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BAE-EADS Deal Dead; Next for BAE, EADS; Global Stocks Slide; Growth in Chile; Dollar Up; Outlook Taiwan: Growing Airline Industry

Aired October 10, 2012 - 14:00   ET


MAX FOSTER, HOST: No deal. The defense merger of the decade is over before it even began. Tonight, I ask a former British defense minister what went wrong.

Raw ambition. Chile's finance minister talks status.


FELIPE LATTAIN, CHILEAN FINANCE MINISTER: If we keep growing at this rate, we will be a developed nation before the end of this decade.


FOSTER: And no more mellow yellow. The CEO of Sesame Street Workshop says Big Bird has no place in the US election campaign.

I'm Max Foster, and this is QUEST MEANS BUSINESS.

Well, the most ambitious defense deal of the decade has crashed and burned. BAE Systems and EADS have called off their merger and ruined the chances of creating a European aerospace giant. For shareholders and governments alike, it is a truly momentous day.

Here is the EADS share price. No prizes for guessing exactly where the announcement came through today, the share price obviously shooting up. And really, it's a huge pop at around lunchtime that kept going throughout that session, and it continued through the day.

Tom Enders, who's the chief executive of EADS, said this. "It's a pity we didn't succeed, but I'm glad we tried. I'm sure there will be other challenges we'll tackle together in the future."

Now, the BAE shares, this is what's happened here at the tap. There we are. The share price also followed a pattern today, but it did stabilize in the end. This is about where the announcement came, but it bounced back up, and here we are with the stabilization.

Here is the BAE chief executive commenting that "Our business remains strong," and that is Ian King of BAE Systems.

Now, EADS itself, well, the two companies agreed on what eventually torpedoed the deal, saying in a joint statement that "it has become clear that the interests of the parties' government stakeholder cannot be adequately reconciled with each other."

Now, those three governments in question were Germany, France, and the UK, and it was Germany who supposedly refused to budge on the deal, and it was adamant that it wouldn't get marginalized.

The government statement said it now had "full confidence" in EADS and hoped it would continue its already existing cooperation with BAE.

Now, the French president said this deal was ultimately the company's decision. France was keen to protect its own influence over any new company, and Francois Hollande said French interests had been preserved.


FRANCOIS HOLLANDE, PRESIDENT OF FRANCE (through translator): All the elements were given to the companies. Afterwards, it is their choice. It's their decision. And for those concerned in France, we have done the best thing for our country, for our jobs, for our industries, for our defense.

We have also protected our relationship with Germany, because we have a pact and a friendship between France and Germany.


FOSTER: Well, meanwhile, the British government said it could always see the commercial logic of the deal, but it knew it would only work if all parties' interests were addressed. Remember, throughout these negotiations, the UK has been trying to limit the amount of government involvement in any new company.

Well, Liam Fox is a former British defense secretary. As many defense secretaries, he's been involved in looking at similar deals in the past, and I'm just wondering where you think this went wrong, because you haven't had confirmation that the Germans got in the way, but is that your suspicion?

LIAM FOX, FORMER BRITISH DEFENSE SECRETARY: Yes, it does look very much like it. The British government had been sort of cautiously welcoming to the deal, but had set a number of tests that had to be met. The first was that anything that emerged from this was not to stand in the way of the very close defense relationship between the United Kingdom and the United States.

And secondly, and kind of alongside that, was that the French and German governments should not own more than 18 percent between them of the merged company to prevent what would potentially have been political interference in the company.

Clearly, the German government wasn't going to wear that, and the French government seems to have regarded its pact, as they say, with Germany as being more important than any economic logic for the company, and that is where we are tonight.

It's difficult to see where the story ends, because in an era where defense budgets are falling, not least because of the big defense cuts in the United States, everybody in the industry expects some degree of consolidation and merger. Where that is going to come, now, is more difficult to see than it was just a few days ago.

FOSTER: One shareholder has described to us -- an EADS shareholder -- that this is all a bit of a mess because they can't understand why negotiations weren't held with the government about this before they went public on the deal. They went public too early. Is that your feeling, too?

FOX: Well, that may well be case, and there certainly will be a lot of questions to be asked about where this leaves BAE in terms of the business model set out by the management, and also where it leaves it now in terms of vulnerability for -- from a takeover or a takeover bid by another big company, presumably an American company.

So, there are a lot of questions that are going to be asked about the speed at which all this took place, the way in which it suddenly was burst upon the public domain. My guess is that that wasn't actually what the management of either company wanted, and they would have liked to have continued discussions in private, but the information came out probably against their will.

FOSTER: And in terms of getting around the government concerns on this, do you think there is a chance that this deal could reemerge in six months' time?

FOX: Well, I think that it would require a lot more groundwork to be done with the governments concerned. It does seem like Chancellor Merkel was pretty adamant in her opposition to this, and it seems difficult to perceive what would change in the coming months. But you never really know, especially in the defense business.

