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Quest Means Business
First Public Impeachment Hearings to Begin Next Week; U.K. Election Season Gets Underway; Pro-Beijing Lawmaker Wounded in Knife Attack in Hong Kong. Aired 3-4p ET
Aired November 06, 2019 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[15:00:12]
RICHARD QUEST, CNN INTERNATIONAL HOST, QUEST MEANS BUSINESS: An hour of trading left on Wall Street, and the midweek, as you look at the Dow; well,
we'll explain what happened right about 12 o'clock that gave a bit of a fall. But things have come back nicely. We may even end up higher, which
of course could be the possibility of records. The market and the reasons why.
A soft quarter for Softbank. The Japanese giant posts its first loss in years. Big investments are backfiring. We'll get into the details.
Xerox wants to ink a deal with HP. Now HP is a company three times the size.
And election trouble for Donald Trump. The Democrats are winning big in Republican strongholds.
We are alive in the world's financial capital, New York City on a spectacular day, but it is Wednesday, it is November the 6th. I'm Richard
Quest, and yes, I mean business.
Breaking news on CNN tonight. Air Europa says an emergency involving one of its planes at Schiphol, Amsterdam is a false alarm. The spokesperson
for the Dutch military says passengers and crew are safely off the plane after what it called a suspicious situation aboard an aircraft. Emergency
Services had flocked to the airport and there was a major incident underway.
Now, Nic Robertson is following this in London. And Nic, I shall give you the delight and joy of telling us what Air Europa says was the reason why.
NIC ROBERTSON, CNN INTERNATIONAL DIPLOMATIC EDITOR: Air Europa says that it was a mistake on board the aircraft that the warning -- that it was
triggered by mistake, a warning was triggered by mistake, that was warning of a possible kidnapping situation on board the aircraft.
They're not saying at the moment who made the mistake. The Dutch national broadcaster had been earlier indicating that what they were hearing was
that the pilot, the captain of the aircraft had actually hit a button that indicated a hijacking was underway. There were 27 passengers on board the
aircraft, but the airline putting their hands up here and saying it was a mistake.
All in all, this has taken about an hour and a half to wrap up. But for all those travelers familiar with airport travel and familiar with the
delays that can happen at airports, this has been a relatively short one and certainly, for the Dutch authorities will have put them through their
paces to respond to an emergency situation because they responded as if this was real, and stood up to the task ahead of them, bringing everyone
ultimately safely off the aircraft.
QUEST: Yes, indeed. And I notice that Air Europa perhaps embarrassing, though it is, but at least they say, we deeply apologize for what took
place -- Nic.
ROBERTSON: They do, and that will be some consolation to passengers. Look, you can spin this several ways that this was absolutely unnecessary
and you could be heading towards a business meeting and this could have really, really upset the end of your day.
On the other hand, many passengers will be thankful that there are alert systems in place to protect them in the worst eventualities.
QUEST: And I would also just add to that, any one of us who has not made a mistake in some shape, form or another, let them go to the front of the
queue if you're going to throw a rock and criticize. Nic Robertson, thank you, joining us from London.
Other breaking news tonight, U.S. House Democrats have released the transcripts from the testimony of the top U.S. envoy in Ukraine, William
Taylor.
Now, they reveal that Taylor told lawmakers in his deposition, it was his clear understanding there will be no Ukraine military aid without a
commitment to investigate the Biden family.
The Democrats have also announced Taylor will testify in the first public Impeachment Inquiry hearings, they take place next week. He is due to
appear before Congress on Wednesday, along with -- appear before Congress along with top State Department official, George Kent.
The Committee will hear from former U.S. Ambassador to Ukraine, Marie Yovanovitch on Friday. Now, let me remind you, who is who, in all of this.
Taylor, whose testimony was released today was U.S. Ambassador to Ukraine in both Bush and Obama. He served briefly under President Trump. He
wasn't an ambassador. He was sort of a half-time Ambassador because of protocols and he said he felt the President was holding up security aid
until it launched investigations on the President's behalf.
[15:05:07]
QUEST: Marie Yovanovitch was a former U.S. Ambassador to Ukraine, a career diplomat who served six Presidents. She was fired by the Trump
administration and she believes she was forced out by the President.
Lauren Fox join me on Capitol Hill. Now, we have seen the formal transcript. What stands out for you?
LAUREN FOX, CNN POLITICS U.S. CONGRESSIONAL REPORTER: Well, I think the key takeaway here, Richard, is the fact that Bill Taylor came to believe
that the U.S. military aid, nearly $400 million in U.S. military aid was being tied to the President getting investigations announced into his
political opponents.
According to the transcript, he said, "That was my clear understanding. Security assistance money would not come until the President committed to
pursue investigation." So now, Taylor was clear as he was pushed by Republicans behind closed doors. Taylor was clear he didn't speak directly
with the President himself, but that that was his understanding.
He also brought those concerns to Mike Pompeo arguing that if the policy had changed in Ukraine, he would have to leave. So very key takeaways
there. He also said he had concerns to even go to Kiev, because he was concerned about, quote, "a snake pit" in Washington and in Ukraine --
Richard.
