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Dreamliners Grounded; High-Tech Hurdles; Algeria Gas Field Siege; Live: US Secretary of State Hillary Clinton Speaks on Somalia

Aired January 17, 2013 - 14:00   ET


NINA DOS SANTOS, HOST: Boeing's Dreamliner fleet grounded. We speak with the head of Ethiopian Airlines and also Korean Air.

Rio Tinto's chief executive quits after a $14 billion write-down.

And in Make, Create, Innovate, we examine a new waterproof technology that's making a splash.

Hello, I'm Nina Dos Santos and this is QUEST MEANS BUSINESS.

Good evening. Well, tonight, the world's fleet of Boeing 787s is firmly stuck on the ground. All eight airlines currently operating the Dreamliner have grounded those jets until it's proven that they're actually safe to fly.

The US Federal Aviation Authority, or FAA, triggered an international domino effect. That was when it ordered the US fleet out of the sky, potentially warning of fire risks on some of these planes. Well, these charred batteries were pulled from an All Nippon Airways Dreamliner at Boston Airport just last week.

GS Yuasa, which is the company that makes these batteries, has sent a team in to help the FAA safety investigation. The FAA says that Dreamliners must not fly until this problem has been resolved. But on the other side, though GS Yuasa says that that could, in turn, take weeks.

Well, Japan's two biggest airlines were the first to ground their Dreamliner fleets. That was after an All Nippon domestic flight -- we're talking about this airline here -- was forced to make an emergency landing just on Wednesday.

And as you can see here, there are currently eight airlines which have taken delivery of the Boeing 787 so far. We're talking about 50 jets in total out there in circulation.

The Japanese carriers, such al All Nippon Airways and also Japan Airlines, here, accounted for almost half of those currently out there on the ground. United Airlines is the only airline at the moment to fly the Dreamliner, and it currently has a fleet of six of them.

In Europe, what we saw was Poland's LOT taking order -- taking delivery of two more planes last year, but I must point out that this airline was actually forced to cancel what would have been its first Dreamliner flight ever from Chicago to Warsaw late on Wednesday because of these kind of issues.

And in turn, LOT says that it's already adding up how much grounding that particular plane is costing it, and it'll plan to complain to Boeing in due course.

And we should also mention Air India as well, because it has no fewer than six Dreamliners. Qatar Airways over here has around about five, and we also know that in South America, LAN Chile Airlines, there, has three Dreamliners at present.

Well, Ethiopian Airlines was actually the first carrier outside of Japan to take delivery of this new iconic Dreamliner. I spoke with the company's CEO earlier today, and he told me that he's so far seen no major problems with his company's four jets.


TEWOLDE GEBREMARIAM, CEO, ETHIOPIAN AIRLINES: We have never had this kind of major problems. Of course, like new technology airplane entering into service, we had this teething problems, technical issues, delaying flight departures --

DOS SANTOS: Such as what?

GEBREMARIAM: -- and premature -- Well, a few hours, flight departure delays in changing components and rectifying some false messages. And we've had also premature component failures. But we've never had any major issue like flight diversion or the likes of what we have seen in the last couple of weeks with other airlines.

DOS SANTOS: Now, you were on this very channel just about a week or so ago when all these problems started to surface with the Japanese carriers saying, "Well these are typical teething problems that new high- technology planes like the Dreamliner introduced to the markets will face. What has changed so much, in your view?

GEBREMAIRAM: Well, historically, if you see new technology airplanes, whether it is -- whether it was 777 -- back in thee early days, or the 757 or, for that matter, the 767. And other airplanes -- and also the 380, as you have followed it.

New technology airplanes have sometimes to mature and we -- it is generally expected and not unusual to have teething problems of technical issues.

DOS SANTOS: OK, so why take four planes out of service, and why is the FAA ordering the first time a comprehensive grounding of this fleet for the first time in 34 years? It sounds pretty serious to me.

GEBREMARIAM: Well, as you can imagine, the last couple of weeks, especially from what has happened in Boston, and again similar case was repeated in Japan, so the concern is understandable.

And safety comes first before anything, so it is -- I think it's appropriate to go through the inspection procedure and making sure that all the technical issues are fully addressed, and that's what's being done right now.

DOS SANTOS: Will you ask for compensation, and what will you be looking to hear from Boeing and the FAA?

