HC Deb 14 February 1985 vol 73 cc625-32

Motion made, and Question proposed, That this House do now adjourn.— [Mr. Peter Lloyd.]

1.58 am
Mr. Edward du Cann (Taunton)

I have just one point to make and I am grateful for this opportunity to make it. I am also grateful to my hon. Friend the Parliamentary Under-Secretary of State for being here to reply to the debate.

The air transport industry is one of Britain's success stories, but we need to work at keeping it that way. We cannot afford any more company failures such as those which wiped out a large part of Britain's passenger and all-cargo capacity in recent years. Some good names have gone from the passenger world and especially from the cargo world—Scimitar, British Cargo Airlines, Pelican and Redcoat. British Caledonian and British Airways, both brilliantly led companies, no longer have all-freighter aircraft, unlike Lufthansa, Air France, KLM, Japanese Airlines, and so on. One asks "Why not?". The all-British jet aircraft fleet has reduced from 21 to four. That is worrying and dangerous and, in my view, the reduction need never have happened. So I shall tell the House, if I may, what should be done by way of remedy. Before doing so, I declare my interest. I am the chairman of the company operating three of the four remaining freighters, and chairman also of its parent. My experience prompts me to voice considerable anxieties about the health of the British air transport industry. Cargo carrying is a small part of the air transport industry but what I have to say applies also to the passenger carrying industry. In any event, I believe that it is in Britain's vital interests, both strategic and economic, to maintain an effective and profitable presence in the market.

The way things are going, we shall soon have no British cargo-carrying industry left. If that happens, we shall be at the mercy of foreign operators. I am convinced that that would be unacceptable. There is an extraordinary parallel with our merchant fleet. Flags of convenience and lack of co-ordinated Government support are decimating British shipping. I do not want similar circumstances to be allowed to eliminate our aviation fleet. The road hauliers, too, have similar worries.

What is the solution or remedy? The British Government must be more positive in defending British interests. That is my advice. The Government must put Britain first. That is the clear suggestion that I wish to make to my hon. Friend the Under-Secretary of State.

It is clear that 1984 and 1985 are proving to be watershed years for British air transport. The long and hard battle by the United Kingdom and United Kingdom operators to win cheaper fares on many air routes, both long and short-haul, is having considerable success. That is to be warmly welcomed, especially if it means cheaper fares in Europe. So is the deregulation of the United Kingdom's domestic routes. That, too, is a good start. Let us hope that that is extended to international routes. The route-swapping arrangement between the state-owned airlines and privately owned British Caledonian have been successfully launched. We hope this year to see specific proposals for the privatisation of British Airways and the British Airports Authority, another body which is well led by Sir Norman Payne.

The Government deserve great credit for this progress, and I hope that my right hon. Friend the Secretary of State will be able to keep up the good work. However, there are other matters to be considered. For instance, what progress is there with the draft European Community air freight directive? It is essential that further improvements at Stansted, Heathrow and Gatwick go ahead without any more delay. Facilities must be able to cope with the traffic. Another and more worrying matter is the decline of Britain's cargo-carrying capacity.

Policy in general was clearly laid down by my hon. Friend the Under-Secretary of State for Transport in a speech given after the White Paper's publication in October 1984. I am glad to pay tribute to my hon. Friend, for I have the greatest respect for his ability and for his wisdom. I greatly agree with what he said in the speech to which I have referred, from which I shall quote. He said: Our long-term goal"— I am sure that he remembers this— is to liberalise air transport wherever possible … where foreign competition is fair and British interests are not prejudiced. He added: We will … ensure that … airlines … will not have to face unfair competition and … safeguards against anticompetitive behaviour are adequate". I fully endorse those statements and objectives; my complaint is that they are not being carried out by the Government machine. There seems to be an irreconcilable difference between the stated objectives of Ministers and the Civil Aviation Authority on the one hand and, on the other, the actual rules and regulations of the Department of Transport. I pay tribute to the man at the CAA of whom I have seen most and with whom my company has been negotiating, Mr. Colegate. He is a most able and, invariably, helpful man.