QUEST: And if I remember his statement correctly, it was his wife, who said if your President or if your country asks, you then, you serve. He
may be regretting that, of course, in retrospect and on this -- on the hearings next week, Lauren, I mean, this is where the tone changes, doesn't
it? Because -- well you tell me, how will it be different next week?
FOX: Well, Richard, I think a key takeaway and something that Adam Schiff, the Chairman of the House Intelligence Committee has been arguing is that
this is the first opportunity that the American public is going to have to hear from these diplomats.
A lot of these characters are people that the American people who had never heard of before a month ago. Now, for the first time, they're going to see
them in a committee hearing setting. They're going to be able to hear from them. And I think that that's a very important takeaway, and something
that could potentially shift public opinion, Richard.
I think if you start to see these hearings unfold, it could shift public opinion for the American people, but also for perhaps Senate Republicans
who are potential jurors, if Articles of Impeachment pass the House of Representatives and move over to the Senate for a trial -- Richard.
QUEST: Lauren, thank you. You'll be watching of course next week and bringing us analysis of the hearings as and when they get underway, and
we're grateful for that.
It all happens as Democrats are celebrating victories in some of the country's most conservative states that took place in the midterm elections
on Tuesday.
Now in Virginia, you see there on the map, the Party took control of the House and the Senate for the first time in more than 20 years. Whilst in
Kentucky, a little further down, the Democratic candidate for Governor seemingly beat out the incumbent Republican who is refusing to concede.
Rebecca Buck is with me. Good to see you.
Look, these races now, off years are often a chance to bash and send a message to a ruling administration. But they don't necessarily always
follow through when the deed has to be done in the big one. So can we realistically take anything from last night?
REBECCA BUCK, CNN POLITICAL REPORTER: We can, Richard and here is why. These may be state elections, it may be an off year, but these are reliable
early indicators of where the energy is among voters and what issues are really resonating with them.
And so what we saw in Kentucky and Virginia last night, where Democrats won big in some traditionally Republican areas are a few things. First, that
the President remains unpopular in the suburbs.
These are going to be the areas, these suburban communities where the 2020 presidential election will play out and be decided. And so what we saw
last night was that Democrats were energized in these areas - that the President remains deeply unpopular, and that that was driving many of these
voters to the polls and driving their decisions.
What we also saw though, is this turnout. This is an off year election, you don't necessarily expect this sort of energy. But there was some
question especially in light of Democrats pursuing impeachment in the House. This is the first election after Democrats have been pursuing
impeachment, our first glimpse of how voters feel about it.
And what we saw is that they are not responding negatively to Democrats pursuing impeachment. That they are, in fact, responding positively. That
they do share some of these negative impressions of the President. So these are the really significant takeaways looking forward to 2020 and the
elections in the coming year.
Now, Republicans I should note are pointing to the local factors for example, the Kentucky governor's race. The candidate, they say had some
very serious weaknesses. The Democrats feeling really good, Richard by what they saw last night.
QUEST: So the -- at what point though do the Republicans get alarmed? I'm not suggesting, you know, ditch the President yet, but at some point, they
will consider whether or not he is more of a hindrance than a help.
BUCK: Well, what Republicans have believed is that their best hand is to stick with the President, and that's what we've seen in elections past, in
the midterm elections in 2018, and that's what we continue to see from them.
The reason that they have hope is that they believe they can consolidate the world, though, where the President tends to be extremely strong turnout
Republicans who are really loyal to him and win that way. And they do remain optimistic because among Republicans voters, the President is very
popular and they believe in a presidential election scenario, those voters who are intensely loyal to him will ultimately turn out.
But it's a great question, you know, do they sort of hedge their bets here, and especially depending on the way impeachment goes, you could see some
shifts in strategy -- Richard.
QUEST: Rebecca, thank you.
BUCK: Thanks, Richard.
QUEST: Less than an hour left on Wall Street on a mid-week session and markets are mostly flat, a streak of gains earlier in the week. The Dow is
betwixt and between as we say. It's off the sessions highs, a midday fall.
Now that midday fall at 12 o'clock was on reports that President Trump and President Xi may delay a signing of Phase 1. Energy stocks are the worst
of the day. Chevron and Exxon were down that's pulling down the market.
We might still end up positive, but it's going to be a close one, I think by the end of the day.
Ben Phillips is Chief Investment Officer of EventShares. Good to see you, Ben, joining me from Los Angeles. I was reading your comments on this --
you heard us obviously since the beginning of the program. We've talked about Donald Trump on impeachment, Donald Trump on the elections. But your
advice when looking at your portfolio, vis-a-vis politics is what?
BEN PHILLIPS, CHIEF INVESTMENT OFFICER, EVENTSHARES: Well, we say look at policy, not politics. That's our key line that we want investors to always
keep in mind.
Politics is that noise and debate. Policy is the change and the trends that actually drive business valuations. They drive markets, and they
drive changes to industry. So we look at policy, not politics.
