Latest / Bloomberg Intelligence / Leveraged-Loan Gloom Is Way Overdone: Eaton Vance PM

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Leveraged-Loan Gloom Is Way Overdone: Eaton Vance PM · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Bramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
• 0:15
  Speaker 1: you and your money, whether you're at the grocery store
• 0:17
  Speaker 1: or the trading floor. Find the Bloomberg p m L
• 0:20
  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. There
• 0:30
  Speaker 1: have been a lot of gloom and doom stories written
• 0:32
  Speaker 1: about US leveraged loans issue and has reached a record
• 0:37
  Speaker 1: pace so far this year. The total outstanding debt has
• 0:40
  Speaker 1: surpassed its sister assid class of US junk bonds. And oh,
• 0:44
  Speaker 1: some people are getting worried about we covenants and other issues.
• 0:48
  Speaker 1: Joining us now to tell us how concerned we really
• 0:50
  Speaker 1: ought to be is Christopher Remington. He is a portfolio
• 0:53
  Speaker 1: manager at Eaton Vance focusing on leveraged loans, which are
• 0:56
  Speaker 1: also called bank loans, and he joins us now. Christopher,
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  Speaker 1: thank you so much for being with us. Do you
• 1:01
  Speaker 1: think that the gloom and doom that we've heard, this
• 1:04
  Speaker 1: sort of rising risks in the weaker standards? Do you
• 1:07
  Speaker 1: think that that's an accurate portrayal of the asset class
• 1:10
  Speaker 1: not really, Lisa, thanks for having us on UM. Certainly
• 1:14
  Speaker 1: there's been a going storyline in the market that there's
• 1:18
  Speaker 1: been sort of hog wild credit risk taking place, and
• 1:22
  Speaker 1: certainly there's been an uptakeing M and A as you've
• 1:24
  Speaker 1: alluded to earlier on your show. That's normal at this
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  Speaker 1: point in the cycle. Certainly, plenty of things to watch, UM,
• 1:31
  Speaker 1: but we think that overall the sort of risk character
• 1:35
  Speaker 1: in the market is pretty typical of what it is
• 1:37
  Speaker 1: at this stage in the cycle. You pointed out the
• 1:40
  Speaker 1: market is growing the so called bonanza and issuance, and
• 1:43
  Speaker 1: you start to back out refinancings, which is just a
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  Speaker 1: recycling of existing paper or um um refinancing refinancings basically
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  Speaker 1: um the net number is much lower. The market has
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  Speaker 1: grown by about ten percent looking back over the past year,
• 2:00
  Speaker 1: and that's following what had been at darth of issuance
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  Speaker 1: for a couple of years before that. So the markets
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  Speaker 1: catching up. There has been a good amount of issuance
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  Speaker 1: this year, but that's really just a reflection of the
• 2:10
  Speaker 1: M and A machine and nuts on the back of
• 2:12
  Speaker 1: what's been a pretty sound US economy, fair enough sounded
• 2:16
  Speaker 1: US economy for now the last time we saw a
• 2:18
  Speaker 1: boom and m and A that was funded by the
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  Speaker 1: leverage finance market reminds me frankly of two thousand six seven.
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  Speaker 1: It wasn't so pretty after that. And some people are
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  Speaker 1: concerned that a lot of companies are raising money in
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  Speaker 1: the loan market and not raising money in the bond market,
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  Speaker 1: and therefore there is no real advantage to being first
• 2:36
  Speaker 1: lean to basically having get to sort of first recoveries
• 2:40
  Speaker 1: in a bankruptcy and liquidation. What do you make of
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  Speaker 1: all of that, though, I wouldn't suggest there's any causality
• 2:46
  Speaker 1: between the fact that there was a lot of issuance
• 2:48
  Speaker 1: in the bank loan market and the great recession that
• 2:51
  Speaker 1: ultimately followed. They did follow in time order, but one
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  Speaker 1: had little to do with the other. UM in the
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  Speaker 1: in the sort of broader context of bonds versus as loans,
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  Speaker 1: I think, you know, the attractiveness of loans today. UM
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  Speaker 1: is certainly one that can be made in absolute sense,
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  Speaker 1: but really it's all about relativity. If you're the investor,
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  Speaker 1: you have a multiple sort of pieces to the puzzle
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  Speaker 1: you're trying to balance in a portfolio. You look over
• 3:14
  Speaker 1: on the equity side of your portfolio, and you have
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  Speaker 1: stocked creating at all time ever highs. I think stocks
• 3:19
  Speaker 1: have lost I'm pretty sure something like half their value
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  Speaker 1: twice in the last fifteen years. That does happen in
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  Speaker 1: a recession. Over in bonds, you have a headwind of
• 3:28
  Speaker 1: rising interest rates, and with the FED on the move,
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  Speaker 1: they're relatively few places to position in fixed income land
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  Speaker 1: where you actually get a benefit from FED raising interest rates,
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  Speaker 1: and this is definitely one of those neighborhoods. So folks
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  Speaker 1: who are coming in to the asset class I think
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  Speaker 1: are doing it from the standpoint of pretty good reasons.
