ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Bill Griffeth and Sue Herera.
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Jets grounded. Boeing`s most popular plane is being idled around the world and the stock has its biggest two-day sell-off in nearly a decade.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Divorce deal rejected. U.K. Prime Minister Theresa May suffers a second Brexit defeat, making the country`s scheduled exit from the E.U. all that more chaotic.
GRIFFETH: The price of admission for some wealthy individuals. The price was very high and they were allegedly willing to pay it to get their kids into prestigious schools.
Those stories and much more tonight on NIGHTLY BUSINESS REPORT for Tuesday, March the 12th.
HERERA: Good evening, everyone. And welcome.
Boeing`s popular plane is being grounded around the globe. From Europe to Asia, governments are keeping Boeing`s newest jet from flying, following the crash over the weekend of an Ethiopian commercial flight. As we reported, the plane in question is Boeing`s 737 MAX 8. The FAA says the airliner is air-worthy.
In a statement, the company said, quote: Safety is Boeing`s number one priority and we have full confidence in the safety of the MAX, end quote.
But that`s not enough for lawmakers in Washington who are calling on the FAA to reverse its decision. Senator Ted Cruz who chairs a subcommittee on aviation says he plans to hold a hearing on the fatal crashes of two Boeing (NYSE:BA) 737 MAX 8 jets since October, and that sent the stock down another 6 percent in trading today.
Phil LeBeau has been covering the story for us all along.
It`s good to see you, Phil.
So with all these groundings, how much pressure is the FAA under and the airlines that fly the plane, American and Southwest and others?
PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: And United, as well as Air Canada here in North America.
Sue, there is immense pressure not only on the airlines but also on the FAA, because the FAA is feeling heat not only from lawmakers in Washington. There were tweets today by the president talking about the complexity of airplanes and whether or not they`re too complex. That led to a phone call between President Trump and Boeing (NYSE:BA) CEO Dennis Muilenburg, where Dennis Muilenburg reaffirmed his belief that the planes that Boeing (NYSE:BA) makes are safe, including the 737 MAX 8 and MAX 9.
So, the question becomes does that pressure which is growing clearly day by day, does it reach a point where the FAA says let`s ground these planes unless we have some answers? At this point, I don`t think it`s reached that level. Now, that could change. It could change if the president puts pressure on the secretary of transportation, Elaine Chao, and says, look, a lot of people are uncomfortable about this.
LEBEAU: Let`s just shut it down until we have more answers.
GRIFFETH: Well, clearly, the MAX 8 has become the most popular plane for Boeing (NYSE:BA). It`s the growth driver for the future for sure.
GRIFFETH: So, do you think some of this is a business decision on their part not to call for a grounding?
LEBEAU: No, because the FAA is pretty serious — very serious when it comes to any idea of something being wrong, a defect. Something just not working the way it is expected to work with these airplanes.
Remember, Bill, they get reams and reams and reams of data on every flight when these planes are taking off and landing. So, they know by now, 41,000 flights by Southwest Airlines (NYSE:LUV) and the pilots and the airline are saying, we`re not seeing anything that is unusual here.
And that`s one factor behind the FAA saying, look, we thought something was wrong, if we truly thought something was wrong about a particular part or opponent, we would shut it down. But they don`t have that evidence yet.
HERERA: On that note, Phil, thank you. Phil LeBeau.
LEBEAU: You bet.
GRIFFETH: Let`s continue the conversation about this whole Boeing (NYSE:BA) mess with Seth Kaplan. He`s an analyst with “Aviation Weekly”.
Seth, thanks for joining us tonight.
SETH KAPLAN, AVIATION WEEKLY ANALYST: Good to be here, Bill.
GRIFFETH: Why do you think with all of the countries around the world who have either grounded the MAX 8 or prohibited it from flying over their airspace, and the numbers grow almost by the hour today, why do you think the FAA and Boeing (NYSE:BA) have chosen not had to the same in the United States?
KAPLAN: Well, I believe t that the plane is safe to fly. Nobody wants to be the person that gets this decision wrong. So I think they`re taking a very technocratic approach to it and as Phil said saying, look, we don`t see anything suggesting otherwise.
