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Quest Means Business
German Chancellor Angela Merkel Seen Shaking for a Second Time in Two Weeks; Brazilian Official Traveling with Brazil's President has Been Arrested for Possession of Cocaine; Boeing Discovers New Flaw in 737 Max; China And The United States Set Terms Ahead Of Their G20 Trade Talks; Big Businesses Getting The Boot At The First Primary Debate; Two Major Decisions Handed Down By The U.S. Supreme Court. Aired: 3-4p ET
Aired June 27, 2019 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, CNN INTERNATIONAL HOST, QUEST MEANS BUSINESS: An hour away from the closing bell on Wall Street, and interesting market. Betwixt and
between, down in the early morning, but a complete reversal of fortune just after 12 o'clock. And now, I mean, it's not exactly powering ahead. We
are already up 36. But it does require some explanation as we look at the markets, and these are the reasons why.
China and the United States, they set the terms ahead of their G20 trade talks. What's likely to come of it? Boeing drags on the Dow. It has more
problems with the 737 MAX are revealed. And corporate America becomes the punching bag on the Democratic debate stage.
We're live in the world's financial capital, New York City on a blisteringly hot day. It is Thursday, the 27th of June. I'm Richard
Quest, and of course, I mean business.
Good evening, the battle lines are drawn for the Summit that could make or break this year's market rally. Donald Trump is now on the ground in Osaka
for the G20 Summit. He has already had the first meeting with his first bilateral, it was dinner with the Australian Prime Minister, Scott
Morrison.
And now, the big meeting of course on Saturday with the Chinese leader, Xi Jinping, and that's before Of course, the multilateral meetings. It is not
clear what the two leaders' positions are as they go into their meeting.
Investors are looking for a trade truce to be announced, but there are conflicting reports of what the Chinese preconditions might be before any
negotiations. For instance, "The Wall Street Journal" is reporting China wants a Huawei ban lifted amongst other things.
The White House economic adviser, Larry Kudlow has denied the report and of course says, new tariffs could be delayed. Team coverage, of course, Matt
Rivers is in Osaka, Clare Sebastian is here with me.
Before we talk about this, Clare, if we look at the market, we see just around 12:00 to 12:15, the market completely turns around and goes
positive. Is that because of what Kudlow said?
CLARE SEBASTIAN, CNN BUSINESS CORRESPONDENT: It remains to be seen. He spoke in the 11:00 hour. It might have been a bit of an impetus. But he
didn't actually say anything that would have given the market much hope.
He said, "No, there are no preconditions." He denied the report in the in "The Wall Street Journal," and he said that the President is happy with
tariffs and if he doesn't get anything good out of the meetings, that's the position they're going to keep.
QUEST: Matt Rivers in Osaka, what are they going to -- I mean, besides the meeting with Xi, the U.S. President is also meeting Modi. He is meeting
Merkel. There's a variety of other meetings. I mean, do they -- I suppose, do they matter in respect of the Xi meeting?
MATT RIVERS, CNN INTERNATIONAL CORRESPONDENT: Well, I don't think in terms of you know, the importance of a meeting with Modi or with Merkel, I don't
think it certainly rises to the level of an importance of a meeting with Xi Jinping. That's certainly what everyone here is looking for -- that
meeting on Saturday between President Trump and Xi.
And if we're looking though at outcomes, if all of this really boils down to what are the outcomes of this G20 Summit? You have to look at this
meeting between Xi and Trump and wonder, "Well, what is going to be produced there?"
Because let's say you believe what "The Wall Street Journal" is reporting here that China is going to present these preconditions, those would seem
to be nonstarters for a U.S. side that has taken a consistently harder lined stance against China and has gone through, you know, unprecedented
steps in terms of putting tariffs on Chinese goods.
And so the odds of a deal being struck are very small, I believe. But the wild card here is President Trump, you know, we don't know what he goes
into. Perhaps this is a more standard administration, Richard, than you would say, okay, there's no chance of the deal.
But this is President Trump, and he doesn't always negotiate the same way that others do, and so who knows what happens between President Trump and
President Xi. The last time they met, they called the trade war a truce, a temporary truce and you see the same thing happen this time.
QUEST: To Clare, the idea then, as Matt is saying that we don't really know how this will fall out, but nobody thinks they'll be an agreement.
But I suppose the leaders can set the tone to which we move on.
SEBASTIAN: Certainly, that's what the markets are hoping, Richard, is that there will be an agreement to keep talking and possibly best case scenario,
a suspension of new tariffs that the U.S. President won't go ahead and impose tariffs on an extra $300 billion in U.S. goods.
[15:05:09] SEBASTIAN: But I think it's important ahead of this crucial meeting, Richard, to think about the core mission here because we know that
businesses are worried about tariffs. We know that the markets are worried about tariffs, but they are also supportive of the core mission here.
Don't forget that President Trump is trying to level the playing field here for U.S. businesses operating in China and they do actually want him to
succeed on that majority.
QUEST: Right, their on message with that, but Matt Rivers, I mean, let's take India. India is now objecting -- the U.S. is objecting to India
raising tariffs after the U.S. revoked the most favored nation status in certain areas.
