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QUEST MEANS BUSINESS
Jobs Takes Another Medical Leave; Corporate Earnings; Future Cities
Aired January 17, 2011 - 14:00:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
MAX FOSTER, GUEST HOST, QUEST MEANS BUSINESS: Twice in two years Steve Jobs leaves Apple to focus on his health.
Bigger is not always better. Increasing Europe's crisis fund divides its leaders.
And 25 top stocks face the ultimate test. Earnings season is back. And that can only mean the Q25.
I'm Max Foster in for Richard Quest. This is QUEST MEANS BUSINESS.
Hello to you.
His name, his face, and his regular presentations have come to define one of the world's biggest companies. Many would argue Steve Jobs is Apple. Butt his appearance back in October turned out to be one of his last, at least for a while. Apple's Chief Executive Steve Jobs is taking medical leave of absence. Jobs says he needs time to focus on his health, without saying exactly what is wrong. Previously he'd battled pancreatic cancer and had a liver transplant. But he says he will stay on and presumably continue to have the final say on all the big decisions.
Well, this is what Jobs says. He says he will continue as CEO and be involved in major strategic decisions for the company. He hopes to be back as soon as he can, but there is no timetable for his return. His last leave of absence in 2009 lasted six months and that was when he had the liver transplant.
Now, this man, Tim Cook, is Apple's chief operating officer. He takes over day-today operations as he did during the last leave of absence of Jobs, in 2009. Now, Jobs says Cook will execute Apple's plans for 2011. Shares traded in Frankfurt and they fell sharply on the news. As you can see, 1 point down, around 8 percent, ended around 7 percent lower. No trading in New York shares because of a public holiday there. Get a better idea about it tomorrow.
Now Jobs has lead Apple through a period of astronomical growth. You are looking at the 10-year, 10 extraordinary years for anyone with shares in Apple. You can see. It is just a consistent riser there, isn't it? Marked by the launch of several milestone products not just for the company but for the whole world, actually. First came the iPod in 2001. Six years later, in 2007, the first iPhone was released. And, then, just a year ago, in January 2010 we got the iPad. Now each time it lead to a surge in of interest in the company's shares. Apple stock has risen in price, more than 3600 percent in a decade. So you would have done well to have invested 10 years ago.
Now, Xeni Jardin is technology journalist and she is a blogger, and she joins me now from Los Angeles.
Thank you so much for joining me, Jenny. And you have followed Apple, of course, over the years. How worried are you for Apple, that Steve Jobs is stepping away, at least for day-to-day duties?
XENI JARDIN, TECH. JOURNALIST, EDITOR, PARTNER, BOING BOING BLOG: You know, this is a really interesting time. I can't think of another company whose presence depends so much on a personality of its leader. Steve Jobs is a very charismatic leader and, you know, part of the mythos of both Jobs and of Apple is this idea of, you know, a charismatic sort of soul behind all of the products. There really isn't another company like Apple. And there really isn't another CEO like Steve Jobs. But the extent to which Apple equals Steve Jobs is something that I don't think we can really know until that transition eventually happens.
FOSTER: Rumor has it that he comes up with the product ideas, and the look, and the way these products so brilliantly. Is that true, do you think?
JARDIN: You know it is certainly what we hear. Of course, Apple is known as being one of the world's most secretive corporate cultures. What we know about the interaction between Cooke and Jobs and the contrast in their personalities is that Cook tends to be low-key, soft-spoken, analytical. And that he's, you know, a very diligent hard-working person, who doesn't have much of a life outside of Apple. And that that contrasts a little bit with what we know about Steve Jobs, the sort of boisterous, outspoken and warm personality. But it also bears noting that Cook has run the company for a period before, in Jobs absence and that he is deeply, deeply involved with all aspects of running the company's operations already. It shouldn't be a shock.
FOSTER: It has been a great advantage, hasn't it, for Apple to have Steve Jobs selling the company and that has added to this astronomical rise, this great leader, as you say who helps with the marketing and the branding. But as you saw today in Frankfurt, investors were very worried about this news. I presume smaller investors who don't know the ins and outs of the company. But they have taken a huge gamble, haven't they? Putting all of their eggs in one basket with Steve Jobs and they are going to pay the price for that now.
JARDIN: You know, it is true. And nothing at Apple happens by accident. Certainly announcing this somewhat shocking news to the markets, happening on a day that is a federal holiday here in the United States. Apple's earnings reports are due out tomorrow. It will be interesting to see how the wheels turn when the markets open again and the earnings are out
FOSTER: Well, a cynic would argue that the earnings will be good, so that will offset the Jobs news.
JARDIN: That is certainly what many are predicting.
JARDIN: We'll have to wait and see for that. You know, one thing that-I saw sort of circulating around Twitter this morning, where some quotes from Jobs, a commencement address he gave at Stanford, back in 2005.
He said, "No one wants to die, and yet death is the destination we all share. Remember you are going to die," he wrote, "is the best way to avoid the trap of thinking that you have something to loose."