But what you have is not only political pressure but consumer pressure. You wonder if at some point, Boeing (NYSE:BA) itself doesn`t say, you know what, we`re keeping this story in the news longer than necessary. Because I hear the FAA saying you need to make urgent changes on the other hand saying the plane is safe to fly.
This remains a story until those changes are fixed if these planes keep flying.
HERERA: So, do you think Boeing (NYSE:BA) should be proactive and say, okay, let`s ground — you know, ask the FAA to ground the fleet in order to restore confidence in its planes?
KAPLAN: I think somebody there should at least be thinking about doing that. Again, I trust that if they had any doubts, you know, in terms of the safety of the aircraft that they would indeed be doing that. But, yes, this keeps going until something else happens. You`ve got people who don`t want to get on these airplanes right now and, you know, a fix a month or so out, that`s a long time in terms of an extended news cycle.
GRIFFETH: More needs to be known about the crash in Ethiopia obviously, and exactly what caused this. But tell us about the MAX 8 and this device or system that may have caused the crash and the one involving Lionsgate in Indonesia.
KAPLAN: Yes, this was an airplane that Boeing (NYSE:BA) in many regards didn`t want to build. It built it sort of defensively. Its competitor had come out with something new and wanted to wait another five or ten years but said, you know what, rather than a new airplane, let`s put new engines on more or less the tried and true 737. They had to make some other modifications.
So, in some regards, not a big departure, but they did innovate in some ways and, yes, that anti-stall system that rather clearly had something to do with the Lion Air crash, harder to say with this one, which was designed to prevent something that had caused previous famous crashes. You know, the plane beginning to stall, a pilot not doing what they`re supposed to in a panic, counter-intuitively you`re supposed to turn your nose down, dive into the stall and regain some air speed. The rest of us would want to pull back and climb and accelerate the stall.
The pilots have done that in the past. This was designed to prevent that but, in fact, played at least some role in causing one crash and perhaps the other.
GRIFFETH: Seth Kaplan, again, with “Aviation Weekly” — thanks again for joining us tonight.
KAPLAN: Thank you, Bill.
HERERA: On Wall Street, the decline in Boeing (NYSE:BA) shares dragged the blue chip Dow index lower, but a rise in the shares of tech and energy companies helped lift the other indexes by the close. The Dow Jones Industrial Average eventually fell 96 points to 25,554. The Nasdaq was up 32. The S&P 500 gained 8.
GRIFFETH: Meanwhile, consumer prices rose for the first time in four months in February. According to the Labor Department, the consumer price index increased by 0.2 percent. That was in line with expectations. It was lifted mainly by gains in the cost of food, gasoline and rent.
The overall pace of the increase, though, was modest given that this was the smallest annual gain in nearly two and a half years.
HERERA: The U.S. Trade Representative was on Capitol Hill today and told lawmakers that the U.S. and China are making headway on key issues, but that any trade deal must be enforceable or the president won`t sign it.
(BEGIN VIDEO CLIP)
ROBERT LIGHTHIZER, U.S. TRADE REPRESENTATIVE: We have to have real progress, and we have to maintain the right to be able to whatever happens to the current tariffs, to raise tariffs in situations where there`s violations of the agreement. And that`s the core. If we don`t do that, then none of it makes any difference in terms of where we are on the specific tariffs. That`s a matter of negotiation.
(END VIDEO CLIP)
HERERA: No date has been set yet for a summit meeting between President Trump and Chinese President Xi.
GRIFFETH: More drama across the Atlantic today. The U.K. parliament rejected Prime Minister Theresa May`s latest plan to exit the European Union. This vote leaves the United Kingdom with no obvious way forward ahead of the March 29 deadline to leave that bloc. And that has created loads of confusion around the nation`s political and economic future.
Our Willem Marx joins us tonight from London.
So, what was the key issue that made it fail again? And you`ve got two more key votes coming up over the next two days, right?
WILLEM MARX, NIGHTLY BUSINESS REPORT CORRESPONDENT: That`s right, Bill. The key issue was once again an issue that dominated the conversation over the last six months or so, since we got close to the details of this deal being agreed back in December.
