WEBVTT - Boeing 737 Max Crisis Weighs on Deliveries 0:00:02.920 --> 0:00:10.840 Bloomberg Audio Studios, podcasts, radio news. You're listening to the 0:00:10.840 --> 0:00:15.000 Bloomberg Intelligence Podcast. Catch us live weekdays at ten am 0:00:15.040 --> 0:00:17.520 Eastern on Affo car Playing and broud Otto with the 0:00:17.520 --> 0:00:21.400 Bloomberg Business App. Listen on demand wherever you get your podcasts, 0:00:21.640 --> 0:00:24.000 or watch us live on YouTube. 0:00:25.160 --> 0:00:28.520 Looking at Boeing stocks, the three tenths of one percent, 0:00:28.560 --> 0:00:30.360 but we've got a good better sense of kind of 0:00:30.360 --> 0:00:36.080 their first quarter deliveries the lowest since mid twenty twenty one, 0:00:36.320 --> 0:00:40.479 So not good althose you read into it. The company 0:00:40.479 --> 0:00:44.040 delivered twenty seven aircraft in March, and that's a slight 0:00:44.120 --> 0:00:47.480 improvement from the twenty seven delivered in January and February. 0:00:48.159 --> 0:00:50.319 But again the combination and all the majority of these 0:00:50.320 --> 0:00:52.159 things were the seven three seven Max jets. That's what 0:00:52.280 --> 0:00:55.040 we mostly, I think most of us fly the States 0:00:55.040 --> 0:00:58.040 at seven three seven Max. Well, I'm a Boeing person, 0:00:58.200 --> 0:01:00.760 I mean I'm a United Cus are out of Newark, 0:01:01.040 --> 0:01:03.440 and United flies the Boeing planes. And I report to 0:01:03.440 --> 0:01:06.119 George every time I get on a plane to go anywhere. 0:01:06.160 --> 0:01:09.040 I report to him what I'm the aircraft. I'm on 0:01:09.920 --> 0:01:12.640 the quality of it, how full it is. So I 0:01:12.680 --> 0:01:14.800 give him some of that primary research. George ferguson joints 0:01:14.840 --> 0:01:18.640 as he covers the airlines the aerospace companies. Is the 0:01:18.640 --> 0:01:20.440 first quarter here? Is this going to be the bottom 0:01:20.480 --> 0:01:24.080 George for Boeing in terms of deliveries? 0:01:24.600 --> 0:01:26.120 I think, yeah, for the year, I think this is 0:01:26.160 --> 0:01:28.120 going to be the bottom. So I'd expect this was 0:01:28.160 --> 0:01:30.680 the worst quarter. You know, the fa was in there 0:01:30.720 --> 0:01:34.200 doing their review of Boeing's manufacturing. Boeing's got to come 0:01:34.240 --> 0:01:36.640 up with for a plan for the FAA. Imagine that 0:01:36.680 --> 0:01:40.800 takes some hands as well, and manufacturing probably isn't moving 0:01:40.920 --> 0:01:43.720 very fast while they're in the middle of this process 0:01:43.959 --> 0:01:48.080 of figuring out how to stabilize, you know, the production 0:01:48.160 --> 0:01:50.919 of the airplanes. And so I think for the quarter 0:01:50.960 --> 0:01:52.760 it'll be sorry. For the year, this will be the 0:01:52.760 --> 0:01:55.280 worst quarter, and I would expect that things would get 0:01:55.320 --> 0:01:57.440 better second, third, and fourth into. 0:01:57.240 --> 0:01:57.840 The end of the year. 0:01:57.960 --> 0:02:00.200 George, really nice to see you. We decided that we've 0:02:00.240 --> 0:02:01.680 maybe met twice after. 0:02:01.480 --> 0:02:02.080 All this time. 0:02:02.520 --> 0:02:06.640 Well, see, there's a we have some research people in Princeton. Yeah, 0:02:06.720 --> 0:02:09.640 and they prefer the Princeton as opposed to coming to 0:02:09.680 --> 0:02:15.080 the world's financial hub center of it all. Traffic for Princeton. 0:02:15.280 --> 0:02:19.120 I get it. Yeah, that's how we do that. 0:02:19.160 --> 0:02:20.720 There's a couple of ways to break it down, so 0:02:20.800 --> 0:02:23.120 let's just take it maybe piece by piece. First of all, 0:02:23.160 --> 0:02:25.280 supply chain stuff that like Boeing will be a part 0:02:25.320 --> 0:02:27.280 of and Airbus will be a part of too, Like, 0:02:27.320 --> 0:02:30.480 how are the supply chain impacting their deliveries? 