:00:06. > :00:10.a day's pay. That's the latest BBC News headlines. Now it's time for
:00:10. > :00:15.The Bottom Line. We can't escape the turmoil in the
:00:15. > :00:20.eurozone bond markets this week. I'll be asking my guests what do
:00:20. > :00:25.bonds mean for business? If you think using an airport is stressful,
:00:25. > :00:34.you should try running one. Each week, influential business leaders
:00:34. > :00:44.gather for the BBC Radio Four programme, The Bottom Line. Now you
:00:44. > :00:49.
:00:49. > :00:57.We have a lot to talk about today. That's very quickly meet my three
:00:57. > :01:04.guests. First up is the president UK executive of the UK and Northern
:01:04. > :01:09.Ireland arm of General Electric. What do the UK specialise in?
:01:09. > :01:15.and gas equipment, digital energy products, big finance arm. I'd like
:01:15. > :01:20.to say to people we make everything other than heavy duet gas turbines
:01:20. > :01:25.here. -- duty gas turbines here. You have a huge operation,
:01:25. > :01:31.manufacturing and researching? have about 40 manufacturing service
:01:31. > :01:35.sites in the UK with about 20,000 people now. So probably the largest
:01:35. > :01:41.integrated manufacturing business. But we have a very big market for
:01:41. > :01:46.products made globally we sell in the UK. We have a chairman of the
:01:46. > :01:55.property company Land Securities. You have a number of other board
:01:55. > :02:02.positions under your hat, what are they? I sit on the board of
:02:02. > :02:11.Barclays Bank. And I sit on another board that makes trucks in Europe.
:02:11. > :02:17.Most people know what Barclays does. And I sit on the board of a
:02:17. > :02:21.hedgefund manager. Land Securities, it is shopping centres and big
:02:21. > :02:27.property development? A bit more specific than that. It's shopping
:02:27. > :02:30.centres around the regions, large shopping areas which are part of
:02:30. > :02:35.mixed used buildings in London. Offices we own and obviously
:02:35. > :02:41.collect rent from, as we do from tenants in our shopping centres.
:02:41. > :02:46.And obviously at this stage, in the property cycle, we're doing quite a
:02:47. > :02:51.lot of development and a few schemes including offices,
:02:51. > :02:57.residential accommodations and retail. Shopping centres basically.
:02:57. > :03:01.My third guest is chief executive of BAA, a Spanish-owned operator of
:03:01. > :03:07.several major British airports. Update us, because a lot of people
:03:07. > :03:13.will know you were told you had to sell some of your UK airports?
:03:13. > :03:18.Gatwick is gone? It was sold two years ago. We have recently
:03:18. > :03:25.announced we will sell Edinburgh and then we have four others.
:03:25. > :03:31.in all? Exactly. The revenue you get, the revenue model is regulated
:03:31. > :03:35.revenue for landing fees for airlines? That's true for Heathrow,
:03:35. > :03:40.Stansted and Gatwick. That's not true for the other airports. In the
:03:40. > :03:46.case of Heathrow, yes. Whether it comes from landing fees or retail,
:03:46. > :03:50.it goes in to one pot. The more we make from retail, the less people
:03:50. > :03:53.pay for landing. We're going to talk about airports in much more
:03:53. > :03:58.detail in a minute, particularly Heathrow. With these brief
:03:58. > :04:02.introductions out of the way, I want us to spend a few minutes
:04:02. > :04:07.reflecting on turmoil in the bond market. Even as we hit here, a lot
:04:07. > :04:12.is going on -- sit here, a lot is going on in Italy. It would be
:04:12. > :04:17.silly for us to try and run a ball by ball commentary. But it is worth
:04:17. > :04:21.us, I think, asking how bonds affect business. For those who
:04:21. > :04:26.don't know much about bonds, they are quite sital, they're bits of
:04:26. > :04:30.paper that have a promise to pay attached to them. You can buy and
:04:30. > :04:35.sell them and the person who gets the money is the person who was
:04:35. > :04:42.holding them when they are to be sold. How important, aside from all
:04:42. > :04:46.the shenanigans going on, how important are they to business?
:04:46. > :04:53.Absolutely fundamental. In 2012, we will invest more than a billion
:04:53. > :05:00.pounds in Heathrow. A bigger chunk will be my bonds. And on an ongoing
:05:00. > :05:07.basis, to invest in Heathrow, the markets need to be open. Over a
:05:07. > :05:10.period of time, our business is based on having access to those
:05:10. > :05:18.bond markets. Absolutely fundamental to jobs, to the airport,
:05:18. > :05:24.to a billion pounds of investment in 2012. And that will be the same
:05:24. > :05:29.in our business. The banking business is part of the bond market.
