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WTO Issues Boeing Ruling; TEPCO on the Brink

Aired March 31, 2011 - 14:00:00   ET


RICHARD QUEST, HOST: Tonight, the WTO rules Boeing did get unfair subsidies. We have both trade commissioners on this program.

TEPCO's darkest hour: The company hovers on the brink. Japan's nuclear crisis deepens.

And one's entertaining the passengers, the other is charging them more. Two airline chief execs and two very different tactics.

I'm Richard Quest we have a busy hour together and, yes, I mean business.

Good evening.

Two companies, two continents, and one almighty dispute with neither side giving an inch or a billion. The World Trade Organization has ruled on the rift between the United States and the European Union over Airbus and Boeing. And both sides are claiming victory. Come to the departure lounge and you'll see what I mean.

The two factions have been at each others throats for years. Airbus/EU, Boeing/U.S., and each side accuses the other of taking illegal government subsidies, gaining unfair advantage in developing new planes. The latest blow was struck a few hours ago. The WTO said Boeing received more than $5 billion in subsidies, illegally, from the U.S. government, including NASA, the space agency, which hurt unfairly Airbus' business. The Airbus spokesman said it showed Boeing had shot themselves in the foot.

But today's victory on that side, is just really counterbalanced by what happened recently, because a victory for Boeing and the United States. They say today's ruling shows the balance is tipped unfairly. But don't forget it is also been accused that Airbus gets up to $20 billion in subsidies in so-called, "launch aid" cheap loans, and the like. (AUDIO GAP) each other's throats in deciding which is really in the wrong and you are going to hear from both trade commissioners now.

The Americans say they won. The European say they won. Can they both be right? Let's start off with the EU trade commissioner. Karel De Gucht, for his take on what really went wrong.


KAREL DE GUCHT, EU TRADE COMMISSIONER: What Boeing is doing is comparing apples with pears, you know? Because, with respect to Airbus, it is about loans, and the so-called repayable launch investments, which are loans; and the subsidy element lies in the difference between, let's say, the markets interest rate and the beneficial interest rates. So that is very limited. So to compare $20 billion with $9 billion simply doesn't make sense. And, of course, Boeing knows this, you know?

QUEST: Any but my viewers watching will say that between the two sides it is almost-it is almost infantile that both sides say that they are right and the other is wrong. And then the other comes along and says, no, we are right. And the other is wrong. And stuck in the middle are people saying, well, they can't both be right.

DE GUCHT: Well, we are not saying that we are the only ones that are right. And that we are the only ones that can claim that there have been subsidies, in this case, for Boeing. We admit that there have always-that there have also played beneficial schemes to Airbus. What we are claiming is that certainly we are not the only ones to blame and if it comes up to blame, then they are certainly not the biggest, let's say, that have had that-have made that false.

And let me recall that we have never put and end to the agreement. I think that is a big mistake that Boeing has been making, to stop this agreement, to put an end to that agreement. And now they are in a situation that, well, we have to find a solution. So I don't think we are infantile. This is a trade discussion between two friendly nations. I mean, between the European Union and the American administration, between the European Commission and the American Administration, and we will resolve it. I mean, I hope that now, willing-that Boeing will be willing to start negotiations. Because what it is really about is not about the past, you know? What it is about the future and what we should do is in fact establish a clear frame for production of large aircraft, large civil aircraft in the future. We have more and more competition from China, from Brazil, eventually-

QUEST: Now that-

DE GUCHT: -possibly from Canada. That's what we should do. We should have a new framework for, let's say, the level playing field in large civil aircraft production.


QUEST: That is the European perspective. The Americans would agree on the future and the role played-or to be played by the Chinese, the Brazilians, and others. But on the battle between Airbus and Boeing, I asked the U.S. trade representative, Ambassador Ron Kirk, what he took from today's ruling.


RON KIRK, U.S. TRADE REPRESENTATIVE: You can't look at his ruling today separate apart from the ruling the WTO made last year in favor of the United States, in which they found not one but every case of launch aid provided by the European Union-and France, and Germany, and others-was WTO- not only WTO inconsistent, but that it did in fact cause harm to Boeing and their employees. So, you know, we think it is important. We look at the broader picture and put all of this together to form a more thoughtful narrative.

QUEST: When I saw the report, and I saw the result my heart sank, Ambassador. For five years this has rumbled round the world. And the fact is tonight, aren't we, both say the other side done us wrong. Both sides say they won. And we're really back at square one.

KIRK: Well, I hope we're not. And I mean, believe me, no one is more frustrated than us. And the, frankly, thousands of employees at Boeing and their suppliers, that have been harmed by 20 years of launch aid that we have said was illegal. And then I wish it had just been five years, Richard. This has been going on for almost 14 years. We have argued all along that all we're asking the European Union to do-

QUEST: Right.

KIRK: Listen, these are two big commercially viable companies. And, you know, until China and Brazil, and others develop their capabilities, the reality, you have two major players in the civil aircraft division. Let them go out and compete fairly in the market. And let them go out and secure funding at commercially acceptable loans, which is what Boeing has done. And all we would like to do is have government get out of the way and let these two airlines go out and compete fairly in the global marketplace.

QUEST: But you know it is not as simple as that. And if I have your opposite number from the EU, he'll be pointing out the opposite point of view. Isn't-do you see, Ambassador, any prospect for another aviation agreement, similar to the one that was in the 1990s that collapsed spectacularly?

