>>> Europe : Brokers Upgrades & Downgrades - 17th of December 2024 V2(+)

>>> Up
* Airbus Raised to Buy at Deutsche Bank; PT 185 euros (+)
* Ambev ADRs Raised to Outperform at Grupo Santander; PT $3.56
* AUTO1 PT Raised to 20 euros from 12 euros at Deutsche Bank (+)
* CNH Industrial Raised to Overweight at Morgan Stanley; PT $16.50
* Epiroc Raised to Buy at Citi; PT 240 kronor
* Jungheinrich Raised to Buy at Citi; PT 32 euros
* LSE Group Raised to Buy at UBS
* Safran Raised to Buy at Deutsche Bank; PT 243 euros (+)
* Scor Raised to Buy at Citi; PT 26.90 euros
* SolarEdge Raised to Buy at Goldman
* Subsea 7 Raised to Outperform at BNPP Exane (+)

>>> Down
* Match Group Cut to Hold at Jefferies; PT $32
* Vivendi Cut by Deutsche as Split Adds Less Value Than Expected

>>> Initiation
* Canal+ Sadir Rated New Hold at Kepler Cheuvreux; PT 250 pence (+)
* Danone Reinstated Neutral at Goldman; PT 71 euros
* Havas Rated New Equal-Weight at Morgan Stanley; PT 1.80 euros
* Havas Rated New Hold at Kepler Cheuvreux; PT 2 euros (+)
* Hensoldt Rated New Neutral at BNPP Exane; PT 39 euros (+)
* Inari Medical Rated New Outperform at Oppenheimer; PT $75
* JDE Peet's Reinstated Sell at Goldman; PT 17 euros
* Nestle Reinstated Buy at Goldman; PT 86 Swiss francs
* Ocado Rated New Buy at Kepler Cheuvreux; PT 406 pence (+)
* Renk Group Rated New Outperform at BNPP Exane; PT 28 euros (+)

>>> Call
* BofA Survey Shows Bullish Sentiment and Record US Stock Exposure (+)
* Chase Year-End Rally With Cheap S&P 500 Options, BofA Says

>>> Stoxx 600 Pre-Market Indications

  • Airbus (AIR TH) +0.8%
  • Monte Paschi (MPI0 TH) +0.7%
  • Safran (SEJ1 TH) +0.7%
  • Inditex (IXD1 TH) -1.1%
  • Novo (NOV TH) -1.1%
  • AB InBev (1NBA TH) -1.1%
  • TotalEnergies (TOTB TH) -1.1%
  • Vodafone (VODI TH) -1.1%
  • K+S (SDF TH) -1.1%
  • Stellantis (8TI TH) -1.2%
  • Shell (R6C0 TH) -1.2%
  • Lotus Bakeries (7LB TH) -1.3%
  • Vestas (VWSB TH) -1.3%

>>> TradeGate Pre-Market Indications

DAX:
  • No major mover
MDAX:
  • Jenoptik (JEN TH) +3.7%
    • UBS initiates stock with buy: APA
  • Jungheinrich (JUN3 TH) +2.7%
    • Jungheinrich Raised to Buy at Citi; PT 32 euros
  • K+S (SDF TH) -1.2%
  • Hensoldt (HAG TH) -1.3%
SDAX:
  • Thyssenkrupp Nucera AG & Co KGaa (NCH2 TH) +5.9%
    • Thyssenkrupp Nucera Reports Strong Growth Despite Industry Challenge
  • Cancom (COK TH) -1.3%

