AIR CORPORATIONS BILL

HC Deb 06 November 1962 vol 666 cc805-903

Order for Second Reading read.

3.42 p.m.

The Minister of Aviation (Mr. Julian Amery)

I beg to move, That the Bill be now read a Second time.

I would like to preface my remarks by saying how much I regret that my hon. Friend the Member for Morecambe and Lonsdale (Mr. de Ferranti) is no longer on the bench beside me. In the short time that we worked together I derived very great advantage from his intimate knowledge of the aviation industry, as, I believe, did the industry as a whole.

The principle that there should be no conflict between a Minister's private interests and public duty is undoubtedly right, but it is a great pity that in this case it should have operated to deprive the Government of expert advice at Ministerial level. I can only hope that my hon. Friend may draw some consolation from the rather unusual experience of being able to make way for an older man. The identity of his successor, however, has not yet been vouchsafed and in the circumstances I shall, if you, Mr. Speaker, and the House, give me leave, reply to the debate myself.

The Bill has two main purposes. First, it seeks to increase the sum which B.E.A. and B.O.A.C. may borrow on capital account. Secondly, it seeks to authorise the Corporations to borrow from the Government, although only for a limited time, in order to finance deficits on revenue or current account. It may be helpful if I take these two points in turn.

The first object—an increase of the borrowing limits on capital account—raises no new issue of principle. It arises from certain developments in the plans of the Corporations. Under the 1960 Act, B.E.A. was limited to a borrowing ceiling of £95 million and B.O.A.C. to one of £180 million. These sums were intended to cover the borrowing requirements of both until about the end of the year 1963–64.

For B.E.A., the ceiling was intended to meet expenditure on the delivery of the Vanguard fleet of 20 aircraft, on the final payment on the first Comet order, and on the bulk of the expenditure on the contract for 24 Tridents. They were also intended to meet certain building costs in connection with the London Air Terminal at Cromwell Road, with the training centre at Heston and with the extension of the engineering base at London (Heathrow) Airport.

Since the 1960 Act, however, there have been changes in B.E.A.'s programme. Late in 1960 it decided to order four extra Comets, which have helped it to meet the increasing jet competition in Europe. In 1961, it also placed an order for three Argosy freighters so as to exploit the growth of air freight traffic. In addition to these firm commitments, B.E.A. also has an option to buy 12 extra Tridents.

These changes in the Corporation's programme, will, of course, have consequential effects on the requirement for spares, equipment and buildings. The Bill proposes that, to cover these commitments and possible other commitments, the borrowing limits of B.E.A. should be increased. The borrowing ceiling of £180 million laid down for B.O.A.C. in the 1960 Act was intended to cover payments on 35 VC10 aircraft, as well as expenditure on work at the Victoria Air Terminal, on the Aircrew Training Establishment and on the Engineering Components Test House at London (Heathrow) Airport.

Since then, B.O.A.C. has amended its plans, in particular the contract for VC10 aircraft. Instead of buying 35 standard VCl0s it has decided to buy 12 standard and 30 Super VCl0s. It believes that this larger order for Super VCl0s will provide the Corporation with a more flexible and economic fleet capable of operating over a wider range of its routes In 1961, B.O.A.C. also ordered, with my predecessor's approval, three further Boeing 707 aircraft. The Bill accordingly provides an increase in the total borrowing limit of B.O.A.C. to enable it to cover these new commitments.

I now come to the second main object of the Bill. This is the authority which it seeks to give the Corporations to borrow from the Government to finance deficits on revenue or current account. The 1960 Act, and the earlier Acts, provided only for borrowing on capital account. A situation arose, however, where B.O.A.C. found themselves faced with a growing deficit. At first, this was expected to be short-lived, but it became clear in 1961–62 that the Corporation was likely to incur a deficit which it had no means of extinguishing from its own resources at an early date.

My predecessor, the present Minister of Defence, accordingly told the House on 19th April that he would have to ask for amending legislation as soon as the Parliamentary timetable allowed. The accounts recently published by B.O.A.C. have confirmed the necessity for this, and the forecasts for the immediate future, whatever remedial measures may be adopted, remain rather gloomy.

There is a large deficit on last year's accounts. And whatever measures may be taken by B.O.A.C. or by the Government, it would be wrong to expect much improvement in the current year. B.O.A.C. expects that this year's deficit will be some millions of pounds less than last year's, but there will be a deficit. The growth of international traffic is only picking up slowly and the full effects of the internal economies B.O.A.C. now have in hand will not make their full impact until some time in the next year.

Last year, B.E.A., for its part, financed its deficit out of reserves. It cannot repeat that process. Traffic in Europe is still slack and it expects to make a loss of about £4 million in the current year, but on present forecasts it expects to break even in the subsequent year 1963–64. Plainly, however, it is only prudent to make provision against some further loss in that year.

I now turn to the financial implications of borrowing powers on current or revenue account, for which the Bill provides. It is proposed to increase the borrowing limit of B.E.A. from £95 million to £125 million and of B.O.A.C. from £180 million to £300 million. These totals are intended to cover borrowings on both capital and revenue accounts. The deficits on revenue account. however that may be financed in the future by borrowing from the Government, are limited under the Bill to £32.7 million for B.O.A.C. and £10 million for B.E.A.

These povisions for borrowing on revenue account are regarded purely as a short-term remedial measure intended to tide the Corporations over their immediate difficulties. They will, therefore, only apply until April, 1964. This is in contrast with the borrowing provisions on capital account—the balance of the new money for which the Bill provides, and which is estimated to cover the requirements of the Corporations up to the end of 1966.

Now, there is a point here that I want to stress. The borrowing ceilings, whether on capital or revenue account, are maximum ceilings. This is money that can be spent if the need for the expenditure is established, and if the validity of present plans is confirmed. I shall, however, retain the right at each stage to review the programme of the Corporations and decide whether the money should, in fact, be lent.

The Bill further provides, as the House will have noticed, that the Corporations may not take up more than £260 million in the case of B.O.A.C. and £110 million in the case of B.E.A. without an affirmative Resolution of the House. This is to ensure that the House can be kept closely informed of the way in which these moneys are spent.

Besides these main provisions, the Bill also deals with one or two miscellaneous points which it seems convenient to bring before the House at the same time. These include—

Mr. John Diamond (Gloucester)

Before the Minister deals with the miscellaneous points, could he clarify the point about short-term borrowing on current account to cover the deficit up to 1964? What does that mean? Does it mean that it is to be repaid by 1964, or does it mean that it is to be reviewed by 1964? What happens in 1964 to the many millions that may then be still outstanding on loan account?

Mr. Amery

The moneys provided to finance deficits on revenue account envisage the possibility of deficits up to the end of 1964. If there were to be deficits in 1965, which we hope will not be the case, we would have to cousult the House as to how to finance them—

Mr. John Rankin (Glasgow, Govan)

Wild the Minister clarify my mind a little further on that point? I am sorry that I missed his opening remarks, when he may have referred to it. What, then, is the purpose of the £100 million for financing accumulated deficits? Does that cover, as would appear to be the case later, the £64 million of present accumulated deficits?

Mr. Amery

The hon. Gentleman is quite right. The £32 million to which I referred is the total of new money available for deficits that could be incurred in the future. The current deficit, to which I shall refer in a few minutes, is met in the increased total provided for B.O.A.C.

As I was saying, there are one or two miscellaneous points, including compensation for loss of office, and provision for the retention of pension rights of employees of one Corporation who join the Board of the other. I want to make it clear to the House that these provisions, suggestive as they may sound of golden handshakes or cross-posting, have nothing to do with suggestions that have been canvassed for the merger or reorganisation of the Corporations. They are purely tidying-up provisions and can, I submit, be left to the Committee stage

I come now to some of the implications of the Bill. It would, in any case, have been necessary to bring some legislation before Parliament during the course of this Session, seeing that the borrowing limits under the 1960 Act will be exhausted in the next few months. But, of course, the provisions and the timing of this particular Bill are very largely dictated by the losses which the Corporations made last year and by their prospects in the current year.

I have not come down to the House this afternoon with any cut-and-dried proposals as to how the Corporations should be put on a sound commercial basis. What I want to do is to discuss with the House how these losses have arisen, to explain my approach to the problems they present, and to say something of the action which I have already put in hand. I hope that what I have to say on this may elicit some constructive suggestions in the course of the debate, and later on.

In my last office, considerations of security sometimes made it rather difficult to gather opinions, but in this instance most of the facts are known. There is a large body of well-informed opinion on civil aviation matters both in the House and outside it, and I hope to profit by their advice. I have no doubt, from my short experience in the job, that it will be freely given.

Let me begin with the problems of B.E.A. For seven successive years up to 1961 B.E.A. made a profit, and I think that Lord Douglas of Kirtleside and his Board are entitled to our salute for the way in which they have managed this highly specialised airline. Last year, B.E.A. incurred a loss of nearly £1½ million. There were two main reasons for this. First, there were the special costs of introducing the Vanguard and Comet aircraft into service. These costs arise from the changes in organisation, the proving flights, and the initial servicing expenses that accompany the introduction of a new aircraft.

Then there developed an unexpected gap between the number of seats B.E.A. had to offer and the number of passengers who came forward to fill them. This was a general development. Few, if any operators, anywhere, foresaw it, and most European airlines suffered from it to a greater or lesser extent. B.E.A. was particularly hard hit by the competition of the growing number of jet aircraft operated by the European lines. The Corporation countered by introducing extra Comets—and with some success—but this, of course, also increased the problem by increasing the number of seats on offer.

I do not think that the cost of introducing new aircraft would, by itself, have put B.E.A. "in the red",nor would the gap between passengers and seats, but the two together proved too much.

The House will, naturally, regret that B.E.A.'s fine record in the past should have been marred by a marginal deficit this year and the prospect of a further deficit next year. These losses, however, result in the main from extraneous circumstances and do not, in my judgment at least, reflect adversely on the management of the Corporation. I do not, therefore, consider that any special action is called for on my part in respect of B.E.A.

The great run of success which B.E.A. enjoyed, thanks to the Viscount aircraft, is coming to an end, and it will be a couple of years before it recovers the initiative with the build-up of its Trident fleet. However, the Corporation is convinced that the Trident will change the situation. Meanwhile, given some recovery in the rate of growth of air traffic, it expects to break even again in the year 1963–64. On the face of it, this calculation seems to me to be well founded, and I accordingly trust that the £10 million which the Bill provides to meet any deficit on revenue account will prove more than enough to tide B.E.A. through any extra difficulties it may have to face this year and next.

I come now to the problems of B.O.A.C, and here I would like to make one point absolutely clear at the outset. There may or may not be justification for criticising the commercial judgment of B.O.A.C.—I shall have something to say about that in a moment—'but I have seen no evidence of any kind, in any quarter, to suggest that the standards of safety, efficiency and comfort which B.OA.C. affords on all its routes are surpassed by any other airline in the world. Taking the long view, this is the crux of the matter, for no operation, however immediately profitable, can long endure if it allows its standards of safety and of the comfort of its passengers to fall.

I should here like to pay tribute to the energy and spirit with which Sir Matthew Slattery has visited almost every station in his far-flung empire. The leadership he has shown in this has been in the best traditions of our Service commanders-in-chief.

But if the professional record of the Corporation is a bright one, the commercial side of the picture is more sombre. The overall deficit amounts to £67.3 million, of which about £50 million arose in the accounts for last year. Frankly, this is rather steep, and calls for searching inquiry. In fairness to the Corporation, however, if we are to form a proper judgment of its affairs, we must break the figure into its component parts, and I shall try to go through the main items of the deficit.

The biggest item in the deficit is the sum of £33 million, representing the fall in the capital value of the aircraft fleet. B.O.A.C. made its plans in the belief that its aircraft would have an average life in service of about seven years. It expected that by that time each aircraft would have earned about 75 per cent. of its original cost and could still hope to be sold second-hand for 25 per cent. of that cost. In fact, it now appears that the DC.7Cs, the Britannias and the long-range Comets will have to be retired after only about five years' service; and this at a time when the market for second-hand aircraft is poor. I would make it plain that the long-range Comets to which I referred are quite different from the Comet 4Cs now in production by De Havilland, which still have a very bright future, and for which there is a considerable export market.

The reasons for B.O.A.C.'s miscalculation are clear enough. The disaster which overtook the Comet I led us to four years' delay before later marks of Comets could be introduced into service. By that time the American jets were within a month of coming into operation across the Atlantic. They were able to make the Atlantic flight nonstop; and the Comets then lost much of their attraction.

The DC7Cs were bought as a stopgap until the Britannia came into service. The idea was to sell them off in the later 1950s, when they might still have found a good market. But the Britannias were late. The market for the DC7Cs dwindled away. The Britannia itself was an outstanding aircraft. If it had come into service on time, it might have proved a very sound investment. Certainly, most experts at the time believed that long-range turbo-prop aircraft were more reliable and more economic than any other. But the Britannia was two years late, and by that time the long-range pure jets were in service, and, to the surprise of many experts, they proved to have better operating economics as well as better customer appeal.

Aircraft take several years to design and produce; and it is very difficult, looking ahead, to say which is going to be the best aircraft at a given time or what its service life will be. I am certainly not proposing to blame B.O.A.C. for pioneering the Comet. But for the tragic disaster of the Comet I, this aircraft would, I believe, have brought the Corporation a very handsome return.

Where the Britannias are concerned, it is at least understandable that B.O.A.C. did not see the advantages which the long-range pure jet would have over the turbo-prop aircraft. Others made the same mistake. Of course, the acid test of commercial judgment is, I know, the result; but in this case I, for one, would hesitate to throw the first stone.

It is sometimes argued that B.O.A.C. has suffered from its policy of buying British. Tribune tried to make this point only last week. I had never thought of Tribune as a mouthpiece of the American aircraft industry. I do not think that it has been a mistake to fly British. The business of proving a new aircraft tends to be expensive. The Government have recognised this for some time. It is more than two years since my predecessor told the House that in certain circumstances the Government would be prepared to contribute towards the cost of proving a new type of … aircraft and of introducing it into regular airline service."— [OFFICIAL REPORT, 15th February, 1960; Vol. 617, c. 958.] But the cost of proving a new aircraft is at least to some extent offset by the advantages of being the first airline to bring in a new type of aircraft. What is more, the first buyer tends as a rule to get the first batch of a new type of aircraft rather cheaper. Then there is the advantage of having an aircraft designed specially to an airline's own specification.

Some of this was recognised by the representatives of B.O.A.C. in the evidence which they gave to the Select Committee on the Nationalised Industries. Of course, there is a natural preference in favour of British aircraft both in the Corporations and in the Ministry. So there should be. But, quite apart from any natural preference, Sir Matthew Slattery's letter to The Times of 16th October shows pretty clearly that the decisions to buy the early Comets and the Britannias seemed right at the time on commercial grounds. Nor have such estimates always been wrong. B.E.A. has made a "killing" out of the Viscount. There are, of course, advan- tages in buying a proven aircraft off the shelf, and this is what the smaller air-Lines and the smaller countries mostly have to do. But I cannot help thinking that the fortunes of a great airline like B.O.A C. are bound to suffer in the long run if they should ever become wholly dependent on foreign aircraft pioneered by their chief competitors.

The British aircraft industry must, of course, take its share of the responsibility for the setbacks to the Britannia and Comet programmes. To this extent they have contributed to the deficit that we are discussing. I am convinced, however, that the national interest will best be served by the maintenance of a close and continuous partnership between British airlines and the British aircraft industry.

I am, therefore, not prepared to condemn the decision of B.O.A.C. to pioneer the Comet or the Britannia. I think that they had strong reasons for it. What I cannot accept so easily is that the depreciation in the value of the Corporation's aircraft fleet has only been fully revealed this year. This is not a situation which has come up upon us in the night. It has been building up for two or three years past; and in any business efficient management must call for a clear understanding and a clear presentation of the balance sheet.

The losses on depreciation stem from decisions taken some time ago. The same is true of another substantial item in the deficit. I refer to a total of £12.8 million in respect of associated and subsidiary companies or £3.4 million in last year's account. It is easy enough to measure the losses suffered by these subsidiaries or associates. We know exactly what they lost. But in fairness to the Corporation we have to set against these losses the contributions which the smaller companies make or have made to B.O.A.C.

They undoubtedly help to feed traffic into B.O.A.C.'s main routes; they safeguard existing traffic rights and they tend to discourage outside competition. It is not easy to put a cash value on these things. Nevertheless, the history of B.O.A.C.'s relations with many of these associates has not been a happy one. I think that Sir Matthew Slattery would agree with me that these have not always been well managed; and I am sure that the Corporation has been right to withdraw almost entirely from British West Indian Airways and altogether from Middle East Airlines, the two companies which have accounted for a large share of the losses under this head. I understand that the Corporation has also given notice of withdrawal from its association with Kuwait Airlines.

It is sometimes suggested that B.O.A.C.'s participation in these associated or subsidiary companies has been inspired by the Government for reasons of foreign or Commonwealth policy, and I have done my best to look into these allegations. Frankly, I believe that they are unfounded. No doubt the Corporation has from time to time taken the views of our ambassadors, governors or Government Departments into account in coming to its decisions. It is natural that it should. After all, large-scale private enterprise—for instance, the oil companies or the shipping lines—have to take these things into account to at least as great an extent as B.O.A.C.

But it seems to me that the Corporation has been concerned, first and foremost, with arriving at a sound commercial judgment. I have been able to find only one instance on record where B.O.A.C. was persuaded to act against its commercial judgment on grounds of national policy. This was in respect of Kuwait Airlines. In that case it asked, quite properly, for the Government's request to be put into writing and for the Government to accept a moral responsibility for the results of the decision.

The fact that it was so persuaded on this one occasion and that the matter was formally recorded suggests, at least to me, that in other cases it had arrived at its decisions on straightforward commercial grounds.

Mr. Rankin

While I do not in anyway dispute the commercial aspect of entering into association with companies abroad, nevertheless during the passage of the licensing Measure, the then Minister of Aviation stated that one of the duties or purposes of B.O.A.C. was to show the flag. If that was the view of the Minister, it must have had a considerable influence on B.O.A.C, apart from the commercial purpose.

Mr. Amery

Perhaps I did not make the point clear enough. Enterprise, particularly overseas, whether Government enterprise or private enterprise, inevitably has to take some account of political considerations. The oil companies have to do it to a very great extent. My investigations suggest to me that B.O.A.C. has not been activated by considerations of this kind any more than any other large-scale enterprise operating abroad.

I think that the Kuwait experience which I cited a moment ago—where they said, "This does not make commercial sense, but if you want us to do it, tell us so in writing and thereby record your moral responsibility", and we did that—shows that they were not influenced any more than any other enterprise, private or public, by political considerations.

In many cases, civil airlines are paying concerns and have had good results. Borneo Airways, Cathay Pacific, Fiji Airways and Gulf Aviation all showed a profit last year, and the loss incurred by Aden Airways was relatively small. [Interruption.]Well, some of them made a profit, and that is something.

Now I come to the other major item in the deficit—the loss of £11 million on operating account. This is, in my view, much the most serious side of the picture, because it arises not so much from decisions taken many years ago as from current policies, and it also casts a long shadow into the future. It is, of course, true that this item includes interest charges on earlier losses, notably the losses incurred in the previous year, and it is these charges—the payment of interest on the accumulated loss—which Sir Matthew Slattery has dismissed with a characteristically salty expletive.

Sir Matthew has asked that past losses should be written off. I sympathise with him. I have often felt the same way when I have reckoned up the interest charges on my overdraft, but I cannot see any good reason why the Corporation should be specially exempted from the servicing of its borrowed capital. This is a charge which every other business has to meet.

The Corporation's annual report claims that by far the biggest factor to be faced is the need fundamentally to reconsider the capital structure of the Corporation. No doubt, this is a matter which deserves consideration, but, frankly, it does not strike me as fundamental, still less as the biggest factor to be faced. We all want to see B.O.A.C. make a reasonable return on its capital. This may, or may not, call for major changes in both policy and management, but these will neither be helped nor hindered to any serious extent by such book-keeping transactions as a capital reconstruction or a waiver of interest charges.

