HC Deb 07 August 1972 vol 842 cc1253-60
The Minister for Aerospace (Mr. Michael Heseltine)

With permission, Mr. Speaker, I should like to answer Questions Nos. 33, 44, 50 and 51.

I wish to inform the House that two major decisions have been taken on the RB211 programme. First, we have accepted proposals from Rolls-Royce (1971) Ltd. to develop the engine from 42,000 to 45,000 lb. thrust. Rolls-Royce (1971) estimates the development cost to be £31 million. It will meet 25 per cent. of this from working capital. If the development cost should exceed £31 million it will meet 50 per cent. of any increase up to a total project cost of £61 million. The remaining development costs will be met by the Government. Production costs will be met wholly by Rolls-Royce (1971) and arrangements will be made for recovery of the Government's development contribution.

This stretched engine to be known as the RB211–24 will be used in the first instance in an extended range TriStar—the -2—which Lockheed is determined to develop with a view to introduction into service in 1975. Development of the engine, on which some preliminary work has been done by Rolls-Royce (1971), will start at once because it will take longer than the modification of the airframe. Continuation of this programme will, of course, depend on a final decision by Lockheed to develop the -2 on which they have already started preliminary work and on the conclusion of satisfactory contractual arrangements between Rolls-Royce(1971)and Lockheed.

Secondly, the British Airways Board has decided that the introduction of the TriStar into its fleet best suits its particular commercial requirement. It has therefore decided, provided Lockheed decides to develop the -2, to place an initial order for six TriStar -1s with an option on six more aircraft which might be -1s or -2s. My right hon. Friend has approved this decision which is primarily one for the commercial judgment of the board.

There are possibilities of a European application of the RB211–24 in versions of the A300B Airbus to which the Hawker Siddeley group is already making a substantial private contribution. I have made it clear to the French Minister of Transport and Rolls-Royce (1971) have made it clear to Aerospatiale that we are very willing to consider specific proposals for suitable applications of the RB211. In doing so I explained to M. Galley my view that for the future it will be essential for European countries to develop a more coordinated procurement policy for aircraft and a more integrated manufacturing capability. I have made clear my readiness to enter into discussions of these wider issues at any time with the French and other European Governments.

I believe that these decisions should give a substantial new impetus to the RB211 programme. They will also play a major rôle in securing the future prospects of Rolls-Royce (1971) which we are determined to maintain as a major manufacturer of aircraft engines in its own right and in due course as part of a wider European grouping.

Mr. McNair-Wilson

I welcome my hon. Friend's announcement, in particular because I know that BEA hoped that it would be allowed to buy this aircraft and, secondly, because it is powered by Rolls-Royce engines. When does my hon.

Friend expect the -1 engine to come into service, is it the intention, when the -2 engine is in service, that both BEA and BOAC should operate the same aircraft in different versions because of the economic savings that will be had from operating the same airframe on the same aero engines?

Mr. Heseltine

I accept my hon. Friend's view that the decision was based upon the decision of the British Airways Board. It is likely that 1974 is the date for the introduction of the -1. I remind my hon. Friend that future acquisitions must be a commercial decision for the board.

Mr. Johnson

Is the hon. Gentleman aware that that statement will be widely welcomed in Derby by Rolls-Royce workers who have had a most anxious and worrying time waiting not only for this decision but the decision of BEA to purchase the TriStar? This order from BEA will go a great deal further and help considerably in the sales of Lockheed, because other airlines have been waiting for BEA to place an order.

Mr. Heseltine

I very much hope that the news will be warmly welcomed by the management and workers of Rolls-Royce wherever they are involved in the production of this engine. As the hon. Gentleman said, it is not just in Derby, but in many other centres, that the news will be welcome. Naturally, in their decision to support this programme the Government are aware of the sales implications.

