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Quest Means Business
European Bond Auctions; Airbus Orders Soar; Interview with Louis Gallois; Child Labor and Chocolate; Costa Concordia Cruise Ship Disaster; Cost of Disaster; Audio Tape Emerges of Concordia Captain Being Ordered Back to Ship; Hungary Facing Legal Action from EU; Tourists Killed in Ethiopia; China's Growth Slows But Less Than Expected; CitiGroup Fourth Quarter Profits Fell; Stocks Gain Ground
Aired January 17, 2012 - 14:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, HOST: The Concordia disaster. The captain is under scrutiny as more bodies are found.
Tonight, the EU tells Hungary to show respect or face court.
And the chief executive of EADS tells me there are headwinds from Europe, but it's nothing they can't fly through.
I'm Richard Quest. I mean business.
Good evening. Tonight, questions for the captain, who apparently was ordered back onboard his own sinking ship. Five more bodies have been recovered from the hull of the Costa Concordia, and that brings the number dead so far to 11.
The ship's captain, Francesco Schettino, is in jail tonight pending possible charges. In recordings made just after the cruise liner hit rocks, a Coast Guard official is heard telling Schettino he must return to the ship, and we'll report more on that in just a moment.
It's unclear how many people are still missing. Before the latest bodies were found, the authorities had said 28 people were unaccounted for.
Meanwhile, Italy's coast guard has found a second black box or data recorder, and divers are working to bring it to the surface.
On the other developments, a salvage company is now preparing to start pumping the fuel out of the Concordia's tanks. The ship has 2,300 tons onboard and, so far, there's been no sign of a leak.
The share price of Carnival Cruises, which owns Costa, have been down very sharply in recent days. That much you'll know. They fell, of course, on Friday and again on Wall Street, which had been closed on Monday for the Martin Luther King holiday. So, the Wall Street trading is very much a reflection of what happened in the previous session. It all follows the Monday's drop in London.
Winter is a crucial time for the Carnival and wider cruise industry. CNN's Jim Boulden now looks at the potential implications of Friday's disaster.
(BEGIN VIDEOTAPE)
JIM BOULDEN, CNN INTERNATIONAL CORRESPONDENT (voice-over): When it comes to cruise companies, Carnival rules the waves. With more than 100 ships and nearly half the market, the Anglo-American firm trades under names such as Carnival, Princess, P&O, Cunard, and its Italian arm, Costa Cruises. Costa has 15 ships, including the stricken Concordia.
As investigators find out what went wrong, will this deadly accident hurt the industry? This ship is only a small part of the Carnival empire, but it's all about confidence.
WILLIAM GIBBONS, PASSENGER SHIPPING ASSOCIATION: We have to reassure everybody that now is a good time to book a cruise and that it is a very safe and secure holiday.
BOULDEN: In its statement to the stock market, Carnival Corporation said "The ship will be out of service for much of this year, if not longer."
MALCOLM LATARCHE, SHIPPING ANALYST: Ships have been re-floated from much worse positions, even from underwater. There will be experts involved, obviously. Some of the big salvage companies will, even now, be fighting over the contract for it. But yes, it's salvageable.
BOULDEN: Carnival says it has insurance for the damage to the vessel and for injuries to third parties, but not for loss of the use of the Concordia. It estimates 2012 earnings will be hit by as much as $95 million. And though passenger numbers for Carnival increased last year, its net income fell slightly, as higher fuel costs cut into profits.
Some bookings may be lost after the Concordia disaster, but those who have already booked on other ships won't get their money back.
GIBBONS: They won't be subject to a refund because this is incidentally so rare and isolated that we're totally confident in all our safety systems, our officers and crew, their training, the supervision of what happens onboard our ships, that all your listeners can be totally assured that cruising is a very safe and secure holiday and will continue to do -- be so.
BOULDEN: In the short term, images like these may deter some passengers. But the industry expects that, as memories fade, so will anxiety about taking to the high seas.
Jim Boulden, CNN, London.
(END VIDEOTAPE)
QUEST: Now, it's being reported by news agencies that the Italian judge has placed the captain under house arrest, according the captain's lawyer, that's only from news agencies at the moment. He will remain under house arrest, says the lawyer.
Matthew Chance has been following the developments today, not only, obviously, this development this evening -- since he's been arrested, it doesn't surprises -- it's not surprising. He's under house arrest. But also this audio tape that surfaced.
MATTHEW CHANCE, CNN SENIOR INTERNATIONAL CORRESPONDENT: Yes, they're quite astonishing exchanges that have emerged in one Italian daily newspaper, audio recordings that they put out between the captain and the coast guard in Livorno, which is close to where the ship went down, basically, painting a picture of what was going through the captain's mind.
The captain appeared confused. He appeared to be almost sort of playing down --
QUEST: Right.
CHANCE: -- the extent of the catastrophe, and that was really frustrating the Coast Guards.
QUEST: Right. We'll hear -- we'll hear the tape in just a second, but it's worth pointing out that the captain at the moment of this recording is not on the ship itself. He's in a lifeboat under the bow of the ship.