It may or may not be desirable, for psychological reasons or for reasons of morale, to write off accumulated debt, but if this is to be done at all, it can surely only be done in the context of wider proposals which hold out a serious prospect of putting the Corporation on a sound basis Here, I might add that the total amount of interest paid by the Corporation since 1952 on all capital borrowed from the Government amounts to about £35 million. This means that even if it had it all interest-free, there would still be a deficit of £32 million to be faced.

Of course, the real importance of measuring the deficit in ordinary business terms does not lie in the figures themselves, but in the situation which they illustrate and express. The figures themselves are like a temperature chart. If a doctor tried to cure an illness by changing the scale on his thermometer, I do not know what adjectives you, Mr. Speaker, would use to describe it. I do not believe that Sir Matthew Slattery is on very good ground here, but, be that as it may, the crucial fact remains that there was a substantial loss on the actual operations of B.O.A.C. in the year under review. Between one-third and one-quarter of this figure—about £3 million—is attributed by B.O.A.C. to a nine-day unofficial strike which took place at the end of June and the beginning of July. I do not propose to comment on the merits of this dispute, but its financial consequences scarcely need underlining.

The main causes of the rest of the loss are clear enough. Basing themselves on past experience, B.O.A.C. expected a great increase in traffic last year and this year. It accordingly stepped up its carrying capacity by 33 per cent. world-wide and rather more on the North Atlantic route. It was not the only operator to do this, but the calculations went wrong. The extra seats were there, but the extra passengers failed to come. The biggest growth in traffic had been expected on the North Atlantic, but the recession in the United States, and a rather alarmist view of the political situation in Europe, led American businessmen and tourists to stay at home. In recent years, traffic on the North Atlantic had increased annually by between 20 and 30 per cent. Last year, the increase was only 7½ per cent. overall. On the American-British route, the increase was smaller still—only half of 1 per cent. This is, partly at least, because the long-range jets can now reach centres on the European continent direct, and passengers no longer have to stage to London.

In spite of all this, the Corporation retained its share of the traffic on the North Atlantic route, but it lost substantially on it in terms of money. The results on the so-called Kangaroo route to Australia and on the African routes were also disappointing. There were losses on some of the new or less well-established routes. I have to tell the House that the prospects for the current year are not very much brighter. Traffic has picked up a little, and the Corporation expects to make a smaller loss than last year. I think that the winding up of some of its subsidiary arrangements and certain economies in B.O.A.C. itself will certainly ensure this, but it is not possible, at this stage, to put a figure on what its losses will be in the current year.

What conclusions are we to draw from these results? How far is the present management of B.O.A.C. to be held responsible for losses on operating account? How far have these arisen from circumstances outside its control? Could the Corporation have been expected to foresee the decline in traffic growth? Could it have insured against it even if it had foreseen it? Is it operating too many routes? Is its sales operation efficient enough? How does its performance compare with that of its competitors? Frankly, I am not yet in a position to answer in detail these or many other relevant questions. It may be that the Board of B.O.A.C. could, if left to itself, put the Corporation on a sound basis again, but against the background of the losses we have discussed and the large sums for which I am asking the House today, I do not think that I should be justified in leaving matters at that. My plain duty, so it seems to me, is to find out as far as I can the detailed facts about the losses, and then to consider what action, if any, is called for from the Government.

It may not be practicable to analyse B.O.A.C.'s total loss into exact watertight compartments, but what I want to do is to try to establish broadly what proportion of the loss is due to deliberate, though commercially mistaken, policy, what proportion to bad luck, or act of God, and what proportion to mismanagement. I dare say that all these elements have contributed in some part to the deficit now revealed, but it is only When we can assess their proportions that we can hope to determine how far current policy decisions should be changed, how mismanagement can be eliminated and whether some insurance can be taken out against bad luck.

This much was clear to me from the moment I learned what B.O.A.C.'s position was likely to be, and that was within a very few hours after I went to the Ministry. Accordingly, last July I invited Mr. John Corbett, an accountant of the highest professional standing and a senior partner in one of our leading firms which has done valuable work for the Government, to investigate B.O.A.C.'s position and prospects. I have asked him to do this against the background of the Corporation's losses, and to advise me what needs to be done to put it on a sound commercial basis. I have acted in this in the fullest accord with the chairman of the Corporation and with his Board. Mr. Corbett's report should be available to me in the spring. Once I have the facts, I can get down to the business of trying to decide what should be done, and in this I shall take into full account such advice as I can get both from the House and from expert opinion outside.

Mr. G. A. Pargiter (Southall)

Will the flight hon. Gentleman say whether in this inquiry the person concerned will also be free to comment upon aspects of policy which may have led to losses, policies which may have been determined outside B.O.A.C. itself?

Mr. Diamond

Complementary to that question, will Mr. Corbett's report include advice as to whether this company, as its chairman has asked and as is open to every other limited company which has the opportunity of going to the courts, ought to have its capital written down; or does the Minister's statement ruling out that possibility, as he has just indicated, mean that that is ruled out for all time and that the expert advice will be limited and will not cover the full range which an accountant in those circumstances would normally be invited to comment upon?

Mr. Amery

I am grateful to the hon. Member for Gloucester (Mr. Diamond) for his interest in the subject, but I am sorry that he did not listen more carefully to what I said.

I said that there might or might not be a case for this and that it was something which I could not prejudge. I did not make the sweeping assertion that it could not be done. What I tried to indicate was that to dismiss as "bloody crazy" the idea that one should pay interest charges on borrowed capital was not something which commended itself to me. It may well be that in a reorganisation, if a reorganisation should be called for, there would be a case for writing off losses. I cannot say at this stage. But I do not think that there is a natural right on the part of any business, whether private or national, to write off losses such as these.

Mr. Rankin

rose—

Mr. Amery

I have now forgotten what the hon. Member for Southall (Mr. Pargiter) asked. Could I have the questions one at a time?

Mr. Pargiter

My question was whether the gentleman investigating the accounts of B.O.A.C. would be free to comment on all aspects of policy, some of which might not have been under the immediate control of B.O.A.C. management.

Mr. Amery

I tried to explain earlier that, with the exception of Kuwait, I did not know of any which had not been. In trying to explain the remit, in enlarging on the remit to Mr. Corbett, I said that what I wanted to find out was how far the loss was due to deliberate policies, that is, policies which may have been decided on or accepted by the Board, but which, nevertheless, might not have been commercially profitable, not exactly mistaken, but not commercially wise; what element might result from an act of God—the crash of the Comet I, and so on—and what element could result from mismanagement, which is much more difficult to diagnose.

If we had a clear picture of how far those three main elements had contributed to the loss, it would help me to be able to try to make up my mind, with the Department and the help of the House, about what should be done.

Mr, Rankin

rose—

Mr. Amery

I shall reply to the debate myself, so that there will be time to deal with questions then. I think that I have spent long enough on this matter for now.

I do not look on Mr. Corbett's inquiry, or such outside advice as I hope to get from the House and others, as an inquisition into the past. The only purpose of recrimination, as my right hon. Friend the Member for Woodford (Sir W. Churchill) once remarked, is to prevent the repetition of error. What matters is the future, and my aim is clear enough. It is to match B.O.A.C.'s excellence as an international passenger carrier by similar standards of commercial achievement. What changes, if any, this will call for I cannot say at this stage, but I am sure that the House will agree that it would be quite wrong for me to come forward with proposals until I have been able to study Mr. Corbett's report and draw my own conclusions. Once I have arrived at those conclusions, I will at once report to the House.

As I said, if the House will give me leave, I will reply to the debate later. I will, therefore, abstain from a peroration so that we can get on with the business of discussing this serious and interesting situation.

4.25 p.m.

Mr. Frederick Lee (Newton)

Quite understandably, the Minister has not spent much time on the content of the Bill. It is purely a borrowing Measure and one to which we take no objection. He gave a number of reasons why the borrowing powers of the two Corporations must be increased. I would have been prepared to settle for the loss of the purchasing power of the £ under the present Government anyway. That would have been ample justification for in- creased borrowing power. But the right hon. Gentleman ranged widely around a number of issues which are germane to this debate and to the problems of the borrowing powers of the Corporations. I am pleased that he did. It would have been a great pity to narrow the debate merely to the questions contained in the Bill itself.

We all know that the situation in both the aviation and aircraft industries is becoming—I almost used the word "critical". It is right that on an occasion like this the House should examine some of the reasons why that position has arisen. We do not in the least object to the right hon. Gentleman taking two bites at the cherry, and we now give him our permission to speak again.

On Clauses 1 and 3, dealing with the borrowing powers, can the right hon. Gentleman tell us anything about the rates of interest at which the borrowing will take place? It may or may not have escaped his notice that there is a slight difference of opinion about interest payments on Corporation borrowing and if he could give approximately the formula which will be used to determine these borrowing rates that would give the House some opportunity of forming a judgment on that subject. Clause 2 increases the limits of B.E.A. and B.O.A.C. borrowing and we see nothing wrong with that.

We also know that nowadays a good proportion of B.O.A.C.'s activities take place in conjunction with Cunard. I was surprised that the right hon. Gentleman managed to get through a speech of that sort without mentioning that trifling point. I would like to know whether we are making available large sums of public money which, directly or indirectly, are bound to improve the position of Cunard itself. Perhaps he will tell us on the subject of interest rates whether they will be, as I assume they are bound to be, below the rates at which Cunard would have to borrow in the open market, so that inevitably Cunard will get the benefit of reduced rates.

In answer to a question which I put to him on 18th July, when we last debated this subject of the merger, the Minister said: The Corporation was under no obligation statutorily to consult us ‖"—[OFFICIAL REPORT, 18th July, 1962; Vol. 663, c. 451.] That is in respect to the agreement which has now brought B.O.A.C.-Cunard into existence.

I was extremely unhappy about that answer and now that the Minister is asking for greater borrowing powers which will include Cunard, I should like him again to address himself to that question. I know that public corporations and nationalised industries make agreements with private and public authorities, but when there is a revolutionary step of this type, unprecedented so far as I know, I must query his view that he has no right to take a decision and that the House has no right to be consulted. Certainly, the right hon. Gentleman cannot claim that this kind of activity is day-to-day administration which does not come within the purview of the House or of the Government. I hope that the right hon. Gentleman will think about this more deeply and reply to what is, after all, a basic question.

In July, I put forward this argument. Suppose the position arose that a nationalised Corporation entered into an agreement, not with one independent company such as Cunard, but with a consortium of two or three companies, which as a result had control of policy. Would not this be subject to decisions in this House? Surely the Acts which brought the Corporations into existence still determine the policies which they must pursue?

I place the greatest possible importance on the House having the final say in matters of that kind. Indeed, it is rather peculiar for the right hon. Gentleman to say that he has no jurisdiction over these matters, because in my discussions with people at various levels of management both in the B.O.A.C. and B.E.A. I heard many bitter complaints about the interference by the Ministry of Aviation in what the people to whom I talked regarded as day-to-day operations and in the policies pursued by them with regard to the purchase of aircraft, planning, and matters of that kind.

Indeed, some of these people think that they are being made the scapegoat of the Ministry's interventions about which neither the House nor the public is informed. It is against this kind of background that we are asked to believe that in a vital matter of this sort the Corporation was under no statutory obligation to consult us.

In July, I explained my reasons why this company had come into existence, and I have no wish to repeat them now, but one may comment that it seems that the bringing of this company into existence may well have solved the problems of the Cunard Steam-ship Company or those who were desirous of making a take-over bid for it. Whether this is so or not, I am still convinced that for B.O.A.C. it was a bad arrangement.

I want to raise an issue which I believe to be of paramount importance in the relationship of the House to the affairs of nationalised industries. Yesterday, I asked the right hon. Gentleman whether he would arrange to have placed in the Library a copy of the agreement between the B.O.A.C. and the Cunard Company. His reply was: No. This is a private agreement."— [OFFICIAL REPORT, 5th November, 1962; Vol. 666, c. 26.] Here we have a huge public Corporation, with millions of pounds of public money invested in it, able to make agreements for which as far as I know there are no precedents, and yet when Members of the House, or, indeed, the public, whose money is involved, ask to see the agreement, we are told that it is a private agreement. How in heaven's name can an agreement of this sort possibly be a private one?

I am extremely concerned about this question of the B.O.A.C.-Cunard, and I put it to all hon. Members that if we allow Ministers to get away with this nonsense any vestige of control that we have had over public authorities will go at once. We should take this up in a far more serious way, not merely confining the issue to the B.O.A.C.-Cunard agreement, because it seems that there is here being established a principle which cannot possibly meet with the approval of hon. Members. I want the right hon. Gentleman to go into a little more detail about this. What are our rights as Members of the House9 What rights have the public to see how their money is being spent?

Mr. R. J. Maxwell-Hyslop (Tiverton)

Would not it be correct to say that our rights are those laid down in the Act passed by the Government of which the hon. Member was a supporter?

Mr. Lee

Our rights have never before been dealt with in this way. This House deliberately limited itself in that it did not ask for power to ask questions about the day-to-day administration of nationalised industries. We rightly gave away that right because we did not want the management of the great nationalised industries to be subjected to bickering on small issues.

It was proper not to insist on that, out we have never before been given this kind of interpretation, that irrespective of whether a great publicly-owned Corporation enters into an agreement which I contend it has no right to enter into without the consent of the House, the public are not entitled to know the provisions of the agreement because it is a private one. This is a most dangerous incursion into our rights.

Sir Arthur Vere Harvey (Macclesfield)

Did the hon. Gentleman show the same vehemence when the B.O.A.C. entered into an agreement with Cambrian Airways?

Mr. Lee

The hon. and gallant Gentleman put that point to me on a previous occasion, and he knows as well as I do that that agreement was made in an entirely different set of circumstances.

Under this agreement the nationalised Corporation retains a majority holding. Is this the factor which led the right hon. Gentleman to say that the Corporation had no need to consult him? Is there a difference between that and the position which would arise if a majority holding were being sold? If it is right for one, it is right for the other. All our Statutes dealing with public industries would be vitiated by the acceptance of such a principle, and I protest strongly against not being permitted to see a copy of this agreement.

The right hon. Gentleman who is now the Minister of Defence has previously told us about parts of this agreement. He told us that it was a 70–30 arrangement. He also told us that eight planes were to be provided by B.O.A.C. and two by Cunard. In other words, we appear to have a right to know about some provisions of the agreement, but not about others. Whether it is right or wrong that we should know about the agreement, it cannot be argued that we are entitled to know some of its provisions and not others.

I become suspicious when that kind of reply is given to me, and I therefore ask whether there is any clause in this agreement which lays down that if the company makes a profit on revenue account in any one year, after providing for obsolescence, such profit shall be applied in the first instance to the declaration of dividends on share capital up to a certain figure in any one year before any sums are carried to any reserve account? I shall give way to the right hon. Gentleman if he is prepared to tell me that I am wrong, but if I am right it means that this is simply a device to pay dividends from the North Atlantic run to private shareholders while the B.O.A.C. continues to lose public money on its unprofitable routes.

I invite the right hon. Gentleman to inform the House about this matter. I am sure that the hon. Member for Kidderminster (Mr. Nabarro) is worried stiff about it.

Mr. Gerald Nabarro (Kidderminster)

The hon. Member must not pick on me. As always, I have implicit confidence in my Ministerial colleague.

Mr. Lee

That sounds about the biggest threat to the Government that I have yet heard, even from the hon. Member. I was sympathising with him, for fear that he had no shares in Cunard.

Mr. Nabarro

I sold them five years ago.

Mr. Lee

I am sorry that the hon. Member has missed the boat again. I hope that the right hon. Gentleman will comment on the suggestion that I have made. Is such a clause one of the few clauses in this agreement about which we have not heard?

The right hon. Gentleman commented on B.O.A.C.'s finances. I share his opinion that the Corporation is in a serious position. But it is surely quite disgraceful that while B.O.A.C.'s finances are in that position the payment of dividends to Cunard shareholders should be a first charge on the new company.

Mr. Nabarro

What a hope!

Mr. Lee

Let the Minister deny it. I hope that when he replies he will clear up that small point.

Is it the case that, quite apart from the 10 aircraft about which we already know, the agreement stipulates that B.O.A.C. shall arrange for the company to purchase the two Boeing 707s due for delivery to B.O.A.C. in 1963, and that when this has been done the company will sell to B.O.A.C. two of the eight aircraft which the Corporation, has already contributed to the company, at their then written-down value? Is that in any way stipulated in the agreement? It sounds dangerously to me as though B.O.A.C. is being used to provide an assured market for the company's old aircraft while B.O.A.C.-Cunard replenishes with new aircraft as often as it requires. These are serious points, to which I should like an answer.

I have already mentioned the issue of the effect upon the company of this new borrowing for which the House is being asked permission. I should like the right hon. Gentleman to tell us whether any of the increased borrowing powers to which, I take it, we shall agree, are to be used to further the capital development of B.OA.C.-Cunard. If we, as Members of the House, have any rights left, we must ensure as far as possible that we are not simply clearing the decks for B.O.A.C. while providing further public money to ensure that dividends are paid to shareholders in the way that I have outlined. Until the agreement has been published, we cannot be certain on that point.

As for mergers, the right hon. Gentleman knows that much has been written in the newspapers recently about the possibilities of a change in B.O.A.C. and B.E.A. I do not know whether there is anything in these suggestions, but while we are making new arrangements for financing the two Corporations we should know the thinking of the right hon. Gentleman on that point. As I understand, the Minister is to meet his French opposite number tomorrow to discuss the contemplated supersonic venture which was reported to us some time ago. As far as I remember, we were promised an answer on this matter before now. I am not asking the Minister to give us in advance all the details of what he will say to the French Minister, but we are entitled to know how far the project has advanced, and what the Minister's present thinking is on the matter.

We are discussing the Bill against the background of a most disappointing year both for B.O.A.C. and B.E.A. They shared in the £50 million losses sustained by the airlines of the world. The right hon. Gentleman told us the reasons for this. They have been widely canvassed, and are contained in the Reports of both Corporations. Nevertheless, it is a fact that after seven profitable years B.E.A., on its profit and loss account, shows a deficit of nearly £1½ million, caused by the adverse change which occurred in the ratio between the capacity it offers and the traffic it was able to obtain. The revenue-load factor fell from 65.2 per cent. in 1960–61 to 59.9 per cent. in 1961–62—a fall of 5.3 points, each point representing a loss of revenue of more than £750,000.

The right hon. Gentleman said that B.O.A.C.'s financial position is undoubtedly serious. I agree. It is far more serious than the loss of £14,400,000 on last year's working indicates. He pointed out that the Corporation has had to write down the value of its fleet by about £32 million. I suppose that there is some consolation in the thought that, in any event, by the time the traffic increases the Corporation will have a very modern fleet, capable of taking advantage of that increase.

Such factors as the traffic problems of 1961, about which we all know, may well rectify themselves as traffic increases, and others will improve once the older aircraft have been written off. But there are elements within the problem which will not easily yield to the new conditions, or new types of aircraft. Today, the Minister told us that he has decided to hold an investigation into the financial position of B.O.A.C. There are justifications for that. My hon. Friends have asked certain detailed questions. I, too, would like to see a wide inquiry held taking into consideration the relevant arguments which the Corporation has adduced.

But the problems of B.O.A.C. are merely part of the larger problems of the British aircraft industry, and of British aviation as a whole, and I would like to see an investigation into them, and not merely into the finances of B.O.A.C. I do not know how much credence can be given this year to the truncated remnants of the B.O.A.C. Report. We hear that, as published, it is minus certain Ministerial snippings.

Mr. Rankin

Snipings.

Mr. Lee

It is a very dangerous position if the Report of a great Corporation omits reference to the manner in which it has deployed its finances, and what has happened in that respect. I must be careful not to say anything which the Minister may find unpalatable, for fear of losing six columns in HANSARD.

On 21st October it was suggested in the Sunday Telegraph that the parts of the Report which wore suppressed amounted to a criticism of the capacity of the British aircraft industry. If that is true, would it not be far better to investigate the truth or otherwise of the arguments, rather than to suppress them? On the civil side, B.O.A.C. is the industry's biggest single customer, and even in these days the customer may occasionally be given the opportunity of suggesting that he is right. It is in the interests of the industry that criticisms of that type should be answered. It is not a good thing for them to be suppressed. Under those circumstances there is little wonder that the customer, in his desperation and frustration, has resorted to a display of his knowledge of Shavian adjectives. It is understandable that if certain matters are not allowed to be put into a Report the customer should do the best it can. I hope that the Minister will comment on this incident. On 25th October, the Flight suggested that the word "persuaded" may have been more appropriate than "censored". We all know that in certain circumstances persuasion can be quite potent.

