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QUEST MEANS BUSINESS

Intel & AMD Make Peace; Xbox Modders Banned from Live; JAL Expected to Report Loss

Aired November 12, 2009 - 14:00:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


RICHARD QUEST, CNN INTERNATIONAL ANCHOR: Is BA and Iberia about to land at a runway near you? The boards meet behind closed doors.

A technical truce, Intel pays a billion dollars to settle a bitter dispute with AMD.

And game over, Xboxers are feeling Microsoft's punch.

I'm Richard Quest, for the next hour, between us, we mean business.

Good evening. Meetings in Madrid and in London, they set the rumor mill on fire. There were media reports that have spoken of a done deal to finally announce the merger between British Airways and Iberia. Despite that rampant speculation, the two airlines failed to make any announcements today, again, to get their merger off the ground.

The markets had other had other ideas. There were so many rumors about that clearly something was actually taking place. BA shares jumped 7.5 percent, meant they were one of the largest gainers on the London FTSE.

For the Spanish airline Iberia, they were up nearly 11.8 percent -- 11.78, to be pedantic, in the Madrid market. The two airlines have been negotiating for 16 months and this is what we know. It's thought that by the time the deal is finally put together, 55 percent of the new merged airline would go to British Airways. At the end of the day, BA's share price may have suffered, but it is still a bigger airline.

The other 45 percent would go to Iberia. The new mega airline group would carry more than 60 million passengers a year. The chief executive, now this is when it gets tricky and interesting, that would probably go to BA's Willie Walsh, the chair would probably go to Iberia, and crucially, where would the headquarters be, probably Madrid. A fleet of some 400 aircraft would put the two airlines together.

That was the talking point. There are rumors, and it is no more than that, that a deal could be announced as soon as tomorrow morning before the stock markets open.

As European airlines drag their feet, two U.S. tech giants sealed their own deal and set to transform the world of computer networking. HP announced it was buying the network equipment-maker 3Com. Now this is a deal worth $2.7 billion. It puts HP in direct competition with rival Cisco, which currently dominates the computer networking market.

HP says the acquisition broadens its product range, strengthens its position in China, where 3Com is second in the market to Cisco. Now the important part of all of this, why are we bringing this to your attention at this hour on this day?

It seems the time is right for doing deals. Mergers, acquisitions, they're all on the agenda. And a new report by Ernst & Young says a third of global businesses are expected to buy another company in the next 12 months. CNN's Jim Boulden looks at the evidence so far.

(BEGIN VIDEOTAPE)

JIM BOULDEN, CNN INTERNATIONAL CORRESPONDENT (voice-over): It has been a sweet week for the mergers and acquisition market. It kicked off with global food giant Kraft going hostile in hopes of gobbling up chocolate- and gum-maker Cadbury.

But the done deals were all about tech. Google bought mobile advertiser AdMob, and social-networking game-maker Playfish was swallowed up by Electronic Arts. Both AdMob and Playfish had the backing of venture capital group Accel Partners, which says tech deals are exploding right now.

BRUCE GOLDEN, ACCEL PARTNERS: 2009, you know, we've seen a dramatic uptick in Q4 with just over $9.4 billion of M&A activity, quarter to date, which is bigger than any quarter we've seen in 2008. And, you know, we expect, again, as the market continues to gain confidence, that we will see more M&A activity.

BOULDEN: Add to that Wednesday's announced $2.6 billion merger of Hewlett-Packard and 3Com. The deal is about HP expanding in China, and follows the main driver in M&A right now. Slow growth companies adding on smaller players to push quickly into new areas as the recession ends.

But while a new study from Ernst & Young says the number of deals will increase in the next 12 months, the total value of deals will be restricted.

PIP MCCROSTIE, ERNST & YOUNG: And we're going to see more activity, we believe, over the next 12 months. The value of the deals is a very interesting question, because we are seeing lessons learned, so we're seeing those boards and those investors that have adapted quickly, not wanting to pay toppy prices. So there is a lot of pressure on the valuation.

BOULDEN: In fact, some observers say 2010 may not be much better than the last two years.

NICK BRITTON, EDITOR, GROWTHBUSINESS.CO.UK: Will we get back to 2006, 2007 levels? No, not next year, not for a good few years yet. But will we get back to some pre-credit crunch levels? I think next year is going to be uneven, it's going to be slow. It's hard to see how things get much worse.

BOULDEN: And that's because boards are being very, very careful about mergers. Just look at the long drawn-out merger talks between British Airways and Spanish carrier Iberia. But when there are new deals to be done, Ernst & Young expects private equity to step in fast. It estimates there are some $1 trillion sitting on the sidelines, waiting to strike.

Jim Boulden, CNN, London.

(END VIDEOTAPE)

QUEST: Jim is with me now.

These numbers require more interpretation, Jim, because it seems to me that it's the right deal at the right price in the right place.

BOULDEN: If it's the right price. And no one -- everyone I talk to today said, look, we're not getting back to the bubble times. We're not even getting back to the beginning of the bubble. We're not getting back to all shared deals. We're not getting back to a time where companies just think we're going to do the deal at any price.

