Connect with us

Stock Markets

Analysis-Jetmakers’ inflation shield no match for soaring costs

Published

on


© Reuters. FILE PHOTO: An Airbus A321 is being assembled in the final assembly line hangar at the Airbus U.S. Manufacturing Facility in Mobile, Alabama September 13, 2015. REUTERS/Michael Spooneybarger/File Photo

By Tim Hepher

DUBLIN (Reuters) – Inflation clauses that determine how much airlines pay for new jets have jumped into a “hyper-escalation” band, pushing up aircraft prices but still leaving manufacturers unable to fully pass on their soaring costs, industry executives told Reuters.

The hike to the top inflationary band is a rare move in the industry, potentially triggering a rise in airfares by airlines while manufacturers will also be left out of pocket, experts warned during major gatherings over the past week in Dublin, the centre of the global aviation finance industry.

Airlines buy jets at a basic price agreed in confidential negotiations but the final price includes adjustments for inflation during long production waiting times, based on U.S. factory input and labour costs, wherever the planes are built.

For years, these “escalation” clauses discreetly swelled the profits of planemakers as price revisions exceeded their long-term purchasing costs, people familiar with the contracts say.

Now, with key U.S. cost indices rising by the largest amount in over a decade, the price adjustments are steeper and the cushion between escalation and real costs has vanished.

“It’s always been a windfall game for the (manufacturers) so long as they’re efficient enough to make sure their own costs don’t grow as fast as the escalation,” AerCap Chief Executive Aengus Kelly told the Airline Economics conference.

The rapid spike means some manufacturers may be left out of pocket as the clauses were negotiated during an era when inflation fears were low.

Yet leasing companies who secured limits to their exposure during that decades-long lull in inflation will be in a more comfortable position than some competitors, Kelly said.

“It’s certainly something that we’re watching carefully… We’re seeing very strong inflation pressures in the United States,” said Steven C. Udvar-Hazy, senior vice-president at Tokyo Century leasing unit Aviation Capital Group.

“The inflationary environment in the United States is of concern to us because that can have knock-on effects on escalation in the broader supply chain,” he told the Airfinance Journal conference.

SHARED RISK

Inflation is a double-edged sword for aircraft leasing companies that own half the world’s fleet.

They benefit from the impact of inflation on the value of aircraft they own. But they must also contend with rising purchase prices, prompting some to insist on escalation caps.

Exact terms depend on the buyer. But in one common type of structure, the lowest escalation band is paid entirely by the airline or leasing buyer and tends to be capped at rates averaging around 3%, sources familiar with the process said.

After that, there may be a second band up to around 5% where manufacturers carry all the additional risk.

When inflation kicks into the highest tier of all, triggering so-called “hyper-escalation” clauses, the two sides typically agree to split the extra burden, they said.

“That is where we are now, in the hyperinflation band, and this is causing a lot of pain for everyone,” a senior industry source told Reuters.

In rare cases, preferred clients may have a get-out clause allowing both sides to walk away from the deal entirely if inflation shoots beyond an extreme level, one source said.

Airbus, Boeing (NYSE:BA) and Embraer declined comment on contractual matters. All are said to face tough negotiations over price clauses on future airplane deals.

“We don’t see the current high levels of inflation very often but the impact of what is happening is huge. Escalation is going to be a big topic going forward,” Embraer Commercial Aviation Chief Executive Arjan Meijer told Reuters.

Stock Markets

Tencent Music quarterly revenue falls as competition heats up

Published

on


© Reuters. FILE PHOTO: The logo of China’s Tencent Music Entertainment Group is seen next to an earphone in this illustration picture taken March 22, 2021. REUTERS/Florence Lo/Illustration

(Reuters) -China’s Tencent Music Entertainment Group (NYSE:TME) posted a 15% fall in quarterly revenue on Monday, hit by easing demand for its music streaming platform amid stiff competition.

Chinese regulators stripped Tencent Music of its exclusive contracts with big music labels in 2021, spurring competition from rivals such as Cloud Music and short video sharing platform Douyin.

Total revenue of the Tencent Holdings (OTC:TCEHY) Ltd-controlled company fell to 6.64 billion yuan ($979.03 million) in the first quarter from 7.82 billion yuan a year earlier.

Net income attributable to equity holders of the company fell 34.2% to 609 million yuan in the quarter ended March 31.

