WEBVTT - McDonald's E. Coli Outbreak Likely to Hurt Traffic, Sales 0:00:02.960 --> 0:00:10.760 Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg Business 0:00:10.760 --> 0:00:13.960 Wait inside from the reporters and editors who bring you 0:00:14.040 --> 0:00:18.400 America's most trusted business magazine, plus global business, finance and 0:00:18.440 --> 0:00:22.880 tech news. The Bloomberg Business Week Podcast with Carol Messer 0:00:23.040 --> 0:00:25.840 and Tim Stenebeck from Bloomberg Radio. 0:00:27.160 --> 0:00:27.960 Big day for a. 0:00:27.880 --> 0:00:31.840 Couple of consumer discretionary names. McDonald shares sinking right now, 0:00:31.960 --> 0:00:34.720 lower by just about five percent of severe coli outreak, 0:00:34.920 --> 0:00:38.479 likely tied to onions served on the quarter pounders sickened 0:00:38.640 --> 0:00:41.800 dozens of people in the US, mainly in Colorado and Nebraska, 0:00:42.040 --> 0:00:46.680 killed one according to the US CDC. Also, Starbucks shares 0:00:46.720 --> 0:00:50.360 bouncing around. They were down earlier in the session by 0:00:50.400 --> 0:00:54.040 as much as about three percent, but you know, only 0:00:54.040 --> 0:00:56.000 down about one tenth of one percent right now. This 0:00:56.120 --> 0:00:59.400 after sales plunged for the third quarter in a row. 0:00:59.440 --> 0:01:01.400 The company pulled it's guidance for twenty twenty five. It 0:01:01.440 --> 0:01:04.000 calls attention to the scope of the problems facing Brian Nickel, 0:01:04.319 --> 0:01:06.800 the new CEO over at Starbucks. We got Mike Hayln 0:01:06.840 --> 0:01:09.320 with us. He's the perfect person to talk about both 0:01:09.360 --> 0:01:12.320 of these things. He's senior restaurant analyst over at Bloomberg Intelligence. 0:01:12.360 --> 0:01:14.600 He joins us from Princeton, New Jersey. I do want 0:01:14.640 --> 0:01:17.319 to start with with McDonald's, Michael, and get an understanding 0:01:18.160 --> 0:01:21.600 from you about how widespread this could be and the effect. 0:01:21.600 --> 0:01:23.360 I mean, I gotta tell you, I know that this 0:01:23.440 --> 0:01:28.959 is probably every franchise e's worst nightmare to have someone 0:01:29.000 --> 0:01:33.320 get sick, even if it is three thousand miles away. 0:01:35.120 --> 0:01:38.120 Yeah, without a doubt, it's pretty much the worst thing 0:01:38.120 --> 0:01:40.480 that can happen to a restaurant or a franchise ee. 0:01:41.880 --> 0:01:43.399 Yeah, we'll see, you know. 0:01:43.840 --> 0:01:47.680 I would expect some more cases to be found, you know, 0:01:47.920 --> 0:01:49.920 in the coming days and weeks, but. 0:01:50.200 --> 0:01:51.120 We'll find out shortly. 0:01:51.160 --> 0:01:51.360 You know. 0:01:51.520 --> 0:01:54.840 To McDonald's credit, they've historically been as good as it 0:01:54.840 --> 0:01:59.200 gets operationally, and so hopefully they were able to mitigate 0:01:59.240 --> 0:02:00.360 this as fast as possible. 0:02:01.080 --> 0:02:03.720 And you think about and this is something that we 0:02:03.760 --> 0:02:05.840 talked about a couple hours ago on BTV, but you 0:02:05.840 --> 0:02:09.920 think about the blueprint here, I mean Chipotle for example, 0:02:10.040 --> 0:02:13.639 this obviously having their own issues with the ecoli that 0:02:13.760 --> 0:02:17.400 weighed on Chipotle for at least five quarters I believe. 0:02:17.480 --> 0:02:21.680 So how does McDonald's avoid a Chipotle type situation. 0:02:23.160 --> 0:02:26.640 Yeah, well, Chapote was a little bit unique because after 0:02:26.680 --> 0:02:30.440 the initial Ecola outbreak, they had several neuro virus outbreaks, right, 0:02:30.480 --> 0:02:34.320 and so Chippole also owned all their stores, so there 0:02:34.400 --> 0:02:38.079 was not only did they suffer a big top line 0:02:38.080 --> 0:02:41.480 to climb, but it also suffered significant margin contraction. 