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Aviation World Descends on UK's Farnborough Airshow; Boeing First at Farnborough; Air Lease Deal; Bank of England Deputy Governor Paul Tucker Testifies; EU Considers Criminal Sanctions for Libor Abuse; European Stocks Slip, Yields Soar; BMW Makes Major Mini Investment; German Exports and Imports Up; US stocks Down; Earnings Season Kicks Off; Euro Recovers Some Ground; Norway Oil Workers Threaten Strike Over Pensions

Aired July 9, 2012 - 14:00:00   ET


RICHARD QUEST, HOST: Tonight, it's orders by the dozen. Boeing's flying high at Farnborough.

On the libor scandal, "Libor's a cesspit." That's the verdict from the Bank of England's deputy governor.

And forget westerns. Hollywood's looking east for its cash windfall.

I'm Richard Quest, live from the Farnborough Airshow, where I mean business.

Is there a more beautiful sight? Planes galore. Good evening to you. We are live tonight at the Farnborough Airshow, the flagship event for one of the world's most important industries. And on this program tonight, you will hear the chief executives, the senior people, from the major plane makers.

The entire world of aviation is here, and in the battle between Boeing and Airbus, it's the American company on day one that made the day's big headlines. Boeing has won the first major order. It has announced that a deal with Air Lease, a leasing company, to sell 75 of the new 737 MAX planes. The plane's not even built, let alone flown. There's an option for another 25 more.


QUEST: The catalog has a list price of $7.2 billion, but the one thing we know for certain, no one, certainly not if you're buying 75 of them, ever pays the $7 billion catalog price.

Over the course of the week, it's going to be a fascinating contest between Boeing and Airbus here at Farnborough. To put it in perspective, let's start with Shep Hill, the president of Boeing International. I asked him to describe the state of the industry at a time when many major economies are in recession.


SHEP HILL, PRESIDENT, BOEING INTERNATIONAL: Some defining things are that in globalization, you have a world that's growing up, that globalization will bring people into the middle class, producing great growth in traffic, great growth in people wanting to meet other people.

That will enable us to build the aircraft necessary to connect these people. Supply chain, as well as te OENs are going to benefit from people wanting to move, people wanting to visit places around the world, Richard.

QUEST: And for Boeing to satisfy that demand --

HILL: Right.

QUEST: -- as you ramp up the production, are you biting off more than you can chew? Ramp up at 7.3, ramp up of 7.8, ramp up of all the programs.

HILL: Richard, the same history of tears that you talked about is the history that we've lived in, understand, and we're not going to make that mistake. We're being very prudent in the manner in which we're ramping up and how we're working closely, not telling our supply chain what they have to do. Asking them what they can do.

QUEST: And if you looked at the development of the aircraft that you've got, are you confident -- let's say the 737 -- that it will be on schedule, that it will make its targets?

HILL: Yes, we are.



HILL: Because --

QUEST: The history is --

HILL: Lessons learned of the past, the manner in which we've done it, the prudent, thoughtful manner in which we've laid out the design and the commitments we make in terms of the 2017 delivery, all of which we believe we can do.

QUEST: Comac is coming along in China. We've got the Russians, you've got the Brazilians. Do you worry that they -- I mean, you're -- the large wide-bodies are still Airbus and Boeing.

HILL: Yes.

QUEST: But the narrow-body is going to be eaten away by these other manufacturers.

HILL: Possibly it can. We think the world, in terms of liberalized airlines, are always going to want to have the best-performing, best-value aircraft. We did that when Airbus came into the market, we've competed successfully there, we've competed successfully before that time, and we feel we'll be able to do so again against Comac when they come into the market.

QUEST: Final question, and I'm going to chance my luck with this one. Why not? How many orders are you going to announce this week?

HILL: You'll have to wait and see. Anticipation grows.

QUEST: Not give me a rough number?

HILL: Ah --

QUEST: Ah --

HILL: I don't want to steal the thunder.


QUEST: So there you have -- there you have the difference of Boeing's view. Well, when you sell planes, on the other side of the deal is the Air Lease company. It's a company from California that buys up aircraft and then lets them out to airlines. I asked its chairman and chief executive, Steven Udvar-Hazy, why he bought 75 of the 737 versus, say, for example, the A320.


STEVEN UDVAR-HAZY, CHAIRMAN AND CEO, AIR LEASE: Well, I think the main driver is that you're going to have virtually thousands of older 737s, 757s, the first generation A320s, that will need to be replaced starting at the end of this decade. So, there's a huge replacement cycle coming up.

QUEST: How do you decide between balancing your order book, besides the price of the plane, between 320s and 737s?

UDVAR-HAZY: Based on market demand. At any one time, we're in contact with 120 to 150 different airline CEOs. We've got a lot of input on what their plans are. We put those together in sort of a kitchen, and we decide what's the right way to go.

