WEBVTT - Surveillance: Investing in Lyft With NYU’s Segram (Correct) 0:00:00.080 --> 0:00:12.960 Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane 0:00:13.480 --> 0:00:17.560 jay Ley. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:30.040 Bloomberg dot Com, and of course on the Bloomberg I 0:00:30.120 --> 0:00:31.880 do want to dig into that Deutsche Bank barger. I 0:00:31.920 --> 0:00:34.839 think if it's fascinating for a lot of perspectives, what 0:00:34.920 --> 0:00:36.640 did I talk about it? Let's talk about it because 0:00:36.640 --> 0:00:38.800 he's been on the cards for absolutely h s And finally, 0:00:38.800 --> 0:00:41.400 I guess it's official now that they're actually in talk 0:00:41.520 --> 0:00:45.920 do we just assume it's executed? Um, well, I think 0:00:45.920 --> 0:00:49.919 that they're probably are a whole bunch of potential challenges 0:00:49.960 --> 0:00:52.320 here still, I mean, I think that the question is 0:00:52.400 --> 0:00:55.640 what form is this going to take? Is this murder? 0:00:55.640 --> 0:00:58.280 And I think Luigi's and Galis actually has some views 0:00:58.280 --> 0:01:00.400 on this. He's a finance professor at the Niversity of 0:01:00.440 --> 0:01:03.560 Chicago at the Booth School of Business and he joins 0:01:03.600 --> 0:01:06.560 us here in our Bloomberg Director Broker Studios. Luigi, thank 0:01:06.600 --> 0:01:09.000 you so much for being here. What do you think 0:01:09.040 --> 0:01:13.600 about this murger? So this is a merger of failed 0:01:13.640 --> 0:01:17.120 banks banks that don't succeed in the marketplace by themself, 0:01:17.240 --> 0:01:20.720 and they have to merge because they're very weak, even 0:01:20.760 --> 0:01:23.119 if in the past they have shown that they are 0:01:23.160 --> 0:01:26.720 not very good at merging, because if you remember comments 0:01:26.760 --> 0:01:30.800 back comes from a very bad merger with Dresden and 0:01:32.080 --> 0:01:37.280 Deutsche Bank tried to integrate deutge post Bank and did 0:01:37.280 --> 0:01:39.319 not do very well and at some point try to 0:01:39.400 --> 0:01:41.840 sell it and they couldn't even sell it. So I 0:01:41.880 --> 0:01:44.959 don't think they have a good record in merging, and 0:01:45.520 --> 0:01:48.919 the only reason why they're emerging is because they're trying 0:01:48.960 --> 0:01:54.400 to basically achieve three things. One is fire more people, 0:01:54.720 --> 0:01:58.040 and they have to have the permission of the German 0:01:58.080 --> 0:02:02.200 government to fire people. They got it that that's a Hinterestly, 0:02:02.480 --> 0:02:06.480 it comes from a Social Democratic minister, so imagine what 0:02:06.520 --> 0:02:09.799 the Conservative would have done so in so that's one. 0:02:10.520 --> 0:02:13.320 The second is probably they can gain a little bit 0:02:13.320 --> 0:02:17.760 of market power, but most importantly they certainly become too 0:02:17.760 --> 0:02:20.920 big to fail, and they are trying to sell that 0:02:20.960 --> 0:02:24.760 this is the German national champion. Now, Germany has a 0:02:24.800 --> 0:02:27.680 lot of good things going for itself, but this is 0:02:27.720 --> 0:02:32.680 not one of those. Deutsche as a tradition of cheating. 0:02:32.880 --> 0:02:37.200 I think it's more, uh pay more fines than it 0:02:37.280 --> 0:02:41.720 is worth in the equity market today because and so 0:02:42.320 --> 0:02:44.440 I don't think and it's not very profitable. So I 0:02:44.480 --> 0:02:47.440 think that a bank in this condition is not in 0:02:47.480 --> 0:02:51.639 the situation to acquire another one. And the fact that 0:02:51.639 --> 0:02:55.080 that's the only thing that they figure out means how 0:02:55.240 --> 0:02:58.560 bad the banking sector is in Europe this moment, Alouigi. 0:02:58.639 --> 0:03:00.400 For a long time, we've referred to Many is the 0:03:00.440 --> 0:03:03.960 powerhouse of Europe. The banking sector is certainly not the 0:03:03.960 --> 0:03:06.760 powerhouse of Europe. Why does the German banking sector have 0:03:06.960 --> 0:03:12.440 these problems still? Actually, I think that that's uh strategic 0:03:12.760 --> 0:03:16.639 to maintain industry. I think that the banking sector in 0:03:16.680 --> 0:03:20.760 Italy in Germany is dominated by the spreadcast and the 0:03:20.840 --> 0:03:26.200 cooperative and both these institutions don't have profits as an objective. 