HC Deb 10 May 1971 vol 817 cc32-9
The Minister for Aerospace (Mr. Frederick Corfield)

I should like to make a statement about the progress of the RB211 negotiations.

As the House knows, Her Majesty's Government and Rolls-Royce (1971) Ltd. have been in negotiations with the Lockheed Aircraft Corporation for the supply of the RB211 engine to power the Lockheed TriStar aircraft. We have also had discussions with the United States Government.

Negotiations with the Lockheed Aircraft Corporation have been in two parts. First, Her Majesty's Government have agreed with the Lockheed Corporation to finance Rolls-Royce (1971) Ltd. in the development and production of the engine and to enable it to maintain the necessary support facilities throughout the life of the engine—provided that we can be satisfied that there is sufficient support to enable the TriStar project to be completed.

For its part the Lockheed Corporation has agreed to a substantial increase in the price of the engine, equivalent to some £50 million for the first 555 engines, and to annul penalties under the old contract for delay in delivery of the engine.

On that basis Rolls-Royce (1971) Ltd. has been negotiating a new contract with Lockheed Aircraft Corporation, which is on the point of agreement. The new contract will be governed by English law.

Because the RB211 has been designed for the TriStar and there is at present no other significant market for it, it was clearly necessary, as part of the contract negotiations, to be sure about the future of the TriStar project itself. Given the risks involved in large aviation projects and the known problems of Lockheed, it is clear that effective support for financing the TriStar project can only be provided with the assistance of the United States Government, just as support for the RB211 engine can be given only by Her Majesty's Government.

The United States Administration have now announced that they are seeking authority for the United States Congress to guarantee up to $250 million additional credits for Lockheed, which amount they anticipate will be sufficient to assure the continuity of the TriStar project. Before providing such guarantees the Administration will, of course, have taken steps to satisfy themselves that the other requirements for the completion of the project are met.

The main outstanding point here is that it will be necessary for both Governments to be sure that the airline customers will still buy the TriStar, notwithstanding the delay and the increase in price. Representatives of Lockheed and the airlines are meeting in London at this moment with Rolls-Royce (1971) Ltd. for detailed discussions on this point and on the arrangements for completing the RB211 project.

Meanwhile, Her Majesty's Government are continuing to finance work on the RB211 engine and the Department of Trade and Industry is discussing with Rolls-Royce (1971) Ltd. arrangements to provide the company with the finance it will need to give effect to the agreement with Lockheed. This will involve some £100 million for completion of the development of the engine: to the extent that costs are not covered by the price increase which Lockheed has agreed there will have to be additional support for initial production engines. Against these costs we must of course set those which would be incurred if the project did not continue and the profit arising from the sale of spares.

The House will appreciate that there are still problems to resolve before we can be sure that RB211 will go ahead. Her Majesty's Government have done everything that they can to establish a basis for agreement that is acceptable to all concerned. In particular they have kept RB211 going, and will continue to do so, in the expectation of a satisfactory agreement. An early decision from the other parties is a matter of increasing urgency. Meantime, the House will appreciate that delicate and complex negotiations still continue.

Mr. William Rodgers

May I first express some concern in that I understand that this statement was first made in the House of Lords at 2.45 p.m. today, by the Secretary of State for Defence, who under the new organisation of Government is not a responsible Minister. I would ask the Lord President to consider precedents for statements of this kind being made first in the Lords and, at an appropriate time, to tell this House whether he thinks this is common and acceptable practice.

As to the statement, we very much welcome the progress which has been made on the basis of it saving the RB211, and we also appreciate the delicacy and complexity, as the Minister says, of the negotiations. We wish well to everyone concerned in this. May I ask specifically the following questions? Will the Minister say what is the total commitment now, given the extra £100 million for research and development? Will he confirm that there is an open-ended commitment to cover production costs on the first 555 engines? I think this is what he was saying, but perhaps he will be kind enough to be a little more precise.

