§ Order for Second Reading read.
§ 3.42 p.m.
§ The Joint Parliamentary Secretary to the Ministry of Transport and Civil Aviation (Mr. John Profumo)
I beg to move, That the Bill be now read a Second time.
This Bill has only two objects, and I venture to think that both of these objects will be generally acceptable to the House as a whole. Even so, my right hon. Friend the Minister of Transport and Civil Aviation has felt it would be better if I were to move the Second Reading so that he may himself be in a position to answer any points which may occur to hon. Members on either side of the House in the discussion which will follow what I have to say.
The first object of the Bill, indeed, the primary reason for it, is to increase the maximum amount which British Overseas Airways Corporation and British European Airways Corporation can borrow so that they may have the capital which they require to buy the best and the most up-to-date aircraft, which, of course, they must have if they are to keep their place among the world's leading airlines. This is set out in subsection (1) of Clause 1, which is the only operative Clause of the Bill.
The second object is to give B.O.A.C. specific power to borrow, with Treasury guarantee, from the International Bank for Reconstruction and Development and from the Export-Import Bank of Washington. I will explain in a minute or two why this is important in connection with the dollar financing of the Boeing aircraft which, as the House already knows, the Government have authorised B.O.A.C. to order. This second object is set out in subsections (2) and (3).
I do not think that the Bill need detain the House for very long. It will be within recollection that only a week or so ago we had a very full debate on the Reports and Accounts of the two Airways Corporations, and all hon. Members agreed that there was every reason to expect that the rapid rate of expansion of world civil air transport would continue, so far as anyone can see, into the future. It is 1386 important, and I think this was accepted on all sides, that the British air transport industry must, at any rate, be in a position to keep, and if possible to increase, its share of this international business with all its opportunities for obtaining foreign exchange and its unquestionable prestige value to our country.
Any expanding business must increase its capital one way or another, so it is only to be expected that more capital should be needed now by our two Airways Corporations. When my right hon. Friend announced, on 24th October, Government approval for B.O.A.C. to order 15 Boeing jet aircraft and the Corporation's intention to order further British jet aircraft, the DH 118, he warned the House that an increase in the Corporation's limit of borrowing powers would be necessary.
The finances of the two Corporations, their hopes of expansion, and the case for the purchase of the Boeing aircraft by B.O.A.C. were fully discussed in this recent debate, and, judging from our objective and amicable deliberations on that occasion, I believe that there is nothing controversial in the present proposals. I shall, therefore, confine myself to a description in general terms of the; objects of the three subsections of the operative Clause of the Bill.
Subsection (1) proposes to increase the. maximum borrowing limit of B.O.A.C from its present figure of £80 million to £160 million, and to increase that of B.E.A. from £35 million to £60 million. Perhaps I ought to explain that in proposing these new limits my right hon. Friend has attempted to cover the needs of the two Corporations for at least the next five-year period. Like all other first-class airlines engaged in international competition, the Corporations have to look as far ahead as five years for their aircraft needs and place their orders accordingly.
The basis on which the new limits have been assessed is fairly straightforward. Each Corporation's borrowing requirements is a net figure obtained by deducting from estimated total capital expenditure the sum which it should itself raise internally from obsolescence reserves, sale of aircraft, annual profits, and so on. These borrowing requirements must be assessed year by year so that each Corporation has at any time 1387 sufficient capital to meet its capital requirements, including, of course, progress payments on aircraft on order as they arise.
The new limits are designed to cover the year in which the Corporations' borrowings reach their peak. It will be obvious that much of the expenditure on new aircraft can be met only by fresh borrowings. The Corporations' business is constantly increasing, and the new aircraft required to carry additional traffic have to be paid for before they are in service and, therefore, of course, before they can start contributing to obsolescence reserves.
To take B.O.A.C. first, it will reach its existing limit of £80 million as a result of orders which it has already placed. I think that all hon. Members know of the 33 Britannias, 20 Comets, 10 DC7Cs and 14 Viscounts which are already on order. To the payments in respect of these aircraft we have now to add the borrowing requirements arising from the new orders for the 15 Boeings and a substantial number of new British jet aircraft, the DH118.
Until the negotiations between B.O.A.C. and the manufacturer are farther advanced, no precise estimate of the cost of B.O.A.C.'s order for the DH118 can be made. We have estimated, however, that the combined cost of the Boeings and of the DH118s to B.O.A.C. may be about £100 million. Taking all these orders together, B.O.A.C. will then be investing over £180 million in aircraft. To this we must add about £15 million for other capital needs, such as buildings and other equipment, making a total of nearly £200 million of capital expenditure. Internal financing will reduce this figure to a net requirement below £160 million.
Now, I come to British European Airways. The Corporation has on order 38 Viscounts of 800 series and 20 Vanguards and has an option on a further 19 Viscount 800s. During the next five years, B.E.A. expects to need to place orders for some helicopters and, possibly, for a small number of jet aircraft for its longer routes. Its present borrowing limit is £35 million and this will be needed for aircraft which have already been ordered. I cannot give precise figures for 1388 the further orders which will be necessary, but it is estimated that the net borrowings may reach £60 million during the next five years, and it would not be prudent to ask for a maximum below that figure.
In the recent debate, my right hon. Friend described the huge strides which air transport has made since the war and will continue to make in the foreseeable future. The scope of airline operation is continually expanding. New routes are being served and the introduction of lower fares has opened the possibility of air travel to an ever-increasing number of people. It is this which, I think, all who are interested in civil air transport would wish to foster as speedily as possible, so that people throughout the whole world who have not so far been able to afford the use of civil air transport should be permitted to do so in an ever-increasing number.
§ Mr. Paul Williams (Sunderland, South)
Did I understand my hon. Friend to say that he was uncertain, or unaware, of the basis on which the extra £25 million was being asked for?
§ Mr. Profumo
No, I did not say that. I said that it was difficult to state the actual amount of money which would be necessary for these new aircraft, but that it would be unwise for us to estimate that it would be below £60 million.
These cheaper fares have been made possible only by outstanding technical progress achieved in the design and production of large and more economic aircraft. One of the consequences of this rapid progress in design is that the equipment for the air transport industry needs replacement more frequently than the equipment for most other industries. Each successive type of aircraft becomes larger and more expensive.
At the same time, I think the House will agree that our Corporations must set their sights high. They have simply got to have the latest and best equipment. B.O.A.C, in particular, has a very difficult job before it. It must recover the ground which it has lost since 1954, when it suffered such a grave setback after the Comet disasters, and it must now go all out for the greatest possible share of all this new traffic. With the right equipment, both Corporations can achieve this aim and this short Bill 1389 makes it possible for them to go forward into the early 1960s, building on the high reputation which they have already earned.
I come now to the second object of the Bill as set out in subsections (2) and (3) of Clause 1, namely, to permit B.O.A.C—only B.O.A.C, not B.E.A.—to borrow, if need be, from the International Bank and from the Export-Import Bank, or from both, to finance the purchase of aircraft manufactured in the United States of America, together with spare parts and equipment.
As I have already said, we have the dollar financing of the Boeing transaction in mind in putting forward this provision. The Boeing aircraft which are being ordered will cost a very large sum in dollars, but as soon as they are in operation they will start earning dollars and over their full life they will earn far more dollars than are required for their purchase and maintenance. It will, however, be necessary to pay advances on the aircraft before they are even delivered, perhaps up to one-third of their total cost.
To minimise the drain on our dollar reserves and to tide over the period before the aircraft start earning dollars, it may prove desirable that the dollars should be borrowed and repaid later from the actual dollar earnings of the aircraft themselves. It has not yet been decided how this financing shall be arranged. It will be done by whatever proves to be the most advantageous method.
So that B.O.A.C. shall have the widest field open to it, we have looked into the legal powers of the Corporation to make sure that that field shall not be restricted by lack of the necessary legal authority or by doubts as to the interpretation of the law. B.O.A.C, of course, already has the same borrowing powers as other nationalised industries. It may borrow temporarily by overdraft or otherwise, by the issue of stock and also by way of advances from the Exchequer.
Those powers would cover most of the field open to B.O.A.C. but my right hon. Friend is advised that there is considerable legal doubt whether they would cover loans from the two banks I have mentioned—the International Bank and the Export-Import Bank—either of which might be able to offer advantageous 1390 terms. My right hon. Friend has been advised that the Corporation's existing powers to borrow temporarily or by issue of stock would not permit borrowing under the usual type of International Bank loan agreement, which is unlikely to be altered.
As regards the Export-Import Bank of Washington, the legal advice which my right hon. Friend has received is not as firm, but he is unable to be confident that power to borrow from this source exists under present legislation.
Because of the uncertainty, we wish to put the matter beyond all doubt by seeking specific powers, as we do in this Bill, to make it possible for B.O.A.C. to borrow from the two banks. The provision to borrow from these banks is, of course, a purely permissive provision. It does not tie B.O.A.C. to borrow from either of them should other sources of finance be available and prove to be more attractive. It merely gives B.O.A.C. power to borrow from the two banks should this course prove to be desirable.
Subsection (3) of Clause I may appear to be rather technical, but—
§ Mr. John Rankin (Glasgow, Govan)
I thought that the Minister might have a word or two more to say about the permission to borrow outside this country. Is that not to some extent taking away from Britain and into America business that might be carried on within this country?
§ Mr. Profumo
I did not say more because I hoped I would be clear to the hon. Gentleman and to the House. This is only a permissive power. I do not think that it will take outside this country business which might otherwise be done here.
I think hon. Members will agree that in an enormous deal of this kind, involving considerable dollar expenditure, the Corporation should be given the widest possible scope for its business acumen so that it may act in whatever may be the most helpful and beneficial manner for the country in general. It is simply because we are not absolutely certain of the legal position of borrowing if the Corporation wanted to use either or both of the two banks that we have felt that we should remove that difficulty and legislate accordingly. If the hon. Member has any doubts, and would like to 1391 go into them in a speech in more detail, my right hon. Friend will, of course, be able to give him any further information that he may require. I hope I have now made the position clear.
Clause 1 (3) may appear somewhat technical, but it is simply a corollary of subsection (2) and is necessary to give the Treasury power to guarantee the principal and interest on the new form of borrowing—from the two banks—just as the Treasury has power to give guarantees for other forms of borrowing. It will also enable the Treasury to guarantee any other charge arising from the loan, such as a commitment charge. A commitment charge which is commonly required by American banks, is a small additional premium payable annually on the portion of the loan which has not already been taken up.
By subsection (3), the Treasury's existing powers of guaranteeing loans raised by B.O.A.C. are extended in these two ways to loans raised from either of the two specified banks and to incidental charges which may arise in the case of loans from these banks. Those are extensions of the Treasury's powers of guarantee which naturally follow the extension of B.O.A.C.'s own borrowing powers.