CHANCE: And this is what is frustrating and astonishing the coast guard so much. As hundreds of passengers were clinging onto the metal hull of the capsized vessel, the captain, you'd think, would be there, making sure everyone was getting to safety, making sure that the women and children at the very least were off first, that's the tradition, isn't it?
And -- but it seems not. He was one of the first people, it appears, in a lifeboat, and he's speaking to the coast guard from that lifeboat that's --
QUEST: Let's have a listen.
(BEGIN VIDEO CLIP)
DE FALCO, ITALIAN COAST GUARD, LIVORNO (through translator): This De Falco from Livorno.
FRANCESCO SCHETTINO, CAPTAIN, COSTA CONCORDIA (through translator): Commandant, I've also alerted the company. I'm being told that there are still passengers onboard, apparently there are about 100. I repeat.
DE FALCO (through translator): Captain, you are not able to tell me an exact figure? About a hundred people, it seems?
SCHETTINO (through translator): Commandant, I am not able to give you an exact figure because let me explain. While we were evacuating the last passengers. Now we are all here with all the officers.
DE FALCO (through translator): Where are you? On the lifeboats? All the officers?
SCHETTINO (through translator): Yes, we are. The Second Commander.
DE FALCO (through translator): Forgive me, but before you were only with a sailor. If the officers managed to get down, it means that they could still move.
(END VIDEO CLIP)
QUEST: Now, again and again in that exchange, in the full exchange, the Livorno Coast Guard orders the captain back onto the ship, doesn't he?
CHANCE: Yes, he does, he says, "Look. What on Earth are you doing," essentially, "being off the ship when all these passengers are still onboard?" He says he's taking control, he orders the captain to get back on the ship and to coordinate the rescue efforts, but the captain doesn't do that.
What he does do is offer an explanation as to why he got off in the first place. Later on in the transcript in the recordings, he said that when the ship listed over to one side, he was catapulted off the bridge, and that's why he was in a lifeboat. He says he didn't leave of his own accord.
So, that may be the basis of his defense, we'll have to see.
QUEST: Right. And it's also worth pointing out, the captain claims that he was supervising the evacuation from the lifeboat. So, there's not a suggestion as yet that he was running away from what was taking place, is there?
CHANCE: Well, I think there's a suggestion that in some way, he failed his passengers. The fact that he was on a lifeboat when other people --
QUEST: Right.
CHANCE: -- I mean, see these images, clinging onto the side of the metal hull, it just paints this very negative image of this character who's now at the center of the investigation.
QUEST: You've been watching the events of the day. The ship has moved, albeit very -- in a very small amount overnight. It did actually move off the rock where it has been -- moored or strucken. So, what's likely to happen next with the rescue operation?
CHANCE: Well, there's quite bad weather down there, now, off the coast of Tuscany, and that's hampering the efforts. They've had specialist divers try to get down there and access some of the areas that are underwater.
They've used explosives throughout the course of the day to blast a hole in the steel hull to try and get to the areas where they're looking for the 28 bodies or the 28 people who are not accounted for. There are more bodies have been found.
The big concern at the moment, as you mentioned earlier, are the fuel tanks. There are tens of thousands of gallons of heavy diesel oil inside the ship. It was at the start of its journey. If that starts to leak out, could be a -- an environmental disaster.
QUEST: Matthew, keep us informed. Many thanks, indeed.
As we continue, the battle between Brussels and Budapest heats up. It could end up in the highest court in Europe. An expert who knows it from the inside joins us next.
(COMMERCIAL BREAK)
QUEST: Europe is warning Hungary, change the laws or we'll take you to court. Jose Manuel Barroso says the EU's beginning infringement proceedings against Hungary.
It's effectively an order to the country to change its new constitution, which Mr. Barroso says does not show "proper respect" for the principles and rights of EU law. If Hungary doesn't cooperate, it will be taken straight to Europe's highest court.
President Barroso says the chief concerns are the independence of Hungary's Central Bank and its data protection authority, and the retirement age of judges. The reforms are hugely unpopular in Hungary. The prime minister Viktor Orban has been the target of protesters who say democracy is suffering.
Prime Minister Orban will meet Barroso in Brussels next week. President Barroso says he hopes Hungary will soon toe the line.
(BEGIN VIDEO CLIP)
JOSE MANUEL BARROSO, PRESIDENT, EUROPEAN COMMISSION: The decisions we have taken today are a reflection of our determination to make sure that European law, both in letter and in spirit, are fully respected and a stable legal environment exists in all of our member states.
Hungary is a key member of the European family. We do not want a shadow of a doubt on respect for democratic principles and values to remain over the country any longer.
(END VIDEO CLIP)
QUEST: Both the European Union and the International Monetary Fund say they will withhold aid to Hungary unless the government there guarantees the independence of the Central Bank.
Viktor Szabo is with me now, formerly a manager at Aberdeen Asset Management, also former head of market analysis at the National Bank of Hungary.
We were talking only last week on this subject, and now, of course, they -- the EC has done what it said it's going to. How much does this ratchet up the rhetoric and the whole episode?
VIKTOR SZABO, FORMER HEAD OF MARKET ANALYSIS, NATIONAL BANK OF HUNGARY: Well, the main point is that the International Monetary Fund and the European Union stated clearly they're not going to get involved into negotiations with Hungary unless Hungary modifies -- amends the laws in question or simply suspends them.
