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Quest Means Business

Memorable Events Of 2011

Aired January 02, 2012 - 14:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

RICHARD QUEST, CNN INTERNATIONAL ANCHOR: A more perfect union. EU leaders scramble to save the euro.

Stars and stripes, a year of downgrades and debt debates for the United States.

And from iPod to iPhone, to iPad, to Icon. We pay tribute to Steve Jobs.

I'm Richard Quest. A New Year, and you can bet, I mean business.

Good evening and welcome to this special edition of QUEST MEANS BUSINESS. This New Year broadcast as we put in perspective the events for 2012 and look back at the biggest stories of the year.

There was no bigger story than the euro and the future of the European single currency, as it lurched from one crisis to another last year. Now after a year of turmoil its very foundations are set to be overhauled in a treaty negotiation that they hope to conclude in just three months from now.

On tonight's show, we'll look back at how the last 12 months changed Europe forever. And if you join me here in the library you'll see the most important thing of all. Debt crisis which dominated, persistent emergency summits, one after the other. At the end of last year the 26 nations agree to change the rule book with their fiscal compact, tighter deficit rules, automatic sanctions, greater intrusion into national economies.

The U.K. stood alone and vetoed it as a treaty, so now Chancellor Merkel and President Sarkozy have gone their own way with the other 24.

(BEGIN VIDEO CLIP)

NICOLAS SARKOZY, PRIME MINISTER OF FRANCE (through translator): At the heart of the European economy there must be a zone of stability and confidence, which is the engine of European competitiveness. I will do everything and nothing less to keep France and Germany united, together, wrapped in a fabric of stability and confidence, so that this can safeguard Europe.

(END VIDEOTAPE)

QUEST: What really drove the change was not just the politics, not even the economics, but the financial markets. There was a backdrop of soaring borrowing costs, yields top 7 percent in bailout countries. Greek bonds moved above 30 percent on the yields. Contagion was everywhere. Spain and Italy were under pressure. So, Nina Dos Santos spoke to the bank of Italy's director general.

(BEGIN VIDEO CLIP)

FABRIZIO SACCOMANNI, DIRECTOR GENERAL, BANK OF ITALY: At some point market participants, you know, I mean, investors, final investors, will take decisions that are disconnected from what the ratings agencies say. Because if the rating agencies continue to sort of project the worst-case scenario and base their ratings only on what they, themselves, consider the likelihood of such worst-case scenarios, then of course there is going to be a sort of very, very negative trend.

(END VIDEO CLIP)

QUEST: In many cases the markets did the work of pushing out governments. There was regime change and different prime ministers fell by the wayside; Italy, Greece, Spain, Ireland, some were voted out, others were pushed out by the markets.

Let me show you exactly that changing face of Europe. So the first one goes, then the next one goes, others go on the way. And the class photo is looking very different, as finally Silvio Berlusconi goes. All these leaders were either voted out, or they lost the confidence of their parliaments.

Treaty change was the grand solution floated before the big summit, right at the end of last year, in December. Although even before the talks began, not every European leader was on board in Brussels. While I was there the Swedish prime minister told me why he thought treaty change in the larger sense might not be the answer.

(BEGIN VIDEOTAPE)

FREDRIK REINFELDT, PRIME MINISTER OF SWEDEN: I have support from my parliament for the protocol change that President Von Rompuy has presented. I have no support for a treaty change. Treaty change or not, I still believe that that is not really into the heart of the problem, which is more related to economic problems and need reforming in the countries and need increased firepower in the firewall.

QUEST: We'll come to that aspect of the immediate crisis. But just to conclude on this treaty question, that could blow this summit apart. Because there are some, like the German chancellor, and the French president, who are very much in favor of the treaty change route. So are you prepared to, as they say, go to the mat on that one?

REINFELDT: Well, again, I have as of now, no support from my parliament. I have a parliamentary committee that I can to tomorrow. I want to be clear on that treaty change means different things. Because it could be a smaller, more technical one. We did one in-starting out up one of these crisis mechanisms inside the Eurozone, or it could be a bigger one.

Then, of course, I ask myself, if it is a bigger one then it could be followed by referendums and it could take a long time. How could that be the short-term solution to the economic problems we're having?

(END VIDEO CLIP)

QUEST: If this year is anything like last, then regular meetings are already in the pipeline. From Davos to Deville (ph), leaders met time and again in 2011. It has still taken all year to fix the same old problems. Europe has been kicking the can down the road.

(BEGIN VIDEOTAPE)

QUEST (on camera): The real crisis began when Greece could no longer pay its bills. And rather than realize this was a solvency question they choose to treat it as a liquidity issue. And so they bailed out Greece and then began the process of kicking the can down the road.

