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Chinese Authorities Scrambling to Save Country's Stock Market; Bounce Back for Wall Street; Twitter Earnings Out; Volkswagen Becomes World's Largest Car Maker; Report: Human Error to Blame in Deadly Virgin Galactic Crash; Movie Tech to Become Reality?; The First Female NFL Coach. Aired 4-5p ET
Aired July 28, 2015 - 16:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
MAGGIE LAKE, QUEST MEANS BUSINESS, BUSINESS ANCHOR AND CORRESPONDENT: A big bounce back for the Dow as Wall Street finally break its losing streak.
It's Tuesday, the 28th of July.
Tonight, trying to stop the slide, China's latest intervention can't stop markets falling. New notifications from Twitter, its earnings are due out
this hour.
And Volkswagen leaves Toyota eating dusts become the world's largest car maker.
I'm Maggie Lake. This is Quest Means Business.
Good evening. Tonight, Chinese authorities are scrambling to save the country's stock market. Officials have pledged to buy shares to prop up
prices and regulators say they're investigating Monday's big sale off.
In Shanghai, shares fail as much as 5 percent before recovering to close down 1.7 percent. Ordinary inventors are heading for the exits and the
ones that are left are getting nervous.
(BEGIN VIDEO CLIP)
UNIDENTIFIED FEMALE: Of course, I'm worried and I felt anxious deep inside. It's money that I lost after the plunge. How am I'm happy after
my real money is gone? What do you think? I'm not happy and have not been able to sleep because I lost such a great amount of money.
(END VIDEO CLIP)
LAKE: The volatility had left analysts flummoxed as well. Deutsche Bank's Jim Reid wrote, "There was no obvious explanation for the timing or the
magnitude of the slump. It ceased to be a free market a long time ago so analyzing it is tough." That leaves the analysts to look at the warning
lights on the Chinese economy's black box.
First, slowing growth, that may be worse and it appears if Beijing is manipulating the figures of some suspect. China's growth was filled in
part by debt, with growth slowing, there is concern that debt could turn toxic.
And finally, the extreme measures the government has taken to prop up the market that shows officials are worried and there could be more weakness
under the surface.
Joining me now is Jamie Metzl, Senior Fellow at the Atlantic Council.
So, Jamie, is this just the sort of popping of a speculative bubble that had burst, or is there something more worry going on here?
JAMIE METZL, SENIOR FELLOW, ATLANTIC COUNCIL: Well, it is the popping of a speculative bubble and there is something more worrying. As you know, over
the last year, China stock markets went up about 150 percent but over the last month and a half, they've gone down a little more than 30 percent.
And that would be normal, but the problem is that the government has an effects (ph) on nuclear in its response to the downturn. And they were so
aggressive because I think they came to believe the government credibility was on the line after the party and the government had tacked up the stock
market over the past year.
Now, what I think that we're seeing is the government is recognizing that they overreacted and so they're beginning a process of pulling back because
in their response, they can affect nationalized part of the stock markets, when they pull back, people then get really worried because they know the
government intervention is the only thing that's still keeping the markets at these unrealistic levels.
LAKE: We've seen -- we've had the last several or so years to understand how difficult it is to win yourself off of government intervention of any
type.
METZL: Yes.
LAKE: So, is there a credibility heard and will this impact the economy because we keep hearing from people like you and experts that there isn't a
connection between the fundamentals of the economy and the stock market in the way there might be stay here in the U.S.
METZL: Well, certainly, when you hear the numbers that only 10 percent of the population is invested in the stock markets, that the stock market is a
relatively smaller part of the economy, then certainly it is here in the United States.
You can say, "Well, it's not such a big deal." But the big deal is that one government has put its credibility on the line. Two, Xi Jinping, the
deal that Xi Jinping has essentially made with the Chinese people is that if he gets power to centralize authority, which he's done, he promised to
rationalize the economy and to move towards allocation of resources using market principles.
But now is that a moment of crisis, they're forgetting market principles and having massive recentralization, and that puts a dark cloud over the
reform program as a whole. And I think that the Chinese government has begun to realize this and that's why they're beginning to step away from
such massive and, in my opinion, mistaken intervention in the market.
LAKE: And so does this put a chill on any other further liberalization? This was always going to be the top part of the transition, wasn't it,
Jamie?
METZL: Yup.
LAKE: That in order to have a market economy, there going to pain. And there's going to be bankruptcy, they're going to see things that ...
METZL: Yes.
LAKE: ...people don't like and may cause social pushback, if not, unrest.
METZL: Yeah, and that is the crux of what it is happening here is that there is -- there are these issues and at the end of the day, as I've said
on this program many, many times and I've discussed with you, Maggie, many, many times that the core of problem in China is a political problem. And
in China, every resource is misallocated beginning with and as a result of the misallocation of political power.
And so there is this push because if China on one hand moves towards the market economy, it means the party is going to have to let go of some of
its controls. That every time where there's a question of who takes -- of who benefits whether it's the party and the state-owned enterprises or the
more regular people whether it's retail investigators or the people who run small and medium enterprises, at the end of the day, the party circles the
wagon -- circles the wagons around its own. And that -- as long as that happens, I foresee many more problems in the Chinese economy going forward.
LAKE: This is not an easy or simple transition they're trying to make, that's for sure. Jamie Metzl, always appreciate you coming on and helping
us understand it a little bit.
