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I feel like we might have made a mistake recording this episode on Wednesday, October twenty third, which is the day that we're awaiting the strike vote over at Boeing.
Oh yeah, but you know, yes, that's right, that's annoying timing. But on the other hand, what I would say is that Boeing issues seem so deep, et cetera, that the strike is only one chase. So even if there were you know, even if there were all, you know, by the time people listen to this and there's some resolution, I don't think there's going to be some resolution to the issues at Boeing at large. Well.
The good news, I guess, in terms of timing, is also that we had Boeing earnings just yesterday, so you can kind of see a lot of those issues that you are alluding to directly on the balance sheet. Do you want to know some some good news for my personal life? Yeah?
Please?
Okay, The correlation between Boeing and Southwest, their biggest customer, is finally breaking down, so Southwest shares are up. Boeing is still pretty depressed. My dad used to fly for Southwest, so he still has a lot of Southwest stock.
So there's a disclaimer. This is this is a financial disclaimer.
That's all right.
This is what's important.
Also, this is what constitutes good news for me nowadays.
I did a deadlift one, two, three, Jimmy, Okay, go up, barges. This isn't after school Special, except I've.
Decided I'm going to base my entire personality going forward on campaigning for a strategic pork reserve in the US.
Where's the best in posta? These are the important question? Is that robots taking over the world.
No.
I think that, like in a couple of years, the AI will do a really good job of making The Odd launch podcast and people.
To say, I don't really need to listen to Joe and Tracy anymore. We do have ofuching the perfect.
You're listening to lots more where we catch up with friends about what's going on right now, because.
Even when The Odd Lots is over, there's always lots.
Smart and we really do have the perfect guest.
We did an episode I don't know, maybe three or four weeks ago, and the title of that one was the Ongoing Mess that is Intel. This one, I think we're going to title the ongoing mess that is Boeing. But it's interesting. I don't know if you saw earlier this week. I think it might have been Monday. Greg ipp Over at The Wall Street Journal wrote.
This call, Oh yeah, I saw that.
That is basically like, the crises at Intel and Boeing are a national emergency. And this is something that I've thought specifically. Sometimes random people who know that I like cover stuff like this for work, they'll say, what are you worried about these days? And this is usually what I go to first. That we're in an era of or trying to revitalize US manufacturing, and yet the two
defining flagship US manufacturers are deeply struggling. And what does that say about institutional operations in the nature of you as capitalism. These are the companies that I think about first when I worry.
You know who else thinks about them a lot. Richard Abulafia, who is of course a managing director at Aerodynamic Advisory. We've had him on before talking about both Boeing and Embraer.
One day we're going to talk and it'll be good news. We're going to talk about something going really right.
But I don't think.
I don't think today is that day yet?
Yeah, jetliner delivered to happy customers and waiting for book members that would be.
Doors, staying on planes things like that.
Well that's asking a lot, but yeah.
Okay, yeah, So in terms of what you're watching at Boeing, I just mentioned the strike vote is coming later today, But what is the next catalyst for you in terms of the future of this company.
Yeah, I mean, obviously getting the strike settled is just so enormous, but you know, quite frankly, once you get it back, get work going again, getting to the rate they want is really the key to everything. You know, the seven thirty seven is they're only really big profitability driver. So if you ever get to that Houlcyon place where they're delivering fifty something per month cash, sea seems to
be a problem. You know, it's just that simple. And they've been stuck in first or second year for years now at twenty something or zero in the aftermath of the two crashes that you know, we're waiting and waiting and waiting, and all of their financial problems are basically as a consequence of this. There are other contributing factors, like they're rather horrible defense programs and whatever else.
But it comes to the key that solving the company's problems comes back to getting that ramp going, and of course the key part of that is getting suppliers healthy and delivering again too, which is an added complication.
We on this question. Okay, so they need to just objectively to be a profitable company that has a healthy balance sheet, they need to improve that production cadence. Just to be clear, like, Okay, if the strike is resolved at some point, which presumably it will either by the time we're talking about this or later on, what does that mean in terms of actually getting back to their production cadence. But that's also I don't think the only issue.