(QUEST KICKS A CAN DOWN THE ROAD)

When bailout one did work properly, the answer was, simple. Impose more austerity on the Greeks and yes, pass new laws in the Greek parliament. Forget the debt for the moment, just-(KICKS CAN)-kick the can down the road.

So far this year there have been four European summits designed to solve this problem. But all that's happened is-(KICKS CAN)-the can gets kicked further down the road.

As the can gets further down the road, it gets closer to the brick walls of contagion, default, or euro collapse. Battered, bruised, the options are now running out. They really have kicked the can so far-(KICKS CAN)-down the road.

(END VIDEOTAPE)

QUEST: This year saw the departure of one of the key players in the Eurozone crisis. Jean-Claude Trichet stepped down as president of the European Central Bank. For eight years President Trichet stuck to his mandate of maintaining price stability, keeping inflation at bay. Then the unthinkable happened, there was a crisis on Wall Street which had made its way to Europe. I sat down with President Trichet, in October of 2011, for an exclusive interview. I wanted to know at what point he realized this was no ordinary crisis.

(BEGIN VIDEOTAPE)

JEAN-CLAUDE TRICHET, FORMER ECB PRESIDENT: I think we were prepared, ourselves, to something which could be very, very challenging. And that we had to prepare for a correction. From the very first day we judged that it was something which had never happened, even we had not yet Lehman Brothers, we had not yet, you know, all the tsunami which triggered by those successive events. Even observing our money markets we could see that was something which was profoundly abnormal.

QUEST (on camera): During the crisis, was there ever a moment when you felt it was getting out of control and would not be able to be controlled?

TRICHET: I think it was permanently, particularly at the moment which were the most acute, of course, a permanent challenge to be sure, as sure as possible, that we were ahead of the curve and not behind the curve.

(END VIDEOTAPE)

QUEST: Containing this crisis is no longer about stopping the rot from spreading around Europe. The contagion has gone global. The OECD warned in November, the world could be heading for another recession. It says Japan and the U.S. could suffer if the European crisis isn't fixed. Some markets across the world have taken a pounding volatility has reached unprecedented levels and been the story of the year.

And foreign companies have struggled. MF Global, a U.S. trading firm was exposed to more than $6 billion of European debt. It filed for bankruptcy on Halloween; the eighth biggest bankruptcy in U.S. corporate history.

Latin American markets have felt the effect and that is a region that is no stranger to deficits and defaults. This time the politicians there are putting pressure on Europe to get its house its in order. I spoke to the president of Colombia, who told me Europe needs the same medicine that Latin America had to swallow a decade earlier.

(BEGIN VIDEO CLIP)

JUAN MANUEL SANTOS, PRESIDENT OF COLOMBIA: We are saying what they said to us 10 years ago; Put your house in order, because your disorder is affecting us. Take the decisions that are necessary. Have the political will and the political capacity to take unpopular decisions but necessary decisions, because you are going to affect the whole world if you continue with this uncertainty.

QUEST: What is your fear? Is it that you won't have export markets? Is it the Brazilian fear of a currency appreciation? What is Colombia's fear if the U.S., particularly, and the EU, doesn't get its act together?

SANTOS: All of the above. First, they don't get their act together, and they try to get out of the recession through monetary policy and creating money, that money will not stay because that money will go after a better return-that we are having. So, that will appreciate our currencies, and create unemployment and hurt our competitiveness.

Also, if they don't grow we still export the majority of our products to Europe, the United States, to Japan, to the industrialized countries. And the exports might go down. And I'm not so sure what is going to happen with the commodities, the price of commodities, because that is going through a different phenomenon.

(END VIDEOTAPE)

QUEST: He was a businessman and an innovator, his death robbed Apple of its visionary leader. We look back, after the break, at the life of Steve Jobs.

(COMMERCIAL BREAK)

QUEST: 2011 saw the loss of one of the world's greatest innovators and most respected business leaders, the Apple Co-Founder Steve Jobs. He broke into the digital world with his Macintosh Computers. It was his later innovations that would prove to be most pioneering, changing the way we interact with our gadgets. And if you can join me in the library, you'll see what I mean.

Perhaps, first of all, we start with the way in which he changed how we listen to music. Take your entire collection with you, along with the iPod, and iTunes, it helped bring legal downloads into the mainstream. Apple says it sold 300 million iPods.

From pods to phones, making them accessible was the idea of the iPhone and revolutionizing the way we interact with the phone. It launched the apps craze. Apple says it has sold more than 70 million iPhones and Gartner (ph) estimates the phone has 15 percent of the global market share. The iPad was the next innovation. Tablet computing became mainstream; 40 million or so have been sold in a short period of time.