0:03:26.600 --> 0:03:30.040 They have basically the well being of their partners and 0:03:30.120 --> 0:03:34.120 their um of the of the company's they financed. So 0:03:34.440 --> 0:03:39.120 I think that the banking sector in Germany is postponed 0:03:39.160 --> 0:03:41.880 to the industor sector, and that's the reason why the 0:03:41.920 --> 0:03:44.360 industa sector is so strong and the banking sector is 0:03:44.360 --> 0:03:49.160 a weak. I'm struggling to understand how Commerce Bank, how 0:03:49.200 --> 0:03:52.840 Deutsche Bank still has about a six steak in Commerce 0:03:52.880 --> 0:03:56.800 Bank and will probably roll over that stake into the 0:03:56.840 --> 0:03:59.680 Deutsche Bank Commerce Bank Merger. I mean, basically, is this 0:03:59.800 --> 0:04:06.440 now ftionalization. I think that Germany, that is very taff 0:04:06.640 --> 0:04:09.600 with the other European countries system of state eight when 0:04:09.640 --> 0:04:13.480 it comes to its own banks, has been extremely generous 0:04:13.800 --> 0:04:17.320 in state aid. I think that most Americans don't know 0:04:17.800 --> 0:04:22.760 that top is nothing by comparison to what Germany did 0:04:22.839 --> 0:04:25.599 for its bank in two thousand and eight. So I 0:04:25.640 --> 0:04:27.760 guess if we can broaden out a little bit, given 0:04:27.760 --> 0:04:30.200 the fact that we do have the FED week coming 0:04:30.279 --> 0:04:33.920 up and we have this persistently weak data in Europe, 0:04:34.640 --> 0:04:38.960 is this joytsche Bank Commerce Bank merger emblematic of the 0:04:39.120 --> 0:04:44.119 persistent weakness in the euroregion that could potentially deepen beyond 0:04:44.160 --> 0:04:47.839 what people are expecting. I think that that's certainly one 0:04:47.920 --> 0:04:52.279 reason I think that Germany does sphere is low down. 0:04:53.640 --> 0:04:56.200 There are two views of the world here. There are 0:04:56.240 --> 0:04:59.200 those who say that there's been a temporary thing due 0:04:59.279 --> 0:05:03.560 to a couple of accident like the low water in 0:05:03.600 --> 0:05:06.359 the Rhine River that made it difficult to export, and 0:05:06.440 --> 0:05:09.560 given some regulation the car industry that has low down 0:05:09.600 --> 0:05:13.240 production and then now we're back to two normal Um 0:05:13.640 --> 0:05:16.960 I am more sort of worried, especially with the softness 0:05:17.040 --> 0:05:20.320 coming out of China. China is a big export market 0:05:20.360 --> 0:05:25.040 for Germany and if this is an issue, German manufacturing 0:05:25.120 --> 0:05:28.920 will suffered. And nobody talks about this. But if we 0:05:28.920 --> 0:05:32.640 were to go into a very hard Brexit, the problem 0:05:32.720 --> 0:05:35.920 would not just be for the United Kingdom. Germany exports 0:05:35.960 --> 0:05:39.200 a lot of car to the UK, and so hot 0:05:39.279 --> 0:05:43.880 Brexit will be a pretty bad news for Europe in general, 0:05:43.920 --> 0:05:48.080 but particularly for Germany. So with with this context, I 0:05:48.120 --> 0:05:51.960 think that there we is a need to do something 0:05:51.960 --> 0:05:56.839 with the banking sector that is too big and too unprofitable. 0:05:57.240 --> 0:06:00.760 And part of this unprofitability is the fact that uh, 0:06:00.800 --> 0:06:04.720 the cost to income ratio is very high. So unfoldedly, 0:06:05.120 --> 0:06:09.919 I think with structuring and job cuts are on the line, 0:06:10.440 --> 0:06:12.719 the question is why do you need to merge to 0:06:12.839 --> 0:06:16.400 do that? And I fear that this is just a 0:06:16.480 --> 0:06:21.440 political play that on the one end, the German politician 0:06:21.600 --> 0:06:25.200 allow for job cuts, on the other hand, they do 0:06:25.440 --> 0:06:30.760 form a national champion that would be easier for the 0:06:30.839 --> 0:06:34.440 