Every country that's there of significance seems to have a beef with the President or him with them.
RIVERS: Yes, without question. Yes, no, without question, Richard. I mean, across the board, you saw the President tweet about Japan before he
came out here negatively, about India. I mean, he has a list of issues with all of the different leaders that are here.
And we know that this is not the President's favorite forum in terms of conducting foreign policy. And so what comes out of this -- and if the
criticism of G20s in years past has always been, "Oh, well, it's just a family photo op, and nothing actually gets done." Well, then you could see
a pretty similar criticism here.
The President comes here, he gets here. He meets with leaders he doesn't ultimately get along with and then he leaves maybe with a trade truce with
China, and that could, if you're an investor, maybe you look at that and say, "Okay, that's positive progress," or at least kicking the can down the
road a little bit. But you know, ultimately, what comes out of this G20, when President Trump has these disagreements with so many other people.
SEBASTIAN: And the last time we saw this kind of meeting between President Trump and President Xi, don't forget Richard, it lasted all five -- only
five months, the truce before he started re-imposing tariffs.
But I want to bring in, I spoke to the Vice President of the U.S.-China Business Council ahead of this. They represent around 200 companies that
are doing business -- American companies doing business in China, and he talked about their view of the President's ends versus his means here.
(BEGIN VIDEO CLIP)
JACOB PARKER, VICE PRESIDENT, U.S.-CHINA BUSINESS COUNCIL: We see the overarching issue that our companies are concerned about and that President
Trump I think is really trying to get at is this un-level playing field on which foreign companies operate in the China market.
Just by being a Chinese company, your administrative licenses are granted more quickly, your products are approved more quickly, your environmental
impact assessments happen in a month and a half instead of a year.
So there's advantages from being a Chinese company in the China market that foreign companies frankly, can't always enjoy.
So the tactics are not great, but the objectives are clearly something our companies are supportive of.
(END VIDEO CLIP)
SEBASTIAN: And Richard, Larry Kudlow reiterated those objectives today. He said the U.S. will continue to push for structural changes, but for
ending forced technology, transparency and China improving protections for intellectual property.
QUEST: Finally, Matt, you're in Osaka, what is the mood?
RIVERS: I think the mood here is really just expected on that meeting. I think everyone is looking, of course, there's always intrigue when
President Trump meets with President Putin of Russia, people are going to be watching that very closely.
But really, it comes down to that Saturday morning meeting between President Xi and President Trump. I was at the G20 in Buenos Aires last
December, and it's a very similar feel. Everyone -- that meeting is happening on the last day here, it is happening not that long before the
President departs to Seoul. And so it's really just waiting for that big meeting.
And until then, you know, everyone's on pins and needles, just kind of wondering how this is all going to play out. Do they just kick the can
down the road again, and not actually address any substantive trade issues? Does it blow up completely? You know, it's just wait and see at this point
-- Richard.
QUEST: Matt, wait and see in Osaka. Clare, watch and wait in New York with markets. To both, thank you. In his first meeting with a world
leader at the Osaka Summit, Donald Trump insists the United States, in his words takes care of its allies.
(BEGIN VIDEO CLIP)
DONALD TRUMP (R), PRESIDENT OF THE UNITED STATES: I think I can say very easily that we've been very good to our allies. We work with our allies.
We take care of our allies. Generally speaking, I've inherited massive trade deficits with our allies, and we even help our allies militarily.
(END VIDEO CLIP)
QUEST: So the question is whether the U.S. allies agree that they are being quote, "taken care of" in quite that way. Now, it's the biggest
international summit of the year for the U.S. President and these are all the countries that are attending in Osaka.
Now, in the last 24 hours alone, Donald Trump has criticized several of them. You can see obviously, the ones you've got. You've India, you've
got China. You've got the whole European Union. You've got the U.K., and of course -- oh, and a good throttle of a criticism of Japan right the way
through down to China and even Vietnam.
So Fareed Zakaria is the host of "Fareed Zakaria GPS," is with me. Good to see you as always. Thank you.
[15:10:01] FAREED ZAKARIA, CNN HOST: Good to see you, sir.
QUEST: Thank you. I mean, it is extraordinary on the night before he goes to a summit, he criticizes Merkel. He has a bash at the European Union,
Margrethe Vestager. He has a go at the Chinese, the Vietnamese. What do you make of it?
ZAKARIA: Well, there are two possible ways to read it. The first is, and I think we all tend to look at it this way. You know, he likes to get into
fights. He doesn't like his allies. He doesn't like democracies. Notice he never says anything bad about Putin, the one leader he hasn't
criticized.
But I do think there is an element here of fear and showmanship, I was told by a very senior European leader that he mentioned some of this to Trump
once and Trump said, "Look, if I just came in and said nothing, the summit would be boring." Now everyone's wondering, am I going to be nice to you?
Am I going to make up? He likes the drama.
I mean, remember, his greatest claim to fame is as the star of a reality television show.
QUEST: And if we look back at how he announced Cabinet members, "I'll tell you tomorrow, who's going to be the best Secretary of State in the world."
