Deep Dive
Shownotes Transcript
Will innovations from the Paris Air Show be enough to lift airlines to new heights? You're listening to Motley Fool Money.
I'm Tim Byers here with Lou Whiteman. Lou, how are you? Fully caffeinated? At least partially caffeinated. Hopefully that's good enough. I mean, I'm fully caffeinated, ready to go. Let's get into it. We have some news straight off the top. President Trump preparing to...
a possible nominee to replace Fed Chairman Jerome Powell. This is according to the Wall Street Journal. The president could announce his choice for a successor as early as this summer. And this is despite Powell still having 11 months remaining in his term. So look out. I don't know. We'll see here, Lou. And then Micron reporting really strong fiscal Q3 earnings. Stock was up one and a half percent roughly in pre-market trading. Overall revenue jumped
15.5% sequentially, 36.6% year over year to $9.3 billion. Looks like they're on track for $10.5 billion next quarter. No shocker here, Lou, AI is a thing and is still a thing. Yeah, it seems to be doing all right for Micron. Yeah.
Palantir teaming to build AI software for building nuclear plants. This is a partnership with a nuclear company. It will result in a new software system called NAS, the Nuclear Operating System. Honestly, I get Fast and Furious vibes on this one because when I hear NAS, I think like cars going really, really fast.
And then finally, Mark Zuckerberg is continuing his AI recruiting press, landing three OpenAI researchers in the latest round here. He's spending loads of money. Lucas Beyer, Alexander Kolesnikov, and Xiao Zhai have all joined Meta for Zuck's super intelligence effort. All three had set up the Zurich office of OpenAI just last year, Lou. I mean, have you gotten an offer from Mark Zuckerberg, Lou? No.
I haven't, but hearing what they've been quoting, I really wish I would. I'll say this, Sam Altman, the CEO of OpenAI, he sort of telegraphed this, and look, we need a good feud. We need a good rivalry. So, I'm all for this. Let's let this happen. This could be fun. There you go. The Lakers Celtics of the AI world met
Meta versus OpenAI. We love it. Let's move on to the Paris Air Show, Lou, which is an area of your expertise. I want to talk about the CFM Rise engine. This was something I thought was absolutely fascinating because to me, this looks like a prop engine because essentially you take away the nacelle, you have a prop engine, but is running like a jet and apparently has 20% fuel efficiency. Tell me, what is this thing and
I mean, is this a thing that saves airlines? It saves them a bunch of money? Maybe. Okay. So it's definitely real. The question is if and when it's practical, right? The idea has been around for decades. It goes back to the 1970s, the oil crisis. But, you know, composite materials are better. We've made other advancements. So it is getting towards realistic. You know, there are downsides. The nature of this engine would kind of
We need to rethink aircraft design. There's a lot of safety considerations, weight considerations. Pratt & Whitney, the RTX company, one of the rivals here, they seem to think they'd be better off just getting efficiency gains by refining their geared turbofan and not doing something new. But hey, the manufacturer, CFM, that's GE Aerospace and Safran, it's a joint venture, they really hope to commercialize this by the early 2030s.
TBD, but it's really cool-looking. I'm with you. I'd love to see it on an airplane. Some of the concept designs look really fascinating. Moving on to Rolls-Royce, Riyadh Airlines has chosen to outfit its Airbus 350 aircraft with Rolls-Royce engines.
I remember seeing Rolls-Royce engines on DC-3 aircraft when I was flying back when I was a kid. How big a player today is Rolls-Royce in the commercial air market? Because this stock is trading near the cusp of 52-week highs. So, tell me, are you a buyer here? Is this a big deal?
They're a decent third, but they are definitely third. GE Aerospace has more than half of the market, including that joint venture we just mentioned. Pratt & Whitney is also ahead of Rolls-Royce. Look, Rolls-Royce, by the way, they don't make the cars anymore. So, don't think about it like that. It's a quality manufacturer, but they are limited. They only make engines for these big, wide-body jets, like the A350 and the Dreamliner, the 7777.
That's a small part of the overall market, less than 40% of the global fleet, and it's growing at a slower pace. That means, from the business point of view, a lot less spare parts sales, a lot less servicing revenue over the lifetime in the engine.