QUEST: And the difference between ordering 75 planes and 80 or 70? Is it really like, "Oh, let's add a few more in there?"

UDVAR-HAZY: No, it's really based on -- we order about half of what we think we can place. So, if we think we can place 150 of these in the airline marketplace globally, we'll order half just to be conservative. That's the way we play it.

QUEST: Which means, at some point, you're coming back for more.

UDVAR-HAZY: Hopefully, yes. And we want to help the industry, we want to help the airlines modernize, become more fuel-efficient, more economical, and able to generate a return on their investment.

QUEST: What are you seeing in the economy at the moment? Everybody's concerned. I know you have a long time lead on these planes, but if you look at the aircraft you've already got out there with companies, what are you seeing?

UDVAR-HAZY: They're working very well. All the airlines are making their lease payments. We're seeing continued traffic growth. Notwithstanding the situation in Europe and some of the issues in the Middle East, airlines continue to grow. People are flying, and --

QUEST: But are you changing the direction of the companies you're looking to lease to? More emerging markets --

UDVAR-HAZY: It's changes --

QUEST: -- more --

UDVAR-HAZY: Every day changes. It's a dynamic marketplace, and we're adapting to developments one day in Brazil, the next day in the Middle East, what's happening in Europe, Western Europe, Eastern Europe, in the Russian CIS countries. It's a constantly evolving landscape, and that's what makes the industry fun.


QUEST: You hear the names in the industry, those who are doing the deals, you hear them here on QUEST MEANS BUSINESS.

Now, a chance for you to join in. A little quick quiz. There are several planes behind me that we're now going to show you. Starting over here with the Omega Tanker, through to the Aerosvit, the 145, the Aeroflot, the Korean, the Qatar and, right at the back, the Malaysian.

I'm going to get out of the way. Do you -- or can any of you name the model or the type of planes that we have out there? You can see -- there you are.

If you can name -- we'll send you a CNN mug, maybe, if you can name the seven, all seven, perhaps, and the first one out of the pot will win that. It's the seven planes, I want to know the model or the make after, and we'll get the one who wins, we'll send a mug.

Coming up after -- oh! Where can you send your answers to?, or tweet me @RichardQuest.

Coming up after the break, the libor market cesspit. The Bank of England's deputy governor is forced to defend his role in the rate-fixing scandal. We'll have that story after the break.


QUEST: The man who hopes to be the next governor of the Bank of England is trying to disentangle himself from the Barclays interest rate fiddling scandal. He is Paul Tucker, and today he faced the House of Commons Treasury Select Committee. It's all about the claims he encouraged the bank to manipulate rates.

He was the one who requested, urgently, to come before the committee after evidence was given by Bob Diamond. Tucker was robust in his defense. Jim Boulden joins me, now, live. Jim, how can Barclays believe he said one thing -- or some people did -- and I suspect Tucker said he did nothing of the kind?

JIM BOULDEN, CNN INTERNATIONAL CORRESPONDENT: Well, he very clearly said that he did not say that, and Paul Tucker also told the committee, Richard, that he now realizes that the libor market was a, quote, "cesspit." He said he had no idea that bank rates were being manipulated, and that the scandal came as a deep shock to him when he first learned about it just a few weeks ago.

Now, as for his conversation in October of 2008 with the now-former Barclays CEO Bob Diamond, Tucker made it clear he did not think Diamond was telling him that other banks were faking their interest rates submissions. He did not see Diamond as a kind of whistleblower, blaming the other big British banks at the time.


PAUL TUCKER, DEPUTY GOVERNOR, BANK OF ENGLAND: I did not understand this, this conversation, in any way as Mr. Diamond telling me about dishonesty or cheating. I did not.


BOULDEN: And of course, former Barclays chief executive Bob Diamond resigned last week over this scandal. It's his notes of that phone conversation with Paul Tucker the reason that Tucker appeared before the committee.

Remember that Diamond wrote back in 2008, Mr. Tucker stated the levels of the calls that he was receiving from Whitehall were senior, and that while he was certain Barclays did not need advice, he said, "it is not always the case that Barclays needed to appear as high as we have recently." He means that Barclays was too high in its libor rate submissions back in October of 2008.

Now, Brussels is also weighing into the scandal. Michel Barnier, the EU commissioner overseeing the financial services, says he wants to make it a criminal offense to manipulate money market benchmarks like libor. He says he'll amend the EU market abuse rules so that potential loopholes are closed.

Now, what should not be lost in all this, Richard, is that many banks appear to be involved, and then more fines and lawsuits are certainly coming that will add pressure to bank share prices, profits, and dividends, Richard.