The brilliance of Steve Jobs was more than just the flair and design, when it came to the bottom line the results were nothing short of spectacular. In a moment we'll hear from one of Apple's key investors, Prince Alwaleed of Saudi Arabia.

Look at the way the share price moved on Apple and you will see-and it will put it into context. He bought Apple shares in 1997, at $9.50 a share. The rest is history. If you got in at that price you are looking at a gain of 4,000 percent. In other words, your money is worth 41 times what you put into it.

I spoke to Prince Alwaleed bin Talal, shortly after Steve Jobs died. The prince told me how he met the man he called a legend.

(BEGIN VIDEO CLIP)

PRINCE ALWALEED BIN TALAL, CEO, KINGDOM HOLDING CO.: I had a meeting with him around 1997, 1998. And that was clearly before the iPod, the iPhone and the iPad situation came into being. And he told me, "I have a dream, Prince. I want to lead and to conquer the whole world and to compete with the Sony's of the world and have consumer products. And he had this vision a long time before all these new products, you know, stormed the whole world recently.

QUEST: Right, now, you then-you kept the faith with him. You saw the price rise, you saw the products. How worried are that, frankly, Apple was Jobs, Jobs was Apple, and that the company now has some pretty difficult times ahead.

BIN TALAL: Well, clearly, Steve Jobs, the legend, is not very easy to repeat. And I think the history, the near history will prove that Apple is on the right track. And I believe that his legacy will continue to be had, because he has built a culture inside the Apple that really to be reckoned with. And always said that three apples shaped the world. It was Adam's apple, and Newton's apple, and now Steve Jobs' Apple really changed the whole world.

QUEST: Few businessmen really move people like Steve Jobs. As Dan Simon now reports, he was more than just a businessman, or even an artist. Steve Jobs was a phenomenon.

(BEGIN VIDEO CLIP)

STEVE JOBS, LATE CO-FOUNDER OF APPLE COMPUTER: Today Apple is going to reinvent the phone.

DAN SIMON, CNN INTERNATIONAL CORRESPONDENT (voice over): Steve Jobs was a modern-day Thomas Edison.

JOBS: You can do multi-finger gestures on it, and boy have we patented it.

(LAUGHTER)

SIMON: He didn't have a patent on his own look but he was rarely seen without tennis shoes, Levi's and a black shirt. He was legendary for his flair and showmanship.

(APPLAUSE)

JOBS: Amazing. And the screen literally floats in mid air.

SIMON: Steven Paul Jobs was born in San Francisco. His mother an unwed college student put him up for adoption. He developed an early interest in computers. Going to after-school lectures at Hewlett-Packard. After high school he attended Reed College, but only for one semester. At just 20 years old, he started Apple Computer in his garage with friend Steve Wozniak.

JOBS: We worked hard and in 10 years Apple had grown from just the two of us in a garage, into a $2-billion company with over 4,000 employees.

SIMON: That was Jobs in 2005, giving the commencement address at Stanford University.

JOBS: You have to trust in something. You're gut, destiny, life, karma, whatever, because believing that the dots will connect down the line road will give you the confidence to follow your heart, even when it leads you off the well-worn path. And that will make all the difference.

SIMON: In 1984 Apple introduced the machine that changed or lives forever, the Macintosh, revolutionary, because it made computers easier to use. It had a funny little thing called a mouse, that allowed users to change fonts. But the Mac was expensive and sales were sluggish.

In 1985 Steve Jobs was forced out of Apple, but it turned out he was just warming up.

CARTOON: I'm Buzz Lightyear, space ranger.

SIMON: In 1986 he bought Pixar Animation Studios, which later produced hits like "Toy Story". He also started a computer company called, Next.

JOBS: I hope you get a chance to look at this a little later. It is the most beautiful printed circuit board I've ever seen in my life.

SIMON: The technology was so innovative that in a twist of fate Apple bought Next, and Steve Jobs went back to work for the company he started. This second act considered one of the greatest CEO tenures of all time.

JOBS: It is called the iPod touch.

SIMON: Who knew that a computer company would change how we listen to music. Steve Jobs introduced the iconic iPod-

JOBS: Just slide it across, boom.

SIMON: The iPhone, and what later, some believed would be his grandest achievement, the iPad.

JOBS: That is what it looks like.

(APPLAUSE)

SIMON: Apple dropped the "computer" from its name to reflect the company's expansion in the consumer electronics.

JOBS: Now, I'm going to take this morning and talk about the iPhone.

SIMON: In recent years Jobs no longer appeared his usual self. He was noticeably thin and frail. And investors and Apple faithful grew alarmed because of Jobs' past struggle with pancreatic cancer. In 2009, Jobs revealed he had a liver transplant after taking a six-month leave of absence. But he returned to the stage with his usual vigor.

