HC Deb 18 March 1974 vol 870 cc666-76

3.30 p.m.

The Secretary of State for Industry (Mr. Anthony Wedgwood Benn)

I will with permission, Mr. Speaker, make a statement on Concorde.

Immediately on taking office, I asked my Department to report to me on the current position and prospects. Successive Governments have been criticised in the past for revealing too little information. I am, therefore, circulating in the OFFICIAL REPORT, and have made available in the Library and the Vote Office now, a detailed statement of the salient facts available to me so that the House can be properly informed of the position.

I can summarise the position quite simply. Concorde is the only commercial supersonic aircraft on offer in the Western world and everyone recognises its technical achievement. Two prototypes, two pre-production and the first two production aircraft have flown successfully. The production of 16 aircraft has been authorised. British Airways and Air France have ordered nine of these. Certification is now expected in the latter part of 1975. British Airways should have three aircraft in April 1976 with which to begin scheduled services.

The latest total estimate of the joint development cost for the existing version of the aircraft is £1,070 million, of which a further £130 million remains to be spent by the United Kingdom, both figures at January 1974 prices. None of these development costs will be recovered.

British Airways estimates that the operation of Concorde could substantially worsen its financial results, possibly by many millions of pounds a year.

With regard to noise, the landing and take off noise levels are expected to be comparable to those of such existing aircraft as the VC10 and Boeing 707, but significantly higher than those imposed on new subsonic aircraft. It is as yet uncertain whether the aircraft will prove acceptable at New York (Kennedy), Tokio or Sydney.

Against this background the manufacturers have proposed a series of measures to reduce engine noise levels and to increase the range by the development of extra fuel tanks, an improved engine, and the redesign of the wing. They estimate the total cost to the two countries of this additional development at £167 million at July 1973 prices. But it would be prudent to assume a figure of £220 million at January 1974 prices. The United Kingdom share of this would be additional to the £130 million which I referred to earlier.

The manufacturers estimate that passenger demand by the early 1980s would be sufficient to sustain 130 Concordes in service on the assumption that their version of the aircraft with these proposed modifications will be introduced. The Government have to consider how far this estimate takes adequate account of certain important factors, the effect of which could be to reduce sales substantially. These factors are more fully set out in the detailed statement.

On varying assumptions made by the Government of the selling price for Concordes—both basic and developed—of between 40¼ million dollars and 47½ million dollars—the price would not be sufficient to cover the cost of their production and of the necessary market support measures. These measures could well amount to 10 per cent. to 20 per cent. of the selling price.

By way of illustration, in addition to the loss of all development expenditure, the United Kingdom share of production losses, at January 1974 prices, over a range of sales, none of which can be safely assumed, could be as follows: on 16 Concordes £200 million to £225 million could be lost; on 35 Concordes £260 million to £300 million; on 100 Concordes, £120 million to £250 million.

The French Government announced on 19th February that they would propose the production of three more aircraft and they would not be opposed to the introduction of a limited modification involving increased fuel capacity. They stated that they put aside the development of an improved engine and wing. In view of the size of the sums of public expenditure involved and the importance of the decisions that must now be made, I thought it right to place all these facts before the House and the country before any decisions are reached. I have already proposed an early meeting with my French Ministerial colleague.

Mr. Michael Heseltine

What policy does the right hon. Gentleman intend to pursue in his negotiations with the French? As the general problem of Concorde—and not the specific figures—is much today as it was when the right hon. Gentleman and his Government were responsible for the project, does he agree that the sort of figures and the sort of statement which he has just made are likely, unless he intends to cancel the project, to have done the maximum possible harm and the minimum possible good?

Mr. Benn

The hon. Gentleman knows very well that all the figures which I have published were available to him when he left office. Some of the information, together with the relevant contemporary figures, were made available to the Public Accounts Committee last year. They were not published when the report was published but replaced by asterisks.

What I am doing today is what the hon. Gentleman will recall I urged very strongly that he should do when I was in opposition. I said in opposition that the House and the public were entitled to know the figures.