The Sunday Telegraph told us that the B.O.A.C. Report would have argued, if it had been permitted to do so, that since 1946 B.O.A.C. has operated or taken delivery of 20 different types of aircraft, not including freighter conversions, and that of these 12 have been British, seven American and one Canadian. Of these types, the 12 British aircraft averaged just under four years service life while the others were over eight years. There may have been excellent reasons for that. I am merely stating what appeared in the Sunday Telegraph.

I am merely asking the questions, and it is not for me to provide the answers. None of us should assume that the British products were so inferior. But it warrants investigation, not merely for the past—although B.O.A.C. should be permitted to argue that kind of thing in its defence—.but, even more important, for the future health of a great modern industry.

We are all surely agreed that there are enormous problems which require investigation. I suppose that perhaps the greatest problem with which we as politicians are confronted in trying to grapple with events today is the speed with which the scientists are able to exploit technological advances, which compress perhaps a century of normal improvement into a few years of dramatic change. There is no field of activity in which that overriding fact manifests itself more than in the aviation and aircraft industries. As one tries to study the facts and to arrive at conclusions, one is almost tempted to argue that progress is too fast to enable the industry to adapt its economics to the new conditions.

That may sound a most reactionary statement, but we are getting to that point. The economics of these industries are crazy, with or without adjectives, and we ought to begin to examine how it can be that a modern industry of this type is in this parlous condition, despite its efficiency, ability and technology.

Take the coming of the jets. I read somewhere the other day that there are now 700 pure jets carrying over half of the world's passengers, while 4,000 of the older planes, many of them in excellent condition, are struggling along for the remainder of the traffic. I suppose that possession of jets, which of themselves show the highest economic yield, is a condition of survival, yet they have reduced the working life of the other aircraft and have caused huge sums to be written off their value—an issue which we are facing with B.O.A.C. Airlines which, a few years ago, showed profits are now well "in the red". The figure of £50 million has been mentioned as the overall loss for world airlines. The effect of all this on the aircraft constructors is quite fantastic, especially at a time when, as is happening here, defence orders are being cancelled.

We have also entered the phase—I mentioned the right hon. Gentleman's discussions with the French—in which interdependence seems quite inevitable, but none of us can be happy about the results so far on our own aircraft industry, which is living a hand-to-mouth existence. I wanted the right hon. Gentleman to comment on his conversations, because if we are to go ahead with the supersonic project, I want to know, as I am sure all other hon. Members want to know, what portions of the work will come to us.

Let us face reality. We are in great trouble over interdependence, because I think that the Americans are in a very strong position to exercise economic power. I do not want to be inward-looking on all this. I want us to play our part in the development either of supersonic aircraft or of other innovations, but I do not want to see it at the expense of the British aircraft industry. I believe that an essential corollary of interdependence for us in that we should get a proper share of the work which is available, and it is for such reasons that I believe it essential that. instead of merely looking at the manifestations of trouble—in the balance sheets of B.O.A.C.—we should be meticulously examining the economic circumstances which prevail inside our own aircraft industry. I mentioned in July the great name of Royce, I suppose the greatest success story we have, and yet Rolls-Royce is now having to dismiss thousands of their employees.

I have met the right hon. Gentleman on a number of occasions with deputations of shop stewards and others asking whether anything can be done to improve the order position. One has the greatest sympathy with the right hon. Gentleman, who has done what he can to help, but we are all conscious that if we allocate the work to factory A, then factory B is in trouble a day later. In other words, there seems to be no solution if we are merely looking at the surface of the problem, and I should like the right hon. Gentleman to agree that there is far more wrong with British aviation and British aircraft construction than that which appeared in the B.O.A.C. balance sheet.

I can understand the contraction and the withering away of older industries which are over the hill, but when we have an industry of this type, within which I suppose the majority of our scientists, technologists and technicians are employed; when with each succeeding generation of planes it becomes more and more a vehicle for complicated and highly scientific technical apparatus; and when that kind of industry is behaving as though it were over the top in usefulness, then I believe that the Government should be very concerned indeed, for it is this type of industry upon which we ought to be depending for the future economic well-being of the nation. I hope that the right hon. Gentleman will extend the scope of his investigations in the way which I have suggested.

The B.O.A.C. Report outlines three phases of financial policy of various Governments in relationship with the Corporation. It says that, first, we had the period from the end of the war to March, 1952, during which B.O.A.C. was operating what it described as uncommercial aircraft; and in those days it was subsidised by Exchequer grants to the tune of £26 million. The second phase has been the years after that time, during which B.O.A.C. has operated without subsidy, but has continued to be regarded to a considerable extent as an instrument of national policy and prestige. B.O.A.C. points out that during that period, 1952–61, it earned operating profits of more than £17 million but that these profits failed to meet the interest charges by £1¼ million. Insufficient profits were made to meet the losses of the subsidiary and associated companies—a point which the right hon. Gentleman made—and the exceptional costs of proving and introducing the Britannia and the Comet aircraft or the abnormal depreciation which the shorter life of these aircraft showed to be necessary.

It was during the second phase that the then chairman, Sir Miles Thomas, said, in March, 1956, at the time of his resignation, "You can either have an airline run as a competitive airline and as a keen commerical concern, using the best available equipment to keep you up to date with your rivals, or you can have it run as a shop window for British aircraft. But if you choose the second alternative and run it as a pilot plant for demonstrating goods you would not normally purchase, you must not expect to make a profit."

I commend that thought to the Minister, especially because the Report goes on to make it clear that following the 1961 White Paper on the Financial and Economic Obligations of the Nationalised Industries and the discussions which the Corporations had with the Government, they are now expected to run on a strictly economic basis without regard to national, social and other consequences. The Report says, on page 25: Just as it has modernised its aircraft fleet, so it is now faced with the necessity to rationalise its financial structure, B.O.A.C.'s present capital position is largely the result of policies that followed a concept of the Corporation's rôle that has now been changed. That is the beginning of the third phase and I suggest that the Bill clears the decks for that phase. In fact, it could be an introduction to the aircraft and aviation industries of Dr. Beeching's plan for the railways. Had it started some time ago, one wonders whether the £151 million order for the VC10 would have been placed or whether the stretched edition of the Boeing would have been ordered. If that were the result one wonders what would be the future for the British aircraft industry. It is left with the analysis of the Minister's intention for the third phase. What happens to the uneconomic routes which both B.O.A.C. and B.E.A. are expected to fly? What happens to the development of future British planes?

Consider the sort of circumstances obtaining in the world of aviation against which background this third phase is introduced. We see that in ever-increasing degree Governments are in some way subsidising their national airlines. K.L.M. is covered by a Government announcement of some time ago. Air France has arrangements with its Government to maintain certain international services in return for a subsidy. Lufthansa, the West German national airline, made a loss of £9½ million in 1961.

We now have a new phenomena, the increasing numbers of airlines which are being set up by emerging nations for prestige reasons. It is quite certain that in the vast majority of cases losses will be heavy, but the Governments concerned consider that it is worth while to have them as flag carriers for prestige reasons. Of course, they are bound to take some marginal degree of the traffic which is available. We also see the great private airlines of the U.S.A. seeking to be able to amalgamate in order that they may cut out competition with each other.

Finally, we have B.E.A. itself now seeking a subsidy in order to maintain uneconomic routes in the Highlands and Islands of Scotland. I ask the right hon. Gentleman what alternative there is if they are to run as commercial undertakings? If he is now to insist upon strict economics as the criterion for running any route, is he not, in fact, saying that B.E.A. must be perpetually in debt or cut out the whole of its uneconomic routes? I see no alternative, I shall be grateful if the right hon. Gentleman will enlarge on that matter.

What are the Government doing to assist the flag carriers of the nation to be able to live in the jungle which has now developed in the world of aviation? Their major contribution is to enforce even more vigorously the provisions of the Civil Aviation (Licensing) Act, 1960. The provisions of that Act as it left this House were bad enough, but in the manner in which the Air Transport Licensing Board is interpreting those provisions it has become a positive menace to the future of this industry. Even the present Minister of Defence could not stomach the reasoning of the Board when it granted licences to Cunard to run on the North Atlantic and he reversed its decision.

It was not so with the present Minister who found it necessary to confirm 15 licences for independent operators on B.E.A. routes during the Summer Recess. I put to him frankly that that was an irresponsible thing to do. He has told us today that B.E.A. had to meet its deficits out of revenue and, to quote him again, it cannot repeat that. He also told us that B.E.A. is enduring intense competition in Europe. How is it to live if we get a continuation of this kind of thing? Already according to its Report there are independents running on some fifty of its existing routes. Now apparently it is to have even more of that competition.

Mr. F. A. Burden (Gillingham)

All these companies are privately owned. Their allowances are very small in the matter of licences. The Corporations can introduce as many planes in competition as they wish. The major point is that these private companies will have to compete. If they do not compete and cannot pay their way, they have no public purse on which to draw and they will go under unless they can run efficiently and well.

Mr. Rankin

Wait and see.

Mr. Lee

We all know about this. My charge is not against the independents. I have never said, and do not say now, that there is not a part to be played by the independents. Before the 1960 Act they were enlarging their share of work at a far greater pace than any other sector. They were doing a first-class job. My complaint is that they have now been diverted from that by the workings of the 1960 Act. It is no contribution merely to wait for a route to be proved so far as profitability is concerned and then to "horn in" on that, but that is precisely what is happening. For every licence for which they apply the application is based on competition.

I do not want to requote everything that the Secretary of State for Commonwealth Relations and Secretary of State for the Colonies said when he introduced the Bill, but he based himself on the efficiency which, he said, could result from competition. He said that this would be a fine thing for British aviation as a whole and told us that there was no question of cut-throat competition. The independents would supplement the work of the flag carriers. Is that happening now? Nothing of the sort. There is cutthroat competition on those routes which show a profit and the Minister now tells us that B.O.A.C. and B.E.A. must be economic propositions. Apparently they are to divorce themselves from the social, national quality of their work which was outlined in the White Paper on the work of the nationalised industries.

Mr. William Shepherd (Cheadle)

Does the hon. Gentleman not agree that if these two vast Corporations cannot face with resolution this minute competition we ought to clear out the boards of both Corporations?

Mr. Lee

If these Corporations are to be run as strictly profit-making concerns—in other words, if they are to take no cognisance of what happens in the aircraft industry and to withdraw their patronage from any planes produced by the industry unless they are convinced that they are the finest and best planes—

Mr. Burden

That is their duty.

Mr. Lee

Oh, no. If they are now convinced—

Mr. Maxwell-Hyslop

rose—

Hon. Members

Order.

Mr. Lee

If we are now convinced that the Boeing is a better plane than the VC10 we can buy the Boeing and not British planes. If, in other words, they are to run precisely and entirely as com-, mercial propositions, I would accept that, but what would happen to the smaller companies? Frankly, I do not think there is any answer to the problem. The ultimate of that policy would be precisely what Dr. Beeching is doing to the railways—wherever there is a service which is uneconomic, you cut it out. We have agreed that the only way for us to play our part in world aviation is to seek expansion of routes on which British planes fly—not a contraction, which is bound to happen if we run them entirely as profit-making concerns.

These are the reasons why we believe that the working of the 1960 Act has become a menace to the future of our aircraft and aviation industries and, therefore, when we are returned to power, we shall annul the provisions in the Act dealing with licensing and seek to assist all sections of the aviation industry as well as the aircraft industry instead of having the present anarchy. We believe that this would represent a major contribution to assisting the industries, so that will be our task when we are returned to power.

5.10 p.m.

Sir Arthur Vere Harvey (Macclesfield)

I feel more depressed now that the hon. Member for Newton (Mr. Lee) has concluded his speech than I did when he started. I have never heard so many flimsy excuses for the loss of £60 million of the taxpayers' money. The hon. Gentleman even brought in Rolls-Royce. The industry has shareholders who will certainly ask questions at the annual general meeting if they are not satisfied. The hon. Member for Newton spoke for twenty minutes about the Cunard-Eagle arrangement. I have heard it suggested that next year the shareholders of Cunard may well have to face a loss of £1 million on their share of the loss because of this arrangement on the North Atlantic. If he is not a shareholder, I advise the hon. Gentleman to buy a share so that he may go to the annual meeting and plead for the poor wretched Cunard shareholders. They are the people for whom I feel sorry. They are having to repay part of the taxpayers' loss on B.O.A.C.'s North Atlantic operation. The hon. Gentleman cannot get away with what he is trying to tell us this afternoon.

The hon. Member for Newton spoke about the intervention of the Ministry and, as I gathered, the interference with the working of the Corporations. I hope that when my right hon. Friend winds up the debate we may be told whether there have been any interventions. I understand that the Corporations have been given a pretty free hand in the conduct of their affairs. It is always open to the chairman to write a letter to the Press, as was done by Sir Matthew Slattery, or to resign or complain. But one does not hear of that happening very often. I do not think that there has been any intervention on the part of the Ministry.

I consider that the hon. Member for Newton has drawn a number of red herrings across the path of the discussion in order to disguise the condition of what originally was a "baby" of the Labour Party. The hon. Gentleman must be disappointed and sore at the outcome. But I did not hear one remark about the future of the Corporations. If he is concerned about what has happened to the taxpayers' money, the hon. Gentleman would be well advised to address himself to what is to happen in the future. He referred to K.L.M. being subsidised by its Government. If I may have the hon. Gentleman's attention, I will tell him that only 51 per cent. of the equity in K.L.M. is Government-owned. The other 49 per cent. is owned by outside shareholders.

Mr. Lee

What point is the hon. Gentleman now making?

Sir A. V. Harvey

I am doing what it is customary to do in this House, although the hon. Gentleman may not find it agreeable. I am criticising what he said.

Mr. Lee

All I said about K.L.M. was that it is subsidised by the Dutch Government.

Sir A. V. Harvey

It is also subsidised by shareholders who hold 49 per cent. of the equity. If there are losses the shareholders will have to stand them. The hon. Gentleman must become more acquainted with the facts in this business.

The hon. Member for Newton said that there have been seven American aircraft in the B.O.A.C. fleet since the war I calculate that there have been five, starting with the Lockheed Constellation. Then there was the DC4M —the Argonaut—which is really Canadian; the stratocruiser: the DC7C and the Boeing 707. It appears to me that the Corporation has had plenty of freedom to buy foreign aircraft when it wanted to. We were told that the DC7Cs would be sold for dollars. But they cannot now be given away. They cannot be sold for sterling, let alone for dollars. It is all very well to quote a case about not using British aircraft. But the profit made by B.E.A., about which we have heard so much and which is very welcome, was made with British aircraft, the Viscount and others.

Mr. John Cronin (Loughborough)

The hon. Member is being a little unfair. Surely the Corporations have suffered a loss because they bought American aircraft to take the place of British aircraft which were delayed in production.

Sir A. V. Harvey

If the hon. Gentleman will allow me to develop my speech, I shall come to that point and deal fully with the matter.

I thought that my right hon. Friend was more than generous with B.O.A.C. He criticised the Corporation a bit, but I thought that he was generous. I agree with the Minister. I think that the standard of safety in both the Corporations is every bit as good as in any other organisation. In B.O.A.C. the standard of comfort and service is excellent. I wish I could say the same about B.E.A. When I travel by B.E.A. I feel like a trussed chicken. One is pushed into a seat and travels in tremendous discomfort.

Mr. Richard Marsh (Greenwich)

That is not a very nice remark.

Sir A. V. Harvey

It is true.

Mr. Marsh

That is not a very helpful remark.

Sir A. V. Harvey

All I am saying is that passengers travelling by B.E.A. should have more seat space and a little more leg room.

B.O.A.C. says that the position is aggravated again because of pressure to buy British aircraft. Is there such pressure? I do not think so. If an American aircraft is purchased it must be taken, as it were, off the shelf in a ready-made form. There is the alternative, that it is possible to have an aircraft designed to suit the requirements of the purchaser and for the route upon which it is proposed to operate the aircraft. Surely that must be helpful.

Mr. Lee

Is the hon. Gentleman saying to B.O.A.C. that he would support a policy of buying foreign planes to the detriment of proven British planes?

Sir A. V. Harvey

No. The Corporation has already had freedom to buy foreign aircraft, and look at the result.

Mr. Rankin

And there was a row in this House when that was tried.

Sir A. V. Harvey

The hon. Member for Newton said that seven different types of aircraft had been acquired since the war, so that the Corporation has experimented and we have not seen any profitable income resulting from it.

In 1961 there was a loss of £14½ million, probably the highest of any airline in the world. There was a loss of £3 million through an engineering strike, as has been stated. Without going into the rights and wrongs of the matter, I am of the opinion that relations between management and workers in B.O.A.C. are not good. Why is that? Is not that a matter which should be looked into? Is the management sufficiently in touch with the workers to explain the position to them so that they are familiar with the day-to-day business and what will be the result unless a profit is made and the Corporation pays its way?

We are told that the Comets are to be written off in five years. If the Comet fleet of B.O.A.C. is to be written off in five years, I should like to know why. If the VC10 is to come into service early in 1964, presumably the Comet fleet will have to fly for another eighteen months or two years while the VCl0s are being worked into the fleet. This means that the Comets will have a life of seven years. I am anxious to make this point to my right hon. Friend because the de Havilland Company is still manufacturing Comets in order to fulfil export orders. This aircraft is being sold abroad against severe competition. A week or two ago I read that a new batch is being laid down at Hatfield. A procedure of writing off this aircraft in five years will not help our exports or assist de Havillands. I hope that Sir Matthew Slattery will look at the matter objectively. The damage has already been done. Surely the depreciation of the Comet should be extended over a greater period.

I do not think that the remarks of the B.O.A.C. chairman regarding the "bloody crazy method of financing" created a good impression. He runs this great Corporation and is in a position of great responsibility. While it has been a bad year for most airlines, some have made a profit. Quantas, the Australian airline, showed a 5 per cent. rise in its net profit. The figure went from £327,000 to £409,000 in 1961– 62. That is a 3 per cent. dividend to the Federal Government. If Australia, which has not many bilateral routes throughout the world, can operate a world service against all competition and make a profit, I suggest that B.O.A.C. should study the way in which Quantas operates and find out how it is done.

T.W.A., we are told, made a loss of £1¾ million in the first eight months of 1961. But on its international operations it turned that into a profit of just over £3 million in 1962. Swissair also made a small profit. Aer Lingus made a profit of about £¼ million. Therefore, not all airlines are making losses.

I believe that the airlines which are making profits are those with first-class management. I am not satisfied that the management at the top at B.O.A.C. is what it should be. I do not want to go into personalities, but what is required there is a good clear out at the top. Year after year we have seen this go on—bad relations with workers and wrong decisions taken over equipment. It is all very well for my right hon. Friend to excuse B.O.A.C. for ordering the Britannia, which we know was two years late. Other airlines did not make that mistake. A few ordered the Lockheed Electra, which did not come into quantity production. It was a fundamental mistake on the part of the management of B.O.A.C.

I have said repeatedly in the House that the weakness in the organisation of B.O.A.C. is that it has not had the research workers and backroom men evaluating future types of aircraft and looking ahead. The Corporation has been inclined to buy six or a dozen of almost every aircraft which has appeared on the horizon. B.O.A.C. has never devoted the deep thought to this matter that B.E.A. has. It may be easier to run a smaller line, but nevertheless B.E.A. has approached the matter much more scientifically. If this matter has not yet been rectified, B.O.A.C. should look into it forthwith.

I come to B.E.A. and some of its problems. Because of B.E.A.'s increases in costs of passengers and freight landing at London Airport, Aer Lingus is to institute its own servicing arrangements. It is going to run its own coaches and have its own terminal in London. This means bringing in a staff of about fifty. After all these years when B.E.A. and Aer Lingus have been so interlocked and have been saving overhead expenditure by doing each other's servicing, why has Aer Lingus decided to do its own servicing? There must be something wrong with the organisation. [because B.E.A. has lost this revenue from Aer Lingus. To last March B.E.A. paid out £2,300,000 to other operators for handling, but it received £2,600,000, so there was a credit balance of £300,000 on handling. B.E.A. is going the right way about it to lose that much of this type of business. Even in Manchester B.E.A. has been unsuccessful in trying to operate its own handling. The case went before the courts, even the High Court, and B.E.A. lost.