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  Speaker 1: They're searching for yield. Yield is hard to find today,
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  Speaker 1: but they're also searching for the absence of duration. Um. Certainly,
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  Speaker 1: their risks in our market credit risk, liquidity risk, but
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  Speaker 1: it's not bond risk, and so investors are trying to
• 4:00
  Speaker 1: balance those things, and I think for good reason, Christopher,
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  Speaker 1: have you witnessed money managers pushing back on deals that
• 4:07
  Speaker 1: are too aggressively priced? Well, I can tell you I
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  Speaker 1: work here at an asset manager that is indeed doing that.
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  Speaker 1: So there's been plenty of issuance, as you've started out
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  Speaker 1: the segment talking about, but there's also been plenty of
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  Speaker 1: deals to turn down UM. Our turndown rate here at
• 4:24
  Speaker 1: Eaton Advance has averaged about seventy year to date, so
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  Speaker 1: I would characterize UM those largely coming on the back
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  Speaker 1: of smaller deals UM and also deals that have weaker
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  Speaker 1: structures UM. So I'd say the overall sort of temperature
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  Speaker 1: of the market is good economy generally good about average
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  Speaker 1: credit risk profile, but with weaker documentation, weaker structures, and
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  Speaker 1: that's where we're really digging in and drawing the line. So,
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  Speaker 1: what are some recent popular deals that you've drawn the
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  Speaker 1: line on? For example, was the Thompson Reuters deal one
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  Speaker 1: that you're buying into or staying away from? Well, that
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  Speaker 1: stuff only one of the big ones to date. UM.
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  Speaker 1: We're active in the name at the moment, so I
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  Speaker 1: can't speak in great detail about it, but I will
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  Speaker 1: tell you that that is a deal that would absolutely
• 5:12
  Speaker 1: hit on those topics that I just mentioned. Good company, UH,
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  Speaker 1: somewhat weak structure, and if we are participating, it will
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  Speaker 1: definitely be on the more conservatively positioned UH in our portfolio.
• 5:24
  Speaker 1: Definitely some things to watch there because of those structural issues.
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  Speaker 1: Probably going to play out just fine, but we think
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  Speaker 1: there's likely an opportunity to buy it cheaper sometime down
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  Speaker 1: the road. Thanks very much for being with us. Christopher Remington,
• 5:38
  Speaker 1: Director of Income Product and Portfolio Strategy, also institutional portfolio
• 5:42
  Speaker 1: manager for floating rate loans at Eaton Fans. The topic
• 5:58
  Speaker 1: is Brexit. Earlier today, UK Prime Minister Theresa May said
• 6:02
  Speaker 1: that the European Union must treat the United Kingdom with
• 6:05
  Speaker 1: respect in Brexit negotiations. In a statement in which she
• 6:09
  Speaker 1: read at Downing Street, she said that EU leaders to
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  Speaker 1: reject her plan, but no alternative at this late stage
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  Speaker 1: of negotiations was not acceptable. Let's find out if it
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  Speaker 1: really is unacceptable. Ian wish Art is our European government
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  Speaker 1: reporter for Bloomberg News joining us from Brussels. All right, Ian,
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  Speaker 1: is it really unacceptable? I thought everything in these negotiations
• 6:32
  Speaker 1: seemingly is acceptable. Accept an agreement exactly. It's either all
• 6:39
  Speaker 1: acceptable or all unacceptable. It depends on your perspective. Really, um,
• 6:44
  Speaker 1: the EU has made its position clear and it's pretty
• 6:47
  Speaker 1: much stuck to its position for a year. The UK
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  Speaker 1: says it doesn't like it, and a year on is
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  Speaker 1: still saying it doesn't like it. Where do you go
• 6:55
  Speaker 1: from there, Well, nobody really knows. Everybody still thinks that
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  Speaker 1: at some point and time is running out, but at
• 7:02
  Speaker 1: some point they'll get a deal, but nobody quite knows
• 7:05
  Speaker 1: how that will come about, because, as I say, both
• 7:07
  Speaker 1: sides are completely talking um in different ways from different positions,
• 7:13
  Speaker 1: and nobody seems ready to conceive even one letter to
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  Speaker 1: the other side. So, um, who knows what's going to happen.