QUEST: Jim, anybody watching this will be now -- not your report, I'm talking about the saga -- bewildered. Diamond says he did not think it was a nod and a wink.


QUEST: Del Missier says he thought it was a nod and a wink. Tucker says there was no nodding and no winking. And yet, libor was being fiddled by the banks.

BOULDEN: It's so --

QUEST: What a cesspit, Jim.

BOULDEN: Exactly. What Tucker said -- two things. First, he said politicians didn't put any pressure on him to call Barclays. He was being talked to by "officials," meaning non-political people, in the government. So, number one, he did not name names, as it were, of politicians.

And number two, very clearly, he says the Bank of England is not a regulator of Libor. The Bank of England has no manual when it comes to dealing with libor. And he said very clearly that libor as this cesspit, now. I take from that that I think libor's days are very numbered, Richard.

And what about Paul Tucker's days? Did he do enough to restore his reputation to be the next governor when Mervyn King retires? Or is it way too soon for that assessment?

BOULDEN: It might be too soon for that assessment, but he was given very direct questions, and I think he gave very direct answers. It wasn't at all like Mr. Diamond last week. I think Paul Tucker saw that his future is in the balance, and he was very willing to answer very direct questions. But he did say, "I did not know." Richard?

QUEST: Jim Boulden with that story for us tonight, and we'll keep watching on that.

The markets that you need to be aware of and how they traded. European stocks closed lower. The eurozone finance ministers began a meeting just before the markets closed. Don't hold your breath. They're not expected to bring much relief to the euro debt crisis.

Disappointment over last week's US jobs figures, weaker than expected Chinese inflation data, it all dampened the mood, and you can see the numbers on your screen.

Against this backdrop, Spanish lending rates soared to one-month highs. Yields on the ten-year government bond, it rose ten basis points. It's now at key 7 percent, the pain threshold. That's the level deemed unsustainable over the long term.

Relief may be ahead, though. The eurozone finance ministers likely to give Spain an extra year to meet its deficit goals.

There was other news besides Farnborough and Tucker. A brief look, now. BMW's announced it's expanding production of the Mini Cooper. The German manufacturer's investing $388 million over three years to boost capacity at its UK factories.

BMW is also looking at boosting output in another plant in the Netherlands. The factor in Born near Maastricht is currently used by Mitsubishi. Talks are still going on.

German exports increased at a faster pace. Seasonally adjusted 3.9 percent, well above what economists had forecast. Imports made even stronger gains, 6.3 percent. It gives some hope to the struggling eurozone periphery, who basically are relying on Germany as the motor of industrial production.

The markets in the United States. Felicia Taylor at the New York Stock Exchange for us. So much, Felicia, after the backlash from the jobs data of last week. So, I wonder, are they holding their nerve?

FELICIA TAYLOR, CNN INTERNATIONAL CORRESPONDENT: Not really. And it's got a lot to do with exactly what you just outlined for the European markets. We don't expect a lot to come out of this finance minister's meeting in Brussels, this Spanish bond yield's above 7 percent. The worry, now, of deflation in China. All of this is overhanging the market right now.

And naturally, we've got second quarter corporate earnings season about to kick off after the closing bell. Alcoa, which is traditionally the first one to always report. But this time, unfortunately, expectations are rather dim. Analysts are expecting earnings to be much lower than the first quarter, and already we've had 42 companies that have warned profits are going to miss expectations.

But all of this is about slowing global demand, particularly in Europe. But it's also the same situation in the United States.

When you've got so many companies already reducing their expectations, any kind of a surprise on this could actually send stocks higher. So, they've been beaten down on the fact that they've lowered their expectations. So, hopefully this week, we'll see some green shoots out there.

But the one that everybody's very curious about, of course, is JPMorgan Chase on Friday. We're going to get a lot better information about that erroneous trade that's cost the company -- the bank billions of dollars.

We don't even know yet how much it's cost. It could be anywhere between $2 billion and $9 billion, because of course, they haven't actually settled that trade, so it's impossible to encapsulate how deep this really is. Richard?

QUEST: One thought. I was just standing here thinking, January, February, March, April, May, June, we are about to start the reporting season very soon, if not already, and getting the wealth of numbers. And I'm wondering, at what point do we really start to get the full throttle of what's happening in the markets?

TAYLOR: You mean in the market in terms of corporate profits, or in the market in terms of reaction to stocks?

QUEST: Yes. I beg your pardon, in terms of -- of earnings and outlook and the way corporations are now handling this very difficult, challenging environment.

TAYLOR: This will be a somewhat quiet week, although like I said, we have Alcoa reporting today, we've got Google coming out this week, and also JPMorgan Chase. The real crux of it is going to happen sort of in the next ten days or so. So, really looking into next week.

But you've got to remember, corporate profits for the US economy have been very important. This has been the one sort of green shoot area.