0:02:31.160 --> 0:02:33.880 Well, I mean, right now, I think the biggest problem 0:02:33.919 --> 0:02:35.840 is up at Boeing and not in the supply chain. 0:02:35.960 --> 0:02:37.280 So the supply chain stuff is fixed. 0:02:37.520 --> 0:02:38.280 No, not at all. 0:02:38.320 --> 0:02:40.640 So I meant for the number of deliveries we've seen 0:02:40.840 --> 0:02:44.120 this quarter and the constriction in that number of deliveries, 0:02:44.160 --> 0:02:46.359 this is all Boeing issue, right This is all Boeing's 0:02:46.840 --> 0:02:51.400 FAA review, their manufacturing review. Their supply chain I think 0:02:51.440 --> 0:02:54.480 is producing at a higher rate than they are right now. 0:02:54.480 --> 0:02:57.000 So Spirit Aero Systems would be an important part of 0:02:57.040 --> 0:03:00.880 their supply chain. They're building somewhere around thirty eight or 0:03:00.919 --> 0:03:04.160 they were building around thirty eight seven thirty seven maxes 0:03:04.200 --> 0:03:06.760 a month when we heard from them at the end 0:03:06.800 --> 0:03:09.079 of the year, you know, for their four Q earnings call. 0:03:09.400 --> 0:03:13.400 We understand from Spirit that their suppliers were even building 0:03:13.520 --> 0:03:16.880 at higher rates than them in some cases, maybe even 0:03:16.960 --> 0:03:19.640 up at sort of forty two numbers. And they're already 0:03:19.680 --> 0:03:23.080 thinking about Spirit moving to a forty two number for 0:03:23.160 --> 0:03:25.480 the Max. Again, we're talking Max, which is the highest 0:03:25.560 --> 0:03:28.360 volume airplane. They were talking about Spirit moving to a 0:03:28.400 --> 0:03:33.040 forty two number just prior to the Alaska you know, 0:03:33.639 --> 0:03:36.280 door panel incident, and that's when everything sort of hit 0:03:36.280 --> 0:03:37.760 the skids. But I think most of it hit the 0:03:37.800 --> 0:03:41.160 skids up at Boeing, which has to do manage all 0:03:41.200 --> 0:03:45.360 the FAA you know, inquiries and their manufacturing review. 0:03:45.600 --> 0:03:48.440 All right, George. On Thursday, I am flying from Newark 0:03:48.480 --> 0:03:51.000 to Durham, North Carolina on a Boeing seven thirty seven 0:03:51.120 --> 0:03:54.040 Max eight plane. I will report into you. You can 0:03:54.120 --> 0:03:55.520 express that primary research. 0:03:55.680 --> 0:03:56.680 What's up your off Friday? 0:03:56.680 --> 0:03:57.320 I'm off Friday? 0:03:58.160 --> 0:03:58.840 Yep, yep. 0:04:00.320 --> 0:04:03.360 I love you too, you know, bummer, So you could 0:04:03.360 --> 0:04:05.360 care a loss? Not true at all? 0:04:05.520 --> 0:04:09.520 Okay, George, If I guess from the company, I don't 0:04:09.560 --> 0:04:12.720 want to go too fast. I think you know, I 0:04:12.760 --> 0:04:15.920 can't have any more mishaps here. So it's almost like 0:04:16.520 --> 0:04:18.560 if I'm an investor, I'm not sure I'm knocking on 0:04:18.640 --> 0:04:20.080 the door saying, hey, you guys gotta get back to 0:04:20.279 --> 0:04:22.480 back to thirty eight or forty kind of do it 0:04:22.520 --> 0:04:23.680 when you can kind of thing. 0:04:23.839 --> 0:04:25.159 Yeah, I mean, do it when you can. 0:04:25.240 --> 0:04:27.560 But I mean in the long term interest of Boeing, 0:04:28.080 --> 0:04:31.240 they have to increase build rates here and that's going 0:04:31.320 --> 0:04:32.160 to drive better. 0:04:32.000 --> 0:04:33.760 Cash flow and better products. 0:04:33.800 --> 0:04:37.080 Okay, I mean, look, the competitor across the Atlantic, right 0:04:37.320 --> 0:04:39.320 which has by the way, has you know, final assembly 0:04:39.400 --> 0:04:42.480 facilities all around the world, including one in Mobile, Alabama. 