Boeing’s latest setback with production issues means airlines will have fewer planes than they expected to handle big crowds of travelers this summer.
CEO David Calhoun said Tuesday that inspections and repairs related to unapproved fuselage parts will prevent the company from delivering dozens of 737 Max jetliners to airlines in time for the summer season. But it won’t affect plans to increase the production rate for the best-selling plane, he said.
Calhoun said during Boeing’s annual shareholder meeting that delivery delays will remove about 9,000 seats from airline schedules this summer.
The CEO didn’t give the number of planes used in that calculation, but the number of seats typically in a mid-sized Max suggests that about 50 planes are expected to be delivered late.
The situation is reminiscent of last year, when production flaws stopped Boeing from delivering bigger 787 planes, and airlines dropped some flights and routes.
Boeing hopes to boost production of the Max, which was halted in late 2019 after two of the planes were involved in crashes in Indonesia and Ethiopia that killed a total of 346 people. Production has not yet returned to pre-crash rates.
Boeing disclosed last week that subcontractor Spirit AeroSystems used a “non-standard manufacturing process” on fittings where the tail is attached to the fuselage of most models of Max jets built since 2019. Boeing said then that the issue could cause delays in production and deliveries of a “significant number” of the planes.
Calhoun repeated the company’s position that the fittings do not present a safety issue for planes already carrying passengers. The Federal Aviation Administration has not ordered airlines to do anything with those jets.
Boeing said preliminary results showed that its shareholders elected the 13 board nominees put forward by the company, which lost $5 billion last year and nearly $22 billion since the start of 2019.
Shareholders asked when the company might restore a dividend, which was suspended in early 2020. Calhoun and Chairman Lawrence Kellner said they want to invest in the business and reduce debt before returning more money to shareholders.
Boeing shares gained 1.6% and Spirit AeroSystems rose 7.8% Tuesday.
Arlington, Virginia-based Boeing is scheduled to report first-quarter results April 26.
Boeing’s latest setback with production issues means airlines will have fewer planes than they expected to handle big crowds of travelers this summer
ByDAVID KOENIG AP Airlines Writer
Boeing’s latest setback with production issues means airlines will have fewer planes than they expected to handle big crowds of travelers this summer.
CEO David Calhoun said Tuesday that inspections and repairs related to unapproved fuselage parts will prevent the company from delivering dozens of 737 Max jetliners to airlines in time for the summer season. But it won’t affect plans to increase the production rate for the best-selling plane, he said.
Calhoun said during Boeing’s annual shareholder meeting that delivery delays will remove about 9,000 seats from airline schedules this summer.
The CEO didn’t give the number of planes used in that calculation, but the number of seats typically in a mid-sized Max suggests that about 50 planes are expected to be delivered late.
The situation is reminiscent of last year, when production flaws stopped Boeing from delivering bigger 787 planes, and airlines dropped some flights and routes.
Boeing hopes to boost production of the Max, which was halted in late 2019 after two of the planes were involved in crashes in Indonesia and Ethiopia that killed a total of 346 people. Production has not yet returned to pre-crash rates.
Boeing disclosed last week that subcontractor Spirit AeroSystems used a “non-standard manufacturing process” on fittings where the tail is attached to the fuselage of most models of Max jets built since 2019. Boeing said then that the issue could cause delays in production and deliveries of a “significant number” of the planes.
Calhoun repeated the company’s position that the fittings do not present a safety issue for planes already carrying passengers. The Federal Aviation Administration has not ordered airlines to do anything with those jets.
Boeing said preliminary results showed that its shareholders elected the 13 board nominees put forward by the company, which lost $5 billion last year and nearly $22 billion since the start of 2019.
Shareholders asked when the company might restore a dividend, which was suspended in early 2020. Calhoun and Chairman Lawrence Kellner said they want to invest in the business and reduce debt before returning more money to shareholders.
Boeing shares gained 1.6% and Spirit AeroSystems rose 7.8% Tuesday.
Arlington, Virginia-based Boeing is scheduled to report first-quarter results April 26.
A Starship prototype is seen stacked on top of a Super Heavy booster at the company’s launch facility near Brownsville, Texas.
SpaceX
The Federal Aviation Administration issued a Starship launch license to Elon Musk’s SpaceX, a crucial final regulatory step that clears the company to attempt an orbital launch of its towering rocket for the first time.
“After a comprehensive license evaluation process, the FAA determined SpaceX met all safety, environmental, policy, payload, airspace integration and financial responsibility requirements. The license is valid for five years,” FAA said in a statement.
SpaceX, with the FAA license now in hand, aims to launch Starship as soon as Monday from its private facility in Texas along the Gulf Coast.
“SpaceX is targeting as soon as Monday, April 17 for the first flight test of a fully integrated Starship and Super Heavy rocket from Starbase in Texas. The 150-minute test window will open at 7:00 a.m. CT,” SpaceX said in a statement.
The company recently stacked Starship prototype 24 on Super Heavy booster prototype 7 in preparation for the launch. Together they stand nearly 400 feet high. SpaceX in February completed a test firing of the Super Heavy booster, which has 33 Raptor engines at its base, in one of the final technical steps toward the launch.
SpaceX for several years has been building up to the first orbital flight test of its Starship rocket, with company leadership stressing the experimental nature of the launch. While SpaceX had hoped to conduct the first orbital Starship launch as early as summer 2021, delays in progress and regulatory approval have pushed back that timeline.
The rocket is set to lift off from SpaceX’s development facility near Brownsville, Texas, before heading east across the Gulf of Mexico, according to 2021 filings that revealed the flight plan. The ultimate goal of the mission is to reach orbit, with the rocket aiming to travel most of the way around the Earth and splash down in the Pacific Ocean off the coast of Kauai, Hawaii.
Starship is designed to carry cargo and people beyond Earth and is critical to NASA’s plan to return astronauts to the moon. SpaceX won a nearly $3 billion contract from the space agency in 2021 to use Starship as a crewed lunar lander.
Boeing 737 Max airplanes sit parked at the company’s production facility on November 18, 2020 in Renton, Washington.
David Ryder | Getty Images
Boeing on Thursday warned it will likely have to reduce deliveries of its 737 Max airplane in the near term because of a problem with a part made by supplier Spirit AeroSystems.
Boeing said its supplier informed the company a “non-standard” manufacturing process was used on two fittings in aft fuselages. It said the issue affects certain 737 Max 8 planes, the company’s most popular model, with customers including American Airlines and Southwest Airlines. It also affects certain 737 Max 7, the 737 8200 and P-8 planes.
Boeing said the problem was not an “immediate safety of flight issue and the in-service fleet can continue operating safely.”
Boeing has notified the Federal Aviation Administration of the issue and is working to inspect and address the fuselages as needed, the company said. The FAA said Boeing notified it of the issue and also said there is no immediate safety issue.
However, the issue will likely affect a significant number of undelivered 737 Max airplanes, both in production and in storage,” the manufacturer said in a statement.
“We expect lower near-term 737 MAX deliveries while this required work is completed. We regret the impact that this issue will have on affected customers and are in contact with them concerning their delivery schedule,” Boeing said in a statement. “We will provide additional information in the days and weeks ahead as we better understand the delivery impacts.”
The problem, the most recent in a string of production issues, hits Boeing as it scrambles to increase production and deliveries of its best-selling plane while customers await new jetliners to capitalize on a rebound in travel.
Shares of Boeing were down 6% in premarket trading Friday. Shares of Spirit AeroSystems were down roughly 14%.
Spirit manufacturers some of the fuselages used in Boeing jets and said in a statement it notified Boeing of a “quality issue” with certain 737 models.
“Spirit is working to develop an inspection and repair for the affected fuselages. We continue to coordinate closely with our customer to resolve this matter and minimize impacts while maintaining our focus on safety,” the company said.
It’s the latest production problem for Boeing and its customers. Boeing earlier this year paused deliveries of its 787 Dreamliners for several weeks to address a data analysis flaw, and in 2021 and 2022 it struggled with other production flaws on the wide-body jets that halted deliveries for months.
