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QUEST MEANS BUSINESS
US Mulls Ukraine Support; Ukraine in Transition; Ukraine's Currency Slide; Ukraine Economic Crisis; Target Takes a Hit; Wall Street Closes Higher; European Markets Down; Credit Suisse Senate Hearing; Revenue Pursuit; Stranger Than Fiction; "Religious Refusal" Bill
Aired February 26, 2014 - 16:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
(NEW YORK STOCK EXCHANGE CLOSING BELL)
RICHARD QUEST, HOST: Small gains for the middle of the week. The market heads towards a close. It is today's closing bell on Wednesday, it's February the 26th.
Tonight on the program, running out of cash. Ukraine races to form a government as the country's currency hits a record low.
Also, we're going to tell you about secrets, subterfuge, and "Sports Illustrated." The US Senate takes on Credit Suisse.
And new handsets and new hopes for BlackBerry. The chief exec tells us how he's hoping to turn things around.
I'm Richard Quest. It's midweek, but I still mean business.
Good evening. In the last few moments, the US secretary of state, John Kerry, has reportedly said that the United States is considering $1 billion in loan guarantees for Ukraine. He also said the US is considering unspecified budget support. It's all according to the Reuters News Agency.
Mr. Kerry stressed no decisions had been made just yet. It comes as Ukraine rushes to form a new unity government. Interim leaders read out the names of candidates to the crowd in Kiev's Independence Square hours ago.
Now, if you look here, the man in the black coat in the middle of your screens, that is Arseniy Yatsenyuk. He's been nominated as the prime minister. Yatsenyuk is a leading opposition figure and a former economy minister.
The country remains divided, especially in the pro-Russian Crimean peninsula. There, there were scuffles between supporters of Moscow and supporters of the new pro-European leadership in Kiev. Our correspondent Frederik Pleitgen is in Simferopol in Ukraine. He joins us now.
Until now, Fred, we've often, perhaps, been slightly one-focused on this and thought about it just from the protesters' point of view, but when you go to the Crimea and that side of the country, it's a very different outlook.
FREDERIK PLEITGEN, CNN INTERNATIONAL CORRESPONDENT: Yes, it certainly is a very different outlook, Richard, with a lot of people here in the Crimean peninsula, especially if you look at towns like Sevastopol, which is of course a big Russian garrison town and really has a very large Russian population.
And in that town, for instance, they just elected a mayor which the central government in Kiev says is absolutely illegal, and he said I'm not going to take any orders from Kiev. And by the way, I'm also going to start my own militia.
The same thing is true for a lot of the parts here in the Crimean. There's a lot of pro-Russians, there's a lot of people who fear that Russians might suffer under a new government in Kiev.
As you said, there were big scuffles going on here today in front of the Crimean parliament, where some people feared that decisions against the Russian population could be taken. I want you take a look at some of the things that happened there today.
PLEITGEN (voice-over): When tensions fly this high, there's very little room for debate. Thousands of pro-Ukrainian and pro-Russian protesters faced off on the Crimean peninsula, an area with a substantial Russian population. The question: should Crimea remain Ukrainian or join Russia?
"Crimea is a Ukrainian territory," this man says, "and all these demands to hand it to Russia are totally baseless."
PLEITGEN: On the pro-Russian side, a very different view. "Crimea should be Russian," he says. "In Russia, there are many cultures, and they all have rights. In Ukraine, languages are banned and marginalized."
One protester died during the demonstration, even as a line of police and local leaders tried to keep the two sides apart.
PLEITGEN (on camera): The situation here shows the deep divisions in Ukrainian society. On the one hand, you have thousands of pro-Russians, and on the other, thousands of pro-Ukrainians. Right now, they're screaming at each other, there's pushing and shoving, but no violence yet.
PLEITGEN (voice-over): The large Russian population in southern Ukraine fears they might suffer under the new leadership in Kiev, that the Russian language and Russian culture might be banned. And some are taking the law into their own hands.
As we drove past the many Russian military bases near the garrison town of Sevastopol, we saw this: a pro-Russian militia manning checkpoints together with local police, who are clearly not loyal to the government in Kiev. The men had an armored vehicle. They didn't let us film. We took these pictures with our cell phones.
The militia answers to this man, Alexei Chaly, the new mayor of Sevastopol, elected Sunday in a vote the central government says was illegal. Many here hail him as a champion of Russian interests. Chaly says his new force is an anti-terror unit.
"Because there is grave danger, we are founding an anti-terror center," he says, "that will coordinate all of our security forces."
PLEITGEN: Fear, uncertainty, and anger are driving many people in Ukraine out into the streets these days. They feel these are decisive times and might determine the future of their nation.
PLEITGEN: And as you can see, Richard, there's a lot of fear, there's a lot of anger, and certainly at this point, there isn't any violence yet, but it is going to take a lot of effort of all the politicians, the ones in Kiev, the ones in this region, to keep it that way, Richard.
QUEST: Fred, it is very difficult to see how this circle gets squared, if you like, bearing in mind the very deep divisions of opinion. It will take an exceptional character or a politician of quality to bring the two sides together.
