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Speaker 1: Turning to airlines, spirit renewing discussions to merge with Frontier
Speaker 1: as a deep discount, airlines struggles to compete. I spoke
Speaker 1: with Jeff Blue CEO Joanna Garrity yesterday about the hurdles
Speaker 1: facing smaller airlines. Take a listen.
Speaker 3: Smaller carriers really need to be given a fair shot
Speaker 3: to win in this environment, and that's not happening right now.
Speaker 3: So we're focus on what we can control. We're focus
Speaker 3: on a whole series of initiative under our Jet Foward program.
Speaker 3: We do need the government to kind of make that
Speaker 3: a more level playing fields so smaller carriers can more
Speaker 3: effectively compete. Twenty twenty six really is the year that
Speaker 3: we should reap the benefits of all these initiatives that
Speaker 3: we put into place in twenty twenty five.
Speaker 1: Chili Kayalu of Jeffries joins us now for more And
Speaker 1: as we talk about mergers once again in the airline space,
Speaker 1: aside from the Big three, how difficult is it for
Speaker 1: companies that are not Delta United or American to survive
Speaker 1: in the current landscape of airlines.
Speaker 4: Yeah, it seems this seems to be more defensive move
Speaker 4: on the part of the airlines right. Consolidation is driven
Speaker 4: by defensive tactics, and airlines in general are a very
Speaker 4: tough business. That's why they trade at sixty percent discount
Speaker 4: to the market. Airplanes are expensive. Boeing knows that costs
Speaker 4: are expensive. Thirty percent is jet fuel, thirty percent is
Speaker 4: labor labor. And when your revenues are growing three percent
Speaker 4: because your pricing is down and your costs are up
Speaker 4: five it creates a very difficult environment for airlines to
Speaker 4: thrive in. Whether that's gate costs like Jet Blue mentioned
Speaker 4: or additional fees. It makes it hard for airlines, so
Speaker 4: they have to consolidate or they have to price down
Speaker 4: to take market share, or.
Speaker 1: They have to become other industries like credit card companies
Speaker 1: or luxury experience providers. I mean, how much is that
Speaker 1: the saving grace, the idea that you could get some
Speaker 1: sort of additional premium customer that people are leaning into experiences.
Speaker 5: Willing to pay for it.
Speaker 1: How much is that, really, truthfully the model going forward?
Speaker 5: That's always been the bookcase on airlines.
Speaker 4: You value Delta sky miles on a credit card multiple.
Speaker 4: You value their MRO business on an aftermarket multiple of
Speaker 4: twenty five times. Ziebada a novel. All of a sudden,
Speaker 4: you're getting an airline for free, essentially. So that's been
Speaker 4: the bookcase. But the separation of those assets is likely hard,
Speaker 4: and we haven't seen that happen.
Speaker 6: Che I know you and the team of Jeffries are
Speaker 6: bullish on United. But I'd like to talk about American
Speaker 6: Airlines and some of the management decisions which has put
Speaker 6: the company in place where it is today. I'm talking
Speaker 6: about Seattle, I'm talking about routing, I'm talking about choice
Speaker 6: of which airplanes to retire. You know, what will it
Speaker 6: take for American Airlines to write the ship here?
Speaker 5: I think the airline set up into twenty six.
Speaker 4: And I say this every January and then I regret
Speaker 4: it in February.
Speaker 5: Because I say the setup is positive.
Speaker 4: For airlines, and I retract those comments pretty quickly, and
Speaker 4: we've done that for America in the last two years.
Speaker 4: But I do think the setup is positive and that
Speaker 4: capacity going into twenty six is fairly tight. That goes
Speaker 4: across the board for the airlines, and American in particular
Speaker 4: has very easy comps. Recall a year and a half
Speaker 4: ago they had a snap foo with their corporate relationship,
Speaker 4: so their corporate is just getting back to twenty twenty
Speaker 4: four levels, so they're about a year behind. And if
Speaker 4: that's where we've seen a lot of the premium growth
Speaker 4: is on that corporate so that could be a huge
Speaker 4: upside driver for them if they take back their share
Speaker 4: and then some, which they seem to do.