But essentially, it was the idea that the U.K. would be involved in an insurance policy the E.U. demanded, the Irish government demanded which would avoid having a hard border on the island of Ireland. That`s something that a lot of critics of this deal said could lead to the U.K. being trapped on a customs union because that would be the way to avoid having a hard border. That`s something they didn`t want to see because it would limit the U.K.`s ability to create an independent trade policy in the future and essentially despite a last-ditch effort by Theresa May last night in talks with her counterparts in Strasbourg, in France.
She was unable to get the legal advice about the ability to exit that backstop that she had hoped for and that`s why we saw 149 majority defeat in terms of the deal tonight. What that means in terms of the next couple days of votes, tomorrow we could see parliament try to rule out the U.K. leaving the European Union without an agreement. That`s something that could be very economically damaging, according to most analysts.
And what that means after that is that on Thursday, if they rule out leaving without a deal, you could then see the parliament calling for an extension of a two-year period in which we`ve seen these negotiations continue. That extension would be reliant on the European side allowing it, though.
HERERA: Right, exactly.
What about the prime minister? Is it a threat to her position as prime minister at this point?
MARX: Well, back in December, she faced a challenge from within her own conservative party. The rules of that party dictate that it won`t be another 12 months before she can be challenged by her own MPs. We`ve seen since the start of the year that the labor opposition party, they have tabled the motion of no confidence in her government. That did not get a majority, because she maintains a very narrow majority with help from a small northern Irish party.
And then at this point, we`re looking at whether they will try that motion again. I`ve been speaking to a number of MPs this evening, though. So — I mean, one of them and a number of other members of her party have said there is no point changing the prime minister if it doesn`t change the fundamental Brexit position. This northern Irish backstop is not going to be negotiated any differently by a different leader.
GRIFFETH: Willem Marx in London, thanks for staying late for us tonight, Willem.
HERERA: It is time to take a look at some of today`s “Upgrades and Downgrades”.
Coca-cola was downgraded to hold from buy at HSBC. The analyst says the company is trying to grow revenues with low margin brands, and that could take years. The price target is $50. The stock fell a fraction to $46.05.
Monster beverage was downgraded to market perform from outperform at BMO Capital. The analyst says the stock`s valuation may be as good as it gets. The price target $62. The stock fell 1.5 percent to $60.23.
GRIFFETH: Still ahead, why the oil and gas industry is no longer ignoring climate change.
GRIFFETH: The Food and Drug Administration has found a replacement for outgoing chief Scott Gottlieb. National Cancer Institute Director Ned Sharpless will now serve as acting FDA commissioner when Gottlieb leaves next month. Gottlieb resigned last week and served in his role for nearly two years. In an e-mail to FDA staff, Gottlieb described Sharpless as deeply committed to public help.
HERERA: Wells Fargo (NYSE:WFC) CEO Tim Sloan told the House Financial Services Committee the bank has improved operations and oversight following a series of scandals that impacted millions of customers.
(BEGIN VIDEO CLIP)
TIM SLOAN, WELLS FARGO CEO: When I stepped into this role I promised that accountability and transparency would define our efforts, and they have. Above all, Wells Fargo (NYSE:WFC) is committed to making things right for our customers and to earning back the public`s trust. We are dedicated to compensating every customer who suffered harm because of our mistakes.
(END VIDEO CLIP)
HERERA: Sloan was grilled by both Democrats and Republicans on the committee. The chair, Maxine Waters (NYSE:WAT), said the bank`s nearly $2 trillion in assets were too big to manage, but Sloan said that wasn`t the bank`s issue.
GRIFFETH: Oil prices rose a few pennies today after Saudi Arab announced plans to continue to cut output in April and also because of a cut in exports from Venezuela due to a power outage. Domestic crude rose eight cents to $56.87 a barrel. Now, naturally, rising oil prices are good for the energy industry and one reason is that companies need attractive prices when they go looking for investment.
Brian Sullivan explains from the industry gathering known as CERAWeek in Houston.
BRIAN SULLIVAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Three big topics here on day two of the CERAWeek energy conference: continued investment in oil and gas, the world outside of Texas, and climate change.