PLEITGEN: Yes, it's absolutely -- it would definitely take an integral figure here in this country to bring the two sides together. And so far, from what we're hearing from the pro-Russian people, they don't trust those who are in charge in Kiev right now.
And those who are in charge of Kiev right now have said some things that have really made the Russian speakers here in this country very angry. One of the first things that the parliament did is it took away the special status that the Russian language has always had in this country. That's something, obviously, that the Russians really viewed with a lot of fear.
And on the other hand, they also keep saying that they want Ukraine to become pro -- more European. They want a Ukraine to have a European way. That's something that just keeps fueling the flames for this part of the country.
So, it will certainly take an integral figure to give this country the function that it probably could have as a bridge between Russia and Europe. Right now, it's very difficult to see whether or not some sort of politician like that is on the rise, but it is a very tall political task.
It seems as though to me, Richard, the ones who are in charge here regionally don't want this to spiral out of control, but it certainly still does have the potential to spiral out of control if it's not handled well politically, Richard.
QUEST: Fred. Fred Pleitgen, who is in Crimea for us this evening. Fred, we thank you.
Now, on the economic front, Ukraine's fast burning through its dollar reserves as it fights to keep the currency from falling. The central bank is swimming against the tide. The currency hit an all-time low. If you join me at the super screen, you'll see exactly what I mean.
This is how the currency, the hryvnia, has traded against the dollar, and I want you to just look and see the very sharp fall. This in the last few days, not surprisingly, is where you're going to see the biggest. Today, it slipped below the crucial 0.10 mark.
The central bank is trying to stop the fall, and it's doing so by using Ukraine's foreign reserves to buy the local currency, which of course is always -- it's a difficult sure bet towards problems. If you look, for example, at the reserves, now the reserves are down by some $2.8 billion this month alone, reserves which started at around $17 billion.
The IMF says -- this is classic IMF territory, to do with balance of payments and with deficits. The IMF says it's prepared to send a team of negotiators to Kiev. Before that happens, of course, Ukraine needs to first form a government that can formally request the financial aid.
But if the currency continues to fall at that sort of rate, and the reserves dwindle away because they are propping it up, it's not hard to see that it won't be long before crisis becomes catastrophe.
Anders Aslund is an economist and a former academic -- economic advisor to the Ukrainian government, joins me now, live from the Peterson Institute in Washington. Sir, what for you at the moment -- you've just heard the currency, you've seen the reserves dwindling, you know the economic situation extremely well -- what for you is the single biggest problem that must be tackled now?
ANDERS ASLUND, FORMER ECONOMIC ADVISOR TO UKRAINIAN GOVERNMENT: Well, essentially, Ukraine needs to undertake everything together. They've got three big problems. One is that the reserves are running out because of the big current account deficit plus this run on the currency that has been going on now for essentially a month.
The second is a big budget deficit of over 8 percent of GDP. That has to be cut in half. And then there must be international financing to shore this up. And the Ukrainian economy has stagnated for the last two years.
All these pieces need to come together in a big IMF program, which should be co-financed by the European Union, perhaps other countries. And at the same time, the European Union should undertake big reform that is included in an association agreement.
QUEST: Right, OK. There's a lot there. Let's just dissect that a bit. It's fair to say that from a macro-economic point, the Ukrainian economy has just about collapsed.
ASLUND: Well, it's not really collapsing. It's a bank run and a currency run we are seeing now. What you want to see, then, is a substantial devaluation, which has now been almost 30 percent. The central bank should not try to intervene too early, but at a certain time, it should enter and stop, and we might reach that point rather soon.
QUEST: Whichever way we cut this, whoever takes over in government, the Ukrainian people are looking at some extremely hard economic times ahead.
ASLUND: Well, the Ukrainian people have been used to suffering because President Yanukovych had one major aim of his economic policy: to enrich himself and his family. He chased a couple of million small entrepreneurs out of business. Many of them have emigrated. And he did not do anything to cause economic growth in the country.
So, if you just ease this repression of the economy, we could see significant growth coming rather soon. People in Ukraine are prepared to make sure --
ASLUND: -- that they get it right.
QUEST: Sir, thank you for joining us. I appreciate you for joining us from Peterson Institute in Washington, DC.
Now, when we come back after the break, we'll look and see how the markets performed. This is what happened: it's up 18 points, 16,000, but what were the factors that moved it? After the break.
QUEST: Wall Street closed higher, and Alison Kosik is on Wall Street. What were the movements and why?
ALISON KOSIK, CNN BUSINESS CORRESPONDENT: Well, we -- first of all, we were watching shares of Target. They were certainly in focus today, Richard. This is the first time that Target actually had to answer to Wall Street after it had that huge data breach that jeopardized information of millions of customers.
And what it basically said was is that its profit was almost cut in half in the holiday quarter. It took a $17 million hit because of that breach. Target also saying it's concerned about future profits, how those are going to be affected because of the breach, saying the fallout of it could have lasting effects. You look at its net earnings, they fell to $520 million in the quarter from $961 million a year ago.