QUEST: So, which is more serious, the fact that they won't negotiate, or the fact that they're planning to take Hungary to court?
SZABO: I think both are equally important. It will take some time to get through all these legal procedures, so probably -- and the negotiations have to start sooner. So it is an interesting question, which one comes first, but I think negotiations have to start. And for that, Hungary has to prove even before the whole legal procedure, it's going to the next stage.
QUEST: When President Barroso says that the Orban administration needs to follow "the letter and the spirit" of the EU treaty, and then he goes on to say that they won't allow this stain over democracy in Europe to continue.
This is very much throwing the gauntlet down to Viktor Orban. What can he say in return, do you think, when he meets them next week?
SZABO: Well, I think he will say that Hungary is going to obey.
QUEST: So, you think there will be changes to the independence law. He's going to have to --
(CROSSTALK)
SZABO: I'm not sure. I'm not sure.
QUEST: Well, if he doesn't, then --
SZABO: I think it will depend much on the market. If markets will allow, if there's no market stress, then they will -- Hungary -- again, government might not be really willing to negotiate. If there's market stress, they will have no other choice.
They have to raise 10 billion euros this year in local debt and in external debt, and if the markets short for some reason, because of the European debt crisis, then they will definitely need the support of the IMF and the European Union to gain market confidence.
QUEST: Right. But in that situation, Viktor, you're basically saying it's only market pressure, it's not that it's the right thing to do, and if they had their druthers, they would not even contemplate. If they didn't need the money, they wouldn't even contemplate changing the laws.
SZABO: Unfortunately, yes, that's what I think.
QUEST: And do you get the feeling that international investors have basically had enough and are saying, until there is this change, they will shun Hungary?
SZABO: Well, if you look at the positioning of the investors, they are underweight Hungary, strongly underweight Hungary. And that reflects the loss of confidence.
QUEST: We'll talk more about it in the weeks ahead. Many thanks for joining us this evening.
So, we've done Hungary and we've looked at Europe. The question now, hard landing or soft or somewhere in between? China's economy has had a little wind taken out of its sails, and what happens when it hits the ground is still very much open to debate. Chinese economy --
(RINGS BELL)
QUEST: -- after the break.
(COMMERCIAL BREAK)
QUEST: Now, some news just in to CNN. Reuters News Agency is now reporting that gunmen have killed five foreign tourists in Ethiopia. The tourists were reportedly killed late on Monday night, according to a diplomat quoted by Reuters. German nationals are amongst the dead.
They were, apparently, crossing into Ethiopia over the border with Eritrea in the northern part of the country. CNN, we are working to confirm the story, but so far, it does appear that gunmen in Ethiopia have killed five foreign tourists.
China's economy, it's the second largest in the world -- that much you and I can agree on -- is slowing and we now need to discuss what's the long-term effect. It still grew at a brisk annual rate of 8.9 percent. A fair old clip in Q4. That's down on the previous quarter, when the economy grew at 9.1 percent.
The drop is partly down to sluggish export figures and the government- led cooling of the booming real estate market.
The numbers are better than the market had expected. Traders in Shanghai reacted positively, with the benchmark there up more than four percent, its biggest one-day gain in more than two years.
Frederic Neumann is with me. He's the co-head of Asian Economics at HSBC and joins me now. So, 9.1, 8.9? What do you make of it? I mean, it's a very small difference between the two, so you can hardly say it's a dramatic slowdown by any stretch of the imagination.
FREDERIC NEUMANN, CO-HEAD OF ASIAN ECONOMICS, HSBC: Exactly. All this talk about a hard landing in China, these numbers are not really showing that's in the works, here. There's a bit of a cooling, perhaps, at the margin in investment, but retail sales were actually stronger in December. So, it does appear as if the second-largest economy in the world is still steaming ahead.
QUEST: Is 8.9 sustainable, or what's your forecast for where it now moves in 2012?
NEUMANN: I think the slowdown in exports will take off some of the -- shave off some of the growth in the first quarter, so we do still expect a further slowdown, and that will probably prompt Chinese authorities into ease monetary policy, try to reflate the economy a bit through mid-year.
QUEST: You see, the view is that China's Central Bank and the authorities have plenty of room to add stimulus, which is true, particularly with a country that's running a current account service at that level. But the overall debt position within China shouldn't necessarily allow that to take place.
NEUMANN: That's right. One risk here, by continuously adding stimulus to an economy is that you expand the level of debt in the economy, and China does have very high debt levels. Now, luckily, they're investing a lot, they have high returns.
But there is a lingering suspicion here that you cannot do this forever. There is sort of a point where you cannot just continuously add debt to growth.
QUEST: OK, so, short-term, as I understand what you're saying, short- term, we should not worry, but long-term, what do we do there, where China's concerned?
NEUMANN: Well, long-term, China needs to pull off a feat, which is to shift its growth from investment to consumption. It's that re-balancing challenge, and that still needs to happen. There's no clear evidence that that has really yet been completed.
