§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Neubert ]2.33 pm
§ Mr. Jonathan Sayeed (Bristol, East)
By the end of the year, the partners in Airbus Industrie and their Governments will have to make a decision about the new 150-seater aircraft, the A320. In addition, the British Government will have to decide whether to assist Rolls-Royce in producing the new consortium engine to power that and similar aircraft.
The sums of public money required for both projects are substantial, but the impact of the decisions could be more far-reaching than the direct economic considerations suggest, especially the decision on the A320. With that decision, Europe will decide whether it wishes to have a European civil aviation industry and to be an effective competitor against the United States in large civil aircraft production. Airbus Industrie has done well with its wide-bodie aircraft, but the addition of the A320 to provide a family of aircraft is essential to provide real competition and to create a viable long-term European industry in which the United Kingdom would have a pivotally important part.
The history of Airbus Industrie since its formation in 1970 has been one of unusual success. It has developed and marketed the A300 and now the A310, achieving a total of 350 firm sales, and is second only to Boeing in the sale of wide-bodied aircraft. Throughout the period, the United Kingdom has been associated with the project as the designer and manufacturer of the wings, thus partially restoring Britain to the position that it deserves in the civil aviation aircraft market. Success has not come without substantial investment and Airbus Industrie will go into profit only in the next few years, but it is already repaying its loans.
What makes the project so well worth supporting? In civil aircraft design the manufacturer marries cheap materials with high skills, resulting in a high-value product with great export potential. The project is worth supporting because this industry is especially suited to the United Kingdom. Although an aircraft industry takes a long time to develop, if it is healthy and retains and develops high technology, it brings long-term rewards.
The project must not merely provide suitable employment. We do not want another Concorde — a technological marvel but a financial disaster. What we want is what we shall have—an aircraft which, unlike Concorde, is fuel-efficient and quiet and fulfils a proven need. I believe that the A320 is commercially viable, economically sound and essential for the maintenance of an effective aerospace industry in this country.
Though good aircraft in themselves, the Trident, VC10 and Caravelle were low-volume aircraft and thus commercially unattractive. The Airbus Industrie story is different. Its success in European and overseas markets has shown the solid prospects of a high-volume programme and the recreation of a self-sustaining industry in Europe. Orders for seven to 10 of the A320s for British Caledonian and the commitment by six other airlines to 80 aircraft, possibly rising to 130, mean that the aircraft will be launched with more orders than any other European civil aircraft achieved.
1168 Therefore, although finance and faith are necessary ingredients to produce this self-sustaining aircraft industry, with the success of the A300 and A310, Airbus Industrie has created a whole new market sector for short and medium-range wide-bodied twin-engined aircraft. There have been 350 sales so far, and hundreds more are expected. Although there will be further developments in the wide-bodied product line, Airbus Industrie is recognised by Boeing as its only serious competitor.
Currently, however, Boeing has one advantage that Airbus Industrie cannot offer—the ability to provide a family of aircraft to satisfy most, if not all, of an airline's need. That additional ingredient is a 150-seat short to medium-range single-aisle twin-engined aircraft. This the A320 is, fitting snugly between the Boeing 727 and 737, Douglas DC9, Trident and so on. All those aircraft are growing old. They are not so fuel-efficient and they are noisier. Even in updated forms, they have a lower earning potential than the A320. Independent bodies have estimated that, at the end of the century, some 3,200 new aircraft will be required in this sector. If Airbus Industrie achieved only 700 sales of the A320, Europe would have a high volume and stable programme of the type that is only enjoyed by the United States.
I recognise that there are problems. The A320 will enter into service only in the spring of 1988. That is already later than we should like. We must therefore not delay our decision on launch aid as any further delay will force airlines to make long-term arrangements to purchase improved Boeing 737s and DC9s. That would be a disaster. Although we do not want a political aircraft and although the Government are not interested in supporting failures, we want an aircraft that is commercially viable. The A320 is such an aircraft. The technical specification, although it might still be on paper, is based on technology that already exists on the A310. The technology is proven and is streets ahead of its rivals.