If corporations in the United States aren't able to show that they're going to be able to keep up that pace, which already we know, isn't going to happen, the problem again becomes that they're not going to be willing to hire.

So, that jobs market gets slapped once again because corporations aren't going to be going out and spending money to hire new employees because the business just isn't there.

QUEST: And we expect you to do duty over the next two weeks with us or when we're getting ready for the Q25, which will really be fascinating in this quarter, as we put this into perspective. We thank you, Felicia Taylor --

TAYLOR: With pleasure.

QUEST: -- in New York. So many planes -- I bet Felicia couldn't recognize those planes. She's not a plane geek like the rest of us here. We're staying with the aviation theme in tonight's Currency Conundrum.

Who are these two pilots and from where is this bank note? Lithuania, Indonesia, or Zimbabwe? It's a clue: the plane featured on the other side of the note is a Bellanca CH-300 Pacemaker. We'll bring you the answer later in the program.

Now to the rates. The euro's recovered from a two-year low against the dollar, remains weak on concerns of today's euro finance meeting, what they will do to solve the situation. Soaring Spanish yields in Spain are not helping. Dollar's losing ground. Those are the rates, this is the break.


QUEST: You don't see many of those around, the DC-10. There you are, I've given you one plane already as part of our quiz tonight. It's a DC-10 Omega Tanker, and actually, it's an oil tanker -- well, refueling tanker that is here at Farnborough.

Which brings us neatly, talking about tankers and fuel -- well, talk about seamless robes. A deadlock between Norway's offshore oil workers and their employers is threatening to stall the country's oil production. Norway's three largest unions have been striking for more than two weeks. It's a nasty dispute over pensions.

The workers want to retire with a full pension at 62 instead of 65, and the industry's refusing to concede the point. The government has no plans to intervene as yet, or it has, as it has in previous occasions. The director general of Norwegian Oil Industry Association says the situation is now grave.


GRO BRAEKKEN, DIRECTOR GENERAL, NORWEGIAN OIL INDUSTRY ASSOCIATION: It is serious, and has been serious now for 16 days. We have tried -- we tried for 12 days to find a solution with the trade unions, but it was impossible, and this was, then, the situation: it's deadlocked, and this was our only option, only thing we could do to try to put an end to the strike.

QUEST: Ultimately, though, if the scare -- if the strike does escalate, the government will intervene, won't it, to bring it to an end as it has done on previous occasions?

BRAEKKEN: That is the normal procedure. If there is a strike, the employers' organization answer back with a lockout if the strike goes on too long and we have tried without success to end the strike between the two parties. And then, we -- the normal procedure has been that the government intervenes.

QUEST: Do you have any sympathy for the striking workers' demands, particularly as it relates to pensions, when this group is already amongst the most privileged in Norway when it comes to pensions?

BRAEKKEN: That's true. WE do not have -- it's a principle question in addition to the payment. What they're trying to do is to get full pension benefits from 62 years of age into the tariff agreement. At present, they have 68 pro-pension benefits from 65 years of age, but paid by the companies.

It's never been -- it's always been rejected to have it as part of the -- tariff agreements, and it's also completely a contradiction to what was agreed in government last year on the pension reform, where we should stimulate everybody to work as long as we can in order for all of us to pay for the pension benefits of all of us in the regional society.


QUEST: Now, the price of oil itself is leaping higher. Brent is selling for $100 a barrel, it's up more than $2.50, NYMEX Crude at $86.40, up nearly $2. That will not be good news for the airlines here, who have been banking on a lowering of price of oil. In fact, they've been celebrating the near 30 percent reduction. Most of the airlines are hedged, at least for part of their 2012 exposure.

When we come back after the break, we'll hear from Fabrice Bregier, the new president and chief exec of Airbus. Ooh, and don't forget, we have three CEOs in a cockpit.


AKBAR AL BAKER, CEO, QATAR AIRWAYS: Chris, here, was conspiring what to do with the aviation industry in the next 12 months, congratulating Akbar on his new machine.



QUEST: Hello, I'm Richard Quest at the Farnborough Airshow. More QUEST MEANS BUSINESS in a moment. This is CNN, and on this network, the news always comes first.

The UN and Arab League's joint envoy for Syria has arrived in Tehran for talks with Iranian leaders. Iran is one of Syria's few remaining allies. Kofi Annan's visit comes on the heels of his meeting with the Syrian president in Damascus. Annan says the two leaders agreed on an approach to end the bloodshed.

Egypt's parliament was expected to convene Tuesday after it was called back by Egypt's president, Mohamed Morsi, on Sunday. But there is now a power struggle centered on that parliament's legitimacy. Egypt's Supreme Court reaffirmed its decision to invalidate the legislative body, saying the decision was final and binding. Egypt's military council dissolved the parliament after the court originally voided its election.

