Boeing Max Is Back, Cash Generation to Return in 2021: Ferguson

and on Bloomberg dot com. Well, I know what keeps Boeing flying higher, and that is the Boeing Max, which has been cleared to fly by the f A A. George Ferguson, let's bring you in senior aerospace, defense and airlines analysts for Bloomberg Intelligence. You know what, twenty months in the making, and there were a few hurdles along the way. But twenty months is that good enough time frame? Is that sort of reasonable? Booing would have opted for

a much shorter time frame, So I don't know. Hopefully things like the Max grunning don't become regular occasions, so we have I guess timing for it. I think Bowing again would have wanted to be much shorter. And frank I think if if they would have been more focused on the problem in earlier days, it wouldn't have taken as long, George, what does it mean from a cash respective here to get this thing approved? It's my understanding

that Bowing doesn't get paid until they deliver the aircraft. Yeah, so you know, we think that what this UH could provide up is a chance for going to be cash positive. Uh. You know what we're anticipating as boone could deliver up the thirty matches a month, so probably deliver maybe three and sixty airplanes next year. I think you need to see China authorized the airplane and Chinese airlines be willing to take some airplanes because Chinese air travels bouncing back

faster than any around the world. Bowing has four and fifty of these airplanes on the ground right now. We estimate the cash value of those airplanes, besides the deposit they've already received from airlines, is north of twelve billion dollars. So from a cash generation standpoint, this this really changes. UH, this changes the cash Outlooking Bowing, how many were ordered, how many will be delivered, and how many orders were canceled? George,

So we've seen some cancelations. I don't have all those numbers for the right the tip of my fingers here, but we've seen some cancelations, but largely from less soars.

Less oars are usually the people to cancel if they have any sort of out because less oars by airplanes in the hopes that there's not going to be enough airplanes in the world and they can come in when they when they buy speculative and they come in, then they offer those airplanes to airlines that are need to lift that world just doesn't exist for the next bunch of years. And so if you're a less or and he would a shot to cancel, you did. We're more

concerned about deferrals right. Airlines will definitely ask bowing to slow down deliveries to the airlines. You don't see that um, you know, and sort of as cancelations because those are quiet discussions they're having behind behind the scenes, and but

we know those are going on. We've heard even companies like Southwest pushing out some of their deliveries and that's why we think, you know, if Boling could deliver thirty months of max is, that still would be a little bit less than sorry, a little bit more than half of what there toptic delivery rates would have been back inten when they're planning to go to fifty seven, so that the pain is still large, that the industry is

nowhere near sort of those heavy days of night. But again, I think the real authorization gets them back into the business of delivering their most important cash generating airplane, which is which is very important. George, you mentioned China. Where are we in terms of or where is bowling in terms of getting approval to fly in China because you mentioned their air traffic is coming back more so than

the rest of the world. So we haven't seen any reports out of the Chinese authorities about what they're ready to whether they're ready to let the Max fly again in China. And I suspect that this part of this question maybe wrapped around trade issues as well. Right you know, China and the US not really very happy with each other right now on the trade front, and so one of the things we're looking at is as a as a the president potential administration looks like it's going to

change in Washington. You could have a Biden presidency. Is a potential approachment with the U S and China that could allow airplanes to start get delivered back into China. You remember, there's a there's a trying to trade deal that was signed by the Trump administration. The Chinese don't look like they were fulfilling the purchases that they said they would. Seems impossible for them to do it now.

We also wonder if that trade deal might not get sort of re energized and pushed a year, and that as well could be could be a spur to get more airplanes delivered into China. The Chinese absolutely need to be taking gooing airplanes to meet the terms of that trade deal. But right now that trade deals in some sort of dove land. Sarah Pontac, who is still with Wilson Studio, the Chinese yuan is trading off shore at six fifty seventy. We've literally seen it full off a

fifth in the last you know, a few weeks. It was at seven but higher than seven seven twenty at some point earlier this year. What's behind this water Stratagists saying, right, we really have the lowest sense about June. Just to put this in historical perspective, what strategists are saying is that some of this does have to do with the

outcome of the presidential election. Sure, we are still dealing with the contested election, but the idea that you're going to have a Biden presidency and a return more so to geo political status quo, and where we still might have some tensions back and forth with US and China, even on the trade front, it likely will not look like it did under the President Trump administration. So that is really coming to gear on this also just the fact that if we look at the Chinese economy, we

