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Tuesday, July 7, 2020
“THE WORST year in the history of aviation” is how the International Air Transport Association (IATA) describes 2020. The global airline-industry body expects carriers’ revenues to fall by half and debt to swell by $120bn to $550bn. To cut costs airlines have grounded planes and put staff on unpaid leave. Another slashed expense is that of climate action. Aviation emits 3% of man-made carbon dioxide. That share could rise to 5-9% by 2050, according to the International Energy Agency, a forecaster. To curb these emissions, in 2013 the European Union tried to add international aviation to its emissions-trading programme, including flights connecting EU airports to those outside the bloc. The industry cried foul. In a compromise the International Civil Aviation Organisation (ICAO), an agency of the UN, devised the Carbon Offsetting and Reduction Scheme for International Aviation. CORSIA, as it is known for short, is due to start next year. It compels airlines to buy offsets for any additional CO2 produced by international flights above a baseline. That baseline has become hotly contested. It was originally set at the industry’s average emissions for 2019 and 2020. Now emissions are forecast to fall by 37% this year, which would mean a lower baseline—and so, in time, higher offsetting costs. So IATA proposed using just emissions from just 2019 instead. On June 30th ICAO’s 36-member council agreed, at least for CORSIA’s first three years (see chart). Environmental groups are up in arms. The scheme already lacked bite, since it is voluntary until 2027 and does not include domestic flights, about a third of the industry’s emissions. Countries representing three-quarters of aviation’s carbon footprint have signed up but flights between those which have opted in and those which have not are excluded. Dan Rutherford of the International Council on Clean Transportation, an NGO, calculates that on pre-pandemic trends the original plan would have covered only 9% of aviation emissions from 2021 to 2035 (when the scheme is scheduled to end). In fact, the two-year average was expressly designed to account for low-emission years—a lesson learned from an early attempt to set the baseline in 2010, which was thwarted by the eruption of Eyjafjallajökull, an Icelandic volcano which grounded flights in Europe. Another complaint is that many of the offsets airlines can buy are ineffective. A report in November last year by the NewClimate Institute and the Stockholm Environment Institute, two think-tanks, found that 80% of CORSIA’s potential offsets are unlikely to have any additional benefit to the climate. Since then ICAO has, to its credit, limited the availability of junk offsets in the scheme, though green campaigners say it has not gone far enough. Offsets’ bargain prices also suggest something is amiss. In 2018 the average price in the “voluntary market” (outside of mandated schemes) was $3 per tonne of CO2, about a sixth of the carbon price in the EU emissions-trading scheme. Last year EasyJet, a British low-cost carrier, announced plans to offset all its annual emissions. This will cost it a footling $32m. New offest projects created in anticipation of CORSIA boosted supply, which is expected to be four times higher than demand. Industry executives claim that the original baseline would have imposed crippling costs. That seems overblown. Sparse coverage and the cheap offsets mean the cost to the industry is low. Assuming an offset price of $5 per tonne of CO2, Mr Rutherford estimates the change in the baseline will save airlines $350m a year. That is less than 1% of the forecast operating cashflow in 2021 for a panel of 37 listed airlines. Forgoing those savings would have been a small price to pay for burnishing airlines’ reputations as they seek billions in government bail-outs. Accusations of greenwashing will make calls to attach potentially much costlier green strings to the rescue packages grow louder. ■ Editor’s note: Some of our covid-19 coverage is free for readers of The Economist Today, our daily newsletter. For more stories and our pandemic tracker, see our coronavirus hub This article appeared in the Business section of the print edition under the headline "Setting a new CORSIA" Reuse this contentThe Trust Project
In times like these, business needs a bit of hubris
Facebook is shutting down its TikTok competitor Lasso. The social network introduced the app — which allows users to make short form video clips similar to TikToks — back in November of 2018. The digital white flag was spotted by a reporter from CNN, and informed users of the app that it would be killed on July 10. It’s not the first time that Facebook has shut down copycat apps. It previous killed apps called Poke and Camera — imitations of Snapchat and Instagram — after they failed to gain much traction. Facebook later purchased Instagram for $1 billion. Facebook also recently shut down Pinterest clone Hobbi. The shuttering of Lasso comes ahead of Instagram’s own TikTok-like tool, called Reels. Instagram has found great success copying the features of Facebook’s rivals, including stealing stories and face filters from Snapchat. Reels will allow users to make 15-second video clips set to music and post them to their story. The videos will also have the potential to go viral on a Top Reels feed in the app’s Explore section.
