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Breaking Deadlock in Italy; European Markets Rise; Ford's First Quarter; Fake Tweet Shocks US Market; Dollar Down; Going for Growth; Huawei Ends US Push; Boeing Beats Expectations

Aired April 24, 2013 - 14:00   ET


MAX FOSTER, HOST: A red-letter day for Italy. Enrico Letta is chosen to lead its next government.

And forget the Dreamliner delays. Boeing's bottom line takes off on Wall Street.

And billions of dollars wiped out in a 140 characters. How one fake tweet caused a stock market shock.

I'm Max Foster, this is QUEST MEANS BUSINESS.

Hello to you. Tonight, we'll hear from the very top of some of the world's biggest companies on the state of the global economy. The chief financial officer of Ford tells us how his company's defying the downturn in Europe to break records in North America.

We'll hear from the CEO of Ericsson on his plans for a transformation of his business in Europe, and we'll have the chairman of luxury watchmakers Hublot on how to sell a million-dollar watch in this current climate.

We begin, however, in Italy. The man chosen to form its next government says austerity is no longer enough. Prime minister-designate Enrico Letta has vowed to shift the focus away from spending cuts and more towards growth.

Italy has now been without a government for 124 days. That's when technocrat prime minister Mario Monti resigned from office. Talks after the inconclusive elections proved absolutely fruitless. So now President Napolitano hopes this man wills succeed in forming a grand coalition.

Enrico Letta is the deputy leader of the center-left Democratic part. At 46 years old, he's young for an Italian leader. He says he'll take on the challenge to break the deadlock and change the course of Europe.


ENRICO LETTA, PRIME MINISTER-DESIGNATE OF ITALY (through translator): Everyone knows that this is a situation that cannot stay like this. In this sense, I have accepted this role, this invite, and this responsibility. And it is something I feel the weight of on my shoulders. All of this needs to be done as Italy works to swing the political needle in Europe away from austerity measures, which are no longer sufficient.


FOSTER: Well, the possible break in the political deadlock helped with Italy's borrowing costs today. Yields at an auction of two-year bonds were at the lowest level since the introduction of the euro.

Letta says that Italy is going through a very difficult time. There were signs of that today. Retail sales in February fell nearly 5 percent year-on-year. Let's go to senior international correspondent Ben Wedeman at CNN Rome for a bit more on this. Ben, this name is put out there, but will he actually be in charge of the country?

BEN WEDEMAN, CNN SENIOR INTERNATIONAL CORRESPONDENT: Well, certainly if he succeeds in forming a government, he will be. Of course, there's several steps he has to go through before he can actually be officially the head of the government.

He still has to form a cabinet. We understand that tomorrow, he will be holding intense consultations with the various political forces in the Italian Senate and lower house of parliament, and then when he does eventually form a cabinet, he needs to pass a vote of confidence from the parliament.

So, we're not quite there yet. And you have to keep in mind that Italy has a long history of very short-lived governments. In fact, by CNN Rome's count, if he managed to form a government, it will be the 66th Italian government since the end of World War II 68 years ago.

So, it's quite a challenge for him, but certainly after two months of -- since the Italian elections took place and no real government -- although I must stress, they do have a caretaker government that's running the place .

Certainly there's a lot of pressure from ordinary Italians from the business sector, from Giorgio Napolitano, the president, that they've got to get their act together and form a government as quickly as possible. Max?

FOSTER: And a lot being made of his age, because he is extraordinarily young for an Italian leader, isn't he?

WEDEMAN: Oh, yes, 46 years old makes him a whipper-snapper, a spring chicken, certainly, compared to Silvio Berlusconi, who is 76 years old, and definitely compared to Giorgio Napolitano, the president, who is 86 years old and was just elected -- re-elected for a second seven-year term, which means that when he finishes that term, he'll be 95 years old. So 46? Just a kid, Max.

FOSTER: And do we know his position on austerity?

WEDEMAN: Well, certainly he's made it clear -- and I think the Italian electorate has made it clear -- that they don't want more of these austerity programs, the tax increases, the cuts in social spending.

And he's made it clear, one of his top priorities is going to be to confront unemployment, which is growing and, for instance, in Southern Italy, it's his -- it's more than 17 percent. So, certainly that is going to be one of his priorities.

And as you mentioned before, stimulus as opposed to austerity, getting the Italian economy moving again. Because Italy, unlike for instance the United States, where they complain about low growth rates, here the economy is actually shrinking. So, certainly if he can turn that around, he'll be quite a success. Max?

FOSTER: OK, Ben, thank you very much, indeed. Well, markets just seem to be shrugging off all of those shenanigans. Italy's main stock index rose this Wednesday, in fact, in line with Europe's other major indices.

Mining and metal shares were some of the top performers. Xstrata gained nearly 4 percent in London, Arcelormittal rose more than 3 percent in Paris, and these gains came despite downbeat economic data form Germany.

