WEBVTT - Credit Spread Cushion Is Pretty Much Gone: UBS's Falconio 0:00:01.400 --> 0:00:04.120 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, along 0:00:04.120 --> 0:00:06.240 with my co host of Bonnie Quinn. Every business day 0:00:06.240 --> 0:00:10.360 we bring you interviews from CEOs, market pros, and Bloomberg experts, 0:00:10.400 --> 0:00:13.560 along with essential market moving news. Kind the Bloomberg Markets 0:00:13.600 --> 0:00:17.000 Podcast on Apple podcast or wherever you listen to podcasts, 0:00:17.000 --> 0:00:21.400 and on Bloomberg dot com. Let's bring in Leslie Falconio, 0:00:21.560 --> 0:00:25.639 senior fixed income strategist at UBS Global Wealth Management. Nearly 0:00:25.680 --> 0:00:29.200 a trillion dollars in assets under management firm whide, including 0:00:29.360 --> 0:00:33.920 family office assets. So Leslie really has a great view 0:00:34.479 --> 0:00:38.120 of where people are putting their money, where flows are going, 0:00:38.520 --> 0:00:42.080 and what families are doing versus what institutions are doing. 0:00:42.120 --> 0:00:44.720 So Leslie talked to us first about those flows. Have 0:00:44.840 --> 0:00:49.000 we seen much of anything change hands recently? Is there 0:00:49.040 --> 0:00:54.520 a sort of an area that certain certain um demographics 0:00:54.600 --> 0:00:57.760 or what have you are moving towards. Yeah, I mean 0:00:58.120 --> 0:01:00.480 right now. Obviously we still have this in our in 0:01:00.480 --> 0:01:02.400 our opinion, a little bit too much cash on hands 0:01:02.440 --> 0:01:05.360 that we think investors have. But I think to your points, 0:01:05.680 --> 0:01:07.919 you know, as we know, especially in the fixed income aside, 0:01:07.920 --> 0:01:11.000 it's the search field and in order to really gain 0:01:11.640 --> 0:01:14.280 you know, decent yield and decent return going forward, you 0:01:14.280 --> 0:01:16.800 have to sort of looking at at the alternatives market, 0:01:17.160 --> 0:01:19.040 and that's where right now a lot of people are 0:01:19.080 --> 0:01:21.960 sort of allocating because of this stimulus that we've seen, 0:01:22.040 --> 0:01:24.120 because of all this central bank support, and because of 0:01:24.160 --> 0:01:27.160 the liquidity that people who have a little bit longer 0:01:27.200 --> 0:01:29.920 time horizons are really sort of picking their spots that 0:01:30.040 --> 0:01:32.119 areas that have been hit due to this crisis. So 0:01:32.400 --> 0:01:34.440 although people in our opinios still have a little bit 0:01:34.480 --> 0:01:37.120 too much cash, they are starting to allocate to somebody's 0:01:37.120 --> 0:01:41.400 alternative investments. When you say alternative investments, give us a 0:01:41.480 --> 0:01:46.360 little more detail on where, yeah, absolutely, Like i' let's 0:01:46.360 --> 0:01:48.600 just say things like commercial real estate. Okay, we know 0:01:48.800 --> 0:01:51.880 that the commercial real estate areas actually has had obviously 0:01:52.280 --> 0:01:54.640 you know a lot of points of concern, particularly those 0:01:54.680 --> 0:01:58.480 pockets of vulnerability, whether it's office space, you know, hotels, 0:01:59.160 --> 0:02:01.880 you know all those all those sort of areas that 0:02:01.920 --> 0:02:04.760 have really been a problem, problematic area that have not 0:02:04.840 --> 0:02:08.640 recovered yet. But the market is forecasting such high levels 0:02:08.680 --> 0:02:12.040 of delinquencies that right now there are alternatives that allow 0:02:12.120 --> 0:02:14.280 investors to really get involved for if they have a 0:02:14.320 --> 0:02:17.160 longer term of time arising and they're willing to forego 0:02:17.240 --> 0:02:20.000 a bit of liquidity. There are these pockets of opportunity 0:02:20.000 --> 0:02:24.240 because the market is pressing in such negativity. That's really 0:02:24.240 --> 0:02:26.520 interesting because you know, we hear so much about some 0:02:26.600 --> 0:02:30.359 of these businesses going going away, you know, hotels in particular, 0:02:30.480 --> 0:02:35.040 So is there a big premium to these investments? There are? 0:02:35.080 --> 