TheChek News Flow

This year’s aviation bailouts and the competitive threat posed by China are fresh reasons for the U.S. and the EU to stop squabbling over jet subsidies

The 16-year-long legal battle over commercial planes between the U.S. and the European Union didn’t make much sense to begin with. It is even more absurd amid the rise of China as an aerospace power and 2020’s bailout of the entire aviation industry.

The World Trade Organization has now authorized governments on both sides of the Atlantic to impose retaliatory tariffs. A year ago, it allowed the U.S. to slap $7.5 billion a year in tariffs on European imports because plane maker Airbus received illegal financing to launch new jets. This past week, it granted the EU the right to levy its own tariffs, worth $4 billion, in response to unlawful aid received by Boeing. BA 1.89%

Both sides are now locked in a staring contest. U.S. Trade Rep. Robert Lighthizer argued that the EU has no legal basis to act, because the Washington state tax breaks given to Boeing used to calculate the $4 billion figure were repealed earlier this year. The EU has signaled that it is willing to go ahead anyway. The U.S. has threatened to retaliate.

If the legal dispute is reopened, the Covid-19 crisis poses new pitfalls. Airbus has been bailed out, and so have the clients of both plane makers—the airlines. The EU would also likely revive issues excluded from the latest WTO decision, such as research money given to Boeing by NASA and the Department of Defense. The political climate surrounding the Nov. 3 election is an added complication.

Yet negotiations are ongoing and there is much to suggest that, whatever the election outcome, the stars are finally aligning for an accord.

For one, the grounding of the 737 MAX jet has left Boeing in a weaker position than in 2004, when it had a strong incentive to keep its competitor away from juicy U.S. defense contracts. Now, it has a lot to lose from tariffs, even if most are likely to be applied to nonaviation products. Plus, Airbus has de-escalated by agreeing to set debt payments granted by France and Spain linked to its A350 plane in line with market rates.

Above all, U.S. and European negotiators are increasingly aware of the need to untie their hands to face the threat of China’s state-owned Comac. Major Chinese airlines are also owned by the government, ensuring orders for its new C919 jet—the development of which has probably contravened WTO rules.

The core of the issue is that the aerospace industry doesn’t lend itself to textbook free markets. Manufacturers benefit from government military spending as well as enormous economies of scale that require large upfront investments and impede entrants. Like other technology-rich companies, they mostly compete by inventing better products, not by lowering prices. The rise of Airbus, which would have been unlikely without product-specific subsidies, has created a more competitive market.

The Boeing-Airbus spat has led the WTO to spend years establishing that government money did indeed serve to create cheaper, safer and more efficient planes that made consumers better off, with the perverse purpose of penalizing this outcome.

Since China won’t give up its ambition to emulate Airbus, both Western firms would benefit from a cessation of mutual hostilities. They should be aiming to shape new plurilateral rules that are more lenient toward the development aid endemic to the industry, while still policing China’s anticompetitive procurement practices.

The alternative could be many more years of fruitless legal battles.

Board member letter: expects further hardening of markets

- Low interest rates are impacting the profitability of reinsurers

- Recent experiences following the lockdown in many countries have been a wake-up call regarding systemic risks

- The market for cyber risks remains one of the most important strategic growth areas

Following years of eroding rates caused by excess capacities and low major-loss expenditure, particularly in European markets, low interest rates - likely to remain even lower for even longer due to the coronavirus pandemic - are impacting the profitability of reinsurers. Insurance covers are therefore likely to become more expensive, particularly for long-term risks in third-party liability and other lines. Munich Re will consistently ensure that prices, terms, and conditions are commensurate with the risks in the next renewal round.

The gradual erosion of rates and the softening of terms and conditions - caused by excess capacities and randomly lower major-loss expenditure, particularly in European countries - have for years been making profitability a challenge for reinsurers. Interest rates have dropped to record lows once again in 2020. Against the backdrop of the coronavirus crisis, it is increasingly likely that the current interest-rate environment will continue to affect low-risk investments for the foreseeable future. These circumstances mean that sustained profits, in long-tail business and elsewhere, will only be possible if prices match the assumed risks.