0:04:42.680 --> 0:04:45.160 Really Airbus has a thing in Mobile. 0:04:44.800 --> 0:04:48.039 Absolutely, wow, absolutely, I don't know so, but their competitor 0:04:48.240 --> 0:04:51.320 is operating up in the forty five range per month 0:04:51.360 --> 0:04:54.600 for their A three twenty, the major competitor. If Boeing 0:04:54.640 --> 0:04:57.800 wants to be in this business long term, they have 0:04:57.880 --> 0:05:00.680 to stabilize production. You're right, but they've got to stabilize 0:05:00.720 --> 0:05:03.080 it at much higher levels. Prior to the pandemic, they 0:05:03.080 --> 0:05:05.520 were going close to sixty a month for the seven 0:05:05.560 --> 0:05:06.440 thirty seven max. 0:05:06.520 --> 0:05:07.600 It can be done. 0:05:07.880 --> 0:05:09.760 Their job is to make sure it happens. 0:05:10.200 --> 0:05:12.240 So what's the timeline here? When do you think, like 0:05:12.400 --> 0:05:14.360 year end, where would you like to see them? 0:05:14.440 --> 0:05:17.120 So year end, what we've modeled the Bloomberg intelligence is 0:05:17.200 --> 0:05:20.000 we think Boeing will be building thirty eight seven thirty 0:05:20.040 --> 0:05:23.680 sevens a month by four Q, which should have been 0:05:23.760 --> 0:05:26.680 where they started this year out at thirty eight. We 0:05:26.720 --> 0:05:28.720 think they were looking to break to forty two by 0:05:28.760 --> 0:05:29.400 the end of the year. 0:05:29.760 --> 0:05:32.520 So do we ever get back to the sixty? Should 0:05:32.560 --> 0:05:33.599 they ever get back to the sixty? 0:05:33.720 --> 0:05:34.880 Well, I mean, if you again, if you look at 0:05:34.880 --> 0:05:37.920 their competitor, their competitor says they're shooting for seventy five 0:05:37.960 --> 0:05:40.320 a month on the A three twenty. So if their 0:05:40.360 --> 0:05:43.960 competitor is breaking to those kind of rates, when you 0:05:44.080 --> 0:05:46.960 break to higher rates on your primary narrow body, you 0:05:47.000 --> 0:05:49.680 have the opportunity to go out to your customers and 0:05:49.760 --> 0:05:52.680 non customers, people that might be upset at Boeing and 0:05:52.760 --> 0:05:55.680 sell more airplanes. Right So, right now, what we're seeing is, 0:05:56.120 --> 0:05:58.479 you know, United has expressed an interest in A three twenty. 0:05:58.520 --> 0:06:02.080 One's sort of constricted again. They've got you know, the 0:06:02.120 --> 0:06:05.960 backlog is full. There's airlines that want all those deliveries 0:06:06.000 --> 0:06:08.760 for the next number of years. We've seen Jet Blue 0:06:08.800 --> 0:06:11.279 pop up and Spear airlines pop up and say, hey, 0:06:11.680 --> 0:06:13.240 we might be willing to give up some of our 0:06:13.279 --> 0:06:14.919 airplanes or we are willing to give up some of 0:06:14.960 --> 0:06:17.840 our airplanes. We think that's a function of Airbus going 0:06:17.839 --> 0:06:21.520 out to those customers saying, we have another potential customer 0:06:21.520 --> 0:06:23.640 that would like a three twenty one's do you definitely 0:06:23.640 --> 0:06:26.200 want everything you've got in the in the books for 0:06:26.200 --> 0:06:27.240 the next couple of years. 0:06:27.760 --> 0:06:29.960 How did we get this might be a very silly question, 0:06:30.040 --> 0:06:31.440 but how did we get to the point where we 0:06:31.520 --> 0:06:33.400 got two airplane makers? 0:06:34.320 --> 0:06:35.440 And how does that make sense? 0:06:36.000 --> 0:06:38.640 Well, I mean, for I mean, these are this is 0:06:38.680 --> 0:06:43.120 not volume like automobiles, right, you sell right, I mean 0:06:43.120 --> 0:06:45.880 a good year in this business is what a little 0:06:45.880 --> 0:06:47.920 bit over a thousand airplanes a year? 0:06:48.080 --> 0:06:50.520 Right, So it's not necessarily. 