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QUEST MEANS BUSINESS
Peugeot Shuts Down Paris Plant, Cuts 8,000 Jobs; Bumps in Road for Peugeot; Fears of Spreading Slump; Peugeot Stocks Slip; European Markets Lose Ground, Dow Flat; Spanish Bankers Apologize; Austerity Pain in Spain; Italian Bond Yields Down; Euro at Two-Year Low; Comics Into Movies
Aired July 12, 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: It's a case of small cars with big problems. Peugeot cuts 8,000 jobs.
Please forgive us. A few of Spain's banking chiefs make a very public apology.
And wham, bam! Saving the industry one movie at a time. It's the superheroes mean super profits.
I'm Richard Quest, and together, I mean business.
Good evening. Tonight, French political leaders and the country's unions are in shock as the country's largest carmaker, Peugeot-Citroen, says it will shut down a major plant near Paris and in doing so, slash 8,000 jobs. It's the first time in 30 years a French automaker has closed a factory.
Peugeot is struggling to curb mounting losses. It's heading towards a first half operating loss of more than $850 million. The chief executive, Philippe Varin, said today that the crisis among Europe's mass market carmakers had made the reductions unavoidable.
(BEGIN VIDEO CLIP)
PHILIPPE VARIN, CEO, PEUGEOT-CITROEN (through translator): The group is facing a new situation on the European market, which lost a quarter of its volumes within the past five years, with a clear increase since the beginning of this year.
This is a durable trend, and we therefore have to take measures, as it is creating an overcapacity in our plants. And for the last year, it has led the group to lose 200 million euros month after month.
(END VIDEO CLIP)
QUEST: Now, it's been a rocky road for Peugeot, as you can see, here on the super screen. If you take a look at how the car company has progressed since it's been moving a long, it's had a shrinking home market, where European car sales have been down 25 percent in the last five years. And it's expected to shrink again by 8 percent, the domestic market.
There was a demand for larger car, but the smaller cars, they are falling very badly down some 42 percent. The road continues because at the end of it are countries that are in trouble. Exposure to the periphery of southern Europe, which has taken its toll on Peugeot, which is not necessarily had the product to match demand.
Last week, for example, when you look at the way that the company has performed, it's been one of mounting losses. The -- was a 13 percent slide in first half sales. As a result, the company is burning $25 million, the so-called cash burn per month.
Now, Peugeot, it may have come to a screeching halt, but certainly not when it comes to taking corporate money -- or government money, nearly $5 billion in state aid.
So, as we come to the end of this half, look at that number, $857.5 million. If that's all the way it's going, who are the beneficiaries? Back on the road, and you see clearly, the two: Renault and VW from Germany.
When Peugeot had a decline, Renault had a 13 percent climb. Volkswagen had a 10 percent gain. Indeed, when you put it all together, the mistakes of Peugeot seem to be those of the car company itself.
So, pull the strands together of what's been happening. There are fears Peugeot's problems may hasten a wave of restructuring taking place across the entire European auto industry. Lauren Fix is the national Automotive Correspondent for Time Warner Cable, and I asked her, when you look at Peugeot's problems, are they Peugeot's, or are they the car industry's problems?
LAUREN FIX, AUTOMOTIVE CORRESPONDENT, TIME WARNER CABLE: If you look at the big picture and you're talking about Europe, for example, VW Group has had an increase in sales of over 10 percent just this month.
VW Group is expanding. They purchased Ducati, and August 1st, they're purchasing the balance of Porsche. So, you can see that their success has grown. They've got a broad spectrum of cars that consumers want.
You look at the British, the UK, car manufacturers a little own -- they're not owned by them. Their sales are up as well, partly because their owners are investing back in the brand.
The best thing that Peugeot has done in the past is make an alliance with General Motors, which can definitely help them. But they're not selling all across the world. And I think in order to be successful in today's marketplace, whether it's a car or a pair of shoes, you have to be a global brand.
And Peugeot and Citroen are not global brands in North America, and I think that's really hurting their sales. Although they're planning to produce small cars, which people want, they really need to broaden their spectrum and get a tighter grip with General Motors.
QUEST: So, how did they manage to lose the plot, if that's what it is? You look at Mercedes, you look at, as you say, VW, even Fiat, in Italy, which did the deal with Chrysler -- so, you look at these other car companies that have taken opportunity, and yet you see Peugeot has not.
FIX: Right. They -- they haven't had the opportunity, nor have they been aggressive on taking the opportunity. Fiat, actually, in my opinion, lucked out. They got a US car company, Chrysler, gifted to them, and they're no bringing Fiat brand into the US, they're re-badging Lancias and calling them Chryslers and Dodges for the future model lines.
