy? >> we have a survey. what does it tell us? >> this is interesting. perhaps more interesting than us speculating on what's going to happen next with sanctions. we did this survey and a whopping 79% of the investors that we spoke with said they think the u.s. is going to introduce sanctions to hit russian industry. and doha very soon. -- do that very soon. that is up from earlier when just one out of five thought that was going to happen. will the e.u. introduce secretarytorial sanctions. -- secretary tomorrow sanctions. basically no investor thought that. h% of investors thought that the e.u. was going to follow up with all the threats and introduce real sanctions. it tells you what a game changer flight mh 17 really was when it comes to the international isolation of russia and president putin and two, i think it suggests that a lot of the geopolitical risk around this story -- >> ryan, on that note, we'll leave it. ryan chilcote. he mentioned flight mh 17. we'll get another take on that when we come back. we'll continue with exclusive with air france. we have already played some. h described it as a black, black week for the aviation industry. we'll have more on what he thinks about where the aviation sector goes next. ♪ >> it's friday. let's talk about the weekend. one of the world's largest distillers is franchising neighborhood vodka stills hans nichols had to go find out what's going on. >> for a bottle of local vodka there is really only one way to clean it, with more vodka. >> it is made of ingredients, we make really good vodka here in downtown berlin. >> but it is not all so innocent. in a bid for local street cred, the world's second biggest distiller converted this old garage and financed the project. bid to came up with a build local disstlries around the world and have local people running them >> this is the finished product. before it gets bottled it needs to be tested for taste and alcohol content. some drinkers have a vodka problem. drink vod california ca has a drinker problem -- vodka has a drinker problem. there are not enough of them. >> the operators know the local market. >> we provide the water and the ethanol. don't use -- we are completely responsible on how to sell ourselves. >> the contribution, the recipe, the yeast for the so-called aromatic fraction. to break even, they need to sell about 6,000 bottles, suggested retail? 13 euros and this vodka is the newest edition to berlin's drink scene. >> it is drinkable at room temperature. hans nichols, bloomberg, berlin. >> what i think is interesting there is the fact that it is a ottle of vodka, the ones where you take the top off with the bottle opener. you can't put it back on. still to come, we get u.k. g.d.p.. caroline hyde has a different take on how britain's different infrastructure project is driving that growth. >> i'm here at cross rail, the biggest european project. it is costing the u.k. 15 billion pounds. 230 pounds per taxpayer with a promise it will return that three-fold. 42 billion pounds. i'll be back after the break to bring you more from the chief executive of cross rail and his take on how this is helping fuel economic growth here in the u.k.. back to you. ♪ >> good morning, everybody. welcome back. i want to take you to a ive. berg exclues we have been speaking to the c.e.o. of air france. that is europe yep's biggest carrier. he spoke with my colleague. take a listen. >> it is a black, black week for air transport. he point is that these three catastrophes are totally different. different companies. totally different origins. different environment. different aircraft. you cannot draw a general conclusion that the transport is less safe or should be avoided. i can understand that passengered can be worried, of course. that is perfectly understandable, but i have to tell them first of all, air transport is very safe, it is the safest transportation system in the world. -- the first concern of any it is security and safety, everywhere. at any minute. it is the basics of our contract with our passengers. the point which is key is we are -- we try, when there is something -- to act quickly, but seriously. because all the measures we are putting together, we are taking to avoid any risk. they have to be taken on an international level, seriously, it is usly, it is not -- driven and triggered only by motion. >> are we going to see an impact on demand? do you see your forward booking declining? >> up until now we haven't seen anything. we haven't seen anything and we do not expect a major impact. but we will have to explain to the world and to the passengers -- ture passengers that >> on the mh 17 flight you had an grem with malaysia airlines. how do you feel this is going to impact the eakt? with ad 11 passengers malaysia. the malaysian catastrophe is not putting at stake safety for airline. it is -- a terrible criminal act, a war. act against -- it is different. there is no link with the way the airline -- >> should airlines completely stop flying in conflict zones? s that going to have an impact on price of tickets? >> if you lengthen the routes, of course you use more fuel. so it is more costly. but have i to say there is no compromise. safety and security is at stake, there is no economical or economic components of course. safety and security are priority excluding everything else. at the end of the day, we'll have to increase likely the price over the ticket on this route. that is perfectly fair. of course the international association for air transport is working on what do we have to do on conflict zone or risk zone? there are still some revolutions to be made there. it will have to be an international -- which is approved by government and international bodies. otherwise we cannot rely on the pure initiative coming from airlines. >> are you taking safety measures in the case of israel? >> american and european authorities and the french authorities have banned flights to israel for two or three days. they are lifting -- lifted the ban yesterday. the will make decisions day to see whether or not we high in again to israel. >> c.e.o. of air france talking o karen. what do you make of what he had to say? >> he has -- he was talking about -- need to come together and have oversight. they are going to be meeting united nation authorities next week in canada. it will be interesting to see what comes out of that. you also note that he talked about the fact that 3 b billion people flew last year. there is 100,000 planes that