I want to refer to the 42 VC10s which are on order for the Corporations. Will the increased performance asked for on the twelve to which my right hon. Friend referred be met? Are penalty clauses to be inflicted for late delivery? May we be told a little more about the contracts between the operators and the manufacturers? The Boeing 707 is ageing. By the time the VC10 comes into service the Boeing 707 will be six or seven years old. I should like to see a feeling of optimism about the future of the VC10. It is a very remarkable aircraft, with its engines situated in the tail. It takes off in about half the distance of the Boeing and lands in half the distance. It will have a very great passenger appeal on the North Atlantic. When B.OA.C. gets this aircraft into service, I believe that other airlines will have to buy it if they want to keep up with B.O.A.C.

We must not damn the British aircraft industry too much. It is doing a first-class job in every direction. I direct the attention of the hon. Member for Newton to the Vickers 111, an aircraft which will sell for about £800,000, compared with the Caravelle which costs about £1.3 million and does almost the same job. Orders are coming in almost weekly from foreign countries. Surely nothing could be better 'for Britain than this type of investment which is taking place today.

Pan American and T.W.A. are going to merge. Why are they doing so? There is a strong case for examining the possibility of a merger between B.O.A.C. and B.E.A. I know the argument about the subsequent Corporation being too large. However, I should like to know if this possibility is being considered, because I do not think that the relationship even today between the two Corporations is satisfactory. The Corporations are not working together in anything like as close a manner as they should. Many economies could be made. Passengers from North America do not necessarily fly to London, as has been said in the debate. Passengers fly from North America to Europe. They do not want to come to London and switch to another aircraft and fly to the Continent. Further, there is the merging of the crews and the medical and catering services. Insurance policies could be written together. Economies could be effected in many ways. At present there is considerable overlapping. B.O.A.C. and B.E.A. both fly services to Rome. This cannot be right. It is competition between the two Corporations. I am sure this was never intended.

I do not think that an increase in fares will be the answer to any of these problems of the Air Corporations in future. What they have to do is to try to reduce the fares and to get more people into the air. Lord Douglas has said that if he is to operate the Scottish services he will require a subsidy. I have heard it suggested that one of the largest British independents would be prepared to take on the whole of the domestic routes in the United Kingdom and carry whatever losses might be incurred in Scotland. A person who wants to fly from London to Manchester or Glasgow frequently has to book a seat two or three weeks ahead. With all these profitable routes to Belfast, Glasgow and Manchester, some losses can be carried elsewhere in the United Kingdom. It cannot be all cream. The hon. Member for Glasgow, Govan (Mr. Rankin) seems rather surprised. He knows what the load factors are, even in the winter. I understand that he flies to and from Glasgow most weeks.

The fares to the Channel Isles will be increased by 25 per cent. This cannot be right. It has been said that B.O.A.C. lost about £2.7 million on all its domestic services. In this business, as in all others, from time to time a fine tooth comb has to be put through the expenditure. When a business is going well, that is the time to perform this operation, not when it is in difficulties. Every penny should be examined in the forward budgeting of the Corporations. After all, Jersey Airlines has made profits consistently at the old level of fares, which has not changed since 1958.

I ask my right hon. Friend to strengthen the inquiry which is taking place. I believe that Mr. Corbett is an excellent man for the job, but he should be given some technical assistance to enable him to look into the more detailed affairs of the Corporation. Are there still too many men on the maintenance side of B.O.A.C? All these things should be looked into, not merely the capital structure and the financial arrangements.

I was appalled by the speech of the hon. Member for Newton and the way he glossed over the enormous sums of money which are being lost and drew red herrings across our path. He talked about the Labour Party being the next Government. Heaven forbid that we are going to have a Government like them trying to run the affairs of Britain.

5.30 p.m.

Mr. John Rankin (Glasgow, Govan)

I welcome the aid which is provided in this Bill, but I call it a dishonest Measure. In using those words, I want to make it clear that I cast absolutely no reflection whatsoever on the integrity of the Minister. I describe the Bill thus because the amounts allocated under it for financing the accumulated deficits and, to some extent, for providing for capital investment will act as subsidies to private enterprise. In his speech my hon. Friend the Member for Newton (Mr. Lee) gave an example of that in the case of Cunard.

Let me try to show why I have called the Bill a dishonest Measure. I start by quoting the chairman of B.E.A., Lord Douglas. In his current Report he tells us that: the Licensing Board misconceived the primary duty laid upon it by the Licensing Act, namely, to license only such services as would further the development of British civil aviation. The Board, however, has taken an entirely different view. It believes that B.E.A. faces virtually no competition on its international routes and that it operates in conditions of 'near monopoly'. In the light of this, the Board pronounced a principle which means that competition is inevitable between British carriers on international routes. Here are the Board's actual words, and I quote: We are in no doubt that some carefully regulated competition must, sooner or later, become a feature of the routes over which British aviation operates. In saying this, the Board is in direct conflict with the Minister responsible for aviation at the time who said in the House on 23rd November, 1960: It was not the intention of the Act to promote competition between British carriers for its own sake. In actual fact, foreign competition on B.E.A.'s international routes in Europe remained intense during that period and will be even more intensified by the new group of European airlines which has recently been proposed. Recognising the possibilities that might ensue, the Minister again two years ago used the following words when speaking in the House: I certainly appreciate their difficulties"— he was referring to the Corporations— in a tough and highly competitive world. There is no monopoly for B.E.A. or B.O.A.C. on the international air routes. Since the right hon. Gentleman spoke those words that competition has grown even tougher.

I would direct the attention of the House to the following words of Lord Douglas on page 15 of the Report: There is no doubt that the licences granted to private airlines to duplicate B.E.A.'s services would result in extremely serious consequences for B.E.A. as regards both diversion of revenue and foreign traffic rights; so much so that the Corporation fears it may well mean that B.E.A.'s present unsatisfactory financial position is continued and B.E.A., from being a profitable enterprise, will go through a lengthy period of loss. Moreover, in such a financial position, B.E.A. may have to curtail its opening up of new international routes which are not likely to be initially profitable and its operation of unremunerative ' social services ' within the United Kingdom. In B.E.A.'s view, to permit more airlines at this time to provide wholly unnecessary and unwanted capacity and, at the same time, to allow division of effort to weaken the British position against foreign competition would be folly.

Mr. Burden

Does not the hon. Gentleman think that he really ought to get this matter into perspective? On the routes London to Glasgow and London to Edinburgh the Licensing Board has given the independents one flight per day and no more. The Corporations are now flying, I think, dither 13 or 15 flights a day and can increase that number as they like. Surely that is terrible competition. It is a pretty awful position for the independents to be put in.

Mr. Rankin

I am grateful for the hon. Gentleman's intervention for, once again, it exposes his inability to listen to the conclusion of what I am saying If he waits until I translate it into £ s. d.—the words I have been reading from the Report—he may get a different view.

Transferred to the revenue side of its accounts, what do the operating licences granted to the private companies last September mean to B.E.A.? I am now going to do what the Minister this afternoon asked us to do, look to the future and not to the past. On the international routes, these licences will represent a yearly loss of £4½ million and on the domestic routes a yearly loss of £1 million, and that is taking into account the routes to which the hon. Gentleman has just referred. In the view of B.E.A., the granting of these licences will mean a yearly loss of £5½ million. Of course, the hon. Gentleman may reject the figures which I am giving. He is entitled to do that, but if he does reject them then he should give us the figures which he knows to be more accurate. I challenge him to do that before the debate ends.

Savings, of course, are expected and will amount, as has been estimated, to between £1 and £1½ million. But practically all these savings will be on the international routes while the savings on the domestic routes will be almost negligible. Therefore, the net yearly losses on B.E.A.'s services in the future will be £4 million, that is, when the present licences are in full operation. I know, of course, that the hon. Member for Gillingham (Mr. Burden), who makes loud noises when B.E.A. loses a million or two, will perhaps say that the loss of £4 million or £5 million to his friends does not mean so much after all out of a total income of £46 million.

Mr. Burden

Where did the hon. Gentleman get his figures?

Mr. Rankin

I wish in the interests of debate that the hon. Gentleman would use both his ears when he is trying to listen. I do not wish to be distracted by him. I am being factual and the figures which I am giving to the House are the official figures of B.E.A. I have already said, and I repeat, that if the hon. Gentleman has better figures to give, let him present them to the House tonight.

The Government step forward and say grandiloquently that there is no need for the Corporation to worry because here is a Bill which covers their potential losses up to March, 1964. Therefore, the Government which the hon. Gentleman supports expects losses between now and 1964 and I am giving the extent of those losses. This attitude on the part of 'the Government is entirely farcical, because they are not in reality ensuring the Corporation against deficits. They 'are subsidising the private companies with taxpayers' money to compete against a publicly owned operator. This of course is an old Tory policy. There is no open door at the public house, but there is an open hand once more at the public Exchequer.

Sir A. V. Harvey

The hon. Member talks about future losses. Perhaps he would address himself to past losses, because none of the licences so fax granted to the independents has come into being. What happened in the past to bring about this situation?

Mr. Rankin

The hon. Member has made his speech. He must not now assume the attitude of a dictator and make mine for me. If he will go on looking backwards, as most Tories do, to a disreputable past, why should he expect me to join him? As always, the Labour movement tooks forward. This is what the Minister talked about in his speech. If the hon. Member was asleep at that time he has only himself to blame.

The Minister carries full responsibility for the state which B.E.A. visualises it may reach. The Minister's own Commissioner recommended that more of B.E.A.'s appeals against the decisions of the Air Transport Licensing Board should be allowed, but the right hon. Gentleman would have none of it because this would have given more help to B.E.A. The right hon. Gentleman refused to take that advice. He decided that more of B.E.A.'s revenue is to go to private enterprise. Income that formerly went into the coffers of the public corporation will now be diverted, when their licences come into operation, to private enterprise and then the Corporation's loss is to be made good through the machinery of this Bill. That is the policy which the Government are following in this case.

Reduced to clear and perhaps crude language, the right hon. Gentleman is robbing the public purse to fill the pockets of the private speculator. Competition is a fine idea until its apostles have to compete. Then they run around, as they are now doing, seeking pool agreements to save themselves from the consequences of their own beliefs. This is now happening in regard to the decision of the Licensing Board to allow a private independent company to operate on the London-Paris route. The company is approaching B.E.A. to obtain not competition but co-operation. Actually in making its award the Licensing Board recommended that course to the company, despite the fact that to some extent the Board was defeating its own interpretation of the mission given to it.

My hon. Friend the Member for Newton made clear that there was room for the private operators. I agree entirely with him. There are still plenty of opportunities for them in this country. Starways has shown what a fine job can be done. As for the Highlands and Islands, it is very strange that if profits can be made, as the hon. Member for Macclesfield (Sir A. V. Harvey) has said, nobody has yet offered from amongst the independent operators to run that service. Evidently, they believe that no profit lies in it. There are also the Irish Sea routes. I agree that Cambrian Airlines are now coming in, but it has taken over only the Isle of Man and Liverpool routes. It still leaves Dublin and Belfast in the hands of B.E.A.

Mr. Nabarro

I happen to have appeared before the Air Transport Licensing Board as a witness in support of an application by an independent airline to operate services from the principal centres in England both to Belfast and Dublin in competition with B.E.A. It was refused. There is no slothfulness or lack of desire on the part of independent airlines to operate to Northern Ireland or to Eire, but the fact is that the Board will not give them licences to do so.

Mr. Rankin

The hon. Member will realise that it is very difficult for the House to debate any decision by the Board without all the information on which the decision was reached. We can discuss only its effects. I am saying that on the Highlands and Islands route only one private operator came forward and made an application but before it ever reached the point of being considered by the Board, after making full inquiry into the possibilities of the route he withdrew his application. No further word has been heard about it.

I said that the Irish Sea routes were another example. Such routes can be run only as long as B.E.A. has the plum routes which create profits that can stand the losses which are inevitable on the two routes I have mentioned. The feeling was expressed recently by many people that a great many Americans come to Prestwick—

Sir A. V. Harvey

Why?

Mr. Rankin

Obviously, the hon. Member has never been to Prestwick because a visit would have answered his question. The Scottish Tourist Board will supply him with further information, but there is a suggestion that B.E.A. is failing in its duty in not providing services at Prestwick which would carry these American tourists to a great many other points in Scotland. B.E.A. was condemned for that, but again not one independent operator has ever applied to the Licensing Board for the right to run such services from Prestwick to any other part of Scotland or even of Britain.

Why? Because they are not routes on which the independent operators can make a surplus. That is the simple answer. If the Government say to B.E.A., as they are saying, "You must run as a commercial undertaking" and B.E.A. replies that Prestwick and the smaller routes are not commercial propositions, one cannot condemn B.E.A. for not creating those services—particularly when that competitive policy is supported by the independent operators who are sustained by hon. Members opposite.

We must, of course, also consider the position of B.O.A.C. which is involved in the considerations we are giving to the Bill. Sir Matthew Slattery, in a vivid and arresting speech, described the structure of B.O.A.C. as "Bloody crazy". The Minister used one of those words today, and thus the phrase is sanctified by ministerial use. I can therefore repeat it to the House. "Bloody crazy" is the phrase, but what is the general criticism of B.O.A.C?

Mr. Charles Loughlin (Gloucestershire, West)

very expressive phrase.

Mr. Rankin

The general criticism might be summed up in a brief phrase. B.O.A.C. is doing a bad job for a variety of reasons, including bad business management, bad judgment and bad budgeting. Those are the sort of phrases which most of the critics have used when criticising the Corporation. It seems that everything that can be bad is applied to B.O.A.C. Of course, if it savours of national ownership it is automatically bad to hon. Members opposite.

Just what do the Government expect B.O.A.C. to do? It seems that the Government require two things of the Corporation. In terms of logic, they expect it to be A and not A at one and the same time, but the logicians agree that that is impossible. The Government say that B.O.A.C. must run as a commercial undertaking but must, at the same time, go in for non-commercial business—business which shows to disadvantage in its balance sheet.

Mr. Burden

rose—

Mr. Rankin

If the hon. Member will restrain his impatience, I am coming to the point. I interrupted the Minister today to remind him of something said by one of his predecessors when the Civil Aviation (Licensing) Act, 1960 was going through the House. I think that the right hon. Gentleman in question now occupies the Commonwealth Ministry. But fluctuations among Members of the Front Bench occur so rapidly that one is apt to misplace Ministers.

I was rather intrigued when the Minister told us today that he has appointed an expert accountant to go into the financial activities of B.O.A.C. and to report to him in the spring. I wonder if he realises that, taking the average duration for the occupancy of his office, by next spring he will not be there at all? There will, probably, be another shuffle and the succession of persons who have occupied that post' in years gone by will continue so that the present Minister will have been in office for the allotted time—about 18 months; the average allotted time judging by former occupants of that Ministry. The right hon. Gentleman might have had that in mind when he spoke of the report being presented to him next spring? Perhaps he will merely pass it to his successor for further consideration?

When I interrupted the Minister's speech earlier he agreed with me that one of the purposes of B.O.A.C. was to "show the flag" and that the Corporation opened many routes, which it knew were non-commercial, to maintain our prestige and, as the Minister put it, to "show the flag". Each one of those routes has shown the maximum loss and the minimum profit.

Sir A. V. Harvey

The hon. Member has said that B.O.A.C. operates many routes to "show the flag". Would he quote the exact words used by my right hon. Friend or, if he was quoting from a different source, would he give us the reference?

Mr. Rankin

I agree that I am quoting from memory—

Sir A. V. Harvey

Ah.

Mr. Rankin

—but I happen to have a powerful memory. It carries me back to the time when the hon. Member for Macclesfield, who is now interrupting me, never showed the faintest interest in the Civil Aviation (Licensing) Bill when it was going through the House. He did not serve on the Committee which considered that Bill and the whole Committee stage went through without that hon. Gentleman on any morning poking his nose inside the door. Yet now he interrupts me on what is a very childish point.

Mr. Burden

I was there, but I do not remember hearing the words quoted by the hon. Member for Glasgow, Govan (Mr. Rankin).

Mr. Rankin

I was quoting from the records of that Committee stage and the House, and I distinctly remember hearing the Minister saying that one of the purposes of B.O.A.C. was to "show the flag". I think that the hon. Member for Abingdon (Mr. Airey Neave) will not disagree when I say that that has been one of the tasks imposed on B.O.A.C. and a reason why the Corporation has incurred losses.

The hon. Member for Macclesfield said that the Corporations are expected to buy British, and the majority of hon. Members would agree with that principle. However, I recall that when we wanted millions of dollars to relieve B.O.A.C. through the failure of the Comet, some of the chief opponents at that time were hon. Members opposite. I am certainly not against buying British. In fact, I agree with the principle, but we must not lose sight of the fact that it has meant us making losses.

When we add up the losses to account for the £14 million deficit in the present B.O.A.C. budget we discover that the Corporation is paying £6 million in interest this year on the £64 million that hangs around its neck. B.O.A.C, it seems, will have to go on paying at that rate of interest till the end of time and, as the Minister seemed to indicate, he does not have another thought about the matter. Why will he not allow B.O.A.C. to do what any private company would do; either wipe out or reduce its accumulated losses? Then there is a loss of £2 million on its associated companies and a loss of £4 million on what I call aircraft disappointments and also because of the request that President Kennedy made to Americans last summer not to travel abroad but to keep their dollars at home. All these items added together give us a total loss of £12 million out of the £14 million which are shown as a deficit and against which the Members opposite had been launching so much criticism. I wonder if any of them, when they come to deal with these losses, will have the temerity to tell us that if private enterprise had been running the services they would have avoided every one of the losses that I have detailed.

While I agree that we have to inquire into the position of the public corporations, I wish that we had the same facilities for looking into the position of a great many of the private companies that operate in this country. We can do that quite easily with the public corporations. I am convinced of one thing. I am a regular user of the services provided by B.E.A. and I disagree with the hon. Member for Macclesfield in his criticism of the quality of the service. I have been using it for seventeen years, mostly twice a week, and while I agree that flying in a D.H. was not so luxurious as flying in the Vanguard, development was coming and it has reached a peak at which the services provided by B.E.A. on the domestic routes, of which I can speak with knowledge, are better than anything that I have used in any other part of the world.

I think that it is our business not only to criticise but to pay credit for the Corporations where credit is due and to give them our support, as this side of the House will always do whether it is in opposition or in Government.

6.2 p.m.

Mr. Airey Neave (Abingdon)

I should like to begin by refuting what the hon. Member for Glasgow, Govan (Mr. Rankin) has said in regard to the attitude of hon. Members on this side of the House to B.O.A.C. He said that we were saying that everything about B.O.A.C. was bad. I do not believe that we have ever said that. We do not feel that at all, and I am sure that all of us would agree with my right hon. Friend in his reference to the excellent professional record of the Corporation. We are concerned that that the Corporation should become profitable, competitive and efficient in the future.

Mr. Rankin

If I did an injustice to any hon. Member opposite—it would be difficult to do that—then I am sorry. The speeches that I have heard may not have said that everything was bad, but I did not hear many of them saying that much was good.

Mr. Neave

I think the hon. Gentleman will agree that he was mistaken in putting too much emphasis on the word "bad". I do not agree with that. But we are very seriously concerned about the management and finances of B.O.A.C. in particular. My right hon. Friend the Minister is now in his place and I congratulate him very much on the way in which he is at present handling this matter. He had to make a very difficult speech today, but he presented admirably a very delicate and serious situation. We must sympathise with him in having to deal with it so soon after taking office.

First, it is perfectly clear that there is no alternative to increasing the borrowing powers of the Corporations. Secondly, I think that all hon. Members will agree that it is very difficult to discuss in detail the future pattern of B.O.A.C. in particular until Mr. Corbett's report is at hand and the Minister has been able to tell us here more about it. There are, however, some comments which one ought to make, since all hon. Members have had an opportunity of reading the Reports of both Corporations.