Few industries are as capital intensive or as costly as oil and gas. A new well can cost billions or tens of millions of dollars. And while Americans may love low gasoline prices, the CEO of Hess (NYSE:HES) Oil tells us oil prices need to be high enough where there is an incentive to continue to invest in the industry.
JOHN HESS, HESS CORP. CEO: The key challenge for the oil and gas industry is investment. And we`re simply not investing enough in oil and gas to grow supply to keep up with demand. The International Energy Agency has made very clear that that number should be $580 billion a year. Three years ago, it was $350 billion. Two years, $370 billion. Last year, $410 billion. And this year, $420 billion.
So, the price has to be high enough to encourage that investment.
SULLIVAN: Most of the money in the United States has been flowing to just one oil and gas region and that is the well-known Permian basin in western Texas. And while investors love the Permian story, the CEO of Chevron (NYSE:CVX) says be careful, because all the attention on the Permian can drown out attention from other profitable oil plays.
MICHAEL WIRTH, CHEVRON CEO: The Permian is kind of the newest thing in our industry and it`s terrific. It`s growing fast, the fastest growing asset in our portfolio but far from the only thing in our portfolio. So, we`re, you know, a global company with positions all around the world, all of which are important to us, the Permian is, but certainly not the only thing.
SULLIVAN: Another big issue here, climate change and carbon emissions. For years, this is an issue that the oil and gas industry simply avoided. Now, they can do so no longer. Shareholders and institutional investors are often demanding accountability and transparency on the topic. Companies like Occidental Petroleum (NYSE:OXY) are trying to hit the issue head on. But we asked the CEO of occidental if an oil and gas company can truly take the lead on the issue.
VICKI HOLLUB, OCCIDENTAL PETROLEUM CEO: We`re the largest handler of CO2 for enhanced oil recovery in the world. So we`re perfectly positioned to take CO2 from industrial sources and use it in our enhanced oil recovery projects in the Permian. By doing that, it`s a win-win for our shareholders in that we make money on that, it`s commercial for us, and we reduce emissions in the United States.
SULLIVAN: And, of course, the issue of Venezuela certainly a big talking point as well, the country in an economic and humanitarian crisis. Oil and gas, the life blood of that nation, as oil production simply continues to fall. There are rolling blackouts and there is no money to pay the workers.
Everybody here is talking about not only what is happening in Venezuela, but what the future of that country may be. They have the largest proven oil reserves in the world.
For NIGHTLY BUSINESS REPORT, Brian Sullivan, Houston, Texas.
HERERA: Dick`s Sporting Goods (NYSE:DKS) is pulling guns from more of its stores. That`s where we begin tonight`s “Market Focus”.
A year after the company pulled firearms from ten locations following the Parkland, Florida, shooting, Dick`s says it will stop selling guns in 125 more stores and replace them with higher margin sports gear to try to reverse slumping overall sales. During the holiday quarter, same-store sales fell more than 2 percent. And while earnings and revenue beat forecasts, the company gave a weaker-than-expected full-year outlook. The shares fell 11 percent to $34.61.
Lumber Liquidators has agreed to pay $33 million to settle charges it misled investors about the safety of its laminate flooring made in China and sold in the U.S. The settlement with the Justice Department and the SEC comes four years after the company was alleged to sell the flooring with high levels of formaldehyde which is known to cause cancer. Lumber Liquidators fell 3 percent to $11.08.
GRIFFETH: Verizon (NYSE:VZ) said it experienced a network outage today that blocked many east coast customers from being able to send text messages. The telecom company did not confirm the scope of the outage but did say that all service had been restored by mid-morning. Verizon (NYSE:VZ) shares were off just a fraction to $57.43 today.
The CEO of T-Mobile and of Sprint, they were both back on Capitol Hill today defending their planned $26 billion merger. T-Mobile`s chief said it would be good for the country.
(BEGIN VIDEO CLIP)
JOHN LEGERE, T-MOBILE CEO: Deliver a supercharged Un-carrier which can ensure U.S. leadership in 5G, increase competition and create American jobs. First and foremost, the new T-Mobile will make sure America wins the global 5G race. This is so important because 5G will unlock new capabilities that will fuel innovation and job creation well beyond anything we`ve seen so far.