take off and land every single day. this is something that is sbregal to our life now. > te talked about mitigating risks and paying more for the seats that have to be taken around conflict zones. is that something that is now going to become normal? are airlines just going to avoid conflict zones and we will have to pay more fare? >> i wouldn't be surprised. the press and the backlash, if you make that choice and something happens. you saw it with tel aviv. air france is still holding off. it will be interesting to see how airlines react to this. u.k. g.d.p. is breaking. .8 is the read for the second quarter. that matches estimates. anything over .6 takes us full circle. the u.k. economy is back where it was. manus cranny joins us with more. >> the question you have to ask yourself is how much that good news is priced in. the i.m.f. saying we will be one of the strongest performing economies out there on the world. this is dollar/sterling where we are at the moment. 1.6977. gives you a certain sense, just seeing it come back a little bit lower there. no immediate reaction. we have seen equity markets rise. e're up on the sub600. the german -- confidence numbers. an interesting story in germany. the g.f.k. confidence numbers saying confidence is the highest since twix and yet the eef degrees, 2006 and yet the i.f.o. showing numbers which you have not seen. it comes down the to the numbers out of the u.s., durable good orders. s&p 500 at the moment, up a 1/8. breaking through new heights. keep an eye on 10-year overnment bond yields. what delivers real cash? confidence, down to the size of your house and the dollars that you can sell it for. believe me, i know. i'll take a quick look at companies driving the agenda today. it is going to be the focus of new york and the talk of the ime. louis vuitton, when t comes to handbags, leather, jewelry, miss, miss, miss. back to you. through the way data we have been giving us. where does this leave us? >> back where we started really. g.d.p. is roughly where it was back in 2007. this is not a good recovery in that sense but i think what we are seeing you can be disappointed in that we're only just recovering that precrisis peak. that is disappointing if everyone. over the past five quarters we are seeing solid and consistent strong growth in the u.k. above trend. .8 this time. that actually signals the recovery broadening and gaining resilience as well. i think we can look forward to a second half where the u.k. continues to grow strongly. >> they gave us 3.2%. not many people have the u.k. at 3.2%. bank of england has more than that actually. most economists don't. what are they seeing that we're not? >> growth is actually catching up to that now. you're right, not as high as 3.2. but getting there. the i.m.f. just updated their forecast. they have seen a lot of data. we had the c.b.i. survey just this week with employment growing at its fastest rate. the i.m.f. just projecting for that to continue. next year, they see some slowdowns to 2.7 but i think the u.k. can continue growing around these rates through next year too. >> ok. at some point if, you're right, that is going to translate to wage growth. >> yes. >> when does that happen? >> there is a delay at the . nute that is a little bit of a surprise. if you look at the surveys, they are showing increasing wage pressure. recruitment employment federation reported another record high for permanent hires, salary growth. the rate at which growth is moving now, how fast unemployment is coming down, it can't be too long before wage growth gradually starts to pick up. i think the signs are that is going disappoint. it has disappointed the bank of england for five years now. the latest numbers are not that good either. actually that is the real focus of bank of england policy makers this month. they think they can keep interest rates low and have rate hikes gradual because they think it is going to pick up sharply. it has disappointed them yet again. that is a reason why at least one of them will vote for a rate hike. >> what i'm surprised about is that the u.k. recovery, particularly from the european point of view seems happening with isolation. the german story is beginning to slow down. we have a difference between an i.f.o. survey and a p.m.i. number. clearly there is noise surrounding a lot of the german data now. but at some point, these two have to co late in some way. correlate at n some way. europe continues to disappoint. confidence continues to disappoint. >> that is a big risk there. i think i described it as balanced now. six months ago they looked more to the upsate. ukraine and yause is a big deal for growth across europe and also the slightly softer iphone numbers pose a downside risk. the i.f.o. has come down quite a bit. pretty strong growth in germany. the p.m.i. signaled decent growth as well. i don't think that is quite materializing yet but it is -- girthing larger. >> absolutely. >> what about the pound? how big is threat is that to this broadening out of the economic recovery that we are seeing? >> i also think the pound is really the only risk to this recovery. i think putin is a much bigger risk than the pound. whether europe continues to pound. >> nice to see you. >> thanks very much. >> rob wood joining us. let's continue the conversation. cross rail is helping boost britain's economy. europe's biggest infrastructure ogget project is pushing the economy. it will bring 1.5 million people within 45 minutes of central london. caroline hyde reports on how it is changing landscape. >> london is growing fast. another million people are expected to swell into the city in the next decade. the result, property price, commercial and resident rble are increasing. there is one phenomenon which has pushed prices like no other. cross rail. the network cutting across the capital. >> 500 to 1,000 meters around the station. we will increase property values by an average of 18%. >> and here's why. cross rail are connect isolated parts of the city to the center of london's shopping and business district. >> it is cyclical. >> we have researched the effect. >> we've been monitoring prices. we have seen prices outperform in those areas compared to -- > houses near cross rail stations have gone up 30% in value since 2008 and are forecast to rise another 40% between now and 2018. but it is not just home owners rubbing their hand together. retailers are also expected to benefit. cross rail purchased large chunks of land