>>> What to look at today - 17th of December 2024

Asian equities fluctuated as traders awaited a raft of interest-rate decisions by central banks this week, including the Federal Reserve.
A key stock benchmark for the region traded in a tight range, with Australia rising. Shares in mainland China eked out a gain while those in Hong Kong fell, as Reuters reported that Beijing plans to target 2025 gross domestic product growth of around 5%. Contracts for US equities were steady during Asia trading after the Nasdaq 100 gained more than 1% to reach another record high. All eyes will be on a multitude of central bank policy decisions slated for this week, including the US and Japan. Sentiment in the US is relatively positive, with a widely expected quarter-point rate cut from the Fed on Wednesday seen as adding fresh support and extending gains in stocks. The yen snapped a six-day losing streak after weakening beyond the 154 level versus the dollar overnight. The yen’s rapid decline in the past week toward 155 against the dollar has strategists warning that further weakness may trigger verbal intervention from authorities and add pressure on the Bank of Japan to hike rates. Traders are pricing in a less than 20% chance of a rate hike in December, according to swaps market pricing. Bloomberg’s dollar index was little changed Tuesday. The 10-year Treasury yield was flat at 4.39%.  The outlook for Chinese equities remains unclear after weak retail sales numbers suggest the country’s economic recovery has ways to go despite top leaders’ signals for stronger stimulus to fuel consumer demand. Chinese Premier Li Qiang urged government officials in a meeting Monday to swiftly carry out key economic tasks for the coming year.  Over in Hong Kong, Alibaba Group Holding Ltd. led the Hang Seng Index’s decline, as the Chinese tech company shed as much as 2.1% after it agreed to sell equity interest in Intime to a consortium of buyers.  In Japan, shares of SoftBank Group Corp. rose as much as 4.3% after President-elect Donald Trump announced at an event, alongside Chief Executive Officer Masayoshi Son, that the investment holding company planned to invest $100 billion in the US over the next four years.  South Korean electric vehicle battery stocks fell, driven by a selloff by foreign investors, as a media report deepened concerns over US policy issues. Samsung Electronics shares declined as much as 2.9% after Goldman Sachs reduced its price target on the stock and lowered its earnings estimates by 11%.  Investors’ main focus for the rest of the week remains Wednesday’s Fed decision, which will be followed by policy announcements in Japan, the Nordics and the UK.   Bitcoin rose to a record high on Trump’s support for digital assets and optimism about the upcoming inclusion of MicroStrategy Inc., an accumulator of the token, in a key US stock gauge. Oil steadied after a decline, as lackluster economic data from China reinforced concerns about weakening demand in the world’s biggest crude importer. Gold was little changed, holding on to a slight gain in its previous session. US after Hours MITK +18.2% surges on Q4 results, EBAY +1.9% climbs on incremental $3.0 bln to repurchase plan; NUE -1% ticks lower following downbeat guidance.

Nikkei -0.24% Hang Seng -0.48% CSI 0.22% Shanghai -0.80% Shenzen -1.80%

Eur$ 1.0506 CNH 7.2920 CNY 7.2839 JPY 154.18 GBP 1.2677 CHF 0.8947 RUB 103.6445 TRY 34.9680 WTI$ 70.69 Gold 2,654 BTC 106,700 +0.55% ETH 4,015 -0.80%

S&P -0.19% Nasdaq -0.09% EuroStoxx -0.28% FTSE -0.35% Dax -0.13% SMI -0.20%

Macro :
- Watch French Stocks as Budget Crisis Cuts Into Growth Outlook
- Trump Says Xi Hasn’t Confirmed Attendance for His Inauguration
- Argentina Weighs Managed Exchange Rate Once Controls Are Lifted
- Blue Owl’s Co-Founder Seeks Multiway Merger to Form PE Firm: FT
- Russia Oil Being Delivered on More Mainstream Tankers, BRS Says
- Chinese firms forge ties with UAE as Gulf nation acts as ‘superconnector’ in global trade