The IFO index of German business confidence fell for a second straight month in April. Economists had expected it to rise. Now, the reason we're not seeing this impact the DAX is because this poor data makes it more likely that the ECB will cut rates.

Valentijn van Nieuwenhuijzen is a fixed-income strategy at ING Investment Management. He told me that market moves we're seeing are based on monetary policy rather than economic signs.


VALENTJIN VAN NIEUWENHUIJZEN, CHIEF ECONOMIST, ING INVESTMENT MANAGEMENT: Well, it seems that the more policy easing markets feel that are coming, the more enthusiastic they get. I think it's against background that systemic fears are coming down, so a bit of softer growth creates more policy easing, but no longer creates the fear that the system will collapse.

FOSTER: This IFO survey, that should be what we're focusing on, shouldn't it? Because it's Europe's largest economy, it's concerned about Chinese demand.


FOSTER: Surely the stock market should be falling based on fundamental news.

VAN NIEUWENHUIJZEN: Yes, well, in the end, I think it is important what the cyclical dynamics are, and you had the flash PMIs and the IFO this week clearly showing a weakening of momentum. It can create a concern.

But at this point, I think the underlying willingness to allocate money that is previously in cash, not giving you any return, and bring that to the financial markets is providing a supportive undercurrent. And again, as long as policy-makers keep on supporting the economy once there is a disappointment, I think that undercurrent persists.

FOSTER: So, it's essentially monetary policy and liquidity that is really driving share markets at the moment.

VAN NIEUWENHUIJZEN: Absolutely. Absolutely.

FOSTER: It's not just to do with economics.

VAN NIEUWENHUIJZEN: No, actually, I think that is overriding some of the softening dynamics in the economic data. Maybe there is an element there, also, of the market looking through to some of the seasonal impacts.

There's a very cold March, both in the US and in Europe, early April also. So, maybe some of that is reflected in the data, and there can be an expectation that it recovers a bit over the summer.

FOSTER: So, have we got into a situation where if the ECB doesn't drop rates next week, there's going to be a pretty negative reaction?

VAN NIEUWENHUIJZEN: Yes, absolutely. Everybody is now adjusting their opinions. Clearly, the market expects a rate cut by the ECB or, at the minimum, another measure in terms -- in the direction of easing. If they do not move in that direction, the market will be disappointed, you will see a rise in the euro, and economic prospects for the eurozone will be undermined.

FOSTER: Which is an impossible situation for the ECB, because they know that that's going to happen, but they can't be seen to be responding to the markets all the time.

VAN NIEUWENHUIJZEN: They can't be, but then again, we have seen multiple comments by ECB officials themselves in recent days. So, they are aware of that. They have created these expectations by now. And as a result of that, they are not only reacting to the market demanding it, but they are reacting to the data in their own comments.

FOSTER: The reality is, as well, that a rate cut won't -- have a huge economic impact, will it? It's not going to kickstart the European economy.

VAN NIEUWENHUIJZEN: Well, it's an often-heard argument against not moving. But then again, I would say any move in the right direction is better than not moving if you're faced with a certain problem that needs to be addressed. And I would say that is certainly the case.

Next to that, a weaker currency certainly helps a region which has a lot of problem with its domestic demand, and it most likely will create a weaker currency. So, I do think they need to move, and I do think it will have an impact. You can question how big.


FOSTER: After the break, I'm talking to Ford's chief financial officer. A solid quarter in the US seals the car giant from stalling sales in Europe.


FOSTER: Ford's first quarter profit is up 15 percent year-on-year, thanks largely to North America. The carmaker earned close to $2.5 billion there, its best performance since it began reporting on the region 13 years ago. Sales were up 20 percent.

Sales in Asia also strong. Ford made $6 million before tax, that's compared to a $95 million loss last year. That all helped offset the situation here in Europe. Ford's losses there have widened to $462 million. It's more than triple its year earlier loss.

Ford's outlook for the region remains uncertain. It expects to lose around $2 billion there this year. It's planning to close three European factories by the end of next year.

I spoke to Ford's executive vice president and chief financial officer, Bob Shanks, earlier. I began by asking him, with the money the company's losing in Europe, whether Ford plans to close more factories and pull out further.


BOB SHANKS, CFO, FORD: We are still in progress of discussions with the unions and the employees in terms of information and consultation processes, but making good progress there. What's really going on in Europe as well, though, is the focus that we put on product, on the brand. Or order bank is up, our retail of retail industry share is up.

We've backed off on daily rental, short cycle sales, and we've got our stocks in great shape. So, there's a lot of good things that are in that bottom line number. So, in reality, we're extremely encouraged by the progress that we've seen this first quarter in Europe and very satisfied with the overall results.

FOSTER: Is there light at the end of the tunnel in Europe? Do you see, for example, next year or the year after being a turning point?

SHANKS: Well, in terms of the overall economy, we're seeing signs from leading indicators that suggest we might be beginning to bottom out in Europe, with the possibility of it stabilizing, and then perhaps some very, very modest growth towards the latter part of this year or early next year.