for their new station making them within of the single largest property developers in london. construction site will be transformed into buildings creating an estimated 2.3 million square feet of new shops. >> we're looking to generate about half a billion pounds from property development. >> the sale of the land will go towards covering cross rail's colossal cost. but not everyone is a winner. london's property boom is pushing up rent and new renters have seen prices jump 10% on last year. some of london's poorest areas are seeing the highest increase this property prices. good tr home owners, costly for the city's increasing number of renters. >> so london's economy is booming and the british economy as is a whole is no longer in the hole that it once with you was. caroline hyde is in the hole or standing next to a very big one. you spoke to the c.e.o. of cross rail. what did he have to say? they h, guy, many -- -- work pretty hard. these guys behind me work for 12 days solid and then have two days off. it is 24 hours around the clock activity. they have 10-hour long shifts. really phenomenal amounts of work. they are tunneling, this tunneling equipment each weighs somewhat 10,000 tons. the same amount. 1,000 tons, the same amount as 1,000 cars. currently below me, the subterrainian world going on beneath me. this is just one of 39 sites across london. we're talking 15 billion pounds being ingested into this project. we spoke to the chief executive of cross rail and said somehow that money reaping rewards for the u.k. economy? where is that coming from? this is what he had to say. >> this is an exciting program for london. % extra rail 10 capacity in 2018 when we open. 1.5 million people will be within that minute of the key usiness districts in london. you can break it down in a number of different ways. >> clearly he is talking about the amount of people that are able to hire, 55,000 jobs added or this one project alone. i think if i was heathrow express, i would be pretty worried now. eally you do feel the energy here and that is reaping rewards for the u.k. economy. >> it certainly is. two companies, though, that are heavily involved in british construction are getting together. now you would have thought given the products you're talking about there would be a lot of work going on. talk to me about why this merger s happening. >> balfour and carillion. it would make the biggest british construction company. i was speaking with andrew about that very thing. the chief executive of cross rail here was talking about the fact that having these two big players coming together should help spur that growth. it has another export for the u.k. by having cross rail in the united kingdom we're building up -- we can export abroad, export upnorth. it will hopefully connect london to manchester to leeds. that is going to be using many of these workers behind me that will go on to other greater things. the key is make stations work for you. how do you get that 15 billion pounds, 230 pounds per taxpayer in the u.k.. how do you make that work for you as a project. you add office space to it and get that money back. they are promising to return it to us three-fold. back to you. >> all right. thank you very much indeed. all right. we're going the teak a break. up next, lvmh very much under pressure today. we're live from paris. we'll see you in a moment. ♪ > lv plnchshnch one of the biggest losers. they missed estimates. our reporter joins us now from paris. what is going on here? problem, the big guy, good morning. luxury stocks and luxury companies in general have pretty much acted as a proxy for consumption in asia, particularly china. the biggest surprise this morning or certainly was last nights when lvmh reported, in the second quarter, chinese consumption inside and outside the country weakened quite significantly and that had a bearing obviously on sales of handbags, cognac and watches. across lvmh's portfolio. there were some things i think the markets expected. japan increased the v.a.t. about 3% in april and obviously the disappearance over the malaysian aircraft in march had some influence on consumption in thailand and singapore, but i think the market is most concerned about what is going on inside and outside china. hong kong is a big area of concern. some of the protests there have really dented demand and i think we have to remember that hong congress is where a lot of chinese -- hong kong is where a lot of chinese shoppers go where they can take advantage of the prices there relative to the mainland. >> i was looking at the luxury sector. it looks pretty clear here to the rest of the sector. everything is down on the back of this. this is a bellwether stock. if lvmhis telling us is is having problems, everybody is having problems. >> big alarm bells are ringing. the stock which has gucci, a big rival to louis vuitton, lvmh has been viewed as perhaps dealing with some of the issues that louis vuitton was facing. it is trying to move that brand upscale and make it a bit more exclusive introducing more expensive products and reducing the amount of logo out there, trying to appeal to a wealthier customer so it can insulate tself. gucci seems to maybe not be addressing that issue in quite same way. i think the view is if louis vuitton is suffering, then gucci may be having major problems. it reports next week. >> two month ago nobody thoulingt thought the luxury sector in europe could put a foot wrong. >> i think i spoke to value retail earlier this month and scott, who runs it, the outlet stores a of the luxury stores, luxury brands so they can distribute maybe last season's stock at lower prices. he was saying that management, the idea of what's going on in china with the companies he is speaking to, executives there are panicking is what he basically doctor how he said it. what we're seeing is growth is very easy in china when it was all about perimeter growth. just opened more stores. you got bigger sales. improved. everyone was excited about the prospects for that business. now that that is not happening. now that it is perhaps harder to generate growth, you have to run that as a real business, he was seag some of the companies he has been speaking to this china, some of the big name luxury brands, their management there is fearful. they are not sure what to do. there is a problem and that translates both to europe as well. europe is a region where luxury companies have been relying on chinese tourism. if there