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The Real Problem Facing Sports Is Weakened Sponsorship · Bloomberg Intelligence

0:01
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, along
0:04
Speaker 1: with my co host of Bonnie Quinn. Every business day
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Speaker 1: we bring you interviews from CEOs, market pros, and Bloomberg experts,
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Speaker 1: and on Bloomberg dot com. So it's a major uncertainty
0:22
Speaker 1: whether and when sports come back, either on the field
0:25
Speaker 1: or even on TV. It's all going to depend on sponsors, advertisers,
0:29
Speaker 1: and of course consumers. Let's bring in somebody who's been
0:32
Speaker 1: thinking a lot about this now. He used to be
0:33
Speaker 1: former where he is, former president of CBS Sports. He
0:36
Speaker 1: is now founder and president of Pilson Communications. I'm talking
0:39
Speaker 1: about Neil Pilson. Neil, thanks so much for joining. Good morning.
0:45
Speaker 1: So we have You know, the NFL season supposed to
0:48
Speaker 1: be starting off, and yet there really is no NFL
0:51
Speaker 1: plan yet. For example, even though training camps are set
0:54
Speaker 1: to fully begin at the end of this month, What's
0:57
Speaker 1: what are leagues supposed to do at a time like this,
0:59
Speaker 1: Neil leaks or all the leagues are doing what what
1:04
Speaker 1: they need to do. They're assessing the data there trying
1:08
Speaker 1: to create strategies. We see different plans in effect for uh,
1:14
Speaker 1: the NBA, the NHL, UH, the NFL. UH. So the
1:22
Speaker 1: leaks are they're they're caught between the uh, you know,
1:26
Speaker 1: the interest of the American public to watch sports and
1:30
Speaker 1: the risks that they have to understand if they're going
1:34
Speaker 1: to put the sports on the air. But all of
1:36
Speaker 1: the professional leagues, including Major League Soccer, do have a plan,
1:41
Speaker 1: they have a strategy and we'll see how it works out. So, Neil,
1:46
Speaker 1: we know that sports is just a huge, huge, multi
1:50
Speaker 1: billion dollar business. There's rights fees all over the place,
1:54
Speaker 1: and it's it's a key programming component for a lot
1:57
Speaker 1: of broadcast and cable networks here. But let's start with ESPN.
2:01
Speaker 1: It is a sports network after all. You know, how
2:05
Speaker 1: how at risk are they here of just you know,
2:08
Speaker 1: a prolonged shutdown of sports. Well, the answer is in
2:14
Speaker 1: your question, Yes they are at risk. They are doing
2:17
Speaker 1: the best they can with I was watching the Eagles
2:19
Speaker 1: concert last night on the ESPN. I've been watching their boxing,
2:24
Speaker 1: I've been watching some of their other programming. UH. What
2:28
Speaker 1: they've done is they've looked to reduce their costs, keep
2:32
Speaker 1: in mind that while the networks, including ESPN, had serious
2:37
Speaker 1: revenue shortfalls due to the lack of sports, they are
2:42
Speaker 1: also I won't use the word enjoying, but they are
2:45
Speaker 1: experiencing some significant cost savings. Uh. They are not paying
2:51
Speaker 1: the rights fees that they would otherwise pay since they're
2:54
Speaker 1: not getting the games, and they're not incurring the production
2:58
Speaker 1: costs which they would otherwise have to uh spend to
3:03
Speaker 1: cover the games. So UH, while the impact is negative
3:08
Speaker 1: in the sense that it's not a h they make
3:11
Speaker 1: profits and that's what they're for going right now. UH,
3:15
Speaker 1: it is they can weather the storm. They're Obviously ESPN
3:20
Speaker 1: is well financed with a very large company as it's
3:24
Speaker 1: as his owner, Disney. UH. The other networks Comcast owns NBC,
3:31
Speaker 1: UH CBS is with Viacom, which is not as big
