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Poor morale, sliding stock: Pressure mounts on American Airlines CEO Doug Parker

American Airlines CEO Doug Parker attends a ceremony to mark the opening of five new gates at O’Hare International Airport on May 11, 2018 in Chicago, Illinois.

Scott Olson | Getty Images News | Getty Images

Mounting problems for American Airlines CEO Doug Parker can be summed up in an Instagram post by his rival at Delta.

“Hi from #Santiago,” wrote Delta CEO Ed Bastian in the caption of the Oct. 1 selfie post, the Chilean capital in the background. “If you’ve never been, I highly recommend. With our new partner @latamairlines, you’ll be able to explore the Americas (and the rest of the world) like never before.”

It was the corporate equivalent of seeing your ex-girlfriend’s new boyfriend post their first pictures online together.

Less than a week earlier, Delta announced a shocker: It plans to buy a 20% stake in Santiago-based LATAM, a blow to American that ended its two-decade partnership with what is now the largest airline in Latin America, a region where American is already strong. American failed to secure closer ties with LATAM after its proposed joint venture was blocked by the Chilean Supreme Court earlier this year, setting the stage for Delta to swoop in.

American’s problems go far beyond its failed pursuit of a joint venture with LATAM, which it said without Chile’s sign-off, “would have provided limited upside.” American’s management is facing a slumping stock price, strained labor relations and unhappy customers, raising questions about how CEO Parker can turn things around.

A bad summer

The rough summer “was driven by us not flying as good an operation as we’d like,” Parker said in an interview.

The airline’s latest woes have added to chatter among industry insiders about whether Parker, who is also chairman, will be able to ride out the storm.

“Morale is at an all-time low,” said Lori Bassani, president of the Association of Professional Flight Attendants, which represents about 28,000 American Airlines cabin crew members. Flight attendants are “tired of apologizing for everything that’s going wrong with the airline,” she said.

American has struggled with lengthy delays and cancellations this year, canceling more flights than any other airline in July, according to the Department of Transportation. Parker blamed the problem on the unions representing its mechanics, which the airline accused of an “illegal work slowdown” that prevented it from having enough aircraft at hand. The unions have denied the allegation.

“When we don’t provide [flight attendants] with enough aircraft to start the day … that does have an effect on morale,” Parker said.

737 Max grounding

American’s executives have also noted that the prolonged worldwide grounding of the Boeing 737 Max has hit its revenue and growth. But the stock is lagging — more so than other carriers that are also suffering because they can’t grow as expected with the Max prohibited from flying.

In late August, American’s stock hit a post-merger low. Its shares are down more than 18% so far this year, while United‘s stock is up by just more than 1% and Southwest‘s has risen by more than 14% as of Tuesday’s closing prices. Delta, which doesn’t fly the Max, is up by almost 7%. All four count Warren Buffett’s Berkshire Hathaway among their biggest investors.

American will update investors on its third-quarter performance estimates before the market opens Wednesday, a day before U.S. airline earnings kick off with Delta on Thursday morning.

Still profitable

Despite it’s troubles, American is profitable, thanks to economic growth that has fueled demand for travel and rewards credit cards. Analysts expect it to generate per-share earnings of between $4.55 and $5.27 on nearly $46 billion in revenue this year, a 3.3% increase from last year, but they forecast less revenue and profit growth compared with Delta and United.

More trouble could be on the way if there is an economic downturn. American has a higher debt load than its competitors — close to $35 billion, according to FactSet, about the same of Delta and United’s debt combined.

Jonathan Root, senior vice president at Moody’s, said that American’s debt load isn’t a “survivability issue” but that its higher interest burden can hinder cash flow generation.

Succession question

Parker has been CEO of American — or the companies that preceded its current form — since 2001. Parker, 57, is the longest-running CEO of a major U.S. carrier and has outlived the average tenure of eight years for a corporate CEO, according to executive search firm Korn Ferry. But he’s has kept mum on the company’s succession planning.

Industry watchers have speculated on successors for Parker, should the board decide on a new CEO, with former American executive Scott Kirby mentioned as someone with the skills to run a giant, complex airline.

While Kirby led a profitable expansion as president of United, he denied any notion of rejoining American at an industry conference last week. He told the crowd he plans to end his career at United, according to travel industry site Skift.

‘Running a good airline’

Parker declined to comment on whether he’s considered stepping down and said his focus is on improving cash flow and American’s operations, particularly growing at big, profitable hubs like Dallas and Charlotte, North Carolina.

“What we can do for American and our customers and our brand and our shareholders right now is make sure we’re running a good airline, something we’re good at, by the way,” Parker said. “We had a difficult summer and that certainly hurts perception from everyone. We recognize that and we care about it. We’re very happy it hasn’t continued and we’re committed to making sure it doesn’t reoccur.”

