Philippa Kaur

IN 2020, as demand for crude went up in smoke amid covid-19 lockdowns, so did energy firms’ budgets. That left oilmen with less money to spend on assessing reservoirs, drilling new wells and maintaining existing ones, which they typically outsource to specialist oil-services firms. Between January and June the number of active rigs worldwide fell by half, to just over 1,000. On January 19th Jeff Miller, boss of Halliburton, a service-industry giant, called last year “the worst in our history”. His firms’ revenues fell by 36%, to $14.4bn, leading to an operating loss of $2.4bn.
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Still, Mr Miller insisted, the future looks brighter. He predicted “a multi-year upcycle” beginning in 2022. On January 22nd Olivier Le Peuch, chief executive of Schlumberger, a big rival, echoed this sentiment, declaring “a new growth cycle”. A day earlier executives at Baker Hughes, the third big provider, sounded a similarly chirpy note. Is this optimism misplaced?

Recent history gives grounds for scepticism. Although Halliburton’s share price has almost recovered to its pre-pandemic levels, it is less than a third what it was in 2017. Schlumberger and Baker Hughes have performed only a bit better. The trio have torched $128bn in shareholder value in the past four years, as low fossil-fuel prices have squeezed oil firms’ budgets.
At the same time newcomers piled in, particularly across America’s shale fields. The industry’s global ranks swelled, from about 100 companies in 2014 to nearly 1,000 last year, reckons Muqsit Ashraf of Accenture, a consultancy. Competition meant that most of the rewards from improved efficiency went to customers, in the form of lower prices. Returns collapsed. The sector’s gross operating profits fell by half from 2014 to 2019, according to Bernstein, a research firm. Then came covid-19.

The long-term risks beyond the pandemic look as daunting. Oil majors’ spending on new rigs may not keep pace with any rise in the oil price. Investors are keener on cashflow than on costly new gushers. Governments are getting serious about climate change. On January 27th President Joe Biden announced an indefinite pause to new drilling permits on America’s federal lands. Against this backdrop, the prospects for service firms can resemble those of horse farriers at the dawn of the car age.
Even a shrinking market offers an opportunity, however. The giants have spent the past year slashing costs. Schlumberger laid off 21,000 workers, a fifth of its total, cut its dividend by 75% and said that senior managers would voluntarily forgo 20% of their pay. It has enough cash (as have its two rivals) to invest in better services for traditional customers. Mr Miller boasted that his firm sealed a wellbore in the North Sea with cement in a process that was, for the first time, fully automated.
The big firms are also expanding into new, cleaner ventures. In November Baker Hughes said it would acquire a carbon-capture company. Schlumberger has set up a “new energy” business unit and on January 11th its joint venture in France to manufacture equipment for clean-hydrogen production received the EU’s blessing.
Most important, the three giants benefit from attrition. North American service firms entered the pandemic with $32bn to repay by 2024, according to Moody’s, a ratings agency. Speculative-grade companies accounted for nearly two-thirds of that. Few are attractive takeover targets; unlike an oil firm, which obtains drillable land when it buys another, an acquisitive service company gets rigs and other kit it already has in abundance. Sreedhar Kona of Moody’s sees “way too much equipment chasing way too little cashflow”. The big three hope that what cash is left will increasingly flow to them. ■

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This article appeared in the Business section of the print edition under the headline “Will baby drill?” More

HOWARD SCHULTZ, former boss of Starbucks, used to imagine its coffee shops as a “third place”: a spot to hang out, as you do at home or in the office. Yet even free Wi-Fi persuaded only one in five Americans to stick around; the rest ordered to go. Then covid-19 collapsed the distinction between hearth and work. Being a two-and-a-halfth sort of place was not all bad in a plague. On January 26th Kevin Johnson, Mr Schultz’s successor, reported Starbucks’s best quarter of the pandemic so far. But global same-store sales, a benchmark metric, still fell by 5%.
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Recovery is furthest along in China, the firm’s largest international market, which got the pandemic under control faster than the West. Same-store sales in China grew by 5% last quarter, year on year (possibly helped by the downfall of Luckin Coffee, a local rival embroiled in a fraud). Including the nearly 600 new outlets, too, total China revenues rose by 22%, to $911m.