GEBREMARIAM: Well, right now I think we are all focused on going through the procedure that the FAA's going to approve and making sure that the battery is properly tested and passed, and also if there is any maintenance action to be corrected. And then, bringing back the airplanes into the air.


DOS SANTOS: That's the head of Ethiopian Airlines talking to me earlier about the issues facing the Dreamliner 787. Well, Korean Air currently has ten Dreamliners on order. Yang-Ho Cho is the airline's chairman and chief executive officer. He told Richard Quest that the recent safety incidents haven't made him lose confidence in Boeing and in the 787.


CHO YANG-HO, CHAIRMAN AND CEO, KOREAN AIR: Most of the new aircraft in the first period of time, they had some issues, but not serious. And I believe with 787, it is not an exception of it. So, I have full confidence in Boeing that they can fix the issue in near times.

RICHARD QUEST, CNN INTERNATIONAL: Do you think the regulators -- the Japanese or the Americans or any of the regulators -- have handled this very well? Because we've had -- only last week, the FAA says it's safe. And then, within a week, they've grounded them.

CHO: Ground doesn't mean it's not safe. They want to be more cautious, and to more look in thoroughly. So, make sure the public has more confidence on air flight -- air transport. That's all it is. I don't have all the information yet.

By my experience the past history, when they come out, delivered to airlines, they are safe aircraft. And if they have some issue, it's a minor issue, not directly to endanger our customer passenger.

QUEST: Are you surprised at what's happened?

CHO: I expect some issues to happen to every aircraft. For all aviation history, and the grounding all the aircrafts is a little surprising, but I don't worry about it.

QUEST: Will it be difficult, do you think, to convince the traveling public the confidence of this aircraft?

CHO: At this moment, yes, and I have to see what happens to the US FAA actions, and Boeing will do it. And so, I don't have any report from Boeing or FAA, so it's too early to make any comment on that matter. But in general, I have full confidence in Boeing as I do Airbus.


DOS SANTOS: Well, the Dreamliner is packed full of groundbreaking new technology. Of course, these high-tech milestones can also be hurdles as well as accomplishments. Jim Boulden is here in our London studio to run us through the technicalities of fixing this issue. Even if it does surround the issue of lithium-ion batteries --


DOS SANTOS: -- which many people have said were known to have safety drawbacks, it could take ages to fix this.

BOULDEN: Here's what I've been told. You can't just change a battery like you would in a flashlight in an airline, because you've got the software, you've got the avionics that go with it, the electronics.

And so, if there is an issue with this battery, it's likely you would have to fix more than just the battery itself. Would they have to go to another supplier, for instance? That would be -- unbelievable, because this is the Japanese supplier who's been with Boeing for this project for many years.

And so, let's remember, these airplanes are unique in many ways. We talk about the fun stuff in the cockpit, we talk about the nice stuff for the passengers, but inside, things that used to be he hydraulics would control, Boeing is using these batteries to control, so it's the electrics. And so that's different. So you're not going to just re-engineer the whole airplane and forget about this.

So, to use these batteries, it's critical in these planes, two of them. And so they have to look at what's wrong with these batteries before these planes can fly again.

DOS SANTOS: Well, the other issue is that also this was supposed to be so revolutionary for a number of reasons. On the one hand, it made it cheaper to fly because it was 20 percent more fuel-efficient. And then, it used all sorts of different outsourcing companies to bring things together. That often, some critics may say, raises an issue of quality control.

BOULDEN: Well, that's what Boeing says internally as well. That's why a number of people have lost their jobs at Boeing over the years because of the Dreamliner.

Look, nobody criticized them, I don't think, when they did this in the beginning. We did stories on this years ago. A380 is the same way with Airbus. We said, oh, how interesting, we're getting parts from Wales, we're getting parts from Japan, parts from Italy. They've having some people design it up in Sheffield here in England.

And then they would fly it in or ship it in and it would be assembled in Boeing in Washington state. The idea was, go out and get the best supplier, have them be part of the strategy, but also part of the risk, and then it was very difficult to put these planes together in the end.

So, Boeing has already said, I think, that more will be brought back in house for the next generation of airplanes. So, they've learned a very valuable -- and what's looking like a very costly -- lesson.