And I think that's why we're seeing this drawn out merger between BA and Iberia you're talking about. The boards seem to be looking at these so carefully. They don't want to make mistakes that were made in the dot-com bubble. They don't want to get...

(CROSSTALK)

QUEST: Yes, but the danger that strategic decisions are not being taken because...

BOULDEN: Yes, absolutely.

QUEST: I mean, for example, BA-Iberia has been has been around for 60 months. It's a deal that should have been done by now. Kraft on Cadbury's is different.

BOULDEN: It is. Well, that's a hostile deal, but Kraft and Cadbury deal very specifically with what this package is about. Companies looking at a very short window to get a deal done to move into areas they cannot go in with organic growth. Kraft cannot do -- it took 10 years, Kraft couldn't do what Cadbury already has.

You want to bolt that on at this time, move into those markets while we're still at the end of the recession, and be there and get ready for the growth.

QUEST: How long is it? And is there a preference between cash versus paper?

BOULDEN: Yes, we talked about that today. Everyone said to me, no one is going to go out there and do a paper deal. No one is going to do a deal just on share price. Some people think share price has gotten ahead of themselves, others say we're still at low valuations. So there is no -- you know, there is no consensus on that at all.

You've got to find the money. And is the money there? Yes. As I said, there private equity money is there.

QUEST: So where is the money coming from? Well, you've just...

(CROSSTALK)

BOULDEN: Private equity.

QUEST: Well, come on, private equity can only go so far. At the end of the day it has got to be financed somehow, either by the possibility of selling off bits of the company.

BOULDEN: All right. So you sell off a bit now, in the next six months, you build up your war chest, and then you strike. So some of the companies you might see now doing deals where they're actually selling something off. That means because they're going to buy something bigger.

QUEST: Let me ask you, did you get the feeling today, looking at this report, that there is a wall of money waiting for a home, that there is an excitement and a titillation by those in M&A who believe things are getting better.

BOULDEN: All of that is true, but then the problem is they get to the board, they get to the company, the CEO wants to do the deal, but the rest of the board doesn't. It -- the board is scared. So...

QUEST: Of what?

BOULDEN: Of making a huge mistake...

QUEST: Of what?

BOULDEN: ... and getting in trouble with the shareholders. And then having the whole thing fall apart. You know, we can talk about some classic deals that went terribly wrong. In fact, they say most mergers actually go wrong in the end.

QUEST: Are you going to mention one?

(LAUGHTER)

BOULDEN: No.

QUEST: Are you going to mention the famous one?

BOULDEN: No, it's like Hamlet, you just don't mention it. All right, AOL-Time Warner.

QUEST: Who?

All right. Got to make it clear. That's the parent company of this network.

You enjoyed that.

BOULDEN: Yes.

QUEST: (RINGS BELL)

Many thanks, Jim Boulden.

We all follow M&A wherever it leads, without fear and fortune on this particular program, at least. Mixed fortunes -- oh, there are the numbers, that's telling me to get on with it. Stocks in the FTSE closed on gains, helped by those strong (INAUDIBLE) BA.

Telecom shares also amongst the gainers. British Telecom raised its outlook for the year. Mines dragged the main indices lower. Oil and metal prices fell. Incidentally gold was also lower.

The chip-makers Intel and AMD have reached a landmark legal settlement. Intel will pay AMD $1.25 billion, in return, AMD is agreeing to drop all three of its lawsuits against Intel. The two companies also agreed to a shared patent right for five years. Intel was accused of major anti-trust violations, including giving discounts to customers to avoid AMD's products. AMD's CEO said he looks forward to healthy competition in the future.

The Wall Street markets are open at the moment. Felicia Taylor is live for us in New York.

Now I find the Intel -- AMD has rocketed up some 21 percent during the course of this session. Yes, I'll tell you, Intel, of course, not quite -- I find it a fascinating story. Talk about my enemy's enemy is my friend, or whatever that saying is.

FELICIA TAYLOR, CNN INTERNATIONAL CORRESPONDENT: Well, basically this is giving a boost to the Nasdaq also because the broader market has been lower across the day. Intel shares, as you mentioned, they are just off fractionally. AMD is now up more than 22 percent on this news.

So it's also good news for Intel, though. It's going to -- it could stave off the United States' Federal Trade Commission, the FTC has a possible decision to take action against Intel. The FTC had had an ongoing investigation into Intel's practices. Not so sure that they're doing things above board. So this may help alleviate that for them as well.

For companies, though, it basically eliminates all of the uncertainty. AMD is likely to use that money, the $1.2 billion, to pay down what it has in debt, which is over $3.5 billion, as well as put it toward its efforts for a major restructuring. The -- AMD had reported a net loss of 128 million for the third quarter. And that's its 12th consecutive quarter in the red. So things not looking so good for AMD.

Basically, this deal now creates a level playing field for Intel and AMD. And hopefully, good news for both of them.

(CROSSTALK)

TAYLOR: As I said, the broader market is pretty much down across the day. The Dow closer higher though for the last six session. So not too surprising to see a down day today.

QUEST: You're shameless, Felicia, you're shameless. You've had...

TAYLOR: I'm not shameless.

