HC Deb 17 March 1994 vol 239 cc1090-103 8.39 pm
Mr. Michael Spicer (Worcestershire, South)

For several reasons, I am grateful for the opportunity to raise this issue. It is probably eight or nine years ago that my hon. Friend the Member for Tayside, North (Mr. Walker) and I debated these matters in Committee; we are doing so again now, and—as I shall try to demonstrate—events have not moved on much in the intervening time.

Let me explain my reasons for raising this issue. First, civil aviation is an industry in which Britain excels: in Europe, it is without peer. Britain has 13 scheduled airlines—excluding three Hong Kong-based airlines, one of which is extremely important—and 19 charter airlines, many operating from the world's busiest and fifth busiest international airports. Each year, 47.6 million people travel through Heathrow, and 20 million travel through Gatwick, bringing those airports revenues of £527 million and £200 million respectively.

Mr. Bill Walker (Tayside, North)

First, let me apologise for having to dash upstairs at 9 pm. I am not being rude to my hon. Friend; I am on a Standing Committee, so I shall have to leave.

May I draw attention to one of the tragedies of Europe? When my hon. Friend was a Minister, I badgered him about this; and if I had the opportunity, I would badger the present Minister tonight. The United Kingdom excels in aviation, but we are told that we are not good Europeans because we complain about the fact that Europe will not deregulate in the way we want. Surely that is what the Common Market was meant to be about.

Mr. Spicer

My hon. Friend has made the speech that I wanted to make. Perhaps I should sit down, and save the House a lot of time. I could not agree more—and the same is true of other areas in which we excel.

Not only have we successful national airports in areas such as London; we also have successful international airports in cities such as Manchester, Birmingham, Glasgow and Bristol. As my hon. Friend has implied, Britain has enormous scope in the success of European air travel.

My second reason for raising the issue is that it provides a perfect example of rhetoric and aspiration for free trade in Europe that is unmatched in practice. For that purpose, I could just as easily have chosen the energy or financial sectors: Britain excels in those respects as well, and is still frustrated by restrictive European practices.

In aviation, the formal position is now relatively satisfactory. It has taken a long time; indeed, we must go back to the days—now deeply shrouded in the mists of time—when I was Minister for Aviation. The process began seriously in 1984, with the European Commission's rather weak second memorandum. In 1985, I had the honour of signing the first really liberal air service agreements with the Benelux countries, which began to bring down fares and introduce a modicum of competition. At least there was a model—a model that was formalised in 1986, with the first package of liberalisation, introduced by the British presidency.

It was not until June 1992, however, that the third package came into limited effect, a process that was completed on 1 January 1993. It will be fully effective on 1 April 1997, four years after the single market was meant to be in existence. By that time, airlines will be able to fly freely between and within European Union countries, charging whatever fares they wish—as long as they are economic, and subject to safety and noise restrictions and ground and air space availability.

That is the theory. What about the practice? As is so often the case in the European Union, when it comes to trade matters, as opposed to restrictive regulations—many of which are concerned with standardisation, and therefore actually antithetical to free trade—practice does not match up to the law. Furthermore, in the case of trade liberalisation—certainly with respect to civil aviation—the Commission is consistently slow to enforce the law.

Two matters are currently of particular interest, and especially at stake. The first concerns state aid. Perhaps I may quote from a definitive work on the matter, my own book "A Treaty Too Far". On page 69, I say: Almost on the same day that the third package Air Services Regulation was signed by the governments of the EEC"— as it was then called— the state-owned Banque de Paris injected £128 million of cash into Air France in what it said was a 'normal' financial transaction. Normality in this context is open to several different interpretations. It may be standard practice in France for one state enterprise to give to another large sums of money when one of them is in financial trouble; but it is doubtful whether private undertakings would have considered this particular transaction as 'normal'. It took place immediately after Air France had turned in a loss of 685 million francs. From the airline's point of view, the gift (disguised as an 8.8 per cent. investment stake by BNP) could therefore not have been more conveniently timed. Not only did it meet the airline's; losses without the latter suffering any real penalty, but it enabled it to pursue its plans to take a 6 billion franc … shareholding in … Sabena, which was in an equally parlous … state. Since I wrote that, some months ago, the full picture has begun to emerge. Let me give the House some figures. In the case of Air France, since 1991 the EC has approved state aids to the tune of £800 million. There is some doubt and controversy—to which I shall return—about whether such aid, given through the Banque de Paris, or in the form of so-called investment or soft loans, constitutes state aid; but, in any event, £800 million of French taxpayers' money has, in effect, gone into Air France.