As for the broader market, not much happening today. New home sales helped boost the mood for a little while. Sales for January surprisingly strong, the strongest in more than five years. But it's being met with a lot of skepticism, Richard, by many economist, especially since January was so cold and so snowy. We'll see if these numbers hold up in the next month, Richard.
QUEST: I get the feeling, Alison, everybody's waiting just for that feeling of which way the momentum moves next.
KOSIK: Yes, it's sort of in a holding pattern --
KOSIK: -- isn't it? Because nothing's really consistent as far as the economic data go.
QUEST: Alison Kosik, who's on Wall Street for us tonight. There wasn't much movement on the euro bourses. Credit Suisse shares closed down almost 2.5 percent, they're at 27.5 Swiss francs. Perhaps the only extraordinary thing is they didn't fall farther.
This on the day the head of the Credit Suisse Bank has been forced to apologize following a damning report by the US Senate, which found bankers use what we call cloak and dagger tactics to help wealthy clients, US clients, stash billions of dollars of assets out of the sight of the tax man.
The report claims Credit Suisse held 22,000 accounts for US customers. In totally, $12 billion in assets were under management. Now, 95 percent - - $12 billion, now we're talking about $12 billion, of which 95 percent was not declared to the IRS. The boss of Credit Suisse told senators he accepts responsibility for that.
(BEGIN VIDEO CLIP)
BRADY DOUGAN, CEO, CREDIT SUISSE: Credit Suisse's management team regrets very deeply that despite the industry-leading compliance measures we put in place, we had some Swiss-based private bankers who appear to have violated US law.
While I'm extremely dismayed by their conduct, Mr. Chairman, I also believe that leadership requires facing up to the past and taking responsibility for what our employees did.
(END VIDEO CLIP)
QUEST: He may have taken responsibility, but the words did nothing to deter the vitriol from the Homeland Security Committee.
(BEGIN VIDEO CLIP)
SEN. CARL LEVIN (D), MICHIGAN: If you come to this country and you're governed by this country's laws by almost universally accepted law, and yet you hide behind the Swiss law, even though you're operating here. And that's just simply not going to cut it.
SEN. JOHN MCCAIN (R), ARIZONA: These alarming instances of illicit banking practices belong in a spy novel, not at one of the world's top banks.
(END VIDEO CLIP)
QUEST: A spy novel.
QUEST: There's only one place to find out how a spy novel ends. Join me in the library, where we'll be playing the great game of Hide the Money, or Revenue Pursuit, and bring your cloak and dagger, because that is what it's really all about.
So, in this battle between Credit Suisse, the bankers, and what happened to all that money that never made it to the IRS or was never revealed the IRS, first you must fly into Zurich Airport and you visit the Credit Suisse branch that is at the airport.
Now, once you've got to Zurich and you've got the airport, you then use, according to the report from the US Senate, you use a remote controlled elevator to meet private bankers for advice on hiding and avoiding US tax laws.
And then it's time to go to the slopes, and why not, with all the money that you've saved? But be careful. You must keep any paperwork minimal and well-hidden. Well -- ah! One customer said bank statements were passed in in a copy of "Sports Illustrated."
And keep your money close to your chest or anywhere else. Another customer hid $250,000 in a pair of tights or pantyhose wrapped around her body. If all this is starting to sound strangely like a movie, more fiction than reality, well, if you've seen "The Wolf of Wall Street," you might recognize that tactic.
(BEGIN VIDEO CLIP)
JONAH HILL AS DONNIE AZOFF, "THE WOLF OF WALL STREET": When it gets here, I'll give you a call, and you'll come pick it up.
STEPHANIE KURTZUBA AS KIMMIE BELZER, "THE WOLF OF WALL STREET": Well, we don't work for you, man.
HILL AS AZOFF: Sh! Sh! Sh! Sh! Sweetheart, you've got my money taped to your boobs. OK, technically, you do work for me.
(END VIDEO CLIP)
QUEST: So, fiction and reality. Let's elaborate with CNN's justice reporter Evan Perez, who joins me from Washington. You couldn't make it up. I mean, the 170-odd page report --
QUEST: -- from the Senate outlined all of this. We've had this sort of mea culpa from Credit Suisse, but grumpy Carl Levin was having none of it.
EVAN PEREZ, CNN JUSTICE REPORTER: Well, that's right, Richard. The hearing is still going at this hour. Right now, the senior officials from the Justice Department are getting some very tough questions as to why they haven't brought more indictments, why Credit Suisse is still holding the line, not providing the name of some of these US customers.
Of the 22,000 that you just spoke about, only 238 names have been provided to the IRS. So, there's thousands more that the Swiss are not providing. Now, they say under -- this morning, in the hearing, they said that under Swiss law, they're not allowed to provide that information because, obviously, under Swiss bank secrecy, it's prized information.
Now, the Justice Department has run into this before with UBS, and what they did is they filed an indictment, they threatened to shut down the bank, and quickly, the bank did a settlement --
PEREZ: -- and provided the information. So, that's what Carl Levin is saying --
QUEST: Evan --
PEREZ: -- to the Justice Department, that's what you have to do now.
