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QUEST MEANS BUSINESS
North Korean Threat; Tired of Rhetoric; US Markets Up, Europe Mixed; HBOS Banker Returns Knighthood; Stabilizing Slovenia; Europe's Recovery; Euro, Pound, Yen Up; Baby Formula Rationed
Aired April 9, 2013 - 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 new threat. North Korea is warning foreigners in the South, get out before it's too late.
Take back my knighthood. The former boss of HBOS wants his title revoked and has asked for it himself.
And buckle up. Trans-Atlantic flights are to get more turbulent.
I'm Richard Quest, we have an hour together and, of course, I mean business.
Good evening. Leave or take shelter. It's a dire warning from North Korea, and it's set at foreigners in the South. Pyongyang says the United States and Seoul want a war, and once it's ignited, it will be "all out," in their words.
The White House has dismissed it as most unhelpful rhetoric that only serves to escalate tensions. Japan is stepping up missile defenses in Tokyo in case the North conducts a missile test, while in Seoul, perhaps surprisingly, it's business as usual just about. CNN's Kyung Lah is in the South Korean capital.
KYUNG LAH, CNN INTERNATIONAL CORRESPONDENT (voice-over): Another threat from Pyongyang, but this time, it wasn't aimed just at South Koreans. North Korean state TV warning foreign institutions, companies, and tourists that for their own safety, take shelter and evacuate Seoul and the rest of South Korea, warning the Korean peninsula may be headed toward thermonuclear war.
VICKY POLASHOCK, AMERICAN VISITOR: I am concerned. Not enough not to make the trip.
LAH: Atlanta visitor Vicky Polashock is in Seoul for business. She's not rattled, though Kim Jong-un's threats did get her to register with the US embassy. This latest warning?
POLASHOCK: That particular threat doesn't heighten the sense of danger I feel any more than just everything that's been occurring for the past couple of weeks.
LAH: It has been a long couple of weeks, coming to a head now. South Korea's capital bracing itself to see if the unpredictable leader in the North would carry out the threat of a missile launch.
(WOMAN SPEAKING KOREAN)
LAH: "It's hard not to be worried," she says, "but I doubt they'll attack."
South Koreans are numb to the onslaught of threats, but they're also well-practiced in living with them. Monthly civil defense drills where people in Seoul practice citywide emergency evacuations.
LAH (on camera): Seoul is a city of 11 million people one hour from the DMZ. What all of these people know is if there's some sort of attack, they know to head underground.
LAH (voice-over): Shelter or the subways, which double as underground bunkers. Seoul is a maze of underground concrete halls. But most of the residents don't believe they'll ever have to use them. Why South African native Wayne Schutte isn't worried.
WAYNE SCHUTTE, SOUTH AFRICAN VISITOR: They just shrug their shoulders and smile. It's like normal to them. It's like crying wolf.
LAH: Hoping the talk, even as loud as it gets, stays just that: talk.
Kyung Lah, CNN, Seoul.
QUEST: CNN's Anna Coren is also in Seoul as part of our continuing and expanding coverage of this crisis. A short time ago on the line she told me that while South Koreans are sick and tired of these Northern threats, the threats themselves really only hurt Pyongyang.
ANNA COREN, CNN INTERNATIONAL CORRESPONDENT: Richard, this has been dragging on for almost a month. We've been getting these warlike rhetoric announcements out of North Korea basically every single day. So, people are really growing tired of it here in Seoul.
QUEST: There must surely be a corrosive effect of this, even if it is -- because there's an element of psychological warfare in it as much as the threat as anything else. Are people perceiving or even seeming to be more tense?
COREN: No. People are not particularly perturbed by what is going on. You have to remember, people have been living with this supposed state of war for the last 60 years. North and South Korea have technically been at war for the last 60 years.
But you mention the sort of fallout and who's really suffering, and if we look at Kaesong Industrial Park, which is just across the border into North Korea, that's where approximately 120 South Korean companies operate, employing something like 53,000 North Korean workers.
Now, for these people, that is hard currency. They earn only about $134 a month, but for North Korea, this is making tens of millions of dollars for an economy that, as we know, is very much starved of cash.
So, North Korea has temporarily suspended operations there. North Korean workers didn't get into that Kaesong Industrial Park. And Pyongyang is saying it's reviewing whether or not it will shut down.
Now, this ultimately is hurting North Korea, but I think that sends a very clear message how angry the North Koreans are that they're willing to hurt themselves, but they want to tell South Korea and certainly the United States how angry they are.
CORREN: With that joint military drills that are going on between the US and South Korea and also those UN sanctions that were imposed after their third nuclear test.
QUEST: Anna Coren in South Korea, in Seoul, and a story we will continue to watch because not as -- not only are there the obvious ramifications in the region, but it transmits itself pretty quickly around the rest of the world.
The Dow Jones Industrials at the moment up 90 points on pretty much US domestic reasons, 14,703, so still rising sharply a gain of over half a percentage point.