QUEST: Whether you anticipate that, you anticipated -- you not only told me what the broader market was going to do, you then sort of pulled the rug out from under me by explaining why the market was lower. Why is the market lower today, Felicia?

TAYLOR: Well, you know why, because some companies just aren't giving what Wall Street wants to hear. We heard from Wal-Mart earlier today, and that has, you know, been where most people have been doing their shopping, because they've got the sort of discounted prices.

Wal-Mart reported a good quarter, but the problem is that it said it's going forward that they're really worried about. The holiday shopping spree isn't going to happen. So that's not good news for Wall Street. So Wall Street may be getting earnings news that's actually beating expectations, but it's not enough to drive the market higher.

They're not so sure if we really are having such a rally. Economists are calling it sort of a relief rally today because we know the economy is not going to collapse, but then again, we don't know if we're clearly out of the woods yet until we see jobs numbers really improve. And that hasn't happened so far.

We saw jobless claims down today, but it's not enough to...

QUEST: All right, all right, all right. All right. Felicia Taylor...

TAYLOR: I'm not convincing you, am I?

QUEST: Well, you're peddling hard, but it's an uphill struggle. Felicia Taylor, joining us from New York.

A reminder, the Dow Jones is down some 50 to 60-odd points. You need to be up-to-date with how the news of the world is trading at this hour. Max Foster is at the CNN news desk.

Good evening, Max.

MAX FOSTER, CNN INTERNATIONAL ANCHOR: Hi there, Richard.

Now a check on those headlines for you. The Army psychiatrist blamed for the shooting rampage at Fort Hood in Texas has now been charged with 13 counts of premeditated murder. Nidal Malik Hasan is accused of killing 13 people and wounding more than 40. Hasan, who survived the shootings, is being treated at a San Antonio Army hospital.

Three men of Pakistani descent say they had nothing to do with an alleged plot to carry out suicide attempts at Barcelona. The trial for all of the 11 suspects got under way today in Madrid. The alleged plotters were foiled when an informant tipped off authorities in January of last year. The trial resumes on Monday.

U.S. President Barack Obama is said to be nearing a decision on the future of the war in Afghanistan. But instead of taking one of the options put forward by his national security team during a White House meeting yesterday, Defense Secretary Robert Gates says Mr. Obama favors a combination of the proposals. One with a more concrete exit strategy.

The U.S. ambassador to Afghanistan is reportedly cautioning President Obama against sending any more troops there. Karl Eikenberry previously expressed concern about corruption in the Afghan government and doubts about its ability to combat the Taliban.

Palestinian officials say resistance by the Hamas militant group in Gaza is making it impossible to hold the scheduled presidential election. If the January 24th vote is called off, observers say Palestinian Authority President Mahmoud Abbas, who had vowed not to run for reelection, could stay in office indefinitely.

Those are the headlines, Richard, back to you.

QUEST: We thank you for that, Max Foster, at the CNN news desk.

Now imagine, imagine if you had gone out and spent a great deal of money on this, one of these, it is an Xbox. And then you suddenly found that you've been shot down by Microsoft. Xbox says enough is enough, a million Xboxers are likely to be banned. We'll explain about the crackdown on this contraption in just a moment.

(COMMERCIAL BREAK)

QUEST: This contraption over here, it's an Xbox, and up to a million avid gamers have been booted out of the Xbox Live. If you're over 40, heading towards 50 like me, well, you may wonder what I'm talking about, Xbox Live and all of this. But apparently if you've been illegally tinkering with one of these, you've altered console, you could well find yourself playing no more online, you're barred.

If you want to connect to Xbox Live again, you'll have to stump up cash and buy a new one of those. Xbox Live reportedly has 20 million gamers signed up. It allows users to compete against each other. But the prospect of buying a new console, well, those 20 million users may just have to do it because piracy is illegal, says Microsoft. And Microsoft has clamped down.

In a written statement, Microsoft says: "All consumers should know these three words: piracy is illegal." Modifying one of these is simply wrong, is the basic principle. It's a new game. Let's talk about this with the -- with Shelly Palmer, who joins me now to discuss exactly what this is -- when I look at this, and I heard that Microsoft was barring them, the gut instinct said, piracy is one thing, but they seem to have reacted in a completely different level.

SHELLY PALMER, HOST, "DIGITAL LIFE WITH SHELLY PALMER": No, actually, I think they did it exactly right. Your Xbox is totally fine. And if you've modified it, you can go ahead and play all the pirated games you want. What you can't do is you can't go online and play multi-player online because their Microsoft can control the value chain.

So what a lot of people are going to do, and by the way, we're talking about a very small percentage, maybe 5 percent, about a million -- about a million of the users.

QUEST: Yes, but hang on a second.

PALMER: So...

QUEST: No, no, no. I'm going to interrupt you here, because what is the difference between doing this and, say, for example, the iTunes example, and the iPod example, if I've got a down leg -- downloaded illegal piece of music on my iPod, and iTunes suddenly say, hang on, you can no longer connect to that?

PALMER: OK. By -- country-by-country, we can talk a lot about what intellectual property laws are and what they should be. Here, this is apples and oranges, they're not telling you -- and by the way, they should, they're not telling you not to pirate illegal games and chip up your -- what's called "chipping" your Xbox, or your Xbox is chipped, which means you can play illegal stolen games on it.