German government to control and direct Luigi, can a national 0:06:34.520 --> 0:06:40.280 champion compete on the international stage if it is efficient, Yes, 0:06:40.560 --> 0:06:44.960 but given the record of Deutscher, my answer is not. 0:06:46.040 --> 0:06:48.640 Luigi is in fantastic to catch up with your finance 0:06:48.680 --> 0:07:06.280 professor at university if Chicago Birth School. We are so 0:07:06.400 --> 0:07:09.200 lucky to have Herrin Seagram joining us here in our 0:07:09.200 --> 0:07:12.880 Blueberg Interactive Broker Studios in New York. Ran Stagram is 0:07:12.960 --> 0:07:16.880 a New York University. Stern Up professor of Finance. Heard 0:07:17.120 --> 0:07:19.840 the two point one billion dollar valuation on its face 0:07:19.960 --> 0:07:22.880 four lifts, I p O and I believe that values 0:07:22.880 --> 0:07:27.040 accompanied about eighteen plus billion dollars. How do you even 0:07:27.160 --> 0:07:31.360 value that? Thanks for having me, Lisa. So the way 0:07:31.400 --> 0:07:34.880 to look about LIFT is think about it as a 0:07:35.040 --> 0:07:38.760 platform business. And if you take the EV two sales 0:07:38.960 --> 0:07:41.680 for the market overall is about two to and a half. 0:07:42.200 --> 0:07:46.720 But generally platform business is priced between seven and ten x. 0:07:47.560 --> 0:07:51.320 So if you take the current revenues on face value 0:07:51.640 --> 0:07:54.240 at two billion dollars to point one billion, if you 0:07:54.320 --> 0:07:56.800 grow that at twenty five per year for the next 0:07:56.880 --> 0:07:59.880 five years, that gives a future value of roughly between 0:08:00.000 --> 0:08:02.800 thirty and thirty five billion. And if you discount that 0:08:02.840 --> 0:08:04.800 back at the cost of capital that will give you 0:08:04.960 --> 0:08:09.280 roughly around twenty one billion. So investors are pretty much 0:08:09.320 --> 0:08:12.680 paying for the future rather than the current state of 0:08:12.720 --> 0:08:15.120 affairs for this company. This is important. They're paying for 0:08:15.160 --> 0:08:17.320 the future, and they're paying for the future at a 0:08:17.480 --> 0:08:21.400 very expensive time. It just raises a question, are people 0:08:21.440 --> 0:08:24.280 getting in at the peak? Is lift uh and and 0:08:24.280 --> 0:08:26.720 and and our our lift and Uber kind of trying 0:08:26.720 --> 0:08:31.320 to capitalize here on this potential Peakye, that is absolutely right. 0:08:31.520 --> 0:08:35.560 It is more liquidity event for the private equity investors 0:08:35.600 --> 0:08:38.320 who got into Lift and Uber earlier, so they are 0:08:38.360 --> 0:08:42.440 cashing out, no doubt. UM. But I have a feeling 0:08:42.520 --> 0:08:46.320 this valuation would grow into this UM. So although they 0:08:46.320 --> 0:08:49.360 are catching it at peak, UM, I have a feeling 0:08:49.360 --> 0:08:53.480 this company. I'm optimistic generally about this company, your optimist company, 0:08:53.480 --> 0:08:57.360 and and thinking that people will probably get good value 0:08:57.400 --> 0:08:59.440 or at least fair value if they buy into the 0:08:59.440 --> 0:09:03.000 I p o of fair values better I would say, 0:09:03.120 --> 0:09:05.360 not good value, fair value. But this raises a question 0:09:05.400 --> 0:09:07.880 really on a broader level, because right now the SMP 0:09:08.760 --> 0:09:14.520 is poised for its best quarterly performance since we are 0:09:14.640 --> 0:09:19.120 we are looking at a market that is so uh robust, 0:09:19.240 --> 0:09:22.120 and melting up, And there is a question, you know, 0:09:22.800 --> 0:09:24.880 is this a bad time to get in or is 0:09:24.920 --> 0:09:29.079 it also fair value? UM I abuse tend to come 0:09:29.120 --> 0:09:33.400 towards the peaks of the market because original investors, early 0:09:33.440 --> 0:09:36.080 investors are trying to cash out. But I have a 0:09:36.120 --> 0:09:40.680 feeling SMP has some room to run, especially then federal 0:09:40.720 --> 0:09:44.000 reserves on hold, and US is the best place to 0:09:44.040 --> 0:09:46.760 invest compared to rest of the globe. I