The same could not be said in Europe, a mixed session. If you look at the numbers, the FTSE closed with solid gains on the back of mining and metal shares, and they were helped there, or course, by inflation easing in China. Rio Tinto up nearly 5, Xstrata up 4. Volkswagen the worst performer in Frankfurt, slipping 2.6 percent. Straightforward economic news, poor, weaker March sales.
Now, a British banker who was torn to shreds by a report into the HBOS, Halifax Bank of Scotland, now has asked to be stripped of his own knighthood, and he says he'll give up part of his pension, too. Well, he says he'll return his knighthood rather than being stripped of it.
James Crosby was the chief executive until 2006. In a statement he said, "Shortly after I left HBOS, I received the enormous honor of a knighthood." Quote, "In view of what has happened subsequently, I believe it is right that I should now ask the appropriate authorities to take the necessary steps for its removal."
Join me in the library and you'll see what I'm talking about. This is James Crosby, CEO at the time. He says he -- and has repeatedly says, and he said before a parliamentary committee, "I am deeply sorry for what has happened," for the bank's collapse.
Besides asking for his knighthood to be taken away or returned, he says he'll also give up 30 percent of his pension, half a million pounds, $750,000. So, roughly $250,000 of it will be withdrawn in the future.
It was parliamentary report that really did it in. It suggested and it has requested that Crosby and others never be allowed to work in banks again, in the banking or financial sector. It says that Crosby set the force for the banking disaster, which it called HBOS the worst bank in Britain. HBOS now firmly in the public sector having been nationalized.
The idea of losing a knighthood brings back echoes of Fred Goodwin, "Fred the Shred." Now, he was stripped of his knighthood. He was the -- he was the head of RBS, Royal Bank of Scotland. He did many deals. He also drove the bank straight into bankruptcy, where it had to be rescued before it collapsed.
Difference between Crosby and Goodwin: Crosby is asking for his knighthood to be removed whereas Goodwin's knighthood was stripped on the instructions of the government and then the palace.
Coming up next, Slovenia tells Europe, "We'll fix our own problems." And all that happens while the OECD has warned of a major banking crisis. Is Slovenia next?
QUEST: Slovenia's prime minister says her country will do everything it can to solve its problems alone. Speaking in Brussels, Alenka Bratusek played down rumors that Slovenia will be the next eurozone state to ask for help, insisting the country's working night and day to stabilize its banking sector.
(BEGIN VIDEO CLIP)
ALENKA BRATUSEK, PRIME MINISTER OF SLOVENIA (through translator): Those who have been speculating about Slovenia lately, I'd like to address now. Please assess Slovenia with facts and figures and not with speculation.
My message is that Slovenia is a stable and strong country, probably stronger than many other European countries.
(END VIDEO CLIP)
QUEST: The OECD's warned that Slovenia's facing a severe banking crisis driven by excessive risk-taking. The country's already bailed out its top bank, which are mainly estate-owned. Now, the OECD says that's pushing up the country's public debt quite strongly.
It recommends a survival of the fittest approach, privatizing the best-performing banks -- this is according to the OECD -- and allowing non- viable ones to fail.
Slovenia is showing some warning signs of a looming crisis. Now, this is the problem: the banking crisis, the public debt effect, privatize or wind-down those banks. But back into the library and you will see what I'm talking about.
Look at the major stock index, the SBI. Now, it's down 16.5 percent from its year high at the beginning of the year. This at a time, of course, where other major indices, maybe the FTSE and others, have been rising, showing a gain of 8 through 10 percent. So, there's clearly market pressure within equities.
Eurostat says Slovenia's GDP will fall 2 percent this year. That's on top of the 2.3 percent last year. Double dip, second recession within four years.
And if all this wasn't sort of feeding frenzy, then Fitch has downgraded the banks and says five Slovenian banks and says that reflects the ongoing delays in solving the problems in the banking sector. But the real issue, of course, is perception. And no sooner had Cyprus received its bailout terms, then the markets, like "Jaws" and like sharks, we're looking for the next victim.
Denis Ostir is the chief daily editor of news at Slovenia's POP TV, joins me now from the capital, Ljubljana. Denis, on this program, we have had people, like Axel Weber, who basically say Slovenia could well be next. In the capital, what do they say and how concerned are they?
DENIS OSTIR, CHIEF DAILY EDITOR OF NEWS, POP TV: Well, people of course are concerned, mainly because of what you just said, this GDP is -- has been shrinking. It has been shrinking since 2009.
It dipped 10 percent the first year, and now it's going down, down, down, and the forecast for next year and the year after are also not bright. In 2014, the economy will be flat, and only in 2015 we'll be able to see slight growth.
The biggest issue here is, like you've said, the banks. They hold about 9 billion euros worth of bad debt. Just to put it in perspective, 9 billion is roughly the annual budget of the whole country. And as you've said, two of those major banks are state-owned. So, it's going to be the taxpayers who are going to be bailing out these two major banks.
