Dec 17, 2019

Boeing Crisis Could Hit the Broader Economy

11-14 minutes - Source: NYT

Credit...Lindsey Wasson/Reuters
Boeing halts production of the 737 Max
Boeing’s announcement that it would suspend production in January of its most popular plane, the 737 Max, is the culmination of the worst crisis in the company’s 103 years, the NYT’s David Gelles and Natalie Kitroeff report.
The plane has been grounded since two crashes killed nearly 350 people within five months, and its return to service remains uncertain. Rather than continue making new jets, Boeing will focus on delivering the 400 Max planes it has waiting for clients.
The company’s reputation and stock price have been battered, with shares falling 25 percent since March. Boeing has announced more than $8 billion in charges related to the crisis, and more are expected.
The production halt will affect hundreds of suppliers around the U.S. and is expected to be felt across the economy, because Boeing is the country’s largest manufacturing exporter.
“It would be hard to have any other single company stop the production of a single product and have it hit the economy as hard as this would,” one economist told the WSJ.
But the decision will reduce losses for Boeing: The suspension will cut in half the $4.4 billion that Boeing has burned through each quarter by making and storing jets, a Jeffries analyst estimated.
Members of the Sackler family, the owners of Purdue Pharma, took $10 billion out of the company as pressure on the drugmaker over the opioid crisis increased in the past dozen years, the NYT’s Jan Hoffman and Danny Hakim report.
The money was distributed among trusts and overseas holding companies, according to a new audit commissioned by Purdue. The findings renew questions about how much the Sacklers should pay to resolve more than 2,800 lawsuits that seek to hold Purdue accountable for the opioid crisis.
The family has offered to contribute at least $3 billion as part of a settlement to resolve thousands of lawsuits brought by state and local governments against Purdue. But 24 states, led by New York and Massachusetts, have declined to sign the agreement.
“Ultimately, it does not answer a key question for investigators — how much the Sacklers are actually worth and where their money is,” the reporters write.
The judge overseeing Purdue’s bankruptcy has extended a shield against litigation to cover the Sacklers, hoping to encourage negotiations, the WSJ reports.
The American economy is on sounder footing after worries of a recession, but one part of the country is struggling: the Midwest, a region where President Trump had promised to restore jobs, write the NYT’s Ben Casselman and Karl Russell.
Mr. Trump has made the economy a centerpiece of his re-election campaign, after pledging in 2016 to restore jobs in long-struggling Midwestern communities.
“But job growth has slowed sharply this year in Michigan, Pennsylvania and other states that were critical to Mr. Trump’s victory in 2016, as well as in states like Minnesota that he narrowly lost,” the reporters write.
The two hardest-hit sectors are manufacturing and agriculture, both of which are suffering in Mr. Trump’s trade war. “We do believe that manufacturing is in a recession,” an economist at Moody’s Analytics said.
Yet voters in Midwestern states appear to be shrugging off the slowdown. “Early polls show Mr. Trump leading in the Midwest against several of his prospective Democratic opponents, and his approval ratings have remained largely steady,” Mr. Casselman and Mr. Russell write.
Rock-bottom interest rates that were meant to bolster an economic recovery in Europe are igniting a property boom that is creating new worries, reports the NYT’s Liz Alderman.
Lured by cheap money, borrowers are flocking to buy apartments and houses, and institutional investors are acquiring large tracts of residential real estate across Europe.
Soaring valuations are leading to concerns of a housing bubble: “Prices jumped at least 30 percent in Frankfurt, Amsterdam, Stockholm, Madrid and other metropolitan hot spots,” Ms. Alderman writes.
Local governments are intervening with rent controls, higher property taxes and subsidized housing programs as homeownership becomes increasingly unaffordable for almost anyone except high earners.
The financial authorities are on the alert, pursuing regulations and tax measures meant to rein in prices and promote housing affordability and availability.
More: The global economy is showing signs of strength, based on recent economic and trade reports from the U.S. and China, but Europe remains weak.
Amazon is blocking its third-party sellers from using FedEx’s ground delivery network for Prime shipments, citing a decline in performance heading into the final stretch of the holiday shopping season, writes the WSJ.
The ban on using FedEx’s Ground and Home services starts this week and will last “until the delivery performance of these ship methods improves,” according to an email, reviewed by the WSJ, that Amazon sent to merchants on Sunday.
The retailer had already stopped using FedEx for its own deliveries in the United States, but third-party sellers — whose merchandise represents half of sales on the site — were allowed to use it.
FedEx attributed some delays to weather conditions and said it recently had some of its highest-volume days ever, adding that its networks were “designed to accommodate the surge of packages.”
Amazon and FedEx ended two major contracts this year that totaled about $900 million in revenue for FedEx. The delivery company is shifting its focus to retailers that compete with Amazon, including Walmart and Target.
Amazon ships nearly a third of its packages on its own, Morgan Stanley has estimated, and could start a third-party shipping option that would present a threat to the established shipping channels.