have seen a lift late. They do seem to have gotten the virus under control more so than Western countries like Europe in the US as well, that could be playing playing a role to But mostly what I typically here is bringing it back to geopolitical tensions and the results of the election to hey, George. Longer term for Boeing, here, what's the hit to you know, their reputation in the marketplace,

their competitive position in the marketplace. I mean, I know it's essentially a duopoly air Bus and Boeing, But as some permanent or maybe at least some long term competitive damage been done to the Boeing company and its products, I think for for sure for the next bunch of years. You know this hurts for reputational standpoint, I guess in time it sort of it seems like all things sade,

you know. I think a bunch of years ago before the Max with the n G and the air Bus CEO for those of us that do inside baseball on airplane, that's the that's the immediate predecessors to the latest airplanes. The seven thirty seven looked like it had a slight advantage over the old Airbus CEO. They had a couple of extra seats and their efficiency seemed to be a little bit better, and so they look like they had

a slight advantage. In the world we're in now, it looks like Airbus might have a slight advantage and the narrow body air aircraft arena with the three Neo, which had larger fan sizes, a little better efficiency, and it's prepared to take those bigger fan sizes in the future.

So I think bowings at a point where they really need to think about the competitiveness of the seven thirty seven, and they need to guard their reputation, and so I think that they got to start thinking about how they're gonna come forth with a new narrow body seven thirty seven and one that can be maybe get another leg up on Airbus. Of course, Airbus won't let that go without a without a fighting shore. George, who is responsible

for getting people into the plane. Is that the airlines who have already ordered and used the on Pready seven Max. Or is it up to Bowing to put a campaign into the works that makes it seem like it's a great airplane to write on. I think it will be both right. There's some airlines that are absolutely bowing customers. They fly all bowing fleets. It's absolutely in their interest to get customers comfortable with the Max, their buyers of

the Max. To even switch to the to an airbust product would would sort of, you know, create a lot of upheaval these companies, companies like Southwest, companies like Ryan Air. But at the same time, Boeing, even though they're one removed from the flying public, they really need to bolster the reputation of this airplane, and the airplane has really been reviewed extensively by the f a A. I think

they've got to bring that forward to the consumer. And the training regiment for getting pilots back in the cockpit on the Max is a little more intense, and it would be for a typical what we call typewriting um type similar typewrated airplane, and so I think Bowing Boeing and the airlines need to bring forth this information to the flying public could be comfortable flying the airplane again

and they don't suffer any demand problems because of that. Hey, sir, I just want to brought more broadly, what do you think are the kind of next catalyst for investors? What are the investors looking at? Now? We've kind of gotten through you know, some we've gotten through earnings, we kind of know where the FED is, where you've got some idea of the vaccine timing. What do you think the

market's looking at? I'd say, as of right now, likely what's going to be the next catalyst for any maybe short term moves in the market would be the development in the trajectory of COVID nineteen cases and restrictions. We have not gotten to the point where restrictions have really been ramped up to the point where we're going to see a drastic effect on an economy like we saw back in March. But what's going to happen as we

get into the winter months. Granted though you are able to look further out, knowing that there is a vaccine, there and on that front, that means there are very high expectations for a growth rebound, not just on the economic front, but when it comes to earnings too. If you look at expectations for one off its Q one Q two. Granted you have much easier comps because we saw numbers just fall off a cliff this year in

the wake of the coronavirus in that first quarantine. But if we do not see markets, especially cyclical areas of the market, because that's where the most year over year growth is really expected, if that doesn't live up to expectations, that could certainly provide a catalyst for some volatility and some moving around here. At the point that we got inventories crude oil inventories that came in much much less than expected. The market was looking for one point two

four million barrels. We got seven sixty nine, and that's giving another little boost to the price of oil zero, which is now you know, close to forty two dollars a barrel. But we're really just in this range, and I guess OPAK is the next catalyst there. Yeah. Absolutely, When we look at oil, it's pretty amazing to see we have a third day of gains today w t I crude oil up more than one also on track for a third week of gains. So we have seen

this sustained move higher. Right now we look at w t I crude oil barrel that's the highest and September. So we have not been able to completely break out, but it does seem as though OPEC and its allies do at least they're aware of the issues right now on the table as it relates to demand. However, again there is just plenty of optimism and the focus really here on that is on the positive side. Okay, Sarah contact,