KIRK: Well, we would welcome that. Not the spectacular collapse. You know, Richard, we have made it plain, and I particularly, when I assumed the office and responsibilities as U.S. trade representative, have sought to find solutions to a number of these protracted legal cases that we've had with the European Union, and others, because they cause harm to the marketplace and the employees and families. We would love to have it resolved, but we will not yield on the one fundamental premise that the European Union and its member states cannot continue to provide non- commercially viable aid to Airbus.

Airbus is a large company, it has extraordinary capabilities, they should be able to go out and finance the acquisition and launch of these planes without governmental subsidies. We are prepared to do the same thing. We would welcome the opportunity to sit down with the European Union and see if we can't come up with some way to resolve this.


QUEST: Fifteen years since the dispute began. And at least five years since the actual panel started its hearings and still the two sides say the other is in the wrong. Who knows whether there will be an agreement on that before I collect my pension.

When we come back in a moment the financial cost of Japan's catastrophic quake and the tsunami. It is becoming clearer on the nuclear question. The company that runs the damaged nuclear plant, the liability is in the billions. Who, or how, will it pay? In a moment.


QUEST: Well, Japan's nuclear crisis continues tonight. The future of the company at the very center is in doubt. It is Tokyo Electric Power Company, TEPCO, and its shares have fallen some 78 percent since the March 11 earthquake and tsunami. Today, another perhaps, financial blow, Moody's has downgraded three notches, from A1 to Baa1, this will affect the senior secured, the long-term debt. It raises questions, as Moody's said, of significant financial obligations. And it calls into question TEPCO's independence and financial viability. Indeed, the Bank of America, BOA/Merrill Lynch reports, shareholders could be wiped out with claims reaching up to $113 billion if the crisis ultimately leads to nationalization of TEPCO.

TEPCO is being blamed, as you'll hear in a moment, obviously, not for the earthquake or tsunami, but for the way it was prepared to deal with any such extreme activity. In talking about extreme behaviors, the president has been hospitalized, of TEPCO, Masataka Shimizu, has kept a low profile since the accident happened and the disaster happened. Now it is believe, since he is suffering from high blood pressure, at TEPCO itself, there is a vacuum of leadership. Our Correspondent Martin Savidge is following the story from Tokyo.

When you look at TEPCO and the potential to continue in the face of such overwhelming costs, it doesn't look good.


MARTIN SAVIDGE, CNN INTERNATIONAL CORRESPONDENT (on camera): The stock has taken an absolute nosedive. Their ratings have gone down, and now you have the leader of the company that is in the hospital and the tab that they owe for the clean up for the evacuees, for all the damage that has been done, is ticking up by the moment. So, I think what clearly has been discussed is the government stepping in becoming the major shareholder here; and, essentially, nationalizing the company because that is the only way that anybody here in Japan seems to see any financial way out for the company.

Does it survive after that? It is anyone's guess at this time, but really what the company will tell you is, look, we're not worried about that. That is not our focus. Our focus is to bring those reactors under control and bring an end to this nuclear crisis.

QUEST: You see, at the moment, although there have been lots of allegations about what TEPCO may have done in the past, is there anything that they seem to have done wrong this time round? It was hit by an earthquake. It was hit by a tsunami. So, I'm wondering where the blame for TEPCO is lying?

SAVIDGE: Well, some suggest that perhaps they didn't have say, a SWAT team ready; meaning some sort of emergency team that was ready to go for any sort of contingency. And, yes, you could say that an earthquake of this magnitude, the tsunami of that size, no one anticipated striking, certainly not back to back, but there are many who say, look, it is a large entity. It pretty much has a monopoly of electricity in the major portion of the country. It should have been better prepared and it should have been better able to respond than it has. I mean, when you hear these reports, Richard that the employees of the plant are living on crackers and vegetable juice, and laying on mats on the floor. It just seems that they were not prepared and continue not to be prepared to handle the kind of problem they're facing.

QUEST: Finally, TEPCO may not last as an independent entity, but if we look at the crisis tonight, at the reactors. Is it getting better? Is it getting worse? Or are we pretty much where we were?

SAVIDGE: We are pretty much where we were. Essentially, there is still a continuous lead of radiation that is going into the ocean and TEPCO has not been able to identify the exact source. As for the reactors? They are stable to a point. But they could hardly be called under control. And there are new calls by the International Atomic Energy Agency that Japan should increase the size of its evacuation site, from 20 kilometers, to perhaps 40 kilometers, or more. Because of testing they say shows that there is dangerous radiation outside of the evacuation zone.

No where near out of the woods. Stay tuned, Richard.


QUEST: Martin Savidge in Tokyo for us tonight.

Japan's deputy finance minister says the March 11 disaster could cost the government more than $300 billion. To get immediate financial help to areas in need Mitsuru Sakurai says officials are planning a supplemental budget of at least $120 billion. Sakurai hinted that a rise in taxes could be in the cards to help pay for it. And the money would go to the hardest hit areas in the northeast of the country. Entire towns have been washed away. These pictures show what used to be the rice fields.

We've had a grim warning from HSBC. It has published its quarterly economic report and it says the storm clouds are forming. HSBC has cut some of the growth forecasts, notably in the U.S. and the U.K. It has also raised its inflation forecast and it says the combination is the worst kind of economic marriage.

Joining me now is the author of "Losing Control" who also happens to be HSBC's chief economist. He's Stephen King.

Many thanks.


