Bloomberg Businessweek Weekend - October 5th, 2019

to that election. Go online, check out the cover of the magazine on newstands, because it just shows visually all of the aspects of our life where private equity is, whether it's housing, whether it's hospitality. I mean they are everywhere, whether it's advising the presidents of the world's most important countries on how to get along. And a lot of the questions we have for this issue really centered around, Okay, so what does it mean, What does it mean for

gender equality, what does it mean for income inequality? What does it mean for influence in Washington in and where does all that money come from? Exactly? So it's a must read. Also this week, a new way to measure wealth and Business Week talks. We catch up with the CEO of Delta Plus. We've got a tech startup with a lot of friends in the administration. First up, though, let's get back to the cover story. It's a private equity takeover of the finance section. And Jason, this is

your world. You wrote the intro to the section. Well, I did have a hand in doing all this, and it was a huge team effort across the news room. And that's largely because this is an industry. To call it an industry is actually a little bit of an understatement. It has its tentacles in so many parts of the global economy, the political world as well. Businesses obviously are touched by this. You think about it from the perspective

of retirees even right exactly. And I think that's why it's getting more attention, right because we have a lot of the public pension funds are getting much more involved. They're looking for returns in a low yield environment, and so they're increasingly turning to private equity. But as a result, private act to get a little bit more scrutiny. Well, and let's be fair, it's a four trillion dollar industry.

That's a massive chunk of the economy. And when you think about the number of private equity backed firms, it's about eight thousand. That's almost double the number of publicly listed firms. So when you think about that, when you think about the you know, everything from Jay Crew to

Supreme to your dentist office to daycare centers. I mean, we could go on and on and on right and that's not even including all the things they have owned in the past, Duncan Donuts, the Weather Channel, Hilton Hotels. A big part of the story is here we are ten years out from the financial crisis. These guys, the

private equity firms. When so many of the financial firms needed bailouts from the government, private equity didn't, and they saw opportunity, especially when a lot of the valuations came down to press properties um literally properties, but lots of different businesses and they scooped in and that really has

been a big reason for their rise. Well, they stepped into a lot of play is where people either wouldn't go or weren't allowed to go anymore, whether it was lending to companies, which a lot of the banks got out of, whether it was single family homes. You know, Blackstone became one of the biggest landlords in the United States because they went and bought up a bunch of foreclosed homes and then turned them into rental properties. Yeah, exactly.

And I also think what's interesting, as you mentioned, uh, they are involved in more companies than we see in the public markets. And here we are at this interesting time in our market environment where you're increasingly seeing companies stay private longer. Uh. There's a lot more going on because of the investor money that's around in the private markets versus the public markets. And uh, I think that's why we're also talking little bit more about private equity.

They're rolled in all of that. And let's also not forget that there's an enormous amount of money that's been made. This is a business that has minted dozens of billionaires. You know, you think about the money that's been generated. Largely this is on the basis of a favorable tax treatment. Not to get too wonky, but interest here we go, here we go. But they've spent a lot of money.

The industry has sort of fighting to keep that in place in Washington, and they have really increased their visibility in Washington and that's a big part of this story as well, because they've had to so with all this going on, one of the stories that we wanted to look at is the returns of private equity. So when it comes to those returns, actually teamed up with Hema Parmer on a story about where all that money is

coming from. I think, you know, we don't know a lot, it feels like about the returns when it comes to private equity, and yet we have to assume that they're good because they continue to attract a lot of new money. Exactly. So if you look over twenty five years and you compare how private equity has done compared to the public market, if you had invested money, what kind of a chill would you have seen from both? You would see a gain from private equity versus about nine percent, So they

so better. So especially over twenty five years. Yeah, quite good returns, Okay, but like isn't so clear because they're not priced every day. Um, there's not a lot of transparencies. So can we take that at face value? So there are a number of concerns that people have with how these returns are calculated, and one of them is the math around what's called the internal rate of return, which

is um metric. Yeah, exactly. It's a key metric that investors used to gauge how private equity fund is doing and if they want to consider them to invest and so UM. The math around that basically is that the shorter amount of time you can invest the investors actual money,

the better the returns will look. So sometimes what funds can do is they can take a loan, invest the leverage capital into the investment, and then at a later date called the investors actual money, put that to work, and then that shortens the amount of time and it can pump up and I r our return by about

three percentage point because it's a shorter duration. That money isn't sitting for a long time, because private equity investments tend to be not always short terms right there, multiple years. I think that's interesting, as we talked so much about all the dry potter that's sitting around, it's not actually sitting in the private equity offices, right it's waiting till they find an investment and then they tap their investor pool precisely, And that's him. A Parmer, my co writer

on that story about PE and returns. So the explosive growth of private equity has been fueled in part by big checks from large public pension plans, which are increasingly vocal about social responsibility. They're asking a lot more questions than they used to about how the money is being

made and also who's making the money. So that raises the question how much are they looking and how much are they concerned about the lack the utter lack we should say, of gender equality across the private equity industry. Serena Wilmore, she's been food the story for quite some time, one of our top pe reporters. This story a great analysis. Help us understand what you found? Well. I looked at the top ten buyout firms by assets and tried to look at the number of women on these buyout teams

that are actually making investments. And what I found is that there are very few women and most of these firms only have one or two women on these teams that are made up of dozens of investment professionals. And Apollo has one helmet in Freedman and uh and also Carlile only has fifteen. So and what kind of positions are they are? They typically in the most senior. Yeah, I looked at the top two senior positions at each firm and yeah, so it's basically only positions where they're

investing money and buyouts. To be fair, Sabrina and I feel like we need to like talk about the Wall Street or financial community overall. Are they kind of the same as what we see on Wall Street and at investment banks or the big banks or is it worse? Well, according to Prequin which did a study earlier this year, it was mostly of asset managers. I don't think they included thanks in the study, but they compared private EQUITYO

hedge funds, in venture capital. It looks like they have worse representation than even those industries which are known for not having women. And most of the women are in investor relations and marketing positions and financial roles. And so when you talk to them, because you talk to these

