Laker Airways

HC Deb 05 February 1982 vol 17 cc703-13 2.33 pm

The Under-Secretary of State for Trade (Mr. lain Sproat)

I learnt with great regret this morning of the decision to appoint a receiver to Laker Airways.

Laker Airways announced last August that the strengthening of the United States dollar relative to sterling had increased substantially the cost of servicing dollar loans which the airline had obtained to finance the purchase of aircraft. Furthermore, traffic had been below expectations for the whole airline industry, but particularly for Laker. It was therefore negotiating with the syndicates of lenders, who had furnished the loans, a deferment of some of the repayments.

Negotiations have been taking place since then, but although, as I understand it, considerable progress was made towards obtaining substantial additional financial support, at the same time Laker's trading conditions have deteriorated significantly, particularly in the last two or three weeks, and success could not in the end be achieved.

Both the Bank of England and the Civil Aviation Authority, which has a statutory duty to monitor the financial soundness of airlines, have kept in touch with negotiations between Laker Airways and its lenders.

Since I felt that travellers affected by this decision would look to my Department for the earliest possible advice about their position the House will understand that I thought it right to issue guidance to help them this afternoon.

Briefly it was that in the event that the receiver decides to cease operating flights, passengers who have paid for bookings for a package holiday would be protected in the first instance by the bond, guaranteed with the bank, which Laker's tour operating companies provide as a condition of their air travel organisers' licences. This bond would be immediately available to enable alternative arrangements to be made to bring home people who are already abroad.

Those who had booked but not yet travelled could seek compensation from the bond, and, if it proved insufficient to meet all legitimate claims, from the air travel reserve fund.

These arrangements would not cover those travelling on Skytrain scheduled services. If Laker services were no longer operating they would have to travel by alternative means. If they had unused tickets they would be in the position of unsecured creditors, unless they could exchange them for valid tickets issued by another airline.

I understand that the receiver is exploring every possibility of minimising the inconvenience suffered by passengers, and it will become clearer when he has had a little more time how this can be done. Travellers affected should therefore watch for further information in the media.

Many hon. Members will share the sadness I feel at this event, after Sir Freddie Laker has done so much to make air travel available to a wider market, and I would like to express my sympathy with the employees and management of the company, and all others who may suffer loss or inconvenience as a result.

Mr. K. J. Woolmer (Batley and Morley)

The appointment of receivers to Laker Airways today will have come as a tremendous shock to many in the country, not least to the employees, passengers and creditors, particularly in view of the reported statement by Sir Freddie only three days ago, to the effect that he could not be more confident about the future.

Does the Minister understand that our immediate concern is for passengers travelling, or booked to travel, with Laker Airways and its holiday subsidiaries? Will the Minister give an assurance that holidaymakers will get their money back, that the funds are adequate and that the refunds will be made quickly, so that individuals and families can make alternative holiday arrangements? Does the hon. Gentleman recognise that the position facing passengers booked on sheduled services is totally unsatisfactory and that his statement falls far short of assuring them that they will be properly safeguarded? How many are involved and what does the Minister intend to do on their behalf? What is happening to Laker's air services today, and what is to happen in the next few days? How many employees are involved? I am sure that the hon. Gentleman will join us in hoping that the employees' position will be safeguarded as much as possible.

The House will be well aware that many aspects of the affair have been building up for some time and they must leave people feeling very uneasy about past events. Is it appropriate to appoint an inspector under the powers in the Companies Act to examine the affairs of recent months? What does the Minister intend to do about route licences? How many route licences are involved and what does the hon. Gentleman intend to do to safeguard the interests of British aviation and of commerce? Does not the affair demonstrate the urgent need to review British aviation policy and the Government's apparent failure to have any such policy? The Minister's remarks to me only a few day s ago at Question Time about the North Atlantic route have been shown to be the hollow sham that they were then and are now. I ask the Minister to go away to learn some lessons, and to assure us that he will investigate and return to the House with a proper review of aviation policy.