And in order to sustain growth, therefore, we need to sustain investment for the time being and grow with debt. If you cannot pull that off, then it's really not just a setback for China, but it would also be a setback for the world economy at at time where other economies are not growing very robustly.
QUEST: So, when we put this -- when we factor, then, into an investment scenario, if you can't rely on a market that's growing by 9 percent, and you've got a sclerotic European market growing in recession, and the United States is eking out 1.5, 2.5 percent. So, surely flows must end up back in the markets of India, Brazil, and most importantly, China.
NEUMANN: Well, last year, they have underperformed. There were big disappointment --
(CROSSTALK)
QUEST: Thirty-odd percent down for Shanghai.
NEUMANN: Thirty down, worst performing markets in the world.
QUEST: So, how can a market like Shanghai be down 30 percent when it's only got an economy that's growing by 9 percent and one of the fastest in the world? Where's the contradiction -- or there's a contradiction there?
NEUMANN: Well, markets anticipate, usually, these developments in the economies, and here, we're going to -- we see that probably a reflation of the markets in China in anticipation of that re-acceleration in growth.
QUEST: So, you're expecting the Chinese market to do better in 2012? Now, I hasten to add here, of course, we're not giving any investment advice, because if you're relying on our advice, you're in deep trouble. But you are expecting the Chinese market to perform better this year?
NEUMANN: The Chinese market should perform better this year than last year. Last year was a very challenging year because we had property market tightening with high inflation, tightening of monetary policy. This year, there's a loosening of policy, and that generally tends to benefit financial markets.
QUEST: We shall watch it with interest. Many thanks, indeed, for joining us.
Now, the US markets are open and doing business.
(RINGS BELL)
QUEST: Alison Kosik is at the New York Stock Exchange joining us. Alison, CitiGroup, an interesting set of numbers from one of the world's largest banks, where -- we always talk about the devil being in the detail, but the more I looked at Citi's numbers, the less I understood what was actually taking place.
ALISON KOSIK, CNN CORRESPONDENT: Yes, well, if you look deeper about what CitiGroup basically said, it wasn't just the weak economy, Richard, that hurt its business. It was weakness in trading revenues from CitiGroup's trading and investment banking activity.
They -- that activity, Richard, dropped about 29 percent in the last quarter of 2011, compared to the same time a year earlier.
And here at the New York Stock Exchange, I hear about volume issues on a daily basis about just how light the volume is. That's just one indicator of what CitiGroup is saying, that there are -- there's just a lot of money sitting on the sidelines, a lot of investors just deciding to sit it out. So, CitiGroup is certainly seeing that hurting their bottom line.
CitiGroup also saying that its bond or fixed-income division also so its revenue fall 25 percent from the previous year as clients are moving away from this market because they're worried about the repercussions from Europe's sovereign debt issues.
So, you're seeing that -- you're seeing Europe's mess creep into the earnings reports for these banks, and CitiGroup is certainly not immune to that. Richard?
QUEST: And as we factor into this earnings season, yet -- we were just talking about China a moment or two, growing at over nearly 9 percent, 8.9 percent. The US 1.5 to 2 percent. So, where is the New York market getting its inspiration from at the moment, do you think?
KOSIK: It's getting its inspiration from three reports, one of them is China. Yes, China's growth came in basically not as bad as expected. The bar is lower, so hey, if it's not as bad as expected --
QUEST: Right.
KOSKI: -- even though it's slower, you're going to see the market rally, and that's one of the reasons, here. Because the predictions were it was going to be much worse.
And also, that German sediment index that came in better than expected, Richard. That's also keeping the numbers in the green today.
And here in the US, we got a report on New York regional manufacturing. That topped expectations because of strength in new orders and employment. So, you take all those three things together, and you get yourself a rally, at least for one day. Richard?
QUEST: A one-day rally. I'll take it any day, up a hundred points, hundred and change.
KOSIK: Yes.
QUEST: Alison Kosik at the New York Stock Exchange. We thank you for that.
After two days of downgrades, it's high time we had some good news from Europe, and today the bond markets delivered. We'll tell you next why and what happened.
(RINGS BELL)
(COMMERCIAL BREAK)
QUEST: Hello, I'm Richard Quest. More QUEST MEANS BUSINESS in a moment. This is CNN, and on this network, the news always comes first.
And we start of with Reuters, which is reporting that gunmen have killed five foreign tourists in Ethiopia. The tourists were reportedly killed late on Monday night and, according to a diplomat quoted by the agency, German nationals are amongst the dead. They were apparently crossing into Ethiopia over the border with Eritrea in the northern part of the country, and CNN is working to confirm the story.
Four days after a cruise ship ran aground off Italy, the death toll has now risen to 11. Rescue and recovery teams found five more bodies on Tuesday. All of the victims were wearing life jackets. A judge has ruled that the captain of the ship must remain in prison while the investigation continues.
The Arab League mission to Syria is scheduled to end on Thursday despite doubts about whether it's fulfilled any of its goals. The crackdown on protesters appears to be far from over. At least 28 more people died on Tuesday, according to the activists. A government defector insists the regime will stop at nothing to hold onto power.