Overall, do I like the stock? Look, it's a well-diversified company. European aerospace stocks have gotten a lot of attention for good reasons. It's a double right now. I don't know if I'd be jumping in right now. But look, they should have good tailwinds, pardon the pun. They're set up nice to perform from here. I mean, we like tailwinds, Lou. Tailwinds are good. We do. We need tailwinds.
Textron. Let's talk about Textron here. Having been to Hawaii more than a few times, I am a big fan of the King Air platform. Those are little planes that I have flown between islands. They're inter-island planes, and they're fantastic. I love them. And it looks like there's a new multi-mission version of the Beechcraft King Air. So let's talk a little bit more about this. And honestly, Textron, ticker TXT, is a great platform.
This is a stock that we don't talk about very much. Does it deserve a little bit more love from investors? I think it probably does. But in fairness to investors, Textron has made themselves a tough company to love in recent years. I don't know if it's all our fault.
So, Textron is one of the last great industrial conglomerates. Aviation, as you mentioned, the Beechcraft, but also Cessna, business jets. They own Bell Helicopters, Jacobson Lawnmowers. They make golf carts. They make all sorts of things. And for a while, every quarter, it seemed inevitably one of those businesses just laid an egg.
Earnings followed, and it has just been a lot of one after the other. In fairness, though, they've done a lot better of late. We're entering a big refresh cycle in business jets. All those CEOs that got shamed in 2008 and held off on buying new business jets, those are finally coming due for replacement. So, Cessna, there's, again, tailwinds there. Bell Helicopter just won a big competition to replace the Blackhawk helicopter.
By the way, they'll be using Rolls-Royce engines for that too. So that's another thing for Rolls-Royce. Look, Textron, they traded a discount to most big aerospace names. I think they are set up well for at least some of their most important businesses like Bell and Cessna to outperform. And if not,
I don't know if I'm rooting for this, but this is a conglomerate in an age where a lot of breakups, if they don't catch up with that multiple, Tim, I can really see an activist coming in and start looking for ways to kind of do to them what we've done to GE or so many others. I mean, that would be interesting. All right, up next, which is the better stock that we saw at the Paris Air Show? Is it Boeing or is it Airbus?
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Chris Hill: All right, Lou, let's talk about which is the better stock here. I think it's fair to say Boeing has had a rough
maybe three years, but in particular, it's had a really bad couple of weeks, real heartbreaking tragedy with the Air India crash of the 787 Dreamliner here. Airbus, as the European competitor, we've often talked about this, this is the commercial aircraft duopoly. They came out of the Paris Airshow with some deals in hand,
Tell me what you think here. What, who, who did it better? It's the, it's the who wore it best of the Paris dare show here.
Is it Boeing or is it Airbus? So, yeah, normally these are huge PR events where Boeing and Airbus will trumpet all the orders they have. But as you say, with the Air India crash, both Boeing and GE Aerospace kind of stayed on the sideline. So it was kind of a somber show. We didn't see all the announcements. We can count planes, though, and know how they're doing. Boeing's actually outperforming Airbus for the year, and they may be on track
for 1,000 or so orders, which would be really, really good. I'd actually say it's been a tough decade for Boeing almost now. I do hope they're on the upswing. They're still under regulatory restrictions on how many planes they can produce. That's stemming from the 737 MAX tragedies and all of the fallout from that.
That's important, because back when COVID hit, they basically mortgaged every piece of equipment they could find. I mean, Tim, they were taking the staplers off of the desk of the finance department and saying, what can we get for this? And it was probably a good move, because they didn't know what was coming, and they needed to just make sure they had the cash to survive. But today, Boeing has $50 billion or so of debt, up from, say, $10 billion in 2018, and
They need to bring that down. And the way you bring that down is by selling more airplanes and generating the cash flow, right? So, you know, I think investors need to understand that even if it all goes perfect from here, we are still years away from Boeing just getting back to normal. Patience is needed. And Airbus is definitely then a cleaner story.
But hey, look, this is maybe the greatest commercial aircraft cycle we have ever seen in the history of the business. Between Airbus and Boeing, the backlog is almost 13,000 planes. That's well into the 2030s. So if you are patient...
and you do believe that the worst is behind it, there's a pretty compelling case for Boeing to make gains as the balance sheet heals and as they just get back to normal in the face of all this demand.