Keep an eye on :
- AFRM US : Affirm Said to Offer $750m Convertible Bonds at 0.75% Coupon
- BABA US : Alibaba to Record $1.3 Billion Loss in Sale of Intime Stores
- ASSAB SS : Assa Abloy Buys Roger in Poland
- BAMNB NA : Dutch Authorities Conclude Probe Into BAM International
- EN FP : Bouygues, JV Partners Get A$1.7B Australia Rail Project
- CO FP : Nelson Tanure Talks With Casino on Buying Some GPA Shares: Rtrs
- D6H GY : DATAGROUP is the first company in Germany to receive the BSI certificate for its Managed Private VS-NfD DefenseCloud
- EDP PL : Portugal Regulator Approves 2.1% Increase for Electricity Tariff
- EVN AV : EVN Proposes 90-Cent/Share Dividend for FY24
- IIA AV : CPI Property Buys Immofinanz Certificates After Drop
- INTRUM SS : Intrum Says It’s in Settlement Talks With 2025 Ad Hoc Group
- KEMIRA FH : Kemira Proposes Annika Paasikivi as New Chair of the Board
- LYTIX NO : Lytix Biopharma Offering of 16.7m Shares Prices at NOK6/Share
- MRK US : Merck Discontinues Cancer Trials, Bets on Other Candidates
- NOVN SW : UCB-Novartis Parkinson’s Study Fails Primary Endpoint (Dec. 16)
- NUE US : Nucor 4Q EPS Outlook Misses Estimates on Steel Mill Softness
- PSH NA : Pershing Square Holdings to Buy Back Another $100m
- PNL NA : PostNL to Name Linde Jansen CFO Effective April 15
- PRYME NO : Pryme Offering of 26.9m Shares Prices at EU0.15/Share
- SDZ SW : Sandoz US to Pay $275M to Settle Antitrust Claims of End Payers
- SKAB SS : Skanska Invests €76m in Phase 2 of Office Project in Hungary
- TIT IM : CVC Said to Weigh Purchase of Vivendi’s Telecom Italia Stake
- TIT IM : Bain Could Also Look Into Telecom Italia Stake Deal: Messaggero
- UCB BB : UCB-Novartis Parkinson’s Study Fails Primary Endpoint (Dec. 16)
- UMG NA : UMG’s Virgin Music Group to Buy Downtown Music for $775m in Cash
- VK FP : Vallourec to Sell Düsseldorf-Rath Site to CTP for €155 Million
- VIV FP : CVC Said to Weigh Purchase of Vivendi’s Telecom Italia Stake
- VIV FP : Bain Could Also Look Into Telecom Italia Stake Deal: Messaggero

>>> Europe : Brokers Upgrades & Downgrades - 17th of December 2024

>>> Up
* Ambev ADRs Raised to Outperform at Grupo Santander; PT $3.56
* CNH Industrial Raised to Overweight at Morgan Stanley; PT $16.50
* Epiroc Raised to Buy at Citi; PT 240 kronor
* Jungheinrich Raised to Buy at Citi; PT 32 euros
* LSE Group Raised to Buy at UBS
* Scor Raised to Buy at Citi; PT 26.90 euros
* SolarEdge Raised to Buy at Goldman

>>> Down
* Match Group Cut to Hold at Jefferies; PT $32
* Vivendi Cut by Deutsche as Split Adds Less Value Than Expected

>>> Initiation
* Danone Reinstated Neutral at Goldman; PT 71 euros
* Havas Rated New Equal-Weight at Morgan Stanley; PT 1.80 euros
* Inari Medical Rated New Outperform at Oppenheimer; PT $75
* JDE Peet's Reinstated Sell at Goldman; PT 17 euros
* Nestle Reinstated Buy at Goldman; PT 86 Swiss francs

>>> Call
* Chase Year-End Rally With Cheap S&P 500 Options, BofA Says

FT : Trafigura under fresh scrutiny after scandals hit profits

Trafigura under fresh scrutiny after scandals hit profits
Commodities trading house hit by repeated failures of risk controls that have taken financial and reputational toll

Commodities trader Trafigura is coming under heightened scrutiny by some of its lenders after a series of scandals hit earnings and dented the company’s value.

The privately held group uncovered a “massive problem” at its Mongolian oil division this year, which cost it $1.1bn and contributed to a steep decline in profits and dividend payouts. It is the second such issue to hit Trafigura in two years after it said in 2023 that it had been the victim of a $600mn nickel fraud.