Speaker 3: So they have the.
Speaker 4: Easiest comp set, and airlines in general have an easy
Speaker 4: comp set with the shutdown with the tariff impact in
Speaker 4: Q one, so essentially Q one and Q four are
Speaker 4: easy comps for them twenty six, but we'll see. I
Speaker 4: think a rerating takes discipline, capacity in the market and
Speaker 4: pricing for the main cabin to really improve at least
Speaker 4: two flat.
Speaker 6: Well, let's shift gears to the manufacturers. Let's talk about
Speaker 6: Airbus and Boeing. Right, let's talk about how the market's
Speaker 6: coping with these supply chain bottlenecks. I'm talking about forgings, Castings, Interiors.
Speaker 5: Talk to us a.
Speaker 6: Little bit about what your projections for those two companies
Speaker 6: are in the new year.
Speaker 4: Sure, So, I actually had one of my favorite days
Speaker 4: of my career last week. I went up to Seattle
Speaker 4: by myself and got to spend ten hours in rent
Speaker 4: In and Ever and it was the most fun I've
Speaker 4: had in that I saw the Boeing rent In line,
Speaker 4: which creates the seven thirty seven that's about fifty percent
Speaker 4: of their sales of buzzing, for the first time. It
Speaker 4: was really neat to see the three lines cycling at
Speaker 4: forty two. This is a manufacturer that was doing twenty
Speaker 4: five a month in twenty four so did double production
Speaker 4: at the end of this year, and the employment base
Speaker 4: was invigorated.
Speaker 5: They were happy.
Speaker 4: And I think the new CEO, Kelly Orperg who's been
Speaker 4: there for eighteen months, is certainly making that change happen.
Speaker 4: He's changed about forty percent of the leadership in order
Speaker 4: to do that. So really good news on the three
Speaker 4: seven front and that the production rate is actually going up.
Speaker 4: Airlines will have planes, and it's a matter of certification
Speaker 4: on large programs like the Triple seven X they have,
Speaker 4: which they took a big charge for in Q three.
Speaker 5: So will that be certified at the end of next year.
Speaker 1: It sounds like all of the airline and airplane related
Speaker 1: executives saying twenty twenty six will be our year. Twenty
Speaker 1: twenty five wasn't exactly it due to all of the
Speaker 1: machinations throughout the throughout this year. I do want to
Speaker 1: end with Frontier and Spirit. I know you can't talk
Speaker 1: to these specific names. I do want to get a
Speaker 1: general sense though, about whether the feeling right now in
Speaker 1: the c suite is that this administration will be more
Speaker 1: amenable to some of these tie ups and be more
Speaker 1: open on a regulatory front than they have been. It's
Speaker 1: been a mess every single time that companies have been
Speaker 1: trying to that have tried to tie up.
Speaker 5: Yeah, this is clearly a defensive move.
Speaker 4: It'll take about five percent of capacity out of the market.
Speaker 4: It'll help remove capacity to strain markets where you're seeing
Speaker 4: pricing down, So you know, I think airline consolidation is
Speaker 4: something we haven't seen a lot.
Speaker 5: Of in aerospace on the hand.
Speaker 4: On the other hand, going back a dal a day,
Speaker 4: in aerospace and defense tech, it's been very prolific for
Speaker 4: transactions in that market, whether it's manufacturers or defense tech,
Speaker 4: with the administration really supporting growth in the industry.
Speaker 5: So that's been a positive.
Speaker 2: Stay with US multiple IMPEG Savanance coming up.
Speaker 7: Off to this.
Speaker 5: Joining us now for more.
Speaker 1: I'm so pleased to say, as Republican Congressman French Hill
Speaker 1: of Arkansas congressman, thank you so much for being with us.
Speaker 1: I want to start with this disagreement in Congress about
Speaker 1: even being able to vote.
Speaker 5: On these subsidies.
Speaker 1: Have you ever seen Congress Republicans in general more divided
Speaker 1: over this issue than they are right now?
Speaker 7: Well, Lisa, it's good to be with you.