JOBS: It is our new MacBook Air, and we think it is the future of notebooks.

SIMON: Eventually, though, his struggle with ill health led him to step down as CEO. In a letter to the Apple board of directors, Jobs wrote, "I have always said if there ever came a day when I could no longer meet my duties and expectations as Apple's CEO, I would be the first let you know. Unfortunately, that day has come. I have made some of the best friends of my at Apple," he added. "And I thank you all for the many years of being able to work alongside you."

Steve Jobs legacy can be found in his devices. Long on esthetics and attention to detail. He followed his heart, and with his technology-

JOBS: We are calling it, iPhone.

(APPLAUSE, CHEERS)

SIMON: he changed the world.

(END VIDEOTAPE)

(COMMERCIAL BREAK)

QUEST: Of all the stories in 2011, one of the most extraordinary brought with it a sex scandal that grabbed the attention of the world. And in doing so, toppled the head of the IMF, the International Monetary Fund.

It was May 14, and New York police pulled Dominique Strauss-Kahn off a plane getting ready to leave for Paris. He was accused of sexually assaulting a Ghanaian housekeeper in his suite as the Sofitel Hotel, in New York. The scandal cost him his job and his political aspirations to be president of France. Five days after being arrested Strauss-Kahn resigned as the IMF's managing director to focus on fighting the charges. His hopes of running for presidency dashed.

In the weeks that followed, prosecutors began to question the credibility of Strauss-Kahn's accuser. And in late August, all criminal charges were dismissed. Strauss-Kahn was allowed to leave the United States.

Strauss-Kahn says he resigned with infinite sadness. The day after he stepped down I spoke to the IMF's acting managing director, John Lipsky, who told me that despite the shock, the funds vital work was continuing un interrupted.

(BEGIN VIDEO CLIP)

JOHN LIPSKY, ACTING MANAGING DIRECTOR: Obviously, some shock and sadness over the events of the past few days. But a very clear recognition of the important responsibilities that have been given to the fund; the need for the staff to pull together and focus on the job at hand. And that is exactly what we have been doing. And I must say, effectively, as well.

QUEST: We'll come on to the work of the fund in just a moment, and the various issues that you have on your agenda, John. But in terms of the replacement for Dominique Strauss-Kahn, talk me through what happens now.

LIPSKY: Yes, Richard, let me make clear. The responsibility of the choice of the managing director is that exclusively of our membership. Typically acting through the board of executive directors, 24 directors who are representative of the 187 member countries; that is another way of saying management and staff are not directly engaged in that process.

The board of directors will meet shortly, in the next day or so, on to agree and on the process, let's call it the technical process and details of how the search will be made, and how the selection will be made once the process is agreed and transmitted, then it will be put in place. And the selection process will begin.

QUEST: Right, that's the formal, if you like, nuts and bolts of it. But you know as well as I do that the jockeying for position around a consensus candidate gets underway, pretty much while you and I are talking now.

LIPSKY: It is important to note that the members recognize the role of the fund and the importance of having talented and effective leadership. And leadership that can create consensus around decisions and action. So, this process is likely to be underway soon. The formal process will be underway soon. And hopefully a consensus will emerge in a very expeditious and effective way.

QUEST: I need to ask you, bluntly, do you want the job?

LIPSKY: Richard, my term ends on August 31, and it is-I had already announced, prior to these events, my intention to retire at that time. But the important thing is not personalities. The important thing is that the work of the fund needs to carry on. It is important work and let me just note, Richard, that I'm the third first-deputy managing director, all three of us have spent periods as acting managing director, in hiatus, between periods of managing directors. So this is perfectly normal.

(END VIDEOTAPE)

QUEST: When we come back, downgrades, deadlock and deficit; the economy is the United States number one problem in 2011. Its impact in 2012 could be even bigger.

(COMMERCIAL BREAK)

QUEST: Welcome back to our special edition of QUEST MEANS BUSINESS, as we look back at the events of last year and put them into perspective for 2012, which, indeed, is an election year in the United States, where only one topic matters -- the economy.

This has been a year of unprecedented troubles for the United States, which lost its AAA credit rating, for example, something thought unthinkable.

On August the 6th, that's when it happened -- a shocking downgrade from Standard & Poor's, down to AA plus. And the reason was political brinkmanship -- the debt ceiling debacle, because, as you'll remember, days earlier, Democrats and Republicans were refusing to compromise on the U.S. deficit. Congress barely made the deadline to avoid a shutdown or, even worse, a default.