:05:29. > :05:33.These markets are very deep markets. Even though we're talking about the
:05:33. > :05:41.eurozone markets, the US markets, it's the deepest capital market in
:05:41. > :05:47.the world. Corporations as well as government? Yes. The biggest issuer
:05:47. > :05:51.of corporate bond in the well and although the scale of corporate
:05:51. > :05:56.bonds as a percentage of money raised is less, it is still very
:05:56. > :06:02.large. Back to your question about what's the impact of what's
:06:02. > :06:06.happening today? And it really saps confidence. And it drives a
:06:06. > :06:10.corporateest view that Europe is obviously a very uncertain place.
:06:10. > :06:16.And we want to look to put our investments in regions and
:06:16. > :06:22.countries where we're going to get a rate of return, and we have a
:06:22. > :06:25.stable government that's not going to see violent changes in its own
:06:25. > :06:29.spending habits or its spending ability which does affect for a
:06:29. > :06:35.company like ours the amount of money spent on infrastructure and
:06:35. > :06:45.new plant, hospitals. So it's having a very significant impact on
:06:45. > :06:45.
:06:45. > :06:53.confidence. I can say something, looking at it, bond yields in the
:06:53. > :06:57.UK - a bond yield is the price, a return again from say a 10-year --
:06:57. > :07:01.ten-year bond in the UK. I don't know what it is today but this is
:07:02. > :07:07.hovering around 2% or 3%. The yield you'll get on investing in property
:07:07. > :07:12.is much greater than that. The gap is as big as it's ever been,
:07:12. > :07:17.certainly in my living memory. People are regarding prime assets
:07:17. > :07:22.in the UK as a haven. If you can't put your money in half the
:07:22. > :07:28.countries of the eurozone and lend money to those governments,
:07:28. > :07:33.actually I suspect it's quite attractive at the moment, GE bonds.
:07:33. > :07:36.They won't go under in the next couple of years. I hope not. We've
:07:36. > :07:41.changed our balance sheet to protect it with a significant
:07:41. > :07:45.amount of cash. We were sitting on $90 billion of cash at the third
:07:45. > :07:51.quarter which is a protection against the risk you can't raise
:07:51. > :07:56.money in the bond markets. People are saying how can the economy get
:07:56. > :08:01.energised when so many corperates are sitting on the cash because
:08:01. > :08:05.there -- corporates are sitting on the cash. Bonds are significant for
:08:06. > :08:10.all of the infrastructure spending in the UK, really, but why do you
:08:10. > :08:16.prefer going to the bond market than going to the equity market?
:08:16. > :08:21.Just give a primer for people who haven't followed the history of
:08:21. > :08:26.finance. You always have both. You have debt and equity. And the
:08:26. > :08:31.efficient way for us to raise debt is by going to the bond market. Not
:08:31. > :08:35.just by the bon market in the UK, but Europe, the US, Canada and
:08:36. > :08:40.Switzerland and any currency in order that we spread across all of
:08:40. > :08:49.those sources. Our spending at Heathrow is huge and that leads to
:08:49. > :08:55.lower cost of funding and. funding. The bon market is a beast.
:08:55. > :09:00.It has its mood swings. When it turns against you, it's very easy
:09:00. > :09:05.to get in to the vicious spiral at the rate in which the bond markets
:09:05. > :09:10.are charging you to lend money to you goes up, and then you look less
:09:10. > :09:16.solvent. So they charge you more because you're looking less solvent.
:09:16. > :09:20.We're going in to a nightmare circle. We have an era now in the
:09:20. > :09:26.eurozone and in the US where political events are driving these
:09:26. > :09:30.markets and that's very difficult. If you want to follow the bond
:09:30. > :09:35.markets, and analysts want to know what's going on, everybody knows if
:09:35. > :09:40.you want to follow the UK equity market, you look at the FTSE 100.
:09:40. > :09:45.In the US, it's the SMP or the Dow Jones industrial average. What's
:09:45. > :09:50.the best way to look at it? We have to look at economic data. There's
:09:50. > :09:55.no single thing that tells you the bond market is up or down.