In the case of Iberia, the figure is £667 million; as it happens, it is the same for Sabena. For Aer Lingus, it is £167 million—that was subject to a great court case; for TAP Air Portugal, it is £133 million. Those are large sums going into state airlines.

Far from being coy about all this, Air France—perhaps sensing the Commission's basic good will—is, in a literal sense, going for broke. Rather than backing off or being shy, it has now put in for the astronomical figure of £2.47 billion in subsidy—a staggering sum in the circumstances.

Mr. Bill Walker

The sheer volume of those figures is very disturbing. Moreover, British Midland, British Airways and all the other British airlines are having to compete—in a so-called open market—with airlines that are being heavily subsidised. Our airlines are making profits. Does that not tell us something?

Mr. Spicer

My hon. Friend is on tremendous form tonight. He is absolutely right. In a moment I shall deal in specific terms with the question how that affects our airlines.

I want to give the House two other figures. Having had £133 million over the past few years, TAP has now upped the ante to £607 million of subsidy. Olympic, which is a tiny airline in comparison with ours, is putting in for £1.5 billion of subsidy. My hon. Friend the Member for Tayside, North is on to a strong point when he compares that with what is happening in the United Kingdom.

Part of the problem is that the institutions of the European Union, notably the Commission, wrongly tend to treat support for state industries in a different light from support for private industries. As my hon. Friend the Member for Tayside, North has implied, all United Kingdom airlines are private and all the major continental European airlines are, to varying degrees, state-owned. Again, the analogy could be applied to many other industries. For example, there would be the same phenomenon in the energy industry.

The airlines on the continent are state-owned and, particularly in France, they are greatly supported and highly restrictive. That means that the major continental airlines have, in large measure, been supported by being able to attract to themselves new capital on terms and conditions that would simply not have been available to them had they been in the private sector. If they had been in the private sector, four of the seven major national carriers would have had to go into liquidation. There is not much doubt about that. By common consent, Air France would have gone into liquidation some time ago, as would Iberia, Aer Lingus and Sabena.

Mr. Bernard Jenkin (Colchester, North)

I do not fully understand the position that my hon. Friend is describing. If the funds were given to private companies that were competing in the market to enable them to survive, surely they would be regarded as subsidies. Therefore, should not the public funds that have been paid to those public companies be regarded as illegal subsidies, and should not the businesses involved be fined by the Commission? Why does not the Commission impose fines?

Mr. Spicer

In fairness to the Commission, it has at last, to use an expression, got off its butt and started to become interested in this matter. It is bringing Air France to court. The question is how the British Government will assist the legal process to reach the conclusion mentioned, correctly, by my hon. Friend the Member for Colchester, North (Mr. Jenkin), which is that we are talking about subsidies. The fact that they are given to state industries is neither here nor there. One hopes that the matter will be sorted out by the courts.

So far, when the matter has been brought before the courts, the airlines have got off lightly. Aer Lingus in particular got off very lightly. The European institutions, especially the Commission, have been slow to move and the courts have allowed the practice to continue by letting the airlines off lightly. As I have said, they are all coming back to their Governments with their snouts in the trough for more subsidies.

Even more pernicious than the straightforward handover of cash is the fact that the state-owned and protected industries are able to borrow new capital on terms and conditions that would not be available in the private sector. Also, in the past the French have tried to disguise subsidies by calling them, not even loans, but investments and getting away with it. In the case of Air France, money from the state-owned Banque Nationale de Paris was called an investment. That has occurred within the state sector.

As my hon. Friend the Member for Tayside, North, said, that must be contrasted with happens in the United Kingdom. When British Airways found itself financially threatened, it had to shed 20,000 jobs and radically improve its efficiency. For the continental airlines, it was loss-making business as usual and, with support, the continental airlines were able to continue to compete in a predatory manner against companies that have made themselves efficient without any state aid.