The company on Tuesday reported March deliveries of 64 planes, the highest tally since December, amid an industry-wide shortage of new jets.
Airline executives have cited aircraft supply constraints as among the chief challenges in ramping up flying ahead of the peak travel season.
“We’re aware of the issue and working with Boeing to understand how it may impact our MAX deliveries,” an American Airlines spokesman said in statement.
Southwest said in a statement that it expects the issue to impact its delivery schedule of new Max planes and that it is discussing the details of that timeline for this year “and beyond.”
United said it didn’t expect any “significant impact” to its capacity planes for this summer or the rest of 2023.
— CNBC’s Leslie Josephs and Phil LeBeau contributed to this report.
Airbus A330 Neo widebody aircraft meant for Delta airlines being tested in Toulouse, France.
Nurphoto | Nurphoto | Getty Images
Delta Air Lines posted a wider loss than it previously estimated for the first three months of the year but forecast revenue growth and profits for the second quarter that were ahead of analysts’ estimates, signaling strong travel demand despite weakness in other sectors.
The Atlanta-based carrier said it expects sales in the current quarter to increase by 15% to 17% over last year, with adjusted operating margins of as much as 16% and adjusted earnings per share of between $2 to $2.25. Analysts polled by Refinitiv had anticipated second-quarter revenue growth of 14.7% and earnings per share of $1.66. The airline projected “record advance bookings for the summer.”
Delta said it plans to grow capacity 17% in the second quarter from a year earlier.
But for the first quarter, adjusted revenue and adjusted earnings came in below analyst estimates. Unit costs, excluding fuel were up 4.7% on the year, partly driven by winter storms that grounded flights.
Here’s how Delta performed in the period, ended March 31, compared with Wall Street expectations based on Refinitiv consensus estimates:
Adjusted earnings per share: 25 cents vs. 30 cents expected.
Adjusted revenue: $11.84 billion vs. $11.99 billion expected.
U.S. carriers generally make the bulk of their revenue during the busy spring and summer travel season and Delta’s outlook points to more strength in travel demand, and strong pricing power.
The airline said sales from premium cabins like first class is outpacing revenue from standard coach.
Delta shares were up more than 3% in premarket trading.
In the first quarter, Delta posted a net loss of $363 million, or 57 cents per share, citing, in part, a new, four-year pilot contract that includes 34% raises. That’s still improvement from the year-ago period, when travel was on the rebound and the company reported a net loss of $940 million, or $1.48 per share.
Adjusting for one-time items, the company reported net income of $163 million, or 25 cents per share, up from a loss of $748 million, or $1.23 per share, during the first quarter of 2022.
Delta executives will hold a call with analysts to discuss results at 10 a.m.
Boeing has had several production problems with its 787 Dreamliner planes over the last couple of years, and now you can add leaky lavatory faucets to the list
ByDAVID KOENIG AP Airlines Writer
Regulators are worried that faucet leaks in Boeing 787 jets could pose a safety hazard by water seeping into the planes’ electronics during flights.
The Federal Aviation Administration proposed Friday to order repetitive inspections and, if leaks are found, replacing faucet parts. The move comes after reports of water from lavatories getting under the cabin floor and into electronic equipment bays.
The FAA said the leaks could damage critical equipment and lead to a “loss of continued safe flight and landing.”
The agency said one airline found wet carpet in the cockpit of a plane and, when it inspected its entire fleet of 787s, found “multiple” planes with leaking faucets. The FAA did not identify the airline.
Boeing advised airlines in November about the issue, which has been traced to an O-ring seal and described as a slow leak — about 8 ounces of water per hour. However, Boeing said the issue was limited to certain 787s while the FAA order would cover all of them.
The FAA described the extra inspections as a temporary measure while the manufacturer redesigns the faucet modules.
A Boeing spokesman said the redesign is complete and the company is working with its supplier and customers to determine when planes can be retrofitted with new parts.
Japanese aircraft parts maker Jamco says on its website that it is the exclusive provider of lavatories for all two-aisle Boeing jets such as the 787. The company did not immediately respond to requests for comment.
There will be a 45-day period for comments before the FAA proposal can become a final order.
The inspections would apply to 140 planes in U.S. fleets. Boeing calls the 787 the Dreamliner. It is a bigger plane than the 737 Max and is used extensively on long flights including international ones.
Dreamliner deliveries have been halted for several stretches during the past two years because of FAA concern over production flaws, although deliveries recently resumed after the latest stoppage.
American airlines planes are seen at San Francisco International Airport (SFO) in San Francisco, California, United States on September 15, 2022.
Tayfun Toskun | Anadolu Agency | Getty Images
American Airlines is getting rid of its traditional frequent flyer award chart as the carrier moves toward dynamic pricing for mileage redemptions, the latest shift in its lucrative AAdvantage loyalty program.
Starting late Wednesday, the carrier will publish starting levels for how many frequent flyer miles are likely required to redeem for a ticket in certain regions — for example, 7,500 for a one-way ticket within the contiguous 48 U.S. states and Canada. Previously, the chart showed redemption levels that were static.
American in December said it would get rid of different redemption categories, MileSAAver and AAnytime awards, which have set minimum rates. The new redemption level will be called “Flight Awards” and the chart will serve as a reference guide.
“Just like cash tickets, these are going to float based on demand,” Chris Isaac, American’s director of loyalty, said in an interview.
American introduced dynamic pricing for award tickets in 2019, meaning the number of miles required to redeem for a ticket fluctuate based on supply and demand.
“This product has become the product that our members have gravitated to,” Isaac said. That category required the same number or fewer miles than the awards that were set in the chart “up to85% of the time over the last few years,” American said.
Previously the chart looked like this:
American Airlines’ old frequent flyer award ticket chart
American Airlines
Now it will look like this:
American Airlines’ new frequent flyer award ticket chart
American Airlines
Award tickets on American and other airlines can also vary based on the time of year.
For example, it cost 126,000 frequent flyer miles for a roundtrip ticket in standard economy on American between New York and Rome between June 1 and June 8, during the high season, but only 89,500 miles from Oct. 1 to Oct. 8, during the lower-demand season.
“What I think is good about this, it aligns the award chart where American is today. To tell [travelers] that an award ticket is going to cost them a certain number of miles is no longer accurate,” said Henry Harteveldt, founder of Atmosphere Research Group, a travel industry consulting firm.
NASA Administrator Bill Nelson, center, stands with the crew of the Artemis II mission, from left: Jeremy Hansen, Victor Glover, Reid Wiseman, and Christina Koch.
NASA TV
The National Aeronautics and Space Administration on Monday announced the four astronauts who will fly on the agency’s upcoming mission around the moon, currently scheduled for late 2024.
Known as the Artemis II mission, the spaceflight will carry three Americans and one Canadian: Reid Wiseman, Victor Glover and Christina Koch from NASA, and Jeremy Hansen from the Canadian Space Agency.
Wiseman is the mission’s commander and Glover is the pilot, while Hansen and Koch are mission specialists.
Artemis II follows the uncrewed Artemis I mission, which completed a nearly month-long journey around the moon late last year. The Artemis program represents a series of missions with escalating goals. The third – tentatively scheduled for 2025 – is expected to return astronauts to the lunar surface for the first time since the Apollo era.
The Artemis II mission will launch on NASA’s Space Launch System rocket, with the Orion capsule carrying the astronauts on a 10-day journey to the moon and back. While Artemis II won’t land on the moon, it will make a near pass above the surface and demonstrate the Orion spacecraft’s ability to transport people safely.
Virgin Orbit crew poses at the opening bell ceremony as a 70 foot model rocket with satellites is placed in front of the NASDAQ in Times Square of New York City, United States on January 7, 2022.
Tayfun Coskun | Anadolu Agency | Getty Images
Not too long ago, Virgin Orbit was in rarified air among U.S. rocket builders, and executives were in New York celebrating its public stock debut.