British lawmakers are trying to get to the bottom of the libor rate- fixing scandal. The Bank of England deputy governor Paul Tucker testified before a parliamentary committee, where he denied any wrongdoing by the central bank. The scandal is putting further intense scrutiny on the business practices of the big banks.

The captain of English football team Chelsea appeared in court today on charges of racially abusing a Premier League opponent. John Terry did not deny using foul language against Anton Ferdinand. Terry said it was not racial abuse. He used to be captain of England's national team. He was stripped of the title pending the outcome of the trial.

A national day of mourning in Russia for the victims of the deadly flooding in the south near the Black Sea. Officials say now at least 171 people have died. A wall of water swept through as people were sleeping. The disaster is raising questions about whether the authorities failed to give enough warning.


QUEST: The peace and quiet at the Farnborough Air Show, after all the noise of the aerial displays earlier, good evening to you. We are live at the Farnborough Air Show. It's one of the biggest dates on the corporate calendar for the aviation industry. Farnborough one year, Paris on the other year. They go backwards and forwards with this duopoly.

And today here at Farnborough, Boeing made the day's biggest deal. It sold 75 737 Max planes to the leasing company Air Lease at $7 billion at list price. Elsewhere, look at this: an impressive fly-by from a Vulcan bomber, accompanied by the Red Arrows.

The show was officially opened today by the British prime minister, David Cameron. Now Mr. Cameron said the U.K. had to fight for every aerospace contract and defended his government plan to cut more than 4,000 jobs from the armed forces.

Farnborough is the first chance that the Airbus new chief executive will have to win new contracts. This time last year, the company beat Boeing for orders. It's yet to announce any major deals. But, frankly, it is very early days. And Airbus does have a history of perhaps storing them in their back pocket to announce at the show.

Earlier, I spoke to Fabrice Bregier, the new president and chief exec of Airbus. I asked him as the new CEO the challenges for the role.


FABRICE BREGIER, PRESIDENT AND CEO, AIRBUS: The challenges are for me to deliver the backlog. We have 4,500 aircraft. We need to ramp up the production. We need to finalize the development of the A-350. So this is probably the biggest internal challenge.

QUEST: Every time plane manufacturers try ramp-up, it usually ends in tears and losses. How are you going to get it right this time?

BREGIER: We'll make it work because we are much more cautious and for instance, this year we produced 40 320s per month. And at the end of the year, we'll achieve 42 a month. So it's only a 5 percent increase and it will stabilize there. So we don't go with big ups and downs.

QUEST: And the two big projects that you've got on the horizon, the 320 Neo --


QUEST: On track? On target?

BREGIER: Yes, sure. And the first aircraft that we delivered at the end of 2015, so two years ahead of the competitor.

QUEST: Are you saying it will be delivered in 2015?

BREGIER: Yes, certainly. Sure.

QUEST: I can take that to the bank?

BREGIER: I think so.

QUEST: Right. And the 350? We've already had a couple of delays on the 350. What's the problem?

BREGIER: The 350 has no problem, but it's much more challenging development. It's all new. It's fully composite technology and so this is more difficult. But we are making good progress. We cannot go to the bank, but we will deliver exactly on time.

But what counts for me on this new, big developments is to have mature technology, is to make sure that we do not rush from one step to the other, because when we are ready, we will be able to ramp up the production.

QUEST: Right. And what are you now looking at as the date which you're hoping for?

BREGIER: I think we started the assembly of the first aircraft, and we want to fly around mid-2013. This is the next big milestone.

QUEST: Right. So until you can fly, it's very difficult to know when the -- what date you would have it.

Look at the giant behind us. Beautiful plane. It may never make a profit for you, but it is a beautiful aircraft. When are you going to announce some more orders for the 380?

BREGIER: Well, we have got our number 20 customer. It was Transaero, a Russian group.

QUEST: Right.

BREGIER: And we will delivery this aircraft to Malaysian Aircraft, number 8 customer, Thai a little bit later in the year. So we're on track with steel and (inaudible) aircraft to deliver. So the order book is still full.

QUEST: That wasn't quite what I asked. When are you going to announce the next order?

BREGIER: I think before the end of the year we'll have other orders.

QUEST: Will it ever make money for Airbus?

BREGIER: We have plans to break even in 2015 and so far, I think we're on track.


QUEST: That's the chief executive, the new CEO of Airbus.

Qatar Airways has unveiled its new Boeing 787 Dreamliner here at Farnborough. I'll give you another clue: it's behind me. Work out which one. The airline chief exec, Akbar Al Baker, said it's proof that his company's setting new standards in global aviation.

Now Akbar Al Baker at the previous air show, lambasted Boeing for the delays in the 787. In fact, he made it quite clear how unhappy he was.

