Return to Transcripts main page
First Move with Julia Chatterley
Iranians Protest The Shooting Down Of Ukrainian Airlines Flight PS 752; A New Boeing CEO Takes Charge Of The Aerospace Giant; A Royal Summit To Discuss The Potential Sussex Split. Aired 9-10a ET
Aired January 13, 2020 - 09:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[09:00:19]
JULIA CHATTERLEY, CNN INTERNATIONAL ANCHOR: Live from the New York Stock Exchange, I'm Julia Chatterley. This is FIRST MOVE. And here's your need to
know.
Tensions in Tehran. Iranians protest the shooting down of Ukrainian Airlines Flight PS 752.
Boeing's battles. A new CEO takes charge of the aerospace giant.
And a Sandringham showdown. A Royal Summit to discuss the potential Sussex split.
It's Monday. Let's make a move.
Welcome once again to FIRST MOVE this Monday following what was a balmy weekend weather here in New York -- hot weather.
Hot stocks this morning, too on Wall Street. Take a look. The major averages set to open near records once again. We did pull back a touch from
all-time highs on Friday after that slightly softer than expected jobs report, though the Dow did top 29,000 for the first time ever, too. We're
just below that, as you can see.
The first full week of trading in 2020 saw the NASDAQ up almost two percent, the fifth straight week of gains for tech stocks, too. Tech
leadership is the phrase.
What about over in Asia though as well? Japanese markets were closed in Monday's session, but stocks in China, Hong Kong and South Korea all
advanced as you can see. Asian stocks in fact hitting 19-month highs today, too.
Now after a week dominated by U.S.-Iranian tensions, the hope now it seems is that we can bring it back to some of the fundamentals here. What else?
But fourth quarter earnings season kicking off in the United States at least this week. The big banks will report this week.
Critical, I think again this season for all companies around the world -- forward guidance, especially given that the developments on trade that
we've seen. We've got the U.S. and China set to sign their Phase 1 trade deal this Wednesday, at which point we might actually hear what that deal
contains, of course, wonders never cease.
Keep an eye, too, on inflation numbers this week, crucial to keeping Central Banks in easing mode, too. Lots to come this week. Lots to talk
about in the show.
But for now, let's get to the drivers and the latest from Iran.
Protests spreading in Iran, after the government admitted to shooting down a Ukrainian passenger jet killing all 176 people on board. Authorities said
it was a mistake, and they've apologized.
Nic Robertson is live in Abu Dhabi with the latest for us. Nic, they've apologized, but according to these Iranian protesters, that apology simply
not enough here and they want justice for those that lost their lives.
NIC ROBERTSON, CNN INTERNATIONAL DIPLOMATIC EDITOR: Yes, the Commander-in- Chief of Iran's Islamic Revolutionary Guard Corps said that he's never been so sorry in his life for anything. That he said he wished to have died on
the plane.
But his contrition and that contrition that's been offered up by leaders in Iran doesn't translate to the streets. The protesters, they're angry
because they think their leadership doesn't care about them. And beyond that, those protests are spreading. They're becoming more intense. They're
becoming violent. People have been shot and killed and injured by live bullets being fired.
So you know, when you look at the contrition coming from the leaders, where is it on the streets towards those protesters? It doesn't seem to be there.
Now, Iran's police are saying that they know they haven't shot live rounds at protesters. They've only fired teargas. In the videos we've seen, you
can hear the live rounds being fired. You can see people apparently injured by bullets.
One woman says she was shot in the foot and that somebody else is shot in the leg, and you can hear people shouting they are shooting, get down, get
down. Bring bandages. It is somewhat chaotic. And it appears to be getting worse.
CHATTERLEY: The protests that we saw prior to the escalation, of course with tension with the United States, too. We will continue to watch that.
Nic, fantastic to have you with us. Nic Robertson there reporting.
All right, let's move on to our next driver. The Chinese auto market slump continues with sales falling more than eight percent in 2019. The December
numbers marking 18 straight months of decline. Sherisse Pham joins us on this story.
Sherisse, great to have you with us. It is acceleration, in fact, on the deterioration that we saw in 2018, too, and it's pretty broad-based and
it's also impacting global automakers all around the world, too. Just give us some of the details and then we'll discuss what's going on.
SHERISSE PHAM, CNN BUSINESS REPORTER: Absolutely. Acceleration. I see what you did there, Julia. I was going to go with the high speed growth of
Chinese car sales. They're clearly -- they have clearly come to an end. This is marking the second year of shrinking car sales in China.
And let's not forget just four or five years ago, we were seeing double digit growth in China.
[09:05:10]
PHAM: Of course, that has all come unraveled in the last two years. This is a market that's been hit by a couple of different factors. You've got
the slowing Chinese economy, of course. You've got the U.S.-China trade war impacting things. And you also had a broad base rollout by Beijing in the
summer of new emission standards, which really sent the market into a bit of a confusion.
So you saw that depress sales as well, and like you said, this is really particularly hitting global carmakers really hard. Ford came out today,
gave out their 2019 sales numbers, and they were not good. They were down more than 26 percent year-on-year. GM, also their rival, last week saying
they were down 15 percent.
