British Airways: Engine Choice (Hansard, 22 October 1991)

§ The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Reay)
My Lords, I fully recognise that the decision by British Airways not to purchase the Trent engine came as a considerable disappointment to Rolls-Royce, but British Airways is a private and independent company and the selection of engines is a commercial matter for the airline's management alone to take.

Lord Morris
My Lords, I thank my noble friend for that Answer. Does he agree that it is very much the business of government to consider carefully, when major purchases are made by major British companies, that the long-term national interest takes priority over the short-term commercial interests of the company? Notwithstanding that point, are there any plans for an agreement with General Electric to establish an engine manufacturing capability within the United Kingdom now and in the future?

§ Lord Reay
My Lords, it would not be in the national interest for the Government to try to second guess the judgment of private companies or to dictate to them particular courses of action. With regard to my noble friend's second question, that is a matter for the commercial judgment of the company concerned.

§ Lord Dean of Beswick
My Lords, how many jobs—in man hour terms—have been exported to America as a result of what some of us believe to be a regrettable decision, bearing in mind unemployment levels in manufacturing? Is not one of the worst aspects of the decision that it may well threaten the next generation of aero engines to be produced in this country?

§ Lord Reay
My Lords, with regard to the employment implications, this is not an engine that is in production. Any employment implications will depend upon the number of orders that the engine gains, and in that respect there is all to play for.

Lord Bruce of Donington
My Lords, is the Minister contending, on behalf of Her Majesty's Government, that anything done by large privatised industries is thereby automatically in the national interest?

§ Lord Reay
My Lords, I am saying that in this instance it is for British Airways to decide what is in the best interests of its customers and shareholders.

The Earl of Halsbury
My Lords, will the Minister confirm that the Japanese found so astonishing the decision that a British airline would not place orders for engines with a British engine manufacturer that they concluded that there must be something wrong with the engine, and consequently did not place an order for it themselves?

§ Lord Reay
My Lords, I understand that All Nippon Airways was unwilling to be the first airline to choose the Trent for the Boeing 777 after British Airways had decided not to purchase it. However, it may be worth pointing out that a number of major airlines have yet to make decisions about whether to buy the Trent engine. They include Cathay Pacific, which is a committed supporter of British industry; American Airlines, which chose Rolls-Royce engines for the Boeing 757; and Delta Airlines. Thai Airways International has decided to purchase six B777s, plus six options, with Rolls-Royce Trent engines.

§ Lord Molloy
My Lords, in view of the fact that worldwide Rolls-Royce is acknowledged to be a great firm with a great engine, and that the workers and specialists in the industry are also recognised to be great experts, could not the Government show at least a little concern for the national interest and talk to Rolls-Royce to see that such an abominable event does not recur and that the Rolls-Royce engine maintains the name it so richly deserves—a good British name? Will the Minister tell us what is wrong with having a good British name?

§ Lord Reay
My Lords, British Airways is also part of British industry, with a turnover last year of £5 billion. To determine whether British Airways' decision was in the national interest would require a balanced assessment of the benefits to British Airways on the one hand and the cost to Rolls-Royce on the other. That is not something that I can do.

§ Lord Tombs
My Lords, I must first declare an interest as chairman of Rolls-Royce plc. Following BA's decision to buy the GE90, is the Minister aware 1419 that the next two choices of engine were made by committed GE customers—Thai Airways International and All Nippon Airways—and that neither selected the GE90 engine? The first, as has been said, chose the Rolls-Royce engine; the second the Pratt & Whitney engine, saying that it had been influenced against Rolls-Royce by BA's decision. They did not have any technical reservations about the engine. Is the Minister further aware that BA's sale to GE of its engine overhaul facility at Treforest gives GE control of a facility whose main business is the overhaul of a competitor's engines—in this case Rolls-Royce engines—an arrangement entirely without precedent in the airline industry?

§ Lord Reay
My Lords, the noble Lord makes an extremely good point with regard to the decisions taken by the airlines that he has mentioned. There is all to play for with regard to future orders for the Trent engine. As Sir Ralph Robins, the deputy chairman of Rolls-Royce, was quoted in the Financial Times this morning as saying: You can't read the whole market on two or three early 777 decisions". I entirely understand Rolls-Royce's disappointment over BA's decision about the sale of the Treforest engine overhaul plant. The sale is being looked into by the Office of Fair Trading under the mergers provisions of the Fair Trading Act with a view to assessing its impact on competition in the market for engine overhaul services and the supply of aeroengines.

§ Lord Williams of Elvel
My Lords, does the Minister accept that we on these Benches wholly endorse the thrust of the Question asked by the noble Lord, Lord Morris—that it is the Government's job to protect the national interest in these matters? We cannot allow great firms such as Rolls-Royce—the noble Lord, Lord Tombs is witness to this—to be disregarded by our own national airline when it comes to purchasing engines which are, without doubt, technically equivalent to other engines available on the market. Does the Minister further admit that the Government cannot merely shuffle off the sale of the engine maintenance plant at Treforest to the Office of Fair Trading? The Government themselves must take a view, and it must be a view that is in Britain's national interest.

§ Lord Reay
My Lords, with regard to the noble Lord's first observation, I cannot add to my original Answer. British Airways is a private, independent company. The selection of engines is a commercial matter for it. The Director General of Fair Trading will advise the Secretary of State in due course as to whether the acquisition of the plant at Treforest should be referred to the MMC. In those circumstances, it would not be right for me to make any further comment.

§ Lord Hailsham of Saint Marylebone
My Lords, since we are talking about the national interest, and in view of the slightly aggressive tone of the last question, may it not be in the broader national interest for the 1420 Government to maintain the principles for which they stand, which have always involved a measure of free trade?

§ Lord Reay
My Lords, I agree with my noble and learned friend.

§ Lord Ezra
My Lords, is not one of the issues underlying this matter the fact that as a result of the Government's privatisation programme there are now some large enterprises in the private sector whose decisions could well affect the national interest? That is a new development in British industry. In those circumstances, should not the Government retain some view and capability of expressing the national interest?

§ Lord Reay
My Lords, we believe that our privatisation programme has been in the national interest.