QUEST: Do the people feel that we are unfairly -- not us personally, here on QUEST MEANS BUSINESS, but that the markets and that the commentators are unfairly beating up, creating a self-fulfilling prophecy in Slovenia?
OSTIR: There's a lot of talk about that, but honestly, people are concerned. They say the situation is serious, but it's not dire, like some people are trying to say. Just for example, the debt of the country is about 54 percent of GDP. If you compare that to other European countries, you're going to see there is still room, if the government wants, to get some more additional money.
It is going to be expensive. The ten-year -- the yield on the ten- year bond is over -- has been over 6 percent for the last --
QUEST: But -- right, but -- on that point, as Slovenia moves forward, was there almost a sense that we are next after Cyprus? And crucial to that point, were people worried when they heard about bank deposits being withheld? The haircut?
OSTIR: Yes, that is a good point. Like you've said, people are concerned that things will happen like they did in Cyprus and Greece. We've all seen pictures from there.
But interestingly, "Delo," which is the main daily newspaper in Slovenia, just had a poll, and about 51 percent of people still believe that their savings in the big banks are safe, even though 48 percent, on the other hand, believe a bailout is imminent.
What I'd also like to point out is the unemployment rate. That's also one thing which is worrying people. We're currently at about 12 percent unemployment, and the forecasts are bad. It's going to go up to 13.5 percent in the next two years, which means 123,000 people right now in Slovenia, which is a country of 2 million, is looking for jobs.
On the other hand, only 767 jobs are available. So all this combined, people are worried. They do believe they're being unfairly treated and there's a lot of hype being created that Slovenia will be the next one. But like I've said, they believe that the situation is serious, but it's not as dire as some are trying to persuade them that it is.
QUEST: Denis, thank you for joining us from the Slovenian capital, very good up-sum, there, of the situation. David Bloom is head of global foreign exchange strategy at HSBC. David, I am not going to stand here and ask you is Slovenia next.
DAVID BLOOM, GLOBAL HEAD OF FOREIGN EXCHANGE STRATEGY, HSBC: Good.
QUEST: But is Slovenia next?
BLOOM: Well, the main point is one of contagion.
BLOOM: Right. So, the point is, will it create contagion? But the difference is, there are now the institutional arrangements in place to sort problems out. If we were talking two or three years ago when there was a fire anywhere in Europe, there was no fire brigade, there was no nothing. There wasn't even a phone to pick up and dial 999.
Now, you can. And we saw even with the recent crisis, did Spanish bond yields blow out? No. Did Portuguese bond yields blow up? No. Because Draghi said he'll do what it takes. So, the contagion --
QUEST: He said he'll do what it takes, but he hasn't had to do it. He's living on a free promise at the moment.
BLOOM: Well, it's like having a weapon as a sidearm.
BLOOM: It's working when it's not working.
BLOOM: So, he hasn't had to use the option, but it's there. The OMT is there, the ESM is there, the institutional --
QUEST: The ESM cannot recapitalize directly to the banks yet.
BLOOM: No, it can't, but we --
QUEST: And the OMT requires a country to be in a program --
QUEST: -- before it can be used.
BLOOM: And it has to be in the ESM program.
BLOOM: Which I used to think ESM stood for Extra Spanish Money anyway.
BLOOM: But we've got the situation that these institutional arrangements are in place, and it's stopped the contagion. And bond yields, especially in the periphery nations, did not blow out.
So we think that the way you have to now look at problems is you have to look at the banking sector and you have to look at the private sector. That actually the old gauge that you would use, which was Spanish bonds over bunds, that's broken down.
QUEST: So, you're looking at the banking sector, which now you're looking at capital adequacy, non-performing loans, all you --
BLOOM: And the performance of the equities in the market relative to the rest of the market.
QUEST: What? The banking shares?
BLOOM: The banking shares --
BLOOM: -- relative. And if those start looking bad and you've got, say, senior -- some different types of debt, the more secure debt starts to outperform the more risky debt, then you start saying, oh, I'm a little bit worried.
QUEST: We can't ignore the fact, though, that eurozone employment is still extremely, worryingly, frighteningly high and growth is just about non-existent and still people are asking where is that growth going to come from?
BLOOM: Yes. But that's not a currency question. That's more of a question about growth and economics, things like that. Meanwhile, the euro's holding up pretty well at 1.30 against the dollar, who prints $85 billion a month, which could help a country that you've just mentioned because their problem, 9 billion? And the Fed's printing $85 billion a month? Mustn't forget --
QUEST: Ah, you cannot -- you cannot --
BLOOM: Come on. You mustn't forget --
QUEST: Come on! You cannot compare the two.
BLOOM: Yes, but what I'm saying is, don't think this is a normal world. It's happening everywhere. We've got the Bank of Japan saying we're doubling the monetary base over two years, we've got the Fed continuing to do $85 billion a month.
