Monday: Big layoffs, bigger hirings, massive markets swings
The rapid spread of the coronavirus since it was first reported in China has dealt an unprecedented shock to the global economy.
Following are business developments Monday related to the outbreak as governments attempt to stabilize their economies, companies struggle to cope and millions of people face job losses and disruptions in supplies of goods and in services.
AIRLINES: Airlines can’t seem to cut capacity as fast as air travel is fading as businesses and vacationers pull back on plans. Industry analysts are slashing their expectations even faster, with cuts of 40% or more the norm.
Air Canada is laying off more than 5,000 flight attendants as the country’s largest airline cuts routes amid plunging demand. The Montreal carrier is laying off about 3,600 employees, plus 1,549 flight attendants at its low-cost subsidiary Rouge, according to Wesley Lesosky, head of the Air Canada component of the Canadian Union of Public Employees. The layoffs will take effect by April and affect roughly 60% of flight attendants. Air Canada says it will suspend most of its international and U.S. flights by March 31. The carrier says employees will be returned to active duty status once flights resume.
GE aviation will cut about 10% of its U.S. workforce. David Joyce, vice chairman of GE and CEO of GE Aviation, will give up half of his salary starting April 1. The aviation arm of General Electric also said that there will be a temporary lack of work impacting approximately 50% of its U.S. maintenance, repair and overhaul employees for 90 days. GE Aviation had already announced a hiring freeze, the cancellation of a salaried merit increase, a dramatic reduction of all non-essential spending, and a significant decrease in its contingent workforce.
Canadian airline and travel company Transat AT Inc. has temporarily laid off about 70% of its workforce in Canada, or about 3,600 people. The decision comes as non-essential travel around the world comes to a standstill as governments close borders in an effort to slow the pandemic. The layoffs include all flight crew personnel.
The United Arab Emirates is suspending passenger transits through Dubai, the world’s busiest international airport, for two weeks to help stop the spread of the coronavirus. Suspending transit through Dubai, which connects Europe with Asia and Australia, will affect travelers around the world.
Low-cost airline Eastar Jet has become the first South Korean carrier to shut down all flights as demand plunges. The company says it will temporarily suspend its domestic flights from Tuesday to April 25. Other budget South Korean carriers including Air Seoul, Air Busan and T’Way Air operate only domestic flights after suspending their international services.
REPURPOSED: Yves Saint Laurent and Balenciaga are the latest luxury fashion labels ramping up the manufacturing of surgical masks to help the fight against COVID-19.
The Kering Group, which owns the labels, says French workshops that usually make clothes for Yves Saint Laurent and Balenciaga will switch over to manufacturing masks. It says production will begin “as soon as the manufacturing process and materials have been approved by the relevant authorities.” It did not say how many masks the workshops will be able to make. Kering said it will also buy and import 3 million surgical masks from China for donation to the French health service.
The world’s largest luxury group – Paris-based LVMH – has also said it has reached a deal with a Chinese industrial supplier to deliver 10 million masks to the French population.
CORPORATE FIREWALLS: Airbus is canceling a planned dividend payment and lining up 15 billion euros ($16 billion) in new credit to give the European aircraft giant more cash to weather the crisis. Airbus The plane maker is withdrawing the proposed 2019 dividend payment of 1.8 euros ($1.9) per share will save the company 1.4 billion euros ($1.5 billion). Airbus is also making pension savings and says it has significant liquidity to cope with the crisis. It had shut several plants last week to adapt them to safer health conditions.
VF Corp. says it will draw down $1 billion from its revolving credit facility. The company is also adjusted fiscal 2020 forecast due to COVID-19. VF expects to have approximately $1.5 billion of cash on hand and about $1 billion remaining under facility.
Royal Dutch Shell will reduce its operating costs by between $3 billion to $4 billion for the next 12 months to adapt to the virus outbreak crisis and plunging oil prices. The company is also reducing capital expenditure to a maximum of $20 billion, down from its previous expectation of $25 billion.
HEAVY INDUSTRY: Millions of people are working at home. However, heavy industrial sectors have come to a standstill because the risk of infection, if operations continue, would be unavoidable.
A big auto industry trade group is telling Congress that 95% of U.S. auto assembly plants have been forced to close due to the coronavirus outbreak.