0:02:36.720 I mean, and actually, and you're absolutely right. I mean, 0:02:36.800 --> 0:02:38.640 that's why you really need to pick your spots, and 0:02:38.680 --> 0:02:40.960 you really need to do your due diligence. But as 0:02:40.560 --> 0:02:44.000 as as opportunistic sort of as the opportunity set, particularly 0:02:44.040 --> 0:02:47.800 within fixed income and co and has participated, it's really 0:02:47.800 --> 0:02:52.080 gotten white. When you look at things like CMBs theory, 0:02:52.400 --> 0:02:54.880 those there are pockets of opportunities there if you do 0:02:54.960 --> 0:02:58.280 your due diligence, that are actually for the longer term, 0:02:58.440 --> 0:03:01.560 we believe, particularly because we do believe it'shistical stateless the summing, 0:03:01.840 --> 0:03:04.120 because we do believe there's there's the Fed and the 0:03:04.160 --> 0:03:07.280 government is a great backstop. We'll be able to recover, 0:03:07.360 --> 0:03:09.160 not not everywhere, but so you really need to pick 0:03:09.200 --> 0:03:12.120 your spots. But given you're an environment where you've had 0:03:12.120 --> 0:03:14.120 such great returns and equity and even a lot of 0:03:14.160 --> 0:03:17.360 recovery and fixed income. The opportunities are very small. So 0:03:17.480 --> 0:03:19.639 if you pick your spots, then over the longer term, 0:03:19.919 --> 0:03:24.280 you know, you have really good returns. So the market 0:03:25.040 --> 0:03:28.560 it's looking like it's anticipating a Biden victory right now. 0:03:28.760 --> 0:03:32.520 Is it too complacent? Leslie? You know, honestly, I think 0:03:32.560 --> 0:03:34.160 it is a bit too complaced. And and and I'll 0:03:34.200 --> 0:03:35.760 tell you why if you look at things like the 0:03:35.840 --> 0:03:38.080 credit market. Let's just look at the credit market for example, 0:03:38.360 --> 0:03:42.520 triple see how yield spreads are at pre COVID levels. Okay, 0:03:42.680 --> 0:03:46.840 the credit markets spreads are right now are incredibly incredibly tight, 0:03:47.120 --> 0:03:50.640 and you're really not getting compensated a tremendous amount for 0:03:50.800 --> 0:03:53.800 a fact elevent whether it's upboard down. So I do 0:03:53.920 --> 0:03:55.920 think the market is a bit complacent. It is just 0:03:55.960 --> 0:03:59.040 spooming this Biden suite. And you know, over longer term, 0:03:59.040 --> 0:04:00.960 I think with the market really needs to focus on 0:04:01.160 --> 0:04:03.240 is the fact that the curvice sea thing. You know, 0:04:03.280 --> 0:04:06.600 deals are a bit higher. But more importantly, that cushion 0:04:06.800 --> 0:04:11.040 that you once had is pretty much gone. Can you 0:04:11.120 --> 0:04:16.200 elaborate a little bit um Yeah? Absolutely, yeah. So for example, 0:04:16.240 --> 0:04:17.839 so if you like I seari the trip sea side, 0:04:17.960 --> 0:04:20.000 like right, if you have things like you know is 0:04:20.040 --> 0:04:22.000 now the pre COVID spreads and a lot of the 0:04:22.160 --> 0:04:24.240 issuance that we're seeing are at triple seas and as 0:04:24.240 --> 0:04:26.560 we know, you know a lot of these companies have 0:04:26.600 --> 0:04:28.960 sort of been riding the hotel of the fed liquidity. 0:04:29.040 --> 0:04:31.200 You know, when we look at things like say, for example, 0:04:31.279 --> 0:04:33.400 just a basic invest in grade corporate, which has been 0:04:33.400 --> 0:04:35.799 a great faccept for the feed the set has bought 0:04:35.920 --> 0:04:38.360 invest in grade corporate. It has a lot of powder 0:04:38.440 --> 0:04:41.160 drive to do more. But you asn't as a corporate 0:04:41.240 --> 0:04:44.040 if you're going to corporate right now, you have only 0:04:44.120 --> 0:04:47.599 maybe twenty basis points rise in interest rates where you 0:04:47.640 --> 0:04:49.960 wipe out a whole year of income. You don't have 0:04:50.000 --> 0:04:53.000 a lot of spread Crishian there to really you know, 0:04:53.279 --> 0:04:55.520 compensate you if in fact you get more default in 0:04:55.560 --> 0:04:59.560 both investment grade and high you okay, So let's see 0:04:59.640 --> 0:05:02.040 can I skill us all about you know outside of 0:05:02.080 --> 0:05:04.120 the US. You know, there's a lot of talk about 0:05:04.160 --> 0:05:07.640 Asia these days, and I suppose emerging markets more generally 0:05:07.640 --> 0:05:10.120 the China we sort of treat a little bit separately. 