QUEST: For the book.

Why are things-let's start with Japan, firs of all. Obviously, this is a deteriorating state of affairs. But it is too soon to really know what the long-term of medium, even medium term, economic effect is going to be.

KING: We learned from previous disasters often people rush to reach a conclusion which turns out to be wrong. Think of 9/11, for example. People said after 9/11 it is going to cause a U.S. recession. The recession had been and gone before 9/11, so it turned out so that people weren't quite right about that.

This time around there are a lot of uncertainties about Japan. Obviously, the whole issue about (UNINTELLIGIBLE) funds, the rebuilding, over the course of the months ahead; whether that is going to be through tax increases, higher government borrowing, repatriation of capital from abroad, all these things are possible.

QUEST: So in that situation it is best not to make any prognosis-or tie yourself too closely to them.

KING: Well, you can try. You can point to some of the key risks.

QUEST: Right.

KING: One of the obvious (UNINTELLIGIBLE) loans is actually the global supply disruption associated with, you know, the factories in Japan.

QUEST: The U.S. and the U.K., you talk about that, and you talk about the economic marriage and there being a somewhat of a disastrous area, at the moment.

KING: Yes.

QUEST: What is the problem? Because the U.S. has got growth of 3-2.5 to 3 percent.

KING: Yes, well normally in a first of second year of a very power recovery you get 5 to 7 percent growth. So actually 3-2 to 3 percent is not really very much in the U.S. But the really big problem is that we are seeing very early in this recovery, an incredible increase in commodity prices, food prices, metals prices, oil prices, really unusual. The reason why it is happening is because of the strength of activity elsewhere in the world. China, India, and so on, they are driving up commodity prices, to a certain degree. Loose market (ph) conditions are also acting to do that. The consequences that prices are rising, but wages are not, squeezing people's incomes.

QUEST: At the moment, they are not, but if you take the U.K., and even inflation numbers in the EU and the U.S., particularly the U.K., eventually rates are going to go higher to start to prevent any inflation becoming entrenched. Because if it does, then it does feed through.

KING: It might feed through.

QUEST: Why are you all saying "might"?

KING: Because the key thing here is that if prices rise and wages don't respond particularly quickly, people will be worse off. And when they are worse off demand will eventually fall.

QUEST: But there is-but the evidence is against you, isn't it? In terms of-wages do rise eventually, because people go on strike and there is industrial unrest.

KING: In the 1970s that was absolutely true. And perhaps you are a child of the `70s.


KING: But the reality is that these days it is not quite so easy to do that. Partly because of the pressures of outsourcing and off shoring, which means it is much more difficult to get the kinds of wage increases that we have seen in the past. And take the U.K. as a specific example, all this austerity coming through to in the public sector. Very difficult in those circumstances to get offsetting wage increases.

QUEST: So, let's just-I know you can't generalize, but I'm going to ask you to anyway. If you take what I would describe as the trans-Atlantic economies.

KING: Yes.

QUEST: The U.S., U.K., and Continental, major Europe, the EU continent. Do you believe then that the rates can go up with inflation coming down? And that they won't feed in to the further wage spiral?

KING: I think the Euro Zone we're going to see rates going up, possibly for the wrong reasons. In other words, that the ECB is worried about wages picking up and actually the wage increases don't really materialize. The last time we really saw this in a big way was back in 1990, when the bank of Japan raised interest rates continuously, worry about higher inflation caused by higher oil prices. We look back at that period now and say the Bank of Japan got it wrong, because it focused on raising interest rates to deal with oil prices, when actually the underlying story was disinflation and deflation, not inflation.

QUEST: "Losing Control" is by Stephen King, and many thanks, indeed. We love to have you on the program to talk about these economic matters.

KING: Thank you, Richard. Thanks.

QUEST: Many thanks.

Now, when we come back in just a moment it is a question of ethics and it happens in the unlikeliest of places. Will the reputation of Warren Buffet and Berkshire Hathaway take a beating after an unexpected resignation? Who resigned?



QUEST: For years Warren Buffet and his investment arm, Berkshire Hathaway, have enjoyed a reputation for spotless integrity. There were new revelations that could perhaps do damage to that hard-fought image. Less than 24 hours ago, one of his right hand men, one of Buffet's closest advisors, David Sokol announced his resignation over questions of his personal investments in the Lubrizol Company. The matter is one of a question of ethics and whether it passes the smell test.

Maggie Lake is in New York.

I mean, the Sage of Omaha, the bastion of Berkshire Hathaway? What on earth is Sokol-I was going to say alleged, but it is no allegation. What on earth is the swirling rumors about?

MAGGIE LAKE, CNN FINANCIAL CORRESPONDENT: Yes, Richard, this is a really interesting development. And there is a lot that smells wrong from this story from an ethical perspective, I'll tell you. I mean, basically what it comes down to is a revelation that this executive the head of one of his firms, one of the people we thought might be taking over one day, took a stake in a company, later recommended to Buffet and Berkshire ended up buying it. There is a lot of timeline that you can look up on the Web, later, on this. But that is the nuts and bolts of it.

And the fact that he came out and resigned, he said today it didn't have anything to do with that matter. But very few people believe that. There are a lot of questions around this. Warren Buffet in a press release said this. He said, he does not think any fraud was committed, "Dave's purchases were made before he had discussed Lubrizol with me and with no knowledge of how I might react to his idea." That was Buffet's statement.