0:06:50.080 --> 0:06:54.520 An industry that would support five or six manufacturers with 0:06:54.600 --> 0:06:57.120 the right pricing and you know, in the right margins. 0:06:57.120 --> 0:06:59.080 And then you've got to put money into R and 0:06:59.160 --> 0:07:01.680 D and development while you're you know, so you've got 0:07:01.720 --> 0:07:03.919 to earn a decent return so you can invest for 0:07:04.000 --> 0:07:04.560 the future. 0:07:05.040 --> 0:07:07.000 We did have more right in the US. 0:07:07.040 --> 0:07:09.600 We had Boeing, we had McDonald, Douglas, lockeed used to 0:07:09.600 --> 0:07:13.720 build a commercial aircraft. But you know, I think over 0:07:13.760 --> 0:07:17.360 time it's slimmed down to where you could make them profitable. 0:07:17.400 --> 0:07:20.360 And at the same time, airbus was growing in Europe 0:07:20.520 --> 0:07:22.840 because the Europeans wanted to be in this business. Right, 0:07:22.880 --> 0:07:27.160 this is a is a good margin, you know, strong 0:07:27.240 --> 0:07:32.920 manufacturing kind of industry which really supports great jobs. They 0:07:32.960 --> 0:07:36.400 were rising, and that meant some of the US manufacturers 0:07:36.400 --> 0:07:40.200 had to go away to create room for a European competitor. 0:07:40.520 --> 0:07:43.400 And what we have in the horizon someday, I think 0:07:43.440 --> 0:07:45.760 it's probably five or six years away at least, is 0:07:45.800 --> 0:07:47.880 the Chinese that want to be in the business. So 0:07:47.960 --> 0:07:52.640 either the pie has to grow even maybe fifty percent larger. 0:07:53.000 --> 0:07:55.600 Or someone's got a dwindle in that whole thing. 0:07:55.680 --> 0:07:59.200 Right, interesting? All right, on's the next boondoggle slash air 0:07:59.240 --> 0:07:59.760 show that you. 0:07:59.840 --> 0:08:00.840 Go schedule to go to. 0:08:00.920 --> 0:08:02.320 Yeah, you go to some fun ones. 0:08:02.160 --> 0:08:04.960 I mean, and they're not in Cleveland in December, they're not. 0:08:05.120 --> 0:08:06.600 I just well, I just have to say, none of 0:08:06.600 --> 0:08:09.520 these are boondogles. I work really hard, exhausted. 0:08:09.080 --> 0:08:09.720 When I come home. 0:08:10.440 --> 0:08:11.720 All right, So what's the next one? 0:08:11.800 --> 0:08:13.760 Farnborough Airshow Farmborough. 0:08:13.320 --> 0:08:16.720 Air Show outside of London in July? What's the theme there? 0:08:16.760 --> 0:08:19.120 I mean, if I'm boeing, can I even show my 0:08:19.160 --> 0:08:22.080 face there. I mean, what do I I can't sell stuff. 0:08:22.480 --> 0:08:25.840 I mean, even if I make an announcement I'm selling, 0:08:25.920 --> 0:08:28.440 you know, two hundred planes to Emirates or something, I 0:08:28.520 --> 0:08:30.120 don't I don't have the capacity to build them. 0:08:30.200 --> 0:08:32.400 Yeah, so this year will be very interesting, right because 0:08:32.440 --> 0:08:35.600 I think frankly, Airbus end Boeing don't have a lot 0:08:35.600 --> 0:08:38.640 more capacity right now, so I would expect the show 0:08:38.640 --> 0:08:39.920 would have a lot less sales. 0:08:39.960 --> 0:08:42.719 It's a sales show, yeap. Although on the. 0:08:42.679 --> 0:08:45.880 Wide body front, there's I think room to increase those 0:08:45.880 --> 0:08:48.640 build rates, especially for the Boeing seven eighty seven and 0:08:48.679 --> 0:08:50.000 the Airbus A three fifty. 0:08:49.920 --> 0:08:52.000 There are they separate factories. Do I build my seven 0:08:52.080 --> 0:08:54.280 thirty seven and my seven eighty seven in the same factory? 0:08:54.520 --> 0:08:55.680 No, you build them a separate. 