WEBVTT - BI Weekend: Union Pacific Deal, Novo Nordisk Earnings 0:00:00.280 --> 0:00:11.680 Bloomberg Audio Studios, podcasts, radio news. This is Bloomberg Intelligence 0:00:11.840 --> 0:00:12.920 with Paul Sweeney. 0:00:13.080 --> 0:00:16.319 The real app performance has been the US corporate high yield. 0:00:16.360 --> 0:00:20.040 These are two big time blue chip companies. One person's 0:00:20.079 --> 0:00:23.720 cast is another person's animal spirits, breaking market. 0:00:23.440 --> 0:00:26.240 Headlines and corporate news from across the globe. 0:00:26.320 --> 0:00:28.560 Our viewer is if the economy is slowing down, there 0:00:28.640 --> 0:00:31.480 is the possibility of the debt spirals. Both futum competing 0:00:31.480 --> 0:00:33.080 and AI are going to power the future. 0:00:33.200 --> 0:00:36.479 People are just buying everything with tex Bloomberg Intelligence with 0:00:36.680 --> 0:00:41.560 Paul Sweeney on Bloomberg Radio, YouTube and Bloomberg Originals. 0:00:41.960 --> 0:00:45.080 I'm Paul Sweeney, I'm Normalanda filling it on Bloomberg Intelligence. 0:00:45.159 --> 0:00:47.440 On Today's Bloomberg Intelligence Show, we dig inside the big 0:00:47.479 --> 0:00:49.839 business stories impacting Wall Street and the global markets. 0:00:49.960 --> 0:00:52.239 Each in every week, we provide in depth research and 0:00:52.320 --> 0:00:54.800 data on some of the two thousand companies and one 0:00:54.880 --> 0:00:57.520 hundred and thirty industries our analysts cover worldwide. 0:00:57.560 --> 0:01:00.120 Today, we'll look at why the planemaker Boeing reported am 0:01:00.120 --> 0:01:02.640 moreer than expected loss last quarter, plus. 0:01:02.320 --> 0:01:05.200 Well discuss why the Dutch brewing company Heineken reported a 0:01:05.240 --> 0:01:06.880 decline in beer volume sales. 0:01:07.000 --> 0:01:09.280 But first we begin with news in the railroad industry. 0:01:09.480 --> 0:01:12.240 This week, Union Pacific agreed to buy Norfolk Southern and 0:01:12.319 --> 0:01:15.120 a seventy two billion dollar cash in stock transaction. The 0:01:15.240 --> 0:01:18.800 merger would create the first and only US transcontinental Railroad. 0:01:18.880 --> 0:01:19.840 For more on this in. 0:01:19.800 --> 0:01:22.160 The Future of the Railroad Industry, guest host Isabell Lee 0:01:22.160 --> 0:01:25.319 and I were joined by Lee Clascow, Bloomberg Intelligence senior 0:01:25.400 --> 0:01:28.440 Transport Logistics and chipping analysts. We first asked Lee to 0:01:28.480 --> 0:01:31.039 give us his outlook on how this mega deal can 0:01:31.040 --> 0:01:31.559 get done. 0:01:31.720 --> 0:01:31.959 Yeah. 0:01:32.040 --> 0:01:35.000 I think the whole speculation before the deal was formally 0:01:35.080 --> 0:01:39.120 announced about a possible consolidation, and I think people are 0:01:39.160 --> 0:01:41.240 just trying to take maybe a breather right now because 0:01:41.280 --> 0:01:43.920 there are some execution risks. Right this deal is not 0:01:44.000 --> 0:01:48.400 going to close. If it does close until early twenty 0:01:48.480 --> 0:01:52.400 twenty seven, it needs regulatory approval, which is not an 0:01:52.440 --> 0:01:55.040 easy thing to do. There were certain rules that were 0:01:55.080 --> 0:01:59.520 created at the Surface Transportation Board to make it very 0:01:59.560 --> 0:02:03.560 difficult for large Class one rail mergers to happen. That 0:02:03.720 --> 0:02:07.120 was because at one time in the eighties and nineties, 0:02:07.520 --> 0:02:12.000 those sorts of deals resulted in terrible service. I think 0:02:12.080 --> 0:02:17.040 that the rails today were much more cognizant of service 0:02:17.120 --> 0:02:20.560 as it relates to integration. And I don't really think 0:02:21.040 --> 0:02:24.600 you know, either company once once, assuming a merger does happen, 0:02:24.840 --> 0:02:27.920 are going scorched earth in terms of, you know, what 0:02:27.960 --> 0:02:30.480 they're going to do to their networks. You know, they 0:02:30.520 --> 0:02:33.280 mentioned on the call that they had earlier today that 0:02:33.320 --> 0:02:35.720 they're really not going to lay off any uh, you know, 0:02:35.880 --> 0:02:39.720 frontline workers. Most of the probably layoffs are going to 0:02:39.800 --> 0:02:45.000 happen you know, in in in in the offices. So 0:02:45.120 --> 0:02:50.359 you know, that would just mean that services would prevail. 