We called the SEC. They declined to comment, but it is believed they are taking a good look at this. Whether it was insider trading, whether it was any sort of fraud. It was Sokol, himself, though that got in front of the television cameras today when they realized how much controversy this was creating, a very lengthy, unusually long interview with CNBC. Listen to what he had to say.


DAVID SOKOL, FORMER EXECUTIVE, BERKSHIRE HATHAWAY: The thing that people need to understand is I have never had any authority at Berkshire to invest a dollar in stocks. I have a lot of authority within Mid-American, Johns Manville, Lubrizol. And-but I've always been looking for transactions, both to invest in personally, and then if I thought a company is something that Warren might have an interest in, I would forward it to him.

Lubrizol is exactly that. I got interested in Lubrizol, frankly, I can't tell you where I first heard the name and it was sometime last fall, I pulled their 10(k), found what they had been doing the last couple of years interesting. I made a decision to buy some shares. When I mentioned to Warren that I thought there was an opportunity, perhaps for Berkshire. I told him that I owned some shares. And frankly, I didn't think he had any interest.


LAKE: Now, you can see, he is being very technical there and people say it may be that it isn't actually inside trading. But when you have to go, as has been pointed out, go on television and defend yourself for 20 minutes, you have a problem. It is probably something that you shouldn't be doing. There is a real-


I'm just going to jump in here.

LAKE: Go ahead.

QUEST: But, Maggie, he-I mean, this is so complicated that you and I are not going to be able to put it to rights in two and a half minutes. But he does say clearly there, doesn't he? I bought some shares, I advised Warren. And I told Warren I had some shares.

LAKE: Yes. And again, to the letter of the law, that might not be bad. But, Richard, there is this perception that there are two systems. There is one set of rules for the inside people and another set that leaves the little guy disadvantaged. It is against that backdrop, many people are saying, this is not what you do. This is not good corporate governance. It is terrible judgment. It may not be illegal, but it is unethical. And it plays into this perception of greed and self interest. A lot of people thought he came off that way, after the interview.

And this is a blow to Berkshire and Warren Buffet's style of not having the same kind of internal controls that a lot of other companies have. He says it is his judgment. He hires these people. He leaves them a lone to do what they will.

QUEST: All right.

LAKE: And a lot of people wondering after this, is that the best way to operate this company.

QUEST: Look behind you at that skyline, Maggie. And I promise you, this story is as murky as that sky tonight.

LAKE: Yes.

QUEST: Maggie Lake, getting hot under the collar. If she had a collar, she'd be hot under it. Lovely to see you, Maggie.



Many thanks.

Straight to the flat session. Ooh, just down 2.3. That is opposite. That is opposite (ph). That is 2.3 points. It is jobless claims less than expected. Monthly job report tomorrow. If in doubt, sit on your hands, the Dow Jones is at 12,348.

The results from Ireland's bank stress tests are in. The blood pressure amongst bankers is rising. The amount of money that Ireland is going to have to pump into its banks, on top of that which is already in there, is staggering. And we'll have the numbers.



QUEST: Hello, I'm Richard Quest, QUEST MEANS BUSINESS. This is CNN and on this network the news, it always comes first.


QUEST: Hello, I'm Richard Quest, QUEST MEANS BUSINESS.

This is CNN. And on this network, the news, it always comes first.

The Libyan government says its former foreign minister left under false pretenses and a government spokesman is telling reporters in Tripoli today that Koussa had been granted medical leave and then he turned up in the UK.

The British prime minister calls Koussa's defection "a serious blow" to Gadhafi's authority.

Smoke rises over Abidjan in the Ivory Coast and France is reinforcing its military presence in parts of the city. The U.N. says troops and police have abandoned self-declared president, Lauren Gbagbo. The internationally recognized president, Alassane Ouattara, could appear at any time. And the top U.N. envoy says the blockette -- blockade of Ouattara's hotel has been lifted.

Japanese officials now say radiation levels in the ocean off the crippled Fukushima Daiichi nuclear plant continue to skyrocket. The plant has been in an ongoing state of crisis since the earthquake and tsunami in March. More than 150 U.S. Marines trained in radiological operations are now heading to Japan to offer help. A French nuclear group has also sent in specialists.

There's political upheaval in Kuwait, as the entire cabinet has resigned. It comes amid calls for political and economic reforms amongst the conservative society. State media reports saying the decision was made during a special meeting on Thursday. The Emirates' ruler is expected to appoint replacements.

If things weren't bad enough in Ireland's banking sector, they've just got $34 billion worth -- worse, because that's how much four Irish banks need to raise in additional capital after the stress tests on their businesses. The total bill for bailing out Ireland's banking sector is now the best part of $100 billion.

There's more.

Jim Boulden is with us.

A hundred billion?


QUEST: For four banks.

BOULDEN: And the new finance minister said in parliament this afternoon, quote, "most of that will not be recovered." In other words, it's gone. It's gone.

QUEST: Fifteen thousand euros for every man, woman and child on the Irish -- in the Irish country.

BOULDEN: Yes. This is a small country with a small economy whose banks we all know got well out of control during the property boom. And a lot of Irish people made a lot of money for a while flipping houses with each other and investing in properties. The banks got a lot of lending from other banks in Europe and used this money in all of that. And then it all came crashing down.

QUEST: So what's -- what happened today?


QUEST: They had the stress tests.

BOULDEN: Yes. We had the stress tests. And you remember last summer, we were -- you and I were sitting on the banks of the Thames talking about the stress tests for Europe and a lot of people said they weren't very stressful.