DOS SANTOS: Yes, and a lesson that still hasn't finished, from all accounts.


DOS SANTOS: Jim Boulden in our London studio. Thanks for bringing us that.

Well, it's been a dramatic day in Algeria after a controversial and potentially costly government raid as the hostage crisis continues this hour. We'll bring you the latest after this break.


DOS SANTOS: The Algerian military is involved in an ongoing operation to rescue hostages from militants being held at a BP gas field. Algeria's communications minister says that a large number of hostages were freed in an earlier raid, although he did also confirm that there are casualties as a result.

One British man died on Wednesday. The British prime minister's office says that David Cameron was not warned of the Algerian military's plans ahead of time. As such, he's now canceled a much-anticipated speech on Britain's role within Europe, which he was due to give just on Friday.

Meanwhile, unarmed US predator drones are currently monitoring the gas field site from above, with the Algerian government concerned that Islamist militants are looking to take hostages out of the country to use them as a bargaining tool. Dan Rivers has the rest of the day's details.


DAN RIVERS, CNN SENIOR INTERNATIONAL CORRESPONDENT (voice-over): The In Amenas gas facility is the largest liquid gas project in Algeria. A huge investment in the desert, suddenly the scene of a desperate standoff.

The terrorists ambushed some 20 Western workers as they were en route to a local airport. A British and Algerian worker were killed. A hostage crisis at the gas plant then ensued, Algerian forces surrounding the terrorists and their hostages.

An excruciating time for this Irish family, waiting to hear about the fate of Stephen McFaul, but relief and tears as news the Irishman was free.

DYLAN MCFAUL, SON OF FREED HOSTAGE: Just -- I feel over the moon. I'm just really excited. I just can't wait for him to get home.



RIVERS: You can see just how isolated and featureless this part of Algeria is. The border is porous and unmarked. Much of southern Algeria is an empty desert.

It's the perfect place for this man to hide out. Mokhtar Belmokhtar is a jihadist since he was a teenager, with a reputation as a smuggler, a people trafficker, and a kidnapper who's eluded capture for years.

JON MARKS, NORTH AFRICA EXPERT, CHATHAM HOUSE: Well, it's interesting. He certainly has a Teflon-type personality, and he's been able to slide away. Some people indeed would say that one of the reasons he was able to do so is over the years he's done deals with the authorities involved.

RIVERS: Mokhtar Belmokhtar got his first taste for violence here in Afghanistan, joining the Mujahideen fighting the Soviets in a jihad or holy war. But it was here, back in Algeria, that he perfected his desert terror tactics. The brutal civil war saw him fighting with the infamous group GIA and their later splinter group the GSPC.

After the end of the civil war in 1997, elements of the GSPC rebranded themselves as al Qaeda in the Islamic Maghreb and continued with their campaign of hostage-taking, a terrifying experience for those who survived.

ROBERT FOWLER, FORMER HOSTAGE: There was no shelter, there were no buildings. We lay in the sand. It was cold at night and hot in the day. The food was appalling. And every moment, every single moment, I thought that it would end like your colleague, Daniel Pearl, in a tent with a knife at my throat, and you'd all be watching it on CNN.

RIVERS: The In Amenas gas field is near the border with Libya in the south of Algeria. Its remote location means getting accurate information about what's happening has been especially difficult.

It is acutely embarrassing for the Algerian government, which has prided itself on ensuring the lawlessness further south hasn't disrupted work at key energy installations like In Amenas. Now BP, Statoil, and other oil companies, will be urgently reviewing their security arrangements as violence in Mali seems to be spreading north.

Dan Rivers, CNN, London.


DOS SANTOS: The British prime minister has just been speaking about this crisis with the Algerian military operation described as being "ongoing." David Cameron said that the British people must be ready for bad news.


DAVID CAMERON, PRIME MINISTER OF BRITAIN: There were a number of British citizens taken hostage. We know of one who very sadly died. And we know that this is a very difficult situation, as Algerian forces have attacked the compound, and it is a fluid situation, it is ongoing, it is very uncertain.

So, I don't want to say any more than that now, but I think we should be prepared for the possibility of further bad news, very difficult news, in this extremely difficult situation.


DOS SANTOS: Do stay with CNN. We'll be back after this short break.