The scene was true to the marketing pizazz that has helped Sir Richard Branson build his Virgin empire of companies, showcasing with a rocket model in the middle of Times Square.
The deal, facilitated by a so-called blank check company, gave Virgin Orbit a valuation of nearly $4 billion. But that moment in December 2021 – when the craze surrounding public offerings centered on special purpose acquisition companies, or SPACs, was dying out – previewed the pain to come.
Now, Virgin Orbit is on the brink of bankruptcy. The company on Thursday halted operations and laid off nearly all of its staff. Its stock was trading around 20 cents Friday, leaving it with a market value of about $74 million.
When Virgin Orbit closed its SPAC deal, it raised less than half of the nearly $500 million expected due to high shareholder redemptions, shortening its runway. With the broader markets turning against riskier yet-unprofitable assets like many new space stocks, Virgin Orbit shares began a steady slide, further limiting its ability to raise substantial outside investment.
Branson, Virgin Orbit’s largest stakeholder, was unwilling to fund the company further, as CNBC previously reported. Instead, he began hedging against his 75% equity stake through a series of debt rounds. That debt gives the flashy British billionaire first priority of Virgin Orbit assets in the event of the now-impending bankruptcy.
While Virgin Orbit touted a flexible and alternative approach to launch small satellites, the company was unable to reach the rate of launches necessary to generate the revenue it sorely needed.
Virgin Orbit’s technical staff acquitted themselves well over the company’s brief existence, but were ultimately undone in by its leaders’ financial mismanagement. It’s a story too often told in the history of the space industry: Exciting, or even innovative, technologies do not necessarily equal great businesses.
It became one of a few U.S. rocket companies to successfully reach orbit with a privately developed launch vehicle. It launched six missions since 2020 — with four successes and two failures — through an ambitious and technically difficult process known as “air launch,” with a system that uses a modified 747 jet to drop a rocket mid-flight and send small satellites into space.
But Virgin Orbit had dug a nearly $1 billion hole, flying missions just twice a year while its payroll expenses climbed. The company’s leadership was aware of the deteriorating situation and lack of progress, and even considered changes last summer to make the business more lean. But no clear or dramatic plan came to fruition – leading to Thursday’s fall.
This story collects insights from CNBC’s discussions with company insiders and industry investors over the past several weeks, as well as from regulatory disclosures, to explain where things went wrong for Virgin Orbit. Those people asked to remain anonymous in order to discuss internal or competitive matters.
A Virgin Orbit spokesperson declined to comment for this story.
The company’s 747 jet “Cosmic Girl” releases a LauncherOne rocket in mid-air for the first time during a drop test in July 2019.
Greg Robinson / Virgin Orbit
Virgin Orbit was spun-off from Branson’s space tourism company, Virgin Galactic, in 2017, after a team within the latter sister company saw potential in using an aircraft as a platform to launch satellites. While “air launching” satellites was not a novel idea to Virgin Orbit, the company aimed to surpass the air-launched Pegasus rocket – developed by Orbital Sciences, which is now owned by Northrop Grumman –for a fraction of the cost per mission.
Headquartered in Long Beach, California, Virgin Orbit flew most of its missions out of the Mojave Air and Space Port. The exception to that was its most recent launch, which took off from Spaceport Cornwall in the United Kingdom. Virgin Orbit had been working with other governments to provide launches by flying out of airports around the world, signing agreements with Japan, Brazil, Australia and the island of Guam.
The advertised flexibility and potential of Virgin Orbit’s approach attracted quite a bit of attention from leaders in the U.S. national security community. Following meetings with top Pentagon brass in 2019, Branson proclaimed that Virgin Orbit is “about the only company in the world that could replace [satellites] in 24 hours” during a military conflict.
At the time, the Air Force’s acquisition lead, Will Roper, said he was “very excited about small launch” after meeting with Branson. He said the U.S. military had “huge money to invest” in buying rocket launches.
The company had hoped to launch its debut mission as early as 2018, but that goal kept moving every six months or so. Eventually, Virgin Orbit launched its first mission in May 2020, which failed shortly after the rocket was released from the jet. It got to orbit successfully for the first time in January 2021.
Given the company’s burn rate near $50 million a quarter, Virgin Orbit was targeting profitability once it got beyond a launch rate, or cadence, of a dozen missions per year. When it went public, Virgin Orbit CEO Dan Hart told CNBC that the company was aiming to launch seven rockets in 2022, to build on that momentum.
At the same time, Virgin Orbit was already in a deep financial hole – with a total deficit of $821 million at the end of 2021, due to steady losses since its inception. While Virgin Orbit had aimed to launch seven missions last year, that number was steadily guided down quarter after quarter, closing out 2022 with just two completed lunches – the same as the year before.
Some people within the company who had been critical of Virgin Orbit’s execution pointed to several executives’ backgrounds at Boeing, which has had its share of space-related snags over the years.
Virgin Orbit CEO Dan Hart had spent 34 years at Boeing, where he was previously the vice president of its government space systems. COO Tony Gingiss joined Virgin Orbit from satellite broadband company OneWeb, but before that had spent 14 years in Boeing’s satellite division. And Chief Strategy Officer Jim Simpson had also spent more than eight years in Boeing’s satellite division before joining Virgin Orbit.
As one person emphasized, the company launched the same amount of rockets in a year with a staff of 500 as it did with a workforce of over 750 people. Others complained of a lack of cross-department coordination, with projects and spending done in silo of each other – leading to a disconnect in schedules.
Two people mentioned wastefulness in ordering materials. For example: The company would buy enough expensive items with limited shelf-life to build a dozen or more rockets, but then only build two, meaning it would have to throw away millions of dollars’ worth of raw materials away.
When Virgin Orbit announced an employee furlough March 15, people familiar with the situation said the company had about half a dozen rockets in various states of production in its Long Beach factory.
As the lack of a financial lifeline made the situation increasingly more desperate, multiple Virgin Orbit employees voiced frustration with how Hart communicated the company’s position – and even more so with the lack of clarity after the furlough.
The day of the initial pause in operations, people described company leadership running around frantically while many employees stood around waiting for word on what was happening. One person emphasized the tumultuous and sudden furlough happened because executives tried to keep the company alive as long as possible. Several employees expressed disappointment with Hart holding the March 15 all-hands meeting virtually, speaking from his office rather than face-to-face, and not taking any questions after announcing the pause in operations.
That frustration continued after the pause, with employees confused by the lack of specifics about which investors were speaking to Virgin Orbit leadership. Thursday’s update that a deal fell through came as little surprise to a workforce that was largely in limbo. Many were already hunting for new jobs.
The rocket for the company’s second demonstration mission undergoing final assembly at its factory in Long Beach, California.
Virgin Orbit
A pivot in Virgin Orbit’s strategy became apparent and necessary shortly after it went public.
Virgin Orbit aimed to raise $483 million through its SPAC process, but significant redemptions meant it raised less than half of that, bringing in $228 million in gross proceeds. The funds it did raise came from the minority of SPAC shareholders who stuck around, as well as private investments from Virgin Group, the Emirati sovereign wealth fund Mubadala, Boeing, and AE Industrial Partners.
Unlike its sister company Virgin Galactic, which built its cash reserves to more than $1 billion through stock and debt sales after going public in October 2019, Virgin Orbit did not build its cash coffers. And that meant leadership should have buckled down and made changes to run the company in a more lean way, one person emphasized, to rebuild momentum.
And then Virgin Orbit’s apparent strength in the national security sector began to falter. Despite half of its missions flying Space Force satellites, the company lost out to competitor Firefly Aerospace for a launch contract under the “Tactically Responsive Space” program. Awarded in October, the mission seemed right up Virgin Orbit’s alley, especially since the prior mission under that Space Force program flew on the similarly air-launched Pegasus rocket.