QUEST: But one leads to the other in many cases, and you know, it's a fine line in this administration when the politics is the policy.
PHILLIPS: Yes, that's right. I mean, but you actually rarely see a lot of this politicking translate to policy. So you have to look very closely at
where there's actually a policy trend.
I'll tell you, Medicare-for-All is a good example. It's largely politicking. We think very low probability that actually materializes into
policy. ACA is sticking around in our view, hence why there's an opportunity in healthcare names right now, because the market is
overreacting to that political sentiment.
QUEST: What are the sectors you like the look of?
PHILLIPS: Well, from a policy perspective, from policy investing, and what we're buying in our ETF is largely infrastructure names. We think they're
still really attractive. The states are spending. Everyone thinks it's a Federal story, it's not. It's a state story.
5G telecom - really good valuations there at some of the towers. Some of the equipment makers were staying away from the Chinese exposed
semiconductor names though, but some interesting things in 5G telecom.
We also like sports betting. Some of the regional gamers, some of the gaming stocks, too and some of the technology companies that are enabling
sports betting or partnering with sports betting.
So those are a few that we actually really like and are looking for and then select energy names. You mentioned energy is underperforming today,
but there's this IMO 2020 thing that is starting on January 1, 2020 that is saying low sulfur fuel regulations are the new norm for shipping, and
there's opportunities there.
QUEST: And the big tech? The big names? Are they taking a breath? Where many of us have seen the biggest gains in our portfolio, we're also seeing
the largest risks at the moment, and I'm wondering if that plays over for the time being?
PHILLIPS: Yes, it's something that we look at closely. I mean, we are concerned about the policy turning negative there for big tech. So you
look at data regulation, you look at the social media controversies that have occurred over the past couple of years. There's a real will from D.C.
on both sides of the aisle to regulate those companies, and we think that's going to be a headwind for them.
QUEST: We're at record levels. We might even close at a record today as well, since yesterday was a record. It will be touch and go. I'm trying
to always gauge every day now, how fragile we are at these levels.
I mean, are we for example, sort of like on a matchstick just swaying waiting to fall off? Or are there real concrete pillars holding up this
market at these levels?
PHILLIPS: Well, there's one very large concrete pillar and it is global Central Banks, including the Fed. They're pumping liquidity back into the
system at the top of a cycle. That's the real risk for anyone who is overly cautious right now is that this excess of liquidity that we're
putting back into the system causes another rally.
I mean the technical level is on the upside for the S&P are another 24 percent higher. So there's a big upside potential if we get a China deal,
if we see some growth return, and all of a sudden all this liquidity goes back to work putting it into stocks, it's going to drive stocks higher.
[15:15:22]
QUEST: And we are lucky, we have a second or two more so we can take the opportunity to Investing 101 and remind viewers, Ben, why the Central Banks
with their liquidity of pumping money, why that boosts the stock market? Many - myself included sometimes can't see a direct correlation between a
Central Bank printing money and a stock market going up.
PHILLIPS: Well, there's certain things they do. They have reserve requirements. They have overnight rates and ways they can manipulate how
much cash is going in the system.
As you recall, we spoke in late September it was, we spoke about just the liquidity crisis that occurred at the repo -- the overnight repo -- that
was because there wasn't enough cash in the system. So the Fed overcompensated. They're putting more cash in the system. The cash has to
go to work somewhere, so people have to invest.
They're either going to buy bonds, or they're going to buy stocks for the most part, or do other investments. But largely, its bonds and stocks.
And so those are two alternative for large institutional investors and bond rates now are one percent plus, you know, one to two percent range.
So the options are, okay, we're just going to go back into stocks because it is better risk reward. There's good risk reward internationally, too.
So it's going to go into stocks is our view.
QUEST: Perfectly explained. Now, we've got a better understanding, as we always try to do here on QUEST MEANS BUSINESS of, if you like, the plumbing
and mechanisms of how it all works. I'm very grateful to you, Ben, for joining us tonight.
PHILLIPS: Thanks.
QUEST: As we continue, Softbank is taking a hard hit after some of its major investments proved to be more risk than reward. We will show you
which is which.
Xerox has its sights on a company more than three times its size -- HP, and why the two come together. In a moment.
(COMMERCIAL BREAK)
QUEST: Softbank's big bets have soured, and now the costs are coming home to roost. A disastrous three months for the marquee investments in its
tech fund. It resulted as the company's first quarterly loss in some 14 years. A $6.5 billion loss for Softbank itself and a $9 billion loss for
the so-called Vision Fund upon which it is part.
[15:20:07]
QUEST: Softbank's CEO, Masayoshi Son has been well and truly humbled. Now, this is not unfamiliar territory for the man known as the unicorn
hunter. Let's look at exactly what he has done and see how it actually occurs.
So these are the major investments. Softbank and particularly Masayoshi Son went big in the dot com boom. Now, the bubble burst and he lost most
of his fortune. That is an out and out failure.
In 2000, he invested $20 billion in Alibaba. It's now worth over $100 billion. $20 billion to a $100 billion, I think we can claw on that as
being a roaring success.