The trouble in Mongolia was significant enough to trigger questions from the risk committees at some of Trafigura’s lenders, according to bankers, although it did not result in any suspensions of credit lines.

In a sign of the business impact, banks have asked Trafigura to include an explanation of events in Mongolia and its remediation plan in the presentation for its upcoming European revolving credit facility to be launched next month.

“We don’t expect Trafigura to have any form of liquidity distress, but that shouldn’t serve as an excuse to be complacent,” said one banker.

As Trafigura prepares to shake up its top management, its annual results released on Friday underscored the financial toll of the repeated failures of controls. The Mongolia scandal as well as hefty fines from regulatory authorities cost the group more than $500mn this year, paring down net profits to $2.8bn for the period.

Incoming chief executive Richard Holtum, who currently runs the gas and power division, will take up his new role on January 1, while chief executive Jeremy Weir will become chair.

Weir’s tenure draws to a close at the end of a difficult year, dealing not only with the Mongolia scandal but also with a high-profile corruption trial that has running for the past two weeks in Switzerland and a series of settlements with US regulators.

A person close to Trafigura said it had been tackling issues that were “hanging over” the company to give Holtum a clearer playing field when he takes over.

Trafigura reached a $127mn settlement with the US justice department in March, pleading guilty to a scheme to pay bribes in Brazil between 2003 and 2014. Two months later it agreed a $55mn settlement with US regulators over charges of fraud and market manipulation. Trafigura neither admits nor denies those charges.

The company, the largest independent metals trader alongside rivals such as Vitol and Mercuria, has also embarked on a hiring spree to bulk out its risk department under Ignacio Moyano, who was appointed chief risk officer last year.

Trafigura blamed “gross misconduct” for the problems in Mongolia, saying employees colluded with its trading partner to perpetrate the deceit over five years. It said it spotted the problem because of tighter risk controls in the wake of the nickel fraud.

The incident forced Trafigura to book a $358mn loss this year, restate earnings in two prior years and restate the value of its equity at the end of 2023 to $15.8bn, down from $16.5bn originally.

The repeated scandals have raised questions among its bankers about why risk controls failed.

“From a bank perspective, the key question is, ‘Is it a one-off, or not?’,” said Jean-François Lambert, a former commodity trade finance banker who now runs a consultancy. 

“The banks didn’t like it, nobody likes it. But what matters is that it’s a one-off, and this is not harming the financial strength of the company.”

Bankers are often the toughest masters for independent commodity trading houses, because they rely on credit lines to finance the trades that move raw materials around the world.  

Trafigura has lines of credit worth $77bn with about 150 different banks. That is up slightly from $75bn last year.

Banks’ risk committees are often more conservative than the trading houses themselves. As the nickel scandal began to spiral, Citi was among the earliest to spot the crisis, cutting off the credit facility that Trafigura used for the trades.

Trafigura says it was tricked into buying more than 1,000 containers of purported nickel, which did not actually contain the material, and is suing its counterparty Prateek Gupta and his affiliated companies in London courts. Gupta’s lawyers accuse Trafigura of being complicit in the fraudulent scheme.

The company says the compliance overhaul it undertook as a result of the nickel fraud led to the discovery of the problems in its Mongolia oil division.

The $1.1bn writedown booked by Trafigura is vast in comparison to the size of the Mongolian oil market, which is one of the smallest in the world, trading about $1bn of oil and oil products a year.

“We are confident that these issues are isolated to a self-contained operation in Mongolia,” Weir, the outgoing chief executive, said in the company’s annual report.

He added that Trafigura was responding to the challenges by urgently extending its work “to review, test and improve our end-to-end control framework, systems, risk and governance structures”. An external audit of the Mongolia incident is under way.

As new leadership takes the helm, Trafigura will seek to ensure that the compliance measures put in place will be enough to prevent similar losses in future.