3:34
Speaker 1: a company as Comcast. Fox is a little thinner in
3:39
Speaker 1: terms of their financial strength, that given the changes in
3:44
Speaker 1: their corporate structure in the past couple of years. But
3:47
Speaker 1: none of the networks really are are in danger in
3:51
Speaker 1: just in terms of the financials on sports. The real
3:55
Speaker 1: problem is what's going to happen next? UH. And let
3:59
Speaker 1: me give you quick example. Let's say the NFL comes
4:03
Speaker 1: back and they're playing their games, and the networks are
4:06
Speaker 1: now responsible to pay rights fees. However, the sponsor market
4:12
Speaker 1: may not be as strong as it normally would be
4:17
Speaker 1: because sponsors are very concerned that the American public is
4:21
Speaker 1: just not in a buying mood. I mean, how are
4:24
Speaker 1: you going to buy a car this fall? With the
4:27
Speaker 1: COVID experience threatening almost every state in the country. Uh So,
4:33
Speaker 1: it could be that the networks get caught in a
4:36
Speaker 1: situation where the games are being played and they're providing
4:40
Speaker 1: television coverage, but the advertising and sponsor market is not
4:44
Speaker 1: as strong as you would hope, even though the ratings
4:49
Speaker 1: are good. We all expect the ratings are going to
4:52
Speaker 1: be good for sports when they come back. But what
4:54
Speaker 1: we don't know at this point is whether the sponsor
4:57
Speaker 1: an advertising market will be as strong as it normally
5:03
Speaker 1: is for fall sports. So what will happen to pricing then, Neil,
5:08
Speaker 1: Will there be a big discount for those sponsors that
5:12
Speaker 1: are willing to keep spending and for those advertisers that
5:15
Speaker 1: are willing to keep spending or will you know, networks
5:19
Speaker 1: somebody say, look there are more eyeballs on these we
5:21
Speaker 1: need to up the price. Well, that's the trick of
5:26
Speaker 1: television advertising. There is no is a rate card, but
5:31
Speaker 1: that doesn't mean anything. If the networks can't sell at
5:35
Speaker 1: the number that they're asking, then they'll drop their number. Uh.
5:41
Speaker 1: Network commercials are like seats on an airplane. Once the
5:46
Speaker 1: plane takes off, you can't sell that seat. Well, once
5:51
Speaker 1: the game takes place, you can't sell that commercial. So
5:55
Speaker 1: what you have is a fluid marketplace with supply and
5:58
Speaker 1: demand being the determinator in terms of pricing. Uh. It's
6:04
Speaker 1: it's relatively simple. It's very complex in operation. But the networks,
6:09
Speaker 1: if they can't sell their their time, will drop their
6:13
Speaker 1: price to UH to the market. If they can sell
6:18
Speaker 1: their time, then the marketplace will bid for the units
6:23
Speaker 1: and the price will go up. NOL. Just real quickly here,
6:26
Speaker 1: do you think consumer behavior maybe changing? Here? We're streaming
6:30
Speaker 1: more content at home because we're stuck at home. Do
6:32
Speaker 1: you think streaming is going to come to big time
6:36
Speaker 1: sports packages like the NFL? Will you see Amazon or
6:39
Speaker 1: Facebook bid for major major sports package? Uh? Not as
6:43
Speaker 1: quickly as some people think, because the basic advantage of
6:49
Speaker 1: the networks is they guarantee the pricing when they buy
6:54
Speaker 1: a long term deal with the NFL, the NBA. They're
6:57
Speaker 1: guaranteeing billions of ours. UH. It remains to be seen
7:02
Speaker 1: whether Amazon or Google or Netflix is prepared to guarantee
7:08
Speaker 1: the kind of money that the networks have traditionally provided
7:11
Speaker 1: the leagues, And until that happens, I think you're going
7:15
Speaker 1: to see streaming as a supplementary UH delivery system and
7:20