I return to the CAA. Paper CAP 501 is a statement on air transport licencing policy which was published a month ago. It states that the Civil Aviation Authority will seek to ensure that efficient British Airlines have the opportunity to operate profitably so as to attract and justify the investment necessary for the maintenance of their services. The thrust of what should be policy is clear enough and in line with the Minister's statements. The document also states: the authority will continue to pursue liberal policies for the regulation of scheduled service freight rates and freight charter services. That statement sounds just fine to the uncommercial ear, but the reality is that, if we wish to create conditions where efficient British carriers can operate properly, we cannot pursue unilaterally liberal policies because the predatory foreigners will treat the United Kingdom as a port of convenience. That is happening today. The result is that the possibility of bankruptcy for the home team is not merely a possibility but a probability.

Equality of treatment between our own much-regulated industry and the under-regulated foreign industries is imperative. That is not protection, it is common sense. Almost every other country in the world—the United States, France, Germany — appears to recognise that need. In my view, the United Kingdom should also.

Of course, I do not suggest that it is solely the operating regulations that have affected British cargo carriers adversely. The advent of wide-bodied passenger aircraft with large freight capacity in their bellyholds has been a factor for cargo carriers to compete with.

The document shows clearly that the CAA aims progressively to reduce cross-subsidisation, presumably to the point where passengers no longer subsidise freight on passenger airlines. If it is true that passengers are subsidising freight, perhaps that is a subject that should be inquired into. In any case, the policy announced by the CAA cannot possibly be carried through if passenger carriers, and especially foreign passenger carriers, are allowed to reduce freight rates according to their desire for extra sterling revenue without any reference to the real cost of carriage, and thereby to compete unfairly in the United Kingdom. As I shall illustrate in a moment, it is a fact that the Government machine exacerbates an already difficult climate because it does not seem to practise what Ministers and the CAA both preach as policy.

I shall list four ways in which the British Government positively discriminate against British business. First, in spite of the Prime Minister's exhortation to buy British wherever possible, the Government have on occasion used foreign carriers to carry British aid. Why? I can think of no good reason. Surely it should be an invariable rule that all goods exported that have British Government support—if only ECGD cover—should be carried by British carriers. All other donor or manufacturing countries designate their carriers, and so should we. The phrase, "American wheat in American bottoms" is well known. I suggest that our rule should be British goods in British ships and planes.

Secondly, on 1 January 1986, United Kingdom carriers will be required to fit engine hush kits. Fitting hush kits to a Boeing 707 involves spending some $2.25 million —an expensive addition to costs. Yet European airlines will be allowed a one-year exemption. Why? Third world airlines will he allowed a two-year exemption. Again, why? Why should British carriers be put by the British Government at a competitive disadvantage in the British market against our foreign competitors? Why should foreign noise be acceptable in British airspace, and British noise not? Why put fetters on British companies that we do not put on our competitors?

Thirdly, I come to safety. The Government rightly insist on a high standard of safety in respect of British aircraft and British carriers. Of course I support that. But the Department of Trade and Industry merely relies on a certificate of competence from foreign carriers. There are no checks. It is a fact that some foreign carriers operate overloaded aircraft with lower maintenance standards and overworked crews, and thus enjoy a lower cost structure than the United Kingdom carriers. That is unfair competition at best, and at worst, it is highly dangerous. Sooner or later, as sure as that we are all here this evening, there will be a serious accident in British air space. Why do we let these people fly in our air space? In my view, the public interest, let alone fairness, demands equality of treatment by the Government of British and foreign carriers.

Fourthly, I turn to a slightly more complex matter. There is an old rule, called the "4 City Pairs" rule, operated by the United Kingdom and, so I understand, by no other country in the world, which allows foreign carriers to operate in and out of the United Kingdom, to and from countries other than their country of origin—in effect giving their aircraft almost unlimited freedom to do business in Britain. That is also monstrously unfair.