Lawyers for Egypt's ailing former president have begun presenting the case for his defense. Hosni Mubarak's attorneys told the court trying him for murder that he was not a tyrant, and they said there's no evidence that he ordered protesters to be killed during the uprising that forced him from power.
Days after this huge anti-government protest in Budapest and the European Commission is now saying it will take legal action against Hungary. The EC said it's particularly concerned about three new laws. The list includes one which the EU and IMF say threatens the independence of Hungary's central bank.
Markets in Europe are stronger after they finished doing business on Tuesday. London's FTSE was held back by the power generate, Essar Energy. A staggering 25 percent of its value was wiped out after the India Supreme Court ruled it could no longer defer payment of $1 billion in taxes.
Germany's DAX was the region's best performer, driven up by the world's third largest cement maker, HeidelbergCement. Markets in Paris and Zurich were also up.
Italy and Spain both went to the market today and came back pretty pleased with themselves.
Jim Boulden has been following the developments.
Jim is with me now.
JIM BOULDEN, CNN CORRESPONDENT: Greece, as well.
QUEST: They went with -- they went to raise money.
BOULDEN: Yes. Greece did, as well, very short-term T-Bills.
QUEST: Oh, come on that's (INAUDIBLE).
BOULDEN: These are not the long-term ones, six months. We saw some 12 to 18 months, as well.
But, in fact, billions of dollars raised. Many of these are oversubscribed. And in this Italian bonds, for the 10 years, especially, fell back to 6.5 percent. OK, not maybe a safe haven, but certainly something is changing in the markets. And one analyst said today that there's a feeling that many of these countries will be able to limp along in the very short-term T-Bill markets until this gets sorted out...
QUEST: How about...
BOULDEN: -- and that maybe that's enough for now. And that's pleasing the markets a little bit.
QUEST: How can this be, when we had the downgrades of so many countries on Friday?
BOULDEN: Yes.
QUEST: The EFSF gets downgraded.
BOULDEN: Yes.
QUEST: Admittedly, just by a notch. So it's hardly going to be a disaster.
BOULDEN: Yes.
QUEST: But what is moving these bond markets to be more favorable?
BOULDEN: One of the things that the head of the EFSF said today, he said very clearly that if only one of the three downgrade us, we're OK. And I think that's what the markets are looking at.
They're kind of dismissing S&P. First, they -- they're saying that this was obvious. We knew some of these downgrades were coming since December. And we saw what happened when the U.S. was downgraded by them. It didn't make a difference in the bond market specifically.
QUEST: All right, but we're a long way from -- A, let's talk about Greece now...
BOULDEN: Yes.
QUEST: -- and the psi private sector involvement in the debt restructuring. Everything I'm reading now is saying it's not if but when Greece defaults.
BOULDEN: And not just when, but how. So there's the issue that comes about. We -- we -- the good news is these talks begin again tomorrow or continue tomorrow in Greece.
QUEST: What are they talking?
What are they hoping to achieve?
BOULDEN: Four percent, 4.5 percent, 5 percent.
What is the interest rate Ger -- Greece will have to pay on the new...
QUEST: The coupon.
BOULDEN: -- bonds and the coupon for these banks, who are going to lose 50 percent of what they invested into Greece.
Do they want to lose 75 percent or 80 percent?
QUEST: Right.
BOULDEN: No.
QUEST: So this is the difference between the face value and the net present value...
BOULDEN: Yes.
QUEST: -- on the future of earnings, basically?
BOULDEN: And that seems to be what the debate is about. And a lot of people are saying they've really got to sort this out by Friday.
Now, when we keep putting deadlines on this...
QUEST: Oh, come on.
(LAUGHTER)
QUEST: We've had more deadlines. I mean you -- we're -- we're talking now about that they've got to solve this by mid -- by late March.
BOULDEN: Yes, March 20th.
QUEST: -- when $16 billion or whatever it is...
BOULDEN: Yes.
QUEST: -- is payable.
BOULDEN: Yes. Exactly. But to get the ball rolling, to get the money from the IMF, to get the money from the European Union, you've got to get this deal done first, then Greece will get the 14.5 billion euros by March 20th they need to pay down some of the old debt. And then they roll it over, of course. And then we start the whole process again with the ESM. And we're not going to talk about that tonight.
QUEST: No, we're not. Good.
(LAUGHTER)
QUEST: I was going to ask you, do you think they're going to do it?
You know, are they going to get an agreement on this?
But that would be unfair because that would be inviting you in...
BOULDEN: Hmmm.
QUEST: -- it would.
BOULDEN: The difference between moderate default...
QUEST: Yes.
BOULDEN: -- and disorderly default, I'm not going to predict that.
QUEST: But you are saying default?
Not yet.
BOULDEN: It's a 50 percent cut. It is a default.
QUEST: It's an involuntary -- look, it's a voluntary -- voluntary, Jim.
BOULDEN: Voluntary, private sector involvement.
QUEST: All right.
When we come back after the break, the chief executive of EADS, who's been selling planes by the hundreds.
