Former American Airlines CEO Robert Crandall on Bloomberg TV

FORMER AMERICAN AIRLINES CEO ROBERT CRANDALL ON BLOOMBERG TV

JANUARY 29, 2013

SPEAKERS: ROBERT CRANDALL, FORMER CEO, AMERICAN AIRLINES

BILL BURTON, EXECUTIVE VICE PRESIDENT, GLOBAL STRATEGY GROUP

TOM KEENE, BLOOMBERG NEWS

SARA EISEN, BLOOMBERG NEWS

SCARLET FU, BLOOMBERG NEWS

(This is not a legal transcript. Bloomberg LP cannot guarantee its accuracy.)

07:03

TOM KEENE, HOST, BLOOMBERG NEWS: This morning we are thrilled to bring you from our set in New York City, he is the former American Airlines chief executive officer, Robert Crandall. And William Burton joins us as well, strategy group, executive vice president at rather Global Strategy Group. We welcome both of you gentlemen. Good morning. Bob, I am absolutely fascinated. Who's more miserable here, the airlines or Boeing?

ROBERT CRANDALL, FORMER CHIEF EXECUTIVE OFFICER, AMERICAN AIRLINES: I think Boeing. Obviously turning into a very serious problem, bad problem for the airlines, but the airlines can make some substitutions and have and will. Boeing's got to solve this problem. Nobody knows what the answer is, and if the answer comes up in a certain way it could be a very expensive proposition.

KEENE: One of the most emotional interviews I've ever done was with Gordon Bethune when Continental went bankrupt. I spoke to him the afternoon of that bankruptcy. He was seething. He's from your generation where you get it fixed. They couldn't fix Continental. Here's the Bethune op-ed yesterday. This is must, must, must read.

Grounding airlines to cover your butt would never have let Orville or Wilbur change the world. Time for some leadership in Washington. The election's over. Get this country moving. Bill - I want both of you to comment. Bill, this is a big deal. Once again, it's like we're all going to die on a 787, and we drag it out, drag it out, drag it out.

WILLIAM BURTON, EXECUTIVE VICE PRESIDENT, GLOBAL STRATEGY GROUP: Well, this has been an amazing stretch for airline safety. If you think about the fact that there's only been one crash over the last seven years, it's pretty incredible. That op-ed though seems a little off base to say that the safety of passengers should somehow come behind the profits of the airline. Yes, this is a very expensive proposition for Boeing. It could be anywhere from $500 million to $5 billion depending on what happens, but that's not important, more important than airline safety.

KEENE: Is this generational? The old guard says get in the airplane, strap on the belt.

CRANDALL: No, no, no. As a matter of fact, in most cases I agree with Gordon. He's a - he's a guy with generally sound judgment. But the fact of the matter is you never take a chance in aviation. When you find a problem, you fix the problem. And they haven't found out what the problem is and therefore cannot fix it. My guess is that almost everybody in aviation, Tom, every airline executive, everybody at Boeing, would agree we need to keep the airplane down until we know what the problem is and until we fix it.

KEENE: Bob Crandall speaking with decades of experience. 1966, TWA. Is that right? That was a few years ago. Bill Burton with us, and we're going to continue with Bob Crandall.

07:05

(BREAK)

07:07

SARA EISEN, HOST, BLOOMBERG NEWS: I also want to bring up this story which certainly caught my eye, and I know it caught Bill Burton's eye. Clinton super PAC. Hillary Clinton supporters for president 2016, they've already created a super PAC. It's called Ready for Hillary. It's one out of two actually Clinton super PACs registered with the Federal Election Commission. Clinton hasn't made any decisions on her future plans.

KEENE: You guys never take a guy off, do you?

EISEN: Well, President Obama in the "60 Minutes" interview called the press incorrigible here. How about the super PACs?

BURTON: Well, I think this is a case of you've got some very excited, enthusiastic supporters who want to do everything that they can. I don't think if - if she's going to run for president, if she's going to have a super PAC, it's not going to be this super PAC. But I tell you, I spent the last two years traveling around the country talking to rich Democrats, and she's going to have a lot of support. They love her. They love her on Wall Street. They love her in Silicon Valley.

SCARLET FU, HOST, BLOOMBERG NEWS: More than Biden?

BURTON: They love Biden too. I think that the thing about 2016 is that it's going to be as much about the size of your super PAC as it is about your early state support.

KEENE: But isn't the distinction here that Secretary Clinton leaves office completely reformed in the minds of the American public than where she was five and six years ago?

BURTON: Well, it is really amazing. She's done such a great job as secretary of state, and also hasn't had to be involved in some of the big political battles. She wasn't really in the reelection campaign. She didn't do any of that. And as a result, her approvals are up way into the 60s and 70s in some cases. So she starts at a very good spot.

KEENE: She starts at a very good spot. Part of the spot is you need to have the desire. Bob Crandall had to have the desire to get up every day while he was a pinata at American Airlines. Does she want to be a pinata again?

BURTON: That's the question. And I think that these next couple of years, that is exactly what she's going to be thinking about. She's just visited 112 countries over the last four years. Now she gets a chance to take a breather and really think about does she want to do this heavy lift.

EISEN: How have super PACs become so, so prominent and key? In this 2012 election, we certainly saw it.