So a question for Mr. Al Baker, well, he's -- is he happy now? And as he told me, you need to make a fuss to get what you want.


AKBAR AL BAKER, CEO, QATAR AIRWAYS: I always make fuss. You know me. You have known me since long and I always enjoy making fuss, because that is the only way you can get the best from the manufacturer, because they know you mean business. And you have a policy and standard that you are not going to compromise.

QUEST: So you pushed hard and you got the plane that you wanted.

AL BAKER: I did, at last.

QUEST: At last?

AL BAKER: And I'm very excited about it. I hope that when we get it delivered, it will make wow effect for the passengers, because I don't think they have seen this luxury.

The difficulty really will be to get the yield (ph) up. As you know, that due to the economic recession, people are unwilling to pay the kind of prices that they would normally pay. In addition, a lot of people are trying to cut costs. So it is -- will be more difficult getting people in the front of the airplane.

QUEST: There's one other thing. There's a lot of carriers, some of them in your part of the world that are adding capacity, and some say helping to destroy the yield. Are you one of them?

AL BAKER: I am not. This is why we are taking airplanes the size of Dreamliners, not taking the airplanes the size of aircraft that will require us to dump capacity or to dump the yield to get people on board our airplanes.

QUEST: Do you think there's a dumping of yield at the moment?

AL BAKER: Yes. All the airlines -- let me be very honest with you. All the airlines globally are dumping yield to get passenger numbers, or at least safeguard their market -- what you say --

QUEST: Share.

AL BAKER: -- the market share.

QUEST: Where do you stand between, in this argument, of protecting or growing share, as a growing airline like yourself, or protecting the yield?

AL BAKER: Well, we are protecting our yield to a certain extent and at the same time growing because we are entering new markets, which other airlines have not been focusing upon.

QUEST: The question I'm going to ask you every single time we meet, Chief, when are you joining One World?

AL BAKER: I will not tell you. This is which alliance we are going to join is going to stay very close to our chest.

QUEST: But you are going to join one?

AL BAKER: Definitely we will join one. But I will not tell you which one.

QUEST: That's progress.


QUEST: That's the chief executive of Qatar, and that's the tale of his plane. I'll give you this one. It's a Boeing 787 and it's the Dreamliner.

Now what are the other planes that we can see behind me? It's our quiz. If we show you the other planes, or Twitter @richardquest. There are one, two, three, four, five, six, seven planes that you can see there.

If you can tell me, drop me an email or a tweet as to what planes they are, well, we'll pick one of you to win a mug,; the Twitter address, @richardquest. We'll be back after the break.





QUEST (voice-over): The "Currency Conundrum," where was the banknote from? The answer was A, the banknote was from Lithuania. It was the 10 litu note, which features pilots Steponas Darius and Stasys Girenas.

In 1933, they attempted a nonstop flight from New York to Kaunas, a total of 7,186 kilometers. You can guess if it was an attempt that they weren't successful. They got across the Atlantic but they failed, 650 kilometers short of their destination. They are regarded as national heroes in Lithuania. Tonight's "Currency Conundrum."

The newest Spider-Man movie has scaled to the top of the U.S. box office. It's its first weekend. Now the comic book remake brought in $65 million in domestic U.S. ticket sales, an extraordinary strong start, still well behind the record set by "The Avengers," $207 million in May.

There are quite a few new franchise movies out this season, so we have "The Dark Knight Rises," which debuts later this month. There's also "The Bourne Legacy," and third, "Madagascar." Oh, and the fourth installment of "Ice Age 4" was also coming along over the course of the summer.

So this week we're looking at the business of making movies, the Hollywood hype, an industry which has now expanding east to where China, where the market is growing and has huge potential, quite bigger than the U.S., with a government that's historically closed to the West. It's not an easy place, as Eunice Yoon reports.


EUNICE YOON, CNN CORRESPONDENT (voice-over): Lights, camera, action.

UNIDENTIFIED MALE: (Speaking foreign language).

YOON (voice-over): A gambling scene of China in the 1930s, shot at a moneyed movie capital. No, we're not talking about Hollywood, but Beijing, home to one of the biggest studios in the world.

"Chinese movies can be just as good as any," says this executive. China is now the second biggest movie market behind the U.S. (Inaudible) screens open here every day, attracting top Hollywood filmmakers like James Cameron, whose 3-D blockbuster, "Avatar," was a box office smash here.

JAMES CAMERON, FILM DIRECTOR: It's the increase in the standard of living and the growth of the middle class here. The cinema experience is perceived as something special.

YOON (voice-over): Hollywood is struggling back home. So studios are fighting for a future here, producing movies like "Iron Man 3," and "Looper," a film full of A-list actors shot with Chinese partners.