($1 = 6.7822 Chinese yuan renminbi)

Continue Reading

Stock Markets

S&P 500 ends lower as Tesla falls, while energy rallies

Published

on


© Reuters. Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., May 12, 2022. REUTERS/Brendan McDermid/File Photo

By Amruta Khandekar and Noel Randewich

(Reuters) – The S&P 500 ended lower on Monday, with Tesla (NASDAQ:TSLA) and other growth stocks losing ground after downbeat Chinese economic data added to worries about a global slowdown and rising interest rates.

China’s economic activity cooled sharply in April as widening COVID-19 lockdowns took a heavy toll on consumption, industrial production and employment, adding to fears the economy could shrink in the second quarter.

However, energy stocks got a lift from optimism that China would see significant demand recovery after positive signs that coronavirus pandemic was receding in the hardest-hit areas.

The S&P 500 energy index rallied to a 2014 intra-day high, and it closed up 2.6%, making it the strongest performer among 11 sector indexes.

Investors questioned whether a strong day on Wall Street last Friday might signal the end of a recent sell-off that has left the S&P 500 down about 16% from its record high close in January.

“After the big rally on Friday, people are looking around and asking whether it feels sustainable,” said Ross Mayfield, an investment strategist at Baird in Louisville, Kentucky. “Does it feel like the momentum thrust you would see coming off of a low, or is there still more of a capitulation to be worked out?”

Many of Wall Street’s megacap growth stocks were lower, with Amazon (NASDAQ:AMZN) and Google-owner Alphabet (NASDAQ:GOOGL) losing more than 1% and weighing on the S&P 500 and Nasdaq.

Twitter (NYSE:TWTR) fell more than 8% after Bloomberg reported that Elon Musk said a deal to buy the social media company at a lower price than his previously agreed $44 billion was “not out of the question.”

Tesla, which Musk leads, fell almost 6%.

The S&P 500 healthcare sector index rose 0.7%, lifted by a 2.7% jump in Eli Lilly & Co (NYSE:LLY) after the drugmaker won U.S. approval for tirzepatide, to treat adults with type 2 diabetes.

Graphic: S&P 500 components – https://fingfx.thomsonreuters.com/gfx/mkt/lgpdwemagvo/SPX_by_marketcap.png

Investors have been worried that aggressive interest rate hikes by the U.S. Federal Reserve to combat decades-high inflation could tip the economy into a recession, with the conflict in Ukraine, supply chain snarls and the pandemic-related lockdowns in China exacerbating the economic troubles.

Data on Monday showed factory activity in New York state slumped in May for the third time this year amid a collapse in new orders and shipments.

Traders are now pricing a near 86% chance of a 50-basis-point hike by the Fed in June.

Unofficially, the S&P 500 declined 0.39% to end the session at 4,008.01 points.

The Nasdaq declined 1.20% to 11,662.79 points, while Dow Jones Industrial Average rose 0.08% to 32,223.42 points.

Investors are focused on retail sales data due on Tuesday, following worrying inflation and consumer sentiment data last week.

Retailers including Walmart (NYSE:WMT) Inc, Home Depot (NYSE:HD) and Target Corp (NYSE:TGT) are due to report their quarterly results this week.

Spirit Airlines (NYSE:SAVE) rallied 13.5% after JetBlue Airways (NASDAQ:JBLU) launched a hostile takeover bid for the discount carrier. JetBlue shares slipped 6.1%, while shares of rival bidder Frontier Group gained almost 6%.

Advancing issues outnumbered declining ones on the NYSE by a 1.08-to-1 ratio; on Nasdaq, a 1.35-to-1 ratio favored decliners.

The S&P 500 posted one new 52-week high and 31 new lows; the Nasdaq Composite recorded 17 new highs and 190 new lows.

Volume on U.S. exchanges was 11.3 billion shares, compared with a 13.2 billion average over the last 20 trading days.

Continue Reading

Stock Markets

Musk tells conference a lower price for Twitter might be appropriate

Published

on


© Reuters. FILE PHOTO: A 3D-printed Twitter logo on non-3D printed Twitter logos is seen in this picture illustration taken April 28, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

By Katie Paul and Krystal Hu

(Reuters) -Elon Musk suggested that a lower price for Twitter Inc (NYSE:TWTR) may be appropriate as he and CEO Parag Agrawal quarreled over the company’s estimates of spam accounts on Monday, according to an attendee at a private conference where Musk was speaking.

Twitter shares extended losses in late afternoon trading following Musk’s comments, which came at a conference in Miami that was closed to the press.

