HL Deb 11 February 1960 vol 220 cc1199-208

3.45 p.m.

Debate resumed.


My Lords, I should like to add my support to the Bill which my noble friend has introduced and for which he has made out, I believe, an unanswerable case. I think we should all agree that these air corporations must have the best aircraft, and if they are to have the best aircraft obviously they must have the money to pay for them; and they are very costly machines. I am also very glad to note, if I followed my noble friend aright, that these new orders which are being placed are entirely for aircraft of British construction. I feel that that is extremely satisfactory, because the airlines and the aircraft industry are inseparably linked together. The airlines must have the best aircraft and the industry must produce the best aircraft if they are to supply on a competitive basis. So it is very satisfactory that, when Her Majesty's Government come to the House for borrowing powers, we are told that the money is to be used for British aircraft, in which we can all have complete confidence.


My Lords, may I interrupt the noble Earl? I thought that some of this money was going on Boeing 707s. Perhaps the noble Lord the Minister would confirm that.


My Lords, the position is that in the period covered by this Bill there are to be certain payments in respect of Boeing aircraft delivered; but all the new orders are for British aircraft.


My Lords, I am glad to have that point cleared up. Of course, the Boeing aircraft which have been ordered are being paid for, but I understand that that is being done out of money which has already been provided by Parliament under existing borrowing powers. I believe I am right in saying, however, that the whole of this new money which we are being asked to authorise to-day—and the sum is enormous—will go for British aircraft. It is very satisfactory to know that, after all misfortunes which that promising Comet encountered, the new Comet IV is apparently entirely satisfactory and is winning great praise as an efficient, economical and beautiful aircraft. And, judging by experience, I think we can all feel equally confident that the great new Vickers jet, which I believe is called the VC.10, will be as successful as the other Vickers aircraft of the turbo-prop type have been.

I feel it is not inappropriate, also, to express I am sure what we all feel—our satisfaction at the amalgamations which have taken place between the aircraft firms. Those amalgamations of the main producers of jet aircraft (helicopters, of course, are separate) into two great groups will give financial strength, and also strength in design and research which will enable them to face the great cost of this hazardous but vitally important industry. I think the companies and the Minister are both to be congratulated on that result.

I should like to put to my noble friend two questions which are interrelated. The Minister spoke about the rate of depreciation and, if I followed him correctly, said that the Corporations were following their existing practice of depreciating aircraft over seven years to reduce them to a value of something like 25 per cent. I should like to ask him whether he considers that that is a sufficient depreciation to-day. It is very dangerous to put a theoretical value on obsolete aircraft when we have finished with them. It may be said (though I do not know) that an obsolete jet aircraft will have a much greater value in the jet age than an obsolete piston-engined aircraft. But we want to play for financial safety in these matters, and certainly not only the British air corporations but, I believe, air corporations all over the world placed a wholly exaggerated value on piston-engined aircraft, because as jet and jet-propelled aircraft were coming in, piston-engined aircraft really become mere scrap—certainly nothing like 20 per cent. or 25 per cent. of the initial value. I think it would be wiser and more realistic (and I agree with so much of what the noble Lord, Lord Shackleton, said on this) if the rate of depreciation which was shown every year in the accounts was, we were satisfied, ample to meet all reasonable risks, so that at the end of the time enough money would have been put by to make, or almost entirely to make, the new purchases.

If I may say so, I also agreed completely with him on the idea of putting in some equity capital, or calling it equity capital. Of course, if we were going to appeal to the public—which I think is quite impracticable, apart from what Lord Radcliffe said—to subscribe for equity capital, there would be something to be said for it, for then you would have real equity capital. But as for merely saying,"The Government have found £150 million or £200 million and a lot of that, or some of that, was lost, or is likely to be lost, and we had better call 20 per cent. equity and 80 per cent. borrowing and pass the dividend on the 20 per cent.," I quite agree with him, and I am glad there is such sound financial and economic probity on those Benches. I quite agree that that would be specious and rather dishonest, and that we had much better go on in the present way, doing our borrowing and providing for a proper depreciation.