The pace of new openings slowed from the previous quarter, when a new Chinese outlet opened every eight hours or so, but it remained faster than before the pandemic. In November Starbucks broke ground on a Coffee Innovation Park in the province of Jiangsu, which will roast and distribute beans to the 6,000 coffee shops the company plans to run in China by 2022.
Chinese coffee-drinkers have been lapping up its app-based loyalty programme, which now has 15m members in China, up from 10m at the start of 2020. That bodes well for future sales in a traditionally undercaffeinated market where the beverage is winning over ever more converts.
The app propped up sales in America, too. Those fell by just 5% year on year, despite two in five coffee shops facing renewed limits on in-person caffeination. Although the Starbucks app was overtaken by Apple Pay in 2019, it remains one of America’s most popular mobile-payments systems. Gamified challenges and promotions (as well as contactlessness, on which covid-19 placed a premium) tempted American coffee-drinkers out of their houses and increased the amount they bought on each visit, which rose by 19% between October and December, year on year. Drive-through lanes at suburban outlets, which are mushrooming as those in city centres once did, also helped. By 2023 Starbucks wants 45% of its American outlets to allow drive-through or curb-side pick-up.
But covid-19 continues to cloud prospects for businesses that involve human contact—as latte-peddling does. By the time the pandemic is over up to 400 Starbucks in American city centres may be shut for good, the firm says. Until recently investors did not seem to mind, perhaps concluding that not every street corner needs one. The company’s market capitalisation climbed steadily since the market crash in March to an all-time high of $126bn in late December. The disappointing results shaved 6.5% off Starbucks’s share price. Normally stock-traders are highly strung after too much coffee. Too little can evidently have the same effect. ■

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This article appeared in the Business section of the print edition under the headline “Espresso lane” More

CHRISTMAS means rich pickings for Apple. The pandemic year was no different. The iPhone-maker’s quarterly revenue exceeded $100bn for the first time, two-and-a-half times Microsoft’s own record sales and four times Facebook’s. Among the tech giants only Amazon boasts bigger annual revenues—though much thinner margins.■

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This article appeared in the Business section of the print edition under the headline “Apple’s quarterly sales exceed $100bn for the first time” More

COMMERCIAL TIES between Ericsson and China date back to the 1890s, when the Swedish company sold 2,000 telephones to Shanghai. It has been welcome in the Chinese market ever since, most recently selling speedy 5G telecoms gear. Now, fears Borje Ekholm, Ericsson’s boss, those bonds are in jeopardy, as a result of the Swedish government’s anti-Chinese turn.
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After centuries of cordial relations—from the Swedish East India Company’s ships sailing between Gothenburg and Guangzhou in the 18th century to Sweden’s early recognition of the People’s Republic in 1950 and its blessing in 2010 of the Chinese takeover of Volvo, a much-loved carmaker—the mood has changed. Last October the Swedish telecoms regulator barred Huawei, Ericsson’s Chinese rival, from the country’s speedy 5G mobile networks, citing “theft of technology” by China. This month, after an auction of Sweden’s 5G radio spectrum that forbade the winners from using kit from Huawei and ZTE, another Chinese supplier, China’s commerce ministry hinted that the ban could compromise bilateral economic ties.

That would be bad news for Ericsson, which derives 13% of its revenues from China. It is the only foreign company that provides China with certain types of 5G kit—which China is well ahead of most other countries in installing, thanks to gargantuan sums channelled into telecoms infrastructure. But Mr Ekholm’s fellow bosses are equally worried, if not quite as outspoken. Plenty of Swedish blue chips have a large exposure to the Asian giant, from ABB and Atlas Copco, two engineering groups, to Essity, a maker of nappies, and AstraZeneca, a Swedish-British pharmaceutical giant (see chart).

