Breakingviews - Corona Capital, March 17: Boeing, AB InBev, Retail

LONDON/NEW YORK (Reuters Breakingviews) - Concise views on the pandemic’s financial fallout from Breakingviews columnists across the globe.

Cleaning workers, wearing protective suits, spray disinfectant inside the cabin of a Lion Air's Boeing 737-800, amid the spread of coronavirus disease (COVID-19), at Soekarno-Hatta International Airport near Jakarta, Indonesia, March 17, 2020. REUTERS/Willy Kurniawan


- Boeing

- AB InBev

- U.S. retail

BOEING, AIRBUS FLY IN SYNC AGAIN. The U.S. aircraft maker may join customers like United Airlines in getting taxpayer help to overcome the Covid-19 fallout. U.S. President Donald Trump said as much on Tuesday – a day after Standard & Poor’s downgraded the company’s credit rating. The coronavirus-related hits have compounded the problems Boeing already had with its grounded 737 MAX jet, leading its shares to plummet more than 60% so far this year.

Its European rival has suffered too, of late, as virus fears halved its market value. But Airbus now has an advantage: It’s hard for aircraft producers to ramp up production quickly. So if airlines buy fewer planes, Airbus will not be so stretched, which may make it easier for customers to switch from Boeing. No wonder, perhaps, that the worse damage to Boeing’s stock has taken its market value closer to Airbus than in a long time. (By Richard Beales)

WOULD YOU CREDIT IT? Some companies are being “relatively irrational” in drawing down bank credit lines. So said Société Générale Chief Executive Frederic Oudea on Tuesday. The French lender was one of several firms that had to hand over their share of a $9 billion credit facility that Anheuser Busch InBev decided to draw in full, according to the Financial Times. But the move is entirely logical for the beer company. The brewer of Budweiser and the now unfortunately named Corona faces lower sales as cities and entire countries ask citizens to stay away from bars and the like. Ensuring it has enough cash makes sense.

The same applies to hotels, airlines and other industries hit by Covid-19. But it’s hard to blame executives in more resilient sectors if they decide to load up on cash, too. They need to be as ready as possible for everything from a sharp rise in employee sickness to banks having too few people in seats to process payments. That might seem unlikely, but right now it doesn’t feel irrational. (By Antony Currie)

SOCIAL DISTANCING SPEEDS RETAIL SHAKEOUT. wants to hire 100,000 warehouse and delivery workers in the United States to keep up with e-commerce orders that are increasing thanks to Covid-19. Grocery chain Costco Wholesale, whose shares are up 8% over the past five days, has pulled off a rare feat for a country in lockdown – a deal. On Tuesday it bought logistics company Innovel Solutions for $1 billion. That’s illustrative of the times: Innovel belonged to the operator of the troubled Sears department stores which have been in long-term decline.

Struggling retail chains like Sears will be in for darker times as they try to cope with the coronavirus. Gap, L Brands, Nordstrom and Macy’s are among those temporarily shutting their stores or reducing hours. That doesn’t bode well for the long term. All in, there could be more than 15,000 U.S. store closures this year, double the number in 2019, according to Coresight Research. That may yet spiral. (By Jennifer Saba)

U.S. BAILOUT REQUESTS LACK SELF-HELP BASICS. Airlines are asking for a $50 billion Covid-19 aid package. Meanwhile America’s Chamber of Commerce, a lobby group for big companies, has issued a laundry list of handout requests. Perhaps unsurprisingly, basics like a commitment to cutting share buybacks and limits on bosses’ pay are lacking. Those should be at the front of governments’ minds when doling out taxpayer cash. (By Richard Beales)

TURKEY’S 1% RATE CUT IS ONLY A START IN VIRUS FIGHT. Central bank Governor Murat Uysal slashed the country’s main interest rate to 9.75% from 10.75% at an emergency meeting on Tuesday. Uysal is doing just what he was hired to do by President Tayyip Erdogan, who thinks tighter monetary policy causes inflation.

Unlike past cuts, this one actually makes sense, with central banks worldwide easing monetary policy to help contain the economic effects of Covid-19. Turkey’s heavy reliance on tourism, which accounts for 12% of GDP, is an acute concern. But Erdogan’s economic response needs to go much further than cheaper borrowing: tax breaks and government-mandated rent relief are probably required. With the budget deficit already expected to be 2.9% of GDP, the next step may be trickier. (By Dasha Afanasieva)

FLOUNDERING AMS RIGHTS ISSUE PUTS UBS AND HSBC IN THE FIRING LINE. The Austrian sensor maker’s 4.6 billion euro takeover of Germany’s Osram Licht has entered another circle of financial hell. With AMS shares trading at around 9 Swiss francs on Tuesday, below the 9.2 Swiss francs offer price for a 1.7 billion euro rights issue meant to pay for the deal, there’s every chance of the deal imploding.

That points to two outcomes. If underwriters UBS and HSBC stick to the script, AMS will get its cash. But the banks will then be 46% owners of the enlarged AMS. The alternative is the duo pulling the ripcord, citing market turmoil. Coronavirus certainly ticks that box. Less certain is how AMS would then repay the 4.4 billion euro bridging loan to Bank of America – and UBS and HSBC. (By Ed Cropley)

ITALIAN IPO SHOWS FLIP SIDE OF LOCKDOWN ECONOMY. Europe’s virus quarantines are suffocating sectors including travel, tourism and hospitality. But the pandemic is a business opportunity for some. Tiny broadband provider Unidata defied a market rout by listing in Milan on Monday and saw its stock rise nearly 7% on Tuesday. Manufacturer GVS, which produces masks and kits to protect against biohazards like viruses, is also going ahead with a market debut.

Such listings benefit from a lockdown-induced surge in demand for internet and health services. This may be temporary. But while the war-footing economy won’t last forever, more widespread flexible working and a need for better health equipment to fight future diseases may stay. (By Lisa Jucca)

EXXON MOBIL WAKES UP TO OIL’S SCARY NEW WORLD. The biggest U.S. crude producer on Monday said it will make “significant” cuts to spending, after oil prices dropped below $30 a barrel for the first time since 2016. One analyst told Breakingviews that the hit to oil demand could in April be as high as 10% – a drop to around 90 million barrels per day.

Exxon had planned on investing $30 billion to $33 billion in new projects this year, even more than the much-bigger Saudi Aramco. The latter has in part prompted the current slump by pledging to pump at full capacity, sending global oil supply way above 100 million barrels per day. Something had to give. (By George Hay)


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