firms all the time, like what do they say? Well, they say that they obviously need to improve their numbers and they're doing the best they can to promote more women, and they say some of them say it's a pipeline issue and they're trying to push the boundaries a little bit more because they pull from you know, the typical banks and private equity the pipe Yeah, exactly in the

same schools. So I actually interviewed a recruiter from Wressell Reynolds, Heather Hammond, who said that she's pushing her clients to look outside at these firms and look at corporations, corporate development roles, um at companies where you can apply those skills to private equity investing. That's Sabrina Wilmer and looking at a really important issue, right, equality when it comes

to private equity firm. So what's fascinating Jason, as women are especially lacking in running or co managing the buyout businesses, which is historically right, the harder private equitator. And that's where you make the money totally, and that's where you make the money. That's where you get the experiences, absolutely, and that gives you the impetus to go start your own thing. And so they talk about the pipeline. Investors you know have said, oh, this is a real problem,

but they're really not doing anything about it. The numbers don't lie exactly well, speaking of private equity, I did get a chance this week Carroll to catch up with Mike Arrogetti. He's a co founder and CEO of Aries Capital Management. This is a firm that's a little bit outside the traditional private equity definition. They really focus more on private credit, but they have been a big beneficiary of a space where big banks are no longer playing.

We talked about lots of different things, including the global macro environment. Markets crave certainty and we don't have a lot of it right now. And you could look at what's happening in the economy. Fundamentals in the U. S. Economy very strong, but a bifurcation between the manufacturing sector and the service sector. Questions about the health of the consumer relative to the lack of health in the in the manufacturing community. So generally, the folks that we talked

to are optimistic, cautiously. Balance sheets are strong and healthy, revenues are up, profits are up. But I think we're all starting to talk ourselves into a slowdown and we're starting to see a little bit of a shift in sentiment. And when you think about sort of the more traditional buy out space, where do you see valuations and how does how does that play out through the balance of the year and into so still a lot of capital

in the in the private equity market. Right so if you look at it, there's eight hundred billion dollars of dry powder to be deployed. Um. Deal flow is still adequate, but obviously just price multiples are elevated and have been for a very long time. I'd expect that to continue. I think the bigger challenge that we're gonna have as private equity since its inception, has made its most money

by making companies that invest in better. For the last ten years, through the use of leverage, cheap cost of debt, and just value. You know, multiple accretion folks have been able to generate very very attractive returns. I think those procyclical strategies are not going to work going forward. So right now, valuation is still very very stable, Liquidity is still very good. But as we get later in the cycle, the ability to improve companies operationally and drive cash flow

growth is going to be paramount to actually outperforming. When you think about valuations, you've got to think about sort of private market versus public market, and we have seen that writ large. It feels like here in twenty nineteen, as companies have gone public, maybe with some discipplinting results at least when it comes to valuations. I look back at Peloton just last week. How do you sort of

square that bit? Given your work both in the private and the public markets, how does that work itself out?

I think there are two questions in there. One is just how are the private markets developing relative to the public markets, not just in terms of evaluation, but in terms of capital flow and so part of this, this ongoing conversation that I think we'll be having for decades is are the private markets, because of their structure, how they're funded, and what we as capital providers can do for private companies, is that affecting ultimately the structure of

our public markets. I think the answer is yes, Uh, companies are staying private longer. The private markets, private equity and private credit are being becoming more flexible than what they can do for a private company. That's obviously impacting what's going on in the public market. And so when you look at what's happening in the public markets, fewer public companies and we've ever had higher concentration of market cap in the hands of very few companies in concentrated sectors,

and passive investing now out passing active investing. So when you factor all of that in this disconnect, it's very interesting because the companies that need to go public are really the very largest or those that have evaluation disconnect. So from a private equity standpoint, when you look at companies like a Peloton or we Work, we're trained to look at cash flow, underwritable, sustainable EBITDA and ultimately how

that converts to value. The public markets, at least historically have shown a willingness to price in the value of innovation and disruption, sometimes detached from the actual cash flow performance of the business. And I think what we're seeing now is a public market pushback on funding that innovation uh and expressing as value. That's Michael eric Getty. He's the CEO co founder of Aries Capital Management, a big player in private credit, which really gives him some insights

into where the world is going. We're in globally uncertain times, to say the least. If you're tired of not being included on the World's list of millionaires or billionaires a last, don't despair. I am tired of that well included. Business Week now has a list that includes you and me, all right, the haves and the have nots. The haves and the have not. Well, he's got all the answers. Peter Cole here with this in New York City, So how did you come up with this? What? What's the

deal here? I was looking to all these articles about taxing the wealthy and Elizabeth Warren started talking about ultra millionaires and what's really an ultra millionaire? And I realized that the gradations when we talk about wealth they're not fine enough. So people say a millionaire, but what's a million? There could be anybody from Joe blow with million dollars and net worth on after somebody worth nine million. That's

a big gap. It's a very big gap. And the same thing with billionaires on the big difference between your Joe Schmo local one billionaire and somebody like Jeff Bezos or Bill Gates who have like over one hundred billion of net worth. So the idea is scientific notation, which you, of course you call from fifth grade. Do you actually think so? Like a million is one times tend to the sixth So if you're just a simple millionaire, you're a six. A thousand tend to the third power, so

that makes you a three. Most people probably are worth more than a thousand dollars, we hope. But so that that gives it all the way down to minus two, which would mean tend to the negatives two, which is one penny. So everybody from a negative two on up to an eleven is on this wealth scale. So eleven is a Bezos not not Buffett. Not Buffett anymore. There's only two two elevens in the world who right now are eleven? Is? Uh? There wasn't on a one or

no the French billionaire but alas he's below the town. Yeah. Well see that's what I kind of love about it, right you can, like, you know, you're growing up and you're thinking, man, I want to be a seven or an eight or yeah eleven? Yea, well, thank you. But I mean it does create this kind of metric for me. I mean, it's nice, tended to engender jealousy. That's not the point. It's really just a scientific metric abused for good or ill. And so why do you think this

is Did I say it's important? Alright? But this was a task all right? No? So seriously, I just feel as though, like any scientific measure, it gives you more specificity. It's just one order magnitude rather than three, which is when you talk about a millionaire or a billionaire. Well, and I think it is important going back to Elizabeth Warren, because we are having a much more serious conversation about the haves and the have not. And it's not binary.