Shares dropped more than 8% to close at $37.39, lower than their level the day before Musk revealed his Twitter stake in early April, sowing doubts that the billionaire entrepreneur would proceed with his $44 billion acquisition of the company at the agreed price.

Agrawal tweeted earlier on Monday that internal estimates of spam accounts on the social media platform for the last four quarters were “well under 5%,” responding to days of criticism by Musk of the company’s handling of phony accounts.

Twitter’s estimate, which has stayed the same since 2013, could not be reproduced externally given the need to use both public and private information to determine whether an account is spam, he added.

Musk, who on Friday said the deal was “temporarily on hold” pending information on spam accounts, responded to Agrawal’s defense of the company’s methodology with a poop emoji.

“So how do advertisers know what they’re getting for their money? This is fundamental to the financial health of Twitter,” Musk wrote.

Shortly after his tweets, Musk told the conference in Miami that he suspects bots – or automated accounts – make up about 20% to 25% of users, according to tweets by attendees.

Musk has pledged changes to Twitter’s content moderation practices, railing against decisions like the company’s ban of former President Donald Trump as overly aggressive while pledging to crack down on “spam bots” on the platform.

Musk has called for tests of random samples of Twitter users to identify bots, and said he has yet to see “any” analysis that shows spam accounts making up less than 5% of the user base.

Musk said on Sunday “there is some chance it might be over 90% of daily active users.”

Independent researchers have estimated that anywhere from 9% to 15% of the millions of Twitter profiles are bots.

Twitter does not currently require users to register using their real identities and expressly permits automated, parody and pseudonymous profiles on the service.

It does ban impersonation and spam, and penalizes accounts when the company determines their purpose is to “deceive or manipulate others” by engaging in scams, coordinating abuse campaigns or artificially inflating engagement.

Continue Reading

News

World13 mins ago

California church shooter was motivated by hate, politics

4/4 © Reuters. The Geneva Presbyterian Church is seen after a deadly shooting, in Laguna Woods, California, U.S. May 15,...

Stock Markets14 mins ago

Tencent Music quarterly revenue falls as competition heats up

© Reuters. FILE PHOTO: The logo of China’s Tencent Music Entertainment Group is seen next to an earphone in this...

Stock Markets14 mins ago

S&P 500 ends lower as Tesla falls, while energy rallies

© Reuters. Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., May...

World14 mins ago

Steelworks defenders appear to signal end of Mariupol siege

2/2 © Reuters. FILE PHOTO: A local resident rides a bicycle past a charred armoured vehicle during Ukraine-Russia conflict in...

Stock Markets14 mins ago

Musk tells conference a lower price for Twitter might be appropriate

© Reuters. FILE PHOTO: A 3D-printed Twitter logo on non-3D printed Twitter logos is seen in this picture illustration taken...

Stock Markets14 mins ago

FDA to soon authorize Pfizer’s COVID booster shot for younger kids – NYT

© Reuters. FILE PHOTO: Empty vials of the Pfizer-BioNTech coronavirus disease (COVID-19) vaccine are seen at The Michener Institute, in...

Cryptocurrency14 mins ago

Price analysis 5/16: BTC, ETH, BNB, XRP, ADA, SOL, DOGE, DOT, AVAX, SHIB

Price analysis 5/16: BTC, ETH, BNB, XRP, ADA, SOL, DOGE, DOT, AVAX, SHIB The selling in Bitcoin (BTC) is showing...

World43 mins ago

New York congressional map deals blow to Democrats’ midterm hopes

© Reuters. FILE PHOTO: A “Vote” sign is pictured on election day in the Manhattan borough of New York City,...

Coronavirus44 mins ago

FDA declines to authorize common antidepressant as COVID treatment

© Reuters. FILE PHOTO: Signage is seen outside of the Food and Drug Administration (FDA) headquarters in White Oak, Maryland,...

Stock Markets44 mins ago

Wall Street ends lower as Tesla falls, while energy rallies

© Reuters. Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., May...

Coronavirus44 mins ago

Coronavirus may be linked to cases of severe hepatitis in children

© Reuters. A firefighter from the Marins-Pompiers of Marseille (Marseille Naval Fire Battalion) administers a nasal swab to a child...

Stock Markets44 mins ago

Take-Two Earnings Miss, Revenue Beats In Q4

© Reuters. Take-Two Earnings Miss, Revenue Beats In Q4 Investing.com – Take-Two (NASDAQ:TTWO) reported on Monday fourth quarter earnings that...