In 2017, Uber, well, it became the largest shareholder. The stock is at an all-time low, but it is too soon to say that's an out and out failure.
Let's put that out there, half and half. You never know what he got in and what he paid in level of investment.
And the same with Slack looking successful. Now, it's in all-time low, but we don't know what they went in at or what the returns are. So we have to
gauge that as being beyond.
Now, WeWork bungled its IPO. The value of $47 billion dropped to $8 billion. Masa Son admits poor judgment. The poor judgment means, I think,
since WeWork could still -- they're going to have to put more money in there. They have put more money in. Let's call that a failure at the
moment.
That's the way it looks. Really only one substantial success and numerous possible and failures and maybes. Clare Sebastian is with me. Clare, not
a terribly successful strategy.
CLARE SEBASTIAN, CNN BUSINESS CORRESPONDENT: You mean, his investing in these unicorns?
QUEST: Yes.
SEBASTIAN: Well, I mean, it has served him well in the past. Arguably, Alibaba is one of the best venture capital investments of all time. It's
really held up there, but I think the problem now is that he is colliding with the public markets.
Uber was a big test because that was the first company in the Vision Fund to go public, and it's not gone well. Wall Street's appetite for these
loss making companies is waning. Uber has yet to convince the market that it has a path to profitability. And today of course, we have the lockup
expiring in the shares and we see them tumbling on that as well. Though perhaps, not as much as expected.
But WeWork is really the big cautionary tale, Richard, and that's where we see the humility from Masa today.
QUEST: And putting more money -- he is putting more money in.
SEBASTIAN: Right. And he tried to justify that today. Obviously, they had already piled more than $10 billion and they piled another $10 billion
in to rescue them. He said, this isn't a rescue. This is a way of buying more shares at a lower price, but I think there's clearly some skepticism
around that because this is going to lead to fundamental restructuring.
QUEST: Besides these marquee names, what else does it do? I mean, these are not doing well. Is the rest of the group doing okay?
SEBASTIAN: Right. Well, I mean, they still have a telecoms company in Japan. They own Sprint, ARM Holdings in the U.K. I mean, the rest of the
company seems to be, you know, it doesn't have such marquee losses as the Vision Fund.
But the Vision Fund is super important, Richard. Earlier in the year, when the company was making a profit, it was more than half of that. So this is
a big deal for Masa. It's not just his bottom line, it's his reputation as well. And I think that's why he came out with such candor, such humility,
but also defiance.
Today, he said, you know, we continue to forge ahead with the second Vision Fund. He is going to invest in artificial intelligence. He still wants to
be, you know, the man with the vision finding the next big thing.
QUEST: He likes the limelight.
SEBASTIAN: Right.
QUEST: I think back to his arrival at Trump Tower.
SEBASTIAN: Yes.
QUEST: During the transition, what he was promising he was going to do over then.
SEBASTIAN: The mystique.
QUEST: The mystique. Yes. How is he viewed? Is he viewed as an Oracle who sometimes gets it a little bit wrong? Or is he viewed with something
regarding a playboy who can't get it right?
SEBASTIAN: I feel like there's a shift taking place. It's partly due to the kind of the Zeitgeist that we see on Wall Street that people are taking
a second look at these loss making companies. They may not be able to stomach it quite so much anymore.
And I think, you know, he -- it's just not been going very well recently and because of that, people are looking at him thinking, you know he is
clearly infallible, he is clearly fallible.
QUEST: Uber is the interesting one, because Uber -- the share price goes further down. There are more issues and problems, but at the same time,
there are hundreds of thousands, if not millions of people taking Uber rides every single day. This is not a pets.com. This is a real company,
which has shifted the transport behavior of large numbers of people worldwide.
SEBASTIAN: And Uber could still come back. We had the CEO --
QUEST: Yes, but, surely what will it do?
SEBASTIAN: Well, we had the CEO this week just saying you know, they're going to be profitable on an adjusted basis by the end -- by the full year
of 2021. Faster in fact than Lyft is promising, but I think the question with Uber and with the likes of WeWork and others is, did Masa Son come in
and give them too much money, found too much growth too quickly and get to them to the point where they are now struggling to make the numbers add up.
[15:25:05]
QUEST: Good to have you with us. I appreciate it. Thank you. The CEO of the scooter startup, Lime, has told us he is focused on profit despite our
rocky investment landscape. Speaking to Hadas Gold at the Web Summit in Lisbon, Brad Bao says this company can still make money.
(BEGIN VIDEOTAPE)
BRAD BAO, CEO, LIME: We focus on the beauty of the business right now and also focus on the profitability. So I think, you know, that's the -- what
we are obsessed with.
HADAS GOLD, CNN BUSINESS REPORTER: Now, we have seen some reports about Lime's revenue right now. Some potential investors might be a little bit
worried. Do you think that you can continue to tap investors after what seems like a Wall Street backlash against companies such as yours, such as
an Uber or Lyft and a WeWork?