QUEST: Evan, in a word, in a sentence, does this have legs, and has it got further to run?
PEREZ: Yes, it does. There are 14 banks under criminal investigation. You have thousands of these customers that are still not known, so yes, it has a lot more way -- lot longer to go, and I think --
PEREZ: -- that's what the pressure from the Senate committee is for.
QUEST: It's a spy novel with a further chapter to write. Evan, we thank you for that.
Coming up after the break, Arizona's governor grapples with a decision that will have big consequences for business and the gay community, not only, perhaps, in the state of Arizona.
QUEST: Business are putting pressure on a US governor to veto a bill that would allow firms to refuse to serve gay people on religious grounds. The bill is awaiting Arizona governor Jan Brewer's signature. She has until Saturday to decide whether or not she will sign the legislation into law. CNN's Ana Cabrera reports.
CROWD (chanting): Veto! Veto! Veto!
ANA CABRERA, CNN CORRESPONDENT (voice-over): The voices are growing louder against a bill that would allow businesses in Arizona to refuse service to gays based on religious beliefs.
CROWD (chanting): Veto! Veto!
CABRERA: The bill's fate now in the hands of Governor Jan Brewer.
GOV. JAN BREWER (R), ARIZONA: I don't rely a whole lot on my gut, because I have to look at what it says and what the law says and take that information and do the right thing.
CABRERA: Brewer is staying out of the spotlight since her interview with CNN on Monday, but other high-profile politicians are weighing in as pressure mounts on the governor, Mitt Romney tweeting "Veto of SB 1062 is right." Big businesses, including Apple, American Airlines, AT&T, and Intel vocally opposing the bill. And next year's Super Bowl also on the line.
CABRERA (on camera): Do you think that the governor is getting the message?
UNIDENTIFIED FEMALE: She hasn't said a whole lot.
CABRERA (voice-over): Conservative lawmakers who helped pass the bill remain largely quiet.
UNIDENTIFIED MALE: Yes, no comment right now.
CABRERA: But one representative defended his vote by offering an example of what the bill is designed to prevent.
REP. SONNY BORRELLI (R), ARIZONA STATE LEGISLATURE: OK, what about this scenario? You have a gay person that owns a printing shop, OK? And somebody from the Westboro Baptist Church comes in there and demands that they print a sign that obviously the printer is not going to agree with. Should that -- group, that religious group, demand that that print shop print that thing?
CABRERA: Conservative radio host Rush Limbaugh igniting the rhetoric by saying Brewer is being attacked.
RUSH LIMBAUGH, RADIO HOST: The governor of Arizona is being bullied. She's being bullied by the homosexual lobby in Arizona and elsewhere.
CABRERA: Protesters --
CROWD (chanting): No hate! Our state!
CABRERA: -- vowing to continue the fight.
UNIDENTIFIED MALE: We want the Super Bowl, we want Apple, and we're really asking our governor, please, do the right thing and veto this SB 1062.
QUEST: Extraordinary. The Arizona Technology Council has got more than 90 firms together to criticize the bill. In a letter to Governor Brewer, it says the new measures are "frivolous, unnecessary, and fiscally perilous." Strong language. Adding that business owners already have the right to refuse business to anyone.
The chief exec of the group, Steven Zylstra, joins me now from Phoenix. Sir, is your -- here's the problem. Is your opposition to this bill on a sort of principled ground that the bill is wrong, or on an economic ground that the bill will do harm to the business community? Which is it?
STEVEN ZYLSTRA, CEO, ARIZONA TECHNOLOGY COUNCIL: Well, I think it's both. First of all, the tech industry is very inclusive and diverse, and frankly, the industry is appalled by this. In addition to that, we expect that some people won't move to Arizona, companies won't come here, and it will affect our economic well-being.
QUEST: Is anybody asking themselves in Arizona how this got out of the gate?
ZYLSTRA: I think everyone's asking that. It was one of those things that ran very quickly through the legislature, caught everyone by surprise, and we're working hard against it.
(BEGIN VIDEO CLIP)
CROWD (chanting): Veto! Veto! Veto! Veto!
(END VIDEO CLIP)
QUEST: What's your gut feeling? And I know the governor says she doesn't go for gut feelings, she goes for what the law says and what -- what's your gut feeling, bearing in mind the opposition, the corporate opposition that's coming up. Will she veto it?
ZYLSTRA: Well, I believe that this governor has been one of the most business-friendly governors that this state has seen in the last couple of decades, and I can't image that she'll sign the bill. I have no inside information, but my bet would be that she vetoes it.
QUEST: Has anybody quite determined, if this bill is signed into law, how it will be enforced?
ZYLSTRA: Well, that's a concern that we have. You can imagine the kind of profiling that might go on if this bill were to become law, and I think --
QUEST: I mean, let's look at this --
ZYLSTRA: -- lawyers and others are looking at that.
QUEST: Well, you know, let's just take a supermarket or a gas station or anybody. How do you tell if a customer that walks into your business is gay?
ZYLSTRA: I don't know. I can't answer that, but I think that's the kind of profiling that people would attempt to do. I don't know the methodology they would use, but that's a concern we have.