This -- there's nothing normal out there. Don't think everything's fine and there's a problem in one country. There's a problem everywhere. This crisis is still burning its way through our lives.
QUEST: And on that cheerful note, thank you very much.
BLOOM: Thank you.
QUEST: Very well. Thank you very much. Right. The Dow is apparently up 77 points, which is a new high. David, I guess I'm -- that's grist to your mill, that it doesn't matter what's happening, the Dow still raises up. Equities still gain.
BLOOM: I'll never understand equities as long as I live.
QUEST: Oh, and you like and currencies!
QUEST: That's the word. All right. Here's a Currency Conundrum for you.
QUEST: The late Margaret Thatcher was the famous euro skeptic. I a speech she made 23 years ago, she predicted the single currency would be an excuse to create a United States of Europe.
(BEGIN VIDEO CLIP)
MARAGARET THATCHER, FORMER PRIME MINISTER OF BRITAIN: What they're proposing now, an economic and monetary union, is really the back door to a federal Europe, and we totally and utterly and utterly reject that.
(CROWD SHOUTS AGREEMENT)
THATCHER: We would have greater economic and monetary cooperation, which can be achieved by keeping our sovereignty.
(END VIDEO CLIP)
QUEST: Which of the following was not one of Margaret Thatcher's euro predictions? Was it A, is it a tax on bank deposits? Larger economies subsidizing smaller ones? Or mass immigration into the larger countries? Which did she not predict? Bank deposit tax, countries subsidized, or mass immigration? We'll have that in a moment.
On the currency fronts, the euro and the pound both -- up against the dollar. The yen's up, too. It's pushing the 100 yen mark for the first time in four years. That's just obviously in the last hour or so.
QUEST: Those are the rates, here's the break.
QUEST: Some brands of baby formula are being rationed in British supermarkets as demand from China threatens to wipe out supplies. The Chinese rush for foreign-made formula comes after a series of safety scandals, which has created shortages around the world. Isa Soares reports.
ISA SOARES, CNN INTERNATIONAL CORRESPONDENT (voice-over): Restrictions in Australia, curbs in Hong Kong. And now, rationing in the UK. Feeding your baby has just gotten even more stressful. Here, milk formula powder is being rationed at leading supermarkets because of surging demand in China.
SOARES (on camera): I'm just trying to buy three cans of formula at this supermarket, but I've been kindly asked to only buy two. But if you're a parent, you'll know this won't get you very far. If you've got a newborn, it will last about 6 or 7 days. With twins, you'll be running out already.
SOARES (voice-over): Danone, who manufactures Aptamil and Cow & Gate milk said the restrictions were put in place to avoid bulk buying of what it called unofficial exports to China. The company apologized to British parents for any inconvenience.
Behind the rationing is China's thirst for Western-made formula. In 2008, the industrial chemical melamine got into the nation's milk supply, killing six children and leaving thousands seriously ill.
As a result, many parents distrust formula produced in the country, preferring instead to pay more for international brands.
UNIDENTIFIED FEMALE (through translator): Even 2,000 yuan is not enough for a month's supply of baby food. All the family income is spent on the baby's daily necessities. Most of it goes to its feed.
SOARES: China's demand for milk has forced governments to step in. In Hong Kong, curbs have been introduced at customs. Travelers there cannot leave with more than 1.8 kilograms of formula. Last month, several people were arrested for smuggling more than the allotted quantity.
Australia, too, has introduced restrictions.
UNIDENTIFIED FEMALE: The reason for the shortage is that a lot of people are buying it and sending it overseas so people left here are now finding it harder.,
SOARES: Manufacturers tell CNN that there's no shortage of supply. That may be the case, but some may be stocking up. A quick search on eBay shows hundreds of packs of powdered formula on sale in bulk.
Isa Soares, CNN, London.
QUEST: In a moment on QUEST MEANS BUSINESS, take a seat and steady yourself. Fasten your seat belt, tray table in the upright and stowed position. A new report on turbulence makes uneasy reading. QUEST MEANS BUSINESS.
QUEST: Hello, I'm Richard Quest. There's more QUEST MEANS BUSINESS in just a moment. This is CNN, and on this network, the news always comes first.
The White House is dismissing the latest threat from North Korea as most unhelpful rhetoric that only serves to escalate tensions. Pyongyang says the Korean peninsula is on the brink of thermonuclear war, and it's warning foreigners in the South to evacuate the area or take shelter.
At least 32 people were killed in a strong earthquake that struck southern Iran, according to state media reports. Hundreds of people are said to have been injured. The government says their nuclear power plant in nearby Bushehr was not damaged by the magnitude 6.3 quake.
(BEGIN VIDEO CLIP)
(MAN SPEAKING SWAHILI)
(END VIDEO CLIP)
QUEST: It was a huge crowd that watched and cheered as Kenya's new president took his oath of office. As the first such swearing-in under the new constitution, it was indeed an historic occasion. Mr. Kenyatta won that nation's disputed election last month.