BAO: I think the, you know, the capital chases performance and the performance really is divided in a simple way. Growths and profitability
and we're advancing on both hand. That really might make some difference. We are already the leader in the micro mobility space and our revenue has
never been seen before in any industry.
Now, we're growing so fast. In the meantime, that we're also improving our own profitability. We, as a company has been gross margin positive for the
entire quarter as a whole company and we anticipate that it will be profitable entirely in 2020.
GOLD: Now one of the uncontrollable in your business is one of the most important parts, which is the rider. And we've heard some complaints from
cities, you know, the people are leaving scooters in places; in Paris, they throw them into the river. How do you control the uncontrollable? How do
you help keep a handle on your riders?
BAO: Well, first of all that, the percentages in terms of those incidents are very small, even though it's a little bit disproportionally reported or
being unnoticed, but percentage-wise, it is very small.
On the other hand, we are working very closely and collaborating with cities that come up with better regulation and education as well.
First, rider campaigns is something we do to advocate the user to ride safely, but also very importantly, to advocate the user to ride
respectfully right to the pedestrians, to the community and to the city as well.
And technology really helps in here. By using and leveraging the connected IoT devices and sensors, we can help you regulate or incentivize the right
behaviors.
(END VIDEOTAPE)
QUEST: Now Xerox is trying some corporate alchemy, but two declining businesses together to try and build a single healthy company. But the
takeover of HP, it faces some serious hurdles, not least of which, the whole question of whether it's worthwhile. After the break.
(COMMERCIAL BREAK)
[15:30:00]
QUEST: I'm Richard Quest, there's more QUEST MEANS BUSINESS in just a moment. We're going to look at Xerox's bold takeover bid for HP, the
company is three times its size. And Ryanair becomes the latest airline to report cracks in its 737 NGs. The Chief Executive of Kenya Airways will
give me his take on the western crisis.
Before all of that, this is CNN, and here, the facts always come first. The first public hearings in the impeachment inquiry are now set to begin
next week. The chairman of the U.S. House Intelligence Committee says the U.S. Diplomat Bill Taylor and the State Department official George Kent are
to appear on Capitol Hill on Wednesday. The former U.S. ambassador to Ukraine, Marie Yovanovitch will testify next Friday.
In Mexico, we're learning more about a Mormon community reeling from the brutal murders of nine people on Monday, six of them children. Some
members of the family had a longstanding reputation in the community as anti-crime activists, causing friction with the cartels in Mexico according
to a former Mexican foreign minister.
In Britain, election season is now under way. The British Prime Minister Boris Johnson went to the queen at Buckingham Palace to formally dissolve
parliament. Ahead of the campaign, the U.K. heads to the polls on December the 12th. And Hong Kong, a lawmaker known for his criticism of ongoing
anti-government protests has been attacked with a knife while campaigning in the city.
Police say Junius Ho's assistant was injured in the attack as well. Both victims are being treated for their injuries. The suspect has been
arrested for assault and personal injury.
And the situation at Schiphol Airport onboard a plane in Amsterdam was a false alarm. According to Air Europa, the Spanish airline says the alarm
was activated by mistake and set off protocols for hijacking and kidnapping. Metro police rushed to the scene, passengers and crew were
evacuated from the plane, Air Europa says we're all deeply sorry.
So, now Xerox is considering a takeover of HP. Over to the printer, assuming it's worked, indeed it has. My producers have been printing out
the terms of this deal to our HP printer. I rather like an HP printer, I have one at home. But be as it may, let's have a look. It's printed in
color and on card, we are lucky here.
OK, remember that HP is more than three times the size of Xerox, 27 billion to 8 billion. It's a sign for sale or a sale sign. Xerox is selling
stakes in parts of its business, it also has a funding commitment from a bank for all of this. And there are sales reports that show why this
merger could happen.
If you look at this sales report, printers and ink are down, and therefore those falling sales. Now that's as it relates to HP. Look at Xerox and
you get a copy of it. So, naturally, the copy machine has been seen sales falling as well, too. Consolidating is a way to survive. But the question
is, do you survive bearing in mind copy machines down, printers and inks down, do you survive if you put two failing companies together?
Besides the natural synergies that you will get, cost savings and accounting and the like, what do you think, Paul?
PAUL LA MONICA, CNN BUSINESS REPORTER: I think it's going to be a tough sell for shareholders if this deal actually does get proposed. Keep in
mind, as you pointed out, Xerox is a much smaller company than Hewlett- Packard right now. HP's market cap is closer to $30 billion today because of the takeover talk spiking it higher.
[15:35:00]
So, you know, three to four times more expensive than the Xerox market cap, Xerox is probably going to have to sell assets, get some private equity
backers, other Wall Street firms to help finance this deal before they could even think of proposing something to HP that HP might want to accept.
QUEST: Does it make sense though? I mean, even if you can get -- you know, we all -- I'll say we all need a printer because I'm one of those --
LA MONICA: Do we?
QUEST: Sorry?
LA MONICA: Do we?
QUEST: Well, I have several printers, do you have a printer?
LA MONICA: I do, I do as well, but you know, we're not millennials, are we?