These are the simple facts of a simple, straightforward but, I think, extremely important Bill; extremely important because, as I have said, it is absolutely necessary that both B.O.A.C. and B.E.A. should be in possession of the right sort of equipment so that they can fly all over the world, with their pilots having the knowledge that they have the best possible aircraft, and so that the Corporations are in a position to be able to vie with any other first-class airline in the world. I am sure that all hon. Members who constantly attend our debates on these matters will be with me and my right hon. Friend in commending the provisions of the Bill to the House.
§ 4.1 p.m.
§ Mr. F. Beswick (Uxbridge)
We are very grateful to the Joint Parliamentary Secretary for the very clear way in which he has explained the Bill, and I can assure him that we are at one with him in seeking to give every possible assistance to our air Corporations 1392 in not only holding but expanding our share of the world's air transport.
The first reaction of most people, I think, to the Bill and to the explanation which the Joint Parliamentary Secretary has given us was a slight gasp of astonishment at the figures involved. Buying aircraft is becoming a very expensive business, indeed. My mind goes back to the 1946 debates we had in Standing Committee on the Civil Aviation Act. I recall the hon. Member for Ayr (Sir T. Moore) saying that nationalisation would prevent some of the Service men who were returning from the war from going into the air transport business with their gratuities. I ventured to put to him at the time the thought that we should be very lucky indeed if we were able to buy one blade of one propeller with the gratuities which Her Majesty's Government were proposing to give to us. I think that even that estimate was probably optimistic, considering the way prices have risen.
It is interesting to notice that a DC 3 which could be picked up just after the war for £10,000 will now change hands at about four times that amount, at about £40,000, and that replacement of the machine will now be four times that, about £160,000, while the kind of aircraft we are now considering for these two Corporations will be in excess of twice that figure and probably up to as much as seven times that figure—that is, aircraft on the North Atlantic passenger services. So, big sums are inevitably involved, but we have a duty not only to examine the volume of the amount of money requested but the measures by which it is to be raised.
We are now considering the principle of borrowing for nationalised industries which was laid down by the Chancellor of the Exchequer in the last Finance Act. As I understand, from what the Joint Parliamentary Secretary says, and from what we have been told before by the Chancellor, the Corporations will now go to the Treasury not only for the capital sums required to buy aircraft but, when necessary, for their working capital when the revenue received is not adequate to meet their outgoings at any time of the year.
The first question I would ask the Minister, who, I hope, will answer it when he replies to the debate, is: how will this 1393 work out in practice? Is there to be a monthly limit on the overdraft, as it were, which the Corporations will be permitted? What happens at the end of the year? Are the outstanding loans in some way to be consolidated? Is the deficit which results from the year's working—and it would seem from what we are told about one Corporation, at any rate, that it now contemplates a deficit, certainly for the next year—to be lumped in with capital sums borrowed for purchasing aircraft and then funded in some loan stock? Or will it remain as an outstanding loan by the Treasury, to be paid for in such manner as is expedient or convenient to the Corporations in the next two or three years? What kind of a loan will it be? What kind of rate of interest will it attract? Will it be a fixed rate of interest or a rate of interest to be adjusted at the end of each year according to the market rates?
There has been some criticism by hon. Members opposite that the air Corporations are given an unfair advantage over their competitors in so far as the Corporations' financing is made easier and cheaper by this method. I think it is worth considering this for a moment. It seems to me a very curious criticism. It seems to me a virtue of public ownership rather than a fault that we can cut the cost of the money-lender. I can quite understand going out of our way to pay as high a reward as possible to the workers in the industry. I can understand our wanting to give the best possible service to those who use the services which the industry provides. However, I find it very difficult to appreciate the argument, which is sometimes advanced, that we should go out of our way to raise money at higher rates simply in order to not compete unfairly—as it is said—with other operators.
The fact is that the Corporations are, of course, competing not only with British independent operators, and, indeed, to a very small extent with British air companies: they are competing with foreign airlines. Therefore, I would say to those who may argue that it is an unfair advantage to the Corporations to enable them to raise money in this way that I think that that advantage is by no means unfair considering the resources at the disposal of some of the foreign airline operators with whom our own Corporations are in competition.
1394 There is a further argument which apparently finds favour in some quarters. It was advanced also from the Liberal benches when we were considering this matter some months ago. It is that if the public Corporations had to go out into the money market they would be subject to the discipline of the market. This seems to be not only jargon, but largely meaningless jargon. I wonder whether those who use it seriously intend us to believe that if the air Corporations went to the bankers the bankers would question them closely as to the utilisation of their aircraft or the costs of their administration, or whether they would refer to any rumour that the cabin service was deteriorating so as to be likely to lead in the future to some reduction in business.
Of course, the private money-lender is interested in only one thing primarily, and that is the security of the borrower, and it is only in so far as his security is affected that he is at all interested in the question of the usefulness or efficiency of the person seeking the loan. I cannot see that any private banking house would ever seriously challenge the security of these Corporations whether the loan is formally guaranteed by the Treasury or not, so all this talk about the discipline of the money market seems to be largely irrelevant when we are considering these two air Corporations.
However, though I doubt very much whether the bankers would exercise any discipline on such credit-worthy borrowers as the air Corporations I believe that Parliament has the duty to satisfy itself that the Minister himself is exercising this kind of discipline, and it is in that spirit I propose to put one or two questions to the Minister.
First, on the total sums which the Parliamentary Secretary mentioned to us. As far as I can gather, the total capital liability of B.O.A.C. at the end of another five years will be about £160 million. I ventured to refer three years ago, when we were considering the Air Corporations Act, 1953, which extended their borrowing powers, to the ratio of turnover of the two air Corporations as against their capital liabilities at that time. B.E.A. compared very unfavourably with B.O.A.C. and with foreign airlines. Its annual revenue was less than its total capital. It was costing rather more than £1 to attract £1 worth of business. I 1395 thought that that ratio was a little doubtful and ought to be considered. I am glad to see that this year the returns of B.E.A. show a distinct improvement.
The Report of B.O.A.C., however, shows a position that is nothing like so happy. Its capital at present stands at £56 million and its revenue at about £42 million. I presume that to some extent that is explained by the payments which it has made for aircraft for which it is still waiting. We ought to be told what are the prospects in respect of those aircraft. That sort of ratio as between capital and turnover cannot be accepted, I should have thought, by the House, but if we take the sums mentioned by the Parliamentary Secretary the Corporation, in another six years, will have a capital liability of three times its present size.
Has the Minister considered what the total revenue will be in about six years' time? Is he satisfied that it will be at least three times the present figure? Even if it is three times, it is inadequate to give us the kind of return that we want, because it will mean that the revenue will be about the same as the capital liability. The annual revenue of Pan-American and T.W.A. and most of the other foreign companies is significantly in excess of their capital liability. I hope, therefore, that we shall have from the Minister his thinking on what the expansion of business is expected to be over the next six years.
I appreciate the difficulty which the Parliamentary Secretary had when he replied to the debate that we had last Friday week, but I was hoping that today he would have given us some of the answers which he was not able to give on that previous occasion. I am still curious, for example, about that £354,000 worth of unused flight coupons which were so fortunately discovered in time for the last Report, and which turned a potential loss of about £200,000 into a profit of around £117,000. Not since the day in 1834, when someone found that pile of tallies in the Palace of Westminster, has there been such a remarkable find as this £354,000 worth of tickets which apparently someone had not used. I hope that the Minister will say something about that.
Can the Minister also explain the deficit of £360,000 on British West Indian Airways, and the £40,000 loss on 1396 the Bahamas Airways, which operates, I believe, only a Grumman Goose and a couple of other small aircraft? Are we being asked to authorise borrowings partly for subsidising the tourist industry, and simply making it possible for our tax-evading patriots of Montego Bay to travel a little more cheaply?
It is not enough to talk about the difficulties of re-equipment, because all airlines have this difficulty and have to face it without incurring a loss of this kind. I hope, therefore, that the Minister will explain how these losses were incurred and what steps are being taken in the future to see that none of the money which we are now being asked to authorise will go the same way as that £360,000. If we are to have these new aircraft and this large sum of money invested in the industry, we should ask, and be given some reply, about the expansion of the services. In what directions and how are we going to expand our services?
I want especially to press the Minister about his freight policy. I am sure that we have all been pleased to note the success of B.E.A. in getting more freight traffic, but what about B.O.A.C? I should like to ask the Minister a little more about Australian freight traffic. The Parliamentary Secretary said that an application for freight services to Australia was made by an independent company. Exactly when was that application made and why is there no reference to it, as far as I can make out, in the Report of the Air Transport Advisory Council? Every other application is listed there. I may conceivably have missed it but, as far as I can see, there is no reference to it in that annual Report.
§ Mr. Profumo
I attempted to deal with this point during our last debate, and I will put it right in one moment. Reference to the application did not appear because the application never reached a stage of being recommended and agreed to by my right hon. Friend. It got through the Air Transport Advisory Council, but was not acceptable to the Australian Government and never saw the light of day.
§ Mr. Beswick
That may well be, but there were a number of other applications which never saw the light of day, yet they are listed in the fourth column at the 1397 end of the Council's Report and some explanation is given, such as that one application was not approved, another was approved but was withdrawn by the company, and so on. But there is no indication that this particular freight service application did not reach the light of day. I still think that there should be a note in the Report of what happened.
But if the Australian Government have said that they will not permit a second United Kingdom operator to go into the Australian Continent, what is the position of the first operator, B.O.A.C.? Is the Minister pressing the Corporation to expand its freight services to Australia? Would he like to see the Corporation operating freight services to that Continent? In general, what is his attitude to the expansion of freight services by the Corporations? Do the restrictions which his predecessor placed on B.E.A. and B.O.A.C. still stand, or has the right hon. Gentleman given the Corporations the green light and told them that they can go ahead and start new freight services or expand and enlarge some of the freight services which they already operate? The Australian route seems to me important in this connection.
Would the Minister also take the opportunity of giving us a little more information about the expansion of the passenger services? To what extent is it planned that this money should be used to put B.O.A.C. back on the South American routes? How long does the Minister expect it will be before we can get back on those routes? He has looked ahead and has rightly said that we must look into the next decade for our aircraft requirements, but if he is planning aircraft over the next six or ten years he must have some idea of the routes over which they will fly. Therefore, what are the prospects of a British carrier on the South American route once more?
