HS146 PROJECT (Hansard, 12 December 1974)

§ Mr. Paul B. Rose (Manchester, Blackley)

A week ago I had ray first experience of flying in a Hawker Siddeley 748. No doubt it was built in Manchester by many of the friends of the Minister and myself. The flight was to Antigua and the tour operator was LIAT.

I learned two matters in particular as a result of the visit. First, the HS748 is an excellent plane. It is ideally suited for short runways and rough terrain and for the needs of less advanced countries. It is admired for its reliability and flight performance. The question that faces us is what is to take its place when its generation, and even the modified jet version, has outlived its time.

The nub of the issue in relation to the HS146, which is the issue of the debate, is whether we are now witnessing the demise of the British airframe and design industry. It is no more and no less than that. It involves the question whether we are to abandon that plan, with all the advantages of the HS748 and a good deal more besides—with its lower operating costs, take-off ability, increased capacity and all the rest. When we nationalise the aerospace industry we are in danger of being left with our share of the Concorde—a project which I believe is distinctly suspect from a number of points of view, ranging from social and environmental aspects to economic considerations.

When I was in Antigua I saw how catastrophic the co-called expert economic advice can be. One of our top economists advised Antigua to cease production of sugar. It took that advice. Now, when one visits that country one sees the residue of sugar cane and abandoned derelict sugar mills, rusting railways and all the rest, at a time when the world is crying out for more sugar and 971 is willing to pay the price for it—a price which has soared.

This reminds many of us of how we squeezed our mining industry a few years ago because of an arid economic appraisal of fuel costs outside the context of our balance of payments and changing forces in the world. We now find ourselves forced to import more oil and it has swept us into economic crises of frightening dimensions. That is the result of economic forecasts arrived at in a vacuum.

Although I recognise the argument against sinking money into an HS146 project at a time when, according to economic theorists, public expenditure should be pruned, I believe that there are overriding considerations, which I shall seek to put to the Minister. I wish to refer to the appalling prospect facing this nation in the 1980s without an airframe industry or design teams. It involves the gratuitous throwing away of the skill and technological know-how which has been accumulated in half a century of endeavour.

The HS146 project must be considered in context in the short term, and its future looks very healthy. But there are far more profitable fields of investment outside aerospace which promise greater return. However, the abandonment of the HS146 enterprise, even within that context, would leave a yawning gap. It will be not only a short-term but a shortsighted decision in a situation in which there is a promising market for this aircraft—a market which is likely to increase as more countries decide to go in for short-haul feeder aircraft.

It is suggested that escalating costs and a shrinking market, as well as deterioration of customers' finances within the overall context of fuel price increases, result in an even more difficult decision. These are obstacles which the union concerned has not taken lightly. There are long-term implications in abandoning the project which override those other considerations—not least the 300 to 400 immediate redundancies which may result from abandonment of the project and, ultimately, the 20,000 redundancies which may follow.

The destruction and disintegration of the design team and its potential would be an act of industrial vandalism which no Labour Minister would permit. After all that my right hon. Friend the Secretary 972 of State for Industry has said about greater worker participation—he has done a signal service to this country by emphasising this aspect to the man on the shop floor, who deserves a real stake in industry—and after the tripartite talks have taken place, he will surely not abandon that philosophy, as he appears to be in danger of doing. I trust that he will listen to the voice of the trade unionists who have struggled so valiantly to preserve this project and to get it off the ground in more ways than one. They are, frankly, disappointed, as I am, by his statement on Monday. At the very best it was a holding operation—a sort of palliative. It put the project on ice. At worst, it was the first overt indication of what may well be an ultimate decision by a future nationalised aerospace industry to abandon the project altogether. I believe that my hon. Friend the Under-Secretary will take the point that it would be kinder to do the latter now rather than seek to draw off the heat by some unsatisfactory formula. I shall explain why shortly.

In any event, it will not take off the heat because this campaign will continue. It will grow in strength, whatever the outcome of tomorrow's talks. I pay tribute to the remarkable persistence of the trade unionists concerned and the way in which they have marshalled their facts and put their case to many of my colleagues and myself. I have been very impressed with this, and with the myriad of facts which have come before me. This is an example of the way in which workers, having confidence in their own project, are able to put a case before the House through their Members of Parliament.