“They [Trafigura] seem to have taken the right steps,” said Lambert. “The only pain for them, of course, is their reputation.”

NYP : Ancient engraved amulet could ‘turn back history’ of Christianity, experts

Ancient engraved amulet could ‘turn back history’ of Christianity, experts claim

Just ahead of the holidays, archeologists have “digitally unrolled” a 1,800-year-old silver amulet to decipher an inscription that’s being hailed as the oldest known evidence of Christianity in Europe.
Authentic evidence of pure Christianity north of the Alps has never existed before now. And the findings have the potential to change holy history forever.
The amulet was found buried with a presumably “devout Christian” who likely died sometime between 230 and 270 AD.Archäologisches Museum Frankfurt

“It will force us to turn back the history of Christianity in Frankfurt and far beyond by around 50 to 100 years,” said Mike Josef, mayor of Frankfurt, Germany, where the artifact was exhumed.

“The first Christian find north of the Alps comes from our city,” added Josef. “We can be proud of that, especially now, so close to Christmas.”

The amulet housed a “wafer-thin” foil, measuring 1.4 inches, and featuring text referred to as the “Frankfurt silver inscription.”
The inscription has recently been read by a human for the first time in centuries.Archäologisches Museum Frankfurt

It was found beneath the chin of a man’s skeleton at a burial site on the outskirts of Frankfurt in 2018. However, the ancient wording, dating back to between 230 and 270 — when the predominant religions in Europe were Judaism and paganism — has been virtually illegible until now.

Specialists from the Leibniz Center for Archaeology (LEIZA) used computer tomography (CT) scans to decode the 18-line engraving, which declares Jesus Christ the “Son of God.”
The writing calls Jesus the Son of God and says the man who “surrenders himself to the will,” of the Lord will be protected.yoemll – stock.adobe.com

“In the name of Saint Titus. Holy, holy, holy! In the name of Jesus Christ, Son of God! The Lord of the world resists with [strengths] all attacks [or setbacks]. The God grants entry to well-being. May this means of salvation protect the man who surrenders himself to the will of the Lord Jesus Christ, Son of God, since before Jesus Christ every knee bows: those in heaven, those on earth and those under the earth, and every tongue confesses (Jesus Christ),” reads the translation, per DailyMail.

The deific discovery closely trails the recent decrypting of the Meggido Mosaic, a 1,800-year-old relic that says, “Jesus is God.” It, too, follows the July 2024 unearthing of a nearly 2,000-year-old manuscript that details the earliest known account of Christ’s childhood.

Experts were forced to use extreme caution while digitally unrolling the ancient scroll.City of Frankfurt
Researchers were reportedly surprised to find that the inscription was written in Latin.Archäologisches Museum Frankfurt
Scientists relied on specialized technology to reveal the scroll’s text.City of Frankfurt

To crack the code on the Frankfurt silver inscription, which is written in Latin, LEIZA experts used sophisticated technologies on the extremely delicate scroll.

“The challenge in the analysis was that the silver sheet was rolled, but after around 1,800 years, it was of course also creased and pressed,’ Ivan Calandra, an archaeologist at LEIZA, said in a statement.

“Using CT, we were able to scan it at a very high resolution and create a 3D model.”

The pros reportedly placed individual segments of the scan together, piece by piece, until most of the words were visible.

However, there are said to be a few gaps in the text — which is being dubbed “purely Christian” as it spotlights Jesus Christ and Saint Titus, a missionary and church leader, but avoids pagan themes as well as elements of Judaism.
The engraving has been hailed “purely Christian” for its references to Jesus and Saint Titus, a prominent biblical figure.Adam Ján Figeľ – stock.adobe.com

Professor Markus Scholz, an archaeologist from Goethe University in Frankfurt, helmed the deciphering efforts.

“I called in experts from the history of theology, among others, and we approached the text together, piece by piece, and finally deciphered it,” said Scholz, who was surprised that the etchings were in Latin.
“Such inscriptions in amulets were usually written in Greek or Hebrew,” he noted.

