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QUEST MEANS BUSINESS
Best of Quest; European Debt and Desperation; France and Europe's Future; Against Uniformity; Europe a la Carte; Facebook Goes Public; Facebook's Shaky Start; Younger Users May Be Logging Off; Small Apartment, Big Price; Scandals Strike Banks
Aired December 26, 2012 - 14:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, HOST: A year of rage, riots, and recriminations. Europe rises up. It's against austerity across the continent.
The float that sank. Facebook's initial public humiliation.
And green shoots at coots. The queen's bank unveils a different kind of growth strategy.
I'm Richard Quest, and throughout, I mean business.
Hello and welcome. It is the Best of Quest in 2012, and we have an hour together to pack in the most dramatic stories of the year and the highlights from our program. Our evening conversation on news, business, and economics. We're going to put it all together for you, so we'll relive some of the best moments.
It was, of course, the year when Europe's debt crisis dominated lives in 2012. Austerity cut deeper than ever before, unemployment hit a new high, and in Brussels, promises were made and then they were postponed. The result were scenes like these.
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QUEST: This was Athens in Greece in early November as the government pushed through a new austerity package worth around $17 billion.
And this was Portugal in October, the reaction to the government unveiling its 2013 budget, including some of the biggest tax rises in recent memory.
And Spain, where unemployment topped 25 percent this year. Protests regularly turned ugly. In June, the Spanish government formally asked for help for its banks, leading to widespread speculation over whether it would need a full sovereign bailout. I asked the head of the OECD, Angel Gurria.
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ANGEL GURRIA, SECRETARY-GENERAL, OECD: No way. Absolutely nothing to do. These are two different things. Spain has done its homework. Spain has much -- half. Half the debt of Greece -- OK? -- in terms of GDP. And Spain had five years of surpluses in their budgets before the crisis struck.
So, what Spain needs is unequivocal message from the Europeans and the IMF to the markets saying if Spain decides to request support, because they've done their homework, because they're performing, and because they are a viable economy, then they will be supported, and that request will be enough to detonate the ECB to go and buy their bonds in secondary market if need be.
I'm betting that just the announcement that the bazooka is ready, that it's loaded and ready to fire, if need be, will make it unnecessary for the bazooka to be fired.
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QUEST: That's the head of the OECD. One of the core countries expected to lead Europe out of this crisis has problems of its own during the year. France was downgraded twice, first by S&P in January, then by Moody's in November. Francois Hollande took power in May. I asked his finance minister, Pierre Moscovici, if the worst was over for Europe.
PIERRE MOSCOVICI, FRENCH FINANCE MINISTER: I hope so. I think there is -- appear likes good signals, light in the tunnel. Because if you look at six months ago, you see that the mood there was uncertainty plus austerity, and we're moving to a situation where we have the hope of stability plus growth.
There are several factors showing that: the decision of the central bank, the elections in the Netherlands, the decision of the central court - - the Constitutional Court of Germany concerning the ESM. The climate is much better. The markets feel quieter. So, I'm confident that we can find a global, secure solution for Spain, Greece, and for the whole eurozone.
QUEST: On the issue of banking reform, I don't want to make too much of potential disagreements between France and Germany or Germany and Britain, but it's not going to be either as quick or as easy as perhaps President Barroso suggested last week.
MOSCOVICI: Banking union?
QUEST: Banking union, yes.
MOSCOVICI: Supervision? Well, it's never easy, because when you've got a decision to be taken by 27 member states, which is a very different system. It's not easy. But I think it has to be quick.
And what I hope is that we got an agreement before the end of 2012, we've got a strong basis, which is the proposal of the commission. Let's have it as the basis -- common basis. And with Mr. Osborne, we made good progress. We are proud, and maybe close to each other.
QUEST: By the end of the year?
MOSOVICI: By the end of the year. It's necessary that was the conclusion of the June European Council. We must stick to it.
QUEST: If we look at the -- in the French economy itself, you've been asked a million times about the 75 percent tax. Why bother with it? It'll raise little money, it's painting a negative picture of the economy, it's painting a negative picture of entrepreneurialism in France, and you say it may only last two years at best. The costs are higher than the rewards.
MOSCOVICI: No, because this is a strong promise made by Mr. Hollande during his campaign. Why so? Because the inequalities are so big in France, because some people earn so much money while other get into poverty that we want to ask them for a patriotic effort for two years.