The rights and wrongs of management books on social issues
Shares of Elon Musk’s electric car company, which have already tripled this year, soared another 9 percent on Thursday after the company blew past Wall Street’s second-quarter delivery expectations. Telsa said it delivered 90,650 vehicles in the quarter, down just 4.9 percent from the year earlier period, despite factory shutdowns due to the coronavirus. Analysts had been expecting the car company to delivery just 72,000 cars due to the closure of its Fremont, Calif. factory, which resulted in Musk publicly sparring with California officials. Shares of Tesla were up 8.7 percent Thursday, at $1,217.84. The stock was trading at $430 at the start of the year. The delivery numbers arrive just a day after Tesla topped Toyota to become the world’s most valuable car company by market cap, despite not yet having turned a profit for a full year. Of the vehicles sold, 80,050 were Model 3 sedans and Model Y SUVs, while the rest were their top-of-the-line Model S and X cars. Thursday’s surge put even more distance between Tesla and the Japanese giant, with Musk’s company now boasting a market cap of $223 billion. “Just amazing how well you executed, especially in such difficult times. I am so proud to work with you!” Musk wrote in an email employees on Wednesday, according to CNBC. If Tesla can keep its valuation over $200 billion, Musk will unlock the next tranche in his $50 billion pay package. The billionaire executive recently became eligible to cash in on a $775 million payday from when Tesla’s market cap hit $100 billion in January. Musk earns no salary from Tesla, and instead has a pay structure which sees him earn large amounts of Tesla stock when the company hits market cap milestones.
The coronavirus pandemic could still plunge the US into a financial crisis even though the economy has started to get back on track, a Federal Reserve honcho warns. With infections spiking in several states, St. Louis Fed President James Bullard fears the virus could spark a damaging wave of bankruptcies without “more granular risk management on the part of the health policy.” “Even though we got past the initial wave of the March-April timeframe, the disease is still quite capable of surprising us,” Bullard told the Financial Times in a Wednesday interview. “In any crisis, I think we need to keep in mind that there can be twists and turns, there can be another shoe to drop, and that could happen here,” he added. Bullard’s comments came amid fears about a resurgence in COVID-19 cases threatening the nation’s economic recovery from the pandemic. Fed officials have expressed concerns that a second wave of the outbreak could depress economic production and drive up the unemployment rate again — a scenario “no less plausible than the baseline forecast,” according to minutes from the central bank’s June meeting. Bullard reportedly used the virus’s continued threat to justify the Fed’s aggressive efforts to support financial markets during the pandemic. The bank’s balance sheet has ballooned as it set out to buy trillions of dollars in assets — including individual corporate bonds and risky “junk” bonds for the first time ever. Those programs have drawn fire for aiding Wall Street over Main Street — but Bullard views them as an important “backstop” in an uncertain time for the economy, according to the Financial Times. “With all these programs, the idea is to make sure the markets don’t freeze up entirely, because that’s what gets you into a financial crisis, when traders won’t trade the asset at any price,” Bullard told the paper. “It’s not my base case but it’s possible we could take a turn for the worse at some point in the future.”
The US economy added a record 4.8 million jobs last month as the nation continued an economic rebound that’s now threatened by a surge in coronavirus infections, new data show. Thursday’s closely watched June jobs report showed a better-than-expected recovery in the labor market as states forged ahead with reopening plans that are now being partly rolled back amid record numbers of COVID-19 cases. The unemployment rate dropped to 11.1 percent in June from 13.3 percent in May as lockdowns aimed at controlling the virus continued to ease, the Bureau of Labor Statistics figures show. That marked a continued improvement from April’s peak of 14.7 percent But the data reflect a snapshot of the economy in mid-June, before the virus’s resurgence forced states such as California, Texas and Florida to shutter bars and restaurant dining rooms for a second time. The economy’s path forward will rely on whether the new wave of infections gets under control, according to experts. “The strength of the recovery will depend on the vigor of job growth in the coming months, which in turn relies on progress on the public health front,” Yelena Shulyatyeva, senior US economist at Bloomberg Economics, said in a commentary. “The longer it takes for the unemployed to get back to work, the slower the economic rebound to the pre-crisis trend will be.” Also complicating the recovery is the end of two key programs that have shored up the economy during the pandemic. The application deadline for the Paycheck Protection Program providing forgivable loans to small business passed this week, though it may be extended to August. And the $600 weekly boost to unemployment benefits is due to run out at the end of July. A separate report released Thursday showed some 1.4 million applications for unemployment benefits last week. The weekly figure from the US Department of Labor has consistently declined since late March but has remained above 1 million for 15 straight weeks — a level that was unthinkable before the pandemic. “These claims tell us that sizable segments of the economy are still retrenching with workers losing jobs as bankruptcies accelerate and businesses either remain closed or re-close in states suffering rising infection and hospitalization rates,” said Seth Harris, a visiting professor the Cornell Institute for Public Affairs who served as deputy labor secretary in the Obama administration. With Post wires