Joakim Abeleen, the Beijing representative of Business Sweden, a lobby group, observes that diplomatic ties soured after 2015. That year Chinese agents arrested Gui Minhai, a Swedish national who sold books in Hong Kong that were critical of the Communist Party. This, along with Chinese buyers’ aggressive pursuit of Swedish assets, including a port, infuriated Sweden’s government, which has since become one of Europe’s staunchest critics of China.
Even so, Mr Abeleen says, relations between the two countries’ corporate worlds remained cordial. Swedish exports to China (mainly medicines, vehicles and machinery) rose by 15% in the first ten months of 2020, year on year. It is Sweden’s fifth-biggest source of imports and sixth-largest export market. Around 600 subsidiaries of Swedish companies operate there; the 30 biggest reported an 18% increase in their Chinese sales in 2019, compared with a year earlier. A year ago a survey of Swedish businesses in China found that 34% planned to increase their investments in the country.
The 5G ruckus risks undermining this mutually beneficial state of affairs. China appears ready to use Sweden as a cautionary tale for other EU countries, showing what happens if they bar Huawei from their 5G networks, says a prominent Swedish industrialist. That would be tricky for Ericsson—which, as Mr Ekholm points out, needs China for global scale.
It could also harm Sverige AB more broadly; a well-functioning trade system is “pivotal” for a small, open country like Sweden, the industrialist warns. No wonder many bosses are quietly hoping that the country’s highest administrative court will reverse the telecoms regulator’s decision, which Huawei has appealed against. ■

This article appeared in the Business section of the print edition under the headline “Stockholm syndrome” More

WHEN MEETING big new challenges, chief executive officers often resort to a convenient tool: creating fresh executive roles. This helps channel resources to pressing problems and attract talent. It signals to staff and the wider world that bosses understand what really matters (and care about it).
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Sometimes, it ends up looking farcical—remember the proliferation of “chief listening officers” a decade ago, as companies sought to react to social-media chatter? But certain newfangled C-suite roles do catch on; no self-respecting corporation can do without a chief sustainability officer these days. A few corporate positions that have gained prominence during a particularly tumultuous 2020 are almost certainly here to stay.

The most obvious example is “chief medical officer”. Long common in industries where safety is an abiding concern (mining, say), health supremos are now being recruited more widely, says Tony Lee of the Society for Human Resource Management, a trade association. The pandemic is far from over, red tape around sick leave is becoming more tangled as a result of it, and mental-health problems among employees are likely to outlive the plague.
Another emerging role is that of “chief remote officer”, responsible for designing policies and disseminating best practices for home-working. Succeeding could therefore mean making oneself redundant. Mr Lee thinks this role will eventually disappear, especially at smaller companies (though it may hang around at bigger ones with more complicated and dispersed workforces). As Bhushan Sethi of PwC, a consultancy, points out, something similar happened to chief digital officers, whom firms have recruited with gusto over the past decades. Digital honchos’ ranks are beginning to thin now that digital technology has become part of most companies’ bread and butter.
Indeed, recruitment trends show that it is bread and butter that continues to preoccupy bosses. Hiring of “chief revenue officers” and “chief growth officers”, charged with co-ordinating firms’ sales-generating activities, has accelerated as pandemic lockdowns simultaneously restrict economies’ supply and demand sides, according to a survey by LinkedIn, a professional social network (see chart). Their share of C-suite hires is now, respectively, twice and nearly three times what it was in 2017.

However, last year’s hottest executive recruits had nothing to do with covid-19. As protests against racial injustice rocked America last summer, companies rushed to enlist chief diversity officers, who ensure their workforce is representative of society at large.
One risk to diversity chiefs’ future job security is that most of them have not been invited to sit at the corporate top table. Most lack a direct line to the CEO. At worst, the post becomes “a ceremonial role”, with no authority, resources or structure, warns Michael Hyter of Korn Ferry, a consultancy. At best, like other modish corporate roles, it may eventually become redundant. ■
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This article appeared in the Business section of the print edition under the headline “Hail to the “chiefs”” More

THERE HAS been a quiet pandemic developing while most people’s attention has been on covid-19. The lockdown has exacerbated a problem that has been spreading in many developed nations for decades: loneliness.
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It is a complex issue which covers not only social lives, but the way you work and the way you vote. Noreena Hertz, an academic, tackles the subject in an important new book, “The Lonely Century”.