So, they're getting really smart and creative, and you're looking at VW, who is buying, they're expanding. Mercedes is doing the same thing. Even Tata, who bought Jaguar and Land Rover, has really expanded the line, coming out with the Evoke, and such.
When you look at Peugeot, you're not seeing that same type of creativity. They're just building small cars because they think consumers want it, rather than going out and saying, we need to be a global brand, let's tie in tight with GM, let's try to bring our brand back to North America. Let's try to find out what consumers want.
QUEST: All right --
FIX: And because the cheese has moved --
FIX: -- they haven't moved with it.
QUEST: Ah, the cheese has moved! But eventually, eventually, to finish your analogy, who ate my cheese? Eventually, does the cheese disappear? Do they disappear?
FIX: Yes. If they don't start making change and creating a stronger alliance than just 7 percent with General Motors, they might just disappear. We've been losing a lot of brands, lately. We just lost Saab, which may still come around.
We don't need to lose European brands. They make great cars. The world knows that. They just need to start figuring out how to start evolving and working an alliance with other brands, partnering with manufacturing ideas, utilizing parts amongst different brand lines, like Fiat is doing, like VW is doing. Even Ford is doing it.
And when you start seeing how they're creating global cars, that are cold the same place in Europe as they are in the US, with the same platform, that is part of their success, because it's less expensive to have to produce different tooling and different manufacturing setups for seven or eight different cars.
QUEST: So, how did Peugeot's response on the market? They lost 1.74 percent, just nearly 2 percent of value. Look at the share price, and we start just a year ago, and the price was some 26 euros 59 -- 29 -- 27 euros, give or take.
But as the woes of Peugeot have continued, so the share prices just dramatically fallen to where now it is just languishing at 7 euros, a fall of three quarters -- it's lost three quarters of its values, which is an extraordinary amount for any share.
That share price for Peugeot has put into the European markets, and you'll see how they traded during the course of the session. The broader French market also took a hit. In Paris, the CAC 40 closed down three quarters of a percentage point.
Other major markets lost ground, too, despite stronger than industrial -- expected industrial production figures. Spain's borrowing costs crept higher. Madrid's IBEX finished the session down 2.5 percent. There was concerns over China's GDP, which is out in a couple of numbers, also weighed on them.
The big board in New York at the moment, I think that's the definition of an up 11. I think we call that just about flat, we're not even -- we're just into double numbers on the decimal of the percentage.
Coming up in just a moment, we will explain to you --
QUEST: -- why these men are saying "sorry" in Spain.
QUEST: Today, two Spanish bankers took out full-page adverts in the country's press to say "sorry" for the mistakes made by the bank. It was the heading, "Antes de nada, perdon," which means, "Before anything, sorry."
The advert features a letter written by two executives from the Novogalicia Bank. The bankers just asked the government for 6 billion euros, slice of the bailout money granted.
Our Madrid Bureau Chief Al Goodman, who was doing sterling work yesterday with the protesters and rioters, is with us. Just start with the -- this is an interesting letter. As I read the translation, it basically says, we're going to have our nose in the trough and we're very sorry about it all and we'd like you to forgive us. Is that the gist of it?
AL GOODMAN, CNN MADRID BUREAU CHIEF: That is. It's a rare commodity, an apology from bankers. But these two bank executives at Novogalicia Bank in northwest Spain, in the section called Galicia, the region of Galicia, they took over this bank in September of last year after the previous bankers left with these huge payouts.
So, these two men are coming out now and basically apologizing to the clients, especially the ones who took out preferred shares in the banks. They're apologizing to clients who they say maybe didn't have the sophistication to be buying these kinds of instruments, and they're going to try to work through that.
Of course, this comes, as you mentioned, Richard, just as they're asking the Spanish government for 6 billion euros to clean up the bank's balance sheet. Richard?
QUEST: A sorry is better than no sorry at all, Al. But if we take a look at what happened yesterday with the protests, is anybody saying sorry for the violence or for the riots that took place yesterday?
GOODMAN: To the contrary. The industry minister -- and remember that the protest of these miners protesting against cutbacks in subsidies to the mining industry were outside the industry ministry while the minister himself of that portfolio came out and said there's no room for maneuver, there's not going to be a restoration of the subsidies to your industry. So, he's certainly not sorry.
And that's not the end of the protest. This day, we were with doctors and medical workers at a major Madrid hospital having their own kind of protest over the austerity cutbacks. Here's our report, Richard.
(CROWD CHANTING IN SPANISH)
GOODMAN (voice-over): Austerity cuts at Spanish hospitals? Just ask the medical workers at this large Madrid public hospital.