DAN MINTZ, CEO, DMG ENTERTAINMENT: What you're able to do with these kinds of films is you're able to say, hey, I'm here. I'm not just using China as a distribution point. You're actually saying come into our process.

YOON (voice-over): The problem is China wants to control the rules of the game.

YOON: Beijing has grown wary of Western influences here and it's keen to get China's view and its history on the silver screen.

YOON (voice-over): Already in China, movies are censored, including "Men in Black 3," where censors chopped out these scenes, showing Chinese as alien villains. The concern is Beijing's heavy hand could creep into co-production, even lead to (inaudible) censorship among Hollywood players hoping to capture the market here.

"A negative portrayal of a Chinese character can be shown if it's an intrinsic part of the story," he says, "but if the movie intentionally belittles the Chinese people, then, of course, we would censor that."

Despite some recent loosening, Beijing also restricts the number of foreign films as it aims to build its own version of Hollywood. Some say the growing tide allow China to cherry-pick U.S. techniques.

CAMERON: The question is, can the Chinese film industry grow to an extent that it makes movies directly for the rest of the world? You see what I mean? It becomes a direct competition to Hollywood.

YOON (voice-over): For now, a tall bet for a government still obsessed with crafting its own script -- Eunice Yoon, CNN, Beijing.


QUEST: The weather conditions are demanding our attention. The rain held while it was spitting at various points during the course of the day, but we were able to have the flying display. Jennifer Delgado at the CNN World Weather Center to tell us what the next 24 hours. There's some -- there are such extremes at the moment in Europe, Jennifer.

JENNIFER DELGADO, AMS METEOROLOGIST: Oh, absolutely. You know, you're right. It's been spitting out rain through parts of England, and it seems like that's all it's been doing. You can have few rare peeks of sunshine out there. But as we go through, really, the next 24 hours, we're still going to keep those clouds around as well as the rain showers there.

And you can still see some light rain right in southern as well as part of England as well as over towards northern Ireland, but also some wet weather. You can see also moving through Belgium as well as in the Netherlands. But overall, it's fairly quiet.

But we are going to continue to see an area of low pressure kind of just spinning right near the North Sea. And that's why it's been kind of hit-or-miss with seeing the sun. Anywhere you're seeing in green, we're going to deal with the potential for some scattered showers out there, with this torrential system moving over towards the east.

And this is going to be the pattern as we go through Wednesday down towards the south. It's going to remain still rather warm there. And look at some of these temperatures.

Not everybody doing so bad. For Belgrade, they've picked up 37 degrees for afternoon high, where typically should be at 27, Sarajevo 36, where it's running about 10 degrees above average. And that's really going to be in the very southern part as well as some central areas of Europe.

But for your Tuesday, high temperatures are generally going to be in the 20s as well as in the 30s down towards the south, Vienna, a little bit cooler for you. I know yesterday you had some lower 30s there. But, Kiev, afternoon high of 28 degrees.

Now we talked so much about weather and how it affects the economy. Over the last couple weeks we've been talking so much about the drought that's been hitting parts of the U.S., where it's been a part of the wildfires that have been burning there, the extremely warm temperatures. Well, it's having a severe effect.

Look at this. Anywhere you're seeing in orange as well as red, we're talking a severe to moderate drought for areas in the darker shading we're talking about exceptional. Well, one area in particular, the Midwest, where the Mississippi River runs. Of course, very essential for boats and shipping in the industry there.

And of course we need that water for the farming community. But the problem is we're seeing it at some of the lowest levels it's been in years after years of higher levels right along the Mississippi River. So how is this going to have an effect on the economy?

Well, we're talking about corn and soybeans in the Midwest. They're at a very sensitive stage right now and they fluctuate with the temperature changing as well as the moisture changes. And of course, the dry weather and the heat leads to a decline in crop conditions.

Now, finally, I want to leave you with something positive. Richard, you might not be seeing much sunshine over there, and I know you're certainly not seeing these lights. But we have to pull up this video, I'm sorry. We have to show you the aurora lights, a beautiful display, coming out of Minnesota.


DELGADO: Ah! That's such a beautiful effect. You've seen a lot of blue and green. Well, you get in those higher altitudes with more oxygen out there, you'll see more of a red display. But this one certainly was a nice treat.

QUEST: The borealis or whatever it is, aurealis, or whatever you call it.


QUEST: Yes, no, I tell, the Northern -- yes, something like that. The Northern Lights, and in fact, continue our aviation theme, the only time I'd ever seen the borealis or whatever it is is when I've been flying back across the Atlantic in the late night, overnight, and you see it in the horizon in the distance.

DELGADO: Beautiful.

QUEST: Yes, it's extraordinary, well worth seeing.

DELGADO: I want to see it.