But we do know that budgets are falling because of the highly-indebted nature of Western countries, and that there are too many defense companies out there, and companies will be looking to see if they can find partnerships with other companies that provide them with a good match.

In this case, BAE's defense work with EADS's civil and freight work. That would have been a reasonably good match. If you look at a company like Boeing, for example, there's a bit more of an overlap, it's not quite as complementary, but not impossible to see. So, as I say, I think that it's a bit messy-looking tonight, but it's far from the end of the story.

FOSTER: Is it more likely now that BAE Systems will be taken over by a US firm, and what does that actually mean for European military manufacturing. Because the whole business, effectively, goes over to North America in that case, doesn't it?

FOX: Well, of course, the British government would effectively have a veto over that, and I do think it's likely -- it's maybe a bit more likely than it was a few weeks ago, in terms of the perceived stance and order books of the company.

But I still think that there's a very long way to go in this particular story, and a lot of head-scratching will be taking place across Europe about how European companies are going to deal with defense budgets that are falling.

You look at Germany itself, with only 1.1 percent of its GDP being spent on defense, there's not a lot of cash to go around the defense businesses of Europe.

FOSTER: Liam Fox, we appreciate your time. Thank you very much, indeed, for joining us. Well, it's an uncertain future, now, for both BAE Systems and EADS. Jim is here with me in London while Diana Magnay is in Berlin.

Diana, if I can come to you first, was this deal ever going to happen from the German point of view? And what was blocking it?

DIANA MAGNAY, CNN INTERNATIONAL CORRESPONDENT: Well, the Germans had various considerations that they were talking about, one of which was the possibility that the company would have its headquarters in Toulouse, which Germany didn't like the idea of. They didn't like the idea of not equal stakes between the French and German governments in any combined company.

But the defense minister here firmly rejected any accusation that it was actually Germany which scuttled the deal. And if you think about it, if what you were discussing with Liam Fox is the case that this was a premature announcement of the deal, then one month really is not very long to get a giant of this size, all the political differences ironed out.

This isn't just a union of very normal companies, this is talking about the sort of industrial defense strategies of various European nations over a period of 20 years. So, really, whether it was Germany who eventually scuttled the talks, that is anybody's guess. It looks like 100 percent this would have been a very difficult one to iron out politically in the timeframe.

Anyway, Thomas de Maiziere said it wasn't the Germans' fault. He said also he didn't really like the idea of monopolies in the defense industry. Let's just take a listen to what he said.


THOMAS DE MAIZIERE, GERMAN DEFENSE MINISTER (through translator): The German defense industry is competitive. A merger always has two side. The provider side offers to the Defense Ministry and the taxpayer and it should not be too monopolistic.

It is now a decision of the company. There have been many negotiations. We gave our opinion. I don't want to comment on this further.


MAGNAY: What does this mean for EADS, Max? Well, one of Tom Enders, the CEO's, sort of ambitions was to try and reduce the German and French government stake in his company to make it much more of a normal commercial company. It hasn't achieved that if this merger doesn't go ahead.

And also, of course, EADS does not through BAE get access to the US defense industry and beef up its own defense arm. But as we saw, the share price jumped on the news, so the shareholders obviously happy that this isn't taking place, at least for now, Max.

FOSTER: OK, Diana, thank you very much, indeed. Well, Jim, EADS can become a more normal business. It's a civil aviation business, it's more commercial. But BAE is in the defense business, and it's never going to be normal, is it? So, what's next for them?

JIM BOULDEN, CNN INTERNATIONAL CORRESPONDENT: Well, I think what's really interesting here is, we've got to think back that this was probably a better deal for BAE Systems for it to take place, and it would have been Ian King, the CEO, asking EADS and Tom Enders, "Would you like to buy us?"

That puts them into play. And we heard Liam Fox say maybe a US company would come in. I seriously doubt that would be allowed. If you can't get a trans-Channel deal, it's hard to see a trans-Atlantic deal taking place.

So, does it mean that the CEO and the chairman have to go? Well, some shareholders are wondering that, and analysts are asking that question. Does it mean a breakup of BAE Systems? In other words, would they sell off some of the unprofitable bits and start moving elsewhere? That could be a possibility, as well.

I think what will happen -- I think what could happen, let's put it that way -- is there'll be a cooling off period, here, while Tom Enders of EADS has a quiet word or two with Angela Merkel heading into the election next year and saying this actually could be a good deal. Can we go back and try it again?

Because this came out early. This came out premature that these two companies were talking. They just hadn't gotten their ducks in a row. So, it's not a bad idea to step away, now, for a couple months. Maybe, just maybe, January, February, next year, we're sitting here again talking about a BAE-EADS merger.

FOSTER: Jim, thank you very much, indeed. Diana, if the German government could look at EADS as more of a civil business looking ahead, and because that -- that defense side of the business is dwindling all of the time, might it step back and allow EADS to take part in more mergers in the future?