I have made available to my French ministerial colleagues the nature of this statement. I cannot anticipate what will flow from my discussion with them, although I hope that we shall have an early meeting. It follows if Parliament asks the House to disclose the facts in advance of a decision that it will not be possible in doing so to anticipate the decision.

Mr. Ewing

I congratulate my right hon. Friend upon an example of open Government by giving us the facts which we were entitled to know. Is my right hon. Friend satisfied that the manufacturers' estimate of passenger demand is a satisfactory criterion or yardstick to apply in estimating the future demand for these aircraft? Will he comment on the possibility that the figures given today are so frightening in their size and proportion that they will harden the attitude of many in this country that the project should be scrapped before it goes much further?

Mr. Benn

It has long been known to the House that when figures are submitted by manufacturers a precautionary addition is made by Ministers in the light of past experience. As the Government's forecasts have never before been published it may well be that others will wish to comment during the next few days on the figures which I have published. No doubt there will be a lot of comment. That, too, is part of the benefit of publishing the information as I received it when I went into office.

Mr. David Steel

We on the Liberal benches support the right hon. Gentleman's approach in this matter of publishing the figures and giving the House as much information as possible. Will the right hon. Gentleman's statement include any reference to any guarantee given to British Airways or Air France when they ordered the nine aircraft? Will he tell us more about the time scale on which he must take a decision if there is to be any production beyond the 16? Will he confirm that the total cost to the British taxpayer by the end of the 16 production aircraft will be at least £870 million?

Mr. Benn

With regard to the hon. Gentleman's latter figure, I should like to look at the figures which I have given to see whether what the hon. Gentleman says is right. The effect of the arrangements with British Airways is a matter for my right hon. Friend the Secretary of State for Trade, who is the Minister responsible for civil aviation. It obviously follows that any decisions made about Concorde and on the purchase of Concorde will have an effect upon the finances of British Airways. No doubt that is a matter on which hon. Members may wish to seek further information.

Mr. Moonman

Those connected with the aircraft industry will appreciate my right hon. Friend's approach to the manner of giving information. In the cost-benefit analysis which he is to undertake, will he take into account the possibility of considering the spin-off affecting other industries which might be of benefit to those industries and new skills?

Mr. Benn

As to the argument about spin off may I say—and the House will appreciate particularly my saying it—that when half a generation of skill, effort and craftmanship has gone into this work one must treat it with respect.

Mr. Cope

Is the right hon. Gentleman aware that his statement today will cause the gravest uncertainty particularly among those employed in the work on this great aircraft? Will he take account of that and as soon as possible try to get the answers to the questions which his statement poses?

Mr. Benn

The hon. Gentleman, who is a new Member representing a constituency in the Bristol area which is connected with the aircraft industry, will know that those who have lived with this problem for some years appreciate that there has been anxiety over a very long period. We believe that the best way to deal with that anxiety is to publish the facts and to be as honest as possible in telling the people the true position. But it is my intention to go tomorrow to Bristol to see those who are involved in the production of the aircraft and to keep that point in mind.

Mr. Dalyell

May I too welcome my right hon. Friend's rational method of approach to the problem? Can he say something about the legal position as it relates to the French? Is it a matter of contract, or is it still a matter of international treaty?

Mr. Benn

I have said nothing about that aspect. What I have done today is to publish the facts. However, my hon. Friend will note what I said earlier, namely, that I have made available to my French ministerial colleague the gist of what I proposed to say today, and I am looking forward to an early meeting with him.

Mr. Tebbit

The right hon. Gentleman has published a series of facts without any recommendations. If he thinks that the House should come to a conclusion in the light of these facts, does he agree that, as he has not published recommendations, he should leave it to a free vote of the House to decide what should be done on this issue?

Mr. Benn

The hon. Gentleman has anticipated events and raised matters which are not within my decision. I have made public now that I am in government what I always urged should be made public when I was in opposition. All Ministers concerned with this matter, including myself, have been sharply criticised by the Public Accounts Committee for concealing the truth about this project. All I have done is to make it public. How the House wishes to deal with the matter is not for me.