QUEST: Right. Many thanks, Jennifer Delgado.

In a moment, we are in the cockpit. It's a rare piece of television, this. I promise you this. In the cockpit with three of the top pilots of the aviation industry, the chief exec of IAG, which is BA and Iberia; the CEO of Gulf Air and Qatar Airways. They'll tell us where they're taking their companies next, after the break.


QUEST: Have you heard the one about the three airline CEOs that walk into a cockpit?

No, it's not the start of a joke and there's no punch line. Ayesha Durgahee managed to cram Willie Walsh of IAG, Samer Majali of Gulf Air and Akbar Al Baker of Qatar Airways, all into the same cockpit at the same time in Farnborough. She got the inside track on the Dreamliner and the state of the industry.


AL BAKER: Three CEOs conspiring what to do with the aviation industry in the next 12 months.

Congratulating us on this new machine.


AYESHA DURGAHEE, CNN CORRESPONDENT: Willie, what do you think of the 787?

WILLIE WALSH, CEO, IAG: I think it's great. It is going to be fantastic when it's fully in service and certainly we're looking forward to it. I think the configuration that Akbar has and the design of the cabin looks really, really well.

DURGAHEE: Are you a little bit envious?

WALSH: Very.


AL BAKER: You are our captive (inaudible) he has also the same airport (inaudible).

WALSH: No, but you have -- you'll have yours before us. No, that's great and, absolutely, I'm very impressed.

DURGAHEE: And tell me, Samer, you've got some on order as well, haven't you?

SAMER MAJALI, CEO, GULF AIR: Yes, we have, yes. And they're a bit later on down the line. But we're very proud to have the 787 in the region. And it's -- looks like it will be a great airplane for the passengers. So we're very pleased.

DURGAHEE: So then, Akbar, do you feel that you're kind of leading the way forward with the 787?

AL BAKER: No, we are -- we are not leading the way. We are following other people who have done things like this before us, especially Willie's company, British Airways.

DURGAHEE: So then, do you think, Willie, your -- you can come in and see what Akbar's done with the plane and that you might be able to do something about it (inaudible)?

AL BAKER: No, British Airways doesn't copy other people. They have their own ideas. I will answer for him. See, you don't need to ask.

WALSH: But that's it. You know, we have our own style and our own development and it's pretty traditional in terms of what works for us. But I think the cabin here looks great. It's a good thing about the aircraft. It gives you an opportunity to do something slightly different and I think people will look forward to the comfort of the 787.

DURGAHEE: And in terms of the economic climate at the moment?

WALSH: Well, you know, that's why these aircraft are so important. You know, much more fuel efficient, better environmental performance. So the general economic environment is soft, not as bad as I think some people make out. But these aircraft will make a big different, particularly with fuel being the highest single part of our cost base.

DURGAHEE: And what do you think the mood is at Farnborough this year?

WALSH: It's a bit subdued, you know. I think everybody was expecting my good friend here to announce some orders and nobody's heard any big orders yet. So it's probably a bit more subdued than at previous shows. But I think that reflects the general environment that we're operating in at the moment.


QUEST: Three men in a cockpit, a "Profitable Moment after the break.



QUEST: So the answer to tonight's short quiz, what planes are behind me? Well, you obviously have the DC-10 of Omega Airlines. You have the Embraer, the 190, and the Embraer 145. That's just behind over there as well.

You have the Aeroflot 100, the SSJ100, which of course, has still got an investigation into the crash in Indonesia. You have in the Korean Air colors the 737-900; the Dreamliner 787 and right at the back, you have the Airbus A380. I will reveal who won and who gets the mug tomorrow. Those are the planes.

That's QUEST MEANS BUSINESS for tonight. I'm Richard Quest. whatever you're up, I hope it's profitable.


QUEST: The U.N. and Arab League's joint envoy for Syria has arrived in Tehran for talks with Iranian leaders. Iran is one of Syria's few remaining allies. Kofi Annan's visit comes on the heels of his meeting with the Syrian president in Damascus. Annan says the two leaders agreed on an approach to end the bloodshed.

Egypt's parliament's expected to convene Tuesday after it was called back by Egypt's President Mohammed Morsi on Sunday. But there is a power struggle centered on the parliament's legitimacy. Egypt's supreme court reaffirmed its decision to invalidate the body, saying the decision was final and binding.

British lawmakers are trying to get to the bottom of the LIBOR scandal. The Bank of England deputy governor, Paul Tucker, denied any wrongdoing by the central bank. The scandal is putting further intense scrutiny on the business practices of the big banks.

Monday was a national day of mourning in Russia for the victims of the deadly flooding in the south near the Black Sea. Officials say at least 171 people were killed.

You are up to date with the news headlines. Now live from CNN New York, "AMANPOUR."