It's not a haven have not the world necessarily sometimes it feels that way in this age of income inequality. But ultimately, when policy comes from all the politics, there are going to have to be decisions made about tax rates and when you reach certain thresholds. Right, And I like what you said about have and have not because if you think about that, that's very much a binary world,

one or the other. And yet there are gradations. There's some people, I mean, to somebody who's living on the street in a cardboard box, a person with a thousand dollars in a bank seems incredibly wealthy, and so on. You know, there are millionaires who feel poor because they look at their neighbors who have more than they do.

This just kind of gives it a way to quantifile, right. Well, And what's interesting as part of your reporting, you guys do include, you know, a chart that kind of looks at all the different levels and you give us an idea of how many people are in it, and when we talk about half and half nots. I do think it's important to kind of start whittling it down so we really understand, you know, where the wealth is, the

true wealth, and where it is not. Right. So I worked with Bloomberg folks who do the billionaires rankings for the top scales, and that's how we have two hundred billionaires and we Bloomberg guestmates about a hundred and fifty. That's a lot have ten two hundred billion, and then roughly another are a billion to ten. It's all a lot of people in the world. You put all the billionaires into one room, it's a very crowded room. And then credit Swiss Global Wealth Report we relied on for

the rest of the numbers. And of course these are a ballpark, you know, but like there's for example, one and a half billion people who are worth less than a thousands. But this is global, right, So if you think about a lot of developing economies, right that you

understand how that number well. You also wonder if now that you have this way of looking at it, if you start to think about different geographies to your point about emerging markets, and and what being a three or a four or five means in the United States versus other countries, are even in different parts of the United

So that's the concept of purchasing power parity. So this is all done in dollar numbers, but a dollar or or its equivalent in local currency buys a lot more, say in the developing world, so you can you can have a net worth of a thousand or a hundred bucks and actually be doing okay, I mean surviving anyway, feeding your family and so on in a poor emerging market. And that's Peter Coy. I gotta tell you that guy

is so clever and fun. And you know, I always thought you were at ten, but I think you're not. I'm not not when it comes to this new scale, new index in terms of wealth. Your wealth number, is it a one, is it a five? Is it a ten? That story is great. I think everybody wants to be in eleven. So one of the feature stories this week is about a tech startup back by a tech billionaire who also backs President Trump. And this startup it is making its mark on the defense industry and a lot

more well. And there's so much to dig into in this story. It's one of these companies where the more you get into it, you think, wow, people really should know about this because it's complicated and important. Josh Resting is back with us in New York. You dug into this company, tell us what it is and what it's

all about. Yeah. So the company is called and Roll, and it is describes itself as aspiring to be the UM Operating System of the Defense Department, which would basically be the software that kind of connects all the systems, whether those are surveillance cameras and you know, dash cams on jeeps or aircraft carriers UM. And so that's a big, big goal. But they've started kind of small, obviously, as

you do. Their first deployment was actually with Customs and Border UM protection on the Mexican border UM, which is in and of itself a pretty controversial place to start, and UM things have kind of taken off from there. Well and okay, and just by saying that, we know there's controversy here, so talk to us about because I think it's put it. The story talks about one of the you know, Silicon Valley's most controversial startups. Tell us

about all the controversy surrounding this company. Yeah, I think there's really every every ingredient of controversy is here. The founder of Andrew is a guy named Palmer Lucky. He founded before this the Oculus rift headset. Um. If you might remember, there was this little piece of technology industry lore that was bought on The company was bought by Facebook for two billion dollars, and then right before the election, came out that Palmer Lucky was secretly funding a group

that was posting insulting billboards of Hillary Clinton. Suddenly he disappeared from Facebook and was eventually he says he was fired. Um. Mark Zuckerberg says he was not fired for political reasons. Um. This actually came up in a congressional hearing. It's been sort of a snaffoo for Facebook. Um. But so palmer Lucky has this reputation, as you know, kind of the

trump eyest person in Silicon Valley. Then he goes and starts a company whose first project is surveilling the Mexican border, right at the time that the Trump border policies are really building up. And then that immediately fed into a debate about should tech be refusing to build things like this?

And so then you had the Trump administration, which was already causing trouble in Silicon Valley and border surveillance, and they just, you know, really jumped into that um and I think in part they embraced the controversy as a way to make a name for themselves. And I wanted to talk about that because this is not a guy who shies away from confident. Anybody who's buying billboards and probably is is into that sort of thing. But as you say, he's really to turn a phrase like he's

leaned into this. I mean he he has really built not just his name but his company's reputation in some ways on doing these controversial things. Yeah, And I think there's two things going on here. One is, if you're a company that no one's heard of, one way to get a lot of people to hear about you is to cause controversy. And the other thing is there has been this movement amongst many technologists to say big companies shouldn't be building drone targeting technology or border surveillance, and

people have quit Google over some of these projects. And so now you have a company that's saying, hey, look, if you want to work on these projects come to us like, we're the ones who you can do this part, because the bet is that there is a portion of the Silicon Valley labor pool that wants to do this stuff well. And what I find interesting too is that the military area or the defense companies and contractors right through these old established companies that have been doing it

for years. How does this company, essentially a tech startup kind of make inroads into defense. Yeah, it's true. Defense is dominated by a very small handfulling companies. The whole process of working with the government is very formulaic. Um. It pays to have people who have been you know, working on these contracting things for decades. And the short

answer question is they're starting small. They're trying to get in build some projects on spec and just give them to the government and say, you know, if this works, like,

we'd love to sell you more of this. Um. And they're also betting that those companies that you mentioned, your boeings, your lockeys, they have trouble attracting like top flight UH software engineering talent, AI talent, and if you're a startup that is a VC back startup there, Um, you know, they went from nothing to now they're already worth about

a billion dollars. That's kind of the model for getting rich in Silicon Valley now, and they think that a lot of software engineers who wouldn't work for defense contractors will come to them. Well, one of the models of Silicon Valley of late has certainly been somehow being connected to Founders Fund and the folks associated in that orbit. How does that play into this story? Yeah, so Founders Fund is the is the investment fund founded by Peter Thiel,

who backed the president election. He originally started PayPal, but he's kind of the other most uh, the other technologists most associated with Donald Trump and Hendrill has an uneasy relationship with their connection to Peter Teel. I talked to them a lot for this story. I spent some time in the office. They really wanted to say that Peter Teel had nothing to do with this company. They say, Look,

Founders Fund is just an investment fund. He happens to be involved, we happen to have they happen to be one of our investors. So they really want to play it down. At the same time, like this fits into some of Peter Tiel's other business interests. Palanteers, another software company that does very similar work. Talk to us though, a little bit about the work that they're doing, because the story opens up with one of the engineers and he's playing around or showing how their drones can work.