Here I ask again the question which I asked last Friday week and which I hope the Minister will take seriously. What chance is there now of getting the Princess flying boats into the air again? Has the idea been completely scrapped, or is the Minister still considering it? A few years ago it was felt that the Princess flying boat would be an economic proposition, and the B.O.A.C. undertook 1398 considerable research into the use of these flying boats fitted with Rolls Royce Conway engines.
Even with the additional cost incurred by the water bases. I still feel that, having built two of these aircraft, it would be feasible to put them into the air for a reasonable capital expenditure compared with the cost we are facing in connection with the Boeing aircraft. Therefore, I ask the Minister, who is looking after the civil side of aviation, whether he will reconsider the Princess flying boat before it is too late, and to see whether we can contemplate taking these aircraft out of their cocoons and putting them into the air.
When it comes to the question of buying new machines, we ought to have more information about the method of payment. To put it another way, to what extent are we being asked to approve a Bill which is intended to finance the aircraft constructor at least as much as the airline operator? In 1953, the Joint Parliamentary Secretary said:… in the national interest it is better that the Corporations, who can raise money at gilt-edged rates, should pay for their aircraft when they are delivered. If they did not, the manufacturers would be all the less able than they are now to finance purchases by overseas buyers and, indeed, by independent companies in the United Kingdom."—[OFFICIAL REPORT. 11th November, 1953; Vol. 520, c. 1032.]There we have the Parliamentary Secretary saying that these borrowing powers are designed in part to help the manufacturing industry. I am not saying that this is not in the national interest, but I feel that we ought to have the full facts.
A little earlier the hon. Gentleman said that we shall probably have to pay about one-third of the cost of the Boeing 707s before they are delivered. How does this compare with what we have to pay for the British aircraft we order? My information is that some of these machines are paid for completely before they are received. There is a deposit, then there are progress payments. To what extent is the full cost of the aircraft met before it is received by the Corporations or put into service?
As an example of what I am trying to elicit, can we be told something about the Britannia? Can we know how much money has been paid by B.O.A.C. for the Britannia aircraft, the first of which has 1399 still to go into service? If the figure is given, I should be surprised to hear that less than £2 million or £3 million has been paid out already by the Corporations. This represents capital already tied up, yet the aircraft are still not available.
Could the Minister also say whether the figure given by my hon. Friend the Member for Reading (Mr. Mikardo), a week ago, about the costs incurred by the Corporation on the Britannia is accurate? My hon. Friend estimated it to be £1½ million. Is it correct that the Corporation has already spent on development costs, and so on, a sum like that on this aircraft? Would that figure include expenditure on maintenance docks? I believe that docks have been constructed already for the maintenance of the Britannia, the cost of which cannot be less than £50,000, and they are lying idle as regards the maintenance of this aircraft. This represents a large sum of money tied up, and we are asked to provide more in this Bill. We ought to be able to assure ourselves that the Corporation is not carrying a burden which should be carried by some other organisation.
Having said that, I would say this about the Britannia. Like other hon. Members, I have had the opportunity of flying in the Britannia. Clearly, it will have immense passenger attractions. It will be a comfortable and quiet aircraft and, from all the figures available, it appears to be an economical one. We all want it to get into service as quickly as possible, but would the Minister tell us what guidance he is giving the Corporation as to when the aircraft should go into service?
After all, the Minister has the ultimate responsibility, not only for the Corporation but also for the Air Registration Board. Will this machine go into operation before the cause of the flame-out is discovered, or will it go into service before we have the answer to the fundamental trouble? Will it go into service when we merely have a method by which the engines are relighted?
§ Mr. Speaker
Order. It is with regret that I interrupt the hon. Member. But is this really relevant to the Bill, which is one for the raising of money? 1400 It is true that the hon. Member is entitled to ask how the money is to be used, but if we get into details on particular aircraft we are in danger of getting out of order.
§ Mr. Beswick
I must accept your guidance, Mr. Speaker, but I took the precaution of looking up some precedents. I noted that the debate on the previous Bill not only included a discussion of aircraft equipment, but also the facilities at the airports. All kinds of details were permitted, and I imagined that I was only following that precedent. I hope, therefore, you will accept that some of these matters are relevant to the Bill before us. Sums of money are being asked for, and these are the matters on which the money is to be spent. Can the Minister, therefore, give us some information about the conditions under which the Britannia is to go into full passenger-carrying service again?
I want to raise two other points on the question of the re-equipment of B.O.A.C., because it seems to me that the Minister has been a little complacent about the multiplication of aircraft types which we now have to contemplate. In the old days we said that the great difficulty for the Corporation was the fact that its costs had gone up because there was too great a diversity of aircraft types. Last Friday week the Minister told us that the Corporation had on order no less than seven different types and modifications of aircraft, in addition to the Boeing 707 which are also to be ordered. We have four principal aircraft types now operating, and also one or two other services are being operated by smaller machines. Is the Minister watching this danger? Is he satisfied that we are not laying up a store of trouble for the future?
I have just referred to the maintenance dock, which represents a high capital cost on one item alone. The more types we have, the more expensive it becomes to maintain each one, as regards spares, and so on. We may well find that this sum of money for which the Government are now asking will not even meet the Corporation's requirements, if it has to carry this great burden of spares which the use of all these types will entail. Has the Minister looked into that aspect of the matter? If so, will he give us the benefit of his thinking upon it?
1401 I want to return to the exchanges which we had about the additional type of machine which the Corporation is to buy in 1962, the DH118. I do not want to discuss this at any great length, because we had a fair exchange about it last time, but we should try to make the present procedure about the ordering of new aircraft a little more clear.
On 2nd November, the Minister of Supply said:It has always been made quite clear by B.O.A.C. that the Corporation was interested in aircraft with Transatlantic performance plus more flexible performance than is given by the large American jets. That is the specification dating back for many months, and such an aircraft is now being discussed."—[OFFICIAL REPORT, 2nd November, 1956; Vol. 558, c. 1803.]It seems a little strange, if this matter has been discussed for so many months, that not a word was said about it when we debated the Corporation's aircraft last November. Not a single word was then said about the requirement for the Boeing Transatlantic aircraft, or for this new machine, yet two weeks ago the Minister of Supply said that the Corporation had always had this requirement.
When we discussed the cancellation of the V.1000, there was mention of the Air Transport Requirements Committee, which apparently was of the opinion that the V.1000 was not good enough and which was already discussing something rather better. Did anything emerge from that consideration by that committee? Was any specification put to the manufacturers? If so, when? If nothing emerged from the deliberations of that body which, we are given to understand, represents not only the right hon. Gentleman's Department but the Ministry of Supply and the two Corporations, can we be told exactly what is the position of the committee today?
Did the specification of the DH118 come from the committee, or was it a separate requirement put forward separately and independently by B.O.A.C? If the latter case, is not the A.T.R.C. a body of doubtful value which is merely adding to the number of committees considering these matters and only a source of delay? Has it a job of work to do? If so, what has it done in this connection?
My hon. and right hon. Friends see no reason why the Bill should not go through 1402 within the rather tight time-table which the Government have laid down for it. At the same time, we hope that the Minister will be good enough to give us all the information possible on the issues which I have raised.
§ 4.34 p.m.
§ Mr. P. B. Lucas (Brentford and Chiswick)
I am always glad to follow the hon. Member for Uxbridge (Mr. Beswick), who takes so close an interest in air matters. I am especially glad to be able to follow him today, because he referred to the possible effect of these provisions upon the expansion of B.O.A.C.'s services. He talked about the Australian freight service, and he also mentioned the South American run. I am pleased that he referred to the South Atlantic service, because it is nothing short of monstrous that almost three years after the withdrawal of the Comets we have still not got a British flag-carrying airline on this route.
I do not make these remarks in any criticism of my right hon. or hon. Friend. The responsibility does not lie with them, but, nevertheless, I so much agree with what the hon Member for Uxbridge said. We deserve to have some information about the prospects of B.O.A.C. going back on to this route, and I hope that my right hon. Friend will be able to give us some details when he replies to the debate.
I want to refer to one of the significant points of the Bill. By giving B.O.A.C. the power to borrow from either the International Bank, or the Export-Import Bank, for the purpose of buying aircraft from the United States, we are at once calling into question the whole purchasing policy of the Corporation. Before we confer these powers and coolly vote authority to the Corporation to expand its borrowing from £80 million to £160 million—on paper, quite hideous figures in these days of the credit squeeze—we should halt for a moment to reflect upon the policy which we are now pursuing.
Any hon. Member who has listened to our debates on civil aviation, especially those on the Corporations' accounts, in the last few years, knows very well that one theme has been common to almost all of them. It is the continuing controversy over the purchase of American aircraft for the British Overseas Airways 1403 Corporation. This issue has again been brought very much to the fore by the provisions of this Bill and it would not, I think, be inappropriate to make one or two very brief comments upon it.
As to the immediate argument regarding the purchase of the Boeing 707s, which the financial proposals of the Bill are designed to cover, I will say only this. Once the V.1000 and the V.C.7 had been rejected last year, there was no commercial alternative to buying American, if we were to ensure that B.O.A.C. remained in the forefront of the world's operators. I very much agree with my hon. Friend that it is most important that B.O.A.C. should have the ability to buy the equipment which will keep it in the forefront of the world's airlines.
As things now stand, with Capital Airlines of the United States ordering 14 Comets, no great harm will be done by providing facilities for the purchase of 15 Boeings. After all, it has to be remembered that the Rolls-Royce Conway engines which will power these aircraft will represent about 50 per cent. of the total value of each aircraft.
On the face of it, therefore, the purchase of the Boeings look like a good commercial deal and I, for one, would not object to voting the necessary facilities to finance it. If the United States is prepared to order our aircraft, as Capital Airlines has done, no great damage will be inflicted on the industry by our purchasing American aircraft, provided, of course, that they are powered by British engines. There must be a good export content in such orders.
But having said that, we must surely now try to look beyond the early 1960s and into the period which lies almost a decade away. What should our ordering policy then be? Sir, it remains my conviction that some directive should be issued, saying that with effect from a given future date—say 1964 or 1965, if you like—the British Corporations will fly British aircraft exclusively. Rightly or wrongly, I take the view that unless a definite and decisive statement is made, with all the proper qualifications which would have to be written into it, in ten years' time we shall hear repeated many of the arguments which we have seen advanced during the last few years.
§ Mr. Ernest Davies (Enfield, East)
The hon. Member is suggesting that a directive should be given suggesting the purchase of British aircraft at some given date. What would be his attitude if the Americans gave the same directive to their airlines? Our export trade with Viscounts and other planes would cease.
§ Mr. Lucas
As I said, under present conditions, this should be a two-way traffic. If the Americans are prepared to order our aircraft I do not see any reason why we should not order theirs, with British engines to power them. But I want ultimately to see the orders given to the British aircraft industry, and British aircraft purchased by B.O.A.C. In the interim, however, I do not see any commercial alternative to buying American—now that the V.1000 and the V.C.7 have been rejected.