I shall now deal with matters relating to the engine. We hope that, in 1988, the A320 will be offered with CFM56. That engine entered into service in May 1982 and is, I understand, efficient and reasonably priced and what many airlines find attractive. There is, however, a logical need for a higher technology engine with lower fuel consumption. I look with pleasure on the announcement of the co-operation between Rolls-Royce, Pratt and Whitney and the Japanese on the V2500 engine. While that engine might not suit all A320 customers, airlines of technologically advanced countries will, I am sure, demand it. That can only enhance the United Kingdom industry. I urge my hon. Friend to marry the fortunes of Rolls-Royce to the European aircraft industry and vice versa more effectively than has been the case in the past.
My hon. Friend knows of the damage to aerospace employment that would be caused if launch aid were not provided. Although that will be an essential part of the decision equation, I would not want it to be the preeminent factor. What should be crucial to the launch aid decision — and what is undoubted — is that Airbus Industrie has been successful with its wide-bodied aircraft, but its product range needs to be widened to enable it to consolidate its position against United States manufacturers by the launch of the A320 with the earliest possible entry into service date.
Because of the risks involved and the programme length, British Aerospace, like other partners, has asked the Government for a loan to allow it to participate. 1169 Without that aid it will not be able to do so. The market for the A320 and the new Rolls-Royce engine, by all accounts, including those of Airbus's competitors and other Governments, looks substantial. In combination with existing programmes, it would give the required stability and volume to restore the position of European and United Kingdom industry in the world aircraft market. That programme will create substantial employment. I am sure that it will prove a commercial success. It is utterly essential if we are to have a viable aerospace industry in the United Kingdom.
Without the £430 million loan, 98 per cent. of the world's large civil aircraft will again be American, many thousands of skilled men will lose their jobs, and an essential strategic industry will be destroyed for all time. Moreover, Britain will have to rely on foreigners to provide its missiles and combat as well as civil aircraft in the future.
This decision is a momentous one. By it, the Government will be deciding whether we should have an aerospace industry. I am convinced of the profound merits of the Airbus A300, A310 and A320 programme. I urge my hon. Friend to demonstrate the Government's resolution and to take a bold step into the future by supporting our aerospace industry and providing the loan to British Aerospace.
§ Mr. Deputy Speaker (Mr. Paul Dean)
Order. I must protect the Adjournment debate of the hon. Member for Bristol, East (Mr. Sayeed). Do the two hon. Members who wish to take part have the hon. Gentleman's agreement and that of the Minister?
§ Mr. Christopher Murphy (Welwyn Hatfield)
As we debate the A320 and the future of the Airbus Industrie we are once again—as on a similar occasion with respect to ALARM—considering the development of expertise and technology without which the nation will be poorer in stature and the more dependent on others. Additionally, the commercial and employment consequences continue to be self-evident.
It is regrettable that the SDP-Liberal alliance, as before, is not represented at this debate, which is well supported, as ever, by Government Members. It is vital that projects such as the A320, with which my constituency has been closely connected, should receive Department of Trade and Industry support by financial loan facilities being made available. It is also vital that other projects involving the British Aerospace aircraft division such as ACA should be afforded priority consideration for relevant Government commitment. That should also be so for projects involving the British Aerospace dynamics division, as in the welcome recent example of ALARM.
On the previous occasion, it was right, as it is now, to recognise that Britain has for long provided skill and innovation in aerospace which have been a source of justifiable pride and success. Denationalising British Aerospace has added lustre to an already outstanding 1170 industry, but inevitably there remains a role for the Government as both sponsor and purchaser. That also needs restating.
I respectfully remind the House that I have long campaigned with certain positive results for due recognition to be afforded to British Aerospace projects such as the 146 aircraft, the A300 airbus, the Sea Eagle missile, ALARM and the A320. The last named deserves the early and favourable decision for which my hon. Friend the Member for Bristol, East (Mr. Sayeed) and I are rightly pressing today.