QUEST: Which all brings us back to the Arizona Technology Council and the firms that it -- your members and what they are telling you now. What's been the fundamental message that you're getting back?
ZYLSTRA: Well, some of my members have said that they're ready to do an IPO or they're working with investors from out of state, and those investors are now getting skittish.
ZYLSTRA: The tech industry is already having a hard time attracting talent. They believe that this is going to inhibit --
QUEST: Right, but --
ZYLSTRA: -- their ability to attract talent and capital.
QUEST: Right, and just to finely put the other point of view, though, the right of a business to say no to somebody. Now, you say in your letter, business owners already have the right to refuse business to anyone. But they don't have the right to refuse on those grounds. So, fundamentally --
ZYLSTRA: That's correct.
QUEST: So, fundamentally, what you're saying is, don't worry, you can still say no, you just don't need to say no for that reason. Is that what you're saying?
ZYLSTRA: Essentially, yes. Yes.
QUEST: Well, that's honest for you. That's being blunt and honest. Thank you, sir, for joining us. Appreciate you for joining us from Arizona --
ZYLSTRA: A pleasure. Thanks, Richard.
QUEST: -- in Phoenix. Now, when we come back after the break, it's a rum old world. BlackBerry needs to have more faith in itself, according to the chief exec John Chen.
(BEGIN VIDEO CLIP)
JOHN CHEN, CEO, BLACKBERRY: But the real potential could not be realized until we make money, and then the company starts believing in ourselves.
(END VIDEO CLIP)
QUEST: We'll hear more about the plans for the company in a moment.
QUEST: Hello, I'm Richard Quest. There's more "Quest Means Business" in just a moment. This is CNN, and on this network, the news always comes first. Ukraine's rushing to form a new unity government. Intermediaries read out the names of candidates to the crowds in Kiev's Independence Square a few hours ago. It comes as the U.S. Secretary of State John Kerry says the U.S. is considering a billion dollars in loan guarantees for Ukraine.
An image released by the United Nations shows the scope and scale of the devastation caused by Syria's three (ph) civil war. Tens of thousands of desperate Palestinian refugees are trapped inside a camp in Damascus and queuing up for food. A spokesman for the U.N. relief efforts says humanitarian aid to Yemac (ph) must be stepped up.
Two men who brutally killed a British soldier last year have received their punishment. Michael Adebolajo was sentenced to life in prison and Michael Adebowale will spend the next 45 years in jail. While the judge was handing down the sentences, both men became disruptive and had to be forcibly removed from court.
It's calmer in Istanbul today. Anti-government protesters did still rally in Istanbul. Turkey's opposition party is calling on the prime minister to resign as a corruption scandal engulfs his administration.
Japanese authorities say they're gathering information on Bitcoin exchange M T Gox or Mt. Gox. It follows unconfirmed reports that the exchange lost more than $350 million worth of customer's coins. The Mt. Gox website was taken off the web on Monday. The chief executive Mark Karpeles posted an announcement saying he is still in Tokyo working to fix the problem.
Now, regular viewers to this program - and I'm sure you're one of them - will know that when it comes to the BlackBerry, well I'm quite a fan of the device. And indeed I've said more than once I think I'd take a (lot) before I'd give up me BlackBerry. The problem of course is it's a bit old- fashioned, and it needs a bit of development. Now, the new BlackBerry chief exec has - John Chen - has promised to stop the bleeding at the ailing company, and bring in two new phones. He's bringing in the touch screen Zed 3 which will cost less than $200 - that's the touch screen. And the full Q20 - Ha! Ha! Ha! - the Q20, where's the Q20 - oh, it's over there. The Q20 which we don't have picture of yet but the Q20 keeps a full keyboard for quirky fans like myselfs (ph). Shares jumped at the news after a rollercoaster few months. This is the way the share price - I mean, it's still down there and it's still up here, but we're sort of seeing a bit of a pop up here. Jim Boulden met Chen at the Mobile World Congress in Barcelona.
JOHN CHEN, CEO, BLACKBERRY: My turnaround strategy - realigning (ph) its focus on the enterprise customers for the next one to two years.
JIM BOULDEN, CNN INTERNATIONAL CORRESPONDENT: OK.
CHEN: All right. In the meantime, I actually want to make sure that we still have a very keen eye on the consumer space. And two way we do that - distributors and Foxconn helping to build very competitive phone as well as PDM. So there was - there is not a - you know, I don't have a strategy to lead the consumer, I have a strategy to focus on the enterprise for the next 18 to 24 months -
CHEN: The company will by that time - I hope, if all my plans works - that's an if --
BOULDEN: Right, yes.
CHEN: -- if all my plan works, we will be a much more financially solid company, at which point in time you'll see us be more aggressive into the other space.
BOULDEN: And that's to stop companies under enterprises from saying we're going to give up the BlackBerry and let the BYOD take over?
CHEN: That's correct. And -
BOULDEN: And you need to stop that bleeding.