have a 0:09:46.760 --> 0:09:51.160 feeling this melt up is going to continue for a while, Okay, 0:09:51.200 --> 0:09:53.360 And then what does that say for the other I 0:09:53.520 --> 0:09:56.280 p o s that are slated like the Ubers and 0:09:56.520 --> 0:10:01.959 all the other high profile unicorns. Um Uber is um 0:10:01.960 --> 0:10:04.280 planning to go to the market between hundred and one 0:10:04.360 --> 0:10:08.240 twenty billion. It is similar again with thinking about that 0:10:08.320 --> 0:10:11.960 as a platform business, and they are also diversified into 0:10:12.000 --> 0:10:15.240 other types of businesses. So market is again attaching a 0:10:15.360 --> 0:10:19.040 seven to between seven and ten multiple to this company, 0:10:19.040 --> 0:10:22.000 but I don't think it is the current current valuation. 0:10:22.440 --> 0:10:24.680 We are being We are valuing these companies on a 0:10:24.760 --> 0:10:27.560 forward multiple. That is my humble opinion. Just what your 0:10:27.559 --> 0:10:30.160 thoughts on on Lift and Uber and how one company 0:10:30.240 --> 0:10:33.320 is very very focused on what it does it's a 0:10:33.400 --> 0:10:36.319 right hailing service that's left. Uber seems to be spread 0:10:36.320 --> 0:10:38.760 out a little bit more doing various different things. What 0:10:38.760 --> 0:10:40.600 are your thoughts on the kind of premium you've attached 0:10:40.640 --> 0:10:42.600 to the focused company versus the one that's trying to 0:10:42.640 --> 0:10:45.800 do a whole lot more. Thanks for having me, Jonathan, 0:10:46.440 --> 0:10:49.040 good to be with you. Um, there are two types 0:10:49.080 --> 0:10:52.600 of businesses. If you think about it's a focused company, Um, 0:10:52.640 --> 0:10:55.040 they have as you said, they're very focused on right 0:10:55.120 --> 0:10:59.120 hailing and they're planning to expand the business. They're currently 0:10:59.360 --> 0:11:01.920 in the North Hamn region right now, so that's the 0:11:02.040 --> 0:11:04.720 target market. But when you take Uber for example, they 0:11:04.760 --> 0:11:07.480 have more levers to pull, so it is more of 0:11:07.520 --> 0:11:12.720 a diversified business. So investors think about these businesses in 0:11:12.720 --> 0:11:16.200 a different way. Um, simple folks, business can be valued 0:11:16.200 --> 0:11:18.920 in a different way and a diversified business would be 0:11:18.960 --> 0:11:22.240 valid in a different way. So for us to compare 0:11:22.240 --> 0:11:24.680 these two companies at this moment, I don't think it 0:11:24.760 --> 0:11:27.520 is advisable, just in terms of how mature some of 0:11:27.520 --> 0:11:29.400 the companies are coming to market as well. I think 0:11:29.400 --> 0:11:32.160 a lot of people find that interesting relative to where 0:11:32.200 --> 0:11:35.320 we were, so maybe ten twenty years ago, where relatively 0:11:35.360 --> 0:11:38.200 young companies would come to market, they would become public 0:11:38.240 --> 0:11:41.439 companies for very good reasons. Now it seems they remain 0:11:41.559 --> 0:11:43.960 private for a whole lot longer, Professor, Why do you 0:11:43.960 --> 0:11:49.199 think that is? Because private market funding so available. If 0:11:49.240 --> 0:11:53.080 you take Master's Sun buying into uber so three or 0:11:53.080 --> 0:11:56.000 four billion dollars being pumped into Even last week he 0:11:56.080 --> 0:12:01.800 invested into Grab in Singapore. So the private market funding 0:12:01.960 --> 0:12:06.800 is readily available. Cash is cheap at this lower interest rates. 