HC Deb 12 December 1983 vol 50 cc680-8 3.47 pm
The Secretary of State for Transport (Mr. Nicholas Ridley)

With permission, I should like to make a statement about British Airways.

The Government's intention of moving British Airways into the private sector was announced by my right hon. Friend the then Secretary of State for Trade in July 1979. Legislation to achieve this was passed in the Civil Aviation Act 1980.

Our original intention was to go ahead with a sale soon after the passing of the Act, but the decline in the airline's profits in 1979–80 and the large losses in the two subsequent years made that impracticable.

Over the past two years, however, decisiveness on the part of management and determined co-operation from the workforce have sharply improved British Airways' productivity; and the airline industry is now emerging from the world recession. British Airways made a net profit of £77 million in the financial year ended last March; and it is set to make significantly higher profits this year.

British Airways has also begun to restore its balance sheet. Since March it has repaid well over £100 million of borrowings without any assistance from the Government. Its external finance limit fixed for 1984–85 means that we expect British Airways to repay at least £160 million of borrowings next year.

Following this transformation of British Airways' financial propects I have decided to aim for privatisation as soon as possible, I hope in early 1985. To this end I propose to establish British Airways as a public limited company under Government ownership in accordance with the 1980 Act.

I am accordingly arranging for the registration of a public limited company under the name of British Airways PLC without at this stage giving it the right to trade, and I shall shortly make an order nominating it as the successor company to the British Airways Board under section 3(2) of the 1980 Act. I shall place a copy of the memorandum and articles of association of the new company in the Library of the House. I also propose soon to make an order under section 10(1) of the 1980 Act appointing 1 April 1984 as the day on which the property, rights, liabilities and obligations of the British Airways Board in the United Kingdom are vested in British Airways PLC. All this needs to be done well in advance of vesting to allow time for the necessary administrative steps, such as arranging the transfer of overseas property and rights from the British Airways Board to British Airways PLC.

Shortly before vesting, British Airways PLC should be issued with a certificate to trade under section 4 of the Companies Act 1980, so that it can take over the airline's business from 1 April. At that stage I shall provide British Airways PLC with the statutory minimum of £50,000 share capital. I shall be seeking a Supplementary Vote for this purpose in due course.

From 1 April 1984 onwards, therefore, British Airways will be trading as a Companies Act company wholly owned by the Government. During this period we shall exercise the degree of financial control appropriate to our role as sole shareholder. I shall inform the House early next year of the regime that will govern relations between the Government and British Airways in the period between vesting and the offer for sale, but one element will be an assurance in similar terms to that given in 1980 to British Aerospace in similar circumstances, declaring that the Government continue to stand behind the company and will not allow it to default on its debts. This commitment will not of course extend to any debts falling due after the offer for sale.

Final decisions on the timing of privatisation will depend on the airline's financial performance in the meantime, on the state of the stock market and on the general prospects for the airline industry.

There has been considerable interest in the press lately, and in some parts of the airline industry, about whether a capital reconstruction of the airline will be necessary. I have reached no firm decision about this. It will depend in part on British Airways' financial performance over the coming year. My aim is that as far as possible the necessary improvement to the airline's balance sheet should come through its own efforts.

British Airways has remained for too long preparing for take-off. It is a great tribute to Lord King, the British Airways Board and the entire staff of the airline that I can today position the airline on the runway for take-off into the private sector.

Mr. John Prescott (Kingston upon Hull, East)

The statement is amazing in two respects. First, the Secretary of State comes to the House today to announce the privatisation of British Airways in 1984 and tomorrow he will come to us with a measure to nationalise London Transport. The Secretary of State is not too worried about ideological inconsistencies. The second amazing thing is that the statement does not reflect what the press says today, which creates difficulty for a new spokesman like myself.

The statement is at least consistent with the Civil Aviation Act 1980, which is designed to privatise British Airways, although that was not in the Conservatives' election manifesto in 1979. We shall continue to oppose the policy as being detrimental to the maintenance of a major public flag carrier on domestic and international routes, many of which are guaranteed by Government agreements and not competition.

The contents of the statement and their much-quoted trailers in the press today leave many of us with the expectation, as stated in the statement, that the Government, if they want an early sale, will certainly have to do some capital debt reconstruction. The Secretary of State today avoided that reality. Perhaps the reality of the market itself in connection with the Cable and Wireless sale and the £40 million sweetener for selling British Telecom reflects the reality of the market. We believe that the taxpayer has been saved a major loss in his investment and that the City boys have lost a tremendous gain in the Christmas bargain giveaway.