And while little is known about the man who was buried with the amulet, scientists reportedly believe that he was a devout Christian — although believers of the faith were still subject to persecution at the time of his death.

According to insiders, the late Jesus-lover likely wore the amulet on a cord around his neck for protection before transitioning into the afterlife. His grave also boasted an incense bowl and a jug made of fired clay.
Researchers believe that the man was likely one of man early Christians who lived north of the Alps.Archäologisches Museum Frankfurt

Researchers consider him the “first Christian north of the Alps,” and speculate that there could be more historical, untapped Christian burial sites around Europe.

“This extraordinary find affects many areas of research and will keep science busy for a long time to come,” said Ina Hartwig, Frankfurt’s head of culture and science.

“This affects archaeology as well as religious studies, philology and anthropology,” she continued. “Such a significant find here in Frankfurt is really something extraordinary.”

FT : Sweden open to power cable project if Germany reforms, minister says

Sweden open to power cable project if Germany reforms, minister says
Swedish energy minister Ebba Busch prepared to move on Hansa PowerBridge project if Berlin overhauls electricity market

Sweden has said it is prepared to approve a power cable connecting Germany to southern Sweden if Berlin reorganises its electricity market to stop drawing as much lower-cost power from overseas.

Ebba Busch, Sweden’s energy minister, told the Financial Times that the Hansa PowerBridge project, a 700 megawatt connector planned to link the German and Swedish electricity markets, would be postponed “until Germany gets its system in order”.

But, she added, “the Swedish government would be prepared to move” on the project if Germany split its internal electricity market into bidding zones that would increase the efficiency of its networks and lower prices.

Such reforms would prevent Germany from attracting as much of Sweden’s cheaper electricity, generated largely by hydropower, and avoid costs being pushed up for Swedish consumers. Electricity flows on the networks to wherever the highest price demand is.

Sweden’s grid is already connected to Germany through one interconnector, which runs under the Baltic Sea.

The debate over European electricity prices has become increasingly heated this year as EU member states rush to add weather-driven renewable power to the system in order to move away from Russian gas and fossil fuels.

This has prompted periods of significant overproduction when the sun shines and wind blows but also stints of very low generation when there is no sun or wind.

Several countries have recorded highly volatile prices as a result.

Busch said prices were jumping from “minus prices” to around €1 per kilowatt hour in southern Sweden last Wednesday and Thursday. “That makes for a very difficult business case” for investment, she added.

In the summer Greek Prime Minister Kyriakos Mitsotakis also voiced concerns over inexplicably high bills in Greece, describing the bloc’s energy system as a “black box” that should be better scrutinised.

“If we want to have an energy market that functions well and that really takes advantage of renewables, we should think about some sort of European regulator that looks at these issues and has the capacity to intervene,” Mitsotakis said.

The EU’s energy regulator Acer warned on Monday that electricity network costs could double by 2050 “endangering the overall affordability of electricity bills” as more strain is placed on existing grids.

Norwegian politicians said last week, as electricity prices there reached the highest level since 2009, that they wanted to review interconnectors between Norway and Denmark, Germany and the UK.

Prices have since dropped back to record lows for December.

Referring to Oslo’s concerns, Busch said it was “a sad moment for Europe when an open, progressive country that likes being part of the rest of the world is signalling that we might not want to be part of this interconnected energy system . . . it’s a strong signal to be taken seriously”.

Busch laid the blame for Germany’s high prices on its decision to close down its nuclear power plants and oppose support for nuclear at EU-level after the Fukushima incident in 2011.

Sweden took a similar decision under its previous government but has reversed its policy, becoming one of the strongest advocates for nuclear power at the European level — a debate that has caused deep division between Germany and strongly pro-nuclear France.