0:12:06.880 --> 0:12:09.960 That's why these companies are staying long a private. They 0:12:10.000 --> 0:12:12.320 have no need to come to the public markets, but 0:12:12.720 --> 0:12:15.800 they want to cash out rate if they have gotten in. 0:12:15.840 --> 0:12:18.840 For a take for example, what master Son did with 0:12:18.880 --> 0:12:21.679 Ali Baba put in twenty million and the stake is 0:12:21.720 --> 0:12:25.360 sitting at one and twenty billion today, So people are 0:12:25.360 --> 0:12:27.520 comfortable sitting with it in the private market, they don't 0:12:27.520 --> 0:12:30.280 have to really cash out. But then markets that that 0:12:30.360 --> 0:12:33.480 are such a high why don't you take advantage of it? 0:12:33.480 --> 0:12:37.199 It's well great. Some people would say that the availability 0:12:37.200 --> 0:12:40.000 of capital and the private markets to some degree, and 0:12:40.080 --> 0:12:41.720 you can tell me to what degree you think this 0:12:41.840 --> 0:12:44.960 is true, is breeding arrogance of leadership of some of 0:12:45.000 --> 0:12:47.560 these tech companies and when they do come public, the 0:12:47.600 --> 0:12:50.480 ownership structures are different. So we'll let me make this 0:12:50.600 --> 0:12:53.960 really simple. For a typical investor who's looking to participate 0:12:54.080 --> 0:12:56.920 in an I p O, they won't actually own the company, 0:12:56.960 --> 0:12:58.839 won't have the voting rights that maybe they would have 0:12:58.880 --> 0:13:01.560 got ten twenty years ago, because the leadership are able 0:13:01.600 --> 0:13:04.320 to keep hold of the ownership and voting rights the 0:13:04.320 --> 0:13:06.920 management of the company a way that maybe they didn't 0:13:07.120 --> 0:13:09.640 many years ago. Why do you think that is changing 0:13:09.720 --> 0:13:11.640 and you think eventually there will be pushed back from 0:13:11.679 --> 0:13:15.880 the investor community. There will be eventually be a push back, 0:13:16.000 --> 0:13:17.960 but I don't think that is the case right now. 0:13:18.080 --> 0:13:20.480 Investors have come to terms with it. This is the 0:13:20.520 --> 0:13:25.080 norm for technology companies. You take Sergio Brain, Mark Zuckerberg, 0:13:25.160 --> 0:13:27.160 all the top leaders, I don't know, I don't want 0:13:27.160 --> 0:13:29.760 to call them top, but the leaders they tend to 0:13:29.800 --> 0:13:32.640 hold on a majority of the voting rights. Investors are 0:13:32.679 --> 0:13:36.480 not currently punishing the valuations of these companies. I know 0:13:36.679 --> 0:13:40.920 it weakens the corporate governance structure of the company, but 0:13:41.000 --> 0:13:43.320 I don't think that is impacting the valuation. Maybe there 0:13:43.400 --> 0:13:45.560 might be a push back in the future, but I 0:13:45.600 --> 0:13:47.960 don't think I don't see that right now. Do you 0:13:48.000 --> 0:13:52.240 think that these companies being public will impede their growth 0:13:52.480 --> 0:13:56.480 because these an these these leaders have never been accountable 0:13:57.000 --> 0:13:59.200 to shareholders in the same kind of way and having 0:13:59.240 --> 0:14:03.320 to sort of deal with quarter to quarter expectations versus 0:14:03.360 --> 0:14:07.720 longer term plans and just burning through cash. Lisa, You're right, 0:14:07.880 --> 0:14:11.040 it's going to be tough for them. They had their wish. 0:14:11.080 --> 0:14:13.200 When they are private, they can do whatever they want 0:14:13.240 --> 0:14:16.400 to Now they're accountable to the market and the investors. 0:14:16.960 --> 0:14:20.320 But when you come into public markets with valuations of 0:14:20.400 --> 0:14:24.560 twenty billion one and twenty billion, investors would give a 0:14:24.640 --> 0:14:28.960 leeway for those leaders because they have a proven track record. 0:14:29.000 --> 0:14:31.280 If these valuations are holed up for the next year 0:14:31.360 --> 0:14:34.640 or two, they have proven that they can grow this business, 0:14:34.920 --> 0:14:36.560 and I think investors are going to be on the 0:14:36.600 --> 0:14:40.920 sideline letting these companies grow on their own. Paren Segrim, 0:14:41.160 --> 0:14:43.320 thank you so much for being with us. Thank you, Lisa, 0:14:43.400 --> 0:14:45.840 thank you Jonathan for having Thank you sir, Thank you 0:14:46.000 --> 0:15:01.400 very much. Boeing shares down a little bit lessan two 0:15:01.400 --> 0:15:04.240 and a half percent following news that the f a 0:15:04.320 --> 0:15:07.840 A had been warned that Boeing had too much power 0:15:07.960 --> 0:15:11.960 in the approval process seven years ago and they had 0:15:12.000 --> 0:15:14.360 