0:02:50.680 --> 0:02:52.720 And one of the reasons why they are doing this, 0:02:52.800 --> 0:02:55.480 you know, from an outsider looking in, you know, it 0:02:55.560 --> 0:02:58.600 does make complete sense. Between the two of them. They 0:02:58.639 --> 0:03:02.240 interchange around a million and car loads a day and 0:03:02.280 --> 0:03:04.560 if they're just able to if that's that car load 0:03:04.639 --> 0:03:07.080 is able to be on the same network, it's not 0:03:07.120 --> 0:03:11.800 only going to improve network fluidity, it will actually lower 0:03:11.840 --> 0:03:15.880 the railroads their costs. Let's hope they pass on some 0:03:15.919 --> 0:03:18.280 of that cost savings to their shippers. I think that's 0:03:18.320 --> 0:03:20.359 what shippers might be concerned about. 0:03:20.880 --> 0:03:25.040 And it'll it'll provide probably a better service product that 0:03:25.080 --> 0:03:28.200 they can go out and compete against other modes such 0:03:28.200 --> 0:03:31.600 as trucks, and you know that's you know, also a 0:03:32.040 --> 0:03:35.600 good thing because you know, from an environmental standpoint, railroads 0:03:35.640 --> 0:03:40.000 are less fuel efficient, you know, trucking kind of deals 0:03:40.080 --> 0:03:43.880 with you know, turnover issues and trucker availability issues. 0:03:44.080 --> 0:03:46.720 Right now that's not an issue, but at times it 0:03:46.800 --> 0:03:50.000 can be. And so you know, it is definitely a 0:03:50.120 --> 0:03:54.280 very interesting deal. It will create the first trans continental railroad. 0:03:55.360 --> 0:03:57.560 But you know, they do have their work cut out 0:03:57.600 --> 0:03:59.560 for them to get that regulatory approval. 0:04:00.280 --> 0:04:02.840 So the deal is worth eighty five billion dollars, How 0:04:02.880 --> 0:04:04.760 do they plan to make money back? What are the 0:04:04.800 --> 0:04:07.800 financial wins so to speak, to justify that happy price? 0:04:07.880 --> 0:04:08.080 Tad. 0:04:08.840 --> 0:04:12.440 Yeah, they laid out two point seven five billion in synergies, 0:04:12.440 --> 0:04:14.800 about one point seven five and that two point seventy 0:04:14.840 --> 0:04:17.159 five is going to be from revenue. So what they're 0:04:17.200 --> 0:04:20.200 saying is that, you know, we can probably get more 0:04:21.000 --> 0:04:23.799 volume onto the network because it all of a sudden 0:04:23.880 --> 0:04:27.200 becomes a much more compelling service offering, and then about 0:04:27.240 --> 0:04:30.719 a billion dollars in cost savings and some of that. Again, 0:04:31.040 --> 0:04:34.719 you don't need to CEOs, you don't need two CFOs. 0:04:34.760 --> 0:04:38.560 You don't need two corporate headquarters, you know, the dimension. 0:04:38.640 --> 0:04:41.960 They are going to have their headquarter in Omaha where 0:04:42.040 --> 0:04:45.120 Union Pacific is located, and keep a I think they 0:04:45.160 --> 0:04:51.120 worded a major presence in Atlanta where Norfolk is currently 0:04:52.040 --> 0:04:53.880 So but you know, obviously they're not going to need 0:04:54.320 --> 0:04:56.920 as much space as they once have. And then there's 0:04:56.960 --> 0:05:01.640 technology benefits, you know, so you're only you know, money 0:05:01.680 --> 0:05:06.720 in technology once, not twice to get those productivity improvements. 0:05:06.880 --> 0:05:09.840 So I think those are the major aspects of it. 0:05:10.120 --> 0:05:11.800 And you know, they mentioned that you know, they could 0:05:11.800 --> 0:05:16.720 be you know, EPs a creative after year or two. 0:05:17.760 --> 0:05:20.440 Well, he mentioned a lot of regulatory agencies are going 0:05:20.480 --> 0:05:22.880 to weigh in here on this deal. I also think 0:05:23.240 --> 0:05:26.200 President Trump is likely to weigh in. Do we know 0:05:26.720 --> 0:05:29.680 anything about how he might view this deal or just 0:05:29.720 --> 0:05:31.520 consolidation in general? 