I feel most strongly that unless we lay down a definite statement to the effect that from a given date in the future we shall buy British, it may well be that we shall continue to hear the same arguments over the next decade as we hear today. Unless the Corporations are prepared to pioneer new types of British aircraft no one else is likely to do so. If the Corporations fly British there is a fair chance that others will follow.
That, surely, is the lesson we have learned from B.E.A.'s operation of the Viscount. It is the lesson which I hope we shall see repeated in B.O.A.C.'s operation of the Britannia. I should have thought that from the standpoint of the industry, and from the point of view of our exports and balance of payments position, a statement on the lines I have suggested might well represent a worthwhile contribution.
In any event, it would, I think, be quite wrong for us to assume that the Americans are necessarily going to have it all their own way with the Boeing 707s and the DC8s. It may well be that these aircraft will take their place in the van of the great airliners of the world. That must be a hope. But for what it is worth it is my guess that there will be a good many operational headaches and hurdles to be overcome before the 707s, and the later DC8s are fully proved.
It is quite true that they will have had the advantage of learning from our own cruel experiences with the earlier Comets. 1405 Certainly, they will have reaped the benefit of the Americans' own prudent and forward-looking policy of using their military transport command as the proving ground for their civil airliners of the future. But I am as yet quite unconvinced that if the best hopes—and, I repeat, the best hopes—of the long-range Britannia are realised, we shall be at so great a commercial disadvantage in the early 1960s as some would now have us believe. In this, I agree with the comments of the hon. Member for Uxbridge.
Sir, I believe that we should support this Bill; but I do not think that we should become reconciled or resigned to the view that B.O.A.C. will inevitably have to go on buying American for a long time to come. From what my hon. Friend has said of the prospects of the DH 118,1 hope very much that this aircraft will put an end to any such notion. B.O.A.C. is a British airline and it should ultimately fly British aircraft exclusively. I do not think that any great harm would be done by making such a statement now.
§ 4.45 p.m.
§ Mr. John Cronin (Loughborough)
I am very much in sympathy with the views of the hon. Member for Brentford and Chiswick (Mr. Lucas) in trying to increase the sales of the British aircraft industry, but I was rather surprised at his suggestion that the Minister should announce that after a certain date no aircraft shall be bought except from the British industry. That would give a monopoly to the British aircraft industry.
I should like the hon. Member to consider what would be the position. If the British aircraft industry cannot now produce suitable aircraft for the Corporations, under the stimulus of competition, what will it produce without any competition?
§ Mr. Cronin
Nobody is contesting the excellence of that aircraft, but that has been produced under competition. What the hon. Member wants to do is to give the aircraft manufacturing industry a complete monopoly in this country. That might be very good for the aircraft industry in the short term, but it would certainly be very bad for the Corporation. They would certainly be quite unable to get the machines which would compete with American aircraft.
§ Mr. Lucas
Surely the hon. Member must know that within the British industry itself there is going to be competition. What does he think that all the aircraft firms do when they are tendering? Surely there is no question of a monopoly. Competition exists, and it would surely exist under the circumstances which I have enumerated.
§ Mr. Cronin
I follow the hon. Member's argument, but the most important form of competition for the whole of the British industry—which is to a substantial extent co-ordinated—is competition with the American industry. The hon. Member must surely accept the truth of that. The Joint Parliamentary Secretary's statement this afternoon makes it clear that the American industry is competing much more effectively.
I leave that point now and return to the more general aspect of the debate. The Joint Parliamentary Secretary suggested that as we had had quite an extensive debate on civil aviation two or three weeks ago it was not necessary to go into matters more carefully now, and he rather suggested that the debate should be limited. I am surprised that such a rigid timetable has been laid down for the Bill. It contains some quite extraordinary financial provisions, and deals with sums which are really quite enormous and to which this House should certainly pay some respect.
We should first consider whether B.O.A.C. and B.E.A. will be able to carry the burden of the very heavy debt which they are about to take on. It is well known that the operating ratio of all airlines is a very high one. By the "operating ratio" I mean the proportion of operating expenses to total revenue. In airlines that ratio is very high and, as a result, they are all very sensitive to any decrease in traffic volume. The consequence is that they have a very high "break even" point.
Hon. Members will agree that B.O.A.C. is now rather below its "break even" point. We have heard that West Indian Airways and Bahamas Airways are well below the "break even" point. Any large increase of debt will greatly increase the fixed costs and therefore raise the "break even" point higher still, and that may well mean that they will be faced with very considerable financial difficulties.
1407 My hon. Friend the Member for Uxbridge (Mr. Beswick) pointed out that a large proportion of this money wall have to be borrowed at a very high rate of interest, which will put a severe burden on the Corporations. I hope that the Minister will make representation to the Chancellor of the Exchequer about the size of this burden. We are now in a time of boom; what will happen to B.E.A. and B.O.A.C. when times become harder and more competitive, when there is a decrease in the level of trade and a decrease in traffic?
Shortly there will be a very serious diminution in the amount of fuel oil available. Will that affect the air industry? Can it maintain its traffic volume if there is not sufficient oil? Is it affected by the continuing inflation? All these considerations add up to a burden which is hard to bear, and the Minister should consider measures to increase the profitability of operation of B.E.A. and B.O.A.C.
There are measures which could be put in hand without delay. If we decreased the running costs of these Corporations there would be more likelihood of a substantial surplus to finance the re-equipping of the Corporations. The Minister might therefore consider slowing down the expansion of the route mileage. Anybody who has studied the economics of the matter must realise that B.E.A. and B.O.A.C. are expanding their route mileage to a crazy extent, out of all proportion to what they can cope with. The American Civil Aeronautics Board has always exercised a very strong control of the expansion of route mileage. The Minister will be failing in his duty if he does not give equally serious consideration to a decrease in the rate of expansion of route mileage. That will bring about a decrease in flying and in promotion costs of a substantial nature.
Costs could be decreased also by more international co-ordination in the handling of traffic; in other words, if we could have an increase in the capacity-ton-mile per air station. That would bring about a very substantial economy and would greatly reduce operating costs.
Another matter to look at is the extravagant and wasteful competitive practices which are now in operation. Could not the Minister achieve an economy in that respect by means of some 1408 international agreement? For example, if one travels between Paris and London in one of the new, excellent Viscounts, one is offered a meal. It is not a very good meal, and a large proportion of the passengers do not want it. Why must it be thrust on them? Why should the airlines have to pay for these meals? That is an example of an extravagant practice.
§ Dr. Reginald Bennett (Gosport and Fareham)
Is it not a fact that that and other expensive luxuries about which the hon. Gentleman is speaking are merely by-products of the price-fixing ring for international air traffic, which will not allow competitive prices, so give-aways have to be introduced?
§ Mr. Cronin
That may well be the case, but if international authorities can co-ordinate their price-fixing they can co-ordinate their meal-giving. That practice has been going on for a long time.
There are other extravagant competitive practices which are operating against the interests of the consumer. The Minister should consider diminishing the help given to the independent companies, which are certainly having more favourable consideration than circumstances justify.
§ Mr. P. Williams rose—
§ Mr. Cronin
The other point which I wish to speak about is the high cost of maintenance of equipment in English airlines, compared with those of the United States.
§ Mr. Cronin
I most humbly apologise for that very serious slip. Of course they are British airlines. It is a mistake which is sometimes made south of the Border, and requires an apology.
The high cost of maintenance to which I referred could be decreased. I understand that British planes cost more to maintain than do American planes.
§ Mr. A. E. Hunter (Feltham)
Surely the hon. Gentleman will agree that the motto of B.O.A.C. and B.E.A. is "Safety First", all along the line.
§ Mr. Cronin
B.E.A. and B.O.A.C. have a superb reputation for safety, and no one would like to see anything done to diminish it. There is scope for economy without affecting safety. I do not pretend to be well-instructed in the technical aspects of these matters, but I am sure that many hon. Members have read "Economics of European Air Transport", written by very authoritative air economist, Wheatcroft. He suggests that there is room for an economy of up to 30 per cent. in operational costs in running European airlines alone. That is a very big figure, and even if it is possibly exaggerated it requires the Minister's attention.
I turn to the Bill. Clause 1 (2) relates to the purchase of United States aircraft, the 707s. The hon. Member for Brentford and Chiswick is a little mistaken in his figures. I understood him to suggest that half the cost of these aeroplanes was to be in sterling because they were equipped with Rolls-Royce engines. No support was given to that suggestion when the Minister replied recently to the hon. Member for Aberdeenshire, East (Sir R. Boothby), and said that the total cost was £44 million, of which £35 million would be in dollars. That is a very big figure. We have just heard the Joint Parliamentary Secretary say that Boeing aircraft will earn many times their cost in terms of dollars, but that is not the point. The point is that £35 million has to be spent in dollars.
As a result, our gold and dollar reserves, which are sufficiently tenuous now, will be further decreased by a very substantial sum. The Joint Parliamentary Secretary has not done the House a real service by trying to diminish the cost of this transaction. We should like to know from him—or perhaps he will instruct his right hon. Friend, in the legal sense of "instruct"—to ascertain whether this will be a once-for-all transaction or whether it is to continue.
We have heard about the V1000 contract which was cancelled last year. We have heard that the Britannia is still unsuitable for service. I gather that these Boeings have been bought to replace the Britannia. What is the position about the progress of the Britannia? I know that these are detailed points, but I think that they are most relevant to Clause 1 (2).
1410 One gathers that the Britannia suffers from a mysterious disease called "flame-out"; that is, that ice gets into the combustion chamber and puts out the flame. If a Britannia which has a full pay-load has that trouble in three of its engines it is on its way down. It would appear that perhaps the most suitable rôle for the Britannia at present would be for it to be sold in the export market, as a troop carrier to a potential aggressor. It certainly does not serve any very useful purpose to us now.
What is to happen about the Avro Atlantic? What is to happen about the H.P.97? All these are potential rivals of the Boeing. I think that the Minister should give some answers to these questions. My hon. Friend the Member for Uxbridge has asked about them in more detail, but these are matters about which the House wants to know before it goes on with this quite enormous dollar expenditure.
As time is pressing, I will continue no further, except to say that one feels the whole time that the keynote of this debate is that the nationalised air lines B.E.A. and B.O.A.C. are doing very fine work, and if they are being let down at all, they are being let down by the private enterprise British aircraft industry.
§ 5.2 p.m.