METZL: My pleasure, Maggie.
LAKE: Great to see you.
Now, the weakness in China wasn't enough to dampen the mood on Wall Street for a change and out in the discussion of nearly 200 points as investors
focus on strong earnings from the likes of Ford, Pfizer and UPS. Wall Street is also keeping an eye on the Federal Reserve meetings which kicked
off today, investors are looking for any clues about when the fed will raise interest rates.
And it seems a positive sentiment extended across the Atlantic as well, European markets not a five-day losing streak, thanks to strong corporate
earnings and a slew of M&A activity.
The Greek stock market which has remained close for over a month has just been given the green light from the ECB to reopen, although there is still
no word on exactly when that will be.
Now, the technical talks to secure Greece's bailout have begun but disputes over the pace and extent of reforms continue to cause friction. The
European Commission has denied claims by former finance minister, Yanis Varoufakis, that Europe had taken control of Greece's tax authorities.
In a leagues (ph) conference call, Varoufakis apparently revealed a secret plan to hack into Greece tax records and set up a new payment system which
would be used in the event of a Greek exit (ph).
James Galbraith at the University of Texas was closely involved with those discussions. Earlier, I asked him if he could shed light on some of the
controversial plan.
JAMES GALBRAITH, PROFESSOR OF GOVERNMENT, UNIVERSITY OF TEXAS AT AUSTIN: There was a contingency planning for the possibility that Greece might be
forced out of the Euro. And then there was within the finance ministry, an idea that you could use the state system that already existed to facilitate
payments between the Greek state and its suppliers, for example.
That was a -- something that has been in the public domain for some weeks. Greek Finance Minister Yanis Varoufakis talked about it in his resignation
talk as one of the things he worked on as finance minister, and it was something that was being handled in other channels inside the ministry and
-- but not something that I was working on.
LAKE: But did you know that they were talking about hacking the computers, I think that people are ...
GALBRAITH: It's not a question. Now, this is a journalistic exaggeration. That computer system existed is used to receive payments, or to receive
taxes, the question is whether it can be also be used to make payments and that way, you could cancel out mutual the rears of the state-owed money to
the taxpayer and the taxpayer owed money back to the state.
So this was a way of improving the efficiency of the functioning of the finance ministry and as I've say, it was internal to the Greek government,
it had nothing to do with the ongoing -- nothing directly has certainly to do with the ongoing negotiations of other issues that were in the
relationship between Greece and Europe.
LAKE: I think anyone who've watched this play out should not be surprised that there was some discussion of contingency plans given, you know, how
close to the wire this went. But it does speak to the poor state of relations, I think, given where we are now, do you think that Greece can
adhere to these bailout terms?
GALBRAITH: I think it's going to be very difficult. In the very short run, things are going to get a little bit easier because they -- European
Central Bank has eased up on the Greek banking system and the tourism fee is going to still in full flow and is apparently improving.
But once you get past that, they're going to have targets for physical revenues coming in from these newly increased tax rates. They're going to
have increased tax evasion because the rates are so high. The risk is that you'll miss the targets that that will trigger additional spending cuts,
and that you end up in a continuing slump of the Greek economy going forward.
So I think the -- this -- the terms that were imposed on Greece are really not very realistic and I think that view was also shared by the
International Monetary Fund which hasn't yet signed off on joining the financing of this program.
LAKE: What do you think this means for the rest of Europe? Both the situation in Greece and how everything was handled, do some people say it
is the beginning of the end of the Euro, they're very dim on the prospects for greater European integration.
GALBRAITH: I think it poses a big challenge for the future of the Eurozone. It would have been much better if the creditors and the
Europeans, in particular, had shown some flexibility to the Greek government giving it some breathing space allowed it to design reforms that
it felt were suitable to the Greek condition and allow the Greek economy to come back a bit from a very depressed condition that existed when the
government took office.
That didn't happen. And so now, there is a, I think, a general sense that you're either within the straightjacket of the policies that are -- were
imposed on Greece, or you have to consider leaving the Euro, and that's going to be something that will be discussed in Spain and Portugal, Ireland
and other countries in the months ahead.
LAKE: Some news just into CNN, Twitter earnings are out, user growth was up 15 percent year on year. Will they be enough to turn around their
losing ways on Wall Street? We'll go through numbers next.
(COMMERCIAL BREAK)
LAKE: This news just into CNN, Twitter shares are surging after hours. The company reported 360 million users in the second quarter. That is a 15
percent year-over-year revenue came in at $502 million, a 61 percent jump from a year ago.
Wall Street has not been happy with Twitter lately, that's even after CEO Dick Costolo, who drawn the ire of many shareholders, announced that he
would step down. Former CEO Jack Dorsey has since moved into the role on an interim basis.
The biggest question investors want answer is who will be the next person to lead this company. They'll also be looking at user growth and with
expected Twitter to have ended last quarter with close to 313 million monthly active users. That's a gain of just 3.5 percent. So expectations
were quite low.
Shareholders are hoping for a big jump in revenue. They want to see that Twitter is getting better at making money from advertising the users it
already has. Twitter may also give details in its plan to play a bigger role in live and breaking events, it's called Project Lightning. And so
far, Twitter has given few details on what it might look like.
Business correspondent Samuel Burke is here to discuss the results. And Samuel, I think people have been getting used to sort of being disappointed
by Twitter. There's a lot of anxiety ahead of this, the stock is down sharply if you look at over the last three months and in fact, everybody
loves to hate. This may be silence in some of us.