The police say a 60-year-old war veteran went on a shooting spree in a tiny Serbian village before dawn on Tuesday. By the end of it, 30 of the man's relatives and neighbors were dead. The gunman then unsuccessfully tried to kill himself and his wife.
At least 15 people have been wounded during a stabbing incident on a college campus in Texas. According to the local sheriff's office, one suspect has been detained.
(END VIDEO CLIP)
QUEST: Transatlantic travelers of the world, I beseech you. Brace yourself for a lot more of these. These are return to your seat and secure your seat belt. Coming on the next years ahead, the chance of hitting turbulence on flights between London and New York are more likely to be just Europe and the United States is set to rise. The degree of turbulence is on the rise.
According to a study which blames climate change and warns that if CO2 emissions double by the next -- the middle of the next century or this century then, one, the risk of transatlantic clear air turbulence could rise between 40 and 170 percent.
Now we're talking about levels of moderate or greater turbulence, the sort of turbulence that would do more than just shake your drink but would probably have you back in your seat and the flight attendants also taking their seats.
The amount of airspace with notable amounts of turbulence could double and the effects are clear. There could be a rougher ride onboard the plane, longer journey times and more rerouted flights. I'll explain more about how that's going to work in a moment.
Firstly, the actual -- the actual theory of what's going to happen and why. Manoj Joshi from the University of East Anglia worked on the study and I asked him what he discovered.
(BEGIN VIDEO CLIP)
MANOJ JOSHI, CLIMATE DYNAMICS EXPERT, UNIVERSITY OF EAST ANGLIA: So what we did was we looked at simulations of the North Atlantic storm track. So we're talking about the jet stream of the North Atlantic in winter. It's the only season and region that we've looked at.
And when we look at simulations of this in a climate model looking at conditions when (inaudible) is doubled, the jet stream strengthens and this means that measures of clear air turbulence that are used by airlines and aviation authorities will increase up to 40-170 percent, 170 percent was the large end.
QUEST: So because of climate change and global warming more carbon dioxide going into the air and therefore the jet stream getting more powerful, that's the gist of it.
QUEST: What's your time scale for this? Because when we talk global warming, it's always a 1 degree over this number of 20-30 years. What's your time scale?
JOSHI: The time scale over we looked at doubling carbon dioxide would probably happen around mid-century time. But of course, that depends on how much carbon we'd continue to emit into the atmosphere.
QUEST: Is this a gradual change? So over the next five or 10 years, you would expect as more carbon dioxide goes into the air, turbulence to increase?
JOSHI: It's a good question. We would expect it to increase gradually but there could be surprises and we are looking at these sorts of effects in our future work.
QUEST: Are planes built to withstand the sorts of turbulence that you are forecasting could happen?
JOSHI: We think they are in the sense that more turbulence will happen more often. In terms of extreme turbulence, it's always a bit of a cost-benefit thing, of how you build any sort of engineering. We've got to be very careful about advocating entirely different kinds of planes.
At the moment, this is merely a study talking about how turbulence may change in the future. Going to the engineering viewpoint would be something we'd be very careful about. We haven't looked at that yet (inaudible).
QUEST: And when the jet stream strengthens and becomes more aggressive, as you described, is it actually getting stronger or is it just getting more disruptive?
JOSHI: It's a couple of things. The average winds are predicted to get stronger at those levels, about 10 kilometers up in the atmosphere.
But storms themselves, individual storms may become more severe as well as the atmosphere warms up and there's more water vapor in the atmosphere. But it's a good question. Exactly what the distinction is between the two, the average and the storms, we need to look at.
QUEST: Right. So the plane could be either facing heavier headwinds or being pushed by stronger tailwinds as well as being buffeted by the storms en route?
JOSHI: That's potentially possible.
QUEST: And we're talking, what, flight level 31,000 up to 39,000?
JOSHI: Something like that. We looked at about 10 kilometers up in the atmosphere, so it's that sort of level, cruise altitude.
(END VIDEO CLIP)
QUEST: Now to explain a little more about the jet stream, I insist you join me at the departure board. It is just about 20 to 3:00 in the afternoon in the United States. And as at this time of the day, flights are starting to get ready to head back towards Europe from the U.S. coming eastbound across the Atlantic and they do it on various tracks, so-called North Atlantic tracks.
And these are the tracks for this evening that are being prepared. They are given a number and basically airlines are told which track they will do and they will follow it right the way across the Atlantic. Think of the tracks as being like raceway tracks that planes fly. And you're given your track -- U, V, W, X, whichever one for your flight.
Now these tracks are heavily influenced by the jet stream, which is what we are talking about tonight. And this is tonight's jet stream and how it will influence those flying back across the Atlantic.
What this report is basically saying is that as these jet streams and these tracks affect over the years the whole thing will go further north. And as it does so, so passengers and planes will fly further north and that is how you're going to get greater costs involved. That's what's happening tonight.