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  Speaker 1: I think all the smart money is on an agreement
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  Speaker 1: being done eventually, but at the moment, both sides of
• 7:25
  Speaker 1: doubling down, both sides of digging in. The Prime Minister
• 7:28
  Speaker 1: woke up to newspaper headlines saying she'd been humiliated by
• 7:31
  Speaker 1: AU leaders at the summit in Salzburg in Austria overnight.
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  Speaker 1: So where do we go from here? I think it's
• 7:38
  Speaker 1: going to get very messy. Indeed, in I've got to say,
• 7:41
  Speaker 1: it hasn't exactly been smooth sailing before this, right, I mean,
• 7:44
  Speaker 1: it's been a mess all along, and this seems to
• 7:47
  Speaker 1: be a sort of escalation of that. I'm just wondering
• 7:50
  Speaker 1: does this increase the chances of a hard Brexit, and
• 7:53
  Speaker 1: if so, to what degree? I mean, right now, the
• 7:56
  Speaker 1: pound is plunging versus the dollar by the most since. Yeah,
• 8:00
  Speaker 1: I mean, this is the scariest, if you like, the
• 8:04
  Speaker 1: scariest point we've had so far in the break to
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  Speaker 1: the negotiations, because it's less than two months really before
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  Speaker 1: the deadline, the real hard dearsline where they need to
• 8:12
  Speaker 1: get a deal, and two sides of as far apart
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  Speaker 1: as ever, um, you asked dip them out behind the scenes,
• 8:18
  Speaker 1: and they all still stay on both sides that getting
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  Speaker 1: a deal is more likely than than not. Um, So
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  Speaker 1: I think we have to assume that that is the case,
• 8:28
  Speaker 1: that behind the scenes, round the negotiating table, there is movement,
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  Speaker 1: discussions are being had, but politically it's very difficult to
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  Speaker 1: see where where the compromise is made. The speech that
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  Speaker 1: threason May made an hour or so ago meant that
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  Speaker 1: she really dug in. She really said this proposal that
• 8:48
  Speaker 1: the EU has put forward would see the breakup of
• 8:51
  Speaker 1: the United Kingdom and she can never let that happen.
• 8:54
  Speaker 1: Now the EU is saying that's the only proposal we're
• 8:57
  Speaker 1: prepared to offer. So where do you go from here?
• 8:59
  Speaker 1: I mean, it's it's not easy to see where any
• 9:03
  Speaker 1: optimism comes from. So it's also very obvious that are
• 9:07
  Speaker 1: hard Brexit, that no deal, that a really messy divorce
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  Speaker 1: is also entirely possible. Ian worship. Is there any conversation
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  Speaker 1: about the negotiating style and tactics, I mean number one,
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  Speaker 1: negotiating in public, Number two drawing these seemingly firm arguments,
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  Speaker 1: but then not having any wiggle room to actually have
• 9:32
  Speaker 1: a negotiation, and then to talk about Northern Ireland when
• 9:38
  Speaker 1: Teresa May's government depends on the support of Northern Ireland
• 9:42
  Speaker 1: members of Parliament. Correct, exactly, everywhere you look, there's there's
• 9:47
  Speaker 1: pitfalls and obstacles and and dead ends. Um, it's quite
• 9:51
  Speaker 1: clear that both sides over the past eighteen months two
• 9:53
  Speaker 1: years have made mistakes, most of them as mistakes have
• 9:56
  Speaker 1: been made by the UK side. Most of the things
• 10:00
  Speaker 1: that the UK said it would never would never accept,
• 10:04
  Speaker 1: they have accepted. So the EU clearly has the upper
• 10:08
  Speaker 1: hand and has had throughout the entire process. Now we're
• 10:12
  Speaker 1: coming right to the crunch, and as you say, it's
• 10:14
  Speaker 1: all about now the Irish border, it's all about Northern Ireland.