Secondly, did I understand him to say in reply to a question from my hon. Friend the Member for Derby, North (Mr. Whitehead) a few moments ago, that no date has yet been set for the transfer of the assets from the Receiver to Rolls-Royce (1971) Ltd.?

Thirdly, is he satisfied that B.E.A. is giving full and proper consideration, within its own commercial judgment, to buying the TriStar, and, fourthly, is it still true to say on the basis of his statement this afternoon that the final outcome of the negotiations now depends upon approval in the United States Congress? If this is so, how long is that approval likely to take?

Mr. Corfield

I appreciate the hon. Gentleman's appreciation of the delicate situation in which we are at the moment. As to the total commitment, we estimate that the additional—that is, further—development costs over and above the £47 million that Her Majesty's Government have already put in will be approximately £100 million. The best estimate we have of production costs for the first 555 engines is approximately £80 million and, as I said earlier, we have had an increase in price of £50 million.

Nevertheless, there are considerable hopes, I think not unfounded, that the gap can still be narrowed. With regard to the date for the transfer of the assets, I am afraid that, if I gave that impression, it was quite wrong. They will be transferred at midnight on 22nd of this month. They will comprise the greater part of the aero-engine, marine and industrial gas turbine divisions.

As to B.E.A. I am satisfied that it is giving full and urgent consideration to this matter. Although, as the hon. Gentleman suggests, the final outcome does to some extent rest with Congress in the sense that no one, particularly in this House, would wish to go on with a project for which there was no money, we anticipate that the interests of both sides coincide and it is not in either of our interests to delay it longer than necessary. I am hoping that this will be a reasonably quick decision.

Mr. Warren

Will adequate labour and material cost escalation clauses be included in the new contract?

Mr. Corfield

Yes, Sir.

Mr. Walter Johnson

May I say how much I welcome the Minister's statement, which will bring very considerable relief to many thousands of my constituents who have had the threat of unemployment hanging over their heads for the last three months?

First, will the Government now give the all-clear for full production at Rolls-Royce? Secondly, it has been widely reported over the weekend that two airlines—Trans World and Air Canada—would like to see a declaration of intent by B.E.A. to purchase the TriStar. Will the Government, as a matter of urgency, ask B.E.A. to send its experts to Lockheed with a view to placing an order for the TriStar? Does the right hon. Gentleman agree that an order from B.E.A. at this time would finally clinch the deal and give the guarantees which the American banks and the British Government want?

Mr. Corfield

Of course a B.E.A. order is of immense value to any aircraft manufacturer. But I can assure the hon. Gentleman that Lockheed's sales and technical staff have been in very close touch with B.E.A. As I said earlier, B.E.A. is making serious and, I believe, relatively urgent consideration of this matter.

Mr. Onslow

Is my right hon. Friend aware that there is general support in the House and in the country for all that has been done by those who have been carrying out these very difficult negotia- tions? However, so that there should be no doubt about the sums of money involved, could he tell the House the total expenditure from public funds which is now committed in development, and, if he anticipates, as I gathered, a production loss on the engines covered by the initial 1011 order, can he say what the total of this is expected to be?

Mr. Corfield

I do not think I can go very much further than adding up the two sums I mentioned, which come to approximately £130 million.

Mr. Sheldon

Will the Minister reaffirm that it is not the decision of the Government to go ahead without the guarantee as to the future of Lockheed? Does this guarantee depend upon Congressional approval alone, or is there any other method which the Minister is at present considering? Also, will he make some comparison between the present estimated cost of saving the RB211 and the cost of saving it before the Receiver was put in?

Mr. Corfield

On the first part of the hon. Gentleman's supplementary question, I know of no method other than the approach by the American Administration to Congress, and I think that we can safely assume that the American Administration would not have taken that course had not they thought that that sum was necessary for the viability of Lockheed and it was the only way that it could be provided.

A much more detailed cost comparison will appear in the White Paper. But I can assure the hon. Gentleman that the cost is very much less under the present negotiations.