Speaker 8: Merry Christmas, Eppie, Hanika to all your viewers and everybody
Speaker 8: at Bloomberg. Well, first, let's be clear the tax credits
Speaker 8: for Obamacare policies are not expiring, the ones that were
Speaker 8: expanded by Joe Biden during the COVID nineteen pandemic. Are expiring,
Speaker 8: but that base tax credit that dates back to the
Speaker 8: beginning of Obamacare for moderate income families with children is
Speaker 8: still in place, So let's be clear about that. And
Speaker 8: I'm not sure I agree with the estimate that was cited.
Speaker 8: What Republicans are trying to do are side with American
Speaker 8: families across the board and lower premiums across the board,
Speaker 8: and we consistently brought bills to the House floor to
Speaker 8: do that, and we've had Democrats reject them. Last week,
Speaker 8: the Senate could not find a consensus on this, and
Speaker 8: that's the definitive place. That was the commitment made during
Speaker 8: the spending votes. So I think everybody, Democrats, independence, Republicans
Speaker 8: all are suffering from the cost of living burden to
Speaker 8: us by the nine percent inflation from the Biden administration.
Speaker 7: That's coming down.
Speaker 8: But there's much more work to do, and that includes
Speaker 8: on passing bills that will actually lower premiums for all
Speaker 8: Americans across the board.
Speaker 6: Congressman Hile, I'm wondering if you could talk to us
Speaker 6: a little bit about the Housing for twenty first Century Act,
Speaker 6: the act that's expected to streamline housing development provide incentives
Speaker 6: for builders just exactly what is the act and how
Speaker 6: is it going to alleviate the lack of supplying the
Speaker 6: US housing market.
Speaker 7: You bet, thanks David. It's such a big issue.
Speaker 8: We have so many people and so many markets that
Speaker 8: have experienced a run up in house prices during the
Speaker 8: past five years and certainly a run up in mortgage
Speaker 8: rates due to the FED fighting the Biden inflation from
Speaker 8: twenty one and twenty two, and that's really caused a
Speaker 8: lot of people to not have access to the house
Speaker 8: that they want. So what we're doing today is we're
Speaker 8: marking up bills that will reduce regulatory costs to building
Speaker 8: new houses, improve zoning to encourage better density, more different
Speaker 8: kinds of unit across different cities in the US. We're
Speaker 8: talking about improving opportunities for rural housing development, make it
Speaker 8: easier for a veteran to get a veteran's loan, and
Speaker 8: hold HUT accountable on what I think is a deplorable
Speaker 8: job that they've done over the past decade or so
Speaker 8: in managing public housing for our neediest citizens across the
Speaker 8: country who I think have poor many poor conditions, and
Speaker 8: HUT is not holding either private landlords or their own
Speaker 8: housing authorities accountable.
Speaker 6: Congressman Hill us housing affordability as we know as at
Speaker 6: an all time loan. I'm wondering, what is the act
Speaker 6: or the bill, the proposal. How does it address home
Speaker 6: owner expenses, utilities, insurance. I mean, we know that you
Speaker 6: know op X has really risen over the past few years.
Speaker 6: Does it do anything to alleviate the stress on homeowners?
Speaker 8: Well on homeowners again, eighty percent of the cost that
Speaker 8: goes into a house or local zoning, local code decisions,
Speaker 8: local development fees that are charged urged on building new houses.
Speaker 7: If you want to bring down.
Speaker 8: The cost of the mortgage or the cost of property
Speaker 8: and casualty insurance, you need to confront inflation. Which is
Speaker 8: why I believe the Fed's primary focus is price stability.
Speaker 8: And we've made progress from the nine percent we experienced
Speaker 8: under Joe Biden's fiscal mismanagement and the Fed's mismanagement coming
Speaker 8: out of the pandemic, and there's a sustained pressure there
Speaker 8: to bring down costs and that will in turn bring
Speaker 8: down property and casually insurances that will bring down the
Speaker 8: cost of financing. This is a prime goal for the administration.