ZAKARIA: It's down to two. Stay tuned. Right? He is teasing to the sequel.
QUEST: The public loves it.
ZAKARIA: The public loves it.
QUEST: But how do other leaders have to respond? Let's take Modi, for example. How do you respond when you know you're meeting him and he has
excoriated you and your policies?
ZAKARIA: Look, the United States has enormous reserve power. Trump is using it up. People deal with the United States because they have to deal
with it. But it doesn't set a good precedent.
It's quite -- I mean, if you think about the way that for example, the Trump administration is squandering the use of the dollar, you know, the
reserve currency of the world abusing it, misusing it in the ways that it is with the Iran sanctions. There's some parallel here.
You can behave like this. You can behave in this kind of vulgar, boorish way, frankly, and people will put up with it because you're the President
of the United States.
But you're withdrawing money from your bank when you do that.
QUEST: Vladimir Putin in the FT. He says, let me quote, "The liberal idea has outlived its purpose, as the public turned against immigration, open
borders and multiculturalism. Liberals cannot simply dictate anything to anyone, just like they have been attempting to do over recent decades."
He's right.
ZAKARIA: You know what I was struck by in reading that interview, and it is a fascinating interview. I think Donald Trump would agree with almost
everything Putin said.
There's one line in there about American foreign policy that he may or may not agree with, but everything else, Vladimir Putin's critique of the West
is Donald Trump's critique of the West.
It is these out of touch elites that have gotten too liberal, that are doing things that the public doesn't like.
Look, the way I would put it is the West is divided. It is certainly true that there is a backlash against some of these issues -- on these issues.
But look, let's not forget that in many of these countries, the liberals, the Cosmopolitans, they haven't -- they still have the majority.
QUEST: Right, but finally, in all of this, how important is it that the U.S. still has the strongest economy in all of this? We had numbers today,
3.1 percent GDP, not as strong as it could have been, but strong. And with that and the potential for a cut of interest rates.
Donald Trump goes to Xi with gasoline in his tank, because he knows he's got power.
ZAKARIA: There is no question we are right now at a kind of peak America, by which I mean, the U.S. economy is growing almost twice as fast as
European economies. The dollar is the undisputed king, U.S. stock markets are high, U.S. energy looks great. This is the moment to fix the roof.
In other words, this is now the moment to wield that in a way that abuses the power that misuses it. My fear is that the tables always turn. These
factors -- nothing last forever. And we will have squandered this moment of peak American power so that Donald Trump could feel good when he went to
a summit.
QUEST: Thank you, sir. Always good to have you. I appreciate you taking the time.
ZAKARIA: Pleasure.
QUEST: Let's turn to those markets that we were talking about and they are mostly higher today. The Dow has actually gone up -- it was just after
lunch it went higher by bank stocks. Investors are all looking forward to the G20.
As we continue in a moment, when we come back, the U.S. Democrats versus corporations. Big businesses getting the boot at the first primary debate.
If you want to find a common cause and a common enemy, corporate America seems to be the answer.
And the U.S. Supreme Court makes two major rulings on the last day of its term. One is a victory for liberals, the other has them fuming.
(COMMERCIAL BREAK)
[15:17:37] QUEST: Tonight, a second batch of U.S. Democrats step up to debate, this after 10 candidates went head to head on Wednesday. Their
main target wasn't on stage, rather it was Wall Street and Silicon Valley - - Big Business.
The presidential hopefuls singled out everything from drug companies to tech companies. And then for the breaking up of corporations and better
wages for workers.
(BEGIN VIDEO CLIP)
SEN. ELIZABETH WARREN (D-MA), PRESIDENTIAL CANDIDATE: Giant corporations have exactly one loyalty and that is to profit.
SEN. CORY BOOKER (D-NJ), PRESIDENTIAL CANDIDATE: I think we have a serious problem in our country with corporate consolidation.
BETO O'ROURKE (D), PRESIDENTIAL CANDIDATE: We have a system that favors those who can pay for access and outcomes. That's how you explain an
economy that is rigged to corporations and to the very wealthiest.
GOV. JAY INSLEE (D-WA), PRESIDENTIAL CANDIDATE: It is not right that the CEO of McDonald's makes 2,100 times more than the people slinging hash at
McDonald's.
REP. TULSI GABBARD, (D-HI), PRESIDENTIAL CANDIDATE: The American people deserve a President who will put your interests ahead of the rich and
powerful.
MAYOR BILL DE BLASIO (D-NY), PRESIDENTIAL CANDIDATE: We are supposed to break up big corporations when they're not serving our democracy.
WARREN: We need to make structural change in our government, in our economy, and in our country.
(END VIDEO CLIP)
QUEST: CNN's political reporter, Rebecca Buck is in Washington. It was like common cause wasn't it? They had found an enemy they could all pretty
much agree on. But I'm wondering how well that plays in the country?
REBECCA BUCK, CNN POLITICAL REPORTER: Well, I think you saw, Richard with Donald Trump's success in 2016 just how powerful that populist message can
be. And he has continued with it throughout his presidency.