The Commission has hardly turned a hair in recent years until—this deals with the point made by my hon. Friend the Member for Colchester, North—Air France made its most recent outrageous cash demand of £2.4 billion. The Commission is bringing Air France to court. On the basis of precedent, the effect of that is doubtful.

It is clear that it is essential that our Government give as much encouragement and support to our airline industry in the legal battle against Air France as the French Government will, on the basis of precedent, give to their industry and as the Irish Government gave to Aer Lingus when it was battling to defend its subsidies some years ago. It is especially important that Air France should be made to comply with the disciplines of the marketplace by being made to stop subsidised predatory pricing and to close loss-making routes.

Mr. Bill Walker

I am sorry to interrupt my hon. Friend again. The so-called British Airways dirty tricks campaign has created a lot of interest in the United Kingdom. Does my hon. Friend agree that we could have shown over many years how all those airlines have been carrying out similar passenger poaching with the pricing policies and practices and the interlining which have distorted the market tremendously?

Mr. Spicer

Yes, without a doubt. My hon. Friend is extremely knowledgeable on these matters, and if he says that other national carriers are involved in such practices, I am sure that there is much factual evidence to support him. Because they are state-owned, they are protected by their Governments. There is one law for the state sector and another for the private sector. We saw the way in which British Steel was clobbered for what it was doing in the private sector. That contrasts with the way in which state-owned airlines are treated, particularly Air France, but I could name many others which are engaged in cross-subsidies and all sorts of doubtful practices. I hope that, in reply, my hon. Friend the Minister will address his mind to state aids.

The second distortive effect in the practice of the European aviation market, as against the concept of it, has been protectionist countries' exploitation of the conditions attached to free trade in air travel, especially conditions of air space and airport capacity. For example, the French Government have refused British Airways and the French Airline, TAT, in which British Airways has a 49 per cent. stake, certain landing rights at Orly airport.

That stake is quite significant because, although there is already meant to be free flow of investment within the European Union, I am told that British Airways has been advised that it cannot increase its stake to 51 per cent. because the French Government will not allow it to do so until 1997. British Airways sees no point in pursuing the matter in the courts, but again we are already seeing a practice—in this instance, the free flow of capital—being frustrated. TAT is being prohibited from having certain landing rights at Orly airport, which is clearly a restrictive practice under the conditions that are attached to the free trade market, to undermine the concept of free trade.

A similar point can be made about the Italian Government with respect to Linate airport at Milan. There are other examples where phoney air traffic and capacity restrictions are being imposed specifically to restrict free trade and the operations of what in formal terms is already meant to be a single market.

Mr. Jenkin

And at Athens.

Mr. Spicer

I suspect that my hon. Friend is right about that.

This all shows that much remains to be done before we shall establish a true common market in aviation. Air fares are still two or three times as high as those in the United States.

I shall not trouble the House with the further point that the establishment of a true free trade area in Europe should take precedence over extending the powers of the European Union's central institutions into other matters of policy. That point has been made before, and I am sure that it will be made again.

9.1 pm

Mr. Brian Wilson (Cunninghame, North)

I should perhaps have guessed that this would not be a particularly wide-ranging debate. It has centred on unfair competition, as alleged by the hon. Member for Worcestershire, South (Mr. Spicer). We are grateful to him for initiating the debate and for giving us an opportunity to discuss these issues, but I almost feel that I am intruding on the private grief of the Conservative party, as this is almost the battle of the skies chapter in the on-going war between the anti-Europeans and the Government, as represented by the Minister.

Mr. Michael Spicer

Everything that I have been saying is pro-European and aimed at achieving a proper single common market, which is the key objective. I am trying to say that we need an active free market for our airlines in Europe. That was the thrust of my speech.

Mr. Wilson

I recognise the semantic trap. Anti-Community Members invariably describe themselves as pro-European. I recognise the distinction between Europe and the European Union as it has developed. I was trying to avoid the word "sceptic", because the Tory argument on Europe is giving sceptics a bad name. It is not a particularly accurate description, either. Tonight's debate is a dimension of the dispute that is flourishing on the Conservative Benches, although there are serious issues and major British interests at stake.