Your plane, of course, is built to withstand this easily, no problem. But Ayesha Durgahee now looks at how turbulence and other extreme weather are factored into aircraft design.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: Ladies and gentlemen, we're (inaudible) from the air flight deck. This is your captain.
AYESHA DURGAHEE, CNN CORRESPONDENT (voice-over): An in-flight forecast from the front of the plane.
UNIDENTIFIED MALE: Weather's a bit cloudy, I'm afraid, a light drizzle and brisk northerly winds.
DURGAHEE (voice-over): Once the seat belt sign is on, we can get back to enjoying a meal or a movie, because the planes we fly in are designed to battle the elements that can suddenly cross their paths.
UNIDENTIFIED MALE: There is one lightning strike every second around the world, every single aircraft is hit by lightning once a year.
DURGAHEE (voice-over): Here at Cardiff University in Wales, lightning strikes every day where capacitors discharge a current of 100,000 amps in a microsecond, recreating the power of a lightning bolt at altitude. The aluminum body of an aircraft is highly conductive and acts as a Faraday cage, a metallic shield that directs the electric charge outside towards the back of the plane.
And the passengers on board won't feel a thing. This $2 million lightning lab, in partnership with EADS and the World Government, tests different conductor strips from the nose of the plane and new composite materials found on modern aircraft.
Another built-in defense mechanism is using the heat from the engines to melt ice around them and along the edge of the wings. As well as freezing temperatures, aircraft can cope when dry, cold air collides with rising warm, moist air, in other words, turbulence.
UNIDENTIFIED MALE: The aircraft slightly rolls and pitches up.
DURGAHEE (voice-over): Here at Imperial College London, it's the landing phase, though, that's the most critical. During crosswinds and wind shear.
PROF. MICHAEL LEISCHZINER, AERONAUTICS, IMPERIAL COLLEGE LONDON: Turbulence is, again, the process of vortices generated up-and-down movements, and these up-and-down movements cause dropping and rising. And aircraft (inaudible) percent heavier than need be. It is, in a sense, overdimensioned.
The routes (ph) of the wing are very thick in order to withstand extreme conditions of turbulence. When you fly the aircraft, which seems to be out of control, the aircraft structure is sufficiently strong to withstand any of this.
DURGAHEE (voice-over): When it comes to aircraft design and weather, at research level, there are men and women dedicating their lives to specific weather conditions to ensure planes are built to buffer and bear the harshest of conditions.
And then it's up to the pilots to do the rest -- Ayesha Durgahee, CNN, London.
(END VIDEO CLIP)
QUEST: So that's what it's all about, the turbulence that the plane is safe.
Jenny Harrison is with us at the World Weather Center.
Jenny, I was showing the tracks over the Atlantic tonight that planes will be flying. But you're the one qualified to tell us whether or not it will be smooth.
JENNY HARRISON, CNN METEOROLOGIST: Well, I can tell you about the U.S., Richard. That much I can because, in actual fact, we've got some really severe thunderstorms erupting over the next couple of days. A line of weather is going to work its way across the west towards the southeast.
It is that time of year we've got this bitterly cold air across the north and west, mild, very mild and very moist across the southeast. And it's typical at this time of year, there's two air masses. Of course they clash together and we see these severe storms erupting.
Look at this, -9 right now in Denver and then across the southeast we've got 24 in Dallas, 25 in Atlanta and it's along this dividing line that we see these severe thunderstorms erupting. And you can see this is what's going to happen. So as the storm systems work their way east, this is always going to be the danger area.
So there is actually a forecast that is put out every single day and it actually does show where the turbulence is likely to be. So all these areas in orange, as you can see, this is actually the forecast for 0400 GMT, obviously for tomorrow, shall we say. And so these areas in orange pretty much in line with that line of thunderstorms as they work their way eastwards.
So as I say, that is put out on a regular basis every single day. And obviously it goes -- it's put out for several hours ahead. So as we go through the next couple of days, we expect to see this probably change color but also certainly work its way eastwards in line with that particular line of thunderstorms.
Now these storms, of course, the planes cannot fly over them. This is the actual next 48 hours. You can see that line there. We expect to see tornadoes, of course, within these thunderstorms, certainly very large damaging hail, strong winds and, as I say, this is Tuesday into Wednesday.
So expect some severe delays there. Wednesday high-temperatures at best -2 in Denver. Meanwhile 27 degrees Celsius will be the high Wednesday in Atlanta. I will drop down as that storm system comes through.
Talking of temperatures dropping down, still not feeling too great across central and northern areas of Europe. But the change already began. You can see the last 12 hours, mostly rain coming through across much of France, still some sleet mixed in. The U.K. mostly rain, again, a little few patches of sleet. These are the temperatures right now with the wind factored in, -4 in Copenhagen, 0 in Berlin.