May I ask the Secretary of State some questions following his limited statement? Do the Government intend to retain 49 per cent. or 51 per cent. of shares in British Airways as envisaged when the Bill was introduced in 1979?

Does the right hon. Gentleman envisage problems with the pension fund in the funding of this sale, and will the Government be prepared to act as a guarantor to the fund before such a sale? In view of the growing uncertainty in the civil aviation industry, and in view of the hopes expressed in the 1980 Act for greater competition through privatisation, the reality of Laker and its collapse and the prospect of British Caledonian, gravely concerned at a privatised competitor controlling 83 per cent. of the scheduled markets, threatening to leave Gatwick, will he now consider a review of civil aviation policy while awaiting the sale?

Finally, in any future prospective sale, will the right hon. Gentleman ensure that the Opposition's policy to retain a major public sector flag carrier is added to the prospectus of that sale, and make it clear that people will not benefit from the plundering of this national asset?

Mr. Ridley

I apologise to the hon. Gentleman for the fact that he was not able to read the full details of the statement in the press. That appears to be a plus, after recent experiences. The hon. Gentleman is able to read the full text of the London Regional Transport Bill, to which he also referred, which will be a move in the right direction, as is this statement, towards efficiency, and, I hope, the private sector eventually, too.

The hon. Gentleman asked about a capital reconstruction. As I said, I think it is possible that one will not be necessary, but I am not certain about that. A great deal can be done by British Airways to get its own balance sheet into order in time.

We have not finally decided whether to sell 100 per cent. but the probability is that we will when the time comes to go to market. That is not finally decided. The pension fund can be put into good shape before privatisation without much difficulty.

Finally, the hon. Gentleman asked about a review of civil aviation policy. I agree that the prospective privatisation of British Airways raises implications for competition and for the sound development of the British airline industry. The Civil Aviation Act 1982 places certain responsibilities in this area on the Civil Aviation Authority. I have therefore asked the chairman of the authority for advice and he has responded that the authority will review these matters in consultation with the industry and representatives of users and make any desirable changes within the framework of the Act in its statement of policies on air transport licensing or other recommendations. I welcome that.

Mr. Kenneth Warren (Hastings and Rye)

I welcome my right hon. Friend's statement and particularly his reference to the Civil Aviation Authority under the Civil Aviation Act 1982, but will he draw to the particular attention of the authority, first, the recently issued megalicences which reduce the opportunity apparently of other airlines to take over routes that British Airways may decide to give up or which could be bought up from British Airways; and secondly, the pool agreements which exist between British Airways and many other continental airlines operating within Europe?

Mr. Ridley

I am grateful to my hon. Friend, but I am sure that he would not like me to express any view about what the CAA review might reveal. Therefore, I think it would be best if I did not comment on his two helpful suggestions.

Mr. Geoffrey Robinson (Coventry, North-West)

Is the Minister aware that he is being completely dishonest with himself and with this House— [HON. MEMBERS: "Oh."] — if he pretends there is the slightest hope of British Airways repaying its capital debts in the period that he envisages for privatisation? Those debts cannot be repaid in the foreseeable future even on the current good trading performance. Will the Minister therefore give an assurance that the bulk of those debts will be repaid by British Airways before privatisation, since otherwise a major national asset will be flogged off at a knockdown price — in all probability at less than one year's earnings?

Mr. Ridley

The hon. Gentleman is wrong. I resent his suggestion that there is anything dishonest in what I said. Not only is it possible for British Airways to earn a great deal more profit—the way it is going now, it seems set fair to do so in the time scale that I have set out—but it can do other things to improve its balance sheet. The board will, I know, be reviewing the value of its assets between now and flotation so that it can certify in the prospectus that the airline's assets are reasonably valued in the published balance sheets. No doubt the board will consider whether there are good grounds for revaluing particular assets. The decision on this is for the board, but that too could make a contribution to its balance sheet state.

Mr. David Howell (Guildford)

While I strongly welcome my right hon. Friend's announcement about moving airways out of the state sector, does he agree that, even after privatisation, British Airways will still be the most enormous domestic European and intercontinental airline? Does he accept that an opportunity might be taken now for creating conditions in which at least two, rather than one, substantial airline operators might emerge, for the benefit of both customers and competition?