Well, these were very intense stress tests, a lot of people are saying. The Irish had to put their banks through this in order to get the 85 billion euros that came last year in the big bailout.

So they put the banks under stress. Some of the banks that passed with flying colors last year did not fly -- really pass now.

So in the worst case scenario, banks like Allied and Irish Bank would need billions more. So that money is going to come from the bailout. They're not going to get it from taxpayers. They're not going to get the bondholders in trouble this time around. But those banks will be getting an injection of capital. You can see there, Allied Irish Banks certainly getting the vast majority of the money needed here...

QUEST: I'm just pausing you...


QUEST: -- just for one second. It is coming from taxpayers, because that bailout money is loaned. And those loans have to be paid off. I'm just merely anticipating what I know somebody is going to write to me now.

BOULDEN: Yes, and taxpayers in the rest of Europe are going to get a lot of money from this...

QUEST: Absolutely.

BOULDEN: -- because they're paying high interest rates.

QUEST: See that, interesting.



QUEST: Sorry, Jim.

BOULDEN: Now, also, so the -- the stress tests were done by the central bank governor, of the central bank. And he held a press conference this afternoon. And he talked about the fact that basically this means the entire Irish banking system will now be nationalized.



PATRICK HONOHAN, GOVERNOR, CENTRAL BANK OF IRELAND: And I suppose the -- the indications would be, though I don't preclude anything, but the indications would be that at this gain of capital, that we would see majority state ownership in all -- in all of them. I suppose that's only realistic.


BOULDEN: Now, did this draw a line under the banking sector?

Well, they're hoping so, but they have said in the past that maybe it would. Remember, it's a brand new government in Ireland. They want to try to get that interest rate down on the loan they took that you said taxpayers would be having to be paid back.

But the banks are the problem there. Every country in Europe that's having trouble has a different reason. It's the banks in Ireland. And we know, they took on all that debt. The previous government said they would take on all the debt, all the liabilities from the banks, which many people now would say not a good decision.

QUEST: Jim, many thanks, indeed.

In another blow in the Irish banking sector, assuming it's possible to have another, now the defunct Anglo Irish Bank is announcing the largest annual corporate loss ever for an Irish company, $25 billion in 2010. So far, the bank has cost the Irish taxpayer more than $41 billion in recapped funds. Anglo Irish was not part of the stress tests we mentioned a few months ago. It says it still has nearly $50 billion of outstanding loans and no one's certain it won't need more money.

If you want to look outside of Ireland, well, Europe's woes continue to deepen. Let me update you on where we stand with things.

Portugal has now revised up the deficit. It's still reeling from the collapse of the government last week. It says 2010 public deficit is 8.6 percent of GDP. That is down, but it's still more than a percentage point above the government's forecast. The debt burden is 92.4 of GDP.

German unemployment fell twice as much as forecast. The numbers are down 55,000, above three million, at 7.1 percent. It's the lowest since 1992. Now, the worry, the real worry in the German economy is the lack of skilled labor. And that, of course, has inflationary hawks worried, because Eurozone inflation has jumped to 2.6 percent in March. It's the fastest for some two years and it is above -- not much, but it is above the ECB's limit for the fourth straight month.

It all adds fuel to the fire for an ECB rate hike next week. Remember, we know from President Trichet in the ECB, he's already said he's going to be strongly vigilant against inflation. And that has been well and truly interpreted as meaning that it will be a rate hike.

Inflation worries and the strains on sovereign debt, this is how the markets closed the session in Europe. They were all down. Hardly surprising, really, bearing in mind what's happened with Ireland, that they'll need more money.

In Russia, President Dmitry Medvedev is promising a major shake-up at the country's biggest energy companies. He wants government ministers to withdraw from company boardrooms to boost business competitiveness.

In many parts of the world, the mere thought that government reps would sit on company boards would have us screaming and running off to the regulators, if the regulators weren't already on the boards.

I turned to our Moscow correspondent, Matthew

Chance, who it was lucky for us, is in London, to ask about this unusual situation.


MATTHEW CHANCE, CNN SENIOR INTERNATIONAL CORRESPONDENT: Obviously, it's a bad practice. And in well run market economies, it very rarely happens, if at all.

But in Russia, it's -- it's pretty commonplace. And that's why President Medvedev, the Russian leader, has decided to get involved right now, to -- to make sure that company directors are not also government officials or government ministers.

And so his financial aide, Arkady Dvorkovich, spelled out earlier what exactly the president was suggesting happen.


ARKADY DVORKOVICH, RUSSIAN PRESIDENTIAL AIDE: Almost everything in a company depends on who is the chairman of its board of directors. His position predetermines 90 percent of all company decisions. The replacement of those top government officials with independent board directors could considerably effect the quality of governance of those companies and their transparency.


CHANCE: OK, so that was Arkady Dvorkovich. He's the presidential aide. When it comes to the economy, he was outlining why this happened. It's one of several steps that President Medvedev has suggested to boost foreign involvement.

QUEST: Yes, but you see, this is really the core to it, isn't it?

Do they believe in what's being done as being the right thing to do or is President Medvedev doing this because it will just bring in the money?

CHANCE: Well, that's not clear. I mean certainly there's a -- there's a line of analysis that suggests this is just cosmetic, that, in fact, the government will still exercise a great deal of control.

