Boeing Delivers Most Jets in 18 Months

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1:51Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. Boeing shares have really been under pressure lately. Investors waiting detailed to from flight data and equipment. So here to tell us more about it, break it all down for us, George Ferguson, Bloomberg Intelligence, Senior Aerospace Defense Airlines Analyst. George, I want to start with the flight data equipment to start here.

2:30Have they found all of them and what particularly will they be looking for when it comes to this equipment? Yes, I'm not totally sure if they found all the equipment. I know they had found some of the recorders. I think once they get into it, I assume you're talking about the Air India crash, right? Correct, correct. Yeah, and when they get into it, I think one of the items they're absolutely going to focus on is going to be what was going on in the engines in that Air India 787. You know, look, a Boeing 787 can lose one engine and still take off and gain altitude. So the videos we saw, circumstances indicate that both engines potentially were not producing enough lift.

3:16So my guess is that's where the focus is going to be is on what was going on in the engines. It was an 11-year-old airplane. So we think that when all is said and done, probably not going to be a manufacturing issue either at Boeing or GE from original manufacturer. and probably going to be some sort of engine issue, which I think would probably, you know, put Boeing not in the responsible category, you know, for that crash, even though obviously something we're never happy to see. And, you know, very sorry about that. George, in your coverage of Boeing and your discussions with us, you've always made sure that we focus on what's important, that is the deliveries of aircraft.

4:03June was a great month, wasn't it? Looked pretty good. So we see about 60 deliveries of that. I think we had maybe 42 or so 737 delivery, 737 is the moneymaker. So that's super important. Of those 42, we're focusing very closely on how many were first flown in 2025. And the reason we're doing that is We know Boeing has a lot of inventory airplanes. So if they're boosting deliveries through inventory airplanes, that's indicating to us that the factory isn't as strong as we would hope. What we're seeing right now when we look at Cerium data is five of those 42 airplanes are inventory deliveries, airplanes that were flown previous to this year.

4:53So that indicates it's something around 37 maxes came through the rent and factory in June. That's a pretty nice number that corresponds pretty well with Boeing CEO's indication that they were producing at a 38-ish throughput in the factory and that they were going to be breaking into 42's levels sort of in the back half of the year. And so this absolutely confirms, I think, the improving health of the Boeing production system and that rent in factory. Now, George, you mentioned CEO Kelly Ortberg. What's the word on the street? How has he been handling this new role? I mean, a lot of pressures on him.

5:34Yeah, I mean, I think when it's all done, it's going to be a function of did he did he get quality improved? Did he improve throughput? Did he generate cash? Did he improve the balance sheet of Boeing? You know, sort of stave off any downgrades. And right now, I'd say the report card would be pretty good for what Kelly Ornberg is doing. And George, you've also told us that, you know, tooling up these factories to crank up production, it's not as easy as it sounds. It's a little bit more difficult than manufacturing an automobile coming down the line here. And that goes to the labor issue. You need some pretty highly trained labor.

6:09And coming out of the pandemic, that was a challenge. How is Boeing doing these days on that front? Yeah, so, you know, if we measure from the throughput in the factory, it looks like it's doing better. We're hearing better sort of noises from the supply chain that labor is stabilizing. I think we see it in the country, right? The labor market isn't as sort of white hot as it was coming right out of the pandemic, especially for some of this manual labor that they're looking for. And so I think that helps stability. That stability allows you to go ahead and train people, improve throughput. So it appears to us all those indicators that labor is stabilizing, quality is improving, and that's definitely having Boeing's benefiting from it.

7:01George, you mentioned deliveries earlier. The Paris Air Show is a huge event for these airlines. Yes, yes. How did Boeing fare coming out of that? Yeah, so we haven't seen a lot of orders for Boeing recently, and we didn't see any at Paris Airshow. They had pulled out, I think, just as they were monitoring the developments of that Air India crash. But we really haven't seen a lot of orders recently for Boeing. I suspect that given the tariff backdrop, you're just not going to see a lot of orders for Boeing until that tariff backdrop gets cleared, right? Boeing has one factory they build 737s at.

7:39It's in the U.S. So tariffs between us and the rest of the world always get in the way that has to get cleared up. George, great stuff as always. George Ferguson, Senior Aerospace Defense and Airlines Analyst. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. We're going to keep it here kind of in that AI tech space. I want to go to Mandeep Singh. He's Bloomberg Intelligence Senior Tech Industry Analyst. So Mandeep, we have this sign of just how competitive the AI space is for talent.