Speaker 8: But what this bill focuses on is lowering the cost
Speaker 8: to manage housing, lower the cost to build housing, and
Speaker 8: that's something I think will increase supply, and increase supply
Speaker 8: will lower prices. We've already seen a modest break in
Speaker 8: that five year high in price appreciation. About eleven top
Speaker 8: twenty five markets are seeing some easing off on pricing.
Speaker 1: Congress Fan, one thing that we keep talking about is
Speaker 1: the affordability crisis. And you've talked about President Biden several times.
Speaker 1: At what point do you think the President Trump needs
Speaker 1: to also, though, take some responsibility for the idea that
Speaker 1: inflation still is above its two percent target. He's talking
Speaker 1: about keeping rates even lower at the same time that
Speaker 1: he's been talking about the affordability crisis as a hoax.
Speaker 8: Well, look, the affordability crisis is not a hoax. I
Speaker 8: mean we see it in the grocery store when we shop.
Speaker 8: We've seen it in the price level that increased as
Speaker 8: a result. As I said of the Biden inflation, that
Speaker 8: will come down over time. There's work to be done.
Speaker 8: I think the President's put his attention on doing that
Speaker 8: by lowering long term energy prices, by increasing We're going
Speaker 8: to vote this week to increase permitting on federal lands,
Speaker 8: which will open up future development for oil on gas production.
Speaker 7: That's good.
Speaker 8: Encouraging production across the country will bring down gas prices
Speaker 8: over the next few years.
Speaker 7: And patrollum goes into everything that we make.
Speaker 8: So that will bring down prices as well as some
Speaker 8: of the things we're tackling on deregulation and financing. I've
Speaker 8: worked hard in my committee to bring down the cost
Speaker 8: of financing by making our banks of all sizes more competitive,
Speaker 8: to have more capital to lend to people who are
Speaker 8: building houses or wanting to have a mortgage on their
Speaker 8: first house.
Speaker 5: It's been just about a minute left.
Speaker 1: But how much will further FED rate cuts actually help
Speaker 1: with the affordability crisis? If price stability is you said,
Speaker 1: is their pre eminent mandate.
Speaker 8: Well, look, this is why the FED has a tough
Speaker 8: job to determine what the right price level is, what
Speaker 8: the right level of ample reserves are. And prices have
Speaker 8: been coming down, they just have gotten sticky right above
Speaker 8: the Fed's target. So I just simply say that the
Speaker 8: biggest tax on the American people is inflation, and we've
Speaker 8: witnessed a forty year high of it due to the
Speaker 8: mistakes made by the FED coming out of the pandemic,
Speaker 8: and Joe Biden's decision to spend six trillion dollars more
Speaker 8: borrowed in the markets that I think was not the
Speaker 8: right decision to take, and we got inflation as a
Speaker 8: result of too many dollars chasing too few goods for
Speaker 8: those two years.
Speaker 2: Stay with us mulplindex Savana's coming up off to this.
Speaker 1: One thing that has been really strong this year has
Speaker 1: been discussions around trade. The White House keeping on the
Speaker 1: pressure on China, Treasure Secretary Scott Best and telling media
Speaker 1: the country's one trillion dollar trade surplus is unsustainable. Joining
Speaker 1: us now as Elizabeth Economy Senior Fellow at the Hoover
Speaker 1: Institution and one of the stalwart experts and scholars of
Speaker 1: the Chinese economy. Elizabeth, thank you so much for being
Speaker 1: with us. I want to start with your take on
Speaker 1: the trade war so far this year.
Speaker 5: Is there a clear winner?
Speaker 1: Has there been any progress? Has it reshaped the relationship
Speaker 1: between the US and China?
Speaker 9: Sure?
Speaker 10: Lots of questions wrapped up into that.
Speaker 8: You know.
Speaker 10: Look, I think the good news is the Bussan summit
Speaker 10: between Presidency and Trump really did establish a new equilibrium
Speaker 10: between the two countries that really you know, we took
Speaker 10: back some of the moves we'd made on export controls
Speaker 10: both sides. That was really important, especially for the United
Speaker 10: States because of China's hold on the you know, critical
Speaker 10: minerals and rare earth elements.