And I'm quite certain that this won't bleed a talent or brain out of France. I've got a lot of talks with the business community in France. I wouldn't say they love it, but they understand.
QUEST: That's the French finance minister. Throughout the course of the year, we have brought you the ministers from the large companies and the small. The Czech prime minister isn't a big fan of an EU banking union, and he doesn't want a fiscal pact, either.
The Czech Republic is the only EU member apart from the UK that has refused to join. The prime minister told me he doesn't believe in uniformity in Europe. Instead, he prefers the more "a la carte" approach.
PETR NECAS, PRIME MINISTER OF THE CZECH REPUBLIC: I will not sign this treaty, but of course, to be fully honest, it's not any kind of definite no. It's possible in conformity with Article 15 of this treaty to sign anytime in the future, so it's possible that the Czech Republic will sign in the future, but not now.
QUEST: You're all dancing around this really difficult issue of how much and how quickly you're prepared to allow Brussels to rule the day. That's really what this is about.
NECAS: I'm not in favor of federal Brussels. I'm an anti-federalist politician. But at the same time, I can imagine a situation when monetary union will not work without fiscal union.
QUEST: Isn't that inevitable that if the union is to work more efficiently and effectively, it is inevitable that Brussels becomes more federal?
NECAS: Probably yes. Frankly speaking, when we would like to improve the situation in the monetary union, it will be necessary to go by a fiscal union. But again, it's the issue for the countries like the Czech Republic to evaluate the whole situation because we've got commitment to access eurozone, but it was a very different eurozone than years ago than today.
QUEST: Then paint for me a picture, because you describe it in your speech last night, "A multi-speed Europe is a reality," you say.
QUEST: But instead of speed as in fast and slow, you talk about an "a la carte" principle.
QUEST: So, what's on the menu of this a la carte?
NECAS: There will be sundaes, which consist of single market and acquis communautaire. And then, it will be possible to make a choice whether, for example, you will join monetary union with fiscal part, but in the future probably with X union, not -- it would be better to go by an a la carte approach.
QUEST: Will that work?
NECAS: I'm absolutely sure. I do believe that diversity is the best of Europe. So, I don't believe in uniformity in Europe.
QUEST: Where do you draw the line between what you will allow on an a la carte principle and what you will insist as table d'hote?
NECAS: I would say that the line is current situation. Current legal framework, current primary law of the European Union.
QUEST: What about things like digital privacy, telecommunications? You seem to want to draw the line on the single market.
NECAS: Yes, yes, yes. As a part of single market, it would be possible to create a legal framework for a common European approach, of course.
QUEST: That is the Czech prime minister, who coined the phrase "Europe a la carte." He meant, of course, countries will be able to select the ingredients of their particular European experience from a menu. And what better place to find out what Europe a la carte looks like than one of London's leading French restaurants.
UNIDENTIFIED MALE: Good afternoon, sir.
UNIDENTIFIED MALE: This is Europe a la carte.
QUEST: Ah, Europe a la carte.
UNIDENTIFIED MALE: How are you today?
QUEST: How am I? Undecided. Ooh, I say, splendid menu! A lot of choice. I think I'd like to start with the Schengen Treaty with open borders.
UNIDENTIFIED MALE: Oh, that's a very good choice. That is very good, sir.
QUEST: For my main course, now, I see you have monetary union.
UNIDENTIFIED MALE: Yes, we do.
QUEST: Can I have monetary union without the fiscal compact?
UNIDENTIFIED MALE: I'm afraid the chef will not allow it to be.
QUEST: No? Oh, dear. Well, we won't have monetary union, then. Instead of that, what are -- ooh, ah! Now we're -- hang on! You've got close cooperation on defense policy.
UNIDENTIFIED MALE: Yes, yes.
QUEST: Is that fresh?
UNIDENTIFIED MALE: It's very fresh, sir. It just arrived today.
QUEST: Just arrived? And sprinkle a little bit of social policy on the side.
UNIDENTIFIED MALE: OK, I'll do that. Let me put that down for you.
QUEST: Excellent. And finally, dessert. Well, I think for dessert, it has to be -- ooh, my favorite! Open skies!
UNIDENTIFIED MALE: Oh, yes, that's a very good choice, that's very popular, most agreeable.