McDonald’s has halted plans to reopen its dining rooms amid a surge in coronavirus infections. The fast-food giant will not resume dine-in service at any more US restaurants for three weeks as the number of COVID-19 cases continues to climb, the company said in a Wednesday letter. “This surge shows nobody is exempt from this virus — even places that previously had very few cases,” McDonald’s US President Joe Erlinger and Mark Salebra, chair of the National Franchisee Leadership Alliance, wrote in the letter, according to CNBC. “Moving forward, we will continue to monitor the situation and adjust as needed to protect the safety of our employees and customers.” Roughly 2,200 of McDonald’s 14,000 US locations have already reopened their dining rooms, and dine-in service can continue in places that allow it, according to The Wall Street Journal, which first reported on the plans. The move came as several states ordered restaurants and bars to close or scale back service as they grappled with the jump in infections. The US on Wednesday recorded more than 50,000 COVID-19 cases for the first time since the pandemic began, according to Johns Hopkins University data. McDonald’s global comparable sales plunged nearly 30 percent year-over-year in April and May as the vast majority of its restaurants were limited to carry-out, drive-through and delivery service, the company said in a June 16 regulatory filing. The Chicago-based chain announced plans last month to hire roughly 260,000 restaurant employees this summer as the US began to emerge from its economic lockdown. It’s uncertain how the pause on reopening dining rooms will affect those plans. With Post Wires
On March 7, Romeo and Milka Regalli hosted a grand opening for Ras, their new Ethiopian restaurant in Crown Heights. Just eight days later, they had a not-so-grand closing. The husband-and-wife pair, who already operate three Awash Ethiopian restaurants in Manhattan and Brooklyn, had been plotting Ras for four years. The couple dreamed of serving vegan versions and modern interpretations of their native cuisine’s famous dishes: Platters with scoops of farm-to-table vegetables like beets, cabbage and lentils infused with fragrant spices and meant to be scooped with the traditional spongy bread, injera, made in house. They’d gut-renovated a former sports bar, then hired and trained 28 employees, from line cooks to bartenders. Everything was going according to plan. Even brunch at the 68-seat culinary upstart was bustling. But then foot traffic on their block, main drag Franklin Avenue, started to disappear. “Literally a day before the city shut down, we were telling our staff, ‘It’s probably going to be closed for a week. It’ll be a good rest for all of us. We’ll see you next week,’ ” Romeo, 33, said. “We didn’t know.” Milka and Romeo had to adjust quickly after the virus shuttered Ras in March, figuring out how to pack and transport their delicate Ethiopian dishes and handling 200 orders a night by themselves.Annie Wermiel/NY Post So the Ethiopia-born couple — who met when Romeo arrived in New York in 2013 as an aspiring filmmaker and applied for a job at the Upper West Side outpost of Awash, which Milka managed at the time — shut their doors and waited. Denied a Paycheck Protection Program loan because they could not produce documentation of a 2019 payroll, they decided to try takeout and delivery to bring in a little income. They hadn’t plan to offer the service, at least at first. “Ethiopian food doesn’t travel well,” said Romeo, who added that it took several tries to find compostable, non-plastic containers that would allow the dishes to be packaged separately for diners to plate at home. “Packing food takes longer than serving it on a plate.” Platters from Ras are carefully plated in the restaurant kitchen, but when delivered, each dip plus the spongy injera bread is packaged differently. Annie Wermiel/NY Post Rolling out the injera bread, an Ethiopian staple. Annie Wermiel/NY Post Ras is vegan, and all the platter components are made from farm-to-table vegetables infused with spices. Annie Wermiel/NY Post Up Next Close A campaign bus belonging to Jeff Sessions’ opponent for Alabama’s... 3 View Slideshow Back Continue “New Yorkers are resilient,” added Milka, 39, who came to the city with her mom at age 3. “It was just a matter of working around the circumstances, creating a new business model and just facing challenges head on. And seeing them as challenges, but seeing them as an opportunity to work around whatever was happening.” Romeo and Milka — who married in 2014, just seven months after meeting — overhauled the just-redone kitchen and handled all orders by themselves to save on costs. The lovebirds prepped as many as 200 meals a night, just enough to cover the cost of ingredients and their $7,000 monthly rent. The couple bought planters from Home Depot and set up outdoor seating for 20 in front of their restaurant on Crown Heights’ main drag, Franklin Avenue.Annie Wermiel/NY Post “When we reopened for takeout and delivery, it was just me and Milka, preparing the food, packing the food, running to the door to pass orders,” Romeo said. Unfortunately, it meant keeping the 28 staffers out of work. “That was the only way to save the business. Closing was not an option.” On June 3, Black-Owned Brooklyn, an Instagram account with almost 85,000 followers run by Kings County couple Cynthia Gordy Giwa and Tayo Giws, spotlighted Romeo, Milka and Ras. The number of nightly orders skyrocketed. “After that, we got so many people back,” Romeo said. “We were just so happy. We were just overwhelmed.” When New York entered Phase 2 on June 22, Romeo and Milka repurposed tables from the back of the restaurant to accommodate 20 people on the sidewalk and in the street. They hastily bought planters to add greenery and separate customers, adding candles for atmosphere. Ahead of Phase Two, Romeo and Milka were able to hire back 11 workers out of their pre-pandemic payroll of 28.Annie Wermiel/NY Post They hired back four front-of-house workers and seven to staff the kitchen. On a typical night, the couple tries to chat at a distance with every patron; they are encouraging discussions about the Black Lives Matter movement and plan to add live music soon. “It’s definitely about uplifting each other,” Romeo said. “The whole concept of a restaurant is that it’s not just a business. We have to give back to the community. We definitely want to stand in solidarity.”
