Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: I feel like we might have made a mistake recording
Speaker 2: this episode on Wednesday, October twenty third, which is the
Speaker 2: day that we're awaiting the strike vote over at Boeing.
Speaker 3: Oh yeah, but you know, yes, that's right, that's annoying timing.
Speaker 3: But on the other hand, what I would say is
Speaker 3: that Boeing issues seem so deep, et cetera, that the
Speaker 3: strike is only one chase. So even if there were
Speaker 3: you know, even if there were all, you know, by
Speaker 3: the time people listen to this and there's some resolution,
Speaker 3: I don't think there's going to be some resolution to
Speaker 3: the issues at Boeing at large. Well.
Speaker 2: The good news, I guess, in terms of timing, is
Speaker 2: also that we had Boeing earnings just yesterday, so you
Speaker 2: can kind of see a lot of those issues that
Speaker 2: you are alluding to directly on the balance sheet. Do
Speaker 2: you want to know some some good news for my
Speaker 2: personal life? Yeah?
Speaker 1: Please?
Speaker 2: Okay, The correlation between Boeing and Southwest, their biggest customer,
Speaker 2: is finally breaking down, so Southwest shares are up. Boeing
Speaker 2: is still pretty depressed. My dad used to fly for Southwest,
Speaker 2: so he still has a lot of Southwest stock.
Speaker 3: So there's a disclaimer. This is this is a financial disclaimer.
Speaker 2: That's all right.
Speaker 1: This is what's important.
Speaker 2: Also, this is what constitutes good news for me nowadays.
Speaker 1: I did a deadlift one, two, three, Jimmy, Okay, go up, barges.
Speaker 1: This isn't after school Special, except I've.
Speaker 2: Decided I'm going to base my entire personality going forward
Speaker 2: on campaigning for a strategic pork reserve in the US.
Speaker 1: Where's the best in posta? These are the important question?
Speaker 1: Is that robots taking over the world.
Speaker 4: No.
Speaker 3: I think that, like in a couple of years, the
Speaker 3: AI will do a really good job of making The
Speaker 3: Odd launch podcast and people.
Speaker 1: To say, I don't really need to listen to Joe
Speaker 1: and Tracy anymore. We do have ofuching the perfect.
Speaker 2: You're listening to lots more where we catch up with
Speaker 2: friends about what's going on right now, because.
Speaker 1: Even when The Odd Lots is over, there's always lots.
Speaker 2: Smart and we really do have the perfect guest.
Speaker 3: We did an episode I don't know, maybe three or
Speaker 3: four weeks ago, and the title of that one was
Speaker 3: the Ongoing Mess that is Intel. This one, I think
Speaker 3: we're going to title the ongoing mess that is Boeing.
Speaker 3: But it's interesting. I don't know if you saw earlier
Speaker 3: this week. I think it might have been Monday. Greg
Speaker 3: ipp Over at The Wall Street Journal wrote.
Speaker 2: This call, Oh yeah, I saw that.
Speaker 3: That is basically like, the crises at Intel and Boeing
Speaker 3: are a national emergency. And this is something that I've
Speaker 3: thought specifically. Sometimes random people who know that I like
Speaker 3: cover stuff like this for work, they'll say, what are
Speaker 3: you worried about these days? And this is usually what
Speaker 3: I go to first. That we're in an era of
Speaker 3: or trying to revitalize US manufacturing, and yet the two
Speaker 3: defining flagship US manufacturers are deeply struggling. And what does
Speaker 3: that say about institutional operations in the nature of you
Speaker 3: as capitalism. These are the companies that I think about
Speaker 3: first when I worry.
Speaker 2: You know who else thinks about them a lot. Richard Abulafia,
Speaker 2: who is of course a managing director at Aerodynamic Advisory.
Speaker 2: We've had him on before talking about both Boeing and Embraer.
Speaker 3: One day we're going to talk and it'll be good news.
Speaker 3: We're going to talk about something going really right.
Speaker 1: But I don't think.
Speaker 3: I don't think today is that day yet?