And in terms of the industry sales, the automotive industry sales in Europe, the so-called peripheral markets over the last three or six months on a moving average basis actually have flattened out in terms of their decline.

So, we are seeing some evidence externally that we might be approaching or running along the bottom and encouraged about the possibility that we could be seeing more stability in the overall market.

FOSTER: You're investing $5 billion, meanwhile, in new factories in China. Are you getting a sense of the profits you may or may not be able to make there in the coming years?

SHANKS: We have very, very strong top-line growth in the region, about a 30 percent increase in wholesale, so we're clearly seeing the strategy pay off in terms of growth. It's just that we're continuing to invest very heavily for even more growth in the years ahead.

We've got seven plants under construction, five in China, two in India. And we're spending heavily on engineering to expand the portfolio dramatically for even more adds to the product lineup in the years ahead.

So, we're seeing that growth come through, and we believe by mid- decade, Asia-Pacific is going to make a meaningful contribution to the bottom line of Ford Motor Company.

FOSTER: You freshened up the Fusion and the Focus sedans, didn't you? So, what did you learn about what's going on with the American economy with the success of that strategy?

SHANKS: Well, we see the US economy as kind of improving this year, maybe 2 to 2.5 percent. The industry's quite strong, 15 to 16 million units is our call for the year. So far, that appears to be on track.

And for us, we've got a lot of new product that's been coming out over the last several months in the small or medium-size segments. Fusion is one that you mentioned, Escape, you know it as Kuga, is another one. And the C-Max, which you have in Europe as well, has been a great success for us here in this particular market.

So, it's the strength in our core areas, like pickups and utilities, but also now having a very, very strong lineup in the smaller and medium- sized vehicles as well, which was part of our strategy.


FOSTER: US Markets and the Associated Press Twitter account are back on track after yesterday's hacking scare. The Dow briefly erased a nearly 140-point gain after a fake tweet claimed there'd been a terrorist attack on the White House.

The incident underlines the growing influence of Twitter on investor sentiment and the risks associated with it. Alison Kosik joins me now, live from the New York Stock Exchange. Alison?

ALISON KOSIK, CNN BUSINESS CORRESPONDENT: Hi, Max. I wanted to go ahead and talk with at least one trader who was on the floor when this happened yesterday, so I pulled aside Ben Willis. He's the managing director of Albert Fried and Company. You were on the floor when we saw that astonishing drop on the Dow. What was it like? What happened?

BEN WILLIS, MANAGING DIRECTOR, ALBERT FRIED AND COMPANY: It was very -- it was actually a very small event. It was much more impressive on a chart when you see the dip than it was in trading it, because it was so short-lived, and there was so little volume involved.

But the fact of the matter is, we've come to a situation in the world that we have to accept that with algorithmic-based trading and computers reading news stories, you're going to get those kind of reactions. And on a day when there's no real other motivation in the market to trade, that's the volatility we're going to see.

KOSIK: Now, some may not realize that the algorithms don't just trade on numbers and levels, but actual words. Explain a little bit what goes into those algorithms of our computerized trading.

WILLIS: Sure. Algorithms is very encompassing, but the point in this particular case is most hedge funds, most high-frequency trading shops have their computers plugged into the internet, reading data feeds. They're provided by some of the largest providers -- news sources in the world. They provide what's called Machine Readable Only technology.

So, the data feed that normally you would be speaking on camera would take you minutes to get through. In a nanosecond, it's delivered to these computers. The computer algorithms read them and react with a trade.

Yesterday, we saw the selling pressure. We also saw, more importantly, the buyers back away because of the fear of what was being read. And they have the ability to cognitively realize what's being said in the paragraphs and trade based on that.

KOSIK: So, trading based on words. So, in that case, how much should Twitter really impact, or social media really impact the trade that goes on this floor?

WILLIS: Well, social media, again, if you want to put a fence around it calling it Twitter and Facebook, the fact of the matter, markets have been moved by rumors, whether you call it social media because they're coming out of a social environment on a trading floor, another trading floor, the pit's, influencing what's going on here.

This has just managed to speed it up, to accelerate the impact to the marketplace. So, my firm monitors Twitter. We had it on our blast, so our customers -- if you walk around this trading floor and ask any of the traders you see in there, they all have a Twitter feed. We're all watching it.

KOSIK: Everybody's watching it. Are you watching it, Max?

FOSTER: Yes. I mean, I'm fascinated by the power of it, and it's something that you need to sort of bring into the regulation, right? And the whole way that figures are reported into the screens behind you.

KOSIK: Yes, it really makes you wonder, and it makes you wonder what the SEC is going to say about this as well. I'm sure they will chime in.

FOSTER: Thank you both for joining us. A Currency Conundrum for you now. The US Mint has suspended sales of its smallest gold bullion coin. Our question to you is why? A, there's not enough demand for the coins? B, a mistake has been found on them? Or C, the Mint has run out of stock? We'll have the answer for you later in the program.