thank you so much for joining us. We always appreciate your thoughts on the markets from a cross asset perspective. Sarah Pontac cross As reporter for Bloomberg News and George Ferguson, Senior Aerospace and Airlines Analyst for Bloomberg Intelligence. We get up to speed on the Boeing News. We appreciate you. We've heard a lot about Sparks this year. They've become the vehicle of choice for people to raise and then

hopefully look for a company to go public with. Well, one of those companies that went public via a successful spak yesterday, it was EOS and it is trading today on the NAZAC. E O s E is the ticker and it's of more than eleven percent right now. So EOS Energy Enterprises is the full title and the CEO is Joe mastra Angelo. So Joe explained to what first, what EOS Energy Enterprises does. Yeah, so thanks for the

time today. We're we're a stationary energy storage company that focuses on helping take out the intermittency of renewables and the power grid, micro grid applications and eventually a residential um system. Just to clarified, do you mean it like a battery company, Yes, we're bad. We're battery company that we build zinc bromean based batteries for stationary energy storage. Alright, so zinc based energy storage battery. That's different from what I think most of the markets used to, which is

um you know, a lithium ion battery. Tell us the difference between the two and maybe the advantages of your product versus the traditional I guess lithium ion batteries. Yes, so, so first off, you start off with the with the with the raw materials that go into the battery, which are all earth abundant no conflict materials, no rare earths, no toxic materials in the battery widely available so very

limited um supply chain constraints. The battery is not only sustainable throughout its lifetime, where it can operate from temperatures as low as minus twenty degree C up to fifty degrees C, so very wide operate upbrating range without any um incremental heating or cooling. And then lastly, at the end of its useful life in fifteen to twenty years, the battery is fully recyclable back back to its original components to be reused in something else. Sounds pretty phenomenal.

Why did you decide to go public via a spack and you know who's involved in the spat Yeah, so so so it's a great question. So we um were were We worked with b Riley Financial. We went through the you know, we were we were in the midst of a fundraising round and had met with the team from b Riley and we really found a good, a good mesh up in what they saw the strategy of our company, in the capital that we could get to

to grow the company. So as we looked the options in front of us, this was the best way for us to get the story out about how we're going to grow the company for the future. Have a partner and sponsor who believed in the strategy of the company and coming out of this back now we have enough capital to grow the company over the long term and take it to profitability and casual positive So, Joe, when people think of, you know, battery storage, sometimes I think

of Tesla. Is Tesla a potential customer of years or a competitor of yours? How did they How do you kind of position yourself visa be Tesla? Yeah, so, so when you think about Tesla UM, we we both compete in the same space. It's a it's a very wide space when you look at the applications UM that we

go after. You know, when you think about lithium IAM, which is the core of the of the of the Tesla product, and other and other competitors out there, very competitive when you when you're under two hours of discharge from from the system, So using the system to charge up and then putting that power back on the system in zero to two hours beca my entighly competitive. The way our company was founded and the way our technology

is developed over the last twelve years. Is we do longer duration discharge, so we can do anything from three hours up to twelve hours of energy usage. And when you get above the four hour mark, we're highly competitive against any other technology out in the marketplace. It's a sort of it's almost like a series of churches, right You you belong to one or you belong to the other.

You sort of pick your poison and that's it. Right. Well, I mean, look, the energy the energy industry is always going to have a mix of technologies to be able to deliver the demands that you know that we all that we all expect from modern life. And we're one of those technologies that fits into a very large segment of the market. So I think you could see both. I don't. I don't think it's it's a it's a it's an either or at an end. So Joe who

gives a sense of kind of who your customers are? Right? So, so we we we we have systems in the field now with some of the um per eminent utilities in the United States. We have test systems with energy. We're working with PFC and g so we work across utilities landscape. We also do work with renewable renewable power companies company called pecka t. We just announced a large agreement with them a couple of weeks ago. And then we also

do micrograde applications. You know, we're we're doing a micrograde application working through the Shell Foundation in Nigeria where we really see the technology being great in that application because of the safety and operability of it to be able to power remote villages and be able to bring power

to the people in the world that don't have it. Joe, final questions, we don't have much time, but what will you do with the money where I eased in particular, so uh go from a company that has a proven