SAMUEL BURKE, CNN BUSINESS CORRESPONDENT: This is a big surprise, but just remember, the expectations had been cut so low because quarter after
quarter, we have these negative reports.
Listen, revenue is higher than expected. Earnings per share higher than expected, but the key number you already hit on, in fact, that user growth
is way more than people expected. They added 14 million users in one quarter.
Now, though that's not much compared to some of their social media rivals, I was hearing from analysts on the street somewhere between just 2 to 8
million was the range. I mean, that's really anemic (ph) growth. So to see 40 million users added for Twitter, that is a very good number and I'm
not surprised that this dock is up about 7 percent right now on the surprise numbers.
LAKE: And I think what people are going to be looking for. So this headline is just coming out. We're going to have to wait to the conference
call to get all the color on what's happening. But if not that as you say that there's -- there being those very low expectation in one quarter, so
what could have changed that created that huge jump? We know they even try really hard tweaking things, changing it to try to capture more people.
Maybe this is paying off?
BURKE: And maybe it's periscope. Remember, it's that app that allows people to do live video straight from their phone and broadcast it out to
the world. There's been a lot of excitement about that. There's been a lot of media coverage on that from you and from me, so maybe that brought
more people to the platform, interestingly. You called it the conference call, the earnings call.
Well, it's not going to be a call this time. They're actually going to do the investor's call live on Periscope. Jack Dorsey has just been tweeting
out. You see his tweet on the screen there. "Hello, get Periscope. This is their video after they own to watch our Q2 earnings prepared remarks and
Q&A. We go live 2:00 P.M. Pacific". That just, you know, here in a little bit on Periscope.
So, maybe if this very platform that they're using to talk about their report...
LAKE: Yeah.
BURKE: ... that's bringing people to the platform and has these numbers up.
LAKE: Yeah, that's really interesting. And we know there has been a lot of excitement. We know it's all about lie. For why wouldn't take that
opportunity to market their own product, right?
Samuel, lastly, the big question is, I mean, its great Jack Dorsey founder tweeting now, but who's going to stir this company permanently? I mean
that's a huge question. And a lot of people have been wondering who wants the job given all the trouble they're having. Again, maybe a different
dialogs surrounding that now.
BURKE: When they Dick Costolo to left the company, you saw the stocks soar. People were so excited to see he was leaving and then when it was
announced that Jack Dorsey was going to be interim CEO, then the stock when back down.
So, it's anybody's guess (ph) at this point. There are no clear leads but I think people are going to want to know especially given the reports that
Square, Jack Dorsey's other company, going to go public that it's going to be eaten up by some other company. They're going to want to know what is
he going to do, both people have money in Twitter and the private investment in Square. So it'll be interesting to see if there's any type
of CEO announcement.
LAKE: Yeah. I think the expectation that is that he is just the interim that he will want to move aside for someone else. The question is where
does that person come from? Where they poach (ph) them from?
And I wonder if Dick Costolo is going to get any credit from maybe having put some of this stuff into effect, before they got shutdown.
BURKE: It'll be interesting if Periscope brought all these new people...
LAKE: Yeah.
BURKE: ... and all these happened under him.
LAKE: Yeah.
BURKE: ... in his watch (ph) that acquisition was made up.
LAKE: (Inaudible) not going to get his job back.
BURKE: Yeah.
LAKE: Anyway a lot to pay attention for on that, and let's call (ph) Samuel. We know you would be listening in for us. Thanks so much.
Now, Twitter is looking to consolidate its place as a social media network with an influential global reach. As Clare Sebastian reports, Twitter has
played a key roll in shaping events which have dominated the headlines.
(BEGIN VIDEOTAPE)
CLARE SEBASTIAN, CNN PRODUCER: From politics to populate culture over the past few months Twitter has been at the center of it all.
(SPEAKING IN FOREIGN LANGUAGE)
Athens, June 27th, it's the Greek Prime Minister Alexis Tsipras announcing a shock referendum on the bailout term set by Europe. It didn't end there.
Throughout that day he tweeted 23 times each more defiant than the last.
(BEGIN AUDIO CLIP)
ALEX TSIPRAS, GREEK PRIME MINISTER: We don't need to ask permission from Mr. Schauble or Mr. Dijsselbloem to let the voice of the Greek people to be
heard.
(END AUDIO CLIP)
SEBASTIAN: As the crisis escalated, parallel protest unfolded on the streets and on Twitter. The Greek finance minister even tweeting out his
resignation.
MARK SCHAEFER, AUTHOR SOCIAL MEDIA CONSULTANT: Today there's an expectation of transparency, there's a lot of politics that take place on
Twitter, and it can be parallist (ph) because some of these negotiations are extremely complex.
SEBASTIAN: And they don't come much more complex that a nuclear deal with Iran.
To say key part of this historic moment played out on Twitter would be an understatement. On the day, the deal was reached at Hassan Rouhani, the
Iranian president's Twitter account send out 21 tweets. And the White House faced with the task of selling the deal to a skeptical Congress.
Well, they went one step further.
They setup a brand new account at the Iran deal.
SETH MEYERS, TELEVISION HOST: Finally, using Twitter for what it was design for explaining complex international nuclear agreements involving
several nations.