0:05:10.520 --> 0:05:13.839 What are you doing there? Particularly given the the strengthening 0:05:13.880 --> 0:05:17.479 in the yuan recently. Yeah, we we do feel for 0:05:17.520 --> 0:05:19.880 those investors that are looking for their guild, and then 0:05:19.880 --> 0:05:21.960 when we talk about high yield, for example, that we 0:05:22.000 --> 0:05:24.039 feel it's a little bit more tight in the US. 0:05:24.120 --> 0:05:26.039 You can go over to Asia high yields and actually 0:05:26.080 --> 0:05:29.280 took up a nice, a nice yield at like six. 0:05:30.360 --> 0:05:32.479 We do think the Asian the Asian market is actually 0:05:32.560 --> 0:05:34.800 on a road to recovery. A little bit more inflation 0:05:34.920 --> 0:05:37.760 that they have obviously the backstep of the central bank, 0:05:38.000 --> 0:05:39.720 and we do think that that p m I is, 0:05:39.760 --> 0:05:43.560 although volatile overall, we expect about recovery there. So our 0:05:43.640 --> 0:05:46.880 preference for those that are really that are yield speakers 0:05:46.920 --> 0:05:49.920 that believe that the US is just simply a bit 0:05:49.960 --> 0:05:52.279 too tight. Asia high yield is another alternative that you 0:05:52.320 --> 0:05:55.360 can invest it. All right, Leslie, thank you so interesting 0:05:55.400 --> 0:05:57.479 to speak with you. One final question, if you don't mind, 0:05:57.680 --> 0:06:01.400 families that have great wealth, are they trying to do 0:06:01.480 --> 0:06:04.920 something with that before there is a change in administration 0:06:04.960 --> 0:06:08.520 assuming that there is, Yeah, I mean list really look, 0:06:08.560 --> 0:06:10.880 taxicles harvesting is always, always, always a big thing to do, 0:06:10.920 --> 0:06:13.560 and I'm sure that there there there are families that 0:06:13.560 --> 0:06:17.000 are trying to allocate in terms of potential changes. But 0:06:17.480 --> 0:06:20.080 you know, and frankly, our view is that even if 0:06:20.080 --> 0:06:22.159 we do have a democratic suite, it's that's gonna be 0:06:22.160 --> 0:06:24.599 the first thing on the agenda to go changing taxes. 0:06:24.640 --> 0:06:26.400 It's just not the economy is the first and the 0:06:26.440 --> 0:06:29.360 agenda jobs with the first on the agenda, you know, 0:06:29.440 --> 0:06:32.440 and make sure and having you know, corporations remain and 0:06:32.480 --> 0:06:35.479 sustainability of corporations on the agenda. So although yes, they are, 0:06:35.800 --> 0:06:37.560 it's just not going to be on day one, that day. 0:06:37.760 --> 0:06:41.040 This change is gonna ocurse, gonna occur over over time. Yeah, 0:06:41.120 --> 0:06:43.640 that's for sure. Okay, Leslie, thank you, we'll be talking 0:06:43.640 --> 0:06:46.440 to you again. Well before then, Leslie Falconio is senior 0:06:46.520 --> 0:06:51.680 strategist at ubs A Global Wealth Management. All right now 0:06:51.720 --> 0:06:53.599 it is time to turn to the world of commercial banking, 0:06:53.680 --> 0:06:56.360 and for that we bring in a specialist. We have 0:06:56.440 --> 0:07:00.479 Done mcque head of commercial banking as Citizens Bank. Don 0:07:00.720 --> 0:07:05.360 What does your job involved primarily these days and pandemic times, Well, 0:07:05.360 --> 0:07:08.000 it's really taking care of our clients. Fannie um. You know, 0:07:08.400 --> 0:07:11.800 right at the beginning of the pandemic, we we actually 0:07:11.880 --> 0:07:14.400 said our primary job is to help our clients get 0:07:14.400 --> 0:07:17.680 through this really unprecedented events, and that you know, started 0:07:17.680 --> 0:07:20.440 with the p PP loans, that started with the provision 0:07:20.480 --> 0:07:23.920 of a lot of liquidity lines, some restructuring of credit agreements. 