DOS SANTOS: Welcome back, you're watching CNN. We want to cross over to Washington, now, where the US secretary of state, Hillary Clinton, is making a speech. She's just been in talks with the Somali president, and of course, we're very interested to hear what she might have to say about the situation in Mali or Algeria, but before we listen in, let me just bring you what she's just said.

The United States government will be recognizing the government of Somalia, she says, for the first time since 1991. Let's listen in.

HILLARY CLINTON, US SECRETARY OF STATE: -- with a new president, a new parliament, a new prime minister, and a new constitution. Somalia's leaders are well aware of the work that lies ahead of them, and that it will be hard work. But they have entered into this important mission with a level of commitment that we find admirable.

So, Somalia has the chance to write a new chapter. When Assistant Secretary Carson visited Mogadishu in June, the first US assistant secretary to do so in more than 20 years, and when Undersecretary Sherman visited a few months ago, they discovered a new sense of optimism and opportunity. Now, we want to translate that into lasting progress.

Somalia's transformation was achieved first and foremost by the people and leaders of Somalia, backed by strong, African-led support. We also want to thank the African Union, which deserves a great deal of credit for Somalia's success.

The United States was proud to support this effort. We provided more than $650 million in assistance to the African Union mission in Somalia, more than $130 million to Somalia's security forces.

In the past two years, we've given nearly $360 million in emergency humanitarian assistance, and more than $45 million in development-related assistance to help rebuild Somalia's economy. And we have provided more than $200 million throughout the Horn of Africa for Somali refugee assistance.

We've also concentrated a lot of our diplomacy on supporting democratic progress. And this has been a personal priority for me during my time as secretary, so I'm very pleased that in my last weeks here, Mr. President, we're taking this historic step of recognizing the government.

Now, we will continue to work closely, and the president and I had a chance to discuss in detail some of the work that lies ahead, and what the government and people of Somalia are asking of the United States now.

Our diplomats, our development experts are traveling more frequently there, and I do look forward to the day when we can reestablish a permanent US diplomatic presence in Mogadishu.

We will also continue, as we well know, to face the threat of terrorism and violent extremism. It is not just a problem in Somalia, it is a problem across the region. The terrorists, as we have learned once again in the last days, are not resting, and neither will we. We will be very clear-eyed and realistic about the threat they continue to pose.

We have particular concerns about the dangers facing displaced people, especially women, who continue to be vulnerable to violence, rape, and exploitation.

So today is a milestone. It's not the end of the journey, but it's an important milestone to that end. We respect the sovereignty of Somalia and, as two sovereign nations, we will continue to have an open, transparent, dialogue about what more we can do to help the people of Somalia realize their own dreams.

The president had a chance to meet President Obama earlier today at the White House, and that was a very strong signal to the people of Somalia of our continuing support and commitment.

So, as you, Mr. President, and your leaders work to build democratic institutions, protect human rights and fundamental freedoms, respond to humanitarian needs, build the economy, please know that the United States will be a steadfast partner with you every step of the way.

HASSAN SHEIKH MOHAMUD, PRESIDENT OF SOMALIA: Thank you. Thank you, very much. Thank you.

CLINTON: Thank you, sir.

MOHAMUD: Thank you.

CLINTON: Thank you.

MOHAMUD: Thank you, Madam Secretary --

DOS SANTOS: OK, so that's the US secretary of state, Hillary Clinton, there, standing on the podium next to the Somali president, Hassan Sheikh Mohamud, and this is a momentous day because, as she's just announced, the United States will be recognizing officially the government of Somalia for the first time since all the way back in 1991.

Hillary Clinton had this to say: that Somalia's leaders are well aware of what they need to do next to fight the scourge of al-Shabab and Islamic fundamentalism and terrorism in the region.

She stressed that the United States have been committing hundreds of millions of dollars, if not billions of dollars, to try and fight that scourge of al-Shabab there in that region, committing money to African Union forces, also to humanitarian assistance in Somalia. And she says, "I look forward to the day when the United States will have a permanent diplomatic mission present in Mogadishu."

We'll, of course, monitor the question and answer session to see whether something is said on the issue surrounding the current hostage crisis in Algeria and the ongoing conflict in Mali. We'll be back after this.


NINA DOS SANTOS, CNN HOST: Hello and welcome back. I'm Nina dos Santos. These are the main headlines on CNN this half hour.