What's so interesting about Democrats sort of coalescing around this anti big corporation, populist sort of message is that it actually is quite
similar to a lot of what we've heard from Donald Trump as President.
Cory Booker, for example, went after Amazon by name last night, and so has President Trump for not paying enough in his view in taxes.
And so there's this sort of mind-meld between Donald Trump and Democrats on this. And I think, frankly, they've seen the success that he's had with a
populist argument. And so they're trying to tailor it to their own purposes in this election.
QUEST: But when Donald Trump did it, of course, it was unusual to have a Republican candidate or now, Republican President bash the heart of
capitalism, which is it the Republicans natural home.
I'm wondering do Democrats, I mean, fundamentally in the country itself, are the votes in beating Google and Amazon?
[15:20:05] BUCK: You know, there are some absolutely and for the average American worker who might not feel like they are reaping the benefits of
this very strong economy in the United States right now, it's a message that resonates.
But I think the challenge for some of these more liberal progressive Democrats who are adopting this message is how do you go up against Donald
Trump with a message that is very similar to him on the economy, and that's the point that some of the more moderate Democrats in the race, like former
Congressman john Delaney, for example, a former businessmen, as well has been making.
He has been saying, essentially, Elizabeth Warren and Bernie Sanders, their economic views are essentially trumped in economics. So how can you go toe
to toe with him if you believe essentially the same thing?
QUEST: You know, you may not have heard earlier, Vladimir Putin has given an interview with "The Financial Times," in which he says liberals --
basically says that the liberal ideal has outlived its purpose. Liberals simply cannot dictate anything to anyone they like as they've been
attempting to do.
Now, he is talking -- that's Vladimir Putin. But arguably, you know, that message arguably rings true to Democrats, who can't just point out the
traditional liberal view in the United States in 2019, or can they?
BUCK: Well, this is -- I mean, this is what we're seeing play out in this Democratic primary. It's really a fight for the soul of the Democratic
Party. What is their future ideologically going to look like?
And what was so interesting about the debate last night, and it will be interesting to watch in the second part of this debate this evening, does
the party you know, sort of embrace this more progressive view? Last night, pretty much across the board, embracing the far left of the party.
QUEST: Fascinating to see exactly which way they'll go. All right, Rebecca, thank you, as always, much appreciate it.
BUCK: Thank you.
QUEST: Now, while Democrats were slugging it out in race for the White House, there were two major decisions handed down by the US Supreme Court
that could shape American politics for a generation.
One was a blocked citizenship question being included in next year's census. The Trump administration claim the question was crucial to have
comply with Federal voting laws. Critics argued it would intimidate minorities and the other, the nation's highest court ruled that Federal
courts must stay out of disputes over gerrymandering. That's when political redistricting is carried out for partisan gain.
Ariane De Vogue is with me from Washington. When I read John Roberts, some of his comments, some of his decision and judgment, I wondered whether
these comments wouldn't have disgraced a dictator in a sort of a developing economy, saying it's okay to gerrymander and the top courts in the country
won't do anything about it.
ARIANE DE VOGUE, CNN SUPREME COURT REPORTER: Well, listen, you're right. This was a politically charged case. John Roberts siding with the
conservatives here, slamming the courthouse doors on such challenges, wanted the courts to step in to set a standard to stop politicians from
going too far from using state lines for partisan gains.
And Roberts stepped in writing for the conservatives and he said the fact that such partisan gerrymander claims are incompatible with Democratic
principles does not mean the solution lies with the Federal court.
But to your point, what Roberts and the conservatives feel is that this issue is for the political branches. It is not for the legal branches.
All arguments, a couple of them said, look, when is this going to stop? We will be called in for every single dispute. This is not for us to decide.
It's for the political branches.
But then we saw in court today, a biting dissent from the liberal justice, Elena Kagan saying just the opposite. She said if there's any time that
you need courts to step in, you need them to step in to protect our political representation. And she said, look at the lower courts here and
she is right.
Many lower courts, five times this year alone came up with a standard here to weed out extreme partisan gerrymandering, but John Roberts, he is
staying out of it. He didn't want to have anything to do with this slamming those courthouse doors.
QUEST: So you've got a court, we know it's split, five to four but it does seem to be -- I mean, with a few exceptions during this term where, you
know, one went one way and one way or the other.
But would you agree that you were able to pretty confidently predict the outcome of most of the controversial cases, and in doing so, the next term
will become even easier to predict which way they go.
DE VOGUE: Well, you make a couple of points because in the cases that grab public's attention, you really did see five four court on ideological
lines. You saw it today. You saw it on cases like immigration.
[15:25:10] DE VOGUE: And next term, Justice Kavanaugh, joining this Court has actually voted to take up some really controversial issues.
For instance, next term for the first time in a long while, we're going to have a case about the Second Amendment. So we may not have seen that
conservative revolution that people thought might occur during the Brett Kavanaugh hearing, but seeds were planted this term and next term, we're
going to see this Supreme Court take an even stronger turn to the right.
QUEST: Good to see you. Thank you. I appreciate it. Okay, just in to CNN, the U.S. House Speaker Nancy Pelosi says her chamber will reluctantly
pass the border aid bill from the Senate.