As the financial situation worsened, a few bankers who spoke to CNBC wondered why the search for a deal was dragging on. According to one banker, Virgin Orbit could raise anywhere from $10 million to $15 million quickly to stop-gap the situation while it found a larger buyer. Another investor estimated that Virgin Orbit had about $270 million in net tangible assets, further sweetening the potential for a wholesale deal even despite its plunging market value.
A white knight seemed to appear last week in the form of Matthew Brown, who discussed making an 11th-hour deal with Virgin Orbit, to reportedly inject as much as $200 million into the company. However, within days, the talks fell apart. The company continued to discussions with another, unnamed investor this past week.
But in the words of Hart on Thursday, Virgin Orbit was “not been able to secure the funding to provide a clear path for this company.”
And while the 675 employees laid off Thursday likely have strong job prospects, Virgin Orbit seems now destined for bankruptcy.
A Turkish is on view during a presentation at the Lithuanian Air Force Base in Siauliai, Lithuania, on July 6, 2022. Lithuania on July 6, 2022 exhibited a crowdfunded Turkish-made Bayraktar TB2 combat military drone that it plans to send to Ukraine to help the war-torn country fight Russia’s invasion.
Petras Malukas | AFP | Getty Images
In the early weeks of Russia’s invasion of Ukraine, a music video surfaced online.
It featured clips of missile launchers and Russian tanks in a drone’s crosshairs, as deep-voiced men sang the words in Ukrainian: “The occupiers came to us in Ukraine, with brand new uniforms and military vehicles, but their inventory melted into steel … Bayraktar!”
The last word drops as an explosion is seen obliterating a Russian target.
The video quickly went viral, the song written as an homage to the powerful Turkish-made Bayraktar TB-2 drone that helped Ukrainian forces devastate Russia’s initial offensive. The now-famous drone is produced by Istanbul-headquartered defense company Baykar Makina – whose chief technology officer happens to be Turkish President Recep Tayyip Erdogan’s son-in-law.
Drones aren’t the only thing elevating Turkey’s status as a growing player in the global defense industry. The sheer number of international deals the country’s defense firms have made in the last few years reveals rapidly rising demand, major R&D investment and a growing source of leverage for Turkey’s foreign relations.
In 2022, Turkey hit a record $4.4 billion in arms exports – a figure larger than some European countries’ annual defense budgets. After exceeding its export target for the year, Turkey’s government aims to bring that figure to $6 billion in 2023. Turnover for the country’s defense industry as a whole last year was $10 billion, according to Turkey’s Presidency of Defense Industries.
Revenue from overseas defense exports rose by 42% between 2020 and 2021, with foreign contracts making up as much as 90% of revenue for some Turkish companies — like Baykar, the Atlantic Council reported in December. Turkey is home to some 2,000 companies in the sector.
A vessel claimed to be a Russian Raptor boat is destroyed with use of Ukrainian, Turkish-supplied Bayraktar drone, near Snake Island, Ukraine in this screen grab obtained from a social media video on May 2, 2022.
Courtesy: Ukraine Naval Forces
The transformation has its roots in the early 2000s, when Ankara outlined a strategy to build a modern and self-sustained defense sector and encourage domestic investment. Erdogan’s two-decade long project, which continues to see strong state investment in local firms, is paying off as arms sales bolster Turkish influence abroad.
And while Turkey’s military manufacturing footprint is still small compared to major players like the U.S., Russia, and China, it’s won outsized attention for the performance of its weapons like the Bayraktar drone, which has been used in Libya, Syria, and the Azerbaijan-Armenia conflict in addition to Ukraine.
Sales of weapons and technologies, especially drones, “have helped [Turkey] improve ties” internationally, the Atlantic Council wrote, in particular with “states such as Kazakhstan, Kyrgyzstan, Turkmenistan, and Azerbaijan, and even establish new ties with various other countries such as Poland, Saudi Arabia, and Tunisia.”
The sales bolster Turkey’s clout in the Gulf states and Europe, too. At IDEX, the Middle East’s largest arms fair held in February in Abu Dhabi, Turkey’s presence was impossible to miss. Enormous Turkish-branded pavilions showcased everything from armored trucks and drones to assault rifles, tactical gear and laser-guided missiles.
The Ukraine-Russian war has created a huge demand, even the countries that are not participating in the war are stockpiling. We are already doubling our manufacturing capacity just to meet demand.
Emin Öner
Chairman of the board, Assan Group
“There is significant international demand from the Middle East, from Asia, from Europe. Also with the war in Ukraine, Turkiye is trying to do our best in supporting with equipment, including with UAVs and land platforms,” Alper Öziblen, chairman of Turkish defense company Pavo Group, told CNBC at IDEX.
“This shows us that Turkish products have been mature enough to use in the battlefields,” he said. “Our clients, our partners are very happy.”
Tulpar, Turkish heavy infantry fighting vehicle designed by the Sakarya-based automotive manufacturer Otokar, on display at the 16th edition of International Defence Exhibition and Conference (IDEX) in Abu Dhabi, United Arab Emirates, February 21 2023.
Photo by Mohammed Zarandah | Anadolu Agency | Getty Images
Öziblen and other Turkish executives CNBC spoke to all confirmed they had ongoing or planned partnerships and deals with the United Arab Emirates, Qatar and other oil-rich Gulf states. Many of those countries are investing heavily in growing their own defense sectors — and some, like the UAE, Saudi Arabia and Qatar, have provided substantial financial support to Turkey or pledged billions of dollars in trade and investment.
Öziblen highlighted the expertise of his and other Turkish companies in areas like cryptography, essential for secure communications on the battlefield, as well as electronic subsystems for drones and land platforms.
“Information technology is a major part of the defense domain, and we are positioning ourselves in that domain,” he said. And the investment shows in the numbers: research and development in Turkey’s defense sector “recently increased by 30 percent,” the Atlantic Council’s report wrote.
As NATO allies race to supply Ukraine with arms to combat Russia, many of those allies – particularly in Europe – are running severely low on their own weapons stocks. Turkish defense manufacturers say they are booked for the next several years with orders to help replenish NATO stockpiles.
Those firms also have high demand from Turkey’s military alone — it is, after all, the second-largest military in NATO after the United States.
A view from the stand of Turkish ASSAV Defense Company at the 16th edition of International Defense Exhibition and Conference (IDEX) held in Abu Dhabi, United Arab Emirates, February 21 2023.
Mohammed Zarandah | Anadolu Agency | Getty Images
“The Ukraine-Russian war has created a huge demand, even the countries that are not participating in the war are stockpiling. We are already doubling our manufacturing capacity just to meet demand [from NATO countries],” Emin Öner, chairman of the board of Turkish defense firm Assan Group, told CNBC.
“All the manufacturers are booked for at least five more years,” Öner said. He said that his company was fully booked with orders for the next few years, with shifts running round the clock — despite that fact that Assan does not currently make products for Ukraine. It would do so if the Turkish government requested it, he said.
Turkish President Recep Tayyip Erdogan (L), Ukrainian President Volodymyr Zelenskyy (C) and United Nations Secretary-General Antonio Guterres (R) pose during a joint news conference after their meeting in Lviv, Ukraine on August 18, 2022.
Metin Atkas | Anadolu Agency | Getty Images
Not all of Turkey’s defense firms supply arms to Ukraine. Among those that do, some, like Baykar, do not comment publicly about it. Turkey’s government is playing a careful balancing act between Ukraine and Russia to act as a mediator between the two, and has maintained relations with Moscow, offering a new home for many Russians fleeing sanctions.
For Pavo Group’s Öziblen, however, his company’s provision of defense equipment to Ukraine is a point of pride.
“If [Ukraine] needs some know-how, knowledge, for specific systems, we are transferring it to them free of charge,” he said.
“It’s a kind of responsibility,” Öziblen added. “It’s more than business for us, actually. Ukraine matters more than business.”
Virgin Orbit flew its modified Boeing 747 airplane “Cosmic Girl” with the company’s LauncherOne rocket under its wing for the first time on November 18, 2018.