CHEN: I need to stop that bleeding, I need to stop that erosion, I need to restore that confidence back. One - first of all, the enterprise customer has a few characteristic. It's very important that they buy from company that they believe will exist for a long time.
CHEN: And then of course the product. And then actually the pricing part of it - where it's important - is not the most important thing -- certainly not the first (inaudible). OK, they need good service, they need good product, they need good company to be around, and they believe that you can innovate and protect their investment. That's the most important thing. And I think this is - this where, you know, we need to come back with that piece first and then the rest.
BOULDEN: And then maybe more Zed 3s, more inexpensive phones like that?
CHEN: Yes, I won't say - I don't say it's inexpensive, I think it's competitive.
BOULDEN: Under $200.
CHEN: Under $200, yes. This is a great, great phone under $200, if I know how to turn it on. I did.
BOULDEN: Well we heard about under $100 phones. We've even heard one - talk about a $25 phone.
CHEN: Yes, yes. You know - you know there's also a different market. I think this is the phone that is price feature is competitive and it's in the mid-tier.
CHEN: This phone right now is 3G. We have a 41 (ph) phone that we talk about which is LTE - Fuji LTE. And that would therefore go all over the world, and I'm very excited about it.
BOULDEN: Finally, what is the hardest thing you need to do? What is the hardest part of what you're going to do over the next 12 months? Is it internal, is external, is it stopping companies giving up, is it going to the next platform?
CHEN: Well, not going to the next platform. I think it - both internal and external. I think - you know - I have to make sure that the - it's a matter of confidence.
CHEN: All right, you know I need to make sure the employee is confident. I mean, I'm making a lot of changes that are a little more depart from the so-called the norm in the past - that's one. And you know, the customers. The customers I've been in the business for long enough to know that this is really about `show me.' It's - you know, I could lay out all the plans, I could deliver everything I said I'm going to deliver it --
CHEN: -- and at the end of the day, they want to see that we can make progress as a company, both in product and in financial. And until I do that, all these things are interesting, relevant, you know, capture a lot of attention -
BOULDEN: Attention, sure.
CHEN: -- from time to time. But the real potential could not be realized until we make money and then the company start believing in ourself.
QUEST: That's the chief exec of BlackBerry. When we come back after the break, you're going to hear from the chief exec of Airbus. Airbus has had a good 2013 and says that they will push ahead with projects for the year.
TOM ENDERS, CEO, AIRBUS GROUP: Execution, execution, execution of the programs that we're driving forward.
QUEST: Our interview with the Airbus Group chief - Tom Enders after the break.
QUEST: If you want to get frequent flyers and business travelers up in arms, just change the terms of the frequent flyer program. And that's exactly what's happened in the last 24 hours. Delta Airlines has announced a massive overhaul to its frequent flyer program, and it could make it more expensive for you to get air miles. From January the 1st, the number of miles you get won't depend on how far you're flying, it'll go to how much you paid for your ticket. The SkyMiles program - for Delta it's the first legacy carrier to make this extraordinary change. So, here we -- this is what I want to show you. Get right in here. Currently at the moment if you've bought a $500 ticket from New York to London under the existing SkyMiles program, you would get 6,888 miles. Under the new program, because it's based on the amount of money you get. If you're just a general member, you'd only get 2500 miles. So, as you can see, on that scenario, really your cheap ticket has cost you miles.
If you go for a more expensive ticket at a $1,000. Under the current it is still the same, but you do get more miles. What's the difference - just tie between the two. There's your 2,500 for the cheap ticket, there's your 5,000 for the more expensive ticket. In neither case do you get the same number of miles as you would get at the moment. You have to spend considerably more money. These are miles you can use, incidentally, not elite qualifying miles. If you don't know what I'm talking about, don't worry about it. There's plenty of people who do.
Other airlines may follow suit. I spoke to Brian Kelly, the founder of the travel points website - thepointsguy.com.
BRIAN KELLY, FOUNDER, THE POINTSGUY.COM: Bad for consumers. You know, some - you know - very high-end visit travelers may make out, but in general, you're going to earn less miles. And Delta's also jacking up the amount of miles you need to redeem for rewards. So it's kind of a double whammy.
QUEST: They've done it because obviously they say it makes it fairer for those people who spend more money on tickets. That's their justification.
KELLY: That's not a new concept, Richard. I mean most airlines give a big bonus for those who fly in first class or premium fares. So this is not something new. You know, Delta is trying to make it sound that way to court those flyers, but , you know, the Delta program isn't that great for business travelers.
QUEST: So why do you think they're doing it? They say it's because they want to reward those who pay more for tickets.
KELLY: But what they're really doing is just taking away miles from those who buy cheaper tickets, and you know my main concern here is that the other airlines are going to copycat and start doing the same thing. So this is why I think it's really important for consumers to stand up and say, you know, call Delta out and saying, you know, this really isn't about just the high-end travelers, it's, you know, the people who fill the airplanes. So, you know, Delta just wants to make more money which is fair - they're a business, they're allowed to do that. But consumers are allowed to speak up as well.