0:02:41.840 --> 0:02:43.040 Also, Chipotle was a. 0:02:44.520 --> 0:02:47.360 More difficult problem to solve because food is out in 0:02:47.400 --> 0:02:49.680 the open behind a sneeze glass, and so it's easier 0:02:49.680 --> 0:02:53.080 for pathogens to get in. So for all of those reasons, 0:02:53.120 --> 0:02:57.320 we don't expect the impact on McDonald's to be nearly 0:02:57.360 --> 0:03:00.240 as deep as Chipotle. You know, they're saying Chapotle seems 0:03:00.240 --> 0:03:02.239 our shelves are down twenty percent and twenty sixteen and 0:03:02.320 --> 0:03:05.560 the client to your point, for five straight quarters. But 0:03:05.919 --> 0:03:08.880 that being said, we still think, you know, consumers are 0:03:08.960 --> 0:03:09.880 going to be turned off. 0:03:10.800 --> 0:03:11.480 By this news. 0:03:11.560 --> 0:03:12.600 You know, it was a tragedy. 0:03:12.680 --> 0:03:15.560 It's it's it's terrible, and you know, I think it's 0:03:15.639 --> 0:03:18.960 gonna impact sales and traffic at least for a few quarters. 0:03:19.000 --> 0:03:19.160 Here. 0:03:19.600 --> 0:03:22.480 It's interesting you say that impacting sales and traffic. I 0:03:22.560 --> 0:03:24.040 got to give a shout out to Tom Kane. We 0:03:24.080 --> 0:03:27.480 walk in the studio to give him. There's a bag 0:03:27.560 --> 0:03:29.880 of McDonald's in the studio waiting for us, So I 0:03:30.320 --> 0:03:33.280 I you know, he got us some fries. He got 0:03:33.400 --> 0:03:36.560 us some flet of fish. It's still here. We have 0:03:36.720 --> 0:03:40.040 not eaten it. It does smell, but it doesn't. It's 0:03:40.080 --> 0:03:42.440 not holding him back from going to McDonald's here in 0:03:42.480 --> 0:03:46.120 New York the next day. Michael and I wonder, you know, 0:03:46.640 --> 0:03:49.480 if if something happens, something's in the news and it 0:03:49.720 --> 0:03:54.320 is geographically isolated, does it affect traffic in other parts 0:03:54.360 --> 0:03:54.880 of the country. 0:03:56.440 --> 0:03:58.839 Yeah, we we think we think it is. I mean, listen, 0:03:58.880 --> 0:04:00.560 Tom's one of a kind. He all so offered me 0:04:01.080 --> 0:04:04.000 McDonald's on surveillance next time I'm in the city. 0:04:04.120 --> 0:04:08.400 So thanks. I'll make good on that, I promise. 0:04:08.680 --> 0:04:08.880 Yeah. 0:04:09.040 --> 0:04:10.840 No, and I know so I'm looking forward to it. 0:04:10.960 --> 0:04:14.360 But yeah, no, I think it does. Man, there's there's 0:04:14.520 --> 0:04:16.719 this has been all over the news today. Everybody wants 0:04:16.760 --> 0:04:19.520 to talk about it, you know, and when consumers hear 0:04:19.520 --> 0:04:21.880 about it, especially the fact that somebody passed away, especially 0:04:22.240 --> 0:04:24.000 the fact that quarter pounder of cheese is a very 0:04:24.040 --> 0:04:26.719 popular menu item for McDonald's, I think all of these 0:04:26.800 --> 0:04:31.119 things add up to some consumer hesitancy in the coming 0:04:31.160 --> 0:04:33.120 weeks and months, and you know, I think it's going 0:04:33.200 --> 0:04:35.720 to be up to McDonald's to prove to their customers 0:04:35.800 --> 0:04:39.160 and their investor base that they're doing everything they possibly 0:04:39.279 --> 0:04:42.440 can to make sure that the food they're serving is safe. 0:04:42.600 --> 0:04:43.440 Right, is it is? 0:04:43.760 --> 0:04:46.000 You know, if it came from the onions, which is 0:04:46.120 --> 0:04:48.000 it seems like it's most likely. You know, maybe they 0:04:48.040 --> 0:04:51.000 can grill the onions, or stop putting fresh onions on 0:04:51.040 --> 0:04:54.040 the burgers, whatever it could be to kind of rectify 0:04:54.120 --> 0:04:54.800 their situation. 0:04:56.080 --> 0:05:00.520 I you know, Katie brings up Chipotle over the last decade. 0:05:01.240 --> 0:05:03.120 I think of Jack in the Box in the nineteen 0:05:03.200 --> 0:05:06.880 nineties and what the e coli outbreak, Probably because I'm older, 0:05:06.880 --> 0:05:08.600 but the outbreak at Jack in the Box and what 0:05:08.720 --> 0:05:11.960 that did, Michael, I mean, that changed the course of 0:05:12.040 --> 0:05:13.520 the history of that restaurant. 