Yeah, it's just sort of a necessary condition, I guess. You know, this is not a right to work state, which means that when the workers go on strike and pu should sound pretty much all deliveries kind of more or less come to a halt. Accept the stuff that was about to be delivered, and that means that the strike simply has to end for things to start again. But then there's finding the necessary resources and in terms of talent, which is an added complication to any terms
and benefits they offer the workers. You know, you also want to regard this as an opportunity to attract talent, and I'm not so sure they're doing that. But then the next thing is you got to look at the supply chain, which has been badly dilapidated by everything from the pandemic to Boeing's terms and conditions over the past decade. Basically, Boeing was kind of using their supply base as an ATM, and they all have to be well turned back on.
I have to have the adequate working capital and adequate labor resources of their own. And of course, at the center of all of the susperiord Eero Systems and Boeing, it reached the conclusion that the only way to make this good is to bring it back in the company. So that situation has to be cleared up. And that's a big one.
That's exactly what I was going to ask you about. Do you get the sense at all that Boeing is going to sort of revamp its relationship with suppliers, because this was one of the big criticisms of the company and the sort of cultural change that happened. It was this idea that they just decided to outsource a bunch of stuff because it was cheaper.
Well, you know, outsoarrescing would have been fine. At the end of the day. They had always outsourced a certain degree of the production aspect. It was the disease to also outsource designed and integration that when things made things
a little bit worse. But then it got really bad when they sort of learned exactly nothing from General Motors and said, what if we outsource and outsource designed and integration and didn't treat them like a lemon to be squeezed, that'll work out great, right, And they adopted back in the twenty tens the same approach to the supply chain as they did to their workforce. You know, these are people we can squeeze and extract cash from, and they're
realizing that incredible. I mean, no one could have seen this coming. But actions have consequences, and you know, taking all the margins out of your suppliers and giving them one hundred and twenty day payment terms and whatever else, and even demanding that you own the stuff that's on their factory for you know, just any metal them might have fallen into the I'm not making this up, is you know, buying property not theres I mean basically squeezed the sweathing them in all directions.
Wait say that when you said I'm not making this up any metal?
That's what?
What?
What?
What was on the floor?
You know, wait a minute. You know, if there's any scrap metal that falls from the manufacturing process, that's ours, not yours.
We get to build that term that's true micromanaging.
Yeah, that's true.
Yeah, a lot of Wow, Yeah it is.
And there was a rather Orwellian sounding program called Partnership for Success aka Partnering for Poverty basically, and they did this in two two different trenches, basically going in and saying we're going to cut your margins and by the way, we're going to have a go at your aftermarket business too,
if you're an aftermarket player. Basically, they went after their supply chain and for a while, you know, suppliers basically were depending upon if they had Pentagon exposure, you know, to make things a little bit healthier during the pandemic, the Pentagon had an accelerated payment program for suppliers, which
really helped a lot. And for a while it was sort of you know, everyone who loved Boeing regarded the Boeing part of their work portfolio is not so good at all because it was the least profitable.
So another thing I wanted to catch up with you on is just the mood at Boeing. Have you been back to Seattle since the last time we talked to you? Uh yeah, And what's it like? What are people saying?
You know, I mean, people were different, right, the workforce isn't completely homogenous. Having said that, boy, at that ninety six percent I think vote after the first contract offer, that is pretty telling. There's a real feeling that for the first time in many decades, labor actually has power. They can get back some of the ground they lost over the previous decade or so. Today is going to
be incredibly telling. Whether or not they're willing to say, Okay, hey, it's a pretty good offer, let's get back to work, or whether they say, no, we gave up our pension ten years ago and we want it back read our lips. That's going to be the most interesting aspect, effectively a referendum on the the pension.
So obviously, again, by the time this comes out, people have heard you know, I think and now we've talked
to a few times. The one line you've said that like truly haunts me, or that like sticks in my head, is that Boeing could get to the point where, because it's been so long since they've launched a new a brand new product, you know, start from a clean sheet of paper and launch a new product, that it could get to the point where eventually they have no one inside the company who has ever been part of the
process of designing a new product. And I think there were comments out today from the CEO that there's still no hurry on that aspect of it.