Loneliness increases the risk of heart disease, strokes and dementia. Those who say they are lonely are likelier to be depressed five years later. In addition, lonely people can become more hostile towards others and more attracted to extremist politics.
Part of the problem stems from contemporary employment. Globally, two in five office workers feel lonely at work. This rises to three in five in Britain. Gig-economy jobs can leave people with insecure incomes and without the companionship of colleagues. The pandemic has made it more difficult to make, and maintain, friendships, particularly for new employees.
Even before the crisis, the hope that open-plan offices would encourage greater camaraderie proved to be false. Many people find the chatter distracting and retreat with noise-cancelling headphones; they then email colleagues who are sitting only a few desks away.
Co-working spaces, where young professionals can take advantage of communal facilities, have not been the answer either. Workers are not there long enough to invest in relationships. As Ms Hertz puts it: “Hot deskers are the workplace equivalent of the renters who’ve never met their neighbours.”

It may seem odd that loneliness can grow when people are surrounded by so many others. But this paradox was best expressed by the band Roxy Music, when they sang “Loneliness is a crowded room”. Most people will be perfectly content, for a while at least, eating on their own at home, perhaps with a good book or the telly. Sitting all alone in a restaurant or a bar, surrounded by other people chatting, is a much more isolating affair.
By the same token, big cities can be very isolating. In a survey from 2016, 55% of Londoners and 52% of New Yorkers said they sometimes felt lonely. In many cities, around half of all residents live on their own, and the average tenancy of a London renter lasts 20 months. City-dwellers are less likely to be polite, because they are unlikely to meet a passer-by again.
Perhaps this relates to human history. Mass urbanisation is a relatively recent development; if the history of human existence was squeezed into a single day, the Industrial Revolution did not occur until almost midnight. For much of that time, humans lived in small groups of hunter-gatherers; cities may just overwhelm the senses.
Ms Hertz points her finger at two more recent developments. The first is social media. The internet has led to much cyber-bullying (although it has also been a source of companionship during the lockdown). And people glued to their smartphones spend less time interacting socially. But Robert Putnam noticed a tendency towards solitary activity in his book “Bowling Alone”, published in 2000, well before the creation of Facebook, Twitter and other distractions.
The second culprit cited by Ms Hertz is “neoliberalism”, which she defines as a “minimum state, maximum markets” approach. But it is hard to believe that state retreat is as decisive a factor in the loneliness pandemic as she suggests; after all, in 1990 the government of the average advanced economy spent 42% of GDP, and the proportion is the same today, according to the IMF.
Some changes in behaviour are down to individual choice. Before the pandemic no one was stopping people going to church or taking part in sports. They simply preferred to do other things. Indeed, one reason for the decline in communal activities is that men choose to be with their families rather than head to the bar; American fathers spend three times as much time with their children as they did in the 1960s. That is surely a welcome development.
So recreating a communal society may be difficult. When the pandemic ends, people may relish the chance to be with their neighbours and colleagues for a while. But the trend is clear. Technology means that people can get their entertainment at home, and work there, too. It is convenient but it also leads to loneliness. Society will be grappling with this trade-off for decades to come.
This article appeared in the Business section of the print edition under the headline “You’ll often walk alone” More

IT WAS QUITE the dust-up. On January 22nd Mel Silva, Google’s managing director in Australia, claimed before the country’s Senate that a set of laws it was pondering were so damaging that, if they came into force, the firm would have “no real choice” but to withdraw its search engine from the country. Lawmakers condemned Ms Silva’s remarks as “blackmail”. Scott Morrison, the prime minister, headed for the nearest flagpole: “Australia makes our rules for things you can do in Australia,” he said. “We don’t respond to threats.”
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At issue are new rules that would force big tech to pay publishers to display their news alongside search results and social-media posts. The argument has been simmering for years. News publishers, in Australia and elsewhere, have struggled in the past two decades as advertising money has flowed out of their pages and onto the internet—most of it to just two firms. Between them Google and Facebook account for perhaps 60% of worldwide digital-advertising revenues.