I shall refer in particular to B.O.A.C. I think that the most disturbing thing about its Report for 1961–62 is the absence of any constructive proposals by the Corporation itself as to what it intends to do. That is what worries me most of all. I was in my right hon. Friend's Ministry at one time, and I certainly do not want to make any criticism of people in B.O.A.C. who, I am sure, are doing their very best, and I think that we should have sympathy with the staff in the very discouraging position that has arisen from these appalling operating losses. But I am concerned that there is no proposal at all in the Report about what the Corporation intends to do. Indeed, the Corporation—and I hope that it is not unfair criticism—seemed to give the impression that it could not be held responsible for the losses and that the responsibility lay entirely with other people. This view needs examination. I support what my right hon. Friend said about interest on losses. Sir Matthew Slattery has said that it is crazy to ask him to pay interest on losses when the Corporation is an instrument of national policy. If it had been relieved during the years of its existence of interest on its accumulated deficit, the total deficit would still be more than £55 million, and therefore this does not really answer the very difficult problem of reorganisation and financing which we face. I think that my right hon. Friend is quite right, that it should be made to pay interest like any other concern, public or private, which has to borrow. I see no ground for making an exception in this respect at all.

With regard to B.O.A.C.'s complaint of late deliveries of British aircraft and that technical delays are the causes of its troubles in having to write down some of its aircraft at a very big loss, I refer in particular to the Britannia. I think that all hon. Members who were here in 1957, when the Britannia was first introduced, will remember that even at that stage there was public controversy about the Britannias on account of the delays in delivery, and it was being freely discussed whether B.O.A.C. had, in fact, too many aircraft at that time. This must have been known to B.O.A.C. at least during the past five years. Although it may have had no alternative to the action that it is taking today in writing down these aircraft, I do not think that it is fair for the Corporation to suggest in its Report that the blame for the loss of £22 million lies in the fact that it ordered these aircraft when it did. That is an unfair judgment.

As my hon. Friend the Member for Macclesfield (Sir A. V. Harvey) also did, I very much deplore the public statement about the shorter life of the Comet 4, especially at a time when De Havilland is bringing into production the Comet 4C. B.O.A.C. also claims that it has to bear the cost of pioneering new British aircraft while its competitors order proven aircraft off the shelf two years ahead. I think that my right hon. Friend should examine very carefully and in detail what foreign airlines do.

It has been suggested that B.O.A.C. should apply for a subsidy to develop the VC10 on the ground that American operators have development flying done by the Services. Before I came to this debate I looked up the magazine "Flight International". As long ago as 1959, it was there pointed out that, although it might be partly true of the Boeing 707 that development flying was done in that way because the aircraft was bought by the Services, it was certainly not true of the DC8, of the Electra, of the Fair-child Friendship or of the Convair 880 or 990. I do not know whether that is correct, but I think that my right hon. Friend should examine the question.

Mr. Burden

It is correct.

Mr. Neave

My hon. Friend tells me that it is correct. If so, it seems clear that the airlines which bought those aircraft must have footed the bill.

It has been pointed out that other airlines have suffered in 1961. I refer in particular to T.W.A., and it is here that I come to the necessity for a searching inquiry into the future management of B.O.A.C. T.W.A. lost nearly £14 million in 1961, £8½ million being due to the writing down of propeller aircraft. What did the company do? It had an administrative shake-up and a big sales drive.

Incidentally, although reference is made in the Report to new sales offices for B.O.A.C., I should like to see revealed in the Report some earnest intention to have a real sales drive. I see no sign of it, but I hope that it will come.

As a result of what T.W.A. did, the company was by this year making a profit again on its international services, and it appears to have a very good chance of breaking even in 1963. So it can be done. What worries me is that the Report seems to leave it to other people—principally, I imagine, Her Majesty's Government—to help the Corporation out of the mess. That does not look like a prescription for success in the future.

The same could be said about Scandinavian Air Services, which lost £6 million in the two years. New management has put it on the road to recovery. There have been references also to K.L.M. The point we must all accept is that B.O.A.C. cannot be regarded as an exception to these rules. Whatever my right hon. Friend's responsibility may be, a responsibility which, I am sure, he will discharge very well, B.O.A.C. will have to put its house in order.

Although we must await the results of the investigation by Mr. Corbett before pronouncing a final judgment on any constructive proposal, I have a great suspicion that administrative as distinct from operating costs will play a large part in the solutions which my right hon. Friend will have to find. Administrative costs are controllable, and I suspect that a good deal will have to be done in that direction.

That reorganisation for greater efficiency must come in this airline appears clearly from the Report at page 16 where the shortfall in traffic is described. If hon. Members have read the Report they will know that the total revenue fell short by £14 million more than the Corporation expected. Of that sum £3 million is accounted for by the strike. I make no comment about that because I feel that there are two aspects to that strike. In fact, B.O.A.C. lost on every ticket it sold. The traffic shortfall referred to was apparent, according to the Corporation's own Report, by April, 1961. In spite of that, it continued to commit to the Atlantic route 60 per cent, of its capacity.

On its own statement, the Corporation did not review the matter until September, towards the end of the summer, when it had already lost £7 million.

Whatever one may think, whether one takes a view in favour of nationalised undertakings or of private enterprise, that cannot be called good business or good commercial management in any sense. Although I regret having to be so severe about it, it is there in the Corporation's own Report. The Corporation admits that it did not review the schedules on the Atlantic until September. Naturally, with the winter months coming along, it would not earn so much and it was already 7 million "in the red". That supports what I say.

I agree with the need to support the Corporation. I have always felt that, although I agree also with the need for competition. What has been said about the danger of competition to B.O.A.C. really (has no relevance to this debate. Looking at the deficit of £67 million accumulated over the past ten years in what is, after all, an expanding industry, not a contracting one, with the broadening out of licensed operations not yet fully in effect, one cannot really say that the major issue in this matter is competition by the independent airlines. It is not true in terms of the figures. There is, therefore, a vital need for action, and the changes in London's position as the gateway to Europe and as a traffic centre will make such action very urgent indeed.

In the Financial Memorandum there are the ominous words, which have already been referred to, which prepare us for a possible deficit of £32.7 million which may be incurred before March, 1964. I hope that my right hon. Friend, to whom we all wish very good fortune in dealing with the matter, will by then have found solutions which will mean that we can be proud of B.O.A.C. and that it will be an efficient and competitive airline once more.

6.16 p.m.

Mr. Eric Lubbock (Orpington)

I am very glad to have caught your eye, Mr. Speaker, because I was beginning to fear that no one from this bench would have a chance to speak in the debate. As I listened to the hon. Member for Newton (Mr. Lee), I reflected that, whatever might be said about the shortcomings of B.E.A., one could have flown by its scheduled service from London to Manchester during the course of the hon. Gentleman's remarks. I shall concentrate my attention on B.O.A.C. mainly because its operations have resulted in much larger losses than those of B.EA.

I see no advantage in the kind of ideological discussion of the losses of B.O.A.C. which has taken place this afternoon. I turn, first, to the financial structure of B.O.A.C, which, as has been said by many hon. Members, the chairman himself has described as "bloody crazy". No hon. Member to whom I have listened has made any suggestion for improving this financial structure. Several have said that some of the loans should be written off, while others have disagreed and said that the Corporation must be made to pay interest on its loans just as any commercial undertaking does. The Minister himself said that he did not see why the Corporations should be exempted from servicing their borrowed capital any more than a commercial undertaking would be, and the hon. Member for Abingdon (Mr. Neave) made the same point.

There is one factor to be borne in mind in considering this matter. Very few commercial undertakings have a capital structure which is so very heavily geared. Indeed, one can say that the capital of B.O.A.C. is infinitely geared because it has no ordinary capital at all; it is entirely loan capital. Therefore, I suggest, the cases are not quite comparable. If one had part of the capital in the form of ordinary shares and the rest in the form of loans, at least, when a loss was made, one would not have to pay interest on that part which was represented by the ordinary capital.

I see no reason why we should go on with the practice of having the old loans redeemed and giving the Minister power, as, for instance, under the Bill we are now discussing, to form new ones, the Corporation paying the interest on the outstanding balance. This is purely an accounting transaction. I did a little arithmetic on the accounts. I find that the net borrowing of B.O.A.C. last year was £28.6 million. Redemptions of old loans totalled £18.7 million and loan charges were £4.2 million, adding up to £22.9 million. This strikes me as a rather sterile accounting exercise. I see no reason why the capital of B.O.A.C. should not be reformed to consist entirely of ordinary shares with this loan capital eliminated so that when B.O.A.C. had a bad year it would not have to pay money in interest charges and when it had a good year it could pay a dividend to the Government, a larger dividend than it would pay under present circumstances when some of the fixed interest loans have a very small coupon.

I agree with the Minister that this is not as important as the Report would make out. The Report says that the first and by far the most important thing to be fixed is the need to reconsider fundamentally the Corporation's capital structure. But no amount of financial juggling can turn a loss into a profit. However, I do not wish to over-emphasise the remarks that I have made about the capital structure of the Corporation.

I am not convinced of the advantage of employing accountants to investigate the Corporation's affairs. If they are to consider purely the capital structure, this is a very simple matter about which the Minister does not need high-powered accountants to advise him. I agree with what the hon. Member for Macclesfield (Sir A. V. Harvey) said, that we should widen the scope of this inquiry and bring in some people who are able to give the Minister advice on the technicalities of the situation, and on whether there may not be some engineering methods by which the Corporation can be put on a profitable basis. That would be of much greater advantage to the Minister than the advice of accountants.

Mr. Burden

Does not the hon. Gentleman think that one of the things which should be considered is the amount of money spent in entertaining, and so on? I was horrified this afternoon when I tuned in to the radio and heard a woman journalist who flew to Finland by B.E.A. say that she and other passengers had been treated like V.I.P.s and were given champagne, caviar, a bottle of scent and three packets of cigarettes each. How many times is this sort of thing multiplied throughout the year?

Mr. Lubbock

I agree with the hon. Gentleman. I think that that example could be multiplied many times. Why is there a V.I.P. lounge at London Airport? There is not one at Victoria Station and no one expects there to be one. That is the sort of thing which could be investigated. The example which the hon. Gentleman mentioned is possibly within the scope of the inquiry to be undertaken by the accountants, but there may be many other aspects of this matter more proper for inquiry by engineers.

I turn to the question of B.O.A.C's aircraft fleet, which seems to be the crux of the matter. Many hon. Members have given their views about whether B.O.A.C's procurement policy in the past has been right. I suppose that lessons are to be learned from this in deciding what policy should be followed in future. I do not believe that there have been controls over B.O.A.C. by the Minister in the exercise of the Corporation to buy whatever aircraft it likes. I hope that this has not happened. I think that the Corporation has made mistakes in the past. It would not buy the Vickers V1000 when it could have done. That would have been an ideal trans-Atlantic aircraft. A serious mistake was made there. It could have had a trans-Atlantic Comet if it wanted one.

The Minister says that there are advantages in having aircraft designed specially to the Corporation's specifications. I take issue with him on this point. One thing which has hampered the British aircraft industry is that aircraft have been specially designed for the requirements of B.O.A.C. and B.E.A. with the result that there has not been a foreign market for these aircraft. The Vanguard is an example. This was probably a very good aircraft, but, if I remember rightly, it was sold to only one airline apart from B.E.A.

There is something to be said for both Corporations getting together with their friends overseas and deciding on a common specification. This could be done by B.O A.C. getting together with concerns like T.C.A., Qantas, Air India, and so on. In Europe it could be done by B.E.A. negotiating with Air Union. I made this point once before in an aviation debate and an hon. Member said that probably Air Union would come to nothing and that the French would have nothing of it. Now they are going ahead with it. We should consider very seriously whether we could have a common procurement policy which would suit all European airlines, thus giving our aircraft industry a very much larger market for the excellent aircraft which it produces.

A number of questions about the aircraft fleet of B.O.A.C. are not answered by the Report. I think that they are rather fundamental in considering B.O.A.C's problems. First, at what figure do the Britannia 102s stand in the books? I have tried to work this out from the graphs in the Report, but this is difficult unless one knows how much was paid for them in the first place. This is a quite important point, for two reasons. First, we should know whether the residual value of the Britannias in the books is such that they stand a good chance of selling at that price. I should like to know what efforts have been made by B.O.A.C. to dispose of the aircraft which it says are redundant. I understand that the Britannia 102s have been completely taken out of service and that they are doing nothing. There are no crews for them because they have been retrained to fly other aircraft. These assets, which are still probably worth several million pounds, are wasting away on the tarmac. I understand that there are twelve Britannia 102s left.

The position of the 312s seems to be rather more doubtful. The Corporation, perhaps, will be able to continue to employ them next year on cheaper services if the propeller differential is maintained. We do not know whether this will be so.

I suppose that we have to include the Comets in the category of obsolescent aircraft I dislike doing this, but the Corporation does it.

Mr. Cronin

We should clear up this question of the Comet in the interests of the British aircraft industry. The Comets which the British Overseas Airways Corporation is disposing of are Comet 4s, which are long-range aircraft with a comparatively small seating capacity. The Comets being produced now are 4Cs, which are excellent planes for short-haul and medium-haul purposes and serve a very good marketable purpose.

Mr. Lubbock

I do not accept that any of B.O.A.C's Comet fleet are obsolescent. I would say that for certain services they are very much more suitable than the 707s, which need a much longer take-off and landing run. I should have thought that the Comet 4s could continue to be employed on the southern and eastern routes for many years to come. I treat them as obsolescent merely because they are so treated in the Report and Accounts of B.O.A.C.

What efforts has the Corporation been making to use these aircraft for charter work? I know that the growth of the Corporation's activities in the charter field on the North Atlantic run has been quite substantial, but why should we be so hidebound as to consider only the North Atlantic as a suitable sphere for charter work? Why should not some of these aircraft be used for inclusive tour work in taking holiday-makers to Europe?

This is a growing activity. More and more people are going to Europe every year for their holidays. Very many of them go by inclusive tours. Unfortunately, the vast majority of them are travelling by foreign airlines under third and fourth freedoms. This is, to my mind, a needless waste of foreign exchange. I do not see why all this work should go to Sabena and Air France when Britannia 102s, which are perfectly suitable for this work, are doing nothing on the tarmac. There may be some red tape reason why B.O.A.C. aircraft cannot be used on European routes. Several hon. Members have referred to the possibility of an amalgamation between B.E.A. and B.O.A.C. If that is one of the advantages which would come from such an amalgamation, so much the better.

My next point concerning the fleet is why the rapid depreciation of the Comets and the Britannias was not foreseen in last year's Accounts. The chairman has been a little bit ingenuous in saying that he foresaw this. He refers to a note on last year's balance sheet stating that It is possible that the book value of certain aircraft withdrawn from regular passenger service during 1960 may exceed their realisable value when finally withdrawn from operations in due course. In referring to the write-offs, the chairman states that he had foreseen them and that that note proves it. The only aircraft withdrawn from regular passenger service during 1960, however, were the DC7Cs. Therefore, the Board of the Corporation did not foresee the losses that were to take place on the Britannias and the Comets.

That is a criticism which, perhaps, one should make of the management for not foreseeing this. The reasons for it were sufficiently clear last year. The fact of the big American jets coming increasingly into service and the main routes of B.O.A.C. being by-passed by the longer-range aircraft then coming into service could have been foreseen a year ago.

I turn now to the shortfall in the expected rate of growth of traffic which is the central theme of the Report. I shall deal only with the measures which might be taken to correct the situation. To look back is rather pointless. Rather should one consider how to remedy the situation. One way is to prevent such a large increase in the carrying capacity of the Corporation from occurring in future as it has done in the past. This does not seem to tie up with the decision of B.O.A.C. to have three more Boeing 707s, two of which, I understand, are still on order. Would it not have been possible even to pay a penalty and to tell the manufacturers of these 707s that the Corporation no longer wanted them? The answer may well be that B.O.A.C. may not use them on the same services but would use them to develop the Far Eastern routes. Unless, however, the load factors on the Far Eastern routes were high, there would be no point in introducing the 707 on them.

The Boeing 707 has a lower cost per capacity ton mile than the Comet. Nevertheless, it may be more profitable to operate the Comet on the Fat Eastern routes, because it might operate at a load factor of, say, 70 per cent. whereas if an identical service is introduced with a 707, the load factor immediately falls to a figure of 50 or 40.

That is one way in which the Corporation could deal with the shortfall in the expansion of traffic, by preventing its capacity from growing at such a fast rate, but the Corporation does not say anything about this in its Report. It states that it will undertake increased promotional expenditure and talks about better standards of ground and cabin service, the strengthening of sales management, and so on. It seems to me that this is not what the public wants. If I travel in an aeroplane, I do not want champagne and caviar. I want to get from A to B in the quickest possible time. Several hon. Members have made the point that the only way to encourage the growth of traffic is by bringing down the fares.

In that connection, the Corporation should consider the elimination of first-class services. I make this point because the load factors on the first-class services were much lower than on the rest of B.O.A.C.'s operations. The first-class services accounted for only 16.8 per cent. of the total traffic in the year under review as compared with 22.3 per cent. in the previous year. If one could eliminate this sector, one would produce not only administrative economies, but operating economies in the sense that it would not be necessary to have different catering services, different cabin staff, different seating, and so on. All the services would be the same. There would be nothing but the economy and tourist classes.

That would mean that B.O.A.C. would lose a certain amount of traffic to other airlines, because some people would still want to travel first class. I believe, however, that if a would-be passenger asked B.O.A.C. for a first-class seat and was told, "We do not have one, but we will book you one on T.W.A.", the Corporation would obtain a commission on the transaction. I should be interested to know what would be the effect on B.O.A.C.'s operations of the total abandonment of first-class services.

The opening of new sales offices in various cities has been referred to by other hon. Members. In the year under review, fifteen new sales offices were opened, two of them in Europe. Is it necessary for B.O.A.C. to have separate offices in cities which are already served by B.E.A.? I take it that these offices must be separate, otherwise they would not be specifically referred to in the Report. On page 48, however, the Report of B.O.A.C. states that the Corporation is co-operating with B.E.A. to provide unified sales organisations in foreign countries. This seems to conflict with the opening of all these new independent sales offices.

Reference has been made to the prestige services operated by B.O.A.C. We ought to know which of these services are making the losses. Perhaps B.O.A.C. already knows the answer to this. If not, it should be one of the most important factors in the investigation to be undertaken by the accountants. Is B.O.A.C. making losses, for example, on the South American services? If so, would it not be better for the Corporation to abandon the South American run and to leave it to other operators who do not mind incurring these vast losses?

The tie-up with Cunard was referred to by the hon. Member for Newton, who said that the profits on the North Atlantic route were being used to pay dividends to the private operators while the losses on the other sectors are increasing. I do not know where the hon. Member gets his information, but is not the most important thing that the management in B.O.A.C. would wish to know the relative revenues and expenditures which are incurred on the different routes run by the Corporation"' One might have a different set of accounts for the western, eastern and southern routes and wish to sub-divide them still further.

The Minister states that he has no proposals for putting the Corporations on a sound commercial basis and one cannot blame him, since he has not been long in office. He tells us that he is not even in a position to answer many of the relevant questions or to say what action, if any, is called for by the Government. He can, however, be in no doubt that on the publication of these Reports, action is certainly called for by the Government. I hope that he will accept this and will accept that the Government have a responsibility in these matters. It is a source of regret to me that this House has so little control over the affairs of the nationalised Corporations. If, ultimately, any good comes out of these vast losses, it may be that power is concentrated in this House, where it belongs.

6.39 p.m.

Mr. William Shepherd (Cheadle)

In his concluding remarks, the hon. Member for Orpington (Mr. Lubbock) said he was sorry that the House had not more control over these vast nationalised Corporations. I have reached a somewhat different conclusion, listening to this debate—that it is perfectly impossible to run the Corporations from the Floor of the House of Commons. For one thing, they are very complicated set-ups, and one could easily, like the hon. Gentleman, fall into the trap. He said the Minister was quite wrong to say that it is an advantage to have a large buyer in the form of a corporation, and specifying the aircraft. "Look," he said, "at what happened over this aircraft, which was not very successful." Later he said, "Look at that aircraft which was also specified by the Corporation and is an extremely successful aircraft."

One thing which is quite contrary to the modern concept of aircraft construction and aircraft ordering and which, I think, causes manufacturers a very great deal of concern, is that each customer in a different territory wants an aircraft tailored to his specific requirements, for the more marginal an aircraft's operation becomes, the more difficult it is for buyers in all parts of the world to get aircraft tailored to their needs and manufacturers to get their margin of profit.

