The Wall Street Journal - 11.03.2020

© 2020 Dow Jones & Company. All Rights Reserved. *** THE WALL STREET JOURNAL.** Wednesday, March 11, 2020 |B1

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BUSINESS & FINANCE

Saudis,

Russians

Escalate

Battle on

Output

The departure area this week at New York’s Kennedy airport. Most U.S. carriers have withdrawn their financial guidance for the year.

EDUARDO MUNOZ/REUTERS

BUSINESS NEWS

Dick’s Sporting Goods

says it will end gun

sales at more than

half its stores. B3

EDUARDO MUNOZ/REUTERS

Saudi Arabia and Russia in-

tensified an escalating oil-mar-

ket war on Tuesday, with Ri-

yadh set to raise output to

record levels and Moscow say-

ing it was ready to pump more

crude.

State-run Saudi Arabian Oil

Co. said it would boost produc-

tion to 12.3 million barrels a

day in April, some 300,000 bar-

rels a day over the company’s

previous maximum sustained

capacity.

Russian Energy Minister Al-

exander Novak, meanwhile,

said his country could rapidly

open its own taps.

Oil prices lost a fifth of their

value Monday, after Saudi Ara-

bia over the weekend slashed

its crude prices and signaled it

would boost its output next

month. The move followed Rus-

sia’s rejection of a Saudi-

backed plan by the Organiza-

tion of the Petroleum Exporting

Countries to cut crude output

in response to dwindling de-

mand in China and elsewhere.

Even as the price war esca-

lated with fresh salvos from

both sides, former Saudi en-

ergy minister Khalid al-Falih

was in talks with Mr. Novak in

an attempt to reverse the pro-

duction increases and revive

the collective OPEC-Russia out-

put curbs, according to Saudi

government advisers and offi-

cials.

Mr. Falih, who negotiated

the initial production cuts in

2016, is now Saudi Arabia’s

minister of investments. His

outreach to Mr. Novak is done

with the approval of Saudi au-

thorities, the advisers said. If

Mr. Falih’s mediation succeeds,

the advisers and officials said,

OPEC and its allies including

Russia will convene an emer-

gency meeting in April.

Mr. Novak said Moscow isn’t

ruling out further cooperation

with OPEC, adding that the

next scheduled meeting is

planned for May or June.

“The doors are not closed,”

he said.

Amid the escalating fight,

President Trump called Saudi

Please turn to page B12

BYSUMMERSAID

ANDBENOITFAUCON

INSIDE

 Sale of U.S. oil reserves is

postponed.................................. B12

Coronavirus prompts

hiring freezes, other

measures in industry's

worst crisis since 9/11

Reeling Airlines Cut More Flights

FINANCE

The energy sector

faces a reckoning on

its massive debt load

as oil prices fall. B12

BENJAMIN LOWY/GETTY IMAGES

partner of Silver Lake, which

made a $1 billion investment

through a convertible bond

that helps fund a $2 billion

share repurchase.

Both investors join a new

board committee to examine

Twitter’s leadership structure,

including the role of Mr.

Dorsey and CEO succession

planning. The committee plans

to announce its findings before

year-end.

“The formation of the lead-

ership evaluation committee

tells us that Dorsey’s position

may remain under scrutiny

through 2020,” Bernstein Re-

search analysts said in a note.

Please turn to page B4

founder of the company.

Scott Galloway—a professor

at New York University’s Stern

School of Business, a Twitter

investor and a critic of Mr.

Dorsey’s leadership—said the

truce between the company

and Elliott was “a stay of exe-

cution” for the CEO.

Twitter’s agreement with

Elliott calls for the appoint-

ment of two new members to

what was an eight-person

board, with a promise to

search for a new, third inde-

pendent director, the company

said. The appointments include

Jesse Cohn, Elliott’s head of

U.S. equity activism, and Egon

Durban, co-CEO and managing

Twitter Inc. Chief Executive

Jack Dorsey, after warding off

immediate ouster in his battle

with one of Wall Street’s fierc-

est activist investors, now

faces unprecedented pressure

to deliver on a promise to in-

crease usage and sales.

For investors, the ability to

deliver on those commitments

could determine whether Mon-

day’s agreement between the

social-media messaging com-

pany and Elliott Management

Corp. leads to long-term corpo-

rate peace or amounts to only

a reprieve for Mr. Dorsey, a co-

BYBETSYMORRIS

ANDCORRIEDRIEBUSCH

Twitter’s Dorsey Faces Sales Pressure in Elliott Truce

The company’s leadership structure, including the role of CEO Jack
Dorsey and succession planning, will be scrutinized by a new panel.

COLE BURSTON/BLOOMBERG NEWS

to a fraction of its long-term

average, according to David

Bieber, a Citigroup Inc. quanti-

tative analyst.

In U.S. Treasurys and equity

futures, widely used by big in-

vestors to speculate or hedge

their investments, order books

in the past couple of days were

at only about 10% to 12% of

their long-term average size,

he said, and they were also sig-

nificantly smaller for gold or

oil futures.

Some disruption to trading

makes sense when investors

are rapidly recalculating what

they think assets are worth.

But some worry that banks’

growing reliance on computer-

driven trading in good times—

and the way this is curtailed in

times of stress—may be leav-

Please turn to page B13

coronavirus outbreak and the

plunge in oil prices.

Craig Nicol, a credit strate-

gist at Deutsche Bank, said li-

quidity is “one of the biggest

concerns we have in the mar-

ket at the moment.”