(COMMERCIAL BREAK)
QUEST: Airbus orders took off in 2011, hitting new records that left Boeing, the predominant rival, trailing. Orders more than doubled last year, up 120 percent. The plane maker took a record 1,419 orders last year compared to 644 the year before. And the reason was the A320neo new engine option that's been an extraordinary success. And what makes it even better for Airbus, those numbers factored in and you'll see the difference between Boeing and Airbus. It trounced the rival. Over 1,400 planes for Airbus, 805 for the Seattle-based plane maker.
It gives Airbus a market share of almost two thirds by volume. And it's the fourth year in a row that Airbus has beaten Boeing on the orders gained.
Now, all of this has to do with when new models are being introduced. Airbus has the 320neo. Next year, Boeing has the 737 MAX.
Even so, Louis Gallois is the chief exec of EADS, the parent company of Airbus.
He told me that while 2012's order book won't be as strong, the company is fast gaining speed and ready for take-off. And he's choosing this point to hand over the controls to the new chief exec.
(BEGIN VIDEOTAPE)
LOUIS GALLOIS, CEO, EADS: I could say that we have demonstrated, in 2011, that we are a growth and a cash machine. And now, we have to demonstrate that we are able to increase our profitability. And I think we have a good argument for that, because we will deliver more airplanes and bringing additional margins. We will deliver airplanes at a better price. We will...
QUEST: Right.
GALLOIS: -- the cost of the A320 is decreasing and everything is -- is putting Airbus in a far better position for profitability.
QUEST: Airbus did a very, very good maneuver with the A320neo, which obviously, with hindsight...
GALLOIS: Yes.
QUEST: -- was a -- was a stroke of genius to launch that as you did.
But in 2012, the order book won't be nearly as robust, will it?
GALLOIS: I think, you know, we don't expect, in 2012, to get orders at the level of Republican record year, 2011. We -- we -- we are expecting between 600 and 650 orders, which is -- which is give us a book to bill above one and -- and with a backlog of orders we have, we can't expect to - - to get too many new orders, because we -- we need slots for delivering airplanes.
QUEST: Right.
GALLOIS: And we have now a backlog of orders which is filling all the slots for the next years. If all that, the -- the increase of production rate is this easy for us, to create a new slot. But it's not easy because we have to take into account the capacity of our supply chain.
QUEST: And, finally, as you come to the end of your tenure at the helm at EADS -- and we know you've sold us...
GALLOIS: Yes.
QUEST: We -- we've been warned to be patient for your success, sir.
But what will you take with you?
What's been your proudest and best achievement, do you think, having taken over the company at such a difficult time?
GALLOIS: My -- my -- I am not extremely interested in heritage and in legacy. I am interested in the future of the company. I think the company is on track. As I said today, that we were going faster and faster on the runway and now we are taking off at full speed. And I think the company is on the right track. And my successor will have to manage that. It will bring in new, fresh ideas, new ideas. And I think the change in the -- in the management is a good thing after six years, because we need to be always very creative and -- and I know that he has -- or he will have his own challenges, the A350, the -- the -- the European crisis, the budget constraints and so on. But I am sure that the company now is as weapons -- has the capacity to resist. And we have demonstrated that we are extremely resilient in the past crisis, in 2008 and 2009.
QUEST: And are you confident that Europe will weather this euro crisis, this Eurozone crisis?
GALLOIS: I -- I -- I don't know if I am confident regarding the crisis, because, you know, everyday we have news which are not good. And I think the downgrading on some countries are only made -- made more visible as the divergence between economies inside Europe. And that is not -- it's creating instability and it's not helping to find solutions. That's clear.
But the company, EADS, is -- is well protected by two elements, the backlog of orders, which is extremely deep, and the net cash, which is protecting us against the financial crisis.
But we have to be very vigilant. We are looking at our customers, our suppliers, with Airbus and (INAUDIBLE) is all new watch tower...
QUEST: Right.
GALLOIS: -- to follow that very carefully and also we are impacted with a reduction of some different budgets and there's the pressure of the reduction of the deficit.
And it's clear that we feel the impact through this reduction of deficits.
But globally, the company is very resilient and has the capacity to resist to a new crisis if this crisis is worsening.
(END VIDEO TAPE)
QUEST: Louis Gallois, the outgoing chief executive of EADS, on the success at Airbus.
In a moment after the break, breaking the chains of supply -- we'll ask one chocolate company how they know exactly who's working for them -- even deep in the cocoa plantations of West Africa -- the Freedom Project.
(COMMERCIAL BREAK)
QUEST: It's a problem the chocolate industry has tried and failed to fix for a decade -- forced child labor. And on Friday, CNN is airing a special documentary. It's all part of our Freedom Project.
It includes hard evidence that the problem of forced child labor is still a blight on West Africa's cocoa farms.
CNN traveled deep into the interior of the world's largest cocoa producer in search of answers. See what the team found in the Ivory Coast. It's a CNN's Frederik Pleitgen investigation -- Chocolate's Child Slaves. It premiers this Friday at 8:00 p.m. GMT, 9:00 in Central Europe.
Now, whatever progress there has been has been small and big companies still don't know where much of their chocolate comes from.
For example, Nestle admits it can only trace a fifth of its cocoa supply chain. This will give you an example of the sort of problems, the challenges for governments and corporations. The cocoa industry is an extremely complex one.