Mr. Scott-Hopkins

I warmly welcome what my hon. Friend said. It is an excellent statement, from every point of view. Is he able to say a little more about the development of the stretched version? This will not depend, will it, entirely on Lockheed orders being confirmed for the -2 version of the TriStar, but development will go ahead regardless of that?

Mr. Heseltine

The British Airways Board has made its view clear that the decision to order the TriStar -1 is conditional upon Lockheed's going ahead with the -2. It believes that the whole programme should be seen as one, and in the event of Lockheed not deciding to go ahead, although it is that company's intention to do everything in its power to do so, the British Airways Board will review its position.

Mr. Whitehead

May I add my heartfelt support to what was said by my hon. Friend the Member for Derby, South (Mr. Walter Johnson) about the Government and the British Airways Board having come round to share the view of the whole aerospace industry on the merits of the RB211 engine? Has the hon. Gentleman any estimate from Lockheed of the potential sales figures for the -2 stretched version? Secondly, is the sum of £60 million which the hon. Gentleman mentioned a finite sum? Thirdly, does that sum include all the development costs of the adaptation of the -24 engine if this should be used in some form for the A300B aircraft?

Mr. Heseltine

It is not right for the hon. Gentleman to suggest that the Government have lately come to support the 211. As he knows, the Government have committed £195 million to the support of the engine, and I should have thought that that was a slight gesture of confidence.

As to future sales, I have seen a number of figures given by the Lockheed Company and one has to take these into account together with any future price which the company may determine on. As the hon. Gentleman knows, Lockheed thought in terms of 220 for the TriStar -1, and now see a substantially higher figure in respect of the -2.

As to the third part of the hon. Gentleman's supplementary question, the initial £60 million deals with the initial six aircraft for which a firm order will be placed by the BAB. In the event of its exercising its option for either the -1 or the -2 for six more aircraft, additional sums will be payable.

Air. Haselhurst

Is it fair to infer from my hon. Friend's statement that he understands the consequences of the decision to Hawker Siddeley who have, as my hon. Friend says, contributed a fair amount of private capital to another project? Is it fair to assume that he recognises that, and is prepared to have negotiations to try to mitigate future consequences?

Mr. Heseltine

I am extremely aware of the consequences of this decision for Hawker Siddeley, and have had long discussions with Hawker Siddeley and with European colleagues of mine about this decision. That is why I am sure the House will understand my words, which I have carefully chosen in my statement. These make it perfectly clear that I believe there should be on-going discussions with the French and other Governments, which, I believe, should be of an urgent nature, and which should play a part in avoiding this sort of difficulty and conflict in making decisions of this kind in the future.

Mr. Millan

May I also welcome the British Airways Board order which I think is right, particularly as it has been taken on the commercial merits of competing aircraft and not as a result of Government pressure? There seems to be some uncertainty about the development costs of an uprated version of the development engine. The Minister has mentioned figures of £31 million and £61 million: which figure does he think is the likely cost? Further, at the end of his statement the hon. Gentleman suggested that it was the Government's intention to merge Rolls-Royce with the European aeroengine industry. That is a very major statement to be made at the end of an announcement like this. Can he elaborate on it, because if the Government have this in mind we shall have to consider it carefully, and debate it.

Mr. Heseltine

I fully accept the hon. Member's point, and I agree that it was a decision based on the commercial judgment of the British Airways Board. As to his second point about the apparent discrepancy between £31 million and £61 million, Rolls-Royce estimate that to stretch the engine will cost some £31 million and that is a figure with which we are broadly in agreement. It is on that figure that we have agreed to contribute three-quarters of the development cost, expecting Rolls-Royce to find 25 per cent. themselves, but one can never be totally precise about estimates of this kind, as the House will be aware.

