HC Deb 28 April 1980 vol 983 cc964-5
25. Mr. Bruce-Gardyne

asked the Secretary of State for Industry if he has concluded his review of the financial objectives for Rolls-Royce (1971) Ltd. set by the National Enteprise Board; and if he will make a statement.

Mr. Adam Butler

I shall publish in the Official Report a statement about the company's present financial position and the Government's intentions towards funding the company in 1980.

Mr. Bruce-Gardyne

Has my hon. Friend studied the alarming report published last week by the Public Accounts Committee, which suggests that the RB211 may be heading for viability only towards the end of this century? Will it still be in production then? Are we convinced that the target set by the NEB of a 10 per cent. return for 1981 is within the realms of practical possibility?

Mr. Butler

The company's report and accounts will be published shortly, and my hon. Friend will be able to draw his own conclusions. A written statement will appear in the Official Report, but I tell my hon. Friend that the company's business is expanding strongly, based largely on the RB211. However, with the weakness of the dollar, there will be added cash needs for the company during 1980. The question is how far the company can raise that cash from the private money market.

Mr. Whitehead

Is the Minister aware that his tribute to the RB211 will be welcomed after his hon. Friend's belittlement of it? Will he accept that the problem for Rolls-Royce is not the earning capacity of the engine—and that capacity has been borne out again today by the £50 million order—but the high exchange rate, which is making it difficult for British industry to sell, particularly in the American market?

Mr. Butler

I have already said that a reason for increased cash needs during the present year is the weakness of the dollar and the high pound. In its onward trading position the company must take properly into account the strength of the pound. Because of the high technical quality of its products, such as the RB211, it should be able to command better prices for them.

Following is the information: I have considered the Company's five-year forecast for 1980–84 submitted earlier this year and accept it as the basis for short-term financial planning. As a result of the rapid expansion of the company's business and the weakness of the dollar, the company has an additional cash requirement of £180 million in 1980. However, I am satisfied that the company's policies of exploiting the technical successes of the RB211 engine, and aiming for greater commercial profitability, provide a firm basis for long-term viability. The Government accept the company's need to fund the requirement to carry forward its programmes. As part of the funding, and subject to parliamentary approval, I intend to issue new equity equivalent to certain loans from the Department to be repaid in 1980 and modify the terms of the levy which the Government charge the company to recover the development finance for the RB211 engine. The modification will be confined to the RB211 engines on order at the end of 1979, and will be varied to reflect the effect of the exchange rate on sales income. The levy would be suspended at current exchange rates. For the balance, given the current constraints on public expenditure, and while I recognise that some further injection of Government finance may be necessary, I have asked the company to examine how much it can secure from the private sector. The longer-term funding requirement duty for the establishment of a new financial duty for the company will be considered in the light of the chairman's report to me on the plans for improving the financial prospect of the company, which I expect to receive in the summer.