Speaker 1: quite effective, but not the primary distribution platform. Kind of
7:25
Speaker 1: everybody's waiting for that day. I know the league's are
7:27
Speaker 1: as well to get another well healed and wealth financed
7:31
Speaker 1: bidder set of bidders in their in addition to the
7:33
Speaker 1: broadcasting cable networks. Neil Pilson, founder and president of Pilson Communications,
7:38
Speaker 1: former president of CBS Sports, getting his thoughts on kind
7:41
Speaker 1: of the lay of the land of the sports UH
7:44
Speaker 1: landscape as this economy tries to reopen, and what it
7:48
Speaker 1: means for the media companies that depends so heavily on
7:52
Speaker 1: sports programming for viewership and advertising. The state of banks
7:58
Speaker 1: earnings this mornings o JP Morgan's total revenues of seventy
8:03
Speaker 1: year over year, but we also had credit loss provisions
8:05
Speaker 1: higher and Jamie diamond saying expect double digit unemployment through
8:09
Speaker 1: the first half of one city, also talking about higher
8:13
Speaker 1: loan losses going forward, but also trying to put a
8:16
Speaker 1: brave face forward. And then Wells Fargo, of course, is
8:19
Speaker 1: a whole another subject. Let's bring in someone who knows
8:21
Speaker 1: all about it. Kenley, Owner is Litable, Director of Industry
8:23
Speaker 1: and Equity Research at ce f R. A can what
8:26
Speaker 1: are the headlines from this morning's three reports. It's really
8:32
Speaker 1: tell us two stories. Banks obviously are impacted by the
8:38
Speaker 1: COVID nineteen and the recession, and it's affecting loan volumes.
8:43
Speaker 1: It's also impacting the rate or rate. Interest rates are
8:48
Speaker 1: much lower, but off setting that was the app and
8:51
Speaker 1: that's the consumer. But on the corporate side, the strength
8:55
Speaker 1: that we saw was on paralleled in terms of investment,
8:59
Speaker 1: banking and trading, especially in fixed income, but also in
9:04
Speaker 1: equity underwriting. So that kind of buffered a significant decline
9:09
Speaker 1: in terms of performance of lending um And unfortunately, this
9:15
Speaker 1: being the first quarter, full quarter of the impact of
9:19
Speaker 1: COVID nineteen, we're likely to still see weakness in the
9:22
Speaker 1: third quarters. So the road to recovery is looking to
9:25
Speaker 1: be ar shaped into all right, ken, let's focus a
9:30
Speaker 1: little bit on Wells Fargo, because the number that really
9:32
Speaker 1: jumped out of me was the nine point five billion
9:35
Speaker 1: dollar provision for credit losses. That's more than the consensus
9:38
Speaker 1: of four point nine billions. So obviously, when you think
9:42
Speaker 1: about Wells Fargo Fargo, you think about the consumer, you
9:45
Speaker 1: think about small and mid sized businesses. So that's really
9:48
Speaker 1: an ominous tone, isn't it. It is? But I think
9:53
Speaker 1: Wells Fargo kind of undershot the mark on building credit
9:57
Speaker 1: reserves in the first quarter. It was a half or
10:01
Speaker 1: even less than its appears of Bank of America or
10:06
Speaker 1: JP Morgan's. So I think part of this answer the
10:09
Speaker 1: question is patched up, but it is significant. And whilst
10:13
Speaker 1: far Ago highly relies on it's a community bank and
10:18
Speaker 1: consumer loans, Ken City Group, you know, setting aside seven
10:23
Speaker 1: point nine billion dollars more for so our loans, and
10:26
Speaker 1: David Morgan obviously setting aside more than anticipated as well.
10:29
Speaker 1: Why are loans beginning to go bad at such a
10:31
Speaker 1: rate when the FED stepped in to try and stop
10:33
Speaker 1: some of this. It's actually building reserves, So these are
10:38
Speaker 1: provisions or charges um to the bank. The actual delinquencies
10:44
Speaker 1: or loan losses are likely over the next few quarters.