are fewer chinese tourists coming to europe, with french and the rest of european local demand not particularly performing well, there is a huge problem for the luxury industry. >> yeah. not done with this yet. in other company news, anglo america's profits are risen. -- have risen. i asked about the assets that are on the block potentially. >> we're seeing expression of interest literally on a weekly basis. there is lots of interest for assets. from our point of view, we're in good shape. our operating earnings are improvering. cash flow is improving. balance sheet is in good shape. certainly while we're still making capital investments, we ing the debt, but we expect debt to be in the range of 10 billion to 12 billion by 2016. we have no major problems there. we're in good shape. >> ok. is it too early to say that negotiations have started on any of the asset? you have had expressions of interests having negotiations actually started on any of those asset? >> no, we're in different stages on a range of things. i'll leave it at that. >> any idea on the kind of numbers you're looking at? price-wise you're not going to give me a hard number. >> we have a range of figures that we're working through. the most important one for us is to make sure that we keep the balance sheet in good shape. our operating cash flows are helping us there. our range is 10-12. that puts us in fighting shape. that will be the thing that i focus on most importantly. >> we have to take a break. we're back in a couple of minutes. i'll see you then. ♪ >> welcome back. let's find out why and what it is doing. doug king is here with doug king consulting. good morning. -- is an arabic digester aerobic digester. it is a nice, neat circle. that sounds great. is that something we should be doing in other plants or is it we have this thing that can do it anyway? >> this particular story is fantastic. it is headline grabbing and focusing attention on the technology which is mature and commercially salable. >> the next bit? >> the next bit. there are about 60 plants in the u.k. at the moment which is digesting food waste from across the supply chain. >> right. we have an awful lot more food waste that we could be using? >> absolutely. the real issue in this story is about food waste. not necessarily about connecting one store. it concerns me headline grabbing initiatives like this distract from the big issue, in this case, food waste or energy consumption. >> it doesn't matter whether they are connected to a supermarket. the fact that we have them. we're not using full resources available. so the growth is going to be there. can you give me a sense of how ?uch power is generated >> at the moment, i couldn't give you the total figures. sainsbury is claiming their total is contributing about enough power to run about 2.5,000 houses. that is two onshore wind turbines. >> that is quite a big number. >> the issue here is there is the international grid of course. by connecting a single plant to a single store, they are corralling the benefit of this plant. at the expense of all the rest of us. the net gain for society is zero. >> we'll li through it. thank you very much indeed. we'll take a break and see you in 3 1/2 minutes. ♪ for the airline industry after three fatal plane crashes, we speak to the ceo of air france. rupert murdoch cells pay-tv e in italy and germany, raising money for his takeover. profit doublesas at written's biggest state owned britain's biggest state owned bank. good morning to our viewers in europe, good evening to those in asia, and a very warm welcome to those just waking up in the u.s. johnson. this is "the pulse," we are live from bloomberg's european headquarters. here in london. cementing a deal, lavage drives towards plans to merge. we speak with the ceo and couple minutes' time. shares in europe's biggest airline are surging, operating profit has tripled i air france. the company announced a five-year plan to drive down expenses. after three deadly crashes, we in teleen ben-gurion aviv being effectively closed by the faa. a lot to deal with for the boss of europe's biggest carrier. caroline connan asked about concerned travelers. say that it is a black week for air transport. the point is, these three catastrophes are totally different, totally different companies, different environments, different aircraft . you can make no general conclusion that transport is less safe. or should be avoided. passengers areat worried. that is perfectly understandable. i have to tell them, first of all, air france is very safe -- the safest. air france's ceo speaking to us exclusively from paris. let's stay in paris and talk to another boss of a french business. lafarge says its merger is on track after the company reported a second quarter earnings that beat estimates. let's get more and talk to its ceo, bruno lafont. >> good morning. >> good morning, was a bit worried you could not hear me. througha big deal going with your business. you try to get out in front of that by talking about the disposals you will make to satisfy regulators. when are you going to be in a position to start selling assets? announced the merger on the seventh of april. on the seventh of july, we announced a list of assets to be vested for the demand and requests of the de la torre authorities. we are starting the selling process. that will allow us to be on time the firsterger in half of 2015. the divestment process is now starting. we will send our first set of information to potential buyers next week. after that, of course, we will strive to get the best authors, though one -- after that, of course, we will strive to get the best offers. the one that will make the thetment the fastest -- one that will make the divestment the fastest. an impression you're going to be sending this to a multitude of potential buyers. is it your impression you will see a series of buyers for different assets or maybe you will get a single higher for the the-- a single buyer for lot? >> we are open. there is interest for both assets. , it is artant confirmation that those assets are of high quality. it is a very interesting event for many potential buyers. what is important for us is to transform those marks of clear, binding, and certain offers. that is the process we are starting now. that is where our bankers are focusing. we are open, but it is true that --the numbers of interest there are marks of interest from and institutions who want to buy the whole of the assets. there are