Speaker 4: Yeah, jetliner delivered to happy customers and waiting for book
Speaker 4: members that would be.
Speaker 3: Doors, staying on planes things like that.
Speaker 4: Well that's asking a lot, but yeah.
Speaker 2: Okay, yeah, So in terms of what you're watching at Boeing,
Speaker 2: I just mentioned the strike vote is coming later today,
Speaker 2: But what is the next catalyst for you in terms
Speaker 2: of the future of this company.
Speaker 4: Yeah, I mean, obviously getting the strike settled is just
Speaker 4: so enormous, but you know, quite frankly, once you get
Speaker 4: it back, get work going again, getting to the rate
Speaker 4: they want is really the key to everything. You know,
Speaker 4: the seven thirty seven is they're only really big profitability driver.
Speaker 4: So if you ever get to that Houlcyon place where
Speaker 4: they're delivering fifty something per month cash, sea seems to
Speaker 4: be a problem. You know, it's just that simple. And
Speaker 4: they've been stuck in first or second year for years
Speaker 4: now at twenty something or zero in the aftermath of
Speaker 4: the two crashes that you know, we're waiting and waiting
Speaker 4: and waiting, and all of their financial problems are basically
Speaker 4: as a consequence of this. There are other contributing factors,
Speaker 4: like they're rather horrible defense programs and whatever else.
Speaker 5: But it comes to the key that solving the company's
Speaker 5: problems comes back to getting that ramp going, and of
Speaker 5: course the key part of that is getting suppliers healthy
Speaker 5: and delivering again too, which is an added complication.
Speaker 3: We on this question. Okay, so they need to just
Speaker 3: objectively to be a profitable company that has a healthy
Speaker 3: balance sheet, they need to improve that production cadence. Just
Speaker 3: to be clear, like, Okay, if the strike is resolved
Speaker 3: at some point, which presumably it will either by the
Speaker 3: time we're talking about this or later on, what does
Speaker 3: that mean in terms of actually getting back to their
Speaker 3: production cadence. But that's also I don't think the only issue.
Speaker 4: Yeah, it's just sort of a necessary condition, I guess.
Speaker 4: You know, this is not a right to work state,
Speaker 4: which means that when the workers go on strike and
Speaker 4: pu should sound pretty much all deliveries kind of more
Speaker 4: or less come to a halt. Accept the stuff that
Speaker 4: was about to be delivered, and that means that the
Speaker 4: strike simply has to end for things to start again.
Speaker 4: But then there's finding the necessary resources and in terms
Speaker 4: of talent, which is an added complication to any terms
Speaker 4: and benefits they offer the workers. You know, you also
Speaker 4: want to regard this as an opportunity to attract talent,
Speaker 4: and I'm not so sure they're doing that. But then
Speaker 4: the next thing is you got to look at the
Speaker 4: supply chain, which has been badly dilapidated by everything from
Speaker 4: the pandemic to Boeing's terms and conditions over the past decade. Basically,
Speaker 4: Boeing was kind of using their supply base as an ATM,
Speaker 4: and they all have to be well turned back on.
Speaker 4: I have to have the adequate working capital and adequate
Speaker 4: labor resources of their own. And of course, at the
Speaker 4: center of all of the susperiord Eero Systems and Boeing,
Speaker 4: it reached the conclusion that the only way to make
Speaker 4: this good is to bring it back in the company.
Speaker 4: So that situation has to be cleared up. And that's
Speaker 4: a big one.
Speaker 2: That's exactly what I was going to ask you about.
Speaker 2: Do you get the sense at all that Boeing is
Speaker 2: going to sort of revamp its relationship with suppliers, because
Speaker 2: this was one of the big criticisms of the company
Speaker 2: and the sort of cultural change that happened. It was
Speaker 2: this idea that they just decided to outsource a bunch
Speaker 2: of stuff because it was cheaper.