0:08:55.480 --> 0:08:57.600 Factory, okay, So I okay, so I can ramp. 0:08:57.800 --> 0:09:00.440 Yeah, And look, you know you have much lower volume 0:09:00.480 --> 0:09:02.840 on seventy and seven builds at six a month, right, 0:09:03.120 --> 0:09:05.720 So going to nine a month, you're not asking your 0:09:05.840 --> 0:09:08.520 suppliers to do a heck of a lot more, right, 0:09:08.800 --> 0:09:11.160 They're going fifty percent higher, but on very low volume. 0:09:11.520 --> 0:09:14.080 But so both of those manufacturers would like to increase 0:09:14.440 --> 0:09:16.720 the volume of those two airplanes, the three fifty and 0:09:16.720 --> 0:09:19.599 seven eighty seven, because those would help them add to 0:09:20.440 --> 0:09:23.120 you know, better margin, better cash flow. At the rates 0:09:23.160 --> 0:09:25.920 they're at now, their break even ish, they could get 0:09:25.920 --> 0:09:29.320 them into the low or sorry, high single digits, low 0:09:29.400 --> 0:09:31.400 double digits. I think if they got them up to 0:09:31.480 --> 0:09:33.640 ten or so, they're on the road to do that. 0:09:33.720 --> 0:09:36.520 So I'd see this show being a wide body sales show. 0:09:37.400 --> 0:09:39.920 Okay, so that's sort of the Boeing Airbus story. Before 0:09:39.960 --> 0:09:43.400 we let you go, how is general demand? Like we 0:09:43.440 --> 0:09:46.520 know from say Spirit it's not great, but that might 0:09:46.559 --> 0:09:48.440 be a spirit thing. But then you have the Delta 0:09:48.640 --> 0:09:50.640 United American. How are they doing? 0:09:50.800 --> 0:09:54.480 Oh, it's great, everything's great, it's great, but profitability isn't great. 0:09:54.760 --> 0:09:57.800 So that means yea pricing might not be right. 0:09:58.160 --> 0:10:01.160 So you know, what we what we're seeing the TV's 0:10:01.200 --> 0:10:04.520 we're seeing is that it looks like premium demand. 0:10:04.200 --> 0:10:05.400 Is still pretty strong. 0:10:05.520 --> 0:10:08.480 Tom King, and that's gonna help Tom King's bereaving and 0:10:08.480 --> 0:10:12.760 that's gonna help, you know, the big three Delta United American. 0:10:12.880 --> 0:10:15.360 Right, but the back of the bus. 0:10:15.320 --> 0:10:17.520 If you will, right, the back of the cheap seats, 0:10:17.840 --> 0:10:22.880 those are those are in much more supply and much 0:10:22.880 --> 0:10:25.720 more competitive right now. And so if you're an airline 0:10:25.760 --> 0:10:29.680 that focuses just on economy, I think you're gonna have 0:10:29.679 --> 0:10:32.480 a harder time this earning season than you will for 0:10:32.559 --> 0:10:34.440 the Big three the Pats. 0:10:34.440 --> 0:10:35.680 You're gonna take a lot of a lot of the 0:10:35.679 --> 0:10:37.480 money away from the airlines this quarter. 0:10:38.200 --> 0:10:41.080 Really, the airline business is looking to us like there's 0:10:41.080 --> 0:10:42.360 a lot less business travel. 0:10:42.760 --> 0:10:45.120 There's there's not a lot less. 0:10:45.120 --> 0:10:47.440 There's ten or ten or twenty percent less business travel, 0:10:47.640 --> 0:10:50.720 but it hurts because it's high, high price travel. So 0:10:50.800 --> 0:10:53.280 it looks like the business may make even more of 0:10:53.280 --> 0:10:56.520 its profitability in two Q and three Q. We're not 0:10:56.600 --> 0:10:59.640 expecting great things in one Q from anybody, but again, 0:10:59.640 --> 0:11:01.719 the full server should do a little bit better. And 0:11:01.760 --> 0:11:05.720 what we're all watching is is leisure summer demand going 0:11:05.760 --> 0:11:08.760 to be so strong that it's going to drive profits 0:11:08.840 --> 0:11:11.319 for the year, better profits for the year than they 0:11:11.360 --> 0:11:15.800 had last year. We feel like ticket prices might be softening. 0:11:16.559 --> 0:11:19.160 We'll get our first glimpses as as airlines start to 0:11:19.200 --> 0:11:20.840 report and tell us what they're seeing for bookings. 