They actually can't control that. You can do anything you want with you Xbox, you own it. What they're telling you is, if you go ahead and chip your Xbox, then you can't come online and play and on Live in a multi- player environment, which, by the way, they control.

And so no one is telling you that your stolen music -- you have to not use your stolen music on your iPod. That -- you know, they wish you wouldn't, because it's illegal in most countries. But if you had to go online and share in a community, they're not going to let you do it. That's all this is.

And actually, I think it's a fairly smart thing for them to do.

QUEST: Except -- oh, I'm being devil's advocate here, because I'm aware that -- you know, that the views are very different on this. You know, the idea, you knew the rules, you broke them, tough luck on you. But...

PALMER: Oh, no. It's not that. No, Richard, it's not that at all. If you modify your Xbox for your own purposes, you own the Xbox, you're -- absolutely you have a right to do that. And if you want to break the law and take pirated games and play them on your pirated Xbox, knock yourself out. New console is a couple of hundred bucks, if you're that crazy about it, buy a new console, and use the unmodified console to play Xbox Live and play all of the pirated games you want on the one you own.

What Microsoft is saying is if you want to come and join the community, we want you to have purchased this game legally, because this is how we make a living.

QUEST: It's bullying...

PALMER: And by the way...

QUEST: It's bullying, Shelly. It's bullying by any other name. It's saying, we know we can't stop you from doing this. We know we can't stop you from doing this. But we're still going to get you through the back door.

PALMER: Well, you know what, you could argue that it's bullying. I would argue that the value chain has to be protected in order for us to spend millions of dollars making games. And in order to protect, you know, the intellectual property of the game-makers. So you could call it bullying, I call it good business.

QUEST: All right. Now let's talk on the wider issue, because there is a certain element of me being devil's advocate. There is no question, isn't there, that corporations are desperately trying to find that next level up, that killer that is going to stop either morally or practically, or pragmatically the illegal downloads.

PALMER: Never going to happen. It is never going to happen. You can stop even -- you can stop the quest now, because in music, there is a thing known as the analog hole, and that is, if you turn the digital music into something you can hear, you can record it and then pirate it.

And truthfully, the idea of protecting music from being downloaded and shared, that ship has sailed, it's over. And with respect to other intellectual property, like programs, like software, there are -- there is almost no way you can protect that either.

What they try to do, what they're trying to do here is they're saying, look, we've built a very special construct called Xbox Live, an online community. And if you want to come in to that community, there is a toll you have to pay. And that pay -- that toll is by the game legally and don't mess with your Xbox.

But as far as protecting you from having to chip the Xbox and downloading games illegally? They can never stop that. It can't be stopped.

QUEST: All right. Shelly, you have a standing invitation to come and talk about these matters, many thanks indeed. Shelly Palmer joining me from...

(CROSSTALK)

QUEST: Now the money involved in online piracy is huge. And as we were just talking about there, it becomes clear the various mechanisms that the entertainment industry is now trying to get to grips to try and, if you like, stem the flow of $3 billion annually, it's believed, is lost to piracy.

Here are some of the most famous cases. Pirate Bay of Sweden, a file- sharing -- straightforward file-sharing situation, fined $3.6 million. Prosecutors said that it was illegal downloads that they were going for. The site said it had 3.5 million users.

That probably is the most recent, but this was an interesting one. The guy is called Joel Tenenbaum. He got himself involved in a nasty battle. He was a 25-year-old grad student, the download battle, he admitted to stealing some 30 -- or sharing 30 songs online. He was ordered to pay $675,000. The campaign Joel Fights Back became known.

This, of course, is the grand-daddy of them all, anybody who covered these stories remembers Napster and the file-sharing case. File-sharing with Napster went on for years. They were finally shut down in 2001. It still since relaunched as a legitimate music site.

Now we want to hear your views on this. Do you believe they were right to do what they did with this, altering the Xbox, and barring from Xbox Live? The various ways: quest@cnn.com; the Twitter address is @RichardQuest; and of course, our Facebook page, Quest Means Business.

In just a moment, JAL, another airline, in trouble. When we come back, what are the options for JAL, which is expected to announce a thumping big loss?

(COMMERCIAL BREAK)

QUEST: Friday could be crunch day for Japan Airlines. The carrier is expected announce a thumping big loss when it reports results. That will be in roughly 12 hours. The Japanese government is also demanding that a plan to turn things 'round is presented by then.

Reports say the half-year losses could be as high as a billion dollars. JAL has been slashing routes and cutting jobs to get back into profitability. It is seeking investments from other airlines around the world. The two big ones, of course, it's oneworld partner, American Airlines. And crucially, rival Delta, from the SkyTeam Alliance, is trying to entice JAL to come over to the SkyTeam Alliance.

Asia's biggest carrier by sales owes something like $11 billion, legacy costs which include pension liabilities.

If JAL can't get on top of its pension issues, then everything else may not matter according to some in the market. Kyung Lah now on the tensions between promises made in the good times, and now the price that has to be paid during bust.