Tell us a little bit about that. Yeah, So the actual project that my story mostly focuses on is a project they call the Interceptor, and it's basically a drone that autonomously fly into other drones and knock them out of the air. The idea is that cheap, hobbyist drones are being used in an increasing number of military ways, and as we just on Saudi Arabia, so just on

Saudi Arabia. Um, although those were larger drones, but we have some smaller drones used, um, you know, in an assassination attempt, in various attacks, and they're very hard to deal with. So the idea is we could just build a bunch of small drones and put self flying software on them and tell them anything that breaches this airspace,

just ram into until it falls down. And um, they think this is a cheap and relatively easy solution to patrol you know, borders, military bases and maybe other places. They've they've had discussions with selling these two commercial clients who have to defend like oil and gas facilities. Well, and that takes us into this whole other realm of Silicon Valley sort of pushing the envelope, drones being sort

of the tip of the spear in some ways. I feel like we've talked to you about it before, sort of how is this going to fit into even the cultural and social fabric? How are we even thinking about technology in this way, especially at a time when I feel like we're thinking of technology a little bit more skeptically or or holistically. Sure, UM, I think that you're right.

They have now stepped put their foot slightly into another big hot button debate in Silicon Valley, UM, which is whether we should build autonomous weaponry and if so, what should be in place to UM, what regulations and so on should be in place? You know, Andrew's answer is clearly yes, we should build autonomous weaponry. They refer to this thing as as an autonomous or semi autonomous weapon at the moment they have they do have some safeguards

in place. Uh, you have to. It will identify the target and then ask someone show them a picture and ask someone whether they want to attack, so they're not out there just like shooting around. Um. And they are also designed to go after only these consumer drones right now, but they're already working on a prototype that they say could go after larger targets, maybe helicopters, And then you have a semi autonomous weapon that could maybe kill somebody.

Well that's the concern, right, the ethical concerns about right now,

it's not targeting humans. But you know, these things develop and become you know, used in many many different ways, and so that's one of the concerns here, right And I think that that's one of the things that's really interesting about this particular company is that, you know, even people who are worried about autonomous weapons described this near term use case knocking down a hobbyist drone that's reaching a military base as like, you know, probably okay, Like

I mean that seems sure that we need we need to deal with that, but like, how are we not going to end up somewhere we don't want to be. And if the way that we're developing these weapons is by saying, hey, a D twenty persons start up who you know, was founded two years ago and builds things on their own have at it. Let's let's see what you come up with. I think that's a question that

people are uncomfortable with well. And as we discuss, we are getting to this point where move fast and break stuff isn't necessarily the way we feel like we should be proceeding. And as we deal with the the sort of the complicated now recent history of social media, if you look at a leading edge technology like this, you wonder if, like, let's just see what happens and then

we'll walk it back, is really the best way to proceed. Yeah. Absolutely, And I think, like you know, this isn't social media, right, this is a this is a very high stakes location. And you know, Andrew will say, like all tech companies say, you know, we aren't just doing things really nearly. We're you know, we're concerned, We're focused on problems. You know,

we're you know, we're good people. Where our business partners are the US government and its allies, like there are safeguards in place at the same time, like we've seen in recent past that like those safeguards tend to break down when they are not thought about in advance. Right and full disclosure and reason Harrowitz, right, is also an investor in Bloomberg LP is an investor in Andreas in Harrowitz. So just to kind of put that out there, there

you go. That's Joshua breus Stein writing one of the feature stories this week. It's a controversial startup, right, and it's really kind of up ending the traditional staid world of defense companies. But it's got some very interesting Republican backers, right, So many characters in this story, but also some really big issues to tackle when it comes to the role of technology, especially when it comes to defense. On Wednesday, Delta Airlines announced that costs would rise more than expected

this year. Non fuel costs to fly each seed a mile will climb two percent this year Jason, rather than the one percent previously forecasts Well and Carol. While the reasons for Delta's higher costs appeared specific to the airlines, the news really did spur some concern over signs of a weakening economy here in the US and abroad. Delta kicks off third quarter airline earnings reports this week, and

investors may fear problems lurking at other carriers. So before this news this announcement this week, we sat down with the company's CEO Ed Bastion for another edition of Bloomberg Business Week Talks. We talked about the trade war, oil markets, and airline consolidation really some of the big macro issues facing airlines today. So ad so much going on in the world, let's start on the sort of geopolitical geo economic front, the trade war. Are you seeing any blowback

through your business from that? Not in a material way. We're seeing some effects, particularly in Asia. They tend to be more around our big corporate customers, automotive manufacturing that that are not seeing the same type of demand for their products, so they're pulling back some of their spend and travel patterns. But Asia for US is one of the smaller regions within our total revenue pie. And uh, we're not We're not seeing a white We're watching it hopefully,

but we're not seeing a major a major decline. Obviously disruption in the oil market. How does that play through, if at all, for you in terms of your fuel costs, in terms of your hedging strategies, any elements that are sort of popping up there. Well, it's a reminder of how volatile the business climate, the environment in which we operate. That said, you know, we're already seeing fuel prices start to moderate. We've built our business to be sustainable at

much higher fuel prices than sixty five print. So we're on the front end of that, uh, anticipating what we might face in terms of future future challenges, but from a revenue durability standpoint of balance sheet perspective, we think we're pretty well situated. So let's talk about your investors. You know, you have won a lot of plot. It's from your customers and there's some investors who are very

much on board. And by certain measures the stock is done very well, but by other measures that it feels a little bit stagnant. Uh. Dare I say it? Uh? What's the street missing? Well? I think it's is. It's a proven story. Our largest investor, Warren Buffett, he owns eleven percent of Delta. I think he has a great line is about our industry. We were like the Chicago Cubs of the of the business world. You know, we didn't have a bad decade. We had a bad century,

and we're we're on a different, different platform now. We've you know, the last ten years, we've really invested in the fundamentals of running a great airline with reliability and performance and service levels unseen in Delta's history and candidly within the industry as a whole in terms of scale.