:09:55. > :10:02.equity market. There's no single thing. We all think there is and
:10:02. > :10:07.report it. Right. There's real earnings that companies make.
:10:07. > :10:11.There's a cyclical factor that goes with some company's traditional
:10:12. > :10:16.business models. You have to look at the underlying fundamental data,
:10:17. > :10:21.unemployment rates and all this stuff - Inflation matters. All of
:10:21. > :10:28.those are statistics which are very available but I don't think they
:10:28. > :10:34.are written about that frequently. In terms of the big scale of things,
:10:34. > :10:37.how worried should we be about stresses in the world? Is it worse
:10:37. > :10:43.than 2008? It's different. And I think we should be very worried
:10:43. > :10:47.about it because of the risk that this puts Europe in to a no growth,
:10:47. > :10:51.slow growth or even a recession. That will affect whether people
:10:51. > :10:55.want to fly, whether they want to buy new cars, whether they can
:10:55. > :11:00.afford to pay their electricity bill. It will affect everything.
:11:00. > :11:04.should be worried about it. I think we are beginning on the journey. I
:11:04. > :11:10.don't know how long that journey will be. I think it could be five
:11:10. > :11:13.or ten years. I think it will drive economic growth down. Possibly zero
:11:14. > :11:19.and below. And that's a very grim prospect for most people out there
:11:19. > :11:23.who just want jobs and earn their living. We'll be watching
:11:23. > :11:27.developments in the bond markets with great interest. I want to talk
:11:27. > :11:31.about airports, the business you're in, Colin. Heathrow in particular
:11:31. > :11:37.is an interesting business case study, isn't it? Three or four
:11:37. > :11:41.years ago it hit a real low point. The regulator said its performance
:11:41. > :11:45.was unsatisfactory. I'm wondering how far you think you've turned it
:11:45. > :11:49.round? We're not perfect. But I do think that we're better than we
:11:49. > :11:52.were. That's my ambition, is to make sure each month and each year
:11:52. > :11:58.we can look back and say that we're a bit better than we were and
:11:58. > :12:05.better in a year's time. Partly that's about spending new
:12:05. > :12:10.facilities. And we're spending more than a billion pounds every year.
:12:10. > :12:17.This is a question I've been wanting to ask for some time. You
:12:17. > :12:21.explain to the passenger - I think Terminal 5 is a dream - when I'm
:12:21. > :12:25.coming back in to Heathrow, I just don't understand why I have to
:12:25. > :12:31.circle the City of London which I've seen many times from the air?
:12:31. > :12:36.I can explain why it is that way. What can we do to make it better?
:12:36. > :12:40.We can better integrate what air traffic control does with what
:12:40. > :12:47.happens on the ground. Just as it's true in Heathrow, so we've got to
:12:47. > :12:54.line up the slot in the air with a slot in the runway with a parking
:12:54. > :12:58.stand. You cram in two many arrivals in talkoff slots. If one
:12:58. > :13:03.thing goes slightly wrong, it creates chaos. I'm not sure that's
:13:03. > :13:11.true. It doesn't mean we can't make it better. If we have the parking
:13:11. > :13:15.stand lined up with the runway slot. But you don't. We can squeeze in
:13:15. > :13:20.more. Air traffic control only control aeroplanes when they come
:13:20. > :13:25.in to air space. If you take control using a satellite and
:13:25. > :13:31.computer, you can line these things up way, way further away and you
:13:31. > :13:35.can get them coming in in sequence. It's being done in China, Brazil,
:13:35. > :13:42.Australia. We've done a trial project in Sweden and it works.
:13:42. > :13:48.this is General Electric equipment? Yes. Say a plane goes off from Hong
:13:48. > :13:53.Kong, and the pilot will know where he's going to land at Heathrow.
:13:53. > :13:59.That's not planned in until he arrives at Copenhagen. We can be
:13:59. > :14:04.much more bold. And you reckon that, and without cutting the number of
:14:04. > :14:09.flights, the actual number of them, you could get rid of the queues of
:14:09. > :14:13.planes? We could. But you wanted to build a runway and the advantage of
:14:13. > :14:19.building a third runway was you could get rid of the queues in the
:14:19. > :14:23.sky init seems the problem is capacity? As an excuse, I don't
:14:23. > :14:27.think it is. Of course, we can do a better job want first of November
:14:28. > :14:33.this year, we started working with NASA and it will take a long time
:14:33. > :14:40.to get rid of those stacks. But we're on that journey. If you want
:14:40. > :14:47.to learn more about the topics in the programme and about our partner,
:14:47. > :14:51.the Open University, visit our website. Now, briefly, I want to
:14:51. > :14:55.talk to you about one of your previous titles. We talked about
:14:55. > :15:00.some of your jobs at the moment but the one we didn't mention, you were
:15:00. > :15:06.chairman of a company called MF Global. It's just gone bust,
:15:06. > :15:11.basically. Yes. Some client money is missing and being searched for.