World44 mins ago

Biden approves redeployment of under 500 ground troops to Somalia

© Reuters. U.S. President Joe Biden delivers remarks at the annual National Peace Officers’ Memorial Service at the U.S. Capitol...

World1 hour ago

Factbox-Buffalo shooting victims included deacon, retired cop, grocery worker

© Reuters. Roberta Drury, who was among those who lost their lives in the TOPS supermarket shooting in Buffalo, New...

Stock Markets1 hour ago

Explainer-What happened with Abbott baby formula that worsened a U.S. shortage?

© Reuters. FILE PHOTO: Abbott Laboratories logo is displayed on a screen at the New York Stock Exchange (NYSE) in...

Cryptocurrency1 hour ago

Top 5 cryptocurrencies to watch this week: BTC, MANA, MKR, ZEC, KCS

Top 5 cryptocurrencies to watch this week: BTC, MANA, MKR, ZEC, KCS Bitcoin (BTC) has been relatively calm during the...

Politics1 hour ago

U.S. Supreme Court backs Ted Cruz, dumps campaign finance curb

© Reuters. FILE PHOTO: Sen. Ted Cruz (R-TX) speaks during a hearing of the Senate Foreign Relations to examine U.S.-Russia...

Stock Markets1 hour ago

Musk Says Twitter Deal at Lower Price ‘Not Out of the Question’

© Reuters By Yasin Ebrahim  Investing.com — Elon Musk said Monday that a cut-price deal for Twitter wouldn’t be “out...

Sports & General1 hour ago

Amber Heard says she feared she would not survive Johnny Depp marriage

3/3 © Reuters. FILE PHOTO: Actor Johnny Depp reacts as he leaves for a recess during a defamation trial against...

Economy1 hour ago

Dollar slips from 2-decade highs; yuan falls on weak China data

© Reuters. FILE PHOTO: U.S. dollar banknotes are displayed in this illustration taken, February 14, 2022. REUTERS/Dado Ruvic By Sinéad...

Economy1 hour ago

Taliban dissolve Afghanistan’s Human Rights Commission, other key bodies

© Reuters. FILE PHOTO: An Afghan woman walks on a street in Kabul, Afghanistan, May 9, 2022. REUTERS/Ali Khara/File Photo...

Cryptocurrency1 hour ago

Crypto capital gains one of four key areas for Australian Tax Office

Crypto capital gains one of four key areas for Australian Tax Office The Australian Taxation Office (ATO) has outlined crypto...

Economy1 hour ago

U.S. SEC chair says much to be done to protect crypto investors

2/2 © Reuters. FILE PHOTO: Representations of virtual cryptocurrencies are placed on U.S. dollar banknotes in this illustration taken November...

Stock Markets1 hour ago

Jupiter, Yarbrough among investors who sold Coinbase before big fall

© Reuters. FILE PHOTO: People watch as the logo for Coinbase Global Inc, the biggest U.S. cryptocurrency exchange, is displayed...

Stock Markets2 hours ago

Yellen reaches no breakthrough in Poland tax talks, says more work needed

© Reuters. Treasury Secretary Janet Yellen testifies during the Senate Banking, Housing, and Urban Affairs Committee hearing titled “The Financial...

Stock Markets2 hours ago

Starbucks to Cover Worker Travel Expenses for Medical Treatment

© Reuters. By Liz Moyer Investing.com — Starbucks Corporation (NASDAQ:SBUX) shares are down 3.5% in Monday trading after the coffee...

Cryptocurrency2 hours ago

Celsius Network’s crypto mining subsidiary SEC filing suggests plans for IPO

Celsius Network’s crypto mining subsidiary SEC filing suggests plans for IPO Celsius Mining, the mining subsidiary of crypto lending platform...

Commodities2 hours ago

U.S. Strategic Petroleum Reserve drops to lowest level since 1987

© Reuters. FILE PHOTO: A maze of crude oil pipes and valves is pictured during a tour by the Department...

World2 hours ago

Indigenous Canadians make a painful plea on eve of British royal visit

2/2 © Reuters. FILE PHOTO: Britain’s Prince Charles and Camilla, Duchess of Cornwall visit Canada House in London, Britain May...

Commodities2 hours ago

Oil Climbs Another 3% as OPEC Paws Away Any Meaningful Output Hikes

© Reuters. By Barani Krishnan Investing.com — Shut out the noise, stick to the script and let consumers’ problems be...

Trending