That's been been rewarded by our customers, with customer satisfaction scores and brand loyalty and preference at levels we've never seen before, which we're taking back and continue to reinvest in the customers, reinvest in our airports and our technologies, while at the same time generating meaningful free cash flow. I think that's the other thing the investors historically have

not seen from the airlines. While the airlines may have performed at certain periods of time, they also spent back what they what they made on on labor, on technology, on on on capital and and fleet. We're doing that, but we're also, you know, returning a meaningful amount. So this year, Delta we expect to make over five billion dollars for the fifth year in a row in terms of profits, but we'll also have free cash flow delivery

this year of over four billion dollars. And so I think that that performance and that consistency of performance over time is rewarding, and I do think that that investors will will stay with us and and hopefully see see improvements in the Pe. So there has been a bit of a divergence. It feels like across the global airline industry. You feel like it feels like you're you're one of the have so that there may be some have nods out there. Are we going to see some more consolidation

and will you participate in that? I don't think you'll see consolidation in a meaningful way in the US. You may see it in it's made other other parts of the of the airline market not necessarily participating relative to Delta. Internationally, I do think you'll see uh Europe, you're already seeing it. You're seeing bankruptcies in Europe in terms of some of the European carriers. I think you'll continue to see so consolidation trends there. Uh So on the on the global scene,

that's where we've been investing. We've invested in a number of our partners and really not consolidation. It's more to have influence within within our our global network of carriers. Uh you'll see more of that from Delta potentially, but I don't think on the U S side you'll see And what do those partnerships tend to look like now and what might they look like in the future, either geographically or are there new and different things that that you can try to sort of create that that family

as it were. Sure, well, you know, one of the things I think that has not been successful in the airline world are the alliances. You know, we we am self critical SkyTeam Alliance. I don't think we've we've brought a lot of great value to customers. I don't think we've brought a lot of great value to our member airlines. And we're going at this thing in a very different approach. We're going at it through delta, making bilateral investments in

the most important partners. We own forty nine percent of Virgin Atlantic, we own forty percent of Mexico, the two closest carriers to us on either side of the kind tree. We're invested in Air France KLM. We've invested in Korean, We've invested in shawna Eastern, We've invested in gold Down

in Brazil. And as a as a consequence, what you see as you see this network of influence that we're having within those companies, so those companies want to know what what Delta has learned about operational efficiency and prowess, and that's Ed Bastion, the Delta CEO. It was really good to catch up with him. What an interesting guy, you know. I joked before we went on the air that I really only knew him from those little video

screens on the backs of seats on his planes. It was kind of like meeting a movie star and in some ways, but he's got a big job on his hands. He's got a very successful we work. It seems so innovative and instinct. Initially with our ever increasingly sharing economy, many buying into this melding Jason of work in life. Well, I feel like when we started this year we thought, wow, this is such a twenty nine team company, and at this point in the year, it feels like, whoa, that

is a twenty nineteen company. Ellen Hewitt is here with us. She joins us from Sam Francisco, tracking every twist and turn. And Ellen, as we were talking before we came on air, you mentioned the fact that you know, you've been watching this for a while, and obviously the scrutiny increases as the company gets closer and closer to going public. But wow, there's scrutiny, and then they're scrutiny. Yeah, it's you know, I've covered we work, uh for at this point, probably

more than three years. I've written out a lot of different stuff about them. Um, you know, I remember even a couple of years ago, I was writing stories about um, you know, the people who work running their offices. These are people who are the community managers and stuff, and and they dealt with some of the stuff that you're kind of hearing echoes of now, which was there was

a lot of partying in the offices. You know, they had to come in and deal sometimes with drunk members or or sometimes the de try this left over after people had used the offices for parties and things like that. And and it's just interesting to see how, Yeah, attention on this company is really evolved as it has become

bigger and bigger. So, like you said, at the beginning of twenty nineteen, you know, when it got this round of funding from Stopping that valued it at forty seven billion dollars, all of a sudden, it was this huge company.

And as it prepared to go public, which we learned about in April, then I think that's really when people started looking at it and thinking like is this company ready and really anticipating the S one which came in August, which I know was a very exciting day for me and and we and then it sort of it feels like at each turn there's more that's revealed, and there

aren't huge surprises. For someone who's covered the company for so long, I think the culture has been pretty consistent, but it has been interesting to see how public investors or public potential investors have have viewed some of the conflicts of interest, the corporate governance structures, the personalities at the top of the company, um, and not always reacted very favorably. So family was a big element at this company, and ultimately it was a big part of its undoing.

How did all of this kind of seem to go under the radar for such a long time, Allen, So it's interesting there's kind of two ways to look at the role that family plays in we work. So this has always been a company that's about communal spirit um. You know, remember they had community adjusted EBITDA was one of the financial metrics that they used in an earlier financial document. They took it out for the S one, but it's been part of their ethos. You know, they

talked about life is better together. They explain, you know, sort of make a life, not just a living. They really want to bring work and life together, and I think that ends up blending personal and professional and then separately. The the people at the top, this is Adam Newman, UM, Rebecca Newman, and some of the other people who help run we work, really are also very comfortable having family ties play a big role at the workplace. So obviously,

you know Adam and Rebecca are married. UM. When you look at the origins, sort of the company is actually Adam and Miguel the other co founder, and then Rebecca sort of emerges four or five years in as someone

who now has a co founder title. This is something that if you look at early stories about were this was not something they discussed, but she became more important as the company became bigger, and then beyond that there as we mentioned in you know our story this week, there's a lot of other family ties that we work. UM there are you know, Rebecca's cousin was the head of real estate for a long time. His parents ran the uh summer camp where we work used to have

their summer retreats. Her brother in law up until this past week actually worked at WE Work as a vice chair. Um. You know, there were some others that were disclosed in the s one a brother in law of Adams as someone who runs the like Jim and fitness offering at WE Work. There was another family that family member that was paid for some of the events, live events that they put on. It just kind of goes on and on.