Speaker 9: We took back.
Speaker 10: The shipping port dot fees, you know, so, and we
Speaker 10: took off ten percent off the tariffs that we had
Speaker 10: on China, you know, so from fifty seven down to
Speaker 10: forty seven percent. So I think a new equilibrium. But
Speaker 10: that's not to say that there aren't going to be
Speaker 10: perturbations to the system. And we've already seen just over
Speaker 10: the past week with the announcement out of the State
Speaker 10: Department of pax Silica this you know, new arrangement between
Speaker 10: the United States and eight other countries to try to
Speaker 10: develop really a trusted supply chain from you know, Ai
Speaker 10: for the AI semiconductor supply chain all the way from
Speaker 10: you know investments in Australia in rare earth elements and
Speaker 10: critical minerals all the way through the UAE, with you know,
Speaker 10: providing financing. And then of course Taiwan is a special
Speaker 10: partner to the group because of course, you know, ninety
Speaker 10: percent of there are more of this advanced semiconductors that
Speaker 10: certainly the US relies on come from Taiwan. So you know,
Speaker 10: we took that action, and then the Chinese, you know,
Speaker 10: put back on some export controls around gallium and germanium
Speaker 10: and graphite, and put some companies that are involved in
Speaker 10: this new pack silica on their Unreliable Entities list, and
Speaker 10: so you know they're going to be these kind of
Speaker 10: tit for tat moves. Clearly, you know, the administration is
Speaker 10: not stomping in terms of what it wants to see
Speaker 10: in the tech competition space. It's going to do what
Speaker 10: it wants to do, and Shine is going to respond
Speaker 10: in kind.
Speaker 5: You know, hopefully we don't.
Speaker 10: Go into a free fall, we don't end up back
Speaker 10: at the you know, one hundred and fifty one hundred
Speaker 10: and seventy five percent caraff level. But I don't think
Speaker 10: it's going to be smooth sailing.
Speaker 1: There has been this bigger question about which economy is
Speaker 1: strong and better to withstand some of this volatility. Over
Speaker 1: the past couple of days, we've gotten data out of
Speaker 1: China signifying that there has been an ongoing decline, weakening
Speaker 1: and consumer appetite this concern about prices that are falling
Speaker 1: too rapidly. Do you think that this is laying the
Speaker 1: groundwork for some sort of stimulus to support the economy
Speaker 1: during this prolonged tip for tag I.
Speaker 10: Mean, look that Chinese you know playbook is basically, you know,
Speaker 10: more investment, and you know, over the past couple of years,
Speaker 10: that investment has moved away from the property sector, which
Speaker 10: has been in a prolonged slump, to the tech sector,
Speaker 10: you know, clean tech, legacy semiconductors, the whole array of
Speaker 10: made in China, twenty twenty five technologies, you know, where
Speaker 10: China wants to dominate, Chinese companies to dominate at home
Speaker 10: and then become global champions. So that includes new materials
Speaker 10: and evs and AI, all these you know, important cutting
Speaker 10: edge technologies. That is the playbook, and that is what
Speaker 10: they've been doing. But I think that's running its course.
Speaker 10: Local governments have you been building up their you know debt.
Speaker 10: The property sector is still slumping, There's no consumer confidence.
Speaker 10: The country has done very little to reshape the social
Speaker 10: welfare net to make people feel confident right that they're
Speaker 10: not going to have to spend their savings on some
Speaker 10: healthcare emergency or on their children's education. So the pension
Speaker 10: system is you know, basically broken in about a third
Speaker 10: of the provinces. So they have to do more to
Speaker 10: boost consumer confidence. They've been reluctant to do that and
Speaker 10: people are not and that's why they're not buying. And
Speaker 10: you know, as an aside, you know, also the birth
Speaker 10: rate continues to fall, and birth rate tracks with consumer confidence.
Speaker 10: So if they want to begin to address their demographic challenges,
Speaker 10: which are also enormous, they need to do more to
Speaker 10: address their consumer confidence.