(END VIDEO CLIP)
GRIFFETH: Shares of both companies traded higher today. T-Mobile closed at $71.70. Sprint was $6.22.
And shares of Stitch Fix took off today following last night`s quarterly profit report that beat estimates. The personal styling service said that revenue came in above street forecasts. The number of its active clients jumped by 18 percent. As a result, Stitch Fix also raised its full year revenue outlook. And shares rose by 25 percent today to $33.78.
HERERA: Coming up, it reads like a who`s who, including celebrities, CEOs and billionaire entrepreneurs. But it`s really a list of wealthy parents caught in an admissions scam trying to get their kids into top universities. The sordid details when we come back.
GRIFFETH: The White House is now weighing the possibility of having colleges and universities take on some of the financial burden when students are unable to repay their loans. Right now, the federal government and taxpayers are the sole backstop on defaulted student loans. Yesterday`s budget proposal from the White House included a line that said that colleges that take taxpayer money should, quote, have skin in the game through a loan risk sharing program. Specifics, though, have not been laid out at this point, but there is currently more than $1.5 trillion in outstanding student loan debt.
HERERA: And now to the latest scandal rocking the halls of academia. Fifty people have been charged in a nationwide admissions scam, many of them well-to-do parents trying to get their kids into some of the highest profile schools in the country — so well-to-do in fact, the attorney from Massachusetts called it a catalog of wealth and privilege.
Robert Frank has more.
ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT: They are CEOs and billionaire entrepreneurs, Hollywood celebrities and top lawyers. They were all accused today by federal prosecutors of being part of a massive scheme to pay bribes to get their kids into college.
The U.S. attorney in Boston charging 50 people with bribing college coaches and testing administrators to get their kids into Georgetown, Yale, Stanford and other elite colleges. The prosecutor said the fraud involved wealthy parents paying a college counseling company a total of $25 million. Now, the company would pay admissions test administrators to help students get better test scores by having someone else take the test or correct the scores. And they bribed university varsity coaches to admit children recruited as athletes, even if they didn`t play the sport.
ANDREW LELLING, U.S. ATTORNEY MASSACHUSETTS: Every year, hundreds of thousands of hard-working, talented students strive for admission to elite schools. As every parent knows, these students work harder and harder every year in a system that appears to grow more and more competitive every year. And that system is a zero sum game. For every student admitted through fraud, an honest, genuinely talented student was rejected.
FRANK: Now among those charged, actresses Felicity Huffman of “Desperate Housewives,” “Full House” actress Lori Loughlin, and her husband, fashion designer Massimo Giannulli, Doug Hodge, former CEO of PIMCO, the investment firm, William McGlashan, a senior exec at TPG, the private equty firm, Manuel Henriquez, the cofounder and CEO of Hercules Capital, and Gordon Caplan, the co-chairman of the global law firm Willkie Farr was also charged.
LELLING: Based on the charges unsealed today, all of them knowingly conspired with Singer and others to help their children either cheat on the SAT or ACT and/or buy their children`s admission to elite schools through fraud.
FRANK: None of those charged or their lawyers could be reached for comment right after the announcement, but prosecutors say the parents also got to write off the bribes from their taxes, since it was all done through a fake charity.
For NIGHTLY BUSINESS REPORT, I`m Robert Frank.
GRIFFETH: Finally, tonight, happy birthday to the Internet. Thirty years ago, English scientist Tim Berners-Lee was credited with inventing the World Wide Web in a written proposal, and then he wrote the first web browser a year later. Amazon (NASDAQ:AMZN) and Google (NASDAQ:GOOG) celebrated the day with screen shots and with animations.
And today, there are about 2 billion websites out there, and it`s estimated that nearly half the world is online. I think it`s more than half the world.
HERERA: I`m sure it is. I can`t believe it`s 30 years, though.
All right, before we go, here`s a look at the final numbers from this day on Wall Street. The Dow fell 96 points, the Nasdaq was up 32, the S&P 500 gained 8 points.
And that is NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera. Thanks for watching. We`d like to remind you, this is the time of year your public television station seeks your support.
GRIFFETH: I`m Bill Griffeth. We do thank you very much for that support. Have a great evening, everybody. We`ll see you tomorrow.