§ Dr. Reginald Bennett (Gosport and Fareham)
I will not follow the hon. Member for Loughborough (Mr. Cronin) through his rather wide range of subjects. I propose to touch on only one of them in the very few moments during which I shall detain the House. I had my chance on Friday a fortnight ago and I do not wish to inflict any lengthy dissertation on hon. Members now.
There is one point which I wish to put. Obviously we all welcome the Bill. It will do no more than is necessary. The growth of traffic in recent years has been such that obviously we are bound to encourage the Corporations to grow. We must recognise that the Corporations' commitments are to be doubled in the next five years, and that is no more than recognising what has already taken place because the Corporations are already committed to that extent. What is not, I think, always known is the extent and speed of the growth of the traffic which 1411 will lead to the need for some new considerations about our future programmes in aviation.
I have here a copy of the Annual Report of the Council to the Assembly of the International Civil Aviation Organisation held last year at Caracas. There are figures and graphs in the front of that document which show the actual growth and which may be of interest to hon. Members. If we go back twenty years, we find that passenger miles in 1935 were 606 million as against 38,530 million in 1955. On the same relationship, that makes a multiplication by 60 in 20 years. Looking ahead, I have another document which shows a forecast. It is the issue of American Aviation for 27th February last. This is a forecast by Mr. Larsson of Canadair who has made a very careful study which suggests that as against 38,530 million scheduled passenger miles in 1955, in 1970—fifteen years ahead—world transport will be running at 147,225 million; that is, it will multiply by approximately 3.8, or nearly four times, in the next fifteen years.
If we concede, with the hon. Member for Loughborough, that B.O.A.C. has already excessive route mileage, second only to France, we have to think how we are to run the British share of British aviation in the future. What is the policy to be? If the Corporations are already near their maximum size, who is to run British aviation? Are there to be more Government corporations or is the private sector of the industry to be given more work to do? If they are kept back, they will not be able to manage the proportionate share of the work—four times as much in the next fifteen years. I want to know what my right hon. Friend is doing about this. Does he propose to open any doors which are at present shut? Many believe that perhaps he is not. One thing is relevant to this: are we to see, in their future commitments, the Corporations still including the obsolete aircraft which they have replaced with the new machines for which the finance is now being raised? There is a certain amount of disquiet on that ground.
For instance, it has come to my ears that the second-hand price of B.E.A.'s Ambassador aircraft has suddenly shot 1412 up from £90,000 to £140,000, a sufficiently prohibitive figure to make it clear to any unbiased observer that the Corporation must intend to retain those aircraft when it has its new Viscounts or developments. Are we to find when B.O.A.C. has its Britannias—which I am happy to see from a visit to the factory last week appear to be completely over their "flame-out" trouble, although they cannot stop the ice collecting in the intake—that it intends to hang on to the poor old Constellations and Argonauts which it has at present? Is it to extend its mopping-up operations downwards into the somewhat second-rate field which is all that is allowed for the independent operators?
I should like to know what the Minister's policy is to be about the future expansion of the British Civil aviation industry when it is quite clear that the existing Corporations have reached almost the biggest reasonable limit of size.
§ 5.8 p.m.
§ Mr. John Rankin (Glasgow, Govan)
I am sure that my hon. Friend the Member for Loughborough (Mr. Cronin) will forgive me if I say that I find it difficult to support his reference to extravagant practices as providing a source of economy in the work of the Corporation. During the autumn I travelled 10,000 miles with B.O.A.C. and a smaller distance with B.E.A.C.—to Amsterdam and Copenhagen with B.E.A. and from Hong Kong home by B.O.A.C. I must confess that I found in what was a fairly long journey little evidence of extravagant practices in the serving of meals. I can say that I found a great deal of attention paid to the comfort of the passengers during the flights by crews which, in my view, were at the very minimum of strength. I do not see that any possible economy could have been effected by reducing the number of those servicing the aircraft. My hon. Friend and I will have to disagree on that as a source of economy in the work of the Corporations.
§ Mr. Cronin
I was not suggesting that there should be any reduction in the crews, but merely in the general facilities which are not very necessary.
§ Mr. Rankin
However, we will let that matter remain as it is.
I am sorry that the hon. Member for Brentford and Chiswick (Mr. Lucas) is 1413 not now in his place, because I wanted to make a reference to what he said. He raised an issue which is fundamental to part of the Bill, in that we are guaranteeing a large part of the new capital for the purchase of aircraft in America. I do not want to enter into the argument, because it seems to me that the Government have taken a proper attitude to the controversy. When the Joint Parliamentary Secretary introduced the Bill he said that the policy of the Government was to buy the best and most up-to-date aircraft. I fail to see how one could criticise that. If we are to buy the best and most up-to-date type of aircraft we must buy aircraft where they are available. If they are available in America and not in Britain we must buy them in America. If they are available in Britain they will be brought in Britain.
It is not merely a case of buying British or buying American; it is a case of buying the most up-to-date type of aircraft we can get wherever those aircraft are. In that of course there is a challenge to the productive side of our own industry. The Minister has stated his policy. It is up to the productive side of the industry to provide the best and most up-to-date type of aircraft. The purpose of an aircraft is to carry passengers. We have to carry them as comfortably and as speedily as possible and with all the efficiency, in addition, which can be added in the serving of the aircraft. That must be our aim. In that way we shall attract passengers and thereby help to reduce fares.
When the Joint Parliamentary Secretary was introducing the Bill he referred to the various types of aircraft which were being bought. He referred to the Boeings, the Viscounts, the Britannias and so on, but I never heard him say a word about the Pioneer. That is essentially a Scottish product. As a Scottish Member, naturally I want to see the productive side of the industry in Scotland reinforced. Under the Bill we are to double the amount of money which B.O.A.C. can spend and to increase by £25 million the borrowing powers of B.E.A.C. Naturally I want to know how that is to affect Scotland. We are concerned in this matter. I should like to know what purchases there have been of Pioneer aircraft and for what purpose they are to be used.
1414 The Joint Parliamentary Secretary said that as the industry develops machines will get bigger and bigger. That is happening now. If the machines are to get bigger, of course landing strips must get bigger also. That raises a point which interests many of us in Scotland. In my movements between Prestwick, Renfrew and London I have been hearing that sometimes passengers travelling from London to Prestwick cannot depend on being taken to Prestwick because, if there is a certain velocity of wind from a certain direction, the machine is diverted and goes via Shannon, with the result that internal passengers are prevented from completing their journey that night. Apparently, the reason is that the third runway at Prestwick is not meeting the demands we expected it would meet. I ask the Minister what is the position at Prestwick now? Is the third runway able to take all the machines that wish to come in?
It is no use merely developing the operating side of the industry—as of course we must. As machines get bigger, runways must be provided to enable them to call at airports at which they should call. I hope we shall have that third runway in due course. I thought it was more or less finished and that the controversy was over, but evidently that is not so. I hope that the Minister will be able to say something about this when he replies to the debate.
If a machine wishes to come in to the runway there must be a control tower but, so far as I know, the new control tower at Prestwick is not fully meeting its purpose at the moment. Evidently the new control tower is not yet functioning. I hope that the Minister will also say something about that and about the question of terminal buildings. Those are all essentials in the development of the passenger side of the business; they are absolute essentials. I am raising these matters because the future of Prestwick as a passenger airport is not quite so secure as many of us imagined a few months ago. There is a feeling that it is not getting the attention which it ought to have.
I hope that the Minister will be able to reassure me on those points; that Prestwick will remain the second international airport to London, and that he will see to it that all facilities necessary but 1415 now apparently lacking for receiving large aircraft at Prestwick will have his attention in the very near future.
§ 5.18 p.m.
§ Mr. Farey-Jones (Watford)
The fact that my right hon. Friend has presented this Bill to the House emphasises a fact which hon. Members in all parts of the House have to face. The international position of airline operation today is quite a serious one. It is estimated that in the next five years traffic will double and receipts may automatically double themselves, but we have to face the most unpleasant fact that the British share of international traffic is not increasing proportionately. It is decreasing.
The undeniable fact is that we have created a monolithic monstrosity which should be turned into a holding company. In the holding company there should be at least twelve completely independent divisions, perhaps controlled by the holding company, and each of those units should have a maximum route mileage of 25,000 miles instead of the 90,000 miles of B.O.A.C. today.
There are certain salient facts to be borne in mind. On behalf of the International Air Transport Association, in creating which I had the honour to play some small part, a study has been produced which calls attention to four facts, which I propose to quote. The first statement is that, on the average of all the world's airlines:Working capital amounts to the equivalent of only one to one and a half months' operating expenses … it is clear that there is no margin of funds readily available within the industry itself for the purchase of new equipment.I presume that is why we are stepping up these borrowing powers from £80 million to £160 million.
As regards the capital position, the study states:It is evident from the amount of working capital that such long-term debt and earned surplus as exist are already fully employed in the business and there are no free funds available for expansion.On the turnover of capital, the study states:The ratio of operating revenues to capital employed for non-United States carriers over the period 1947–53 has remained around 130 per cent. For industry as a whole it is about 150 per cent.1416 With regard to the ratio of operating profits to capital employed, the study states:It is abundantly clear that the international operations, with which I.A.T.A. is primarily concerned, have not as yet shown any satisfactory return for the capital invested.The last sentence is of vital importance to the House. The return in the case of B.O.A.C, according to figures produced this year and in previous years, is about 2½ per cent. The Chairman himself, in a discussion with news correspondents, admitted that it ought to be in the region of 15 per cent.
How can we possibly expect better results from a top-heavy organisation, which is what it obviously is? It has a route mileage which it cannot operate efficiently. I would remind hon. Members that I.A.T.A. has already come to the conclusion—it has been stressed by several right hon. and hon. Members in previous debates—that if one has too large a route mileage, one automatically produces inefficiency and sows the seeds of one's own undoing. Having spent a lifetime in air transport, I can confirm that.
What should be done? I have already hinted at it. If B.O.A.C. and B.E.A.C. are to play their part during the next fifteen years in the development of increased revenue for British air transport, we must have an approach fundamentally different from that represented in the Bill.
One hon. Member said it was very sad that there was still no British air service to South America. Why does not the Minister invite independent operators to run a service to South America and make some of the capital available? They could come under the umbrella of a holding company, which B.O.A.C. could become.
The hon. Member for Govan (Mr. Rankin) always goes into these matters very strongly in the interests of Scotland. I do not blame him, for in Prestwick Airport there is a magnificent result of Scottish tenacity and brains. That leads me to ask why B.E.A.C. does not do something for civil aviation, in, for instance, the Principality, where civil aviation appears to have died? The Welsh airports are not being used, and there are no helicopter services there. The Joint Parliamentary Secretary referred to the possible provision by B.E.A.C. of helicopters in the foreseeable future. We 1417 have heard nothing about how they are to be used. Are they to be used on intercity services in the Principality or Scotland, or are they to be reserved for a service between London Airport and Westminster?