Virgin Orbit
Virgin Orbit is returning a “small” team to work on Thursday, according to a company-wide email obtained by CNBC, as it aims to prepare for its next rocket launch even as its future remains in doubt.
“Any viable path for our operations will require us to successfully launch,” Virgin Orbit CEO Dan Hart wrote in the email to employees.
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Hart described this as a “first step” in an “incremental resumption of operations,” while Virgin Orbit is extending the unpaid furlough and pause in operations for the rest of than more than 750 person company “through at least Monday.”
“We’ve made some important progress this week, but there is still work to be done,” Hart wrote.
The modified 737 aircraft “Cosmic Girl” lifts off from Mojave Air and Space Port in California carrying a LauncherOne rocket on June 30, 2021.
Virgin Orbit
A Virgin Orbit spokesperson confirmed in a statement to CNBC that the company is returning a subset of its employees on Thursday, but declined to specify how many are resuming work. Hart’s email said the staff returning will “focus on critical areas for our next mission,” including work on testing and installing the rocket’s engines. Reuters first reported the partial work resumption.
Virgin Orbit developed a system that uses a modified 747 jet to send satellites into space by dropping a rocket from under the aircraft’s wing mid-flight. But the company’s last mission suffered a mid-flight failure, with an issue during the launch causing the rocket to not reach orbit and crash into the ocean.
In an update last week, Virgin Orbit said its internal investigation is nearly complete, with the rocket for its next launch featuring modifications and “in final stages of integration and test.”
Hart in his email wrote that Virgin Orbit is “facing uncertainty and I know that is very uncomfortable,” noting that employees not returning to work yet can continue to use vacation or sick days to help cover the unpaid time.
The nine Aeon engines of the Terran 1 rocket ignite briefly before shutting down during a launch attempt on Mar. 11, 2023.
Relativity Space
3D-printing specialist Relativity Space postponed its debut launch on Saturday, stopping one of its attempts in the final second of the countdown after igniting the rocket’s engines.
Relativity’s system triggered a launch abort with just 0.5 seconds remaining before liftoff, which shut down the rocket’s engines after briefly firing up.
The company’s Terran 1 rocket is attempting from LC-16, a launchpad at the U.S. Space Force’s facility in Cape Canaveral, Florida. The mission is called “Good Luck, Have Fun,” and aims to successfully reach orbit and demonstrate the viability of the company’s ambitious manufacturing approach.
The company’s Terran 1 rocket stands on its launchpad at LC-16 in Cape Canaveral, Florida during a launch attempt on Mar. 11, 2023.
John Kraus / Relativity Space
Relativity made multiple attempts to launch during a three hour window – and worked through a variety of obstacles, including estimated high winds the upper atmosphere and a boat that came too close to the launch range – before calling a “scrub” for the attempt, meaning it is postponed to a later day.
“Thanks for playing,” Relativity’s launch director Clay Walker said on the company’s webcast.
Saturday marked the second day that Relativity has attempted to debut Terran 1. On Wednesday, a ground equipment valve malfunctioned, which affected the temperature of the propellant that was being pumped into the rocket, but the company said before Saturday’s attempts that it has since fixed the valve issue.
Relativity said the rocket looked “healthy” after an initial review of data. In a series of tweets, the company said that one abort was caused by the rocket’s automatic software, which was then updated, and another abort was due to slightly low fuel pressure in its upper stage.
While many space companies utilize 3D printing, also known as additive manufacturing, Relativity has effectively gone all-in on the approach. The company believes its approach will make building orbital-class rockets much faster than traditional methods, requiring thousands less parts and enabling changes to be made via software. The Long Beach, California-based venture aims to create rockets from raw materials in as little as 60 days.
Terran 1 stands 110 feet high, with nine engines powering the lower first stage, and one engine powering the upper second stage. Its Aeon engines are 3D-printed, with the rocket using liquid oxygen and liquid natural gas as its two fuel types. The company says that 85% of this first Terran 1 rocket was 3D-printed.
The company’s Terran 1 rocket stands on its launchpad at LC-16 in Cape Canaveral, Florida ahead of the inaugural launch attempt.
Trevor Mahlmann / Relativity Space
Relativity prices Terran 1 at $12 million per launch. It’s designed to carry about 1,250 kilograms to low Earth orbit. That puts Terran 1 in the “medium lift” section of the U.S. launch market, between Rocket Lab’s Electron and SpaceX’s Falcon 9 in both price and capability.
Wednesday’s debut for Terran 1 is not carrying a payload or satellite inside the rocket. The company emphasized the launch represents a prototype.
In a series of tweets before the mission, Ellis shared his expectations for the mission: He noted that reaching a milestone of maximum aerodynamic pressure about 80 seconds after liftoff would be a “key inflection” point for proving the company’s technology.
BlackSky at New York Stock Exchange, September 13, 2021.
Source: NYSE
Satellite imagery specialist BlackSky announced fourth-quarter results on Tuesday that show the company further trimming losses and securing an additional military contract.
“2022 was a foundational year for BlackSky,” CEO Brian O’Toole said in a statement, adding that “this high level of execution has put us on a path to achieving positive adjusted EBITDA in Q4 of 2023.”
The company has 14 operational satellites in orbit, with plans to launch two more on a Rocket Lab mission this month.
BlackSky posted an adjusted EBITDA loss of $4.6 million for the fourth quarter, down 68% from the same period a year earlier and lower than the $6.5 million loss it reported for the third quarter. Revenue rose 69% year over year to $19.4 million.
The company had $75 million in cash on hand at the end of the fourth quarter and announced plans to raise more funds through a sale of 16.4 million shares of common stock to “a syndicate of new and existing institutional investors.” BlackSky expects the private placement to close on Wednesday, generating about $29.5 million in gross proceeds.
Shares of BlackSky rose about 3% in premarket trading Tuesday from its previous close of $1.93. The stock is up nearly 25% this year, but remains well below its public debut in September 2021 of nearly $11 a share.
Boeing’s lineup of unmanned, undersea vehicles (UUV) can operate autonomously for months at a time on a hybrid rechargeable propulsion power system. Pictured above is the 18-foot Echo Ranger. The aerospace and defense contractor also makes the 32-foot Echo Seeker, and its latest innovation, and the largest autonomous sub, is the Voyager at 51-feet.
Boeing
More than 80% of the ocean remains unexplored by humans but could soon be mapped by autonomous underwater robots. But is that all unmanned submarines will be used for?
Autonomous robot submarines — also referred to as autonomous underwater vehicles, or AUVs — are able to explore high-pressure areas of the ocean floor that are unreachable by humans through preprogrammed missions, allowing them to function without humans aboard, or controlling them. They’re often used by scientists for underwater research as well as oil and gas companies for deep water surveys, but as defensive security threats continue to grow, the largest sector in the AUV market has become the military.
AUVs can be helpful tools in military ocean exploration, obtaining critical information such as mapping the seafloor, looking for mines — a current use case in the Russia-Ukraine war — and supplying underwater surveillance. Navies worldwide are investing in unmanned underwater vehicles to elevate their fleet of below-water defense tools.
Defense company Anduril Industries kickstarted its expansion from land to sea when it acquired AUV manufacturer Dive Technologies in February. The acquisition gave them a customizable AUV of their own called the Dive-LD.
“There are more and more threats that are on top of the water and under the water that can really only be addressed by robotic systems that can hide from enemy surveillance, that can hide from what you can see in the air and can do things that are only possible to do underwater,” Palmer Luckey, Anduril Industries co-founder, told CNBC’s “Squawk on the Street” at the time of the acquisition.
In addition to the Dive Technologies acquisition, Anduril Industries expanded to Australia in March, then in May partnered with the Australian Defense Force to work on a $100 million project to design and create three extra large AUVs for the Royal Australian Navy.
In the U.K., the Royal Navy recently ordered its first AUV named Cetus XLUUV from MSubs, which is expected to be completed in about two years. The U.K.’s Ministry of Defence also announced in August the donation of six autonomous underwater drones to Ukraine to aid in their fight against Russia by locating and identifying Russian mines.