0:05:32.080 --> 0:05:34.320 What's the views as to the Trump administration? 0:05:35.160 --> 0:05:39.000 I mean, we don't. The language that management noted on 0:05:39.040 --> 0:05:42.680 the call is like they wouldn't have moved forward with 0:05:42.720 --> 0:05:46.640 this transaction if they felt that it was impossible to 0:05:46.640 --> 0:05:50.320 get regulatory approval. So whether that means they were talking 0:05:50.360 --> 0:05:53.279 to the administration, whether that means they were talking to 0:05:53.320 --> 0:05:57.560 the STB or the DOJ, or everybody in between. That's 0:05:57.640 --> 0:05:59.559 kind of you know, if you read between the lines, 0:05:59.640 --> 0:06:01.960 is what they were saying. The fact that they're not 0:06:02.000 --> 0:06:06.920 going to lay off any union folks is probably a 0:06:07.279 --> 0:06:11.279 net positive for a Donald president Donald Trump to say, 0:06:11.440 --> 0:06:12.960 you know, this is okay with me. 0:06:14.040 --> 0:06:14.240 You know. 0:06:14.279 --> 0:06:17.800 So there's a lot of unknown still and again this 0:06:17.880 --> 0:06:19.600 is this is going to take a long time. So 0:06:19.920 --> 0:06:23.960 we have a deal. It has to get Surface Transportation 0:06:24.040 --> 0:06:27.520 Board approval, which you know won't happen at least for 0:06:27.600 --> 0:06:28.320 a year and a half. 0:06:29.120 --> 0:06:32.080 Could this park more railroad mergers in the US? And 0:06:32.120 --> 0:06:35.159 if it goes through, what will shipping look like in 0:06:35.200 --> 0:06:37.680 five to ten years? You said, absolutely, please elaborate. 0:06:38.320 --> 0:06:42.159 Yeah. So, so the other railroads in the US are 0:06:42.600 --> 0:06:47.039 Burlington Northern, which is you know, owned by Berkshire Hathway. 0:06:47.240 --> 0:06:50.880 They may make their own bid for Norfolk Southern or decide, 0:06:50.920 --> 0:06:54.839 you know, we're just going to go after CSX because 0:06:54.920 --> 0:06:57.640 if they do not merge, then they're going to be 0:06:57.680 --> 0:07:00.600 at a competitive disadvantage. Why would you want to send 0:07:00.640 --> 0:07:04.320 your freight across two railroads when you can send it 0:07:04.360 --> 0:07:09.680 across one. So it just would make sense. And if 0:07:09.720 --> 0:07:12.960 there is regulatory appetite for this kind of a transaction. 0:07:13.920 --> 0:07:16.760 You know, you could see a Berkshire hacked the way 0:07:17.040 --> 0:07:21.320 and CSX coming and you know, if their competitors were 0:07:21.320 --> 0:07:24.240 able to get a deal, there's no reason why you 0:07:24.280 --> 0:07:27.280 wouldn't get a deal done between the two. A lot 0:07:27.280 --> 0:07:29.480 of ifs and butts and candies and nuts, but we'll 0:07:29.480 --> 0:07:30.239 see what happens. 0:07:30.480 --> 0:07:30.600 Our. 0:07:30.680 --> 0:07:35.360 Thanks Salie Clascow, Bloomberg Intelligence Senior Transport, Logistics and shipping analysts. 0:07:35.640 --> 0:07:37.960 Move next to news in the drug and pharmaceutical space. 0:07:38.240 --> 0:07:41.040 This week, the Danish drug maker Novo Nordisk announced that 0:07:41.120 --> 0:07:44.520 insider Masier Mike Dustar would need to take over as 0:07:44.560 --> 0:07:47.120 the company CEO. This came after Novo cut its full 0:07:47.200 --> 0:07:49.560 year outlook, stating that it's seen a decline of its 0:07:49.600 --> 0:07:51.720 blockbuster weight loss drug wig Goovi for more. 0:07:51.840 --> 0:07:54.120 Guest host Isabel Lee and I were joined by Michael Shaw, 0:07:54.320 --> 0:07:58.000 Bloomberg Intelligence Senior pharmaceutical and biotech analyst. Your First asked 0:07:58.000 --> 0:07:59.960 Michael to break down Novo's a recent guy. 0:08:00.080 --> 0:08:02.920 It's reported guidance now is calling for some percent sales 0:08:02.920 --> 0:08:07.120 growth six percent operating profit growth after adjusting for currency, 0:08:07.120 --> 0:08:11.680 and that compares to fourteen and fifteen percent respectively previously. 