MAGNAY: Well, I think the German government just doesn't particularly like being rushed on anything. That's something that Angela Merkel has made quite clear in her European -- dealing with the European debt crisis.

Germany has its own defense industry, it's the third-largest exporter of defense goods around the world. So, whether EADS beefs up its defense arm and whether that is one of the German government's objectives here, it's sort of a question I'm not sure I can answer at this moment.

I would imagine, though, that what Angela Merkel wanted was more time to make sure she got the deal that she wanted in any kind of combined company.

FOSTER: Diana in Berlin and Jim here in London, thank you both very much, indeed.

Well, later in the show, we'll hear from a shareholder in EADS who says this collapse should be seen as a triumph for the makers of Airbus. We'll bring you that interview later in the program.

Next, though, the bright spot in the IMF's otherwise gloomy forecast. We'll hear form Chile's finance minister after this break.


FOSTER: Global stocks have been hit by concerns over a slowdown in China and more gloomy economic news from the IMF. The Federal Reserve's beige book report on the economy has just been released, and it hasn't much impacted on Wall Street, although it hasn't had so far, down nearly 1 percent.

European stocks closed in the red, the FTSE, CAC, and the DAX all lost around half a percent. The IMF says European banks may need to sell up to $4.5 trillion in assets next year if policymakers fall short of pledges to stem the fiscal crisis.

Now, the IMF's forecast for Chile is far brighter. It is tipping growth of 5 percent this year. However, the IMF does warn that Chile's export-led economy leaves it particularly vulnerable to a slowdown in China. Richard caught up with Chile's finance minister recently in Santiago and began by asking him which economy worries him the most, the one in China, Europe, or the US?


FELIPE LARRAIN, CHILEAN FINANCE MINISTER: It is a combination of those. First, in terms of Europe, we are worried that in spite of the fact that things look better now than they did a few weeks ago after the BCE package, the problems are not solved and we will see new problems in Europe, and sometimes the markets will feel a little unease.

They will look, now, and 20 percent of our exports go to Europe, and we're seeing double-digit decline in the rate of growth of exports to Europe.

Second in China. China is now by far a main trading partner. China absorbs almost a quarter of all exports. That's mainly copper. And copper prices we've seen coming down about 60 cents from what they were last year. And for every cent the copper price goes down, we have $120 million per ever cent less exports, and $60 million of less government revenue.

So, certainly, the deceleration in China and a lackluster growth in the US economy are worries, but this country in the first half of this year was among the top five economies growing in the world. So, there is a lot of resilience in this economy.

RICHARD QUEST, CNN INTERNATIONAL: Are you emerging or have you emerged?

LARRAIN: We've been able to grow over 6 percent the last two years. This year will be closer to 5. If we keep growing at this rate, we will be a developed nation before the end of this decade, in fact, before 2018, which is the bicentennial of our independence.

So, it's a very important moment for us to become a developed nation before we reach the bicentennial, 200 years old as an independent nation.

QUEST: You're sucking in capital, here, aren't you, as a result of an interest rate differential? What can you do about that, other than to cry "unfair" on --


LARRAIN: Well, we don't cry, OK? First of all, we don't cry, we just say that we feel that we are in the middle -- caught in the middle of this, and I think QE may do harm in this sense to our economy, because it will put us under pressure. What can we do?

Last year, the central bank, which is an autonomous institution, had a purchase program of $12 billion, $1 billion per month, $50 million per day, purchasing dollars to support he dollar -- not to support the peso. In fact, where we're trying is that the peso doesn't appreciate, doesn't get stronger, because that is what we're fighting against.

QUEST: Intervention is a short-term measure.

LARRAIN: Well, yes. We accumulated $12 billion, but that can be forever. This year, we have not intervened. Meaning the central bank. What else can you do? Well, you can put capital controls. We don't believe in capital controls, so that's -- we haven't done that.

QUEST: You might be familiar with the children's book "The Little Train that Could." Is Chile the little country that can?

LARRAIN: What the 2008, 2009 crisis gave is the renewed value on fiscal responsibility. So, because what is in common to all the countries that were enduring the troubles that you see, recessions and financial crisis, is public policy and public spending that went beyond what was sustainable.

And then, they look at Chile and say, well, this is a country that has done things well. And to us, if we can contribute, we'll be happy to do it, but we always have to have humility. We just cannot go and give lessons to people.

We're happy to share our experience and to contribute in any way we can, and I think we can contribute and also learn from our peers, from the people who got to development. Because let's not forget, we are still an upper-middle income when we are a developing nation. We haven't reached development.

And sometimes, when I look at some people here in this country -- and this is one of my worries -- I see some people who are very impatient to get there and to get their benefits now. And this is called in the -- literature and in the discussion, the middle income trap.