I do not believe that any foreign operator should be allowed to operate fifth freedom flying in or out of the United Kingdom if a British carrier is available to operate a third or fourth freedom flight in its place. In a word, all applications by foreign carriers should be subject to a no-objection rule by British carriers. At present, foreign carriers are pilfering cargoes which should be carried in the bellyholds of British passenger aircraft and by British cargo-carrying planes. I say to my hon. Friend the Minister as plainly as I can that that should stop forthwith.

I have given four examples of ways in which the British Government discriminate against British carriers and in favour of foreign carriers in contravention of their declared policies. I deplore the growing emergence in civil aviation of a flags of convenience problem; the same problem which for so long has been a scourge in the merchant shipping world.

The question has to be seriously asked whether the British Government, whom I strongly support, at the end of the day want there to be any remaining British-registered air-freighter airlines. If they do not, certainly a policy of masterly inactivity combined with further high-sounding but in practice empty statements should see the demise of my company and others. As I have said, that would leave the British exporter with no alternative but to use foreign carriers, which are certain to exploit this eventually to maximum advantage. It would leave the United Kingdom as the only major trading nation in the world—and the United Kingdom depends more than any other nation on foreign trade — without a national or quasi-national all-cargo carrier. That would be a damaging result for the national wellbeing, and it would arise from official carelessness.

It would also seem a curiously paradoxical situation when so many of the high-tech goods that we are increasingly beginning to export, naturally seek to travel as air freight, as distinct from the days when we were, for instance, exporting large amounts of steel or coal, whose natural means of transport were by ship. In my view, such a situation would be wholly unacceptable strategically and economically.

If, on the other hand, the British Government want to preserve their residual all-freighter aircraft capability—I am sure that they do, and that my hon. Friend the Minister does — and to increase the cargo revenues of British passenger airlines — which I am sure that the Government do—they must impose the same rules on predatory foreign carriers operating in the United Kingdom as they impose on their own carriers, so that conditions of more equal competition exist.

It is nonsense to talk about reciprocity. We often hear about that, but it is nonsense to talk about it when Britain offers opportunities to foreign carriers which are not offered in return. Reciprocity must mean parity not only in terms of regulation but in terms of commercial opportunity.

We in this country are major exporters of high value goods, and to compare, for instance, the opportunity for third world-based operators to fly out of the United Kingdom with the opportunity for a United Kingdom operator to fly out of their country is unlikely to be in any sense reciprocal.

In essence, therefore, we need conditions where British carriers are encouraged to compete as freely as possible with each other on a fair basis and where foreign carriers must comply with our regulations, if they are to be allowed to operate in the United Kingdom. Additionally, the frequency with which they are permitted so to operate should be governed by the extent to which that gives British carriers reciprocal commercial opportunity based on real cost.

As I have said, for strategic and economic reasons—and, I suggest, also for defence reasons—we need a healthy, British-owned, British-managed, all-cargo fleet capacity. Britain can have that asset, given good will and given the will to have it on the part of Her Majesty's Government. I hope that tonight the Minister will assure the House that that is exactly what will occur in future.

2.16 am
Mr. Anthony Steen (South Hams)

; I am grateful to my right hon. Friend the Member for Taunton (Sir E. du Cann) for allowing me a minute or two in which to intervene in his debate. I am grateful to him for giving the House, even though it is not well attended at this hour, the opportunity to have on record details of one of the most serious developments to be taking place, not just in the air freight industry but in the scheduled airline industry. I congratulate him on drawing attention at an early stage to the problem.

The Government say, on the one hand, that they passionately believe in free market forces, competition, deregulation, relaxing controls, breaking up monopolies, rolling back the frontiers of Socialism, bringing forward private enterprise practices, outlawing predatory actions and restoring pride of place to British companies. There is, however, a yawning gap between what they say they believe in and what is happening.

My right hon. Friend referred to the freight airlines. One could also mention the scheduled and charter airlines. Why do the Government, to take one example, allow United States airlines to take predatory action out of Heathrow by way of the fifth freedoms, so that they can fly across the Atlantic into Heathrow and their passengers can then go via other American aeroplanes to Europe, while the British companies are not allowed to fly out of Heathrow in competition to British Airways or any other European carrier? They are actually debarred from competing with other airlines. The Government must make putting that right one of their first priorities.

I join forces with my right hon. Friend in asking the Government to liberalise the airways and to prevent the predatory action of foreign airlines from doing our airlines out of business.

2.17 am
The Parliamentary Under-Secretary of State for Transport (Mr. Michael Spicer)

I wish at the outset to thank my right hon. Friend the Member for Taunton (Sir E. du Cann) for giving us this opportunity briefly to discuss the problems of the air cargo industry.

Recent discussion of civil aviation policy has tended, naturally, to concentrate on the passenger business, and my hon. Friend the Member for South Hams (Mr. Steen) has played his part tonight, as he has on many previous occasions, in drawing our attention to the problems of that sector.

As the subject of this brief debate is air freight, I shall concentrate on that. Air freight plays an increasingly important part in international trade. In 1983–84, for example, goods to the value of £16.5 billion—13 per cent. of our total visible trade — passed through Heathrow airport. We estimate that nearly 20 per cent. of our total visible trade travelled by air. A large proportion of this was carried in the holds of British passenger aircraft, particularly the long-haul, wide-bodied jets which have such extensive cargo space. I understand that this increased ability to mix passenger and cargo traffic has, as my right hon. Friend suggests, put pressure on the specialist air cargo services. I very much agree with him, however, that these specialist services will continue to play an important role and warmly welcome this opportunity of considering the problems facing these specialist carriers.

I agree wholeheartedly that, in pursuing our aviation policies, we must be ever mindful of our national interests, with respect to the aviation industry and more particularly perhaps to its customers.

At the passenger end of the business, through increasing competition and deregulation, we have developed a multi-airline industry whose growing strength and effectiveness is becoming the envy of the rest of the world outside the United States. I agree completely with my hon. Friend the Member for South Hams that this strength must be maintained. This British airline industry is, as a result, well placed to meet the challenge of fair competition—like my right hon. Friend the Member for Taunton and my hon. Friend the Member for South Hams, I emphasise fair competition—from whatever direction it comes. It is our express policy to widen the scope of this competition, especially within the Common Market which, so far as the airline industry is concerned, barely exists. Our objective must be to ensure that British airlines play their part in the Common Market.

As my right hon. Friend has so generously acknowledged, we are deeply immersed, through negotiation, in the process of pulling down the barriers to competition in Europe and opening up new opportunities for our airlines. My right hon. Friend encourages us to even greater effort, and I have listened most carefully to what he has had to say on this matter.

The anxieties which my right hon. Friend has expressed, with particular reference to the specialist freight business, are based properly on the question of how fair is the competition. In effect, he asks, are we in Britain still playing by the rules of cricket while the rest of the world swings rounders bats in our face? My right hon. Friend has given four examples of these anxieties, and I shall do my best to respond to them. If time runs out before I deal with all my right hon. Friend's various points, I shall write to him about the outstanding points.

I turn first to what my right hon. Friend had to say about fifth freedom rights. It is certainly true that there exists in Europe a liberal charter regime. A British operator who can obtain the business is free to carry cargo from the east midlands to Munich, pick up cargo there for Maastricht, and pick up another cargo in Maastricht for the east midlands. His costs are reduced because he does not need to fly an empty aircraft on the Munich-Maastricht leg.