Mr. Ridley

I am grateful to my right hon. Friend. He will know, from his great experience of this industry, that Parliament has taken the power from the Government to alter the allocation of routes and has placed it, subject to the conditions of the Civil Aviation Act 1982, with the Civil Aviation Authority. For that reason I have asked the CAA to look at its policy in this respect. What my right hon. Friend has said will surely be well taken by the Civil Aviation Authority in considering its policy.

Mr. Stephen Ross (Isle of Wight)

I acknowledge the achievements of Lord King and the staff of British Airways in getting the airline into profit and I welcome the second part of the Minister's statement about the appointment of the chairman of the CAA, but will he give an assurance that he will give adequate time for those matters to be sorted out, particularly with regard to routes? Will he also take on board the wishes of many hon. Members, certainly those on the Liberal Bench, that there should be shares for employees in British Airways when it is finally privatised?

Mr. Ridley

I assure the hon. Gentleman that we will include a share scheme for employees in the arrangements for privatisation, and I thoroughly welcome his general support. On his point about time, the review of civil aviation policy must be completed before privatisation, and any policy change must take place long before flotation; otherwise the market would be confused about BA's position, which would be the worst thing that could happen.

Mr. Nicholas Soames (Crawley)

Will my right hon. Friend assure the House that he will continue to give deep consideration to the sensible and careful proposals put forward by British Caledonian? Does he agree that there are wider implications than simply the privatisation of BA, such as airport policy?

Mr. Ridley

I agree with my hon. Friend's second point. Airport policy is within the scope of the CAA's review. As the hon. Member for Kingston upon Hull, East (Mr. Prescott) said, competition is with the foreign airlines on the same route for the majority of our designated overseas routes. There cannot be competition for routes where there is not a designation.

Although I accept that the competitive position needs watching, the airline industry is not similar to other industries where the imbalance of size could lead to a highly uncompetitive position. The best way to make competition more fair is to have BA in the private sector. We know how much it was able to lose in the public sector, which could have been an anti-competitive measure—although it did not do it for that reason. Privatising BA will bring the same market disciplines to bear on both BA and its competitors.

Mr. Lewis Carter-Jones (Eccles)

Will the Minister clarify the position on creative accountancy and historic cost accounting for BA, so that the public who want to make a purchase will know the true position? As Lord King has achieved a tremendous turnaround, will the right hon. Gentleman allow him sufficient time to run BA so that it can repay its debts to the country?

Mr. Ridley

I shall not try to become involved in the details of how depreciation should be calculated; it is better to leave that to the accountants. I am sure that they will come forward with the right figures when the prospectus is eventually produced.

I am grateful to the hon. Gentleman for his remarks about Lord King, who is very keen to bring his airline into the private sector as soon as possible.

Mr. Cranley Onslow (Woking)

Although I welcome my right hon. Friend's recognition of the importance of keeping competition fair between a privatised British Airways and existing independent British operators, can he give the House a better idea of how long it will take for the CAA to complete its review? Will there be an opportunity to debate the review in the House?

Mr. Ridley

I cannot give a precise answer, but can only repeat that, for many reasons, including uncertainty and the demands of the market, it is essential that the review is completed and Government decisions taken as quickly as possible.

My right hon. Friend the Leader of the House is not here, but I shall draw my hon. Friend's remarks about a debate to his attention.

Mr. Robin Corbett (Birmingham, Erdington)

Will not the Secretary of State have the grace to blush at this proposed fiddle on the taxpayer? Does he acknowledge that, although taxpayers' money was used to put BA on its feet, now that profits are to be made they will go into private pockets rather than the public purse?

Mr. Ridley

On the contrary, BA lost a great deal of taxpayers' money—approaching £1 billion—during its bad times. If it had been a privately owned company, its share price would have fallen dramatically. We hope that the efforts of Lord King, his team and the airline work force will restore profits to the point where the share price rises steeply.

Mr. Robert McCrindle (Brentwood and Ongar)

I welcome the CAA inquiry, and endorse the need to relate any recommendations to future airport policy. Does my right hon. Friend agree that the CAA should have the freedom to investigate the advantages and disadvantages of deregulation, at least where it applies to domestic routes? Can he confirm that there is nothing in the terms of reference of the CAA to preclude a recommendation to the Government to move in that direction?

Mr. Ridley

The precise terms of the CAA review will be made available soon. The principal object is to look at policy on international routes, rather than domestic routes, which is where the problem of imbalance in size between British Airways and the smaller independent airlines occurs.