QUEST: The problem is I looked at the matrix, and as I looked at the way it's worked out, even if you're buying the more expensive ticket, --
QUEST: -- even if you're Platinum or the ultimate, Diamond on Delta, you still don't get as many miles. So there's only an incentive to pay more for a ticket.
KELLY: Exactly, yes. I mean, if you're paying $10 grand and you're a Diamond, you may be getting a lot more miles, but even so, Delta's frequent flyer program is among the weakest out there. So you still - even if you're not earning as many miles in another program like American, you may be able to get more out of your miles anyway with a different program.
QUEST: But this is trend - this is a trend, I mean, the JetBlues and the Southwests, they already do something similar -
KELLY: Right, and see -
QUEST: -- and elsewhere in the world -
QUEST: And the Air New Zealand of this world, for example, they do a "burns" system that's very similar that's based on dollar value. So it's not as if Delta is completely out of the ballpark in doing this.
KELLY: They're not. They're the biggest, you know, carrier. You know, business travelers want to you know get miles so they can redeem you know - you're away traveling, you want to take your family. You know, JetBlue - who really has a JetBlue credit card? You know, I think I know one out of 100 people may have that card. You know, Delta's -- you know, these frequent flyer programs are huge billion dollar businesses. I think if Delta keeps cutting away at the value, they could see a big negative reaction in the long-term.
QUEST: Ultimately, will United and American - the other two legacies in the United States - will they follow?
KELLY: Well, American - you know - they've got their hands full with the merger. I could see them getting the merger done before they make any decisions. So, I don't see any near-term changes from them. You know, United is the typical copycat. I think they're going to wait and see here, and I think if enough people jump ship, I think the other carriers could see this as an opportunity to poach some of those flyers.
QUEST: Finally, had your e-mail box been busy today on this?
KELLY: It has been non-stop. And the overwhelming reaction so far has been negative from frequent flyer -
QUEST: Of course it's negative.
QUEST: Of course it is. Well since when did turkeys ever vote for Christmas?
KELLY: Right. But if you read the Delta press release, you would think this is the best thing that's ever happened. So I think it's - I'm glad that consumers are kind of reading through and - you know - it's all about doing the math for yourself.
QUEST: That's Brian Kelly and one - two - things to note, both United Airlines and American told me today `no comment' on whether they're planning themselves. Aren't these beautiful? Look at them. Planes in the sky - 380, 350 and a 330 of Airbus. And two Airbus jets have taken to the skies for the first time, taking off from Toulouse in France. There's the 350XWB which has been in the works for nearly a decade, and one of those will make the first passenger flight in the next few months. The chief exec of Airbus, Tom Enders, confirmed to me the company's set to deliver to Qatar Airways its 350 on time. The firm today reported strong financial results for the last quarter, and they announced plans to boost production of its smaller jets.
I asked Mr. Enders what's the next big thing for Airbus?
ENDERS: Well, the next big thing, Richard, is perhaps not exciting at all. The next big thing is - and that's our focus for 2014 - implementation of the decisions we've taken, particularly on the restructuring of our defense and space and the helicopter business and execution, execution, execution of the programs that we're driving forward, particularly on the 350 program, the 400M program. We didn't speak about that - that is also ramping up and producing at least ten or 11 this year. So, there's a lot to do at the company. There's a lot of hard work to gradually, step by step improve the earnings, improve the dividends and achieve the target profitability that we have promised our investors some years ago.
QUEST: You can confirm today that Qatar is going to get its plane on time. You're not anticipating any further delays at this point.
ENDERS: I'm not anticipating any further delays, but as you know, this program is really in its (inaudible) phase. I cannot guarantee anything either, it would be stupid to do that. But to the best of my knowledge, we are on track to deliver first aircraft before the end of the year - before the end of the year and the Airbus Commercial - the teams are fully focused on delivering this 350 aircraft.
QUEST: The charge that you've taken on earnings - in total, you've taken 4, 6 - more than $700 million Euros, most of it for the A350. It's not quite eye-watering on your sort of revenues, but it's still painful to be taking those charges for restructuring and for cost overruns.
ENDERS: Yes. Well, right, I mean I'm not pretending that I'm happy about the additional costs we have to charge on the 350, but the restructuring - the roughly $300 million for defense and space - are obviously not surprising at all. They had to be anticipated. I mean, there is no real restructuring that brings value without investment, and this is what we're doing. So, restructuring costs - I'm absolutely convinced that this is worth the money because the end result will be higher competitiveness and higher profitability for our defense and space business. By the way, we've made good progress for our 2013, particularly on these businesses as far as profitability is concerned.
QUEST: The hole in the book, if you like, or the hole in the line is the 330. The regional option isn't - is there, but you could find yourself with a gap. Have you - have you decided what you're going to do to replace the 330?
ENDERS: Well, that's another discussion that is ongoing. No decision taken. Again, the 330 is selling very well. We are at the peak of production. It's not like it's a dying aircraft, so we've never produced more 330s when we have in 2013. That's the situation. We have two additional versions of the 330 currently under development. I would be quite confident that the 330 still had a long life ahead of it.
QUEST: 330s, 350s, 380s. Jenny Harrison's at the World Weather Center. You know me and me planes, Ms. Harrison.