The tax man cometh, even during a pandemic. July 1 marked the deadline for thousands of beleaguered building owners to fork over billions of dollars in property taxes to New York City — and nearly half of them are expected to fall short. Some 6 percent of property owners won’t be able to pay their tax bills at all, while another 39 percent will only be able to make partial payments, according to a survey by trade group Community Housing Improvement Program, or CHIP. The June survey took the pulse of landlords for 500,000 rent-stabilized residential units, but is reflective of the larger industry, as the coronavirus hammers a diverse group of tenants — from residential to commercial, CHIP spokesman Michael Johnson told The Post. “People who have owned buildings for decades for the first time in their life will be unable to pay their property taxes,” Johnson said. The city had been counting on an estimated $30 billion in property taxes this year — or roughly one-third of its budget. Yet little consideration has been given to landlords’ plight, industry sources said. Property owners last month asked for a freeze on property tax rates; a reduction in interest penalties from 18 percent to 3 percent, and for monthly payment plans for their taxes — but their requests have not been granted. In fact, property taxes were raised this year by $1.65 billion based on assessments conducted before the pandemic, The Wall Street Journal reported. “The financial assistance is very one-sided, all aimed at the tenant,” lamented Arthur Franciosa, who owns about 30 residential and commercial buildings in the city, mostly in The Bronx. Many of Franciosa’s retail tenants, including nail salons, have been unable to pay rent for months, during which time he has been covering their share of the property tax as well as their water and sewer charges. He has been forgiving rent in some cases, but now doesn’t have enough to pay his full tax bill, which will start the clock ticking on 18 percent penalty charges until he either pays the bill or the city begins lien proceedings against him. Another landlord said she just borrowed $40,000 from a relative to cover the property tax bill of three commercial buildings her family owns. Two of her major tenants have been unable to pay their rent since the pandemic hit in March. But paying the $50,000-plus tax bill was a priority because of the onerous 18 percent penalty. “It’s a bad situation when you have to borrow money from a relative,” said the landlord, who asked not to be named. “We are being forced to pay our tenants’ bills and the city’s bills.”
Cirque du Soleil’s longtime Chief Executive Daniel Lamarre may soon prefer to be on the high wire than in the C-suite. A group of lenders angry over Cirque du Soleil’s bankruptcy plans are mulling a plan to remove Lamarre, who has been Cirque’s CEO since 2001, The Post has learned. The lenders — who hold some $1.1 billion in debt that Cirque can no longer afford — say they were blindsided by Cirque’s plan to sell itself right back to its current owners, including majority owner TPG Capital. The controversial plan seeks to give the lenders — a group that includes Los Angeles Dodgers co-owner Todd Boehly — a minority stake in the global brand in exchange for wiping out their debt. The lenders have asked the Quebec superior court judge overseeing the process to squash Cirque’s plan to give TPG and the other investors a 55-percent stake in the company in exchange for a $400 million lifeline. If the judge refuses this request, they plan to ask him to replace Lamarre as CEO and as a board member along with the rest of the board, sources tell The Post. They would seek to replace Lamarre and the board with an independent restructuring officer, these sources said. The lenders plan to argue that Cirque’s current leadership unfairly favors the investors, a group that also includes Chinese conglomerate Fosun and Quebec’s public pension manager Caisse de dépôt et placement du Québec. This view was highlighted Tuesday in an 11-page court document that blasted Cirque’s restructuring plan for having “afforded special treatment to its shareholders.” “The company’s decision to [again] favor the interests of its shareholders to the detriment of the secured lenders gives rise to significant concerns about the company’s governance,” the creditors complained in the court filing. TPG and Cirque spokespeople declined to comment. Lamarre took the helm of the trailblazing, acrobatic circus act in 2001, when it was already an international sensation. He was hired by Cirque’s colorful co-founder Guy Laliberte, who sold his remaining stake to Caisse in February. The two men met back in 1986 when Lamarre, a Quebec native, was working in public relations, according to an interview he gave Ontario lifestyle magazine Fifty-Five Plus. Lamarre agreed to represent Cirque — only to waive his fee because the roving band of street performers couldn’t afford to pay. “At the time, [Laliberte] couldn’t pay my bills because Cirque was struggling financially,” he told the magazine.