He is certainly a man that thinks about mortality and legacy. And he's one of the greats of our time. I wish him the best.
FOSTER: Yes, he truly is legendary. Xeni Jardin, thank you very much indeed for joining us on the program.
Now, Apple's first quarter results are due out after the markets close on Tuesday. We'll keep you up to date on that. Stay tuned for the latest quarterly earnings figures as we launch our Q25 segment later on QUEST MEANS BUSINESS.
Now, coming up, beefing up the bailout fund. European finance ministers are talking over the Euro Zone's rescue package as we speak. But will they agree to anything? We'll ask that question in just a moment.
FOSTER: Right now Europe's top money men are in Brussels debating how to improve the European bailout fund. The plans to give the fund more money and more powers may not turn into a complete overhaul just yet, at least. Finance ministers from across the Euro Zone seen here before approving the Irish bailout last year. They are talking over proposals to extend the European Financial Stability Fund, but Germany's finance minister Wolfgang Shauble says there is no urgent need to revamp the system. And his French counterpart, Christine Lagarde, also said details on the bailout fund wouldn't emerge for another couple of months.
As finance ministers chewed that over, Jim has been looking into explaining what to look out for in this summit. Because Jim it is very important, but it is also pretty complicated and high-minded at times.
JIM BOULDEN, CNN FINANCIAL CORRESPONDENT: It is complicated. We might hear something tonight, probably hear more about this tomorrow. But if you remember last week, Jean-Claude Trichet, the head of the ECB, said there is a need for a, quote, "qualitative and quantitative changes" to this EU rescue fund. So think of this as the European Financial Stability Fund, or the EFSF, total of this fund only, $585 billion. I like to say it is about a half a trillion dollars, it is easier. But only available to be able to loan out of this fund is around $332 billion of that. Why is that? Well, the EFSF has to keep some money guarantees in reserve to ensure it keeps a AAA credit rating. So, ironically it can't loan all of this money to any other country that comes along and might need help.
Now why do they want to keep that AAA rating? Well, one of the things is should the EFSF be able to buy bonds? Should it be able to go in and buy bonds, sovereign debt, from troubled countries, or buy the bonds of troubled banks? That would replace the European Central Bank, who is doing that currently. Does it want to keep doing that? It would love to get out of that market, but this would have to be a change in the way this-the EFSF has been set up, again, a change in the quality of what it does. Of course, we could also talk about changing the quantity. Should it be able to increase the amount of money into this-should it get more money from countries like Germany? Really build up a huge amount of money to try to ward off some of the speculators who say it isn't big enough to, maybe protect Spain, for instance, or Portugal.
Not that they have asked for this money yet, of course, but we also know, of course, that Ireland has gotten this money. The EFSF will actually launch its own bond later this month, it announced this today. It is going to try to raise between $4 billion and $6 billion. This is money that is going to go to Ireland as part of the bailout that was announced last year, Max.
FOSTER: And, Jim, bonds normally sold through auctions, of course, but Spain is not doing it that way anymore. Explain that one.
BOULDEN: Well, yes. This is what you call a syndicated bond. Spain announced today that it is not going to sell bonds on Thursday into the auction as we normally expected them to do. As other countries did, just last week. They are going to do a syndicate. In other words they sold the bonds to banks today and at a yield of around 5.6, 5.7 percent. A little higher than what they would have been last week, but it was heavily oversubscribed, says the Spanish government. And it is apparently it doubled-the net of the offers on it was double what it wanted to raise, which is $5 to $6 billion.
Max, some people see this as a very positive thing, that they went for the syndicate. Others say it could add a little worry into the markets.
FOSTER: OK, Jim. Thank you very much. We'll be watching that one.
Now the political fall out from Ireland's bailout is still hurting Prime Minister Brian Cowen. He has rejected calls for him to resign as he faces a confidence motion from his own party on Tuesday.
Cowen was widely criticized for this part in managing the Irish economy before the $113 billion bailout. His own Foreign Minister Michael Martin is leading a rebellion against Mr. Cowen, to have him replaced as leader of the Fianna Fail Party.
Now the European single currency took a bit of a knock ahead of this finance minister's meeting. Probably Ireland, in people's minds, as well. The euro is down around two thirds of 1 percent against the dollar, continuing its retreat from one-month highs over the weekend. One euro currently buys about $1.33. As for the stock market it is not too much movement as investors waited to see exactly what would emerge from tonight's meeting.
The London FTSE, the Paris CAC 40, both down slightly. The Xetra DAX was more or less flat.
As if European bankers didn't have enough to worry about, they could soon have Wikileaks on their case as well. A whistle-blowing banker and former colleague of Julian Assange has given him data that he claims could blow open the secretive world of Swiss banks. Earlier I asked Atika Shubert to update us on the situation.