So you're seeing it across the market. Local domestic carmakers also hurt by this. Japanese carmakers faired a little bit better. They saw a little
bit of a year-on-year increase in sales. But this pain isn't going to end anytime soon.
Industry analysts, car makers and the official body that tracks this data in China as well, all across the board saying that 2020 will mark a third
straight year of contraction -- Julia.
CHATTERLEY: I mean, you mentioned some great points there. I think one of the most confusing was the fact that the country said they want new energy
vehicles to make up what? Around a fifth of the country's auto sales by 2025. And yet they were cutting subsidies to take out some of the extra
capacity and overcrowding in the electric car field.
So I do think for many people looking at this, they're a bit puzzled about what the plan is here from the government, but Sherisse, something else
that struck me and I know you've got the details on this, too, the second hand car market in China, something that's developed elsewhere in the
world. That is showing signs of real strength in China and surely this is having an impact to new car sales, too.
PHAM: Yes, I think it's always interesting and important to remember when we're thinking about the China car market. This is a very new market.
I lived in China from 2004 to 2009, and in that time, living in Beijing, there were still a lot of people that biked to and from work. That was
their regular mode of transportation.
So we're seeing a lot of growth in the first tier cities, but you're going to be seeing it rolling out in the second, third, fourth, fifth sixth tier
cities. And that's also why I think you're starting to see a little bit more of an increase in demand for used car markets.
So while we're seeing this plummet in sales for new car sales, on the other hand of the conversation, you've got a rise in demand for used cars.
I think McKinsey came out with a report saying that the annual growth for used car sales coming in at 15 percent around there for 2019. So really
positive numbers and it's a market that's growing and carmakers can no longer ignore it.
So if you want to own your brand and your image in China, you're also going to have to be able to control those used car sales markets -- Julia.
CHATTERLEY: Yes. Such a great point. Sherisse Pham, great to have you with us. Thank you so much for that.
All right, let's move on to our next driver. Boeing has a new CEO, Dave Calhoun takes over one of corporate America's toughest jobs, I have to say
amid damaging fresh revelations concerning the 737 MAX.
Clare Sebastian joins us on this story.
Clare, I have to say, I mean, we'll talking about the new CEO and what he can do here. But that e-mail leak on Friday, that toxic riff that became
apparent between the workforce and management referring to the 737 MAX designers as clowns, company supervisors as monkeys. How do you fix that
kind of toxic culture?
CLARE SEBASTIAN, CNN INTERNATIONAL CORRESPONDENT: Well, I think the key for David Calhoun, Julia, and this is something that came out in the
statement from Boeing when they first announced the leadership change. They said, "Under the new leadership, Boeing will operate with a renewed
commitment to full transparency."
Some even point to the very fact that this hundred plus page set of documents, internal messages and e-mails were released to the public by
Boeing to this commitment to transparency that this has the fingerprints of the new CEO who takes over today, that they have to get out ahead of
potential leaks. They have to try and win back the trust of the flying public.
And this is part of the challenge facing David Calhoun, Julia. It's not just about fixing the MAX, though that is of course, his biggest job. He
needs to fix relationships with the regulators, the Federal Aviation Commission, and he needs to fix relationships with airlines who have been
crippled by this stoppage, having to change up planes and routes and have pilots furloughed.
He needs to do all of that amid mounting costs to Boeing itself. We get new earnings out at the end of this month, which could show cost spiraling for
the company.
So his is an enormous task. But I was talking to a friend of his, he says like he is direct in his communication. He is someone who likes to know the
nuts and bolts of how things work, and he is taking this on, this friend said, as a public service and that he really believes in the systemic
importance of Boeing as a company and that's why he is willing to do this.
[09:10:01]
CHATTERLEY: I mean, Steve Mnuchin, the Treasury Secretary saying that this could lop off half a percentage point of growth from the United States
which gives you a sense of just how big a business this is and how big an exporter it is.
What do we think as far as cutting employees? I mean, they employ over 130,000 people. They've managed to hang on to everybody. But this is having
an impact on suppliers. It's clearly having an impact, given the production halt that we've seen, and on the financials of the company with the kind of
cash burn that you've mentioned, too. What do we think here?
SEBASTIAN: Well, I think it all depends, Julia, how long that suspension of production of the 737 MAX goes on. That was announced, as you remember,
in December. Boeing at the time said it wasn't going to lay off any staff as a result. They have people reassigned to various things. And obviously
they want to be able to ramp up again once they do get re-approval for the MAX.
But I think you saw last week with the announcement from Spirit AeroSystems who is the biggest supplier to Boeing, relies on the MAX more than half of
its revenue, they are laying off 2,800 employees. They said in their announcement that they are not only uncertain about when that production
will start up again, but they believe when it does, it will be at lower level. So this is critical.
The stoppage in production is really why this matters so much to Boeing's supply chain and then by extension, to the U.S. economy. So that, again, a
critical challenge for David Calhoun to try to get this this plane reapproved quickly, but also in a way that reassures the flying public that
it's safe.
CHATTERLEY: Yes. Trust is everything. And I have to say, just on a personal level, after reading about those e-mails leaked on Friday. Again,
it gives you chills.
