HC Deb 11 March 1991 vol 187 cc671-5
Mr. Peter Snape (West Bromwich, East) (by private notice)

To ask the Secretary of State for Transport if he will make a statement on the collapse of Air Europe.

3.31 pm
The Secretary of State for Transport (Mr. Malcolm Rifkind)

Air Europe, which stopped flying last week, is now in the hands of an administrator. Its parent company, International Leisure Group Ltd., which also owns some tour operators, is also in administration.

It is disappointing that the companies have found themselves in this position due to financial problems. The Civil Aviation Authority, which is responsible for financial monitoring, has been in close touch with the companies throughout their difficulties, and I myself was made aware of them.

I understand that there has been some criticism of the CAA's handling of the problem, but I do not share it. It was for the authority to decide whether and when to take action. To have withdrawn licences or to make public statements on the financial affairs of the company while there was still a serious prospect of rescue would merely have precipitated the crisis and made it inevitable. The CAA would then have been exposed to much stronger criticism, without avoiding the inconvenience that has occurred to the travelling public. One also has to bear in mind the desirability of every opportunity being explored to try to safeguard the jobs of the almost 2,000 employees of Air Europe.

There is, of course, always some impact on customers in any industry when an event like this happens. The bonding scheme, which provides a fund for making arrangements for all charter passengers, has ensured that disruption has been kept to a minimum.

The lack of a similar bonding scheme for scheduled passengers has been commented on. Other airlines have been able to take up Air Europe's passengers, and this is to be welcomed. However, I believe the time has come to ask the CAA to consider whether some arrangement might sensibly be introduced for scheduled passengers. I have asked the CAA to report to me as soon as possible.

Mr. Snape

Will the Secretary of State accept that the collapse of Air Europe and its parent company, although due partly to the economic recession and to the Gulf crisis, has also been brought about by the Government's disastrous aviation policies—[Interruption.] Well, is a boom. It has been brought about especially by the Government's new air traffic distribution rules, which will cause further chaos and decline in Britain's aviation industry. Does the Secretary of State agree that the collapse of Air Europe is likely to be followed—[Interruption.]—Conservative Members should stop giggling and start listening—by similar financial difficulties in other independent British companies? Does he agree that the collapse will have a serious effect on services from Britain's regional airports? When did the Secretary of State and the CAA know about the problems of Air Europe, and what did either do before the collapse to try to prevent it?

What good is the Government's proclaimed liberalisa-tion of European routes if passengers on scheduled airlines are left with worthless tickets because of the bankruptcy of a particular company? Is it not a fact that the package tour side of Air Europe's parent company was protected by a compensation bond worth £62 million administered by the Tour Operators Study Group, which is a competitor of ILG? Will the Secretary of State examine the structure of the bonding system, bearing in mind—[Interruption.] Listen. The Secretary of State did not mention this at all. He should bear in mind the fact that opinion within the travel industry is that the financial guarantee may have been withdrawn to prevent the entry into the British tour market of a German competitor, regardless of the disappointment, inconvenience and expense caused to British holidaymakers.

Mr. Rifkind

It is somewhat improbable that my statement on Tuesday on traffic distribution rules can have been relevant to the problems that the company faced. The company itself has not sought to make such a suggestion.

Both the Civil Aviation Authority and the Department of Transport were aware of the difficulties facing the company. I note that the hon. Member for West Bromwich, East (Mr. Snape) has not criticised the CAA. He is right not to criticise it because, I am sure, he shares my belief that it is desirable to try, as was being done last week, to safeguard the jobs of the 2,000 employees of Air Europe and to avoide the collapse of the company. It is significant that that attempt was made, and I am grateful to the hon. Gentleman for not criticising the CAA for the way in which it has operated. I listened with care to the hon. Gentleman's final point. I am not aware of any basis for his allegation.

Mr. Nicholas Soames (Crawley)

Will my right hon. and learned Friend accept that the news of Air Europe's demise has been heard with considerable concern in my constituency? Is he aware that, in my view and that of many others, the CAA has behaved impeccably throughout the matter and has dealt with it with prudence and foresight? Nevertheless, will my right hon. and learned Friend join me in expressing to the many people who work for Air Europe, who may now find themselves without jobs, our concern that everything possible will be done to get another airline flying in its place as soon as possible? Does my right hon. and learned Friend also agree that, contrary to what the hon. Member for West Bromwich, East (Mr. Snape) said, Air Europe's demise is, sadly, due to a rather over-ambitious and eccentric management?