But I think what's certainly true is that President Medvedev believes that corruption is a huge issue in -- in Russia. He's not alone in thinking that. But he is virtually alone at the top of -- of Russian politics in thinking that this has to be addressed. And so he's been very clear that this is a necessary step.

take a look at what he said at this -- at this conference earlier.


DMITRY MEDVEDEV, RUSSIAN PRESIDENT (through translator): I already gave, in the past, my assessment of the investment climate in our country, it's very bad -- very bad. Business conditions for relatively small companies have not improved this year, but have perhaps even worsened. Corruption continues to affect the general economic situation, maintaining a stranglehold on the entire economy. And this hold is still as strong as ever.

The result is clear for all to see -- money is fleeing our economy.


QUEST: Will there be people in Russia tonight who will have heard Medvedev, who will have heard the new policy and will think, huh, the game is up?

Or will they simply think, we've just got to play it by different rules?

CHANCE: Yes, I don't know. It's -- it's a difficult one to call, isn't it?

It certainly looks, on the face of it, like a step in the right direction, toward good corporate governance. And I'm sure there will be a lot of foreign investors out there who will welcome this move.

But I think there will be cynics, as well, that believe that this is just cosmetic, that the government is still, as I said, going to exercise leverage over those important businesses in Russia. I don't think that's going to change with this announcement.

QUEST: Matthew Chance on the murky doings in Moscow in the business world.

Ash clouds, snowstorms and those dreaded security checks -- it isn't always much fun to be a flier. One airline is trying to change that. This may be the best in-flight movie you will get to watch whilst still on the tarmac. And I don't mean that delightful 747 -- 7400 taking off, in a moment.



UNIDENTIFIED FEMALE: Ladies and gentlemen, the captain has turned on the "fasten seat belt sign." If you haven't already done so, please stow your carry-on luggage underneath the seat in front of you or in an overhead bin.


QUEST: You know these things, the announcement telling you what you should be doing on board the aircraft. Well, the moment it starts playing, it's so boring. Well, those of us on board who are used to it are not listening anyway.

Of course, these days, airlines are trying to make it a little bit more interesting, particularly one Asia-Pacific carrier.


UNIDENTIFIED FEMALE: Stretch and slide. Yes. You're a giraffe. Now it's seat belt time. When the seat belt sign comes on, buckle it in. Grab, click, pull. Grab, click pull.


QUEST: Now, you may want to strangle them with that, but you've got to admit that if you're watching this on Air New Zealand, the "Fit To Fly with Richard Simmons" is a slightly more high energy approach than the standard safety features. In fact, it's so popular, people are flocking to watch it even when they're nowhere near an airport. It's racked up almost one-and-a-half million views on YouTube.

And the man who is partly responsible is the chief executive of Air New Zealand, Rob Fyfe.

Good evening to you.


QUEST: Before we ask you about it, you ought to be ashamed of yourself.

You see, there -- there he is. The man there with the hat, that's you, isn't it?

FYFE: Well, I have to say, the outfit wasn't in my wardrobe before -- before I got talked into doing this.

QUEST: Right.

Why did you do it, because the critics will say that it -- you -- you know the arguments. You've done this before with the old backs (ph).

Why do you think it's appropriate to show safety in such a fashion?

FYFE: We've made a -- a call that we think if we can turn the safety video into a form of entertainment, we'll get a lot more people watching it. Just as you described, the vast majority of regular travelers don't pay attention, they talk, they read the newspaper.

We've seen their eyeballs just go up phenomenally. And I suspect we would have more eyeballs watching our safety video than any other airline in the world.

QUEST: Have you done any research into whether or not people are actually taking more notice of the content?

Just looking and saying, ha, ha, ha, that's funny, doesn't mean to say they would know how to put their...

FYFE: Yes.

QUEST: -- their oxygen mask on.

FYFE: Yes, we -- we -- we've done some work. But it's hard -- it's a really, really hard thing to measure, because the key issue is when people are under pressure, which is when these things happen, how they react. And it's very hard to simulate that.

But people do have a very high degree of recall of the messages at the end of the -- at the end of the video.

QUEST: We need to talk about the serious question, of course, of what's happening within your business at the moment.

Now, you have had both the New Zealand earthquake to contend with, which, pro rata, is still $16 billion and it's still going to cost a great deal of money, and Japan, which is a major part of your route structure.

FYFE: Yes, it's had a very, very big impact on the business. I mean, first and foremost, there's a mess of human tragedy and that has been our focus on what we can do to support both those communities.

The business impact will be -- will be quite long-term for us when you add it together with what's going on and I feel that's -- that's a pretty tough time for us at the moment.

QUEST: So are you seeing passengers not flying as much or are you saying a pressure on yields, which means, of course, you don't make so much money?

FYFE: Well, the...

QUEST: Or both?

FYFE: There's both, actually. There's a pressure on yields. We have given, just in the case of Christchurch, you know, we've given away over seven million pounds worth of free and subsidized fees for people that want to get out of the city and to help search and rescue personnel. We've done a significant amount of work in Japan in the same way.

So a lot of yield pressure because of subsidized fees.

QUEST: Right.

FYFE: And we're also seeing passenger numbers decline.

QUEST: We saw Qantas, just in the last 24 hours, announce the capacity reduction on many of its routes.

Do you envisage also reducing capacity?

FYFE: We have reduced some capacity on Japan. We haven't reduced any capacity in and out of Christchurch yet. There's so much activity going on still in Christchurch around this (INAUDIBLE)...