Goldman Sachs announced an alternative-investments group yesterday in a preview of a strategic plan ahead of its investor day next month, writes the FT.
The strategy is a “unique opportunity” to attract more funds from outside investors, David Solomon, Goldman’s C.E.O., said in a staff memo about the platform, called the Alternatives Capital Markets and Strategy Group.
The platform will cover a wide range of investment strategies, “from the private equity, infrastructure and debt investments offered by Goldman’s merchant bank to the partnerships, co-investments and funds offered through Goldman’s investment management arm,” the FT writes.
“Attracting more third-party funds has been a key aim of Mr. Solomon and his lieutenants, who have spoken about creating an investment business like Blackstone, perhaps the world’s most powerful alternative money manager,” the FT reports.
• The group will be run by Chris Kojima, the company’s global head of alternative investments, and Mike Koester, the chief commercial officer for Goldman’s merchant bank.
The London Stock Exchange Group is set to reshuffle top management in a bid to turn around the unit that supplies technology to other exchanges and electronic marketplaces around the world.
Jeff Shell, head of NBCUniversal’s film and entertainment division, will become C.E.O. of NBCUniversal on Jan. 1.
• Intel is expanding its push into artificial intelligence with the acquisition of Habana Labs, a start-up based in Israel, for about $2 billion. (Reuters)
• Cineworld, a movie theater chain based in Britain, will buy Cineplex of Canada for $1.65 billion, making it the biggest cinema operator in North America. (Reuters)
• Hellman & Friedman, a private equity firm, is close to a deal to acquire the auto-trading unit of the German classifieds company Scout24. (Bloomberg)
• Uber is in talks to sell its food delivery business in India for about $400 million. (NYT)
Politics and policy
• Michael Bloomberg, a 2020 Democratic primary candidate, is showing the power of a virtually bottomless advertising budget. (NYT)
• Why wealthier families get a bigger tax credit for their children. (NYT)
• Ninety-one Fortune 500 companies essentially paid no federal taxes in 2018. (CNBC)
• Nearly all of Representative Jeff Van Drew’s staff in Washington resigned over the weekend as both Democrats and Republicans criticized his decision to switch parties. (NYT)
Trump impeachment inquiry
• Democratic lawmakers representing conservative-leaning districts announced yesterday that they would vote this week to impeach President Trump. (NYT)
• Rudy Giuliani said he had provided Mr. Trump with detailed information this year about how the U.S. ambassador to Ukraine was, in Mr. Giuliani’s view, impeding investigations that could benefit the president. (NYT)
• More than 700 historians signed a letter urging the House to impeach Mr. Trump, saying that his disregard for the rule of law represented a “clear and present danger to the Constitution.” (The Hill)
• Prime Minister Boris Johnson plans to change the law to guarantee that the Brexit transition phase is not extended, which could take Britain out of the E.U. without a deal. (Bloomberg)
• Technology companies have resisted a Trump administration request to stop sourcing supplies from some Chinese companies, a move that would essentially shut out Huawei. (FT)
• Companies in Poland are turning to robots amid labor shortages that are constraining one of Europe’s fastest-growing economies. (FT)
• Cisco Systems won a court challenge to halt the sale of Chinese counterfeit networking equipment on online marketplaces like Amazon and Alibaba. (WSJ)
• Netflix released new metrics showing its expansion overseas as competition stiffens in the U.S. (NYT)
• Hundreds of freelance writers at Vox Media will lose their jobs as the company prepares for a California law that will force companies to reclassify contractors as employees. (NYT)
• Two Las Vegas programmers have pleaded guilty to running huge unauthorized streaming services that the authorities say rivaled the libraries of Netflix, Amazon Prime and Hulu. (WaPo)
• Travis Kalanick, the Uber co-founder, sold $350 million in stock this month, bringing his proceeds to more than $2.1 billion since a share lockup ended in early November. (Bloomberg)
Best of the rest
• Retailers have made e-commerce easy for shoppers, but with online returns eating into profits, some companies are taking steps to discourage abuse of their policies. (Bloomberg)
• Friction between Prime Minister Boris Johnson of Britain and the BBC extends to its journalism as the country’s leader delivers broadsides against the broadcaster. (NYT)
• In a whistle-blower complaint to the I.R.S., a former investment manager says that the Church of Jesus Christ of Latter-day Saints has amassed about $100 billion in accounts intended for charitable purposes, possibly violating federal tax rules. (WaPo)
• There are no standard clothing sizes, and the problem has worsened as shopping has shifted online. But a crop of companies is trying to solve the problem. (WSJ)
• Securities regulators have barred Tim Leissner, a former Goldman Sachs partner, from working in the industry just over a year after he pleaded guilty to helping orchestrate the looting of billions from a Malaysian sovereign wealth fund. (NYT)
• A disease spreading from China has wiped out roughly one-quarter of the world’s pigs, reshaping farming and hitting the diets and pocketbooks of people around the globe. (NYT)
• Just 31 counties — the top 1 percent by share — made up 32.3 percent of U.S. gross domestic product last year. (Bloomberg)
• Some funds marketed as socially responsible by investment firms are drawing regulators’ attention to determine whether those claims are at odds with reality. (WSJ)

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