0:08:12.200 --> 0:08:15.760 Now a lot of that is related to the US market. There, 0:08:15.800 --> 0:08:18.480 they're still seeing headwinds from compound and GLP one, which 0:08:18.520 --> 0:08:21.520 seems to be the main driver that's affecting wegov growth. 0:08:21.880 --> 0:08:24.040 And there's a lack of visibility here. So all of 0:08:24.040 --> 0:08:27.080 that creates uncertain z for investors and also kind of 0:08:27.200 --> 0:08:31.480 questions around not only only twenty twenty five numbers, but 0:08:31.560 --> 0:08:34.320 the exit rate into twenty six. So there's concerns about 0:08:34.360 --> 0:08:37.480 you know, mid to long term growth given how concentrated 0:08:38.840 --> 0:08:42.920 or how reliance orry Novo is on WE'REGOVI for growth. 0:08:43.400 --> 0:08:46.920 The other headwind is competition to a zepic, So that's 0:08:46.960 --> 0:08:49.480 the GLP one for diabetes and that's another you know, 0:08:49.559 --> 0:08:54.000 key growth driver for the for the company. Second piece 0:08:54.040 --> 0:08:57.600 of news new CEO appointment. So they went with an 0:08:57.600 --> 0:09:02.160 internal candidate. I think the market was perhaps expecting them 0:09:02.200 --> 0:09:05.360 to go for an external candidate, so you know, perhaps 0:09:05.360 --> 0:09:08.600 a bit of disappointment there. But that said, you know 0:09:08.720 --> 0:09:11.520 he's been at the company. So this is Mike Dudster. 0:09:12.120 --> 0:09:14.199 He's been at the company since ninety two. He's been 0:09:14.200 --> 0:09:18.320 heading up international operations since twenty sixteen and over that time. 0:09:18.360 --> 0:09:22.559 You know, we've seen international operations sales double to around 0:09:22.640 --> 0:09:25.840 eighteen billion dollars, So you know, he's an internal higher, 0:09:25.880 --> 0:09:29.199 he's familiar with the company culture. I think it's a 0:09:29.240 --> 0:09:31.240 bit too early to to, you know, to write him 0:09:31.240 --> 0:09:34.720 off before he's even started. Now, his focus is going 0:09:34.760 --> 0:09:37.240 to be on re get gaining ground to Lily in 0:09:37.280 --> 0:09:41.560 the obesitie space, maintaining leadership in a diabetes space, and 0:09:41.559 --> 0:09:44.160 then improving execution. And that's something that's going to be 0:09:44.240 --> 0:09:46.880 key ahead of the Cagary Semma launch as well as 0:09:46.880 --> 0:09:50.199 the launch for its oral JP one in a in obesity, 0:09:50.760 --> 0:09:54.360 particularly given you know Cagary Summer perhaps isn't as differentiated 0:09:54.400 --> 0:09:56.920 as we had hoped for, and then the oral JLP 0:09:57.040 --> 0:10:01.560 one profile perhaps trails of Lily's. 0:10:02.280 --> 0:10:04.880 The new CEO said he's planning to review the company's 0:10:04.920 --> 0:10:08.080 cost base with outstting specific targets and metrics. So could 0:10:08.120 --> 0:10:12.080 this indicate indicate that Novos preparing for a period of 0:10:12.200 --> 0:10:15.720 solar growth after the initial surge and demand, especially the 0:10:15.720 --> 0:10:17.120 blockbuster we Go V drug. 0:10:19.320 --> 0:10:21.960 I mean, I think it will be hard to slash 0:10:22.080 --> 0:10:25.679 R and D to be honest, So I mean, and 0:10:26.040 --> 0:10:29.280 they would need to you know, continue marketing, continue to 0:10:29.320 --> 0:10:33.559 do DTC in order to you know, in order to 0:10:33.600 --> 0:10:38.240 compete with Lily. They're obviously healy heavy investing into Capex 0:10:38.280 --> 0:10:41.200 at the moment, but there is probably some operating leverage 0:10:41.240 --> 0:10:44.839 in there, you know, to provide some sort of relief. 0:10:44.880 --> 0:10:47.360 I mean, the company's got a margin about forty five, 0:10:48.120 --> 0:10:49.800 which is at the top end for large farmer. 