So, we have to be very careful not to fall in the middle income trap. Development is there. We can see it, but we haven't gotten there yet.


FOSTER: The Chilean finance minister speaking to Richard earlier. More from him later in our business traveler segment.

A Currency Conundrum for you, now. And in Chile, a bank note is often called informally by the name of the notable citizen printed on it. My question to you is, what is the 5,000 peso note sometimes called? Is it Gabriela A, B Luca, or C Pinera? The answer later in the show for you.

On the currency markets, it was a good day for the dollar, which rose against the euro, the British pound, and the Japanese yen.


FOSTER: This week, we are shining a spotlight on Taiwan, with a closeup look at the island's business industry and consumer trends that fuel its economy. So far this week, we've focused on the driving forces behind its economic growth, and we've looked at concerns over long working hours and the steps taken or being taken to bring them under control.

We'll also be looking at how the government is promoting the island's indigenous culture and the expanding business of high-end bicycles. Tonight, though, we're focusing on Taiwan's growing airline industry, and competition is strong for tourists from mainline China. CNN's Paula Hancocks shows us how one airline is even running themed flights to attract new customers.


PAULA HANCOCKS, CNN INTERNATIONAL CORRESPONDENT (voice-over): It's not hard to find check-in for Hello Kitty flights, a novelty idea from Taiwan's EVA Air, an attempt to entice new passengers in an overcrowded market from the very young to the more mature clientele.

Head rests, cushions, television, specialized duty-free, even toilet paper, Hello Kitty is everywhere. Most girls onboard approved and even some of the boys.

MATTHEW WANT, TOURIST: It's cute. Their playing cards and a menu. I like it.

HANCOCKS: Others manage to contain their excitement.

HANCOCKS (on camera): Now, clearly, this flight is targeted to a slightly younger audience than myself. Thank you very much. Thank you.

This is a kids' meal, so you have the Hello Kitty jelly babies, you have the Hello Kitty on the spoons, as well, even the knives and the forks. And for the main course here, you can see the Hello Kitty cake and even the cheese is in the shape of Hello Kitty.

HANCOCKS (voice-over): With almost a dozen low-cost carriers now operating in Taiwan, the competition is fierce to claim the increasing number of visitors from mainland China. With improving political relations between Beijing and Taiwan's China-friendly president comes an economic windfall.

AUSTIN CHENG, EXECUTIVE VICE PRESIDENT, EVA AIR: We believe that Taiwan and mainland China will maintain the stable relationship. And right now, though we have 105 flights weekly, but it's still the travel demand is far beyond the capacity for rise.

HANCOCKS: Terminal One of Taipei International Airport is undergoing a $96 million facelift to cope with that demand, expected to be completed in a couple of months.

Passenger capacity will rise to 15 million a year, almost half of the overall airport tally. The number of air passengers to and from Taiwan jumped more than 12 percent in the first half of this year. One bright spot amidst the global economic slowdown.

Paula Hancocks, CNN, Taipei, Taiwan.


FOSTER: And for more information on Taiwan and our coverage this week, do go to

After the break, though, escalating anger. Unions in Greece announced another general strike to protest against austerity. We'll take you live to Athens.


FOSTER: Welcome back, I'm Max Foster and these are the headlines this hour.

The US anti-doping agency says it has overwhelming evidence that Lance Armstrong is a drugs cheat. The agency says it has 1,000 pages of proof that his team ran the most successful doping operation ever in any sport. Lance Armstrong's attorney says the report is a taxpayer-funded tabloid piece rehashing old, disproved, unreliable allegations.

Congress is holding a hearing right now on the deadly attack on the US consulate in Libya. Live pictures for you. State Department officials are answering to allegations about lax security at the mission. One official told the House committee that security risks must be accounted for and diplomats can't operate from a bunker.

Doctors have removed a bullet from the neck of a 14-year-old activist at a military hospital in Peshawar. A military spokesman we talked to a short time ago says Malala Yousufzai is in critical condition. Taliban gunmen shot her on Tuesday because she campaigned for access to education for women and girls.

A Russian court has ordered the release of a member of the controversial punk rock band Pussy Riot. It upheld the two-year sentences of two other band members. The two women -- or the three women were convicted of hooliganism after performing a song critical of Vladimir Putin, the president, inside a Russian Orthodox cathedral.

A proposed merger between the maker of Airbus planes and a major European defense contractor has collapsed. EADS and BAE Systems say the $45 billion deal fell apart, despite intense efforts. They blame European governments that couldn't agree on how much influence they'd have in the new company.


FOSTER: While it may have been the governments who kept the BAE-EADS merger grounded, there are plenty of complaints from shareholders, too. One EADS shareholder says the deal's collapse should be celebrated as a triumph.

I asked Barry Norris why he was so happy.