I react a little against the hon. Gentleman's suggestion that a drive towards privatisation is synonymous with good policy in Europe. It is not part of the job of the House or of the European Union to pressurise other Governments into taking privatisation decisions simply because our Government have, or to hold up the success, real or imagined, of privatised industries in this country as a model for every other member of the European Union to follow.

Mr. Jenkin

The hon. Gentleman has suddenly become anti-Europe. The Commission's advisory panel has just decided to advise the Commission that it should encourage all the other airlines in Europe to become privatised. If the hon. Gentleman is criticising the Commission for being pro-privatisation, I suppose that he is about as anti-Europe as we are.

Mr. Wilson

I detect a slight difference between the views of the panel and those of the Commission. Of course, the Commission's views can be argued about—they are not set in tablets of stone. In some cases, I might disagree with the Commission's view on privatisation, but my point was that the hon. Member for Worcestershire, South seems to regard it as axiomatic that privatisation was "a good thing" and that other Governments were obliged to follow that course.

Mr. Jenkin

It is a good thing.

Mr. Wilson

I shall not be tempted into an analysis of that argument, which seems to be a minority view that is losing support rapidly.

The decision of other Governments to maintain state airlines is entirely a matter for them. The question is whether they are operating within the rules of the Commission and the European Union. If they are not, the mechanisms exist with which to pursue them.

On the issue of French subsidy and any illegal subsidy in contravention of the treaty of Rome, the European Commission is due to recommend a policy on state aid to airlines. It is clearly investigating the issue, just as it investigated the allegations against Britain in other spheres.

I now quote Air France's defence, as reported in the Financial Times. I am not advocating it, but a defence exists about which we have heard nothing tonight. That defence is Air France's claim that the FFr1.5bn injection involved convertible bonds and other paper issued under normal market conditions. It also stated that the earlier FFr5.84bn it had received involved FFr2bn in a government capital injection approved by the EU as not consisting of a state subsidy, with the remainder raised on the French financial market. It is that defence, as opposed to the indictment served by the hon. Member for Worcestershire, South, that will be the substance of the investigation by the European Commission and the courts into the reality—or otherwise—of state aid. They are the forums in which those issues should be discussed. The idea that one should throw out the whole policy on the basis of the untested assertion that everyone else is cheating while Britain, uniquely, is playing by the rules, shows the anti-EC, or anti-EU, attitudes of one section of the Conservative party.

The wider issue is whether Britain would be in a better position to pursue its strategic interests and press its case within these forums by adopting the negative attitude that we have seen this week or by being a full partner in the European Union. What we have heard tonight is a microcosm of the debate about whether we would get more out of the European Union by being a full and enthusiastic player or by always working on the assumption that everyone is out of step but Britain and that it is all some sort of conspiracy to do us down.

We believe that the balance that we must seek is between the market and regulation. In setting out the criteria for the "third package", Commissioner Karel van Miert made it clear that it was not to be.regarded as a simplistic move towards an unregulated free market. On the contrary, he set out a complex range of objectives. For example, he accepted the need for public service obligations in respect of services to less-developed peripheral regions and stressed that air links should be viewed as part of a network if trade and tourism were to be properly served.

The Commissioner highlighted the interests of the consumer but did not overlook those of people living near airports or of airline employees. He felt that the future regime should have a modicum of competition but recognised the importance of the Community's industry being competitive on a worldwide scale. That is a fair balance of the interests for any European airline policy to pursue. The approach of the third package aims to reconcile some highly complex considerations and, as part of that, clearly implies the aim of securing a reasonable balance between British interests and those of the social partners.

There is an argument that the forces of competition alone will bring down fares. However, it is worth recalling the fact that our own Civil Aviation Authority has pointed out: the removal of bilateral restrictions will create the opportunity for more widespread and vigorous competition between the major EC airlines, but there seems little prospect that this will actually occur. Therefore, the case is made that regulation as well as the market have a role to play. There is a fear that, if competition fails to emerge naturally, there will be a temptation to go further by sponsoring a type of new entrant that is unlikely to operate according to the principle of the social charter. In extreme form, that may result in "flag of convenience" airlines. In our view, Community air transport has no place for that concept.

