Trump Admin Looks to Save Spirit Airlines

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2:25Scarlet Fu:The White House is pretty busy these days, not only dealing with the war in Iran, but they're also playing a big role here in Spirit Airlines, embattled in its second bankruptcy in about one year. Who wants to own an airline? I don't know. Well, maybe the U.S. government is going to own a stake in the airline. Let's bring in George Ferguson. He is our senior aviation aerospace defense analyst here at Bloomberg Intelligence. George, the reporting right now is the White House is close to reaching a financial rescue package for Spirit. And we're hearing that this agreement would offer up to$500 million in financing in exchange for warrants to purchase stock.

3:06Scarlet Fu:Is this kind of out of the great financial crisis playbook of bailing out a company? It sort of seems out of almost the pandemic playbook, right? In the pandemic, we decided we couldn't let any airlines fail and so came in to support them. I'm not sure why we need to do it here. You know, I think that the market has certainly recovered. The airline market has recovered since then. I think that there's probably too much capacity right now in the U.S. market. And that's why some airlines are having problems generating profits. Spear, at the tip of that spear, having the most problems generating profits.

3:43And so it seems to me that we, again, need to cut down to capacity. So, you know, having some airlines leave the business is probably sort of the right way to fix it. But I guess the White House feels differently. That's kind of where I want to go, George. I mean, what's the marketplace telling us here? It just seems like, well, if you're not one of these big three airlines, it's just a tough business. I mean, is there a market for some of these more regional, lower cost airlines? I think there is, right? But the market has definitely turned, I think, against sort of most harshly against these low cost carriers.

4:21Right. Because I think really, you know, right now, sort of the state of play in the U.S. airline business is you need a strong loyalty program. So you need to be able to put a credit card in the hands of your your loyal flyers. They're using that credit card for dinners, groceries, everything else. You're selling the credit card company miles, which is boosting your profits, which you can use to support the flying business. And then the big full service carriers, you know, they also have the premium. I think there's a lot of premium travelers, a lot of baby boomers who've retired, business travelers who will pay more for the front of the airplane.

4:59And the back of the airplane seems very competitive. they're using those loyalty programs and that premium revenue to subsidize the back of the airplane to a degree. So again, telling me that there's just too much basic economy capacity, having Spirit leave the market would be one way to get rid of some of that basic economy capacity.

5:20Scarlet Fu:We're seeing airlines start to reduce capacity as well because of the higher costs from fuel. Does that bring us more back into balance? It's a beginning of that process, absolutely right. And so Spirit had its problems before the Iran war. So again, that's why I think it's more, the market really does have too much capacity. I think now, for however long we're going to see these much higher fuel prices, the market has even more excess capacity, right? So look, if we return to$2 a gallon jet fuel, I think a lot of these airlines that are starting to take some capacity out would take those parked planes, put them back in service, and we'd be off to the races.

6:10But at these higher fuel prices, the airlines have to push through price increases. And, you know, the economics of that is when something costs more, less is demanded, and the airlines are seeing it. They can't get fares to rise enough to cover that increased fuel price with this level of capacity in the marketplace. And we saw United, we saw Delta, we saw Alaska all announced cutting back at least growth plans. Nobody's cutting in to capacity levels that they flew last year, starting to cut growth plans. More probably has to happen. Georgia, United Airlines out with some numbers and they reduced their full year guidance.

6:50Now, this looks like an earnings estimate like I would put out between seven and eleven dollars a share. You can drive a 747 through that, George. Does that just reflect the uncertainty they have in kind of their whole P &L? Yeah, I mean, it's a wide range. And, you know, United has really gone to the less is more on the guidance world. So every other airline will give us a sense of what the cost available seat mile could be. Right. They'll talk to us about where operating margins could be. United for the last, I think it's about a year now, they just throw an EPS at us, a wide EPS. And they're like, yeah, you guys go figure it out.