BARRY NORRIS, EADS SHAREHOLDER: Well, this comes as a big relief for EADS shareholders, basically because there was a feeling that EADS was diversifying into a less good business in buying BAE's defense assets and because the deal has failed, EADS remains more of a pure play on civil aerospace, which is a fast growing industry where profits are set to rise considerably over the next few years.

FOSTER: But diversification is good, isn't it? If (inaudible) aviation tails off, then they've got the BAE side, the military side, to fall back on. And it could make do with the BAE systems side.

NORRIS: Diversification has been used as an argument, but the problem is as an investor, I can diversify far more simply and cheaply just by buying one share in BAE and one share in EADS. And it only really makes sense to put businesses together if you get a better business as a result. And that's usually a business that has synergies its two different parts.

So here, we were very skeptical that there would be any cost synergies, and we're also very skeptical there would be any revenue synergies, given that it looked like that it would be more difficult for BAE to sell its defense products into the U.S. market as a result of any deal.

FOSTER: You're obviously quite pleased with the results, and quite happy not to have a say on it. You never had a chance to have a say, though, did you, shareholders, because it didn't get past the government involvement. They didn't (inaudible) properly how governments may respond to this. What do you think of that and the way it's all been handled?

NORRIS: Well, I think ultimately you have to remember these two companies are owned by their shareholders, and both sets of shareholders would have had a vote on whether the deal would have gone through.

And I certainly think there would have been significant opposition and insurmountable barriers, perhaps, in terms of getting that deal through and shareholders agreeing. It is perhaps surprising that the management of the two companies didn't get the governments to agree to the merger before it went public, because obviously once it had gone public, both sets of shareholders were against it.

The French and the U.K. government were also against it, and (inaudible) the Germans ultimately vetoed it.

FOSTER: So it's been a right mess, really.

NORRIS: So, it certainly looks that way and but I think what we have to remember here is it doesn't really matter how we got there, and it seems to be we got there by accident and by perhaps EADS and BAE management not having a detailed enough battle plan. But we -- it was the right answer in the end. And I think today the triumph for shareholders.


FOSTER: Well, Greek unions, meanwhile, have called a general strike for the 18th of this month, the same day as the European Union summit, actually. The unions hope that a mass walkout will send a strong message against austerity. But the Greek government has to agree another $17.5 billion in cuts before the country can receive its next slice of E.U. bailout money.

Senior international correspondent Matthew Chance joins us now live from Athens.

Matthew, the timing of this is the thing that makes it such a big deal, right?

MATTHEW CHANCE, CNN CORRESPONDENT: Yes, I mean, the strike that was called by the major unions for the 18th of October, obviously timed to coincide with two things, the first of them, as you mentioned, the E.U. summit in Brussels, where it was hoped that Greece was going to be discussed and the prospect of it receiving its next tranche of its bailout funds.

But that's also the deadline that's been set by the Greek government to announce their austerity plans. You mentioned they've got to find $7.5 billion' worth of new cuts from the -- from Greek expenditure, from the Greek economy. They've been negotiating for months now to try and make that happen.

They've set deadlines in the past, which they've missed. And the general consensus at the moment in Athens, that the negotiations still continue, is to where they're going to make the cuts, where they're going to take away money, which ministry, which office, which section of public spending is going to suffer this time.

As they take those negotiations, the sense in Athens is it may be delayed further and they may not actually make that deadline of the 18th of October. And so it could be a strike that's coinciding not with the austerity announcement, but simply with the E.U. summit in Brussels.

FOSTER: Matthew in Athens, thank you very much indeed.

Well, Spain's prime minister today called for further European integration to bolster Spain's economic prospects. The press conference with French President Francois Hollande, Mariano Rajoy was upbeat, saying he thinks the country will meet its destined targets this year.

But his optimism may not be shared by many, as today the Red Cross has launched an appeal to help Spanish victims of the economic crisis. CNN's Al Goodman reports for us now from Madrid.


AL GOODMAN, CNN CORRESPONDENT (voice-over): This is the Spanish Red Cross' annual fundraiser. Collection tables in cities nationwide. It dates back more than a century. The proceeds usually go to help people in disaster zones abroad. But for the first time, the money will be used to ease suffering at home due to the economic crisis.

CONCHA GOMEZ, RED CROSS WORKER (through translator): We have the problem very close to us. We all know someone, some neighbor, who is out of work.

GOODMAN (voice-over): Not everyone gives; many are in a hurry. But some who do see an extra need this year.

SANTIAGO YAGUE, PENSIONER (through translator): More state aid is needed and the government should make fewer austerity cuts. This Red Cross aid is not enough. It's just some help.

GOODMAN: Many say the situation in Spain is critical. There's more than 24 percent unemployment; the International Monetary Fund says it could take five years before Spain recovers its pre-crisis growth rates, and everyone waiting to see if the government asks for a bailout.


GOODMAN (voice-over): This new Red Cross ad calling for donations shows how it is providing food to needy Spanish families. But the Red Cross doesn't actually make house calls.