Pelosi says, "As we pass the Senate Bill, we do so with a battle cry as to how we go forward to protect children in a way that truly honors their
dignity and worth."
Democratic leaders in the House have been scrambling to reconcile their bill with a version that has already passed in the Senate. The two parties
are trying to address the humanitarian crisis on the U.S. southern border.
As we continue tonight, more about news from Boeing. The shares are down to two percent on reports of a fresh flaw in the technology of the 737 MAX.
(COMMERCIAL BREAK)
QUEST: Hello, I'm Richard Quest. There is more QUEST MEANS BUSINESS in just a moment. Europe's biggest airlines are turning their back on low
cost long haul models. It's quite extraordinary, the vault fast that's being done.
And Frank Sinatra teaches a lesson in market volatility and saving you from guessing which song -- which Sinatra classic we're talking about. As we
continue, this is CNN and on this network, the news always comes first.
[15:30:00] RICHARD QUEST, HOST, QUEST MEANS BUSINESS: New concerns today about the wellbeing of the German Chancellor Angela Merkel. She was seen
shaking at an event in Berlin with the country's President Frank-Walter Steinmeier. Her spokesman says she's fine, it's the second time in two
weeks that it's happened.
A member of the entourage traveling with Brazil's president to the G-20 was found with 39 kilos of cocaine. The Air Force officer was arrested, he was
on a back-up plane and the drugs were found during a stop-over in Spain. The Brazilian president has vowed to crack down on drug trafficking.
In about few hours, Istanbul's new mayor was sworn in. Ekrem Imamoglu won a decisive victory over President Erdogan's AK Party in a re-run last
Sunday. Earlier this week, he told CNN that no individual can threaten democracy. Something seen by many as a thinly-veiled warning to Mr.
Erdogan.
After round one last night, we're always ready for round two of the second of the U.S. Democratic presidential debate, only hours away because it's
such a crowded field, the candidates were split into two groups. Elizabeth Warren, Cory Booker and the others squared off on Wednesday. Tonight's big
names include the former Vice President Joe Biden and the Senator Bernie Sanders.
More problems for the Max plane. The 737 Max and Boeing, sources are telling CNN, another flaw has been found on the grounded aircraft. News
that sent the shares sliding by more than 2 percent, they're off just about 1.9 now. The latest defect apparently found in the plane's computer system
could push the aircraft's nose down and in doing so will require some modifications.
That will delay the jet's return to service after being grounded in March. Two fatal crashes led to the planes being put on the ground. Mary Schiavo
is the former Inspector General at the U.S. Department of Transportation and an aviation attorney. And she has pending lawsuits against Boeing.
She joins me now from Charleston in South Carolina.
This latest -- it's a process, a microprocessor that if it goes wrong or if there's a fault, effectively does the same thing as MCAS would have done,
it pushes the nose down. How come they're just discovering it now?
MARY SCHIAVO, FORMER INSPECTOR GENERAL, U.S. DEPARTMENT OF TRANSPORTATION: Well, that's a very good question and it's problematic on many fronts
because obviously, Boeing was trying to say that it would be a small fix, we would limit the nose-down capability of the plane through the MCAS, in
other words, put a limit on how far it could push the nose down and how many times it could do that.
And so we have yet another problem involved. Now, it wasn't clear exactly which system this microprocessor was in. It could be in the MCAS or it
could be --
QUEST: Right --
SCHIAVO: Another system. But it brings another question to the pilot's ability to really fly this plane. In the end, when all is said and done,
we want our pilots to be able to fly out of trouble and in fact, we put the burden of troubleshooting off and on the pilots. But here for
microprocessors are going to continue to do things that the pilots can't recover from, it certainly shakes the confidence of the plane even after
the fix is put in?
QUEST: And what we don't know, of course, is whether or not this fault was a consequential or this incident is consequential on the other fault of
course that came or you know, was it -- at the initial or was it always there? But Mary, is this likely to delay the return into service because
Boeing says they can fix this with a software update.
SCHIAVO: Right, I think it's going to delay it for several reasons. First and foremost, it has made the U.S. Federal Aviation Administration, the
aviation regulators even more skittish, because they relied on Boeing in the beginning to certify the Max 8, and now after Boeing said, well, we'll
just put a program in so it'll limit the nose down.
And now they find this additional problem. The FAA is already pretty shaky in its reputation and they've already said they won't even begin testing
until at least I think they said July 8th. I would look for it to be even longer than that.
QUEST: For Boeing, and again, I ask this, wary of the fact that you are suing -- involved with --
SCHIAVO: Right --
QUEST: Clients who are litigating against Boeing. I mean, you don't -- they obviously will get the plane sorted out and it will get -- you're not
going to suddenly scrap 400 planes and all of that. But it does beg the question, will the Max be forever sullied? Is it going to have to be
rebranded?
SCHIAVO: Well, yes, I think it will, and it will also be questioned by the pilots because another issue here is how much more pilot-training is
needed? Now with the additional problem with this microprocessor, pilots will also be very suspect and say, wait a minute, I don't want to get back
in this plane with an hour on an iPad.