(CROWD CHANTING IN SPANISH)
GOODMAN: "Public health care!" they shout.
JUAN ANTONIO MOLERO, NURSE (through translator): We don't want more cutbacks! We want our purchasing power back. We want those who caused the crisis to pay for it.
GOODMAN: In Spain's deep economic crisis, the scalpel is no longer just for the operating room. Budget cuts have sliced into salaries and reduced funds to buy medical supplies -- a body blow, they say, to Spain's vaunted national public health care system.
GOODMAN: Their pride of quality coverage for all now at risk. Here, starting with a vow, will be a 24-hour sit-in in the hospital lobby.
GOODMAN (on camera): The protests are expanding, not just at this hospital, but at hospitals across Madrid and across Spain, trying to get their message to the government.
GOODMAN (voice-over): But will it make a difference? A day earlier, the conservative prime minister announced in Parliament a new round of $80 billion in austerity cuts nationwide, and tax hikes aiming to reduce the deficit.
But at the hospital, this doctor insists the cutbacks aren't in the right places.
MONICA GARCIA, ANESTHESIOLOGIST (through translator): It's unfair. Cuts could come in many other places where there has been a lot of waste. Doctors know where the reductions should be in health care standards.
GOODMAN: She says she's not optimistic about the future for herself or for her two children in a country in crisis, with the jobless rate now over 24 percent.
GARCIA (through translator): In Spain, there will be more social inequality than before. Those who have money will be able to pay for health care, and those who don't, won't.
GOODMAN: This unemployed salesclerk says she's already feeling the impact of the hospital cutbacks.
UNIDENTIFIED FEMALE (through translator): What I see are fewer doctors and longer lines. We need an operation, and the waiting list is longer.
(CROWD CHANTING IN SPANISH)
GOODMAN: Yet these doctors, nurses, orderlies, and other hospital personnel are so angry, that right now, patients may have to wait a while longer while they search for a cure to the cutbacks.
GOODMAN: Now, court workers were protesting near the Bureau, here, just a short while ago, and the two main unions in Spain have called for nationwide protests next week against these latest austerity cuts. Madrid may be vying for the title of the protest capital of Europe. Richard?
QUEST: In which case you have your work cut out for you and your assignments on the agenda for the next week. Al Goodman, who is in Madrid for us tonight.
So, as we continue to look at the eurozone crisis, Italy's bond yields fell marginally in their auction today. The ten-year stood at 5.8 percent. A month ago, they were well above 6 percent as uncertainty about the eurozone drove them higher.
But of course the yields are falling because of the decision by the eurozone ministers at last -- at the recent summit to actually give more power to the EFSF to intervene.
My colleague Max Foster spoke to Italy's foreign minister and asked him whether the Italian economy could carry on borrowing even at this lower rate.
GIULIO TERZI, ITALIAN FOREIGN MINISTER: We've always said in the government that we cannot drive our economic policies and conditions according to the fluctuations of the market. It is true that the market is an important reference over a certain span of time, but what is important is to persevere on the right track of our policies at both at the national level and the European level.
The European level has been very interesting opening and news after the European Council end of June and with the meeting of the euro group and implementation of the matters in terms of coordination of economic policies, in terms of integration of banking activities, supervision, it is to say, to address the really key point of the financial stability, which is the solidity of the banking system.
So, there are positive elements which sooner or later will be recognized by the markets. The euro is there to stay. Italy is a factor of force in the eurozone. It's a big market. Our fundamentals, besides the debt, are all in the positive direction. We are one of the countries which is really more solid when you look at all the other macro economic indicators.
MAX FOSTER, CNN INTERNATIONAL CORRESPONDENT: When you say you don't want to respond to the markets, necessarily, but we're going into the summer, thinner trading, and there are risks of higher spikes in bond prices, which could be very damaging, couldn't it, to a country like Italy or Spain? Because it could escalate suddenly into something that's uncontrollable. So, you do need to think about the fluctuations.
TERZI: We are thinking about that, and that's why we are proposing some interesting projects at the European level which, over the last few days, seem to have more chance of being accepted by all the eurozone members, and I think --
FOSTER: Can you give us an insight into --
TERZI: Well, it is -- it has been widely discussed in the longer commentators, the question of imagining some user financial tools which already exist, like the ESM or other instruments. Or especially-tailored instrument in all that will intervene on the secondary market of the treasury bonds.
FOSTER: In terms of politics and this issue, is it a frustration to you that it's so difficult getting a strong European message on this, which would help stabilize confidence, at least, in the markets?
TERZI: The Italian public is widely aware there is nobody -- almost nobody now who doesn't believe that we were on the brink of a precipice last November, and we find a very difficult decision, which are made on the economic level, have met less resistance than could have happened one year ago, one year and a half ago.