Speaker 4: Well, you know, outsoarrescing would have been fine. At the
Speaker 4: end of the day. They had always outsourced a certain
Speaker 4: degree of the production aspect. It was the disease to
Speaker 4: also outsource designed and integration that when things made things
Speaker 4: a little bit worse. But then it got really bad
Speaker 4: when they sort of learned exactly nothing from General Motors
Speaker 4: and said, what if we outsource and outsource designed and
Speaker 4: integration and didn't treat them like a lemon to be squeezed,
Speaker 4: that'll work out great, right, And they adopted back in
Speaker 4: the twenty tens the same approach to the supply chain
Speaker 4: as they did to their workforce. You know, these are
Speaker 4: people we can squeeze and extract cash from, and they're
Speaker 4: realizing that incredible. I mean, no one could have seen
Speaker 4: this coming. But actions have consequences, and you know, taking
Speaker 4: all the margins out of your suppliers and giving them
Speaker 4: one hundred and twenty day payment terms and whatever else,
Speaker 4: and even demanding that you own the stuff that's on
Speaker 4: their factory for you know, just any metal them might
Speaker 4: have fallen into the I'm not making this up, is
Speaker 4: you know, buying property not theres I mean basically squeezed
Speaker 4: the sweathing them in all directions.
Speaker 3: Wait say that when you said I'm not making this
Speaker 3: up any metal?
Speaker 1: That's what?
Speaker 5: What?
Speaker 3: What?
Speaker 2: What was on the floor?
Speaker 4: You know, wait a minute. You know, if there's any
Speaker 4: scrap metal that falls from the manufacturing process, that's ours,
Speaker 4: not yours.
Speaker 2: We get to build that term that's true micromanaging.
Speaker 3: Yeah, that's true.
Speaker 1: Yeah, a lot of Wow, Yeah it is.
Speaker 4: And there was a rather Orwellian sounding program called Partnership
Speaker 4: for Success aka Partnering for Poverty basically, and they did
Speaker 4: this in two two different trenches, basically going in and
Speaker 4: saying we're going to cut your margins and by the way,
Speaker 4: we're going to have a go at your aftermarket business too,
Speaker 4: if you're an aftermarket player. Basically, they went after their
Speaker 4: supply chain and for a while, you know, suppliers basically
Speaker 4: were depending upon if they had Pentagon exposure, you know,
Speaker 4: to make things a little bit healthier during the pandemic,
Speaker 4: the Pentagon had an accelerated payment program for suppliers, which
Speaker 4: really helped a lot. And for a while it was
Speaker 4: sort of you know, everyone who loved Boeing regarded the
Speaker 4: Boeing part of their work portfolio is not so good
Speaker 4: at all because it was the least profitable.
Speaker 2: So another thing I wanted to catch up with you
Speaker 2: on is just the mood at Boeing. Have you been
Speaker 2: back to Seattle since the last time we talked to you?
Speaker 2: Uh yeah, And what's it like? What are people saying?
Speaker 4: You know, I mean, people were different, right, the workforce
Speaker 4: isn't completely homogenous. Having said that, boy, at that ninety
Speaker 4: six percent I think vote after the first contract offer,
Speaker 4: that is pretty telling. There's a real feeling that for
Speaker 4: the first time in many decades, labor actually has power.
Speaker 4: They can get back some of the ground they lost
Speaker 4: over the previous decade or so. Today is going to
Speaker 4: be incredibly telling. Whether or not they're willing to say, Okay, hey,
Speaker 4: it's a pretty good offer, let's get back to work,
Speaker 4: or whether they say, no, we gave up our pension
Speaker 4: ten years ago and we want it back read our lips.
Speaker 4: That's going to be the most interesting aspect, effectively a
Speaker 4: referendum on the the pension.
Speaker 3: So obviously, again, by the time this comes out, people
Speaker 3: have heard you know, I think and now we've talked
Speaker 3: to a few times. The one line you've said that
Speaker 3: like truly haunts me, or that like sticks in my head,
Speaker 3: is that Boeing could get to the point where, because
Speaker 3: it's been so long since they've launched a new a
Speaker 3: brand new product, you know, start from a clean sheet
Speaker 3: of paper and launch a new product, that it could
Speaker 3: get to the point where eventually they have no one
Speaker 3: inside the company who has ever been part of the
Speaker 3: process of designing a new product. And I think there
Speaker 3: were comments out today from the CEO that there's still
Speaker 3: no hurry on that aspect of it.