The other related question I want to put to my noble friend is this: is he satisfied that the aircraft in these Corporations are being used to the best advantage? Let me explain what I mean. I think that all who have been concerned with this matter would agree that the time an aircraft spends on the ground is time lost; it is losing money on the ground; and the obsolescence of aircraft in any case is very rapid. For all those reasons it pays to"flog" an aircraft, to run an aircraft as frequently as one can, of course without prejudice to most thorough overhauls at all the proper dates when overhauls are required. But, subject to that, it is certainly good business to"flog" the aircraft and to get as many working hours, flying hours, out of it as one can. I should like to ask my noble friend—I am sure he must have the figures—how in that matter the Corporations compare with other companies.

The noble Lord, Lord Shackleton, quite rightly said that we ought to consider to-day the financial position and still more, perhaps, the financial prospects of these Corporations. I agree with him. They look reasonably satisfactory. One does not want to be too optimistic, but I think that the outlook is pretty good. B.E.A. have certainly done pretty well. It is no reflection on them to say, I think, that on the whole they have had a little more luck and an easier job than B.O.A.C. have. The noble Lord, Lord Douglas of Kirtleside, naturally shakes his head. I am not detracting from the credit which gravitates and to which they are fully entitled, but I am not quite sure that he really did quite so well as he made out.

I read in the Press (I may have read it rather too hurriedly) that his Corporation—and all credit to it and honour to it!—had made a profit of £2 million in a year. Was that the whole financial year of the company? I am not quite sure. I rather think it was not. I think that it may not be going at that rate. It is the full financial year which one ought to take in order to find out where one is; and if a profit at the rate of £2 million had been made during the time when flying is good and one can get a lot of passengers, in the summer, quite a lot of that is going to be wiped out in the lean months which inevitably come in the winter time with the fog and snow.


My Lords, may I interrupt the noble Earl? The £2 million profit was made in a complete year, a complete calendar year, 1959, which included of course the first three months, the lean months, of 1959. It was a complete year.


Of course, if the financial year is going to show £2 million profit then I have no criticism at all. All I would say is that it is important, as I think we have all found in business—and indeed it is true also in politics—to realise that on the whole it is wise to understate rather than overstate your success, because then your shareholders and constituents alike are very pleased when they find they have it better than they have even expected.

I think that B.O.A.C. had a good deal of bad luck. It had bad luck in its aircraft, as has been said, and it had bad luck in having to operate in some pretty disturbed areas, as well as financial difficulties with some of its subsidiary companies. Certainly every effort should be made to economise on those subsidiaries, and possibly to shut some of them down. I say"possibly", because-it may well be that there is a national interest or a Commonwealth interest in keeping a service going, even though it is showing a loss. These things interact with one another, and it may be—I think probably it is—the case that where we find a subsidiary or associated company which is not working to a profit it nevertheless carries passengers who join up with a main line and feed that main line, so making it profitable or more profitable.

I have dealt with the question of equity capital. While I think we can have confidence in the quality and the performance of the aircraft that are coming forward, we have to fill them; and that, I believe, is the most uncertain factor at the present time. It is true that air travel is becoming more common and more popular, but these new aircraft are going to be bigger aircraft, they are going to be faster aircraft. They will be able to carry more passengers, and carry them more rapidly, particularly if we run as many services—as we ought to do—with an aircraft as we can. But we cannot run that number of services unless we can fill them, and to fill them we have to offer fares—there will always be luxury ones—which the passengers either can afford or are willing to pay.

I am bound to say that I.A.T.A. seems to me to have been pretty unsatisfactory about this, and rather like the old Mining Association of Great Britain, where one seemed always to have to regulate the thing to suit the most inefficient partner. To say,"Oh, no. All the fares have to be kept up so that anybody can make a living" (though I very much doubt whether he will make a living if we keep the fares up too much) seems to me to be pretty hard on the efficient people and very inconsistent with the trend of freer trade and freer competition that is supposed to be blowing through the world at the present time.