QUEST: I thought you were going to print out something, think of a doc, but my point is that, you know, HP split of course from the solutions
company to the printers and the -- and the other part --
LA MONICA: Right, you have the HP enterprise, business and then Xerox split, too. They have the separate company now known as Conduit; it is
more of a document management company. So, they've already shed the higher growth businesses, and these are the two legacy, you know, titans of tech.
From --
QUEST: But I'm just --
LA MONICA: The 1950s joined Merck--
QUEST: But I'm just dragging out of my memory if I -- earlier this year or late last year, Hewlett-Packard took a very large fall in its share price.
It was in the mid-30s, and it dropped into the high teens. On the back of problems on questions about whether the viability of these companies.
LA MONICA: Yes, I think it is a safe assumption that a deal of these two companies, it's the classic case possibly of two wrongs not necessarily
making a right. Unfortunately, if a deal were to go through, you would have to think that one way to sell it to Wall Street is that this is about
synergy, it's about cost-cutting.
And we all know what that usually means. It means job cuts. So, this may not be a great thing for these two proud franchises to merge and then, all
of a sudden have to hack away at their workforce.
QUEST: Xerox used to be a noun, didn't it?
LA MONICA: Yes --
QUEST: I'm going to the Xerox machine, you're too young to remember that.
LA MONICA: No, I am not, I am older than you think. There's a fair amount of grey in this beard. It used to be a verb, I mean, Xerox today -- I mean
--
QUEST: It's a verb you say --
LA MONICA: Xerox back then was kind of like Google today. I mean --
QUEST: Yes --
LA MONICA: Obviously, it is something that was synonymous --
QUEST: Will you Xerox me these papers?
LA MONICA: Should I get you some coffee, sir, while we're at it.
QUEST: Good to see you, sir --
LA MONICA: Starting an episode of "Mad Men" for some reason or not.
QUEST: Thank you, let's leave that one exactly where it is, don't touch it. When we return, it's been a year since Kenya Airways reached an
aviation milestone. First, it had a non-stop flight from Nairobi to New York, remember, we were on it. Now the CEO is back to tell me how it's
performed, in a moment.
(COMMERCIAL BREAK)
[15:40:00]
QUEST: More headaches for Boeing, Ryanair is the latest airline to find cracks in some of its older 737s. It joined Southwest, GAL and Qantas in
pulling the plane's -- there were tests, minute cracks in what's known as the Pickle Fork which attach the wings to the aircraft. The discovery is
coming -- part of an FAA investigation into issues with Boeing's next generation of models.
Meanwhile, Kenya Airways is celebrating the one-year anniversary of the world's first-ever direct flight from Nairobi to New York. Remember it,
there we go, on board the inaugural flight last October. A moment of national pride. It was a 15-hour journey from there, Kenya's Airways' CEO
Sebastian Mikosz is with me, good to see you, sir, thank you --
SEBASTIAN MIKOSZ, CHIEF EXECUTIVE OFFICER, KENYA AIRWAYS: Richard, good to see you --
QUEST: For joining us. The -- let's talk about the 737s which you don't have. But the problems facing Boeing at the moment, the issues facing
them. How beleaguered -- how under the pressure are -- is the company at the moment? As -- from airlines like yourself?
MIKOSZ: I think under tremendous pressure. We don't have the Maxs, but we have the NGs --
QUEST: Right --
MIKOSZ: It's actually what you just mentioned. We did the checks, so we performed the maintenance recommendation on doing them. I think they're
under --
QUEST: And there was nothing wrong?
MIKOSZ: No, there was nothing wrong. We tested -- because they were sent a number of planes with the number of cycles that needed to be checked.
So, we did it as recommended by its --
QUEST: But it's a -- it's not -- obviously it's not good when your brand new planes, the Max is grounded because of safety issues, and now your NG,
which is the regular plane is also sort of got questions about it.
MIKOSZ: Yes, but on the other hand, it's good that they do it. So, I wouldn't discourage them or I wouldn't blame them for that because when
there is a doubt, it's better to say it than to check it and ground it if necessary. Even for three airlines is an issue, rather than hide it and
play with apparently what happened with the Max where people knew and then somebody wrote the e-mail, I mean, you know, it's all under investigation,
so, I have no clue what was the reality. But they are under pressure for sure, yes.
QUEST: Your flight from Nairobi to New York, it's proved -- you knew it was going to be tough to run that route on a daily basis. Has it proved
tougher to make money on it than you thought?
MIKOSZ: Yes, indeed, it is. I mean, and we were surprised by two things. The pricing problem, so the competition is absolutely overwhelming. But
that we knew, the Northern Atlantic and for us, its Southern Atlantic is really one of the most competitive route or regions in terms of airlines,
so, that's one.
But second is we also noticed a much higher seasonality, this is why we changed the frequencies because we started daily, then we shifted to five,
and then we're back to daily in high seasons, and that's I think the good pattern.
QUEST: Are you making money on it?