others more interested in specific assets. speed is very important. for speak, we need simplicity, certainty of execution is very important. we want to be on time and we do not want to delay the merger. the value is also important. those assets, we are selling them because we anticipate that request of the adulatory authorities -- of the regulatory authorities, not because we do not like them. they are of high quality and have been managed by us for years. we believe it is a very interesting process for the markets. >> we're going to watch it very carefully. can i take you in a different direction now? the construction sector in going wrong?is what is it going to take to get the french economy back on stream? data emergingting from paris. what is your take on it, what is being done wrong and what needs to be done to make it right? isfirst, the outlook for us confirmed worldwide. we see america progressing and emerging countries continue to grow. and we see the first signs of recovery in europe. europe is contrasted. there are countries that are starting earlier. see relatively slow activity and construction. slow means for this year decreasing. for francis tont reassure people and reassure everyone who wants to invest and to restore confidence. that is the most important thing. that also has to do with .egulations on construction lendertions on owner- things. a lot can be done to restore confidence and launch construction activity. starting with private construction activity. anything, policy wise, that you would like to see the government do to improve the position? regulationshere are to simplify. to reduce the cost of construction. tore are measures to take make construction more attractive financially for the people who want to invest in struction and to put their savings in construction. i has to do with regulations, how to do the renter contracts, they relationships between the house and alown the the people who rent it. some incentives on tax. to look at how the financial to thewill contribute confidence improvement. the lafarge.ru website right now. what it says right now is "russia is one of the key regions for the lafarge group." in a year's time, will it still say that? are you concerned about the trajectory we are on right now and the possibility of sanctions? and 65rge is present different countries. i visited each of the 65 countries. it's time we are invested in a country, i visit it to make sure that we can't live in this country. we can make money in the country and we can trust the economy climate and the way to do business. these is one of countries, not the only one. it is not the largest country of the group. it is one of the countries where we have invested because we believe the population, the urbanized nation, and the growth is possible. of course, today, we are in some slowdown. for the time being, it has not yet happened to construction in the region of moscow. >> it says a key region for the lafarge group. i am wondering whether you think it will be a key region in a year's time. do you think it is going to get more difficult to do business they are? do you think it is going to affect the industry jacob the economy as a whole is slowing down and we have not even factored in the sanctions story yet. >> what you are mentioning is outlook for russia. since we are and 65 countries i can tell you there are always countries that are doing less and some countries that are doing better. what is important is to be able to spread the risk and have a balanced for folio of assets. for russia, i cannot completely anticipate. we had difficult years in a russia during the financial crisis. that has improved recently. areill see how things evolving. of course, when you look at the region, which is made of eastern european countries, central european countries, including russia -- yes, there is a potential. lafont, thank you very much for your review on your take on where your company is going. thank you for your time. ceo of lafarge. merger in place, interesting times ahead for the business. rbs is the biggest gainer on the stoxx 600 after profits almost doubled in the first half of the year. jonathan tice is a report with bloomberg news and joins us now. field.els a bit left the market has been caught by supplies. what has happened that has generated these numbers? >> it is interesting your last interview, this is about bad debt and driven by commercial real estate. two things -- in the third quarter, rbs settled a bad bank. a bit late, some people thought. the acceleration for the work after the runoff from the bad debt there. they said on the call that in the first half of this year, the runoff has already released $2 billion in capital to rbs. --it it is 70 ratio increased its sovereignty ratio, basel iii. ireland, -- in the u.k. and ireland, conditions are better. the question going forward, is the 40 to 50 basis points they have guided to sensible or will that be lower? the run rate is lower at the moment. >> is this a legacy? >> difficult to say. the bad bank is what has accelerated the work through. clearly it is working. the biggest driver is the fact of the american private equity hedge funds are swooping over europe, spain, u.k., ireland, buying assets. they were mentioned on the call. they said there are people looking to buy these for good prices. does this change the relationship -- if this carries on, there is a sense that it is going to carry on, does this change the british government's relationship with rbs? or does it bring for the ending? >> it has to accelerate it. 12% andget about 11% or profitability returns more quickly, it is easier to sell the shares. the shares are approaching the end price. >> thank you very much indeed. we will take a break and will be back in a couple minutes. ♪ >> 17 minutes past the hour, you are watching "the pulse." agreed to buy pay-tv businesses in germany and italy sox four $9ntury billion. manus cranny joins us. murdoch owns 21st century fox. was his dream? to get his hands on time warner. he is offering way under what would exceptaid it stop time warner says it has a superior proposal in its own growth plan to anything for the first century fox is in a position to offer. near enough to get you to time warner. have a look at sky's price in london. a big shareholder in b-sky-b, 21st century sox. they cannot vote on this deal. .k., which b-sky-b u is saturated. we all love pay-tv systems. can he convince the minority shareholders that this is a cracking