The opening up of intra-Community routes in 1997 to the carriers of any member country may be the next logical step, but it is important to stress that individual Governments should be able to place rather more weight on certain domestic policy objectives—for example, the nurturing of regional lifelines, the maintenance of long-term obligations to the public and the pursuit of multi-modal transport integration. It should be specifically accepted that such objectives are legitimate and that they do not simply belong in some transitional or residual category.

Consistent with the development of Community policy, the real issue is how to open up the operation of such services to the airlines of member states, without discrimination. That is one example of a number of areas where there is a potentially important role for regulation at Commission level. The right of establishment implies that the ownership of airlines based in any member country and the opportunity for such airlines to fly each and every intra-Community route must be opened up to all EC citizens. However, if that is to be realistically workable, each member state must apply identical licensing criteria to would-be new entrants to the industry within its own frontiers. This proposal would thus affect a state's national designation policy.

In the absence of a Communitywide licensing authority, the best approach is to lay down harmonised rules relating to the technical and economic fitness of airlines. Differing criteria could seriously hamper other member states' airlines in operating on what the latter would consider to be a fair and equal basis.

Mr. Michael Spicer

Will the hon. Gentleman give way?

Mr. Wilson

No. I am winding up. [Interruption.] There is not exactly a mass turn-out of hon. Members to whom to give way.

We support the broad thrust of Community policy on air transport, with the safeguards, controls and regulation to which I have referred. Reliance solely on market forces to secure lower fares and wider consumer choice will lead to disappointment. We should frankly accept that, although there will be considerable liberalisation, logic points clearly towards a regulated regime.

9.12 pm
The Minister for Roads and Traffic (Mr. Robert Key)

I am very grateful to my hon. Friend the Member for Worcestershire, South (Mr. Spicer) for raising this important subject. United Kingdom airlines and airports do indeed play a leading role in international air transport services, both within the European Union and beyond. My hon. Friend was, of course, right in saying that the United Kingdom excels. He said that the rhetoric and the aspiration are unmatched by the practice. I fear that here too he was right. On this issue, there is not a chink of light between us.

The British Government support our industry. Indeed, we believe that the way in which we have done so over the past decade and more is one of the many reasons for our having an industry that is perhaps the most efficient in the world and, indeed, the most popular with customers. Because of our island status, good air links with Europe are essential if we are to foster trade, in terms of both goods and passenger services, with the Community, but this is essential worldwide too. It is essential not just for the airports in the south-east of the country, but for the regional airports, which are flourishing so well under the regime that we have been pursuing all these years.

We have long argued for liberalisation of air services within the Community as essential to the completion of the single market. The benefits are self-evident. More competition leads to more frequent and better services at more competitive prices. That is good for the consumer and for the industry. That is why the United Kingdom was at the forefront of efforts to bring about liberalisation of air services within Europe.

Mr. Jenkin

Will my hon. Friend take the opportunity to deal with one of the more fatuous points made by the hon. Member for Cunninghame, North (Mr. Wilson), who spoke for the Opposition? He said that air transport liberalisation and privatisation would lead to the collapse of minor services in the further extremes of Europe. Are not the services in the highlands and islands, all privately owned and virtually unsubsidised, an excellent repudiation of that nonsense?

Mr. Key

I am sure that, in his heart of hearts, the hon. Member for Cunninghame, North (Mr. Wilson) knows that that is true. After all, he is the founding editor of the West Highland Free Press and must know the benefits that liberalised air services and privatisation have brought to the airlines in that part of our wonderful United Kingdom.

Mr. Wilson

Unfortunately, I have already sent my notes to Hansard, but the hon. Member for Colchester, North (Mr. Jenkin) has completely misrepresented what I said. I pointed out—I should have thought that he and the hon. Member for Worcestershire, South (Mr. Spicer), from their "anti-European" standpoint, would agree—that national Governments must maintain the right to incorporate into their policies the defence of their interests.

Although the British Airways highland division operates profitably, there are always question marks over some of the routes. The island of Skye, on which the newspaper that the Minister was kind enough to mention is based, lost its service some years ago and now has no direct service because the market could not sustain one when the subsidy was taken away.

I should not have thought that there was more than a debating point between us. I believe that, if there is a social case for doing so, national Governments should have the right to subsidise services where the market cannot provide them.

