Julia Finch and Jill Treanor
The full financial toll of last week’s terrorist attacks started to become apparent this week as a stream of big companies across Europe and the United States warned of sharp falls in sales and profits.
The deluge of bad corporate news from more than 50 companies in the US alone dealt a further blow to already nervous stock markets and exacerbated the difficulties facing global economic policymakers.
In the immediate aftermath of the atrocity, companies were unable to quantify the damage to their prospects. A week on, they are beginning to calculate the financial impact of the abrupt downturn in spending, travelling and orders.
The pain is being felt across all sectors of commerce.
Seattle-based Boeing this week confirmed 31 000 job losses as a result of pulled orders for new planes. The Italian designer label Prada abandoned plans for a cash-raising 1,3-billion stock exchange listing as a result of turmoil in the markets and the uncertain outlook for big-ticket luxuries bought primarily by tourists.
Speaking ahead of a meeting of European Union finance ministers in Liege, Ernst Welteke, the president of Germany’s Bundesbank, described the problems facing the monetary authorities as “unprecedented”.
Welteke said that central banks and governments were now working in the dark to keep the world economy alive without any post-attack economic data or any precedent to follow. “This is now a calculation of a greater number of unknowns than before.”
The scale of pre-attack problems was demonstrated on Wednesday when a Canadian fibre-optics manufacturer, JSD Uniphase, recorded the world’s biggest corporate loss of 38-billion.
Other companies that were already under pressure from looming recession are now claiming to be close to collapse. Several airlines have already warned that they are close to bankruptcy. On Wednesday American Airlines which had two planes hijacked and a rival carrier, Continental, stepped up pressure on the Bush administration for a swift financial rescue package. Continental warned that it may be forced to seek Chapter 11 protection from creditors as early as next week.
In the United Kingdom British Airways on Thursday announced it is to axe 7 000 jobs and ground 20 aircraft. Sir Richard Branson’s Virgin is also seeking cash help. The CEOs of six European airlines were to meet the EU transport commissioner on Thursday to call for tax breaks and compensation for losses suffered in the past week.
European airlines believe they face a combined loss of 20-million for each day their north Atlantic planes were grounded.
Any failures among the airlines could have reverberations in the banking sector, which finances the purchase of aircraft through lease arrangements.
Airlines have also revealed they are suffering a surge in war risk insurance claims, which is likely to result in the cancellation of services to Middle East countries. Rupert Atkin, chairperson of Lloyd’s of London’s war risk committee, said war cover for aircraft could rise by “hundreds of per cent”.
Insurance companies are also still trying to add up the cost. By Wednesday, 55 of them had calculated they face 10-billion of claims and the final figure is likely to be much higher.
The leisure industry is also being battered by a fear of travelling. Europe’s biggest hotel group, Accor, warned that the 15% rise in its earnings next year would now be wiped out and confirmed plans to cut costs and inevitably jobs.
Car manufacturers around the world will not be spared. The credit rating agency Standard & Poor’s said that demand for new cars and trucks is now expected to be “exceptionally weak for at least the next six months”.
Analysts say the fall in the US stock market is crucial to future prospects of the global economy.