product in the manufacturing process to a scale company. So a lot we'll go into scaling up our factory in Pittsburgh, Pennsylvania, where we're gonna we're gonna increase the throughput of that facility, building out our team both on the commercial side and also on the project side, and then lastly financing projects where we look at this is a big opportunity to be able to accelerate the application of energy storage in the marketplace by bringing our own financing to the projects. Hey, Joe,

thanks so much. For joining us to really appreciate congratulations on getting public Joe Master Angelo, CEO of EOS Energy Enterprises that went public yesterday via US back Dog Duncan almost a funny amail to talk a little bit about these housing numbers which have been on fire today and also most recently, so Doug talked to us, how do we continue to have such demand when people are, you know, out of a job to the tune of ten million

of them. The job loss has been heavily concentrated in work categories which are hourly wage workers in the service sector, particularly in areas that are discretionary spending by middle and upper income households. Those UH workers tend to be more heavily concentrated in apartments as opposed to ownership. So if you are a person with a salary UH and that job has been stable, you're not in the service sector.

With the interest rates where they are, this is a great time to consider locking in a long term, very low, historically low interest rate and and buy a house. So, Doug, are we revising up our view of or your your view of kind of just housing starts and and just the whole housing market, because it just seems to be an extraordinarily bright spot and an otherwise very difficult economy. Yeah,

there's two or three things going on. One is the millennials are at peak home buying and they tend to be more in the salaried space, so they're younger, they've been a building families. They're now thinking about buying homes moving out of apartments. Second one is that to the extent that you live in an apartment in a densely populated area and you have concerns about the continuing related to the virus, this might be a great time to

be moving toward the suburban markets and less density. And then the third is if you're an older household that already owns a home and could conceptually sell that house, you might not be so anxious to do that today because people would come to visit the house walk through carrying the virus, and you might be on a higher risk category. So to supply in the existing homes is actually at historic lows, leading to very strong starts and construction of new homes to meet that shift in demand.

Are we beginning to see that slowed down? Was today the first sign of that where we saw building permits come in flat for October, much less than the one pot anticipated, and September's number was revised lower to four point seven. So building permits obviously the first sign of future building. Yes, I think that's that's an accurate assessment. One thing to recall is that the virus really hit the economy in the March April time frame, which is

typically the peak homebuying season in the year. So we moved what's the normal cyclical peak back in the year to the to the late summer and early fall. So we've been writing that shift of the of the demand cycle, and now I think we're starting to see the work off of that. To your point about the flattening out of permits, Doug, how's the mortgage original origination market today? Are lenders writing mortgages? How tough is it to get

a mortgage? How's that looking? Well? The criteria to qualify for a mortgage have been tightened with the concern about employment characteristics, but not not dramatically tightened, and the volumes of business that are being done are going to be all time records. From a nominal dollar perspective, we expect in four point one trillion dollars of mortgage production uh. And of course lot of that, about two point six

trillion of that will be refinancing activity. That is, people who already have a mortgage who have taken advantage of these historically low interest rates to refinance it at a lower rate. That will continue into next year. The total numbers will fall up, but they will still be at

very high levels. And one thing to bear in mind is even if pen your treasury rates were to move up, which they have a little bit recently, the spreads in that market suggests that lenders could narrow the spreads and hold mortgage rates where they are, which would continue the benefits to consumers and through next year. Doug, what's happening

to credit quality out there? Well, the one question on the credit quality front is relates to the forbearances for those who do have a mortgage and did lose a job or saw a serious truncation of their income through reduced overtime time our bonuses. So there was an initial surge in people who applied for the very easy terms to take forbearance. Actually a lot of those folks were

doing that on a precautionary basis. We've done some surveys of them and they said well, we we took it because it was easier to take on the chance that we might lose our job. But now the job seems

to be stable, so we've we've become current again. There's still a segment of borrowers who are in forbearance have lost jobs or truncated income that we will start to see play out in the first quarter of next year, and in many cases, if they can't bring a current the loan will be modified to payment terms that they can that they can maintain. Dog thank you for the updates. Housing, of course always on our mind. Dug Duncan, Chief columnists add Funny May joining us there. Well, as we all

work from home, learn from home. It's putting additional focus on cyber security, and our next guest says that quantum technology is going to accelerate that concerned. Alan Mechler, managing partner for Asamam Adventures, also CEO of three d R Holdings, joins us here. Alan talk to us about quantum technology and kind of what that is and what that may mean for cybersecurity going forward. It's quite complicated. Okay, we've

got seven minutes here. Yes, Well, the the the quantum revolution is upon US, I should say quantum technology revolution.