Clare Sebastian, thank you for that. And you'll be back later on in the show to give us a look at what the new CEO simply has got to do to get
confidence back in Boeing as a business and beyond. Thank you for that.
All right. Let me bring you up to speed now with some of the other stories making headlines around the wild.
Authorities in the Philippines are urging nearly half a million people to leave after a volcano spewed ash nine miles into the air. The eruption
produced some incredible volcanic lightning as well. Seismologists believe another explosion eruption could be imminent.
House Speaker Nancy Pelosi expects to turn over the Articles of Impeachment to the U.S. Senate this week. The timing remains unclear, but a full
Democratic caucus meeting is set for Tuesday morning. The Senate is then likely to adopt a Republican resolution setting the rules for the
impeachment trial, including putting off any decision about witnesses until after opening arguments.
Celebrations and commiserations are coursing through Hollywood. The Oscar nominations have just been announced in California and "Joker" has a
whopping 11 nominations.
Nischelle Turner has the snubs and the surprises and all of the details for us. Nischelle, great to have you with us. So 11 nominations here for
"Joker." What else have we seen this morning?
NISCHELLE TURNER, CNN CONTRIBUTOR: Well, you know, it's kind of been a little bit of a mixed bag. I mean, you talk about some of the celebrations
and some of the snubs. There's been a lot of both. Yes, the "Joker" does lead all nominations this morning with 11 including a nomination for Best
Picture and also Best Director and of course for Best Actor for Joaquin Phoenix and chances are, he could take home the Oscar for this role.
I mean, he was menacing and he really was the "Joker." It was one of the most unnerving movies that I've seen all year.
Also this morning, there's going to be some folks that wake up very happy. Scarlett Johansson is one of those people. She is also a double nominee
this morning in the acting category. She was nominated for Best Actress for "Marriage Story," also nominated for Best Supporting Actress for "Jojo
Rabbit." That hasn't been done since Cate Blanchett did it back in 2007. She was nominated for "Elizabeth" and she was also nominated for "I'm Not
There."
Cynthia Erivo also waking up a double nominee this morning nominated for Best Actress for "Harriet" and also Best Song, "Stand Up" for the same
movie that she also wrote and performed that song.
Some people waking up not so happy this morning. Jennifer Lopez one of those people. Conventional wisdom was that she would get a nomination for
Best Supporting Actress this morning for her role as Ramona in "Hustlers," but she did not. It looks like Kathy Bates might have knocked her out of
that category. Kathy Bates got a nomination for "Richard Jewel" this morning.
A very strong category in the supporting actor category, I don't know if you guys got to look at it, but you line up people like Brad Pitt for "Once
Upon a Time in Hollywood," Al Pachino, in "The Irishman," Joe Pesci in "The Irishman," Anthony Hopkins for the "Two Popes" and Tom Hanks for "Beautiful
Day in the Neighborhood." And wow, you've got yourself a category there.
The money is on Brad Pitt. He has won pretty much everything throughout this award season. But again, I mentioned this on CNN earlier, Eddie Murphy
was also going into the Oscars back in 2007 with the same momentum for "Dreamgirls" and he did not win.
So there's been a lot this morning. I think one of the conversation pieces today though will be once again this year, no women nominated in the
Directors category.
[09:15:04]
TURNER: Greta Gerwig definitely was snubbed this morning for "Little Women." There also could have been a case made for Lulu Wang for "The
Farewell," also for Kasi Lemmons for "Harriet." And none of those ladies saw a nomination.
CHATTERLEY: And you know, you've left me in the direction I was going to ask you about diversity. And I know these things can't be forced. But
already, I'm looking on social media, and it's not actually just about a lack of female directors. It comes back to racial diversity here as well.
Oscars, still white. Oscars so white. The hashtags trending once again, what do we think of this?
TURNER: Well, I mean, there are some arguments that could have been made in a lot of the categories. I mean, when you just think about number one,
Best Actress. All of those women that were nominated were phenomenal, but I know there's been a big campaign and a big push for Awkwafina in "The
Farewell." She won the Golden Globe. She was not nominated.
Lupita Nyong'o in "Us" who was masterful nominated for a Screen Actors Guild Award, not nominated here this morning as well. Again, I mentioned
Eddie Murphy and the Best Actor category. People thought that maybe he would get a nomination.
I mean, I think that we've seen a little more diversity in these nominations than we had in the past. But again, there's work to be done.
They've tried to diversify the voting body. They've tried to make it younger, make it more diverse, but I think that it's still going to take
some time.
CHATTERLEY: Yes, and there's so much talent, irrespective of skin color, and oh, my goodness. Wow. Nischelle, good have you with us. Nischelle
Turner, CNN contributor. Thank you for that.
All right. We're going to take a break here on the FIRST MOVE, but coming up, we'll be looking at the future of tech. Flying vehicles that will drive
themselves. That's just the beginning.
Plus, we'll have all the details as Prince Harry meets with the Queen to thrash out the latest Royal drama, the Sussex split. All the details coming
up.
