HC Deb 02 August 1966 vol 733 cc260-7
The Minister of Aviation (Mr. Frederick Mulley)

With permission, I wish to make a statement about aircraft purchases by the two Air Corporations.

After a careful investigation, the Government have authorised B.O.A.C. to acquire six Boeing 747 aircraft for delivery in 1969 and 1970. These will be very large aircraft with about 400 seats suitable for the busiest long-haul routes, on which they will give very economical performance. B.O.A.C. needs them in order to be able to match its main competitors after 1969. No British aircraft will be available that could fulfil the rôle. These American aircraft will earn in foreign currency far more than they will cost.

I have asked B.O.A.C. to ensure that as far as is practicable the aircraft it buys should have the maximum British content in equipment and that the contract contains guarantees about noise levels at landing and take-off.

To meet B.O.A.C.'s needs in the expanding air freight market, I have also authorised B.O.A.C. to acquire one further Boeing 707/320C aircraft, bringing its fleet of these aircraft to three. It will be delivered in late 1967.

B.E.A. needs to plan for the replacement of the propeller aircraft it is using on certain routes and also for increased capacity to meet expected growth over the next decade. It is a complex matter to settle just what aircraft should be bought and when. B.E.A. will buy British aircraft. Discussions are in progress to settle the exact numbers and types of aircraft and the phasing of orders. Aircraft under consideration are developed versions of the VC 10, the Trident and the BAC111.

The Government are prepared to give launching aid for the types selected. I should add, however, that as part of our measures to reduce the volume of investment in the short term I have told B.E.A. that it will have to hold over such part of its approved orders as will produce savings of £5 million in the investment planned for 1967–68.

These British aircraft should provide seat-mile costs broadly comparable with those of American alternatives on which duty would have been payable. But they will be larger and their profitability will depend on their attracting high load factors on these routes. For these reasons B.E.A. would have preferred on purely commercial grounds to buy American aircraft. The Government, however, have informed B.E.A. that they will take steps to ensure that B.E.A. is able to operate as a fully commercial undertaking with the fleet it acquires.

Mr. R. Carr

Is the right hon. Gentleman aware that we warmly welcome the decision of B.E.A. to continue to fly British, although we regret the rather denigratory penultimate sentence of his statement about the commercial viability of this aircraft? Is he also aware that we equally regret that as a direct result of Government policy B.O.A.C. has no choice but to buy American aircraft?

I have three short factual questions to ask the right hon. Gentleman. First, what is the maximum total dollar cost of the B.O.A.C. order? Secondly, what is the definition and cost of the launching which the right hon. Gentleman promises for B.E.A. aircraft? Lastly, what is the meaning of the last sentence of his statement, where the right hon. Gentleman talks about making it possible for B.E.A. to operate on a fully commercial basis?

Mr. Mulley

I am grateful to the right hon. Gentleman for his approval of the decision that B.E.A. should fly British. On the point about providing aircraft for B.O.A.C., I explained to the House on 11th May why we could not proceed with the Superb aircraft. It would have cost very much more than the total purchase price of these aircraft to have developed a British aircraft which would be suitable for the 1970s. The total B.O.A.C. outlay, including spares, is between £50 and £60 million.

On the question of launching aid, I cannot give the House an exact figure because this will depend on the aircraft chosen by B.E.A., but it will be the development costs to extend the existing types to make them more suitable for the 1970s.

The last sentence of my statement means that, having regard to the special route structure, B.E.A.'s judgment is that it would be able to operate more economically with American aircraft. We are discussing the matter with B.E.A., because we do not want a situation to occur where B.E.A. would not be able to run as a purely commercial undertaking.

Mr. R. Carr

Is that last point really proven? Is it the Minister's view that these new British aircraft will not be commercially viable? This is a most serious statement, and it ought not to be made unless the facts are really established.

Mr. Mulley

I think that the right hon. Gentleman recognises that the people who must decide on the most suitable aircraft for their purpose are those on the Board of the B.E.A., who are charged with running the airline. They would not have come forward with a request for American aircraft without establishing that on some of the routes, for the first years of operation, because of the larger size of possible British alternatives, the Americans would have been marginally more competitive.

Mr. Heath

Is the Minister really saying that what he now proposes to do is to give B.E.A. a subsidy to cover the difference between the notional operating costs of American aircraft and what prove to be the real operating costs of British aircraft?

Mr. Mulley

I am not saying that. The matter is under consideration, but the House may like to know that the phrase which we have used is the phrase used by the Conservative Government when there was a controversy with B.O.A.C. about the VC10. As the VC10 has proved to attract high-load factors, I have every hope that the same will be repeated for whichever aircraft B.E.A. chooses.

Mr. Paget

My right hon. Friend talks of a cut-back of £5 million in B.E.A.'s investment. Is not this a cut-back in the very sort of investment which will earn us foreign currencies, and is not this the last sort of economy that we ought to be making if we are looking to our future?

Mr. Mulley

I can put my hon. and learned Friend at rest. The deferment involved is the deferment of some of the aircraft which would have been bought a little earlier, but for the economic situation, for the domestic internal routes. I accept my hon. and learned Friend's view that it would be wrong to cut down the provision of aircraft, which might earn foreign currency and compete in the overseas market.

Lord Balniel

As the Trident is made in my constituency, may I say that I welcome the decision to buy British. The right hon. Gentleman said that the British aircraft would be larger than the United States' alternative. I do not believe that the extended Trident is larger than the alternative. I hope that the right hon. Gentleman is not judging between different types of British aircraft, and that this decision will be left to B.E.A.