Parker said American’s operations have recently improved, particularly after negotiations with the mechanics unions resumed last month and the peak summer travel months. In September, nearly 83% of American’s flights arrived on time, its best month since November 2017 and more than 4 percentage points higher than the year-earlier period.

Calls to customer service that surged during the slew of summer disruptions are back to normal and on some days at below-average levels, he added. Over the summer, American Airlines customer service agents called some travelers whose flights were disrupted to apologize and offered compensation such as frequent flyer miles.

The company has been studying how its brand is perceived by customers since last year, a spokesman said. 

Long career

Parker has a wealth of experience — he’s been in the CEO role at a major U.S. airline for more than 18 years, taking the helm of America West days before the Sept. 11 attacks. He oversaw America West’s merger with US Airways in 2005 on the heels of US Airways’ bankruptcy and again with the US Airways merger with American in 2013 — each time leading the combined company.

But a focus on keeping costs low, a strategy at US Airways, doesn’t necessarily work for American in 2019, analysts said. Under Parker, American embarked on an initiative dubbed “Project Oasis” to add thinner seats with no seatback entertainment screens to aircraft and fit more of them on board. The project was put on hold amid the 737 Max grounding.

“Doug has never been able to shed that mindset,” said Henry Harteveldt, founder of consulting firm Atmosphere Research Group.

The structure at the top is lean, too. American doesn’t have a chief commercial officer or a chief operations officer that could take on some of the company’s challenges.

Big challenge

“I think American is a very hard beast to turn around,” said Samuel Engel, head of the aviation practice at consulting firm ICF. “Hats off to Parker and the team because they’ve taken it a lot farther than other teams have gone. The current challenge is a magnitude of the challenge.”

American has made some moves to improve customer experience. It has invested in its first-class lounges and added fast Viasat Wi-Fi to its planes, partly to make up for the lack of seatback entertainment.

But employee morale remains low, labor leaders say, and American could be facing higher costs soon. In addition to its turbulent negotiations with its mechanics, American is also in talks with its flight attendants and more than 12,000 pilots.

“Our very pilots are asking the same questions that shareholders are asking and passengers are asking,” said Dennis Tajer, a Boeing 737 captain and spokesman for the Allied Pilots Association, the airline’s pilot union. “When will it get better?”


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UN facing ‘worst cash crisis’ in nearly a decade, warns staff could go unpaid in November

UN Secretary General Antonio Guterres addresses the United Nations General Assembly at UN headquarters on September 24, 2019 in New York City.

Drew Angerer | Getty Images News | Getty Images

The United Nations (UN) is facing its “worst cash crisis” in nearly a decade because almost one-third of its member states have not paid their annual dues, according to Secretary-General Antonio Guterres.

Speaking in front of the UN’s budget-setting Fifth Committee on Tuesday, Guterres said the situation was so desperate that last month’s General Assembly in New York was only possible because of emergency spending cuts made earlier in the year.

“The organization is facing a severe financial crisis,” Guterres said.

“To be more specific, a severe liquidity crisis. The equation is simple: without cash, the budget cannot be properly implemented.”

UN spokesperson Stephane Dujarric said in a statement published Tuesday that, by the end of September, member states had paid only 70% of the total assessment for the regular budget.

That compares with 78% at the same time of year in 2018.

The UN said that while 129 member states had paid their dues for the organization’s 2019 budget by Tuesday — the most recent being war-torn Syria — 64 others were still required to pay “urgently and in full.”

It said there is an outstanding amount of $1.3 billion for the year.

‘Record-level shortage of cash’

Guterres said the organization was so cash-strapped that it had been forced to borrow reserves set aside for UN Peacekeeping Operations in order to meet expenditure needs in recent months.

In doing so, Guterres said the UN risks “exhausting the closed peacekeeping cash reserves and entering November without enough cash to cover payrolls.”

The U.S., which is the largest contributor to the UN, still owes $381 million for prior regular budgets and as much as $674 million for the 2019 regular budget, Reuters reported, citing confirmation from the U.S. mission to the UN.

Washington typically pays its dues in the fall.

President Donald Trump has previously said the world’s largest economy is shouldering too much of the burden when it comes to the cost of the world body. The U.S. president has also called for reforms of the UN.

Some of the other countries that have reportedly failed to pay their annual dues to the UN include, Brazil, Iran, Israel, Mexico, Saudi Arabia, South Korea and Uruguay.

The secretary-general said Tuesday that last week he had been “forced to introduce extraordinary measures to cope with the record-level shortage of cash.”

“Vacant posts cannot be filled, travel will be limited to essential travel only, meetings may have to be canceled or deferred.”

Guterres also warned that the situation would not only impact operations in the main hubs of New York, Geneva, Vienna and Nairobi, but also regional commissions.