• 10:18
  Speaker 1: What the EU says it wants to do to protect
• 10:21
  Speaker 1: its own integrity as they call it, to the Single Market,
• 10:24
  Speaker 1: which means protecting the flow of goods and customers controls
• 10:28
  Speaker 1: into its own single markets depends on getting something arranged
• 10:33
  Speaker 1: for Northern Ireland. What it says it once the UK
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  Speaker 1: into reason May is saying she can never accept he's
• 10:41
  Speaker 1: a red line, but something has got to give in
• 10:44
  Speaker 1: just twenty seconds here when you go to the pub
• 10:46
  Speaker 1: or when you walk around and just the average person
• 10:50
  Speaker 1: on the streets of London, how concerned are they about this?
• 10:52
  Speaker 1: How much are they following that details? They're not following
• 10:56
  Speaker 1: the details at all. Really what they want to know
• 10:59
  Speaker 1: what they want to is there going to be a
• 11:01
  Speaker 1: deal or isn't there going to be a deal? Is
• 11:03
  Speaker 1: breg A going to happen or isn't Brexit going to happen?
• 11:06
  Speaker 1: And even those of us who speak to the people
• 11:09
  Speaker 1: who know can't really stay for short what the outcome
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  Speaker 1: will be. And that's the scary thing about the Brexit
• 11:15
  Speaker 1: process at the moment. I wish thank you so much
• 11:18
  Speaker 1: for joining us in wish or does the European government
• 11:20
  Speaker 1: reporter for Blueberg News a big question and angst in
• 11:33
  Speaker 1: markets these days? At what point will the rising benchmark
• 11:38
  Speaker 1: rates in the United States damp in interest and risk
• 11:42
  Speaker 1: your assets. And here to answer the question is Tony Sheer,
• 11:45
  Speaker 1: director of Research and co portfolio manager at SMED Capital Management,
• 11:48
  Speaker 1: with the two point three billion dollars of assets under management.
• 11:51
  Speaker 1: So I'm just wondering, Tony. We've been hearing about this
• 11:55
  Speaker 1: that at once, at some point people are going to
• 11:57
  Speaker 1: go back into government debt and avoid the risk kier
• 12:00
  Speaker 1: assets that they've basically been forced into during financial oppression.
• 12:04
  Speaker 1: We're not seeing that yet. When will it occur? It's
• 12:08
  Speaker 1: a great question. It's been years as cheap money has
• 12:12
  Speaker 1: been flowing around, whether it's private equity money or whether
• 12:16
  Speaker 1: it's just the as you say, riskier assets that have
• 12:19
  Speaker 1: gotten away with not having to show real earnings or
• 12:22
  Speaker 1: free cash flow, and that has gone on for quite
• 12:25
  Speaker 1: a long time. As yields go up, you'll have something
• 12:28
  Speaker 1: to compete with that, right And so, you know, we
• 12:31
  Speaker 1: don't know when, but we do think that the economy
• 12:33
  Speaker 1: is going to be far more resilient and the next
• 12:35
  Speaker 1: several years than even the consensus right now would tell you.
• 12:38
  Speaker 1: You listen to Jamie Diamond talked about the five percent
• 12:41
  Speaker 1: on the tenure a couple of years out from now,
• 12:43
  Speaker 1: and if that's driven by economic growth, we do we
• 12:47
  Speaker 1: think you think that there's gonna be five percent treasury
• 12:49
  Speaker 1: yields in a couple of years. It's historically not not
• 12:53
  Speaker 1: asking a lot, actually, right, I mean we just are
• 12:56
  Speaker 1: in a tenure look back where that looks like a
• 12:59
  Speaker 1: really big number right now, but you go back into
• 13:01
  Speaker 1: a longer term time frame, it's really not asking a lot.