ATIKA SHUBERT, CNN INTERNATIONAL CORRESPONDENT: Well, basically the Swiss banker turned whistleblower, Rudolph Elmer, handed over two discs of financial records to Wikileaks founder and Editor Julian Assange, that he says will show the kind of tax evasion that has been rampant with some of the private corporations and some of the wealthiest individuals in the world.
He says that there are basically information on about 2,000 clients, but he won't say if these are individuals, or corporations, because he says the kind of structure of the trusts inside these financial records is very complicated. But he says he's handed over this information to Wikileaks to make it available to the public. So that they know the kind of tax evasion that is happening behind Switzerland's banks secrecy laws, Max.
FOSTER: But so far no detail on names and, in fact, no detail on how Wikileaks will publish it, if they will publish it.
SHUBERT: Yes, no details on names. And Wikileaks says it is still going to have to go through these documents and it will have to find other media partners, possibly, the help delegate some of that, combing through these records. But that they do hope to get these out at some time in several weeks. It could take longer than that. But Wikileaks has promised what Assange says is a full revelation of what is in these documents.
FOSTER: So, based on previous experience you have been covering Wikileaks for some time now, Atika. Do you think certain individuals around the world should be worried?
SHUBERT: Well, Wikileaks could put those names out. It certainly is possible. And Wikileaks prides itself on publishing its-what it calls, primary source material. We'll have to see, however, whether or not Wikileaks opts to redact some of the information in these documents. And of course, which media partners they choose to work with, if those media partners will put those names out. These are all still questions out there, but what is clear is that Elmer has said is that while he's suspects criminal activity here, he doesn't know if there is any evidence of criminal activity in these records. Yet, he says that is for professional investigators to find out. And that is one reason he says he is giving these documents to Wikileaks.
FOSTER: We wait to see. Now Mexico's-Mexico City's 20 million residents are in a constant battle against nature.
(BEGIN VIDEO CLIP)
JULIO COU CAMERA, SEWER DIVER (through translator): When I tell people that I am a diver, they always think I mean in the sea, with fish. But no, I swim in the drains.
(END VIDEO CLIP)
FOSTER: Well, Mexico's capital is putting its heart and soul into draining away one of its biggest problems. Tonight, it is our "Future City".
FOSTER: Mexico's biggest city is not only its capital it is a "Future City". Built in the middle of what used to be a lake, Mexico City is making engineering waves, producing the world's biggest sewer. Richard looks at the challenge, not only for the design wizards but for a unique kind of diver.
RICHARD QUEST, CNN INT'L. ANCHOR, QUEST MEANS BUSINESS (voice over): This is Julio Cou Camera, he learned how to swim when he was a boy, here, in Mexico City. Now he swims everyday, but not in the sea, or in a sanitized swimming pool.
JULIO COU CAMERA, SEWER DIVER (through translator): When I tell people that I am a diver, they always think I mean in the sea, with fish. But no, I swim in the drains.
QUEST: Julio swims through sewage. The city's chief sewer diver.
CAMERA (through translator): I've been doing this job for 28 years and I love it. It is a job that requires 100 percent of human involvement.
The smell doesn't reach me, inside my helmet. I can't smell anything. Once I'm zipped up, my suit is hermetically sealed.
QUEST: He goes down into the depths of the city. Feeling his way around in the murky water clearing blockages. Today he's trying to plug a leak with sand bags.
CAMERA (through translator): The water is so dirty that we can't see anything. Not with lamps infrared lights, or anything. We can't see a thing down below.
QUEST: Mexico City's sewer system is at breaking point. The capacity of the drains here is 30 percent less than it was in 1975. To make matters worse, the population has doubled to more than 20 million people.
This is the answer, says Mayor Marcelo Ebrard, the most important project of his government.
MAYOR MARCELO EBRARD, MEXICO CITY: The main waste (ph) in the city is about the management of the water. So we are going to build a tunnel in order to serve the city.
QUEST: The Emisor Oriente, a new deep drainage tunnel and a monumental piece of engineering.
OSCAR GUSTAVO ALVA NIETO, CONAGUA: We are in the Emisor Oriente, we are 50 meters below the ground and this is the biggest sewer system in the world.
QUEST: Sixty-two kilometers in length, seven meters wide, it can carry 150 cubic meters per second, of waste water, charging through its depths. The tunnel will help cope with floods and a major issue.
In February last year, 29 people died in this area. Part of the problem was an open sewage canal, which overflowed in heavy rain.
JOSE MIGUEL GUEVARA TORRES, EMISOR ORIENTE, CONAGUA (through translator): In order to give the city a future, the least we have to do is to sort out the drains.
QUEST: There are 12,000 kilometers of pipes in Mexico City. Many of them now run backwards. That is because the city is sinking, by up to 24 centimeters each year. For instance the Angel of Independence Monument, has had 14 new steps added.
TORRES (through translator): The drainage canals originally had a slope going down out of the city. But the sinking has reversed that slope and now the canals are of no use.
We as humans have very recklessly decided to build a city on what used to be a lake. And every year nature tries to claw back the land and reconstruct the lake. We are fighting nature.