[15:35:00] I want some actual hands on the simulator training --
QUEST: But --
SCHIAVO: And of course, the simulators are suspect.
QUEST: But does it -- I mean, is it that different if you do have to put them through the sim? Yes, I mean, you know, since it's a new -- since it's
a new aircraft, therefore, you're only putting a few through at each time as each new aircraft joins the fleet --
SCHIAVO: Right --
QUEST: It's not as if you -- you know, for an airline, is it that much of an inconvenience?
SCHIAVO: It's a great point. You would think not and particularly, what has happened, but since that was one of the major selling points of the 737
Max 8, that you did not need this lengthy additional training. It will be an economic consideration, and I think that it does play in here because
that was one of the selling points.
And, you know, certainly passengers. You know --
QUEST: Right --
SCHIAVO: That's the ultimate consumer, of course. They aren't allowed on the United States law, if they don't like the plane -- say you very
carefully book yourself away from 737 Max 8s and you go to the gate and you go, oh, well, there sits the 737 Max 8. U.S. law allows the carriers to
freely swap their equipment.
You get a jet plane if you book for a jet ticket, and that's about all you get to choose. So, in the end, the passengers won't get a lot of choice
and some of them won't even recognize. But I wouldn't be surprised if the problem doesn't get cleared up soon that the --
QUEST: Right --
SCHIAVO: Boeing Max 8 or 737 Max program might have a new name someday because it is suspect --
QUEST: Right --
SCHIAVO: And sullied now.
QUEST: Mary, always good to see you, I do appreciate it, thank you. While we've been talking --
SCHIAVO: Thank you.
QUEST: Not one thing because of what we've been talking. You know, notice the share price went down a bit more. It was down 1.9, now it's down 3.25
percent. So, Boeing is well and truly being hit today in the market. Otherwise, stocks are riding high in April, they got a shot in May and
they're now back on top.
That's life to the markets. I'll explain with a little help from old blue in a moment.
(COMMERCIAL BREAK)
QUEST: Yes, there's the markets for you. Well, we are really all over the place today. You've been up in the morning, most of the mid-morning, near
down and you -- well, upright the way through, hitting a nice little peak up there, right about -- and then falls back, a bit of a loss, and now
literally bouncing around the bottom.
[15:40:00] What we're seeing of course is very symptomatic of what we've seen in the markets. In fact, back in 1966, back in 1966, we can always
rely on old blue eyes because Frank Sinatra predicted exactly the volatility that we've seen over these last few months. Now, listen
carefully, please, listen carefully as old blue eyes sings about life's ups and downs.
(MUSIC)
QUEST: And those "Three Months", elegantly, beautifully sung. That's life back in April, of course. The Dow was riding high, they were strong
earnings. Trade war negotiations had resumed, Brexit deadline had extended, everything was good and then in May, it all gets shot down. The
Dow plunged nearly 7 percent.
It was the return of tariff man and Donald Trump threatened Mexico. Remember, if they didn't deal with immigration, the China trade talks fall,
the worst May in a decade, and then back into June, where we seem to be just riding high, green across the screen. It begs the question to Paul La
Monica is why have we seen this extraordinary turmoil? There's no rhyme or reason or is there?
PAUL LA MONICA, CNN BUSINESS REPORTER: No, there is a rhyme or a reason, and I'll get to that in a second. I just want to express my disappointment
that we didn't go over the Hudson River to film this segment in Frank's "Stomping Grounds" of Hoboken --
QUEST: Hoboken!
LA MONICA: Be that as it may, thank you for the bell ring, but no, this is all about the Federal Reserve indicating very strongly that they are likely
to cut interest rates in July. You do have those geopolitical trade tensions every now and then. It looks like, OK, maybe they'll be a bit of,
you know, a detente between the U.S. and China, some sort of, maybe not an agreement but cooling off of some of the --
QUEST: But why --
LA MONICA: Type of tension that we had --
QUEST: But --
LA MONICA: So, that I think has helped too.
QUEST: What were they fearful of, if the Fed hadn't stepped in? Because if the Fed gave that June boost, you know, what was the predicator to the May
fall?
LA MONICA: Yes, I think the May fall I think came before we were really certain that the Fed was definitely going to be cutting rates in July.
Now, I mean, we're at a point where some are arguing that the Fed will cut rates by a half percentage point in July, sort of the insurance cut in case
trade talks really deteriorate.
But I think in May, you just had -- obviously the return of tension with China, but the surprise announcement from the Trump administration that,
oh, by the way, now we're targeting Mexico also, that didn't help things. It really made everyone start to wonder just what this White House was
doing with regards to trade talks with partners like Mexico and Europe.
It killed off any, you know, hopes that a USMCA deal I think might be reached in an easy fashion too.
QUEST: But what's the justification for cutting rates when today, we got Q1 GDP at 3.1 percent. Now, it's not 4 percent, and the prognosis is
things are going to get weaker --
LA MONICA: Yes, that's it right there. Prognosis is that things will get weaker. The Fed is not backward-looking. If the Fed just rested on its
laurels and said, hey, the economy was good, we don't need to do anything, then that makes Jerome Powell's job a lot easier. I mean, you could have a
robot do that.