SEBASTIAN: Jokes aside Twitter has become a powerful tool and no one knows that better than Taylor Swift.
On June 1st, the pop star Twitter "To Apple, Love Taylor" to her 61 million followers, it was an open letter saying she would not release her album on
Apples new music service because the company wasn't paying artist during it's three months free trial. Her protest worked, Apple reversing its
policy.
UNIDENTIFIED MALE: I think that's an amazing example of how influence and authority has really been democratized today. And here we have this
performer who stopped one of the most powerful company's in the world in their tracks really within 24 hours.
(END VIDEOTAPE)
LAKE: Coming up, a neck to neck race becomes the world's biggest car makers has a new front runner. We'll tell you how Volkswagen dethroned the
mighty Toyota after the break.
(COMMERCIAL BREAK)
LAKE: A new auto giant has pulled into (inaudible) position in the race to become the world's biggest carmaker. Competition for the title is stiff,
the lead has changed hand (ph) three times in the last four years.
Back in 2011, General Motors was in front after series recalls and production difficulties not Toyota off the top spot. A year later, the
Japanese giant regain the lead and managed to stay ahead for two more years.
Now, Volkwagen is threatening to steal Toyota's crown. A German automaker beat Toyota sales for the first six months of 2015. Now, the Japanese firm
could make it less when I came back as Volkswagen warn (ph) to the potential slow down in the Russian and Chinese market.
For more on the race to be number one, I'm joining by CNN Money and Digital Correspondent Paul La Monica.
So Paul, how did Volkswagen manage to do this special because they are that big in the truck market...
PAUL LA MONICA, MONEY DIGITAL CORRESPONDENT: Yeah.
LAKE: ... which is usually a source of strength.
LA MONICA: Yeah. As we're going to hear when you talk to the CEO of Ford, truck sales are definitely big right now, that's help GM and Ford.
I think with Volkswagen the key is, that they are doing well in China despite the warning about possible softness there and other merging markets
like Russia. But Volkswagen, very big in Europe of course, as well as China, and that offsets the fact that they're not that big of a player in
the U.S. compared to Toyota, and then GM, and Ford.
LAKE: But it sounds like they have been gaining -- is this the case of Volkswagen really getting it right or just being there at an opportune time
and a lot to the other ones are getting ahead special with all the recalls, you know, continuously...
LA MONICA: Yeah. When you look at the numbers, it appears that Volkswagen global sales just fell a little bit last than Toyotas. They didn't have a
solid first half in the sense of great growth overall. It's just that their market share was able to expand because they got a bigger piece on
what was a little bit of smaller pie.
So I don't they're probably doing victory laps. You going to love the graphic (inaudible) over in a Volkswagen headquarters because the growth
may not be a strong as they probably would want, right?
LAKE: Right. And they are expose to some difficult markets. But, you know, they do seem to reputation-wise be hanging in there pretty well. I
mean, they have been around for a while. A lot of people know the brand. And you don't hear associate with some of the problems that these other
brands are a pressure or something like that.
LA MONICA: No. They haven't had the -- we call nightmares that G.M. has had and now Fiat Chrysler starting to have some problems with reputation of
course we've had this kind of airbag close that's really drag down, Honda. So I think Volkswagen is probably benefiting from the fact that not just
the Volkswagen brand but also Audi. They are having some more positive things said about those cars or at the very least not as many negative
things you said.
LAKE: We're just good enough and there's going to (inaudible) Audi especially in the luxury market has been taking advantage. So, it's
interesting to watch. All right, I actually own a Volkswagen for disclosure. I have no idea.
LA MONICA: I own an Audi for disclosure.
LAKE: There you go. I need to get on your bag as well. Thanks so much.
LA MONICA: Discount a free (ph).
LAKE: Good to see -- exactly. Good to see you. Well, Volkswagen isn't the only automaker making history. Ford just reported its best quarter in
15 years. The U.S. firm saw record profits in North America, thanks to a strong showing from its F-150 truck.
Earlier, I spoke to Ford CFO Bob Shanks. I ask him whether he shared industrywide concerns of the slowdown in the Chinese market.
(BEGIN VIDEO CLIP)
BOB SHANKS, FORD CFO: We actually are seeing the slowing of our industry. I think the economy still seems to be on phase for 7 percent growth rate
for the full year but that is not translating this year into growth for our particular industries.
So in the first half of the year, we saw industry soar up about 23.8 million units. And our call for the year actually was suggest that perhaps
for the first time since 1990, industry sales could decline on a year-to- year basis.
LAKE: Yeah. Is this going to be the new normal sort of new world lower range? For the Chinese consumer is this temporary?
SHANKS: No. We don't think s to at all. This is, you know, Chinese economy is still emerging, it's developing. The government is
transitioning from an investment, or export, or into the economy, the one that's more focused on the consumer and domestic consumption.
So, we think those transitions going to create volatility, bumps in the road. That's what we're seeing right now. And we would expect for example
by the end of the decade our industry would be up at around 30 million units on annual basis.
So, we think this is normal and part of the development of China's economy and good things to have.
LAKE: And we were talking about transition, Ford also as we know making that very big transition when it comes to the F-150. When are you going to
be up to complete production, fully up and running on that? Where do you see demand?
SHANKS: Well, we're going to be -- we're already have complete production that occurred early in June, but we haven't yet built up dealer stock to
the levels that they need to be. And we think we'll be there by the end of the third quarter.
