Author: Soumya Joy

CHICAGO: United Airlines expects its daily cash burn rate to slow to between US$15 million and US$20 million in the fourth quarter, depending on the pace of a recovery in demand, executives said on a conference call on Wednesday.

Halting the cash burn, which averaged US$40 million in the second quarter, will happen once United reaches a point in which sharp falls in demand and flight capacity have slowed to a roughly 50per cent decline.

“The second quarter of 2020 was historic for the airline industry for all the wrong reasons. At the beginning of April, we saw the sharpest, deepest drop in demand in history, far worse than 9/11 or the Great Recession,” Chief Executive Scott Kirby told investors.

Chicago-based United flew only a fraction of its normal capacity in the second quarter and expects to fly about 35per cent of its normal summer schedule in the third quarter as the coronavirus pandemic continues to thrash travel demand.

Near the end of the second quarter, Kirby said that “just as optimism about a recovery was beginning to build, we watched demand fade once again as COVID-19 spiked.”

Cases have surged in many parts of the country, prompting fresh quarantine orders in some states and forcing some states to scale back reopening plans.

In its earnings report on Tuesday, United warned that travel demand will remain suppressed until there is a widely accepted treatment or vaccine for COVID-19, which plunged the carrier to a deep quarterly loss.

United Chief Commercial Officer Andrew Nocella said on Wednesday he does expect demand to recover slightly when new cases start to fall, quarantines are lifted and borders are reopened, but airline executives do not expect a return to pre-pandemic levels for some years.

(Reporting by Tracy Rucinski and Sanjana Shivdas; Editing by Chizu Nomiyama and Jonathan Oatis)

PARIS: French authorities have told telecoms operators planning to buy Huawei 5G equipment that they won’t be able to renew licences for the gear once they expire, effectively phasing the Chinese firm out of mobile networks, three sources close to the matter said.

Like other countries in Europe, France is laying the ground for its next-generation 5G mobile market in the middle of a growing geopolitical storm between two global superpowers.

The United States say the company’s equipment could be used by the Chinese government for espionage – a charge denied by Huawei and Beijing – and has pressed its allies to ban it.

France’s cybersecurity agency ANSSI said this month it would allow operators to use equipment, including Huawei’s, under licences of three to eight years. But it added it was urging telcos not currently using the Chinese company’s gear to avoid switching to it.

Operators must each apply for dozens of licences for equipment to cover different parts of the country.

The sources said ANSSI had informed operators of most licence decisions for large cities. They said the bulk of authorisations for Huawei gear were for three or five years, while most of those for equipment from European rivals Ericsson or Nokia received eight-year licences.

ANSSI’s decisions have not been made public, either by the agency or by the companies.

The sources added that operators had also been told by French authorities during informal conversations in recent months, not stated formally in documents, that licences granted for Huawei equipment would not be renewed thereafter.

ANSSI declined to comment.

A spokesman for the prime minister’s office, which oversees the permissions on 5G equipment, said ANSSI was working with operators within the legal framework, adding that any authorisation granted at present did not impinge on whether these would later be renewed or interrupted.

Huawei declined to comment.

Such restrictions, though, would amount to a de facto phase-out of Huawei within France’s 5G networks by 2028, given the short time-frame of the licenses, according to the sources, who declined to be named because of the sensitivity of the matter.

French operators might still manage to get an eight-year authorisation for Huawei equipment in some cases, and could yet decide to use its gear for that time period, the sources said. But even this meant eventually dismantling it, they added.

One of the sources said it would be difficult for a telecom operator to take the risk of investing in Huawei gear, given new mobile technology like 5G takes at least eight years to yield a return on investment. “Granting three years amounts to a flat refusal,” the person added.

‘SIMILAR TO BRITAIN’

An effective ban would be particularly troublesome for Bouygues Telecom and Altice Europe’s SFR , the two French telecom operators that already use Huawei’s equipment in their current mobile network.

The new authorisations for 5G network equipment are linked to existing 4G gear – meaning that if an operator opts for a different supplier for 5G, it would also have to replace its existing 4G infrastructure.

The companies have already said several times this year that such a scenario, in which they may be compelled to replace part of their grid at great cost, would lead them to asking for compensation from the state.

Bouygues and Altice declined to comment on whether they had applied for Huawei licences or any licence decisions or whether they had held informal conversations with ANSSI. They also declined to comment on whether they would now drop any purchase plans for Huawei equipment.

France’s two other major operators, leader Orange and Iliad , mainly rely on Nokia, Ericsson or both for their mobile networks.

Iliad and Orange declined to comment.

In Britain, where major telecoms groups are heavily reliant on Huawei technology, the government has ordered the Chinese company’s equipment to be purged from the 5G network by 2027.

“France’s position is similar to that of Britain, but the government’s communication is different,” one of the sources said. “Huawei can’t do much about it.”

(Reporting by Mathieu Rosemain and Gwénaëlle Barzic; Editing by Pravin Char)

WASHINGTON: U.S. home sales increased by the most on record in June, boosted by historically low mortgage rates, but the outlook for the housing market is being clouded by low inventory and high unemployment amid the COVID-19 pandemic.

The National Association of Realtors said on Wednesday existing home sales jumped 20.7per cent to a seasonally adjusted annual rate of 4.72 million units last month. That the biggest gain since 1968 when the NAR started tracking the series.

Data for May was unrevised at a 3.91 million unit pace, the lowest level since October 2010.

June’s increase ended three straight months of decreases, though home resales remained below their pre-pandemic level. Economists polled by Reuters had forecast sales rebounding 24.5per cent to a rate of 4.78 million units in June.

Existing home sales, which make up about 85per cent of U.S. home sales, fell 11.3per cent on a year-on-year basis in June.

The 30-year fixed mortgage rate is at an average of 2.98per cent, the lowest since 1971, according to data from mortgage finance agency Freddie Mac. Data last week showed homebuilding increased in June by the most in nearly four years.

The country is struggling with a resurgence in new coronavirus infections, prompting some authorities in the hard hit populous South and West regions to either shut down businesses again or pause reopenings, threatening the economy’s recovery from the COVID-19 downturn.

The economy slipped into recession in February. A staggering 32 million Americans are collecting unemployment checks.

Home sales rose in all four regions in June. There were 1.57 million previously owned homes on the market in June, down 18.2per cent from a year ago. The median existing house price increased 3.5per centfrom a year ago to a record US$295,300 in June.

At June’s sales pace, it would take 4.0 months to exhaust the current inventory, down from 4.3 months a year ago. A six-to-seven-month supply is viewed as a healthy balance between supply and demand.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)

NEW YORK: Options investors are ramping up bets on some of this year’s biggest winners, including Amazon.com Inc, Netflix Inc and Tesla Inc, even as they turn cautious on the wider market amid a resurgent U.S. coronavirus outbreak.

Investors are betting that tech-related stocks will remain comparatively resilient to the coronavirus-fueled economic disruptions that have battered sectors such as retail and travel, despite growing concerns about stretched valuations following steep rallies.

Analysts also see another factor driving the momentum stocks: fear of missing out, or FOMO.

The rocket-like rise of such stocks has driven year-to-date gains for the S&P 500 technology, consumer discretionary and communication services sectors, though the broader S&P 500 benchmark index remains negative for the year. Amazon is a component of the consumer discretionary index, and Netflix is a component of the communication services index.

“The flight to safety is in tech,” said Amy Wu Silverman, equity derivatives strategist at RBC Capital Markets. “These tend to be the names that are insulated from the fact that everyone is quarantined.”

Fears of further economic fallout from the coronavirus mounted on Monday as California reinstituted restrictions on businesses and the state’s two largest public school districts announced instruction would be online-only when school resumes. The tech-heavy Nasdaq toggled between gains and losses Tuesday, a day after falling 2.1per cent, its biggest percentage loss in more than two weeks.

But the purchase of bullish call options in tech-related names hasn’t been dampened. For instance, demand for calls versus bearish put options – a measure called skew – on Tesla currently stands near historic extremes, even after the stock has rallied more than 300per cent from its March lows. Tesla’s 30-day skew is negative, at -15.2per cent, according to Trade Alert, meaning that prices for calls have surged past those for equivalent puts.

Skew in Amazon, Netflix, Twitter and other momentum stocks has also been negative in the past week. By contrast, skew on the S&P 500 shows a growing bias toward puts.

“You have almost a perfect storm,” said Matt Amberson, principal at options analytics firm ORATS. “There’s a little bit of institutional worry, but retail (investors) … are bullish.”

Still, there are plenty of concerns about technology stocks. Fund managers in a recent BofA Global Research survey said buying tech stocks was the market’s “most crowded” trade for a third straight month.

In addition, some strategists believe the sharp run-up could make tech-related shares more vulnerable should the companies’ growth outlooks fall short of investors’ hopes. The second-quarter earnings season began in earnest on Tuesday as several major U.S. banks reported results.

After the recent rally, many tech-related shares have “the type of valuation where you would want to take profits,” said Oliver Pursche, president at Bronson Meadows Capital Management.

Indeed, the forward price-to-earnings ratio for the S&P 500, at 22.1, according to Refinitiv, is at its highest level since the dot-com boom two decades ago.

Some investors have chosen to bet on stocks that are outside the technology sector but may be positioned to benefit from a nascent economic recovery. Skew has dipped for several companies seen as being among the greatest beneficiaries of an economic recovery, including Boeing Co and Delta Air Lines.

Other recent call buyers include investors who want exposure to potential gains but are hesitant to buy stocks at current prices, said Christopher Murphy, co-head of derivatives strategy at Susquehanna Financial Group, a trend he said has occurred in tech-related names such as Tesla and Shopify Inc.

“We’re seeing a FOMO phenomenon being priced in,” he said.

(Reporting by April Joyner; Editing by Ira Iosebashvili and Leslie Adler)

BRUSSELS/DUBLIN: Apple’s clash with EU competition regulators comes to a head on Wednesday as Europe’s second-highest court rules on whether it has to pay 13 billion euros (US$15 billion) in Irish back taxes, a key part of the EU’s crackdown against sweetheart tax deals.

In its order four years ago, the European Commission said Apple benefited from illegal state aid via two Irish tax rulings that artificially reduced its tax burden for over two decades – to as low as 0.005per cent in 2014.

Defeat for European Competition Commissioner Margrethe Vestager could weaken or delay pending cases against Ikea’s and Nike’s deals with the Netherlands, as well as Huhtamaki’s agreement with Luxembourg.

Vestager, who has made the tax crackdown a centrepiece of her time in office, saw the same court last year overturn her demand for Starbucks to pay up to 30 million euros in Dutch back taxes. In another case, the court also threw out her ruling against a Belgian tax scheme for 39 multinationals.

The Apple dispute is seen by some analysts as a lose-lose situation for Ireland, which has appealed against the Commission’s order alongside the iPhone maker.

While 14 billion euros – including interest – would go a long way to plugging the coronavirus-shaped hole in the state’s finances, Dublin is seeking to protect a low tax regime that has attracted 250,000 multinational employers.

If Ireland’s appeal succeeds, the government will be ridiculed by opposition parties for not taking the cash, which could cover at least half of a budget deficit forecast to balloon to as much as 10per cent of GDP this year.

Should Ireland lose, the government will be castigated by the same politicians for launching the appeal. A ruling in favour of the Commission could also raise questions about the application of Ireland’s tax code at a sensitive time, when new global rules for taxing digital giants are being debated.

Defeat could also hurt Ireland’s ability to attract investment, although the promotional blitz undertaken after the Commission’s 2016 decision appears to have worked. The numbers employed by multinationals like Apple, Facebook and Google have grown by 25per cent, accounting for one in ten Irish workers.

For Apple, defeat would be a blow, but manageable given its cash holdings topped US$190 billion at the end of its fiscal second quarter.

The cases are T-778/16 Ireland v Commission and T-892/16 Apple Sales International and Apple Operations Europe v Commission. The defeated side can appeal on points of law to the EU Court of Justice, Europe’s highest court.

(Reporting by Foo Yun Chee; Editing by Mark Potter)

REUTERS: A central Texas county that includes Austin on Tuesday approved a plan to provide millions in tax subsidies to Tesla Inc if it builds a US$1.1 billion vehicle factory in the area.

The decision marks a step forward for Texas as it vies with Oklahoma to attract a new factory to build Tesla’s Y sport utility vehicles and cybertrucks.

A majority of commissioners in Travis County voted in favor of providing the electric carmaker with a tax rebate worth at least US$14.7 million.

That brings the total amount of tax rebates to nearly US$65 million after the Del Valle school district, which includes the proposed factory site, approved a US$50 million incentive on Thursday.

Tesla did not immediately respond to a request for comment.

The electric carmaker only has a single vehicle manufacturing plant in California and has said it wants to start building a large second plant in the southwestern United States as early as the third quarter of this year..

Commissioners in favor of the agreement decided to move forward after a Tesla representative said executives had met with the governor of a rival state, without naming the state.

The city of Tulsa in Oklahoma has campaigned for Tesla to build the plant there.

Tesla has asked Travis County for an 80per cent rebate on its property taxes for 10 years, worth US$14.7 million, as well as a 65per cent rebate for the next 10 years after that.

Tesla said the factory would create 5,000 jobs, mostly low-skilled. The average annual salary would be roughly US$47,000, an income considered low by the county’s health and human services division.

(Reporting by Joe White and Tina Bellon; Additional reporting by Hyunjoo Jin; Editing by Richard Pullin and Stephen Coates)