The vital element here is that every month of delay will make it that much more difficult to compete in world markets. Indeed, by our procrastination we have already encouraged others to enter the field and to enter the competitive market which we have to penetrate. We have taken no action—as a Labour Government ought to have done —to encourage British Airways, for example, or the Ministry of Defence to consider its replacement needs in the light of the requirement for a home market base for the 146 when, for example, the Viscounts were phased out. I believe that the Department of Trade is open to criticism here. It seems to have 973 failed to appreciate the need for co-ordination of an integrated strategy in the public sector, which includes not only the purchase requirements, say, of British Airways but the construction of airframes and aircraft and the design of those aircraft, and looking at all that within one context in the public sector. We have seen that lack of understanding within the Department with regard to co-ordination on the continental scale, but I say no more about that.

I also hope that there will be more co-ordination with the Ministry of Defence when replacements are required there, and with the Ministry of Overseas Development, because there is a great deal of room for loans and long-term credits, and even for grants that could assist in purchasing an aeroplane such as the 146 that is admirably suited for developing countries.

On 1st July this year the Secretary of State for Industry, by implication, criticised the unilateral decision of Hawker Siddeley to pull out of the contract. I entirely endorse what he said. The Minister stated, in relation to what he recognised was the only major new civil project then in progress: Clearly no Government could view its cancellation without serious concern if this country is to remain a leading aircraft manufacturer in the future to meet a world market which, whatever its short-term difficulties may be, is likely to continue to grow. I agree with him. I cannot see what has changed since then. He pointed out that Cancellation of a project of this magnitude, amply and adequately backed by a Government launching contribution which allowed it to go forward, would be a very serious thing. That is precisely what has happened. I ask my hon. Friend: why allow it? Why not take the action which the Conservative Government took in relation to Rolls-Royce? I want to know how a future nationalised industry will fill the gap unless this decision is taken now? The Government cannot procrastinate any further. They must decide what sort of aircraft industry they want before any move towards nationalisation is taken. If it is not possible to have what we want because Hawker Siddeley's commercial considerations vitiate it, the Government should act swiftly before they lose these potential markets and sacrifice 20,000 jobs. They can do that very quickly.

974 The aircraft that a future nationalised industry should be producing is a feeder airliner which could carry 70 or 100 passengers, which is ideally suited also to freight and military purposees, capable of taking pallets and with remarkably few technological and technical risks. It would be geared to a market that many of us believe will expand rapidly in the later 1970s, and to new markets. Therefore, a formula must be worked out to persuade Hawker Siddeley to resume work. Parliament allowed a sum of money, and £44 million of that could still be released. That would produce two prototypes and allow us to lose no time in producing aircraft prior to nationalisation of the aerospace industry.

The figure of 50 per cent. was quoted. I see no reason why, tomorrow, if it is needed, a figure of more than 50 per cent. should not be offered. If that does not bring Hawker Siddeley to the position where the company is willing to go on with the project, in January a short swift Bill could be introduced to nationalise that sector of the company. Assets of about £40 million are involved. To quote one gentleman, "If we do not do this we are going to be in the soling and heeling business without any uppers." Possibly we shall be down on our uppers if that happens. We shall be engaged in the aircraft industry in improving Nimrods and lengthening the life of Tridents, but with no real content to the industry, no future capacity for new design or construction.

What makes sense for Hawker Siddeley in an investment yield on capital, given its other profitable fields in engineering and instruments, does not necessarily accord with the national interest of a national aerospace industry. While the industry and Sir Arnold Hall fiddle—I use that word in its honest sense—the DH7 short feeder plane is being ordered into production in Canada. It will inevitably take some of our market, even though it is a smaller aircraft. Certainly DH, Boeing and Fokker are all optimistic. They all feel that there is a bright future for an economical and flexible short-haul plane. If they feel that why are we not justified in taking the same view, and why do we hold back to let them all take the market before we start.

The essence of this problem is time. Instead of putting the project back and 975 putting the sub-contractors on ice, with the inevitable penalty payments, we could still get the 146 in the air by between September and perhaps, at the latest, December 1976. The design is 75 per cent. complete. Tooling is 40 per cent. complete. If a decision were taken, say, on a vesting day for public ownership, such as January 1976, we would have lost a most valuable year and the markets would already have been penetrated.