DOS SANTOS (voice-over): The United States has said that it will recognize the government of Somalia for the first time since 1991. What you're seeing there is live pictures of the U.S. Secretary of State Hillary Clinton on the podium next to Hassan Sheikh Mohamud of Somalia after having made that announcement just a short time ago.

All of this follows talks with the Somali president which, as you can see, are being concluded with a perfunctory handshake right now between the two.

Well, the Algerian military remains in an ongoing operation at present to rescue hostages from a gas field. The country's communications minister says that a large number of hostages were freed after a mission earlier on Thursday, although he confirms that there were casualties as a result.

The British prime minister, David Cameron, says that the public should now prepare for the possibility of bad news (inaudible) hostages.

Right. Let's go back to the Secretary of State Hillary Clinton, because she's now making some statements on the ongoing situation in Algeria.


HILLARY CLINTON, SECRETARY OF STATE: -- Sellal yesterday. I expect to speak with him again this afternoon. Our counterterrorism experts have been in close contact with their Algerian counterparts throughout the last days.

And we've also been in close consultation with partners around the world, sharing information, working to contribute to the resolution of this hostage situation as quickly as possible.

Now, let me say the situation is very fluid. It's in a remote area of Algeria near the Libyan border. The security of our Americans who are held hostage is our highest priority, but, of course, we care deeply about the other Algerian and foreign hostages as well.

And because of the fluidity and the fact there is a lot of planning going on, I cannot give you any further details at this time about the current situation on the ground. But I can say that, more broadly, what we are seeing in Mali, in Algeria, reflects the broader strategic challenge, first and foremost, for countries in North Africa and for the United States and the broader international community.

Instability in Mali has created the opportunity for a staging base and safe haven for terrorists. And we've had success, as you know, in degrading Al Qaeda and its affiliates, leadership and actions in Afghanistan and Pakistan. We've seen the great cooperation led by African troops through the U.N. mission that we were just discussing in Somalia.

But let's make no mistake. There is a continuing effort by the terrorists, whether they call themselves one name or Al Qaeda, to try to destroy the stability, the peace and security of the people of this region.

These are not new concerns. In fact, this has been a top priority for our entire national security team for years. We've worked with the government of Yemen, for example, in their efforts against Al Qaeda in the Arabic Peninsula. We've worked in something called the Trans-Sahara Counterterrorism Partnership, which works with 10 countries across the region.

So we have been working on these problems, trying to help build capacity, trying to create regional networks to deal with problems in one country that can spill over the border of another, and working to provide American support for the disruption of these terrorist networks.

At the U.N. General Assembly in September, we made the situation in Mali an international priority with a central focus on working to have an international response. I certainly am among a number of officials in our government who've met and worked on this issue over the last weeks.

In fact, in October, I flew to Algeria for high-level talks with the president and others of -- in responsible positions in this security area, trying to determine what more we could do to strengthen our security ties.

In November, I sent Deputy Secretary Burns and a team to Algeria to really get into depth about what more we could be doing.

And then in December, we began to reach out more broadly in the ongoing counterterrorism discussions that we have.

Now, I say all of this because I think it's important that we put this latest incident into the broader context. This incident will be resolved, we hope, with a minimum loss of life. But when you deal with these relentless terrorists, life is not in any way precious to them.

But when this incident is finally over, we know we face a continuing, ongoing problem, and we're going to do everything we can to work together to confront and disrupt Al Qaeda in the Islamic Maghreb.

We're going to be working with our friends and partners in North Africa. We are supporting the French operation in Mali with intelligence and airlift. We're working with a half a dozen African countries, as we did with respect to Somalia over so many years, to help them be prepared to send in African troops.

In fact, by this weekend, U.S. trainers will be on the continent to offer pre-deployment training and sustainment packages for ECOWAS troops. And we are prepared to fund airlift for those troops into Mali.

This is difficult but essential work. These are some of the most remote places on the planet, very hard to get to, difficult to have much intelligence from. So there is going to be lot of work that has to go into our efforts.

But I want to assure the American people that we are committed to this work, just as we were committed to Somalia. There were so many times, Mr. President, over the last four years when some people were ready to throw up their hands and say, you know, al-Shabaab made an advance here and this terrible attack in Mogadishu.