It is also true that we would like a similar liberal regime to be adopted in other parts of the world. Some countries are, indeed, liberal in this respect. Others, I regret, are not. Because of the wider benefits of liberalisation, we freely permit most foreign airlines to operate four fifth freedom charter flights on any particular sector in each year—the so-called four city pairs rule, to which my right hon. Friend referred. We allow them to operate further flights if, and only if, they can show that no British carrier is ready and willing to carry the cargo in question on broadly comparable terms.

Our experience has shown that a few airlines seek to operate an unduly large number of fifth freedom flights. We have told these airlines that we shall not be prepared to allow them the benefit of the four flights per city pair concession and shall only be willing to allow them to operate fifth freedom flights where no British airline can carry the cargo on reasonably comparable terms.

We are monitoring developments in the charter market very closely and are prepared to apply the more restrictive policy to any other foreign airlines that seem to be attracting an undue proportion of fifth freedom traffic. I have asked my officials to continue to keep closely in touch about this with the company with which my right hon. Friend is associated. We shall very carefully consider the position of any foreign carrier drawn to our attention as abusing our present liberal policy.

I turn next to what my right hon. Friend has said on the question of contracts for the carriage of aid to foreign countries. I understand that Government contracts for carrying aid supplies overseas — like almost all Government contracts—are placed with the airline able to operate on the route and offering the best terms. On many occasions these contracts are placed with British airlines.

The Government, however, have a duty to the taxpayer to ensure that he gets best value for money in the carriage of freight as in other areas of Government purchasing. Where this is not so I suspect that the Public Accounts Committee might well have something to say on the matter.

I turn next to my right hon. Friend's anxieties that our high safety standards put British carriers at a disadvantage. I have to say that I am not aware of any case where the Civil Aviation Authority's safety standards have operated to the detriment of British airlines. The CAA's safety standards are based on the requirements laid down by the International Civil Aviation Organisation which form the basis of the standards used in all member states.

It is true that in some cases the CAA standards have been set at a higher level than the minimum ICAO requirements, but, far from working against the interests of the British airlines, they have usually tended to work in their favour, as the industry as a result an enviable reputation for safety which it can use to its commercial advantage.

Foreign air freight carriers need to have a certificate of competency issued by the state of registry before they are allowed to operate in United Kingdom air space. These certificates specify that aircraft will be operated to minimum international standards laid down by ICAO.

I agree with my right hon. Friend that in some areas the CAA standards are higher than those set in other countries, but I hope that he will agree that in these cases the answer is not to lower our standards but to encourage other states to raise theirs above the minimum ICAO requirements. I assure my right hon. Friend that the CAA always seeks to do this within the ICAO framework.

Turning finally to the always sensitive question of noise regulations, I am convinced, like my predecessors, that in order to provide much-needed relief to the people living close to our major airports the early phasing out of the most noisy types of aircraft is essential. The Government's task is to strike a balance between the legitimate claims of the industry on the one hand and those of the environment on the other.

My right hon. Friend will no doubt remember that it was as long ago as 1978, as it happens under the previous Labour Administration, and following wide consultation, that the ban date of 1 January 1986 on non-noise certificated subsonic jet aeroplanes was chosen.

United Kingdom operators will have had nearly eight years in which to arrange for their fleets fully to comply. With hardly any exceptions, they are now well advanced, either replacing noisier aircraft with quieter ones, or hush-kitting to a noise-certificated standard.

Both the European Civil Aviation Conference and ICAO have requested member states not to prohibit the use of non-noise-certificated, foreign registered, subsonic jets before 1 January 1988, and we have accepted this. All such aircraft will be banned from that date.

On the other hand, despite the later European domestic ban dates, I believe that a number of European operators have already moved substantially to noise-certificated fleets. Indeed, by the middle of last year, of the whole European Civil Aviation Conference fleet embracing 22 states, over 75 per cent. was already noise-certificated, and that proportion is growing steadily.

In the short time available to me, I hope that I have adequately addressed myself to the very pertinent questions my right hon. Friend has raised.

Question put and agreed to.

Adjourned accordingly at twenty-eight minutes past Two o'clock.