The Alliance for Automotive Innovation says in a letter obtained by The Associated Press that 42 of 44 U.S. assembly plants were closed as of Friday. The letter says 87% of the assembly plants in North America have been closed, including all seven in Canada and 60 of 69 in Mexico. It says analysts expect March sales to fall by up to 40% from 2019 figures. The association is asking Congress for loans and loan guarantees for affected companies. It also is asking that businesses with more than 500 workers that provide paid leave for employees get a tax deduction or credit. Most U.S. auto assembly workers are being paid through the closure, which in most cases is scheduled to last into early April. The industry also wants Congress to delay 2020 quarterly federal tax payments, start a temporary payroll tax holiday, extend expensing for machinery, and delay the June 1 effective date of the USMCA trade pact, which replaces the North American Free Trade Agreement.
Forecasting as much as a 60% decline in reservations for April due to coronavirus travel restrictions, rental car giant Avis is cutting staff, reducing its fleet and pausing capital spending, among other actions. The company says it will also evaluate compensation expenses for senior employees, including executive leadership, as it looks to save $400 million on an annualized basis. The Parsippany, N.J.-based Avis Budget Group said it has accessed $1.1 billion in cash from equity in its vehicle fleet and has an estimated $750 million in revolving credit, giving it the liquidity to operate “through the end of 2020 and beyond.”
Winnebago Industries halted production to protect workers from coronavirus exposure and to adjust production as demand for the company’s products is rapidly changing. Winnebago, which employees about 5,000 people, makes motor homes, travel trailers and boats under the Winnebago, Grand Design, Newmar and Chris-Craft brands. The Forest City, Iowa-based company has production facilities in Iowa, Indiana, Oregon, Minnesota and Florida. The company said Monday that production will cease until at least April 12. Benefits and base pay will continue for the first two weeks.
Ford Motor Co. has suspended vehicle and engine production at its International Markets Group manufacturing sites located in India, Vietnam, South Africa and Thailand. The suspensions started Saturday and will continue for several weeks.
REAL ESTATE: To conserve capital, Zillow Group postponed home buying in the 24 markets where it participates in such activity. Zillow stopped open houses for homes in all markets last week.
U.S. home sales jumped 6.5% in February, their highest level in 13 years. But that was for contracts that were signed in December and January, with closings in February. The first report of a coronavirus infection in the U.S. occurred on Jan. 21 and economist are expecting a vast slowdown in the next report with sellers closing their homes to potential buyers.
The commercial real estate market is at risk of collapse, cautions the founder of Colony Capital, as mortgage loans experience growing pressure. Thomas Barrack said in a blog post that liquidity has dried up as businesses get hit with a temporary cash flow deficit and a rapid decline in revenue. “The market for commercial real estate mortgage loans in the United States stands on the brink of collapse,” Barrack wrote.
SUPERMARKETS: President Emmanuel Macron urged employees to keep working in French supermarkets and some other businesses deemed essential amid a spreading shutdown imposed to fight the coronavirus.
Finance minister Bruno Le Maire has said that the whole supply chain for the food industry must be guaranteed after France shut down all restaurants, cafes, cinemas and retail shops that are deemed nonessential. Many employees are working from home. Businesses that are allowed to remain open must enforce rules about social distancing, washing hands and disinfection.
HIRING: While some businesses are being required to close during the virus outbreak, others are seeing a surge in demand for their products. Dollar General said Monday that it plans to hire up to 50,000 workers by the end of April as customers continue to head to its stores to stock up on household supplies.
Dollar General said it anticipates a majority of the new jobs will be temporary, but that some may be long term.
CVS Health also announced Monday that it is looking to fill 50,000 full-time, part-time and temporary roles across the country. Positions include store associates, prescription delivery drivers, distribution center employees and member/customer service professionals. The company is also giving employee bonuses ranging from $150 to $500 to workers required to be at its facilities.
Other companies have also announced they are hiring more employees, among them Amazon and Domino’s Pizza.
THE STORES: H&M warned Monday that it may need to permanently lay off workers as it wrestles with the financial implications of the virus. The Swedish fast fashion company said that 3,441 out of its 5,062 stores globally are temporarily closed. The closures, aimed to stop the spread of the virus, has had “‘significant negative impact on sales so far in March,” the company said.
ENERGY: The energy sector has lost almost half of its overall value in the month of March. Economic forecasts indicate a vast reduction in the amount of energy that will be needed as national economies are broadsided.
Total announced Monday that it is planning more than $3 billion in organic capital expenditure cuts and suspending its $2 billion buyback program. The company is also now planning $800 million in savings this year, up from its previously announced $300 million in savings.
When the company had announced its buyback program, oil was around $60 per barrel. Since the coronavirus outbreak and oil dispute between Saudi Arabia and Russia, oil has fallen as low as $24 a barrel.
The Associated Press Health and Science Department receives support from the Howard Hughes Medical Institute’s Department of Science Education. The AP is solely responsible for all content.