MARTHA DELGADO, ENVIRONMENT SECRETARY, MEXICO CITY: We have, now, to deal with the city of the past, but also with the city of the future. And the city of the past was a city that used to be in a lake. This was a lake 500 years ago. So water always wants to be here.
QUEST: Building on the lake was started by the Aztecs. It was finished by the Spanish. Ground water supplies below the city are the main source of fresh water for the people and the reason that the earth is compressing.
TORRES (through translator): If it foolishness which has lead to more than 20 million people living in this valley, 2200 meters above sea level, which then creates the problem of bringing fresh water in, as well as taking waste water out.
QUEST: Such foolishness now means the whole city depends on pumps to force out their waste water. A problem which Julio, the sewer diver, has to keep clean.
CAMERA (through translator): Cigar stubs, car parts, microwaves, frigs, tires, tree trunks, dead animals, we can find everything in the drain.
QUEST: On the other side of town, the new tunnel will double the drainage capacity of Mexico City's sewers.
We are inside the tunnel underneath Mexico City. Our workers are excavating using that tunnel boring machine and it is starting the lining.
QUEST: The first part is expected to be finished in 2012. It will be fully operational by the end of 2013. The tunnel is being constructed up to 150 meters below ground to escape the damaging effects of the sinking earth.
MIGUEL CARMONA, DRAINAGE SYSTEMS DIRECTOR, MEXICO CITY (through translator): Since 1521, that has been the story of Mexico City, confrontation with water, the battle for water.
QUEST: Obviously, it is too late to relocate Mexico City. Water has always been a challenge in this mega-city and that is not going to change anytime soon. Brining it in, pumping it out. At the moment, it is Julio, the sewer diver, who is keeping thing flowing.
FOSTER: Someone has got to do it.
Well, earnings season kicks off on QMB in just a moment. We'll be measuring some the world's biggest stocks against our own criteria and there is a surprise in store for you. Don't miss it.
FOSTER: Welcome back. I'm Max Foster. And these are the headlines.
FOSTER: Now beginning today we kick off another installment of the Q25. The Q25 is our exclusive index to help you make sense of the earnings season. We pick 25 companies from a wide variety of industries. And we debate whether to give their profit reports a thumbs up or a thumbs down. Now last time around with green balloons edging out the red balloons, this time we have made some changes to the Q25. Instead of balloons we are keeping tabs on the Q25 with this extraordinary contraption here. This is all going to make sense.
Corporate earnings must meet a number of crucial tests to get a thumbs up from our production team. And here are the criteria. To get a green companies must report sales growth of 5 percent or higher, compared to the fourth quarter of last year. Profit growth at 15 percent or higher compared to the fourth quarter of last year. Higher profit growth at a quarter over quarter that is, though, profits must beat Wall Street earnings expectations by 10 percent. And companies must say something positive about their future outlook, as well, such as raising earnings forecasts or boosting hiring.
To get an automatic green, companies must meet four out of five of these criteria. And if -- if companies get a three out of five, we open the floor up for debate. Anything lower gets an automatic red.
Now, here to help me hand out our first chips (ph), I'm joined by the brilliant Felicia Taylor.
She is in New York -- Felicia, we're going with Alcoa first, aren't we?
This is a company -- the companies reporting last week. But Alcoa is important because it kicks off the earnings season.
So we -- we're going to go through three of the companies that have reported.
What did you make of Alcoa, then?
FELICIA TAYLOR, CNN CORRESPONDENT: Well, you know, let's start from the -- just the -- the more general aspect of things. You -- you know, this is a really important time of the year, especially right now, because economic news is not going to be as -- as important as these earnings reports. This week alone, we've got about 10 percent of the S&P 500 companies that are going to be reporting, in particular, as you mentioned, traders are going to be looking to hear about economic prospects for the company -- whether or not things look like they are improving, hints about the economy and, in particularly, any possible hiring.
So to get to Alcoa. The first criteria, 5 percent sales growth year- over-year, it did not make it. It was weaker than expected, coming in at just 4 percent. The next criteria, 15 percent earnings growth. This one they blew out of the water -- 48 percent. And when it comes to consecutive quarterly earnings, it also didn't make it -- make it. It was lower from quarter to quarter. But it beat Wall Street estimates by 10 percent $0.24 versus $0.19 in the quarter.
And when it comes to future optimism, this is where they really hit the ball out of the park. It's these alu -- aluminum actually doubling in the next 10 years in terms of demand.
So from my perspective, I would give them a green because of that future prospect and -- and forecasting going forward where they actually think that the business is going to ramp up, not just a year from now, but forecasting as much as 10 years from now -- what do you think?
FOSTER: So it's all about prospects, Felicia, that gives it a green?
FOSTER: I'm agreed. Put it in there. Just explain some of these. It all makes sense as we build this up.
But next, Felicia, we're going to talk about JPMorgan Chase, aren't we?