Meanwhile, the dollar is down against the pound and the euro. The single currency was hovering around a three-week low earlier on the back of that weak German data. The yen is higher, currently up a fifth of a percent against the US currency.


FOSTER: The CEO of the telecom network builder Ericsson says he's looking to transform his business in Europe. Hans Vestberg says despite the eurozone's ongoing troubles, the company is growing, even after taking a big hit in first quarter profits. A little earlier, I asked him what caused that.


HANS VESTBERG, PRESIDENT AND CEO, ERICSSON: Now, I think that if you look at the profitability, we had in this quarter a gradual improvement on operating margin and the operating income. We had a one-off item in the first quarter last year when we sold our share of Sony Ericsson to Sony, which was more than 1 billion euro. That lifted our operating income last year.

If you take that away, we clearly see that we're improving our profitability, but you're also right that we are in a process where our mix is very much of coverage project, and we're doing a lot of modernization on the European networks.

As we've said right now, it's that with the current visibility from our customers and the macro-economic situation, in the second half of 2013, we will see a gradual shift of that mix going to a little bit more capacity. That means more software and high -- high-level services instead of doing hardware and installation.

FOSTER: And there are matters beyond your control. In Latin America, for example, this delay in the 4G services coming online. So, that must be a big frustration, because that's an important market for you now, isn't it?

VESTBERG: Yes, Latin America for us has been for -- well, over 100 years, a very important market, and we had a very good second half of 2012, we gained more than 50 percent market share on the LT 4G contracts in the region, and we were prepared to start deploying right now.

But some delays when it comes to spectrums and licenses has made some delay. It's more of a time lag rather than something else. We have not lost anything. We are prepared, as soon as our customers and the spectrum is released, we will continue to roll out 4G networks in Latin America.

FOSTER: You get a good sense of where business is going, because companies have to invest in your services. Have you got any sense of when you think Europe is going to lift out of this terrible economic situation it's in right now?

VESTBERG: We have been able to grow, now, the last two quarters in Europe. We have a high business activity in Europe, especially rolling out new networks.

But we have also transformed a lot of our business in Europe, so where more than 50 percent of our things in Europe is services, either outsourcing on networks to hustle around them, installations, optimization, planning, consulting, title works, that we're doing in Europe.

FOSTER: So when, if I can ask for a timeframe, do you think we'll come out of this? One year, two years, three years?

VESTBERG: For me, it's not to speculate about macro-economics. It's a little bit more important for us to understand the penetration on SmartPhones, the usage on mobile broadband, the new type of innovative services on top of 4G, et cetera. That will drive investment in mobile infrastructure, and it will also drive the attached services that we are providing.

Then, of course, if the macro-economics are bad, that of course can hamper that, but for me, initially, it's more about looking at how is attraction for mobile broadband and SmartPhones around the world.


FOSTER: Well, Chinese telecom equipment maker Huawei says it is done courting America. It also lowered its revenue forecast for the next few years. After months and months of trying unsuccessfully to crack the US market, the company says it is no longer interested.

US lawmakers repeatedly blocked the company's efforts to enter the US, saying it poses a threat to national security. Huawei denies these allegations, insisting it has no direct ties to the Chinese government. The company also cited its positive track record in other Western markets, like the UK.

Its Dreamliners are grounded, but profits are taking off. After the break, Boeing's results beat expectations.


FOSTER: Welcome back, I'm Max Foster and these are the headlines this hour. Italian lawmaker Enrico Letta has been asked to form a government. The country has been locked in a political stalemate since February's election failed to produce a clear winner. He says job creation and political reform are his top priorities.

Eyewitnesses in Bangladesh say a thousand people could still be trapped under the rubble of a fallen building that collapsed on Wednesday morning. Rescue efforts are ongoing late into the night. Officials say at least 80 people were killed, 700 were injured.

Syrian activists and state media say the minaret of an ancient mosque in Aleppo has been destroyed. Amateur video posted online today appears to shows proof the minaret is missing. You can see where it used to stand in this video, supposedly recorded one month ago. The Syrian government and rebels are blaming each other for its destruction.

A US delegation has arrived in the Russian republic of Dagestan and sources say they have interviewed the parents of the Boston bombing suspects, Tamerlan and Dzhokhar Tsarnaev. The parents have said they believe their sons do not -- did not commit these deadly attacks. And 39 people remain hospitalized as a result of the two blasts.

Luis Suarez has been banned for ten games by the England Football Association for biting Chelsea's Branislav Ivanovic. The incident happened during Sunday's 2-2 draw between the two sides. Liverpool Football Club says it is shocked and disappointed at the length of the suspension. It has until Friday to appeal.

Boeing's first quarter profits have beaten expectations despite the grounding of its 787 Dreamliners. Net income for the first three months of the year jumped 20 percent to $1.1 billion. That was despite revenues down 2.5 percent.