0:05:14.560 --> 0:05:16.440 Yeah, that was a much much deeper decline. 0:05:16.440 --> 0:05:19.640 I think there were several casualties in that case, and 0:05:19.760 --> 0:05:23.839 that really changed the way quicker quick service companies serve 0:05:23.920 --> 0:05:24.600 their hamburgers. 0:05:24.760 --> 0:05:24.880 Right. 0:05:24.920 --> 0:05:27.760 I think prior to the Jack in the Box insistance, 0:05:27.880 --> 0:05:32.040 you know, medium burger served medium was kind of common. 0:05:32.160 --> 0:05:34.280 Now there's no pink in any of the burgers you're 0:05:34.320 --> 0:05:38.240 getting in QSR right now, and that's because of that. 0:05:38.360 --> 0:05:41.520 So there's been you know, advances in food safety, and 0:05:42.120 --> 0:05:45.480 you know, I'm sure this is gonna force McDonald's to 0:05:45.560 --> 0:05:48.640 kind of improve their food safety measures and you know, 0:05:48.760 --> 0:05:51.680 in the hopes that this never happens again. But this 0:05:51.839 --> 0:05:54.160 is just part of the business, and it's constantly the 0:05:54.360 --> 0:05:56.120 one of the biggest risks. You know, most of the 0:05:56.640 --> 0:05:58.479 CEOs I talked to, you know, if I asked them 0:05:58.520 --> 0:06:00.760 what keeps them up at night, it's usually food safety. 0:06:01.160 --> 0:06:04.320 Right It's something that you know, they do their best 0:06:04.440 --> 0:06:08.240 to control, but sometimes you know, it can still you know, 0:06:08.360 --> 0:06:09.320 thinks can still happen. 0:06:09.920 --> 0:06:12.320 So McDonald's of course facing a test here. Sure is 0:06:12.320 --> 0:06:15.560 currently down about four point eight percent. I also want 0:06:15.600 --> 0:06:18.920 to talk about Starbucks. Of course, Sure's they're pretty much 0:06:19.000 --> 0:06:21.960 flat right now. They had been down by more than 0:06:22.040 --> 0:06:25.280 three percent earlier. Of course, the news from yesterday pulling 0:06:25.400 --> 0:06:30.560 its forecast for Starbucks. Of course, this under Brian Nichol's 0:06:31.040 --> 0:06:33.440 leadership here, and I guess the fact that they pulled 0:06:33.480 --> 0:06:37.360 the forecast wasn't too surprising. Michael, you think about the 0:06:37.400 --> 0:06:40.839 problems that are facing this chain, and I would imagine 0:06:40.880 --> 0:06:43.760 that Nichols here just wants to have a clean slate. 0:06:44.880 --> 0:06:47.280 Yeah, one hundred percent. Yeah, nobody cares about this news. 0:06:47.320 --> 0:06:48.120 This is old news. 0:06:49.040 --> 0:06:51.480 Brian Nichols just started a month ago. And you know, 0:06:51.720 --> 0:06:54.320 any any good CEO is going to do this. 0:06:54.480 --> 0:06:58.160 They're gonna withdraw annual or long term guidance to give 0:06:58.240 --> 0:07:02.240 their their initiatives time to to kind of take take hold, 0:07:02.600 --> 0:07:06.080 right And so, you know, they're moving aggressively. You know, 0:07:06.160 --> 0:07:09.200 they've made some significant management changes. They have a new 0:07:09.279 --> 0:07:11.440 head of China, they have a new chief brand officer. 0:07:13.120 --> 0:07:17.160 You know, he Brian Nichols visiting stores and uh, you know, 0:07:17.320 --> 0:07:19.560 has seems to have a good idea about how they 0:07:19.640 --> 0:07:26.840 can improve the barista experience, how they can improve on 0:07:27.000 --> 0:07:29.560 the on the speed of service for the customers, and 0:07:29.640 --> 0:07:32.840 things of that nature. So yeah, they're listening. They're moving fast, 0:07:32.920 --> 0:07:36.240 and that's really what's most important in this story right now. 0:07:36.640 --> 0:07:39.720 What is the biggest challenge that Brian Nichol has to 0:07:39.760 --> 0:07:43.000 overcome at Starbucks to get more people through the doors 0:07:43.040 --> 0:07:43.880 and buying more coffee. 