No, no, no, He said that Boeing is still focused on building an all new airplane. But the question, to your point is like how do they actually do it?
Yeah, And it's like this to me, Like when you said that there's like no one who knows how to build a new airplane from the beginning, I remember like, Oh, that's like a really chilling thought. And so I'm curious, like where that stand.
Well, we're not at that point just yet. There's a risk of it given the demographics of the you know, design workforce, and you meet a lot of them and they're on the older side, you know, this be a engineering union. I think their median age is somewhere in the fifty ish range, you know, don't hold me to that, but it's it's it's older and the number of people who were around it the last time that a clean sheet design was launched the seven eight seven around two
thousand and four. It's diminishing. And you can make an argument triple seven X has been kind of halfway to a clean sheet as a major derivative, and that's something. But you can see that if something new isn't launched in the next four or five years, they're going to have a really hard time reconstituting that that muscle memory, that cornelage.
What do you think is more likely at the moment? And I get that there are a lot of moving parts here, but is it a turnaround of the company, a successful turnaround? Is it a sort of long slow death or is it a breakup?
You know, that depends on leadership. You know, the previous leader, Dave Calhoun, as we discussed, you can see that the future right there, it was you know, either a glide soope into the ground or a breakup. And I think they were probably thinking about their breakup options. Killy Ortberg. That's the big change. Of course, his track record is not absolutely perfect, But there's still a lot of hope. I mean, he's somebody who knows the industry, who cares
about the industry. We're kind of hoping that with him at the HELM, there is a chance of getting things back on track and for the company to survive and perhaps even be restored to health in something like its current incarnation.
I have a question that I don't really want to know the answer to, but you mentioned troubles on the defense side of the business, which probably doesn't get talked about as much because the market is different and the
public doesn't know those products. Defense stocks, say a Lockheed Martin, have actually done extremely well, despite the fact that I see a parade of headlines all the time about troubles at Lockheed Martin, and there is a headline out literally yesterday Lockheed falls as F thirty five delays, drag sales, and there's other things like that. Could we do versions of this conversation about many other American defense contractors.
The good news is not really The bad news is, yes, we can about Boeing's defense side.
Okay, so there actually is like it's not like what you identify in Boeing and whatever it is, and you know, there are probaty many different causes. Is not, in your view, completely endemic to the US defense sector.
Right, It's pretty unique to Boeing, and it gets back to the roots of the or in class management that ran Boeing in the last decade and into this one. Basically, they made the strategic decision to sign a bunch of incredible money losing contracts, and of course the US military was fine with that. You want your investors to pay for our weapons systems, great, and the strategy was to use the amazing, incredible revenue from their unstoppable commercial jetliner
cash flow to basically subsidize the defense. That was a strategic decision made worse by a decision to well inflict on the defense side exactly the same management mispractice that they did on the commercial side, you know, under resourcing things, demanding results without actually showing up and discussing requirements with people, and the consequences, predictably, were just horrible losses on major programs that dwarf anything else in the defense industry.
Do you think Ortberg is going to recreate the strategy department that Calhoun dissolved so they actually know what they're ending all that new capital on and what they're aiming for.
Well, again, you're asking for a lot with a strategic direction, big kitty. I mean, it's like, oh, wow, actually figure out where the super tanker is headed? Good idea? Crazy, I should hope, so, right, I mean, I'm really sure. I hope so. But there's so many things, and there's also frankly a lot he's doing that I don't get, you know, for a guy who knows the business, I mean, it's about a week or two. Well, he announced a
literal decimation of the company. They're going to fire seventeen thousand, at of one hundred and seventy thousand people. Where the heck would they come from? So, Tracy, inting to your question, you know, to reconstitute a strategy team while cutting overhead quote unquote and whatever else that that doesn't seem to make a lot of sense to me. And where would
those people come from in any event? Because commercial needs resources to do the ramp, and the one consistent problem with all those money losing defense programs is inadequate resources. So where do those workers come from?
Yeah?