So, that was the rationale of the support, the wide parliamentary support that the government is continuing to have in proceeding towards these economic reforms.
And you see that difficulties and social firms exist in Spain and the other countries, but also our partners, those who have the economies in more difficult situation, are following the same line of thought. Not only thought, but implementing the right policies.
It's a much bigger economy. We have stronger fundamentals. As I said, we are below the 3 percent of deficit, the pattern of our accumulated debt is going to decrease over the next three, four years.
And the policies of growth will have an impact in the short-term. The decision taken, again, by the European Council, the last European Council, but also the very significant policies which are adopted nationally by the Italian government in terms of creating an Italian single market, and hopefully to move towards a European single market.
In many other ares have been concrete proposals, which are presently discussed, and we expect some complete report by the Commission on these issues.
QUEST: The foreign minister Terzi also spoke to Max about the crisis in Syria, the latest high-level defection from the Assad regime, and you can see that on CONNECT THE WORLD. It starts at 9:00 PM here in London, that's 10:00 PM Central European Time, Paris, Rome, and Madrid.
A Currency Conundrum for you now. This is the penny farthing, the must-have bicycle in Victorian times. Our question is, how did it get its name? How did the penny farthing get the name? Because that's how much it cost when it was first released? Because that's how much change you'd get from a British pound if you bought it? Or because of the cycle's shape? Those are the options --
QUEST: -- the answer later in the show. The euro, two-year low against the US dollar. The single currency is down around two-fifths of a percent. The euro buys $1.22. Sterling $1.5425, and the yen puts on weight. Those are the rates --
QUEST: -- this is the break.
QUEST: 130,000 people are expected at ComicCon this week. It's the four-day comic book extravaganza. It's in San Diego, Southern California. Now, those of a certain age may remember the Golden Era of comics. Spider- Man, the Phantom, the Avengers. I used to like Richie Rich, the poor little rich boy.
They're no longer flying off the shelves at the local news agents, but popularity of the comic book hero, well, they remain undiminished. Neil Curry looks at the business of Marvel in movies.
NEIL CURRY, CNN INTERNATIONAL CORRESPONDENT (voice-over): Ever since Christopher Reeve stepped into his spandex as Superman in 1978, Hollywood has looked at the comic book superhero to pack a punch at the box office.
"Spider-Man 3" generated box office receipts of $900 million. "Dark Knight" reached a cool billion. And Marvel's "The Avengers" produced an eye-watering $1.4 billion.
MARK RUFFALO AS BRUCE BANNER, MARVEL'S "THE AVENGERS": We're a time bomb.
TOM HIDDLESTON, ACTOR, MARVEL'S "THE AVENGERS": I think that the superheroes have become a kind of mythology. A contemporary mythology in the way that the Greeks and Romans had gods. And it's like an epic canvas onto which we can project our hopes and dreams. And the superhero is somebody who is able to overcome his human weakness to do the right thing.
CURRY: Marvel's "The Avengers" has swatted aside boy wizard Harry Potter to take the all-time number three slot at the box office. The company's turnaround from bankruptcy in 1996 to Disney's $4 billion buyout in 2009 mirrors the plot of a superhero story, with a tale of triumph over adversity.
AVI ARAD, CEO AND PRESIDENT, MARVEL STUDIOS: Fifty years of comics. You can imagine how many stories we have, how much can we do with it. Once you withstand the test of time and you pass a certain period and you see the power of the franchise from very young children to people my age, it can go forever.
ANNE HATHAWAY AS SELINA KYLE, "THE DARK KNIGHT RISES": You've given everything.
CHRISTIAN BALE AS BRUCE WAYNE, "THE DARK KNIGHT RISES": Not everything. Not yet.
CURRY: Marvel's superhero nemesis is represented by DC comics, home to Batman, Superman, and a posse of powerful pals owned by Warner Brothers, part of CNN's parent company, Time Warner. Warner Brothers has high hopes riding on the final film in Chris Nolan's Batman trilogy, "The Dark Knight Rises."
CHRISTOPHER NOLAN, DIRECTOR, "THE DARK KNIGHT RISES": We've really been able to tell one big story made up of these three large acts, really. The three acts of the -- and it's a unique thing to be able to do that, to take a tri-mood and develop it over time and kind of grow up with it. That's really been a great thrill for us.
TOM HARDY AS BANE, "THE DARK KNIGHT RISES": When Gotham is ashes, you have my permission to die.
CURRY: But as one superhero hangs up his cape, another is set to fly again, with the return of Superman. "Man of Steel" takes to the skies next year.