Sweden’s own energy system often suffers from huge regional price discrepancies as there are poor transmission links from the north where most of Sweden’s hydropower plants are located. Last week consumers in Gothenburg — home to Volvo Cars, Volvo Trucks and SKF — paid 190 times more for electricity than those in the northern city of Luleå.

“Our energy policy has been hopeless. If we don’t sort things out soon, big parts of industry could be in trouble,” said a leading Swedish business executive.

Busch said Europe had to stop engaging in “political struggles” over nuclear power and encourage more investment into the technology to stabilise the system.

In a dig at German energy minister Robert Habeck, a member of the anti-nuclear Green party, Busch said: “No political willpower can override the basic rules of physics, not even Dr Robert Habeck.”

FT : Tesla’s tax nightmare


Elon Musk’s taxing pay options
Elon Musk has fought hard for a historic pay package at Tesla that would hand him $129bn at its current share price. If he doesn’t win, there could be an unexpected victim left holding the bag: Tesla.

Earlier this month, Delaware judge Kathaleen McCormick denied the company’s second attempt to give Musk the pay deal, putting the enormous windfall in further limbo.

It’s the biggest package of stock options in history — worth $56bn at the time of the original ruling, and $129bn today.

Shareholders’ overwhelming vote to reapprove the grant didn’t convince McCormick to override her previous rejection of the deal as unfair.

Now the board’s faced with a tough choice. It can either pursue a lengthy and uncertain appeal with a higher court, or award Musk with a new options package, DD’s Stephen Morris reports. 

Critically, either option could have accounting and tax caveats with multibillion-dollar implications.

A new pay deal could trigger a $50bn-plus corporate accounting charge and separately impose a punitive tax rate of up to 57 per cent on Musk’s shares.

Tesla warned shareholders of this before. In April, it said that reissuing a new set of stock options to allow Musk to buy the same 304mn shares would result in a compensation-related accounting charge of more than $25bn. 

And that was when Tesla’s stock was at $175 — it has since more than doubled.

Then there are the potential tax implications for the world’s richest man himself, which aren’t as clear. 

If the company loses an appeal, the options would be awarded already “in the money”, since the ambitious financial targets the deal was pegged to have been achieved. 

“It is very simple. If you grant options that are ‘in the money’, which they clearly are now, all kinds of bad things happen,” Schuyler Moore, a tax partner at law firm Greenberg Glusker, told the FT. 

If the company tries to award a new deal with the same terms, it could trigger a nearly $70bn tax bill. “That is why they are trying so hard to ratify the original deal,” Moore added. “If they re-award it now, there will be hell to pay on taxes.”

FT : Musk’s attack on F-35s fuels debate over expensive fighter jets

Musk’s attack on F-35s fuels debate over expensive fighter jets
Defence groups and military face questions over piloted aircraft at a time when drones are playing a bigger role in aerial combat

Elon Musk, charged with cracking down on waste across the US federal government, has recently singled out one particular target: the Pentagon’s costly fleet of F-35 fighter jets. 

An advocate of autonomous technology, Musk has spent the past few weeks mocking the Lockheed Martin-built aircraft on social media. His comments have added fuel to a debate gripping the defence industry and its customers: does the military still need expensive piloted fighter jets at a time when budgets are pressured and increasingly sophisticated drones are deployed to devastating effect in Ukraine and elsewhere?

“In the same way that mainframe computers got replaced by personal computers and smartphones, are these big manned platforms still going to be relevant in the same way, now that we have other systems that are unmanned and expendable,” said Lorenz Meier, chief executive of US-based Auterion, which is developing software to enable swarms of autonomous drones to communicate with each other. 

Although Auterion was not advocating “closing the door” to crewed systems, given the rapid development of AI-powered unmanned systems, there was a “fundamental question” around their future role that needed to be addressed, he added.

In the US, the Air Force earlier this month announced it would delay a decision, originally expected at the end of 2024, on which company would build a new fighter jet as part of the Next Generation Air Dominance (NGAD) programme. The move means that it will now fall to the incoming Trump administration on whether and how to proceed with the project.