There are a lot of people who are personal friends of Adam who work at we were concluding people who knew from his childhood in Israel. So he feels I think, uh, you know, a strong sense of loyalty to people. This is something his wife has described in interviews and I think it comes out and how he chooses to do

his professional dealings. Um and And they were at least at the top, very comfortable with having strong personal ties among the executive team and and sort of the the VP levels and above well and Ellen to that extent and to the extent that it is a very convoluted structure,

a complicated structure, and one that is certainly atypical. How much of it went unnoticed because there was really one big major investor setting the tones setting the valuation and really providing the most oversight, and that of course was soft Bank. That might end up being the biggest takeaway about this all, which is what happens when you really get the majority of your venture funding from one place. Uh. You know, since two thousand seventeen, the only source of

outside funding for we Work has been soft Bank. They invested first about four point four billion dollars in a big round and then in constant like consecutive rounds after that. There were other um fundings from soft Bank, but all

only from there. There were never other investors involved in In the end, they soft Bank invested more than ten billion dollars in this company, and they're by far, you know, the biggest investor, and you can you can extrapolate to the conclusion that, you know, the only two people who needed to decide we Works valuation for the last couple of years have been mas Yoshi sone and Adam Newman.

And if you have these two people in agreement, that might be how you end up with evaluation like forty seven billion dollars that many other people when you asked them if they would buy we Work stock at that price, they said, I don't think so well, and not only the valuation, but also the corporate oversight to a large extent, because as you uh and some of our other colleagues have reported, you know, the board was obviously and this is not that anomalous, you know, obviously very much stacked

with people who were sympathetic to Adam Newman. It it just looked unchecked in a lot of ways. Yeah, not only sympathetic to Adam Newman, but really without that much power to um overrule it. So since about he's had majority voting control of the board. Obviously that changed in

the last couple of weeks. But you know, this is I think another example that people are going to turn to when they want to make the argument that modern boards, especially for these big, high flying venture backed startups, UM,

they don't really exert that much power. They're they're agreeing to all these things that the CEO wants to do, maybe out of a need to feel like their founder friendly, or maybe out of not wanting to distance themselves or start a schism within the board between them and the executive.

But you're seeing that that's not really providing the check and balance on good and bad ideas that that a company might come up with, um, you know, there are a lot of things that we work did not just in corporate governance, but in some of its business decisions that are now being rolled back by the new co CEOs. That at least is suggesting that some people within the

company didn't think they were a good idea. And you know, these are some of the acquisitions that the company may that felt a little outside of their core business of renting real estate. That's Ellen Hwett coming from our San

Francisco here man. She's been covering this story for a long time and really following all the family members that have been working at the company, which only really seemed to come to light as the company tried to go public, right and once investors really got a sense of what was going on underneath, that's when the real problem started. So Fender Bender's accidents. If you live in the New York metro area or feel like any major city man, you probably have had one or two or more, right, Yeah,

but usually it's not so big of a deal. You got your car, guy, you drop it off, he fixes in, and it's all good. But what if your car costs a quarter million dollars or more? It's a whole other thing. Hannah Elliott's got all the answers as usual. She's here with us in New York City. So Carol is not so careful sometimes with her Bugatti. Well, you're probably gonna call Bugatti directly and say, hey, guys, you may want to send a truck, and then the car will be

sent back to France. That's where that's what happens. Yeah, you're you're not going to see it for a while. It's gonna be some months before you get it back. We'll tell us why, because this is I love that you talk about when in individuals you talk about Chris sing is it. Yeah, Chris tell us a little bit about him and what happened with him. He is a great character, very famous on Instagram. He's got over a

million followers. And then he's a car collector. He's known for collecting Peganis conig seg Slammorghini's that sort of thing. And he got hit by an Uber driver in Miami and um, the guy basically sheared off one of his wheels and he told me his first call was to Pegani and um they sent a truck. The car goes back to the factory in Italy, he doesn't see it for several months. Um, but then several months later is reunited with the car in Italy and actually has driven it,

you know, thousands of miles in rallies. Since so it's a law involved process. He didn't just send it to you know, the corner dealership because there is none. And what is it? I mean, I guess it's not shocking that these cars are complicated and somewhat fragile, but I have to say this is even more intense than than

maybe I thought it would. It's pretty intense. I mean, if you look at Lamborghini, they've got a program called the Flying Doctors where they have some engineers that are trained by Boeing that they deploy anywhere there's a major crash from one of their valuable owners. Um, and those guys will strip the car down to basically nothing, to the monocoque tub and gradually grafted new layers, you know,

build new components on site anything needed. Um. Again, these you know, or Lamborghini will ship the car to uh the University of Washington in Seattle and in their labs there repair it there. So you're dealing with high tech components that most dealers and shops don't have. What is

something like this cost? And I'm always curious about the insurance side of it, right, I mean, do you actually file claims with your insurance and do they cover this kind That's a really good question, and it's a case by case basis. It's really interesting. Of course, none of the guys I spoke to really want to share with me, you know, their insurance numbers and and um that sort of thing. Christine told me insurance did cover the repair for the Pegani that was hit by the Uber driver.