QUEST: But what about system-wide?

Do you -- will you continue to grow the network...

FYFE: Yes.

QUEST: -- or do you think it's time to...

FYFE: No, we...


FYFE: -- we're actually seeing quite robust growth across all our other markets, despite what's happened in Christchurch.

QUEST: Right.

FYFE: U.S., UK and so on are still quite strong for us.

QUEST: Earlier this week, Willie Walsh said on this program that $115 a barrel was manageable. He didn't say he liked it. $150 becomes pain- worthy.

What would you say?

FYFE: You know, if you really ask me, I'd actually be happy with fuel at $150. I'd be happy with fuel at $200. We are actually an incredible robust airline. We've got a very strong balance sheet. There's a lot of airlines out there that struggle to economically survive. They get by by the skin of their teeth.

To be honest, if high fuel started to claim some of the struggling airlines out of the industry, it wouldn't concern me at all.

QUEST: Oh, oh, oh, that's a polite way -- you just want to -- you want to nut cracker the competition.

FYFE: Well, the reality is the strong should get stronger and those that aren't strong enough should actually fall by the wayside. Unfortunately, in the airline industry, often, you find a lot of intervention in the industry that stops that from happening.

QUEST: All right, before we go, we're -- let's have a bit more ritual humiliation, if we still have the video.

Ah, look at it.

Did you have -- it's on a loop, so it will just go round and round.

Did you have to be convinced to do that?

FYFE: I did have to be convinced. My daughter has already threatened to divorce me...


FYFE: I suspect if she's watching this program, I won't be welcome back home at the end of the week.

QUEST: Rob, many thanks, indeed, for joining us.

FYFE: Thank you.

QUEST: Now, we're staying with the airline world here on QUEST MEANS BUSINESS.

We're going down to earth with a bang, talking of big airlines, Ryanair is Europe's largest. And the boss, Michael, says he wants a solution for dealing with flight disruption. It's more fees.

Ryanair is next.


QUEST: Now, Ryanair, the Irish airline, the largest airline in Europe, is to add a surcharge of two euros, around $2.80, on every flight booking. And the reason, they say, is to compensate for stranded passengers and the EU 261. The budget airline blames the legislation for the extra fee, whether it is the Icelandic ash cloud last year, the snowstorm around Christmas or strikes by airline -- airport staff that has been seen over several countries last year. Because, as you know, if you're a passenger whose flight is disrupted, under EU 261, the airline picks up the tab for care and comfort, food, accommodation overnight, not compensation, care and comfort.

Ryanair says it shouldn't have to pay for that out of its own control out of its own pocket.

From next Monday, Ryanair imposes a fee on all new bookings.

Ayesha Durgahee spoke to Ryanair's boss, Michael O'Leary, and asked him if he was taking matters into his own hands to claw the money back.


MICHAEL O'LEARY ,CEO, RYANAIR: Something is wrong and rotten with this European regulation that says -- suddenly says even if you take the volcanic ash situation last year, when the skies were closed for 17 days, the travel insurance companies paid out nothing because it was an act of God. The governments paid out nothing because they're governments and you can't sue them. They simply turn around and say to the airlines, you shell out all this money.

It has to be recovered from somewhere. The legislation doesn't allow us to recover the -- this money from the European governments who closed air space, from the striking ETC (ph) unions or from the airports, who couldn't clear the snow off their runways in November and December.

AYESHA DURGAHEE, CNN CORRESPONDENT: But it's a regulatory issue, so then surely you should be talking to -- to Brussels and not making your passengers, present and future, pay.

O'LEARY: Well, A, we talk to Brussels on an ongoing basis, but trying to get some kind of sensible debate or dialogue in Brussels, Brussels is very happy to stiff the airlines with all of these additional expenses. That's what regulators do.

What they don't try to do is explain to passengers that if this regulation is defective, passengers will pay higher costs. And that's what's happening.

DURGAHEE: This levy is essentially trying to get the attention of the EU.


DURGAHEE: Do you think they will react (ph) at this level?

O'LEARY: I hope so. I mean, as we said today, if there's sensible reform of the E -- of EU 261, we just want two things. One, if it's a force majeure situation, like a volcanic explosion closes air space, the airlines aren't responsible for these expenses. You know, I don't know who is, but it's not going to be the -- at the airlines' expense.

And the second we want is an effective right of recovery. If E -- if ETC unions (ph) in Germany and France and Spain walk off the job, we're allowed to recover our expenses from those striking unions.

Why -- why not?

DURGAHEE: So hmmm are you trying to get back and from the compensation that you pay now?

O'LEARY: Well, we estimate, I mean, given that it's not a -- it won't apply to our lowest -- Ryanair's lowest air fare -- Ryanair's lowest advertised fares, we would hope, over the next 12 months, we'll raise just over about 100 million euros. And our costs in the last 12 months have been just over 100 million euros. So all we're trying to do is to recover the costs that we have incurred as a result of this -- these deficient regulations.

DURGAHEE: So then if you do recover all that money, then the levy will be dropped?

O'LEARY: If we don't -- well, that's for last year's costs. It depends on what the costs will be for the forthcoming year.

DURGAHEE: But do you think it's fair that passengers should pay?