• 13:04
  Speaker 1: And so no, we don't think. So we're at a
• 13:05
  Speaker 1: four point something percent four point two I think with
• 13:07
  Speaker 1: the last print on GDP right now, with unemployment lower
• 13:10
  Speaker 1: lower than that, how long is that going to persist
• 13:13
  Speaker 1: without yields eventually starting to reflect some upside on the
• 13:16
  Speaker 1: longer term treasury bond? Tony, I gotta ask you about
• 13:19
  Speaker 1: one group of stocks that has been leading the market higher,
• 13:22
  Speaker 1: and that's technology. I want to know about this idea
• 13:25
  Speaker 1: of financial euphoria and why you believe where if you
• 13:29
  Speaker 1: believe that holding technology and growth stocks could permanently damage
• 13:34
  Speaker 1: investors long term success. From a letter from Smeat Capital Anyway,
• 13:40
  Speaker 1: great question. The short answer is yes, absolutely, All manias
• 13:44
  Speaker 1: and euphorias don't end well. You know, the Internet changed
• 13:48
  Speaker 1: our lives coming out of nine until eighteen years later
• 13:51
  Speaker 1: to today. It changed your life. But when most of
• 13:54
  Speaker 1: the capitalization went towards those ideas, right, you know, you
• 13:58
  Speaker 1: lost your shirt in the subs went three years. Whereas
• 14:01
  Speaker 1: the under capitalization that was going on in value stocks
• 14:04
  Speaker 1: and ever forgotten about, you know, the old economy type stocks.
• 14:07
  Speaker 1: You didn't just do relatively well, you did nominally well
• 14:10
  Speaker 1: in the next couple of years. Right, you could, you
• 14:12
  Speaker 1: could just absolutely beat the mother you'd rather let's say,
• 14:16
  Speaker 1: and I'm not picking on one stock for any reason,
• 14:18
  Speaker 1: but I mean, you'd rather go with the McDonald's and
• 14:20
  Speaker 1: a Coca Cola then you would Facebook or Amazon dot Com?
• 14:25
  Speaker 1: Uh as absolutely? Okay? The you know, I we wrote
• 14:30
  Speaker 1: a piece here recently about that mania, and we went
• 14:33
  Speaker 1: back to two thousand eleven, just as a case in point,
• 14:36
  Speaker 1: when no one was really thinking about fang stocks. That
• 14:39
  Speaker 1: was a point in time where we were looking at
• 14:40
  Speaker 1: another recession, in that case, a double dip recession. And
• 14:43
  Speaker 1: what you were thinking about then was g l D. Right, gold,
• 14:47
  Speaker 1: the gold dt F had more money sucked into it,
• 14:49
  Speaker 1: and the sp wise, the broad market et F at
• 14:53
  Speaker 1: seventy eight billion dollars. Okay, you fast forward to today,
• 14:56
  Speaker 1: the g l D has twenty nine billion in it
• 14:58
  Speaker 1: and the spy has two ninety bill in in it.
• 15:00
  Speaker 1: You should have been taking risk back then, but you
• 15:02
  Speaker 1: were buying bonds and gold was up for that year.
• 15:06
  Speaker 1: The market that SMP had an inter year down draft
• 15:09
  Speaker 1: of nineteen and a half percent, and people were scared, right,
• 15:12
  Speaker 1: But you should have been taking risk then. Fast forward
• 15:14
  Speaker 1: to today, no one is thinking or caring about that stuff.
• 15:17
  Speaker 1: They're only thinking about the things. So you've got, in
• 15:20
  Speaker 1: our view, massive, massive over capitalization in in a very
• 15:24
  Speaker 1: narrow set of stocks, and that's been exacerbated by the
• 15:27
  Speaker 1: amount of money that's gone into passive. There is the
• 15:29
  Speaker 1: agnostic money that owns this stuff that they don't know
• 15:32
  Speaker 1: really what they own or how poorly exposed they are.