Mr. Bryan Gould (Dagenham)

Will the Secretary of State tell the House a little more about the proposed method of sale? Will Amersham International or Cable and Wireless provide the model?

Mr. Ridley

Cable and Wireless and Amersham International were virtually unique companies. A large number of airlines are quoted on the world stock exchange, so it is much easier for investors to assess their worth. Indeed, we are very much the laggards in not having a large publicly quoted airline, of which there are many in America.

Mr. John Wilkinson (Ruislip-Northwood)

May I strongly urge my right hon. Friend to avoid a capital reconstruction of BA? Will not the best discipline on BA, to ensure that it operates commercially and does not squeeze out the independents, be for it to reckon with its accumulated deficit?

The Government will have to resolve the airport policy issue before flotation. For example, if terminal 5 at Heathrow is not carried through, that will mean a loss to BA on its annual operating account of £160 million a year. Terminal 5 must go ahead if there is to be flotation.

Mr. Ridley

I agree with both my hon. Friend's points. It would be desirable for BA to sort out its balance sheet problems. Any movement of that sort is bound to involve airport policy. Indeed, I shall go further and say that whether or not such a move is made, we are reaching the point where we must consider the future of airport policy in the area around London.

Mr. Robert Maclennan (Caithness and Sutherland)

I welcome the extent to which the improvement in BA's balance sheet is due to its efforts and the efforts of Lord King. But does the Secretary of State accept that there is a great need for liberalisation of routes, not privatisation, and that that applies to domestic routes as well as international routes? Will he bear in mind the fact that the liberalisation through British Midland and British Caledonian of domestic routes to Scotland has been of great benefit to the travelling public? Will he ensure that the CAA takes that point on board?

Mr. Ridley

I welcome the hon. Gentleman's conversion to growing liberalisation. He is moving properly into the area of talking sense as he progresses from party to party, and I hope that he will make further progress.

Dr. David Owen (Plymouth, Devonport)

Cheap.

Mr. Ridley

I accept the importance of liberalisation, but we must— at this time when British Airways has recovered and become much more competitive and aggressive — allow the private independent airlines to compete properly.

Mr. Robert Atkins (South Ribble)

I welcome what my right hon. Friend said so far as it went, and particularly his reference to Civil Aviation Authority intervention. Will the Government continue to be responsible for the $2.20 exchange rate guarantee of British Airways' $1.1 billion debt, which at present rates is calculated to be £273 million?

Mr. Ridley

A large part of that debt is being redeemed. I appreciate that there is a problem that will have to be dealt with before flotation takes place. I shall make sure that British Airways does not enter the private sector with any advantage in this respect over any other airline.

Several Hon. Members

rose—

Mr. Speaker

Order. I feel that I have an obligation to protect private Members' time. I propose, therefore, to allow questions on this matter to go on for another 10 minutes.

Mr. Mark Fisher (Stoke-on-Trent, Central)

Is the right hon. Gentleman aware that he has totally failed to tell the House what percentage of shares the Government intend to sell, how they intend to sell them, on what exchanges they intend to sell the shares and to whom? On the crucial matter of capital reconstruction, will he agree, as he seemed to tell the House, that about £1,000 million is involved and that if, as he said, BA is to repay that out of profits, as I understood his original statement, that cannot take place within the time scale to which he referred?

Mr. Ridley

The hon. Gentleman must not confuse the losses that were incurred over a couple of years with the balance sheet position; of course, those losses worsened the balance sheet, but one must start from where one was before one subtracts them. It would be very surprising indeed if I were able to announce every detail of the method of sale of this airline 13 months before it is possible for us to go to market. We shall present to 'the House the full details of the method of sale a little nearer the time.

Mr. Anthony Nelson (Chichester)

I join in congratulating my right hon. Friend on his statement. Is he aware that there will be great disappointment that the sale will not take place next year instead of the following year? I recognise that reviews of airports and air routes may be necessary, but is there not a danger that, as trustee of the public purse, my right hon. Friend may find in two years' time that the stock market is at considerably lower levels than the record levels at which it has been running recently? My right hon. Friend may not be prepared to admit that, so I wonder what advice he has received from Lazard's on the subject.

Mr. Ridley

Any attempt by me to enter on to that sort of ground could land my hon. Friend in the disastrous financial results that I have had every time that I have bought a share. An immense number of administrative matters must be dealt with, including the transfer of every one of BA's routes into the new name of British Airways PLC. Generally, a great amount of detailed work must be done. The soonest we can hope that BA will be ready for flotation is within a year, and that brings us into early 1985.