Fifty years after Stan Lee created Spider-Man, Iron Man, X-Men, and many other notable men and women from Marvel, the 89-year-old king of comics is planning to unleash a new global hero. But unlike his powerful predecessors, the Annihilator hails from China.
STAN LEE, MARVEL COMICS LEGEND: I've been asked, "Do you think the world is ready for non-American hero to save the world?" I think the world has never been more ready, and I think the world needs characters who are superheros who can do good deeds who are not American.
CURRY (on camera): From Asterix the Gaul in France to Japan's Ultraman, many parts of the world have their own rich comic book history. But few can match Marvel and DC Comics in reaching a truly global audience.
CURRY (voice-over): Spidey has just produced the biggest ever opening by a Hollywood film in India.
UNIDENTIFIED MALE: It's a good movie. It's better than the first one. It's a different take on how the first one proceeded, and it was really fun to watch.
CURRY: Meanwhile, Brazilians can't get enough of the webbed wonder, known as Homem Aranha.
UNIDENTIFIED MALE: I don't know if Brazil would have a hero. I don't believe we are a country to have a hero. That's not our thing.
UNIDENTIFIED MALE: I think a Brazilian superhero would be somebody that fights corrupt politicians, because that's really the widespread problem in Brazil. I can't really think of a name for him, though.
CURRY: While the world awaits the arrival of Anti-Corruption Man, cinema audiences continue to be swept up in the muscular arms of superhero mania. Is it a bird? Is it a plane? No, it's a franchise.
Neil Curry, CNN, London.
QUEST: I love the idea of Anti-Corruption Man. The only question is, what sort of cape would they wear? And would they probably have braces on them, as well?
Talking of braces and what people are wearing, it's been worn by the royals, and now it's owned by them. We look at Qatar's purchase of Valentino after the break and the headlines.
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.
Police now say four climbers missing in the wake of an avalanche in the French Alps have been found alive and well. The tragedy struck nine other climbers who were killed. There were on Mont Maudit in the -- on the way to the summit of Mont Blanc when the avalanche hit.
A fuel tanker explosion has burned nearly 100 people to death in Nigeria. Police say villagers were trying to siphon off fuel from the tanker that had crashed when it subsequently then blew up. The tragedy happened in Nigeria's oil-rich Niger Delta region.
The British government has announced it will deploy 3,500 extra troops to help secure the Olympics. They're beefing up the force because a private security contractor has fallen short in providing the personnel it promised. The additional deployments mean that 17,000 troops will now be on duty for the Games.
A London court is considering the evidence and testimony presented this week in the John Terry racial abuse case. A verdict is expected on Friday. The Chelsea football captain is accused of hurling a highly offensive racial slur at another player during a match last year. Terry denies the charges.
QUEST: Now when it comes to fashion, you know me. I always enjoy something a little bit sober, maybe something a little bit with pinstripes on a good day. Well, now, of course, there are moves afoot in the fashion industry.
Valentino, the fashion label worn by the likes of Jackie Onassis, Elizabeth Taylor, has been sold to the Qatari royal family. The report price is around $800 million. You can buy a lot of pinstripes for that sort of amount. Valentino isn't the only major company to fall into the Qatari basket. Here at the superscreen let me show you what I mean.
This was Harrods which was, of course, owned by Mohamed al-Fayed. In 2010, the Qataris bought the iconic department store from Mr. al-Fayed, and interestingly, on that occasion, the price at over $2 billion, $3 billion was considered to be very rich and full indeed.
Then in 2011, Qatar Sports Investment bought a 70 percent controlling stake in the French football club Paris Saint-Germain. Now, when you take all these various purchases along with other ones that have taken place, you start to see that whether it's the sovereign fund or the sports fund or the culture fund or just the Qatari royal family, they are buying big in an effort to diversify the economy.
John Defterios, our good friend from Abu Dhabi, told me that today's big buy, Valentino, is a perfect fit for Qatar's shopping tastes.
(BEGIN VIDEO CLIP)
JOHN DEFTERIOS, CNN CORRESPONDENT: Richard, I think it's fair to say they like to have high-profile purchases, also with a mix of high value. So this latest purchase of Valentino they got at a discount. Permira bought that brand for about $3 billion. It was a much bigger basket of brands, but they stripped it out. They had M Missoni and Valentino. It has a very high profile, but it's undervalued.
They thought the same when they bought Harrods, the big retail store, for $2 billion. Many thought they overpaid for it, but they've managed it well and they're starting to extract value from it.
Paris Saint-Germain is a football club. Some would say that's an ego purchase, but they see it extracting value over the long term. And they're sitting on a vast wealth, Richard, of at least $75 billion to $80 billion with a very small population.