Speaker 2: No, no, no, He said that Boeing is still focused on
Speaker 2: building an all new airplane. But the question, to your
Speaker 2: point is like how do they actually do it?
Speaker 3: Yeah, And it's like this to me, Like when you
Speaker 3: said that there's like no one who knows how to
Speaker 3: build a new airplane from the beginning, I remember like, Oh,
Speaker 3: that's like a really chilling thought. And so I'm curious,
Speaker 3: like where that stand.
Speaker 4: Well, we're not at that point just yet. There's a
Speaker 4: risk of it given the demographics of the you know,
Speaker 4: design workforce, and you meet a lot of them and
Speaker 4: they're on the older side, you know, this be a
Speaker 4: engineering union. I think their median age is somewhere in
Speaker 4: the fifty ish range, you know, don't hold me to that,
Speaker 4: but it's it's it's older and the number of people
Speaker 4: who were around it the last time that a clean
Speaker 4: sheet design was launched the seven eight seven around two
Speaker 4: thousand and four. It's diminishing. And you can make an
Speaker 4: argument triple seven X has been kind of halfway to
Speaker 4: a clean sheet as a major derivative, and that's something.
Speaker 4: But you can see that if something new isn't launched
Speaker 4: in the next four or five years, they're going to
Speaker 4: have a really hard time reconstituting that that muscle memory,
Speaker 4: that cornelage.
Speaker 2: What do you think is more likely at the moment?
Speaker 2: And I get that there are a lot of moving
Speaker 2: parts here, but is it a turnaround of the company,
Speaker 2: a successful turnaround? Is it a sort of long slow
Speaker 2: death or is it a breakup?
Speaker 4: You know, that depends on leadership. You know, the previous leader,
Speaker 4: Dave Calhoun, as we discussed, you can see that the
Speaker 4: future right there, it was you know, either a glide
Speaker 4: soope into the ground or a breakup. And I think
Speaker 4: they were probably thinking about their breakup options. Killy Ortberg.
Speaker 4: That's the big change. Of course, his track record is
Speaker 4: not absolutely perfect, But there's still a lot of hope.
Speaker 4: I mean, he's somebody who knows the industry, who cares
Speaker 4: about the industry. We're kind of hoping that with him
Speaker 4: at the HELM, there is a chance of getting things
Speaker 4: back on track and for the company to survive and
Speaker 4: perhaps even be restored to health in something like its
Speaker 4: current incarnation.
Speaker 3: I have a question that I don't really want to
Speaker 3: know the answer to, but you mentioned troubles on the
Speaker 3: defense side of the business, which probably doesn't get talked
Speaker 3: about as much because the market is different and the
Speaker 3: public doesn't know those products. Defense stocks, say a Lockheed Martin,
Speaker 3: have actually done extremely well, despite the fact that I
Speaker 3: see a parade of headlines all the time about troubles
Speaker 3: at Lockheed Martin, and there is a headline out literally
Speaker 3: yesterday Lockheed falls as F thirty five delays, drag sales,
Speaker 3: and there's other things like that. Could we do versions
Speaker 3: of this conversation about many other American defense contractors.
Speaker 4: The good news is not really The bad news is, yes,
Speaker 4: we can about Boeing's defense side.
Speaker 3: Okay, so there actually is like it's not like what
Speaker 3: you identify in Boeing and whatever it is, and you know,
Speaker 3: there are probaty many different causes. Is not, in your view,
Speaker 3: completely endemic to the US defense sector.