This is how it really works. The needy, lining up at Red Cross distribution centers, like this one in a Madrid suburb. Valentin Garcia lost his job as a waiter two years ago. We met him last June when he was looking for work.

VALENTIN GARCIA, UNEMPLOYED WORKER (through translator): I am waiting (inaudible). I have experience in working in shifts. I am not asking much.

GOODMAN (voice-over): We checked in with him again now, the same day as the annual Red Cross fundraiser. He's still looking for a job.

GARCIA (through translator): I don't know. I think it's gotten worse. To go around, see more stores, restaurants and businesses closed due to the situation in the country.

GOODMAN (voice-over): The Red Cross helped him prepare his CV, which he is eager to show. But the monthly food handout from the Red Cross isn't enough. He gets by, thanks to help from his elderly mother.

The annual fundraiser netted about $1.4 million last year, but more is needed this time because the 2 million people in Spain who got Red Cross assistance last year is expected to rise by 15 percent this year in the crisis -- Al Goodman, CNN, Madrid.


FOSTER: After the break, the next Napa, Chile's finance minister, says he's homing in on why (inaudible) tourists.


FOSTER: This month, "Business Traveller" is off to Chile. It's not a huge tourist destination. Finance minister Felipe Larrain says they're more about quality than quantity. That means fine wine and good food, like California's Napa Valley 30 years ago.

In the second part of Richard's interview with Felipe Larrain, he says -- well, he asks how important tourism is actually to Chile's economy.


FELIPE LARRAIN, CHILEAN FINANCE MINISTER: Massive tourism probably is not Chile's niche. I think we have to look into ecotourism, (inaudible) tourism, the wine industry, because we have a lot of things to show here in this. And somebody comes here and could look at, you know, sort of ways in which the Napa Valley was 30 years ago, because it's starting to develop.

And you go the wineries, the restaurants, and you go the inner (ph) tours and people go on horseback riding. Those kind of things are starting. We have over 100,000 people coming into the Valparaiso port in cruises, in cruise lines. Every year, and those people want to do something.

RICHARD QUEST, CNN HOST: When LAN merged with TAM, that was a strong signal about the strength of the economy here.

LARRAIN: LAN has been a very -- is one of the champions of Chilean business. A company that has been extremely successful and is one of the leaders in the world, aviation industry. Interestingly, you can see LAN's market cap. And you will realize that LAN has more market cap than many of the, you know, of the airlines that have been for so long many of the European airlines.

And this has been a very well managed, that was growing and growing and suddenly there was an opportunity to create economies of scale, to create a lot of synergies with another airline because, of course, if you want to go and (inaudible) the market (inaudible) be, you know, you cannot go just as LAN to the Brazilian (ph) market if you want to have a stake and the important stake, the Brazilian market, take Brazilians out and, you know, join in with TAM and then the synergies of the operations together and doing it big (inaudible). (Inaudible) very interesting deal.


FOSTER: Well, Richard also got a chance to interview the international chief executive of the newly formed LATAM Airlines whilst he was in Chile. And he got a tour of their first Dreamliner 787.


QUEST (voice-over): They'll be taking to the sky with their new arrival, South America's first 787 Dreamliner. Showing me around, Damien Scokin, chief executive of LATAM International.

QUEST: To some extent, the ability and the economics of this aircraft is your future revenue stream.

DAMIEN SCOKIN, CEO, LATAM INTERNATIONAL: (Inaudible) buy these type of planes and pull them to fly across a continent and beyond is going to make the difference.

QUEST (voice-over): LATAM will take delivery of its second Dreamliner before the end of the year.

SCOKIN: There will be our aircraft for Europe. We will fly Santiago, Madrid, Frankfurt.

QUEST (voice-over): And the decision everyone's now waiting for is which alliance will LATAM join. Will it be LAN's existing oneworld or TAM's Star?

QUEST: It's going to be oneworld.

SCOKIN: Not sure yet. Not sure yet and really, a company like LATAM, we (inaudible) leadership in the region, remaining (inaudible) is an option.

QUEST (voice-over): LAN and TAM merged in June of this year. With more than 300 aircraft they fly to 150 destinations. The carriers may have the same parent company, but they continue to operate as distinct airlines.

QUEST: Why not just merge properly as a single carrier under a single brand?

SCOKIN: We don't see right, (inaudible) to the customer by (inaudible) the brand, for example. We have two wonderful brands, TAM, highly valued in Brazil and abroad; LAM, a household name in many countries in Latin America. It's a wonderful problem to have.

QUEST (voice-over): Struggling European and U.S. economies pose a problem for growth. So LATAM is remaining confident about growth at home.

SCOKIN: We are feeling that slowdown of the economy but (inaudible) Americas. We live with ups and downs for years. So this is far from scary for us.