0:10:50.400 --> 0:10:52.160 Hey, Mikey, is there any reasons to believe that maybe 0:10:52.160 --> 0:10:55.520 the marketplace has been over estimating the size of this 0:10:55.840 --> 0:10:57.360 OBC drug market? 0:10:59.559 --> 0:11:02.120 I think, I mean, yeah, I think there's always a 0:11:02.200 --> 0:11:04.400 risk with it with an indication this size when you 0:11:04.440 --> 0:11:07.520 look at the market potential. You know, in the US alone, 0:11:07.559 --> 0:11:12.080 it's one hundred and thirty one hundred and forty million patients, 0:11:12.080 --> 0:11:13.520 which which is a target population. 0:11:14.000 --> 0:11:15.520 There is a population head. 0:11:16.520 --> 0:11:19.000 Yeah, I mean there is a risk that you know, 0:11:19.120 --> 0:11:22.880 perhaps consensus did get ahead of itself. But the difficulty 0:11:22.920 --> 0:11:26.199 here is, you know, you have you know, huge runway 0:11:26.240 --> 0:11:31.520 of patients. There's obviously limited supply, so that it's difficult 0:11:31.559 --> 0:11:34.160 to know kind of you know, how quickly that supply 0:11:34.640 --> 0:11:38.040 can come on board. Now, you know, Nova gives guidance 0:11:38.080 --> 0:11:40.520 around you know, the growth prospects. You know, where they 0:11:40.520 --> 0:11:42.360 think sales et cetera are going to go, but they 0:11:42.440 --> 0:11:49.080 keep they don't necessarily quantify, you know, the cadence supply 0:11:49.160 --> 0:11:51.120 and how that how quickly that's going to come online. 0:11:51.160 --> 0:11:54.800 So that kind of makes forecasting quite difficult. And obviously 0:11:54.840 --> 0:11:57.160 they don't want to give that information because it's competitive 0:11:57.200 --> 0:11:59.880 information and they want, you know, lily to know about it. 0:12:00.520 --> 0:12:04.360 Our thanks to Michael Shaw, Bloomberg Intelligence senior BARMA biotech analysts. 0:12:04.480 --> 0:12:07.240 Coming up, we'll discuss the importance of Samsung producing AI 0:12:07.320 --> 0:12:08.880 chips for the ev giant Tesla. 0:12:09.000 --> 0:12:11.720 You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in 0:12:12.040 --> 0:12:14.240 research and data on two thousand companies in one hundred 0:12:14.240 --> 0:12:15.040 and thirty industries. 0:12:15.120 --> 0:12:17.600 You can access Bloomberg Intelligence via b I go on 0:12:17.679 --> 0:12:20.280 the terminal. I'm normal Inda and I'm Paul Sweeney, and 0:12:20.360 --> 0:12:21.400 this is Bloomberg. 0:12:26.000 --> 0:12:29.680 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:12:29.760 --> 0:12:32.840 weekdays at ten am Eastern on Apple, Cocklay and Android 0:12:32.880 --> 0:12:36.160 Auto with the Bloomberg Business App. Listen on demand wherever 0:12:36.240 --> 0:12:39.800 you get your podcasts, or watch us live on YouTube. 0:12:40.240 --> 0:12:42.439 I'm Paul Sweeney and I'm normal, Linda filling it on 0:12:42.480 --> 0:12:45.280 Bloomberg Intelligence. We move on to earnings and the aerospace 0:12:45.320 --> 0:12:46.280 and airline industries. 0:12:46.559 --> 0:12:49.760 This week, planemaker Boeing recorded a smaller than expected loss 0:12:49.800 --> 0:12:53.559 for the second quarter, along with revenue that beat analyst expectations. 0:12:53.800 --> 0:12:57.199 Going also said it almost halted its cash burn last quarter. 0:12:57.440 --> 0:13:00.320 Separately, Jet Blue Airways posted a smaller than expected lost 0:13:00.360 --> 0:13:02.360 in the second quarter as the man rebounded. 0:13:02.520 --> 0:13:04.680 For more guess Isabel Lee and I were joined by 0:13:04.760 --> 0:13:09.480 George ferguson Bloomberg Intelligence. Senior Aerospace, Defense and Airlines analyst. 0:13:09.480 --> 0:13:12.360 First asked George for his key takeaways on Boeing's earnings. 