(COMMERCIAL BREAK)
[09:20:00]
CHATTERLEY: Welcome back to FIRST MOVE live from the New York Stock Exchange where U.S. stocks is still set for solid gains this morning. The
NASDAQ futures are up by around four tenths of one percent. The outperformer. January in fact turning into another FAANG-tastic month.
Yes, FAANG members: Apple, Alphabet and Facebook -- all hit record highs last week. They're set to add to those gains today. You can see the gains
there.
Alphabet begins the week just a stone's throw away from hitting the milestone market cap -- got my teeth in -- of $1 trillion. It's around $15
billion away from joining Apple and Microsoft in that $1 trillion market cap club. Wow.
Now, onto something that both investors and companies are increasingly aware of. ESG policies. ESG stands for company's protocol towards
environmental, social, and governance concerns. Investors and companies can no longer avoid these issues. In fact, Bank of America says 90 percent of
the S&P 500 companies that declared bankruptcy between 2005 and 2015 had poor environmental and social scores in the five years before.
ESG has also become a profitable investment strategy, too. Jill Carey Hall is the Senior U.S. Equity Strategist at Bank of America and she joins us
now. She is one of the authors of the report.
Jill, fantastic to have you with us on the show. Yes, I've seen this report widely quoted, not only because of the additional returns that you can get
over the S&P 500 from just incorporating these kind of protocols and strategies.
But the report said that you estimate $20 trillion worth of asset growth in ESG funds over the next two decades. Where is that money going to come
from?
JILL CAREY HALL, SENIOR U.S. EQUITY STRATEGIST, BANK OF AMERICA: That's right, and thanks for having me. This has been a really key topic that we
expect, you know, it will continue to matter for a lot of key groups, not only investors, but for corporations, for regulators.
So really, we think that this is something that has started to take hold here in the U.S. and we've got a long runway. We do estimate that inflows
into these types of strategies could be as large as $20 trillion over the next two to three decades as you mentioned.
A lot of the key groups that care about investing based on these characteristics are some of the groups that are poised to see large
transfers in wealth or are increasingly gaining in wealth within the U.S.
So high net worth individuals, women, millennials -- these are all groups that based on our work, we've seen increased interest in investing based on
these characteristics. And even right now, broadly, we've seen that ESG vehicles have been some of the fastest growing passive investment vehicles
within the market right now.
So this is something that we continue to see asset flows into, the valuation multiples. So where companies are trading based on ESG
characteristics, the ones that have positive ESG characteristics are now treating it as much as a 20 percent premium to their low ESG counterparts.
And about a decade ago, that was as much as a 20 percent discount.
So we've seen real changes in the valuation in the performance of these companies over the last, you know, call it five years or so.
CHATTERLEY: You know, when we talk about ESG, I think a lot of people's eyes will roll and they'll go I'm not actually sure what you mean by that.
Ultimately, the top category within ESG is that climate because I do feel like climate change, the impact that companies have on climate and the
responsibilities they bear is an increasingly topical conversation. Is that primarily what we're talking about here? Particularly when investors are
looking at opportunities in the ESG space -- climate change.
HALL: Right. So climate change is the number one ESG issue that investors care about. So this is something that, you know, can certainly fall under
the E or the environmental pillar of ESG.
More broadly ESG is really, you know, what we think is just our companies running themselves responsibly. And you know, this makes sense in that we
found that companies that rank well on these types of issues have actually seen lower subsequent earnings risk than the companies that rank poorly.
So in addition to these companies seeing out performance in recent years, it's really a good measure of quality and subsequent earnings risk. And you
know, in addition to environmental issues like a company's carbon footprint or emissions, this will also incorporate social aspects like you know, how
a company treats their employees, the types of policies they have, you know, what they're doing for the community.
And then governance could be anything from management compensation, you know, diversity on corporate boards, companies -- you know, any bribery
issues, scandals.
[09:25:03]
HALL: So really, really all-encompassing and we think these issues are increasingly mattering more and more because today, if you look at the
assets of S&P 500 companies, about 70 percent of them are intangible. So things like brand equity and intellectual property.
So you really need a nonfinancial evaluative framework for evaluate companies in a different way.
CHATTERLEY: Yes, I agree. And I think codifying, this is so important, and we've just been talking about Boeing and what will happen there and I think
some other capability in terms of looking at what's going on in a company - - culture, talent, retention of employees. So critical here. Trust, ultimately.
How do investors take advantage of this? And you said, we've seen significant inflows into passive funds, but specifically, and I think it
goes back to the point you were just making, what do investors need to be watching for? Because particularly when you say, if you look at the
bankruptcies of companies in recent history, the warning signs were there if you look at the ESG fundamentals. What do investors need to watch here?
And how best can they take advantage?
HALL: Right. I think, you know, avoiding ESG controversies is important. We've seen that, you know, some of the companies that have been through
some of these ESG types of controversies in recent years, we've seen about almost half a trillion in U.S. market cap destruction around these ESG
controversy.
So it's cost investors a lot. And as you mentioned, we did find that about 90 percent of the bankruptcies over that 10-year period from 2005 to 2015,
could have been avoided if investors had, you know, ranked companies based on some of these metrics and avoided some of the poorly ranked companies.