By the way, on CNBC this morning, Ortberg, there is a quote calling Boeing quote overstaffed for its business going forward, and then he said I would rather err on the side of doing less than doing more and not doing well, which you know, I guess that sounds fine. But yeah, if you're building out things, if you're building out a new product, if you're building out a new strategy team, seems like there are things intention to say the least.
Yeah, I just don't get it. I mean, they're trying to ramp, as we discussed earlier, from twenty something to fifty something seven thirty seven's that's directly linked to people. Similarly, the one Crew thing that Dave Calhoun said was some of their key defense programs were suffering from well personnel and talent shortages. I don't get the under resource or over resourced argument at all. He's going to have to actually explain where those jobs would come from.
One thing I wanted to ask you, and I'm actually a little bit I don't know if you want to talk about this, but we do have the election coming up, and as Joe said in the intro, you know, boosting America's manufacturing sector has been such a big thing in recent years, a big policy goal, and both presidential candidates, you know, have talked about this and say they care about it. But do you have any opinion or idea or insight on what the two candidates would mean for a company like Boeing.
Yeah, you know, during the Trump years, there were some who believed there was actually a pattern of favoritism towards Boeing and defense contracts. The F fifteen came back in the budget, the Super Hornet came back in the budget, and there were rumors that Boeing had even received Next
generation fighter contract development work. And you know, it's impossible to say for sure or whether that would continue because you know, Trump two point zero would look very very different from Trump one point zero in terms of people and policies. Obviously, Kamala Harris would probably be you know, pretty much as is. Either way, it's not really clear other than defense what could be done. And even with defense,
we're not really sure. I mean, this country doesn't really do industrial policy the way say Europe or Japan does. We can provide government resources to stabilize a very bad financial situation with loan guarantees or you know, pension bailouts or something like that, and of course there's long lead Advanced Technology development, semiconductors, whatever, artificial intelligence, you know, just
DARPA sort of stuff. But the stuff in between favoring industries in one way or another, we don't have a lot of experience with and policy makers, you know, it's not really clear exactly what they would do to further that goal.
Last question for me, you still sort of bearish on Comac. What's your view on them these days?
Yeah, you know, I mean it's pretty much the same thing, and it's no dig at China itself, you know. I mean, if they were to privatize COMAC and not make it part of the you know, Central Committee of the Communist Party, I think they'd probably be pretty darn good. And better still, if they could become a global enterprise and say we're going to buy best technologies all over the world, they'd be really good. But right now they're basically the DMV
with wings trying to build. It's a little embarrassing. Frankly.
Well, I have one more question, which is, since we spoke to you last, we've had this year's air shows, and I'm just curious what was the most interesting or surprising thing that you heard from those?
Yeah, thanks for asking, great great question. I guess the mood at Farnborough this year outside of London was excuse me, where's our planes. We've been waiting for a supply chain in production recovery for some time now, and you talked with supply chain managers and they were apologetic and they said, well, look we're you know, we've got a roadmap map to seeing the results from investments we're making at various levels
the supply chain. This wasn't one hundred percent completely convincing, but hey, there's it sounds like they are starting to make those investments. So in a year or so we might begin to see a slightly faster, you know, increase in production. That was sort of the big talked about topic, and it sounds like people were getting serious about you know, sourcing is a strategic function more than ever, so maybe it's getting the priority it deserves.
By the way, Tracay, I just wanted to clarify something I said earlier. So Ortberg was on CNBC today and he was asked about the next plane that they're going to design from scratch. Yeah, as I'm reading the Bloomberg articles, restoring the balance sheet will be requirement for Boeing to consider it's next commercial aircraft, Ortberg said, So the basic gist is like, yeah, there's going to be another plane. In theory, it's not going to happen until the current
financial issues are resolved. And so in the meantime, day after day that work, the number of people who were there the last time a new plane was launched dwindles.
Right, They're in a capital death spiral. So the most pressing concern is gaining altitude by rebuilding that capital the Christian before you can figure out where the plane is actually going. There's my that's my flying analysis for today. Lots More is produced by Carmen Rodriguez and Dashel Bennett, with help from Moses Ondom and Cal Brooks.
Our sound engineer is Blake Maples. Sage Bauman is the head of Bloomberg Podcasts.
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