8:18So you have Meta possibly poaching Apple's top AI executive, offering this big, big, big payout. Explain to us, first of all, who this guy is and how much are they offering him? Well, I don't know the exact dollar amount, what they're offering, but clearly Meta is going big in terms of poaching the top AI researchers. We saw that with the scale AI acquihires. They pretty much poached the founder. And look, I think they want to assemble the top 50 AI researchers that are out there who have got published papers and they are paying up in this case because they've made all the big investments in terms of compute, in terms of infrastructure, but they don't have a cloud business or some other form of monetization that, you know, a Google has or a Microsoft has.

9:15So from that perspective, I think it's crunch time for them to really show that, you know, they can develop an ecosystem with their large language model, which has been underperforming relative to OpenAI, Google and Cloud. and I think it's the founder Mark Zuckerberg who really is going all out. I mean, you can't expect any other CEO to be that aggressive with paying$5 billion for 50 people. Literally, that's what the expense that we are talking about. So Facebook, Emetta as a company, has over 76 ,000 employees with an expense base of$115 billion. They're adding$5 more billion for 50 people. That's all we were talking about here.

10:03Wow, that's the order of magnitude. Yeah. All right, so it's clear that Met is all in. What does this mean for Apple? If I were an Apple shareholder, I'd be concerned here. A, I'm losing talent. But B, it's coming from an area where I feel like I'm underinvested already, perhaps. I'm already behind. What do you think this means for Apple? I mean, clearly everyone on the research side realizes that Apple doesn't have the big AI cluster that these companies have. And, you know, generative AI is all about having a large cluster, training your model on that cluster and then really building from there.

10:43So from that perspective, Apple has lagged behind. And if you're a top AI researcher, there are better companies to work for right now. So I'm not surprised, you know, a top AI researcher has ended up taking up the offer. But for Apple, look, they're going to use a combination of partnerships and some on-device AI investment, which is what they have done in terms of, you know, their own model efforts. They're going to partner with Cloud, OpenAI, probably Google as well once the antitrust issues are over. And that's how they're going to provide the functionality. As long as it's cloud-based, they have the app infrastructure to offer AI.

11:24For on-device AI, they have to do it natively at the operating system level. You can't really leverage the large-angle model from open AI on-device because you have to really open up your operating system, which Apple won't do. I have to add some kind of AI in my resume. I think I'm on this. Mandy, what kind of tone does this set for the industry? What kind of message is this sending? I mean, to my mind, this is a very high risk play right now. The market sentiment is Meta can do no wrong. They are making all the right moves with getting these big AI researchers. But at the end of the day, it is, you know, they're doubling down on CapEx, adding more OpEx.

12:10So from a spending perspective, Meta is going all in. And so once it starts to weigh on free cash flow and the returns are not there, which is why I said with everyone else, you see the AI monetization. If you have a coding agent from Microsoft or Google, they are monetizing it. With Meta, all these are upfront investments with the hope that it will add more engagement time across their family of apps. They will probably have a killer AI product that they'll be able to monetize with in addition to their recommendation systems. So the stakes are getting higher and higher, but clearly they are doubling down in terms of their investment.

12:52And at some point, the monetization question will kick in. Probably not this earnings season, but maybe a couple of quarters from now. All right, Manip Singh, big, big numbers. His companies, folks, they just, they traffic in huge numbers. Huge investments, huge revenue, huge free cash flow. That is the state of global technology these days, centered in the United States. Mandeep Singh, senior tech analyst for Bloomberg Intelligence. We appreciate that. And again, meta going all in, not that they weren't before, but it's just kind of another example of the type of investments they are making there.

13:27This is the Bloomberg Tech Minute brought to you by ChatGPT. Now with ChatGPT work. I'm Carol Masser. Social media posts on sleep outnumber those on exercise by 3 to 1 and those on diet by 5 to 1, according to consumer researcher Ryla Global Consulting. And so it may come as no surprise that there are seemingly no limits to what we will do to get a good night's sleep. People are spending on everything from pricey sleep trackers, AI-powered scent therapy machines, to$3 ,000 body temperature-regulating Manosphere-endorsed mattress covers, and couples outfitting totally separate bedrooms. As Bloomberg's Dina Shanker reports, it all adds up to a sleep support industry that's a$300 million business, with growth coming from functional beverages and sleep powders, even as some experts warn that these products may not be effective and can even be harmful.

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16:52You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. I think during the pandemic, we all became familiar with this concept of supply chains and global supply chains and where stuff comes from. And boy, when the ship stops sailing, that's a problem. And we need to bring some of that stuff closer to home. And that's one of the reasons, I think, for President Trump and his focus on tariffs here. But let's get a sense of what the global supply chains are looking at now and how they may react in a world where tariffs are higher.

17:31Brandon Daniels joins the CEO of Exeger. He joins us from Chicago. Brandon, how do you put into context all this talk about tariffs and kind of what it means for the global supply chain and how we get stuff, where we make stuff, where we import stuff from? How do you guys think about that? Absolutely. Well, thank you for having me on. It's good to talk to you guys today. I think when we think about it, it is a reflection of a major shift in priorities across all countries from a global commerce perspective. When you think about what the United States is doing and what the administration is doing, they're trying to prioritize three things.