(BEGIN VIDEOTAPE)

KYUNG LAH, CNN INTERNATIONAL CORRESPONDENT (voice-over): These Japan Airlines retirees are back at work to fight for their pensions.

TAKAHIKO FUKUSHIMA, RETIRED JAL CABIN ATTENDANT: It's very difficult to find a new job (INAUDIBLE).

LAH (on camera): At 67.

FUKUSHIMA: Yes.

LAH (voice-over): But finding a job is exactly what former cabin attendant Takahiko Fukushima says he'll have to do if JAL slashes his pension in half as proposed by the airline.

"Our pension was set at retirement," says former ground crew worker Tadanori Imazaki. This group, each who spent 40 years on the job, says JAL is breaking its promise to 9,000 retirees. But the airline says it has no choice. Its pension fund is $3.6 billion short.

The airline, recently hit hard by the global economic downturn and the drop in traffic from the swine flu, is now hemorrhaging red ink and seeking its fourth government bailout since 2001. A restructuring plan hinges on the retirees accepting a pension compromise.

(on camera): If the retirees say no, what happens to Japan Airlines?

MAKATO MURAYAMA, SENIOR ANALYST, NOMURA SECURITIES: So finally they will go bankrupt.

LAH (voice-over): Airline analyst Makato Murayama says the airline's problems have been building for years. Management stuck with jumbo jets, even as the travelers signaled it was changing. Government-mandated unprofitable domestic routes further drained the company's coffers.

(on camera): All of these problems have earned Japan Airlines the unflattering comparison to General Motors, short-sighted management saddled with heavy legacy costs. Analysts say digging out, as it has been for GM, will be painful for everyone.

(voice-over): "At the end of the day," says Murayama, "you have to put aside right or wrong." He adds that "if the company goes bankrupt, the retirees may lose even more money."

In the wake of opposition from the retirees, Japan's government is considering legislation that would allow the airline to forcibly slash pensions. Retirees say there has to be another solution. They want to negotiate instead of being forced to take a pension cut.

"They shouldn't victimize the employees for the solution," says Fukushima, "it's not our fault."

But as the airlines teeters closer to the brink of bankruptcy, fault may be the last concern to creditors.

Kyung Lah, CNN, Tokyo.

(END VIDEOTAPE)

QUEST: JAL continues to cut costs wherever it can. The chief exec and dozens of other executives forgoing their pay in December. JAL is also considering skipping the winter bonus for thousands of other workers.

While we've been on the air, news from the U.S. federal government. The October deficit, according to the Treasury, you ready for this, $176.4 billion. The deficit for the last year, $1.4 trillion.

When we come back, recovery that lasts. The tiny city-state to the world. This year's APEC summit is in Singapore.

(COMMERCIAL BREAK)

QUEST: Good evening.

I'm Richard Quest, QUEST MEANS BUSINESS.

This is CNN.

It was the same rhetoric, this time to a different audience. U.S. Treasury secretary, Timothy Geithner, took his campaign for a strong U.S. dollar to Singapore on Thursday. He spoke after a meeting of finance ministers. APEC Summit is underway. The 21 member grouping heard Mr. Geithner said the U.S. bears a social and a special responsibility to be a source of strength for stability in the world economy and he would support any action to bolster the U.S. dollar.

He has his work cut out for him. Even though it just curved up a little bit on the back of the comments, the dollar is still languishing near its 15 month lows against the euro, 148; table at 165. And Japanese yen (INAUDIBLE) really have seen the numbers.

The leaders are heading to Singapore and the city itself -- a city state -- is a perfect example of the problems that the summit must address.

CNN's Andrew Stevens is in Singapore observing the preparations.

(BEGIN VIDEOTAPE)

ANDREW STEVENS, CNN CORRESPONDENT (voice-over): Two days before the APEC Summit in Singapore and security is tight. Organizers leave nothing to chance as they prepare for one of the biggest events in the city-state's history.

It may look calm enough on the surface, but the undercurrents in world trade are dangerous. It was only a year ago that this city was slammed by the global economic storm.

ROBERT PRIOR WANDESFORDE, HSBC, SENIOR ASIA ECONOMIST: It was huge. Singapore exports collapsed. Singapore GDP showed its largest ever decline.

STEVENS (on camera): This is one of the busiest shipping channels anywhere in the world. Not surprising, really, when you consider that trade export is the lifeblood of this small Southeast Asian economy. And it's only fitting that APEC gathers here this year to talk about the critical issue of global trade. I think probably the most concrete thing we'll see out of APEC this week is -- is a recommitment to free trade and the importance of free trade.

TAN PHENG HOCK, S.T. ENGINEERING: The one you see here is a convention center.

STEVENS (voice-over): That is exactly what businesspeople like Tan Pheng Hock are hoping for. His Singapore-based S.T. Engineering builds aerospace and transport systems and electronic equipment. Most of the group's $4 billion in revenues come from exports.

HOCK: The economy -- the global economy is still very soft. It's still very uncertain. It is (INAUDIBLE) I wouldn't guess which way. But what it means is that I think a lot smaller (INAUDIBLE).

STEVENS: He wants APEC to move faster to liberalize trade, but his key concern is protectionism.