And those political differences didn't disappear. A super committee was formed to fix the deficit. It turned out to be not so super after all, except for its failure. It hopelessly missed its deadline to agree on spending measures. And those measures now trigger more than a trillion dollars in automatic cuts.

What a business.

The downgrade sparked a sell-off on Wall Street and around the world. A few days after the news broke, I was at the New York Stock Exchange. The sense of urgency was palpable. Europe was still in trouble, with an ECB only just starting to buy Italian debt. In the midst of these storms, I asked Mort Zuckerman, the real estate and newspaper investor, when you took it altogether, how serious was the situation.

(BEGIN VIDEOTAPE)

MORT ZUCKERMAN, CEO, BOSTON PROPERTIES: It's very serious, certainly for the United States. We have an unemployment rate that has just soared. It's now, in real terms, somewhere around 18, 19 percent, forget the headline number.

We have an economy that is going down. We are now into a very, very, very delicate phase of the economy because we will not have any fiscal policy or monetary policy that can have an impact and yet everything is still heading down.

QUEST: Right. But would you agree that the actual downgrade, as such, was not a major crisis?

ZUCKERMAN: Well, it reminded everybody of just how desperate our fiscal situation is. It is absolutely valid to point at it and say, we are in deep financial trouble. It's not just what's happened in the past, but with the next half dozen years, we have a $7, $8 trillion deficit that we have to something about it. And we have a political system that is paralyzed.

QUEST: So what do you want to do?

What do you want either the president or the Congress to do, because, seemingly, every time they speak, the situation gets a little bit worse?

ZUCKERMAN: Yes, because they haven't done anything. All they've done is speak. You can't solve this problem with speeches. You have to get both parties together to take some very unpopular and difficult steps. But without that, we could have a major downturn in the economy, something that we have not seen since the Great Depression.

QUEST: Alan Greenspan said today -- oh, sorry, Alan Greenspan said yesterday, he doesn't seen signs of a double dip recession.

ZUCKERMAN: Well, I hope he's right. All I can say, we are in an unprecedented situation and, therefore, it is unpredictable. I happen to think we can have, if not a double dip recession, certainly a very, very...

QUEST: All right -- ZUCKERMAN: -- slow economy that will compound all the problems we are looking at now in terms of unemployment and in terms of the financial crisis.

QUEST: So the -- the right in all of this says no tax rises. The left says you can't have these stringent cuts made in entitlements.

Are you in favor of some tax rises?

ZUCKERMAN: I have always been in favor of tax rises, if only for a political matter. The well-to-do have got to show that they're paying a part of the price that everybody is going to have to pay.

But I'm also in favor of redoing our entitlement programs, because it's going to break the economy, as we have a huge population of baby boomers...

QUEST: OK.

ZUCKERMAN: -- who are about to retire.

QUEST: Which is more important to you at the moment, the debt crisis in America -- and when I say you, I don't mean you personally...

ZUCKERMAN: No, no, I understand.

QUEST: -- I mean which is more important the debt crisis in America or the European debt crisis with Spain and Italy?

ZUCKERMAN: Well, in this country, it is the debt crisis in America. The European Central Bank is going to step in and do what it has to do.

We -- we have a very different situation, in which you don't know which of our government institutions, whether it be the executive branch or the Congress, that is going to do what it has to do. At this point, they haven't done what they have to do.

QUEST: And, finally, as you stand tonight -- and I'm just looking down at the market. We're down 425 points or so, more than 3 percent.

Where does it go from here?

ZUCKERMAN: You don't think I'm going to predict where the stock market goes, do you?

I'm not that stupid. But I will tell you, what I do see is an economy -- we're going to have, unemployment is going to go up. The stock market, I believe, is going to go down. Our political system...

QUEST: All right...

ZUCKERMAN: -- is going to be deep -- deep -- it will loose credibility, unless they actually join together and do something, because only if both parties share the blame will they be able to do what we have to do.

(END VIDEO TAPE)

QUEST: President Obama had warned a debt downgrade could spark deep economic crisis. A few days after it happened, I spoke to Christina Romer, the former chair of Mr. Obama's Council of Economic Advisers.

So, the question we asked again and again -- and we never really got an answer until the new year -- was the world's biggest economy really heading for a recession?

(BEGIN VIDEOTAPE)

(BEGIN VIDEO CLIP)

CHRISTINA ROMER, FORMER CHAIR, U.S. COUNCIL OF ECONOMIC ADVISERS: The most likely thing at this point is that we continue to grow slowly. I think, you know, one of the things, though, that happens, that the slower growth gets, the bigger the chance that it could -- it could slip into negative territory. Right now, I don't see that happening. I think one of the things that I find very important is to explain to people, there's not that much difference between anemic growth and -- and falling output. Both are pretty wretched and both are problems that we need to be solving.