QUEST: And to drink, lots of European wine.
UNIDENTIFIED MALE: Oh, that's a very good choice, sir.
QUEST: Thank you.
UNIDENTIFIED MALE: Thank you, sir.
QUEST: Thank you.
QUEST: We had fun during the year, and who paid the bill for that? You can only imagine. A float or just a drift? Why the IPO of the year will be remembered for all the wrong reasons.
QUEST: QUEST MEANS BUSINESS 2012.
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QUEST: From a social network to a public network. Facebook is now trading on the stock exchange, and tonight we look at how Facebook is leading us into this brave new social media world.
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QUEST: It was without doubt the most highly-anticipated IPO of the year. It was May the 18th, and Mark Zuckerberg rang the opening bell at the NASDAQ. That was just about the last thing that went according to plan.
Trading was late starting underway due to what the NASDAQ called a "technical issue." Then, some traders complained their orders weren't being processed. Days later, things were still not fixed.
So, if things got off to a rocky, uncomfortable -- some would say bad -- start, what's it been like for the shares themselves? The disastrous beginnings didn't help the early performance. As you can see, the share price fell and has continued with only minor rallies on the way.
This is the first three months, three or four months or so, of trading, before the first lockup period expired when investors weren't allowed to sell. On May the 23rd, you had shareholders were suing Facebook and underwriters accused the company of selectively disclosing information ahead of the float, an extremely serious allegation.
Then, you have on -- in the middle of the year, June the 27th, the ratings from the underwriters, the first underwriters by rating from three London -- the underwriters Morgan Stanley, JPMorgan, and Goldman Sachs.
Move throughout the course of the year, on July the 26th, and you have the first quarterly report since the IPO. Revenue up 32 percent, which was in line with expectations.
The problem was, the expectations necessarily were not really what people were hoping for, what they expected or thought was going to happen and what they desired, and as a result, we saw this very sharp falloff in the stock even further.
And then finally, of course, the shares slipped below $20 for the first time in intraday trading. They closed below $20 again in August. So, you get an idea of just the difficult time that Facebook has had since it launched on the Exchange.
The appeal to investors took an early knock, that is true. But what about the users? Jim Boulden went back to school to find out if one of its core user groups still likes it.
JIM BOULDEN, CNN INTERNATIONAL CORRESPONDENT: It's all well and good for potential investors and for analysts to talk about the future value of Facebook. We thought we'd talk to those users that Facebook is going to need over the next decade.
UNIDENTIFIED MALE: Hello. Hello.
BOULDEN: Hello, and welcome to class. Just tell me what you use, tell me what you don't use, tell me why you use it.
UNIDENTIFIED FEMALE: Facebook, BBM.
UNIDENTIFIED MALE: Yes, I've got BBM, Facebook, Twitter.
UNIDENTIFIED MALE: I use Facebook and BBM. BBM's to talk to people, but Facebook's to check everyone's business.
BOULDEN: How many hours, if it is hours, do you think you're on these at night? And do you -- I know with my family, you might see a friend and then go home and then go home and then go on Facebook with them, which to me makes no sense, because you were already with them.
UNIDENTIFIED MALE: Mostly when I get home, it's what I do, I'm on my mobile or on the internet.
UNIDENTIFIED FEMALE: Probably about an hour a day, when I get home, going through a bit, and then I use it during the day on the phone.
BOULDEN: Are any of you using it less now than you did, say, six months ago.
UNIDENTIFIED FEMALE: I spent like seven hours a day on it and I have done it most of the time.
UNIDENTIFIED FEMALE: Yes, I think it's -- yes, we don't -- I don't think kids nowadays really use Facebook, because know that we've got BBM, we've got all our friends on our home, easy access to them. But I think if BBM goes down, that's the first place that we go. We don't call them. That's the first place that we go, is Facebook.
BOULDEN: What is it about BBM, other than it's instant messaging with your friends? What's --
UNIDENTIFIED FEMALE: That's really it.
UNIDENTIFIED FEMALE: It's the vogue.
UNIDENTIFIED FEMALE: It's like, if you need to talk to someone, see where they are, you can't Facebook, they have to be logged on. But BBM is always on, so that you can reach them.