The staffs co-ordinating committee anticipate a market of 400, with more than £1,000 million return on exports on an estimated investment by the Government of £120 million over the next three years. As the Trident and the 748 move out of production the 146 could be phased in. There will be a need for replacements for 35 Viscounts, and it seems to me that the time scale of the 146 would be ideal while delay would mean disaster. Perhaps delay would be worse than outright cancellation. Delay might lead to the production of the plane when it is no longer economically viable. But whatever we do, cancellation will mean a North American near-monopoly in civil air transport. The Financial Times of 23rd October said that if the HS-146 is finally axed, it means that Britain, with the biggest aerospace industry in the world outside the U.S. and the Soviet Union, is admitting publicly that even with a measure of Government cash aid it can no longer afford to develop a new civil airliner on its own, even of such comparatively small size and well-understood technology as the HS-146. I hope that that is not something my hon. Friend would countenance.

There is a possibility of joint financing with European counterparts. Without the 146, far from exporting we shall be purchasing our aircraft abroad by the 1980s —purchasing the Fokker F28 instead of boosting our own exports. We shall have to pay more to our sub-contractors if we do not start now. Either way, the arguments are in favour of getting on with production as soon as possible.

By guaranteeing the money already allocated by statute prior to nationalisation, we can avoid those consequences. The initiative must come from the Government; it will not come from Hawker Siddeley. I accept that there is no crystal ball that will prove that it will be economically successful, or will fail, but I think that my hon. Friend will take into con- 976 sideration, particularly after today's balance of payments figures, the fact that last year our aerospace exports were £520 million—a major contribution to our balance of payments. It was a particularly big contribution in relation to imported raw materials. That is because the aerospace industry relies on skill. Our skills will be absorbed by our competitors if the decision is made on short-term economic factors alone against the production of the 146.

I hope that my hon. Friends will not plan on the assumption of inflation that will continue indefinitely, because that way lies paralysis. I trust that my hon. Friend will now, having given a distinct impression of temporary paralysis, regain his nerve, take a courageous decision and place confidence in the industry, and above all in those who work in it. If he does, he will find that there are growing markets that can be penetrated and that we have the product to sell in them.

This year the aerospace industry may well export as much as £600 million worth or £700 million worth of production. What will be the figure in 1980 or 1984? If we fail to produce the 146, will the figure be reversed? Shall we find, as we did with coal, that we have to import rather than export, because we failed to boost our own industry?

What is good for Hatfield, Brough, Woodford and Chadderton is good for Britain. For that reason I ask my hon. Friend and my right hon. Friend, who will no doubt be at the talks tomorrow, to listen to the action committee of hon. Members—the 60 or so hon. Members who have supported the motion, to the shop stewards and the representatives of the workers on the shop floor in the industry and in the unions, and find a way of seeing that the 146 is launched. For the sake of the industry, my right hon. Friend dare not fail.

§ The Under-Secretary of State for Industry (Mr. Michael Meacher)

I am most grateful to my hon. Friend the Member for Manchester, Blackley (Mr. Rose) for raising this important subject. I am impressed by the content of his speech and the restrained but forceful way in which he put over his case.

In the few minutes left I shall try to clarify a number of the issues. As my 977 right hon. Friend the Secretary of State told the House on Monday, we have decided that it would be wrong to take on 100 per cent. funding of the project in response to Hawker Siddeley's action in terminating the project. When the project was launched in August 1973 the then Government agreed to invest a fixed sum of £40 million at 1972 prices, calculated as about 50 per cent. of the estimated launch costs.

When we came into office the Government were quite happy to continue the project on this 50 — 50 basis, which meant, among other things, that the management had a sizeable financial stake in its success. But 100 per cent. funding is a very different proposition, especially when management has lost some of its faith in the project's viability, certainly in the short term, though I agree that it still has confidence in its technical merits. Moreover, present circumstances are very different from those prevailing in 1973, as I shall hope to show.

My hon. Friend raised the question of the Government's latest assessment of the project in general, and I shall make one or two general points about that. First, the detailed market forecasts and so on, undertaken by the firm's and the Government's experts would be useful to our competitors. We are keeping open the option of continuing. We do not want to strengthen the position of our competitors by referring to our own work.

The second point I make in this connection is more basic. Assessments in this field depend on assumptions about a variety of inputs—the size and spread of the market, which in turn depends on general economic conditions, the strength of the competition, and so on. Forecasting as far ahead as we must inevitably seek to do is particularly difficult in times of inflation. One has to take a view of the rate of inflation in this country as against that in other countries, and the extent to which exchange rates will alter these facts in compensation. However, I still propose to be as forthcoming as is possible on our assessment.