10:49
Speaker 1: Think about this, this is the first full quarter yet
10:52
Speaker 1: the banks really don't have total visibility to the health
10:56
Speaker 1: of the consumers small business who have benefited into for
11:00
Speaker 1: bearans or subsidies from the federal government. So the banks
11:05
Speaker 1: are being very conservative. They have significant capital and as
11:11
Speaker 1: I think we might have lost Ken their Vanni. But
11:14
Speaker 1: I think he's saying, you know, I was interesting his
11:16
Speaker 1: comments about some of these banks, you know, don't have
11:18
Speaker 1: great visibility. So but they're still you know, taking these
11:22
Speaker 1: big low mass reserves. I think in anticipation that this
11:26
Speaker 1: is going to be an economy that is lower for longer. Yeah,
11:29
Speaker 1: I mean, I think that's very very telling because right
11:31
Speaker 1: now it seems like things are being managed pretty well.
11:35
Speaker 1: Right the consumer is still spending to a certain extent,
11:38
Speaker 1: and you know, even as we're seeing mass unemployment rules
11:42
Speaker 1: of seeing mass job creation again, you know, month over month,
11:45
Speaker 1: at the same time, if we don't have continued fiscal
11:48
Speaker 1: stimulus from the government, who knows what the situation will
11:50
Speaker 1: be like. And obviously the banks don't know any more
11:53
Speaker 1: than we do as to what's going to come out
11:55
Speaker 1: of Washington, d C. Over the next literally two weeks. Ball,
11:58
Speaker 1: I mean that funding for the six hundred dollars per
12:01
Speaker 1: week extra for each consumer who's out of work that
12:04
Speaker 1: goes away in two weeks unless Congress does something about it. Yeah,
12:07
Speaker 1: so we have Ken back. Ken Leone joins us once again,
12:10
Speaker 1: Global director of Research at cf are A. So Ken
12:13
Speaker 1: going to that point, what are the banks saying about
12:15
Speaker 1: the consumer here? Um? You know, are they Jamie Diamond's
12:18
Speaker 1: commentary seemed to be quite conservative on the margin, that's right,
12:24
Speaker 1: and the issue really relates to UM employment, particularly if
12:30
Speaker 1: we have adverse scenarios where unemployment, let's say for the
12:35
Speaker 1: U S economy is still in the mid teens UM,
12:39
Speaker 1: that will be kind of a dire outlook for the
12:41
Speaker 1: rest of this year. So that's the worst case. You
12:44
Speaker 1: gotta remember, banks hope for the best, but they prepare
12:47
Speaker 1: for the worst, and that's the build up of these
12:49
Speaker 1: credit reserves. Keep in mind, though, that what the banks
12:54
Speaker 1: are following is in line with the Settle reserve UM
12:58
Speaker 1: stress tests and the new scenarios on COVID back in
13:02
Speaker 1: late June, where when you look at those thirty three
13:06
Speaker 1: banks that participated in these stress tests, uh, the historical
13:11
Speaker 1: framework was a worst case of a four hundred thirty
13:14
Speaker 1: three billion with COVID. With the unemployment levels that you've
13:18
Speaker 1: mentioned before, um possibly mid teens, eight hundred billion. So
13:23
Speaker 1: what the banks have to do is before the reality,
13:25
Speaker 1: they have to build reserves. The flip side if we
13:28
Speaker 1: have this conversation later this year, is if the economic
13:33
Speaker 1: scenario is better, then you get a reserve reverse of
13:37
Speaker 1: these credit reserves, which would boost profitability absolutely. So we'll
13:42
Speaker 1: keep an eye on those. We've got still more banks
13:44
Speaker 1: to go uh tomorrow and Thursday as well. Ken le Own,
13:47
Speaker 1: Global Director of Industry and Equity Research at c f
13:50
Speaker 1: r A Research. We appreciate his commentary on the banks
13:54
Speaker 1: and again kind of a mixed bag coming out here
13:56
Speaker 1: about the consistent theme across the three banks that we
13:59
Speaker 1: saw today is very high single digit in terms of
14:02
Speaker 1: a billion dollar low loss reserves as they prepare for
14:06
Speaker 1: a weaker economy for some time to come. We'll see
14:09
Speaker 1: what we get from the big investment banks tomorrow. Well,
14:14
Speaker 1: when you have Max Niss and there's so many ways
14:17
Speaker 1: you can go when discussing this coronavirus on a global scale, Maxinis,
14:22
Speaker 1: it's a biotech farm at healthcare calumnist for Bloomberg Opinion Uh,
14:25
Speaker 1: but Max, today, I want to start with containment or
14:29
Speaker 1: lack thereof. It's it's it's something that's come back to
14:32
Speaker 1: the forefront of discussion of this virus containment and such
14:37
Speaker 1: key states as California, Texas, Florida. Where are we in
14:41
Speaker 1: some of those hotspots states? Are they bending the curve
14:45
Speaker 1: at all? Uh? Too early to say definitively, but probably not.