He's got to look ahead into that proverbial crystal ball and it does appear that economic conditions are deteriorating globally which the Fed does care
about. They may not have it as an official mandate to keep the financial markets happy and stable, but you better bet your bottom dollar that that
is something that they are thinking about.
So, obviously, that's another factor at play as well, and they probably made a mistake by cutting -- by raising rates the last time they did it.
That's something that the market --
QUEST: Right --
LA MONICA: Was not happy about, the president wasn't happy about, and I think Powell if he could, maybe they would take that cut back and --
QUEST: So --
LA MONICA: The hike back and they're probably going to do that now.
QUEST: Are we talking to finish off with Frank Sinatra --
LA MONICA: Yes sir --
QUEST: Are we talking about lady luck luring on other guys and seeing what happens?
LA MONICA: It is possible, obviously lucky lady from guys and dolls, I think that is an apt song for this environment that we're in right now.
You could argue high hopes is another one --
QUEST: Oh, yes --
LA MONICA: We are here in New York, New York after all.
[15:45:00] QUEST: New, absolutely, New York, on that moment, thank you very much.
LA MONICA: Thank you, sir.
QUEST: Thank you very much. That's a song for another day. June is over, no, not Joon as in June and July, it's not even July. I'll explain the
difference between June and Joon and Joon means. And that's life.
(COMMERCIAL BREAK)
QUEST: The low cost long haul revolution almost seems to be over before it got going at least in Europe. Air France had Joon brand, and it only
announced it 18 months ago and it's already taken its last flight. It was aimed at younger flyers and it lasted less than years. It's a stunning
example of airline corporate reversal, perhaps since Lufthansa's Eurowings, which is also getting out of the long haul market, low-cost long haul part
of a company-wide restructuring.
But Eurowings which is all part of German wings which is all part of something else, which is only just been put together in the first place a
couple of years ago, it begs the question -- Brian Sumers is the senior Aviation Business Editor at Skift, he joins me now from Los Angeles.
Brian, it is extraordinary that these, particularly, Joon, I mean, what an admission of absolute failure.
BRIAN SUMERS, SENIOR AVIATION BUSINESS EDITOR, SKIFT: Well, in some ways, it is extraordinary and in some ways, it's not. I speak a lot with United
Airlines President Scott Kirby, I think you do as well. He has said for years, airlines within airlines simply do not work. The biggest reason is
you spoke about in your intro, you call them low-cost, long haul airlines, they have one problem.
They're not really low cost. If you're a company like Lufthansa Group or you're a company like Air France, KLM, you cannot get these subsidiaries to
have actually low cost because you have labor unions --
QUEST: Right --
SUMERS: And they're fighting it.
QUEST: So --
SUMERS: So these airlines were a disaster from the beginning.
QUEST: Right, so how do this -- so, you've got Level, for example, which is part of IAG. Now --
SUMERS: Yes --
QUEST: You know, really seems to have done a particularly good job of hiding it off, ring-fencing it and giving it a very niche market rather
than say, folding it, Level, into Vueling.
[15:50:00] SUMERS: You know, Level gets to do its own thing, it's very small, it's based in Spain. It sort of has only one purpose, right, to
play defense against Norwegian Air and to make Norwegian Air's life very difficult. It doesn't do much else beside that.
QUEST: So --
SUMERS: Yes --
QUEST: So is the long haul low-cost revolution over?
SUMERS: No, it's not, Richard, it's just going to change what it is. So, I was talking recently with Air France, KLM CEO Ben Smith about this and
look, he has some airplanes with 450 seats on them. He has airplanes with more than 500 seats on them. He doesn't need this sub-brand called Joon.
It doesn't actually have low cost, he has low cost on his own planes. So, you know, you take 50 seats in the back of the aircraft, you make them very
uncomfortable and you sell them for extremely cheap, it works very well.
QUEST: Right --
SUMERS: You don't need the airline within the airline.
QUEST: So this is the basic economy, this is the basic --
SUMERS: Exactly, it's the basic economy, you just charge people for everything and you discount the seats in the back.
QUEST: Is that going to work? Because, you know, I look, for example, down in Australia, and you see the way Jetstar co-exists extremely successfully
with Qantas.
SUMERS: Yes, Jetstar is probably the only success story of this sort of airline --
QUEST: Yes --
SUMERS: In the entire world. One of the reasons it does succeed is because Qantas takes a hands-off approach, gets -- Jetstar gets to run the
airline the way it wants to run the airline. With Eurowings, Lufthansa had no idea what it was doing, it wasn't really a separate airline, sometimes
it was, sometimes it wasn't. It never worked.
QUEST: Good to see you, sir, come back again.
SUMERS: Good to see you, thank you.
QUEST: When you're in New York, come and join me here on the set, we'll have a chat, lovely. Now, my next guest says industry is still acting as
an operational dinosaur. OSM Aviation manages recruits and trains crews for airlines. Espen Hoiby is the CEO, good to see you. Why, what's the --
what are they doing wrong?