§ Mr. Tom Sackville (Bolton, West)
I am grateful to my hon. Friend the Member for Bristol, East (Mr. Sayeed) for allowing me to intervene because I believe that we are discussing one of the most important industrial decisions by Government. It will influence whether Boeing becomes the monopoly, free-world producer of long-distance airliners and it will decide whether Britain continues as a major airframe manuacturer.
The A320 is not only a commercially viable proposition but it is a good advertisement for Britain and British industry internationally. It will demonstrate everywhere that traditional British engineering skills are alive and well.
Over the past few years Britain has poured billions of pounds into overmanned and inefficient industry, perhaps for good social and economic reasons. Are we now to grudge a fraction of that for one of the most exciting industrial projects of tomorrow? If we are, we have our priorities wrong.
§ The Minister of State, Department of Trade and Industry (Mr. Norman Lamont)
I am grateful to my hon. Friend the Member for Bristol, East (Mr. Sayeed) for raising this important subject and for his enthusiastic exposition of the issues. That the issues are enourmously important is demonstrated by my hon. Friend's speech, by interventions from my hon. Friends the Members for Welwyn Hatfield (Mr. Murphy) and for Bolton, West (Mr. Sackville), and by the presence of my hon. Friends the Members for Northavon (Mr. Cope) and for Stevenage (Mr. Wood), and the shadow Secretary of State for Industry, the right hon. Member for Bethnal Green and Stepney (Mr. Shore). We are considering a momentous matter.
The current airbus range constitutes by far the largest and most important civil aerospace programme in Europe today. Its significance for the European aerospace industry is well appreciated by the Government. Airbus Industrie, in which British Aerospace has a 20 per cent. partnership share, has achieved considerable success in establishing a position second only to Boeing as a manufacturer of wide-bodied civilian aircrft and demonstrating that a European collaborative venture can take on and beat the major American manufacturers.
We talk about market success, but we must be concerned not just with sales successes, but with the long-term financial results. To sustain its position in the market Airbus Industrie has proposed that it should broaden its product range into a "family" of aircraft as my hon. Friend explained. The A320 project, for that reason, has a strategic importance to the European aerospace industry and to British Aerospace in particular, and the 1171 Government are aware of that fact. At the recent presentation on the A320 to the Prime Minister, British Aerospace explained in depth the implications of the project for it, including employment and the maintenance of design and technology skills.
When British Aerospace was privatised in 1981, the Government made it clear that the company would have the same eligibility for Government finance—launch aid—as other companies in the private sector and as its predecessor companies had prior to nationalisation. We stand by that statement and it has been made clear on many occasions since that the Government are prepared to consider launch aid for participation by British Aerospace—and indeed by other aerospace companies in viable new projects.
A short while ago I was able to announce Government support amounting to £70 million for the RB211 535-E4 engine, certification of which I was pleased to notice earlier this week was ahead of schedule. Government support amounting to £41 millin has been announced for the WG30 helicopter to he made by Westlands, which will also qualify for launch aid for the Italian collaborative venture — the EH101 helicopter. We have used the instrument of launch aid and we are in principle willing to do so.
Evaluation of the British Aerospace application for launch aid for the A320 is, I assure my hon. Friends, proceeding as a matter of urgency and the Government hope to reach a decision shortly. Inevitably, we must examine the prospects of the project yielding a commercial rate of return. Too often in the past substantial investment by the Government and the companies concernd in civil aerospace programmes has failed to provide a satisfactory return. Of the large number of civil aerospace programmes undertaken with Government support during the past 30 years, only the Viscount among airframe projects has sold in sufficiently large numbers for the Government loan to have been repaid.
It is essential, because of the large sums of money being sought, that the Government should be convinced that there are sound prospects of commercial viability.
I mentioned a moment or two ago that substantial amounts of public funds were involved. That is important to the Government, and the scale to which we are referring must be understood. British Aerospace is seeking £440 million in launch aid for the A320 and Rolls-Royce has recently submitted an application for launch aid of £113 million for its participation in the V2500 engine programme, which, as my hon. Friend said, could well be the engine for the A320. Taking the two projects together, the application for launch aid is about £550 million.