But look at this, 11 Celsius in Paris. These are the high temperatures this Tuesday. So finally Paris actually at average (inaudible) the length of time, of course, in Paris with temperatures below average hasn't been that long, 10 Celsius in London.
So beginning to get a little bit closer. But believe it or not, it has been 33 days in London with those temperatures consecutively below the average. This is going to be the pattern for the next few days. It will slowly warm up. But it does mean we're back to rather wet and windies across much of the northwest and west of Europe, Richard.
QUEST: Jenny Harrison at the World Weather Center.
Now after this short break, the man who made Apple stores famous across the world and then took over JCPenney, he's Ron Johnson. So having had his experience at Apple, what could possibly go wrong? The answer? Pretty much everything -- in a moment.
QUEST: The man who turned Apple stores into a roaring success has failed miserably at JCPenney. Ron Johnson has been ousted as the chief exec at the U.S. department store. Christine Romans reports.
(BEGIN VIDEO CLIP)
CHRISTINE ROMANS, CNN ANCHOR (voice-over): Ron Johnson, the now ex- CEO of JCPenney, learned the hard way, turn off your loyal customers and they'll turn their back on you. That's exactly what happened at one of America's storied retailers when it brought Ron Johnson in from Apple to resurrect the company 15 months ago.
Johnson was credited with helping to create the formulas for the hypersuccessful Apple retail stores and Target. But selling iPads is very different from selling curtain sets and sweatsuits.
RON JOHNSON, FORMER CEO, J.C. PENNEY: I told you transformations are unpredictable and can be bumpy. And this one has been.
ROMANS (voice-over): In a risky series of moves, Johnson eliminated discounts and coupons, hallmarks of the JCPenney experience that built customer loyalty over the past 111 years.
UNIDENTIFIED FEMALE: The big thing is just a legacy of relationship with the customer that can't change overnight and perhaps it was a little bit too much too fast.
ROMANS (voice-over): Sales fell 28 percent in 2012, including a 40 percent drop over the holidays. The stock followed, dropping 55 percent in the past year, cutting the retailer's value in half. Johnson's pay was slashed by 97 percent. But that was from the original $58 million salary and stock package that lured him to JCPenney in 2011.
At a recent investor meeting, Johnson owned up to his miscues.
JOHNSON: As much as we accomplished last year, we also made some big mistakes. And I take personal responsibility for these.
ROMANS (voice-over): Johnson cut 13 percent of JCPenney's workforce to shore up profits. But the drumbeat for his ouster got louder by the day. His strategy of market JCPenney as a lifestyle brand instead of a discount brand fell flat.
His move to try to open stores within a store never caught fire and pitted Johnson and JCPenney in a bitter legal battle against Macy's over Martha Stewart's signature Lifestyle line. Johnson pleaded for patient but the board couldn't wait and replaced Johnson with Mike Ullman, the man who ran the company from 2004 to 2011.
UNIDENTIFIED FEMALE: Many of the changes Ron has started to make are things that Mike would have liked to have done but was hesitant because of the amount of disruption. So now all that has happened and it kind of gives Mike Ullman a little bit of a clean start.
ROMANS (voice-over): The question now, can JCPenney get its customers back? Christine Romans, CNN, New York.
(END VIDEO CLIP)
QUEST: Mike Ullman may be back in charge but the market isn't happy. Shares are down more than 10 percent, and Felicia Taylor is with us from CNN New York.
Felicia, the core question, every time I hear one of these stories about a famous -- Sears, Roebuck or JCPenney, Target, they all merge in some shape or form -- is whether or not they've had their day and they're on their way out.
FELICIA TAYLOR, CNN CORRESPONDENT: And it's a fair question to ask, because there's a lot of speculation as to what's going to happen to JCPenney, as Christine Romans laid out beautifully.
You know, there was a lot of expenditure from Ron Johnson to lift the company and get a different customer base, more similar to what, you know, was the customer base at Apple, and that was why he was brought in because obviously he was able to do that. But the customer base at JCPenney was an older -- an older crowd, you know, some would say it's the housewives of America.
There are 1,100 JCPenney stores out there. One hedge fund manager, Bill Ackman, gave major bets on this. He is the largest investor; he has about an 18 percent stake in the company.
The question is, is, you know, what is he going to do next? Some speculate that he could take the company private; some speculate they could sell off some of their assets because, as I said, with 1,110 stores across the U.S., that's a heck of a lot of real estate. And they own most of that real estate. And that's their biggest asset.
Some wondering what's going to happen next and a lot of that responsibility lies with Bill Ackman. Take a listen.
(BEGIN VIDEO CLIP)
DAVID TAWIL, COFOUNDER, MAGLAN CAPITAL: I think he has no choice. The company's equity is public. The debt financing that's in place is subject to the vagaries of the market. The company's going to need to refinance and need additional liquidity. If the company was private I think Bill would stay the course with Ron and that would be the right thing to do.
Unfortunately, that's just not the state of affairs.