And we kept persisting, because we believed that, with the kind of approach we had taken, we would be standing here today with a democratically elected president of Somalia.

So let me just say that this is about our security, but it is also about our interests and our values and the ongoing work of how to counter violent extremism, to provide like-minded people who want to raise their families, have a better future, educate their children away from extremism and to empower them to stand up against the extremists.

And I think it's something that we will be working on for some time, but I am confident that we will be successful over that time to give the people of these countries, as we have worked to give the people of Somalia, a chance to chart their own future, which is very much reflective of the values and interests of the United States.

VICTORIA NULAND, STATE DEPARTMENT SPOKESPERSON: Last question today, Somalia Service of VOA, Falastine Iman (ph), please.

QUESTION: Thank you. And I have question, one for the Somali President and one for Madam Secretary.

DOS SANTOS (voice-over): So that is the U.S. Secretary of State Hillary Clinton there, making some comments on the ongoing hostage crisis currently underway in the south of Algeria in Amanas at a BP-operated gas field there.

She had this to say -- she couldn't give more details about these current situations because of its fluidity at the moment, but did say that when this incident is over, we will know that there will still be plenty of work to be done to combat the threat of Al Qaeda in the Islamic Maghreb. This is the group that has claimed the responsibility for the ongoing Algerian hostage crisis.

She also revealed than in October, the secretary of state herself visited Algeria and had talks with the Algerian government about these kind of issues. And she also sent in her aides on two various occasions subsequently in the month of November and also in December.


DOS SANTOS: So obviously we'll continue to monitor what she has to say about the ongoing situation in Algeria. You're watching CNN. (Inaudible).



DOS SANTOS: Welcome back. Well, as we mentioned earlier on the show, the British prime minister, David Cameron, has now postponed his long- awaited speech on the U.K.'s position within the E.U. because of the ongoing hostage situation in Algeria and he's warned the British people to be braced for bad news on this subject.

But this long-awaited speech was actually due to take place this very Friday in the Netherlands. U.K. business leaders have been calling on Mr. Cameron to abandon his bid to dilute the U.K.'s connection with its neighbors. Executives like WPP's Martin Sorrell have also been warning that this kind of move could stifle growth and also isolate the nation.

Sweden's foreign minister, Anders Borg, agrees that a U.K. exit is not a good idea. And earlier he told me that it would damage all parties present in the partnership.


ANDERS BORG, FOREIGN MINISTER, SWEDEN: Well, it would be problematic, both because around the table in Brussels, there will be fewer people arguing for openness, competitiveness and building better growth for the future. So the U.K.'s an important voice. And that is in our interest.

And also the fact that the U.K. has actually been one of the more dynamic economies in Europe, so from our perspective, we believe very difficult to see the U.K. leaving.

DOS SANTOS: But how much leeway would they have to say, as David Cameron says, perhaps renegotiate some of these terms, not leave the E.U. altogether, not go towards the model like in EEA, like Switzerland has, but to remain part of the E.U. but with fewer concessions? How much leeway would they have from partners in (inaudible)?

BORG: Well, first and foremost, the U.K. is not Norway or Switzerland. I mean, it's a -- it's a core of Europe and it cannot be -- play such an important role if they are sitting this out on the sidelines as Norway and Switzerland. They have to accept all the decisions from Brussels without any of the -- being part of the decision-making. So that's a very difficult role for the U.K. to take.

And for us, I mean, we think we should listen to the Brits and they must make up their own mind in their own political debate on what is necessary and -- but this is obviously difficult. It's a negotiation between 27 member states. So it will not be easy.

DOS SANTOS: Would Sweden itself actually consider the issue of a referendum? How much appetite is there for leaving the E.U. and becoming, say, part of the EEA or other options on the table?

BORG: Well, we have gone through that option and it's not a viable option. It means that you will have no say around the table and you are obliged to follow all the rules. But let me say that we are worried about the Eurozone going towards a full-fledged banking union with a common (inaudible) and Eurobonds and euro finance ministers.

We don't think that that is the core of the solution. There is no public demand for a political structure. What Europe needs is a strong central bank that is flexible and some fundamental reforms to increase productivity in the Mediterranean countries. They need to become more efficient, deregulate the labor market and open up for other markets.