• 15:35
  Speaker 1: So let's talk about your portfolio. How have you adjusted
• 15:38
  Speaker 1: it most recently in terms of stocks, bonds, and within stocks,
• 15:42
  Speaker 1: the types of stocks. Great questions. So I mean for us,
• 15:45
  Speaker 1: what this offers, what this capital and misallocation offers us
• 15:49
  Speaker 1: is some cheap stocks that have been left for dead
• 15:51
  Speaker 1: and really forgotten about in comparison to the over excitement
• 15:55
  Speaker 1: and fang. So we've been adding to our position in
• 15:58
  Speaker 1: Walgreens Boots Alliance for instance. Uh, you know, we've been
• 16:02
  Speaker 1: adding to Target Kroger. We've been adding to some of
• 16:05
  Speaker 1: the cheaper stocks that no one cares about a newer
• 16:07
  Speaker 1: name for us, to Discovery Communications. And if you aren't Netflix, okay,
• 16:12
  Speaker 1: you get discounted in old media land. Almost across the board,
• 16:16
  Speaker 1: Discoveries incredibly cheap. We think it offers. They just did
• 16:18
  Speaker 1: a deal with Hulu. They did is gonna now offer
• 16:22
  Speaker 1: their content on the Hulu website or that's right, And
• 16:27
  Speaker 1: that's exactly what they said they were going to do
• 16:28
  Speaker 1: when they did the deal with Scripts Networks when they
• 16:30
  Speaker 1: when they combined, right, they're gonna bring the discovery channels
• 16:34
  Speaker 1: excuse me to uh to the same over the top
• 16:37
  Speaker 1: platforms as Script Networks has had. So real quick. What
• 16:40
  Speaker 1: about bonds versus stocks? Well, I mean yields we think
• 16:44
  Speaker 1: are going to be rising here. So you don't like bonds, No,
• 16:46
  Speaker 1: we don't like bonds. Okay, you don't like any bonds?
• 16:49
  Speaker 1: And how long if you not like bonds, well, you're
• 16:52
  Speaker 1: like approximately a decade were an equity we're an equity manager.
• 16:56
  Speaker 1: But no, we do think that we're going to be
• 16:58
  Speaker 1: in a in a well we think also in we
• 17:00
  Speaker 1: haven't talked about inflation. We think inflation but also economic
• 17:02
  Speaker 1: growth is gonna drive rates higher, so you don't want
• 17:04
  Speaker 1: to be, you know, owning bonds. High quality, value oriented
• 17:09
  Speaker 1: equities we think are going to be a place that
• 17:11
  Speaker 1: you can win, not just relatively but nominally as well.
• 17:13
  Speaker 1: Well done, Thanks very much for coming in and sharing
• 17:15
  Speaker 1: your thoughts with us. Tony Sheer is director of Research
• 17:18
  Speaker 1: co portfolio manager for Smeeed Capital Management, helping to manage
• 17:22
  Speaker 1: more than two point two billion dollars. They're based in Seattle,
• 17:26
  Speaker 1: talking about adding to positions in Walgreen's Boots Alliance, Target, Kroger,
• 17:32
  Speaker 1: and Discovery Networks. David Neilman is a serial airline entrepreneur,
• 17:48
  Speaker 1: founder of Jet Blue Airways, also a founder of Morris Airways,
• 17:54
  Speaker 1: also founder of west Jet Airways. Also he is going
• 18:00
  Speaker 1: to have a new airline, a low cost airline, and
• 18:03
  Speaker 1: here to tell us all about it is George ferguson
• 18:05
  Speaker 1: Bloomberg Intelligence, his own expert when it comes to all
• 18:08
  Speaker 1: things aerospace and defense. This is an interesting story, George,
• 18:14
  Speaker 1: that David Neilman is going to be taking those A
• 18:17
  Speaker 1: two twenty jets that were developed by Bombardier formerly known
• 18:21
  Speaker 1: as the C series, and he wants to start a
• 18:24
  Speaker 1: new airline called Moxie. Does the world need Moxie? Well, so,
• 18:31
  Speaker 1: I think principally he will be flying US routes. And
• 18:33
  Speaker 1: I can't only speak for the entire world, although I
• 18:37
  Speaker 1: try sometimes, but I think the US doesn't necessarily need
• 18:40
  Speaker 1: another airline. We have a lot of capacity, fairs are
• 18:44
  Speaker 1: under pressure, margins are falling for airlines. Um, he's going
• 18:48
  Speaker 1: to try to wedge Moxie in here. I think it's
• 18:50
  Speaker 1: going to be difficult to make a lot of money
• 18:52
  Speaker 1: with Maxie, all right, But this is the founder of
• 18:54
  Speaker 1: jet Blue, so he has some experience and jet Blue
• 18:57
  Speaker 1: has done pretty well, right, I mean, they've done uh,
• 19:00
  Speaker 1: gotten a lot of market share, and they have a
• 19:02
  Speaker 1: model that is being emulated by others. I'm just wondering.
