Sep 18, 2020

Axios Navigate

Joann Muller

Happy Friday! I'm back after a week off and I highly recommend it.

  • Who's excited for Tesla Battery Day? Next Tuesday we'll learn more about the electric carmaker's latest breakthroughs.
  • Bonus: The following day we'll get a look at the upcoming ID4, an electric SUV from Volkswagen, which is on track to become the world's largest EV manufacturer by 2028, predicts Wood Mackenzie.
  • If you've got tips or questions, email me at joann@axios.com.

Today's Smart Brevity count is 1,501 words, a 6-minute read.

1 big thing: Anxious days for airline workers

Sara Nelson, president of the Association of Flight Attendants, during a Sept. 9 protest outside the U.S. Capitol. Photo By Bill Clark/CQ-Roll Call, via Getty Images

The clock is ticking for tens of thousands of anxious airline employees, who face mass reductions when the government's current payroll support program expires on Sept. 30.

  • But lawmakers remain deeply divided over a broader economic relief package, and it's not clear they'll act on any stimulus deal before the November election.

Where it stands: Airline CEOs met Thursday with White House Chief of Staff Mark Meadows, who said President Donald Trump would support an additional $25 billion from Congress to extend the current aid package through next March.

  • “I never thought I’d say $25 billion was a small number, but compared to $1.5 trillion, it’s a rather small amount of additional assistance that could potentially keep 30,000 to 50,000 workers on the payroll,” Meadows told reporters after the meeting.
  • Help for airlines was not part of a last-ditch, $1.5 trillion stimulus bill proposed earlier this week by a bipartisan group of House members known as the Problem Solvers Caucus.
  • Meadows said the White House has looked at a "number of options" involving executive actions, but "all of them are less than ideal."
  • "There's a few things that we could do but I don't know that it actually solves the problem of curtailing furloughed workers," he said.

The big picture: U.S. airlines were on their way to another strong year when the pandemic hit, halting most air traffic and causing airline revenue to evaporate overnight.

  • Under the initial CARES Act passed by Congress in April, airlines received $25 billion to keep planes flying and workers on the payroll during the crisis.
  • At the same time, airlines have slashed costs and reduced staff through voluntary buyouts and furloughs, while raising debt in public markets and using their frequent flyer programs as collateral.

But the public health crisis has persisted and air travel shows no signs of a recovery.

  • Today, U.S. passenger volumes are still running 65% below last year, according to Airlines for America.
  • “In March, we all hoped to be in a very different place by now," said Sara Nelson, president of the flight attendants' union. "But as the U.S. continues to lead the world in cases and deaths, (global) aviation demand is still down 85% and we are cut off from the rest of the world."

Airlines are bending over backward to lure travelers back, with enhanced cleaning procedures and the elimination of unpopular fees for changing or canceling flights.

  • Mask policies are being strictly enforced — with the threat of a lifetime ban for passengers who fail to comply.
  • And many airlines have extended a promise to keep middle seats open to promote social distancing.
  • Some are adding flights from northern cities to warm weather destinations this winter to entice passengers to travel.

Yes, but: With the peak leisure travel season over and virtually no business travel happening, airlines — and their employees — face a grim deadline in less than two weeks.

  • American Airlines plans to cut 19,000 employees and United warned of more than 16,000 cuts.
  • Delta Air Lines said enough flight attendants, service reps and baggage handlers volunteered to leave that it should be able to avoid involuntary furloughs. Some 2,000 pilots are still at risk, however.
2. GM's eyes are wide open on Nikola

GM CEO Mary Barra. Photo by Chip Somodevilla/Getty Images

This week GM found itself having to defend a deal in which it can't lose — illustrating how distorted the markets have become over newly public electric vehicle companies.

Catch up quick: On Sept. 8, GM announced a strategic partnership with Nikola Motor Co., a high-flying startup with ambitions to build electric and hydrogen fuel-cell trucks, but no revenue. Nikola shares soared 40% on the news, and GM climbed too.

  • Two days later, Hindenburg Research, issued a scathing report accusing Nikola and founder Trevor Milton of fraud. Nikola called it a "hit job" by a short-seller and asked the SEC to investigate.

Lost in the entire flap was how favorable the deal is for GM, which has cutting-edge technology and ambitions of its own.

  • GM put up no cash but received an 11% stake in Nikola (worth $2 billion the day of the deal, but only $1.4 billion after the report).
  • Nikola will pay GM $700 million to manufacture up to 50,000 Badger electric pickup trucks (and a future fuel-cell version), production that will help GM achieve economies of scale.
  • GM keeps 80% of the regulatory emissions credits from sales of the Badger and can bid on the sale of the remaining credits — helpful in offsetting GM's continued sales of gasoline-powered trucks and SUVs.
  • GM will also supply the fuel cell systems to Nikola's future big semi-trucks.