I should like to ask the Minister how much we can do on our own in this matter: how far we are bound on all the routes by rates to which we have to get the agreement of this"united nations" of air countries, and how far we can"go it alone". I am pretty sure—in fact, I am quite sure—that wherever we can"go it alone" we ought to"go it alone"; not only because it will be good business for us but because, if we are right in our contention that lower fares (not ridiculous fares, but lower fares) are going to attract more business—and, after all, salesmanship in the air is no different from any other form of salesmanship; you make your success by selling a larger quantity at a lower price—and we are successful in the areas where we can act on our own, then we should be both setting an example and proving a case which it would be much more difficult for the international conference to reject.

I have only one other question to ask the Minister, and it is this. I do not believe much in buying very expensive freight aircraft—at least, I should be very doubtful about that, particularly having regard to the way aircraft are developing to-day. The passenger aircraft to-day can carry an increasing amount of freight, and as these aircraft are so costly it is probably much better that you should have an aircraft which is both a passenger carrier and a freight carrier. You will probably do much better in that way than by buying extra freight aircraft which you might easily not be able to fill—and it is no good only half filling them. I suppose that it is the same with freight as with passengers: you must get a 75 or 78 per cent. load, or whatever the figure is, in order to get an effective payload. But I want to ask the Minister this question: if, on international routes, we are bound as to passenger fares by international agreement, does that also apply to freight, or are we entitled to charge any rate we like for freight which we are carrying around the world?

I put those questions to the Minister because I think they are relevant to the debate to-day, but they in no way detract from the general support which I give to this Bill—and here I think I express the sentiments of the whole House—or from the very good wishes we extend to the Corporations and to the aircraft companies which serve them.

4.3 p.m.


My Lords, I am sure we have all listened to the speeches by the noble Lord, Lord Shackleton, and by the noble Earl, Lord Swinton, with great interest and with great encouragement. The noble Lord, Lord Shackleton, likened this to a meeting of stockholders. I am sure that, if all such meetings could get as much help from their stockholders as he gave to this one, they would go better than some of them in fact do. It is quite true that while we should aim at these Corporations providing as much out of their own resources as possible—and they do—the whole world of aircraft has been moving at such a pace, and it has been such an expanding trade, that they are like any other business in the same situation. They have to get increases of capital; and the object of this Bill to-day is to provide an authorised increase against which they can draw as they need it. I was glad to have the statement by the noble Lord that the present method of financing seems about right, with which I think the noble Earl, Lord Swinton, concurred. I was glad to have his tribute to the completeness of the accounts and the frank way in which everything they did was shown.

The noble Lord referred to the cost of proving and development, and I can assure him that that is a matter of which my right honourable friend the Minister is well aware. There has been a big burden falling upon the Corporations in that respect. I do not think there is anything wrong about that. There may be different views as to whether or not the Corporations should be relieved of it, but for the moment they have borne it, and that should be taken into consideration in looking at their results. The noble Lord referred to the B.O.A.C. losses on subsidiary companies, as, indeed, did the noble Earl. They were very heavy last year in the case of B.O.A.C., but the position looks much happier now, and it is expected that the losses will be very considerably reduced.

Then the noble Lord referred to the Scottish air lines. Of course, the services to the Highlands and the Isles are unprofitable, and the reason is pretty obvious. But every well-conducted business—and I think we should all like to pay a tribute to B.E.A., which is a very well-conducted business—has to bear such services and has to do unprofitable trade if it is going to give the service which is expected from it. Although I cannot speak for the noble Lord, Lord Douglas of Kirtleside, who is here to-day, I am sure he is quite happy to render such a service, even though it reduces his profit—for last year to £2 million. I am sure he would not wish to be subsidised.

The noble Lord, Lord Shackleton, also referred to the question of economy in engineering, as the cost of engineering was one of the matters adversely affecting the B.O.A.C. results. B.O.A.C. are making very considerable progress in that direction. They are co-operating with their engineers, and the results are very encouraging and should be, and I am sure will be, better still. Then the noble Lord referred to the question of the proposed new air licensing authority which was mentioned in the gracious Speech. That is having the consideration and the attention of my right honourable friend the Minister of Aviation, and I am sure he has very much in mind not only the need to keep the public Air Corporations, in which this country has a very great stake, profitable, expanding and satisfactory in every way, but also the fact that the independent air lines, too, should have the opportunities of making reasonable profits and of being a credit to this country. I am sure he will take a balanced view of the situation, having regard to the very good arrangements which have existed between the Air Corporations and the independents hitherto. The Air Corporations have taken a very proper view of their responsibilities and I do not think that the position has been an unhappy one.

