Monday, June 24

Companies Hit Pause Button as Coronavirus Infects Global Economy

Layoffs, cutting costs and halting dividends, companies are scrambling to adapt as the coronavirus emergency hits demand and the draconian measures taken to contain the spread of the illness undercut production and demand.

With the economic impact of the coronavirus threatening the survival of many firms, governments have pledged tens of billions to help them limp along or failing that, to bankroll outright rescues or nationalization if necessary.

Several industrial giants, in particular in the automobile industry, have reduced or even suspended production.

Nissan suspended production at its Sunderland plant in northern England, the automaker’s biggest plant in Europe, employing about 7,000 workers, and has closed plants in Spain and Indonesia as well.

French automobile manufacturer Peugeot-Citroen is shutting down all of its production sites in Europe, and Italian-US carmaker Fiat Chrysler, with which it is in the process of merging, also intends to close most of its facilities on the continent, as does its American counterpart Ford.

  • Germany’s VW is shuttering most of its European plants for two to three weeks.
  • BMW said Wednesday that it is shutting down production in its European and South African plants for one month.
  • Renault is halting production at plants in France, Spain and Slovenia, as well as Romania, Portugal and Morocco.
  • Tyre giant Michelin is halting production at its sites in Spain, France and Italy for at least a week.
  • Airbus said it was suspending work at its French and Spanish plants for four days to improve workplace safety.

Even the luxury industry is taking steps.

  • Gucci, part of the Kering group, is closing all of its sites until March 20. Meanwhile Hermes is shutting its manufacturing sites until the end of March.
  • In Germany, long-distance bus companies Flixbus and Blablabus said they were halting services as new travel restrictions take effect.

A slew of American retailers have shut some or all of their outlets, including Nike, Macy’s and Gap.

  • The iconic Saks Fifth Avenue flagship store in New York is closed, and Apple has shuttered all its stores outside of China.
  • The situation is especially catastrophic for the travel industry, with US hotel giant Marriott shutting down some of its properties and furloughing tens of thousands of workers.

Airlines have been hit by a double-whammy: plunging demand and sweeping travel restrictions imposed by governments. They have taken different measures to adapt.

  • Russia’s Aeroflot has asked employees who have accumulated extra time off to use it.
  • Air France says it will look at reducing working hours, a measure that several countries have facilitated with easier access to state benefits for workers now forced into part-time work.
  • Low-cost airline Ryanair, which has announced that “most if not all” of its flights from March 24 will be cancelled, said it is looking at that option along with voluntary departures and temporarily suspending work contracts.

Forcing workers into unemployment temporarily is also an option that several countries have made easier, with Volkswagen’s Spanish subsidiary Seat taking that course when it began having trouble receiving parts.

  • Italian shipyard Fincantieri, which has also halted output, has asked its workers to use their annual vacation time.
  • UK mobile phone retailer Dixons Carphone meanwhile said it was axing 2,900 jobs as it faces “turbulent times”.

Firms have also moved swiftly to cut costs.

  • Air France-KLM, which is being forced to cut as many as 90 percent of flights, has said it will reduce its planned investments for 2020 by 350 million euros (USD 380 million) and make 200 million euros in savings elsewhere as it seeks to ensure it has enough cash on hand.

Firms are not sparing shareholders from the pain either. Lufthansa, which is chopping as much of 90 percent of flights, said it would not distribute a dividend from 2019 earnings as it seeks to keep hold of cash.

  • Inditex, which owns clothing brand Zara among others, also decided to put off a decision on dividends from the 3.6 billion euros it earned in its 2019-2020 fiscal year as well as making a provision of 287 million euros for coronavirus crisis.

Companies are not hesitating to take up offers of state support.

  • German tourism giant TUI, which employs 70,000 people worldwide and has suspended the “majority” of its operations over the coronavirus, has made a request for state aid.

Germany’s government has promised “unlimited” loans to stricken firms via the state bank KfW.

US airlines have asked for a USD 50 billion bailout and US planemaker Boeing is seeking at least USD 60 billion in federal support for the aerospace industry.

The US authorities have also stepped in to prop up a key market where firms raise short-term funding and whose freezing up was threatening the finances many companies.

The Italian government said it intends to re-nationalise the bankrupt former national carrier Alitalia under an emergency economic rescue plan.

Meanwhile, France also stands ready to nationalise large companies “if necessary”, according to Finance Minister Bruno Le Maire.