not paid any attention. This looks terrible for the f A, 0:15:14.720 --> 0:15:17.960 looks terrible for Boeing. Here to talk about the potential 0:15:18.040 --> 0:15:22.240 ramifications for it is Brook Sutherland Bloomberg opinion columnists joining 0:15:22.320 --> 0:15:25.320 us here in our interactive Broker Studios. Broke just give 0:15:25.400 --> 0:15:29.680 us a sense of what the Seattle Times investigation found 0:15:29.960 --> 0:15:32.880 that really showed this should have been on the radar 0:15:32.960 --> 0:15:36.160 of the f A A and frankly Boeing as well. No, absolutely, 0:15:36.200 --> 0:15:37.560 I mean, and I think to your point. So this 0:15:37.600 --> 0:15:39.760 is seven years ago, two thousand twelve. This is actually 0:15:39.840 --> 0:15:43.280 pre the Dreamline or battery problems as well, which did 0:15:43.360 --> 0:15:45.680 of course result in the f A grounding those planes. 0:15:45.720 --> 0:15:48.280 So this has been sort of an ongoing issue that 0:15:48.320 --> 0:15:51.680 everybody should have been rather abundantly aware of and perhaps 0:15:51.720 --> 0:15:54.040 looking at a little bit more aggressively. So a couple 0:15:54.040 --> 0:15:56.920 of things from the Seattle Times investigation. What they have 0:15:57.040 --> 0:16:00.120 found is, you know, it's been well documented that f 0:16:00.280 --> 0:16:04.840 A has been outsourcing certification work to the aircraft manufacturers. 0:16:04.840 --> 0:16:07.640 Now this is something that's actually gotten approval from people 0:16:07.640 --> 0:16:10.720 in government and sort of you know, one over their 0:16:10.760 --> 0:16:13.760 support because the f A does not have very much money, 0:16:13.800 --> 0:16:16.840 and this is also a rather timely process that these 0:16:16.880 --> 0:16:20.920 aircraft certified. Before you continue, is there some sort of 0:16:21.080 --> 0:16:26.480 external check on the in house corporate overseers that are 0:16:26.560 --> 0:16:30.800 overseeing themselves. Well, in theory, the f A has the 0:16:30.840 --> 0:16:34.640 ability to approve the Boeing employees that are you know, 0:16:34.920 --> 0:16:37.480 put in place to act as sort of officials of 0:16:37.560 --> 0:16:39.720 the f A as far as the certification process, and 0:16:39.720 --> 0:16:42.880 if they have issues of conflicts of interests that arrived, 0:16:42.920 --> 0:16:46.160 they can replace them. But what the Seattle Times is 0:16:46.200 --> 0:16:50.640 reporting is that employees did raise concerns about certain Boeing managers, 0:16:50.720 --> 0:16:53.960 and their managers at the f a A basically overruled that, 0:16:54.080 --> 0:16:56.080 and we're pushing them to sort of speed up the 0:16:56.120 --> 0:16:58.880 certification process to try to get this bowing blank out. 0:16:58.920 --> 0:17:02.200 Because remember the reason why Boeing was investing in the 0:17:02.200 --> 0:17:04.800 seven Max is because air Bus came out with a 0:17:04.920 --> 0:17:08.320 three Neo, which had much more fuel efficient engines, was 0:17:08.440 --> 0:17:10.920 very attractive to airlines for a lot of different reasons, 0:17:10.920 --> 0:17:13.879 and Boeing needed a response, and they needed one very quickly. 0:17:13.880 --> 0:17:17.399 They were already behind air Bus in terms of production. Um, 0:17:17.480 --> 0:17:19.800 you know, the other really key things from the Seattle 0:17:19.840 --> 0:17:23.440 Times report for me were the details of this safety 0:17:23.440 --> 0:17:27.919 analysis that Boeing did on the maneuvering Characteristics Augmentation system, 0:17:27.960 --> 0:17:30.240 which is that slight control system that's being sort of 0:17:30.240 --> 0:17:34.600 pinpointed as a possible cause for both of these fatal crashes. Now, 0:17:34.920 --> 0:17:37.960 so in that safety analysis which Boeing did as part 0:17:37.960 --> 0:17:40.720 of the certification process, as part of this outsourcing of 0:17:40.760 --> 0:17:46.120 the work, um, they understate the thrust that can put 0:17:46.160 --> 0:17:49.680 the degree of thrust on the plane's nose down. Um. 0:17:49.800 --> 0:17:53.400 They also failed to acknowledge