So in the long term, we are extremely optimistic with the region and beyond Latin America, we believe the potential (inaudible) our financial strength will be increased by having a larger operation. We'll be able to buy more of these planes. We increase our ability to fly to more places because of (inaudible).

QUEST: I'm going to have one more go at this.

Which alliance is it going to be?

SCOKIN: Well, let me tell, you'll -- we'll give you a call right after we've made a choice. But --


QUEST: (Inaudible). You promise?

SCOKIN: Right after. Absolutely. Absolutely.


FOSTER: Clouds and rain showers are hitting parts of Europe, I can tell you. In fact, it caused a rainout during today's World Golf final. Fans aren't happy. Jennifer Delgado can provide you with more information there. Hi, Jennifer.

JENNIFER DELGADO, AMS METEOROLOGIST: Absolutely, Max. Are you a golf fan?

FOSTER: I wasn't today, no.

DELGADO: You weren't today. Rightfully so, because it really came down. Let's show you video of conditions across in Tala (ph), Turkey. And we're talking a good downpour. In fact, it caused a rainout -- no play there.

You see the golfers going through the wet conditions and showers and thunderstorms and you'll start to hear some of the thunder there. As I take you back over toward our graphics here, again, you saw all the rain coming down there. And a lot of clouds still gripping parts of Turkey. As we go through really the next 24 hours, still a lot of clouds out there.

A low spinning right on top of Russia. That can be pulling in more cold air. And then we have another frontal system coming in from the west, some showers popping up through northern parts of Spain. And right now, for Antalya, we're still looking at rain showers out there, winds coming in from the north. But as we go through the next couple of days, we're talking Thursday, weather's going to be pretty nice there.

But as we head into Friday, another chance for maybe an isolated shower. It's just a few more clouds around, high temperatures in the upper 20s. So if you were supposed to go today and it rained out, the good news is you can use those tickets for tomorrow.

But as we focus a bit more and we go through the end of the week, because everybody wants to get to Friday, that cooler air, as I said, entrenched through parts of eastern Europe and then really getting into areas, including Ukraine as well as into Russia.

And then the other front that's coming through, it's going to mean a cooldown for parts of the U.K. as well as into Ireland, northern parts of Spain. High temperatures are generally going to be in the mid to upper teens, 19 for Paris, 24 for Madrid, but not a lot of 20s out there. Certainly we're only going to be down towards the south, Bucharest, you are a cool spot today.

We're only expecting a high of 10 degrees, Max. That is a look at weather conditions across parts of Europe. And wet conditions in Turkey.

FOSTER: Yes, and it's wet here as well. (Inaudible).

DELGADO: It's always wet there.

FOSTER: Thank you very much indeed.


FOSTER: Yes, I know, it's probably not news at this point, is it?

DELGADO: No news there.

FOSTER: Thank you very much indeed.

DELGADO: You're welcome.

FOSTER: Up next, (inaudible) "Sesame Street" on the road to the White House. Well, why Big Bird has become a big deal in the U.S. elections.





FOSTER (voice-over): And the answer to today's "Currency Conundrum," we asked you what the 5,000 peso note in Chile is sometimes called. And the answer is A, Gabriela after Gabriela Mistral, the Chilean poet, educator, diplomat and feminist who became the first Latin American to win the Nobel prize in literature in 1945. Her portrait has been featured on the note since 1981.


FOSTER: Now the debate over cutting funds for public service TV has made Big Bird the unlikely face of this year's U.S. elections. So in the spirit of "Sesame Street," our next story is brought to you by the letter R for Republican and the number 48. That's the percentage of likely voters who will apparently now vote for the Republican candidate, Mitt Romney.

He's overtaken President Obama in CNN's Poll of Polls. And as for our yellow-feathered friend, well, Romney told Wolf Blitzer he has nothing to fear.


FORMER GOV. MITT ROMNEY, R-MASS., PRESIDENTIAL CANDIDATE: Big Bird is going to be just fine. "Sesame Street" is a very successful enterprise. I don't believe CNN gets government funding, but somehow, y'all stay on the air.

And I just think that PBS will be able to make it on its own, just like every one of the other stations and does not require us to go to China to borrow money to keep PBS on the air.


FOSTER: Well, those comments haven't stopped Romney's rival from latching on to his remarks during the debate. A new advert from President Obama's reelection campaign pokes fun at the supposed crackdown on "Sesame Street."


OBAMA: I'm Barack Obama and I approved this message.

UNIDENTIFIED MALE: Bernie Madoff, Ken Lay, Dennis Kozlowski, criminals, gluttons of greed -- an evil genius who towered over them? One man has the guts to speak his name.

Big Bird. Big Bird. Big Bird.

BIG BIRD: It's me, Big Bird.

UNIDENTIFIED MALE: Big, yellow, a menace to our economy. Mitt Romney knows it's not Wall Street you have to worry about, it's "Sesame Street."

ROMNEY: I'm going to stop the subsidy to PBS.