Mr. Key

That need not necessarily divide us. Incidentally, what a pleasure it is when the Opposition Front-Bench spokesman and the Minister can present a balanced transport policy. The House is familiar with hearing the hon. Member for Cunninghame North speak about railways and me speak about roads, but here we are both speaking about airways.

However, if we are to talk about Skye, perhaps we had better not talk about bridges. I have looked across at the isle of Skye over many years from the island of Raasay, where my family used to go on holiday. Raasay has never aspired to an airline, but I recall the campaigns that the hon. Gentleman led against a Dr. Green.

Mr. Wilson

Did we agree on those?

Mr. Key

I had better not pry into that territory, but I understand the hon. Gentleman's love for that part of the United Kingdom. I count myself lucky to have tramped up and down the isle of Raasay, sailed round it and fished off it—but I see that you, Mr. Deputy Speaker, are beginning to think that I may be wandering from the point, so I had better return to the subject of liberalisation.

Liberalisation has now been achieved, in the form of the third package of measures that came into effect on 1 January last year. That provides uniform criteria for the licensing of air carriers to be adopted by all member states when granting licences to Community carriers. Restrictions on cross-border investment have been removed—I shall deal with what my hon. Friend the Member for Worcestershire, South said about TAT later. Member states are no longer able to favour national flag carriers by issuing licences on a discretionary basis.

Access to routes within the Community has also been opened up by ending the previous arrangements for sharing capacity. The only remaining restrictions on the provision of domestic services will be removed in April 1997. Carriers are now free to set fares according to their commercial judgment. That has been a long time coming, but I believe that there is evidence that it is already operating to the benefit of the consumer.

The benefits of the changes are beginning to show as airlines offer new and innovative fares packages and introduce services that would not have been possible in the past. For example, British Airways has introduced a new service between Hanover and Leipzig as an extension of its London-Hanover service, and British Midland's introduction of its Diamond Euroclass service resulted in reductions in business class fares on a number of European services, including Heathrow to Amsterdam and Heathrow to Paris.

Some commentators have claimed that the single market in air transport is not working because fares have not fallen significantly across the board. Apart from the fact that the single market is not exclusively concerned with fares, and some fares have come down, that misses the fundamental point that we have created the necessary conditions for airlines to compete. It is a matter for them, based on their commercial judgment, how they respond to the new opportunities and freedoms.

Looking to the wider Europe, we have strongly supported the extension of the third package of liberalisation measures to other European countries so that the benefits are more widely available. That has already been achieved in the case of Norway and Sweden where the measures have been in force since August 1993 and, under the European economic area agreement, Iceland, Finland and Austria are also expected to join in the third package arrangements during 1994. So far, so good. The priority now for the United Kingdom is to ensure that the single market is fully implemented throughout the Community and, in future, throughout all the EEA countries.

In the past year there have been calls from some member states and from their nationalised carriers for measures that 'will slow down or go back on the liberalisation measures, on the grounds that they were, in some way, responsible for an alleged crisis in the aviation industry. We have resisted such calls as unfounded and a thinly veiled attempt to return to the old days of protection for state-owned carriers which would seriously undermine the benefits of the single market.

In response to this, the European Commission set up a committee of wise men to assess the situation and to report with recommendations on the future of the industry. I am pleased to say that when the committee reported its findings earlier this year, it supported what we had said all along, that the real problem facing some, though not all, European airlines is that of low productivity, which is a matter for airline management to tackle.

The wise men's report also fully supported our argument that there should be no going back on the single market in air transport and that the internal market must be made to operate properly if the full benefits are to be realised by consumers and industry alike. There was welcome emphasis in the report on the need to reduce Government intervention in the industry and to allow the industry the commercial freedom to adapt to the challenges of a global and competitive industry.

My hon. Friend the Member for Worcestershire, South mentioned one or two points, in particular, about the funding of state airlines and private airlines. If I may, I will quote what the wise men said about state aid on page 21 of their report: In a competitive market, access to finance means should be equitable, it should not be based on ownership. This principle applies both ways. A state which owns an airline should neither privilege the carrier against privately owned companies nor disadvantage its carrier by failing to assume the responsibilities of a commercially oriented shareholder. This principle of equal treatment irrespective of ownership requires a very sophisticated policy on the broader issue of financial relations between slates and publicly owned carriers. It requires a clear separation between the normal commercial operations of a shareholder and state aids granted under articles 92 and 93 of the EC treaty. That is extremely significant in view of what my hon. Friend went on to say.