QUEST: OK. But those companies that you -- of which you refer, I know the idea is to diversify away from oil and gas and carbon fuels, but you can't build an economy, the revenues won't come in. The value won't be there from the Valentinos and Harrods of this world. You need big, real industries.
DEFTERIOS: Well, they would probably differ you -- with that strategy you're suggesting. They like to have a nice real estate portfolio along with some of the big brands they've been purchasing. They've made some strategic purchases to transfer technology over, for example, that stake in the London stock exchange is something they're partnering with the Qatar stock exchange, and they want to be the reinsurance market of the Middle East and, in fact, of the globe.
So some of these are big purchases they like to put into the portfolio, because they have so much money to work with, very high-profile purchases that we talked about. But they like to also sneak in and buy things that are undervalued like Barclays Bank. They took a big stake, sold it at a very high value and now hold a much smaller stake.
They've done that with Porsche. They've done that with Volkswagen. Obviously, some of those things don't transfer to the Middle East, but they can make an argument, Richard, that their portfolio is growing in the meantime as well.
QUEST: And whilst you and I have been talking, the wells have been producing morning, noon and night. The money just keeps rolling in.
DEFTERIOS: Yes, that's a very good way of putting it. And Qatar is the extreme case of that. They only have 300,000 people to take care of and a population of just 1.6 million overall. That's including the expats. But this country is producing the equivalent of 5 million barrels a day, the gas equivalent, if you had that in oil, they are sitting in a pretty position.
They have the third largest gas reserves. People cannot invest in Iran right now, and that giant field that they share, so the Qataris are pumping very quickly. It's also worth noting, this country, Richard, almost went bankrupt in the 1980s. And the emir made a big bet on natural gas and L&G, and it's paying off handsomely right now.
(END VIDEO CLIP)
QUEST: John Defterios of "GLOBAL EXCHANGE," (inaudible) Abu Dhabi.
An update from the Farnborough Air Show on the last day of the trade part of the show. That's next. Who got the big orders? In a moment.
(BEGIN VIDEO CLIP)
QUEST (voice-over): So the answer to the "Currency Conundrum," how did the penny farthing bicycle get its name? Well, it's got nothing to do with the price. The answer is C, because of the bicycle's shape. You can see that it's just like a penny, next to a quarter penny, which is also known as the farthing. A penny farthing -- I actually tried to ride one once. I nearly did myself a mischief. (Inaudible) after.
Moving to Farnborough, from penny farthings to planes, a 150-plane deal. Now that's what you call an order. Boeing has ended the trade part of the Farnborough Air Show on certainly an up note. United Airlines has ordered 737 jets, 150 of them at $14.7 billion list price. I tell you, I say it every time, because it's -- we're part of this fiction. They did not pay anything like it. Some day they'll tell us what they did pay.
Boeing says it brings its total orders since the start of the show to $35.5 billion, and that's not including the undisclosed deal with Virgin Australia.
Airbus didn't fare nearly so well, four potential deals took its orders to 115 aircraft, around $17 billion. So Boeing wins this year's. Next year, it's Paris. We'll have more from the Farnborough Air Show in a few moments with MARKETPLACE EUROPE.
Now to the weather forecast, Jenny Harrison is at the World Weather Center.
You know, I know I've got to be very careful. It's not all about what's happening in the skies over my head, but it is a lovely day today.
JENNY HARRISON, CNN METEOROLOGIST: Well, good. No, I mean, you know, I do feel your pain. It has been a rather miserable summer. That's for the last few weeks. But there's a bit of a break, actually, in store. Can't really promise you glorious sunshine, but this next system is now pushing into western Europe and in the wake of that, it looks like we might get a couple of drier days, but some very heavy rain's been pushing in once again to those areas across the south, the southwest.
And then we'll see systems head across to mainland Europe. We're seeing those scattered showers and thunderstorms. But as I say, all coming from this area of low pressure, all being floated on the jet stream which, of course, is going to move farther south than it normally is.
So isolated showers in the wake of this system as we head into first part of the weekend. Still we could see a few stronger thunderstorms across the southeast of Europe. That is still where the heat is, and in fact, it's continuing to push southwards. So for example, Greece, for the next few days, you really will see some fairly high temperatures, 36 was your high temperature this Thursday.
So about 4 degrees above average. You can see the heat in the south, as I say, and then to the north we have the green. That's a good indication there is some cloud in the forecast. And, of course, there will some showers, as I say.
But it should be a little bit drier over the next couple of days. You can see here on the forecast showing the rain that once this rain goes through we have got a slightly drier spell. But across the south, that's where there's some nice sunshine, good temperatures, 32 in Rome, 36 across in Madrid and about 20 Celsius in Paris.