Mr. Sproat

Conservative Members and the Government completely share the hon. Gentleman's concern for the passengers. May I completely reassure him that funds from the bonding arrangement and the air travel reserve fund will be adequate: the total amount available from those two sources is over £23 million and that will certainly cover all those on charter holiday packages. The hon. Gentleman also asked me how many scheduled passengers were involved. I am sure that he will appreciate that it is difficult to know exactly how many are involved, but we understand that the number on each side of the Atlantic is about 5,000. The answer to the hon. Gentleman's question about the number of employees is 2,600, and everything will be done to safeguard them.

The hon. Gentleman raised a very important point about the Companies Act. We have no evidence that an inquiry by any Department, particularly the Department of Trade, under section 165 of the Companies Act 1948 would be justified. If the receiver finds any reason to seek one, he will doubtless inform us. If the company should subsequently go into liquidation, it will be the duty of the liquidator to carry out a full investigation of the circumstances and to report if he has any reason to believe that any impropriety has taken place.

In regard to the effect on the European route licences, Laker Airways had a kind of blanket charter. It was running charter flights—I speak from memory—into five countries in Europe and two in North Africa, Morocco and Tunisia. In the United States, he was running services to New York, Los Angeles, Miami and Tampa. As far as these specific licences are concerned, the appropriate authorities on both sides of the Atlantic—on this side, of course, the Civil Aviation Authority—will examine them to see what can be done and who may apply for them when and if Laker Airways give them up.

I have been asked about the general effects of the Government's policy. We remain absolutely convinced that the principle is that we should strive for a better deal for the consumer and that we should pursue our policy of competition and seeking stability for the airlines. That has been our policy. It will continue to be our policy.

Mr. David Steel (Roxburgh, Selkirk and Peebles)

In the absence of the Leader of the House, may I say to the Under-Secretary that this pathetic statement by a junior Minister will not satisfy the House? Is he aware that all hon. Members are conscious of the fact that Sir Freddie Laker and his company were the jewel in the crown of the free economic theories of this Government—

Mr. Dennis Skinner (Bolsover)

And of the Liberals.

Mr. Steel

No, not of the Liberals—and that they have become the latest nail in the coffin of those theories? Do the Government still believe that the Civil Aviation Authority has a duty to balance the need of the consumer for competitive air fares, the interests of the taxpayer in the support of British Airways and the interests of other airways? Have not the Government consistently undermined that balancing authority? When will the House hear a full statement on aviation policy?

Mr. Sproat

As for the disappointment that the right hon. Gentleman appears to feel about the statement, he will perhaps agree, when he has studied it further, that it is an extremely full statement. It goes into the sort of details that will be most helpful to air passengers.

On the balance of the Government's policies, the right hon. Gentleman may care to reflect on the fact that one result has been that the three British airlines flying the North Atlantic last year carried more passengers and out-earned the nine American airlines. That is a tremendous achievement. It is precisely that balance between stability for the airlines and benefit for the consumer that we intend to continue to pursue.

Mr. Michael Neubert (Romford)

On this black day for air travel—I flew on the first charter flight to be operated by Laker Airways and salute Sir Freddie for his lifetime commitment to cheap air fares—is not one lesson to be drawn that free enterprise is unlikely to be able to flourish in conditions of world recession in competition with State-subsidised public corporations? Is it not an irony that British Airways, which made a loss of £120 million last year, is still flying today whereas Laker Airways, with debts of half that amount, is now in receivership? Can the Minister say whether there has been any positive response from other British carriers such as British Airways and British Caledonian in helping those Laker passengers who are marooned abroad or who may have paid for tickets for flights in the near future?

Mr. Sproat

I thank my hon. Friend for his generous but no more than deserved salute to Sir Freddie. Sir Freddie is, indeed, a very great man who has done wonderful things for passengers all around the world in providing them with cheaper air travel. My hon. Friend's remarks about Sir Freddie will be greatly appreciated at this difficult time for him.

My hon. Friend will know that it is and will continue to be the firm policy of the Government to privatise British Airways as soon as is practicable. My hon. Friend referred, I think, to a loss made by British Airways last year amounting to £120 million. In fact the pre-tax loss was £141 million, even greater. My hon. Friend is right in saying that we have to look closely at the manner in which taxpayers' money is used to fund these nationalised industries.