Mr. Jenkin

I congratulate my hon. Friend on the efforts that the Government made to help the Commission along to that particular point. Have we not, however, witnessed up to now a serious institutional failing in the political partiality of the European Court in that it has made judgments on a political and partial basis which have not led to the single market that we thought we had already legislated for and that should be enforced by the court even-handedly?

Mr. Key

My hon. Friend describes the case very well in his own words. What I said earlier was that I agreed with my hon. Friend the Member for Worcestershire, South when he spoke about rhetoric and aspirations being unmatched by practice. That is exactly the sort of subject that I think he was referring to.

Mr. Jenkin

This is a failing that seems endemic to the institutional structure. What are the policies of the Government towards reforming those institutions to make them more even-handed, less political and more impartial in the way that they enforce the policy that has been agreed between member states?

Mr. Key

I feel a touch of Maastricht coming on, Mr. Deputy Speaker. I know that you will not thank me for introducing that line. I am about to come to the specific point of what we are going to do next, particularly about Air France.

Mr. Wilson

I wanted to help the Minister out when he felt that he was coming to Maastricht. He can recover his ground. Does he agree that an air of unreality was setting in, with his hon. Friends attacking the European Court, the European Commission and every other Government? The conflict is presented as one of public versus private, yet within Britain we have dog fights between the privatised British Airways and other British private operators. We seem capable of producing our own intense conflicts of interest and dirty tricks without attributing everything to a Britain-versus-the-foreigner category or public-versusprivate category.

Mr. Key

I would far rather have a lively and responsive private sector than the fossilised system that we see too often in our European neighbours' airlines.

We firmly believe that state aid to airlines serves to hinder the industry by shoring up inefficient companies and limiting consumer choice. We should talk not only about the structure of the airlines but about the services rendered to the customers of those airlines. That is why we have pressed the commission to take action on the issue and called for a thorough, independent investigation of the recent announcement by the French Government of their plans to inject up to FF20 billion—about £2.3 billion—into Air France.

We had been expecting the announcement of a restructuring plan for Air France for some time, since the debacle that accompanied last October's attempt at restructuring. Even so, I am astonished by the scale of the aid package involved: £2.3 billion is an unprecedented amount of state aid. It could have a seriously detrimental effect on competition throughout the European market. As such, it is entirely contradictory to the principles of the single market.

We called on the Commission to freeze the aid pending a thorough independent investigation of the case. It is vital that there should be parity of treatment througout the Community. It is simply not acceptable that some airlines have to make investment from their own resources or go to their banks and shareholders while others can simply go to their Government and receive funds at no cost or at repayment levels significantly below those which the private sector would charge. Why should British carriers that have ensured their financial viability through efficient commercial practices and without money from the British Government have to compete with a monolithic flag carrier propped up by money from the French Government?

Mr. Michael Spicer

Was my hon. Friend shocked that, despite all the head-down mumbling into some brief throughout his speech and his refusal to take interventions and debate his position properly, the Opposition spokesman had nothing to say about Air France? He seemed to be on the side of the French. He seemed to encourage the subventions and so on against our airlines. Was that the feeling that my hon. Friend got from the speech that we heard from the hon. Gentleman?

Mr. Key

I was surprised that the hon. Gentleman was not more forthcoming and more grateful for the way in which the airlines responded to the new markets developing north of the border, for example, and in other peripheral areas of the United Kingdom, including the Isles of Scilly and the south-west, including Newquay St. Mawgan and Plymouth as well as Exeter.

Mr. Wilson

I do not want to cause any problems in the internal conflict, but the hon. Member for Worcestershire, South berated me for something different that the Minister may have failed to pick up. I said that, if the rules had been broken, judgment should be made accordingly. This is not the place in which to hang, draw and quarter Air France and the French Government, attractive as the prospect might be to two thirds of the Conservative Members present tonight. If there were a two-thirds majority, the French would probably be in trouble tonight. I am not prepared to engage in the vacuous tub-thumping that we heard from the Minister before he got on to the Isles of Scilly. It is completely at odds with what his hon. Friends asked for earlier.