MIKOSZ: No, but you know, you don't make money on a route like this in the first 18-24 months, and we've been operating only 12. But we're very happy
to say that there were weeks we already break even, much faster than we thought. Overall it's an investment, but it's an investment which is
paying, 105 passengers carried, almost 600 flights, 1,000 tons of cargo. So, we're able to elevate the number of passengers we carry through our
hub.
QUEST: Let's talk about Kenya because you're leaving Kenyan Airways at the end of the year.
MIKOSZ: Yes, correct.
QUEST: And you're coming first -- quite a bit of bashing in Kenya, one way or another for what's happened with the airline or whatever. There are
those who disagree with what you have done. Are you satisfied? Are you leaving, feeling that you've done the job well?
MIKOSZ: I've done my best. Now, I'll leave it to the others to judge if I've done a good job. I can defend one thing, I think that one of the
success that I personally contributed to is to bring the attention of the public to Kenya Airways problems, and to the fact how we compete because we
compete as a private carrier with absolutely state-owned, state-protected, non-listed competition all around us. And that makes the situation a
little unfair.
QUEST: I realize you're still there and you've got to go back. But is the -- is the fear now that the government -- that re-nationalizes, interferes
or all the private sector gains that might have been made, get lost as Kenya Airways becomes a political football?
MIKOSZ: But you know, I will reverse the argument. Kenya Airways went into big trouble when it became private, not state-owned. Actually, the
state had to bail out Kenya Airways from private decisions. So, I'm -- we are existing as an airline and I have a job because Kenyan taxpayers has
subscribed to a sovereign guarantee, without which the airline wouldn't exist.
[15:45:00]
QUEST: So, you've got a sovereign guarantee, you might as well have to sovereign own it. But the problem is, when governments interfere in
airlines, we end up with South African Airways.
MIKOSZ: Or with Ethiopian, which is the largest African carrier and which has been consistently supported and has done a tremendously good job.
QUEST: But the Ethiopian government recognizing that, have put in place basically a hands-off -- you know, they've determined that Ethiopian
Airways is an important part of the Ethiopian economy and therefore needs to be run as a proper -- on proper terms.
MIKOSZ: But this is what we want to do also in Kenya. This is what I'm trying to convince the public and the government about. The fact that you
own an airline doesn't mean that you interfere, because that's a question of political choice. If you take all the region, Rwanda, Uganda, Tanzania,
and all our Gulf carriers, they all are state owned, and the level of interference is different. So it then relies in the hands of the
politicians if they want to operationally interfere or not.
But for sure, the model in which we are doesn't allow us to compete on the same playing level field.
QUEST: What would you do next?
MIKOSZ: I would love to stay in airline or maybe I'll go as a CNN commentator of airline if you invite me from time to time.
QUEST: You look after your job and I'll look after mine. Good to have you, there.
MIKOSZ: Good to have you, thank you, thank you.
QUEST: And Japan has just wrapped up hosting the Rugby World Cup. Tokyo is now preparing for the 2020 Summer games. I spoke to Akito Tadokoro;
Director of Tokyo's Convention and Visitors Bureau, and I asked him the sporting -- giant sporting events, how significant to bring visitors and
prestige to the city.
(BEGIN VIDEO CLIP)
AKITO TADOKORO, DIRECTOR, TOKYO CONVENTION & VISITOR'S BUREAU: It is important in two ways, you know. The -- we wanted to -- a sport to be a
culture, OK? And the second point is that Rugby and Olympic is a great opportunity for us to gain more visitors from the U.S. and Europe, yes.
QUEST: So, is that your target?
TADOKORO: Yes.
QUEST: The visitors from the United States and Europe?
TADOKORO: Yes, we are already welcoming many business from Asia, OK? But we want more from U.S. and Europe, yes. Because these two areas, they, you
know, they have potential --
QUEST: Yes.
TADOKORO: They have potential. But not many business are coming to Tokyo and Japan.
QUEST: Why -- why do you think so? Is it because it's expensive or they think it's difficult, or it's a long -- why do you think it is?
TADOKORO: It's simply just because they didn't know that Tokyo and Japan is a fantastic place to visit. But now they discovered, because we had
rugby and many rugby fans came to Tokyo and Japan first time and they enjoyed.
(END VIDEO CLIP)
QUEST: Think about this, a round trip in economy class from New York to Tokyo costs around $1 billion -- sorry, one ton's worth -- I beg your
pardon, one ton's worth of carbon emissions. Eleven thousand scientists are warning air travel is a key factor, making the climate crisis worse and
doing so faster than expected. We'll hear after the break.
(COMMERCIAL BREAK)
[15:50:00]
QUEST: As the U.S. begins the process of pulling out of the Paris climate accord, the leaders of China and France have signed a pact pledging to stay
in. Somewhat strange that you have to sign a pact to stay in an agreement that you're already in. But there you go. The deal includes 195
countries, a common goal of keeping global warming below 1.5 degree Celsius.
President Trump says it puts unfair burdens on American businesses. At the same time, 1,000 scientists around the world warn that climate crisis is
accelerating faster than expected. In fact, it's like the loss of tree cover, more meat production and a rise in air travel to show the world is
unequivocally in a climate emergency.