Another owner told me if the damages are under two dollars or so, he's not going to report the damage because it's just not worth it proportionately, if you have a car that's a couple of million dollars, it's really not worth it for what it might do to his insurance premiums UM. I spoke with the guys at Haggarty and they they too said, look, this is a really touchy subject. It's a case by case thing. Um to get a quote on this, you're talking thousands of dollars

just for months. Well, and it's a reminder that it's one thing to be able to afford a car just to buy one of these cards. But the ongoing maintenance, even outside of fender fender bender or some sort of crash, is massive. Just taking care of these things, it's incredible. For one example, the McLaren F one. I spoke with McLaren. This is a very special car that was built in

the nineties. They estimate that just maintenance on the McLaren F one is thirty thou dollars a year just to maintain UM and they recommend each year sending the car. Back to the fact that the McClaren factory in England for oil changes, you know, break checks, the realignment, anything you might need on a regular car UM on the F one, it costs so much more they're going to do it at headquarters. What was the figure around an oil changes tho dollars for an oil change, for a

wheel repair, tire repair around six thousand dollars. You know you can get that done for free at your local shop a lot of the time. So what are these you know, the supercar makers. I mean, if somebody perhaps at a shop or private account, works on a car, do they even want to touch it after that? No? No, no, And really. You know, Asin Martin has the Vulcan a sid Martin Vulcan. This is a very famous car that they have just started delivering, you know basically right now, Um,

they've said you can't like you signed papers. Let's say, you've got to let us work on it. We want our original people who built the car to work on the car. If you go out of shop, that kind of negates any agreement you have with the automaker. And so is this just the world word living in this sort of high touch, you know, high cost? I mean you you talk about cars all the time, and we talk about automation and all these different elements of the car world. Is this just getting more extreme as the

rest of the world goes the other way? I think so. Um. I will say one owner I think had a great point, Dan King, he's a big collector in southern California. He said, look, I just keep a couple of guys on my own payroll who work very close with the Konic side factory. But he has him in house in California. I think that's the smart way to do it. And probably we're going to see more and more of that where you just retain the services of you know, um certified people

under your own house. And Jay Leno had a great story that tells what happened in Well, this was in his garage. He was backing up one of his Lamborghini mirrors and backed it into the other. Who has that problem in life? Yeah, But luckily the great thing is j has a whole shop at his disposal site. Um, he at least could repair the cars on site. Do they do they ever total a car? That's a good question too. It really depends going back to the McLaren

F one. You know, there's this famous case of Mr Bean who twice crashed his F one car um but sold it for more. He made like an eight million dollar profit when he sold it from what he had paid for there right now, that's the thing. McLaren made a hundred and six of them. They're not making anymore. The idea is you can't really total it just because

it's valued so highly. Now well, and to your point, in so many cases, if it is really damaged, they're really just going to rebuild it completely from the ground up, completely. You know. Chris Stink told me that. Dan King told me that, Look, if you do get to the point where you have to send it back. They're basically building you a new one. And that's Hannah Elliott. You know

her job. It's so tough, and you know she did have to talk to people who were in a very sad state of affairs because their three million dollar car was in the shop in England for months at a time. Well, exactly, we get a fender bender, right, we call the insurance company, we go to the corner mechanic and get it fixed in a couple of weeks. It's a very different story when you own a supercar. So it's time for pursuits. We're here with the editor Chris Rouser, and we start

with cheese making the perfect cheese plate. This is news you can use. I'm just gonna say it. Literally read this story and I thought, I'm gonna tear this out of my paper magazine. I'm gonna put it on the refrigerator because a good cheese plate is important. Yeah, and you know, we've been sitting on this story since summer because we were like, oh, we thought of it, and we were like, you know, summer isn't the best time for cheese plates to leave it out in the sun.

It gets hot kind of melts. But there's there's a new cheese plate book, there's a website devoted to cheese plates, there's Instagram accounts devoted to this. We thought now is the time to really go over the basic rules. So Kate Crater talked to a bunch of cheese plate experts and we got some tips, and some of them actually

were a surprised to me. Um. One of the tips that she recommends is actually including vegan cheese, which is something that I am sort of spiritually against, but it's actually a great idea, you know, if you have vegan guests. I didn't try it, but some of the vegan haters on our team did try it, Um, And you know, it's not cheese, right, So it's it's using like almond milk and cashion milk and it yeah, it's pretty good. Actually, it's a nice option, right, And it's really being nice

to your gett. Yeah. And then another thing she said to think about his timing. Actually, so uh, you know, I just shove whatever cheese is in the fridge out on a plate right before guests get there. But actually you should have your cheese come to room temperature before because then it becomes softer, it's the right way to cut it. So you know, maybe like forty five minutes before you're ready take the cheese out of the refrigerator.

You also point out that different cheeses require different types of presentation, slicing versus chipping chippin, which I didn't really know was the thing, but that help us, help us understand. Yeah, so if you have like a small soft cheese, you can cert like a log or in a wheel, you

can serve that whole. But if you're getting something bigger, even like a blue cheese or like sort of an aged guda, something that's gonna be hard, actually get in there with a with a knife and chip pieces off, you know, the way you might see parmesan cheese served like a restaurant or something, so that people can just grab a chunk. I love too that there's kind of like fill in things, right, like nuts and so on

and so forth. Yeah, so you know, you oftentimes you'll see this like a quince or a fig jam on a cheese plate. But you know, there's all sorts of directions you can go. So what Kate and the chefs recommend is sort of creating veins of like cured meat that sort of waved through the plate, and then fill in any empty spaces with nuts or dried fruit or fresh fruit or stuffed hot peppers. Um, or there's sort

of something hot and spicy like a lostarto. Uh is a good idea, So just get some variety on there. The other takeaway I had from this is essentially more is more like loaded up. And you know, nobody likes the skimpy looking cheese plate. And in fact, even sort of like a well organized cheese plate is not as important as sort of a bounty should look like it's erupting. It should look like a cornucopia stuff. It's not that sort of fine dining thing where you get a little

a d bad tiny thing on a plate. You want as much cheese as possible, all right, a lot of cheese. Um, all right, that's good to know. She's so glad we all went to journalism because it brings us to this next story. Him up bars. Yeah, so you know, sandals in Montego Bay, sandals that great, you know, all inclusive. Yes, well, they're really pushing the Montego Bay place right now. And so they approached us and they were like, you know, it's the thirty fifth anniversary of our robot bar. Sorry

I knew that. I knew that, but I didn't know if everyone else. And um, they were like, you know, we've redone it and it actually was the first swim up bar in the Caribbean, and so they were like, do you want to look at a history of the swimp bar? And I was like, yes, yes, idea publicists

is going to get a raise. Um, and we really looked into it and there's a totally funny, interesting history of the swimap arts sort of started actually in Las Vegas when people would be hanging out by the pool, and casino owners were like, we're losing money when people are relaxing. How do we get how do we get them to spend while they're chilling out. So they actually moved casino tables out to the pool and then they

put bars out by the pool. And then in the Caribbean, the Sandals they were like, why can't we serve people drinks while they're in the pool. Let's just put a bar in the It's really decadent, Like there's something about swimming up and it's like, yeah, but it's great. I mean some of the cheesiest things are the best. But I'm just surprised that it's only three five years old.