If the result of passing the Bill is to perpetuate B.O.A.C. in its present form, then we shall be holding an inquest on the Corporation in five years' time.
§ 5.26 p.m.
§ Mr. A. E. Hunter (Feltham)
I welcome the opportunity to say a few words on the Second Reading of this Bill. Before I speak about the Bill itself, I should like to take up some of the points made by the hon. Member for Watford (Mr. Farey-Jones).
The hon. Member should bear in mind that the Corporations are only ten years old. It is a remarkable achievement that in ten years they have grown to their present size and that they are operating on every route in Europe and on most routes throughout the world. Since they were formed in 1946 they have set up a great record of progress. I believe that their rate of increase in the number of passengers carried is more than 25 per cent. each year.
The hon. Member asked why, if they were doing so well, the Corporations should be asking for greater borrowing powers. The answer is that they have been forced to come to the House with a Bill, because it enables them to buy jet airliners in the United States. If the British aircraft industry had been in a position to supply long-range aircraft to B.O.A.C. the Bill would not be before the House.
I am not criticising the Minister for bringing forward the Bill. My hon. Friend the Member for Uxbridge (Mr. Beswick) and other hon. Members are right when they say that we want the best and most up-to-date aircraft for B.O.A.C. We want to make air travel cheaper so that all classes of the community can take advantage of it.
At the same time, I think we have the right to criticise the aircraft industry which has placed B.O.A.C. in this position. Our aircraft industry must take its share of the responsibility. I know many employees and officials of B.O.A.C. They are very disappointed that the Corporation has been forced to go to America 1418 to buy 15 jet airliners and would much rather the Corporation had bought British aircraft had our industry been able to produce them.
I am not saying that we do not want to buy American aircraft, but I consider that it is fundamental to the Corporations that there should be an efficient aircraft industry behind them in this country to supply air liners for their long-distance nights. Would anyone suggest that we should construct railways in this country and go to America to buy the engines? Of course not. Why should we operate airline Corporations and go to America to buy the airliners? I plead with the Minister to make sure that this does not happen again. Apart from our low dollar reserves, we are a great industrial nation.
My hon. Friend the Member for Uxbridge mentioned the Britannia. I do not want to criticise the Britannia too much, but it has not a very good record; £18 million of public money has been spent on the Britannia. This is not the fault of the Minister of Transport, but the figures were given to me by the Minister of Supply, who must bear some responsibility. I do not want to attack him tonight, because he is not present, but he must bear some responsibility in this matter. Whenever hon. Members on both sides of the House have endeavoured to get information about the Britannia, the Minister has always shown resentment and been very reluctant to give any information. I am glad to see that my hon. Friend the Member for Uxbridge nods his head in agreement with my comment.
Although £18 million of public money has been spent on the Britannia, it is not yet in service. From the Ministry of Supply, it almost seems to be sun tomorrow but never sun today for the Britannia. I very much hope that it will be flying soon and that the sun will be shining on the Britannia as it crosses the Atlantic. So far, however, we have seen no result for the many years which have been spent on it, and this places B.O.A.C. in a very poor position by comparison with the American airline services.
We want to help B.O.A.C, and therefore I do not oppose the Bill, but I hope very much that the Minister of Transport will ensure that the aircraft industry 1419 stands four-square behind the airline Corporations in the future. We want to make these new services a great success in this country. The employees want to make them a great success. We want to make sure that air travel embraces all sections of the community. Let the Minister of Transport make sure that he gives the airline Corporations the tools with which to do the job.
§ 5.33 p.m.
§ Mr. Paul Williams (Sunderland, South)
I am glad to follow the hon. Member for Feltham (Mr. Hunter) because it seems to me that one point which he made should be questioned and, if possible, denied immediately. He said that but for the fact that B.O.A.C. had to go to America for aircraft we should not have had this Bill. Personally, I do not believe that to be true; I believe that we should have had the Bill in any event, although perhaps in a slightly different form, perhaps without reference to the Export-Import Bank. If the hon. Member's contention is true, why does B.E.A.C. need £25 million more? I think the suggestion that the Bill is provoked by the fact that the aircraft industry of this country has temporarily not met the needs of B.O.A.C. does not bear examination.
The hon. Member also said that the Corporations had achieved magnificent development over the last ten years. No one can deny that, nor can anyone deny the very simple fact that, being the chosen instrument, they have had reserved to them the high-revenue section of the market, while other people, struggling along on their own money, have been restricted to the low-revenue section.
§ Mr. Beswick
Surely the reverse is true. The Corporations have had to operate services as a national duty and not because they have been producing revenue.
§ Mr. Williams
The hon. Member, who has much longer experience of this industry than I have, knows that to be partly true but it is also true that the Corporations make their livelihood from the high-revenue section of the trade which is the majority of the work which they do.
1420 I was also very pleased by the remark of the hon. Member for Govan (Mr. Rankin) that there was no extravagance in the meals provided on the aircraft. I can only assume that he was helping to promote the export of a product of his native land.
§ Mr. Williams
I will turn in a few moments to the question of the £25 million extra being provided for B.E.A.C. but I should like first to disclose a private interest in this matter for since I last spoke in a civil aviation debate in the House have become closely associated with one of the independent airlines. Perhaps I may previously have had prejudiced views, as the hon. Member for Govan probably feels, and it may well be that now they are even more prejudiced.
Personally, I have no particular objection to the extra borrowing powers being afforded under the Bill to B.O.A.C. I think that that is an inevitable result of the bad planning and the failure of long-range planning in the years gone by and of the Government's failure a year ago to take the right decision on the V.C.7. In relation to B.O.A.C. we should press a question which a number of hon. Members have already put—what is the state of the Britannia? How likely is it to be flying for B.O.A.C, and how soon? No longer can we afford, from the national point of view, the ominous silence on the state of affairs of B.O.A.C.
I turn quickly to B.E.A.C. and the suggested increase in its borrowing powers. As the Parliamentary Secretary said, these are being raised from a limit of £35 million to £60 million. On what basis is this change being made? I do not believe we have had a sufficently clear definition yet of the basis on which that extra £25 million is computed. Indeed, one might almost say that the cry of the bankrupt throughout the ages has been, "Give me another £25 million and I can make a success of my show". That is easy if one can dip into the Government's kitty. I believe that my right hon. Friend would say that at the moment the Corporation is making a profit, but I would query that. What is the position of B.E.A.C? Will it make a profit in this current year, as opposed to the Accounts which we were reviewing a week ago? Is it not likely that it will in fact show a loss, and 1421 perhaps even a considerable loss, in this present year—a fact which hon. Members on all sides of the House would regret.
If the cry is, "Give me another £25 million and I will make a show of it", I think we should look a little more carefully at the details which I hope my right hon. Friend will give in a few moments. What control has Parliament over the £25 million extra borrowing powers which we are giving to B.E.A.C. today? Are we to pass the Bill, perhaps amended in Committee, and then say, "Good-bye"? Or are we to have an annual scrutiny of the position? I do not mean an annual scrutiny like that which we had a week ago when we looked at the Reports of B.O.A.C. and B.E.A.C. That is a postmortem, and I do not believe that a postmortem is enough. Are we to have an annual debate in which we can examine these details?
I want to ask my right hon. Friend whether in the Bill we are giving permission to B.E.A.C. to over-borrow in order to crowd out internal opposition at home. In view of the prejudiced state in which I live and to which I referred a few moments ago, it may be that I have a lurking suspicion on this matter, but unless I can be assured—and, I believe, unless the House can be assured—that B.E.A. is not in fact over-borrowing, there will be at least one still small voice uncertain about where this Bill is going—whether it should go forward or out altogether. It is not good enough for the House to vote £25 million more in borrowing powers to B.E.A. unless we have a great deal more information about the basis of that calculation.
An hon. Member said earlier in the debate that he wanted the Corporations to fly all over the world. To fly is not enough, even for a nationalised corporation. I submit to the House that the objective should be to fly and to fly profitably.
§ 5.39 p.m.
§ Mr. G. R. Strauss (Vauxhall)
It is a pleasant change to debate in the House a transport Measure which is almost completely uncontroversial. We have had many debates during the last year in which passions have run rather high and there has been strong feeling on all sides. Even the last Bill, the Road Traffic Bill, contained questionable Clauses which gave rise to a number of rather heated debates.
1422 All the evidence this afternoon, except possibly for the views expressed by the hon. Member for Sunderland, South (Mr. P. Williams), suggests that the House is behind the Government in introducing the Bill and that its main purpose is uncontroversial.
I do not think that one can say that it is a Measure on which one can congratulate the Government, any more than one can criticise it. If the Corporations are to continue to live and prosper, it is really an unavoidable Measure, and we must consider it in that light. It is the duty of the House to scrutinise carefully, not so much the Measure itself but the purposes for which the additional loans which the Corporations require are likely to be spent.
The House, indeed, has taken that opportunity in full measure. Hon. Members on both sides have asked a number of questions. My hon. Friend the Member for Uxbridge (Mr. Beswick) took the lead and asked at least twenty questions, all of them exceedingly pertinent and relevant, and other hon. Members who followed have asked many more. The Minister will have about sixty questions to answer if he is to satisfy the inquisitiveness of all hon. Members. I want to add a modest one or two to those that have been asked, some of them not new but which I wish to underline.
First, I should like to ask a question in a direction rather opposite to that put by the hon. Member for Sunderland, South. In the case of B.O.A.C, is not the Minister, in putting on a limit of £160 million, not drawing rather too tight a figure? The Joint Parliamentary Secretary told us that, according to his calculations, he thought that, at the optimum point, B.O.A.C.'s requirements would be just under £160 million. If he is planning five years ahead, I think that he would be wiser not to rely on such a tight balance-sheet, but to allow himself a little leeway.
If he thinks that the requirements are likely to amount to just under £160 million then, in this uncertain world, I should have thought that it would have been wiser to have asked for borrowing powers of £170 million or £180 million. It may be that the Minister has good reasons for believing that £160 million is all that he will need during those years; and we will be very interested to 1423 hear his reasons. Nevertheless, from what has been said by the Joint Parliamentary Secretary, I should have thought that his figure is a little too low.
Another question that I have to ask is this. I assume that all these borrowings will, as have the borrowings of the Corporations in the past, come under Treasury guarantee, and that there is not likely to be any change in that direction. I have no reason to anticipate that there will be such a change, but we know that the Government's financial policy is liable to alteration. For instance, there has been a change of view in regard to local government finance. It would be unfortunate if the Corporations had to go to the market to borrow at the existing market rate in order to finance their development. It is desirable that we should have an assurance from the Government that such action is not contemplated, and that all these future borrowings will come under Treasury guarantee, at the lowest possible rate of interest, so as to give the Corporations an opportunity to make a reasonable return on the capital involved.