We're seeing very strong demand. The turn rate for the F-150 is that 32 days at 77 days on average in the segment, so clearly consumers love the
product. And we're selling at a much faster rate than our competitors.
LAKE: Well, what kind of position is the U.S. consumer and you feel like you have pricing power vote here and say in your market in Europe. Are
consumers willing to pay up for what they want or do you have to rely to the industry more on some incentives to get them in the door?
SHANKS: Well, in U.S., we're still seeing a very healthy pricing environment. The GDP is still good, consumer confidence is very high. And
certainly in our case and you saw that in the quarter, we're getting very strong top line growth. If we go over to Europe, that's one of the
positive signs.
We're seeing now finally a growth in GDP in the Euro area, stronger growth in U.K. which has been the case for some time. And we're also seeing
positive pricing. You saw that in our numbers.
And so, we actually feel much more positive I think about the overall environment of Europe than we did perhaps, you know, six months ago or so.
(END VIDEO CLIP)
LAKE: New York's LaGuardia Airport was state of the art in 1939. Now, $4 billion overhaul could bring the infamously outdated airport into the 21st
century.
(COMMERCIAL BREAK)
LAKE: Hello, I'm Maggie Lake. Coming up on the next half hour of Quest Means Business, a new report into the deadly Virgin Galactic Crash said
human error was to blame.
And a major milestone for the NFL as American football gets its first female coach. Before that, these are the top news headlines we are
following for you this hour. Turkey is intensifying what it calls its war on terror after a show of
support from NATO allies. The Alliance declared it stands in solidarity with Turkey after an emergency meeting today in Brussels. Hours later,
Turkish jets launched new airstrikes against PKK forces inside Turkey. A court in Libya has sentenced the son of Muammar Gadhafi to death. Saif Gadhafi and eight others were ordered to face a firing squad for trying to
suppress the 2011 revolution. The U.N. Human Rights office criticized the verdict saying the trial did not meet international standards of fairness.
The convicted spy Jonathan Pollard has been granted parole and will be released from a U.S. prison in November. Pollard was arrested 30 years ago
while he was working for the U.S. Navy. He was found guilty of passing top secret information to the Israeli government.
U.S. President Barack Obama has warned the African Union that leaders should not be reluctant to give up their power. Mr. Obama became the first
U.S. president to address the organization as he wrapped up his tour of Africa. He said putting limits on a leader's power was a cornerstone of
democracy.
(BEGIN VIDEOCLIP)
BARACK OBAMA, U.S. PRESIDENT: I'm in my second term. It has been an extraordinary privilege for me to serve as President of the United States.
I cannot imagine a greater honor or a more interesting job. I love my work, but under our Constitution, I cannot run again.
(AUDIENCE LAUGHTER)
OBAMA: I can't run again. I actually think I'm a pretty good president - I think if I ran I could win.
(AUDIENCE LAUGHTER)
OBAMA: But I can't.
(AUDIENCE LAUGHTER AND APPLAUSE)
OBAMA: So there's a lot that I'd like to do to keep America moving, but the law is the law and no one person is above the law - not even the
president.
(END VIDEOCLIP)
LAKE: An American man has admitted killing a famous lion in one of Zimbabwe's national parks. Walter Palmer from Minnesota says he killed
Cecil the lion with a bow and arrow but says he didn't believe he was breaking any laws.
Palmer says he was led to believe his hunting trip was entirely legal. He said he deeply regretted the lion's death.
U.S. Vice President Joe Biden once said arriving at LaGuardia Airport was a third-world experience. The New York hub is infamous for its old and dingy
terminals, difficult transfers and poor connections to mass transit. New York's state government is hoping to change that with a $4 billion
overhaul. The plan is designed to unite the terminals, improve transit options and ease congestion on the airport's taxiways.
Ben Baldanza is all too familiar with the airport problems. He is the CEO of Spirit Airlines which flies to ten cities from LaGuardia and Ben joins
me now live. And thank you so much for being with us. I have to ask you, what's your reaction to the new LaGuardia plans?
BEN BALDANZA, CEO, SPIRIT AIRLINES: Well good to be with you, Maggie, thank you. Well, I don't think anyone would argue that LaGuardia could use
a facelift and, you know, clearly New York is a premier place for people to fly into and out of so it needs great airports.
But (inaudible) $4 billion is a lot of money and ultimately those costs are going to be passed on to customers in terms of a little higher fares and at
Spirit we're always trying to think about how we keep the fares really low. So we don't want the costs at LaGuardia to go up to much although everybody
likes the idea that it's being improved.
LAKE: That's right. We like the improvements, but you're right, we don't want to end up paying for it. And in fact, you're very vocal these days
about the pricing situation within your industry - you've been critical of other carriers and you've launched a marketing campaign to that effect.
Let's have a little listen to one of the clips.
(BEGIN VIDEOCLIP)
Two Male Actors: We're Unbundle and Unbundle and we're here to help.
Male Actor 1: If you or anyone you know has ever been a victim of airline bundling, then you may be entitled to a cash reward.
Male Actor 2: Just calculate the money you could save at Unbundlers.com and demand those airlines --
Two Male Actors: -- it's you -- you owe money back.