0:07:45.680 --> 0:07:47.880 Yeah, no, I think it's that operational piece is going 0:07:47.960 --> 0:07:49.960 to be the first thing, you know, they're they're gonna 0:07:51.080 --> 0:07:54.080 you know, listen, Happy baristas provide a good experience for 0:07:54.200 --> 0:07:57.880 the customer. Customer has a good experience, they're more likely 0:07:57.960 --> 0:07:59.600 to come back, So that's going to be. 0:07:59.600 --> 0:08:02.520 A huge part of it. Price is a concern. 0:08:02.800 --> 0:08:04.800 I'd expect some work to be done on the strategic 0:08:04.880 --> 0:08:09.640 pricing front, which Chipotle was fantastic at, and then from 0:08:09.680 --> 0:08:12.480 there it's going to be improving on the marketing. Starbucks 0:08:12.840 --> 0:08:15.360 historically has not spent a lot on marketing. They've only 0:08:15.480 --> 0:08:18.960 marketed to their loyalty members. The Starbucks are rewards members, 0:08:19.200 --> 0:08:21.000 and now Brian Nichol's gonna spend a little bit more. 0:08:21.080 --> 0:08:24.000 He's going to market to people everyone. 0:08:23.800 --> 0:08:27.080 Not just their rewards members, and that should lead to 0:08:27.160 --> 0:08:28.320 a bump in sales and traffic. 0:08:28.520 --> 0:08:31.200 Mike Kalin and Bloomberg Intelligence, good to see you. Thanks 0:08:31.240 --> 0:08:34.079 so much for joining us from Princeton this afternoon. Katie. 0:08:34.080 --> 0:08:35.199 You don't need to be persuaded to go. 0:08:35.440 --> 0:08:38.240 I know, it was like spending on marketing. They have 0:08:38.400 --> 0:08:41.120 me locked in. I spent five dollars and like seventy 0:08:41.200 --> 0:08:42.559 nine cents there every single morning. 0:08:42.679 --> 0:08:44.880 Okay, you're not part of the problem. You're part of 0:08:44.920 --> 0:08:45.320 the solution. 0:08:46.360 --> 0:08:49.840 You're listening to the Bloomberg Business Week podcast. Catch us 0:08:49.920 --> 0:08:53.120 live weekday afternoons from two to five pm Eastern Listen 0:08:53.200 --> 0:08:55.360 on Apple card Play and then Bright Auto with a 0:08:55.400 --> 0:08:58.400 Bloomberg Business at or wan't just live on YouTube. 0:09:00.000 --> 0:09:01.679 So we got our eye on shares of Boeing their 0:09:01.760 --> 0:09:04.360 lower by just about a percent off of the lows 0:09:04.520 --> 0:09:07.280 of the day. Shares were under pressure even though investors 0:09:07.320 --> 0:09:10.120 were already prepared for lackluster results after the company provided 0:09:10.160 --> 0:09:14.160 a preview earlier this month, we hear from Boeing five 0:09:14.200 --> 0:09:17.080 billion dollars in accounting charges. Revenue of seventeen point eight 0:09:17.120 --> 0:09:20.560 billion dollars fell short of analysts estimates, negative free cash 0:09:20.600 --> 0:09:22.880 flow of two billion dollars in the quarter, bringing the 0:09:22.960 --> 0:09:25.200 total it's burned through so far this year to ten 0:09:25.280 --> 0:09:28.920 point two billion dollars. For more, we bring in George Ferguson. 0:09:29.120 --> 0:09:32.120 He's Bloomberg Intelligence senior Aerospace, Defense and Airlines analysts. He 0:09:32.160 --> 0:09:35.680 joins us from Bloomberg Intelligence headquarters in Princeton, New Jersey. George, 0:09:35.720 --> 0:09:38.319 did we learn anything new in this report about the 0:09:38.400 --> 0:09:41.040 tough task that Kelly Ortberg has ahead of him? And 0:09:41.080 --> 0:09:44.199 turning around the planemaker. I think we did I think 0:09:44.880 --> 0:09:47.480 the most interesting or I don't know. I guess I 0:09:47.559 --> 0:09:50.959 think of it as interesting. But maybe concerning thing we 0:09:51.080 --> 0:09:55.439 heard from the during the report was that Boeing expects 0:09:55.559 --> 0:09:59.520 cash burn next year as well for the entire year. 0:10:00.280 --> 0:10:03.000 It sounded like they expect most of it in the 0:10:03.080 --> 0:10:06.760 first half, and they'd expect some of the cash generation 0:10:06.880 --> 0:10:09.480 to turn around by the second half, but still be 0:10:09.600 --> 0:10:10.439 negative on the year. 0:10:11.000 --> 0:10:12.680 I was a little bit surprised by that. I thought 0:10:12.720 --> 0:10:15.600 that the turnaround could be sooner. They might be sandbagging 0:10:15.679 --> 0:10:16.320 us a little bit. 0:10:16.480 --> 0:10:21.199 But I think cash is a really important part of 0:10:21.240 --> 0:10:23.640 this story right now, and that's concerning. 