However, having said that, I should also point out that I spoke this morning to the chairman of British Airways, Sir John King, and to the chairman of British Caledonian. They both made extremely generous statements about how they would help any stranded passengers that they could. The chairman of British Caledonian, Mr. Adam Thompson, with superb generosity, said that, if necessary, he would fly stranded passengers back free to the United Kingdom. That shows what free enterprise will do, when called upon.

Mr. David Ennals (Norwich, North)

Is the Minister aware that many on these Benches and in the country, will be horrified by the threat that he has now made to privatise British Airways, which presumably would then go down in the same way as Sir Freddie Laker has gone down? Second, does not the Minister feel any sense of responsibility? If Laker Airways was the prime example of successful private enterprise, why have his Department and the Government—as far as I can see—not raised a finger to save it to preserve the jobs of 2,000 workers, as well as the holidays of tens of thousands of customers?

Mr. Sproat

I am astounded that apparently the right hon. Gentleman is not aware that it has been our policy for a very long time to privatise British Airways. It is extraordinary, if he does not know that; it shows what little interest he takes in the matter. Perhaps I should also tell him, as apparently he is unaware of the fact, that last year private airlines overall in this country, as opposed to British Airways, made an overall profit. He should remember that when he criticises our private airlines.

In answer to what the right hon. Gentleman said about helping Sir Freddie, no formal approaches were made by the officials of Laker Airways to my Department, and we would not consider it appropriate in this case to intervene.

Mr. Anthony Grant (Harrow, Central)

Will my hon. Friend take no notice of the nonsense that is talked by the leader of the Liberal Party—or by the right hon. Member for Norwich, North (Mr. Ennals)—because nothing that he has said and nothing that has happened in any way detracts from the need to privatise British Airways and retain competition? Will my hon. Friend accept that Sir Freddie Laker has rendered a great service to a great number of people who otherwise would not have been able to travel by air? My hon. Friend should take on board the important fact that aviation is an international business, that it involves international agreements, and that it is vital to obtain international agreements on a common sense and fair system whereby scheduled services can be available for the regular business traveller.

Mr. Sproat

I am glad to have the support of my hon. Friend the Member for Harrow, Central (Mr. Grant) on the privatisation of British Airways. It is our firm intention to go ahead with that. I was also glad to hear his tribute to Sir Freddie Laker, whose vision, initiative and enterprise made worldwide travel available to many people who otherwise could never have dreamt of it. What my hon. Friend said about the worldwide implications is right. My Department is constantly trying to get the best possible air services agreements so that we get a good deal for the customers and achieve stability for the airlines concerned.

Mr. Clinton Davis (Hackney, Central)

Is it not clear that Sir Freddie Laker has been the victim of his own unwarranted optimism and of the cut-throat competition which has been engendered and encouraged by this Government and, indeed, by Sir Freddie Laker himself? Is it not also a fact that it is only as a result of the Labour Government's Air Travel Reserve Fund Act that any hope is offered to charter passengers today? Will the Minister look again at section 165 of the Companies Act, from which he will see, having regard to the reckless statements by Sir Freddie only two days ago, that passengers, creditors and others might well have been misled? Moreover, if the Minister will look at the ratio of debt to capital on which Sir Freddie was operating, he will see that there is ample ground for inspectors to be appointed. That ought to be done.

Mr. Sproat

Although it is inappropriate to go into all the reasons why Sir Freddie is now in receivership, there is no doubt that two main reasons were the changing rate of the pound to the dollar after Sir Freddie had taken out his loans and, secondly, the worldwide recession in air travel that has affected everyone and has made a substantial contribution to the deterioration in Sir Freddie's traffic figures. As to the hon. Gentleman's other question, I undertake to reconsider section 165.

Mr. R. A. McCrindle (Brentwood and Ongar)

The Minister has confirmed that, unless passengers have booked on Laker services through a package tour arrangement, no fund is available to compensate those who have booked on scheduled services on an advance purchase basis. Will he extend his discussions beyond British airlines to those who have flown in competition with Sir Freddie Laker across the Atlantic so as to bail out any passengers who might otherwise become stranded? In the process of his consideration, will he also remember the position of the travel agents, sometimes small firms, who may have sold advance purchase Laker tickets and against whom a law suit might be forthcoming from some stranded passengers?