And this was really interesting. I'm just going to go through this here, because, actually, it was a complete green, I can tell you that now.
And this is why. If we look at...
FOSTER: -- the actual figures, 5 percent sales growth year-over-year, well, yes, up, actually, 6 percent. So a brilliant result there.
Fifteen percent earnings growth year-over-year, yes -- an incredible 47 percent, in fact.
Consecutive quarterly earnings growth -- well, yes, $4.8 billion. That compared to $4.4 billion. So it's -- it's a clean sweep, really, for JP. And beating Wall Street estimate -- estimate -- estimates by 10 percent, well, that was certainly a yes. And about future optimism, actually, the boss say he expects another good year. Loan quality will be improving; slightly higher demand for loans, as well, he sees. He sees consumers getting stronger on the negative side and consumer -- well, yes, there were a few negatives. But just -- basically, Felicia, extremely strong.
FOSTER: And that -- you know, it says a lot about the...
FOSTER: -- finance industry...
TAYLOR: -- there's no question.
FOSTER: -- as well, doesn't it?
TAYLOR: Yes, I mean, but this is a significant thing, because, as we know, the financial sector has certain -- certainly been under scrutiny for some time. Jamie Dimon was incredibly positive for the banking sector and particularly for JPMorgan Chase. They have a little bit of a worry when it comes to the -- the mortgage payments that they're going to have to pay, but they've got plenty of cash on hand.
I mean, all told, yes, is it going to cost them a little bit of money, more than, perhaps, they -- they expected to spend?
But at the end of the day, they're still doing great business. And most importantly, he was out pretty much saying that that future guidance, very positive. So definitely...
TAYLOR: -- absolutely a green.
FOSTER: All right, we've given it a green. There we are. It's taking shape now, isn't it, our new contraption?
Felicia, Intel was interesting, as well, because people were predec -- predicting, actually, you know, not great results but they came through, didn't they?
But if you look at the detail, it's -- it's interesting.
TAYLOR: It's amazing, because I'll -- I'll go -- I'll put myself out there. I did not think that they were going to do well at all. I thought, OK, their biggest problem is that, you know, they haven't made it into the Smartphones, they haven't made it to the iPad, their -- their really only biog area is chips. And if PC sales are going down, which they did in December, then they're really a loser.
But nope, I was totally wrong. Five percent sales growth, you bet -- up 8.4 percent. Fifteen percent earnings growth year-over-year, you've got it -- 48 percent. So, again, they really hit this one out of the park, too.
They've also missed, however, on consecutive early earnings growth. It was a little lower. But it beat Wall Street estimates by 10 -- by $0.59 versus $0.53. So it was just above that 10 percent mark. And when it comes to future optimism, get this -- they raised their revenue forecasts because of strong corporate demand. That is actually going to offset what I was talking about when it came to demand for PCs.
So there was a little bit of concern about some analysts about that with -- about that very thing, as to whether or not they were going to be able to make up the business because they had missed out on the Smartphones and the tablets. But according to Intel, things are just fine.
FOSTER: Yes. Felicia...
TAYLOR: This one gets a green, too.
FOSTER: -- an Intel exec saying on the program earlier this week that they think they will be strong in tablets, because they've got some good stuff. So it's three greens, anyway. So it's a good start to the earnings season.
Thank you so much, Felicia, for that.
We'll be following the Q25, of course.
When we come back, though, BP thaws relations in Russia and opens the way to the Arctic.
And as Airbus sweeps past its rival, Boeing, we'll be taking to the Airbus chief operating officer, John Levy.
And we'll also be speaking to Richard Branson. He's got some things to say to us.
FOSTER: Not altogether favorable -- that's the reaction to BP's $16 billion share swap with Rosneft. Friday's deal would make the Russian state-controlled Rosneft BP's largest shareholder. Shares of both companies moved higher on Monday.
But the landmark move is also drawing some criticism.
The big question is why did they do it?
Well, the brief answer is the size of the prize. Both companies point out that Rosneft's exploration blocks in Northern Russia may hold as much as 60 billion barrels of oil. The joint venture also offers BP an alternative to expansion in the U.S., a dicey prospect after April's Deepwater Horizon disaster.
But what's in it for Rosneft?
Well, the Moscow-based oil giant says the BP joint venture offers a template for more deal making in the future. Rosneft also benefits from BP's superior technology.
So investors seemed to like what they saw. But some voices have been critical. U.S. Congressman Ed Markey, the top Democrat on the House Natural Resources Committee, labeled BP "Bolshoi Petroleum."
But would BP have ever done this deal were it not for the oil spill in the Gulf of Mexico?
Well, senior international correspondent, Matthew Chance, went in search of (AUDIO GAP) joins -- joins us now -- Matthew, just from Russia's perspective, what did you get from them today?