0:10:24.200 --> 0:10:24.400 Yeah. 0:10:24.559 --> 0:10:28.520 Absolutely, And I mean you think about this quarter, and 0:10:28.600 --> 0:10:32.240 you think about Kelly Orberg his first report as CEO. 0:10:32.600 --> 0:10:34.880 Is it fair to say this is just let's throw 0:10:34.960 --> 0:10:37.439 everything out there, let's put every bad number that we 0:10:37.600 --> 0:10:41.400 can out there right now, because I mean, it doesn't 0:10:41.400 --> 0:10:43.679 seem like there's really any bright spots here. 0:10:44.960 --> 0:10:46.400 Yeah. I think there was a little bit of that. 0:10:46.559 --> 0:10:50.920 Right They pushed Triple seven certification and first deliveries back 0:10:51.040 --> 0:10:53.800 twenty twenty six, which is another year out. That was 0:10:53.840 --> 0:10:58.520 a large portion of the charge at commercial airplane. You know, 0:10:59.000 --> 0:11:02.240 I'm sure that there's to you know, judging some of 0:11:02.280 --> 0:11:05.360 these things, trying to figure out what's when they can 0:11:05.440 --> 0:11:08.600 they absolutely deliver it by and I think Triple seven 0:11:08.720 --> 0:11:11.640 might fall in that in that category. Uh, And so 0:11:11.800 --> 0:11:13.079 that you know, they push it out and take a 0:11:13.200 --> 0:11:16.120 charge and maybe if things go better than they expect, 0:11:16.200 --> 0:11:19.800 they'll have a certification prior to that and deliveries prior 0:11:19.880 --> 0:11:21.800 to that. So I do feel like there was a 0:11:21.920 --> 0:11:25.040 little bit of that going on inside this earnings report. 0:11:25.480 --> 0:11:28.439 He also sent a message to employees today. It said, quote, 0:11:28.480 --> 0:11:30.840 it will take time to return bowing to its former legacy, 0:11:30.920 --> 0:11:32.760 but with the right focus in culture, we can be 0:11:32.800 --> 0:11:38.240 an iconic company, an aerospace leader. Once again, the old adage, 0:11:38.400 --> 0:11:40.880 if it's not Boeing, I'm not going now it's printed 0:11:40.920 --> 0:11:43.719 on T shirts that that Boeing sells. Pilots were known 0:11:43.760 --> 0:11:46.240 to say that, George, do you believe that Boeing can 0:11:46.280 --> 0:11:47.719 get back to what it once was? 0:11:48.880 --> 0:11:51.119 I do, And I think, you know, because of the duopoly, 0:11:52.200 --> 0:11:55.439 they absolutely have a window. You know, they pointed out 0:11:55.480 --> 0:11:58.040 they have a half a trillion dollar backlog. You know, 0:11:58.240 --> 0:12:02.160 we knew this before the call. But because of the duopoly, 0:12:02.880 --> 0:12:05.800 Airbus has not been able to make much, uh, you know, 0:12:06.000 --> 0:12:09.360 much headway against them because the supply chains are so 0:12:09.559 --> 0:12:13.120 intertwined and they're having similar just not as bad a 0:12:13.200 --> 0:12:17.120 problem with their supply chain. Absolutely, if they turn around 0:12:17.160 --> 0:12:21.520 the quality deliver like they used to. Uh, there's plenty 0:12:21.600 --> 0:12:25.280 of core customers that are still in their camp, companies 0:12:25.400 --> 0:12:30.280 like you know, airlines like Ryanair, Southwest Alaska. These are 0:12:30.360 --> 0:12:34.200 these are high quality customers to have, so they absolutely 0:12:34.240 --> 0:12:37.800 have the opportunity to become that you know, that that 0:12:38.000 --> 0:12:40.040 great you know, look, I think Airbus is great as well, 0:12:40.120 --> 0:12:43.760 but that great aircraft commercial aircraft manufacturer. 