deal that truly he is going to turn things around in germany and italy? where people simply do not pay at the same scale or the same price for pay tv. meani say do not pay, i way under the penetration rates you see here in the u.k. idea what it takes to market to a german or italian to convince them to part with their euros for exclusive access. >> there are lots of very small, regional cable companies in germany. it is a different market from the u.k., where you have a series of large operators. in germany, it is a fragmented market. has said thatland they will review the offer. nothing is a done deal. looking back through my notes, utschland, b-sky-b is offering 6.7 5 million euros. if they get it at this price, average. the 52-week that looks reasonable in terms of pricing. will the institutional shareholders, is that enough of a premium for them? it does not look and sound like a very gung ho premium. me, it looksto like the price tag for sky comes out a little bit more expensive than anticipated. u.k. is going to have to spend a lot of money on premier league writes coming up. if you look at the way the cycle works, you invest very heavily and then you reap the reward. if you're telling me the penetration rates are very low in italy and germany -- >> they are. >> they're going to have to invest in those businesses as well. that will drive cash flow into those markets, where it could have been coming back to shareholders. they will have to pay a high debt load as well. issue 10% new stock, fox will hold their position in b-sky-b and keep their voting rights at 37%. the penetration rates in germany is 27%, the european averages 45%. >> getting that number up is not going to be cheap. >> and you are dealing with a different world in terms of what is available on netflix, etc. bringing us m&a from the media. euro/dollar, a bit of a dip in response to data. yesterday's efo number was not strong, 1.3442. we will take a break, plenty more coming up on "the pulse." ♪ >> welcome back, you are watching "the pulse." is up and its ceo is wrapping up a review of low performing assets he is going to sell. i asked him about assets on the block. receiving interest on a weekly basis. from our point of view, we are in good shape. our operating earnings and cash improving. our balance sheet is in good shape. we're making capital investments and increasing the debt. we expect that to be in the range of $10 billion to 10 $12 billion. we do not have to rush. say thattoo early to negotiations have started on assets? have any negotiations actually started? stages onin different a range of things. >> ok. any idea on the kind of numbers you are looking at? have you got a figure in mind you are looking at? got a range of things we are working through. the most important one for us is to make sure we keep the balance sheet in good shape. our operating cash flows are helping us there. our target that rate is somewhere between 10 to 12, that puts us in fighting shape. that'll be the thing i focus on. ceo of angloani, american, earlier this morning. today's new energy headlines. germany's push into renewable energy is strengthening the electricity grid. dropping and surging from solar power and wind power, causing the government to pay more to stabilize the grid. in the u.k., a plan to spur low carbon electricity and renewable power products to compete against each other to win. take a break. let me bring you today's pulse number, $33.3 billion. that is how much 30-year-old mark zuckerberg is now worth. the facebook chairman added one point $6 billion to his fortune yesterday after the company closed at a record high. we will take a break, see you in a moment. ♪ >> welcome back, you are watching "the pulse." we are in london. i am guy johnson. top headlines -- the u.k. economy has recovered the outlook lost after the financial crisis after growth powered ahead for a sixth quarter. say 16nian officials people were killed in a shelter run by the u.n. in northern gaza. it was hit during the battle between israel and the militants in gaza. the shelter also served as a school. seven children among the dead. diplomatic efforts have intensified to end fighting. preparing to sanction russia. top security officials after the downing of malaysian air flight in ukraine. watching the story develop. is a story we are watching. artillery fire is now a big part of the story as well. anding ms. out of russia ukraine, the first time american officials are alleging this is happening. we have got the russians helping the separatists directly. in russia, breaking news russia's rate decision is out, it raised key rates to 8%. the estimate was seven .5%. the ruble has been on a the last trajectory of few days. strengthening this morning. 35.0166.ble at not a big move. manus cranny has more. 10% fluctuation is not unheard of. analysts calls are saying you could see 37 percent by the end of the year. tells a story,p we have run our course for the week, over one point 25%. we caught up with the ceo for you by us. valuations are not that stretched. confidence in germany is stretched. index dropped. in the u.k., you said we have undone all the lost output we had during the great recession. -- it would take outstanding information to drive sterling any higher. under the one point 70 level, getting gdp at .8% for the quarter. manufacturing and construction have a little bit more work to do. why you are seeing this sterling trade not have any huge momentum to the upside at this stage in the trading day. let's see how new york picks up as the information, some big should bowhought we our heads at b-sky-b. non-fox voters will have to sit whether they think sky deutschland and sky italia is a good deal. ,an they convert louis vuitton down on watches, cognac, fashion. miss, miss, miss. tax in japan. 374.40. the next stories you'll read about rbs, will they take the opportunity getting nearer to the opportunity of more of rbs. still up on the week, 1.25%. down to leading economic indicators in the u.s. this afternoon. >> thank you very much indeed. 