Mr. Tebbit

Does my right hon. Friend agree that the requests for pressure to be put on B.E.A. are, or could be, another highly dangerous precedent? Air lines are supposed to operate in their commercial interest, and nothing can do a project more harm than for it to be seen that the Government have to twist airlines' tails to get them to buy it.

Mr. Corfield

I entirely agree with my hon. Friend that twisting the tail can be self-defeating in this connection.

Mr. Dalyell

In the light of a reply given by Lord Carrington to Lord Beswick, can the right hon. Gentleman clarify the position of the sub-contractors who still await money for parts which they have already supplied to Rolls-Royce? Are they in a less favourable position in the queue than others?

Mr. Corfield

No, I do not think they are in a less favourable position in the queue than others. I understand that the Receiver is issuing instructions as to the approaches which they should make and the people they should approach in order to clear their accounts with him from the moment that the assets are transferred to Rolls-Royce 1971. I think that those instructions are going out today. I have no reason to believe that the sub-contractors are in any worse position than other people.

Mr. Drayson

My right hon. Friend says that there are still problems to be resolved. Are any of them technical, or can he assure the House that the engine fulfils all that is required of it?

Mr. Corfield

The technical diagnosis is very encouraging, but I have been in this game just long enough never to give a guarantee.

Mr. Thorpe

Is the right hon. Gentleman aware that not only is his statement welcome but that we devoutly hope that the renegotiation will be successfully achieved? I should like to ask him two questions.

First, what is the position of Air Holdings Ltd., which is under an obligation to buy 50 and has already sold some to Air Canada? Has that concern been requoted with a new price? Secondly, while agreeing wholeheartedly with the tenor of the right hon. Gentleman's statement, may I ask him whether he agrees that nothing would be worse than to give the impression to Congress that we are setting a rigid time limit to its deliberations, because even with efficient administrations legislative approval sometimes takes time?

Mr. Corfield

I take the right hon. Gentleman's latter point. However, I am sure that he will appreciate that one cannot go on with rapidly rising costs of going into full production to meet the time scale absolutely indefinitely. The Air Holdings contract is currently the subject of renegotiation with Lockheed.

Mr. McMaster

While congratulating my right hon. Friend on the considerable success he has had in renegotiating this unfortunately ill-drafted contract, which was originally entered into by the Labour Government, may I ask him whether he agrees that the delay in delivering the engines and getting the plane into the air might, in the current depressed state of the aircraft industry, work to our advantage? Can he say how much he expects to be made out of profits on spares as a result of the sale of these engines?

Mr. Corfield

I do not think that delay ever works to one's advantage, although I think the disadvantage may have been lessened by the current state of aircraft industry finances. One cannot forecast the return on spares. Apart from anything else, they arise a long time after the initial investment, and they have to be discounted over very considerable periods. It would be unwise for me to give a figure.

Mr. Benn

While joining in the welcome of the Government's decision to renegotiate the contract, with their substantial amounts of public money, may I ask the right hon. Gentleman to clarify one point about the subcontractors? Can he assure the House that, in addition to the £130 million he mentioned, there will not be a loss which the sub-contractors are expected to carry because of the bankruptcy of Rolls-Royce from which Lockheed, under the proposed arrangement, will in some sense be protected by the action of the two Governments?

Mr. Corfield

No, I do not think there is any question of that. The right hon. Gentleman has raised a rather technical question. I will look into it and write to him.

Mrs. Hart

I warmly welcome the statement and congratulate the Minister on the progress he has so far made. However, does he agree that B.E.A.'s purchase of TriStar would be a valuable extra support in the whole project? Can he assure the House that he is at least keeping in very close touch with B.E.A. in its present consideration of the question?

Mr. Corfield

Of course I agree that it would be a valuable fillip, as it would be to Douglas and the A300 consortium. This is a very valuable order. Of course we are closely in touch with B.E.A.

Several Hon. Members

rose—

Mr. Speaker

Order. We must move on.