0:13:12.840 --> 0:13:15.440 The free cash flow is still a little bit negative, 0:13:15.600 --> 0:13:19.760 not much cash from operations positive a little bit two 0:13:19.840 --> 0:13:22.280 hundred million. I think it was roughly on two hundred 0:13:22.280 --> 0:13:24.880 negative free cash flow to a positive and cash flow, 0:13:24.880 --> 0:13:29.120 I think roughly. So we're seeing an inflection point here 0:13:29.120 --> 0:13:29.680 in cash flow. 0:13:29.760 --> 0:13:30.880 So cashflow had. 0:13:30.800 --> 0:13:33.040 Been negative for the last I think it was six 0:13:33.160 --> 0:13:36.400 quarters before this, and I think that's just the sign 0:13:36.440 --> 0:13:40.520 of they're getting more aircraft delivered. They're gonna you know, 0:13:40.520 --> 0:13:42.600 they've got a lot of inventory still, they'll pull off 0:13:42.600 --> 0:13:46.319 the shelf to build aircraft going forward to pull a 0:13:46.360 --> 0:13:48.960 bigger report proportion of stuff off the shelf than they 0:13:49.000 --> 0:13:53.160 would during normal times, which should juice that cash flow up. Uh, 0:13:53.679 --> 0:13:56.600 you know pretty well. So I think it's you know, 0:13:56.640 --> 0:14:00.800 the turnaround is still in uh is underway. It looks 0:14:00.840 --> 0:14:05.040 like it's you know, well in you know, in swing 0:14:05.920 --> 0:14:08.200 in the results we saw and the way you know, 0:14:08.840 --> 0:14:11.679 company management commented on the end of the year and 0:14:11.760 --> 0:14:14.760 so you know, I think it was a pretty good 0:14:15.000 --> 0:14:17.800 results quarter for Boeing again, turn around intact. 0:14:18.280 --> 0:14:21.040 How are they addressing quality in safety issues, especially when 0:14:21.040 --> 0:14:23.040 it comes to the seven three seven MAX program. 0:14:23.640 --> 0:14:27.320 Yeah, I mean there it's you know, as Kelly Oprok said, 0:14:27.320 --> 0:14:31.600 it's a process. I think just the sign of seeing 0:14:31.760 --> 0:14:36.040 increased deliveries is showing us that the quality improvement at 0:14:36.120 --> 0:14:42.360 Spirit you know, has has seen success. And they're talking 0:14:42.400 --> 0:14:45.600 about you know, they're at thirty eight seven thirty sevens 0:14:45.640 --> 0:14:48.400 a month now. Kelly Opork says he's going to approach 0:14:48.400 --> 0:14:52.000 the FA in a short period of time and work 0:14:52.040 --> 0:14:55.520 on the forty two. It's seven thirty sevens a month. 0:14:55.560 --> 0:14:57.880 So again he must have some level of confidence that 0:14:58.360 --> 0:15:02.040 his quality and his engineering is good in order in 0:15:02.120 --> 0:15:05.200 order to go further. It's not perfect. They've been slowed 0:15:05.200 --> 0:15:08.360 down a little bit in the certification of seven three 0:15:08.440 --> 0:15:11.400 seven DASH ten and DASH seven. They've pushed them into 0:15:11.400 --> 0:15:13.960 twenty twenty six. I think it's okay. It's not a 0:15:14.000 --> 0:15:17.560 big move. You know, we'd like to see them come 0:15:17.600 --> 0:15:21.000 faster because seven thirty seven DASH ten is a large 0:15:21.040 --> 0:15:23.960 competitor to the Airbus A three twenty, which is very 0:15:23.960 --> 0:15:27.160 successful and one of the reasons they saw United place 0:15:27.200 --> 0:15:30.000 a big order with Airbus. But again, I think that 0:15:30.080 --> 0:15:32.280 you can't expect this stuff to go in a straight line. 0:15:32.760 --> 0:15:34.400 And the fact that they think twenty twenty six is 0:15:34.400 --> 0:15:38.040 when they could get certification, it doesn't tell me anything's broke. 0:15:38.120 --> 0:15:41.320 It just tells me the process is nonlinear, and I 0:15:41.360 --> 0:15:43.400 think to be expected in aerospace, all right. 0:15:43.680 --> 0:15:47.720 Also, jet Blue posted a smaller than expected loss. Here, 0:15:47.760 --> 0:15:49.960 what's going on with Jet Blue and the airline business? 0:15:49.960 --> 0:15:52.360 He's aces because I know the last quarter, Boy, these 0:15:52.440 --> 0:15:55.920 airline companies are really reticent to give any kind of guidance. 