TAYLOR: So at least one analyst out there doesn't think that they're going to take the company private. But nevertheless, there's a lot of speculation about this. And it could be one of their better options, according to others.
QUEST: Felicia Taylor, who's in New York, and I'm -- did that -- did that jacket come from Penney's?
TAYLOR: It did, by the way. Just kidding.
QUEST: JCPenney -- that's the -- but that's the point. That's the point, isn't it? That is the point. It doesn't have that range of goods that people want and we haven't got -- we could talk about this for hours; we'll have to leave it there. Oh, go on, go on. Get in one.
TAYLOR: Well, the one thing that I was going to say is that, you know, Mr. Johnson really wasn't given enough time to do this. He was only in place for 17 months. Most people say he needed at least three to four years to develop that customer base. And he just simply wasn't given the time.
QUEST: And I'm not giving you the time to expound any more on that.
Felicia Taylor, who is in New York tonight.
There's only one topic of conversation that we'll be talking about in the days ahead; after the break I'll tell you more.
QUEST: Now we asked you which of the following predictions was not made by Margaret Thatcher on the euro, and the answer was the tax on bank deposits. In "Forbes" magazine interview in 1992, she predicted some countries simply couldn't live up to a single currency and would either need subsidizing or see their citizens emigrate to other countries.
Her solution was a free trade area between Europe and the United States. She was ahead of her time. As you will be well aware, that is exactly what President Barack Obama and President Barroso announced just earlier this year.
The funeral of Margaret Thatcher will be held next Wednesday in London. Flowers have been left outside the former British prime minister's home. She died on Monday at 87 after suffering a stroke. At the funeral, the Queen will be amongst the guests, which will be held with full military honors at St. Paul's Cathedral.
And one other thing to note about tomorrow, the British Houses of Parliament, the Commons and the Lords, will reconvene. They're being returned early from the Easter recess by the prime minister, David Cameron, so that members of Parliament, MPs and Lords, can basically -- I was going to say pay their respects or have their say.
But this is going to be more than just interesting, because you're going to get those on the Right and those in the Tory Party lauding what Ms. Thatcher said. But it's a fair bet there will be vitriol from those on the opposition benches, those of the Left, those in the Labor Party.
And it'll be a question as to whether the decorum of the event precludes them from making some of their most inflammatory and critical remarks.
The Dow is at a record 14,712 at the moment, up nearly 100 points. It was up the best part of that. As for Europe, never really got going. And when it did get going, it never went much there fast, two up, two down. You pays your money, you takes your choice.
We will be back in a moment, a "Profitable Moment." And as you might gather, another chance to fasten your seat belt, tray table in the upright and stowed position.
QUEST: Tonight's "Profitable Moment," none of us enjoy it and we all have to deal with it, fasten your seat belts. Turbulence is a simple fact of life in the air. Now global -- excuse me -- now global warming might mean we have to deal with a lot more things that go bump in the air.
You heard researchers on this program say transatlantic flights will get rougher as climate change takes effect. That may be enough to have nervous fliers digging their nails into their armrests already. Well, I'm here to tell you don't panic! I've seen it from the flight deck myself, turbulence isn't a deadly menace, feared by pilots across the globe.
Turbulence -- I need you to think of turbulence as a boat on waves. Or better still, going over cobblestones. Is it the cobblestones and you're a car. It's irritating, uncomfortable but it's never dangerous. It's never, never brought down a plane out of the sky. Oh, and before you mention Air France 447, it wasn't turbulence that finally brought that plane down.
So my message to you tonight, ensure your seat belt is securely fastened and pay attention to the signs overhead. Enjoy the plane as it makes the magic of flying and doing truly in the air what it was designed to do, ride the waves.
And that's QUEST MEANS BUSINESS for tonight. I'm Richard Quest. Whatever you're up to in the hours ahead, I hope it's profitable.
(BEGIN VIDEO CLIP)
QUEST (voice-over): The U.N. secretary-general Ban Ki-moon says tensions on the Korean Peninsula risk slipping out of control. North Korea has warned the region that it's on the brink of thermonuclear war and foreigners in the South should evacuate the area or take shelter.
Ban Ki-moon again urged Pyongyang to tone down its provocative rhetoric.
At least 32 people were killed in a strong earthquake that struck southern Iraq, according to state media reports. Hundreds of people are said to have been injured. The government says a nuclear power plant in nearby Bushehr was not damaged by the magnitude 6.3 quake.
A huge crowd watched and cheered as Kenya's new president took his oath of office. As the first such swearing-in under the new constitution, it was an historic occasion. Mr. Kenyatta won the nation's disputed election last month.
And police say a 60-year-old war veteran went on a shooting rampage in a tiny Serbian village In the end, 13 of the man's relatives and neighbors were dead. The gunman then unsuccessfully tried to kill himself and his wife.
(END VIDEO CLIP)
QUEST: You're up to date with the news headlines. Now to New York, "AMANPOUR" is live.