Mr. Sproat

I shall certainly consider the problem that my hon. Friend raises about small travel agents. As to his interesting point about bringing rival American airlines into the matter, I have already done so. Both Pan Am and Air Florida have said that they are prepared to make arrangements to help passengers wherever possible.

Mr. Norman Atkinson (Tottenham)

Does the Minister agree that, far from being a jewel in any crown, the Laker organisation seems to be the biggest airborne bucket shop in history? Will he assure the House that if discussions are to go ahead about the privatisation of British Airways neither Sir Freddie Laker nor the others mentioned will be involved in the process of privatisation? Will he also make a statement about the licensing of the Laker organisation and explain what he meant by "a kind of blanket charter"? What will happen now to the Laker licences?

Mr. Sproat

As to the latter part of the question, I was endeavouring to make it clear to the House that., on scheduled services, specific permission and agreement must be sought for flights between A and B. As to the seven countries outside the United States—five in Europe and two in North Africa—Laker can operate charter flights there and to anywhere that IATA rules apply in Europe without permission for specific routes. That is a clear statement of the position, which applies not only to Laker but to everyone else.

The hon. Gentleman, in his remarks about bucket shops was, as usual, nasty and wrong. Sir Freddie Laker has made a greater contribution to the world travelling public than any other man in this country.

Rev. Ian Paisley (Antrim, North)

Can the Minister be more forthcoming about what he will do for the employees of Laker Airways? What will he do about the 5,0tX) passengers stranded across the Atlantic who must get back home? It is not enough to give assurances now. What steps will he take so that those people can get back to their homes?

The travelling public owe a great debt of gratitude to Sir Freddie Laker. Many people who could never have travelled were able to travel because he brought down the price of air fares. As the return air fare from Belfast to London is more expensive than a single air fare across the Atlantic, yet British Airways tells us that it is still losing money on that flight, surely credit should be given to Sir Freddie today for what he has done.

Mr. Sproat

I am grateful to the hon. Gentleman for his well merited remarks about Sir Freddie's contribution to the benefit of air travellers in this country and elsewhere.

With regard to the approximately 5,000—that is our best estimation—passengers stranded on the other side of the Atlantic, as I have already explained, other airlines have said that they will come to arrangements to ferry those people back. Indeed, Mr. Adam Thomson, chairman of British Caledonian, made the extraordinarily generous offer that he would transport free any passenger stranded on the other side of the Atlantic.

As for what will happen to the 2,600 employees; that must be a matter for the receiver.

Mr. Michael English (Nottingham, West)

Is not the simple truth that Freddie Laker upset the cosy European apple cart? What precise proposals have the Government put to the Council of Ministers to exercise the powers under the Treaty of Rome, Brussels, Paris and all the others to introduce a free market for air fares in Western Europe so that fares to the consumer may be reduced to the charge per mile which obtains in North America?

Mr. Sproat

There is much to be said for what lies at the heart of the hon. Gentleman's question. It is undoubtedly true that many routes within Europe are very highly priced as compared not only with other routes in Europe but certainly with routes within the United States. The ratio is sometimes as great as three to one.

Mr. English

What are the Government's proposals?

Mr. Sproat

If the hon. Gentleman will give me a chance, he will receive as succinct and concise an answer as he has ever received in the House.

The hon. Gentleman spoke of Sir Freddie upsetting the cosy European apple cart. In fact, Sir Freddie's upset, insofar as it was an upset, was mainly concerned with the North Atlantic traffic rather than within Europe where he was operating charter flights.

The Government placed before our European partners, during our Presidency from July to December last year, plans to liberalise air fares and to run inter-regional air services within Europe. I am sorry to say that our European partners threw out those proposals. We are now in the process of negotiations to bring the proposals back before our European partners. We shall press the matter as vigorously as we know how.

Mr. Edward Lyons (Bradford, West)

As it is clear that in recent weeks economic conditions were continuing to deteriorate and not to improve, which is one reason why the airline collapsed, are not the Government worried that if they continue their present economic policy, which is keeping industry on the floor, a succession of well-known British companies will also bite the dust? Instead of bewailing what is happening in the world at large, is it not time that the Government took action to stimulate the economy so that other companies do not suffer the same fate as Laker?