So we think that, you know, ESG has come a long way from just some of the prior methods of socially responsible investing or maybe you were just
screening out companies based on certain characteristics or, you know makers of tobacco or guns.
Here, this is a much more holistic framework where you're really evaluating communities on a number of metrics. And really it matters, but what we
found that what investors can do is this matters by sector as well.
So for example, for energy companies, some of the environmental issues may be more predictive, whereas for a consumer company, we found diversity on
boards has actually been very important. And this is something our retail analysts have written about as well. We're in an industry that caters to
young women. A lot of the board members are actually on average, older males and haven't been as aligned with their customers.
CHATTERLEY: It makes total sense. Jill, fantastic to have you on and we will continue this discussion. Jill Carey Hall of Bank of America.
The market open is next.
(COMMERCIAL BREAK)
[09:31:49]
CHATTERLEY: Welcome back to FIRST MOVE live from the Stock Exchange. We just had the opening bell. As expected, a higher open across the board here
for U.S. stocks gaining back a lot of what they lost with the easing on Friday after that U.S. jobs report disappointed slightly.
The NASDAQ trading in record territory with that two tenths of a percent gain. What about for some of the safe havens here though? They remain under
pressure, too.
Gold down further three tenths of one percent. We've got Treasury yields ticking higher. The 10-year yield at 1.8 percent. And as for trade
sensitive currencies, the Japanese yen hit a fresh seven-month low against the dollar with the dollar hitting five-month lows against the Chinese yuan
as well. Of course, Wednesday, that signing off the Phase 1 trade deal.
All right. Let's take a look at the Global Movers in the session. Tesla shares rallying. Oppenheimer raised its 2020 price target for Tesla to
$612.00 a share. Wow. That's around 20 percent higher than where we're currently trading. It's the most aggressive price target on Wall Street for
Tesla yet.
Boeing shares also trading higher. Today is the first day on the job of the new CEO David Calhoun. His job is to restore Boeing's reputation for safety
and quality that was badly damaged, of course, by the ongoing 737 MAX scandal. It's surely one of the most challenging to-do list in corporate
American history.
So who is this new leader at the helm of Boeing? Clare Sebastian investigates.
(BEGIN VIDEOTAPE)
DAVID CALHOUN, CEO, BOEING: Just keep burying yourself in difficult, tough situations.
SEBASTIAN (voice over): In a guest lecture at Yale School of Management some years ago, this was David Calhoun's advice to students. He is now
burying himself in one of the toughest situations in corporate America.
(BEGIN VIDEO CLIP)
CHATTERLEY: Boeing backlash. President Trump grounds the 737 MAX fleet.
DONALD TRUMP (R), PRESIDENT OF THE UNITED STATES: We are going to be issuing an emergency order of prohibition.
(END VIDEO CLIP)
SEBASTIAN (voice over): Ten months since global regulators grounded its fastest selling plane ever, Boeing is still working to get a software fix
approved. Even once that happens, returning the plane to service could take months.
In a major turnaround, the company said this month it would recommend simulator as well as computer based training for all MAX pilots.
(BEGIN VIDEO CLIP)
DAVID SOUCIE, CNN AVIATION SAFETY ANALYST: I believe that June and July for this return to service is even a little optimistic at this point.
(END VIDEO CLIP)
SEBASTIAN (voice over): Fixing the plane is just part of the challenge for Calhoun, an experienced executive who began his career at General Electric
and led the company's aviation unit during 9/11.
(BEGIN VIDEO CLIP)
DENNIS MUILENBURG, FORMER CEO, BOEING: We want a culture where people can bring up concerns --
(END VIDEO CLIP)
SEBASTIAN (voice over): Former CEO Dennis Muilenburg faced accusations of a broken culture within Boeing where profits were put a head of safety and
whistleblower complaints were stifled. He rejected those accusations.
But new internal documents released just days before Calhoun takes over show employees questioning the safety of 737 MAX simulators and even the
plane itself.
One message saying, "This airplane is designed by clowns who are in turn supervised by monkeys."
(BEGIN VIDEO CLIP)
SOUCIE: It will be a safe airplane. It really comes down to how quickly people accept what it is that Boeing has to say about how they've fix this
problem.
(END VIDEO CLIP)
SEBASTIAN (voice over): Calhoun must also fix a key relationship with the Federal Aviation Administration.
(BEGIN VIDEO CLIP)
STEPHEN DICKSON, ADMINISTRATOR OF THE FEDERAL AVIATION ADMINISTRATION: I'm not going to sign off on this airplane until I fly it myself.
[09:35:10]
(END VIDEO CLIP)
SEBASTIAN (voice over): The day he was named CEO, Calhoun personally called the F.A.A. administrator, a clear example, friends say of his
leadership style.
(BEGIN VIDEO CLIP)
KEVIN SHARER, FRIEND OF INCOMING BOEING CEO: He is direct or you don't have to wonder what he is saying. But he is pragmatic. He understands what
the issues are and wants to solve them.
(END VIDEO CLIP)
SEBASTIAN (voice over): Calhoun has been on the Boeing Board for a decade. He must now prove to employees, airlines and the flying public that this is
a new chapter.