Chief executive Jim McNerney says Boeing's first priority is to get the Dreamliner back in the air. He says they'll resume deliveries in early May, once the company's replaced most of the fleet's battery systems.

To help us break down those results, we're joined by Maggie Lake. She's at CNN New York.

And it seems remarkable on the face of it that they could bring these results up after all the reporting we've done on them over the last year.

MAGGIE LAKE, CNN CORRESPONDENT: It does, doesn't it, Max? It is pretty incredible and consider this: the commercial airline unit make up about half of its business. So this has the potential to be an extremely huge problem for Boeing. Instead they came out and said, in fact, that the impact was was they described minimal.

Now part of it was due to the fact that any costs related to the Dreamliner problem that they absorbed seemed to be offset by strength in other areas. They saw brisk sales of some of their other airliners, including the 737, 777.

And they also did a lot of cost-cutting associated with those military areas that are no doubt impacted by some of what's going on with sequestration, those forced budget cuts here in the U.S.

So it seemed to be able to even itself out. And in fact, analysts say that they believe that Boeing is going to be able to get past these Dreamliner problems. Have a listen.


RAY NEIDL, AVIATION INDUSTRY CONSULTANT, NEXA CAPITAL: It's teething (ph) problems, but it's very serious teething (ph) problems. But they get it -- can get it back in the air by May or June, they'll be in very good shape.

Remember, they've been continuing to make the aircraft. The aircraft is still very popular. Airlines are demanding and really need a new fuel- efficient aircraft. And this aircraft fits that bill.


LAKE: And that, I think, is the most important thing, Max, the airlines really need this as much as Boeing needs the Dreamliner to be a success. There's so conscious of those energy costs. So you didn't see that mass cancellation that analysts first had feared on the first knee- jerk of the news.

And because of that, you see it really reflected in the stock price. If you look at the chart, also amazing, given the problems we've seen. You saw it sort of bouncing along there, but look at what's happened really since February. It's been a straight shot up of 20 percent. That's a little less than double the performance of the overall market.

Yes, we've been in a bull run. But Boeing up 20 percent, it's up 3 percent on the day-to-day. So very nice looking. And as you mentioned before, the CEO confirming or reaffirming that they hope to get those airliners back up and going in mid-May, Max.

FOSTER: But it is extraordinary, as you say. But is there a chance that the problems could be reflected in future results?

LAKE: Yes, that's what a lot of people are talking about. They were pushed a lot on this issue on the conference call. They refused to give an overall total for what this Dreamliner problem is going to cost. They won't put an overall dollar figure on it. They're just sort of talking about it in terms.

Analysts do believe it's going to total a couple of hundred million dollars when it's all said and done, when you cancel in the sort of rebates they're going to have to give airliners for the delays, et cetera. We don't really know what that all is right now. They do think it's going to impact future earnings.

But interestingly, the executives standing by their full-year forecast for both sales and revenue. So clearly if there's going to be a hit, Boeing is confident enough in the rest of the businesses to think that they're going to be able to make it up. So we're going to have to wait and see, Max.

FOSTER: OK, Maggie, thank you very much indeed.

We will indeed -- Europe may be in the doldrums. Yet the head of Hublot is so optimistic. He is selling a million-dollar watch. I'll ask the CEO of the luxury brand, Jean-Claude Biver why it's worth buying.


JEAN CLAUDE BIVER, CEO, HUBLOT: Several things. To start with, as it is a watch, it's the movement. And the second thing is -- are the diamonds. And the third thing is the invisible setting. It's the setting where you see no material.

All you can see is diamonds. You don't know if the base of the watch is white gold, red gold, yellow gold, because you don't see any gold. It's -- and that -- those three elements together are making the price.

FOSTER: How would you define what you're selling?

BIVER: We are selling a communication (ph) tool. Who are you? What's your -- what's your status (ph)? Are you a militant (ph) person? Are you a rich person? Are you (inaudible)? The watch has entered fashion.

And the fashion has promoted the watch as fashion promotes bags for women or shoes, we are now a communicating (ph) tool. And because of that, people are buying watches because they want to be identified.

FOSTER: And why are you selling so many watches when we're constantly told that the world economy is sinking into this nasty recession?

BIVER: Yes, that's our point of view if we look at the world from Europe, but if you look at the world from Latin America, if you look at the world from Russia, if you look at the world from Japan, if you look at the world from other parts of this world, we are not in a recession. We are in a recession eventually in Europe.

How long, I don't know. I hope our politicians (ph) will take the right decisions. But all over the world is not really in a recession.

FOSTER: We've been asking chief execs for their predictions on when Europe may come out of this recession. What's your best guess in terms of one year, two years? When do you think things will start getting better?