the fact that this system resets, 0:17:53.760 --> 0:17:56.359 so if the plane's nose is diving and the pilot 0:17:56.480 --> 0:17:59.760 corrects that, the system can go through the process all 0:17:59.800 --> 0:18:03.119 over again, which is what happened that we heard about 0:18:03.720 --> 0:18:06.080 with the Ladish crash. And that really sort of undermines 0:18:06.119 --> 0:18:08.679 Bowing's narrative because with the first crash they said, oh, well, 0:18:08.720 --> 0:18:10.840 pilot should have known about this. They have all this, 0:18:11.040 --> 0:18:13.960 you know, basic training of how to handle a dive. Well, 0:18:13.960 --> 0:18:17.000 pilots are trained for sort of a continuous dive. That's 0:18:17.000 --> 0:18:19.399 not what happened. This was sort of up and down, 0:18:19.520 --> 0:18:21.760 step by step, and you know, with the degree of 0:18:21.920 --> 0:18:24.719 thrust the system is capable of. That was sort of 0:18:24.760 --> 0:18:27.440 what led to this being so disastrous. So I want 0:18:27.480 --> 0:18:29.719 to pick up on this idea that it goes counter 0:18:29.960 --> 0:18:34.800 to Boeing's narrative. I'm wondering how much liability Bowing is 0:18:34.840 --> 0:18:37.400 going to have here given the fact that they were 0:18:37.520 --> 0:18:41.960 aware of potential risks, the fact that they were lobbying 0:18:42.080 --> 0:18:44.040 f A A and the f A was not getting 0:18:44.040 --> 0:18:46.720 them in check, and they are their own overseers. The 0:18:46.760 --> 0:18:49.720 fact that that they have that onus, does that leave 0:18:49.800 --> 0:18:54.800 them with more responsibility? Uh, financially at this point, the 0:18:54.840 --> 0:18:58.760 fact that the risks were understated in this safety analysis 0:18:58.760 --> 0:19:01.840 that was submitted they f A is not a good 0:19:01.880 --> 0:19:04.440 look for Boeing, especially because they're now saying, Okay, we'll 0:19:04.480 --> 0:19:07.399 know this is actually how it worked. Um, I think 0:19:07.920 --> 0:19:10.119 you know, you're already starting to see sort of lawsuits 0:19:10.160 --> 0:19:12.439 from the families of of the people who died in 0:19:12.440 --> 0:19:14.960 these crashes. I am not a lawyer, so I'm not 0:19:15.200 --> 0:19:17.080 going to speculate onto the outcome of that, but just 0:19:17.240 --> 0:19:19.960 looking at it, it does not look good for Boeing. 0:19:20.000 --> 0:19:22.840 I mean just in terms of their culpability here, in 0:19:22.960 --> 0:19:25.960 terms of not really taking ownership of some of these issues. 0:19:26.080 --> 0:19:28.240 I think that just raises a lot of questions and 0:19:28.080 --> 0:19:31.680 and and not to not to diminish the personal tragedy 0:19:31.760 --> 0:19:34.320 aspect of this. I mean a lot of people, hundreds 0:19:34.320 --> 0:19:38.480 of people lost their lives because of what happened. I 0:19:38.520 --> 0:19:41.920 do have to wonder from a business perspective with Boeing, 0:19:42.359 --> 0:19:45.600 is the big risk the liability is the potential lawsuits 0:19:45.840 --> 0:19:48.719 or is it that companies airlines are not going to 0:19:48.880 --> 0:19:51.400 order from Boeing because they have that much less confidence. 0:19:51.840 --> 0:19:54.639 I think the bigger risk as far as, um, you know, 0:19:54.680 --> 0:19:57.960 Boeing's liability is first of all, what happens as a 0:19:58.000 --> 0:19:59.800 result of this grounding, and a lot of it is 0:19:59.840 --> 0:20:02.119 to pendant on how long the grounding is and what 0:20:02.680 --> 0:20:07.160 regulators ultimately decide is the problem here. Um. So after 0:20:07.200 --> 0:20:09.399 the Lion Air crash, I mean Boeing was sort of saying, well, 0:20:09.440 --> 0:20:11.760 this is a software issue. They were supposedly working on 0:20:11.800 --> 0:20:14.359 a fix that was reportedly supposed to be out by 0:20:14.400 --> 0:20:16.480 year end. Obviously that did not happen, and said we 0:20:16.480 --> 0:20:19.560 had the Ethiopian Airlines crash, which in my mind sort 0:20:19.600 --> 0:20:21.800 of ups the stakes as far as how you actually 0:20:21.800 --> 0:20:23.960 fix this I don't think it's as simple anymore. It's 0:20:23.960 --> 0:20:26.720 just a software download. I think you're certainly going to 0:20:26.760 --> 0:20:29.119 have to have retraining of pilots, which is going to 0:20:29.160 --> 0:20:31.199 be expensive. That's probably going to be a bill that 0:20:31.240 --> 0:20:34.520 Boeing has to front, including the cost of, you know, 0:20:34.600 --> 0:20:38.160 replenishing airlines lost revenue for having these planes out of service. 