Clare Sebastian, CNN, New York.
(END VIDEOTAPE)
CHATTERLEY: Joining with more, Chris DeNicolo, he is the Boeing Credit Analyst of S&P Global, and he cut the plane maker's credit rating in mid-
December. Chris, great to have you with us.
I do want to talk about what the new CEO can do as far as reassuring people and trust -- rebuilding trust in the company. But first, what do you make
of the further revelations that we got on Friday, the suggestion that designers were being called clowns, the simple lack of trust, I think,
between workers and management. Anything new there for you?
CHRIS DENICOLO, BOEING CREDIT ANALYST, S&P GLOBAL: Well, obviously, it's not good. I'm not sure it's really new. You know, there's been a number of
weeks and other whistleblowers that have come out over the past 10 months that have indicated, you know, the company was -- it appears to have been
under a lot of pressure, both by its customers to, you know, producing an airplane that doesn't require a significant amount of new training or spare
parts or other things a new aircraft require, as well as the competitor pressure from Airbus.
But I don't think there was anything particularly new in those documents.
CHATTERLEY: What do you want to see from Dave Calhoun? What can he do at this stage?
DENICOLO: Well, I think one thing, and you know, there's a number of issues that he has to deal with at this point. You know, restoring the
reputation obviously, repairing the relationship with the F.A.A., as well as, you know, other constituents. You know, the customers.
I think more communication from Boeing would definitely be helpful. You know, they also have to work very hard and they will have to do this sort
of in concert with the airlines to ensure the flying public and the pilots that the aircraft is safe.
And then also, you know, they have to work, you know -- culture generally comes from the top of a company. So I think he has to, you know, instill
that safety and engineering are the top priorities of the company.
CHATTERLEY: I mean, they were going out of their way to mislead regulators in order to get these planes up in the air to reduce costs, to reduce the
amount of training that pilots needed. There was what felt like a blatant disregard to safety here.
And to your point, it's not new, but as a consumer, as someone who flies a lot, it rattles me. The disregard that we saw within the company here, what
can they do in terms of financials here? Do you think we end up seeing workers being cut because the cash burn at the company is quite material
here and that reassurance of trust to tie those two things together is simply going to take time.
DENICOLO: Yes, that's definitely true. I mean, I think, you know, certainly in the near term, and obviously, restoring the reputation is very
important. But the focus of the company in the near term really is to get the airplane certified and to start delivering those aircraft that they've
produced over the last 10 months, get the cash in and then pay down their debt.
You know, part of the downgrade -- the reasons for downgrade back before the Holidays was, you know, we are becoming a bit concerned about the
company's longer term competitive position or profitability due to this.
You know, although there haven't been any big order cancellations, you know, for the last nine months, Airbus has been getting more Neo orders,
and they already have a higher market share than Boeing in the narrow body market.
And then the longer the delays, and the longer it takes them to get the plane back in production and at a higher rate affects the profitability of
the program going forward.
So although it will take a while to determine this, it's possible that you know, their cash generation may not be as strong as it was prior to this.
CHATTERLEY: See, I'm confused by that. The whole reason why I think there was a sense of calm initially about the bigger business here for Boeing was
that there simply isn't a competitive option here.
Airbus backlog is huge on this. They can't provide the planes that airliners want, even if they would choose to go to Airbus here. What's the
threat that people just decide, you know, we'll stick with the planes that we have, and we'll just wait several years for Airbus to come up with the
goods even if we have to wait.
DENICOLO: No, in the near term, you're absolutely right. There's no way that Airbus can meet any additional demand from anyone canceling orders
from Boeing.
But over time, you know that there's also the possibility that the whole MAX incident will kind of prompt Boeing to go to a new aircraft maybe
sooner than they wanted to, which, you know, require a significant amount of investment and, you know, it's often not as profitable in the first
place.
You know, but a lot of this will be driven by technology, both on the engines and other aspects to reduce costs for airlines. So, you know, I
think another factor that's to keep in mind is, you know, the company is giving significant consideration to the airlines that have been affected,
you know, both cash as well as discounts on future aircraft.
[09:40:03]
DENICOLO: And it's likely that any new orders would also have to be at a discount, at least, you know, initially in order to entice airlines to buy
the airplane.
CHATTERLEY: Watch this space. Chris DeNicolo, Boeing Credit Analyst at S&P Global. Sir, thank you for joining us on the show.
DENICOLO: Thank you.
CHATTERLEY: Digital Wallets: one of the major breakthroughs that could bring big investment opportunities this year. One of my favorite subjects,
too. We'll take a look at what else is on the list. Stay with us.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to the show. Electric cars, 3D printing and automation. These are to be some of the key investment opportunities in
2020. That's according to ARK Invest and their analyst, Tasha Keeney who joins us now. Great to have you with us.
TASHA KEENEY, ANALYST, ARK INVEST: Thanks for having me on.
CHATTERLEY: To be fair, electric vehicles automation is something that you guys have been saying for a long while now is going to be a huge growth
opportunity.
I wanted to start by talking about Tesla, because we mentioned that earlier. People are doing the happy dance that Elon Musk was doing in China
last week as a result, the share price.