0:15:56.800 --> 0:15:58.520 Yeah, I mean a lot of them have come back 0:15:58.560 --> 0:16:01.360 with guidance in a lot of cases is lower a 0:16:01.400 --> 0:16:03.680 lot you know, the airline business right now is really 0:16:03.720 --> 0:16:07.120 counting on less capacity in the second half of twenty 0:16:07.200 --> 0:16:09.680 twenty five, and we'll see how that goes. Last time 0:16:09.720 --> 0:16:12.960 I looked at domestic capacity plans for three Q it's 0:16:13.040 --> 0:16:16.640 kind of about zero growth. I mean, I think they 0:16:16.640 --> 0:16:18.920 need to cut capacity in the marketplace. If you look 0:16:18.920 --> 0:16:22.680 at jet Blues results, load factor fell by I think 0:16:22.680 --> 0:16:26.000 it was around three hundred basis points down to the 0:16:26.040 --> 0:16:31.040 low eighties from mid eighties they and they held fares 0:16:31.520 --> 0:16:34.320 pretty much flat, yields were kind of just up a 0:16:34.360 --> 0:16:36.840 little bit. So that just tells me that there's too 0:16:36.920 --> 0:16:40.440 much capacity in this market. They just can't fill airplanes 0:16:40.480 --> 0:16:43.360 at the right price. Jet Blue has other problems like 0:16:43.400 --> 0:16:46.320 you know, the gear turbo fan keeps them from expanding. 0:16:46.360 --> 0:16:48.880 That means costser ballooning on them. But I don't see 0:16:48.880 --> 0:16:51.560 how they'd want to expand right now. What I see 0:16:51.560 --> 0:16:54.480 as a market that has can't fill airplanes at the 0:16:54.520 --> 0:16:58.080 price that's going to keep them very profitable, and so 0:16:58.120 --> 0:17:00.280 someone's got to cut. And the question is who the 0:17:00.280 --> 0:17:03.000 full service carriers are saying, Hey, we got premium to 0:17:03.040 --> 0:17:06.160 subsidize us. We don't care. The low costs are going 0:17:06.160 --> 0:17:08.960 to have to jet Blue will cut in three Q 0:17:09.200 --> 0:17:11.159 but every time they cut, their costs go high or 0:17:11.160 --> 0:17:14.600 per seed, so they're a bit of a challenging position. 0:17:15.080 --> 0:17:17.480 It does seem like the issues just compound for the 0:17:17.520 --> 0:17:20.119 companies in this space from aircraft shortages. 0:17:19.600 --> 0:17:22.320 Delivery delays, pilot shortages. 0:17:21.840 --> 0:17:26.239 Wage inflation, labor and negotiation and so on. Are there 0:17:26.320 --> 0:17:29.240 differences in how Boeing and Jet Blue addressing the issues 0:17:29.359 --> 0:17:33.159 or is really an industry wide consensus and problem. 0:17:33.640 --> 0:17:36.000 Well, I mean if you talk to Boeing, everybody wants 0:17:36.040 --> 0:17:37.960 an airplane, right and they're sold out in the seven 0:17:38.080 --> 0:17:39.639 thirty seven and seventy eight seven to the end of 0:17:39.680 --> 0:17:42.600 the decade. Everybody wants the newest, and I think what 0:17:42.640 --> 0:17:45.480 needs to happen is, again the airlines are just putting 0:17:45.480 --> 0:17:48.400 too much capacity in the marketplace, especially in the US, 0:17:48.960 --> 0:17:52.600 and someone has to cry uncle and say, hey, you know, 0:17:52.760 --> 0:17:55.720 we can't take the profitability at these levels. Park some 0:17:55.800 --> 0:17:59.239 airplanes get them out of the business so they can 0:17:59.280 --> 0:18:02.960 write size compacity, and I think nobody wants to do it. 0:18:03.359 --> 0:18:06.040 You have some competitors that are in a situation where 0:18:06.040 --> 0:18:08.879 they they've you know, some of them are declared Chapter 0:18:09.000 --> 0:18:12.720 eleven it's like spirit and then and then refashion themselves 0:18:12.720 --> 0:18:15.040 and got back out in the marketplace. But it's either 0:18:15.040 --> 0:18:18.199 someone's gonna have to go away or the market's going 0:18:18.280 --> 0:18:21.720 to have to get negative enough and profitability that people 0:18:21.760 --> 0:18:24.959 start to park airplanes. As we get into laid end 0:18:24.960 --> 0:18:26.960 of this year, four Q and one Q, those are 0:18:27.320 --> 0:18:31.200 weak quarters for the US airline industry. If something doesn't improve, 0:18:31.520 --> 0:18:33.600 If you've got a Jet Blue that's barely positive and 0:18:33.680 --> 0:18:37.600 profitability in two Q without a change in this market, 0:18:37.680 --> 0:18:40.360 that's that's a strong negative. Near the end of the year, 0:18:40.400 --> 0:18:42.960 people will start to cut capacity and try to boost fares. 