Mr. Rifkind

I certainly agree with my hon. Friend about the difficulties faced by the employees of Air Europe. We have had that factor very much in mind. I hope, as will my hon. Friend, that the administrator who is now in charge of the affairs of the company will be successful in his efforts to find an alternative purchaser for those routes and for the facilities of Air Europe, so that as much as possible can be safeguarded and continued in the months to come.

Mr. Ronnie Fearn (Southport)

Is the Secretary of State aware that many regular flight passengers were informed about the collapse only when they arrived at airports? Can he state when his Department heard about the collapse —the exact date—and does he now intend to do anything with other airlines and other Governments to try to handle the situation in the future?

Mr. Rifkind

We heard about the collapse only when the decision was taken by the company to invite the administrator to take over its affairs. That obviously created inconvenience for the travelling public. However, that inconvenience would have been caused on whatever day the decision was announced. It is a regrettable inevitability whenever such a company ceases to operate.

Mr. Michael Colvin: (Romsey and Waterside)

Does my right hon. and learned Friend acknowledge that, in spite of his eccentricity, Mr. Harry Goodman did as much as anyone to promote free and fair competition in civil aviation within Europe and was immensely popular with his passengers, for whom he provided a first-class and popular service? Does he accept that what he has said about the possible introduction of a bonding arrangement for scheduled ticket passengers will be extremely popular? Will he confirm that that will need legislation, and does he feel that the mechanism for airline monitoring by the CAA is adequate? The fact that Air Europe was skating on thin ice about 12 months ago was known to everyone, and I cannot believe that the CAA could not have contacted him at least, and given him greater warning of what was likely to occur.

Mr. Rifkind

I have no reason to disagree with what my hon. Friend says about Mr. Goodman and his achievements. As far as extending bonding to scheduled passengers is concerned, it is right to ask the CAA to consider that proposal. Such a system will have problems as well as advantages, because it could have some implications for fares and therefore it is appropriate for these matters to be properly investigated. I understand that extending bonding would require legislation. I have no reason to believe that the monitoring responsibilities of the CAA are being carried out in anything other than an effective fashion, but obviously we shall wish to study closely the events of the past week to decide whether there are any factors that should be drawn to our attention.

Mr. Alfred Morris (Manchester, Wythenshawe)

What assessment has been made of the effect of the collapse on Manchester airport? Was there any contact at any stage before the collapse became a fact between the CAA and airport management in Manchester? Is the right hon. and learned Gentleman aware that there has been in that city very widespread concern about the effects of the collapse on our airport?

Mr. Rifkind

The implications for Manchester airport will obviously depend upon the extent to which the administrator may be successful in finding an alternative purchaser for Air Europe, or for at least part of its activities. I am not aware whether the CAA had any contact with the airport authorities, but no doubt that matter can be addressed to the authority.

Mr. Kenneth Warren (Hastings and Rye)

Will my right hon. and learned Friend accept that, although I have enormous admiration for his stewardship of his Department, I find it difficult to accept his dismissal of any charges against the Civil Aviation Authority? Can he please tell the House when he was first made aware that the group running Air Europe had debts of £480 million which it could not service?

Mr. Rifkind

That is not a particular figure which has been drawn to my attention. I received a visit from the senior executives of Air Europe at the beginning of last week, when they expressed optimism as to their prospects for rearranging their finances to enable the company to continue. I reminded them that it would be for the CAA, as the regulatory body, to decide whether they should be permitted to continue and that, if there were any question of the authority being dissatisfied with their being able to meet the normal statutory requirements, it would not be possible for them to continue. It appeared that there was a serious possibility of the company being rescued by the various attempts that were being made at the time.

Mr. David Marshall (Glasgow, Shettleston)

I welcome the Secretary of State's announcement that he is to consult the CAA on the possibility of introducing a bonding system for scheduled services. However, in view of the ever-increasing number of independent-minded families who book scheduled services for leisure purposes, rather than use charter flights and package tour holidays, does he agree that such a bonding system should be introduced now? There is a need for such a system now. Does he agree that having further consultations and delay is not the proper way to do it? Despite the problems in establishing such a system, does the right hon. and learned Gentleman accept that it should be introduced as soon as possible?