You bring up a really interesting point here, that that backlog is absolutely extraordinary. And so there are years of what you would hope is predictable cash flow here. But we do have this tragedy. And that is going to be yet another black mark on Boeing's record. Meanwhile, Airbus continues to do
I mean, relatively well. The A320 platform, the A320neo platform has been solid for quite some time and it looks like that will continue to be solid for a while.
What do you need to see, if anything, from Boeing and its response to the Air India tragedy that they haven't already done? Is there anything? I think Boeing is doing what they need to do. I mean, we will see. It takes months, if not longer, to figure out what happened. We will see. You know, it's all speculation right now.
If it is a material design flaw, I think that that would be material for investors. The Dreamliner has flown for 25 years. That's amazing, isn't it? Yeah. This is an interesting point, too, not to sidetrack, but one of my biggest fears about Boeing long-term is that's their last clean sheet design.
They have not sat down a group of engineers in a room and designed a plane since the Dreamliner. They're in no position to do it now, but eventually they really need that mid-market, that 757 replacement now. They need to at some point. And Tim, you know, people retire.
By the time they do a clean sheet, it's going to be all a group of people that basically don't have that institutional memory. So, I mean, that to me is scary. I think hopefully with Air India, it was a tragedy, kind of, you know, whoever, whatever the finger pointing ends up. But I do think that this is on course to be a more typical scenario.
tragedy with this, and it shouldn't, I don't think, stunt the turnaround. But, I mean, we're talking years for this turnaround anyway. So, there is a lot that can just go wrong in the business cycle and all sorts of things that I think investors need to keep in mind before they just get too excited. Right. All right. Up next, a little trivia, little airline trivia. You're listening to Motley Fool Money.
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Get your guests in. We would love to see what you guessed in. Leave a comment below. Wherever you listen to your podcast, just let us know what your guess was. But Lou, you're a longtime follower of this industry, and I know you've got some real history related to this question. So let's talk about it. My question for you is,
How many towers help guide aircraft across the United States airspace? Is it more or less than 550?
See, 550 seems so specific there. I think, Tim, that you're playing a game with me here. You're in my head already. I would never do that! I would never try to trick you, Lou! No, go ahead, keep going. I will say, in your part of the world, you can still see, like the way we did it before when we first started aviation, when we put huge, giant arrows in the ground so the pilots could see those from the ground.
I think $550 is close. I'd probably go over, but I don't know. It feels really close to $550. If it's exactly $550, I'm going to be annoyed with you.
It is over. It's 648. It's 648. So you got that right. And the reason I wanted to kick this up, and as we close down the show here, just a quick conversation about the long-term opportunity here. The way that we manage air traffic here in the United States is ancient.
ancient. So, Lou, any thoughts about what is the investing opportunity here? Because you would think after a while, I mean, surely we're going to get to the point where we're using satellites. We're going to use more advanced technology to route planes more efficiently. Right now, we route planes according to where the towers are, not the fastest route. And that is striking. So your thoughts on this, Lou, before we close up today's show?
Yeah, no, definitely. I mean, we're using Windows 95 and in some cases, DOS systems, which I'm old enough to remember that, but not to enjoy it. So, yeah, look, I was telling you that I was actually in 2001, I was at a hearing where they were just talking about just this modernizing air traffic control. And I'm pretty sure most I'd have to find my notes, but we are still in that process. It is happening.
It's slow, it's expensive, it's behind schedule. But if you think about this, five nines at least, right? You need redundancies, you need to get it just right. You can't shut down the air system for six months to kind of do a clean reboot. So it's just a really complicated problem. Satellites are part of the issue. I don't think that it's just a clear one vendor thing. There's a lot of companies from L3 Harris,
to Leidos and some of the contractors that are involved. But really, it isn't so much of like a huge government boondoggle project. It's just in a million different places, backfilling,
digging through, trying to figure it out. It is just a tedious, slow process that requires a ton of funding. And those tend to be nightmares when annual government budgets come around. So we'll get there. It's just really hard. Yeah. A rule breaker opportunity to come? We'll see. But it hasn't happened yet. But we're going to keep an eye on it. Lou, thanks for being here.
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