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China ready to discuss a partial trade deal with the US, reports say

Trade talks in Washington involving Commerce Secretary Wilbur Ross (from right), U.S. Trade Representative Robert Lighthizer, Treasury Secretary Steven Mnuchin, Director of the National Economic Council Larry Kudlow and other Trump administration officials sit down with Chinese Vice Premier Liu He (from left), Central Bank Governor Yi Gang (2nd left) and other Chinese vice ministers and senior officials on Jan. 30, 2019.

Chip Somodevilla | Getty Images News | Getty Images

U.S. stock futures pushed higher Wednesday morning after a report suggested that Beijing is willing to discuss a partial trade deal with Washington.

Bloomberg reported, citing an official with direct knowledge of the negotiations, that China is willing to talk about a possible agreement as long as no more tariffs are imposed by the President Donald Trump administration — including planned levies due this month and in December.

The report added that Beijing would offer non-core concessions like purchases of agricultural products in return, but not budge on major sticking points between the two nations. 

The unnamed official said negotiators were not optimistic about securing a broad agreement that would fully end the trade conflict between the world’s two largest economies. Both sides are set for high-level trade negotiations in Washington on Thursday.

Separately, the Financial Times on Wednesday morning reported that officials in China are offering to increase annual purchases of U.S. agricultural products by $10 billion a year, in order to reach a partial deal.

“(Vice Premier) Liu He is coming with real offers, it’s not an empty visit,” an unnamed source told the FT. “The Chinese are ready to de-escalate.”

Trump has said tariffs on Chinese imports will increase on October 15 if no progress is made in bilateral trade negotiations.

The world’s two largest economies have imposed tariffs on billions of dollars’ worth of one another’s goods since the start of 2018, battering financial markets and souring business and consumer sentiment.

—CNBC’s Sam Meredith contributed to this article.


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Fed Minutes to Shed Light on Internal Debate Over Rates

The Federal Reserve will provide new clues about its thinking on where to set interest rates when it releases the minutes of its Sept. 17-18 meeting on Wednesday at 2 p.m. EDT.

Officials reduced rates by a quarter percentage point and left the door open to more cuts. The meeting also began amid a breakdown in money-market functioning that sent the central bank’s benchmark short-term rate rising above its target range. The minutes will show how officials evaluated that situation at the time. Here is what to watch:

Source: US Business
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Sterling shoots higher on report of a Brexit concession from the EU

TOPSHOT – A vehicle passes an anti-Brexit pro-Irish unity billboard seen from the Dublin road in Newry, Northern Ireland, on October 1, 2019 on the border between Newry in Northern Ireland and Dundalk in the Irish Republic. – Britain will give the EU new proposals for a Brexit deal “shortly”, Prime Minister Boris Johnson said on October 1, but rejected reports it would see customs posts along the Irish border. (Photo by PAUL FAITH / AFP) (Photo by PAUL FAITH/AFP via Getty Images)

PAUL FAITH | AFP | Getty Images

The British pound made a sharp move higher against both the dollar and the euro Wednesday morning, after one newspaper report suggested the EU is ready to make a major concession in negotiations over the U.K.’s withdrawal from the trading bloc.

According to The Times, sources close to the talks believe that the EU will grant lawmakers in Northern Ireland the right to leave any backstop arrangement within a few years.

The backstop is an arrangement whereby Northern Ireland remains in the customs union — a common tariff area — until a solution can be found to prevent any return of physical checks on the U.K.’s border with the Republic of Ireland.

The story, published Wednesday morning, claims that lawmakers from all sides of Northern Ireland’s assembly government would be granted the right to revoke the withdrawal treaty, and therefore the backstop, if a “double majority” was secured.

In reaction, sterling jumped 0.4% to $1.2265 versus the dollar and 0.2% to 89.54 pence against the euro.


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Kurds mobilize in Syria as Turkey poised for imminent attack

A Turkish army’s tank drives towards the border with Syria near Akcakale in Sanliurfa province on October 8, 2019.

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The Kurdish-led civilian administration in northeastern Syria issued a “general mobilization” call along the Syrian border with Turkey on Wednesday as Ankara poised for an imminent invasion of the area in the latest major escalation in the war-ravaged country.

Turkey has long threatened an attack on the Kurdish fighters in Syria whom Ankara considers terrorists allied with a Kurdish insurgency within Turkey.

Expectations for that assault rose after President Donald Trump on Sunday abruptly announced that American troops would step aside ahead of the Turkish push — a shift in U.S. policy that essentially abandoned the Syrian Kurds, longtime U.S. allies in the fight against the Islamic State group in Syria.

But Trump also threatened to “totally destroy and obliterate” Turkey’s economy if the Turkish push into Syria went too far.

Turkey has been massing troops for days along its border with Syria and vowed it would go ahead with the military operation and not bow to the U.S. threat over its plans against the Kurds.