0:07:23.960 --> 0:07:26.520 And we're really encouraged by what we're saying. We're seeing 0:07:26.960 --> 0:07:29.440 some real bright spots in the portfolio. There's obviously some 0:07:29.520 --> 0:07:33.800 real trouble in certain industries, but but so far, so good. 0:07:34.160 --> 0:07:36.360 You must have had an internal conversation about what the 0:07:36.360 --> 0:07:39.240 criteria might be, what the lines in the sand might be, 0:07:39.400 --> 0:07:43.680 what industries you're willing to be more lenient on than others. 0:07:43.880 --> 0:07:46.680 How did that conversation go. Well, you know what what 0:07:46.720 --> 0:07:50.040 we really did was we immediately undertook what we call 0:07:50.080 --> 0:07:52.640 it cash burn analysis on our client base, and we 0:07:53.080 --> 0:07:56.320 really throughout history and went to what current cash flow 0:07:56.520 --> 0:08:01.040 was versus current cash resources and try to project forwards three, six, 0:08:01.080 --> 0:08:03.640 twelve months to see how long the company you know, 0:08:03.760 --> 0:08:06.440 had before it ran into a real liquidity problem. And 0:08:06.440 --> 0:08:08.800 then we we actually took a ride of different actions 0:08:08.840 --> 0:08:12.600 against those different scenarios and and really tried to bolster 0:08:12.640 --> 0:08:15.160 the companies to get to the other end of the pandemic. 0:08:15.240 --> 0:08:17.760 We we don't. We don't have any redline industries in 0:08:17.840 --> 0:08:19.880 terms of things that the places that we won't help. 0:08:19.920 --> 0:08:22.280 We certainly have some there in a little bit more 0:08:22.320 --> 0:08:25.400 difficulty than others. So anything that's in the hospitality sector 0:08:25.640 --> 0:08:29.040 or the restaurants sector, or the leisure sectors obviously experiencing 0:08:29.800 --> 0:08:32.720 a fair amount of distress right now. But but the 0:08:32.720 --> 0:08:36.920 broad portfolio looks like it's stabilizing. How do you avoid 0:08:37.080 --> 0:08:40.560 some of your clients being aided by other, you know, 0:08:40.920 --> 0:08:44.800 maybe shadow banking type entities. Is there a way that 0:08:44.840 --> 0:08:47.400 you can hold onto them, or are you actually quite 0:08:47.440 --> 0:08:50.120 happy for some of these private equity companies or what 0:08:50.200 --> 0:08:53.880 have you dig on sometimes that might be underperforming. We haven't. 0:08:53.920 --> 0:08:55.560 We haven't seen a lot of that, you know. What 0:08:55.600 --> 0:08:59.600 we what we have seen is some distressed investments, for example, 0:08:59.640 --> 0:09:02.840 So some clients just needs minority equity and and we'll 0:09:02.840 --> 0:09:05.160 try to facilitate that. But we haven't seen the non 0:09:05.240 --> 0:09:07.160 banks trying to come in and take our clients away 0:09:07.200 --> 0:09:09.520 at the split second. And you know, I think our 0:09:09.600 --> 0:09:11.640 general approaches if we do a good job of our 0:09:11.679 --> 0:09:14.240 clients and take care of them and are close to them. 0:09:14.280 --> 0:09:18.040 And we went on a real communication effort with all 0:09:18.080 --> 0:09:20.160 of our CEOs as we went through this to make 0:09:20.160 --> 0:09:22.559 sure we understood what was happening with their companies. So 0:09:22.880 --> 0:09:25.839 we've seen some refinancing. We we've refanced some people out 0:09:25.840 --> 0:09:30.800 of other facilities, but it's nothing very different from usual way. Well, 0:09:30.840 --> 0:09:33.160 that's good to hear from your perspective. I suppose how 0:09:33.200 --> 0:09:35.720 are you handling the we're in the we're mortgage and 0:09:35.880 --> 0:09:39.120 interest rates in general. Well, you know, we we've done 0:09:39.160 --> 0:09:42.200 a great job in lowering our costs of deposits um 0:09:42.240 --> 0:09:45.480 and so we've held up on our energy margin pretty well. 0:09:46.480 --> 0:09:49.040 Can I just intervene and say that that's bank for 0:09:49.760 --> 0:09:54.000 not paying anything on deposits. Well, we pail, we pay 0:09:54.040 --> 0:09:57.600 a little bit, but but our our our neg interest 0:09:57.640 --> 0:10:00.199 margin while under pressure is held up, held up. Okay, 0:10:00.679 --> 0:10:03.560 we've benefited from a very strong fee line, so