O'LEARY: But I didn't -- there's nobody else to pay. If we can't get the recovery from the people who caused the delays, then the passenger compensation or the refunds to passengers have to come from those passengers. You know, we don't live in some kind of mythical world where somebody, you know, jets down and gives us the -- you know, this money. If Europe passes these regulations that increase the costs to airlines unfairly, then the airlines have to recover it from their passengers.

How they recover it is a matter for each airline.

DURGAHEE: Do you think that this compensation levy is something that other airlines will follow?

O'LEARY: Well, first, to be fair, most of the airlines have been complaining about the 261 regulations since they were introduced two or three years ago. They're clearly unfair. They're the kind of thing that would only be designed in Brussels, you know, something that is un -- as unfair as this.

Will they follow?

Yes, some of them will. I mean they've been every -- most of the measures that Ryanair led in Europe, which was charging for the drinks and snacks on board, charging for checked in bags, all the other airlines have followed us.

Where they don't follow us is in having the lowest fares.


QUEST: Michael O'Leary talking to Ayesha Durgahee.

After a week of torrential rain, parts of Thailand are finally beginning to see some signs of change.

Pedram is at the World Weather Center for us this evening -- good evening to you.


Yes, Richard, the rainfall there has been torrential. And, you know, observing some rainfall totals that are 15 to 20 times higher than the de - - month of March average for this part of the world.

And we take you to Southern Thailand, where they've seen, really, the brunt of the heaviest rainfall as the storm system had parked in place.

And, finally, we're seeing this feature begin to gradually shift offshore over the Gulf of Thailand and also the Andaman Sea. So the Nicobar Islands, the Andaman Islands there, going to see the heaviest rainfall. But a few showers could linger on into Southern Thailand. And that's the good news when your monthly activity is about 50 millimeters for the month of March and it's the 31st and count just for four or five days rainfall totals coming out of Surat Thani about 500 millimeters. Phuket coming in nearly at 255 plus millimeters there in the past 48 hours.

So that shows you that rainfall total and the disparity between the averages. And, you know, it is the dry season. Krabi certainly should be getting about 30 to 40 millimeters this time of year. And this is what it looks like in Krabi in the past couple of days, as the armored vehicles coming through, going through the waters, trying to rescue anyone they can. And obviously, we often say do not dare take your car into any sort of waters.

But in the emergency situations, these vehicles that are far, far heavier than the -- the personal vehicles out there certainly could take a toll of the heavy water, the strong water coming through. And you can just see some of the devastation left in places. The soil is absolutely saturated here with the last couple of days of rainfall.

Again, there is Southern Thailand. They've seen the heaviest rainfall. But the Nicobar Islands, right here around portions of the Adamansi (ph), they're going to see the heaviest rain again in the next couple of days, upwards of five, perhaps eight centimeters. Some areas could get a little bit heavier rainfall. But it looks like Thailand should begin to see things quiet down.

Now, take a look at the what's happening over the northern portions of the United Kingdom. A little disturbance beginning to roll through. And as it does, a few isolated showers possible. In London, you'll wake up Friday morning, gray skies, once again, a few light showers possible there. But behind that feature, very warm temperatures left in place.

And look at this -- the color contours of yellow and orange, a disparity here for warm temperatures. But to the south, in the southern portions of Spain, that's a little bit of color folding. Basically it's so warm above average that the colors fold and go back to the extreme opposite end. But this is well above average temperatures there in the southern portions of Spain. And it looks like that's going to continue as this quick shot of showers exits the area there. We'll have minor airport delays for you on Friday morning around London and that region there because of the winds going to pick up a little bit -- but, Richard, it looks like warm temperatures are going to persist across the southern portion of Europe.

Some 10 to 15 degrees or so...

QUEST: Yes, OK...

JAVAHERI: -- above average there -- Richard.

QUEST: Pedram, day -- tomorrow night, if you're with us, I do need to know a little bit more about the pollen count.


QUEST: Make -- look, as I'm getting toward middle age and beyond, I seems to be getting worse with the pollen count.

JAVAHERI: Is it hurting a little bit?

QUEST: And it seems to be -- well, I think it must be, either that or it's just old age.

Pedram, we'll see you tomorrow, hopefully, when you'll be able to tell me a little bit more about it.

Now, if you'd like to join in any of the discussions and just become a -- a good friend of -- of ours, well, we have a dialogue and it's -- you can find us at Twitter, at e-mail,; also @richardquest is where you can join and we can have a chat on the various issues that we talk about on this program, @richardquest is our Twitter name.

When I come back in just a moment, the question of whether or not these exciting safety videos are actually a safety disaster in the making.


QUEST: So that is the airline chief executive of airline -- of Air New Zealand.

Who knows whether he'll live and rue the day that he put on something Lycra and balanced in front of his safety video?

But for tonight's Profitable Moment, well, anything that makes us watch those boring safety videos on planes is probably worth trying. And ANZ's latest attempt is to be applaud. It gives you something to look at and look forward to when suffering the inevitable delays before takeoff.

Of course, the idea isn't new. Virgin Atlantic used animated characters in the 1990s, while other airlines were still being pole-faced about the whole business.

These gimmicks have to be refreshed frequently or they become tiresome. But for full marks for trying, because these days, airlines, more of them are joining in. And provided the message is clear, I think those who criticize such ingenious efforts are just a bit miserable and probably stuck back in economy, where they belong.

And that's QUEST MEANS BUSINESS for tonight.

I'm Richard Quest in London.

Whatever you're up to in the hours ahead, I hope it's profitable. : "PIERS MORGAN TONIGHT" is after the headlines.