25 minutes until "surveillance" with tom keene. russia has raised rates, ukraine is front and center. >> looking at israel as well. russian rockets firing in from russia? we talk about that. joins us with a focus on russia and ukraine, political turmoil. we will go back to london and ryan chilcote about the of people in the kiev government. protests in the west bank last night. some would even say riots. we continue our discussion on that. joining us on u.s. domestic politics, a former democratic governor of ohio, ted strickland. really looking forward to speaking to ted strickland about immigration. something that has moved off the table, the minimum wage is front and center. , onemportant swing state of the two or three most important swing states for any presidential election. former governor of ohio with us. also, we look at the markets. julian and manual from ubs, they are very optimistic on the development of profits moving forward. >> looking forward to it. that takes off of the top of the hour. talk media. rupert murdoch has agreed to sell his pay-tv business in .taly and germany to b-sky-b the ceo of b-sky-b spoke to bloomberg earlier. >> it is not about one competitor in one market. together, the three skies are very strong. they have all got really good experience management and leadership teams. by theery excited prospect of what we have been able to announced today. >> let's get analysis on this from mcquarrie. if your last name is not murdoch, is this a good deal? >> the growth opportunity it will be good. the valuations of the asset are pretty solid, at the bottom end of the range. given this deal has been talked about for a few weeks, i don't think it is a major surprise. >> was there pressure from mr. murdoch to do the deal? >> the timing is what he is looking at doing in the u.s. is very close. perhaps there was timing pressure to get the deal done. this has been in the pipeline for a while. intention of sky business in the u.k. to transfer its skill set to the european assets. >> how big is the skill set gap? >> there is a big gap on the trends of development. the italian and german --inesses of sky are only profitability is relatively small. we are on a learning curve. they are behind so issues about service,over-the-top those are skill sets that scott u.k. can have that it can transfer to germany. some cost to those. the fact that you can get more bang for your buck by transferring them to other businesses is good news. >> you can explore the development and other markets. that sky italy and in germany have developed their own products as well. which have been replicated in the u.k. you create duplicity you do not need. those are the things you can see positive evolutions. the concern i would have would be that you have to invest a lot of these businesses to get them up to speed. your senses that is not the case. sky's trajectory has been invest a lot of cash flow, stocks will take the benefits. i was worried that you would see that in germany as well. >> there is content investment, where we are in the cycle in italy and germany. several years away from the next major option. major cost is the acquisition of customers. that comes on a marginal basis every time you signed up a new customer. that is where the investment spend would be, that would be spent anywhere. the question is whether this would be accelerated. i'd are spending more in the short-term because they accelerate growth drivers? jeopardizeecessarily the cash flows of the u.k. or even the italian enterprises. >> what about the premier league?: spendare things you can your money on and on things you do not spend your money on. they need to spend their money on the premier league. how big a force is this? >> the premier league is core to the sky sport franchise. the risks are that they are spending less time, $700 million to $800 million. that could go up another 50%. they will have to be in that auction at the end of the year. there is no definite timetable. that is the current expectation, they will charge you to send what they've got at least. arere you happy they spending large amount of money on an m&a deal at the same time they are about to spend large amounts of money on a content acquisition deal? >> that makes it interesting from a financial perspective. i am sure they have given themselves some flexibility. ongoing cash flow can sustain easily either $.5 billion funding if the premier league -- and to pray like rights. >> are you happy with the way this is being funded? >> the fact that they put an equity element and it is comforting. >> credit guys are going to be more relaxed. >> the company expects to reaffirm its credit rating. they have had conversations and will have affirmations of it later. keeping the current credit rating is key and that is the reason they have the 2% equity element. in media continues? >> around europe, and media looking to buy for their content assets. you've seen that in spain more recently. that would gain scale. buying pay-tv platforms and key content is something that a lot of european operators -- >> that applies on both sides of the atlantic? >> sports rights are key to a pay-tv platform. youice to see you, thank for stopping by. joining us from a quarry. europe's biggest airline. more from the ceo of air france about what he calls a black week for the airline industry. see you in a moment. ♪ >> welcome back, you're watching "the pulse." shares in europe's biggest airline gaining. operating profit has tripled at air france. the company announced a five-year plan to drive down expenses. a tough week for the aviation sector. three deadly crashes plus what has been happening at tel aviv's ben-gurion. caroline connan spoke to the ceo of air france in paris. >> it is a black week for air transport. that these three catastrophes are totally different. they are different companies, different origins, different environments, different aircraft. you cannot know a general conclusion about air transport. or should less safe be avoided, i cannot understand that. passengers can be worried, of course. that is perfectly understandable. i have to tell them that air france is very safe. the safest. system in the world. the first concern of any airline , they have one of session, security and safety everywhere. at any minute. the basics of our contracts with our passengers. is, when which is key there is something to act .uickly and seriously all the measures we are putting together, we are taking to avoid any risk, they have to be taken on an international level seriously, consciously. -- it is driven by emotion. >> are we going to see an impact on demand? d.c. forward-looking decline? >> up to now, we have not seen anything. we do not expect a major impact. but we will have to explain to the world and to the passengers, future passengers, that risks are avoided in the air transport industry. flight, you had an agreement with malaysia