Jeff Bezos Drops $16 Million on Another Manhattan Pad to Create a ‘Vertical’ Dream Home

The Amazon chief already owns the penthouse and two apartments in the building

Jeff Bezos is expanding his residential holdings in Manhattan, purchasing another apartment for $16.13 million at a 24-story boutique condominium, located across from Madison Square Park in the Flatiron neighborhood, where he already owns all the units on the top four floors.

The Amazon chief, via a Delaware-registered limited liability company, bought the apartment at 212 Fifth Avenue condominium on Feb. 25. The deal closed on April 7, according to the deed filed with the city Thursday.

The deal was negotiated off the market. The seller, whose identity is shielded by a limited liability entity, purchased the unit for $11.25 million in April 2018, property records show.

The apartment is one of the only two on the 20th floor and lies right below Mr. Bezos’s three-story, 10,079-square-foot penthouse and two apartments on the 21th floor, which he bought for a combined $80 million in May 2019 via the same LLC, property records show.

Mr. Bezos, 56, who is the world’s richest person with a net worth of $142 billion, according to Forbes’s real-time estimate, didn’t immediately respond to a request for comment sent through Amazon.

Encompassing 3,078 square feet, the unit has three bedrooms, three-and-a-half bathrooms, a loft-like dining and living space, and numerous gallery walls. Throughout, the home features oversized windows, high coffered ceilings, marble walls and countertops, and radiant-heated Thassos stone floors, according to a previous listing.

Owners in the building, per reports and property records, include Charles Kushner, a developer and father of Jared Kushner; Peter Riguardi, president of the New York region for Jones Lang LaSalle; Ed Bass, a Texas billionaire; and Rob Stringer, CEO of Sony Music Group.

DAX:

MDAX:

SDAX:

* Elisa Raised to Buy at SEB Equities; PT 54 euros

* HelloFresh PT Raised to 68 euros from 65 euros at Berenberg

* Inditex Raised to Outperform at Bernstein; PT 31 euros

* IWG Raised to Buy at Berenberg

* Publicis Raised to Buy at HSBC; PT 36.50 euros

* Rathbone Brothers Raised to Buy at Jefferies; PT 1,670 pence

* Rotork Raised to Buy at Berenberg; PT 370 pence

>>> Down

* Accor Cut to Add at AlphaValue

* Ahlstrom-Munksjo Cut to Hold at SEB Equities; PT 18.10 euros

* BE Semiconductor Cut to Neutral at Kempen & Co; PT 40 euros

* InterContinental Hotels Cut to Hold at Peel Hunt

* St James's Place Cut to Equal-Weight at Barclays

>>> Initiation

* EasyJet Rated New Hold at Peel Hunt; PT 500 pence

* Engie Resumed Overweight at Morgan Stanley; PT 15 euros

* Hoist Finance Rated New Buy at Arctic Securities; PT 40 kronor

* Instabank Reinstated Neutral at SpareBank; PT 1.20 kroner

* Oht Rated New Buy at SEB Equities; PT 32 kroner

* Siemens Energy Rated New Overweight at Morgan Stanley

* Trainline Rated New Buy at Deutsche Bank; PT 414 pence

* Unilever Resumed Buy at Deutsche Bank; PT 60 euros

>>> Call

* Berenberg Switches Business Services Top Picks, Upgrades IWG

* HelloFresh PT Raised to 68 euros from 65 euros at Berenberg

* IHG Downgraded to Hold at Peel Hunt on Weaker Hotel Recovery

* Rathbone Joins Brewin at Buy, Dividends Attractive: Jefferies

* Siemens Energy a Good Pick for 2021, MS Starts at Overweight