UNIDENTIFIED MALE: Mitt Romney, taking on all enemies, no matter where they nest.


FOSTER: (Inaudible) got some attention, as you can imagine. Now the creators of Big Bird have asked the Obama campaign to pull the advert. The CEO of Sesame Workshop was supposed to be in Abu Dhabi for a media summit, but the controversy kept him in New York, and he had to attend via satellite.

CNN's John Defterios was chairing the summit. He asked Melvin Ming why he asked the White House to stop using Big Bird.

MELVIN MING, PRESIDENT AND CEO, SESAME WORKSHOP: This practice of ours is essential and required because we cannot let our Muppets do anything that if a child saw a teacher do, the child would be disappointed.

JOHN DEFTERIOS, CNN CORRESPONDENT: Why is the presidential candidate, Mr. Romney, picking on Sesame Workshop as specifically Big Bird? You only get 6 percent of your overall funding from the federal government. Is it necessary to single out a product that actually works? And would you be happy to let that funding go?

MING: We think the model of "Sesame Street" is a perfect example of a public and a private partnership where initially government funding permitted a match with private funding and then what Sesame Workshop was able to do was to find an economic model where it could sustain its operations and therefore not be dependent on any subsidy from the government.

However, Sesame would not be successful if the government support of local broadcasting was not in place. We can make great content. But if somebody does not connect that with families and children, then our content goes on a shelf and is not effective.

What the federal subsidy does, it permits local stations to acquire programming from the PBS system and thereby connects "Sesame Street" and other programs with local homes and communities.

DEFTERIOS: This is not a new debate in America. This goes back to the Bush administration and the fight with PBS, going back to 2005. Is the spirit to support public broadcasting in America gone?

MING: During the debate, there were more tweets on Big Bird than any other word mentioned. There were 17,000 tweets per minute. Now recognizing the power of social media and not everyone is enrolled in social media, but that gives an indication of the interest. Subsequently, the role of the press and even the ads, there has been a recognition of the place of Big Bird in American society. It's valued.


FOSTER: Oh, well, well, from Big Bird to the big board, we'll check on the markets and Wall Street for you after the break.




FOSTER: (Inaudible) JPMorgan Chase has been speaking in Washington. Jamie Dimon told the Council on Foreign Relations that the U.S. economy is stronger than many think. He says it's government that's stifling growth.


JAMIE DIMON, CEO, JPMORGAN CHASE: There's a huge wet blanket out here, OK? And the wet blanket to me is all the uncertainty around -- or you could say real uncertainty around taxes, policies, fiscal cliff. We had the debt ceiling fiasco; we have this constant anti-business, not just sentiment, but regulatory AGs.

So I (inaudible) around America. Wherever I go, I have business people, what do you -- how do you (inaudible) the regulatory (inaudible), and they all say it's terrible. So it's not just banks. (Inaudible). We shoot ourselves in the foot. We do it every day. Get rid of that wet blanket and this thing will take off.


FOSTER: Well, Dimon, whose company lost billions on risky trades this year, is also warning of a selloff (ph) in U.S. bonds at some point if politicians can't reach agreement on cutting the deficit. JPMorgan Chase releases its latest earnings on Friday in the U.S. We'll bring you them.

Let's bring you now how Wall Street (inaudible) Dow Jones down by nearly 1 percent. Investors are worried about the state of the global economy after aluminum giant Alcoa cut its outlook. That's the main story today, heading towards being down 1 percent currently. European markets all down today, mostly by around half a percent. They were hit by the IMF's warning over the region's debt crisis. The collapse of the proposed merger between BAE and EADS took a toll on the FTSE as well, which saw the biggest decline.

That is QUEST MEANS BUSINESS. Thank you so much for watching. I'm Max Foster in London. Thank you for watching. The headlines are next.


FOSTER: The U.S. Anti-Doping Agency says it has overwhelming evidence that Lance Armstrong is a drugs cheat. The agency says it has a thousand pages of proof that his team ran the most successful doping operation ever in any sport. Lance Armstrong's attorney calls the allegations disproved and unreliable.

Congress is holding a hearing on the deadly attack on the U.S. consulate in Libya. State Department officials are answering to allegations about lax security at the mission. One official told the House committee that security risks must be accounted for and diplomats can't operate from a bunker.

Turkish state TV is reporting that a civilian flight from Moscow to Syria has been forced to land at Ankara Airport in Turkey. State TV says it's a Syrian plane and sealed packages were found during an initial check. The investigation is ongoing.

A Russian court has ordered the release of a member of the controversial punk rock band Pussy Riot. It upheld the two-year sentences of two other band members. The three women were convicted of hooliganism after performing a song critical of President Vladimir Putin inside a Russian Orthodox cathedral.

Next on "AMANPOUR," Christiane has an exclusive interview with freed Pussy Riot member Ekaterina Samutsevich. And that is next for you here on CNN.