The Tribune

ACTIVTRADES WEEKLY

By Ricardo Evangelista

www.activtrades.bs

The coronavirus continues to spread around the globe and the latest projections from the World Health Organisation point to a highly contagious disease with a mortality rate of 3.4 percent. These are worrying numbers that explain the draconian measures taken by the authorities of several countries in efforts to contain the dissemination of the disease. China has so far gone the furthest, quarantining more than 70 million people. But other countries have also taken decisive steps, which include closing schools and places of work, as well as restricting travel. As of March 5, the Government of The Bahamas has imposed border controls and quarantine measures on visitors arriving from the most affected countries.

The coronavirus and the repercussions of the efforts to contain its dissemination are now at the top of the agenda of governments and central banks, as illustrated by the Fed's decision to cut interest rates by 0.5 percent on March 3. It was the first time, since the peak of the 2008 financial crisis, that the American central bank cut rates outside a scheduled meeting and the action was justified by its chairman as a stimulus measure, designed to mitigate the economic consequences of the crisis. The reaction of the markets to such a rate cut normally would have been euphoric, driving substantial gains in stocks; however, on this occasion investors barely reacted. If they weren't scared before, they certainly were after the surprise cut.

Amid the mayhem caused by the coronavirus fallout, a few industries are being particularly affected: Tourism being one of them, as millions around the world cancel planned trips or decide against booking new business or leisure travel. The scenario is particularly dramatic for the airline industry; entire routes have been put on hold because of government imposed restrictions and many flights cancelled due to a lack of passengers. On March 4, Flybe, a British budget airline became the first air industry victim, declaring insolvency. It is believed other airlines may soon follow the same path.

The immediate impact of this sudden change in travelling habits is being felt by airlines, but somewhere down the line, airplane manufacturers will also suffer. Boeing is especially exposed. In March 2019 aviation authorities around the world grounded the 737 Max airliner after two of the new aircraft crashed within a few months due to a fault with the flying software. Since then the American giant has been struggling, as illustrated by the loss of almost 30 percent of its market value within nine months.

Since February 2020, when the coronavirus crisis gained global notoriety, the stock price of Boeing lost a further 17 percent.

Airbus has also felt the impact of the virus. The European airplane maker was obviously benefiting from Boeing's technical problems; its share value reached an all time high in January 2020, before dropping almost 20 percent by early March.

It's clear both plane makers are now under pressure, with order books likely to suffer the impact of cancellations from struggling operators.