BOULDEN: What doesn't Facebook do yet that you would like it to do? Because you all seem to be very happy with BBM. Should there be some sort of more instant messaging features within Facebook? Or is --
UNIDENTIFIED FEMALE: More like BlackBerry, if you go on the chat for Facebook sometimes, it's really slow and it logs off or it does stupid things. They should fix that.
BOULDEN: Do you even notice that Facebook has a lot of advertisement? Do you notice the advertisement?
BOULDEN: Do you click on it?
UNIDENTIFIED MALE: A bit too much adverts.
BOULDEN: You think it's annoying?
UNIDENTIFIED MALE: You check little things, it opens up, and you don't want it there.
BOULDEN: But you realize you get it for free because of the advertisement?
UNIDENTIFIED MALE: No, I didn't know that.
BOULDEN: In five years, do you fully expect to be using Facebook? Yes or no.
UNIDENTIFIED FEMALE: Yes.
UNIDENTIFIED MALE: Yes.
BOULDEN: An "if", maybe?
UNIDENTIFIED FEMALE: Maybe.
BOULDEN: OK, so two maybes -- three maybes. And five yeses.
QUEST: Jim Boulden reporting. Now, they say good things come in small packages. Here in London, they are expensive packages, too. You won't believe how much this property set you back if you had the money. I'll show you around later in the program.
And speaking of small packages, time for a seasonal Currency Conundrum. Which coin is usually hidden in the Christmas pudding, according to a British tradition? Is it A, a farthing? B, a silver sixpence? Or C, a one-pound coin? The answer later in the program.
QUEST: Hello! No, don't stay outside, do come on in! This is my new apartment. It's Flat F in Princes Court, West London. Well, actually, it's not mine, and it is all rather small. And if you thought a small room would have a small price tag, well, you'd better think again.
QUEST (voice-over): Some are compact, others bijoux. There are pied- a-terres and studios. Then there's flat 8F.
Nothing quite prepares you for something so small. This is it. All of it. There is no more -- 10 foot 4 by 8 foot 4.
QUEST (on camera): I can't touch from one side to the other without hitting the wall. I am 6 foot 1 tall. And this is the length of the flat.
QUEST (voice-over): The apartment is a converted porter's toilet and cloak room. It tasks even the estate agent's vocabulary.
MATTHEW FINE, DIRECTOR, HUNTERS ESTATE AGENTS: Unusual, unique, interesting marketing opportunity. I would point out the high ceiling. I would point out the natural light coming through. I would point out the potential refurbishment, the location.
QUEST (on camera): The original asking price of $145,000 has been well exceeded. The current top offer's believed to be around $280,000 for one simple reason: the old rule, location, location, location. This tiny apartment is in the best part of London and next to the top people's department store, Harrods.
FINE: You've got Harrods food opposite, who needs a kitchen? With this post code, you're going to get a hell of a lot of interest.
QUEST (voice-over): The demand for this unique property has been intense. More than 100 viewings, a dozen offers. Ironically, the winner is likely to be an investor from Greece.
QUEST: Small and bijoux. So, what did it finally get sold for? Since my last visit, this flat has indeed been sold, and the final price tag was $285,000, according to the estate agent. That's roughly $38,000 per square meter, and at that sort of price, they probably didn't have much money left, and they certainly didn't have room for the Christmas tree.
Coming up in a moment after the break, the banks behaving badly. 2012 has been a year of scandal for some of the world's financial giants. You're going to hear from the chief execs the past and the present. Also, we will sample the sumptuous delights from the queen's banker. QUEST MEANS BUSINESS.
QUEST: Welcome back to this special program, the Best of Quest in 2012.
QUEST: I'm Richard Quest. During the year, three of the world's major banks were struck by scandal, and of three CEOs, only one is left standing. If you take a look at this album, it will put it into perspective of who did what where, when, and how.
Let's start with the one who's remaining in position. He's Jamie Dimon at JPMorgan Chase. There was a shock trading loss of some $6.2 billion. Now, the important thing about this is the way in which that trading loss happened. It was a highly-technical piece of trading. But Jamie Dimon was, of course, as he dealt with it, it was his comments that caused much of the controversy.
The bank's now suing a man known as the London Whale, Bruno Iksil. Dimon survived shareholders' push to strip him of his chairman role, his $23 million pay package was approved. But the comment he said, of course, was it was just a tempest in a teapot. It turned out to be considerably more than that.
