Monday, July 29, 2019

CEO Daily: Boeing's 737 Max Grounding Grinds On

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July 29, 2019

Good morning.


Katherine Dunn here, filling in from London for Alan, who is on vacation this week.


The saga of Boeing’s 737 Max continues, as the months-long grounding keeps rearing its head in the second-quarter results of airlines around the world.


This morning, low-cost Irish carrier Ryanair, famous for its cheap European deals, announced that profits in Q2 were down 21%, and while the drop was hardly due to the grounding alone—in particular, Brexit-stressed Britons now need to be tempted into vacations with ever-cheaper flights—the company’s CFO said it is still in talks with Boeing to determine how the plane maker will provide compensation. Earlier this month, Ryanair said that it will fly 5 million fewer passengers next year due to delayed deliveries of the 737 Max; it had ordered 135 in total.


That’s indicative of the effect of the grounding, which has hurt U.S.-based airlines—Southwest in particular—but has dealt an even harder blow to international firms. The pain has been particularly intense for low-cost carriers in Europe and Asia that have smaller fleets and face brutal competition; they are already struggling with rising costs, including for fuel.


Boeing has certainly felt the sting of its own crisis, but as analysts pointed out last week to Fortune, the plane maker does have one advantage: for new planes, carriers simply don’t have many other options (or really, just one other option: Airbus).


That hasn’t stopped the bad news from coming. This weekend, the New York Times published an investigation into fumbles by the Federal Aviation Authority (FAA), whose cosy relationship with the company appears to have resulted in patchy regulatory work, delegating tests to in-house Boeing engineers, and FAA officials siding with Boeing over the protests of their own staff. The result was that after two crashes, which killed hundreds, the FAA was left in the dark about what exactly went wrong.


More news below.


Katherine Dunn


katherine.dunn@fortune.com


@katherine_dunn


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TOP NEWS


Trade Talks to Begin 


This week will bring another shot at U.S.-China trade talks, as negotiators meet in Shanghai, although people close to the talks present an unclear picture: major breakthroughs may be unlikely, and President Trump has also had mixed words for the chance of a deal. At the same time, getting China to agree to buy more agricultural products, and the U.S. relaxing its ban on companies selling equipment to Huawei may be on the table. WSJ


The Refinitiv Takeover Plan


The London Stock Exchange's stock was rising Monday morning, after it said this weekend it is in talks to buy Refinitiv—a deal worth $27 billion, including debt. Less than a year ago, Blackstone bought a majority stake in Refinitiv from Thomson Reuters, which still owns 45% of the data business. Reuters


China's Auto Market Is Suffering 


Major factories for international auto brands are operating far below capacity in China, according to the Financial Times, which reported that Ford's plants in the country were operating at 11% of their capacity, while Peugot owner PSA's plant in Chang'an saw its capacity fall below 1%. Capacity at other factories is above 80%, but the struggles of Ford and PSA in particular don't bode well for international automakers. FT


Heineken Sinks 


Rising costs offset a growing appetite for beer in every region, Heineken said on Monday—particularly the cost of aluminum. The world's second-largest brewer missed estimates for its profits for the first half of the year, with an operating profit of just 0.3%. Currency swings have also made an impact, as a weaker Brazilian real—among others—hit costs for raw products. Meanwhile, it didn't help that this year's sales in Europe had to compare with last year—when World Cup-related partying provided a massive boon for brewers. FT Reuters



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Content From Deloitte

Back-to-School Shopping Trends


Between August and September this year, research indicates shoppers will spend nearly $15 billion on school supplies. Deloitte's 2019 back-to-school report looks at the season's top shopping trends, including when, where, and how parents are likely to shop.


Read more


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AROUND THE WATER COOLER


A Food Delivery Merger


One of the world's largest food delivery companies is in the making, as the British firm Just Eat agreed to merge with a Dutch rival, Takeaway.com, in an $11 billion deal. The combined companies will have strong positions in the U.K., Germany, the Netherlands and Canada, and will have wide reach across most of Europe, where they have little overlap other than in Switzerland. But the deal is just the latest in the competitive, consolidating food delivery market. The Guardian


Along for the Ride


The next feat in autonomous transport is set to take place next month as the first-ever computer-controlled locomotive chugs down a track near Pueblo, Colorado. The experiment, on 48 miles of track, could shape the future of the railroad industry, which is still profitable but facing demands for speedier deliveries. As Fortune's Aaron Pressman reports, the autonomous train could reduce fuel costs and increase capacity by enabling trains to run faster and closer together. Fortune


Deutsche Fumbles Layoffs 


Earlier this month, Deutsche Bank laid off workers in the first round of what is expected to be a cull of 18,000 jobs, but the firm appears to have forgot a crucial element: cut off former employees' access to their emails. The FT reports that 50 traders in London and New York still had access to their emails and internal systems after being let go, and one did in fact send emails (450 of them) remotely after she was shown the door. The company is now investigating whether client data was compromised. FT


Vacation Mode


Alan isn't the only one on vacation this week. It seems that all of Scandinavia is also on holiday as the region doles out four weeks of legally protected, uninterrupted summer PTO. Firms cited in this Bloomberg story preach the importance of fully unplugging and encourage their workers to take their allotted time off. "We feel that it's important to facilitate a work-life balance for all employees, including senior management," says Martin Blomgren, spokesman for engineering group Sandvik AB. Bloomberg


This edition of CEO Daily was edited by Katherine Dunn and Claire Zillman. Find previous editions here, and sign up for other Fortune newsletters here.


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