QUEST: Right, now, if we accept that monetary policy just about tapped out -- QE2, yes. QE3 wouldn't make that much difference.

So in that sense, where's the -- the -- the momentum going to come from to prime the pump?

ROMER: Well, I actually -- I think I disagree. I don't think monetary policy is tapped out. I think the actions that the Federal Reserve took on Tuesday were actually very important. I think to commit to keeping the federal funds rate low for another two years is a pretty bold move. And it's something that can have an appreciable impact on longer- term interest rates, probably more of an impact than another, you know, QE3.

So I think that was important. And I think the Fed will continue to be thinking about other actions that they could be taking.

(END VIDEO TAPE)

QUEST: After the break, the rise and fall of Conrad Black in his own words. The media baron on prison, power and Rupert Murdoch, in a moment.

(COMMERCIAL BREAK)

QUEST: Conrad Black beginning the new year back inside prison. He was once one of the world's most powerful media bosses. Then, in 2007, he was found guilty of defrauding shareholders and skimming money from his own news empire.

Granted bail midway through a six year sentence, he has now returned to finish that sentence. It's a dramatic rise and fall that's made him notorious.

(BEGIN VIDEOTAPE)

QUEST (voice-over): Conrad Black's rise as a media tycoon began in the 1960s, when he started buying up small Canadian newspapers.

By the 1990s, he was in charge of an empire that spanned Europe, the United States and beyond, owning some of the world's most prestigious titles, amongst them, Chicago's "Sun-Times," the "Jerusalem Post" and the UK's "Daily Telegraph".

But his fall from grace was as dramatic as his rise. In November, 2003, he was forced to resign as the chief executive of Hollinger International, accused by the board of directors of siphoning off millions of dollars of cash into his own pocket.

By August, 2005, the tale begins to unravel. The Securities and Exchange Commission charges Black and three of his associates with fraud, obstruction of justice and racketeering.

By December, 2007, his media empire is on its knees and so, it seems, is his reputation.

Lord Conrad Black is acquitted of many of the charges of which he's been accused, but convicted on several counts and so sentenced to six-and- a-half years in prison.

Conrad Black has always maintained his innocence. And many of those remaining charges were overturned by the Supreme Court.

(END VIDEOTAPE)

QUEST: Black believes he's a victim of the U.S. justice system. And there's plenty to say on the legal troubles facing his old rival, Rupert Murdoch.

I spoke to Conrad Black while he was on bail in New York.

(BEGIN VIDEOTAPE)

CONRAD BLACK, FORMER MEDIA TYCOON: Well, it would be impossible not to reflect yet again on what an outrage and fatuous business the whole thing is, since there are really no convictions and there is no possible excuse for having launched the case in the first place, as a criminal prosecution.

But, essentially, my thoughts are that they started out buying into this theory of a $500 million corporate kleptocracy. I successfully collected, by far, the largest libel settlement in the history of Canada against the authors of that particular allegation, who sponsored the prosecution.

Given the correlation of forces between the United States government and myself -- and they were seeking life imprisonment and $140 million -- I got rid of all the counts. And then one psychotic megalomaniac of an appeal judge purported to retrieve two counts. And I am down to $285,000...

QUEST: Right.

BLACK: -- and seven more months. I feel it is a victory lap.

QUEST: OK, now, you -- you've taken me straight into the -- into the deep waters. You have never accepted, from -- from the moment this started right the way through to now, that there was anything that you had to -- to be remorseful about in this case.

BLACK: I wouldn't say that. I -- I regret certain tactical errors. But I have, as you say, been -- been militant throughout that I committed no illegalities. And I -- if you read the book that I wrote, that you've kindly started to read, I think you would conclude the same.

QUEST: You said...

BLACK: Like any reasonable reader would.

QUEST: Right. But -- but time and again, it always -- when I was reading the book, it all begged the question, why do you think they went after you?

What -- in the book, you actually say, "It was my honor to be the sole real subject of the case."

Why, Lord Black?

BLACK: Because that's how the American system works, Richard. The prosecutors fixate on a big fish. And if they get any opening -- and -- and this is a matter that would be weighing in the mind of Mr. Murdoch now -- if they get any opening, they -- they intrude into it. They start questioning everyone around the target. They say, well, if your memory doesn't miraculously yield up your recollection that the target did such and so, then we're going to have to indict you. And then all of a sudden, you have 50 people pointing at the person they're after.

And the -- the -- you know, the procedure, the evidentiary procedure in the United States is a stacked deck. The prosecution speaks last. They freeze your money so you can't defend yourself. The American lawyers are obscenely avaricious.

QUEST: Right.