0:20:38.560 --> 0:20:42.440 Um Now, the more dire scenario is that the f 0:20:42.440 --> 0:20:44.720 a A is forced to sort of revisit the whole 0:20:44.720 --> 0:20:48.399 certification of the seven thirties seven Max designed to say, Okay, 0:20:48.400 --> 0:20:50.240 we needed to be more rigorous about this, we need 0:20:50.280 --> 0:20:54.720 to go through a more in depth process. There's also 0:20:54.760 --> 0:20:57.440 a question about the f a and what happens here 0:20:58.000 --> 0:21:02.320 with that agency, especially given the fact that any potential 0:21:02.920 --> 0:21:06.000 badness around the organization was just magnified by the fact 0:21:06.040 --> 0:21:07.760 that they were so late to the game in terms 0:21:07.800 --> 0:21:10.760 of halting the use of the seven thirty seven Max 0:21:10.800 --> 0:21:14.840 A jet. I'm wondering is there any potential recourse that 0:21:15.000 --> 0:21:18.480 lawmakers could take with the f a A, uh, possibly 0:21:18.480 --> 0:21:21.480 appropriating a little more money so they could have outside investigators, 0:21:21.880 --> 0:21:24.719 or perhaps making sure that they have the personnel who 0:21:24.760 --> 0:21:27.040 are not going to do this again. I certainly think 0:21:27.080 --> 0:21:30.399 that this idea of outsourcing the certification work to Boeing 0:21:30.480 --> 0:21:31.919 is going to be under a lot of scrutiny. You're 0:21:31.920 --> 0:21:33.600 certainly gonna have a lot of hearings. Now. I will 0:21:33.640 --> 0:21:38.119 say the Trump administration actually expanded that outsourcing program just 0:21:38.160 --> 0:21:40.159 a couple of months ago to include, um, you know, 0:21:40.200 --> 0:21:43.439 other types of products. So it will be interesting to 0:21:43.440 --> 0:21:45.280 see how this plays out because, of course, the Trump 0:21:45.280 --> 0:21:49.359 administration is very big on deregulation, and obviously in this 0:21:49.400 --> 0:21:51.960 case and some of the President's tweets would suggest that, 0:21:52.119 --> 0:21:54.960 you know, we we need to have stronger oversight here. 0:21:54.960 --> 0:21:56.800 So it's gonna be really interesting to see how that 0:21:57.119 --> 0:21:58.919 tension plays out. But I will say the f A 0:21:59.080 --> 0:22:01.399 is not the only game in town anymore, like it 0:22:01.520 --> 0:22:04.600 used to be that the FAYS were carried in the 0:22:04.680 --> 0:22:07.200 aviation industry. And what you saw in this case, which 0:22:07.200 --> 0:22:10.200 I just think is remarkable, is that other aviation regulators 0:22:10.200 --> 0:22:12.120 are saying, we don't really trust what you have to say. 0:22:12.160 --> 0:22:13.959 We're going to make our own decisions as far as 0:22:14.000 --> 0:22:16.560 whether or not this plane as air worth. Other other 0:22:16.680 --> 0:22:19.800 regulators are talking about internationally, right, I mean, I think 0:22:19.800 --> 0:22:21.560 you saw that with like how quick they were to 0:22:21.680 --> 0:22:24.359 ground the plane regardless of what THEA was, which to 0:22:24.480 --> 0:22:27.919 me raises also a question of how this affects the 0:22:28.040 --> 0:22:32.000 companies in the United States that are regulated by the 0:22:32.080 --> 0:22:34.760 f a A and others that are outsourcing some of 0:22:34.800 --> 0:22:37.920 their their their services. To me, it makes me wonder 0:22:38.000 --> 0:22:41.920 whether that's going to put these companies at a disadvantage 0:22:41.960 --> 0:22:46.600 competitively internationally because people will have less faith that they 0:22:46.640 --> 0:22:50.120 have truly passed all of the tests. Well, I mean, 0:22:50.160 --> 0:22:52.679