I therefore have negotiatetd with Rolls-Royce that if its estimates are wrong there is a very severe financial penalty built into the arrangements, in that the Rolls-Royce contribution rises from 25 per cent. to 50 per cent. for the additional overrun expenses up to a figure of £61 million. It would be perfectly fair to ask why we should not continue that on, and I have to say to the House that I am of the view that if for some extraordinary reason one were to reach figures of that sort in my judgment, it would be beyond Rolls-Royce's capability to meet such expenditure. So it is better to anticipate that situation now rather than have a situation of crisis in the case of that extremely unforeseen circumstance arising.

One other thing I would say is that work on the stretched version of the RB211 involves modifications to about 25 per cent. of the existing engine. Therefore, one ought to have better grounds for confidence in the estimates on this occasion than perhaps on other occasions when one is starting a new engine from scratch.

Mr. Rost

Would my hon. Friend agree that the most significant point in his welcome statement is that the order has come after an independent assssment by the airline and the British Airways Board of the technical and commercial potential of this engine and this aircraft? Is not this a most important pointer towards future orders that are likely to come from other airlines?

Mr. Heseltine

I can only repeat my support for the general argument. This was a decision reached by the BAB in its commercial judgment of its own requirements, and it will be for the companies to develop any arguments that flow from that decision.

Perhaps I may now, Mr. Speaker, answer the third part of the supplementary question put by the hon. Member for Glasgow, Craighton (Mr. Millan) relating to a merger of Rolls-Royce with a European aero-engine group. There should be no reading into my statement of any announcement of such a decision. What we have said is that we believe that there is need for an integrated European aero-engine manufacturing industry and that conversations to this end would be extremely profitable, but it would be unthinkable that such a decision should he taken without the House being made fully aware of the circumstances.

Mr. Russell Kerr

Will the Minister pause before counselling his friends on the BAB to look for an allegedly interchangeable aircraft, as suggested by his hon. Friend the Member for Waltham-stow, East (Mr. Michael McNair-Wilson)? Will he reflect on the fact that more than one airline has had reason to rue such an apparently sensible decision.

Mr. Heseltine

I did ask the British Airways Board to carry out a survey for me as to the economic penalties or advantages of operating a mixed fleet, and I have to tell the House that the board advised me that there would be economic penalties if there were to be such a mixed fleet. That is why it felt unable to recommend a mixed fleet of TriStars and A300Bs.

Mr. Benn

While welcoming the Minister's statement, which fully justifies the original decision to go ahead with the RB211, I should like to ask one or two questions. First, why have the Government given support in anticipation of firm orders for the stretched airframe? Second, does the provision for the support he has announced include intramural costs in the gas turbine establishment? Third, will he publish the contract with Rolls-Royce in this case? Fourth, what is the cost of the modification of the A3003 if the engine is put into it? Fifth, will he give an assurance that there will be no forced merger between Rolls-Royce and any European aero-engine company?

Mr. Heseltine

Perhaps I may deal with the last question first, as to a forced merger. I do not think that there would be any purpose in dealing with a totally hyopthetical situation in the circumstances Certainly there are no proposals which would give grounds for answering any questions about them. All one says is that it would be profitable to have discussions such as I outlined in my statement.

The right hon. Gentleman asked why we should move ahead of firm orders. There is a chicken and egg situation here. If one is to be in the business of selling engines or airframes, at some time someone has to take a firm decision. I think that the directors and management of Lockheed take the view equally with the management of Rolls-Royce that in this case the present level of sales is sufficient to enable a decision to be arrived at on the creation of a family of aircraft which is the normal thing in this industry.

As to intramural costs, to my knowledge, and I will write to the right hon. Gentleman if I am wrong, the figures I have given include all the costs involved in the development I have mentioned.

As to publication of the contract with Rolls-Royce, it would not be the intention to publish what is strictly a commercial contract negotiated between Rolls-Royce and Lockheed.

As to the cost of modification of the A300B were it to be fitted with the -24, we have seen, as I understand it, a number of propsals but I think that at this point where there is no firm proposal from any British manufacturer there would be no purpose in going on to one alternative. There may be a number of other alternatives, but I think that on this subject profitable discussion could be held.