Airlines’ Engine Trouble

Plus: This could be a budget, but Congress playin.’ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

March 10, 2023

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TOGETHER WITH

Good morning.

Silicon Valley’s disastrous year keeps getting worse. And this time, it’s taking big banks down with it. On Thursday, Silicon Valley Bank, a favored financial institution among AllBirds-wearing tech-startup types, announced it lost almost $2 billion selling assets spurred by a downturn in deposits. That in turn spurred a 60% share-price plummet worth roughly $9.4 billion in market value, which then sparked a widespread rout of financial stocks that wiped out $52 billion of market value collectively from JPMorgan, Bank of America, Wells Fargo, and Citigroup.

Is this what it looks like when disruptors get really disrupted?

Morning Brief

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The stage is set for a federal budget fight.

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A jet engine shortage threatens to rain on airlines’ parade.

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Norwegian navigates troubled waters.

Federal Budget

Washington Remains Very Split on White House Budget Proposal

What do you call a wish you know won’t come true? A federal budget proposal.

On Thursday, President Biden unveiled his dream federal government budget for the fiscal year 2024, complete with hopes of increased social spending and aspirations of higher taxes on the wealthiest of Americans. But this is 2023 vintage Washington, so it’s safe to say the two sides are very, very — almost impossibly — far apart.

Asked and Unanswered

Biden’s proposal isn’t surprising. It’s a sprawling $6.9 trillion package, up from last fiscal year’s $6.4 trillion, and includes extending the solvency of Medicare, expanding the child tax credit, and increasing investments in manufacturing. That’s the spend side of the equation. Now here comes the hardly ever contentious tax side. Most notably, Biden wants to jack up the corporate tax rate from 21% to 28%, crank the 1% stock buyback tax to 4%, and add a 25% minimum tax on billionaires — all in service, the White House claims, of cutting the deficit by $3 trillion over the next three years. (The deficit this year, it should be noted, would still increase from $1.6 trillion to $1.8 trillion).

So that’s where Biden stands. Republicans, who control the House of Representatives, are standing, well, somewhere on the opposite side of the globe (metaphorically speaking). While the GOP has yet to unveil an official counter-proposal, they have promised to deliver a plan that would fully eliminate the annual budget deficit within 10 years. Disappearing the budget shortfall is a condition the party is insisting on ahead of negotiations over raising the debt ceiling. Failure to do so by Sept. 30 would, in the words of Jerome Powell on Wednesday, trigger “extraordinarily adverse” consequences. So no pressure, folks.

Despite the fact that common ground has become a Washington oxymoron, the two political parties will try to reach a budget they can both sign off on… don’t laugh:

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Republicans have promised to not raise taxes on any Americans, insisting instead on achieving a balanced budget via spending cuts, including up to $150 billion this year. However, GOP leaders have also committed to leaving the third rails of Medicare, Social Security, veteran’s programs, and defense spending untouched. Which leaves what, we don’t know.

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To achieve a balanced budget, the Committee for a Responsible Federal Budget, a nonpartisan deficit reduction advocacy group, says Congress would have to cut 85% of all other spending.

Deflation Nation: The White House, at the very least, may be trying to provide some cold comforts to Powell and his peers at the Federal Reserve, following his testy visit to Capitol Hill this week. The executive branch’s projections show a slowing economy (growth of just 0.6% in 2023) with an unemployment rate jumping from its historic 3.4% low to 4.3% — all proof that the rate-hiking, inflation-fighting campaign is working. That’s something everyone can agree is good news, right? Right?

– Brian Boyle

Aviation

Jet Engine Shortage Crimps Air Travel’s Big Comeback

Airlines have never experienced engine trouble quite like this.

While the air travel industry is enjoying rip-roaring demand, enough to take it back to the heady days of a pre-covid world, a shortage of jet engines could majorly throttle its ability to capitalize on travelers desperate to make up for lost wanderlust.