(END VIDEOCLIP)
[16:35:06] LAKE: OK, Ben, obviously having some fun with it there, but this issue of unbundling I think a lot of people would agree with you. But
I feel like that's happened already. I mean, I'm paying for baggage fees, I've got to pay for my food, I've got to pay for, you know, seats that I
want on the plane. Haven't we already done this?
BALDANZA: (LAUGHTER). Well you know it's - you've done it to some extent but you know you're also still paying for food that you may or may not eat
and magazines you may or may not read and Wi-Fi you may or may use and things like that.
So we're not asking for other airlines to change their business practices, we just want everyone to be super transparent about it. At Spirit we like
to let everyone know exactly what they're getting, pay for what they want, not pay for what they don't want.
And, you know, if an airline says they're giving you free bags, what they really should say is you're paying for two bags in the price of your
ticket. And that's what we think is a fair way than saying the bags are free because they're not really free.
So we like the idea of just everybody being really transparent about the pricing, not that we want everybody to do what Spirit does.
LAKE: Ben, be transparent for us. This is a question that has been baffling a lot of us - airlines are facing much lower fuel costs, profits
are great for you guys. But the flying public is more miserable in some ways than they've ever been - even your airline gets low customer
satisfactions. Why aren't we seeing lower prices? Has there been too much capacity taken out of the system?
BALDANZA: Well I think you got to look at Spirit versus everyone else. About six months ago or so our average fare was just over $82. We just
announced our second quarter earnings and our average fare was about $69 -- $68 and change.
And so the reality is we have lowered our fares with lower fuel prices. Some in the industry have done that, some have sort of kept it to produce
higher-than-average margins for them. So I think, you know, we - the industry --expects to be able to raise fares
when fuel prices go up, I think it's only fair that we pass some of those savings on to consumers when the fuel prices go down. That's exactly what
Spirit has done.
LAKE: Ben, I want to ask you about something else that's been worrying the flying public. We're starting to get reports from some of the regional
carriers that we may be facing a pilot shortage down the line, that there are just not a lot of pilots in the pipeline. Is that something you're
concerned about?
BALDANZA: Well we don't see that happening at Spirit at all. In fact, we see - we're hiring a lot of pilots right now because we're growing pretty
quickly. We're growing at a clip of a little over 20 percent a year on average and we're finding our pilot classes are oversubscribed with good,
quality, you know, experienced pilots. What the public may be seeing is in the regional business, they have a
little different standards for the pilots they hire and maybe their pay rates are a little bit different. So it's very possible that that airline
is seeing a challenge in recruiting pilots but a lot of it is because pilots want to work at airlines like Spirit that are growing and flying
bigger airplanes.
LAKE: Ben, always great to catch up with you. Thank you for addressing some of the concerns that we have. Ben joining us from -
BALDANZA: Thank you, Maggie, it's great to be with you.
LAKE: -- beautiful Fort Lauderdale. Thanks so much, Ben. Now, human error is to blame for the fatal crash of Virgin Galactic's experimental
spacecraft last year. That's the conclusion of federal safety officials in the U.S.
The NTSB said pilots unlocked a braking system too early and didn't have the training needed to deal with problems in the system. A short time ago
I spoke with NTSB's former managing director Peter Goelz. I asked him if Virgin had tried to do too much too fast.
(BEGIN VIDEOCLIP)
PETER GOELZ, FORMER NTSB MANAGING DIRECTOR: This was a very interesting accident investigation and it highlighted two very different approaches to
flight safety. Flight-Composites, the company that flew and operated the - this - vehicle relied on pilot input to control their plane.
Today in the last 40 years aircraft manufacturers have designed almost pilot-proof aircraft. So this was a failure of the design approach. The
pilot made a catastrophic error.
LAKE: What are the implications for space tourism? Is this going to push us back?
GOELZ: Well, it's certainly going to slow it up just a little bit. But the one thing that is - that should be underscored is that Sir Richard
Branson has now - his company, Virgin Galactic - has stepped in and taken a much firmer hand in the design of the future space vehicles.
They are looking very carefully at the design philosophy, they are reviewing the falltrees (ph) which allowed this mistake to occur without a
backup. So I think they're going to proceed on a fairly rapid timeframe to put paying customers in space.
LAKE: So if they can continue on a rapid timeframe, does it mean it's going to be a lot more expensive?
[16:40:00] GOELZ: Well I don't know whether it's going to be more expensive, but certainly, you know, this was a late-stage flight test. I
mean, this vehicle was getting ready to go. They're going to have to redo this test and probably some others.
So I think we're still some distance and it could be more expensive.
LAKE: Why is it so important to have this system pilot-proof as you say?
GOELZ: Well, it's simply a design philosophy. In commercial aviation - Airbus in particular, Boeing and others over the past 40 years they've
designed what they call fly by wire aircraft in which a pilot really has to work hard to make a mistake, particularly a catastrophic mistake.
I mean, these planes are extraordinary. In this case, the designer - they set up the operation on a more simplified basis which relied on pilot input
and pilot control with modest computer backup. And in this case, they simply couldn't have imagined and they didn't plan
for the pilot making a catastrophic mistake in the manner that he did. And, you know, one other thing that's important - this investigation was
completed very quickly and it was completely quickly because they had in- cockpit video which showed exactly what was going on.
LAKE: It's painful to watch but important if we're going to learn from this tragic incident. Peter, thank you so much for joining us today.
GOELZ: My pleasure.