MATTHEW CHANCE, CNN SENIOR INTERNATIONAL CORRESPONDENT: Well, Russians, obviously, who have announced this deal, are very satisfied with it. You put your finger on it a few moments ago, that strategically, they want to exploit the -- the potentially vast resources on the Arctic part of the Russian Continental Shelf. The resources there have been known to exist for many years. And there's been, you know, a kind of policy in place to exploit them at some point.
What this deal shows is that, in the opinion of the Russians, BP, because of their experience, ironically, with this Gulf spill -- the oil spill in the Gulf of Mexico, are perhaps the most experienced company in the world at the moment to explore this very sensitive, ecologically, area of vast oil resources, because they spent so much money in -- in dealing with the -- the situation in the Gulf of Mexico and they've got such a lot of experience in that. And because they've changed their practices, the belief in Russia seems to be, amongst officials, that they're the best placed company at the moment to -- to handle this kind of extremely sensitive but, of course, very lucrative project -- Max.
FOSTER: Aren't the two sides being rather forgiving?
I remember a moment when a certain executive from BP was effectively fleeing Russia, just a couple of years ago?
And isn't he the man that signed this new deal?
CHANCE: Yes, Robert Dudley. He's the CEO of -- of BP now, of course. He was the head of Russia's joint -- sorry, BP's joint venture with Russia. It's called
TNK-BP. And it accounts for perhaps a third of BP's oil output worldwide. And so it's a very important joint venture. It's still in place. It still exists. It's still producing oil.
But, yes, he was essentially accused, a couple of years ago, of breaking Russian law. He had to flee the country. A number of his staff members at TNK-BP were accused of -- of espionage and -- and various other infringements of the Russian law.
And that was all part of a -- a -- some kind of a way of -- of the -- the Russian billionaire shareholders in that -- that -- that joint venture, of getting more management control over that -- over that company.
They succeeded in doing that. Robert Dudley left the country. But he emerged, of course, after this Gulf oil spill -- the Gulf of Mexico oil spill -- as the CEO of BP. He's come back into Russia, used his Russia experience to essentially broker a deal that many companies and, indeed, BP has been trying to broker with the Russians for years. So his Russian experience, even though it was negative at the time, seems to have counted for something -- Max.
FOSTER: Matthew in Moscow, thank you very much, indeed.
Now, Airbus is flying high as it soars past its biggest rival in the order state. The European plane maker trounced Boeing in 2010. It took in orders for 574 jets compared to Boeing's 530. Airbus delivered a record 510 planes whilst Boeing shipped 462.
Airbus took around $74 billion worth of net orders in 2010, while Boeing trailed behind, with nearly $50 billion at list prices.
It was a close contest right up until the end of the year, when Virgin America helped tip the balance decisively in favor of Airbus. We'll hear from the Virgin boss, Richard Branson, in just a moment.
But first, John Leahy is the chief operating officer of Airbus.
And Jim asked him how the company was able to beat the most optimistic analysts.
JOHN LEAHY, CHIEF OPERATING OFFICER, AIRBUS: We perhaps could have predicted -- we did predict internally that we would probably beat Boeing and most of these orders would actually come in. We just chose not to say it publicly because at the beginning of the year, if you remember, there were a lot of wags in this industry and -- and so-called experts talking about the inevitable 30 percent reduction in production, that we were going to be laying off people, Boeing was going to be laying off people.
By the summer, we knew that just wasn't true...
JIM BOULDEN, CNN CORRESPONDENT: Better than you predicted publicly, but internally, was it the emerging markets, was it low cost airlines?
What was it that made you feel so bullish for those 2010 orders?
LEAHY: Well, I think a lot has to do with the emerging markets, but low cost airlines are -- are clearly a part in it, as well.
I announced that we have a backlog now of 3,552 aircraft worth, at catalog prices -- now, we don't always fill in the catalog prices -- about a half a trillion U.S. dollars.
Now, 30 percent of that backlog is out in Asia. We really have a dominant position in China. We've got an extremely strong position in India. We're well positioned in -- in most of Asia.
Being with the emerging markets, we think, is key to our strategy going forward.
BOULDEN: And, of course, in Asia, we're not talking about just replacing older aircraft, we're talking about newer airlines ordering huge amounts, as we saw last week. You announced IndiGo with a record breaking order of 188 A320s. That's an unheard of kind of order.
Can you even replicate that in 2011 or is this sort of a one-off?
LEAHY: Well, I think we're going to have a -- a lot of orders in -- in 2011, especially for our new A320 NEO. It's the airplane that IndiGo ordered. And that, by the way, was the largest order in aviation history, both in terms of units and dollars. So we're very pleased with that.
IndiGo is the third largest airline in India right now for their domestic markets. It will be, probably by summer, the second largest. And we forecast, by some time in 2012, it will be the largest airline in India.
BOULDEN: We are seeing oil near a hundred dollars a barrel, something we would have discussed in 2008 with worries that, as the oil price goes up, maybe some airlines would either slow down in orders or actually speed up odds, because they need these new fuel-efficient planes.