as 0:10:03.559 --> 0:10:05.720 you might have seen when we when we reported last 0:10:05.720 --> 0:10:08.480 week or pp ANDR line was quite strong, and in 0:10:08.480 --> 0:10:10.200 fact it was a record level. So we feel good 0:10:10.200 --> 0:10:13.079 about our overall PANO. Well, that's good to hear. And 0:10:13.160 --> 0:10:15.680 now there's been a lot of talk about whether there 0:10:15.760 --> 0:10:18.840 might be some consolidation. How is citizens faring in terms 0:10:18.840 --> 0:10:22.960 of being able to ward off any outside interest or 0:10:23.000 --> 0:10:25.240 indeed maybe looking around if if you're in that good 0:10:25.240 --> 0:10:28.000 of a position and trying to beef up what you have, well, 0:10:28.040 --> 0:10:29.720 we don't. You know, we don't feel like we have 0:10:29.840 --> 0:10:33.200 to do a transaction to be successful. And you know, 0:10:33.320 --> 0:10:35.839 we're not really in discussions either way with anyone, and 0:10:35.840 --> 0:10:38.559 we wouldn't talk about it anyway. So what we have 0:10:38.600 --> 0:10:42.880 done is we've we've focused on acquiring smaller companies to 0:10:43.280 --> 0:10:46.200 basically beef up our offerings on our solution set. So 0:10:46.240 --> 0:10:48.120 I bought three M and A boutiques in the last 0:10:48.160 --> 0:10:50.280 two years. We bought a big mortgage company. We brought 0:10:50.280 --> 0:10:53.320 a wealth management company. So our our strategy is really 0:10:53.600 --> 0:10:56.560 um fill in acquisitions that that that broughten out our 0:10:56.559 --> 0:10:59.760 products White. Yeah, so Bolletons. Then, so what are these 0:11:00.040 --> 0:11:03.439 t companies on? What do they specialize in mergers? And 0:11:03.480 --> 0:11:06.640 actually no, I mean what kinds of mergers rooms? So, 0:11:06.640 --> 0:11:09.360 so one is a general industrial UM and we bought 0:11:09.400 --> 0:11:12.280 them two years ago. They really do Midwestern industrial companies. 0:11:13.200 --> 0:11:15.720 We bought one down in Atlanta, which is really business 0:11:15.720 --> 0:11:18.520 services and and other kinds of services. And we bought 0:11:18.520 --> 0:11:22.280 one in California, which is restaurants and franchise franchise finance, 0:11:22.640 --> 0:11:25.640 so fascinating and why did you land on those particular ones. 0:11:26.280 --> 0:11:28.520 We just saw that one day were leaders in their market. 0:11:28.840 --> 0:11:32.160 Um and we want to buy M and A boutiques 0:11:32.200 --> 0:11:35.800 which are which are really strong and very narrow sectors. 0:11:35.840 --> 0:11:37.640 We're not going to compete with Golden Sacks or JP 0:11:37.720 --> 0:11:41.480 Morgan in M and can't compete in narrow sectors. And frankly, 0:11:41.480 --> 0:11:44.240 we've been incredibly successful through the pandemic. I think we're 0:11:44.280 --> 0:11:46.120 closing an M and A deal a week right now, 0:11:46.200 --> 0:11:49.160 so it's it's gone quite well. That's really phenomenal. I 0:11:49.160 --> 0:11:50.959 want to hear more about these M and A deals. 0:11:51.040 --> 0:11:55.400 So one a week is a distress semina or no? 0:11:55.559 --> 0:11:57.920 You know. I think the perspective I give you is 0:11:58.080 --> 0:12:00.000 they're an awful lot of companies that are doing quite 0:12:00.080 --> 0:12:03.840 well and some are actually thriving through the pandemic. And 0:12:04.000 --> 0:12:06.320 as long as as long as the company's EBA diesn't 0:12:06.360 --> 0:12:11.080 being impacted, we're seeing that people want to complete transactions 0:12:11.080 --> 0:12:12.800 that we're in the pipeline. So they're not huge. I mean, 0:12:12.800 --> 0:12:15.559 they're anywhere from fifty million to three million in terms 0:12:15.600 --> 0:12:18.800 of valuation. So it's not the billion ten billion dollar deals, 0:12:19.080 --> 0:12:21.719 but you're seeing some of those happen also. So you know, 0:12:21.800 --> 0:12:24.320 we see some that have gone on hold because you've 0:12:24.320 --> 0:12:26.560 had cash flows disrupted and we just have to figure 0:12:26.559 --> 0:12:29.000 out what a profile looks like on the back end. 0:12:29.360 --> 0:12:31.280 