Furthermore, what possible chance have the 2,600 employees of Laker of finding other jobs in the British air transport industry in the foreseeable future?

Mr. Sproat

In his remarks about the British economy, the hon. and learned Gentleman misunderstands Laker's problems. Sir Freddie's problems were concerned with his own deteriorating traffic on the North Atlantic, which was not matched among other airlines. One of his problems was that, when news was leaked in the newspapers about the discussions which were taking place, confidence in his ability to continue was reduced, resulting in his traffic figures falling still further, which in turn bred further lack of confidence. It was nothing to do with the British economy. It was mainly to do with the company's own economic situation and the world-wide recession.

With regard to the 2,600 employees, I have already explained that that must be a matter for the receiver.

Several Hon. Members

rose—

Mr. Speaker

Order. I propose to call those hon. Members who have been rising in their places and then to call upon the Whip to move the Adjournment.

Mr. Albert McQuarrie (Aberdeenshire, East)

I am sure that my hon. Friend will absolutely ignore the irresponsible remarks of the hon. Member for Hackney, Central (Mr. Davis) in connection with Sir Freddie Laker's optimism at the beginning of the week. Will he confirm that although the Clydesdale bank put in the receiver, it was the German banks' withdrawal of their investment in Laker Airways which caused the bankruptcy? Does he agree that the bankruptcy would not have occurred and that Sir Freddie Laker's optimism was perfectly correct until that immediate withdrawal by the German banks yesterday?

Mr. Sproat

My hon. Friend is correct in that there were problems with those German banks who were members of the syndicate led by the Midland bank. However, there were other problems with members of other syndicates.

Mr. Dennis Skinner (Bolsover)

Does the Minister recall that when the application was made about setting up Laker Enterprises, especially on American routes, the proposal was turned down by the Labour Government? Hey presto, the British law courts knew all the answers to our economic and political ills and allowed it to go ahead. We now have the biggest failure of monetarism firmly on the map.

Does the Minister also recall that on 20 June 1980, the same Freddie Laker—at a "do" with the Prime Minister and others—was heard to declare, when talking about trade unions, and, in particular, workers, "Turn the screw until it bleeds, Maggie, and then turn it again"? The Prime Minister has now shown that competitiveness, monetarism and market forces have not been able to work under the greatest architect of monetarism that Britain has ever had, in the name of the Prime Minister. Is it not a fact that while the—[Interruption.]

Mr. Speaker

Order. The hon. Gentleman must be fair to the hon. Member who has the Adjournment. He must ask a question, because I want to call another hon. Member.

Mr. Skinner

Is it not a fact that, although the Prime Minister says that there will be no U-turn, the economy is exemplified by the complete turn-about occurring in British society and that this is just another example?

Mr. Sproat

I know nothing of remarks about trade unions reportedly made, according to the hon. Member, by Sir Freddie. The simplest way of answering him is to say that his question is as wild, imprecise and absurd as usual.

Mr. Harry Greenway (Ealing, North)

Is it not fair to say that Sir Freddie Laker and his enterprise pitched North Atlantic and other fares at a level which could be sustained in terms of fair competition? It has been said that those fares enabled millions to travel who would otherwise never have done so.

Is it not also true that Sir Freddie Laker has been undermined by the fact that State airlines brought their high fares down to the level he set and which have been sustained by large State subsidies? Is that not a disgrace? Once again, the taxpayers have paid for their own demise.

Mr. Sproat

It is true that taxpayers have to pay vast amounts of money to sustain British Airways. Perhaps a £141 million loss last year will convince even the Opposition that there is a problem. I again thank my hon. Friend for the generous tribute he paid to that great man Sir Freddie Laker.