Bob Diamond didn't make it through the Barclays year. He resigned, along with the chairman of the bank, after and on the back of the libor scandal. The bank was fined $460 million for manipulating the London interbank offered rate.
The bank's also paying billions in compensation for the misselling of payment protections in the UK. It's under investigation in the United States by the Department of Justice and the SEC over whether it breached anti-corruption laws, and it reported a Q3 pre-tax loss. So, Bob Diamond very much seen as the man who had to carry the gun at Barclays.
At Citigroup, it was Vikram Pandit who left after a nasty clash with his board of directors. This one came out of nowhere. The bank had just pretty much reported results. People seemed to suggest he might have been -- well, was doing a good job, but there was a disagreement over strategy. It let the bank -- Mr. Pandit did -- through a $45 billion bailout.
However, the shares fell some 89 percent in his tenure, and the shareholder revolt over his pay package -- there was also a $2 billion, nearly $3 billion write-down on the brokerage joint venture.
So we have three CEOs, two gone, one stayed. I spoke to all three at the 2012 Davos Forum when they each had bigger concerns than their own jobs. Let's begin with Jamie Dimon and the problems of the Eurozone.
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JAMIE DIMON, CEO, JPMORGAN CHASE: It's one of the greatest endeavors of all time, trying to get the European Union and the European monetary union put together.
So -- and, oh, I'm talking about over 50 years. It's now run into this huge bump in the road, because if you listen to Chancellor Merkel, President Sarkozy, they're devoted to getting over the bump in the road. I think it's the right thing to do. It's really complex, 17 nations, you know, a lot of parliaments.
And I -- if I -- I still would make the bet they're going to get through this thing by hook or by crook over time. It's just not going to be in one big thing, you wake up tomorrow and it's fixed.
QUEST: It's by hook or by crook that's causing the problems.
DIMON: Right. That's correct.
QUEST: It's too slow.
You must share the frustration of others at the inability and ineffectual responses, some would say, of the Eurozone governments in actually getting and dealing with this crisis.
BOB DIAMOND, CEO, BARCLAYS: Well, I remember talking to you a year ago at Davos about the risk we had in 2011 of chronic event risk unless the issue of fiscal integration was tackled, and unless the issues around the European Central Bank were tackled, and that's exactly what played out.
I think going into 2012, we're seeing some progress in both of those areas. I think the progress is incomplete, but it's substantial. And so, I do feel better.
You know my view. I think the euro will be here. I think it will -- it will be a strong -- over time, a strong currency. But we have to tackle the public spending issues, and I think the strong move toward fiscal integration, the strong move toward reducing the deficit and the debt is off to a good start.
QUEST: I cannot talk to you without raising bonuses.
DIAMOND: Richard, let's separate the issues. I think getting some of the emotion out of this is healthy. It's about pay for performance, and I hear a lot of people talk about the eradication of pay for failure.
We support that. No one wants to see pay for failure. But every time I hear a political leader mention the eradication of pay for failure, I'd like to also hear them talk about rewards for success.
And I think balancing our responsibility and being competitive is the challenge we have, and we accept that challenge in terms of how we compensate in this industry.
QUEST: One of the things that you're very much focused on in the bank at the moment is back to banking, basically.
CITIGROUP CEO VIKRAM PANDIT: That trust between customers, clients and banks has been broken. And it's time for us to rebuild that trust. And we're doing that. And we're doing that by going back to the basics of banking, as you said.
We're doing that by practicing responsible finance and we're doing that by supporting a real economy, by making small business loans, helping people buy homes, keeping them in their homes.
QUEST: Trust doesn't come back overnight, does it? Credibility doesn't return overnight.
People will never necessarily love their banks. But what more can be done to rebuild that trust?
PANDIT: I think you have to focus on this question of growth. We have to focus on supporting the real economy. You have to focus on providing customers with that access to financial services that they need, loans; keep them in their homes.
If you do the right things for your clients and your customers, they will trust you.
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QUEST: Vikram Pandit, ending our look at the bankers.
Barney Frank says his banking rules will help restore that much-needed trust. It's been 21/2 years since his Dodd-Frank Act was made law. But the details of one of its most important components still being thrashed out. It's called the Volcker rule, which bans banks from using their own money to invest in financial markets, except for trades (inaudible).
The man who helped overhaul Wall Street says it's high time these details now were worked out.