:15:11. > :15:20.Its chief executive has stepped down. When you were there, you were
:15:20. > :15:25.there until last year? Resigned in 2010, yes. The middle of 2010. When
:15:25. > :15:31.the business had lost its previous chief executive. I was an
:15:31. > :15:35.independent chairman, a non- executive chairman. I didn't feel
:15:35. > :15:43.like it some of the time, but anyway. He was appointed because he
:15:43. > :15:52.was looking for a way back in to Wall Street, and we were able to
:15:52. > :15:57.secure his services. A quite senior, very senior at Goldman Sachs, a
:15:57. > :16:02.Democrat Governor of New Jersey. Was it on course to go bust when
:16:02. > :16:08.you were there? No, no, no. It was a business that was listed on the
:16:08. > :16:17.US market in 2007. It was a spinout from a hedgefund business here in
:16:17. > :16:22.the UK. It brokered derivatives. The derivatives market is many
:16:22. > :16:27.times as big as the bonds markets. Buying and selling on behalf of
:16:27. > :16:33.clients. That's what I thought brokers did? That's what they do do.
:16:33. > :16:39.When does it turn tine a thing that it can go bust by making the wrong
:16:39. > :16:44.debt? That appears to have happened post 2010. John's background was
:16:44. > :16:51.more a trader than a broker. So he was used to trading in bond markets.
:16:51. > :16:55.That's how he came up through the ranks. So trading on its own
:16:55. > :16:59.account, speculating on its own account. He made a bunch of bets
:16:59. > :17:05.and I believe they were eurozone bonds, as it happens? They turned
:17:05. > :17:12.out to be, you know, the holdings of those bonds, which I think
:17:12. > :17:17.investors knew about for some time. But a combination of I think a very
:17:17. > :17:24.poor quart's losses, combined with a downgrading of their debt,
:17:24. > :17:31.combined with an elevation or a rearticulation of these positions.
:17:31. > :17:35.A brokerage business holds customer accounts for use and when customer
:17:35. > :17:39.accounts disappear, liquidity disappears, confidence disappears
:17:39. > :17:43.and that appears to be what happened. An interesting case study
:17:44. > :17:51.in terms of the way Wall Street and perhaps the city is addicted to
:17:51. > :17:56.going. You have a perfectly respectable, and it is never quite
:17:56. > :18:06.attempting to just stay in that, it is to go on? That would have
:18:06. > :18:08.
:18:08. > :18:12.appeared to have been the case. you have arguments with John? You
:18:12. > :18:18.were chairman. He was chief executive and he took your job,
:18:18. > :18:22.basically? He did. He essentially took my job happily, but I signed a
:18:22. > :18:28.three-year contract to help them through the transition on to their
:18:28. > :18:34.listing. And I met him on two or three occasions. Very convinced of
:18:34. > :18:40.his views as to wanting to turn the business in to something that had a
:18:40. > :18:45.future. He articulated this vision? Yes, and it must be said that the
:18:46. > :18:49.business model that MF had been pursuing over many years did need
:18:49. > :18:55.some tinkering and reinvention because the market had changed and
:18:55. > :19:00.interest rates were very low and we weren't earning a lot of money. On
:19:00. > :19:04.the one hand, I would completely agree that we needed a chief
:19:05. > :19:09.executive who was going to change things. What appears to have
:19:09. > :19:16.happened is a very sharp change of direction in to an area which
:19:16. > :19:21.appeared to be risky and that ened up resulting in the end for MF.
:19:21. > :19:27.3,000 people out of work. 700 in London. And I'm sure many books
:19:27. > :19:32.will be written on this. Indeed so. Right, now it's not hard to find
:19:32. > :19:36.senior executives who have moved from one sector to a completely
:19:36. > :19:40.different sector. Colin, you're an example of this. You moved from
:19:40. > :19:47.Japanese car firms to water companies, to BAA running airports.