The noble Earl was good enough to pay a tribute to British aircraft, and the Corporations, so far as lay in their power, have encouraged and bought these aircraft. He was also good enough to pay tribute to my right honourable friend on the arrangements he was making to bring aircraft manufacturers into groups, two for airframes and two for air engines. I am sure that my right honourable friend will be glad to have the support of my noble friend, who knows so much about this subject and whose encouragement is so well worth having.

The noble Earl asked me a question about the rate of depreciation: do I think it is sufficient? I have always taken the view that one ought to be as generous as possible on depreciation, even if providing adequate depreciation means making losses. I have no doubt that when these depreciation rates were fixed they looked adequate, but, on the other hand, I have no doubt that they have proved to be, if anything, on the inadequate side, because I agree with the noble Earl that the rate of depreciation should be enough to cover the purchase of new aircraft, but of course only to the extent that there were existing aircraft, because any expansion of the fleet has to be provided for in other ways.

Then the noble Earl referred to an important question, the question of using the aircraft to the best advantage, and he pointed out that time lost on the ground was, in fact, money lost. But that applies not only to the Air Corporations; it applies to every business. I wonder whether we ever stop to think how many hours our plant in this country lies idle. This is just the same problem. The noble Earl asked me how the Corporations compare with other lines in this respect. I am afraid that I cannot answer that question, but if the information is available I will see that it is transmitted to the noble Earl.


My Lords, I think that this would be of very general interest, and perhaps when he has the information the noble Lord will let me know, so that I may put down a Written Question and the Answer can appear in the OFFICIAL REPORT.


Yes, My Lords, I will follow that course.


My Lords, I understand that the B.E.A. load factor is the highest in Europe.


My Lords, I was glad to hear that remark and also the noble Lord's remark that in his view the outlook is pretty good. If my noble friend had not given him the information about the good results for the last year, I would have given it myself. The noble Earl referred to the position of B.O.A.C. and said that in looking at their accounts we should have in mind the bad luck they have had in regard to aircraft—delayed deliveries and the tragedy of the Comet I, about which we all know. But I hope that all this is now behind us.

The noble Earl also referred to the operations of subsidiary companies in disturbed areas. This, too, is a factor which must be taken into account. B.O.A.C.'s associated companies, which run the subsidiary interests of the Corporation, lost £3.1 million. The main element in that loss was the political troubles in the Middle East generally and in the Lebanon, perhaps, in particular. The outlook for the future seems brighter. Traffic has recovered from the 1957–58 slump and the loss of the associated companies for 1959–60 is not expected to be more than, say, £750,000, which is a big improvement. I think that the noble Earl is quite right in saying that the outlook seems pretty good.

The noble Earl also referred to the question of low fares and to I.A.T.A. It is because my right honourable friend and the Air Corporations (perhaps I ought to put the Air Corporations first) realise the importance of low fares that they have put so much energy into I.A.T.A., so far without the results they hoped to get. The noble Earl asked me how far we can"go it alone". The Minister of Aviation announced in another place on December 15 that he had decided to authorise B.O.A.C. to introduce economy fares on the cabotage routes—the West Indies, Africa and the Far East—and discussions are being held with the local authorities concerned on the date of the introduction of these services. I think that shows that the whole matter is very much in mind. We appreciate what the noble Earl has pointed out: that low fares are important, if we are to take advantage of the ever-growing desire of people to travel by air and attract them to our lines. The noble Earl asked me whether we were free in regard to freight. Again, I would supply the answer to that question when I have had an opportunity of looking into it. I think that we have had a useful debate. I am sure that my right honourable friend will be grateful for the support he has had in your Lordships' House.

On Question, Bill read 2a, and committed to a Committee of the Whole House.