Speaker 6: That's right, Elizabeth, demographic challenges, it's real estate crisis is
Speaker 6: entering it's fifth year in a row. Yet insiders are
Speaker 6: calling for a stronger you on despite the fact that
Speaker 6: it's an exportlet economy. I mean, I think sports rose
Speaker 6: above one trillion dollars for the first time on record
Speaker 6: last month. To talk to us about you know why,
Speaker 6: our insiders, why is China looking for the you want
Speaker 6: to appreciate in twenty twenty six, Well, I.
Speaker 10: Think it reflects a policy debate within China, and you know,
Speaker 10: a strong view one would encourage you know, consumers to
Speaker 10: buy more. It would give China greater credibility on the
Speaker 10: international stage in terms of you know, saying that It's
Speaker 10: currency should be the you know, should become a real
Speaker 10: reserve currency in the future as it pushes to dedollarize
Speaker 10: the global economy, and it would relieve some of the
Speaker 10: pressure that it's beginning to face from the international community
Speaker 10: now in terms of all those exports, right, because it's
Speaker 10: not just the United States that is calling out China
Speaker 10: for its you know, export of its over capacity and
Speaker 10: all those you know, evs and batteries, et cetera. It's
Speaker 10: now it's Europe, it's Mexico for example. It's threatening I think,
Speaker 10: fifty percent tariffs on Chinese goods. So I think China
Speaker 10: has a problem again not only with the United States
Speaker 10: and some of the advanced economies, but also with middle
Speaker 10: income and increasingly emerging economies that are seeing you know,
Speaker 10: their markets flooded with these Chinese goods, and their nascent
Speaker 10: industries are never going to be never going to have
Speaker 10: a chance to compete. So I think that would be
Speaker 10: those would be some of the reasons that the Chinese
Speaker 10: government might make a move toward appreciating.
Speaker 6: The Yan Yeah, I mean, Elizabeth, Chinese equities are up
Speaker 6: I think one point eight two percent overnight following that
Speaker 6: successful IPO of Meta X. I think the Chinese equity
Speaker 6: markets up sixteen seventeen.
Speaker 7: Percent year to date.
Speaker 6: Talk to us about foreign interest in Chinese equities. I mean,
Speaker 6: for me, I mean I look at the variable interest
Speaker 6: and toity structure as a putoff, right, I mean, you
Speaker 6: don't own anything really. You're owning a hold co in
Speaker 6: the Caymans. You're not really owning an op goo.
Speaker 5: Talk to us about how.
Speaker 6: An investor, a foreign investor here in the US, can
Speaker 6: get comfortable owning Chinese shares.
Speaker 10: Okay, so you're pushing me past what I, you know,
Speaker 10: actually focus on.
Speaker 9: So I don't want to be giving investment advice to
Speaker 9: of course, Well let me to say, I think, you know,
Speaker 9: the Chinese stark stock market, you know, has been compared
Speaker 9: to a casino you know, and gambling by you know.
Speaker 10: Some of China's most prominent economists. So you know, I
Speaker 10: would always just say fire beware. But you know, I
Speaker 10: am not in a position to be giving advice in
Speaker 10: this space.
Speaker 1: You are in a position to be getting advice to
Speaker 1: policymakers who'll be listening closely. Elizabeth Economy and for the
Speaker 1: Hoover institution. Thank you so much for being with us.
Speaker 1: This is one of the key stories that we've been
Speaker 1: focusing on, just how intertwined are these economies and who
Speaker 1: is going to win ultimately at a time when investors
Speaker 1: aren't sure yet, they're both voting with their feet on
Speaker 1: both fronts well.
Speaker 6: Affordability issues in China, I mean, the real estate crisis.
Speaker 6: It's fifth year in a row China. Vanke, a state
Speaker 6: owned developer, is probably been the fault this week. I mean,
Speaker 6: it's just things run mess domestically, and the fact that
Speaker 6: they're going to make exports that much more competitive by
Speaker 6: trying to appreciate the you on just doesn't make.
Speaker 5: Much sense to me.
Speaker 2: This is the Bloomberg's Events podcast, bringing you the best
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