Remodelling the global alliance with Renault and Mitsubishi will be tougher NISSAN IS IN for a makeover. On July 15th the Japanese car giant will unveil what is rumoured to be a sleeker, more minimalist logo more in line with the contemporary aesthetic. To its boss, Uchida Makoto, the redesign is the outward expression of deeper reinvention after a turbulent period. He wants to streamline not just the marque but Nissan, too, as a smaller, more efficient business. The new vision was launched in May and he discussed it in a recent interview with The Economist. Until 2017 Nissan was racing ahead. That year it sold 5.8m vehicles and raked in an operating profit of $5.2bn. Its alliance with Renault of France and Mitsubishi, another Japanese firm, overtook Germany’s Volkswagen to become the world’s biggest carmaker, selling a grand total of 10.6m sets of wheels. Then things took a turn for the worse. Nissan fell short of targets in America, one of its biggest markets. Chasing volume with ageing models forced heavy discounting, irritating dealers and sullying Nissan’s reputation. A costly push into emerging markets failed to pay off as economies in Brazil and Russia soured. Car sales in China, hitherto a reliable growth market, slumped. The alliance, always fractious, nearly fell apart after its chief architect and chairman (as well as boss of Renault), Carlos Ghosn, was arrested in late 2018 on charges of financial misconduct. As a result of all this disruption, Nissan’s revenues dipped in 2018, then again in 2019. Its share price fell by nearly half over the two-year period. With the covid-19 slump and an operating loss of $380m in the first quarter, this year it has fallen by another 40% or so. Enter Mr Uchida. He took over as boss in December after his predecessor, embroiled in the Ghosn scandal, was forced out. Half a year into his stint he cuts a relaxed figure, at least by the standards of corporate Japan. What he lacks in Mr Ghosn’s brashness he makes up for in quiet focus. His downsizing plan looks both wise and just about achievable. Each of the alliance partners will concentrate on what it does best; in Nissan’s case that is selling medium-sized vehicles, electric and sports cars in America, China and Japan. Closing factories in Spain and Indonesia and cutting production elsewhere will reduce capacity by 20% to 5.4m cars a year. The idea to share more parts to keep costs in check is sensible, though details of the arrangement remain sketchy. The target of slashing costs by $2.8bn in total by 2021 may be within reach. Mr Uchida hopes to achieve a 5% operating margin by 2023. That may look “conservative” with respect to past ambitions, he concedes. But it would be a marked improvement on -0.4% last year. Conservative or not, Mr Ushida’s profitability goal may be hard to attain. Boosting margins will require not just cutting costs but also buffing up a tarnished brand. As a start, Mr Uchida promises 12 new models in the next 18 months to replenish the line-up. But consumers hit by the coronavirus recession may be reluctant to splurge on new wheels, no matter how snazzy. And even if Mr Uchida succeeds in fixing Nissan, he will struggle inside an alliance fraying with internal tensions but too intertwined to unpick. Nissan’s grievances over Renault’s 43% controlling interest in Nissan (well above its 15% stake in Renault) have not gone away. The most notable thing about Nissan’s annual meeting on June 29th was strident denial that its executives conspired to oust Mr Ghosn, in part to forestall his plan for a full merger with the French firm. Mr Ushida is less categorical about the future of the alliance, which he has been asked about “100 times” since taking the job. Further integration, he insists, is not something he and his opposite numbers at Renault and Mitsubishi talk about, and “we don’t intend to”. As for rebalancing the shareholder structure, he says, “it is not a discussion for us”. Such prevarication will only store up trouble. A smaller Nissan may not automatically translate into smaller problems. ■ This article appeared in the Business section of the print edition under the headline "Turning down the volume" Reuse this contentThe Trust Project