But a lot of them have moved forward. We've been 0:12:31.320 --> 0:12:33.800 frankly surprised at how many moved forward. Yeah, I mean, 0:12:33.840 --> 0:12:36.360 it's the wheels of capitalism, isn't it. They just keep turning, 0:12:36.360 --> 0:12:39.040 and it's really really fascinating to watch and also a 0:12:39.160 --> 0:12:42.240 very good sign because you do want to, you know, 0:12:42.280 --> 0:12:46.000 the wheels of industry to be well oiled and turning, 0:12:46.240 --> 0:12:48.280 even at times like this. You just hope that that 0:12:48.400 --> 0:12:50.800 can be the case. Well, thank you very much, Don, 0:12:51.000 --> 0:12:54.360 very interesting conversation and good look for the next couple 0:12:54.360 --> 0:12:56.199 of months. We'll be talking to you again before long. 0:12:56.280 --> 0:13:00.200 Don McCree is head of commercial Banking citizens by Ink, 0:13:00.440 --> 0:13:02.319 and you heard him. So much going on in the 0:13:02.360 --> 0:13:06.920 capital markets these days. It's it's not all just stagnancy 0:13:06.960 --> 0:13:09.920 and dooming loom and waiting for stimulus. The fields of 0:13:09.960 --> 0:13:16.200 capitalism do continue to turn. So let's bring in George 0:13:16.200 --> 0:13:21.160 ferguson our senior aerospace, defense and airlines analysts with Bloomberg Intelligence. George. 0:13:21.240 --> 0:13:24.520 What I found interesting about the conversation was that Scary 0:13:24.640 --> 0:13:27.600 Kelly seems to be so optimistic that it looks like 0:13:27.640 --> 0:13:30.640 he's still almost expecting some kind of targeted stimientos somewhere 0:13:32.040 --> 0:13:34.920 he does. I found that interesting as well. It seems 0:13:34.960 --> 0:13:36.760 to me I'm in the camp that we probably don't 0:13:36.760 --> 0:13:41.040 see a stimulus package for the airline um until next year, 0:13:41.080 --> 0:13:43.280 if we get one at all. I really don't see 0:13:43.320 --> 0:13:45.959 anything happening in a lame duck session. I sense it 0:13:46.040 --> 0:13:50.240 potentially the Republicans don't, you know, don't really see a 0:13:50.360 --> 0:13:52.360 need to be stimulating in parts of the economy like 0:13:52.400 --> 0:13:55.200 the airlines, and so I think I think the best 0:13:55.240 --> 0:13:58.200 case would be a Democratic win for the airlines. Democratic 0:13:58.200 --> 0:14:00.640 win in November, and then they could actually gets into 0:14:00.640 --> 0:14:03.400 stimulust into into early next year. We'll see. That's funny 0:14:03.400 --> 0:14:05.360 because I would have thought that if the Democrats win, 0:14:05.800 --> 0:14:08.200 that it would not be politically expedient for them to 0:14:08.200 --> 0:14:11.680 be seen to be quote unquote bailing out particular industries, 0:14:11.720 --> 0:14:14.000 and that in fact, the Republicans would be more likely 0:14:14.040 --> 0:14:17.280 to do targeted some stimulus how do you get to 0:14:17.480 --> 0:14:22.360 Democrats bailing out airlines? I just think I think the 0:14:22.480 --> 0:14:25.400 unionized labor force is one that they have, you know, 0:14:25.440 --> 0:14:28.440 they have a strong support from and they and they 0:14:28.520 --> 0:14:31.320 in turn on a continue support and I use some 0:14:31.400 --> 0:14:37.240 of the Pat Toomey, Republican from Pennsylvania is on the 0:14:37.280 --> 0:14:40.640 record is saying the airline shouldn't be providing any more 0:14:40.640 --> 0:14:44.040 stimulus like kind of us. I guess those two, uh, 0:14:44.080 --> 0:14:46.280 you know, benchmarks as well as I think Republicans are 0:14:46.320 --> 0:14:49.480 more concerned about deficit spending, and I think there's a 0:14:49.480 --> 0:14:52.880 little bit less concerned about that. And that's certainly will 0:14:52.920 --> 0:14:54.920 come back to the four if indeed there is a 0:14:54.960 --> 0:14:58.160 transfer of power. And you know it because right now 0:14:58.200 --> 0:15:01.520 it's it's not popular to talk about the deficit, but 0:15:01.600 --> 0:15:05.240 it will be soon if the Republicans aren't in power still. So, George, 0:15:06.440 --> 0:15:09.840 is Gary Kelly a little bit misguided? Or can he 0:15:10.600 --> 0:15:13.320 get enough liquidity? Can he wait until next year until 0:15:13.360 --> 0:15:17.280 something comes? Yeah? So you know what, Gary Kelly, he 0:15:17.320 --> 0:15:21.000 has plenty of liqudity. I mean he's Southwest is in 0:15:21.080 --> 0:15:23.200 one of the best positions of any U S airline 0:15:23.760 --> 0:15:26.440 to weather this storm. They have a lot of cash 0:15:26.440 --> 0:15:29.920 they would. I think somewhere around fifteen billion cash they 0:15:29.960 --> 0:15:33.080 reported this morning. Uh, and they have less debt than that. 0:15:33.600 --> 0:15:35.160 You know, when we even we look at all the 0:15:35.240 --> 0:15:38.480 US airlines, we see them all able to survive into 0:15:38.720 --> 0:15:42.960 into summer. I think they've all sort of targeted that area. 0:15:43.520 --> 0:15:45.760 Late next year's being a time when they think demand 0:15:45.800 --> 0:15:49.240 is gonna hopefully start to recover. So I think it's 0:15:49.280 --> 0:15:51.040 for Gary, it's more a question of whether or not, 0:15:51.480 --> 0:15:52.880 you know, as he as he mentioned, whether or not 0:15:52.920 --> 0:15:56.240 he's going to push his employees through, you know, taking 0:15:56.280 --> 0:15:58.920 pay cuts and things like that and furloughing more employees, 0:15:59.320 --> 0:16:02.480 and his role can Sorry, I think about you know, 0:16:02.840 --> 0:16:05.920 an unsettled environment at Southwest. It years to make those 0:16:05.960 --> 0:16:09.840 moves to drive down, drive down costs and get to 0:16:09.880 --> 0:16:12.960 a zero cash man, Georgie, I love to have your 0:16:12.960 --> 0:16:15.400 thoughts on Bowing on the seven thirty seven Max getting 0:16:15.440 --> 0:16:17.080 back up in the air. We were waiting for it 0:16:17.160 --> 0:16:19.560 for so long and so long, and suddenly it's it's 0:16:19.600 --> 0:16:24.160 all happening. Yes, I mean I think that you know, 0:16:24.600 --> 0:16:28.480 Bowing Bowing, He's had some challenges, but the airplane is 0:16:28.520 --> 0:16:31.280 an absolutely viable airplane, and I think Bowing really gets 0:16:31.280 --> 0:16:33.760 focused on getting the airplane back in the air. It's 0:16:33.760 --> 0:16:35.600 been a while, but we think it's going to be 0:16:36.160 --> 0:16:38.280 approved by the f a A, you know, by end 0:16:38.320 --> 0:16:40.880 of year this year or early next year. So I 0:16:40.880 --> 0:16:43.640 think Gary is going to be having that discussion more 0:16:43.680 --> 0:16:46.920 intensely now about when he really wants all those airplanes 0:16:46.920 --> 0:16:49.440 that Bowing is built for him. Because it's it's again 0:16:49.480 --> 0:16:51.280 we see it's sort of late this year early next 0:16:51.320 --> 0:16:54.080 year back in service. Can you give us an update 0:16:54.120 --> 0:16:56.360 on orders? So there was a big order book and 0:16:56.400 --> 0:16:58.880 then it was slowly you know, lines in that book 0:16:58.880 --> 0:17:01.440 we're getting crossed out, as are some airlines a you know, 0:17:01.520 --> 0:17:04.959 got hit by the pandemic. But we weren't maybe willing 0:17:05.000 --> 0:17:07.280 fully to wait for Boeing. Where are we out now 0:17:07.320 --> 0:17:10.080 for Boing? Yeah? I mean the last time we looked 0:17:10.080 --> 0:17:11.960 at the set seven max, I'm going to give you 0:17:12.000 --> 0:17:14.159 a rough Converns around five thousand. The challenge with the 0:17:14.240 --> 0:17:17.359 order book is exactly like you heard this morning, right, 0:17:17.359 --> 0:17:20.199 Gary Kelly wouldn't go on record as to what he 0:17:20.240 --> 0:17:22.119 was going to do in that order book, and he 0:17:22.160 --> 0:17:25.360 said he would continue to talk to Bowing. Now, look, 0:17:25.400 --> 0:17:28.320 we know over time, Gary will need airplanes, and he's 0:17:28.359 --> 0:17:31.240 a solely he's solely a Bowing shop. And when the 0:17:31.280 --> 0:17:33.200 world looks better, Gary will go to Bowing. I need 0:17:33.240 --> 0:17:36.800 airplanes and airplanes sooner because I got great demand, and 0:17:36.840 --> 0:17:39.360 he'll want Bowing to give him those airplanes. And so 0:17:39.800 --> 0:17:41.520 Bowing is going to come to him at this time 0:17:41.560 --> 0:17:44.679 and say, look, we have a problem, right, We've got 0:17:44.680 --> 0:17:46.719 a lot of airplanes stacked up, we need to deliver, 0:17:47.280 --> 0:17:49.040 we need to cash what we need you to support 0:17:49.080 --> 0:17:52.400 us through this downturn. So that negotiation and and Gary 0:17:52.480 --> 0:17:54.480 Kelly is one of the most important customers for Bowing. 