As my hon. Friend has pointed out, orders for the A300 and A310 total some 350 aircraft from 46 airlines around the world. That is a good base and should provide a good launching-pad for the A320, although we must not delude ourselves that the Americans will give up their domination of the market easily or without the strongest competition. In outturn values, the development costs of the A320 could be in the region of £2,000 million; to recover that level of investment we need high volume production runs.
The current airbus programme represents the largest and most signifcant programme of international collaboration yet to emerge in the sphere of civil aircraft. Development of the airbus has demonstrated that the aerospace companies of six countries can collaborate successfully to develop and build an aircraft of technical 1172 excellence, incorporating the most modern technology and good market appeal. Given the enormous costs of developing any major new aircraft, Airbus Industrie has, in effect, set the broad pattern for new aircraft programmes and perhaps also for aero engines.
§ Mr. Peter Shore (Bethnal Green and Stepney)
What is expected to be the contribution of the other European partners in this venture to launch aid corresponding with the British contribution of £440 million for the airframe?
§ Mr. Lamont
I am not sure what the right hon. Gentleman's question is. Obviously the proportions will be split among the development costs in proportion to the work share.
§ Mr. Lamont
Their contribution will be their proportion of the £2,000 million. What proportion of the development costs they pay will depend on the decision that they make about what proportion of the development costs they wish to cover. The German Government, for example, have not yet made a decision. I cannot answer a question about the proportion. I can only say what the costs are likely to be.
As the airbus progresses beyond its pioneering stage as a collaborative venture, a clearer pattern will emerge of the strengths and weaknesses of its present structure and organisation. In any business which builds up its operation from scratch quickly, inevitably there is a tendency for growth perhaps to outpace the development of the internal organisation. With a project of this importance it is necessary to be sure that the organisation will be equal to the challenges that it faces and able to push for the maximum efficiency and the maximum cost consciousness. A key area of importance will be improvements in productivity to match those of the American industry.
The civil aircraft market is almost wholly denominated in United States dollars, regardless of where aircraft are built. The selling price of the A320 will be conditioned by the dollar price of competing American aircraft. For that reason, given the importance of exchange rates, it is crucial that the productivity of the European industry should as near as possible match that of the United States.
British Aerospace's proposed share of the programme for which it would have design responsibility is about 26 per cent. That is somewhat larger than its 16 to 18 per cent. in the current programme. We would like a larger share of the subcontract work, and that will be a relevant consideration for us in deciding what our participation in the programme should be. We believe that we could and should have a larger share of that subcontracting work.
My hon. Friend referred to the sales prospects and prospective competition. Recent reports suggest that McDonnell Douglas intends to retrench by not proceeding with further derivatives of the DC9–80 or with the MD3300 proposal for a new technology airliner equivalent to the A320. This could leave Boeing unchallenged in the wide sector of the civil airliner market, facing airlines with no choice or competition in their choice of aircraft. That is obviously an extremely important possibility to bear in mind.
1173 The depth of the recession and the financial problems of airlines have meant that orders have not been placed in large numbers recently, but we can take comfort from the fact that the A320 is aimed at the replacement of existing aircraft rather than at the development of a different sector of the market. Recent orders, especially that from British Caledonian, are encouraging.
My hon. Friend referred to the need for early decisions. Appraisal of the case is receiving our urgent attention. I hope that we shall be in a position to reach a decision early in the new year. The French Government have signified their willingness to support the project, but our time scale closely matches that of the German Government. I assure 1174 my hon. Friend that we are aware of the importance attached to protecting the projected spring 1988 entry into service date.
The concern of those at all levels of civil aerospace about the future of the industry, employment, technology and the capability in Europe has been expressed to us and is understood. I assure my hon. Friends that these matters will be borne most carefully in mind by the Government in reaching their decision on the A320.
I thank my hon. Friend for giving me the opportunity to spell out the Government's position and how we are tackling an extremely important issue.
§ Question put and agreed to.
§ Adjourned accordingly at one minute to Three o'clock.