BIVER: I must say I honestly don't understand very well the situation. And when I see that the president of Italy is 87 or 88 years old, that he is elected for seven years, when I see what is happening in France, when the president of France says I don't like the rich; I hate the rich, when I see that 75 percent taxes are taken in France, when I see that 30 percent of the young people are jobless in Spain, I am not so optimistic.

Of course, there is Germany, there is Denmark, there is Holland. There are a few countries that are working. But all in all, I am not so optimistic because I'm not sure that the politicians are taking the right decisions. Now if it stays as it is now, with the today's policy, maybe it will take us two years.


FOSTER: Well, coming up on QUEST MEANS BUSINESS, Richard Branson's guide to matchmaking at 37,000 feet without having to say a single word, either.




FOSTER: Time for today's "Business Traveller" update. And Etihad Airways has sealed a deal with India's Jet Air, the Abu Dhabi airline bought a 24 percent stake in Jet Air, a deal worth $380 million. This is the first foreign investment in India's aviation center since the government eased ownership restrictions last year.

Etihad is one of the world's fastest growing airlines and already owns stakes in Air Berlin, Air Seychelles, Virgin Australia and Aer Lingus. It's a big organization and for decades it has buckled under the strain. Indian Railways carried 11 million passengers every day and is one of the world's largest employers with about 1.4 million staff. Sumnima Udas explains how it keeps India's economy on track.


SUMNIMA UDAS, CNN CORRESPONDENT (voice-over): Locals call it a lifeline. The great Indian Railways transporting 25 million passengers a day across more than 100,000 kilometers of track. Since they were set up by the British riot in the 1850s, Asia's oldest network has gone through occasional modernization efforts. But it's still far from being a 21st century train system.

UDAS: So I bought a ticket to go from Delhi to Mediano (ph), which is one of the most popular business destinations. And I bought number 64 on the waiting list. And the only way of really finding out if you've actually got a seat is to come here on the morning of this (inaudible) and see if your name is there.

UDAS (voice-over): And yes, it's there. So we are off.

It's not the most convenient of systems, especially for business travelers like Gulpreet Singh.

GULPREET SINGH, BUSINESS TRAVELER: Here, (inaudible). You have to wait for the last minute. There is no wi-fi in this train. Noise is too much.

UDAS (voice-over): But it's still Singh's preferred mode of travel.

SINGH: (Inaudible) trains we are getting value for money and you're getting (inaudible) luxury.

UDAS (voice-over): On the Shiitake (ph) Express, which is one of India's fastest trains, one can travel the distance of almost 400 kilometers on first class for less than $20.

UDAS: So as you can see, it's very spacious, it's comfortable. There are power sockets for laptops and most importantly, there's a four-course meal included in the price of the ticket.

Thank you.

UDAS (voice-over): This is not how most Indians travel, though. On ordinary trains, passengers squeeze into every inch of space they can find, some even sitting on the overhead baggage rack, storing their belongings elsewhere.

UNIDENTIFIED MALE (through translator): Life would be very difficult without the train. This trip would cost me $200 by plane, but by train it's only costing me $6.

UDAS (voice-over): Just $6 to travel a distance of 2,000 kilometers. These low-cost tariffs, though, is one of the reasons Indian Railways reported losses of $4.5 billion in 2012. The government has long subsidized the Indian Railways. But now for the first time ever, it plans to link passenger fares and freight rates with fuel prices. The hope is to generate earnings and modernize facilities.

SAM PITRODA, PM'S INFRASTRUCTURE ADVISER: When we looked at the overall sort of road map, we realized that there are really three or four key things that we need to focus on, one, modernization of tracks, modernization of signaling, modernization of rolling stocks and modernization of stations.

UDAS (voice-over): The government plans to invest more than $250 billion to overhaul existing infrastructure.

PITRODA: I believe if we invest $200 billion to modernize Indian Railways, perhaps Indian GDP will go up by 1.5 percent to 2 percent.

UDAS (voice-over): Getting the Indian Railways back on track is not going to be easy, but it may just be the lifeline India needs to jumpstart the economy -- Sumnima Udas, CNN, New Delhi.


FOSTER: (Inaudible) there. Let's find out what the weather is like in the rest of the world.

Tom Sater is at the weather center.

Hi, Tom.


Hello to you. You know, 60 percent of the U.S. grain products all run up and down the Mississippi River, and they run on barges just like this.

It was just a few months ago, end of last year, the severe drought halted traffic of these barges, you know, costing billions of dollars for several thousand companies, of course, that rely on wheat and corn and paper products, coal and wood.

Well, now, the other problem is there's too much rainfall. We go from one concern to the next. This is up in areas of Wisconsin, several states in the middle of the U.S. are dealing with flood problems, heavy rainfall again today.

But all of these areas of green here are flood warnings. And it's not just the Mississippi, which is the big concern for barge traffic which was too low as mentioned, down to a meter in some cases in Mississippi and south of St. Louis, now looking at a good 11-12 meters and still rising.

Forty-four counties in the state of Illinois are under disaster areas. This is a satellite view from just last year. You can barely, you know, kind of take in here; this is the Illinois River, this is the Mississippi River.