Mr. Lubbock

Would the hon. Gentleman not agree that this seems to be contradicted by the very large number of buyers of the B707?

Mr. Shepherd

Of course, if one gets an aircraft which is a long-range aircraft like the 707 it will obviously be more fitted to a wide variety of operations than will a medium or short-haul aircraft, and it is in this field that we can tailor the aircraft to the requirements of the operator.

Mr. Maxwell-Hyslop

I wonder whether we could possibly point out that even so there are five types of the Boeing 707 in service?

Mr. Shepherd

Indeed there are, and there will probably be more before the mark is finished.

The Opposition really discourage me, because as soon as they see a little drop of the red blood of competition in this industry they blanch white. Surely this is not the necessary reaction in men who are supposed to be adult and robust? Because, as I said in an intervention, if it is the case that the Corporations, with their vast advantages of adlib.finance—a very important consideration—with a vast number of franchises on the various routes, with all the resources of Government behind them, cannot meet this minor degree of competition, then they ought not to be operating in this business. If Lord Douglas of Kirtleside is quaking in his shoes let Lord Douglas send in his resignation tomorrow, and let us get a chairman of the Corporation who will be prepared to say, "I am quite capable, with my resources, of meeting and defeating these independents".

Indeed, if I were in the position of the independents I should be showing some concern, because I do not know what kind of an opportunity we have given them. The task of an independent flying against the flag lines under the present price structure is not one which I should personally relish taking up, and we may well be giving the independents the freedom to run themselves into bankruptcy. What I am saying is that if there is a part for independents to play—and I accept this, and I believe in this—one should not uncritically accept the smaller amount they have been granted but one should be concerned whether what they have been granted by this Government is sufficient to form the basis of a commercial operation.

Mr. Lee

The hon. Gentleman is advocating the competition of independents. As I have said, I am not opposed to the independents, but would the hon. Gentleman further his argument by telling me whether he will now agree that in the interests of competition the nationalised corporations should be allowed to tender for trooping?

Mr, Shepherd

I think there is a case to be argued there. If there were a substantial measure of freedom then there would be a case, but I should doubt whether the independents have really a sufficient share of opportunity.

I do not know if we have got the right solution for the independents. The French have a much better solution. They enfranchise independents to fly exclusively upon routes, and we in this country may well find that this is the only way in which we can get a satisfactory form of operation for independents.

I want for a short time to try to get at the basic difficulty which faces this industry, because it is in a pretty awful state when one considers all the vast amount of resources at its disposal and the fact that it is an expanding industry. The difficulty arises, in the broad sense, very largely, I think, from the existence of I.A.T.A. I do not believe anybody is really prepared to face this, and I think that that is the reason why we see aircraft corporations all over the world facing difficult conditions in a business where business is growing all the time. If we allow, on the one hand, vast technological and technical progress and have a rigid price structure, as I.A.T.A. demands, we are bound to get into this sort of trouble, so that we have vast heaps of perfectly good aircraft co-cooned on airfields all over the world, and we are bound to slow down the rate at which the industry grows.

What we need to do in the aircraft industry, in the operating business, is, clearly, to get lower fares. We want lower fares; but everybody is talking about higher fares. We have all these aircraft scattered all over the world and wrapped up because there is no work for them, simply because the rate of fares is too high for the average person.

Mr. Burden

And they cannot sell them.

Mr. Shepherd

And, as my hon. Friend says, they cannot sell them.

This is brought about by the simple fact that fares are too high, and for very many operations must be at the same level. Therefore, if we want to attract customers we must have the latest aircraft, and an aircraft a little less than the latest will not do. If we were to have pretty dense loading of aircraft and to carry people at low fares, we could increase air traffic in the world.

Just take, for example, what happens here in England. In the summer time one can fly to Nice for about £30 or just a little over. Oddly enough, in the winter it cost more. This is nonsense by any business standards. One cannot fly to Nice as cheaply in the winter as one can in the summer. This is the sort of thing which really is ridiculous, and the need to get business is clear. In winter it is certainly necessary to attract it if one is to get more. Yet it costs less to fly to Nice in the summer time than in the winter. I know there may be all sorts of arguments about it, but the fact remains that there is a great potential of custom in the winter between London and Nice and it could be attracted if the fares were reasonable. But who can afford £80 for two people, for three or four days' holiday in the south of France? Therefore, I say that I.A.T.A. is really the cause of the difficulties which face the industry at the present time, and we have got to do some very serious thinking about I.A.T.A.

It is not, of course, that LATA, has caused all the losses of B.O.A.C., and it is not even true that other airlines in the world have done as badly on the whole as B.OA.C. B.O.A.C. has done on the whole worse than any other comparable airline tin the world. We have to examine this situation and try to find some reason for it.

I do not want to be unduly critical of B.O.A.C. because I had the distasteful duty in this House several years ago of saying that the board was not competent and that it ought to be changed. It was changed in a minor degree. I think it must be changed again, because—I repeat what I said at the beginning—we cannot run an airline from the Floor of the House of Commons, and if it is to be run efficiently it can be run only by the board, the board being fully efficient If the board fails to be efficient and fails the country it must go, because we, as taxpayers and as their representatives, have a very substantial interest in this company, and we see, I think, on the whole, a pretty dispiriting picture.

Big businesses must depend for their success upon morale. Once a big busi-ness's morale sinks it is exceedingly difficult for that business to function. B.O.A.C. is a very big business and there is no doubt that, in the competitive conditions in which it operates, it cannot allow morale to sink. Obviously, how- ever, there are employees of the Corporation who are feeling that things are not as good as they could be and cannot do their job with the drive and efficiency necessary. This is not an ordinary nationalised business, in the sense that the Post Office, for example, is a monopoly. B.O.A.C. faces a stiff battle against intensive competition.

It is very remarkable that B.O.A.C. has maintained the degree of service to the public which it has. The service, efficiency and safety of B.O.A.C. are equal to those of any other airline in the world, but what we have to do is to try to get a more efficient management.

I should like to draw my right hon. Friend's attention to one of the associates. A short time ago we got rid of Middle East Airways because it was a great loser of our money. Last year Middle East Airways made a profit of £420,000. I do not want to analyse all the reasons why there was a transformation when B.O.A.C. severed its link with Middle East Airways. There were probably fortuitous circumstances involved, as there are in most things where there is a transformation like this. But certainly, in the time in which it has been free from B.O.A.C. association, Middle East Airways has shown a new spirit of enterprise, particularly on the engineering side, which has brought in a very substantial revenue. If one gets this sort of example from a company of that size, there is need for urgent attention to B.O.A.C.

I would also draw my right hon. Friend's attention back to about ten years ago when we were thinking in entirely different terms. We were thinking then of an enfeebled B.E.A. and a rather prosperous B.O.A.C. Let me restate to the House the basic fact that, on the whole, B.E.A. is a much more difficult operation than B.O.A.C. The trough for B.E.A. is much more severe than for B.O.A.C, because it caters for one part of the world. In the case of B.O.A.C. the busines is world-wide with compensating areas, making a much more even operation.

B.E.A. was basically, and still remains, a more difficult operation. It emphasises the extent to which B.O.A.C. has not measured up to its requirements when one realises that ten years ago it was always thought to be a danger that it would swallow up B.E.A. Today no one thinks that to be an intelligent proposition. That is a measure of the deterioration in the management standards of B.O.A.C.

My right hon. Friend has said that he has put into operation an inquiry by an accountant. I have no doubt that Mr. Corbett is an excellent man. I have an awe of accountants, if not a complete admiration. But I doubt very much whether this sort of inquiry is really one most calculated to give us what we want. Nor do I think that the suggestion that we have engineering people to look at the problem is any good either. Running a big airline is a business operation and we want business people doing it.

One of the big difficulties about B.O.A.C. has been the amateurishness of the direction at the top. One cannot have this sort of direction in a business of such size, which is facing the sort of competition B.O.A.C. has. By the same token, I wonder whether an accountant is really the answer. I should like to see this gentleman fortified by one or two others who have some experience of running substantial businesses, because businesses are not run by accountants. Profit and loss are determined by accountants, but the people who create business are businessmen and not accountants.

I hope that my right hon. Friend will consider the question of appointing some other people to assist Mr. Corbett in this inquiry, because this is not merely a question of mathematics. We could easily solve the problem if it were. It is a question of having a live, intelligent dynamic board capable of serving the Corporation and driving it on in the face of intensive world competition. That is what we must have if we are to get some of the taxpayers' money back.

I am sorry that one has to speak in such forthright terms of a national corporation. When I last spoke, in rather more restrained terms, two years ago on this matter, I was accused of being opposed to the nationalised industries. I am not. I think it perfectly possible to run an efficient nationalised air transport company, but one must have a jolly good board to do it, just. as one would have if it were privately owned. I am not opposed to the concept of nationalisation.

I think the fact that the world is tending on the whole to have one-flag air operators is an indication that diversification of companies on a major scale is not a really practical proposition. But I do believe that, if we are to have a really efficient B.O.A.C. carrying out its really important transport function, we must get rid of the people at the top who are playing with the business. We must get for the job people who really know business and mean business and who can get hold of B.O.A.C. and its immense assets and turn them to the good account which they should have for the country. I hope that my right hon. Friend will lose no time when he gets the report in putting some of these ideas into operation.

6.57 p.m.

Mr. A. E. Hunter (Feltham)

The Second Reading of this Bill has allowed a wide scope for debate. I have been here a great deal of the time and, on the whole, hon. Members opposite have conducted an attack upon the executive board of B.O.A.C. They are entitled to their opinions and to attack the Board. But I remind them that the Government have been responsible for our affairs for the last eleven years. Have not the Government been responsible for the economic policies of "stop and go", which must affect the aircraft industry? If the B.O.A.C. executive board is so bad, the Government must bear their share of responsibility. I would also ask hon. Gentlemen opposite what effect they think that the Government's biased policy in favour of independent operators has had upon B.O.A.C. Has that helped the morale of the Corporation's board?

B.E.A. has not been attacked so much. For seven years it has made a profit. There is a heavy loss in B.OA.C. The Minister admitted that £33 million of this loss was on account of old aircraft. If an independent airline had bought these aircraft it would have had the same scale of losses. One of the most amazing features over the last two years has been the numerous changes of aircraft and of policy regarding speed and size of aircraft.

I do not know, but I imagine that even some of the big shipping companies have not been too happy about their business on the seas, and I doubt very much whether they are maintaining their profits. Most of the world airlines have made a loss in the past year, and my hon. Friend the Member for Newton (Mr. Lee) gave a figure of £50 million. If the airlines of the world were losing money, this would, of course, have had an effect on the Corporations. During the last two years there has not been the expected increase in air travel. I have no doubt that the boards of the Corporations and the Government expected an increase in air travel, but this did not materialise, and naturally the Corporations, in common with other airlines, suffered financially as a result.

Up to last year—and this is where Government policy may have had an effect on their morale—the Corporations were responsible for the development of all necessary scheduled air services, whether they were profitable or not. The Government then decided to alter the pattern, and B.O.A.C. and B.E.A. lost their monopoly of scheduled air services. Independent operators, as I have said before in the House, have done good work, but they have concentrated their activities on holiday tours, motor car ferrying and air trooping. The American Government subsidise American airways by authorising them to run postal services and trooping, but this Government have not used the air fleets of B.O.A.C. or B.E.A. for trooping work. They have given it to the independents.

Mr. Shepherd

The hon. Gentleman says that the American Government subsidise American airlines by allowing them to carry mail. It is my impression that there is more of a subsidy element in the payments made to our Corporations than there is on the American side. The American Government have cut down very sharply.

Mr. Hunter

I think that many hon. Members have admitted Chat the American Government provide a hidden subsidy to their airlines. In fact, if one goes back to the old Imperial Airways of 1938, the Government of the day provided a considerable subsidy for that company.

During the last debate on this subject in the House I raised the question of the B.O.A.C.-Cunard merger. I had at that time received a number of letters from constituents of mine who worked for the B.O.A.C, and from trade union branches. I do not want to go over the ground again. The merger was carried out without the knowledge of the House. The House was never consulted; it was merely informed about it. I hope that the Minister will make this point clear. What are the financial implications of the merger? What will be Cunard's share of any profits, and what share will Cunards pay of any losses?

My hon. Friend the Member for Newton, and the Minister, referred to the delay and hold up in the delivery of aircraft to the Corporations. Such a delay places the B.O.A.C. at a great disadvantage in trying to compete with its international competitors, and one thing from which all airlines suffer is the ever-increasing alteration in the type of aircraft required. The policy appears to be one of more and more speed and ever larger aircraft, yet this year B.O.A.C.'s aircraft were flying the North Atlantic with only 50 per cent. of their capacity being utilised, and this probably applies to other airlines.

Hon. Members may talk about it being necessary for the B.O.A.C. to adopt more business-like methods, but what is the point of building larger aircraft if only 50 per cent. of their capacity is used? It would be far better to get international agreement to build smaller aircraft. After all, the jet Vanguard travels at about 500 miles per hour, and surely that is fast enough? It would be far better to build smaller aircraft which were utilised to their full capacity than to build larger aircraft which were used to half capacity. Instead of going in for super jets, could not there be some kind of international co-operation to work out a standard pattern for the next ten years? Such an agreement would be of great financial benefit to all airlines.

Hon. Gentlemen opposite have been in control for 11 years, and they must accept some responsibility if they regard the Board of the B.O.A.C. as inefficient. When I, as a layman, look at our transport services, I find it hard to understand Government policies, and I am sure that the boards of these Corporations have the same difficulty. The Minister of Transport says that if a railway line does not make a profit it must be dosed. The Government tell the air Corporations that they must continue to provide services which do not make a profit, but at the same time say that they will allow competition on those routes which are profitable despite the fact that the B.O.A.C. has to face intense International competition.

We are all naturally sorry to see the losses suffered by the B.O.A.C., but against that we can set the seven years profits of B.E.A. We want airline Corporations of which we can be proud. We want international airports of which this country can be proud. We do not want lounges to be cut out of the facilities provided at airports, and we do not want what one might call a drab display in die services we provide. The Corporations fly the prestige routes and carry the flag for Britain. I do not think that the Government have given the Corporations the support they deserve. I think that the Government have shown a bias in favour of the independents. I appeal to hon. Gentlemen opposite to do all that they can to make a success of the B.O.A.C. and B.E.A. because, as I say, these Corporations carry the flag for Britain in civil aviation.

7.9 p.m.

Mr. R. J. Maxwell-Hyslop (Tiverton)

I think we all agree that losing money has become the occupational disease of the world's air transport industry, but if we look round the world we see certain companies which make a profit and certain companies which cut their losses. If we examine those which make a profit, we often find some reason unique to them. For instance, it is a fact that Americans of Jewish origin make a special point of patronising El Al, and that Americans of Irish origin make a special point of patronising the Irish international carrier, so operating lessons are not necessarily learnt from examining these two companies whose financial returns for the year look unusually attractive.

But we can look with some advantage into the interesting case of Capitol Airlines of America. I believe that this company was the largest single customer for the Viscount. It got itself into worse and worse financial trouble as the years went by. On several occasions it had to renegotiate the loans with which it purchased its equipment, and then it had to declare moratoria. It was eventually taken over by United Airlines. Since mat company took it over, virtually the same operations as were conducted under the previous management, with virtually the same equipment, have been carried out at a profit.

There are two lessons to be learned from this. First, it does not follow that changes in management cannot radically alter the profit and loss pattern, and, secondly, we can examine what measures were taken by the new management to secure this extremely remarkable change in the fortunes of the route structure. I recommend my right hon. Friend to examine certain specific cases which are not representative of increasing losses on the operational side, in order to see whether there are elements which can be carried into our own problem—the problem, primarily, of B.O.A.C.

I hesitate to suggest that measures of this kind can most conveniently be identified by an accountant. I know that it was not the accountancy procedures of Capitol Airlines which landed that company in increasing difficulties. The heavy and increasing losses were almost entirely operational.

Although in a number of cases the British aircraft industry has delivered aircraft late, both to British and foreign airlines—Vanguards were delivered very late to Trans-Canada Airlines—that is only half the story. The other half arises from the fact that there have been continual changes in specification as in the case of naval and military aircraft. If, at some future date, we become aware of a dreadful wringing of hands in the corridors of B.E.A., and claims that some future losses are due to the late delivery, for instance, of the de Havilland Trident, it will be as well to remember that this started life as a very different aircraft from that which promises to be delivered. It was originally a very much larger aircraft, with very much larger engines, but after the contract has been signed and while the engines and the aircraft were being developed, B.E.A. changed its mind. This it was quite entitled to do, but it is not entitled subsequently to complain about delays in delivery.

The Corporations cannot have it both ways. We know that the VC10 order has been altered substantially since it was first placed by B.O.A.C. A time penalty is bound to have to be paid for this.

The hon. Member for Newton (Mr. Lee) made some remarks which, if I interpreted them correctly, were rather amazing. I understood him to allege that the procurement policy of the British independent airlines compared unfavourably with a procurement policy of the nationalised airlines. This is far from the case. If we examine the procurement policy of independents in terms of new aircraft, it is true that to a large extent in the past the independents have purchased secondhand aircraft from the nationalised Corporations, and because those Corporations bought such large quantities of American aircraft, naturally large quantities of American aircraft have been repurchased by the independents. But in enabling the nationalised airlines to dispose of their stock of obsolescent aircraft, the independents have done them more of a service than a disservice. Indeed, it is the difficulty which B.O.A.C. is having of disposing of its obsolescent aircraft which has so aggravated the financial difficulties which necessitated the introduction of this Bill.

If the independents were able to absorb the DC7Cs and Britannias from B.O.A.C.—which they could do only if they were able to employ them profitably afterwards—a considerable amount of B.O.A.C.'s problem would not exist. We cannot have it both ways. We cannot say that we want the nationalised airlines to get a good price for their obsolescent aircraft, which they can no longer use on their prestige routes, and then say that nobody who buys their aircraft can be allowed to operate them profitably. That is a completely contradictory pair of propositions.

I am slightly disturbed to find the word "permanent" appearing on page 1 of the Bill, in line 11. There is a reference to each of the permanent corporations. It may well be that the existence of two unco-ordinated Corporations, both owned by the taxpayer, is a state of affairs whose permanence should be drastically reconsidered. Therefore, it is rather alarming to find the two Corporations, excellent though many of their characteristics may be, described as "permanent Corporations". Throughout the world today the tendency in the airline industry and in the aircraft producing industry is not towards the preservation of the same number of units as before; it is towards both a volumetric contraction, in some cases, of the number of units—produced—and a contraction by amalgamation in the number of firms in the producing industry.

The problems of the producing industry have been touched upon today and, in a nutshell, we can say that there are two main ones. First, during the Korean war and for some time afterwards there was a very dramatic and unnatural expansion in the military demand. We are still having to live with a degree of expansion in the aircraft industry—this is as true in America as it is here—which would not have come about from the normal increase in commercial demand or from a military procurement programme which did not accelerate dramatically during the Korean war. We are now living with the extra capacity generated by this literally capricious event.

The second factor which operates adversely against the producing industry is that, by necessity, for purely technical reasons—because aircraft do not wear out in one year—the procurement policy of the world airlines is cyclical rather than a straight line on a graph. Technical development has gone from piston engines to turbo-props, from turbo-props to straight jets, from straight jets to bypass engines, and from bypass subsonic to bypass transonic, and each time we tend to get a new offer from the equipment manufacturers, which lowers the cost per capacity-ton-mile. But this is not the same thing as saying that it lowers the cost per passenger carried. It is almost inevitable that one of the factors inherent in lowering the cost per capacity-ton-mile is an increase in the size of the vehicle which contains that capacity. This has been a characteristic of the vehicle right through, and it may well continue until we reach supersonic aircraft, when we may see a reversal of this tendency.

The industry has been faced both with an arbitrary expansion, which it could have done without, and the problem of accommodating itself to the troughs in the demand cycle. This problem is not unique to the British industry. In America we have seen two of the largest aero-engine firms driven out of business —Curtiss Wright and Westinghouse—and the collapse of considerable sections of the aircraft industry. Last year the Convair division of U.S. Airlines lost over 400 million dollars, the largest trading loss any American corporation has made in American history. We must not be too surprised if we in this country also have our problems.