:19:47. > :19:56.Take one of the most famous xachles in the UK, the man who ran the post
:19:56. > :20:02.office, ITV, is it a good model? Are good bosses transferrable or
:20:02. > :20:09.not? I think you've had the least transferrable career? I mean, I
:20:09. > :20:13.haven't transferred from sector. I've transferred from profession
:20:13. > :20:19.aid to professional. I spent 24 years as a lawyer. And as I say to
:20:19. > :20:24.people, I got foun out and was asked to become chief executive.
:20:24. > :20:29.But to answer your question, it depends who the person is, and it
:20:29. > :20:36.depends where you've learnt your skills and your management style.
:20:37. > :20:41.Personally, I think the grounding and the rigor around having toon
:20:41. > :20:45.ablitical and solve problems that have complex backgrounds, it
:20:45. > :20:50.teaches you how to understand, how to see through complexity, to try
:20:50. > :20:55.and find an answer at the end. Equally, if you started in a
:20:55. > :20:59.business like the company I'm currently with, where you grow up
:20:59. > :21:04.in a structured and rigorous organisation which teaches you
:21:04. > :21:09.different skills and you are in a function whether it's marketing or
:21:09. > :21:15.sales or commercial or engineering, etc, you learn a set of skills
:21:15. > :21:20.which aren't clearly transferrable. Colin learnt a lot of his skills at
:21:21. > :21:26.GE. I forgot you worked there. describe GE as my school. They most
:21:26. > :21:32.influenced how I think about the role of leadership and of
:21:32. > :21:35.management. But if you have a key ten people running a business, you
:21:35. > :21:40.want the majority to have great knowledge where you are, preferably
:21:40. > :21:44.someone who has been 30 years and knows everything about the history.
:21:45. > :21:49.Some people have 15, some have ten, so as long as you understand it's
:21:49. > :21:54.only a sprinling of people with different industry experience, that
:21:54. > :22:01.will explain why that's a benefit. Whether the Japanese industry was
:22:01. > :22:04.teaching Europeans -- I was in the Japanese industry when they were
:22:04. > :22:13.teaching the Europeans about the model. I don't know if you remember
:22:14. > :22:19.the Honda Sifrbics that arrived in -- Civics that arrived in the UK in
:22:19. > :22:22.the 1970s. Every single model of the Civic has improved. I think it
:22:22. > :22:26.is entirely relevant to airports today. So there's an example that
:22:26. > :22:30.there are skills that are transferrable but you'd want nine
:22:30. > :22:36.out of ten people to have great, great knowledge in your own
:22:36. > :22:41.business? I agree with that. I think it's horses for courses. Some
:22:41. > :22:45.businesses have been in the doldrums and lacked leadership and
:22:45. > :22:47.motivational skills. They're a good team of perfectly sensible,
:22:47. > :22:51.adequate and knowledgeable people. But they could have anyone that
:22:51. > :22:56.could have come in from any industry as long as they have the
:22:56. > :22:59.key leadership skills. And to move in as the chief executive into a
:22:59. > :23:04.business and change everybody immediately is a great mistake.
:23:04. > :23:08.suspect there are people you would want to bring in to fix a
:23:08. > :23:13.particular problem? A lot of CEOs of companies that move fairly
:23:13. > :23:17.frequently are brought in by shareholders or the chairman to
:23:17. > :23:21.deal with a specific issue and maybe they've got experience in
:23:21. > :23:26.turnarounds or experience in fundraising or whatever else it is.
:23:26. > :23:30.And I think you'd need to bring in those skills from time to time.
:23:30. > :23:33.there any business that would be difficult, for example, say Colin,
:23:33. > :23:38.any business that you couldn't put Colin in because he's done cars,
:23:38. > :23:42.he's done General Electric, he's done water, you've done virtually
:23:42. > :23:46.everything. Is there anything you couldn't put your mind to?
:23:46. > :23:51.Businesses which are a similar state in their efrblution have
:23:51. > :23:57.things in common -- evolution have things in common. So controlling
:23:57. > :24:03.costs and raising standards has a lot in common. I don't know how I'd
:24:03. > :24:07.go in a brand new, hydro place. You place ten bets that one will win
:24:07. > :24:12.and you're fine. You don't do that in airports or launching a new car
:24:12. > :24:18.model. Well, that's all we have time for, I'm afraid. Just time to
:24:18. > :24:25.thank my guests. Mark of General Electric, Alison of Land Securities,
:24:25. > :24:29.and Colin of BAA. I will be back with more guests next week. If you