airlines. how do you feel this is going to impact the industry? >> we had 11 passenger jets with malaysia. the catastrophe is not putting at stake safety for the airline. it is a terrible, a criminal against civilian aircraft. there is no link with the way the airline is handling safety. >> should airlines stop flying in conflict zones? is that going to have an impact on charges and price of tickets? >> if you lengthen the routes, use more fuel. so it is more costly. i have to say that there is no compromise. if safety and security is at safe, there is no economic, rise for us -- there is no economic compromise for us. safety and security is our priority, excluding everything else. at the end of the day, we will have to increase slightly the price of the ticket on this route. the international association for air transport is working on what do we have to do on conflict zone or risk zones. there are still some evolutions to be made there. it will have to be an international framework approved by governments and international bodies. otherwise, we cannot rely on pure initiative coming from airlines. >> are you now restarting flights to israel? are you taking safety measures? >> the american and european and french authorities have banned flights to israel for two or three days. they have lifted the ban yesterday. decision during the day. to see whether or not we will fly again to israel stop toceo of air france speaking us exclusively. let's carry on the conversation and bring in kari lundgren. on me get you to update us one of the crashes we have seen this week. the flights that has gone down, the algeria flight. lot more evidence, we are now very clear that nobody survived. we have the black rocks. --black box. >> president hollande held a press conference, no survivors. they found one of the black boxes. the french military has secured the site. we will get information today. that brings the number of deaths this year up to more than it was over the past three years. juniacblack week as de says. >> this is a game changer in terms of aviation in conflict zones. mh17 the most obvious example. ben-gurion being shut down the carriers.l for u.s. a significant development. as the real take away for me. you sit in an airplane and you know where you are. consumers are going to be, as he says, more interested in flying around and paying a little more. in thate seeing a shift many airlines have wi-fi on board. you are going to have passengers , you sit next to a passenger who is quite paranoid and they will want to know those things. i don't think there's anything in terms of pr, there is not a value for the airline to take the risk. passengers themselves, if you put it to a passenger, are you willing to pay extra to make sure we fly outside a config zone -- a conflict zone come i don't think the passengers going to argue. >> after this week, that is pretty clear. yanair on monday, what we can get? easyjet shares take a little bit of a hit this week. there was a sense of there's too much capacity in the short-haul market, mainly at gatwick, the easyjet base. ryanair is mostly out of stanstead. interesting to see how they are pushed in terms of their charm offensive. whether that is showing up in the numbers in terms of their pitch to business passengers. are they seeing more business traffic? >> i keep asking people, on a businesslike, would you go ryanair, i am yet to feel a shift on that? kari lundgren, back monday and we will talk about ryanair. russia raises rates unexpectedly. we break down the essential bank decision when we back. ♪ >> welcome back. what is happening with the ruble. a surprise rate hike from the central bank in moscow. this has been the reaction. interestingly enough, initially the ruble strengthened. the dollar is now reasserting itself. what is the central bank seeing that we are not? questions surrounding this aggressive rate hike, more aggressive than anticipated. we will talk to elliott gotkine in a moment about what is happening in gaza. let me start with you first of all. tosurprise is the way describe this decision. going into it, 23 economists out of the 20 four we talked to thought the rate would be left unchanged. only one thought there would be a rate hike, that economist was looking for a 25 basis point hike. you have all of eastern europe trying to cut rates. this is the third time the russian central bank has raised rates this year. because inflation is still stubbornly above target. >> they are hiking in a slowing economic environment, slightly counterintuitive. >> the inflation story explains it. the ruble and evaluation, depreciation explains it. sanctions, this is perhaps aidence of this, is having major indirect effect on the russian economy. feeding through into this inflation problem. hasee the central bank absolutely no qualms about raising rates at a time when growth is play 5% -- is .5%. gaza, heart-wrenching pictures overnight. are they a game changer? >> i don't think they are going to change a huge amount, we will keep an i on progress with a cease-fire proposal on the table. the israeli cabinet might meet this afternoon to discuss it. israeli police on alert after the palestinian authority called for a day of rage following the killing of two palestinians in the west bank where they were protests against israel's operation in gaza. day, likely to be marked, a protest against israel's control of jerusalem. , conflicthigh alert continues in gaza as well. >> it certainly does. indeed.u very much 800 people are now killed, horrible pictures coming out from the shelter overnight. children are being killed. complicate"the pulse right here on bloomberg. , liveillance" is next from new york. have a great weekend, see you monday. ♪ >> secretary kerry proposes a one-week truce to begin sunday as fighting continues in gaza. build disappoints as they an expensive ecosystem. america is giving tax dollars to ireland. can the u.s. find corporate tax reform? good morning everyone. this is "bloomberg surveillance." where did the month go? joining me is adam johnson. and olivia sterns is with us today. scarlet fu is off. but go back to the morning brief. >> german business confidence dropped to the lowest level since october. this is due to escalating tension in ukraine. >> it is fascinating. this is like the first whisper. >> the german economy has been doing well. the u.k. economy is doing well. they grew 31.% year-over-year. -- 3.1% year-over-year. >> that is going to be the story. >> ur