BURTON: There's just so much money out there, and the way the rules have changed between the Supreme Court and what they did in Citizen's United and between some of these big, deep-pocketed donors getting involved. It started on the Republican side. Democrats started to catch up, and now I think that they are here to stay until the rules change.

KEENE: Bill Burton, we got so much to talk about here. Robert Crandall. Crandall will be on set until 2 p.m. this afternoon and Mark Crumpton. We got so much to talk about with Bob.

07:09

(BREAK)

07:19

KEENE: Regulators investigate. Engineers ponder. Boeing's investors and their board room are grappling with the bottom-line question, how much will the plane's grounding cost and who's going to pay for it? Robert Crandall's been buying Boeings since 1966. That at Trans World Airlines. The former chairman and chief executive officer of American Airlines, he has seen engineering failure. He's also witnessed how it can destroy an income statement, and certainly the cash flow.

And he joins us now with Bill Burton, a Priorities USA Action co-founder and former deputy press secretary. Ray LaHood came out and said everything's fine, the secretary of transportation. Is everything fine? What's the backstory here for the airline industry?

CRANDALL: I think the - the backstory simply is that the airplane's got to be fixed, and it was late. It was over budget, but its performance has been very good.

KEENE: What's the first airline you flew on?

CRANDALL: The first airplane or the first airline?

KEENE: Airplane.

CRANDALL: Airplane? God, I don't - I don't know, Tom. That's so long ago, back in the '50s.

KEENE: Back in the '50s. Are there much more complex instruments today?

CRANDALL: They have vastly complex - more complex instruments. And in every case, in every case, they - they - they make mistakes. Every new airplane is bedeviled by mistakes because of the complexity. Every new airplane identifies those mistakes and they fix them.

KEENE: Does that include the food I had on a flight from LA to US - to New York the other day?

CRANDALL: That does not include food.

FU: That's a whole different (inaudible). I wonder if you can explain something to us. There's a lot of misunderstanding about how airplanes go about buying planes. It's basically custom ordered. There's a long lead time, right? It's not like airlines can suddenly cancel orders, can they?

CRANDALL: Well, they can cancel orders if the manufacturer fails to meet whatever - whatever the explicit conditions of delivery, both of time of delivery and the performance characters of the airplane that builds into the contract. Airlines are very reluctant to do that however because if the airplane is a little late, well, it's a little late. If it doesn't perform quite up to snuff, well then it sometimes is a price adjustment built into the contract.

But the fact is they plan for these acquisitions many years ahead of time. They plan the retirement of their existing fleets. They plan the training of their crews. They plan their route systems based on the range and capabilities of the airplanes. So they're very reluctant to cancel them. I don't believe people are going to cancel hundreds and hundreds of 787 orders. The problem is that fixing the airplane may take some considerable time depending on how the analysis comes out.

FU: Right, and they don't have any timeframe for that right now. Does it mean though over the longer term they'll go to Airbus instead?

CRANDALL: I think not. I think what they'll do - because if you will recall, Airbus's most recent airplane had problems of its own. But we have to - it all comes down in the end to saying what is the fix? How much will it cost and how long will it take?

KEENE: Bill, you look at the airline business. We saw it in durable goods yesterday. It's so darn important to America. Does Washington, do Republicans and Democrats, do they actually understand how important Boeing is as a national treasure?

BURTON: Absolutely. You're talking about thousands and thousands of jobs. And even though 70 percent of the parts of this airplane are actually made overseas, it's all assembled here and it's part of American culture to have a thriving airline industry. I ran into Ray LaHood this weekend. He is - he knows the guys at Boeing. He says they're a bunch of smart folks who are working these problems out. But we are - we are in the midst of what has been a string of very safe flying, and I think that we want to keep it going.

KEENE: Mr. Crandall, why does Warren Buffett buy a railroad and not an airplane?

CRANDALL: Well, Warren embraced some time ago the old story that if you want to become a millionaire, start with - in the airplane business - start with a bid (ph) and then buy an airline. He had an unfortunate experience years ago with US Airways. Up until now, the airline business has been very unstable, hasn't earned its cost of capital.

KEENE: Is that your fault? Why is this?

CRANDALL: It's because it was excessive competition. What you've seen now is a consolidation within the industry. And as that consolidation has taken hold, what you find is that the airlines for the first time have pricing power because you don't have the peripheral dumbest competitor who keeps cutting prices, cutting prices.

KEENE: Have you been on a plane with an empty seat recently?

FU: No, not at all.

KEENE: They're all packed.

FU: It's impossible to get an empty seat these days. How much more bargaining power does this Dreamliner mishap give the airlines then?

CRANDALL: How much more bargaining power does what?

FU: Does this Dreamliner mishap at Boeing give the airlines?

CRANDALL: I don't think it gives the airlines any particular leverage. The fact of the matter is of course that, look, there are two major manufacturers. You've got Boeing and you've got Airbus, and the airlines sit down with both of them and they describe their specifications. And the two manufacturers come forward with proposals typically for several hundred airplanes at a time stretching over a period of 25 years. Now the airlines then take one or the other, or sometimes they take both because they've gotten their prices down to the point where they can. So the fact is I don't think this thing gives the airlines any particular leverage that they want to exercise.

KEENE: Bob, thank you so much. Bob Crandall, the former CEO of American Airlines.

07:24

***END OF TRANSCRIPT***

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