KEENEY: Well, today, Oppenheimer just put out a recent note. They upped their price target a significant amount, $385.00 to $612.00 and the reason
that Colin Rusch cited is because Tesla is three years ahead on its power train, which we -- this has been part of our thesis for a very long time.
They're three years ahead on batteries, data collection, and on hardware on the autonomous driving side.
CHATTERLEY: I mean, I was looking at the market more broadly, and I think the average analyst recommendation for price was still around $315.00. So
is this, to your point, the beginning of perhaps other and auto analysts specifically here perhaps, because you always said there's a technology
aspect to this story that traditional auto analysts are missing. Is this the beginning, do you think where people go, okay, we're starting to see?
KEENEY: I think so. And what's really interesting is even if you look at the price target changes, not a lot of analysts have actually changed their
rating on the stock.
CHATTERLEY: No.
[09:45:03]
KEENEY: And what we think is going to happen is those analysts are going to get their performance reviews soon, and if you're a traditional auto
analyst, and you've sort of been misunderstanding the story, maybe they'll take the stock and they'll give it to a tech analyst.
So we think this is really the turning point where people are starting to realize that Tesla really has an advantage other auto companies just aren't
catching up and we're excited for it.
CHATTERLEY: Talk to me about China as well, because we were talking about what Tesla has achieved in China. I mean, they ground broke, produced a
factory and are now delivering cars all in the space of a year.
I mean, one of the interesting things to me is that would not be possible in any other nation in the world. So there's a China story here, but
there's also the opportunity that China represents here for Tesla.
KEENEY: Exactly. And what's very interesting is, you know, Tesla is the first automaker, this is a wholly owned factory.
CHATTERLEY: Yes.
KEENEY: So this is all less than in a year that this happened. And it shows that Tesla can scale in a capital efficient manner, which we think is
really important for sort of that long term picture.
People have been concerned about their growth margin before this last earnings call. We think those fears are really going to be quelled by this
announcement. And we're excited for China because we think it's not only the most important auto market, it's the most important market for
autonomous driving. So not just sales, but autonomous driving.
CHATTERLEY: What's holding this technology back? Whether it's electric vehicles -- because it's still such a tiny fraction of the market. And even
if I look at the China data that we saw for 2019 for car sales, admittedly, there was subsidies that were cut as well. But those numbers were
declining, too.
What's going to make the difference here to see acceleration and the demand for electric vehicles?
KEENEY: Well, from our work, my partner analyst, Sam Korus, who has done a lot of work on electric vehicles, and basically, if you use Wights Law,
which is a law that says for every cumulative doubling and production, you get a corresponding decline in price.
So right now an electric vehicle on a like for like basis is still more expensive than a gas powered car. That's going to change in the next couple
of years. And we really think that those underlying economics and that sticker price change without subsidies, by the way is what's going to make
this demand an inflection point.
CHATTERLEY: And you have a chart that shows Wright's Law actually in your 2020 presentation, which I recommend everybody reads, because it's
exciting, irrespective.
KENNEY: Big ideas.
CHATTERLEY: But it's only for the last hundred years. This is not something that we're just pulling out and saying, hey, you know, we think
this will apply from now on. It has applied over the last hundred years, which is why you're referring to it.
KEENEY: Exactly. And by the way, we use this to model many innovative technologies. You can look at DNA sequencing, for example, Wright's Law
really holds up for these types of innovations.
CHATTERLEY: So talk to me now about flying cars. It was the big story at CES. What do we think of this really? But not really flying cars,
autonomous flying cars?
KEENEY: Right, right. Well, you know, it might sound like a silly idea, but actually, based on the work that again, Sam Korus has done on
batteries, what I've looked at for autonomous technology, we're at this turning point where flying cars are possible because of improvements in
batteries. You get that extra range that you need to make flight possible. And because of autonomous technology, the price is coming down.
So we're going to see drones that deliver parcels, but also people and for ambulances, this could actually make a huge difference. Because in that
case there -- you know, there are over 350,000 cardiac arrests in the U.S. and those minutes in terms of the ambulance getting to the person and
actually saving them can make a real difference.
CHATTERLEY: You're saying actually government investment in this as well as also going to be critical to potentially save lives.
KEENEY: Exactly. Yes. We think these could be the ambulances of the future, not just the taxis of the future.
CHATTERLEY: 3D printing? I feel like we were really excited about 3D printing, maybe two, three years ago, and it is being used, it's being used
more and more. But again, you point out we've kind of gone off the ball a bit in terms of the enthusiasm and the way that it's being talked about.
What are your expectations here?
KEENEY: Yes, so you're absolutely right that investors have kind of been overlooking this space. We've been investors in 3D printing for a long
time. Stratasys is our top holding there. And what we think is that the 3D printing industry today is roughly $10 billion. We think that could go to
$97 billion over the next five years.
And what's driving that is the end use parts. So right now, 3D printing is used a lot of the time for prototyping. But it could actually be used -- it
is already being used in aircraft and healthcare, anything that's customized, anything that's really complex and low volume. That's what 3D
printing is good at.