HOCK: When you have protectionism, it breeds -- how should I say it - - a disease whereby people will be so dependent on it and the moment you remove it, you get lots of resistance.

STEVENS: World leaders have already pledged to fight the rise of protectionism and it will be on the APEC agenda as leaders look to U.S. President Obama to help forge global agreements.

WANDESFORDE: With the crisis we've been through, there have, obviously, been some protectionist tendencies beginning to rise, particularly in the Western world. I think -- I hope that we'll see those quashed during the course of this week.

STEVENS: Other key issues -- the future health of the American market as the importer for Asian goods and the relative shift in importance to developing economies like China.

Andrew Stevens, CNN, Singapore.

(END VIDEO TAPE)

QUEST: When we come back in a moment, out of prison, out of work, out of luck -- ex-convicts are at the bottom of the pile when employers are giving out jobs. We'll hear from one man who turned his back on hundreds of ill-gotten dollars to struggle and earn an honest living.

(COMMERCIAL BREAK)

QUEST: Economic news from the United States -- more than half a million people, 502,000 -- signed on for jobless benefits in America. Bad as that sounds, it's actually the fewest number of new claimants in a week since the beginning of the year, in January.

President Obama noted that it was an encouraging sign, but still said employers are reluctant to take on new workers.

(BEGIN VIDEOTAPE)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: The economic growth that we've seen has not yet led to the job growth that we desperately need. As I've said from the start of this crisis, hiring often takes time to catch up to economic growth. And given the magnitude of the economic turmoil that we've experienced, employers are reluctant to hire.

(END VIDEO CLIP)

QUEST: The jobless rate, you'll know, is more than 10 percent -- 10.2 percent. It's difficult to find a job. We all pretty much -- anyone who knows anyone in America pretty much knows someone who's looking for work.

Now, imagine what it would be like for an ex-convict to actually find a job.

CNNMoney.com's Poppy Harlow is in New York. And I mean, the first thing is I'm not surprised that if you have a large pool of people...

POPPY HARLOW, ANCHOR, CNNMONEY.COM: Correct.

QUEST: ...to -- to choose from, you would choose -- but -- well, or maybe I'm just being prejudiced in that respect.

But how difficult is it?

HARLOW: Well, you know, Richard, I think you're acting like most employers would be acting. If they've got a line of people looking for a job and they see ex-con on your resume, they're probably going to tear it up or throw it apart.

That's a real problem, because what happens when someone gets out of prison, they're trying to find legitimate work and they can't?

What often happens is they fall back into a life of crime. What you see, though, is that that is not always the case. And there are some extraordinary reporting that our producer, Ian Orophus (ph), and also one of or writers, Daryn Smith (ph), went out and did here in New York, in Harlem, where they met up with an ex-convict who's trying to find permanent work after being in prison for 32 months.

His name is Greg Headley. Now he has a temporary job, but he's looking to do more. A non-profit here in the U.S. called the Center for Employment Opportunities, their whole purpose is to help these ex-cons find permanent work.

We spent a little bit of time with him very early in the morning in Harlem.

Take a look at the what he had to say.

(BEGIN VIDEOTAPE)

Gregory Headley,

My name is Gregory Headley. I just came home from Upstate New York from serving a prison sentence of two to four. This is how I'll get my life back on track. I'm on my way to work. Every day I wake up at 5:30, I'm out the door by 6:00, you know. So it starts my day.

Oh, my biggest fear, it's that -- it's being asked that question, you know, what -- what crime did you commit?

How can you sugar coat criminal sale of a firearm?

You know, $40 a day hardly seems like enough, but you know what, I'll take working making minimum wage any day now as opposed to prison or death.

It's almost 9:00 a.m., you know -- you know, a little rough commute or whatever, so I'm about to start at my work site now. Basically, anything that's going to pay the bills right now, you know, and help me get on my feet. So right now, I'm the trash man.

(END VIDEO TAPE)

HARLOW: All right. Right now, Richard, he might be a trash man. He's making, as you heard, just $40 a day. He said, though, he wants to go to college, he wants to get a degree and work at the non-profit that's employing him right now, Richard. And one of the most interesting things he said about why he actually, obviously, prefers this life to his prior, is he can have breakfast with his work colleagues. He actually has work colleagues -- a real job -- Richard.

QUEST: I can hear some people -- I can hear the two distinct arrangements here, Poppy. One says give them a chance and help them. Another one says if you -- you know, if you've got a sea of people, you have to take the best that's around and why take a risk?

HARLOW: Yes, no, I mean that's exactly right. And, you know, we don't even gauge, in the United States, the unemployment rate among ex- cons. We probably should, but we don't even look at it. I mean there was an independent study done here in New York and what that showed was pretty abysmal, that 60 percent of -- of former prisoners, a year after their release from prison, they don't have a job. So they're on the streets.

So what are they doing?

I mean with the case of Greg, who you just saw, he said he made hundreds of thousands of dollars a year as a criminal. Now he's making $40 a day. It's a case in point. It's no wonder there's that return to a life of crime. If you can't provide jobs, Richard, then what good does that do to put the U.S. economy back on its feet?

We all know how expensive it is to keep criminals in jail.