In junk bond markets, liquid-

ity was already low before this

weekend but worsened signifi-

cantly on Monday after the col-

lapse in the oil price on Sunday

night. Lots of smaller bonds in

the U.S. and Europe couldn’t be

traded at all, he said.

When everything else is

selling off, in high-yield debt

“you get a run for the doors,”

he added.

In futures markets, the size

of trades that an investor can

be sure to get done, which is

measured in terms of the depth

of the order book, has shrunk

Investors struggling to fol-
low the wild swings in prices
across financial markets are
also having to cope with an-
other issue: finding people to
trade with.
While trading volumes in
U.S. Treasurys and stocks have
been running at or near record
levels, investors have still
found it difficult to transact at
the prices they want. And ac-
tivity in some markets has
crumbled in recent days.
The ability to trade close to
what investors think are market
prices is known as liquidity. It
tends to dry up during crisis pe-
riods, and in recent days it has
disappeared as rapidly as many
can remember, as investors con-
tend with the twin forces of the

BYPAULJ.DAVIES

Making Trades Grows Harder,

Adding to Market Disruption

12% and Delta’s gained 4.5%.

President Trump said Tues-

day that the administration

plans to offer assistance to the

airline and cruise industries.

He didn’t offer details. Indus-

try leaders who met with the

president at the White House

last week said they hadn’t

sought aid. “Not one CEO

asked for government finan-

cial relief,” said Doug Parker,

American’s chief executive.

To reduce costs, airlines

have frozen hiring and have

started offering voluntary un-

paid leave to employees. United

CEO Oscar Munoz and Presi-

dent Scott Kirby said they

would forgo their base salaries

until at least June 30. South-

west Airlines Co. CEO Gary

Kelly is taking a 10% pay cut.

American’s Mr. Parker has been

paid only in stock since 2015.

Overseas, the European

Commission said it would pro-

pose legislation to suspend

airport-slot rules, allowing air-

lines to cut back capacity

without risking the loss of lu-

crative takeoff and landing

rights. The rule changes, dis-

closed Tuesday, could provide

significant relief for domestic

and international carriers op-

erating in Europe. Some have

been flying near-empty flights

in and out of congested hubs,

like London’s Heathrow, to re-

tain the slots due to “use it or

lose it” airport slot rules.

Mr. Kelly told Southwest

employees that the virus has

created a challenge more seri-

ous than any the industry has

faced since 9/11, “and it may

be worse.”

“The velocity and the sever-

Please turn to page B2

Airlines detailed the growing
impact of the coronavirus by
cutting more flights in domes-
tic and international markets,
parking planes, freezing hiring
and reducing executive pay.
American Airlines Group
Inc. and Delta Air Lines Inc.
joined United Airlines Hold-
ings Inc. on Tuesday in slash-
ing the number of flights
across their networks, with
some cuts extending through
the summer, as cancellations
overtake new bookings in
some markets because of pas-
senger fears about traveling.
The virus’s rapid impact on
demand has sent airlines reel-
ing. Most carriers in the U.S.
have withdrawn their financial
guidance for the year and sus-
pended share buyback pro-
grams, among other measures.
Airlines are now preparing for
the prospect that recovery
could take months, rather than
the quick bounceback many
had initially anticipated.
“This is a fear event,” Delta
CEO Ed Bastian said Tuesday
at an industry conference that
was webcast, rather than be-
ing held live. He said he ex-
pects demand will continue to
erode in the near term.
To cope, Delta will park
some planes, cut international
capacity as much as 25% and
domestic capacity as much as
15%, and defer $500 million in
capital expenditures. It may
consider retiring some planes
early.
American said it plans to
cut domestic flying by 7.5% by
decreasing frequencies in mar-
kets where it operates many
flights. It will reduce interna-
tional flying by 10% for the
summer peak travel season.
Airline shares have fallen
more than 30% in the past two
weeks, but they rose sharply
Tuesday after carriers outlined
planned cuts and cash-raising
options. American shares
closed up 15%, United’s rose

BYALISONSIDER

Southwest

–15.8%

Delta

–16.2%

American

–33.2%

United

–30.4%

Spirit

–40%

Two-weekshareperformanceofselectedairlines

Source: FactSet

–50

–40

–30

–20

–10

%

Feb.25262728March23456910

Hourly data

Tesla Inc.’s decision on

where to build a new U.S. auto-

mobile assembly factory will be

influenced by state incentives

as well as access to a large

workforce and low logistics

costs, Chief Executive Elon

Musk said.

Mr. Musk on Tuesday

said on Twitter that the Silicon

Valley electric-car maker is

scouting locations for a new

factory in the U.S. to build the

company’s coming pickup truck

and Model Y compact sport-

utility vehicle.

“Incentives play a role, but

so do logistics costs, access to a

large workforce with a wide

range of talents, and quality of

life,” he later told The Wall

Street Journal in an email.

President Trump in January

had suggested Tesla was plan-

ning to erect a new factory in

the U.S. Mr. Trump, in an inter-

view with CNBC, said he had

talked with Mr. Musk and that

the auto maker planned to

build a “very big plant” in the

U.S.

Mr. Musk, via Twitter on

Tuesday, said the facility would

be placed in the central part of

the U.S., a region of the country

that fuels many pickup sales for

competitors Ford Motor Co.

and General Motors Co. He also

said, in a second social-media

post, that production for the

Model Y would serve East

Coast customers.

Excitement over Tesla’s

growth ambitions and success

in opening an assembly factory

in China in recent months has

helped fuel a sharp rise in com-

Please turn to page B2

BYTIMHIGGINS

Tesla Says Incentives

KeytoFactorySite