We'll show you what it looks like now, and of course, a world of difference, with all this snow melt, records for snow to the north and of course we get a little bit closer, go back to last year, where barely any, of course, flow of the water levels and now just a little bit too much.

The crest of the Illinois River is making its way toward St. Louis. St. Louis is going to see its crest later on tonight. And of course those floodwaters will continue southward. The other problem is to the north, where we still have amounts of snowfall.

This is Duluth, Minnesota, notice the icebox of the U.S. breaking all sorts of records, just one of a number of cities. It seems like every week that we talk about breaking snowfall records and we're still in April, 129 centimeters of snow in April, snowiest month on record. Records go back to 1875, 243 centimeters for February, March and April.

I think they're going to make it possibly get up to around 16 degrees Friday, the first time since they've seen 16 since last October, just like in Europe we saw the jet stream far to the south of the cold air.

Well, they're warming up. This is going to cause some massive melting going on. So it looks like our flood problems will continue in the U.S. for possibly weeks to come as we watch them, Max, that crest make its way downriver.

FOSTER: OK, thank you very much indeed, Tom.

Now it's apparently a common problem. You're bored and on a long- distance flight and someone interesting catches your attention. So how does one make the first move? Well, Virgin America's Richard Branson thinks he's found the solution in this promotional video.


RICHARD BRANSON, CHAIRMAN, VIRGIN GROUP: Here's my guide to getting lucky at 35,000 feet. First, pinpoint the object of your affection. Once the seat belt sign is off, approach her with a check for her favorite charity, carried in the mouth of a puppy that you've given the pirate suite (ph).


FOSTER: Relationship advice from Richard Branson. If you can't stretch to that, you can use your seat-back TV to send someone else a drink or a snack to break the ice.

That's the new scheme being launched on Virgin America flights. Not everyone's being seduced by the idea of one comment posted on YouTube read, "Women had better pick a different airline."

Coming up on QUEST MEANS BUSINESS, there's a country full of color as Peru hosts the World Economic Forum we explore the country's potential for sustained growth.





FOSTER: (Inaudible) the answer to today's "Currency Conundrum," we asked you why the U.S. Mint has suspended sales of its smallest American Eagle gold coin. The answer is C. It's gone out of stock.

The (inaudible) fall in prices has had investors snapping up gold bullion. The U.S. Mint says demand for the 0.1 ounce coins has increased by more than 118 percent compared to the same period last year.


FOSTER: The U.K. is on the brink of a triple dip recession. The first quarter reading is due out on Thursday. As you can see here, we had five quarters of economic contraction starting in the second quarter 2008. And then the second dip was confirmed in the first quarter of last year. The question is, will it be third time unlucky for the U.K.? Well, the latest numbers are due come out.

Well, Nina dos Santos spoke to the president of the Confederation of British Industry, Roger Carr, about his thoughts on Britain's economy.


ROGER CARR, PRESIDENT, CBI: The view is very clear: you need a strong financial bedrock on which to build recovery. We need it is as a country, international credibility in the financial area. We had and indeed still do have an excess of borrowing which we must tackle. Part of it is to do with cost management; part of it is to do with growth. We've got to do both.

But if we give up on austerity, we run the risk of losing that credibility. We are still well regarded as an economy that's under pretty strict financial management. And while ever we have that, as an international credibility, then I think we will have the substance financially to be a strong player in the world economy.

So I think it's important we don't overstate a technical downgrade relative to the economy itself.

NINA DOS SANTOS, CNN HOST: (Inaudible) some would say, well, Fitch and Moody's are still decided to cut despite that kind of strict financial management.

CARR: Yes, and they're taking, I think, a broad global view of all economies. And it's fair to say that growth is not coming through at the pace that we would like it. But if we remove the underpinning that financial credibility gives us, we run the risk of the whole thing going wrong. And I think that would be dangerous.

DOS SANTOS: We've had a lot of thoughts about how to rebalance the U.K. economy, and indeed many people on the continent will point at the U.K. and say, well, you don't have a balanced economy; you don't have enough manufacturing. You have too heavy an emphasis on the financial sector. How can we rebalance this economy and what is the risks if we don't?

CARR: Well, we need a balanced economy; that's absolutely right, Nina. The -- I think the starting point is we still have to recognize that we are within the top 10 of world manufacturing countries.

So we haven't left the stage for manufacturing. And if you see the work that's being done in automotive, in aerospace and defense, in pharma, you know, we're world leaders in those areas. And our growth record is getting better and better.

Manufacturing is a strong part of our history. And I have to say it's a key part of our future.

DOS SANTOS: How worried are you about the prospects of a triple-dip, if you like, with the GDP figures coming out?

CARR: Well, obviously no one wants the statistic to be wrong. But I think we need to keep it in perspective. A triple-dip statistic is a moment in time. The important thing is to look at the direction of travel for this economy and at the moment, the direction of travel is generally more positive. Now we are still in growth mode, albeit small. It is nevertheless positive.