China recently completed construction on the Zhu Hai Yun, an unmanned ship made to launch drones and that utilizes artificial intelligence to navigate the seas with no crew required. The ship is described by officials in Beijing as a research tool, but many experts expect it to also be used for military purposes.
Boeing has been working on AUVs since the 1970s and has collaborated with the United States Navy and DARPA on a number of underwater vehicle projects in recent years. The Echo Voyager, Boeing’s first extra-large unmanned undersea vehicle, first began operating in 2017 after about five years of design and development. It’s 51-feet long with a 34-foot payload that is approximately the size of a school bus and can be used for oil and gas exploration, long-duration surveying and analyzing infrastructure for oil and gas companies.
Boeing’s latest unmanned, undersea vehicle (UUV), the 51-foot Echo Voyager.
Boeing
The AUV has spent almost 10,000 hours operating at sea and has transited hundreds of nautical miles autonomously. It’s versatile and modular, Ann Stevens, the senior director of Maritime Undersea at Boeing, said in an interview.
“There is no other vehicle of that size and capability in the world, Echo Voyager is the only one,” Stevens said.
Boeing has been in the process of developing the Orca XLUUV with funding from the United States Navy. The company won a $43 million contract to build four of the AUVs, which are based off of the design of Boeing’s Echo Voyager, in February 2019. The project has experienced some production delays – the Orca XLUUVs that were originally scheduled to be delivered in December 2020 are now planned to be finished in 2024. The company cited cost concerns as well as supply chain issues due to the pandemic as reasons for the change.
“It’s a development program, and we’re developing groundbreaking technology that’s never been built before,” Stevens said. “We’ve been in lock step with the Navy the whole way. We’re going to have a great vehicle that comes out the other end.”
Robotics and automation in general is a young field, according to Maani Ghaffari, an assistant professor in the Naval Architecture and Marine Engineering department at the University of Michigan. Researchers began developing AUVs around 50-60 years ago, though the quality and variety of sensors that were necessary to build the systems were limited. Today, sensors are smaller, cheaper and higher quality.
“We are at the stage where we can build much better and more efficient hardware and sensors for the robots to the extent that we’re hoping to deploy some of them in everyday life at some point,” Ghaffari said.
AUVs still have some challenges to overcome before they’re a feasible mechanism for everyday use, for one, the robots have to function in an arguably harsher environment than air, where the water’s higher density creates hydraulic drag that slows down the robot and drains its battery faster.
However, some AUVs in development have impressive speeds and endurance. When it is completed, Boeing said it expects the Orca XLUUV to sail 6,500 nautical miles without being connected to another ship. Anduril reports that the Dive-LD can be sent on missions autonomously for up to 10 days and is made to last for weeks-long missions.
Environmental challenges are the main problem spots for AUVs. Underwater communication from the unmanned submarines is limited as signals used to transfer messages in air get absorbed quickly in water, and cameras on the vehicles are not as clear underwater.
Whether AUVs will eventually be used as more than a surveillance tool and engage in underwater warfare is more of a question of ethics within artificial intelligence and robotics, Ghaffari said. While the vehicles may be sophisticated enough to make autonomous decisions, concerns arise when the decisions may impact human lives.
“The one idea is that you basically pass the battle to these robots instead of soldiers – less people might die, but on the other hand, when the artificial intelligence can make decisions faster than humans and act faster than humans, that might increase the amount of damage that they can cause,” Ghaffari said. “That’s the frontier that hasn’t been explored, and we have to talk about it as we make progress in the future.”
A long-exposure photograph shows SpaceX’s Falcon 9 rocket carrying the Crew-6 mission in the company’s
Joel Kowsky / NASA
SpaceX launched four people to the International Space Station from Florida as Elon Musk’s company begins the final of the original six missions it was awarded by NASA.
Known as Crew-6, the mission for NASA will bring the group up to the space station for a six-month stay in orbit. The mission is SpaceX’s sixth operational crew launch for NASA to date and the company’s ninth human spaceflight to date.
“If you enjoyed your ride, please don’t forget to give us five stars,” SpaceX mission control called out after the capsule reached orbit.
“That was fantastic, thank you,” Crew-6 commander Stephen Bowen responded.
Crew-6 launched a little after midnight on Thursday morning, beginning a just over 24-hour journey to the ISS. The mission brings the number of astronauts SpaceX has launched to 34, including both government and private missions, since its first crewed launch in May 2020.
The Crew-6 astronauts before launch, from left: Russian cosmonaut
SpaceX
The crew is made of two Americans, one Russian and one Emirati: NASA astronauts Warren Hoburg and Stephen Bowen, Roscosmos cosmonaut Andrey Fedyaev and United Arab Emirates astronaut Sultan Alneyadi.
SpaceX launched the astronauts in its Crew Dragon capsule called Endeavour, on top of a Falcon 9 rocket. Both the rocket and capsule are reusable, with the latter flying on its fourth mission to date.
After a last-minute delay during SpaceX’s first launch attempt on Monday, a data review identified a clogged filter in a ground system as the cause of an apparent issue in the fluid that ignites the rocket’s engines. SpaceX replaced the filter and completed verification steps to make Thursday’s launch.
SpaceX developed its Crew Dragon spacecraft and fine-tuned its Falcon 9 rocket under NASA’s competitive Commercial Crew program, competing against Boeing’s Starliner capsule. But Boeing’s capsule remains in development, with costly delays pushing back the start of operational Starliner flights.
NASA awarded SpaceX with additional missions, for a total of 14, compared with Boeing’s six.
TOKYO — The lower house of Parliament approved Tuesday a budget for the coming fiscal year that includes a record 6.8 trillion yen ($50 billion) in defense spending, part of Japan‘s effort to fortify its military as China’s influence in the region grows.
The 2023 defense budget, up 20% from a year earlier, includes 211.3 billion yen ($1.55 billion) for deployment of U.S.-made long-range Tomahawk cruise missiles that can be launched from warships and can hit targets up to 1,600 kilometers (1,000 miles) away.
The planned purchase of the Tomahawks has drawn criticism over the cost, with opposition lawmakers blasting Prime Minister Fumio Kishida for prioritizing arms spending over other issues such as Japan’s shrinking population.
“The improvement of childcare has been neglected for more than 10 years,” Chinami Nishimura, a lawmaker with the opposition Constitutional Democratic Party of Japan, told a lower house budget committee meeting Tuesday. “Why did the budget for spending so much money on Tomahawks get approved so quickly?”
“I don’t think it’s about choosing between one or the other,” Kishida responded. “Both are important for the lives and livelihood of the people.”
Japan is to pay the United States another 110 billion yen ($830 million) in the coming fiscal year, which begins in April, for equipment and software needed to launch the Tomahawks plus fees for technology transfers and training.
Kishida told a parliamentary session Monday that Japan will purchase 400 units of Tomahawks.
Passage of the 114 trillion yen ($836 billion) budget by the lower house of parliament, the more powerful of its two chambers, ensures it will be enacted by the end of March regardless of any decision by the upper house.
The hefty defense budget is the first installment of a five-year, 43-trillion-yen ($315-billion) military spending plan as part of Japan’s new National Security Strategy, which was announced in December.
The new strategy includes developing a “counterstrike capability” to preempt enemy attacks, a controversial change given Japan’s commitment to retain only defensive capabilities after its defeat in World War II. Military spending is due to nearly double within the next five years as Japan builds up its defenses in response to potential threats from China, North Korea and Russia.
The new spending target conforms to NATO standards and will eventually push Japan’s annual defense budget to about 10 trillion yen ($73 billion), the world’s third biggest after the United States and China.
Kishida has called Japan’s rapidly aging and shrinking population a national crisis and promised to compile a package of comprehensive measures to tackle the problem in coming months. A new government department, the Children and Families Agency, is due to be launched in April to help coordinate government policies on various social issues including child poverty and child abuse.