• 19:06
  Speaker 1: I mean, I personally would kind of enjoy it if
• 19:08
  Speaker 1: somebody offered even lower fares out there. What's the problem. Yeah,
• 19:13
  Speaker 1: you know, I think everybody wants lower fares. I think
• 19:16
  Speaker 1: that's a that's a good thing. So again, but the
• 19:20
  Speaker 1: more you cut fairs and more Abiales cuts fars, the
• 19:22
  Speaker 1: more difficult it is to make a profit in this business.
• 19:26
  Speaker 1: But George, hold on a second, because actually prices have
• 19:29
  Speaker 1: been going up steadily. I don't know if you've noticed
• 19:31
  Speaker 1: at him, I don't know if you've noticed it, but
• 19:32
  Speaker 1: it's been going up pretty dramatically. And now you have
• 19:34
  Speaker 1: to pay for your overhead luggage and you have to
• 19:37
  Speaker 1: pay for uh the oxygen that you breathe. So, I
• 19:40
  Speaker 1: mean they have succeeded in increasing priss but believe it
• 19:43
  Speaker 1: or not, airlines are still less profitable this year than
• 19:46
  Speaker 1: they were in and the reason is fuel prices are
• 19:51
  Speaker 1: rising like and fares are rising to three so there,
• 19:57
  Speaker 1: so they don't have the pricing power to compensate for
• 19:59
  Speaker 1: that eising costs. Can you make me go into a
• 20:02
  Speaker 1: little bit of the thinking behind using that A to
• 20:05
  Speaker 1: twenty jet, that C series jet, I mean, it only
• 20:08
  Speaker 1: holds about a hundred and fifty travelers, and most of
• 20:12
  Speaker 1: the low cost carriers, as I understand, they're going with
• 20:15
  Speaker 1: something like the airbus. You got it. And that's why
• 20:19
  Speaker 1: I think it's very interesting about this too, right is
• 20:21
  Speaker 1: that uh So, David Neilman has worked before with UM
• 20:25
  Speaker 1: with air Bus, and I think there's a little bit
• 20:26
  Speaker 1: of some of the old the Airbus getting the band
• 20:30
  Speaker 1: back together. Um, and they really need to build some
• 20:34
  Speaker 1: demand for this A to twenty. And I think they're
• 20:37
  Speaker 1: hoping that Neilman can build a fleet of these because
• 20:41
  Speaker 1: we think that they give him a deal on the
• 20:43
  Speaker 1: sixty aircraft. You think, my guess, My guess is they did. Um.
• 20:46
  Speaker 1: I think that's a big difference. Uh. Sort of in
• 20:49
  Speaker 1: moving this airplane from Bombardier to air buses, you now
• 20:52
  Speaker 1: have deeper pockets. I think as you launch an airplane,
• 20:54
  Speaker 1: you have to be ready to take a little bit
• 20:56
  Speaker 1: of pain less profitability, a bunch of discounting, and that's
• 21:00
  Speaker 1: what this does. He wants to fly from tertiary airports
• 21:04
  Speaker 1: in America or maybe secondary tertiary, So you could argue
• 21:08
  Speaker 1: that you need that smaller size because he's flying from
• 21:11
  Speaker 1: places like Trenton, you know where windsor Locks, Connecticut in
• 21:14
  Speaker 1: places like that. Well, you're not gonna be able to
• 21:17
  Speaker 1: fill a hundred and fifty or a hundred and seventy
• 21:20
  Speaker 1: sea airplanes. But the rest of the little cost world
• 21:23
  Speaker 1: is going to much bigger airplanes as they try to
• 21:25
  Speaker 1: defray the cost of higher pilot salaries in the front
• 21:28
  Speaker 1: and those higher fuel expenses. Lisa Abrama it's just wants
• 21:33
  Speaker 1: more leg room and wants to not be charged for
• 21:37
  Speaker 1: the oxygen that she uses on the plane. Yeah. Also,
• 21:41
  Speaker 1: I mean there are there are a list of things
• 21:42
  Speaker 1: that I would like. I would like the free snacks
• 21:44
  Speaker 1: to come back, because I know that in some places
• 21:46
  Speaker 1: that's not acceptable. I also the whole idea of support
• 21:50
  Speaker 1: pets that are like huge peacocks that take up They
• 21:53
  Speaker 1: got rid of that, they got rid of the peak
• 21:57
  Speaker 1: not not not a big fan of that. And yeah, no,
• 22:00
  Speaker 1: I think that there are some issues. There's some issues
• 22:02
  Speaker 1: that need to be addressed. I think Lisa wants, ever
• 22:04
  Speaker 1: wants to get those wings you know that they used
• 22:06
  Speaker 1: to give out when you traveled on in there. I
• 22:11
  Speaker 1: think they still have them. All Right, George, I want
• 22:14
  Speaker 1: to talk to you about some news that was made
• 22:16
  Speaker 1: this week with the Emirates and Eddie had Uh. These
• 22:19
  Speaker 1: two pretend these airline rivals exactly, and there is some
• 22:23
  Speaker 1: talk that perhaps are going to be combining perhaps not.