I am certain that my right hon. Friend is right in concentrating on the future rather than on the past, because it is unfortunately one of the facts about human nature that if people run through all their money and one merely gives them more to keep them going, they do not necessarily stir themselves to obviate the causes of unnecessary losses.

We all accept that whatever management decisions had been taken and whatever equipment had been used by B.O.A.C., the Corpoartion would still have made a loss. I do not think that there is any disagreement about that. The disagreement is about the magnitude of the loss, its inevitability and what action can be taken in future to reverse this trend.

There is very little action which we can take effectively in I.A.T.A. What is quite certain, in my judgment, is that if the International Air Transport Association were wound up and we had an open fare system, we should not have higher fares, with an airline sticking out its neck and trying to attract more passengers by charging higher fares. What we should get would be cut-throat competition of a kind which would not benefit the people Who have already ordered their equipment. The people who would benefit by cut-throat competition would be the airlines which have not ordered their equipment and which can squeeze a few years' further use out of their existing equipment. This is something which, for reasons of competitive appeal, has been denied to B.O.A.C, just as it has been denied to most international airlines throughout the world.

It is not the case, as has been suggested, that private companies have some mystical wand which they can wave by which they wipe out losses. I know of no system by which private com- panies can wipe out losses except by going into liquidation, and I take it that the proposition is not advanced that B.O.A.C. should go into liquidation.

We shall not solve the problem of B.O.A.C. and B.E.A. merely by fiddling with the paper work. This problem will be solved only by looking to those areas where costs can be reduced. To a large extent the areas in which revenue can be increased are outside our control, because the most essential single element the fare structure, is beyond our control. But what is within our control is to examine the engineering structure and to see whether we can achieve a higher utilisation of the engineering facilities owned by one or both of the Corporations, and to look for management economies; and if one looks at the reduction in staff Which the Scandinavian Airlines System has undertaken, thereby reducing its losses substantially, the proposition that B.O.A.C. could not emulate it is one which is not tenable to those of us who have observed the staffing of B.O.A.C. over the years.

This is the line on which we must focus our attention if we axe to ensure, not that no losses are made in the future, not that my right hon. Friend will never have to come to the House on future dates to ask for further financing, but that in the future unnecessary losses are not made and that reasonable and attainable economies are achieved—and therefore that the people working in both of these great nationalised Corporations can be satisfied that they are giving their employer, who, after all, is the British taxpayer, the very best value for his money which is obtainable.

7.25 p.m.

Mr. John Cronin (Loughborough)

I should first like to express sympathy with the Minister that he has both to open and to wind up the debate. It will be particularly fatiguing for him if he has to negotiate in Paris tomorrow on the supersonic airliner. I am sorry that he has not the assistance today of the hon. Member for Morecambe and Lonsdale (Mr. de Ferranti), who would undoubtedly have served in office well. I think that we are all sorry that circumstances have forced him to leave it. At the same time, it is a little surprising that those circumstances were not considered earlier, before his appointment. but perhaps that is a matter which we ought not to go into now.

The purpose of the Bill is enormously to increase the borrowing powers of B.O.A.C. and B.E.A., and the effect will be to channel a substantial part of the nation's savings away from perhaps equally desirable forms of capital expenditure. It is important that we should look very carefully into the Bill and examine the background against which it is being presented.

I think that all hon. Members have been disagreeably surprised by the very large size of B.O.A.C.'s deficit. Prima facie, that indicates that something is wrong. The hon. Members for Macclesfield (Sir A. V. Harvey), Abingdon (Mr. Neave), Orpington (Mr. Lubbock) and Cheadle (Mr. Shepherd) all spoke of B.O.A.C.'s management in a somewhat critical light, and in circumstances of such enormous losses, I do not think that any Corporation can completely resist some suggestion that the management has not done well. Obviously we have to await a more complete investigation before we reach final conclusions, and no doubt the Minister's accountant, Mr. Corbett, will give us some help in the matter.

But in looking at B.O.A.C.'s losses, the first thing that strikes one is the very heavy loss owing to premature obsolescence of aircraft in stock. That suggests that there may be something wrong with B.O.A.C.'s aircraft procurement policy. It is, however, important for the House to realise that B.O.A.C. procures all its aircraft in very close consultation with the Minister of Aviation and the Treasury. In fact, if we look at the Report of the Select Committee on Nationalised Industries, 1959, we find in paragraphs 215 and 217 some comments on this point. In paragraph 215 it is made clear that close co-operation with the Minister is inevitable. In paragraph 217 we read, Thus, although the Minister has no express statutory control over the Corporations' capita] expenditure, they always seek his approval (and that of the Treasury) for orders of aircraft, and these amount to 80 per cent. of their total capital expenditure. In criticising the aircraft procurement policy of B.O.A.C. it is important to bear in mind that this policy is followed in full consultation with the Government, and therefore the Government must have at least an equal share in the responsibility for these losses due to premature obsolescence of aircraft.

The Minister expressed disapproval of the sudden, very large item of £31 million for depreciation this year. He probably took the view, as several hon. Members take the view, that it would have been more satisfactory if this additional depreciation had been spread equally over previous years. That would have been more in conformity with normal commercial practice. Hon. Members on all sides of the House will agree that an accurate assessment of depreciation charges is an essential part of commercial management. Necessary adjustments should be made to ensure that assets are written down to represent their fair value year by year.

It is rather disturbing to see on page 6 of the B.O.A.C. Report the rather bland statement that over £26 million applies to ether years. As the Minister implied when he said that he disapproved of this item, we should have heard of these large amounts of depreciation earlier than this year. As a result of our not hearing of these depreciation losses in previous years, the country has to some extent been lulled into a false sense of security as to how things were going with B.O.A.C. I am very glad that the Minister has expressed some disapproval of this. At the same time, I think it important for the House to realise, however much there may be dispute about the Minister's other powers, that the Minister has the fullest possible powers over the accounts of the Corporations.

If one looks at Section 22 of the Air Corporations Act, 1949, one finds the following statement in subsection (1): Each of the corporations shall keep proper accounts and proper records in relation thereto, and shall prepare in respect of each financial year a statement of accounts in such form as the Minister may, with the approval of the Treasury, direct, being a form which shall conform with the best commercial standards … Further, in subsection (3) we read: The accounts of each of the corporations shall be audited by auditors appointed annually by the Minister. One wonders what the predecessors of the present Minister were doing when the accounts were presented in the last few years. Surely it must have been obvious several years ago—it must have been obvious when the Boeings were ordered—that there would be a greatly accelerated depreciation of the aircraft then in stock. I should like to know why these accounts were passed by the Minister's auditors. The Government appear to have been completely unaware of this situation. I hope that the Minister, when he winds up, will deal with that point in some detail.

I suggest to the House that many of the difficulties of the Corporations have been due to faults on the part of the Government. I know that this is a matter on which it is difficult to speak completely impartially. There is a tendency for hon. Members opposite to be rather against the Corporations and probably a tendency among hon. Members on this side of the House to be rather in favour of the Corporations, but, looking at the whole matter as dispassionately as possible, it seems that the Government have on numerous occasions hindered the Corporations achieving a profit and on several occasions embarrassed them by not giving them some positive assistance when that assistance was in the power of the Government to give.

My hon. Friend the Member for Newton (Mr, Lee) dealt with the Civil Aviation (Licensing) Act, 1960, and my hon. Friend the Member for Glasgow, Govan (Mr. Rankin) also referred to it. There seems to be quite a case to be made that that Act will in future be rather deleterious in its effect on the Corporations. If one looks at the Act as it is, one sees there can be no doubt that it will have the effect of diverting revenue from the Corporations to the commercial airlines. In the view of hon. Members opposite that may be a desirable thing, but it is a fact we have to face in the light of the serious losses of B.O.A.C. and B.E.A. which are before the House today.

It is quite clear that the Corporations will continue to make losses, and one wonders what is to be the effect of the Civil Aviation (Licensing) Act on the Corporations' financial results during the next few years. Obviously there is going to be a real loss of direct revenue. We have discussed some figures in this debate. My hon. Friend the Member for Govan said that B.E.A. had suggested that it would lose £5½million per year.

I went to the trouble of getting in touch with B.E.A. and asking what its figures were, its revised figures in view of the Minister's decision this summer. The view expressed by the Corporation was that roughly £4½ million would be lost as a result of diverting revenue to British United Airways and Cunard-Eagle Airways and also to the loss of planned routes which will be denied to B.E.A. and given to B.U.A. instead. Domestic routes would lose about £900,000.

Whatever way we look at it, even if we deduct substantial sums as a result of savings, there is no escaping the fact that, in the context of B.E.A. losing £1½ million this year, it is not able to stand anything like a diversion of revenue of £5½ million year after year, certainly not in the next few years. I should like the Minister to indicate what action he will take to deal with that situation.

Sir A. V. Harvey

The hon. Member has given figures quite accurately, but he has failed to say that in the last ten or twelve years, and last year, the average growth of traffic was something in the region of 14 per cent to 18 per cent. In the immediate years ahead, on the existing routes, B.E.A. can expect that growth to continue, so there would be a growth in spite of what it loses to the independents.

Mr. Cronin

I always listen with respect to what the hon. Member says in regard to these matters, but, taking the simple arithmetic I should say that in the immediate future years with the loss of £1½ million last year and B.E.A. expecting to lose this year, one cannot accept with complacency a further loss of £5½ million, less some savings. At least there is a case here for the Minister to answer.

My hon. Friend the Member for Newton also pointed out that B.O.A.C. has suffered similar uncertainty about the future under the Civil Aviation (Licensing) Act. Although the Minister's predecessor very wisely refused to let licences go to Cunard-Eagle Airways, there was no guarantee that some future Minister, like the present one, would not grant such licences. The only defensive move on the part of B.O.A.C, at least in its eyes, was to avoid competition by forming a merger with Cunard. There must be a doubt whether that merger is advantageous because it is losing part of its revenue to Cunard and in exchange it is getting two Boeings which will be added to its surplus capacity.

Sir A. V. Harvey

And it is getting some services.

Mr. Cronin

It will get some services also, but I do not think that is a very important factor, or as important as is suggested by the hon. Member. It is unfortunate that the Minister has not followed the wise example of the Minister of Defence and avoided agreeing to these new routes being given.

The Minister can escape the consequences of this rather unfortunate decision. As he knows, all these routes have to be negotiated with the Governments concerned. That by itself will produce some problems because those Governments will not agree to new routes for the independents without something in exchange. Either there will have to be a decrease in the total traffic frequency on the route concerned for British airlines, which means a further loss for the Corporations, or some quid pro quo in the form of increased traffic routes in some other part of British territory, which again would be at the expense of the Corporations.

Whatever happens, therefore, the Corporations will suffer from these traffic rights given to the independents if they are negotiated by the Minister. But the right hon. Gentleman has an escape route, a covered line of retreat, which I recommend to him to adopt. It is that he need not hurry over the negotiations. If the right hon. Gentleman takes bis time, there will be a change of Government before the negotiations can bear fruit, and so his political reputation would be saved and we should avoid chaos in the European airlines.

In my opinion, the Government have hindered the financial growth of the Corporations by preventing them from doing any trooping. Some hon. Gentlemen have referred to the comparatively good records of Pan American and T.W.A. It is important to remember that these two rivals of B.O.A.C. receive large sums from the United States Government for trooping operations.

Mr. Maxwell-Hyslop

It is a case of the "bad record "of T.W.A.

Mr. Cronin

It was a bad record for one year. But apart from that, the record has been satisfactory. I think that the hon. Member for Tiverton (Mr. Maxwell-Hyslop) will agree that this year there has been a great improvement in the record of T.W.A. But, leaving that matter aside, there is no doubt that T.W.A. has received massive support from the United States Government in the form of trooping contracts.

Sir A. V. Harvey

Where to?

Mr. Cronin

To Europe particularly. But that is not the point in question.

Why is it the policy of the Government to prevent the Corporations from having trooping contracts when they wish to tender? I know that the Government permit the Corporations to tender for small short-notice ad hoc trooping contracts, which are of no importance. But they will not allow the Corporations to set aside planes exclusively for trooping purposes. Trooping contracts represent a large and sizeable source of revenue and so I hope that the Minister will tell us why the Government have adopted this policy.

The matter was raised in this House on 9th May, 1956, by Sir Geoffrey de Freitas. He was told that it was Government policy not to allow the Corporations to do any trooping. Going further back—I think it worth while doing so because this is apparently a long-standing policy—the B.O.A.C. Report for 1953–54 says, in paragraph 67: The Corporation, in conjunction with British European Airways Corporation, made representations to the Minister of Transport and Civil Aviation on the desirability of both Corporations being permitted to tender for long-term trooping contracts. In paragraph 68 the Report states: The Minister, however, felt unable to accept the Corporations' representations. He stated that it would be politically impossible for the Government to grant their long-term trooping to the Corporations, unless part of the Corporations' present preserve were opened to independent operators. I do not know what is meant by "politically impossible". It suggests to me that there might be a mass revolt among hon. Members opposite if trooping contracts were given to the Corporations. But surely in the light of the present Government policy of handing over Corporation routes to independent airlines there is now a case for allowing the Corporations to do some trooping so that they may be assisted to increase their revenue.

There is another aspect of Government policy which hinders the activities of the Corporations. It is the reluctance of the Government to allow them to do any chartering. I understand the situation to be that the Corporations are not permitted to reserve aircraft for chartering operations, which again is a profitable source of revenue. Perhaps the Minister will also deal with this aspect of the situation.

In the light of these very heavy losses, which in effect means that the money will come out of the pockets of all of us, a Government policy which prevents the Corporations from gaining some revenue should be scrutinised carefully by hon. Members on both sides of the House.

Another way in which the Government have failed to help the Corporations is by their refusal to subsidise the uneconomic routes which have to be operated by the Corporations. A typical example is provided by the B.E.A. route to the Highlands and Islands and the Isle of Man route, which create a loss of about £500,000 annually. It may be desirable that an air service should be provided for the inhabitants of the Highlands and Islands and the Isle of Man which is not commercially justifiable. But at present the effect is that they receive a subsidy which is concealed in the accounts of B.E.A. Surely this is a matter of national policy and ought not to be decided by the Corporations. It should be a matter for the Government and subject to the approval of this House under the proper Civil Estimates. I see no justification for a matter of national policy becoming the source of a heavy financial loss to the Corporations.

The Corporations lose money because of the refusal of the Government to finance them in respect of new aircraft. Hon. Members opposite have spoken against that idea. But when the matter was examined by a Select Committee on Nationalised Industries in 1959 the Committee came out in favour of a development cost subsidy. Paragraph 68 on page xix of the Report states: Your Committee emphasise that the cost of developing new aircraft at present appears to fall too heavily on the Corporations and places them at a disadvantage compared with their foreign competitors who use American aircraft. That seems a wise remark. Hon. Members opposite ought to have confidence in the findings of that Committee which was under the chairmanship of Lord Aldington, formerly Sir Toby Low, who now holds the rather senior position of Deputy Chairman of the Conservative Party. The Minister should look very seriously, therefore at the Committee's suggestions. Obviously the Corporations lose a massive amount of money after the six months guarantee period is over after they have taken delivery of a new aircraft. Those who benefit from the development costs, which come out of the pockets of the Corporations, are those airlines which buy similar planes subsequently; the R.A.F. transport force, and the aircraft companies. Even the very successful Viscount aircraft needed about £300,000 spent on it during the first six years of its existence in order that extra spars should be inserted. There seems to me a definite case for giving the Corporations some financial assistance over development costs.

This is particularly the case because the Corporations suffer as a result of their policy of buying British. Obviously the Corporations should buy British aircraft and it must be Government policy that they should do so. But the British aircraft industry is at a serious disadvantage compared with the American aircraft industry. The Corporations often experience considerable delays before they are able to take delivery of aircraft. This again causes heavy financial losses, and the deficits which arise in this way will continue. For example, the VCl0s will come into service five years after the Boeings, so that B.O.A.C. will have five years less to write off the depreciation on the VCl0s before they are replaced by supersonic aircraft. The Corporation must expect further serious losses simply from its policy of buying British.

I have dealt with what I think are some of the Government's sins of omission and commission as regards the Corporations. We on this side have a duty to make constructive suggestions, particularly as earlier this afternoon the Minister very courteously requested us to do so. I shall try to help him. I would suggest that one of the first things which should be done is that there should be a formal inquiry into what should be the objectives of British aviation during the next ten years. At the moment we are all agreed that the Corporations' affairs are in some confusion. The affairs of the aircraft industry certainly need to be examined because there are massive redundancies. We hear that many technicians are emigrating. It seems that there is a need to co-ordinate the Corporations' aircraft requirements with those of R.A.F. Transport Command. There is a need to harmonise the activities of the Corporations with those of the independent airlines. What will be the effect of the introduction of supersonic planes? To what extent does British aviation work with the aviation of other countries? All these questions require very careful and detailed answers. These are major questions of national policy and ought not to be decided by the Minister himself merely with the help of committees of civil servants.

The Minister may say that there is the Transport Aircraft Requirement Committee, which advises him on these points. In 1959 the Select Committee on the Nationalised Industries spoke in rather cool terms of this Committee. I got the impression that until then its work was not considered to be of very high quality. I must confess that my confidence in this Committee has rather decreased since its famous decision that there was no need for large jet aircraft of the Boeing type on the Atlantic crossings.

There is a case for having a high-powered committee of people who hold top positions in the aircraft industry, the Air Corporations and the private independent airlines. Among the independent airlines one must remember there are people skilled in making profits out of running airlines. There is a very good precedent for this in that one of the very first things the President of the United States did on taking office was to order a full inquiry into national aviation goals in the next ten years. As a result leading personalities in the American aviation industry produced a very massive report called "Project Horizon" which reviews the whole of aviation goals from end to end for the next ten years.

I suggest that the Minister should coordinate the activities of the airlines more closely. For instance, we know that United States travellers no longer reach Europe through London to the same extent as they did before. Several hon. Members have suggested that B.O.A.C. should be allowed to run its aircraft through London to European capitals. At present B.E.A. will not agree to this. The Minister ought to insist on some sort of co-ordination in this matter so that we do not go on losing traffic on this massive scale.

The Minister should also adopt a more vigorous policy with regard to negotiating traffic rights. B.O.A.C. is losing heavily on its jet services in the Atlantic, again because it cannot take jet aeroplanes to European capitals direct from the United States. Why can it not do so? Air India and El Al run air services from New York to Paris. Air India runs services from New York to Zurich. Swiss Air run services from New York to Lisbon. Why cannot the Minister negotiate some of these routes for B.O.A.C.? There is room for some negotiation here. Obviously the national carriers have first priority, but if airlines like Air India and El Al can move into trans-Atlantic traffic on this formidable scale, why cannot B.O.A.C. have at least its fair share?

I suggest that the Minister should consider writing off the very large deficits that B.O.A.C. has accumulated. I know that that would be contrary to commercial practice, but we must be realistic. I can see no possibility of these very large sums being repaid. It is rather a dubious accounting practice to keep on recording debts which will never be repaid. On the other hand, there are the very severe effects on the morale of the employees of B.O.A.C. when, year after year, in spite of their vigorous efforts, their Corporation achieves massive deficits. This requires very careful consideration if only for the effects on the morale of B.O.A.C.'s employees.

Finally, I suggest that the Minister should let the Corporations know clearly how they stand in future with regard to their place in the national economy. At present they have the worst of all worlds. They are expected to produce a return on capital on something approaching a commercial basis and at the same time they are expected to operate on uneconomic air routes or take part in the financing of uneconomic subsidiaries and do many other forms of uncommercial activities which are in the national interest. In this context I refer particularly to the Corporations being obliged by their own rules to buy British as far as possible. The Minister should put the Corporations in a position in which they can follow commercial practice and work on a commercial basis and, when they depart to a substantial extent from commercial rules they should have a clear directive from the Minister so that everybody would know exactly where he stood.

The two air Corporations are organisations of the very highest quality. They are well managed. They supply services which all hon. Members will agree are second to none. They increase British prestige wherever they fly, but I fear that their constant stumbling block has tended to be the Government's policy. I ask the Minister to start a new era of clear directives and wholehearted Government support. The Corporations will then be able to use the loans proposed in this Bill to the maximum advantage both to themselves and to the national interest.