Our next guest Bill Weir probably wouldn't disagree. CNN's chief climate correspondent Bill, good to see you --
BILL WEIR, CNN CHIEF CLIMATE CORRESPONDENT: Good to see you of course, yes.
QUEST: On this question, first of all, of Paris, how realistic is it for some states to maintain the limits of Paris if the country itself is out?
WEIR: Michael Bloomberg, former New York mayor, Jerry Brown, former California governor have tried that question. And they've said they have
about 65 percent of the American population trying to meet the Paris targets, 70 percent or so of the U.S. economy. But it's a good question,
if the biggest, most powerful country in the history of humanity isn't engaged in what is essentially World War C for climate, what -- where do we
go from there?
QUEST: Well, 11,000 scientists claiming that all these things less tree cover, but particularly air travel --
WEIR: Yes --
QUEST: Showing that, that's worsening the situation. But you and I know that air travel is just 2 percent of all carbon emissions. Now, obviously,
as an airline correspondent, I might take a different view of it than you do as the climate --
WEIR: I think about it every time I get on board, absolutely, to think about what the unintended consequences of the choices we make. I think
it's less about specifically air travel. It's more that the top 10 percent of earners in this planet burn half of the carbon than the bottom 50
percent is responsible for about 10 percent.
So, if you're looking to trim that in some way, you know, average American burns about 17 metric tons of carbon a year, a flight from Paris to L.A. is
about a ton and a half. And so, you can do the math there. But maybe you don't have a car, maybe you use -- maybe you can offset that somehow.
QUEST: Do you like offsetting schemes? You know, every offsetting scheme I've seen has always left me wondering -- not if it's a crime, but there's
something scammish(ph) about it.
WEIR: I think it is a road to hell paved with good intention.
QUEST: Yes --
WEIR: And people are still figuring it out. I was just at a conference on Al Gore's farm in Tennessee which he has triple offsetting the carbon
footprint of everybody who came to this as well. And it certainly -- and some have called it -- it's like buying indulgences from the Catholic
Church in some ways.
But those who support it say this is where we have to move it, we have to move markets. There are some -- you know, as you speak of air travel,
Imperial College out of London did a study, and one of their radical recommendations was, we should do away with air loyalty mileage program
which incentivize people to take extra flights just to keep their status.
Instead, maybe airlines can incentivize more earth-friendly point system in some way. So, yes, I think, this is -- humanity is making this up as they
go along. But as this 11,000 scientists are coming out, every month, there's one that's more alarming than the one before, the technology gets
better, the satellites get better, we understand more and as a result, economists are saying we are grossly under-predicting how much this is
going to hurt, how much is it going to cost?
QUEST: Right, so, when? When -- I mean, well, I suppose that you would say, there's -- colleagues in the meteorological department would say and
the weather center would say we're already seeing the evidence.
[15:55:00]
WEIR: I think it's long before the waves are lapping on Miami Beach. It's insurance companies that are not going to underwrite certain zip codes --
QUEST: Yes --
WEIR: Which craters property values and tax bases, they're seeing it in the hills of California where insurance premiums are going up. So, this
will create economic dust bowls long before, you know, it's the day after tomorrow, apocalyptic --
QUEST: Will it be the economics --
WEIR: Moving --
QUEST: That finally drives this argument for ordinary people? When they suddenly think because it's seemingly we are lemming-like determined to go
over the edge.
WEIR: Oh yes, I mean, it's -- and you know, truth sure said, right, Americans will do the right thing when they've tried everything else. And
once they've seen that, wait a minute, budgets are shrinking --
QUEST: Yes --
WEIR: For first responders as fires are quadrupling, we have to do something about this.
QUEST: We have to say, thank you.
WEIR: Thank you, Richard --
QUEST: At least, come -- make sure we come -- and have you discuss this more often.
WEIR: Any time you ring.
QUEST: Thank you very much -- oh, you want to ring, go on. It's first time on this program, you can have one, gently go on.
(RINGS BELL)
There will be complaints from others. We will have a profitable moment after the break.
(COMMERCIAL BREAK)
QUEST: Tonight's profitable moment, on the show, Sebastian Mikosz; the outgoing CEO of Kenya Airways gave an interesting and full-throated defense
of the idea of government owning airlines, particularly in Africa where he says, all the regional ones around him, including the Gulf, of course,
Emirates, Etihad, Qatar, Ethiopian, South African, Rwandan, Ugandan, all of them are owned by the government and it's only, of course, Kenya that's in
the private sector.
That's a good argument, and it justifies perhaps, only perhaps as Kenya going back into public ownership. But longer-term of course, it doesn't
justify the poor quality of air services across the African content, where it's often easier and quicker to go back up to the Gulf and down again than
intra Africa.
There's a new treaty and agreement on single African skies, let's hope it's more successful than the last one, but honestly, I'm not particularly
optimistic. At the end of the day, African skies will only open when the middle class in Africa believe it really is their time to fly.
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.
No records today, but the bell is ringing, the day is done.
(BELL RINGING)
END