0:12:44.240 --> 0:12:46.120 But this is the time, right, they got to get 0:12:46.120 --> 0:12:47.559 the union back. They have the vote tonight. 0:12:48.000 --> 0:12:50.280 They got to get a union back into the into 0:12:50.320 --> 0:12:53.280 the factories building airplanes, and they got to bring the 0:12:53.480 --> 0:12:57.439 union back somewhat happy. Right, you can't make them entirely happy. 0:12:58.320 --> 0:13:00.679 I think they've got a decent deal on the on 0:13:00.800 --> 0:13:03.280 the table for them. But when you bring them back, 0:13:03.360 --> 0:13:05.720 you've got to have them happy and motivated to build 0:13:06.280 --> 0:13:09.559 quality airplanes because that's the only way to make the 0:13:09.720 --> 0:13:11.160 company successful going forward. 0:13:11.480 --> 0:13:14.480 And George, you know, well, the reason why their customers 0:13:14.520 --> 0:13:17.800 are so loyal is because, I mean, it's Boeing and 0:13:17.920 --> 0:13:22.040 it's air Bus. It's interesting, though, you had Embraer's CEO 0:13:22.240 --> 0:13:24.320 on Bloomberg Television. I believe it was last week. 0:13:24.440 --> 0:13:26.080 He was on our show too last week. 0:13:26.280 --> 0:13:30.080 No kidding, Well, I only watched the TV first. 0:13:30.280 --> 0:13:31.959 You should watch the I will. 0:13:32.240 --> 0:13:35.319 I'll go back. What I know from the TV I 0:13:35.440 --> 0:13:38.319 go on was that he hinted at, you know, a 0:13:38.360 --> 0:13:41.600 seven thirty seven rival, that maybe they would think about 0:13:42.040 --> 0:13:44.360 a new jet to rival the seven thirty seven. That 0:13:44.440 --> 0:13:48.040 was in the TV interview. But anyway, George, the question 0:13:48.120 --> 0:13:50.520 I have to you, I mean, is this a duopoly 0:13:50.640 --> 0:13:53.400 that could be broken into? Or is it just is 0:13:53.440 --> 0:13:55.800 it Boeing, is it Airbus? And that for the foreseeable 0:13:55.880 --> 0:13:57.200 future is the only game in town. 0:13:58.000 --> 0:14:00.360 So I would say it is a duopoly will be 0:14:00.400 --> 0:14:04.120 broken into. I don't think it'll be Embryer. I think 0:14:04.200 --> 0:14:08.120 it'll be Comac. The C nine one nine, the Chinese manufacturer. 0:14:08.679 --> 0:14:11.760 They do have a narrow body flying in fleets in China. 0:14:12.120 --> 0:14:14.079 There's about eight of them in fleets right now, most 0:14:14.120 --> 0:14:16.680 of them with China Eastern. They don't get the same 0:14:16.760 --> 0:14:20.120 hours per day as of Boeing or Airbus. Narrowbody gets it. 0:14:20.560 --> 0:14:22.920 They're just they have to work on some of their sustainment. 0:14:23.280 --> 0:14:26.280 They're not building them as fast as Boeing and Airbus, 0:14:26.760 --> 0:14:29.840 but they've built them. They're in fleets, and they can 0:14:29.960 --> 0:14:33.560 count on a very robust domestic market. They can count 0:14:33.600 --> 0:14:36.480 on getting the Chinese airlines to buy that airplane. And 0:14:36.600 --> 0:14:39.840 so I think they're breaking in now and one day 0:14:39.920 --> 0:14:42.680 they will be a competitor. It won't be probably in 0:14:42.760 --> 0:14:46.000 the US and European markets anytime soon, but they they'll 0:14:46.040 --> 0:14:48.040 be a competitor in the developing world and they'll be 0:14:49.040 --> 0:14:52.000 absolutely a major part of fleets in China over time. 0:14:52.120 --> 0:14:55.800 Would that be because of the FAA and regulators here 0:14:55.840 --> 0:14:59.000 in the US and then the European counterpart to the 0:14:59.160 --> 0:15:02.360 fa as well, or do you see them not approving 0:15:03.680 --> 0:15:05.240 the see nine one nine. 0:15:06.560 --> 0:15:10.600 So it's already, you know, the European regulators are already 0:15:10.720 --> 0:15:14.600 looking at the airplane. And so what I see is 0:15:14.640 --> 0:15:17.160 I think the regulators are going to take a very 0:15:17.240 --> 0:15:20.000 close look at these airplanes and make sure they feel 0:15:20.560 --> 0:15:23.720 really comfortable about them before they let them into markets. 