0:11:20.880 --> 0:11:24.360 Well, Alex and I have a major business trip for 0:11:24.520 --> 0:11:27.439 the month of June very it's gonna be very impactful. 0:11:27.440 --> 0:11:30.560 So we'll be doing our Uh did you get your tickets? 0:11:31.600 --> 0:11:32.240 I got to do that. 0:11:32.320 --> 0:11:33.200 Oh yeah, you got to do that. 0:11:33.440 --> 0:11:37.079 I TV. We're like book and stuff like three days before. 0:11:37.840 --> 0:11:39.520 I'm not like the long which is funny because I'm 0:11:39.520 --> 0:11:40.640 actually a long term planner. 0:11:41.000 --> 0:11:44.080 George, good to see you. Great to see for coming in. 0:11:44.160 --> 0:11:46.000 We'll probably drag you over here tomorrow to are you 0:11:46.000 --> 0:11:46.600 here tomorrow to. 0:11:49.679 --> 0:11:50.720 Go back to Princeton's. 0:11:52.600 --> 0:11:54.560 They have lunch, They have everything there exactly. 0:11:54.640 --> 0:11:55.200 We have un. 0:11:56.720 --> 0:11:59.160 Real lunch lunch stations. 0:11:59.200 --> 0:12:00.960 Proper all really. 0:12:00.800 --> 0:12:03.800 Wants to go to Prince Boomberg Intelligence in your Aerospace, 0:12:03.840 --> 0:12:06.559 Defense and Airlines analyst George Ferguson and joining us now 0:12:06.640 --> 0:12:07.680 always a pleasure. 0:12:10.280 --> 0:12:14.160 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:12:14.240 --> 0:12:17.760 weekdays at ten am Eastern on applecar Play and Android 0:12:17.800 --> 0:12:20.959 Auto with the Bloomberg Business. You can also listen live 0:12:21.040 --> 0:12:24.240 on Amazon Alexa from our flagship New York station. Just 0:12:24.280 --> 0:12:27.840 say Alexa play Bloomberg eleven thirty. 0:12:29.559 --> 0:12:32.120 Okay, sorry, okay, pay attention French. 0:12:32.200 --> 0:12:35.360 They have lavendercent they have almonds. It's just anyway. My 0:12:35.400 --> 0:12:37.440 point being is that that's how we know it. It's 0:12:37.480 --> 0:12:41.400 the good hand cream place, and apparently it's billionaire owner 0:12:41.720 --> 0:12:44.600 is nearing a deal to take that skincare company private 0:12:44.640 --> 0:12:48.240 with funding help from Blackstone. And this is people familiar 0:12:48.320 --> 0:12:50.560 with the matter ending it's fourteen year run on the 0:12:50.600 --> 0:12:52.200 Hong Kong Stock Exchange. 0:12:52.200 --> 0:12:53.719 To be honest, I didn't even know. I didn't even 0:12:53.760 --> 0:12:54.559 know what traded. 0:12:54.360 --> 0:12:56.360 In Hong Kong. Not to die. I'm trying to look 0:12:56.360 --> 0:12:58.480 it up here. But it's working on you. 0:12:58.880 --> 0:12:59.400 He's working on it. 0:12:59.400 --> 0:13:00.720 He's gonna work on it, and we're going to talk 0:13:00.760 --> 0:13:03.240 about it. Joining us now for more is David Havens, 0:13:03.440 --> 0:13:07.720 Bloomberg Intelligence, a senior credit analyst. He joins us, Okay, 0:13:07.760 --> 0:13:08.880 so do you use the hand cream? 0:13:10.160 --> 0:13:11.000 I use the soap? 0:13:11.520 --> 0:13:15.080 See soap, See soap if they give. 0:13:14.920 --> 0:13:15.760 It away at hotels. 0:13:16.160 --> 0:13:16.319 Yes. 0:13:17.760 --> 0:13:20.280 So is this Blackstone buying the company or is this 0:13:20.320 --> 0:13:23.240 Blackstone being kind of like a banker to the billionaire 0:13:23.280 --> 0:13:24.319 and helping them buy it out. 0:13:24.480 --> 0:13:25.079 It's the ladder. 0:13:25.240 --> 0:13:27.920 So the way that the story reads us far is 0:13:27.960 --> 0:13:31.240 that the billionaire owner is going to take the company private, 0:13:31.320 --> 0:13:35.319 or is making efforts to take the company private Blackstone. 0:13:35.760 --> 0:13:37.920 I don't know if they will or won't. You know, 0:13:37.960 --> 0:13:39.920 it seems like the sort of thing that Blackstone might 0:13:39.960 --> 0:13:42.720 take a piece of the equity also for some of 0:13:42.760 --> 0:13:46.880 its funds, But I think the primary role that Blackstone 0:13:46.880 --> 0:13:49.600 will be playing here is providing the funding, the credit 0:13:49.640 --> 0:13:51.080 funding for the cash purchase. 