18:16The first thing that we've in our discussions and in our talks with the administration, they want to bring back manufacturing where the United States can be competitive. And that's what our customers are utilizing our AI tools today and our multi-tier supply chain visibility to understand. Where can they actually source in the United States in a way that is at parity with their global sourcing requirements? And so that is mostly focused on where labor arbitrage has been taken out of the equation. So think things like additive manufacturing. Think things like largely automated production floors.

18:58Those are the areas where you're starting to see major cost collapse in between emerging markets and more sophisticated markets. Because the cost of the manufacturing equipment, it's the same across the globe. the cost of the land. I mean, there's parts of North Texas that are cheaper than parts of Hebei, China. And with the volume of operators necessary in these factories going down and them having to be also more higher skilled, the major labor arbitrage effect kind of dwindles. And so they want to move those areas of automated manufacturing back to the United States. And so I see our customers focused on those commodity areas as well as some of the more specialized areas that require automated manufacturing floors, that stuff coming back to the U.S.

19:56The second thing is national security and economic security. So from a national security perspective, you know, there's a there's a core focus on semiconductors because AI is the future of our national security capacity, whether it's in managing, you know, UAS and drones or it's in fighting cyber attacks. AI is where it's at. And then the other area is in pharmaceuticals. It's actually keeping our, you know, medical supply chains clean and independent. And, you know, obviously we pulled back the veil on that in COVID. Exeger was the technology utilized by the federal government to purchase$7 billion of goods and to do it in a way that didn't in a way that could get it to the health care front lines quickly and in a way that didn't allow for fraud, waste, abuse and adversarial investment.

20:48And I think they're looking to try to expand that and trying to bring back pharmaceutical manufacturing, medical device manufacturing to the United States. And so when I look at this, I see those two first strategies getting, you know, sort of being prioritized. The last one is honestly to ramp up our actual external tariff collection. You know, there have been estimates between 30 and 100 billion dollars of transshipment per year. You saw this in the deal with Vietnam where it was 20 percent tariffs and then 40 percent tariffs on expected or potential transshipment goods. Right. So one of the things that we've seen is China has used this sort of global economic coercion to create veneer centers of manufacturing across the globe.

21:41And the U.S. is trying to crack down on that to level the playing field. All right. But I hear you talk about a couple of things. So AI, pharmaceuticals. One of the things you mentioned in your notes is how autos are going to be the best case study and how nuanced this policy really is. Can you dig into that for us? Yeah, absolutely. So auto manufacturing is is a great case study of where all of this might be going. I don't think we'll end up with just blanket country level policies. And I think those blanket country level policies will get nuanced down to the HTS code or to the actual sort of segment or sector of goods.

22:24Right. And I think that they will get nuanced down to a place where, you know, the recognized dependencies we have on critical minerals or specialty alloys or on specific goods that are indigenous to some of our allies. You know, where where those are necessary for us to do the manufacturing in the United States. I think those goods will become subject to exceptions or exemptions, very similar to USMCA. So automotive is a great example of this because basically you can have 15 % of your auto that's being manufactured in the United States. You can have 15 % of it be parts, components, and goods from other places.

23:07And your entire tariff burden can be offset by the 3.75 % tariff credit you get on the vehicle's MSRP. Right. And so it's almost like you have you have your tariff free if you have 15 percent of the goods coming from everywhere else. And that's because we realize that in many cases there are things that the U.S. doesn't make yet. And it's going to take a while for the U.S. or allies to build those things. Right. And and we want to give people the ability to have some leniency there. A red headline crossing the Bloomberg terminal. Trump says August one tariff deadline won't be extended. We'll have more reporting on that.

23:48Brandon, we've got 30 seconds left here. When you talk to your customers, who's going to pay tariff costs? Is it going to be the importer, the manufacturer, the distributor, or the consumer? How are these tariffs going to be borne by the economy? I think the consumer is going to be the last to feel it. And I think the fact is this is going to be absorbed somewhere in the supply chain. I mean, in 2018, when we had the original Trump tariffs on steel, you know, the entire defense industry, the entire automotive industry, airline industry, they all ate it. Right. Because you just needed the steel.

24:27Yeah. And you didn't and you didn't want to affect the end market. I think that the consumer is going to be the last to feel it on this. All right. Hopefully that is the case. Brandon Daniels. Thank you so much. Brandon Daniels, he's the CEO of Exeger, joining us from Chicago via Zoom, talking about tariff, talking about supply chains, fascinating and fluid situation. This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 10 a.m. to noon Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app.

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