When the Minister came forward with the very large proposals for the modernisation of the British Transport Commission's railways, we were told what the amount required by the railways would be over a period of fifteen years, and I think that the figure was £1,200 million. We were later given a rough estimate as to what this would mean from the point of view of revenue, in order to show that, at the end of the period, the expenditure would prove worth while, and that there would be an annual profit as a result of this very big capital expenditure.
The estimate had to be made over a period of fifteen years, a very difficult matter. Personally, I have my doubts as to the accuracy of any such estimate, and whether it is not likely to be proved either optimistic or pessimistic. However, we were given a rough estimate of what the profit or loss was likely to be from the investment of this substantial sum of money which, for the most part, will be new capital. I believe that £400 million out of the £1,200 million was to be in the form of new capital.
I think it would be reasonable for the House to ask the Corporations to give 1424 us similarly some rough estimate of the result of the new capital which they require, amounting to an additional £80 million in the one case and £25 million in the other. Again, we should have to take any such estimate with every reservation, but I should have thought it proper, and following precedent, if they said "This is the capital we require; and we estimate, on the past and existing conditions, and as far as we can see into the future, that the result of this extra capital, and of these new planes which we want to buy with it, will be an additional annual revenue of so much, and a profit of so much." We have had no such figure, and I think that we should have had it. I wonder if the Minister of Transport can either give us such a figure, or tell us why the Corporations have not provided him, and us, with it?
The other two questions that I want to ask have already been put by my hon. Friend the Member for Uxbridge, but I should like to endorse them and to press the Minister to give an answer to them. What are the prospects for developing the South American route, not through some private company, as the hon. Member for Sunderland, South suggested, but by B.O.A.C.? It really seems monstrous that practically every other European country which runs an airline has a route to South America, but that we have not. We know the reasons which, in the past, forced B.O.A.C. to abandon that route. They were regrettable, but that is history and I shall not go over it again.
I do ask the Minister to give us some assurance that it is the purpose of B.O.A.C. to start such a route again as soon as possible. Is it contemplated that out of this additional £80 million which B.O.A.C. is to borrow now, it will be possible, indirectly, may be—using some other planes or such resources as it may have—to develop a route to South America during the next five years? Can the Minister tell us the present position and the prospects in regard to this route?
My final point is, again, one which has been put by my hon. Friend the Member for Uxbridge, but I have almost a personal interest in it. Is there any chance of the Princess flying boats being brought into operation? I say that I have a personal interest in it, because, 1425 as Minister of Supply, I spent a good part of the few years that I held that post in trying to save those flying boats from obliteration. On several occasions, the powers that be said, "Look here, we ought not to go on with this proposal. It will be abortive expenditure." They gave one reason or another for saying so. I felt very keenly that we should go on with them and put them in the air as soon as possible.
I believed that there was a great possibility that these, or similar, flying boats might develop into the aircraft of the future, and might prove to be more popular than any other type. We know what the present position is; it is an exceedingly regrettable one. Incidentally, I might mention that my predecessor responsible for aircraft development—Sir Stafford Cripps—had a similar belief in the future of these flying boats, and supported me when he was Chancellor of the Exchequer. I went to him as Minister of Supply and asked "Can we go on with these aircraft, which will cost a certain amount of money, in spite of the fact that there is no requirement for them? Will you nevertheless provide the money for completing their construction? "He said "Certainly," and was always enthusiastic about these planes, and anxious that they should be developed and put in the air. Can we be given any information now that they will one day fly so that we may see what they can do and whether the hopes which have been held about them are justified or not?
Those are the questions which I wanted to ask, and I think the Minister has got quite sufficient to answer without having any additional ones. I would add that the Government are, in my view, right in taking an expansionist and optimistic view of the future of civil aviation and in doing everything to ensure that the Corporations will be able to cope with with what I believe to be a steadily growing traffic over the next five, ten or fifteen years.
We have been given some figures by one hon. Member showing that the expansion in civil aviation during the next fifteen years is likely to be fourfold. It is, therefore, essential that the Corporations should have the finance which the Bill provides, so that they may possess all the resources, including aircraft, which they require to cope with the growing 1426 traffic. During the coming years the Corporations will then be enabled to enhance their position in world aviation and we may be able to increase our pride in the skill, inventiveness and determination of those who work in the Corporations and in our aircraft industry.
§ 5.52 p.m.
§ The Minister of Transport and Civil Aviation (Mr. Harold Watkinson)
As the right hon. Member for Vauxhall (Mr. G. R. Strauss) said, we always seem to manage, even sometimes in very difficult conditions, to have reasonably un-controversial debates on this important question of civil aviation. Whether that is because we stick seriously to facts or not, I do not know. However, I shall try to reply as factually as I can to the many points which have been put to me from both sides of the House.
I think it would be convenient to start firmly on the grounds of the Bill and deal with the various questions which have been put about borrowing. First, to answer the right hon. Member for Vauxhall, the borrowing will continue to be under Treasury guarantee, but for the next two years, as I think the House knows, it will be by loan from the Exchequer, and those loans will be carefully assessed each year, and then monthly advances as required will be made to the Corporations.
If at the end of the two years the present arrangement is not extended, the Corporations will revert to their normal or previous position of issuing stock under Treasury guarantee. The rate of interest in either case, as I think the House knows, is the ruling rate in the gilt-edged market. That is the position under their borrowing powers.
§ Mr. Beswick
whether any monthly limit was being set to the overdraft, as it were. Are we being told that there is not a monthly limit but an annual limit, and, if so, what figure has the Minister in mind?
§ Mr. Watkinson
The answer is that each year the position will be carefully assessed between my Department and the Treasury, and that will take account of the previous year's position. Once an agreement has been reached, which must take account of how they stood the previous year, the borrowing will be 1427 agreed, and they will receive an advance on that basis.
It was an interesting thought on the part of the right hon. Gentleman that the two Corporations should be required to chart their future as closely as the British Transport Commission has charted its position, but of course they are not really comparable industries. The Corporations conduct an international business—particularly B.O.A.C.—and many of their charges and much of their business lie not entirely within their own control but are subject to international arrangements of various kinds. Therefore, I am not sure that this business could be carried out in the same way as the British Transport Commission has carried out its business.
I was asked about flight coupons. The hon. Member for Uxbridge (Mr. Beswick) asked me to explain this windfall of £350,000 for flight coupons. The fact is—and I think the House agrees—that it is the intention of the Chairmen of both Corporations to try to tighten up their accounting procedure, not only in connection with writing off aircraft but in every other way. This item which appeared in the balance sheet as "Sundry creditors" arises from an accumulated number of small items relating to uncompleted journeys over a large number of years. It would be unrealistic to keep it on the balance sheet as "Sundry creditors" and it was a good thing to get rid of it. Incidentally, it is a below-the-line receipt, so that it did not really come into the revenue for the year.
As to British West Indies Airways, the loss there, as has been explained before, was due to the fact that all the preparatory work on the Viscounts fell in that particular year, but the Viscounts themselves were not in service in that year. Therefore, we expect to see a return for that expenditure. I am advised that it was very largely the preparatory expenditure for the introduction of the Viscount services, which I am glad to say are doing very well. It is not, therefore, a continuing charge, and we ought to see some of it back.
To turn to a rather more general subject, many hon. Members have mentioned the general question of the Britannia. It has been raised in various ways—the 1428 progress payments, the future of the aircraft itself, etc. First, B.O.A.C. has made progress payments because it signed a contract with the Bristol Aircraft Company which laid down certain terms in the contract. It certainly called for a series of progress payments which B.O.A.C. has paid. Where the loss arises is through B.O.A.C.'s inability, when it took delivery of the aircraft, through no fault of its own, to put them into passenger route service. I think the important point is not to try to argue now about whether the contract terms should have been varied but to ascertain what the prospects are of getting these aircraft into service.
I think that the fault which developed was scarcely foreseeable. So far as I know, it has certainly occurred in no other aircraft in route service, and I have taken a careful check. I believe that it has literally never occurred before. Also it occurs only at certain heights and only in fairly rare climatic conditions, chiefly monsoon conditions. Therefore, I do not think there is much point in going into the past history and arguing whether this should have been foreseen, because many people would say with justice that it could not have been foreseen.
The present position is that one modification has been made and seems to be proving successful. This is a relighting device which has already been mentioned. It is not a complete cure, but what I know the Corporation wants to do is to get the aircraft serviceable enough to be satisfactory in all respects in route service.
Take the present position of the aircraft, for example. It has flown 8½ million passenger miles in the Middle East during the last two or three months, and at times it has carried up to 200 passengers. Therefore, it would be quite wrong for anybody to assume that this aircraft is in any way unserviceable or incapable of doing the job which it was built to do. Otherwise it would not have flown 8½ million passenger miles with no troubles, and, as I say, at times with a load of 200 passengers, which is a fairly formidable load, even for a big aircraft of that type.
What the Corporation has always maintained—and I am sure it is right—is that a new aircraft like this, on which so many of our hopes are based, may yet prove to be an underestimated aircraft 1429 when it really gets into service, but that it would be quite crazy to put it into route service until we had got as many of the "bugs" out of it as possible.
§ Mr. Cronin
Would the right hon. Gentleman agree that the Britannia is not safe to fly over 16,000 feet?
§ Mr. Watkinson
No, I would not agree at all. It is not only a question of height. It is a question of conditions. The aircraft is perfectly safe to fly in any conditions, and has been doing so in the Middle East.
I was just explaining that the Corporation, which, after all, has to "sell it" and wants to get the highest passenger appreciation of it as soon as it goes into service, is, in my view, entirely justified in trying to get all the "bugs" out of it before it goes into service. I think that is the right decision, and I myself hope that we do now see the end of this difficult time, and I hope—though I am making no promises because we have had too many disappointments in the past—that the Britannias will go into service very early next year, and they will go into service properly modified, perfectly safe to fly, as a world-beating aircraft.
§ Mr. Beswick
The Minister has not really answered my question as to which of these snags have to be got out of the aircraft. It is a matter really of what he has not said rather than what he has said. I assume it is going to be put into service, whether or not it is still liable to flame-out, even though there is a modification to provide for relighting. But there is this further question, which is a matter of some argument, as regards guarantees. Most manufacturers are saying that they will guarantee the specification, and if they do not deliver an aircraft which comes up to the specifications laid down, they are prepared to incur a penalty. Has any guarantee been given? The specifications have not been met. Is B.O.A.C. in receipt of any form of compensation at all from the manufacturer?