Fly In The Ointment

This week has been a mostly-good-news week for airlines. Cathay Pacific posted its first operating profit since the dawn of the pandemic, a big deal given the Hong Kong-based airline had to weather China’s extended lockdowns. Meanwhile, in London, airlines chalked up a victory against Heathrow airport, which had tried to raise landing fees but was blocked by the CAA, the UK’s aviation regulator. Overall, sales exceeded pre-pandemic levels in 2022, with more demand forecast. In other words, it might be time for the airlines to finally crack open the travel-sized champagne.

But a shortage of jet engines could put a lid on just how much airlines can take advantage of pent-up demand. Bloomberg reports that many carriers are using state-of-the-art turbines in their planes, which, although swanky and fuel-efficient, run hot and require more upkeep than older models — ergo they need parts replaced more frequently. Unfortunately, getting the right part for your brand-new jet engine can take a while:

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Wait times on specific engine parts can exceed a year, Bloomberg reports, and engine repairs are now taking three times as long.

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Carriers are also having to compete with Boeing and Airbus for parts, as the big plane manufacturers want to ramp up production. Aviation consultant Cliff Collier told Bloomberg the engine market is “hotter than hell” at the moment.

Suite Ride: If you have a limit on how many planes you can fly, how do you keep profits growing? In Lufthansa’s case, the answer is simple: premium real estate. The German airline unveiled its new first-class “suites” for long-haul flights, which resemble tiny hotel rooms with temperature-controlled seats. German engineering at its finest.

– Isobel Asher Hamilton

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Hospitality

Can Norwegian Right the Ship?

(Photo Credit: Alonso Reyes/Unsplash)

The world’s third largest cruise operator thinks it can right the ship by charging more for less.

Norwegian Cruise Holdings has increased customer prices while cutting back jobs and services in an effort to stay afloat as its stock price remains submerged, The Wall Street Journal reported Thursday.

Don’t Call It a Comeback

After the pandemic sent the cruise industry into rough financial and reputational seas, it’s been starting to glimpse more blue skies and glassy waters. Norwegian completed its “Great Cruise Comeback” last May after relaunching its 17th and final ship, but even with all that enthusiasm, investors are concerned because its share price is down 75% compared to pre-pandemic levels.

To please shareholders, Norwegian has begun implementing a handful of cost-cutting measures as well as markups:

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At the start of 2023, Norwegian increased its daily gratuity for the second time in less than a year. Those staying in the premium Haven suites would have to pay an extra $25 per person, per day. In the Balcony Cabins and standard units, it’s now $20. Open bar packages have also increased in price.

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In December, the cruise line cut 9% of its shoreside staff as well as some on-board positions like housekeepers. Only a few weeks later in January, Norwegian announced it was canceling its production of the musical Kinky Boots on board the Encore cruise liner, notifying actors and stagehands that their contracts had been terminated.

Where’s the Beef? According to a UBS analyst note earlier this month, Norwegian is also scaling down its burger sizes from 9 ounces to 7. One could argue even that’s too much ground beef as the quarter pounder is the culinary standard. On top of that, don’t expect a clean room each day as Norwegian has limited turndown service for non-premium cabins. So you better get used to making your own bed on vacation. If your friends can see you now they may choose to fly instead.

– Griffin Kelly

Extra Upside

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Of all the shortages, this might be the worst: Girl Scouts says it’s low on cookies.

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College? Who needs it? American enrollment rates dropped 8% from 2019 to 2022.

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Fintech In The Crosshairs: Interest rates are up. Funding is down. ‘Profitability’ is the new ‘Growth’. These trends are thrusting the fintech venture space into a tectonic shift 一 and this live conversation will break down all the implications. Matt Harris from Bain Capital Ventures speaks to Axios Pro on the state of fintech, what it means for investors, and where the firm perceives opportunities ahead. Get a beat on the best bets in fintech and how the shifting landscape impacts the wider market. Register for this exclusive live discussion here.*

*Partner.

Just For Fun

Helping hand.

Weird physics.

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