7:28So they're the poster child for less is more in the guidance world. And yeah, that's what they gave us this time, too.

7:36Scarlet Fu:It's kind of how they figured they're going to play the game, right? Let's talk about Boeing, which narrowed its cash burn in the first quarter because of rising deliveries. How do these numbers look to you? Yeah, I mean, they looked as expected. And so, look, the progress towards the recovery of Boeing continues. Lowering cash burns, always great. The defense business showed a profit, which was nice. Global services continues to ring the bell. You know, it's 18 % margins. We love that business. It's a little bit of a black box. You don't always know what's going on there, but I hope it just keeps going.

8:14And the commercial airplane side, Spirit aero systems got folded in at the end of the year. That's right. And we would have expected a better result out of commercial airplane until Spirit got rolled in. And so there's some work to do down at Spirit. Boeing said, go figure. They were buying fuselages for more than Spirit can make them for, or less than Spirit can make them for.

8:37Scarlet Fu:Stay with us. More from Bloomberg Intelligence coming up after this. For years, the conversation around Bitcoin was the same. Is it real? And does it belong in a portfolio? While others debated, CoinShares got to work. In 2015, they launched the world's first Bitcoin EDP, regulated, listed, and built for institutional investors. Long before the U.S. market caught up. Today, they manage over$6 billion in assets and have remained profitable through every market cycle, including the 2022 downturn. What sets them apart? They're not a crypto exchange chasing trading fees, not a company betting its balance sheet on Bitcoin, not a mining operation.

9:16Coinshares is an asset manager with recurring fees, a fixed cost base, and a business model you can actually model. Now listed on NASDAQ under ticker CSHR. Learn more at coinsharesipo.com.

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10:45Scarlet Fu:You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. Let's talk a little tech here. Why not? It's always in the news. Ed Ludlow, he's in town, usually based out there in Silicon Valley. Pier 3, I think it is. Ed Ludlow, B-Tech co-host, joins us here in our studio. Ed, do I need to pay attention to this anthropic mythos model being accessed by unauthorized users? I'm not a Mythos user, but how should I think about it?

11:20Ed Ludlow:You should pay attention. How confused are you all by the ongoing story of Mythos? I'm trying to keep up.

11:26Scarlet Fu:I thought people couldn't use it in the government, but the government is also coming out with rules on how to use it.

11:31Ed Ludlow:I really sympathize with everyone that's reading about this and listening to us talk about it. It's so complicated. Okay, there is a community of people who hang out on Discord, which is a platform for programmers. And one of these people, a single individual, was a contractor who had a contractor relationship with Anthropic and therefore had credentials to access Mythos. Mythos is a general purpose AI model, but it's very good at detecting vulnerabilities in source code.

12:02Scarlet Fu:So it's like a chat GPT.

12:04Ed Ludlow:It's the underlying model, but its primary competence is that it can go through really big bodies of code. Take, for example, a bank. Banks are built on lots of software. And it can quickly go through that software code base and say, ah, I found a flaw. And I know how it could be exploited. And if I wanted to, I being the model, I could exploit it. So what we know is that this contractor with a merry band of fellows and colleagues from this community got access around April 7th. It was supposed to be a very limited release to the biggest tech companies and banks, a group of maybe 40 entities. So it was supposed to be closed off.

12:42Ed Ludlow:They did not use it for anything malicious. Actually, the other thing the model is really good at is making websites. So it's just very good at generating software. The concern is they should not have had access. They were unauthorized. How could that have possibly happened? And this is good old-fashioned kind of hacking. They did use credentials. That's so important. I keep underscoring that. This person had access but shouldn't have used it.

13:08Scarlet Fu:Maybe companies should hire full-time staff rather than use contractors who have no loyalty to the company. Just a thought.