Mr. Loughlin

I would not ask my right hon. Friend to prejudge the position, but if in examining the total picture he decides that it may be wise to cancel will he take into account the cost of the benefits which might be available to the people engaged in the industry and add that cost to the credit side and not to the debit side?

Mr. Benn

If my hon. Friend looks at the statement which will be circulated in the OFFICIAL REPORT, and which has been made available in the Library and Vote Office, he will see that the financial implications and various assumptions are considered in it. All the figures are there and no doubt my hon. Friend would like to consider them before pursuing the matter.

Mr. Amery

Encouraged by the fact that the right hon. Gentleman is wearing a Concorde tie, may I ask him two questions? First, as every stage of the Concorde programme has been taken in harmony with the French, may we be assured that the right hon. Gentleman's statement and the figures which he has given have been agreed with our French colleagues? Secondly, may we have an assurance that no decision will be taken without the agreement of our French partners?

Mr. Benn

The right hon. Gentleman has a history in this matter, too. If there had been the same frank disclosure when the Concorde project was begun as I have made to the House today, the House would have known more clearly what it was in for. I have said that before, and I say it again.

But I must make it absolutely clear, lest there be any misunderstanding, that my first responsibility is to the House of Commons, although I notified my French ministerial colleagues in accordance with the normal ministerial courtesies, just as they have notified successive British Ministers when they have made statements. My statement today is a statement to the House of Commons. I cannot anticipate what will emerge from the discussions, which I expect to be frank and cordial, with my French colleague when I meet him, which I hope will be as soon as possible.

Mr. Carter

If, as seems likely, the Americans refuse Concorde the necessary certification, what effect does my right hon. Friend think that will have on the future of Concorde?

Mr. Benn

I cannot give a clear answer to that because there are not only federal regulations involved but the Port of New York Authority has the power to lay down its own restrictions. Therefore, that would be a matter best left for later discussion.

Mr. Adley

Is it not clear from the figures which the right hon. Gentleman quoted that no savings in cost are likely to be achieved unless and until a significant number of aircraft have been sold? Is it not also clear that a large number of aircraft will never be ordered until Concorde is in service? Will the right hon. Gentleman take careful note of the history of aircraft projects, such as Viscount, before coming to any conclusion?

Mr. Benn

I am well aware of what the hon. Gentleman pointed out. However, the hon. Member, who has taken a keen interest in this matter and accompanied me on the unofficial mission to America three years ago when we feared that there might be restrictions preventing Concorde from landing at New York airport, will know that it was hoped originally that the 76 options which existed at the time that I left office, which made it a wholly different proposition, would be confirmed into firm orders when BOAC and Air France ordered the aircraft. The whole production schedule for the aircraft depended on that supposition being realised.

Therefore, although Concorde's entry into service might make a difference to the market prospects—I have argued this publicly myself—it is not the same as saying that nothing has changed from past expectations which have, in some respects, been disappointed.

Following is the statement:

Current Status of Project 1. Concorde is being developed to Certificate of Airworthiness at an estimated total cost of £1,070 million at January 1974 prices (United Kingdom share £535 million of which £130 million remains to be spent). Sixteen aircraft are being built and long-dated materials have been ordered for six more. Nine aircraft have been ordered by British Airways and Air France. In addition:

  1. (a) The manufacturers, British Aircraft Corporation, SNIAS (Societe Nationale Industrielle Aerospatiale), Rolls-Royce (1971) and SNECMA (Societe Nationale d'Etude et de Construction de Moteurs d'Aviation) expect to achieve a Certificate of Airworthiness for passenger services between June-August 1975, but officials consider that it would be prudent to assume that certification will not take place before the end of 1975. The three aircraft which British Airways need to start services are expected to be delivered by April 1976.
  2. (b) The landing and take off noise levels of the production aircraft are expected to be 674 comparable to those of such existing aircraft as the VC10 and Boeing 707, but significantly higher than those now imposed on new subsonic aircraft and being considered for supersonic transports by the United States regulatory authorities.
  3. (c) Supersonic overland corridors for services to Tokyo and Sydney have still to be arranged over the Soviet Union, the Middle East, India, Indonesia and Australia but no objections in principle have been voiced. A one-stop service to South Africa is not possible because no suitable runway exists. It is as yet uncertain whether the aircraft will prove acceptable at New York (Kennedy), Tokyo or Sydney on noise grounds.
  4. (d) British Airways estimate that the operation of Concorde could substantially worsen their financial results, possible by many millions of pounds a year.