BLACK: If I hadn't had most of my assets outside the United States, I couldn't have paid for a defense.

QUEST: You mention Rupert Murdoch. And your art -- your recent article about Mr. Murdoch is -- is perhaps less than charitable. And you're -- in the book, you describe him as "ruthlessness. He conducts campaigns to humanize himself." But -- but, frankly, you're not terribly impressed. "He has no friendships, only interests; no nationality emotionally. The company he has built is his nation," you -- you write.

Do you -- do you now and would you warn Rupert Murdoch to be careful that the U.S. Authorities may be after him?

BLACK: I don't think Rupert needs much warning from me. I see he's hired my former counsel, Brendan Sullivan. And I -- I think he would not be doing that if he thought that there was no chance that there might be interested what he's doing.

But you said I was uncharitable to him. I don't think I was. I believe you're referring to the article I wrote in "The Financial Times." I did say he was the greatest media proprietor in history. And the rest of it is a character description that anyone who knows him, I think, would agree with.

I mean he -- he, as I said, he is a great bad man. But it has come to light in this country that despite our 25 year cordial relationship, he specifically instructed the editorial desk at "The New York Post" to make the articles about my travails as nasty as possible, while he was sending placatory letters...

QUEST: OK.

BLACK: -- to me. I mean Rupert is a bad man. But -- but he's done great things and that shouldn't be taken from him.

QUEST: How do you feel about that, somebody you've worked with or known for decades was actually agitating against you?

BLACK: Well, you're -- Rupert Murdoch is a special case. He's a sadistic man and he has, as far as I can see, no human feelings at all. But -- but he is who he is.

If you mean as things go forward, would I be welcoming a contest between him and the U.S. Prosecutors, no, I -- I -- Rupert is just a powerful man who -- who is a nasty and misanthropic person. The U.S. Prosecution service is eating at the soul of the American republic. It is an absolute danger to everyone. And I would wish Rupert well if he gets in the maw of it.

(END VIDEO TAPE)

QUEST: When we come back in a moment, we look at an industry close to the heart of QUEST MEANS BUSINESS. 2011 saw a number of new faces in the airline business. We've asked three top executives about the mighty challenges ahead.

(COMMERCIAL BREAK)

QUEST: Last year, there was turbulence in the aviation industry. Rising fuel costs, natural disasters and the sovereign debt crisis all threatened to choke off what little demand there was. There were newcomers at the top of some of the world's biggest airlines. And here on QUEST MEANS BUSINESS, we were keen to speak to them.

First up, of course, was the new head of IATA, the Association of Airlines. In 2012, the airline industry will make more than half the profit it's expected to make in 2011 -- $3.5 billion, says IATA.

Time and again over the course of the year, that forecast was lowered. IATA said the worst case scenario would actually see the industry losing money.

The organization's new director general, Tony Tyler, joined in July. And I asked him whether the industry would be able to withstand such a financial storm.

(BEGIN VIDEOTAPE)

TONY TYLER, DIRECTOR-GENERAL, IATA: It's going to be a difficult time for airlines. I mean, clearly, what they've got to do is what they've been doing over many years, manage their costs and -- and optimize their revenues. In a -- in a weak and uncertain world economy, that's going to be very challenging.

On the cargo side, particularly, we're seeing weakness now, which, if cargo is a leading indicator of -- of -- of the rest of the business, as it has proved in the past, then I think airlines have every reason to be cautious.

QUEST: Is it still the view that there are too many airlines chasing too few passengers?

Because as I look at the numbers, capacity is slowly increasing, but traffic isn't increasing as much to accommodate that. So once again, more seats are going into the market, which will ultimately put yields down.

TYLER: It's an intensely competitive business. And there are -- there are -- there are a lot of airlines. It's a very fragmented business. That makes it very competitive. It makes it very difficult for airlines to generate even their cost of capital. And, of course, airlines have to make decisions on capacity years in advance. When you order an aircraft -- if you want to order A-320s, then I -- I -- I gather that you -- you'll -- you'll get a delivery some time in 2019. I mean you're -- you're making decisions a long way in advance. And I think we do a very good job, as an industry, of managing short-term capacity issues. But long-term, it's very difficult.

(END VIDEO TAPE)

QUEST: Toward the end of the year, American Airlines filed for Chapter 11 bankruptcy protection. It means that the company can now restructure itself, protecting itself from its creditors and giving it time to reorganize financially.

American had struggled to stay competitive, as rivals had already gone through bankruptcy, cutting costs in the process.

The new chief executive is Tom Horton, who replaced Gerard Arpey. The shares lost more than 90 percent of their value in 2011.

And I asked the new chief exec why drastic action like bankruptcy was really necessary.