Mr. Key

I am talking not about hanging, drawing and quartering, but about the guillotine.

The United Kingdom is not alone in its view about the antics of Air France and the French Government. The wise men's report argued strongly against the granting of state aids on the basis that they lead to unfair and unacceptable distortions of competition. They concluded: capital injections and state aids have severely contributed to overcapacity and uneconomic pricing", which represent a potential distortion of competition between state-owned and privately-owned airlines.

True, they accepted that there might be a need for "one last chance" transitional aids to restore carriers to financial viability, if only for political reasons, but where is the evidence that this is the last time that Air France will turn to the French Government for handouts? It has already received three capital injections since 1991 totalling some £670 million and a further case, involving a £170 million bond issue, is currently under investigation by the Commission. Moreover, the details of the restructuring plan that we have seen so far make no reference to reducing dependency on the state by attracting private sector investment, let alone by moving towards privatisation.

There is also little evidence that the programme is severe enough to address the fundamental problems facing Air France, it envisages no real reductions in capacity and it is far from clear how the proposed cost reductions will be achieved. That is why we called on the Commission to instigate an independent investigation of the latest aid and to open consultation on it in accordance with the treaty of Rome. That will enable the UK, other member states and the airlines affected to submit comments on the case. We shall use that opportunity to argue forcefully against the aid and to seek to ensure that, if the Commission decides to approve the aid, it is accompanied by stringent conditions.

In particular, those conditions should include the requirement that the aid should not be used in a way that would distort competition with other Community carriers, through expansion of capacity or expansion on to new routes—indeed, if anything, there should be capacity reductions—and there should be a categorical assurance that this will be the last time that the French Government bale out Air France.

Incidentally, the Air France case is not the only state aid case under consideration at the moment, although it is by far the largest and most important to the operation of the single market. The Commission announced last week the instigation of investigations into state aids for Olympic Airways, involving about £950 million, and TAP Air Portugal, involving about £690 million, plus Government guarantees for future borrowing. When commenting on those cases, the UK will similarly argue against the granting of state aid and press for rigorous conditions to be attached to any aid that the Commission approves.

My hon. Friend the Member for Worcestershire, South mentioned the case of Orly airport.

Mr. Michael Spicer

We have established that the Opposition have nothing to say in defence of British interests in this sector. I could not hear what the Opposition spokesman said. Are the Opposition trying to set up Europe as some total licensing authority, which will debate as a European authority against, principally, the United States authority? Does my hon. Friend's research into Labour party policy confirm that it is moving in that worrying direction? I sensed that that was the case from the mumbles of the hon. Member for Cunninghame, North (Mr. Wilson) before he sat down.

Mr. Key

While my hon. Friend spoke, I looked in vain at the hon. Member for Cunninghame, North for nods or shakes of the head, but none did I see. I am sure, however, that he will make the position clear.

Mr. Jenkin

Was it not obvious that the hon. Member for Cunninghame, North was reading an old Commission brief and that it is Labour party policy to lie down in front of Europe and let itself be run over? If the electorate recognises that in the forthcoming European elections, there might be some hope of our doing better than people expect.

Mr. Key

My hon. Friend is right, and if anyone tries to run me over, they will find me fairly immovable.

The French do not allow air services between London and Orly airport by any carrier, whether French or British owned. We have raised that matter with the Commission not only on behalf of TAT, but on behalf of other UK airlines that wish to provide services to Orly. We understand that the Commission is on the point of making a decision requiring the French Government to allow services to Orly in a non-discriminatory way. We would welcome that decision.

As for the question of limits on British Airways' investment in TAT, there is nothing in Community law to prevent British Airways increasing its investment in TAT to 100 per cent. I understand that British Airways has an option to increase its investment, but if there is a problem with the French Government I am willing to inquire into it and take it up with the French and with the Commission if I receive evidence of it.

This has been a helpful debate. I hope that it has been especially helpful to British airlines and the British interest in the aviation industry. In conclusion, I reiterate the Government's commitment to the liberalisation of air transport services, both in the Community and more widely throughout Europe. I believe that that offers the best way forward in the interests of passengers as well as the air transport industry.

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