A senior Turkish official said Wednesday that Turkey’s troops would “shortly” cross into Syria, together with allied Syrian rebel forces to battle the Kurdish fighters and also the Islamic State group.

Trump later cast his decision to pull back U.S. troops from parts of northeast Syria as fulfilling a campaign promise to withdraw from the “endless war” in the Middle East. Republican critics and others said he was sacrificing a U.S. ally, the Syrian Kurds, and undermining American credibility.

Fahrettin Altun, the Turkish presidency’s communications director, called on the international community in a Washington Post op-ed published Wednesday “to rally” behind Ankara, which he said would also take over the fight against the Islamic State group.

Turkey aimed to “neutralize” Syrian Kurdish militants in northeast Syria and to “liberate the local population from the yoke of the armed thugs,” Altun wrote.

In its call for mobilization, the local Kurdish authority known as the Autonomous Administration of North and East Syria, also urged the international community to live up to its responsibilities as “a humanitarian catastrophe might befall our people” in the region.

“We call upon our people, of all ethnic groups, to move toward areas close to the border with Turkey to carry out acts of resistance during this sensitive historical time,” it said.

The statement said the mobilization would last for three days.

Earlier on Wednesday, IS militants targeted a post of the Kurdish-led Syrian Democratic Forces in the northern Syrian city of Raqqa, which was once the de facto IS capital at the height of the militants’ power in the region.

The Kurdish-led SDF, which is holding thousands of IS fighters in several detention facilities in northeastern Syria, has warned that a Turkish incursion might lead to the resurgence of the extremists. The U.S. allied Kurdish-led force captured the last IS area controlled by the militants in eastern Syria in March.

In Wednesday’s attack, IS launched three suicide bombings against Kurdish positions in Raqqa. There was no immediate word on casualties. Raqqa is being Silently Slaughtered, an activist collective that covers news in the northern city, reported an exchange of fire and a blast.

The Britain-based Syrian Observatory for Human Rights, a war monitoring group, said the Raqqa attack involved two IS fighters who engaged in a shootout before blowing themselves up.


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Global Tax Proposal Widens Net Beyond Tech Giants

The search for a new agreement on how countries should tax multinational corporations advanced Wednesday, as international negotiators presented a way of rewriting the rules that they expect finance ministers from the Group of 20 leading economies will support.

The proposal comes as tensions between the U.S. and other governments rise following the introduction or announcement of a series of special taxes on digital services that mostly fall on large U.S. technology companies. It appears likely to win the support of the U.S….

Source: US Business
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Saudi Aramco says full oil production capacity will return by end of November

Amin Nasser, the chairman and CEO of the state-run oil giant Saudi Aramco

Jon Gambrell | AP

Saudi Arabia’s full oil production capacity will be recovered by the end of November, Saudi Aramco CEO Amin Nasser said at the Oil & Money Conference in London on Wednesday.

Aramco’s maximum production capacity is 12 million barrels per day (bpd), though the OPEC kingpin has been pumping significantly below that level as part of a coordinated agreement OPEC and non-OPEC producers to lower output and keep a floor under falling oil prices.

The CEO of the world’s largest oil company expressed his concern over an “absence of international resolve” against the perpetrators of September 14 drone and missile attacks on Aramco facilities that forced the company to shut down half of its production and sent crude prices up nearly 20%.

“An absence of international resolve to take concrete action may embolden the attackers and indeed put the world’s energy security at greater risk,” Nasser said.

Brent crude futures slipped on the news, trading at $58.07 a barrel on Wednesday morning at 9:20 a.m. London time, down about 0.3% from the previous day. The international oil benchmark’s price is now lower than it was the day before the Aramco attacks, which Riyadh and Washington have blamed on Iran, a charge Tehran denies.

This is a breaking news story. Please check back for updates.


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J&J Hit With $8 Billion Jury Award Over Antipsychotic Drug

A Philadelphia jury on Tuesday ordered Johnson & Johnson to pay $8 billion in damages to a Maryland man who said his use of J&J’s antipsychotic Risperdal as a child caused enlarged breasts and the company failed to properly warn of this risk.

It was the biggest award to date among more than 13,000 lawsuits against J&J alleging that Risperdal caused a condition called gynecomastia in boys, which involves enlargement of breast tissue. The lawsuits generally claim that J&J was aware of the risk of this side effect,…

Source: US Business
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Tesla Needs Its Battery Maker. A Culture Clash Threatens Their Relationship.

Last year, Elon Musk puffed a marijuana blunt during a live-video interview in California. Halfway around the world, executives at Japan’s Panasonic Corp., Tesla Inc.’s automotive battery supplier, watched with alarm.

“What will our investors think?” one Panasonic executive remembers wondering.

Five years after committing to invest billions…

Source: US Business
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