0:13:51.240 --> 0:13:52.640 So what's it? 0:13:52.679 --> 0:13:55.600 Seems like Blackstone is everywhere these days, and granted they 0:13:55.640 --> 0:13:59.360 are literally everywhere. What are they doing in this marketplace? 0:13:59.400 --> 0:14:00.320 What is it? 0:14:00.360 --> 0:14:02.840 Kind of these deals here where they take a piece 0:14:02.840 --> 0:14:05.160 of the capital structure, whether it's equity or dead or 0:14:05.240 --> 0:14:08.160 they do just big deals themselves. What are they up 0:14:08.160 --> 0:14:08.800 to these days? 0:14:08.920 --> 0:14:12.280 Well, Blackstone is a trillion dollar alternative asset manager. It's 0:14:12.320 --> 0:14:15.160 the largest in the largest in the world. Or in 0:14:15.200 --> 0:14:18.320 the earlier segment, you talked about Blackstone's position in real estate. 0:14:18.360 --> 0:14:20.880 I believe they are the largest institutional investor in real 0:14:21.000 --> 0:14:24.720 estate with over three hundred billion of assets in their portfolio. 0:14:25.560 --> 0:14:28.920 They're gigantic in private equity, gigantic and private credit. 0:14:29.000 --> 0:14:30.600 They've got about. 0:14:30.280 --> 0:14:33.320 Two hundred billion dollars a dry powder that they need 0:14:33.360 --> 0:14:35.400 to put to work in order to earn fees on 0:14:35.440 --> 0:14:35.920 that money. 0:14:37.440 --> 0:14:40.160 So they've got a lot of deals. Oh yeah, I 0:14:40.160 --> 0:14:42.640 mean where is that number? Typically, I got to figure 0:14:42.640 --> 0:14:45.000 that two hundred million dollars with dry powders, probably more 0:14:45.040 --> 0:14:47.680 than they would like because they don't necessarily get paid 0:14:47.680 --> 0:14:49.720 on that lots just sitting there. They got to go 0:14:49.760 --> 0:14:51.680 out and spend it and then raise some more, which 0:14:51.680 --> 0:14:52.440 is where they get paid. 0:14:52.720 --> 0:14:55.040 Yeah, And just to put all that in context, I 0:14:55.040 --> 0:14:57.440 think that there's two to three trillion dollars a dry 0:14:57.480 --> 0:15:02.280 powder across the private multiverse, I guess we can call it. 0:15:03.280 --> 0:15:05.720 But they're going to be looking everywhere globally, and they've. 0:15:05.560 --> 0:15:06.360 Got global reach. 0:15:06.680 --> 0:15:10.680 You know, that is pretty much not many compared to 0:15:10.720 --> 0:15:13.040 their global reach. The few in the ballpark. 0:15:13.080 --> 0:15:15.920 Maybe just going to the structure of the less of 0:15:15.920 --> 0:15:19.400 ten deal for a sec, is this unusual for Blackstone 0:15:19.440 --> 0:15:21.400 to provide the funding that like a bank would have 0:15:21.400 --> 0:15:22.960 normally done for the billionaire. 0:15:24.000 --> 0:15:26.120 It's more and more common than it used to be. 0:15:26.200 --> 0:15:28.480 And I think that you can pretty much go back 0:15:28.480 --> 0:15:32.440 to the financial crisis. You can go back to bank 0:15:32.480 --> 0:15:36.040 regulations being rewritten in the aftermath of the financial crisis, 0:15:36.080 --> 0:15:41.840 with riskway charges going up on corporate lending. So basically 0:15:41.920 --> 0:15:45.360 one of the upshots of Basle Threebouzel four dot Frank 0:15:46.000 --> 0:15:49.560 is that it's taken commercial banks, regional banks out of 0:15:49.680 --> 0:15:53.880 sort of the traditional business of lending to lending to corporations, 0:15:53.920 --> 0:15:58.680 particularly on a leverage basis, and so Blackstone KKR, the 0:15:58.800 --> 0:16:02.400 whole universe of the credit is able to step into 0:16:02.440 --> 0:16:07.360 that breach on favorable favorable funding costs without some of 0:16:07.400 --> 0:16:10.840 the regulatory overhang, and they're able to do pretty well 0:16:10.880 --> 0:16:11.200 right now. 0:16:12.040 --> 0:16:14.600 All right, folks, on the bio page, if you want 0:16:14.600 --> 0:16:16.640 to see at the bio of any guests we have, 0:16:16.720 --> 0:16:19.000 for example, you go bio in the name, and it's 0:16:19.040 --> 0:16:21.840 got career and education and all that kind of stuff. 