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BARNEY FRANK, U.S. REPRESENTATIVE FOR MASSACHUSETTS: We're not trying to stop financial institutions from taking risks and losing money. We are trying to stop them from doing that in ways it will have negative effects on others.
And in particular, we think that banks which are getting deposit insurance funds or could get deposit insurance funds have access to the discount lender or the Federal Reserve, they should not be doing these risky things. They should be lending money to people.
QUEST: Isn't it inevitable that the regulators will always be just one step behind the financial invention and ingenuity of the banks?
FRANK: No, what happens of course is that we have a time lag ahead in terms of implementing the law. We have a process in American law whereby people can make comments and you have to analyze your comments.
But we anticipated this with the law, and within a couple of months I believe there will be a regulation place that will stop it.
Now you're right that, at some point, the innovators will outstrip the regulations, but you're talking there about, I think, decades. That's been a pattern; you know, In the New Deal, they passed the Securities and Exchange Act, and the Investment Company Act and other things.
And that held up for about 40 or almost 50 years, and then it began to erode. Now we were too late in this country because of this flirtation with non-regulation in stepping up. But I believe that the laws we've now put in place are going to be very accurate -- adequate as well.
By the way, one example of how we've already achieved something, if JPMorgan Chase were a comparable institution, had had these kind of losses five years ago, and other banks might have similar losses, you would have seen a lot more panic.
Part of the advantage of what we've done over the last few years is the banks are now much better capitalized, not because they wanted to be, but because we forced them to be.
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QUEST: One of the legends from the U.S. House. That's Barney Frank.
Coming up next, (inaudible) together a path to tragedy. We look at the chain of events that led to the loss of Air France Flight 447 and all those on board.
QUEST: It is the corporate airline event of the year. It's at Farnborough and Paris and they take it in turns to play host. And this year we were at home in the United Kingdom.
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QUEST (voice-over): Boeing took out Best in Show, winning three times as many orders as its archrival Airbus, and that included a $15 billion bulk buy from United Continental. Boeing's ramping up production across its range. I asked the president, Shep Hill, whether he was biting off more than he could chew with all these orders.
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SHEP HILL, PRESIDENT, BOEING INTERNATIONAL: The same history of fears that you talked about is the history that we lived and understand. And we're not going to make that mistake. We're being prudent in the manner in which we're ramping up and not telling our supply chain what they have to do, asking them what they can do.
QUEST: And if you look at the development of the aircraft that you've got, are you confident -- that's the 737 -- that it will be on schedule, t hat it will make the target?
HILL: Yes, we are.
QUEST: Why? 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 a 2017 delivery, all of which we believe we can do.
(END VIDEO CLIP)
(BEGIN VIDEO CLIP)
QUEST (voice-over): My talks with Airbus followed a similar vein. I asked Fabrice Bregier, the president and chief exec of Airbus what the aircraft maker's biggest challenge was next year.
(BEGIN VIDEO CLIP)
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.
(END VIDEO CLIP)
QUEST: Now those are the two chiefs of the industry. For the airline itself, of course, safety becomes above profit at all times. After three years of investigations, a final report in July of this year blamed pilot error and reactions for the crash of Air France Flight 447; all 228 people on board died when the plane plunged into the Atlantic. It was the 1st of June, 2009.
What you're about to hear comes from the report by the French investigation and Analysis Bureau. It's called the BEA. "The accident resulted from a succession of events: inconsistency between measured air speed and then inappropriate control inputs that destabilized the flight path."
According to it, it says, "The apparent difficulties with airplane handling at high altitude in turbulence led to excessive handling inputs, in roll and sharp noseup inputs by the pilot flying."
The report also said, "The crew progressively became destructured and likely never understood that it was faced with a simple loss of three sources of air speed in formation."
"In the minutes that followed, the autopilot disconnection, the failures of the attempts to understand the situation and the destructuring of the crew cooperation fed on each other" -- and this is really quite serious and goes to the heart of it -- the report says, "until there was a total loss of cognitive control of the situation."
Let me put that into somewhat basic England for you. There was a series of events that took place. The crew reacted in a particular way. And the crew's actions ultimately doomed the aircraft.
The BEA made a new recommendation, a number of them, for pilot training.
When I took to the controls in a flight simulator, I found out for myself just how complex it is to fly the modern plane.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: (Inaudible) one.