Publishers argue that news stories are widely shared on Facebook, and are at least one reason why people use Google’s search engine. That, they say, entitles them to a share of the two firms’ spoils. The tech giants retort that, although they do not pay publishers directly, they do send readers to their websites, and that is plenty.
Both sides invoke grand principles. Australia’s government argues that Google and Facebook are monopolies, and that laws are therefore the last resort for limiting their power. It argues that news, which costs money to produce, is vital for a healthy democracy. The tech firms say that paying publishers simply for linking to their stories would break a “fundamental principle” of the web—that anyone is free to link to anything they like. And they claim Australia’s proposed law is so broad as to make compliance unfeasibly fiddly; hence the talk of withdrawing entirely.
With a population of 26m, Australia accounted for $4bn of Google’s $162bn in revenue in 2019. Five years earlier, when Spain, a similarly middling market, passed a law requiring Google to pay for “snippets” of articles that appear in its News search, the online giant decided to yank that service from the country rather than comply.
Despite such ultimatums, big tech has been making concessions of late. In October Google used a folksy blog post from Sundar Pichai, its boss, to launch “News Showcase”, a $1bn scheme to pay some news publishers for their work. Facebook’s News Tab, launched in America in June and in Britain on January 26th, offers a similar revenue-sharing approach (The Economist is a participant). And a few days before Ms Silva addressed Australia’s Senate Google announced a deal with French publishers, after years of browbeating by French regulators. The specifics are private, though it probably involves payments for snippets rather than links.

It may be too late for a backroom arrangement à la française with Australian newsmen; the current row with Canberra is too public. An Australian law looks imminent. Google and Facebook say they are open to it in principle—just not to the Senate proposal’s sweeping specifics.
Whatever precedent the Aussies set is likely to be seized upon by other places and media groups. That may include America, where neither Joe Biden’s Democratic administration nor his Republican opponents are fans of big tech, and the EU, which passed a revenue-sharing directive in 2019 that member states must translate into national law. Google’s threat to flee Australia is just about credible (though $4bn in annual revenue is nothing to sniff at, even if it came at a cost of bigger cheques to the press). Departing America’s and Europe’s huge markets is not an option. ■
This article appeared in the Business section of the print edition under the headline “Big tech down under” More

DAVE CALHOUN is no stranger to crises. A former acolyte of Jack Welch, he was picked to run GE’s aircraft-engines and avionics division months before the 9/11 terrorist attacks of 2001 clobbered the industry. In the past year or so, as boss of Boeing, he has faced an even stiffer challenge. The company is only slowly emerging from a 21-month grounding of its bestselling 737 MAX passenger jet in the wake of two fatal crashes. Mr Calhoun must mend a cracked corporate culture that contributed to those disasters. If that were not enough, covid-19 has put air travel into a tailspin—and with it airlines’ plane purchases. On January 27th the firm announced a fifth straight quarterly loss. A record annual net profit of $10.5bn in 2018 turned into a record $11.9bn net loss in 2020. Boeing delivered 157 passenger and cargo aeroplanes last year, 80% less than in 2018 and a third as many as Airbus, the European half of the planemaking duopoly. One analyst heaped mock-praise on Boeing for beating its previous tally—from 1973.
Mr Calhoun now thinks recovery is on the radar. There are certainly blips of good news. A global roll-out of covid-19 vaccines brings hope for stranded airlines. The MAX is back in the air in America and will be soon in Europe. Deliveries of the plane are resuming. And Boeing got away with a slap on the wrist from regulators over lax safety practices. But the firm, which has destroyed $140bn in shareholder value over the past two years, is not in the clear. Without America’s doting government, it may never be.