Speaker 4: Right, It's pretty unique to Boeing, and it gets back
Speaker 4: to the roots of the or in class management that
Speaker 4: ran Boeing in the last decade and into this one. Basically,
Speaker 4: they made the strategic decision to sign a bunch of
Speaker 4: incredible money losing contracts, and of course the US military
Speaker 4: was fine with that. You want your investors to pay
Speaker 4: for our weapons systems, great, and the strategy was to
Speaker 4: use the amazing, incredible revenue from their unstoppable commercial jetliner
Speaker 4: cash flow to basically subsidize the defense. That was a
Speaker 4: strategic decision made worse by a decision to well inflict
Speaker 4: on the defense side exactly the same management mispractice that
Speaker 4: they did on the commercial side, you know, under resourcing things,
Speaker 4: demanding results without actually showing up and discussing requirements with people,
Speaker 4: and the consequences, predictably, were just horrible losses on major
Speaker 4: programs that dwarf anything else in the defense industry.
Speaker 2: Do you think Ortberg is going to recreate the strategy
Speaker 2: department that Calhoun dissolved so they actually know what they're
Speaker 2: ending all that new capital on and what they're aiming for.
Speaker 4: Well, again, you're asking for a lot with a strategic direction,
Speaker 4: big kitty. I mean, it's like, oh, wow, actually figure
Speaker 4: out where the super tanker is headed? Good idea? Crazy,
Speaker 4: I should hope, so, right, I mean, I'm really sure.
Speaker 4: I hope so. But there's so many things, and there's
Speaker 4: also frankly a lot he's doing that I don't get,
Speaker 4: you know, for a guy who knows the business, I mean,
Speaker 4: it's about a week or two. Well, he announced a
Speaker 4: literal decimation of the company. They're going to fire seventeen thousand,
Speaker 4: at of one hundred and seventy thousand people. Where the
Speaker 4: heck would they come from? So, Tracy, inting to your question,
Speaker 4: you know, to reconstitute a strategy team while cutting overhead
Speaker 4: quote unquote and whatever else that that doesn't seem to
Speaker 4: make a lot of sense to me. And where would
Speaker 4: those people come from in any event? Because commercial needs
Speaker 4: resources to do the ramp, and the one consistent problem
Speaker 4: with all those money losing defense programs is inadequate resources.
Speaker 4: So where do those workers come from?
Speaker 5: Yeah?
Speaker 3: By the way, on CNBC this morning, Ortberg, there is
Speaker 3: a quote calling Boeing quote overstaffed for its business going forward,
Speaker 3: and then he said I would rather err on the
Speaker 3: side of doing less than doing more and not doing well,
Speaker 3: which you know, I guess that sounds fine. But yeah,
Speaker 3: if you're building out things, if you're building out a
Speaker 3: new product, if you're building out a new strategy team,
Speaker 3: seems like there are things intention to say the least.
Speaker 4: Yeah, I just don't get it. I mean, they're trying
Speaker 4: to ramp, as we discussed earlier, from twenty something to
Speaker 4: fifty something seven thirty seven's that's directly linked to people. Similarly,
Speaker 4: the one Crew thing that Dave Calhoun said was some
Speaker 4: of their key defense programs were suffering from well personnel
Speaker 4: and talent shortages. I don't get the under resource or
Speaker 4: over resourced argument at all. He's going to have to
Speaker 4: actually explain where those jobs would come from.
Speaker 2: One thing I wanted to ask you, and I'm actually
Speaker 2: a little bit I don't know if you want to
Speaker 2: talk about this, but we do have the election coming up,
Speaker 2: and as Joe said in the intro, you know, boosting
Speaker 2: America's manufacturing sector has been such a big thing in
Speaker 2: recent years, a big policy goal, and both presidential candidates,
Speaker 2: you know, have talked about this and say they care
Speaker 2: about it. But do you have any opinion or idea
Speaker 2: or insight on what the two candidates would mean for
Speaker 2: a company like Boeing.