0:17:54.920 --> 0:17:58.440 That conversation is going on throughout that Bowing order book, 0:17:58.960 --> 0:18:02.080 you know, with this and sort of intensities. So it's 0:18:02.080 --> 0:18:05.360 really hard to plumb what portion of those of those 0:18:05.480 --> 0:18:08.359 orders could go away or not. We think a lot 0:18:08.400 --> 0:18:11.359 of them will just be deferred. And what will happen 0:18:11.400 --> 0:18:13.920 is Boweling and Airbus. Airbus will be in the same 0:18:13.960 --> 0:18:16.680 boat with their customers, will have to lower build rates 0:18:18.119 --> 0:18:21.520 as they manage manage a slower airline recovery, and the 0:18:21.640 --> 0:18:24.560 customers say, look, I just can't take those airplanes this year. 0:18:24.680 --> 0:18:26.439 So we don't see a lot of unwinding the books, 0:18:26.760 --> 0:18:30.080 but we see a lot of deferrals in the books. George, 0:18:30.080 --> 0:18:32.040 we went into this thing with you know, close on 0:18:32.200 --> 0:18:34.879 twenty airlines were now at what's seventeen? I think, can 0:18:34.920 --> 0:18:36.680 you give us an update on on where we are 0:18:36.800 --> 0:18:42.040 and who didn't survive? I'm sorry say it again. We 0:18:42.080 --> 0:18:44.480 went into the pandemic with a couple of more airlines 0:18:44.520 --> 0:18:48.280 than than are in existence now. Basically, you know around 0:18:48.280 --> 0:18:51.000 the world, can you give us an update? Well, I 0:18:51.000 --> 0:18:53.480 mean right right now, you know, right now, I don't 0:18:53.480 --> 0:18:56.560 think we've seen anybody really liquidated and taken out of 0:18:56.560 --> 0:19:00.159 the game yet, so you know, there may be or 0:19:00.200 --> 0:19:02.400 to I I'm missing, but we know we have hot 0:19:02.400 --> 0:19:05.040 spots of problems. You know, down in South America we 0:19:05.040 --> 0:19:09.560 had lat Time in Avianca declared bankruptcy and restructure their companies, 0:19:09.600 --> 0:19:13.920 which if if demand doesn't improve long term, more airlines 0:19:13.960 --> 0:19:17.560 will need to go through that bankruptcy and lay off 0:19:17.600 --> 0:19:20.080 their debt and get rid of their airplanes. So we 0:19:20.119 --> 0:19:23.840 saw them. We know Norwegian out in Europe is having 0:19:23.920 --> 0:19:28.240 challenges and cut operations percent, but is still limping along. 0:19:28.680 --> 0:19:31.080 We have a number of airlines around the world that 0:19:31.080 --> 0:19:34.520 are kind of limping through. We know air Asia out 0:19:34.520 --> 0:19:37.240 in Malaysia's having big problems with they're big buyer of 0:19:37.760 --> 0:19:41.959 air A three and A three thirties their Asia X 0:19:42.000 --> 0:19:46.280 longer haul um a portion of that airline, so we 0:19:46.359 --> 0:19:48.560 see it cropping up. But remember we're now coming into 0:19:48.640 --> 0:19:52.480 winter season, and so winter season is the really difficult 0:19:53.400 --> 0:19:55.639 travel season, and I think now is where we're going 0:19:55.680 --> 0:19:59.040 to start to see even more failures as airlines don't 0:19:59.040 --> 0:20:01.639 see this demand come in cash flow this weekend to 0:20:01.720 --> 0:20:05.119 go into the weaker season. But again, the airlines have 0:20:05.160 --> 0:20:09.520 a great propensity to sort of um limp along, go 0:20:09.600 --> 0:20:12.800 to a bankruptcy, restructuring, and continue. I think what we'll 0:20:12.800 --> 0:20:16.120 really watch though, is the amount of capacity that comes 0:20:16.119 --> 0:20:18.840 out of the marketplace. Right these airplanes have to leave 0:20:18.920 --> 0:20:21.760 these airlines because they don't have to they don't have 0:20:21.800 --> 0:20:24.480