Between the lines: By agreeing to provide batteries and fuel-cell technology for future Nikola vehicles and build the Badger pickup truck at a GM factory, GM gets to share the cost of technologies it was already developing. (The same is true of its partnership with Honda.)

GM CEO Mary Barra said the automaker is standing by Nikola, despite the controversy.

  • "The company has worked with a lot of different partners and we’re a very capable team that has done the appropriate diligence," Barra said during a conference with RBC Capital Markets on Monday, according to CNBC.

What to watch: The Justice Department has reportedly joined U.S. securities regulators in examining allegations that Nikola misled investors about its own technology capabilities, per the Wall Street Journal.

  • As for GM and Barra, the risk is minimal.
  • "The way the deal’s structured, she's got nothing to lose and everything to gain," said Guidehouse Insights analyst Sam Abuelsamid.

The bottom line: If Nikola goes up in smoke, GM's 11% stake could be worthless, it's true. But all it would mean is a momentary black eye for GM.

  • And if it works out, GM gets to accelerate the race to the future.
3. Double trouble for Boeing

Illustration: Aïda Amer/Axios

The grounding of Boeing’s 737 MAX was the worst crisis in the plane maker’s century-long history. At least until the global pandemic hit, writes Axios' Courtenay Brown.

Why it matters: Wall Street expects the Max will be cleared to fly again before year-end. Orders for what was once the company’s biggest moneymaker were expected to rebound, but now the unprecedented slump in travel will dash airlines’ appetite for the MAX and any other new planes, analysts say — putting more pressure on the hard-hit company.

Driving the news: The two 737 MAX crashes in Indonesia and Ethiopia that killed 346 people — and led to its worldwide grounding in March of last year — were front and center this week.

  • Congress released a 238-page report outlining the “horrific culmination” of events that caused the crashes — laying blame on Boeing and its key regulator, the FAA.
  • The report isn’t expected to delay the plane’s return to service, as Fitch Ratings wrote in a report out this week.

The state of play: The company has over 450 737 MAX jets in the hopper to be delivered, with a total of 4,117 planes ordered by airlines as of late last month, according to Fitch.

The bottom line: When the 737 MAX was grounded, there were questions about whether customers would ever feel safe flying on the plane again. The question has morphed into: How long will it be before customers fly again, period.

4. Driving the conversation

Transporting billions of COVID-19 vaccine doses will be logistical 'mission of the century,' aviation group says (Amanda Maile and Sam Sweeney—ABC News)

  • Why it matters: If borders remain closed, travel curtailed, fleets grounded and employees furloughed, the capacity to deliver lifesaving vaccines will be hampered, says the CEO of the International Air and Transport Association.

Zipline and Walmart to launch drone deliveries of health and wellness products (Kim Lyons—The Verge)

  • The big picture: It's the latest test of new delivery techniques as Walmart and Amazon, two giant retailers, seek to promote fast, same-day delivery. Walmart has also been experimenting with Roadie, an app that crowdsources package delivery, an idea worth watching.

Tesla cofounder’s battery recycling startup wins investment from Amazon Climate Fund (Alan Ohnsman—Forbes)

  • Why it matters: JB Straubel's Redwood Materials is one of the first recipients of an investment from Amazon's $2 billion fund. The startup is developing sustainable materials through "circular supply chains" by recycling batteries, electronics and other products.
5. What I'm driving

2020 Lincoln Corsair Reserve. Photo: Lincoln

This week I'm driving the 2020 Lincoln Corsair Reserve, a compact luxury SUV offering more evidence that Lincoln is back.

The big picture: As Ford Motor's premium brand, Lincoln has struggled to find its footing among Japanese and European luxury competitors. But starting a few years ago, it stopped trying to copy those guys and focused instead on pampering customers with a modern interpretation of American luxury.

  • The Corsair is the baby brother to Lincoln's family of larger SUVs including the Nautilus, Aviator and Navigator.

The Corsair shares its underpinnings with the Ford Escape, but you wouldn't know it, which is a tribute to Lincoln's effort to differentiate its lineup.

  • The super-quiet interior feels upscale, with plush materials, a piano-style, push-button shifter and a cantilevered center console.
  • It offers two punchy little engines: a 250-hp, turbocharged 2.0-liter or a 295-hp, 2.3-liter turbo.
  • It comes with a suite of standard driver-assist features like automatic emergency braking and lane-keeping assist, or you can upgrade to Co-Pilot360 Plus, which adds even more features to reduce the stress of driving.

The downside: The Corsair gets pricey fast. While the Corsair 2.0T AWD starts at $39,140, it quickly escalates with options — potentially out of the price range of young professionals who are the likely buyers.

  • The all-wheel-drive Reserve starts at $44,830 but with upgrades, my tester topped out at $59,660.
Joann Muller