14:53
Speaker 1: And the reason is that, um, you know, with the
14:55
Speaker 1: exception of of California, as of you know this week, uh,
14:59
Speaker 1: no of them have really taken especially aggressive steps, you know,
15:05
Speaker 1: really big steps back in terms of, um, you know,
15:08
Speaker 1: the sorts of businesses that are open when you have
15:11
Speaker 1: community spread at a certain level. UM, you know, anything
15:15
Speaker 1: other than that either isn't going to contain the virus
15:20
Speaker 1: at all or is going to take a really long
15:22
Speaker 1: time over which um, you'll have a lot of infections
15:25
Speaker 1: and death to do so. So UM, I'll be curious
15:29
Speaker 1: to see if if California's move, which I will note
15:32
Speaker 1: comes on the back of data that that on kind
15:35
Speaker 1: of a statewide for capital level, is actually not as
15:38
Speaker 1: concerning as what you see out of Florida Arizona. If
15:41
Speaker 1: that will um, you know, pressure some other states to
15:44
Speaker 1: take some more aggressive action given to the sort of
15:48
Speaker 1: rates of new infection that they're seeing. Max, what's the
15:51
Speaker 1: latest thinking on herd immunity? Um? The latest I mean,
15:57
Speaker 1: I can give you my opinion on her immunity, but
15:59
Speaker 1: they're they're sort of two factors. One is whether you
16:02
Speaker 1: know it's even possible to achieve via natural infection, This
16:06
Speaker 1: being the form of the argument you here sometimes that
16:09
Speaker 1: you know it's going to take so long to get
16:11
Speaker 1: a vaccine and be so economically damaging to mitigate the virus,
16:15
Speaker 1: that we should just sort of let it run comparatively
16:18
Speaker 1: free in order thin. But the thing that we don't
16:20
Speaker 1: know and and still don't know is the degree to
16:23
Speaker 1: which UM natural immunity is conferred by infection or whether
16:26
Speaker 1: it lasts. And there's mixed evidence on this. UM. You know,
16:30
Speaker 1: some data that antibody levels fall over time. This doesn't
16:34
Speaker 1: confirm that that people probably can get reinfected UM, but
16:39
Speaker 1: it does suggest that that there isn't sort of rock
16:42
Speaker 1: solid evidence that that there is definitely gonna be durable
16:45
Speaker 1: immunity for everybody, So UM, you know that that's one
16:48
Speaker 1: reason to doubt that strategy. The second is just the
16:51
Speaker 1: numbers required to get there. Even if you do have
16:55
Speaker 1: you know, durable and consistent immunity, which we're not true
16:57
Speaker 1: about our enormous you know, it's it's fift and to
17:02
Speaker 1: get there. Um, if you just through the really simple math,
17:05
Speaker 1: even an you know, a relatively low implied fatality rate
17:08
Speaker 1: under one percent, UM, you know that that's a lot
17:11
Speaker 1: of deaths. And on top of that, UM, we also
17:14
Speaker 1: don't know the percentage of people that have lasting significant
17:18
Speaker 1: punseqluences from infection. So UM, it's a wildly irresponsible and
17:22
Speaker 1: dangerous strategy, all right. So if herd immunity is not
17:26
Speaker 1: a valid strategy, then obviously the focus turns back uh
17:31
Speaker 1: MAX to treatments and then ultimately to uh A or
17:35
Speaker 1: multiple vaccines. Anything new on that front that we should
17:39
Speaker 1: be paying attention to. UM, you know, the we're overall,