Why do you see it going with oil over a hundred dollars a barrel, if that's where we go?
LEAHY: Yes. It's a -- one, I think, we will go over a hundred dollars a barrel. In fact, our forecast is that it will at least cross the $100 a barrel point some time this year. We don't think it will average a hundred dollars a barrel for the whole year. It will be in the 90s. But it will be up to the $120 a barrel over the next couple of years.
That does impact the profitability of the airlines. There's no two ways about it.
BOULDEN: OK, let me put on the spot here.
Can 2011 beat 2010 in orders for Airbus?
LEAHY: Well, again, we don't make a forecast like that. We actually, at a press conference, said that the book to bill would be better than one to one. And we're going to deliver, in terms of civil aircraft, somewhere around 520, 530.
So, clearly, we're going to do better than that. I think it's definitely possible that it would be a year similar to this. It might even be a little bit stronger. A lot has to do with the economy. A lot has to do with fuel prices, as well.
And, of course, there's also production. We are taking production on the single L models 320 (ph) up to 40 a month. We're studying going to 42 or 44. You have to have aircraft available to be able to sell them, too.
(END VIDEO TAPE)
FOSTER: Well, Airbus has just received its 10,000th order and it came from Virgin America. The low cost airline bumped up the order book by more than $5 billion right at the end of the year. They placed a firm order for 60 A320 planes. Half of them will be the new NEO jets, with more fuel- efficient engines.
I swapped places with Jim and I asked the Virgin America founder, Richard Branson, about the business benefits of buying greener planes.
RICHARD BRANSON, FOUNDER, VIRGIN GROUP: A lot of the -- the airlines that we're competing with have old planes that are something like 40, 50 percent less fuel-efficient than our planes. And so -- you know, so, you know, having these new NEO jets really gives us a massive advantage. We also, obviously, have the advantage of having new planes. The maintenance costs are a lot less. Their reliability is much better. And, you know, so that there's a lot to be said for having the youngest fleet of planes in America.
FOSTER: And the world is going through a very tough time economically speaking, isn't it?
And nowhere more so, really, than the United States. But you're obviously very confident about the U.S. economy if you're investing in what is a pretty saturated industry there right now.
BRANSON: Right now, it's going through one of those rare, you know, up ticks. And -- and we'll -- we'll benefit from that. But even if there's an -- another downturn, I think, you know, if we've got the youngest planes and we've got the best service, we'll -- we'll do just fine, as Virgin Atlantic has done all these years.
FOSTER: You need to get into those key hub airports, don't you?
How are your negotiations going with Chicago O'Hare, because I know you've been speaking to them for years now, haven't you?
Have you managed to get any space there?
BRANSON: Well, I was hoping to have something to announce to you today on that, but let's talk again in a week's time, when, hopefully -- hopefully, we'll have some good news. And I know that a lot of my friends live in Chicago and they would dearly love Virgin America to fly from there.
So I'll reserve -- I'll reserve some time on your telly in -- in a week's time, please.
FOSTER: OK. We'll speak to you in a week about that.
Can I also ask you about elsewhere, though?
I want to ask you, you -- you'll be aware of the terrible weather that we have here in the U.K. And Virgin really suffered at Heathrow because of the snow and all that disruption. I gather you're holding back some of your payments to Heathrow until that's resolved.
Can you give us an update on that?
BRANSON: Yes. I mean we have held back a month's worth of payments to the British Airport Authority because we feel they've got to take some of the pain. I mean it's been enormously painful for the airlines. You know, we've had to pay out millions and millions in compensation, hor -- horrendously differen -- disruptive to our passengers. So, you know, we think -- we think that, you know, when -- when an airport authority is responsible, largely, for that, that, you know, they -- they've got to con -- they've got to contribute, you know, contribute to -- to our pains and - - and accept such -- accept some of the responsibility.
FOSTER: So you're going to keep hold of that money as some sort of compensation long-term?
BRANSON: We plan to keep it long-term. I'm sure that we'll have discussions with the British Airport Authority and, you know, hopefully, we'll a -- avoid a court case over it. But, you know, we'll -- we -- I'm sure that our people already -- are already talking to them.
FOSTER: OK. And, finally, I do need to ask you this. Of course, we've reported on the fact that you're going to be an air hostess for a day, a part of a bet. I gather you've pulled out of that bet, though.
That's not very British, is it?
BRANSON: I haven't pulled out. I've just had my ACL operated on and a new -- a new ligament put in, having been hit by another skier on the slopes. I'm afraid it's -- it -- I don't think I'm going to look that becoming as a -- as a stewardess and I think even less so on a pair of crutches. So it's been delayed until April. But I will be fulfilling my obligations and flying to Malaysia, most likely to the Grand Prix. And if you want to be served by yours truly, I would be happy to serve you.
(END VIDEO TAPE)
FOSTER: Book a flight, of course, with Virgin to do that.
Richard Branson speaking to me earlier, ahead of the Chinese president's visit to Washington this week.