Let's start down here with the growth, because this is really where the main problem seems to be that we're looking at at the moment. If you take the Ivory Coast, the world's biggest producer, 37 percent of global cocoa exports. So it produces approximately 1.2 million tons of cocoa, which is exported, 37 percent. And it is the single largest in the world.
From there, of course, it goes to the processors. The processors send it to the manufacturers. The manufacturers do what they would do and it finally goes on to the confectionary and the retailers.
But look at the numbers involved here. And this is when it becomes particularly startling. Kraft -- $17 billion; Mars, $50 billion; Nestle, $11 billion in confectionary sales.
Now, the two top sales combined are greater than the Ivory Coast's GDP.
You're starting to get an idea now of the size and scale of what we're talking about.
And then you add in the financial world, the futures market. You take, for example, the futures market. Each contract -- 20,000 contracts a day are sometimes traded. And each contract represents 10 metric tons.
It's a huge industry with many, many billions of dollars sloshing around in the process. And the problem, of course, is traceability. Finding a way to monitor the links in the chain of supply.
Well, one chocolate company has done just that. Its mission is divine.
And I spoke to the managing director, Sophi Tranchell.
And I asked her how they had managed to find out where all their cocoa came from.
(BEGIN VIDEOTAPE)
SOPHI TRANCHELL, MANAGING DIRECTOR, DIVINE CHOCOLATE: We work with a cooperative of farmers in Ghana called Kuapa Kokoo. And they only buy from their members. And so that the cocoa then goes from beans into sacks. And the sacks are marked with that village that those farmers live in and Kuapa Kokoo. And so that the -- the marked sacks then go on ships, which then come into Europe and then get primary processed into cocoa butter and cocoa liquor. And then that marked cocoa butter and cocoa liquor gets sent to a chocolate factory and gets turned into chocolate that we then use as Divine.
So we work directly with the -- with the farmers in Kuapa Kokoo. They own 45 percent of the company, so that's a reasonable piece of delegation. And then, because they're part of the fair trade system, fair trade comes and audits them. So fair trade checks that they get the money that we say we're going to get. But they also check that they're running an orderly system, that they have a good membership database and that they are fairly sharing out the benefits of fair trade.
QUEST: How difficult was it to put in place that sort of traceability?
TRANCHELL: We had to get everybody to cooperate. So we had to get the government of Ghana to cooperate, because all cocoa from Ghana is -- is coming out Ghana...
QUEST: Yes?
TRANCHELL: -- it's Ghana origin. We then had to work with factories that were prepared to do traceability batches, so that they're -- so that we know that the beans that go in makes the output that we buy. And then we contracted with all of those people who co -- who cooperated with us to say that's what we wanted to buy.
So we only want to buy chocolate made from 100 percent Kuapa Kokoo fair trade cocoa.
QUEST: I can hear some people saying, good lord, that's an enormous amount to have to go through. And you're doing it on a relatively small scale.
If you then take one of the truly large manufacturers, how realistic is it for them to do that sort of monitoring and traceability?
TRANCHELL: Well, the good thing about being a really major player is that you have lots of power and lots of influence and lots of resources. And you're working on a much bigger scale. So you ought to be able to actually control your supply chains. You ought to be able to make it to do what you want it to do.
I think the thing that's become challenging for them is because they've become so big, they've homogenized their supply chains and they find it very difficult to isolate particular things.
QUEST: But isn't it really a case that you care about these things and deal with this in that sense. Other big companies may say they care about them, but pay lip service to what actually takes place, because if they really cared about it, as you said, they could do something about it.
TRANCHELL: Well, I think in the end, big companies care about things that consumers care about. So if consumers indicate that they care about these things, then big companies have to. And it becomes incumbent on them to do something about it.
QUEST: And there is every bit of evidence that consumers care about these sorts of things until it hits them in the pocket.
TRANCHELL: I think there is evidence that actually suggests that people are increasingly concerned about where their food comes from, for all sorts of issues, for health issues, for environmental issues and for social issues. And I think they're prepared to pay a bit more if they know that something good is coming of it.
QUEST: I can't be bought and bribed.
(LAUGHTER)
QUEST: I can't be bought -- let me make this absolutely clear -- except by your delicious white chocolate with strawberries.
(END VIDEO TAPE)
QUEST: Now, needless to say, I would be showing you some of that white chocolate, except I've polished it all off between then and now.
All this week, I'll be Tweeting about the documentary using the hash tag endslavery and sending out links to our Freedom Project blog. Check out the links. They are @richardquest, where you and I can talk about the issues that are raised in this documentary.
The weather forecast now.
Jenny Harrison is at the World Weather Center this evening for us.
Good evening.
JENNY HARRISON, ATS METEOROLOGIST: Good evening to you, Richard.
I'm going to start with weather conditions across in Europe, and, in particular, have a little look at what is going on in the Central Med, off the west coast of Italy.
You can see in the last few hours, very active weather pattern across much of Central and Eastern Europe. Also, quite a bit of cloud across the northwest of Africa. That system is sliding away. With that system sliding away, that will improve conditions around the location of the wrecked cruise ship.