17:43
Speaker 1: I'd say the situation is is pretty close to what
17:45
Speaker 1: it's been in recent weeks, where we're we're sort of
17:48
Speaker 1: still waiting for the beginning of of these sort of
17:51
Speaker 1: big infirmatory trials. The news today that UM we're during
17:54
Speaker 1: an age to start its trial on July, So that
17:57
Speaker 1: would be the first really big trial in the US
18:00
Speaker 1: and a significant step on the path to seeing whether
18:04
Speaker 1: that the vaccine works. But how the thing I always
18:07
Speaker 1: like to highlight is, you know, it's impossible to say
18:09
Speaker 1: how long that that trial will take. You know, it's
18:12
Speaker 1: a big endeavor people. And on top of that, it's
18:16
Speaker 1: really difficult to handicap the possibility of success. Um, both
18:21
Speaker 1: because you know, the metrics of possible success we're using
18:24
Speaker 1: right now are there was antibody levels, um. You know,
18:27
Speaker 1: the comparison for people that have made it through the virus.
18:30
Speaker 1: That that's a metric that we don't necessarily know is valid.
18:33
Speaker 1: So again, just highlights that it's going to be a
18:36
Speaker 1: weight and they're they're significant and certain, especially given how
18:40
Speaker 1: rapidly these programs have progressed a relative to the norm
18:43
Speaker 1: for vaccine development. A lot of talk about children with
18:47
Speaker 1: you know, back to school sort of insights and and
18:49
Speaker 1: not in sits in other places. What about children? What
18:54
Speaker 1: do we know about how much they transmit this disease
18:57
Speaker 1: these days? Um? You know, again still something where where
19:01
Speaker 1: the evidence is evolving and and not conclusive. Um. I
19:06
Speaker 1: think it's it's broadly correct to say that the children
19:09
Speaker 1: are at substantially lower risk of of severe consequences of infection. UM.
19:15
Speaker 1: That's been a pretty consistent finding. Whether it's no risk
19:19
Speaker 1: UM is still is probably not the case. And then
19:22
Speaker 1: the broader question about beyond you know, the level of
19:26
Speaker 1: risk UM is the fact that you know, in starting
19:29
Speaker 1: up school you're encouraging a lot more travel, you have
19:33
Speaker 1: to think about teachers UM. So overall, even if children
19:37
Speaker 1: are are relatively less vulnerable, UM, if you don't have
19:40
Speaker 1: the virus contained, it's still going to be in one
19:44
Speaker 1: way or another, UM, pretty seriously unsafe to open schools broadly. Max,
19:50
Speaker 1: it's always a pleasure to have you on. I really
19:52
Speaker 1: don't know how you find the time to read everything
19:54
Speaker 1: and keep up with everything. It's just constant and a
19:56
Speaker 1: very difficult job these days. Well, Max Mason is biotech,
19:59
Speaker 1: pharmac and healthcare columnist for Bloomberg Opinion, and he's up
20:03
Speaker 1: with all the latest news surrounding the coronavirus and you know,
20:06
Speaker 1: every single drug trial that's underway, and and really you
20:10
Speaker 1: have the whole world on the case of this, Paul,
20:12
Speaker 1: and it's you know, it's I don't know when we
20:16
Speaker 1: last saw a global effort as you know, uh hefty
20:21
Speaker 1: as the one we're seeing right now. It's just a
20:24
Speaker 1: matter of when we'll get something that will break through.