QUEST: Right. And the fascinating part about our discussion here, I think, is that no matter what the morality, when it comes to economics, we have to put it in these terms.

HARLOW: Yes.

QUEST: Poppy, many thanks for that fascinating stuff.

OK, now, earlier in the program, we were talking about Xbox and what was happening with that, with Microsoft's decision. Time for some of your responses.

Greg -- no, Guy -- I beg your pardon -- Guy in Auckland, New Zealand: "Piracy is stealing, which is a crime. So anything anyone can do to prevent crime is to be applauded. Crime clearly the mood of the day."

"Go ahead, ban all these users," says Dominique (ph) at quest@cnn.com. "It's a cat and mouse game. Never going to stop this. And by the way, I'm still playing online with my modified Xbox."

Not giving your last name away. That's from the e-mail line.

From the Twitter line, here's some answers. Darkfir 93 (ph): "It was right of Microsoft to cut out the pirate users. People can't go around thinking everything is free."

Arunkumur (ph): "Just because Microsoft (INAUDIBLE) Xbox does not mean they can ban anyone. If they ban, they lose business."

And VTC Online: "I think Microsoft is going to be targeted for viruses attacks."

Stroud Chi (ph): "Xbox has to make money. It's business."

We are bringing Twitters and e-mails back into QUEST MEANS BUSINESS because it's your program, after all.

Now, to the weather forecast. Heat in Australia, snow in China, rain in engaging. That's a summary we need Guillermo to tell us about. You know, this is a newsroom.

GUILLERMO ARDUINO, CNN METEOROLOGIST: And I'm going to add winds in England, as well. I'll tell you about that in a second.

But the -- the heat wave in Australia, for some, you know, it's a nuisance, of course. It's bothersome. But we have the heat in the south. Some are taking advantage of beach time a little bit before it's supposed to arrive, especially -- well, it's not that hot in Sydney, actually. Bondi Beach is like at 23 or so for the day. We're going to see that. And, also, I'll give you an idea how hot it's going to get in Adelaide -- 34, you see; 22 in Sydney. So you can still go there.

And Cannes not affected by the heat wave, but they are 29 for tomorrow.

Now, we have a new low pressure center in addition to the high pressure center, but this is the Northern Hemisphere. So the cold air is in the north and the high was pumping it down. Now, the low is going to do exactly the same. And now the Beijing area and the Russian Maritimes and northern parts of North Korea are going to get the snow. Minus 4 in Beijing at this hour. It's late. I know it's late at night, but yesterday at this hour, it was 1 degree. So you see the difference. Snow in the forecast if you're going there, at the airport in Beijing, formerly known as Peking.

Hong Kong with rain showers. And Taipei saw those areas with a lot of winds.

The winds are coming now and the cold air, too, into the British Isles. First it's going to be the winds and the rain; later on, the cold conditions. But we continue to see this -- the advancement of the front then wind with a low pressure center. Heavy rain in the English Channel here, up to 75 millimeters of rain. And the winds over 100 kilometers per hour. So get ready.

Also, we see, in the last hours, we saw some storms in the last 12 hours, actually, all over the British Isles. Now, a little bit of a break for the midlands, especially the western part of it. And rain in the next three days in the forecast for London, unfortunately.

Then we'll get a break, but the temperatures go down. And then the whole cycle starts all over again.

Still, though, the high temperatures of the day, double digits. And if you see here the map of Europe, all the way down to Athens. But nobody is above 20, I see, of these select cities and even Glasgow, 9 degrees, single digits for tomorrow.

London with delays, probably, especially toward the evening hours; Dublin a little bit more so because of those intense winds. Brussels with rain showers. Copenhagen also with some rain showers and Munich, too.

So this is the beginning of the year when you are all going to hate me, because the news is really bad. And I know it. But it is getting chilly. Also, Richard, if your viewers are coming to the United States, remember Ida, that hurricane/tropical storm/tropical depression?

Now, the remnants are over the midlands -- the midatlantic states. So especially Washington, DC; Baltimore; New York; Philadelphia -- all those airports getting the rain. So you know what that means. See you on the other side of the break. Stay with CNN.

(COMMERCIAL BREAK)

QUEST: There is fresh concern tonight over the link between sick flight crews and the air in the plane's cabin.

Ayesha Durgahee now reports of the worrying new evidence coming to light that shows not only may passengers be at risk, but perhaps more importantly, so are the pilots.

(BEGIN VIDEOTAPE)

AYESHA DURGAHEE, CNN CORRESPONDENT (voice-over):

For 30 years, Captain John Hoyte had a dream career as an airline pilot. Then, in 2004, he refused to fly.

JOHN HOYTE, FORMER PILOT: I thought I had Alzheimer's. I started to lose my speech and I couldn't relate to other people. I had instances of other issues and brain fog, word fogging, memory. And I thought, what is going on?

If I fly tonight, I'm going to kill myself and kill my passengers. This is not good. I've got to stop. And that was in 2004. I actually walked off an aircraft.

DURGAHEE: Soon, Hoyte's flying career was over. He was grounded, diagnosed with chronic stress. Then he was contacted by another grounded pilot, Tristen Lorraine (ph), who asked Hoyte to volunteer for a blood test. The results for Hoyte and 25 other grounded pilots showed the presence of tricresyl phosphate or TCP.