The budget allocates 4.8 trillion yen ($35 billion) for the new agency, but experts say more funding and broader social changes are needed to alleviate the burdens of child care and education and encourage younger Japanese to marry and have children.
Government statistics released Tuesday showed births in 2022 fell to a record low 799,728, dropping below 800,000 for the first time since 1899 and at a faster-than-expected pace than earlier predicted. The number of births last year was one-third of the peak of nearly 2.7 million in 1949.
The 2023 budget also allocates more than 850 billion yen ($6.25 billion) to the Economy and Industry Ministry to help phase out use of fossil fuels and 53 billion yen ($388 million) to promote digitalization and increase domestic manufacturing of computer chips.
On Tuesday, government-backed chip maker Rapidus announced plans to build a new semiconductor plant in Chitose on the northern main island of Hokkaido. Rapidus said it plans to launch a prototype line in 2025, with mass production of cutting-edge chips planned for “the second half of the 2020s.”
Rapidus includes automaker Toyota Motor Corp., electronics makers Sony Group Corp. and NEC Corp., SoftBank Corp., Nippon Telegraph and Telephone Corp. and computer memory maker Kioxia. The company recently announced a tie up with International International Business Machines Corp. in the development and production of 2-nanometer chips.
A sign for hire is posted on the window of a Chipotle restaurant in New York, April 29, 2022.
Shannon Stapleton | Reuters
Job cuts are rising at some of the biggest U.S. companies, but others are still scrambling to hire workers, the result of wild swings in consumer priorities since the Covid pandemic began three years ago.
Tech giants Meta, Amazon and Microsoft, along with companies ranging from Disney to Zoom, have announced job cuts over the past few weeks. In total, U.S.-based employers cut nearly 103,000 jobs in January, the most since September 2020, according to a report released earlier this month from outplacement firm Challenger, Gray & Christmas.
Meanwhile, employers added 517,000 jobs last month, nearly three times the number analysts expected. This points to a labor market that’s still tight, particularly in service sectors that were hit hard earlier in the pandemic, such as restaurants and hotels.
The dynamic is making it even harder to predict the path of the U.S. economy. Consumer spending has remained robust and surprised some economists, despite headwinds such as higher interest rates and persistent inflation.
All of it is part of the Covid pandemic’s “legacy of weirdness,” said David Kelly, global chief strategist at J.P. Morgan Asset Management.
The Bureau of Labor Statistics is scheduled to release its next nonfarm payroll on March 3.
Some analysts and economists warn that weakness in some sectors, strains on household budgets, a drawdown on savings and high interest rates could further fan out job weakness in other sectors, especially if wages don’t keep pace with inflation.
Wages for workers in the leisure and hospitality industry rose to $20.78 per hour in January from $19.42 a year earlier, according to the most recent data from the Bureau of Labor Statistics.
“There’s a difference between saying the labor market is tight and the labor market is strong,” Kelly said.
Many employers have faced challenges in attracting and retaining staff over the past few years, with challenges including workers’ child care needs and competing workplaces that might have better schedules and pay.
With interest rates rising and inflation staying elevated, consumers could pull back spending and spark job losses or reduce hiring needs in otherwise thriving sectors.
“When you lose a job you don’t just lose a job — there’s a multiplier effect,” said Aneta Markowska, chief economist at Jefferies.
That means while there might be trouble in some tech companies, that could translate to lower spending on business travel, or if job loss rises significantly, it could prompt households to pull back sharply on spending on services and other goods.
Some of the recent layoffs have come from companies that beefed up staffing over the course of the pandemic, when remote work and e-commerce were more central to consumer and company spending.
Amazon last month announced 18,000 job cuts across the company. The Seattle-based company employed 1.54 million people at the end of last year, nearly double the number at the end of 2019, just before the pandemic, according to company filings.
Microsoft said it’s cutting 10,000 jobs, about 5% of its workforce. The software giant had 221,000 employees as of the end of June last year, up from 144,000 before the pandemic.
Tech “used to be a grow-at-all-costs sector, and it’s maturing a little bit,” said Michael Gapen, head of U.S. economic research at Bank of America Global Research.
Other companies are still adding employees. Boeing, for example, is planning to hire 10,000 people this year, many of them in manufacturing and engineering. It will also cut around 2,000 corporate jobs, mostly in human resources and finance departments, through layoffs and attrition. The growth aims to help the aerospace giant ramp up output of new aircraft for a rebound in orders with large sales to airlines like United and Air India.
Airlines and aerospace companies were devastated early in the pandemic when travel dried up and are now playing catch-up. Airlines are still scrambling for pilots, a shortage that has limited capacity, while demand for experiences such as travel and dining has surged.
Chipotle is planning to hire 15,000 workers as it gears up for a busier spring season and to support its expansion.
Businesses large and small are also finding they have to raise wages to attract and retain workers. Industries that fell out of favor with consumers and other businesses, such as restaurants and aerospace, are rebuilding workforces after shedding workers. Walmart said it would raise minimum pay for store employees to $14 an hour to attract and retain workers.
The Miner’s Hotel in Butte, Montana, raised hourly pay for housekeepers by $1.50 to $12.50 for that position in the last six weeks because of a high turnover rate, Cassidy Smith, its general manager.
Airports and concessionaires have also been racing to hire workers in the travel rebound. Phoenix Sky Harbor International Airport has been holding monthly job fairs and offers some staff child-care scholarships to help hiring.
Austin-Bergstrom International Airport, where schedules by seats this quarter has grown 48% from the same period of 2019, has launched a number of initiatives, such as $1,000 referral bonuses, and signing and retention incentives for referred staff.
The airport also raised hourly wages for airport facilities representatives from $16.47 in 2022 to $20.68 in 2023.
“Austin has a high cost of living,” said Kevin Russell, the airport’s deputy chief of talent.
He said employee retention has improved.
Electricians, plumbers and heating-and-air conditioning technicians in particular, however, have been difficult to retain because they can work at other places that aren’t 24/7 and at at higher pay, he said.
Many companies’ new workers need to be trained, a time-consuming element for some industries to ramp back up, even if it’s gotten easier to attract new employees.
“Hiring is not a constraint anymore,” Boeing CEO Dave Calhoun said on an earnings call in January. “People are able to hire the people they need. It’s all about the training and ultimately getting them ready to do the sophisticated work that we demand.”
— CNBC’s Amelia Lucas contributed to this article.
UNITED NATIONS — A week before the anniversary of Russia’s invasion of Ukraine, the Kremlin’s U.N. ambassador claimed that the West is driven by its determination to destroy Russia and declared: “We had no choice other than to defend our country — defend it from you, to defend our identity and our future.”
Western ambassadors shot back, accusing Russia of using a Security Council meeting it called on lessons learned from the failure to resolve the conflict between Ukraine and Russian-backed separatists that began in 2014 to justify what France’s U.N. Ambassador Nicolas De Riviere called “the unjustifiable” – Russia’s invasion of its smaller neighbor on Feb. 24, 2022.
Friday’s meeting in the council — the only international venue where Russia regularly faces Ukraine and its Western supporters — put a spotlight on the deep chasm between the warring parties as the conflict moves into its second year with no end in sight, tens of thousands of casualties on both sides, and new military offensives expected.
Russia’s U.N. Ambassador Vassily Nebenzia accused Western nations including France and Germany of “holding back” on implementing the Minsk agreements brokered by the two countries to end the conflict between Ukraine and the separatists in Luhansk and Donetsk in the country’s mostly Russian-speaking industrial east that flared in April 2014 after Russia’s annexation of Crimea.
“You knew very well that the Minsk process for you is just a smoke screen, so as to rearm the Kyiv regime and to prepare it for war against Russia in the name of your geopolitical interest,” Nebenzia said.
U.S. deputy ambassador Richard Mills accused Russia of failing to implement “a single commitment it made” in the Minsk agreements while the other signatories — France, Germany, Ukraine and the Organization for Security and Cooperation in Europe — “sought to implement them in good faith.”