And that's the real solution. You cannot cover up lack of competitiveness by political structures.


DOS SANTOS: And that's it for this edition of QUEST MEANS BUSINESS. I'm Nina dos Santos in London. MARKETPLACE EUROPE continues on CNN.




MAX FOSTER, CNN HOST: From Dublin in Ireland, this is MARKETPLACE EUROPE. I'm Max Foster.

Ireland has been on something of an economic roller coaster since it joined the European Union 40 years ago. Years of rapid growth and foreign investment were dramatically crushed with the collapse of the property bubble. Recreation, bailouts, austerity, they all followed. And we've come here five years on to find out how businesses are steering a path towards recovery.


FOSTER (voice-over): Coming up, the beans that are powering export growth on this Dublin production line. I talked to the CEO of Ireland's biggest food company.

UNIDENTIFIED MALE: I think (inaudible) does not come back in terms of perhaps maybe some of the legacies that still exist because of the Celtic Tiger. I think the Irish economy will come back, but at a much wiser and a much more pragmatic and prudent economy.


FOSTER: From Celtic Tiger to financial meltdown, Ireland's far from being the fastest growing European economy in the 1990s. There's been nothing if not spectacular. A 65 billion Euro bailout led to a series of tough austerity measures. Banking failures and a property boom, then a bust aside, the global economic slowdown has weighed on this export-led economy.

Isa Soares has gone to see a company which exports 98 percent of its products.



ISA SOARES, CNN CORRESPONDENT (voice-over): (Inaudible) 14 mm long, less than a gram in weight. But don't judge this bean by its measurements. Here at this recently extended factory in Dublin, workers carefully craft each bean, spending two weeks infusing and polishing each one.

ALAN STYNES, PRODUCTION MANAGER: We've five different shades of green. So we had to differentiate between the different flavors. So as you can see here, we have our lemon-lime; here, kiwi; watermelon and apple. And we need to be able to (inaudible) customer clearly, which is which.

SOARES: So this is watermelon here?

STYNES: This is watermelon.


STYNES: And we showed a difference with the apple by placing a speckle on the bean.

SOARES: So this little white (ph) speckle there?

STYNES: Exactly.

SOARES (voice-over): It's this attention to detail that has been The Jelly Bean Factory's stance through particularly sticky economic climate. The father and son, Peter and Richard Cullen, it was bad luck that kicked off this Irish success story.

RICHARD CULLEN, JOINT MANAGING DIRECTOR, THE JELLY BEAN FACTORY: It actually started through and after adversity, myself and my dad. We lost our jobs and we were working for another confectionery company.

And in 1998 then we started to outsource and do some trade and marketing of confectionery products. We bought The Jelly Bean Factory brand name. And in 2004, we started to manufacture in Ireland.

SOARES (voice-over): That wasn't the end of their struggle. The Irish property bubble was reaching its peak.

CULLEN: First of all, (inaudible) manufacturing in Ireland at the height of the Celtic Tiger was a challenge in itself, just trying to find a property that we could afford was difficult. Then finding a workforce in those early stages was very, very difficult as well.

SOARES: That's the year the bubble burst. But even in the midst of an economic crisis and a sovereign bailout of Ireland, the beans continued to tumble off the production line.

CULLEN: Being part of the European Union has definitely helped our business. There has been E.U. regulations and that have come into play. And they have set challenges upon us.

But we look at those challenges and see is there an opportunity that can come at the European Union said that they have any products that are made with synthetic or artificial colors, they have to put a health warning now on the back of the package. We've transformed our business to only use natural colors and natural flavors. So we don't have to put any health warnings on our product.

SOARES (voice-over): On the factory floor, a watchful eye is kept on every stage of the two-week production process. Unlike many businesses for this company it's not practical to farm out manufacturing to the Far East.

CULLEN: Bringing containers over from the Far East is probably wiping out any competitive advantage that there is there anyway. And we're not going to now give away our technology and our know-how on the natural side of the business.

SOARES (voice-over): With just 65 employees, The Jelly Bean Factory exports to 55 countries. It has annual sales of 11 million euros and expects to double its growth in the next two years, helped, no doubt, by some key partnerships with companies like GlaxoSmithKline.

CULLEN: We make their energy sport beans under the brand Lucozade. We also partner with a Finnish confectionery company called Panda. And we sell that into the Finnish market and also into the U.S. market.