So London and Glasgow, still a little bit cool and indeed Berlin and Vienna too. Just 17 Celsius apiece there. The temperatures have been easing certainly across the southeast. You've seen a lot of rain here out towards the west as well. So these high temperatures on Wednesday actually continuing to come down. And the good news is the heat warnings have also subsided, Richard.
QUEST: Jenny Harrison at the World Weather Center, we thank you for that this evening.
And as we wrap up our program tonight, that is QUEST MEANS BUSINESS. I'm Richard Quest in London. As always, whatever you're up to in the hours ahead, I hope it's profitable. MARKETPLACE EUROPE from Farnborough is next.
QUEST: From the Farnborough International Air Show, this is MARKETPLACE EUROPE. I'm Richard Quest. Every two years anyone who's anyone in aviation makes the trek to this muddy air field. They come here because it is a global platform, more than 1,500 exhibitors, all here to negotiate the network and ultimately do business. For the aviation industry rarely has it been a more difficult time.
QUEST (voice-over): Coming up, Juliet Mann looks at how aviation's drive for lightweight composite materials is helping GKN's aerospace division take off.
And the COO of Bombardier explains the significance of the C series.
GUY HACHEY, PRESIDENT AND COO, BOMBARDIER AEROSPACE: We see about 7,000 aircraft being sold in the segment to 100 to 150 seats over the next 20 years. We also see that this niche has not been well served.
QUEST: It doesn't matter whether the plane is built by Airbus or by Boeing, by Bombardier or by Lockheed Martin. There are certain core parts that are made by the same company, companies like GKN. Juliet Mann has visited GKN in Filton in western England to look at the company that's using composite to make flying more efficient.
JULIET MANN, CNN HOST (voice-over): This is part of a wing spar, the backbone of an aircraft wing that all the important bits like the fuselage and landing flaps are bolted to. The structure's made from layering carbon fiber composite with absolute precision.
MANN: This is how to do it?
UNIDENTIFIED MALE: Yes, sort of like that.
UNIDENTIFIED MALE: (Inaudible) tighter on the radiuses (sic).
MANN: There's no room for error here.
UNIDENTIFIED MALE: No room for error.
MANN (voice-over): They test patches here by hand. But since the final measurements need to be accurate to within a width of a human hair, machines do the job, laying down half a million meters of tape per hour. It's high-level and difficult engineering. British company GKN Aerospace is one of a handful of firms worldwide with the right equipment and expertise.
MARCUS BRYSON, CEO, GKN AEROSPACE: In terms of our composite strategy, I mean, we've long recognized that that's where aircraft are going to go. It's not universal; there's still application for metallic in aircraft. We have a clear strategy to be around the wing.
The wing and that's core to the U.K., and we want to make large, difficult, hard-to-make composite components. The wing is a very high- value added part of the aircraft. It's critical to the aircraft performance. It's where the U.K. still has a world leading expertise. And we deliberately wanted to sort of set our market stall (ph) out in and around the wing.
MANN (voice-over): At this plant in the west of England, they make wing spars for the civil and military aerospace markets. These will form parts of the Airbus A350 fleet.
MANN: This carbon composite is at the core of what they do here. It's as strong as steel but far lighter. So in an aircraft in the air, it's more fuel-efficient.
MANN (voice-over): GKN says 40 percent more fuel-efficient than older aircraft made of metals. Thirty years ago, just 1 percent of airframe structures were made with this corrosion-free carbon fiber. Now 50 percent of the latest generation aircraft are made from it.
And the industry expects demand to grow. Boeing, the world's second biggest jet maker by revenue, predicts the world's current fleet to double in the next 20 years to 34,000 aircraft, a market worth $4.5 trillion.
BRYSON: You've got the new markets emerging. So you've got Asia Pacific area, where there is new markets and people want to fly. The other area is around where the replacement of existing fleet and a lot of that is driven by, one, you've got an aged fleet that just needs replacing but, two, they're looking for fuel efficiency. And when oil is at $100 a barrel, it's a massive driver for airlines.
MANN (voice-over): Starting out in nuts and bolts, for 250 years, GKN has survived the ravages of U.K. manufacturing, always keeping an eye on the next big thing. Aerospace now accounts for a third of profit, and the recent acquisition of Volvo Aero Design propels them into the top 10 aerospace suppliers.
BRYSON: We're a large business now, actually in dollar terms, we're about a $3.5 billion revenue business inside the U.K.
MANN (voice-over): The last stage of production happens here, this high-pressure, high-temperature oven bakes the wing spars until the carbon fibers set. Then they're ready for assembly. They're lighter-weight, but these wing spars bring heavyweight benefits to an industry that craves a greener, cleaner future with lower running and upkeep costs. It's a business that's made in Britain with long haul prospects.