0:18:43.119 --> 0:18:44.879 So, George, who does that? Is it one of the 0:18:44.880 --> 0:18:48.000 big three? I mean, Jet Blue can't drive capacity in 0:18:48.000 --> 0:18:48.600 this industry. 0:18:48.800 --> 0:18:51.400 It's got to be one of the big three, right, Yeah, Look, 0:18:51.400 --> 0:18:54.280 I don't think it's. The big three are in a 0:18:54.640 --> 0:18:57.359 game of chicken with the low cost right they think 0:18:57.880 --> 0:19:00.560 that they've got pole position here and that they just 0:19:00.640 --> 0:19:04.120 keep capacity and someone's going to fail on the low 0:19:04.160 --> 0:19:08.000 cost side because the low cost doesn't have this premium seating. 0:19:08.440 --> 0:19:10.879 They might be right right right now, it looks like 0:19:11.040 --> 0:19:14.199 their profitabilities hanging in there. The low cost carriers are 0:19:14.200 --> 0:19:16.280 the ones taking it on the chin our. 0:19:16.280 --> 0:19:19.679 Thanks to George Ferguson, Bloomberg Intelligence Senior Aerospace, Defense and 0:19:19.800 --> 0:19:21.600 Airlines analysts. 0:19:21.200 --> 0:19:23.680 We moved to news from the ev giant Tesla. 0:19:24.160 --> 0:19:26.359 This week, we heard Samsung will make AI chips for 0:19:26.440 --> 0:19:30.080 Tesla in a sixteen point five billion dollar multi year deal. 0:19:30.320 --> 0:19:32.960 That's according to Tesla CEO Elon Musk, must be the 0:19:32.960 --> 0:19:35.600 statement on x where he stated that the strategic importance 0:19:35.640 --> 0:19:37.560 of this deal is hard to overstate. 0:19:37.720 --> 0:19:39.600 For more guestos, John Tucker and I were joined by 0:19:39.680 --> 0:19:43.200 Craig Trudell, Bloomberg Global Autos Editor. We first asked Craig 0:19:43.320 --> 0:19:45.840 what this deal between Tesla and Samsung will do for 0:19:45.920 --> 0:19:46.520 the carmaker. 0:19:46.920 --> 0:19:52.680 Samsung is an existing supplier of these high powered semiconductors 0:19:52.760 --> 0:19:56.040 that are used for its driving systems that it markets 0:19:56.160 --> 0:20:00.880 as a full self driving and autopilot. Contrary to those 0:20:00.960 --> 0:20:03.840 names that you know, you cannot buy a Tesla today 0:20:03.880 --> 0:20:06.880 and have to drive itself for you. You still need 0:20:06.960 --> 0:20:10.359 to pay attention and keep your hands on the wheel 0:20:10.400 --> 0:20:12.600 and eyes on the road. But uh, it is the 0:20:12.640 --> 0:20:16.360 case that those systems are are becoming more more capable 0:20:16.440 --> 0:20:19.199 and that Tesla's trying to kind of press the issue 0:20:19.200 --> 0:20:21.800 with them to the point where uh, you know, they're 0:20:21.800 --> 0:20:24.080 they're taking people out of out of the driver's seat 0:20:24.160 --> 0:20:28.960 and and having uh you know, supervisors in the in 0:20:29.000 --> 0:20:32.440 the passenger seat of cars in Austin, Texas, and and 0:20:32.480 --> 0:20:36.080 trying to to take that elsewhere as well. Uh this 0:20:36.080 --> 0:20:40.600 this will be interestingly. Musk announced that they will be 0:20:40.760 --> 0:20:44.080 going to a T S M C chip for for 0:20:44.240 --> 0:20:47.920 the next generation of Semis that they use and then 0:20:48.000 --> 0:20:51.679 go to Samsung, relying on on supply from from this 0:20:51.720 --> 0:20:55.160 plant in Texas that that Samsung is boys to to open, 0:20:55.440 --> 0:20:57.119 uh in the near future. 0:20:57.680 --> 0:21:01.360 And what near future? How how long does it take 0:21:01.400 --> 0:21:05.520 to build a fab plant? The cool kids say fab right. 0:21:06.080 --> 0:21:09.479 Yeah, that's right. Yeah, I mean I think, uh, you know, 0:21:09.520 --> 0:21:12.560 the the this is a project on Samsung's part that's 0:21:12.600 --> 0:21:14.600 been in the worse for some time, right, and and 0:21:14.680 --> 0:21:18.040 so uh they they you know, were sort of moved 0:21:18.119 --> 0:21:21.520