LAKE: Some of the world's leading minds have joined forces to issue a dire warning. Killer robots could be on our battlefields in a matter of years
and we must do everything we can to make sure that they are never invented.
(COMMERCIAL BREAK)
(BEGIN VIDEOCLIP)
Robot 1 FROM MOVIE "STAR WARS": Activate the droids.
Robot 2 FROM MOVIE "STAR WARS": Yes sir.
(SCENE OF ROBOTS GOING INTO COMBAT)
(END VIDEOCLIP)
LAKE: A battlefield full of killer droids isn't just a Star Wars fantasy. Some of the world's top minds are warning similar technology could be here
in just a few years and must be banned before it could get started. An open letter from scientists, futurists and CEOs predict that if a
military power ever tries to develop artificial intelligence designed to kill, a global arms race is inevitable. Max Foster has more.
(BEGIN VIDEOCLIP)
Male Voice: The sids (ph) are starting to take over.
MAX FOSTER, CNN ANCHOR AND LONDON CORRESPONDENT: The idea of killer robots threatening to take over the world is nothing new.
(BEGIN VIDEOCLIP)
Male Actor FROM MOVIE "TERMINATOR 3 -- RISE OF THE MACHINES: If we uplink now, Skynet will be in control of your military.
FOSTER: Movies like "Terminator" have made sure of that. But fears that this science fiction could become science fact are now growing more real.
[16:45:00] A group of the world's leading scientists and tech experts including physicist Stephen Hawking and Apple co-founder Steve Wozniak have
issued a stark warning in an open letter published today. They say autonomous weapons systems which use artificial intelligence to select targets without human intervention should be banned, predicting that
in the wrong hands, killer robots could be used for assassinations and ethnic cleansing and would lead to a global arms race to rival the nuclear
era. The U.S. military has invested heavily in the development of robotics for use on the battlefield but mostly in a non-lethal capacity.
This four-legged friend is being designed to help soldiers carry heavy gear across heavy terrain without the need for a driver. And this tiny machine
can creep across enemy lines and is equipped with infrared cameras. Legal drones have been used for years by the United States and others to
hunt terrorists in countries like Afghanistan. Operating without a pilot onboard, they still rely on a human being for the final deadly pull of the
trigger. Both Israel and South Korea have used semi-autonomous lethal sentry robots
on their troubled borders. But until now, no one has developed a machine that can make decisions and kill entirely on its own.
Tuesday's letter from experts warns that fully autonomous killer robots could be deployed within years, not decades. The warning comes ahead of a
U.N. meeting in November which will see countries discuss whether to pursue a ban. Max Foster, CNN London.
(END VIDEOCLIP)
LAKE: Joining me now is Michio Kaku, futurist and physics professor at the City University of New York. Thank you so much for being with us.
MICHIO KAKU, HOST, SCI FI SCIENCE SCIENCE CHANNEL AND PHYSICS PROFESSOR, THE CITY UNIVERSITY OF NEW YORK: Nice to be on.
LAKE: I think when we so those pictures, it really speaks to a deep-seated fear in all of us, but is this threat real?
KAKU: Well, the bad news is this could be a game changer, the rules of warfare could be changed with killer robots whose only prime directive is
to kill human beings. That's the bad news. The good news is -
LAKE: I'm glad there's good news.
KAKU: -- the good news is this technology is still years - decades away - not just years or months away. The Pentagon just this year had a contest
called the DARPA Challenge where it asked the leading robot scientists to create a robot that can sweep the floor, turn a valve, operate simple tools
like maybe a hammer or a screwdriver and almost every single one failed.
LAKE: Yes.
KAKU: What they did is they basically fell over. And so we have a long ways to go. So progress in artificial intelligence is measured in decades
so there's time for politicians, the governments to begin to think about the consequences of how the rules of warfare may change.
LAKE: And we're going to need that time if - we've seen how bureaucratic, how hard it is to come together and get consensus. So that is good news.
KAKU: Right.
LAKE: You know, people bring up a very good point and the scientists and experts in that letter - that unlike the kind of warfare we see now, this
doesn't need rare materials, it can be very cheap and that's why I think they're concerned that it would create this arms race. There is a danger
in that, isn't it? We've seen what hackers can do already.
KAKU: Right. A nuclear establishment requires an infrastructure of billions - tens of billions of dollars. Here we're talking about things
that in principle could be off the shelf. So terrorists may eventually get access to some of this equipment. And remember, even if there's a treaty banning these things, terrorists do not
read the fine print of a treaty. They're just going to build these things anyway.
So I say that in the short term we should put failsafe safety mechanisms on them. A panic button to make sure that we can shut them off at any time so
that a runaway autonomous robot can be zapped by simply pushing a button. We have to keep humans ultimately in the loop even if they have an
autonomous decision-making on the battlefield.
LAKE: We've seen the warnings of this for so long. I mean, if we watch our own science fiction and our own movies, we should know already where
this leads. Who would be against something like this? Why don't we already have it place?
KAKU: Well, the human brain turned out to be, well, the most complex object in the known universe. Our brain by the way has no windows, no
programming, no software, no Pentium chip, no CPU. Our brain is quite different from a digital computer.
Our brain is a learning machine while your laptop is just as stupid as it was yesterday. Your laptop never learns, and that's why it's been so
difficult to create humanlike architecture in a machine because we are learning machines rather than digital computing machines.