France’s De Riviere said his country and Germany have worked “tirelessly” since 2015 to promote dialogue between parties. “The difficulties encountered in implementing these agreements can never serve as justification or mitigating circumstances for Russia’s choice to end the dialogue with violence,” he stressed.
De Riviere recalled that exactly a year ago, on Feb. 17, 2022, Russia’s Deputy Foreign Minister Sergey Vershinin reaffirmed to the council that the Minsk agreements were “the only international legal basis” to resolve the conflict in Ukraine, and that rumors of Russian military intervention were unfounded and stemmed from Western paranoia. Four days later, Russia recognized the independence of Donetsk and Luhansk, and on Feb. 24 it invaded Ukraine.
“The one and only lesson to be learned here is that Russia, by attacking Ukraine, has chosen alone, to put an end to dialogue and negotiation,” De Riviere said. “It took the decision alone to shatter the Minsk agreements, whose main objective, let us remember, was the reintegration of some regions of Donetsk and Luhansk under full Ukrainian sovereignty, in exchange for broad decentralization.”
Britain’s U.N. Ambassador Barbara Woodward also cited Vershinin’s statement to the council that allegations of a Russian attack were baseless a week before President Vladimir Putin ordered the invasion, and said the United Kingdom had learned some lessons.
“Russia lied when we warned of its intention to attack Ukraine,” she said. “Russia was planning for war while we called for diplomacy and de-escalation, and Russia continues to choose death and destruction while the world calls for a just peace.”
Russia’s Nebenzia blamed “a criminal policy by the Ukrainian leadership which was goaded by the collective West” for refusing to implement the Minsk agreements.
After a year of war, he told Western members of the Security Council, “Obviously, we will not be able to live in the future the way we did in the past.”
Nebenzia accused the West of “deep Russophobia,” and a “determination to destroy my country, using others if possible.” And he claimed it is not interested “in building a European and Euro-Atlantic security system together with Russia” because “for you such a system can only be aimed against Russia.”
“We have no trust left in you and we are not able of believing any promises you make — not as regards a non-expansion of NATO in the east, or your desire not to interfere in our internal affairs, or your determination to live in peace,” Nebenzia said.
“You have shown that it’s impossible to negotiate with you,” he said. “You’ve shown how treacherous you are by creating on our borders a neo-Nazi, neo-nationalist beehive and then stirring it up.”
Ukraine’s U.N. Ambassador Sergiy Kyslytsya accused Russia of violating the Minsk agreements, citing as an example the Minsk memorandum of Sept. 19, 2014 ordering all military, militias and mercenaries to leave Ukraine that was never implemented.
“The truth is that Putin has proved once and for all to be impossible to negotiate with,” he said. “Russia’s consistent undermining and final killing of the Minsk agreements make that crystal clear.”
Ukraine urges “healthy forces in Russia, if there are any, to come to their senses and force Putin to implement the demands of the U.N. General Assembly to immediately cease the use of force and to withdraw Russian military forces from Ukraine,” Kyslytsya said. “The dictator should give up and recede into the past.”
BEIJING — China on Thursday imposed trade and investment sanctions on Lockheed Martin and a unit of Raytheon for supplying weapons to Taiwan, stepping up efforts to isolate the island democracy claimed by the ruling Communist Party as part of its territory.
Lockheed Martin Corp. and Raytheon Technologies Corp.’s Raytheon Missiles and Defense are barred from importing goods into China or making new investments in the country, the Ministry of Commerce announced. It said they were added to the “unreliable entity” list of companies whose activities are restricted because they might endanger national sovereignty, security or development interests.
It wasn’t clear what impact the penalties might have. The United States bars most sales of weapons-related technology to China, but some military contractors also have civilian businesses in aerospace and other markets.
Taiwan and China split in 1949 after a civil war. The island of 22 million people never has been part of the People’s Republic of China, but the Communist Party says it is obliged to unite with the mainland, by force if necessary.
President Xi Jinping’s government has stepped up efforts to intimidate Taiwan by flying fighter jets and bombers near the island and firing missiles into the sea.
The United States has no official relations with Taiwan but maintains extensive commercial and informal contacts. Washington is obligated by federal law to make sure the island’s government has the means to defend itself.
The United States is Taiwan’s main supplier of military equipment.
Raytheon Missiles and Defense, part of Raytheon Technologies Corp., was awarded a $412 million contract in September to upgrade Taiwanese military radar as part of a $1.1 billion package of U.S. arms sales to the island. Boeing Defense received a $355 million contract to supply Harpoon missiles.
Beijing responded to that sale by announcing sanctions against the CEOs of Raytheon and of Boeing Defense but gave no details of what they were.
Lockheed Martin has supplied Taiwan’s military with radar, helicopters and air traffic control equipment. It plays a role in the island’s development of its own fighter jet and navy frigates.
In China, Lockheed Martin has sold air traffic control equipment for civilian airports and helicopters for commercial use.
Beijing announced plans for the “unreliable entity” list in 2019 in response to U.S. restrictions imposed on Huawei Technologies Ltd., a Chinese maker of telecom equipment.
The flurry of unidentified objects that have been shot down over North America this month could bring yet another boost to aerospace and defense stocks, but investors looking to use ETFs should be aware of some key differences between the largest funds. The U.S. shot down a fourth unidentified object on Sunday, as the administration takes a more aggressive stance after a suspected spy balloon from China flew across much of the country during the first days of February. These events are heightening tensions with China and, in turn, easing some fear among investors that the looming debt ceiling fight in Washington will damage the outlook for defense contractors working hand-in-hand with the military. “These incidents raise the likelihood, in our view, defense spending will not be cut, and perhaps be increased,” Roman Schweizer, analyst at Cowen, said in a note to clients on Sunday. Credit Suisse analyst Scott Deuschle, who upgraded the investment outlook for the defense sector to positive on Feb. 6, agreed with that position in a note to clients on Monday. “We believe these events are likely to reduce the willingness of Congress to use the DoD budget for political purposes, and instead drive consensus toward continued budgetary support. Specifically, we highlight that geopolitical tension/anxiety has historically been the driving force behind past defense budget trends, and we expect this time to be no different,” Deuschle said. While defense stocks have outperformed the broader market over the past year, in part due to the war in Ukraine, the latest shoot downs don’t appear to have significantly moved the sector. The three major ETFs in the industry had an average price return of less than 1% last week, albeit in a week when the broader averages declined. Here’s a look at the key differences among these ETFs. The biggest fund on the market is the iShares U.S. Aerospace & Defense ETF (ITA) , with about $5 billion in assets under management. The fund is competitively priced, with an expense ratio of 0.39%, and is weighted by market cap. The fund also hit its highest level since Feb. 2020 on Monday morning. One potential drawback is that the fund is heavily concentrated in just a few stocks. The top five holdings account for more than 50% of the fund, with Raytheon Technologies alone accounting for more than 20%. This means that a company-specific issue at Raytheon could lead the fund to suffer, even if the industry as a whole performs well. Another market-cap weighted fund is the Invesco Aerospace & Defense ETF (PPA) . One key difference for the Invesco fund is that it limits the size of any one stock in the portfolio to 10% at the time of rebalancing. The fund currently has no stock with more than a 10% weight in the portfolio, according to FactSet. The Invesco fund also has more stocks in its portfolio, including truck manufacturer Oshkosh Corp. and industrial company Ball Corp. That greater diversity in the fund does come with a higher price tag, however, as the Invesco ETF has an expense ratio of 0.58%. The third fund on the market is the SPDR S & P Aerospace & Defense ETF (XAR) . This ETF is equal weighted, with no single stock taking up even 5% of the portfolio. While the equal weighted fund does avoid some of the company-specific risks of a more concentrated portfolio, it also gives investors greater exposure to smaller companies that could be heavily reliant on a small number of government contracts. The SPDR fund, with an expense ratio of 0.35%, has the best total return of the group so far this year, at 7.15% — CNBC’s Michael Bloom contributed to this report.