0:15:24.240 --> 0:15:26.720 And so you know, I think that means they've got, 0:15:28.040 --> 0:15:32.160 you know, a more protracted approval process. And then I 0:15:32.200 --> 0:15:35.600 think once you get past that approval process, I think 0:15:35.680 --> 0:15:40.200 the other second challenge inside the US and Europe will 0:15:40.320 --> 0:15:44.040 be acceptance of that of that Chinese airplane, right I think. 0:15:44.160 --> 0:15:47.360 Look, I think in time probably will happen. 0:15:47.920 --> 0:15:50.600 But my guess is you won't see it for over 0:15:50.680 --> 0:15:53.600 a decade in the US, maybe less in Europe, because 0:15:53.600 --> 0:15:53.920 I think. 0:15:53.840 --> 0:15:54.760 It's just going to take some time. 0:15:55.120 --> 0:15:57.360 It's going to take some time. Of course, we're talking 0:15:57.360 --> 0:16:00.640 about earnings chiefly. That's how we started the conversation. That's 0:16:00.680 --> 0:16:03.080 only one part of it. George. Of course, a lot 0:16:03.160 --> 0:16:06.480 of excitement coming this afternoon, this evening when it comes 0:16:06.520 --> 0:16:11.520 to Boeing of course, that highly anticipated labor vote. How 0:16:11.600 --> 0:16:14.200 are you expecting it to go? And how high are 0:16:14.240 --> 0:16:15.120 the stakes right now? 0:16:16.080 --> 0:16:17.840 Well, I think the stakes are really high because I 0:16:17.880 --> 0:16:21.080 think I think the sooner you bring the employees back 0:16:21.160 --> 0:16:25.320 into the into the factories, the sooner you can crank up, 0:16:25.760 --> 0:16:29.160 you know, the supply chain, the flow of the factories 0:16:29.240 --> 0:16:33.640 and start getting airplanes built. The longer you let that lapse, 0:16:34.120 --> 0:16:36.640 the harder it is to start that engine again. And 0:16:36.840 --> 0:16:38.360 so I think you've been out. They've been out a 0:16:38.360 --> 0:16:41.680 little bit over a month now. It's not terrible, but 0:16:41.760 --> 0:16:44.160 if you keep going here, I think you run some 0:16:44.320 --> 0:16:48.360 risk of problems, more problems in the supply chain. What 0:16:48.480 --> 0:16:50.480 do I think about the you know, the deal on 0:16:50.560 --> 0:16:55.240 the table. It's very close. I think Boeing will get 0:16:55.320 --> 0:16:58.560 an approval. I think that there might be some machinists 0:16:58.560 --> 0:17:01.360 that thought maybe they deserve forty set instead of thirty five. 0:17:01.920 --> 0:17:04.000 They didn't give the pension, but they sweetened up four 0:17:04.000 --> 0:17:06.080 to one k. I think with a bonus and some 0:17:06.200 --> 0:17:09.520 better matching. It seems very close. And again, the machinists 0:17:09.520 --> 0:17:11.800 have been out for a month. I think they've got 0:17:11.840 --> 0:17:15.080 a good, good probability of getting the deal done tonight. 0:17:15.640 --> 0:17:18.800 I guess we'll see how much machinists have saved up 0:17:19.520 --> 0:17:20.320 prior to the striking. 0:17:20.400 --> 0:17:22.439 Yeah, George, if they do get it done tonight, how 0:17:22.520 --> 0:17:24.000 quickly can those workers be back? 0:17:25.320 --> 0:17:28.440 I mean, on the call we heard you know it 0:17:28.480 --> 0:17:31.200 will take you know, more than a month or so 0:17:31.359 --> 0:17:33.880 to get things really rolling again. But I think you'll 0:17:33.920 --> 0:17:36.359 get people back in fact, okay quickly. I don't know 0:17:36.400 --> 0:17:37.800 why you can't add them back by the end of 0:17:37.800 --> 0:17:38.080 the week. 0:17:38.160 --> 0:17:40.639 So let's say Boeming is able to overcome this hurdle 0:17:40.680 --> 0:17:43.440 that is seems to be the closest one in its path. 0:17:43.960 --> 0:17:46.120 What's next, What's the next thing it has to jump 0:17:46.200 --> 0:17:49.600 through in order to get back to firing on all cylinders. 