ESPEN HOIBY, CHIEF EXECUTIVE OFFICER, OSM AVIATION: Well, we're not having enough pilots now to take care of the growth that's in the industry.
Boeing and Airbus forecast that we're going to have double a fleet in the next 20 years. We're going to go from 24,000 to 48,000 aircrafts. And who
are going to fly these aircrafts? So, they were posing about 35 pilots a day, we need 100 new pilots every day to meet that demand --
QUEST: So, until now, what seems to be happening is airlines are stealing from each other --
HOIBY: They're probably --
QUEST: They're poaching, and the Indian Airlines for example always get their approach and the gulf carriers go on poaching --
HOIBY: It's a little bit of a bidding war right now --
QUEST: Right --
HOIBY: You're absolutely right on that, but now, they changed the retirement age from 60 to 65. Now, all these guys are going into
retirement, 10,000 pilots are retiring every year now. In late 20s, 30,000 will retire every year, so, we need to get more polishing into the market.
QUEST: Right, but it's not like sort of asking for bartenders where you know, the entry level may be somewhat lower. How do you get more pilots?
HOIBY: We need to take the industry responsibility into this. I'm amazed about the manufacturers, Boeing and Airbus, they need to take a larger
responsibility, they've acknowledged the problem now. I saw the CEO of Boeing coming out with the indication that this is a major problem. But
they need to do away with the sponsorships, facilitate financing, we need to actually to attract more people into the industry.
QUEST: OK, but it's still a dream job and last I checked, you know, it was still very hard to get a cadet-shaped or an apprenticeship with any of the
major European airlines which still have schemes.
HOIBY: Yes, you're right, in Europe and on this side of the Atlantic, there has -- we haven't really felt the pilot shortage in the legacies, but
we do see it in (INAUDIBLE), in Asia, we see a lot of aircrafts on the ground, and in Emirates, they had 30 aircrafts on the -- more than 30
aircrafts on the ground due to pilot shortage.
So, it's now just emerging, the whole pilot shortage thing. So, we need to act now and a manufacturer needs to take a large responsibility.
QUEST: Why is it the manufacturer's responsibility?
HOIBY: And the operators and the regulatory bodies and the unions. We need to get more people into this industry because if the manufacturers --
QUEST: But what's the problem? But what's the problem? Why aren't they coming into it? What is the barrier?
HOIBY: First of all, it's a financing thing, $100,000 approximately for a full education, it's a high, we need to facilitate financing as I mentioned
to attract more parts of the society to get into this industry, definitely. And also, we need to think, how can we address the new younger generation
to get into the industry. More flexibility and that will solve the problem.
QUEST: Good to see you, sir, thank you very much --
HOIBY: Thank you very much --
QUEST: Indeed for coming in. Krispy Kreme(ph) now, the markets as we come towards the close of trade. What a weird sort of day, here, come over here
and you'll see what I'm talking about. Actually, funny enough, just talking about markets, Boeing is now the laggard, it's bounced around, it
was down over -- nearly 3 percent, 3.5 percent a few moments ago.
[15:55:00] But you see, that's now come back up again. Boeing at the bottom, Walgreens very strong day. The markets are dealing with
conflicting China trade reports that we've been telling you about, and I think you see that amply evidenced in this. Look at the day itself, I'm
not surprised it shows like this because you've got all the worries during the course of the day, the low point being just about 11:00.
You get this bit here which is where we think Larry Kudlow's comments influenced the market, and the market rallies up, but reality sets in and
we end up with this little. It's you know, one mustn't overstate it, one can't because you are talking about very small numbers, and we have got the
G-20 taking place, you've got the weekend meeting, it doesn't take place until Saturday with President Xi and Donald Trump.
And it's unlikely that the markets are going to be satisfied or rested over the next 24 hours. So, we will take a profitable moment after the break
with Walgreens at the top, Goldman in the middle, VISA and Boeing down at the end.
(COMMERCIAL BREAK)
QUEST: Tonight's profitable moment. Low-cost, long haul was a nirvana, an ideal Norwegian has really gone for its health ladder with its flights out
of the U.K. and Europe and in Australia, of course. Jetstar does it, but nobody has managed to make it work, and the interesting thing is the
complete and utter failure of Joon, but Air France, the low-cost subsidiary or the long haul low cost.
And now Eurowings no longer flying low cost long haul. It begs the question, how these airlines ever came up with these policies in the first
place? It was always going to be extremely tricky because of the nature of low-cost long haul. You don't get as many rotations of the aircraft, your
costs are still high.
It doesn't lend itself naturally, unless you're a Norwegian and even Norwegian isn't making money at the time. But to evolve, fasten the way of
Air France is really remarkable, even in the world of aviation. So, low- cost, long haul will be here, but as I think you heard our guest earlier say, it will be the seat at the back of the plane that will be sold off
cheap.
And that's for those individual airlines, well, that will be left to another day. And that's QUEST MEANS BUSINESS for tonight, I am Richard
Quest in New York. Whatever you're up to in the hours ahead, I hope it is profitable, the day is done, the Dow is down.
(BELL RINGING)
END