§ Mr. Watkinson
First, there is no question of putting the Britannia into service, as I have said, on a sort of ad hoc arrangement, although it is perfectly safe to fly, as has been proved by the figures which I have quoted of the work which it has actually done. The 1430 relighting device is, I think, proving quite satisfactory, but there will have to be other modifications also, which are now being tested again on an aircraft this very week, I believe, in East Africa. There is a modification to the inlet, and one or two other devices. I hope that a combination of all will provide the answer.
As to the guarantees in the contract, I cannot answer that without having some consultation to ascertain exactly what the contract itself says; but, so far as I know, it contained no penalty clause at the time it was signed. If it had contained a penalty clause, then I have no doubt B.O.A.C. would already have made use of it. If the hon. Member for Uxibridge would like an answer, I should be only too pleased to find out.
§ Mr. Watkinson
Then I am sorry I have not got the answer at the moment. I think I can give the hon. Member the answer which he wants, because though I want to be quite sure, to my understanding there is no penalty clause of the kind which for example, the American companies are now offering. After all, this contract was placed quite a long time ago, and these things have a habit of developing. In fairness to the Corporation and to Bristols, I will say that I think they are concerned with one thing only, and that is to get these aircraft into service as quickly as ever they can, and those concerned are much more worried about that than about any financial arguments as to who shall pay whom in particular circumstances.
Apart from the Britannia, quite a lot has been said, and properly said, about other aircraft which are on order for B.O.A.C. The question has been asked, for example, whether B.O.A.C. has not got too mixed a fleet. It certainly has a very mixed fleet at the moment. I do not consider that it has too mixed a fleet. B.O.A.C. is now developing two main families of aircraft, the turbo-prop family, so to speak, of which the Britannia, with its successive marks, is one, and the pure jet family, of which the Comet IV will be the first and of which the Boeing will be a stop-gap, or gap-filling aircraft, so to speak, with British engines; and then the DH118 will again be continuing the Comet family but, of course, in a different kind of aircraft.
1431 As regards the Boeing, the question was asked by several hon. Members whether the policy for B.O.A.C. should be "Buy British" or "Buy the best you can get". My hon. Friend the Member for Brentford and Chiswick (Mr. Lucas) was right, I think, in saying that, on the whole, there ought to be a two-way trade in aircraft; if we are to try to sell aircraft to the Americans, as we hope to do more and more, we certainly cannot say we shall not buy their aircraft if they have the best and most convenient aircraft at any particular time.
I do not think anyone doubts that the Boeing chassis, so to speak, is the best large jet airframe we can buy, and, that with Conway engines put into it, it is the best compromise we can get. I do not agree with the hon. Member for Loughborough (Mr. Cronin), who took the view that the initial cost of British engines, which is, of course, a relatively small proportion of the total cost, was the final cost. Of course, the operator has continuing expenditure on the engines, and that expenditure will be a sterling and not a dollar expenditure; if one looks at the life of the aircraft, the ratio is much more favourable.
As to the DH118, here again we are building on an established firm, which has, I think, had much more experience of jet aircraft than anyone else in the world; some of it may have been very unfortunate experience and bought at very high cost, but it is experience that no one else in the world has had in relation to stresses and strains and difficulties of fatigue, for example, at high altitudes. It is, therefore, quite right that B.O.A.C. should look to De Havilland for a completely new aircraft for a completely new purpose.
That deals with the question raised by the hon. Member for Govan (Mr. Rankin), who is not in his place at the moment. If we are to use airfields and airports all over the world, with different runway lengths and sometimes difficult weather conditions, these large Boeings are not going to be flexible enough to do the job. Therefore, we want a British jet which has as good a performance—it will, I hope, have a better performance—slightly less carrying capacity, but a much better runway performance, much better airport performance generally, and much greater flexibility.
1432 I sincerely believe that there is a very large market for that kind of aircraft, if we can make it a success. That is why I said that the placing of the order by B.O.A.C. with De Havilland is dependent on a satisfactory specification being agreed between them. B.O.A.C. has very firm ideas as to what the specification should be. I think it will be agreed, and the DH118 may be a very fine and very versatile aircraft. If that be so, then it will fill our needs for the middle years of the 'sixties until presumably we have some kind of supersonic aircraft towards the latter part of the 'sixties, which is, perhaps, too far ahead to look at the moment.
As to the Princess, I must admit to being a flying boat fan myself, so there is no lack of interest on my part in that aircraft. The difficulty, as I think the right hon. Member for Vauxhall knows, is that there is only one complete, and the engines still present great difficulty, if we are to wait for the Bristol Orion. There is an idea that they could fly with Conway engines, but I understand that a lot of development work would have to be done. I do, however, promise that I will look again at this matter of the Princess. It is quite wrong to leave it unused. I promise that I will see whether we can make some use of what might be a very great aircraft. I agree with the right hon. Member for Vauxhall and with my hon. Friends that it does not seem right just to leave it in a cocoon doing nothing.
My hon. Friend the Member for Brentford and Chiswick asked some questions about American aircraft. I have answered him by saying that there is no real break in the general policy of buying British whenever we can, but if we are to sell aircraft in the world, then I think we cannot just refuse to buy on merit anywhere. But this does not mean—and I want to make this quite clear, as I have made it clear to the Corporation—that B.O.A.C. can look forward to a future in which it can always buy American aircraft, if it has a preference to do so. This order for Boeings is certainly not a guarantee to B.O.A.C. that its policy can be "Buy American". What it means is that the Corporation has bought the best aircraft for its particular purpose at the moment, and we shall now do our best to see that its 1433 future requirements are met by fully competitive British aircraft.
Several hon. Members—my hon. Friend the Member for Watford (Mr. Farey-Jones) was one—have enunciated a doctrine which, frankly, I find difficult to understand. It is said that the more one limits route mileage, the bigger profits one makes. I undertake to examine the suggestion, but I must say that in an expanding air world with very rapidly developing routes all over the world, whilst one can over-extend oneself, I do not think one can refuse to take any chances which are offered, even on the South American service.
I am not, however, committing myself, for two reasons. One is that until we are much more clear where we are with Britannias and the DC7C, and, indeed, other aircraft, for B.O.A.C. it would be quite wrong to divert effort to a route which, frankly, in the past has never made a profit. I do not regard it as being by any means the most attractive operation for B.O.A.C. Therefore, I am certainly not committing myself at the moment to anything but the general statement that once its aircraft position is satisfactory, the Corporation will try to cover as much of the world as it profitably can. At the moment, however, the South American side of the Corporation's operations does not seem to me to be one which warrants over-riding priority.
My hon. Friend the Member for Gosport and Fareham (Dr. Bennett) asked about the disposal of obsolescent aircraft. The policy of the Corporations is that it will certainly sell aircraft for which it has no use, as it has in the past sold its Hermes and Yorks. There are difficulties, for example, about the twelve Constellations and the eight Stratocruisers which B.O.A.C. bought to replace the Comets, because the Corporation is under an obligation to sell them for dollars. I understand also that there is the possibility of a part-exchange deal with Boeings for some of the existing B.O.A.C. aircraft, which, again, will represent a net drop in the dollar price. Those deals must take priority.
Apart from that, when Pionairs and Elizabethans become available I hope that they will be sold in the most profitable market, and some of them, of course, are likely to be sold at home. Certainly 1434 there is no policy on the part of the Corporations to try to retain aircraft which they do not need. The answer about the Prestwick Pioneer, for the benefit of the hon. Member for Govan, is that it does not yet have a certificate of airworthiness. As soon as it has one, no doubt its chances of sale will greatly increase.
I think that I have answered most of the points which have been raised—
§ Mr. Watkinson
As my hon. Friend the Joint Parliamentary Secretary said, the question of the Australian freight certainly did not arise as the fault of the Government or of the Corporation or the operations by the independent company. The fact is that the Australian Government, at the moment, take the view that their freight requirements are fully met by existing services, and that there is no room for any expansion. No doubt that may change as time goes by, but that, I understand, is their present view.
§ Mr. Beswick
Surely, the view of the Australian Government was that there should be only the one United Kingdom operator going into the Continent, as there was only one Australian operator coming from that Continent. The question I asked concerned the position of B.O.A.C. as regards the development of freight routes. Is the Minister encouraging the Corporation to go ahead now?
§ Mr. Watkinson
Yes, but the view of the Australian Government was also based on the fact that they did not consider that there was at the moment sufficient traffic to support additional operators. Therefore, they considered that for the moment the present arrangements were adequate.
As for future development of freight services, to my mind—and I think it has been proved by results in the last few years—the air transport world is not an exclusive world for the Corporations, nor should it be, in their own interests, it has to be a world in which independent companies will have a part to play. They provide a useful spur to the Corporations and are often a useful ancillary to them. Many hon. Members, I think, have not taken sufficient note of the joint operations now being undertaken in many parts of the world between the Corporations and other independent companies. 1435 It is a very good principle, and one that I should like to see further developed. That may be one of the ways of developing freight services.
This is certainly not the occasion to talk about independent companies when we are concerned with a Bill which deals with the Corporations, but as the specific question has been asked, I would merely like to say that it is not my view that the Corporations should regard themselves as having the prescriptive right to every kind of air transport business. This must be a mixed economy, and if it is, it will be very good for everybody concerned. Even if the mystic words "private enterprise" came into it a little bit, that would probably not do anybody much harm.
I think that the whole House supports the general purposes of the Bill. It is vitally necessary that the Corporations should continue their expansion, because if they do not they have no hope of keeping pace with, much less of overtaking and beating, their competitors. I appreciate very much the factual welcome which all sides of the House have given to the Bill—
§ Mr. Rankin
I did raise one or two other points about Prestwick which are more related to the Minister's own functions, I agree, but they are nevertheless contingent to some extent upon the Bill.
§ Mr. Watkinson
I answered one of the hon. Member's questions when he was not in his place, and I imagined that if I went any further I should be ruled out of order. If the hon. Member reads what I have said, he will see that the DH118 is an aircraft which may be very interesting for Prestwick for certain reasons.
§ Mr. Farey-Jones
Is my right hon. Friend carrying out any development of civil aviation in the Principality?
§ Mr. Watkinson
That is scarcely relevant to this debate. In any case, the 1436 Principality is not quite without air services, as my hon. Friend alleged that it was.
I appreciate the factual welcome which has been given to the Second Reading of the Bill. The money is vitally necessary for the development of the two Corporations, and I hope that the House will now give the Bill a Second Reading.
§ Question put and agreed to.
§ Bill accordingly read a Second time.
§ Bill committed to a Committee of the whole House.—[Mr. Barber.]
§ Committee Tomorrow.