Speaker 4: Yeah, you know, during the Trump years, there were some
Speaker 4: who believed there was actually a pattern of favoritism towards
Speaker 4: Boeing and defense contracts. The F fifteen came back in
Speaker 4: the budget, the Super Hornet came back in the budget,
Speaker 4: and there were rumors that Boeing had even received Next
Speaker 4: generation fighter contract development work. And you know, it's impossible
Speaker 4: to say for sure or whether that would continue because
Speaker 4: you know, Trump two point zero would look very very
Speaker 4: different from Trump one point zero in terms of people
Speaker 4: and policies. Obviously, Kamala Harris would probably be you know,
Speaker 4: pretty much as is. Either way, it's not really clear
Speaker 4: other than defense what could be done. And even with defense,
Speaker 4: we're not really sure. I mean, this country doesn't really
Speaker 4: do industrial policy the way say Europe or Japan does.
Speaker 4: We can provide government resources to stabilize a very bad
Speaker 4: financial situation with loan guarantees or you know, pension bailouts
Speaker 4: or something like that, and of course there's long lead
Speaker 4: Advanced Technology development, semiconductors, whatever, artificial intelligence, you know, just
Speaker 4: DARPA sort of stuff. But the stuff in between favoring
Speaker 4: industries in one way or another, we don't have a
Speaker 4: lot of experience with and policy makers, you know, it's
Speaker 4: not really clear exactly what they would do to further
Speaker 4: that goal.
Speaker 3: Last question for me, you still sort of bearish on Comac.
Speaker 3: What's your view on them these days?
Speaker 4: Yeah, you know, I mean it's pretty much the same thing,
Speaker 4: and it's no dig at China itself, you know. I mean,
Speaker 4: if they were to privatize COMAC and not make it
Speaker 4: part of the you know, Central Committee of the Communist Party,
Speaker 4: I think they'd probably be pretty darn good. And better still,
Speaker 4: if they could become a global enterprise and say we're
Speaker 4: going to buy best technologies all over the world, they'd
Speaker 4: be really good. But right now they're basically the DMV
Speaker 4: with wings trying to build. It's a little embarrassing. Frankly.
Speaker 2: Well, I have one more question, which is, since we
Speaker 2: spoke to you last, we've had this year's air shows,
Speaker 2: and I'm just curious what was the most interesting or
Speaker 2: surprising thing that you heard from those?
Speaker 4: Yeah, thanks for asking, great great question. I guess the
Speaker 4: mood at Farnborough this year outside of London was excuse me,
Speaker 4: where's our planes. We've been waiting for a supply chain
Speaker 4: in production recovery for some time now, and you talked
Speaker 4: with supply chain managers and they were apologetic and they said, well,
Speaker 4: look we're you know, we've got a roadmap map to
Speaker 4: seeing the results from investments we're making at various levels
Speaker 4: the supply chain. This wasn't one hundred percent completely convincing,
Speaker 4: but hey, there's it sounds like they are starting to
Speaker 4: make those investments. So in a year or so we
Speaker 4: might begin to see a slightly faster, you know, increase
Speaker 4: in production. That was sort of the big talked about topic,
Speaker 4: and it sounds like people were getting serious about you know,
Speaker 4: sourcing is a strategic function more than ever, so maybe
Speaker 4: it's getting the priority it deserves.
Speaker 3: By the way, Tracay, I just wanted to clarify something
Speaker 3: I said earlier. So Ortberg was on CNBC today and
Speaker 3: he was asked about the next plane that they're going
Speaker 3: to design from scratch. Yeah, as I'm reading the Bloomberg articles,
Speaker 3: restoring the balance sheet will be requirement for Boeing to
Speaker 3: consider it's next commercial aircraft, Ortberg said, So the basic
Speaker 3: gist is like, yeah, there's going to be another plane.
Speaker 3: In theory, it's not going to happen until the current
Speaker 3: financial issues are resolved. And so in the meantime, day
Speaker 3: after day that work, the number of people who were
Speaker 3: there the last time a new plane was launched dwindles.
Speaker 2: Right, They're in a capital death spiral. So the most
Speaker 2: pressing concern is gaining altitude by rebuilding that capital the
Speaker 2: Christian before you can figure out where the plane is
Speaker 2: actually going. There's my that's my flying analysis for today.
Speaker 2: Lots More is produced by Carmen Rodriguez and Dashel Bennett,
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