Meanwhile, we take a special look inside one of the company's helping China's economy to boom.
FOSTER: Now, Tuesday sees the highly anticipated arrival in Washington of Chinese president, Hu Jintao. Both sides are at loggerheads over what the U.S. sees as China's manipulation of its currency, the yuan.
Now, speaking ahead of his trip, Mr. Hu added further fuel to the fire by calling the dollar denominated international currency system a product of the past.
All eyes will be on the White House on Wednesday, when Mr. Hu meets for former talks with U.S. President Obama. Washington is expected to put pressure on China to allow its yuan to appreciate. But it's highly unlikely that Beijing will concede to that.
To coincide with Mr. Hu's trip to Washington, we're exploring Brand China this week. It's a special look at the biggest and the best companies the country has to offer.
First, we talk -- turn our attentions to a company called Baidu. It is China's largest Internet search engine, with a 73 percent market share by revenue. That's almost triple the number of people in China that use Google.
Eunice Yoon chatted to Baidu's CFO about their future plans.
JENNIFER LI, CEO, BAIDU: Baidu -- the word comes from the Song Dynasty poem (ph).
EUNICE YOON, CNN CORRESPONDENT (voice-over): The term originates from ancient times. Now it's the name of one of China's technology leaders.
LI: It has something to do with search.
YOON (on camera): Search, yes.
(voice-over): Baidu is China's answer to America's Google, the homegrown search engine dominates the Internet here. It listed on the Nasdaq in 2005 and most recently, it's gained ground, from the high profile retreat of Google, which ran into problems with Chinese authorities over alleged cyber attacks and the country's notorious censorship.
Baidu is now looking to compete outside China's borders, pitting it again against its American rival.
LI: Google is a very respectable company. We compete with each other. But, you know, we're very -- we do very well in the Chinese market. And, you know, when we go internationally, we will keep the core, you know, our -- the key success factors that enabled us to be where we are today, and, you know, replicate that in the international market.
YOON (on camera): Do you ever feel that you're in the shadow of Google?
LI: When we first became a public company in 2005, we had about 47 percent of the market share. And today, we have close to 80 percent. And we win it not only because of the search technology itself, because we understand the local market. We offer a whole slew of different products that ensure the user comes to Baidu.
YOON: I remember we talked about, OK, the Chinese Internet, there's a lot of censorship that goes on.
How do you operate in that type of environment?
LI: Obviously, as a search engine, you want to enable free flow of information without border, without restriction. But, you know, you look at the history of China's media development, over the past 30 years, I think the media space has developed tremendously in terms of openness, freedom of flow of information.
So you put things in perspective. We're moving toward the right direction.
YOON: Baidu has become such a force in the Internet in China, do you ever get a niggling feeling or concern that somebody somewhere in the government apparatus would actually think, hmmm, you know, that Baidu, it's getting powerful -- maybe a little bit too powerful?
LI: No, I don't think so. No.
YOON: Can you elaborate why?
LI: It's just that, you know, the interest is alive. And I think just because of the Internet, it's nurturing a new kind of economy. And I think from -- you know, people come to Internet for live information, for news, for entertainment. This offers a new like very rich dimension for people's lives.
So the society is very vibrant because of the Internet.
YOON: One criticism of Baidu is that you're a copycat and that you can't be a leader if you're a follower.
LI: There are plenty of international companies that has come to China in the inter -- in the Internet space. You look at eBay, you look at Google, you look at Yahoo!! . These companies, they have the technology. They have those ideas.
Are they successful?
You can't copy everything here and make it work. It has to scoop the local market. And it's those kind of appreciation and understanding and the inulation (ph) that's in the DNA of the Chinese product that makes them successful.
YOON (voice-over): Eunice Yoon, CNN, Beijing.
(END VIDEO TAPE)
FOSTER: All right, we'll have an update on the markets for you next, plus the latest news headlines.
Back in a moment.
FOSTER: Time for a recap of how the markets did here in Europe.
A fairly quiet session across the board. Many investors focused on Brussels ahead of that finance ministers' meeting.
The London FTSE 100 and pac -- the CAC 40 in Paris were both off slightly. The DAX finished more or less flat.
Here are some of the -- the bigger stories on the markets today, though. Big news, obviously, Steve Jobs' surprise announcement about his health. Apple's shares both trading -- weren't trading in New York because of the holiday, Martin Luther King, Jr. Day. But in Frankfurt, they slipped more than 60 percent, as they were -- as we were telling you also, earlier, BP and Rosneft's shares both made gains after their tie-up. BP ticking over the five pound per share mark, whilst Rosneft was up more than 5.5 percent.
That is QUEST MEANS BUSINESS.
I'm Max Foster in London.
Now tomorrow at this time, the first of our new talk show host, "PIERS MORGAN TONIGHT".
In a moment, Anderson Cooper interviews Piers for the full hour. Find out more about our new host in this revealing interview.
And we'll go to that, but first we're going to check the headlines.