0:16:21.880 --> 0:16:24.440 And it's also a little section there called memberships maybe 0:16:24.480 --> 0:16:27.680 where your you know, board of directors or something like that. 0:16:27.720 --> 0:16:30.000 If you're a member Council Foreign Relations, you would list 0:16:30.040 --> 0:16:35.800 it there, David havens under memberships includes Netflix and Sam's 0:16:35.800 --> 0:16:36.840 Wholesale Club. 0:16:37.160 --> 0:16:38.760 I love that you did that. That's awesome. 0:16:38.960 --> 0:16:42.480 That's a few other memberships too, right, that's very proud, 0:16:42.600 --> 0:16:46.200 very prestigious. Uhould be very very proud, David. I'm surprised 0:16:46.280 --> 0:16:49.760 we haven't seen more private equity back to IPOs. I mean, 0:16:49.800 --> 0:16:52.680 I got a market. It's up twenty five percent since October. 0:16:52.680 --> 0:16:54.200 Back when I was on the street, I could push 0:16:54.200 --> 0:16:57.040 out a gajillion deals with that kind of backdrop. Why 0:16:57.080 --> 0:16:59.760 are the private equity guys maybe not pushing Are they 0:17:00.160 --> 0:17:03.440 about down round valuations or because I got to think 0:17:03.800 --> 0:17:05.960 it's been a foul of a couple of years here 0:17:06.040 --> 0:17:08.160 for new deals, I would think they'd want to lock 0:17:08.240 --> 0:17:09.600 up or unlock some of these things. 0:17:09.800 --> 0:17:12.560 Yeah, No, I think absolutely, And I think that what's 0:17:12.560 --> 0:17:14.159 happened is you're going to see a lot more of 0:17:14.200 --> 0:17:16.960 these realizations as they're called, you know, taking place. 0:17:17.640 --> 0:17:18.040 But we're not. 0:17:18.600 --> 0:17:20.560 We're let's we're only about a year off from the 0:17:20.600 --> 0:17:23.119 regional banking crisis in the US and the failure of 0:17:23.160 --> 0:17:26.080 credit Swiss, you know, so we saw some pretty significant 0:17:26.119 --> 0:17:31.119 tectonic temblers in the world of banking, and that I 0:17:31.200 --> 0:17:33.920 think put things on pause for a period of time. 0:17:34.200 --> 0:17:36.040 But I think that we're pretty much coming out of it. 0:17:36.080 --> 0:17:38.800 And if you look at equity valuations, the markets are obviously, 0:17:38.880 --> 0:17:41.199 you know, doing extremely well. Might be concentrated in a 0:17:41.200 --> 0:17:43.720 few names, but the market's generally doing well. And if 0:17:43.720 --> 0:17:46.960 you look at the credit market, the high grade credit 0:17:46.960 --> 0:17:49.800 index in the US is eighty six basis points right now, 0:17:50.119 --> 0:17:52.320 maybe one to two percent of the time. Over the 0:17:52.320 --> 0:17:54.919 past twenty or thirty years, it's been under one hundred 0:17:54.920 --> 0:17:58.320 basis points. We're near record tights six basis points away 0:17:58.359 --> 0:18:01.440 since nineteen ninety nine. So markets I think are ready 0:18:01.440 --> 0:18:03.840 and receptive. So it's just a case of I think 0:18:03.880 --> 0:18:07.440 getting these things prepped and ready to sort of send 0:18:07.440 --> 0:18:09.399 out the door. And they may not be IPOs, they 0:18:09.440 --> 0:18:12.280 might be sales to other private investors. 0:18:11.840 --> 0:18:12.800 Right, secondaries. 0:18:12.880 --> 0:18:15.080 Right, I feel like I've read a lot about how 0:18:15.119 --> 0:18:17.439