0:17:50.600 --> 0:17:53.640 Well, again, I think you got to restart the supply chain. 0:17:54.920 --> 0:17:57.840 And you know, Kelly Orperg indicated today not going to 0:17:57.920 --> 0:18:00.440 rush through that process. It's more port and they do 0:18:00.520 --> 0:18:02.000 it right, then do it fast. 0:18:02.359 --> 0:18:02.879 I agree. 0:18:03.240 --> 0:18:04.840 I think they'll have to make sure they have the 0:18:04.960 --> 0:18:08.560 quality controls in place. He talked about some training as well, 0:18:08.960 --> 0:18:10.840 So I think it's really sort of getting that factory 0:18:10.880 --> 0:18:14.080 started in a stabilized way so they could feel really 0:18:14.119 --> 0:18:16.280 good about the quality. Then they're going to have to 0:18:16.359 --> 0:18:19.400 turn their sights to bringing Spirit into the bowling fold 0:18:19.480 --> 0:18:22.680 next year, although they're already well deep into that. I 0:18:22.760 --> 0:18:26.840 think managing some of the definitely managing the quality that's 0:18:26.880 --> 0:18:29.320 coming out of Spirit, and those two things will be 0:18:29.440 --> 0:18:32.560 key to getting seven thirty seven rolling, and then getting 0:18:32.640 --> 0:18:36.320 rid of those old airplanes that they've already built, destined 0:18:36.359 --> 0:18:38.959 for China or India. They just got to get them 0:18:39.040 --> 0:18:40.800 tidied up because they built them a bunch of years 0:18:40.840 --> 0:18:43.720 ago configured for the customer that's ultimately to take them 0:18:43.760 --> 0:18:45.840 and get them out the door. That'll kill a lot 0:18:45.880 --> 0:18:48.240 of the lag they've had in some of their financials 0:18:48.280 --> 0:18:51.040 as they're trying to manage airplanes already built but sitting 0:18:51.080 --> 0:18:51.520 on ramps. 0:18:51.520 --> 0:18:53.480 I think those are key to the commercial business getting 0:18:53.520 --> 0:18:53.840 it moving. 0:18:54.320 --> 0:18:58.199 George ferguson Bloomberg Intelligence, senior Aerospace, Defense and Airlines analysts, 0:18:58.280 --> 0:19:01.840 joining us from Bihead Orders in Princeton, New Jersey. 0:19:03.280 --> 0:19:07.760 This is Bloomberg BusinessWeek with Carol Messer and Tim Steneveek 0:19:08.119 --> 0:19:10.159 on Bloomberg Radio and Television. 0:19:10.960 --> 0:19:12.960 It is Bloomberg Business Week. That's Katie Graefeld in for 0:19:13.040 --> 0:19:15.080 Carol Master. I'm Tim Stenebeck and would you like to 0:19:15.119 --> 0:19:17.560 hear what would you like to hear about on Bloomberg Radio. 0:19:17.640 --> 0:19:20.480 Help make shows like ours even better by talking to 0:19:20.680 --> 0:19:25.240 our Bloomberg audience survey visit YouTube dot com slash Bloomberg Podcasts. 0:19:25.600 --> 0:19:28.639 Click the link in our profile or community section to 0:19:28.800 --> 0:19:31.320 take the survey. It's hosted by our partners at Material. 0:19:31.680 --> 0:19:33.720 You can fill it out now at YouTube dot com 0:19:33.920 --> 0:19:38.040 slash Bloomberg Podcasts. Well, we love talking transit here on 0:19:38.080 --> 0:19:41.840 Bloomberg Business Week, we often talk about planes, trains, automobiles. 0:19:42.560 --> 0:19:45.120 Yeah, you know, we got a great movie, great most 0:19:45.200 --> 0:19:47.160 Steve Martin, fantastic. 0:19:46.680 --> 0:19:48.280 John Candy, can't forget about him. 0:19:48.400 --> 0:19:48.800 Classic. 0:19:49.160 --> 0:19:51.240 One thing we don't talk a lot about, though, is buses, 0:19:51.680 --> 0:19:55.440 especially inner city bus, taking a bus from one city 0:19:55.800 --> 0:19:57.320 in the US to another city. A lot of people 0:19:57.359 --> 0:19:59.880 in the US rely on this type of transport. Last year, 0:20:00.000 --> 0:20:02.679 people in the US are can estimated fifty million trips 0:20:03.200 --> 0:20:06.160 on intercity buses. This according to widely cited data from 0:20:06.560 --> 0:20:10.720