HC Deb 10 July 1968 vol 768 cc522-6
The President of the Board of Trade (Mr. Anthony Crosland)

With permission, I will now answer Questions Nos. 18, 26 and 42.

The House will recall that when the Government decided not to approve B.E.A.'s original choice of American aircraft the then Minister of Aviation gave a pledge, on 2nd August, 1966, that the Government would take steps to ensure that B.E.A. was able to operate as a fully commercial undertaking with the fleet it acquired.

B.E.A. subsequently chose for the first part of its requirement a fleet of 18 BAC111 aircraft, with an option for six more, and this was approved by my predecessor in December, 1966. For the second part of its requirement B.E.A. eventually chose a fleet of Trident 3B aircraft. I announced my approval in principle on 13th March this year, and I have now approved a purchase of 26 Trident 3Bs at a cost of about £83 million, with an option for 10 more. This aircraft is expected to come into service in 1971.

For a number of reasons, including the size of the aircraft in relation to B.E.A.'s needs and the fact that it will not be available until later than B.E.A.'s original choice, B.E.A. is not expected to be able to maintain over the next few years its record of consistent profits. The Government must, therefore, provide financial assistance, in order to fulfil the "Mulley pledge".

I have now agreed with B.E.A. that this will take the form of transferring part of its borrowings from the Government into a special account, which will not bear interest and from which predetermined amounts will be included annually in B.E.A.'s profit and loss account.

In considering the amount to be transferred in this way, I have examined with B.E.A. its forecasts of future financial results. Because such forecasts are subject to increasing margins of error in the later years, and because we cannot at this stage assess the changes that may result from the work of the Edwards Committee, I have agreed with B.E.A. to make assistance available in the form of an initial transfer of £25 million, with the possibility of a further amount of up to £12½ million for consideration later, should this be needed.

In 1972, the Board of Trade will consult B.E.A. on the basis of experience up to then and of the latest forecasts, to determine whether B.E.A. will still need this further sum of up to £12½ million to be transferred for the period from 1st April, 1972 to 31st March, 1975. The object of this arrangement is to enable B.E.A. to earn a small margin after payment of interest.

I do not propose at this stage to introduce public dividend capital into B.E.A.'s capital structure, but I have told Sir Anthony Milward that this can be considered for the second stage to which I have referred, in the light of B.E.A.'s achievements in the first stage and of the experience we gain from the B.O.A.C. experiment.

I am glad to say that B.E.A. has accepted these arrangements, which will require legislation, as fully discharging the "Mulley pledge". They should enable B.E.A. to weather the problems immediately ahead and to face the future with full confidence in its fine new fleet of British aircraft.

Finally, I must express my appreciation of the co-operation of Sir Anthony Milward and his staff in the protracted discussions which have led to the results I have just announced.

Mr. Fortescue

May I assure the right hon. Gentleman that we very much welcome this statement? We would like a little more time to study it, because it is complicated, but at least it means that at last B.E.A. will have some aeroplanes. Can we be certain that B.E.A.—which has had to wait for an aircraft not yet off the drawing board while its competitors are already flying in commercial operation the aircraft which B.E.A. originally wanted—will not be badgered about in this way again?

Mr. Crosland

It is only being badgered about because of a decision, which had a great deal of all-party support, that B.E.A. should not buy American in 1966. I do not think that this was a party political matter. Most hon. Members would think that the decision was right and that the delay has flowed from that.

Mr. McMaster

Will the right hon. Gentleman now reconsider his decision on the BAC211 and support this aircraft, enabling it to come into operation with the Trident, making use of the RB211 which is being developed now solely for American use?

Mr. Crosland

No, Sir.

Mr. Robert Howarth

Is my right hon. Friend aware that his statement is very good news for the thousands of my constituents who are employed by Hawker-Siddeley? Does he not consider that this is a very generous settlement for B.E.A.? Is he further aware that the editor of Flight International, only a few weeks ago, argued very strongly that the Trident 3B was a very competitive aircraft which could operate economically without a subsidy of any kind?