Now, we have had some pretty strong winds as we have gone through Monday. It has caused problems there. And, of course, as we know, the fuel will be the next thing that they'll be concentrating on, to get all of that fuel off that ship. It will take several weeks.
Right now, we've got two locations we can tell you the weather conditions. We don't have any observations coming from Giglio Island. But instead of which, the closest to that, just off the west coast here of Italy, a slightly higher elevation. And this temperature, at four degrees Celsius, so closer to, actually, at sea level. We're looking at temperatures probably at about six to seven degrees Celsius. And, of course, this time of year, the sea temperature is fairly static. It's at about 14 degrees Celsius.
Now, as I say, we've had these strong winds because of that low pressure in the western end of the Med. That's going to slide southward and high pressure will come in and take charge for the next couple of days. That means it will be calm and the conditions will be clear. Of course, very cold, as well, for all the workers in and around the wrecked cruise ship.
But the next system that's coming in, this is likely to bring, once again, stronger winds and some rain, probably as we head into Friday.
So that, as I say, not a good forecast as we head into the weekend, but for the next couple of days, it will, as I say, be clear and dry across that region.
Now that system that's coming through is bringing with it some much colder air, also some very strong winds, particularly across the northwest of Europe. And once it slides across these central and eastern areas, the rain, again, turning over to some snow, some fairly heavy snow. And it's cold already. These are the temperatures with the wind factored in, minus three on the land right now. One Celsius in Athens and Rome. But much colder across areas to the north of Europe. Minus five at the airfields in Birmingham, England. Karlstad in Norway, minus seven degrees Celsius.
The winds on the increase as that system comes in. Quite blustery winds. And it really spreads. And that system will spread those strong winds across much of Northern and Central Europe. So get ready again for some more delays on Wednesday.
The snow and the sleet in Berlin, in the overnight hours into Thursday, and strong winds across many locations, as you can see there -- Glasgow, Amsterdam and more snow across the north and the southeast. So we'll start seeing some fairly lengthy delays there with the snow in place. But temperature-wise, it's not too bad, it has to be said, across the west. 12 degrees in London and six Celsius in Paris.
Cold, of course, across the east, with more snow in the forecast. And you have to have a look at this. Now, yes, all that snow, you really are looking at what you think you're looking at.
QUEST: (INAUDIBLE)?
HARRISON: It is, it's a bird.
And look at this. It seems that he found some sort of maybe a bottle top, something like that, and he starts to slide off the roof. He then goes to the other side of the roof. Not so much snow. It doesn't work as well. Let's go back to the other side. And he does this time after time. This has come into us from Russian TV. And, of course, you can see there, it's become viral on YouTube.
It's quite incredible to see what a bird can do. And, of course, we say these birds are not stupid. And this one certainly is not. This is how he looks for the sun there.
And, Richard, I'm not sure if you have anything to say about the bird on the roof?
QUEST: No. But I should -- I'm looking forward to going to Davos next week, particularly since you have told me that there's so much snow there.
Do you expect the snow will remain?
HARRISON: Oh, I think the snow will remain, Richard. And there's more to come. I can't go back to my graphics, but we had all that snow coming in across the Alps for the next couple of days. But, yes, you see that's something you and Gayle (ph) could do.
You're taking your producer with you, aren't you, Gayle Edmunds?
So you and Gayle. I would like to see what you can do with something with a shiny base on an elevation with the snow out there.
QUEST: I assure you, a shiny base on a roof would have a meet -- would have me in a hospital bed...
HARRISON: I guess.
QUEST: -- if I tried to. I'm a terrible, terrible skier.
HARRISON: You cannot ski.
QUEST: And I can't snowboard...
HARRISON: No.
QUEST: -- to save my life.
HARRISON: That doesn't surprise me. No, I know.
QUEST: Yes, yes.
HARRISON: I've seen you on your...
QUEST: Yes.
HARRISON: -- on your old pins, your doddery old pins out there in the snow in Davos.
QUEST: Hey, hey, hey.
HARRISON: But I really look forward to it.
QUEST: Hey. Hey.
HARRISON: Yes?
QUEST: That's enough.
Thank you.
Jenny Harrison at the World Weather Center.
I'll have a Profitable Moment after the break.
(COMMERCIAL BREAK)
QUEST: Tonight's Profitable Moment.
I've just returned from Hong Kong. Now, coming from sclerotic Europe where austerity rules, one can't help but be wide-eyed at the investment, the optimism and the dynamism of the Southeast Asian economies.
All this cheer is constantly tempered, though, about worries about the Chinese economy, especially the leverage of regional governments, the real estate bubble that's fueled the wealth and worries that China is about to take an almighty tumble.
Well, today's growth numbers suggest that's not going to happen, rather, a smooth, soft landing is widely predicted, especially in a changing political year.
Well, this time next week, the Chinese will be celebrating the lunar new year, ushering in the Year of the Dragon. If China can keep this growth up, then those three traits will not be in short supply. The jur -- the Year of the Dragon could be very bullish, indeed.
And that's QUEST MEANS BUSINESS for tonight.
I'm Richard Quest in London.
Whatever you're up to in the hours ahead, I hope it's profitable.
The news is next.
END