13:14Ed Ludlow:But they also use logic and were like, where do we think that the code for the model itself is hosted? And they went through the internet, sleuthing is the word we've used in the story, and found it. And so it's completely bizarre. The net result is that Anthropic has confirmed that this has happened. They didn't do anything malicious with it. And that it was within the sort of closed confines of this contractors. But they could have. But they could have. And so here's the hypothetical. What if a bad actor, this could be a state level piece of espionage. It could be a malicious group of hackers.

13:51Ed Ludlow:What if they got access through the same mechanisms and did something actually bad with it? I mean, it's one thing to hack some code back in the day. It's another thing to get access, as you were saying, Ed, to this type of technology, which I don't think we as users, certainly the regulators in Washington, I can't imagine, know exactly how powerful this can be. I mean, you could paint some really dire scenarios. The reason I'm sympathetic with the audience is that we use blanket terms like cybersecurity. Cybersecurity is a good thing. You know, it's the defense against potential bad accidents.

14:28Ed Ludlow:Except it's always playing catch-up. Right. And so, like, let's make this really simple. It's a model. A user can say to the model, here is a very big body of code, the code of a bank. Go through it and find vulnerabilities. Now, the Fed and the Treasury want those banks to do this proactively so they can find the flaws and patch them to de-risk. So it's a race to see who can get to it first. But what if there were a bad actor? So this is the hypothetical, and it is a hypothetical. There's no evidence that there is yet a malicious actor out there that has access to this. It's so complicated, but the potential is that the model can go through lots of code much more quickly, in more detail, and find things that an army of humans cannot do at least as quickly.

15:13Ed Ludlow:That's the basics of what we're talking about. Stay with us. More from Bloomberg Intelligence coming up after this.

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17:34Scarlet Fu:Listen on demand wherever you get your podcasts or watch us live on YouTube. All right, here's a headline. When I read this morning, I'm like, are we back in the 1990s? Deutsche Telekom seeks to build number one carrier T-Mobile deal. I mean, this is the stuff we were doing back at Salomon Brothers and Credit Suisse back in the day when telecoms were just buying and selling each other left and right and spending money, which we like. As opposed to being a utility business. Exactly. Boy, we like to fund those people because they are capital intensive. So let's check him with John Butler. He knows what's going on out there.

18:04He covers all the telecoms for Bloomberg Intelligence. Hey, John, did this surprise you this morning to see that Deutsche Telekom is maybe thinking to buy the whole thing out there in T-Mobile? I think the timing was a little surprising, Paul. I didn't expect it sort of out of the blue. It came midday yesterday. Bloomberg reported that Deutsche Telekom was considering this move. And as you said, it's kind of back to the future with this mega merger here. Keep in mind, Deutsche Telekom is the parent of T-Mobile. They own 53 % of the company and have for a while, they have 56%, I think, in the voting rights here.

18:45So what they're really after is Europe is a much more mature market than the US. And so T-Mobile has been a real profit engine for them. And I think they're looking to sort of boost their profits by bringing in T-Mobile into the fold as 100 % holding.

19:04Scarlet Fu:Is this something that regulators in Germany and here in the U.S. would be OK with? That is the big question mark, Skorlet. It's going to be really interesting to see how the current administration here in the U.S. reacts to it. I can't speak to Germany, but I do believe here in the U.S. they may look at it and say, gee, do we really want a foreign entity holding 100 percent of T-Mobile, which has U.S. spectrum licenses across a broad swath of different frequencies. And it's, you know, they would have obviously control over the customer relationships, call it 85 million, I think, at T-Mobile. So I don't want to second guess the administration and how they're going to react to it.

19:56But my sense is there might be some pushback there. The U.S. may even seek some sort of a deal with Deutsche Telekom to, you know, favorable terms, if you want to think of it that way, to clear the path for getting the deal done. In the Bloomberg News reporting today on this story, U.S. Congressman Jim Jordan, chairman of the House Judiciary Committee, said Tuesday that the U.S. government would look at the details of any deal. Quote, a foreign company taking over T-Mobile will get our staff's attention, end quote, he said. So there's certainly going to be something from the congressional side here.