Mr. Mulley

The recommendation will be left to the Board of B.E.A., but, compared with certain types of American aircraft, the Trident will be rather larger, and the proposed VC10, if it is chosen, will be larger than the 727.

Mr. Robert Howarth

Can my right hon. Friend say whether there is any prospect of using British engines in the Boeing 747? May we have an assurance that sufficient thought will be given to the future procurement policies of both B.O.A.C. and B.E.A. so that we do not find ourselves in the sort of position that we are in at present?

Mr. Mulley

It takes many years to develop an aircraft. I cannot accept full responsibility for the fact that no suitable aircraft is at present available, but I think that my hon. Friend must understand that it is uneconomic for this country to produce aircraft only to meet the requirements of our two Airways Corporations. Unless we can sell a substantial number additionally, it is impossible to justify the research and development costs involved.

On the question of the engines, Rolls-Royce made extremely strong efforts to supply the engines not merely for B.O.A.C., but for all the Boeing 747s, but the Boeing Company chose the Pratt and Whitney engine instead. It would be extremely costly to put Rolls-Royce engines in six of these aircraft, not least because it would cost about the total buy to develop the appropriate engines. But Bristol Siddeley and S.N.E.C.M.A. have come to an agreement with Pratt and Whitney which gives them an option to make Pratt and Whitney engines in Europe, and I am asking B.O.A.C. to take advantage of this if at all possible.

Mr. Henry Clark

Will the right hon. Gentleman enlarge on the last two sentences of his original statement? When he talks about the commercial operations of B.E.A., does he mean that he has no intention of removing the near-monopoly on the internal air routes?

Mr. Mulley

That is really another question. As the hon. Gentleman knows, my function with regard to air licensing is laid down by Statute, and I have no intention of changing the present pattern of routes.

Mr. Raphael Tuck

Will my right hon. Friend do his best to ensure that B.A.C. can sell its aircraft elsewhere? For example, is my right hon. Friend aware that Austrian Airlines have said that they will buy four VC10s if, and only if, they are granted traffic facilities at Gatwick, otherwise they will buy American? Will my right hon. Friend take steps to make sure that Austrian Airlines are granted traffic facilities at Gatwick?

Mr. Mulley

I think that my hon. Friend ought to realise that, while we take every possible step to encourage the sale of British aircraft, if one is too generous with the provision of additional traffic rights, this may in the short term bring foreign exchange for the aircraft sold, but in a short time the additional competition could substantially erode the foreign currency earnings of the Airways Corporations, so one has to try to strike a balance in these matters.

Sir A. V. Harvey

What credit terms are being given by Boeing for B.O.A.C. to purchase its aircraft? Is it not a deplorable situation, when the country is in a financial crisis, that this great industry has been allowed to run down to such an extent that the VC10, which the right hon. Gentleman admits is a superb aircraft, cannot be developed not only for these Corporations, but for sale abroad?

Mr. Mulley

I am glad to hear what the hon. Gentleman says about the VC10, but I would not have thought that either I or this Government should bear the brunt of the responsibility for the denigration of the VC10. The responsibility for this lies with Mr. Amery and the public confrontation which then occurred. I am glad that we have managed to come to the arrangements which I have announced today without a public argument between myself and the Chairman of B.O.A.C.

Mr. Lubbock

Is the Minister satisfied that if B.O.A.C.——

Sir A. V. Harvey

On a point of order, Mr. Speaker. The Minister has not answered my question about credit terms.

Mr. Mulley

I hope that the hon. Gentleman will acquit me of any discourtesy. This is a matter for the Corporation, but I understand that there will be no payment, following the usual custom, until just before the aircraft are ready for delivery. It is proposed to raise the money on loan in the United States, and it will be repaid from the earnings of the aircraft.

Mr. Lubbock

Is the Minister satisfied that it would not have been possible for B.O.A.C. to order a stretched version of the DC8 which would have incorporated Rolls-Royce RB 204 engines if the Corporation had been prepared to wait a few months before placing the order? Could he tell the House whether the second aircraft is required by B.O.A.C. for routes other than high-density ones, and whether any consideration has been given to the purchase of DC8s with British engines for this purpose? What is the freight capacity of the 747s which B.O.A.C. proposes to purchase, and was any consideration given by B.O.A.C. to leasing the 320C instead of purchasing it, because it appears that it will be required for only about two years. Finally, I would ask——

Hon. Members

Too long.

Mr. Speaker

Order. There must be reason in the length of supplementary questions to Ministers.

Mr. Lubbock

I did say, "Finally", Mr. Speaker. May I ask the right hon. Gentleman whether B.E.A. requires two aircraft? Does it require the BAC111 and either the Trident or the DC10?

Mr. Mulley

On the last point, the recommendation will come from the B.E.A. Board. I think that it is likely that it will require two aircraft types, but I am not, for the reason I have stated, in a position to indicate the two likely contenders of the three.

On the other questions, I hope that the hon. Gentleman will acquit me if I omit one or two by inadvertence, because there was a long list. Of the three DC8s under construction now, all have American engines so I do not see any advantage that there would have been for B.O.A.C. to have bought them, and also, since they have between half and a little more of the seating capacity, they would not be fully competitive with the very large types that competitors will be running in the 1970s.

There was a proposal for a DC 10, which would have had the Rolls-Royce 204 engines, and this, at my request, was examined by B.O.A.C. but, before its examination was concluded, Douglas said that it was not intending to proceed with this aircraft with the Rolls-Royce engine so, naturally, B.O.A.C. did not have this alternative when it took its final decision. The fact that Douglas decided not to proceed confirmed my own judgment in not going forward with the Superb, which was a very similar type of aircraft.

Several Hon. Members rose——

Mr. Speaker

Order. I must protect the business of the House.