2. Employment. Concorde supports up to 21,000 jobs; 9,000 of these are in Bristol, some 3,500 in Weybridge, and the rest distributed among subcontracting companies and materials suppliers throughout the country.

3. The Manufacturers' Proposals. The manufacturers' proposals are as follows:—

  1. (a) Development: in order to reduce noise and increase range, the introduction of (i) extra fuel tanks and some weight saving modifications, (ii) an improved engine, and (iii) an improved wing design. The manufacturers consider that all these lines of development should be pursued, for incorporation in a new version at the 15th production aircraft. They estimate that these developments will be completed by mid-1978, and costs would total £167 million at July 1973 prices.
  2. (b) Production: a programme rising to 16 aircraft a year and producing 60 aircraft by end of 1981. The manufacturers estimate that passenger demand by the early 1980s would be sufficient to sustain 130 Concordes in service on the assumption that the improved version of the aircraft will be introduced.

Comments on Manufacturers' Proposals

4. The Government consider that:—

  1. (a) the development proposals appear technically feasible but are likely to take longer than forecast by the manufacturers, and to cost £220 million at January 1974 prices rather than £167 million at July 1973 prices;
  2. (b) the manufacturers' market estimates may take inadequate account of the effects of noise and pollution restrictions, the effect of improved versions of existing jets, and the effects of both the temporary shortage of fuel and the increase in fuel prices on traffic growth, operating economics and airline purchasing policies. It is difficult to assess how far any part of the manufacturers' estimates of passenger demand will be translated into actual sales of the improved version, but the effects of 675 the above factors could be to reduce sales substantially;
  3. (c) on varying assumptions made by the Government of the selling price for Concordes—both basic and developed—of between $40¼ million and $47½ million, the price would not be sufficient to cover the cost of their production and of the necessary market support measures. These measures might well amount to 10 to 20 per cent. of the selling price. By way of illustration, the United Kingdom share of production losses at January 1974 prices

5. Financial Implications

On the following assumptions, the net cost to public funds from 1st April 1974 to 1st April 1978 of the United Kingdom share of the programme, excluding all interest on capital employed, and any operating losses sustained by British Airways, is estimated at January 1974 prices to be:—

£ million
A. Cease production now (allowance for contractual costs, redundancy and unemployment payments) 80 All sold except 2 80 9 existing sales
B. Complete 16 aircraft 115 155
British Airways Investment 90 90
205 245
C. Complete 19 aircraft (develop tank and associated minor improvements) 130 200
British Airways Investment 90 90
220 290
D. Continue production at 4 a/c per year. Full development proposed by the manufacturers 300 400
British Airways Investment 90 90
390 490
E. As in D, but at manufacturers' production programme 295 425
British Airways Investment 90 90
385 515
The above calculations assume:—
(a) In all cases a selling price at January 1974 economic conditions equivalent to that at which the aircraft was ordered by British Airways and Air France (that is, 40.25 million at July 1973 conditions). In case E, however, a selling price equivalent to 47.5 million at July 1973 conditions has been assumed for all sales of the improved version when it is introduced at aircraft No. 15.
(b) The first two production aircraft will not be refurbished to a commercial standard after their use in the certification programme.
(c) An allowance for the cost of special credit and financing terms, but none for other market support measures which the manufacturers consider necessary.

over a range of sales, none of which can be safely assumed, could be:—

  1. (d) accordingly, none of the development costs either for the existing programme or for any further improvements would be recovered.