Mr. Bob Cryer (Keighley)

Will the Minister accept that his remarks this afternoon sound like the funeral arrangements for Freddie Laker and Laker Enterprises as well as the funeral arrangements for the jobs of 2,600 employees who will join the 3 to 4 million people in the dole queue? Does not the Minister understand that when he talks so glibly of private enterprise competition he implies a race and that Laker happens to be a loser? Does that not point to the vulnerability of the whole private enterprise system? Does he realise how childishly absurd he sounds when he suggests that the Government will privatise British Airways? Would he like to give confidence to British Airways employees that the organisation will not go bankrupt by saying that the threat of bankruptcy will be entirely removed from British Airways because it will never be privatised by this Government after this salutary lesson?

Mr. Sproat

We certainly intend to continue with our plans to privatise British Airways as soon as possible. I remind the hon. Gentleman that British private airlines last year made an overall profit, which is more than British Airways did. As for what the hon. Gentleman said about funeral arrangements, I remind him of the good old saying that one cannot keep a good man down; and Sir Freddie is not only a good man.

Mr. John Wilkinson () Ruislip Northwood

Does my hon. Friend agree that Sir Freddie Laker's swashbuckling and highly individualistic style hid a great achievement in pioneering British civil aviation? In negotiations with the Americans, will my hon. Friend try to ensure that the gross over-capacity on the North Atlantic is not exacerbated by the opening of further gateways on that route? Can he also try to ensure that the infrastructural charges to British airlines, such as landing and navigation charges, are kept to the minimum? As British manufacturing interests are involved, at least indirectly through the airbus industry consortium, can the Minister say how many European airbuses Laker Airways had which are not yet paid for?

Mr. Sproat

I welcome my hon. Friend's remarks about Sir Freddie's pioneering example, which he shared with Mr. Adam Thomson of British Caledonian. Overcapacity on the North Atlantic is a serious problem. My officials are discussing it with their counterparts in the United States. My hon. Friend and others will be delighted to know, in relation to keeping down user charges, that the British Airports Authority has decided to raise its charges by not one penny next year.

Mr. Archie Hamilton (Epsom and Ewell)

Has not the over-capacity on the North Atlantic route been a major factor in Sir Freddie Laker's downfall? Is not my hon. Friend surprised at the churlish attitude of Opposition Members, considering that one of the best things—and perhaps the only good thing—done by the last Labour Government, was to knight Sir Freddie?

Mr. Sproat

I agree with the implications of my hon. Friend's remarks. It is asolutely appalling that the Opposition should take this attitude to Sir Freddie at this time. I cannot say that I am surprised by that churlishness. It is exactly what we would expect from them. So far as over-capacity is concerned, I am well aware of the problem and we are doing everything that we can with our counterparts in the United States.

Several Hon. Members

rose——

Mr.Speaker

Order. The hon. Members who are now on their feet rose after I made my comment

Mr. Woolmer

The Minister said that no formal approaches for Government assistance were made. Were any informal approaches for Government assistance made? If so, what options were considered to save British services and jobs, and why were they rejected?

Is it not unsatisfactory that 10,000 scheduled passengers should be left? However much individual institutions seek to help them, may we have an assurance that the Government will involve themselves in the process? Would it not be wrong for hon. Members on either side of the House to use euphoric tones about Sir Freddie Laker—either about his past or about his present downfall?

Is the Minister aware that at the end of the day we shall want to know two things—whether Laker's affairs were carried out reasonably and properly, and what conclusions are to be drawn for British and international aviation policies?

When inquiries are completed, will the Minister ensure that there is a proper debate in the House because the issues need discussing? May we have an assurance that there will be a debate on the Laker affair and the future of British aviation policies?

Mr. Sproat

I shall answer the last question first. I should be very happy indeed for a debate to take place on the subject that the hon. Gentleman mentioned. I have no doubt that my right hon. Friend the Leader of the House will take note of what he said.

Laker Airways did not at any time until yesterday approach the Government. Yesterday at lunchtime Sir Freddie himself telephoned me to tell me what the situation was. Naturally, I considered the implications and the possibility of using section 8 of the Industry Act, but with great reluctance I decided that it would riot be appropriate.

As for the stranded passengers and Government involvement, I have already made it clear that I was involved by speaking both to Sir John King, chairman of British Airways, and to Mr. Adam Thomson, chairman of British Caledonian, asking them what they could do. They both made an extremely generous response.