Boeing began to lose its way long before the MAX disasters. After a merger with McDonnell Douglas in 1997, engineering excellence lost ground to meeting Wall Street targets. Cosy relations with America’s Federal Aviation Administration (FAA) allowed the firm to self-certify many of its processes; one Boeing employee boasted of “Jedi mind-tricking regulators”. When the MAX disaster struck, the firm botched its response. The strategy under Dennis Muilenburg, Mr Calhoun’s predecessor, was to talk things up, keep suppliers humming along and pump out more MAXes, never mind that customers were cancelling orders. In late 2019, as unwanted planes began to pile up in Boeing’s corporate car parks, Mr Muilenburg was tossed from the cockpit and Mr Calhoun, ten years a board member, was handed the controls.
A combination of misfortune and lousy leadership would have bankrupted many a firm. But Boeing is no ordinary company. Before the pandemic about one in 130 American workers was employed either by Boeing, with a domestic payroll of 143,000, or by one of its 12,000 local suppliers, with another 1m workers. Despite lay-offs across the aerospace industry in the past year, it remains a source of well-paid jobs—and, thanks to its weapons and space-rocket business, a strategic darling of politicians.
Official desire to keep it aloft was obvious to anyone studying its recent $2.5bn settlement with the Department of Justice (DoJ) over the MAX mess. The actual fine was just $244m; most of the remainder was compensation previously allotted to airlines whose MAX jets had been grounded. The company was criminally charged but prosecution was deferred, sparing it the worst consequences. And as one arm of the government sought to punish Boeing, another offered it a backdoor bail-out. The Federal Reserve’s flooding of capital markets with liquidity in response to the pandemic was designed largely with firms like that in mind. As a result, Boeing was able to borrow $25bn from private investors, avoiding the strings attached to a direct rescue.
Even so, it remains financially fragile. Its gross debt has more than doubled to $63bn over the past year. It is burning cash faster than early jumbo jets drank kerosene. Its free cashflow (after factoring in the cost of operations and maintaining capital assets) was -$20bn in 2020. Operational fragility, meanwhile, extends beyond the MAX. Last quarter Boeing shipped just four 787 Dreamliners, after wrinkles were discovered on the wide-body’s fuselage. Compensation claims for delayed deliveries may result in a charge of up to $3bn. Boeing is taking a $6.5bn charge against another wide-body model, the 777X, delivery of which has been pushed back three years because of uncertain demand for air travel.

With civil aviation stalling, the defence-and-space division has become Boeing’s main engine. It sold $26bn-worth of gear last year, against $16bn for passenger and cargo jets. National defence budgets are rising; America’s is up by over $90bn since 2016. But even here Boeing is sputtering. Owing to a software error its Starliner space capsule missed its target, the iss, on its first launch in 2019. This month nasa had to shut down a new Boeing rocket engine a minute into an eight-minute test after a technical glitch.
Cashless in Chicago
All these problems need fixing at a time of unprecedented strain on the balance-sheet. They are forcing Mr Calhoun to delay investing for the future. Boeing’s net research-and-development spending was almost a quarter lower in 2020 than in the previous year. To conserve cash, it is closing a big research centre in Seattle, where innovations such as the 787’s lightweight carbon-composite fuselage were dreamed up. Boeing’s capital expenditure slumped from $1.7bn in 2019 to $1.3bn in 2020. Despite pandemic-related cuts, that of Airbus is closer to $2bn, leaving it with more resources to develop climate-friendlier aircraft.
To have a fighting chance against Airbus, which bagged 1,200 more orders than Boeing in 2015-19, Mr Calhoun must restore cashflow. That will require regaining the trust of customers, many of which are foreign airlines that will look askance at any sign that Boeing lacks credibility—or of its continuing regulatory capture of the FAA or DoJ. It needs to persuade them to love the MAX again—a task is made harder by fresh allegations that the MAX’s problems may extend beyond its flight-control software. If all else fails, Boeing can always count on its doting government to offer a parachute. Whether Mr Calhoun gets one is another matter. More