I for some reason, I thought it was a lot older. Yeah. Well, actually Sandals claims that even serving cocktails on the beach is actually a relatively recent invention. Like they say, they sort of started doing it like fourty years ago, and it wasn't a thing before that. My theory is that when the Greeks were on Mount Olympus, yeah they were

serving drinks on the beach. But but apparently this whole thing is actually pretty recent well, and it's become even more of a phenomenon, and the aesthetics editor that much more important in the edge of Instagram, you know, because you have so many people who really want to first of all, take a picture of themselves on vacation to make everyone jealous that they're on vacation and having a drink and at this one out bar, and so that leads to people really investing in the look, not just

the booze. Yeah. So one of the fancier places that we talked to, the Four Seasons in Maui. They say they're most Instagram spot is there Swim Up Bar. So they've got a lot of beautiful places, and they're like, that's where everyone wants to go to make content. But who knew that there was actually swim at bar right here in Manhattan. I had no idea. I have been in that'll tell us. There is a swim up bar

at a hotel in Times Square, the Roommate Hotel. Two words roommate and um, you know actually it was a different hotel, probably ten years ago, and they've always had this pool bar, and if you are brave enough, you can get in the pool and swim around in Times Square. Fun. It is fun, you know, It's yeah, it is fun. It's funny. It's it's not a huge pool. It's like kind of a small pool. It's sort of a novelty. But the time that I was there, someone is someone's birthday.

Someone through the cake in the pool and then you have to get out of the pool, so like it's you know, it's not it's Ayre. It was not me. It was not me. No, no, no no, But yeah, if you want to you can, all right, So I don't know where to go. One thing I would like to do is like check out the Brooklyn Academy of Music because there is a lot of interesting things going on. Isn't like Madonna going to be there. Even so, Madonna is at the Brooklyn Economy Music right now. She sent

for the past couple of weeks. Yes, she wanted to start her Madam X tour in a sort of more intimate environment. I mean, it's a two thousand person theaters. It's not tiny, but it's a lot smaller than the arenas she normally plays. UM and bam Is, this cultural institution in the heart of Brooklyn has three theaters and a bunch of spaces. They're building some more arts space. It's been around a lot longer than Swim up Bars. Yeah,

it's been around for a hundred and fifty years. I had to figure out some kind of and it is one one of the city's largest arts institutions actually, and it's it can be very overlooked. People in Brooklyn loving UM, but if they get incredible international artists, they get celebrities to do to do plays UM and it. You know, they're really trying to bring it to the next level. And they're also trying to adapt to a changing Brooklyn.

You know, thirty years ago for Green where bam Is was a very low income neighborhood and now it's it's very yupified, and they want to continue to bring in, you know, audiences that represent all of Brooklyn, and so they're trying all sorts of different new kinds of productions from all over the world to try to draw and

these people well. And that is what was so interesting to me about it, is this notion of you know, Brooklyn in this moment of I wouldn't say existential crisis, but certainly a little bit of angst about is it going to hold on to what it was, especially in the context of the city of New York, or is it just going to be gentrified like everything Manhattan Jr. Yeah, I mean, for right on the back of four Kreen is downtown Brooklyn and every single block is a skyscraper

is being built, like a residential condo tower or rental tower, and it's so it's a very changing neighborhood and four Kreen really represents that area. And to that point, they have a new artistic director actually has been there for a little bit of a little while, and he comes from an interesting background, like a Broadway background, so he

brings some different traits to that job. So we wanted to do this story because David Binder is a new artistic director and he replaced a guy who'd been there for thirty five. So this is a new, a really new moment for BAM and so. And David Binder produced a Highline Festival which was curated by David Bowie, very cool. And he also produced head Big and the Angry Inch, which wanted Tony and was a very cool, sort of trans transgressive Broadway production. So he's got sort of a

big league's experience that he's going to bring to mam. Alright, So with all of this, after all the cheese drinking at the swim up bar, maybe going to a production at Maybe I just want to go for a runch. Yes, my tunes, I want to listen to you know, Carol's in my podcast so I can critique us. How am I going to do this? So Beats by Dre has a new set of headphones, the of Power Beats Pro.

There two or fifty dollars and their over ear. They're independent of each other, um and they have an incredible sound quality. I tested them out. A few people on our team tested them out, um and they they're great noise canceling. They have great bass. It's just a really good sound system, and they come fee. They're very comfortable, they write, they rest on your ears. They don't jam into your right into your ears the way that some do,

so you can wear them for a long time. We really like them, and we tested a bunch so well. And what's interesting is just to remind people, as you know, Apple and beats are together, and so you kind of get the best of both worlds here. And I do think a lot of our listeners and viewers don't go in for like the big over ear. They can cans and you know, want something a little more subtle. And

these are waterproof or is it? Yeah, they're sweatproof. Yeah you can't go swimming with them, but yeah, they you can get them pretty wet. They cost they cost you or fifty All right, that's Chris Rouser. And who would have thought that it would be so interesting and so complicated to create the perfect cheese plate. I had no idea, but I ripped that page out of the magazine and let me tell you, I'm up in my cheese game. And that wraps up Bloomberg Business Week's Weekend podcast. Thanks

so much for joining us. I'm Jason Kelly and I'm Carol mass Or. Be sure to tune into Bloomberg Business Week Radio Live Monday through front Day, starting at two pm Wall Street Time. And if you can't catch us live, get our daily podcast for the Ride Home at iTunes, SoundCloud, or a Bloomberg dot com, and you can get this week's edition of the magazine that's on newsstands now. We'll be back right here next week at the same time. This is Bloomberg