QUEST (voice-over): This Airbus A330 leaves the runway. But this isn`t a real airport and I`m not in a real plane. It`s a simulator, the sort that`s used to train today`s pilots. It`s an exact replica of the cockpit, right down to the noises it makes.
QUEST: At the heart of the Airbus cockpit philosophy is the side stick. When it was introduced, it was a radical departure from conventional flying. Now, the pilot uses it to control the pitch and the roll of the aircraft. It uses technology called fly by wire.
QUEST (voice-over): Fly by wire sends signals to computers, which then command the movements. Today, both Boeing and Airbus planes have fly by wire technology.
Airbus`s chief operational advisor, Harry Nelson, has been flying for 50 years.
HARRY NELSON, CHIEF OPERATIONAL ADVISOR, AIRBUS: Fly by wire is here to stay, and I can confidently say to you that fly by wire with envelope protection has reduced the accident statistics by 50 percent -- 50 percent. So, I`m talking now, we`re achieving an accident rate of one accident per 10 million flight hours.
QUEST (voice-over): On an Airbus, the side sticks operated by the captain on the left and the first officer on the right work independently of each other. One pilot cannot feel the side stick movements made by the other. This asynchronicity is one reason why the pilots on Air 447 didn`t realize each pilot was commanding the plane to do different things.
Airbus planes also have envelope protection, which in normal conditions, prevents the plane from being flown dangerously. When there`s a serious fault, the protections are designed to go away, and the pilots receive detailed information from the computers.
QUEST: There is a logic to the way the Airbus plane tells the pilot that something`s gone wrong. It starts with a warning sound which has to be acknowledged.
That draws attention to the ECAM messages, which then come up in order of priority.
QUEST (voice-over): On the Qantas A380, where the engine exploded after leaving Singapore, the ECAM computer generated more than 50 messages that took the crew almost an hour to clear before the plane landed safely.
So, the question becomes, are pilots overwhelmed? The increasing demand for pilots today mean planes are designed for a trained flight crew at all levels of experience. Now, the human factor is being looked at more closely, why pilots behave in certain ways in a crisis, which seems to contradict everything they`ve been taught.
UNIDENTIFIED MALE: Stall. Stall. Stall. Stall.
NELSON: There are industry trends, which are now -- which need to be looked at. We have an even -- perhaps a younger set of pilots coming into the industry, perhaps even with less experience, less military pilots coming into the industry.
QUEST: Is the cockpit too complicated?
NELSON: We design for the whole range, if you like, to cover those pilots who, perhaps, were at the lower end of the scale who may need that kind of protection. The better pilots never need it.
QUEST (voice-over): Closing the training gap between the different level of pilots is paramount.
QUEST: While flying is without doubt the safest form of travel, the industry is considering the lessons to be learned. Airlines, manufacturers, regulators, and pilots, everybody is looking to see what needs to change to improve the way we fly.
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QUEST: That's a report from earlier in the year following the Air France 447.
"The Best of Quest 2012" continues.
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QUEST (voice-over): The answer to today's "Currency Conundrum," we asked you which coin is usually hidden in the Christmas pudding according to a British tradition. It was, of course, B, the silver sixpence. It's believed the coin brings wealth in the coming year to the person who finds it in their part of the pudding. Either that, or they break a tooth when they bite into it without realizing.
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QUEST: It seems appropriate during this festive season to eat, drink and be merry. What better time of the year to give things a royal flourish? The Queen's bank is Coutts and it's turned an empty space in the heart of London into a garden of earthly delights. Naturally I had to go along to taste the results for meself.
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QUEST (voice-over): The economy may be wilting; bankers may be out of season. Don't worry. On this rooftop of London, Coutts is in full bloom. Whatever the economic climate may be doing, there's always something profitable in this banker's garden.
QUEST: How difficult was it to convince a boring bank to let you start growing tomatoes on the roof?
PETER FIORI, HEAD CHEF, COUTTS: Not difficult at all. They embraced it. This is great for London, great for carbon footprint. It's great for the bank in general. I mean, clients love coming up and walking around. It's encouraging them to actually grow their own vegetables at home. It's brilliant.
QUEST: What have we got here?
What are these? These look like sort of peppers.
FIORI: These are chili peppers that we're using.
Take the tips off. Have a taste. Tell me what you think.
FIORI: Pretty sweet, isn't it?