Mr. Anthony Beaumont-Dark (Birmingham, Selly Oak)

Will my right hon. Friend accept that many of us welcome his news that this new aircraft is on the edge of the runway, but before joining the aircraft may I ask him two questions? According to his figures, we as taxpayers are likely to be owed £600 million at privatisation. Will he accept that it would be unacceptable to many of us for that money to be written off before it is sold to the public? May we have a guarantee that in no way will the taxpayer be involved in underwriting indexation of the pension fund, since hundreds of millions of extra pounds could be involved?

Mr. Ridley

The taxpayer saw his assets losing value during the years when BA made heavy losses. That loss has been made and it must be recouped in one way or another. I do not believe that it is possible somehow to get that money back.

Mr. Corbett

Why not?

Mr. Ridley

During the period between now and flotation it is likely that the profits will make a great contribution towards what the taxpayer will get for his asset.

Mr. Tim Eggar (Enfield, North)

In view of the widespread wish that there should not be a capital reconstruction, a wish that encompasses almost all hon. Members, will my right hon. Friend urge the management of BA to sell assets, in particular aircraft? If it were to sell aircraft, does he expect any opposition to moving to Gatwick some of the routes that currently operate from Heathrow?

Mr. Ridley

As my hon. Friend said, it would help the problem of the balance sheet if BA were to sell assets, provided that it sold them at a price higher than their present book value in the balance sheet. I am sure that it will not have passed BA's notice that my hon. Friend has suggested a way in which it could help itself to avoid a capital reconstruction. As he said, the whole House would prefer it if a capital reconstruction could be avoided. I cannot at this time give a firm assurance on that point, however.

Mr. Michael Grylls (Surrey, North-West)

Is my right hon. Friend aware that the best thing that he could do would be to let the airline get on with the job of trading its way out of its deficit by earning good profits and that perhaps the worst thing that he could do, if he wants a successful flotation, would be to carve up the bird on the way to the feast?

Mr. Ridley

I have no carving knife and I do not intend to take one. The fact that I have left, and will leave, BA free to get on with earning good profits must be self-evident by now. My hon. Friend will have heard many hon. Members endorse my view that it would be best if BA could itself deal with its own balance sheet problems.

Mr. Anthony Steen (South Hams)

I welcome my right hon. Friend's statement. Will he ensure that, until 1985, BA does not use its public funds to undermine and squeeze out existing British private airlines? Will he make sure that BA does not continue to peg its prices on its domestic routes at a disadvantage to private airline business?

Mr. Ridley

Even at present, whether in the private or public sectors, the CAA's control of fares should enable that authority to prevent an airline from charging unrealistically low prices to defeat competition. BA could be doing that now in the public sector. I am not saying that it is; it most certainly is not. However, the powers are there should any airline seek to do that sort of thing.

Mr. Den Dover (Chorley)

Is my right hon. Friend really satisfied that no review of domestic routes is needed? How long does he expect the review of overseas routes to take?

Mr. Ridley

As I said, I cannot put a time limit on the review that the CAA will be undertaking, but I shall urge it do it as quickly as possible. There can be no doubt that in the course of that review many aspects of the domestic scene will also be reviewed. The review is primarily directed towards overseas, not domestic, routes.

Mr. Prescott

The Secretary of State has recognised the determined co-operation by the labour force in turning round the company, resulting in 20,000 people being made redundant. That factor requires the right hon. Gentleman to have further discussions about the future of the railways — [Interruption.] — of the airline. May we have an assurance that he will be discussing that policy with the trade union movement?

As the Minister has said that the CAA is to review policy in the industry, and given the possibility that it may designate routes for another carrier, thereby reducing the size of British Airways, will he reconsider the policy of conducting a complete review because airport policy, as the Minister has informed the House, will be considered by him and not by the CAA?

Mr. Ridley

I have just met the railway trade unions. I would not have mentioned that point, but the hon. Gentleman asked for the information. I mentioned it to show that if any trade unions want to discuss such matters with me, my door will be open. So far, I have not received any requests.

I shall just slightly correct the hon. Gentleman on one point. I am not sayng that the review by the CAA of route policy will in any sense be directed at any one route or result in routes being changed from one airline to another. The review is of policy, not of any particular application or route. I cannot forecast what policy changes the CAA might suggest.

I am not making a statement about airport policy today. I should like to consider the many factors in this complicated picture before saying anything further.