20:28
Speaker 1: When you think about the industries that have been hardest
20:31
Speaker 1: hit by the coronavirus, the airline industry is certainly front
20:36
Speaker 1: and center among them. And we had some earnings out
20:37
Speaker 1: this morning from Delta Airlines. It just confirmed how difficult
20:41
Speaker 1: things are. Delta shares are off two point five percent
20:43
Speaker 1: today and off fifty year to date. To dig into
20:46
Speaker 1: that and all things aerospace and airlines, we welcome George Ferguson,
20:49
Speaker 1: senior Aerospace, defense and airlines analysts for Bloomberg Intelligence. So George,
20:54
Speaker 1: let's start off with Delta Boy, what's the takeaway here? Yeah, Paul, thanks,
20:59
Speaker 1: I think the big takeaway from Delta was, uh, they're
21:03
Speaker 1: burning about twenty seven million dollars a day as they
21:06
Speaker 1: closed the quarter. They still they want to push that
21:10
Speaker 1: to break even by year end um, but that's going
21:13
Speaker 1: to require more demand. They explicitly said, you know, the
21:16
Speaker 1: components going into sort of driving at the zero is
21:19
Speaker 1: more demand, and demand is petering out. They confirmed. For US,
21:22
Speaker 1: we've kind of been watching schedules and load factors and
21:26
Speaker 1: it looks like the US airlines have had a lot
21:28
Speaker 1: of capacity in the last sort of a couple of weeks. Uh,
21:32
Speaker 1: you know, as we started to see this nascent recovery
21:35
Speaker 1: and uh and travel. But look, with the cropping up
21:38
Speaker 1: of outbreaks in the south and the west and quarantine
21:43
Speaker 1: still in effect overseas, you know, we're concerned that it's
21:46
Speaker 1: going to start to peter out. And Delta kind of
21:49
Speaker 1: confirmed that. And so it's going to be a long road.
21:52
Speaker 1: Delta even said that, right, it's a long road. They
21:55
Speaker 1: talked in eighteen months to get to sort of you know,
21:59
Speaker 1: think reasonable travel levels. Are not talking talking reasonable travel levels.
22:03
Speaker 1: And we haven't seen business come back, business flying demand
22:07
Speaker 1: come back, and that's really important. Delta they said, revenues
22:11
Speaker 1: is business. You know, we kind of thought something around there.
22:13
Speaker 1: So I think those are the big takeaways from today.
22:16
Speaker 1: It's still a lot more a lot more distance to
22:19
Speaker 1: travel for recovery for this industry. George Delta saying seventeen
22:24
Speaker 1: thousand workers have now signed up to leave the airline
22:27
Speaker 1: at it's parked more than seven hundred aircraft. How much
22:30
Speaker 1: smaller will the future Delta be? I think again, again,
22:35
Speaker 1: that's a really hard question. Right, It's a function of
22:38
Speaker 1: the bounce back in demand. UM. And and right now,
22:41
Speaker 1: you know, we still have sort of an industry that's
22:44
Speaker 1: that's flying the passengers that they flew last year at
22:49
Speaker 1: this time. UM, I do think people will get more
22:52
Speaker 1: comfortable flying here in time, even if we don't have
22:55
Speaker 1: a vaccine or an effective treatment. The question is how
22:59
Speaker 1: much I know, you may have to strip some of
23:01
Speaker 1: these airlines, um for a couple of years here while
23:06
Speaker 1: you you know, fifty or while you wait for uh
23:10
Speaker 1: demand come back. So they've come a long way, but
23:13
Speaker 1: there's more distance to travel, and we think book four
23:15
Speaker 1: queues when you're really going to start to see adjustments
23:18
Speaker 1: to the workforce, because that's when the cares act money
23:21
Speaker 1: that's basically subsidizing all their labor goes away. All right, George,
23:25
Speaker 1: I guess it's time to go to the balance sheet
23:28
Speaker 1: discussion here is if this demand is going to uh
23:31
Speaker 1: perhaps come back slower than expected, we have to start
23:34
Speaker 1: looking at which airlines can can really weather the storm.
23:36
Speaker 1: So kind of how are you looking at that right now? Yeah?