(BEGIN VIDEOTAPE)

THOMAS HORTON, CEO, AMERICAN AIRLINES: It was a very difficult decision, but we think the right decision at the right time to -- to get our company competitive and make it successful again. As you probably know, Richard, over the past decade, a very difficult decade in the airline industry, virtually all of our big competitors in the U.S. Took this step. And, as a consequence, they lowered their costs and improved their capital structure in a way that simply made them much more competitive.

And, you know, the folks at American have worked very hard and honorably to avoid that path over the last decade. But it became clear to us that that gap was just too wide now. It had become untenable and it was time for us to address it, turn the page and begin to put our company on the path to a much more successful future.

QUEST: You see, on October the 4th, AMR put out a statement saying it was not your goal or preference to go into Chapter 11.

So I'm wondering what changed or what finally tipped the decision that you took?

What was the tipping point?

HORTON: Yes, it never has been our goal or preference, of course. And our actions over the last decade would clearly indicate that. But I think we concluded that the gap between our cost structure and the rest of the industry had become too wide and really just not something we could sustain any further, and, at the same time, you know, great economic turmoil in the global economy and high and volatile oil prices. So all of that taken together created an atmosphere where our board felt that the best decision was to pursue a full restructuring of the company to make us more competitive and successful for the long term.

QUEST: Your employees watching this worldwide will -- and particularly, of course, in the United States, will want to know the implications. If we take the United, the Delta, the other examples, there have been givebacks, pensions have been cut back, longer hours for less money.

So can you sketch out what you envisage happening for your employees?

HORTON: Well, I think the most important thing is that day one, the Chapter 11 filing itself won't cause any changes to wages or benefits. Of course, our objective here is to make the company more cost competitive, so down the road, there may well be changes.

But there's a process wherein we will sit down with our union leaders and with our non-organized work groups and work through the best way to reach the -- the best outcome for the greatest number of people.

So that's what we're going to do. And we're going to do it under the supervision of the -- of the courts.

QUEST: And fliers watching and passengers who are buying tickets - now, you -- you and I have talked about this before. And I have been around the aviation industry long enough to know, from the passengers' point of view, it matters not a jot. Your planes will still be flying and you'll still probably be serving champagne in first class.

But can you reassure passengers that this is not going to have any effect?

HORTON: Well, that's quite right. It's business as usual at American Airlines. And all of the people of American Airlines will continue to dedicate themselves to providing great customer service for our customers. That is our -- that is our mission. Our schedule will continue. Our flights will continue to operate. It is very much business as usual. And, in fact, it is our view that in the long run, as we make our company more competitive and successful, we'll even have further opportunities to invest in our product for our customers.

(END VIDEO TAPE)

QUEST: From the industry to the legacy to the low costs, EasyJet is Europe's second largest carrier, 50 million passengers a year.

The chief exec, Carolyn McCall. Her new strategy is to slightly shift the airline and attract the business travelers.

I sat down with her in October to ask what else was in store for EasyJet.

(BEGIN VIDEOTAPE)

CAROLYN MCCALL, CEO, EASYJET: We have a lot more to grow, organically. And we can do it stealthily. We are very cautious about the next two years. We've capped our fleet for the next two winters. We don't believe the next two years in Europe, maybe longer, is going to be very pretty.

So to answer your question, when you think about the cost headwinds for this industry, you know, the unprecedented high fuel for a very sustainable period of time, that's going to cost us 220 million pounds more, year on year. Emissions trading schemes for the first time ever, that's going to cost us money. APD, who knows what this government is going to do on that?

They should not be taxing passengers, but who knows?

That doesn't seem to be the trend.

So we've got some really severe headwinds. In addition to that, we have a Eurozone in crisis. So I think consolidation is going to be inevitable, in some way, over the next three to five years. EasyJet's entire strategy is based on organic growth, not on M&A.

(END VIDEO TAPE)

QUEST: Finally, a Profitable Moment.

People often ask me, why do I enjoy this job?

And it's really very simple. Because here, you see the unthinkable happen, and usually when you least expect it. A debt downgrade of the United States, the near collapse of the irrevocable Eurozone and questions about which countries may or may not survive and a whole question of issues relating to the structures of the global economy.

Throughout the course of the year, we've tried very hard on QUEST MEANS BUSINESS to bring you the best names anywhere in the world, to put these events into perspective, to help you make your investment decisions.

We thank you for taking the time and trouble to join us. And I give you this promise now, that this year, in 2012, we'll work even harder to do it all over again.

Because that's QUEST MEANS BUSINESS, as we start a new year.

I'm Richard Quest in London.

Whatever you're up to in the year ahead, I hope it's profitable.

END