CHATTERLEY: You have some fascinating numbers actually in here as well, that show the reduction in the number of pieces required when you can 3D
print something, just the sheer manufacturing process collapses. It makes it far, far more efficient.
KEENEY: Exactly. We're seeing aerospace parts that used to be hundreds of parts going to just 12. We're seeing a lot of these cases. And actually,
when you do that, when you use 3D printing and you reduce the part count, you not only make a part that's more structurally sound, but you can often
make it weigh less.
So for an aerospace company that can save you fuel, and when you're a company like Boeing or Airbus, the difference that that'll make on your
operating margin is huge.
CHATTERLEY: Are they using it already? Yes or no? Or they are.
KEENEY: Yes. Yes, they are. But that's precisely the point that 3D printing today is only one percent or less of the parts in a plane. We
think that could grow significantly over the next five years.
[09:50:10]
CHATTERLEY: I always feel like time with you slips by so fast. We will get you back. Plenty more to discuss as always, but I recommend again, your
2020 report is phenomenal. Super interesting. Tasha, great to have you with us.
KEENEY: Thanks for having me.
CHATTERLEY: Tasha Keeney there of ARK Invest. All right, we're going to take a break here on FIRST MOVE, but coming up, it's a Royal showdown as
Prince Harry meets with the Queen and other top Royals. But what's next for her and Meghan? Well, we will have details. Stay with us.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to the show. Top members of Britain's Royal Family are meeting today to discuss the future of the Duke and Duchess of
Sussex, also known of course as Prince Harry and his wife, Meghan.
The couple announced last week that they plan to step back from their roles as senior members of the Royal Family. Max Foster is at the Sandringham
Estates where the Summit is taking place.
Max, great to have you with us. Lots of speculation over the weekend about the state of relations, too between the two princes, but they've put out a
statement today saying, hang on a second, everybody. Back off. We're still together in this.
MAX FOSTER, CNN ROYAL CORRESPONDENT: Actually that -- yes, well, that's about a specific story that came out today, which was in "The Times," a
source close to the couple. It was a very well regarded reporter, which is why everyone took so much notice of it. But it effectively said that this
source suggesting that the Sussex's are being pushed down the family effectively because of the bullying of Prince William.
Prince William obviously took great offense to this because one of his great campaigns is mental health as it is for Harry and both their offices
came out with a statement saying, "For brothers who care so deeply about the issues surrounding mental health, the use of inflammatory language in
this way is offensive and potentially harmful."
There have been other briefings, however, which haven't been denied, suggesting that the relations have broken down somewhat, but they're not as
crisis-ridden as many people suggest, but it is pretty bad when they're discussing it in open.
There have been these rifts behind Palace walls some time as there are in all families, but it really is breaking out now and I think it's all coming
to a head really around the table today when William and Harry will face each other, with the Queen at the head of that table.
CHATTERLEY: What do we think? A split here of sorts will look like, Max, because there has been a lot of speculation about how to keep the Duke and
Duchess happy? What role they play as part of the Royal Family going forward? Whether some level of independence, be it financial or beyond is
rights in the modern monarchy? What do we expect as a result of the talks today?
FOSTER: Well, there's never been a situation where being half in half out has really worked. So being in is one thing, being out is one thing. That's
pretty clear.
What the Duke and Duchess of Sussex want is somewhere in between and there's a range of scenarios that could play out and Palace advisers and
government advisers are trying to draw up several different roles effectively for the Sussex's which they will be picking over today and
discussing in trying to find some sort of common ground all around the table today.
[09:55:10]
FOSTER: The issue, of course, is that the Sussex's came out with that website last week being very clear about exactly what it is they wanted.
They're going to have to climb down to some extent if they're going to compromise with the wider family who, frankly aren't happy with what's
currently up on that website.
The Duchess is dialing in from Canada as well. So it's going to be quite an awkward meeting, I imagine, but I think everyone around the table actually
does want to make this work somehow. It is not in anyone's interest with all of these rumors of rifts and you know, stories bubbling up in the
paper. If they continue, it's just bad for everyone involved.
CHATTERLEY: And what about the threat that there would be some kind of interview suggesting racism and sexism at the Palace if they don't get what
they want here, Max? What do we make of that?
FOSTER: Safe to say, what I make of it is you don't have this sort of, you know, open negotiation normally on Royal stories. We don't know whether or
not that's true. It comes from quite a strong source. Can it just be a threat?
But yes, if it does happen, a no holds barred Diana-type interview with the Duchess of Sussex. It would be the worst case scenario really for the Royal
Family because they don't want all of that information out in the open. It could be very, very sensitive indeed.
CHATTERLEY: Yes, she is very sensitive and we wait and see what comes off that meeting. Max, great to have you with us from Sandringham there.
All right, that just about wraps up the show. Let me give you a look of what we're seeing it for U.S. markets this morning. We are in the green. I
make that yes, a fresh record for the NASDAQ approaching that 29,000 level once again for the Dow. Can we hold on to these things? We shall see.
"The Express" is back in a couple of hours' time. But for now, you've been watching FIRST MOVE. Time to go make yours.
(COMMERCIAL BREAK)
[10:00:00]
END