LAKE: Well let's hope it stays that way for a little while until we get ahead of this.
KAKU: Right.
LAKE: Michio, thank you so much for coming in.
[16:50:01] KAKU: Thank you.
LAKE: Let's just update you on some more earnings news that's just coming in to CNN. Yelp shares are in freefall, down almost 6 percent in
afterhours trading. That is after the online directory lowered its outlook for the full year blaming weaker sales growth.
Now, she was the first woman to play a full contact position in men's professional football. Now Jen Welter becomes the NFL's first female
coach.
(COMMERCIAL BREAK)
LAKE: A major barrier for women in sport has been broken and of all places it happened in the National Football League. The NFL is getting its first
female member of a coaching staff. The team who hired her is the Arizona Cardinals and they tweeted she has a
Masters, she has a PhD, she has an Arizona Cardinal's coaching job. She's Jen Welter.
Rachel Nichols is here. And, Rachel, this is a big deal and a lot of people are surprised that it's coming from the NFL.
RACHEL NICHOLS, CNN WORLD SPORT: Yes, I mean look, we saw a female assistant coach in the NBA just this past season and she actually coached
the San Antonio Spurs summer league team and won the whole thing. Because what do you want to do when you're making history - let's go out and win
the whole thing. Jen Welter not in that kind of position. She's coming in at the entry -- entriest-of-entry levels, but that's how it works in professional sports.
You start as an assistant to the assistant kind of thing and then you work your way up. And the fact that she is getting the opportunity to do that
is huge. It makes a statement about the NFL and their inclusiveness. We all know
that sports in many countries, certainly in the United States, leads social change. We've seen Jackie Robinson, we've seen Billie Jean King beating
Bobby Riggs in the Battle of the Sexes. There's so many times where it happens first in sports in America and then
filters out to the rest of society. And the message here is not just about women's being included, it's also about a woman leading a group of men.
When you're the coach, you are in charge. And one of the big questions there has been about female leadership at the highest levels is OK, OK
she's smart - whether it's in politics or in sports - but are the guys really going to listen to her?
LAKE: And that is my question - how do you think she will be received? Because we have seen very talented young players drop out because they
didn't like some of the hazing, whether it was because of sexuality or where they came from or race. There've been a lot of issues. How do you
think she's going to cope with that locker room?
NICHOLS: Well so far it's been very positive. In fact some of the leaders on the Arizona Cardinals team have made a point of taking to Twitter and
taking to other forms of media to say, hey, we're happy about this. And I think in any locker room it's really about what the bigger players do and say. If they let things like hazing or sexual comments go on, then
that's going to happen. If they say, `Hey, we don't that around here,' then that's what you'll get. And the leaders of the Arizona Cardinals have
been forthright in saying hey we welcome this. And I think Bruce Arians, the head coach, wouldn't have done this -
LAKE: Right.
NICHOLS: -- if he thought it was going to be disruptive. But he is a very progressive guy, he's got a very mature and veteran locker room and she's a
smart football person. And the thing about the NFL we see over and over again is that winning
trumps all -
LAKE: That's right, that's right - they want to win.
NICHOLS: -- you know, there are people who have literally been accused of murder who have been - gotten interest from football teams because they
thought they could help them win. So just being a woman - I mean, heck - if you're going to help you win - that's nothing.
LAKE: Nothing, that's right. Which leads us to the cheaters. We have a big news breaking about Tom Brady of course accused of cheating to get the
Super Bowl title - NFL sticking by their decision.
[16:55:03] NICHOLS: Yes. They've decided to uphold his four-game suspension and this is a couple levels of bombshell here.
First of all, a lot of people thought that it would be reduced. This is in the "Deflategate" saga that we in America insist on talking about I think
every five minutes basically.
LAKE: (LAUGHTER).
NICHOLS: But it's not just that. The NFL came out in its ruling saying they were upholding his four-game suspension. They said that Tom Brady
destroyed his cell phone on the day that NFL investigators were supposed to come talk to him.
And the idea that he then was destroying all of this evidence has been seen as not just not participating in the investigation but obstructing the
investigation. And that is part of what this punishment is for. Now, Tom Brady in his appeal hearing that has already happened, came back and said, `Hey, you know what? I change cell phones every four or five
months. I always destroy or have my assistant destroy the phone and the SIM card. It's a privacy issue.
He is of course married to the international supermodel Giselle, so maybe there's people going through his trash in a way that don't go through your
trash or my trash. But there are some problems with the fact that he obviously knew this investigator was coming to talk to him. He did have
the appointment in fact. He destroyed it that day anyway. And there was a previous cell phone that he had that the NFL was aware of was still in existence so their case is, hey, if you're destroying all your
phones, how come we know that this one is still around? So a lot of questions and we'll have to see now if Brady and the NFL Players
Association take the NFL to court. That's the next step (inaudible).
LAKE: It's going to be a big issue for the league the next season and also inevitably Tom Brady's legacy.
NICHOLS: Absolutely.
LAKE: Rachel, thank you so much for joining us, it's great to see you.
NICHOLS: Thanks.
LAKE: Now after 25 years, the new bestseller for Dr. Seuss -- "How Pet Should I Get?" soared to the top of the charts.
(COMMERCIAL BREAK)
LAKE: That's all we have time for on "Quest Means Business." I'm Maggie Lake. Thanks so much for watching. The news continues here on CNN.
END