7.57 p.m.

Mr. J. Amery

With the permission of the House, I will reply to some of the points which have been raised in the debate. I want to say at the outset how grateful I am to the hon. Member for Loughborough (Mr. Cronin) for his condolences to me both on the loss of my Parliamentary Secretary and on having to speak twice in the debate. It is much more peaceful to listen to a debate when one does not have to answer it. However, no doubt this is a salutary discipline for me. In many ways, I have benefited from listening to the speeches which have been made. I am sorry, however, that the House has not been fuller today. There was a moment when the Liberal Party and the Labour Party were equally represented. I do not know whether this is a foretaste of things to come in this country.

The hon. Member for Loughborough said that the Corporations had to carry quite a burden because of the delays to which the British aircraft industry is sometimes subject. He cited the VC10 as an example. In fairness to the industry, I must point out that the VC10 is ahead of schedule on delivery. There are bad patches. We always hear a lot about the bad patches. This was a good patch, and that is why I have referred to it.

The hon. Member mentioned "Project Horizon". That is an interesting idea, but I am always frightfully reluctant to see the Government put its job into commission. It would need a very serious situation before they did that. I should like to reserve my views on this until the later discussions which no doubt we shall have before long on the aircraft industry as a whole.

The hon. Member said that the Government shared responsibility for procurement policy in so far as it had to approve the requirements of the Corporations. I certainly do not wish to evade responsibility here, but the position is that the initiative lies with the Corporations. They form a commercial view of what aircraft they have to buy. It is true that they have to come to us and the Treasury for the money, but our position is one of the banker who can veto a loan for a particular project if it seems to him hopelessly uneconomic. The extent of this endorsement is merely to say that if the Corporations think that this is right we agree with them. It is a negative endorsement to that extent, and I do not think that the Corporations would suggest that we share their responsibility for arriving at a decision on the right aeroplane to fly.

Mr. Cronin

I do not think that we can leave this question like that. Surely the Minister will agree that there is the closest co-operation between the Corporations and his own Ministry and the Treasury before money is provided to purchase the aircraft. Both his own Ministry and the Treasury go very carefully into the commercial desirability of the aircraft before the money is produced, and therefore the Government must have a large responsibility for the Corporations' aircraft procuement policy.

Mr. Amery

I think the hon. Gentleman will find that the Corporations take the decision as to what aeroplanes they fly. Of course they discuss this, but it is their judgment which is decisive. In the case of the decision to buy the Britannia. Sir Matthew Slattery's letter to The Times which I quoted earlier shows quite clearly that this was viewed as a commercial decision by the Corporation and was one for which they took the responsibility, and I said in my remarks that I thought that it was right that they should have done so.

My hon. Friend the Member for Macclesfield (Sir A. V. Harvey) asked why B.O.A.C. Comets were being written off in five years. He thought that if they were phased out as other aircraft came in they could last seven years. I am advised that they were brought into service over a period, 1958, 1959, 1960. The date of their retirement cannot be exactly foreseen. Their operating costs are higher than those of the Boeing 707 and DC8 and they are meeting increasing competition from the faster and longer range American-built jets. In this situation B.O.A.C. have concluded that they cannot reckon on being able to retain them all in service until they reach a seven-year life in 1965 to 1967. A five-year life would imply their retirement on average in 1964 when the VCl0s are due to enter service. Most foreign airlines have been depreciating at a greater rate than B.O.A.C. and the Select Committee drew attention to this. B.O.A.C. has now quite properly adopted rather more conservative and less optimistic rates.

The hon. Member for Orpington (Mr. Lubbock), who gave notice that he could not be here for the winding up of the debate, said that the financial structure of B.O.A.C. was in the shape of loan capital. He did not make too much of the point, which was also a point made by the chairman of the Corporation, that had some of it been in the shape of equity capital the Corporation would not have had to pay dividend on it where there was a loss. I do not know how good an analogy this is, because if part of it were in the shape of equity one would have to pay a pretty big dividend on it where there was a profit. In any case, I do not know whether on the present record the Corporation would find it easy to raise money on the open market. I am therefore not sure that this is a good analogy, but, as the hon. Member said himself, he did not wish to press it too far.

One or two points have been raised in debate about Mr. Corbett's inquiry. It was suggested that Mr. Corbett might be well advised to have technical or managerial advice, but nowadays accountants of the standing of someone like Mr. Corbett can concern themselves not only with the accounts but with all problems of management and efficiency. This is true of the leadership of most of the big partnerships in accountancy, and it is certainly true of Mr. Corbett, whose experience has included guidance for the Ministry of Transport and the War Office. On problems of engineering, he is proposing to seek add in his inquiry from outside experts, and if this is his decision he is perfectly free to take it.

The hon. Member for Orpington also asked what B.O.A.C. is doing to sell or charter its Britannias. I understand that B.O.A.C. is seeking the best market in which to dispose of its Britannias withdrawn from scheduled services. Meanwhile, it has leased four to other airlines and is using others for charter work itself.

The hon. Member for Loughborough was wrong when he asked why the Corporations did not go in for charter work. There is no inhibition on their going into charter work, quite apart from trooping, and they do a certain amount.

Mr. Cronin

The trooping is ad hoc trooping at short notice and in small quantities. They are not allowed by the Government to reserve 'planes purely for trooping.

Mr, Amery

I said that apart from trooping there was no bar on their going into the charter business. The hon. Member, perhaps unintentionally, conveyed the impression that he believed the Corporations were not free to charter.

The hon. Member for Newton (Mr. Lee) asked about the reported censorship of B.OA.C. accounts which appeared in the headlines of one of the newspapers. The Report was shown in draft to my Department and our comments on it invited. Suggestions were made on our side where the Report involved the policy and activities of the Government. Some were rejected and some were accepted, but the final product was entirely the responsibility of B.O.A.C. The Corporation would be the first to deny any suggestion of censorship. It is only too clear that we did not censor the Report from the fact that I have had to tell the House today about a number of points on which I did not see eye to eye with the Report.

As to my talks in Paris on the supersonic aircraft, I am flying tomorrow to Paris for discussions with M. Dusseaulx, the French Minister of Transport and Public Works. I shall acquaint the House with the outcome of these discussions at the earliest opportunity. In this connection I was asked in the debate about interdependence arrangements and asked whether the project would be on a fair shares basis between us and the French. It has been worked out between the British and French industries on a strictly 50–50 basis. I very much agree with the hon. Member that I want to see the accent placed more on the "inter" and less on the "dependence" in all this.

The hon. Member also asked about the rate of borrowing, the interest rates on money provided under the Bill. The Bill provides that the rates of interest shall be such as the Minister with Treasury approval may direct, and the Treasury rate varies from time to time, as the hon. Member knows. The hon. Member also asked if Cunard, in effect, would have the advantage of borrowing at Treasury rates in so far as their interest in B.O.A.C.-Cunard is concerned. Cunard brought in their own share of 30 per cent. of the capital. Any further capital they bring in will have to be raised by them privately. Only B.O.A.C.'s contribution is drawn in effect from borrowings from the Government.

The hon. Member also asked whether there was a clause in the B.O.A.C. agreement to the effect that if a profit on revenue account is made, any such profit shall be applied in the first instance to the declaration of a dividend. The agreement, as I have said in reply to a Written Question, is a private one and I cannot disclose the details. All I can assure the hon. Member is that there is no guaranteed dividend to anybody, and the profit would first have to be earned. In the light of recent results, a profit would be welcome and would indicate that the agreement had improved the situation. There is nothing strange in our not publishing this agreement. It is a commercial agreement between the Corporation and the company and it is not customary in those circumstances to give details to the House. The details of commercial contracts, for example, are not normally revealed, nor are pooling agreements between the Corporations and foreign and Commonwealth airlines, whether publicly or privately owned.

Mr. Lee

Does this apply to only one part of the agreement and not to another? We have had information from the right hon. Gentleman and also from his right hon. Friend about parts of this agreement. Was it right for his right hon. Friend to reveal those parts when the Minister has just said that it would not be right for him to reveal the remainder of it?

Mr. Amery

We consider that what we have revealed is perfectly proper. That information has already been made known publicly to the Press.

Sir A. V. Harvey

I am sure that my right hon. Friend recalls what happened when the agreement was made and when, with the agreement of the Cunard Company, a joint statement was issued to clarify its side of it.

Mr. Amery

That is absolutely right. The hon. Member for Loughborough then went to town, if I may use that phrase, on the subject of B.O.A.C.-Cunard. I was a little surprised that he did so and I will shortly come to the reasons for my surprise. He said that he did not understand how I had got through my earlier speech without dealing with the subject. Perhaps after what was said by some of his hon. Friends last July there was good reason for that happening. This matter has been fully discussed in the past and I certainly do not want to go over all the ground tonight.

The hon. Gentleman knows just what the agreement is and how it was made. It is one which the Corporation was empowered to make under Section 3 (4) of the Air Corporations Act, 1949. The Corporation was entitled to make it without Ministerial approval under that Act. It was voluntarily entered into by the Corporation on its own initiative, and the only question outstanding, as far as I can see, is whether there was anything wrong with it or whether there was anything in it which was so contrary to the public interest that the Government would have been justified in seeking to prevent an agreement which the Corporation was fully entitled to make in the exercise of its commercial judgment and which was within its statutory powers under an Act passed by the Labour Government of the day.

The agreement has been criticised from various standpoints and I will comment on some of them. Some hon. Members have objected to it on the grounds that it involves the transfer by B.O.A.C. to private enterprise of an interest in a valuable route network. It certainly has not proved very valuable last year, or this. B.O.A.C.'s accounts show how much they have lost on the Atlantic and in the Caribbean. In the circumstances the union with Cunard has clearly been to B.O.A.C.'s advantage. It could be said that Cunard, to some extent, is investing in B.O.A.C. Will Cunard get something out of it? I hope the company will in the long run, but it can certainly be argued that it has relieved the taxpayer of a part of the burden.

Others have objected to the arrangements on principle, on the ground that any partnership between a nationalised corporation and a private airline was a bad idea. Frankly, I would not have expected this from the hon. Gentleman, for it is certainly contrary to the view of his right hon. Friend. If the qualities and experience of B.O.A.C. can be linked to those of Cunard and if the result is to produce a better operation than either could have done alone, then surely this is something we ought to support wholeheartedly.

Some hon. Members—perhaps some of my hon. Friends—'have held that the B.O.A.C.-Cunard arrangement is the direct result of the 1960 Licensing Act, and that it is inconsistent with an Act which appeared to be aimed at increasing competition between United Kingdom operators. The position is that the intention of the 1960 Act was not to create competition for its own sake—.there is already plenty of that on these routes—but to make competition possible within a well regulated system.

If competitors decide of their own free will to pool their resources there is nothing in the Act to prevent them from doing so and, frankly, I do not see why there should be. But what about any positive advantages? My right hon. Friend the present Minister of Defence supported B.O.A.C.'s proposal to go ahead with this agreement on the ground that it would concentrate the capacity, sales effort and experience of two great transport undertakings in the pretty grim struggle for traffic on the Trans-Atlantic routes.

It is still too early to measure the full results but the agreement has already enabled B.O.A.C. and Cunard to redeploy their equipment and to consolidate services on the mid-Atlantic and Caribbean routes. The second Boeing 707 aircraft ordered by Cunard, which would have been used in competition against B.O.A.C. in the Western Hemisphere, is now to fly on the United Kingdom—West Africa route where it should materially improve B.O.A.C.'s results. I understand that the merger has already brought substantial economies and advantages, such as reducing the number of sales offices, facilitating joint advertising and expanding plans for joint air-sea tours.

Hon. Members opposite have also dealt with the 1960 Licensing Act and I think that the hon. Member for Newton spoke about doing certain things in the present climate. This has to some extent been a controversial matter, but it is important that I should repeat what I said earlier; that we are not introducing competition for its own sake in setting up a system in which there can be controlled competition between United Kingdom operators after a full public examination of each individual case. There is no question of there being uncontrolled competition. A study of the cases decided under the 1960 Act bears this out.

In general, the Corporations still have licences to run unrestricted frequencies on all their traditional routes. The general effect of the licensing decisions has been to allow independent operators to operate limited frequencies on certain routes and there is no question of letting others reap where the Corporations have sown.

So far B.O.A.C. has suffered very little additional competition as a result of the 1960 Act and it would be unrealistic to attribute its present difficulties to such competition. The Act has had some effect on B.EA. and the new licences on the European routes, which come into effect next year, if taken up, will no doubt set B.E.A. a rather more difficult task in the future. But even if the whole of the traffic that the independents are likely to get as a result of the new licences were obtained at the expense of B.E.A.—and some of it might be obtained at the expense of foreign airlines—B.E.A. would still, on current estimates, be carrying more traffic by 1965–66 than it is today. The independents will secure that traffic only if they compete efficiently for it and I am quite sure that B.E.A.—from what I know of Lord Douglas—is tough and resilient enough to give as good as it gets.

I believe that the interests of British aviation generally will be strengthened by the influx of some new blood on the part of the independents, but they, for their part, will be breaking new ground in a fairly difficult moment in the history of European aviation. As one of my hon. Friend's pointed out, it is one thing to obtain certain rights but it is quite another to secure them properly. The independents will not have an easy task and we wish them well in their undertaking of it.

Mr. Lee

Certainly we wish them well, but the Minister seems now to be saying that this is to be an era of competition between B.E.A. and the independents. Competition must do some remarkable things, but will he now answer the point my hon. Friends and I have been making? If competition it is to be, why not apply it to trooping as well?

Mr. Amery

I gave way to the hon. Gentleman out of courtesy because I always like to give way to him in view of the respect I hold for him. He and several hon. Members have questioned me about trooping. Had they waited a few moments more they would have found me coming to this subject.

Several hon. Members posed questions about the Highlands and Islands, and this area has certainly represented an important element in B.E.A.'s deficit. This important service has transformed life in the outlying parts of Scotland, but it is not likely to pay its way. The Select Committee on Nationalised Industries recommended in 1959 that B.E.A. should be given a subsidy on account of it. B.E.A. has put in for that subsidy. The Corporation has pointed out, in support of its case, that with the growth of the independent airlines it no longer has a monopoly. I am not yet in a position to give a clear answer on this but I can say that it is receiving immediate attention at the Ministry. It is something which will have to be studied in conjunction, and not simply on its own merits, with the running of the airports in the Highlands and Islands.

I now come to the question of trooping and let us get the position straight. Long-term contracts for regular routine trooping have for some years been reserved to the independent operators and this was regarded as an offset to the monopoly previously enjoyed by the Corporations on scheduled services. Apart from these long-term contracts, ad hoc movements on a small scale have been allowed to the Corporations on single voyage charters or on their scheduled services.

The Corporations now say that they should be allowed to tender for long-term contracts since their monopoly position is at an end. Their request deserves study, though plainly the time and scope of any change must be viewed against the ability of the independents to take up in practice any rights accorded to them by the Licensing Board; that is to say, that if the Corporations ask for higher rates because the monopoly has ended, it is not at the point where the monopoly has ended in theory but when it has ended in practice, namely, when it is possible for the independents to take up the licences. I understand that no major long-term contracts are to be let in the immediate future. I am accordingly consulting my right hon. Friend the Secretary of State for Air, and I hope that we shall be able to reach a decision on this issue before the current contracts come up for renewal. More immediately, I am also considering with my right hon. Friend a more limited scheme which the Corporations have suggested to us. This could involve the planned movement of troops on scheduled services at reduced rates. This raises a number of problems, some of which come within the ambit of the Licensing Board, and I hope shortly to give the Corporations some guidance on this.

A number of hon. Members on both sides of the House have raised the question of a merger between B.O.A.C. and B.E.A. The arguments for and against this have been to some extent deployed in the debate, and it would be wasting time for me to repeat them. I can say, however, that, although there is no immediate proposal before us for this, this is naturally one of the things that I shall want to look into in conjunction with Mr. Corbett's report and other inquiries which I am making at the present time.

I now come to the question of fares, on which a number of interesting contributions have been made. There have been suggestions that, with aircraft less than half full, the right policy would be to make big reductions to attract new traffic. My hon. Friend the Member for Cheadle (Mr. Shepherd) put this proposition forward very emphatically. Certainly the idea is attractive. The difficulty is that if we charge less for seats we shall lose money unless we sell a great many more seats. B.O.A.C. has made the point that if fares were reduced by 20 per cent. traffic would have to increase by more than 25 per cent. before they could break even. It would have to increase traffic even more before it could begin to make money out of the reduction. It think this explains the point of my hon. Friend the Member for Cheadle. He asked why it was more expensive to fly to Nice in the winter than in the summer. This is because during the summer it is fairly easy to fill planes and in winter it is not. Therefore, if the journey is to be worth while for the Corporation, it has to charge as much as the traffic will bear. The general view of the airlines is that in today's economic and political circumstances increases in traffic of this order are unlikely to materialise. They are frankly afraid that if they gave away a worth-while slice of the money they earn on present traffic, the new passengers might not come forward and they would find themselves worse rather than better off.

The agreement reached by I.A.T.A. a week ago is fairly cautious. It offers a general increase of 5 per cent. on basic returns fares, thus seeking to safeguard existing traffic and at the same time perhaps to catch the cheaper traffic by the extension of group fares and other so-called promotional fares at reduced rates. These have had some success on the North Atlantic and in some forms in Europe, and they are now being extended to African, the Far East and other routes. I have not yet been able to study these proposals in detail, but I think we have to face it that to oppose this line would mean opposing what is at present the collective commercial view of the airlines. It does not necessarily mean that they are right, but it is a fact that we have to take into consideration.

The hon. Member for Newton quoted some words of Sir Miles Thomas on the rôle of the Corporations—should they be a paying concern or should they be a shop window?—and the hon. Member for Loughborough suggested that there was a need for a clearer definition of the rôle of the Corporations. Sir Mathew Slattery has spoken about this. In the Government's view, it has always been understood that the Corporations have a general responsibility to pay their way. In the White Paper of 1945, it was laid down that it was the view of the Government, His Majesty's Government at that time, that air services should be made self-supporting as early as possible. That was said in December, 1945. This view has been enlarged upon in the recent White Paper and in successive Government speeches. At the same time, however, as the White Paper on the nationalised industries recognises, the Corporations have obligations of a non-oammeircia.1 and national character. I assure the House that any proposals I may bring forward for the future organisation of B.O.A.C. will have full regard to these non-commercial considerations.

In the first place, however, we must know what is needed to put the Corporations on a sound commercial basis. It is only when we know this that we can decide how far, if at all, we should depart from purely commercial practice in the interests of higher national policy. It is only then that one knows how much departures of this kind will cost. I think that there should not have been any doubt about this in the past, but, if there has been any doubt, it is important to make the position clear. We want to know what is the commercially sound thing to do and then, if we do depart from it at all, we do so with our eyes open.

I end on what is, perhaps, a slightly more cheerful note. A good deal of the debate today has inevitably been rather critical in tone and backward-looking, because we have all been conducting an inquest into the misfortunes and the shortcomings of the past. It is important to see these things and the problems of the Corporations in perspective. The perspective is in one way rather cheerful. The main blow which has struck the Corporations is not that traffic has fallen, but simply that it has not grown fast enough. It is not that fewer people are travelling by air, or that air travel is becoming out of date or old-fashioned. It is just that not as many people came forward as were expected. One is bound to have these ups and downs in a world where the flow of travel is affected by business recessions, fears of war, revolutions and so on. To some extent, the airlines are always vulnerable since aircraft take a long time to design and build. One cannot compress or enlarge aircraft according to the flow of traffic. At one moment one is bound to have too many seats when the traffic is low, and at another one has too few seats when the traffic is booming. This is recognised in the 1960 White Paper.

The proper task of management is to strike a balance between these extremes. In a sense, management has this much advantage, that it is tackling the task in what is basically a favourable climate. More people are likely to travel by air year by year for as far ahead as one can see. My present thought is that the recession will not last more than a year or two and, when the tide turns, B.E.A. with its Tridents and B.O.A.C. with its VCl0s and Super VCl0s will, from the point of view of experience and equipment, be in a very strong position to take advantage of it.

Question put and agreed to.

Bill accordingly read a Second time.

Bill committed to a Standing Committee, pursuant to Standing Order No. 38 {Committal of Bills).