23:40
Speaker 1: I look, they've all put on a lot of cash
23:42
Speaker 1: over the last bunch of months. UM. I've actually been
23:45
Speaker 1: pretty impressed with how receptive credit markets have been for
23:48
Speaker 1: these airlines. Many of them, you know, are in the
23:53
Speaker 1: tens between ten and twenty billion worth of liquidity, and
23:57
Speaker 1: so Delta said today they at eighteen for the liquidity. UM. Obviously,
24:03
Speaker 1: I think it probably puts them in in pretty good order.
24:06
Speaker 1: Will looks very closely as we go through earning season
24:08
Speaker 1: for cash burn and how long they can last. Delta
24:11
Speaker 1: entered the downturn with the better balance sheet and therefore
24:14
Speaker 1: more ability to get um, you know, to bring more
24:18
Speaker 1: cash out of their balance sheet. As pretty oppressed. They
24:20
Speaker 1: talked about adjusting even their credit lines so that some
24:23
Speaker 1: of those covenants don't trip them up. UM. I think again,
24:26
Speaker 1: being an investigated company going into the downturn helps you
24:29
Speaker 1: a lot. Leisure is going to perform better than business too,
24:31
Speaker 1: and so I think that a bunch of the leisure
24:32
Speaker 1: carriers that are that are have good balance sheets, companies
24:36
Speaker 1: like South Pest and such a circle prepared well to
24:38
Speaker 1: get through the downturn for a longer pair. At to time,
24:42
Speaker 1: George Davidson Kemner that US Hedge Fund injected about two
24:48
Speaker 1: hundred million dollars or so into Virgin Atlantic to try
24:51
Speaker 1: and rescue the company along with Richard Branson themselves. What's
24:54
Speaker 1: the value proposition for Davidson there? Uh you know, I
25:00
Speaker 1: think you know, the value proposition at Britain Atlantic is
25:02
Speaker 1: really heat throw slots. And so look today it doesn't
25:05
Speaker 1: matter as much for it because nobody's um sort of
25:07
Speaker 1: jumping all over themselves to get more. He throw slots
25:10
Speaker 1: International is dead. But when the when the world recovers
25:14
Speaker 1: and and demand comes back again, and you know, look
25:16
Speaker 1: at me, not come back fully, but it comes back
25:18
Speaker 1: in the large proportions that he throwed another, uh, have
25:22
Speaker 1: another another choke point in sort of the worldout network.
25:26
Speaker 1: Heathrow has always been that way. There's a lot of
25:27
Speaker 1: demand again and the Heathrow and I think that's what
25:29
Speaker 1: Emerge Atlantic really really brings. It also brings it to Delta,
25:32
Speaker 1: by the way, because Delta was an investor in there,
25:34
Speaker 1: and I imagine they'll still have a decent relationship even
25:36
Speaker 1: though the equity investment might get is going to get adjusted. Here.
25:40
Speaker 1: It's so interesting following industries as they have to adapt
25:43
Speaker 1: to the environment. George, thank you so much for all
25:46
Speaker 1: of your expertise. George Ferguson, a senior Aerospace, Defense and
25:49
Speaker 1: airline analyst, and for all of the you know, consultants
25:52
Speaker 1: and so on that have gone into companies over the
25:55
Speaker 1: last several years and you know, restrategized and changed the strategy.
25:59
Speaker 1: I mean, something like a global pandemic comes along and
26:01
Speaker 1: that just all goes out the window and you have
26:03
Speaker 1: to start from scratch again. It's really, you know, interesting
26:06
Speaker 1: thing to watch, particularly when there's really no industry that's
26:09
Speaker 1: not affected by this. Thanks for listening to Bloomberg Markets podcast.
26:14
Speaker 1: You can subscribe and listen to interviews at Apple Podcasts
26:17
Speaker 1: or whatever a podcast platform you prefer. I'm Bonnie Quinn.
26:21
Speaker 1: I'm on Twitter at Bonnie Quinn, and I'm Paul Sweeney.
26:23
Speaker 1: I'm on Twitter at pt Sweeney. Before the podcast, you
26:26
Speaker 1: can always catch us worldwide at Bloomberg Radio.