Mr. Crosland

I would agree that the Trident 3B, particularly after devaluation, is a very competitive aircraft. Whether it is generous or not, this is a fair settlement. I must make it clear, as I have done earlier, that this settlement is not to make up for the fact that the Trident 3B is not competitive, but for the fact that B.E.A. has not had the aircraft of the size that it wanted at the time that it wanted it, because, with the agreement of both sides of the House, we would not let them buy American two years ago.

Mr. Rankin

Would my right hon. Friend not agree that, not only is this aircraft a good buy for B.E.A., but it is a good investment for the Government, since the aircraft, because of devaluation, should sell very well indeed in world markets?

Mr. Crosland

I am very much obliged for my hon. Friend's comments and entirely accept them.

Mr. Corfield

Although we are all obviously anxious that B.E.A. should have these aircraft, after a very long period of indecision, is the right hon. Gentleman aware that this is a very large sum? Does it not follow that it is much larger than it need have been, owing to the long delay in the Government making up their mind between the Trident 3B and the 211? Can the right hon. Gentleman assure us that the Government really are taking seriously the problems of speeding up this type of decision? I am not making a party point here, because this has been a fault for very many years.

Secondly, is it not also clear that one cannot tell to what extent the Trident 3B will be a less competitive aircraft than the aircraft of B.E.A.'s choice until it is known whether its passenger appeal is such as to command a rather higher load factor which might well offset any disadvantage in operating costs? Would it not be much more sensible to—

Mr. Speaker

Order. Questions must be reasonably brief.

Mr. Corfield

Would it not be much more sensible to pay a smaller amount initially, rather than this large amount, until we know what this situation is?

Mr. Crosland

It appears that the hon. Gentleman—and I recognise that it was complicated—has not completely understood the statement. I hoped to make it clear that the aid we are giving is divided into two tranches. If the second tranche of £12½ million should turn out to be not needed—if the total sum turns out to be over-generous—the second tranche will not be paid. This is in addition to the provisions which we already have with B.O.A.C. for reclaiming in various ways any sums that turn out to be superfluous to the Corporation's needs.

Colonel Lancaster

The right hon. Gentleman will be aware of the concern felt by the Select Committee when it discussed this matter, particularly the subject of aircraft procurement. It took the view that it was not wise to invest in aeroplanes which subsequently required Government subsidies. Does the right hon. Gentleman, in view of what he has said today, recognise that it might have been wise to proceed with the BAC211 rather than with the "stretched" version of the Trident?

Mr. Crosland

I have paid great attention to the Report of the Select Committee, which was extremely helpful. I should have commented on that just now. Its strictures on the methods of decision-making were justified, and we certainly must improve matters. Nothing it said gave any support to the opinion that we should have bought the BAC211 rather than the Trident 3B, because the BAC211 would have needed a much larger launching cost aid from the Government than the Trident.

Mr. Lubbock

Does the right hon. Gentleman think that there is a danger that this payment of £25 million to be initially transferred to B.E.A. will encourage slackness and inefficiency? Will he do everything to discourage the impression, which is bound to permeate abroad, that this is a payment in respect of the less economical operating costs of British aircraft?

May I also ask the right hon. Gentleman whether the £12½ million additional will be made whether or not these subsequent orders for the option are placed? Can he say, if the options are taken up resulting in a much lower unit price, that the extra £12½ million will not be paid?

Mr. Crosland

Whether B.E.A. has the second £12½ million will depend on a joint examination of the whole position at the end of the first four years. One cannot tell four years in advance.

On the first part of the hon. Gentleman's question, I have made it clear again and again, as he and others have, that this is not a subsidy to cover the fact that the Trident 3B or British aircraft generally are less economic. This is to compensate B.E.A. generally because, as a result of Government decisions, it could not have the aircraft of the size it wanted at the time it wanted because we said that it was not to buy American.