JENNY HARRISON, WEATHER ANCHOR FOR CNN INTERNATIONAL: I know. And I was just thinking, be nice to be going somewhere nice in a plane right now, Richard. But in order to do that, as well, you've got to have some good weather of course to be traveling a little bit further afield. Let's start and talk about Europe because of course there's more rain coming into the West. You knew that's what I was going to say.
This is the next system. A little bit light in nature - the winds not quite as strong of course as they have been, but we've still got those flood warnings in place. Very mild conditions in the southeast of Europe. That will continue through the end of the week, but the system after this one coming through right now, actually heading a little for - more further to the south as you can see. So, France, you're going to pick up a lot of rain in the next couple of days, particularly across more central and southern areas.
But you can see a huge band of it again, just coming again across Ireland and pushing into western regions of the U.K. And believe it or not, even though the number of flood warnings and alerts is now right the way down to just 105, we have still got two severe flood warnings out there, and they still remain for Somerset. As you can see, these areas still under (inaudible) warning for the rest of this Wednesday but also Thursday on into Friday.
So, the rain that's coming down continuing to cause problems and concerns. The rivers as we know are just literally of course have been full to bursting for several weeks now. Now, this is one of those things that happened of course. Over time, rivers -- just at the bottom of rivers in particular - the silt and just a general sort of rubbish build up. The size of the banks also tend to grow inwards, and so all the time you're reducing the capacity that that river can hold in terms of the water. So of course when you have these very heavy rain events like we've been having for now going on three months, obviously we are going to get flooding, because the river literally cannot just contain all the water. All that silt as well as any of the plant growth that's there, it slows down the flow of the river. So all of that just backs it up, and of course it comes over the banks.
So, what they're planning to do -- the U.K. Environment Agency is in March - probably the end of March - they are going to start dredging an eight kilometer stretch of one of the rivers that really has been at fault (ph). Now, if it's good in one way, it will clear the silt - the silt. It allows that capacity to return to as much as it could be and also it increases the downward flow. However, there are quite a lot of issues as well surrounding that because the forward flow is so much faster. It could then cause problems downstream. But for now, that is the plan of what they're going to attempt to do. Because as I say, the rain continuing to come in, and by the way, they can't do that until things have really considerably dried up. The river levels have to go down, and also the side of rivers have to be dry enough to hold the equipment. So, more rain in the forecast. You cans see another 11 millimeters in Exeter. So, a better picture, Richard -
HARRISON -- but it's a very picture.
QUEST: Civil engineering on the weather as well. Many thanks. Jenny Harrison at the World Weather Center. We'll be back with more in just a moment.
QUEST: At the world's biggest mobile technology show in Barcelona, it's becoming increasingly clear that the plain old touch screen on your phones were rather last season. Manufacturers are finding new and inventive ways that we can interact with smart phones. Jim Boulden's been finding them out.
BOULDEN: One of the words we've been hearing here at Mobile World in Barcelona is the term interface. I've asked Tim Green, a blogger, to explain to us what exactly is interface?
TIM GREEN, BLOGGER: What the user expects or user experience or UX - however you want to call that is - it's the way we that we interface with the design - with the phone - in order to make things happen.
BOULDEN: Well let's look at some examples. First, let's look at YouTube.
GREEN: So, what we're seeing here is a video from a company called eyesight based in Israel, and they're pioneering a kind of minority report style of gesture-based technologies --
GREEN: -- where you interact with the screen from a distance using your hand movements.
BOULDEN: So let's look at buying now. This is a video that you took,
GREEN: You can see here that the girl displaying the technology - she's using her eyes to swipe fruit in the Fruit Ninja game.
BOULDEN: So, we've heard about hand movement, we've heard about eye moment, but you've also tweeted about touch.
GREEN: Yes, obviously as an industry, the mobile industry has fully embraced touch. So how much further can that go? So you can brush the guitar strings, play the guitar. I can feel each one of the strings. If you think about when we went from touching buttons to pinching and - pinching and zooming and swiping -
GREEN: That's a huge amount of innovation in handset design and the way we use our mobiles. So that's why people look at user interfaces as a springboard for more innovation.
BOULDEN: Great, thank you, Tim. And if you want to see things from Tim and our other bloggers, go to our website where we have our entire week of blogging. Jim Boulden, CNN Barcelona.
QUEST: "Profitable Moment" after the break. (RINGS BELL).
QUEST: Tonight's "Profitable Moment." No guessing where I'm going. Delta Airlines' decision to completely revamp its SkyMiles program, now making mileage-earning based on price of ticket, not distance flown. Perhaps it was inevitable, but at a time when the airlines are also raising the number of miles needed to get a free ticket - and they're not free. You have to fly all those miles to start with. Needless to say, not only myself but many up in arms at this latest change. Very few people will gain it was seem. The jury's out on whether others will follow. Quite simply, I hope they don't. And that's "Quest Means Business" for tonight. I'm Richard Quest in New York. Whatever you're up to in the hours ahead, (RINGS BELL) I hope it's profitable. I'll see you tomorrow.