And I think we should celebrate that and be positive about it, recognizing that Asia at 7 or 8 is something to aspire to. But at the moment, is unrealistic for us. If we can get to 2 percent in the next 24 months, we're starting to motor in the right direction.


FOSTER: The World Economic Forum from Latin America is underway in Peru. The U.N. says the region's heading for slower growth this year from first thought because of slower demand from Europe. But as Nick Parker explains, places like Peru are still finding ways to grow.


NICK PARKER, CNN CORRESPONDENT: This is Caya Gamada (ph), a bustling shopping district in downtown Lima. Peru has a thriving industry of cotton and alpaca, and that's helped power a retail boom here. An estimated 15,000 businesses are based in this district alone, many of whom make clothes for high-end Western companies. Others export to other countries in Latin America.

The area really tells the story of Peru's growth explosion. Just 10 years ago, Gamada (ph) was a rundown area, well known for crime. Today, it's secure. And you see people everywhere and glass towers, like the one behind me, are being built all over the area.

In our time, Peru nearly doubled its economy while maintaining stable inflation. It has also signed a series of landmark free trade agreements.

BORGE BRENDE, MANAGING DIRECTOR, WORLD ECONOMIC FORUM: For 14 consecutive years, Peru has been growing more than 6.5 percent. And we also have seen that the poverty rate has fallen.

PARKER: Like other parts of Latin America, Peru benefited greatly from China's rapid economic expansion and its need for raw materials.

Peru is one of the largest producers of copper and zinc in the world, and mining account for 60 percent of its exports.

Money poured into the stock exchange sending shares spiraling by more than 1,000 percent over 10 years. Meanwhile, record foreign direct investments actually created problems for Peru. Its currency, the sol, soared, raising fears that exporters could be hurt. Meanwhile, slowing growth in China has dampened demand for its commodities.

BRENDE: If we're seeing a slowing growth in China, that can have negative impact on economies in Latin America that rely very much on natural resources and commodity export. That's also a reason why these countries have no -- to diversity their economies.

PARKER: Against this backdrop, Peru is maintaining growth through booming consumer and construction sectors as it prepares to host its first World Economic Forum, a new U.N. report is predicting regional growth at 3.5 percent. How to sustain that growth and broaden the middle graphs (ph) throughout Latin America will be a burning question at the event -- Nick Parker, CNN, Lima.


FOSTER: And we'll have a final check on the main markets for you after this (inaudible).



FOSTER: Stocks on Wall Street are drifting in and out of the red this session. The Nasdaq and the S&P 500 are also flat. As you can see, the Dow currently -- it was down by hardly. Microsoft leading gains on the Dow right now, up by more than 3.5 percent.

Boeing isn't far behind; it's up by more than 3 percent, incredibly, after its strong quarterly profits. AT&T is down more than 5 percent after its earnings came in below forecast.

As you heard on the breakdown tonight, we've also had some strong earnings from Forbes, particularly for the U.S. Europe's major indices rose for a second straight session. Expectations of a rate cut from the ECB helped push up the numbers. Actually, it's pretty much factored in that now.

You heard earlier ING Investment Management's chief economist telling us the markets have factored in some monetary easing from the central bank. So if it doesn't happen, there may be a reaction.

Mining and metal shares are some of the top performers, Extrata (ph) gained nearly 4 percent in London, Oslo Metal (ph) rose more than 3 percent in Paris.

That is QUEST MEANS BUSINESS. Thank you so much for watching. I'm Max Foster in London. We'll check the news headlines for you next.



FOSTER (voice-over): Italian lawmaker Enrico Letta has been asked to form a government. The country has been locked in a political stalemate since February's election failed to produce a clear winner. He says job creation and political reform are his top priority.

Eyewitnesses in Bangladesh say 1,000 people could still be trapped under the rubble of a fallen building that collapsed on Wednesday morning. Eight floors of shops and garment factories fell on top of one another. At least 80 bodies have been pulled from the rubble. Officials say 700 people are injured. Rescue efforts are ongoing late into the night.

Boston's Boylston Street has reopened to the public after the deadly marathon bombings nine days ago. The people say it isn't exactly back to normal, though, with workers still at the bombing sites.

A suspect, Dzhokhar Tsarnaev, is still listed in fair condition at a local hospital. The number of Boston Marathon attack victims who remain hospitalized is now 39. They are among the 264 people injured in the bombings. One of the patients remains in critical condition.

Luis Suarez has been banned for 10 games by the England Football Association for fighting Chelsea's Branislav Ivanovic. The incident happened during Sunday's 2-2 draw between the two sides. (Inaudible) football cup says it's shocked and disappointed at the length of the suspension. (Inaudible) to Friday to appeal.


FOSTER: That's a look at some of the stories we're watching for you here on CNN. "AMANPOUR" is next.