SOARES: (Inaudible) may be small. But when it comes to selling power, this humble bean is mightier than it looks.



FOSTER: Isa Soares doing a sort of bean counting there.

After the break, I speak to the chief executive of Ireland's largest food company about his ingredients for global success.




FOSTER: Welcome back to MARKETPLACE EUROPE from Dublin. This month, Ireland takes over the rotating presidency of the European Union.

And during its four decades of E.U. membership, it's seen its economy shift from being focused on agriculture to being driven more by high-tech industries and global exports. In fact, it's hoped that those exports will help dig it out of the worst debt crisis it's ever seen.


FOSTER (voice-over): Founded in 1972, Kerry Group started life as a private dairy processing company. In the mid-'80s, it went public and with over 15,000 products, it's now a world leader in food ingredients and flavorings.

With 150 manufacturing sites around the world, Kerry employs 24,000 people with annual sales of 5.3 billion euros.


STAN MCCARTHY, CEO, KERRY GROUP: Ireland is an export-orientated (sic) country by its size and by its positioning and whether it's agriculture or anything else, you have to look beyond the shores of Ireland to develop a business that's meaningful and competitive in this day and age.

Kerry was very clear about following the dairy products that we were making, which was basically around fragmenting milk into its component parts and marketing (ph) them into various different industries. We're able to follow that chain into the processed food industry around the world.

And from that, we learned about new markets, about new opportunities and about new technologies around which we developed a very successful business.

FOSTER: And now the Irish economy exports more than the value of the economy itself. It's a fascinating situation, isn't it? So what -- how would you describe the Irish economy?

MCCARTHY: The Irish is -- economy's a very progressive economy. I think it recognizes that it cannot rely totally on its own market and it has to look internationally to develop an economy. We have been very successful in attracting major multinationals into Ireland and looking at Ireland as a gateway into western Europe, which has obviously helped the Irish economy as well.

FOSTER: Do you think the Celtic Tiger can come back?

MCCARTHY: I think -- I hope the Celtic Tiger does not come back in terms of perhaps maybe some of the legacies that still exist because of the Celtic Tiger. I think the Irish economy will come back, but at a much wiser and a much more pragmatic and prudent economy.

FOSTER: What mistakes can Ireland learn from its recent past, economically speaking?

MCCARTHY: I think it's got to recognize that it is a small economy and it has -- and it cannot survive on its own. And you can't have (inaudible) bubbles driving the economy, given its size. I think we've got to recognize our dependency on exports and our need to be competitive. And we have got to have a pro-economic environment in terms of continuing to attract businesses into this country.

FOSTER: You're also at the hard end of all the European regulation, aren't you? People complain about it horribly. But when it comes to foods, it must keep you up at night, trying to get through all those hoops.

MCCARTHY: Perhaps at times. As an industry, you might think that you're being burdened unfairly. But the reality is that everybody is exposed to the same regulations and if it helps better the industry long- term, then we should embrace it and make it work.

FOSTER: I think your concerns about the European economy going ahead, you're obviously investing more in the developing markets, like many multinationals are. But is that you turning your back on the European economy, thinking actually it's going to be really hard to grow here?

MCCARTHY: Certainly the European markets have gone through a sort of a flat curve over the last couple of years and probably will do so in 2013 as well. We are not at all turning our back on it.

However, we would prepare -- we would be preparing for a different Europe out on into the future, where it has to become more efficient and we're looking at it from that perspective, that when growth represents itself, we will be well positioned from the European perspective.

FOSTER: Ireland has been in the E.U. for 40 years. It's often said that they've benefited hugely from that. Do you think Ireland has? Do you think Kerry has?

MCCARTHY: I certainly think Ireland has benefited from membership of the E.U. and certainly Kerry has as well. Prior to Ireland joining the E.U., we didn't have export into the international markets that we enjoy today. We were somewhat insular (ph) in our thinking and it's certainly provided us the opportunity to take a much more global perspective and not just the European perspective.


FOSTER: The CEO of Kerry Group, Stan McCarthy.

That's it for this edition of MARKETPLACE EUROPE from Dublin in Ireland. Do join us again next week, though, when Richard will be at the annual World Economic Forum at Davos. Until then, goodbye.