Mr. Rifkind

It is not a question of further consultation —as yet, there have been no consultations. Therefore, as there would be implications, for example for fares, it is right and proper that these implications should be identified. I accept the hon. Gentleman's argument that there are some anomalies in passengers on the same aircraft being divided between those who have the benefit of the bonding scheme because they come under chartered arrangements, and others who are experiencing the same difficulties and inconvenience but are not so covered. That is why I have asked the CAA to look into the whole question of whether bonding should be extended in the way suggested.

Several Hon. Members


Mr. Speaker

Order. We have another statement on aviation immediately after this one and, although it is not exactly the same subject, it has similarities. I shall take two more questions from each side and then we shall move to the next statement.

Mr. Conal Gregory (York)

Does my right hon. and learned Friend agree that probably the greatest victim of this collapse is the passenger, the person who has been saving up to make this major purchase, his second largest regular purchase after a motor car? Does he further agree that the industry has signally failed in that, for several years, it has been asked to appoint a tourism ombudsman but has not done so? Such a person could have intervened at an early stage. Ombudsmen already act in the public interest in disputes with building societies, banks, insurance companies and pension scheme promoters, but tourism is the one major consumer area without such a voice. Will my right hon. and learned Friend now intervene to appoint such an ombudsman?

Mr. Rifkind

I note my hon. Friend's latter suggestion. He will appreciate that I am not responsible for tourism, but I shall draw his suggestion to the appropriate quarter. I agree that those who had hoped to go on holiday in the last few days with this airline have suffered serious inconvenience. Fortunately, the bond for charter flights, which will apply to most of those people, will al least ensure that they do not suffer any financial loss as a result of this incident.

Mr. Robert N. Wareing (Liverpool, West Derby)

It is now about 17 years since charter passengers were given protection by the last Labour Government. Is it not time that Government policy was governed by the needs of the consumer and not by the mindless ideology of deregulation? Can the Secretary of State imagine German companies going under in a similar way? Is it not time that he gave an assurance to the people who are affected by this breakdown that in future no Tom or Dick—or Harry—will be allowed to run an airline in this way?

Mr. Rifkind

It is a sad fact in aviation at present that a number of airlines throughout the world are experiencing serious financial problems. That is in no way peculiar to the United Kingdom. Of course it is the responsibility of the CAA to ensure that those who provide air services are financially and in other ways suitable persons to carry that responsibility.

Sir Robert McCrindle (Brentwood and Ongar)

While I recognise the clear difficulties which must have confronted the CAA, which had a choice between doing nothing and pulling the plug prematurely on Air Europe, does my right hon. and learned Friend agree that, as the CAA was appointed by the House to be the watchdog of the consumer, it might have been wise to assume that not all of us necessarily read the financial pages of the newspapers? A low-key statement indicating that some talks on financial restructuring were proceeding might at least have placed in the hands of the consumer a decision whether to buy an Air Europe scheduled airline tacket. As a result, some people might have chosen not to fly, when all those people have effectively lost their money.

Mr. Rifkind

It is a matter of judgment as to what effect such a statement might have had. The more low-key the statement, the less likely the chances of it being reported in the press and, therefore, brought to the attention of the travelling public. There was a difficult decision to be made. On this occasion, I find it difficult to fault the CAA for the way in which it shouldered a difficult responsibility.

Mrs. Gwyneth Dunwoody (Crewe and Nantwich)

Did the Secretary of State consult the CAA immediately after being given the assurances at the beginning of the week, and if so, did the CAA assure him that the ariline was viable? If it did not, how is it that we have reached the situation in which, because the bond is being triggered, it is very unlikely that this airline can be sold as a viable company or that we will be able to retain the jobs and money of the people involved?

Mr. Rifkind

I received no assurances from the airline at the beginning of last week—only an indication of what it believed was likely to happen. It is for the authority and not the Department to make a judgment on these matters. The hon. Lady asked about the bonding arrangements. It was not only right and proper but necessary as I understand it for the bond to be called in; otherwise, those charter passengers for whom the bond is intended would not have been able to fly back to this country. They knew that the cost of doing so was covered by the bond.