Lockheed Martin said it would work with the “incoming administration, just as we did during President Trump’s first term”.

The debate itself is not new — the F-35 was regarded by many as the last piloted fighter that would end up being built — but it holds major implications for traditional defence contractors like Lockheed Martin, as well as technology start-ups and drone developers eager to expand in the military market. It also comes as western governments consider expensive plans for the next generation of fighter aircraft to replace current models. 

The programmes — in particular the tri-national Global Combat Air Programme (GCAP) between the UK, Italy and Japan and the Franco-German-Spanish Future Combat Air System (FCAS) — were all conceived before the Ukraine conflict turbocharged the development of drones.

Both GCAP and FCAS presumed that a central fighter jet would be piloted while being surrounded by drones. 

The “basic state of affairs is that it is to a greater or lesser extent still being debated within [the three next generation programmes] whether the central fighter is to be piloted or not,” said Justin Bronk, senior research fellow at the Royal United Services Institute. A later planned programme launch would mean more progress potential for autonomous technology, added Bronk.

GCAP, which on the industry side is led by Britain’s BAE Systems, Italy’s Leonardo and Japan’s Mitsubishi Heavy Industries, has the most ambitious timetable. It has pledged to have a fighter aircraft in service by 2035 and most experts believe it will end up being piloted.

The Franco-German-Spanish programme, on the other hand, is targeting around 2040, potentially giving its industrial partners Airbus and Dassault Aviation more time to take into account progress on autonomous technology before making a final decision, according to analysts. 


Michael Schoellhorn, chief executive of Airbus Defence & Space, recently acknowledged that given the long lead time and current geopolitical tensions, it made sense to accelerate the development of the programme’s autonomous systems in the shorter-term.  

“We need to reflect upon what capabilities would [FCAS] deliver at what point in time,” he told the Financial Times in a recent interview. The Russian threat meant that there was an urgent need to bring some capabilities forward to the early 2030s, “especially on the drone part”, he said.

Any decision to get rid of piloted fighters completely would have far-reaching consequences not just for the military but also for the industry and is regarded as unlikely by most experts.

From an industrial perspective, manufacturers would lose a big chunk of their revenues which they generate from serving and maintaining aircraft. The “dominant reason why most countries are doing this [is] to sustain their fighter industries because they are an important part of a very high-skilled industrial base,” said Bronk.

Operationally, fighter jets are still far more capable than today’s unmanned systems. There is a “whole host of things” that fighter jets currently do that is very difficult to do with an uncrewed system with the technology that currently exists, said Bronk. 

“A lot of stuff that fighter jets do and are used for, relies on there being a pilot in them to make judgments, to provide reassurance,” he said.

Today’s remotely-controlled systems also still lack the range and the survivability of more expensive fighter aircraft. Drones are vulnerable to electronic warfare and surface-to-air threats. More complex unmanned systems are also not that cheap.  

If drones were the “only solution for military problems, we would not expect to see Ukraine wanting manned combat aircraft and armour vehicles,” said Byron Callan, managing director of research group Capital Alpha Partners, in a recent note. Nor, he added, would “China be building J-20 combat aircraft and manned naval vessels and maintaining the largest tank force in the world”. 

Others also point out that fighter jets will play an expanded role in the next generation programmes.

The “crewed aircraft component of NGAD . . . won’t just be a fighter,” said Mark Gunzinger, director of Future Concepts and Capability Assessments at the Mitchell Institute for Aerospace Studies and a strong supporter of the F-35. It will be a “fighter, a strike aircraft, a penetrating sensor, a battlespace manager and an electronic attack aircraft”. 

Wargaming scenarios for the US military, added Gunzinger, had all “validated the need to maintain a balanced crewed force well into the future” and that while AI will help, it will “not replace what humans bring to the fight”.

Ultimately, he argues, it will be the combination of both crewed and uncrewed systems that will “yield a leap-ahead in warfighting capability and capacity”.