When it was launched, the company thought that it would sell some 400 aircraft by 1985 and that this might turn out to be a pessimistic forecast. At the time, those who examined the project within Government Departments accepted 978 that a market of this size might be captured by Hawkers, though particularly with this type of aircraft selling over a considerable period, in small numbers, to a wide variety of airlines, the forecasts were inevitably rather speculative.

There have been significant changes in the world economy since the project was launched, brought about, of course, by the oil crisis, in particular. The market visualised for the HS146 has been put back. The company has told us that it believes that a potential market still exists but it would be much slower to build up. There is a caveat: the 146 would have to be priced competitively, and this is something on which the company has some doubts.

One cannot ignore the fact that inflation has already increased the cost of development. If the contract had gone ahead, the Government's contribution—originally £40 million in January 1972 prices— would have risen to some £54 million in September 1974 prices, which suggests that the project cost from now on would be at least £120 million at today's prices. Moreover, we cannot ignore the fact that the company's unilateral action has increased the costs. For example, contracts would have to be renegotiated, and there would be additional costs because of the disruption to the flow of work. It is questionable whether the subcontracts would now be renegotiated on identical terms. Moreover, the increase in costs has increased the level of sales needed to recover costs and, coupled with the slower growth of the market, has put back the break-even point considerably.

It has been suggested that the type of airline which is likely to buy the HS146 is on the whole less affected by the oil crisis and that this sector of the market is markedly more buoyant than, say, the market for transatlantic jets. It is true that the depressing effect on the market is not uniform and some sectors have been less hard hit than others. But many of the areas where the HS146 would have sold have been hit by the oil crisis. About 40 per cent. of potential sales would, according to our forecasts, have arisen in Asia-Oceania, and a further 15 per cent. or so in South and Central America. As we know, the economic future for such Third World areas is not at all encouraging. Equally, one hears it said that the oil-rich States will be a good 979 market for the plane, but these fall into our category of "Africa and the Middle East Sales", which might amount to only about 10 per cent. of the total.

I should add—contrary to the impression that my hon. Friend may have received—that we did approach British Airways to sound out their views about a possible launching order, but they told us that they were not in a position to give any commitment because the size and timing of any requirement they might have would be very imprecise, and could be quite a small number even up to the mid-1980s.

I should also mention another detailed input into our calculation of the project's viability. The degree to which the plane can penetrate markets depends on its sales price in comparison with the prices of its competitors. The F28 and the B737 are both in the fortunate position of having their development costs written off before the latest bout of inflation. They are in this respect in a markedly better position than the HS146, which will have to bear the full brunt of the development cost rises.

Taking all these uncertainties into account, the Government took the view that 100 per cent. funding would not be an appropriate use of resources. It is not so much that the money is not available but that it would be impossible to justify incurring considerable additional expenditure when the market has deteriorated in this way.

We also decided against building two prototypes. This possibility was also canvassed by my hon. Friend. This has been portrayed as a sort of "half-way house" but unfortunately it is no such thing. It would mean spending a considerable sum of money—at least £40 million—which would be abortive if the project were not then adopted and would add considerably to total costs, raising 980 them to £130 million, if it were. This is why prototypes are generally produced only when firm orders are obtained, as in the case of Concorde. I suggest that to do this for the HS146 would give us the worst of all worlds.

We therefore concluded that we should aim to keep the project in being in another way, by maintaining the design capability and vital equipment such as jigs, tools, and so on, so that its future can be reviewed and, if desirable, the project go ahead at a later stage. I have been asked when this review might take place. We want to let the new nationalised aircraft company make its own assessment of the prospects. We also want to allow enough time for the present difficult worldwide economic climate to settle down. I should have thought that we should therefore anticipate a review around the middle of 1976.

I know that my hon. Friend and other hon. Members are worried because they fear that delaying this long will mean that those working on other projects coming to the end of their production runs will not be able to transfer to HS146 work. I ought to deal with one aspect of this—the rundown of the Trident line. It has been suggested that work will begin to cease as from the next six to eight months on. I am informed that this should not be the case and that a reasonable forecast would be that Trident work can be expected to continue at approximately the current rate until at least early 1976 and, indeed, for longer if further orders are obtained.