The word quantum could be obviously used for a lot of things, but quantum computing and quantum technology are going to be able to do calculations and solve problems and for industries um but also will cause problems because the computing power is um, almost science fiction like in terms of how much it can do compared to the largest supercomputer today and what that means of course from cybersecurity and particularly financial security keywords, passwords or whatever, uh cyber

cyber Uh, there's tremendous worry about what what could happen when when these computers so to speak come online, which still is several years away. What about now? What is the situation right now? Well, right now there technically is not a quantum computer as what is in terms of

what's projected. The basis for defining a quantum computer or the ability for it to do whatever it needs you wanted to do, is based on the number of cubits, which is a measurement um in terms of what bits were bits are to a computer today which I think we're all familiar with. Cubits are what are the equivalent

for a quantum computer. It is estimated that at least a thousand cubits would have to be created or programmed from any manufacturer for a quantum computer to be online and ready to go at this particular point in time. Company like IBM, for example, UM has as it's working towards creating a quantum computer, has about fifty to sixty

that have been have been programmed. UM. Now, one can do things with that, but until you get to a thousand, which probably according to IBM and recently chatting with Bob Sutter, who who runs the program up at IBM, UH, that's probably projected for them two thousand twenty three UM to get to a situation where a quantum computer would be totally online, ready to go, we're projecting two thousand, uh, two thousand thirty, so you know, ten years from now.

So Alan, what we've seen over the last I don't know decade or so, but certainly accelerated over the last four years is is kind of a cold technology cold war between China and the West as it relates to quantum technology. Is that something that is also developing upon those lines. Actually, I'd say it's terrifying um in terms of what China is supposedly doing compared to what we're doing or other so called Western countries um neutral countries

around the world. We obviously so they don't have complete information about China's investment, but we do know that they have created the equivalent of campuses or universities, I think tanks just just to study what what what what they can do or what could be done with quantum. My understanding is they've invested well north of five to ten billion dollars already and are literally driven to dominate in this area. And unfortunately, um forgetting whatever your politics, my politics,

or anyone's politics might be. Instead of worrying about you know which side of the fence turon a Democrat Republican, this country should be worrying more about what the Chinese are doing in uh quantum technology and and uh we

should really get cracking. I know that the Biden administration is already an bounced several hundred million dollars towards further research into quantum um, but that's a really just a pittance in terms of what's probably needed compared to what the Chinese are Because whoever has dominance in quantum or gets their first could really raise havoc with um being able to crack computer systems, financial networks and and the like.

So needless to say, that's pretty terrifying. If in fact the Chinese have saved years and years and years and developed developing fighter planes stealth technology. Just think what they can do if they come up with this next type of computing power um, which they will at this point way before we will in this country. Well, you have to tell us what you're invested in so we can watch out for the future. All right, Well, it's it's definitely uh. As I say, the press hasn't really picked

us up yet at all. You know, what companies are you invested in? Alan Well? Um. In terms of myself, I do two things. I create a research in this area called Inside Quantum Technology, and we also do events. We just had an event with six people from thirty

countries around the world with the seventies speakers UM. But in terms of investing, the the investing that I do on a venture capital basis, it's a different thing for quantum because any anyone who is and and there are hundreds of millions being invested every month in this uh in this in this area. But you really have to look out ten you know, ten fifteen twenty years if

you make an investment and venture capital. H So, while I cover this from a media perspective, I'm not really investing, although certainly I'm I'm watching because my horizon is more like five years or seven years, not ten fifteen twenty years. All right, And for anyone interested, there is a list of the types of companies that you do invest in in terms of private equity in sort of an exitent fight ten years at your website, asimov Ventures dot com.

Our thanks to you for joining us today. Fascinating discussion there with Alan Mecker of Asimov Adventures and decades of experience in the most modern elements of computing and computing technology. Thanks for listening to Bloomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Bonnie Quinn. I'm on Twitter at Bonnie Quinn, and I'm Paul Sweeney. I'm on Twitter at

pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio.