Good morning. Clay Chandler here, filling in for Alan from Hong Kong.
Since the beginning of President Trump’s face-off with China over trade, it has been assumed that Boeing would be a windfall beneficiary of a final U.S.-China trade agreement.
Trump has long insisted that any deal between the two countries include provisions to eliminate China’s trade surplus with the U.S. Many economists doubt that the bilateral trade balance can (or even should) be reduced to zero; few questioned whether Chinese purchases of Boeing aircraft—along with increases in Chinese imports of American soy beans and natural gas—would be part of any final resolution.
As Bloomberg notes, Boeing is the only non-consumer, non-tech company in America that gets more than $5 billion of revenue from China; little wonder that Boeing jets were included on a draft list of American products China would purchase.
But the crash two weeks ago of a second Boeing 737 MAX in less than six months has cast doubt on Boeing’s prospects.
China was the first country to ground the 737 MAX jet after the Ethiopian Airlines flight went down. The Civil Aviation Administration of China acted unilaterally, two days before the U.S. Federal Aviation Administration followed suit, idling more than a quarter of Boeing’s 737 MAX fleet. That decisiveness stunned many industry experts. Previously, China’s airspace regulators have simply followed guidance from the FAA.
Bloomberg reports that China also is considering excluding the aircraft from its American shopping list. It’s unclear whether that exclusion would apply to all Boeing aircraft or only the 737 MAX. Chinese airlines accounted for 20% of 737 MAX deliveries worldwide through January. China Southern has 16 of them, with another 34 on order.
If nothing else, China’s stance on Boeing since the crash in Ethiopia highlights the new assertiveness of the nation’s aviation regulators. Boeing was positioned to benefit from China’s rise as the world’s largest market for air travel. But it is discovering that China wants clout commensurate with its size.
And out this morning is my feature on two scrappy and ambitious ride-hailing startups—Singapore-based Grab and Jakarta-based Go-Jek. The two are locked in a fight for dominance of the region’s on-demand service market. The duel highlights the power of the super-app model, and why, when it comes to providing online services, homegrown upstarts have an advantage over global tech giants. You can read the story here.
The odds of a no-deal Brexit just shot up again, with the news that British Prime Minister Theresa May has asked the EU for only a short Brexit extension past the end of next week. This would mean the options of a fresh referendum or general election, both of which take time to organize, are off the table. The remaining two options are her twice-rejected deal, for which she may not be able to command a majority on her third attempt, and no deal. But what will the EU say to her request? Sky News
A second U.S. jury has found Bayer/Monsanto’s Roundup weedkiller to be a contributing factor in someone’s cancer, and Bayer’s shares are tanking—down more than 12%. The same jury still needs to establish Bayer’s liability, though, along with potential damages. Bayer: “We are confident the evidence in phase two will show that Monsanto’s conduct has been appropriate and the company should not be liable for [Edwin] Hardeman’s cancer.” Reuters
Google has been hit with a third EU antitrust fine, totaling $1.69 billion, this time relating to the terms it imposed for a decade on Adsense for Business users. Meanwhile, Google is trying to appease EU antitrust authorities by giving Android users in the bloc an explicit choice about which browser and search engine to use. This relates to behavior that earned Google one of its previous fines. Fortune
The Federal Aviation Administration may finally have a chief for the first time in about a year, after President Trump nominated former Delta flight operations boss Stephen Dickson. The president previously considered his personal pilot for the post, according to reports. If confirmed by the Senate, Dickson would join the FAA at a time when the agency is under serious fire over its vetting of Boeing’s grounded 737 Max planes. Fortune
Around the Water Cooler
Volkswagen CEO Herbert Diess is in a very precarious position after he told managers last week that “EBIT macht frei,” or “profits will set you free” auf Englisch. The phrasing seemed to be a play on “Arbeit [work] macht frei,” the cynical words that adorned the entrance to the Auschwitz concentration camp. Nazi jokes really don’t go down well in Germany, and investors are now seriously questioning Diess’s future. Financial Times
Disney’s acquisition of 21st Century Fox’s entertainment assets is now completed, and thousands of jobs are likely to go in order to achieve the $2 billion in cost savings that CEO Bob Iger has promised in order to make the company more competitive with Netflix. Bloomberg
Germany’s government reportedly wants to create a state-owned fund to foil takeovers of major companies by outsiders. China is a major factor here, having taken over companies such as robot-maker Kuka and tried to buy a stake in power grid operator 50Hertz. The new fund would acquire stakes alongside private investors, or so the plan goes. Reuters
Chinese companies last year made record defaults on their debts, and the defaults seem set to continue this year. What’s to blame? Tight credit conditions and China’s economic slowdown. DBS analysts: “The default wave is extending into 2019… Given the reduced risk appetite and huge maturing volume, the outlook is poor.” CNBC