(END VIDEO CLIP)
QUEST: Juliet Mann with the composites of GKN. One of the advantages of the Farnborough Air Show is everyone is here, almost on top of each other in this hothouse of aviation.
After the break, we cross the road to Bombardier.
QUEST: Welcome to MARKETPLACE EUROPE. Aviation is a cutthroat industry. So why would a Canadian company, Bombardier, want to break into a section of the market dominated by Boeing and Airbus? The larger, narrow-bodied aircraft. And yet that's what they're attempting to do with the C series. This is (inaudible).
QUEST (voice-over): Bombardier is a relatively new kid on the aviation block, founded in 1942. It expanded the business from trains to planes in the 1980s. It's now the world's third largest civil plane maker. The C series is designed for the growing 100- to 150-seat market. It's due to go into service next year. Bombardier's aerospace division employs more than 33,000 people and has an annual turnover of $8.5 billion.
QUEST: Bombardier's a company of 20 billion in revenues. So describe the significance of the C series.
HACHEY: It's very significant for us. It's obviously entering in a new segment. So far, we've been serving customers up to about 100 seats, more in the regional segment. Now we're cracking into more of the mainline segment. We're investing about $3.5 billion; for the size of our company, that is a very significant investment.
QUEST: Which raises the question, are you betting the farm on the C series?
HACHEY: I wouldn't say we're betting the farm, because we have the scale as a company to do these kind of projects. If you look at our company, we have two groups, a group about $10 billion on the real side and $10 billion aerospace. But it is a major bet for the corporation.
QUEST: And what I've never fully understood with this is why. Why do you want to get into a market which is already so competitive?
HACHEY: Yes. Well, first of all, we see about 7,000 aircraft being sold in the segment of 100 to 150 seats within the next 20 years. We also see that this niche has not been well served. What you have is aircraft that have been sort of like shrunk down, you know, that are optimized for larger seat, you know, passenger seats, but have been shrunk down, whether it's Airbus or Boeing, or aircraft that have been stretched from an Embraer perspective.
So when you look at the 100 to 150 seats, it's not well served with optimized product.
QUEST: Far be it from me to rain on anyone's parade.
QUEST: Particularly if they're spending $3.5 billion on a new aircraft. But the numbers of orders so far, perhaps could be described as disappointing.
HACHEY: Oh, I would argue -- I would argue with you on that. Right now we have over 330 commitments for the aircraft, 130 firm orders. Our skyline, our production skyline is sold for 2014-2015 and almost sold for 2016. We feel very comfortable with the level of production that we have going forward. So we're very happy with our position.
QUEST: Are you worried when a Comac from China also comes into the market?
HACHEY: Actually, no; Comac does not compete with us. As you know, they're manufacturing and designing an aircraft that will be competing more with the A320 and the 737-800. So we're actually complementary with Comac.
QUEST: OK. Let's talk about Bombardier generally now. Across the range of your products, from trains to planes, all the other things that Bombardier does, how are you being affected by the slowdown in Europe?
HACHEY: Well, Europe is very slow right now. Obviously, a lot of anxiety, a lot of concern with the economic backdrop. So things have been slow for us. The good thing is the rest of the world is not necessarily in the same shape.
If you look at emerging countries, we've been doing very well. But I have to admit that in Europe typically things have been slower than usual. And this is a fortress market for us. We've been very strong in Europe. So we are feeling. We are feeling the impact of the economic uncertainty.
QUEST: And there's not much you can do about that. You're just going to have to take the knocks and wait it out.
HACHEY: Exactly. And so we're focusing elsewhere. The U.S. has been picking up, which is a very, very important market for us. We've been deploying resources in the emerging markets. In fact, we doubled our sales force, marketing structure, finance over the last year in emerging markets to take advantage of the growth and, you know, the interest in our aircraft.
QUEST: Finally, aviation's one of those industries people fall in love with and (inaudible) in the process.
HACHEY: I wouldn't say so. In fact, my history is from the automotive industry, 30 years in automotive. So --
QUEST: Wow, one lost (inaudible) to another.
QUEST: That takes real skill.
HACHEY: So I actually enjoy aerospace. It's been a great ride and I'm looking forward to the next several years in this industry.
(END VIDEO CLIP)
QUEST: The chief operating officer of Bombardier and the C series hopes to fly on its maiden flight before the end of this year.
And that's MARKETPLACE EUROPE for this week. I'm Richard Quest at the Farnborough International Air Show. Whatever market you're in, I hope it's profitable. And I'll see you next week.