QUEST: Mmm, it's quite nice!
How can you make it meaningful, so it's not just maybe like a gimmick, in the sense -- to get enough produce out, because obviously you've got (inaudible).
FIORI: Well, I would say every single dish that we do for our menu has an element of this garden.
QUEST (voice-over): From the garden to the kitchen and Chef Peter gets down to bankers' business.
QUEST: Right. Luncheon is served from the garden.
Alan, when we look at what's the situation, how bad do you believe the situation is at the moment?
ALAN HIGGINS, CIO, COUTTS: Well, it's clearly been a lot worse when you had two-year Italian debt at 7 percent and when you think of basically the efficient transmission of monetary policy that is nowhere near it, that is true crisis levels, we are somewhat better today, thanks to mainly the genius, Super Mario. He hasn't spent a cent yet. So we're a slightly better place.
The way we look at it is we call this euro crisis number three. And we're awaiting euro crisis number four.
QUEST: What will euro crisis number four be?
HIGGINS: If only we knew, because it's --
QUEST: Well, where will it come from? Where will it come from?
HIGGINS: It could come from anywhere. Obviously, Spain is a potential issue, where you have the regions. And we have trouble there. Doesn't look like it's going to be the Dutch election anymore. Certainly the Italian elections could be very, very interesting coming up. So you don't know exactly the nature of how complex this issue is.
QUEST: In this environment, we've been led to believe that you stay in bonds, you stay in cash and you give equities a wide berth. Do you believe that still?
JAMES BUTTERFILL, EQUITY STRATEGIST, COUTTS: It depends which actually, if you do it regionally, say, let's start up with Europe, there's this common misconception that's European equities are cheap.
Onto some measures for, say, price earnings evaluation metric, you see that it's roughly 13 times price earnings. But that's excluding negative earnings. And why when we're in the midst of descending into a recession would you exclude negative earnings from a valuation measure?
QUEST: So where do you look at? Where should you put the money?
BUTTERFILL: It's -- if you were going to invest in Europe, you have to look for companies that where the majority of their revenues are sourced from outside of Europe. That way, you're importing growth.
QUEST: Do you believe that the Fed -- that the ECB now has the reputation and the stature of the Fed when it comes to being -- to saying don't fight us?
HIGGINS: Not quite, because clearly, with the Fed, we have a single currency. We don't have fiscal transfers; we don't have one effective country, one fiscal policy. So it's not an optimum currency area. But we believe Draghi does have great personal authority and respect in the financial community.
QUEST: Are you -- finally, are you optimistic?
BUTTERFILL: I am optimistic.
QUEST: Oh, come on, you gave me a look as if to say I don't know what that word means.
BUTTERFILL: Well, it's very difficult. We can't stick politicians and lawmakers into a spreadsheet and do a calculation and figure out if it's going to occur or not. We have to sort of weigh out probabilities.
QUEST: Are you optimistic?
HIGGINS: Yes. One team, one dream, of course, yes.
(END VIDEO CLIP)
QUEST: And so our "Profitable Moment" to end.
There's no doubt the numbers in 2012 have been uninspiring. Growth in most larger economies flatlined, debt spiraled. So we decided forget the numbers of the past year in the economic history. We're going to do it in letters instead. And we start with QE -- two helpings from the Fed. Neither with a concrete ending, so E came to mean eternity.
And speaking of central banks, the ECB took its own alphabet leaps in 2012. It introduced sisterly LTRO, long-term refinancing operations, which gave the banks a much-needed boost, all you can eat money. And then we moved onto OMT, outright monetary transactions, which stabilized the markets.
In September, we were introduced to the ESM, the firewall Europe desperately needed.
Not all letters brought us hope.
IPO spelled disappointment for Facebook. And 2012 was the year these five letters absolutely rocked the banking world, systematic wrongdoing at the heart of some of the world's most trusted financial institutions, LIBOR.
So you have an economic alphabet of 2012. And each acronym speaks of change or impending change, of throwing out the old and bringing in the new. And all we can say for certain is that here on QMB, we will continue to follow the stories in the year ahead, letter by letter.
And that's it for this special program. I thank you for joining me. Each night we come together for our conversation and digest from the world of business and economics. It wouldn't be the same without us.
I'm Richard Quest. Whatever you're up to in the year ahead, I know it'll be profitable.