TCP is used on aircraft as an oil addictive to prevent engine wear. It's chemically similar to a pesticide.

UNIDENTIFIED FEMALE: So please now fasten your seat belt. Enjoy your flight today with Toxic Airlines.

DURGAHEE: Lorraine and Susan Michaelis, also a grounded pilot, set out to publicize a film what they saw as the link between sick flight crews and cabin air. Their belief -- air contaminated by an engine made them sick. Every aircraft gets fresh air into the cabin the same way -- it's drawn in through the engine and fed through the plane's air conditioning system. Lorraine and Michaelis say the air can be contaminated by leaking oil, to form a fine, sometimes toxic, mist.

Michaelis says she has documented dozens of incidents and the effects on flight crews.

SUSAN MICHAELIS, AUTHOR: The information and the evidence is there, the admissions from the airline industry that oil leaks and that it causes at least short-term symptoms, is all there. What they don't accept is the long-term symptoms.

DURGAHEE: Peter Julu is the doctor who diagnosed John Hoyte with acute traumatic brain injury. He says repeated exposure may be the problem.

DR. PETER JULU, BREAKSPEAR HOSPITAL: All the pilots that I've seen are very senior pilots. They are all captains. And then we find for over 10 years. So that is one -- one thing that will tell you straightaway that you need very concentrated and repetitive long-term defect.

DURGAHEE: But how often does cabin air get contaminated?

Britain's Civil Aviation Authority declined an interview, saying it (INAUDIBLE) of 52 aircraft fume events in the first seven months of 2009. The CAA said investigations have concluded that there was no evidence that cabin air in general or feeling fume events causes ill healthier in air crew.

The U.K. Department of Transport in 2006 commissioned an independent study by Cranfield University to monitor and analyze cabin air aboard BAE 146s, Boeing 757s and Airbus A319s.

In all, 100 flights will be monitored. Study results won't be known until next summer. Five European airlines are allowing in flight monitoring, but no U.S. carriers are participating.

Dr. McKenzie-Ross, a neuropsychologist who's been testing pilots, says that the study is just too small.

DR. SARAH MCKENZIE-ROSS, UNIVERSITY COLLEGE, LONDON: One of the difficulties we've got is a contaminated air event is, by definition, one that shouldn't happen. So basically you're waiting for a plane to have some sort of fault. It's a very difficult thing to really look into and there's a chance that you will -- however much money you spend on it and how many -- ever many planes you survey, miss a contaminated air event.

DURGAHEE: What's been easier to document is the presence of TCP in the blood of active pilots. Professor Clement Furlong at the University of Washington in Seattle developed the blood test. He says sometimes you can't see a fume event, but you can often smell it.

PROF. CLEMENT FURLONG, UNIVERSITY OF WASHINGTON, SEATTLE: A rotten smell, a wet dog smell. And then the symptoms they might experience would be headache, nauseas, dizziness, shaking, tingling.

DURGAHEE: The U.S. Federal Aviation Administration told CNN that the concerns raised by crew members about fume events are reasonable and are being investigated. The FAA believes that the cabin environment in the vast majority of commercial flights is safe.

(on camera): For its part, the International Air Transport Association, a trade group with more than 230 airlines, told CNN that they are aware of some very isolated cases where bleed air has been questioned.

(voice-over): IATA says it has very stringent cabin air purity requirements and aircraft are designed to avoid air contamination in normal operating conditions. And in an e-mail, Boeing said that contaminant levels are generally low and that health and safety standards are met.

But Boeing is redesigning air handling in the company's new Dreamliner 787 to eliminate any engine bleed air.

Ayesha Durgahee, CNN, London.

(END VIDEO TAPE)

QUEST: Interesting stuff.

Now, you can watch "BUSINESS TRAVELER" and see more on what our reports on the pi -- the role of the pilot on the plane. That's "BUSINESS TRAVELER" Saturday at 6:00 p.m.

When I return in just a moment, we'll have our Profitable Moment.

(COMMERCIAL BREAK)

QUEST: Tonight's Profitable Moment. So Microsoft has decided to bar Xbox consoles that have been altered to play illegal downloads. In future, they won't be allowed to connect to Xbox live. A million consoles are believed to have been affected.

It's the latest step as corporations try to protect their ownership and copyright. An interesting development.

Taken to its logical conclusion, if your iPod has an illegal download, would Apple be able to prevent you connecting to iTunes?

That would stir the pot.

There were similar problems -- it goes back to the recording cassette and probably all the way back to the wax cylinder and his master's (ph) voice.

What's different this time is that Microsoft, I believe, has upped the ante. Whatever the right or wrong, a new market is growing up overnight. Craigslist and eBay now have adverts for barred Xboxes and some have suggested actually Microsoft may sell more machines -- two machines, one legit and one for all that other dodgy stuff. That's free enterprise.

And that is QUEST MEANS BUSINESS for tonight.

I'm Richard Quest in London.

Whatever you're up to in the hours ahead, I do hope it's profitable.

Christiane is next, after the headlines from the I Desk.

END