These coronavirus job losses will be permanent
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London (CNN Business)The wave of job losses that has come crashing down in the past six weeks has had one silver lining: Many economists and investors think that a good portion of the layoffs are temporary, and people will be able to head back to work once government lockdowns start to ease.
That
may be true in some sectors. But for the airline industry, which has
been battered by plunging demand as people hunker down at home, changes
to its workforce will be more permanent.
See here: General Electric (GE) said Monday that it is cutting as many as 13,000 jobs
in its jet engine business for good. The move is designed to cope with
an "unprecedented" and "deep contraction" of commercial aviation,
according to the company.
GE
said the job cuts will help the company save $1 billion. Orders for jet
engines and parts have plunged as Boeing and Airbus have slashed
production of new planes. Demand for servicing jets has also collapsed.
Meanwhile, a top executive at United Airlines (UAL) is urging employees to consider leaving the company voluntarily.
In
a memo to staffers, Chief Operations Officer Greg Hart said the airline
will need to "right size" its workforce. "We recognize that this is
painful news, but it provides what we believe is the most accurate
assessment of what lies ahead for our company," he said.
The
airline is precluded from laying off staff for the next six months
under terms of a US bailout that will provide it with about $5 billion,
but it's preparing to cut staff as soon as October, according to a
letter sent to staff in April by CEO Oscar Munoz and President Scott
Kirby.
These announcements
underscore the gravity of the crisis facing the aviation industry, which
is expected to take years to recover from the coronavirus shock.
Ryanair, Europe's top budget airline, said Tuesday that traffic plunged
99.6% in April. Just 40,000 passengers flew last month compared to 13.5
million in 2019.
Investor insight: Shares of airlines reflect this turmoil. Stock in United, Delta Air Lines (DAL), Southwest Airlines (LUV) and American Airlines (AAL)
all fell at least 5% on Monday after legendary investor Warren Buffett
said he'd dumped his holdings, calling it a mistake to invest in the
industry.
But what's happening in
the sector also casts doubt on the notion that the US unemployment rate
will reach its high point in April before coming down to 10% by the end
of the year.
James Knightley, chief
international economist at ING, told clients Tuesday that he sees the
US unemployment rate spiking as high as 22% in May, from an expected
15.8% in April, pushed up by layoffs in the services sector and the oil
and gas industry.
Some retailers may be too broke to file for bankruptcy
J.Crew is the first major US retailer to file for bankruptcy amid the coronavirus pandemic, but it's unlikely to be the last.
On
the radar: Attention is now on J.C. Penney and Neiman Marcus, which
have reportedly come close to filing for bankruptcy in recent weeks.
Some retailers can't afford to file
until stores reopen because they need money from liquidation sales, my
CNN Business colleague Chris Isidore reports. The "everything must go"
blowouts help get products off shelves and fund operations through
bankruptcy proceedings.
"We
probably would have seen more file by now if stores were open," Reshmi
Basu, an expert in retail bankruptcies at Debtwire, told Chris. "We're
clearly seeing a lot of companies engage [bankruptcy] advisors. But it's
not a great time."
Some stores have started to reopen
with restrictions in place. Simon Property Group is reopening 49 malls
this week, while Macy's is reopening 68 stores. Others, including
Nordstrom and Gap, remain shut.
But it's not clear shoppers will return, and conditions remain difficult. On Monday, the owner of Victoria's Secret called off its plan to take the lingerie brand private after sparring with its private equity partners on the deal.
Investor
insight: Looming bankruptcies aren't limited to the retail. Bloomberg
reports that Hertz, which was scrambling Monday to get lenders to extend
a grace period on missed debt payments, could file for bankruptcy as soon as Tuesday. Shares of the rental car company are down 29% in premarket trading.
A crucial court decision sends the euro lower
A
decision by Germany's constitutional court on Tuesday on the legality
of the European Central Bank's stimulus efforts hit the euro as
investors scrambled to parse its ramifications for the common currency.
What's
happening: The court said that Germany's central bank will have to stop
buying government bonds as part of the European Central Bank's
long-standing stimulus program if the ECB can't prove the purchases are
necessary.
The central bank has
three months to show its work, but the ruling doesn't apply to 750
billion euros in bond purchases authorized to fight the effects of the
pandemic. Jörg Krämer, chief economist at Commerzbank, said he is
confident that the ECB "can handle such an audit."
But if the German court isn't satisfied, it could spell the end of a crucial part of the central bank's stimulus toolkit.
"Will
this change the ECB's behavior for the time being? Unlikely," Nomura
analyst Jordan Rochester told clients Tuesday. "But it will have set off
a debate that most folks this morning were not expecting."
CNN Business