• 22:26
  Speaker 1: They denied it, But what's the logic here? Why would
• 22:29
  Speaker 1: it be beneficial for them to join forces? Yeah, I
• 22:32
  Speaker 1: mean there's a lot of capacity that flies between UM
• 22:36
  Speaker 1: Europe and Asia. Right, it's a it's a big trade route.
• 22:38
  Speaker 1: There's a lot of people that fly those routes, UM
• 22:41
  Speaker 1: that that work in in Europe or work in the
• 22:44
  Speaker 1: even further into the US UM and so so because
• 22:49
  Speaker 1: of all this sort of demand for flying airlines amended
• 22:52
  Speaker 1: even more supply, and so you have you have a
• 22:55
  Speaker 1: market that the big European carriers compete for, the big
• 22:58
  Speaker 1: Asian carriers compete for. In the Middle Eastern carriers compete for,
• 23:02
  Speaker 1: and I and fairs are just horrible on these routes. Uh.
• 23:06
  Speaker 1: And so you know, ET hasn't had the best go
• 23:09
  Speaker 1: of it. Um. They're they're smaller than Emirates they went
• 23:12
  Speaker 1: after by horrible you mean they're low Um, Yes, okay,
• 23:18
  Speaker 1: because because okay, carry on, George, just remember shareholders do
• 23:26
  Speaker 1: deserve a decent return, all right, and some of these
• 23:29
  Speaker 1: are approaching levels. Aren't a decent return for Charilder. We
• 23:32
  Speaker 1: can debate that later on, I guess if you want.
• 23:33
  Speaker 1: But so ETA had hasn't had a great go of it.
• 23:37
  Speaker 1: Emirates has been much more successful. Look, they're kind of brothers, right,
• 23:40
  Speaker 1: They're both in the U a E. They're in the
• 23:43
  Speaker 1: towns that are a hundred kilometers hundred fifty kilometers apart UH,
• 23:47
  Speaker 1: and I think that probably the government to us probably
• 23:51
  Speaker 1: pulling both of them to get together because they Abadhabians
• 23:55
  Speaker 1: are probably pired of losing money on at the HOD
• 23:57
  Speaker 1: and they see emirates as being more successful. And so
• 23:59
  Speaker 1: I think the reason why this could get done in
• 24:02
  Speaker 1: the end is that that government will push a lot
• 24:05
  Speaker 1: of parties that don't want to, you know, maybe be
• 24:07
  Speaker 1: together together to rationalize this UH this carrier, and that
• 24:13
  Speaker 1: would lower some of the capacity between Europe and Southeast
• 24:17
  Speaker 1: Asia and help fares in that part of the world.
• 24:19
  Speaker 1: George Ferguson, thank you so much for joining us. Please
• 24:22
  Speaker 1: do lower the prices, get us some more leg room
• 24:24
  Speaker 1: and possibly even overhead overhead space that you don't have
• 24:27
  Speaker 1: to pay for. Thank you. Those are our requests. Thanks
• 24:34
  Speaker 1: for listening to the Bloomberg P and L podcast. You
• 24:37
  Speaker 1: can subscribe and listen to interviews at Apple Podcasts, SoundCloud,
• 24:41
  Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm
• 24:44
  Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa
• 24:48
  Speaker 1: abramowits one before the podcast. You can always catch us
• 24:51
  Speaker 1: worldwide on Bloomberg Radio.