§ 3.52 p.m.
§ Debate resumed.
§ LORD SHEPHERD
My Lords, the House is grateful to the noble Lord, Lord Chesham, for his careful introduction of this Bill this afternoon. The noble Lord is quite right in saying that the Bill falls into two main parts; that is to say, the provision of new money for the new aircraft which the corporations are buying, and which we hope will be in service on due date, and also the provision of new money to cover the anticipated deficits of both corporations. The noble Lord was quite right to say that during 1961 and 1962 both B.O.A.C. and B.E.A. went through a difficult trading year, but I think it is true to say that that was the experience of practically every major airline throughout the country. In fact, the words "excess capacity" appear in all the reports of airline operations that one sees. International airlines, according to my information, lost on operating account last year, approximately £40 million. But I believe that the overall deficit must have been considerably larger, because this was a deficit mainly on operating account and took no account of depreciation. The depreciation figure for international airlines will, I think, be astronomical when one looks at the fact that operating to-day, apart from all the new jets, are 3,600 piston-engined aircraft seeking trade.
The Government have felt it necessary to bring this Bill forward. It certainly is necessary in regard to B.O.A.C. Before I deal with their accounts, however, I should like to say a word or two about B.E.A. The noble Lord was quite correct that it is for the first time in seven years that B.E.A. have run into a deficit, and I think it is right to point out that they had an operating profit of £852,000 after (and I think this is significant) depreciating their aircraft and their facilities by a figure of approxi- 800 mately £7 million. That, I think, is a remarkable course, considering trade throughout Europe. But it has still left them with a deficit of approximately £1½ million. I understand—and I am very pleased that this is so—that B.E.A. do not now anticipate having to use the new monies provided in this Bill for the current or possible new future deficits. They believe that, the way things are going, what deficit there may be on this year's accounts will be covered by their own reserves. This is very good news indeed.
I think that B.E.A. provide in Europe one of the finest services, and we should pay a great tribute to my noble friend Lord Douglas of Kirtleside, his board and the staff of B.E.A., who, through bad weather and in difficult trading conditions, have produced such a good result My only fear in regard to the accounts—and I am speaking only of my own view—is whether the 1959 Viscounts on the books of B.E.A. have been depreciated sufficiently. My feeling, looking at the overall position throughout the world, is that we are rapidly reaching the stage when there are too many aircraft either on the ground or in the skies. In fact, the position in the air is not, I think, dissimilar to that which has arisen at sea, and also on the rails. There may be some difficulty in finding a realistic figure for these Viscounts, but I hope that we have depreciated them sufficiently.
I come now to B.O.A.C. The noble Lord is quite correct that the Corporation, during 1961 and 1962, have sustained a financial disaster. But, in fairness, I think we should look at both sides of the coin. Certainly B.O.A.C. sustained an operating deficit of £11 million; and taking into account depreciation and previous deficits we have a figure of £67 million. But it is, I think, a case of irony that B.O.A.C., who have consistently over the years improved their efficiency, have improved their performance and output, and have radically reduced their operating costs, should at the end find themselves with this deficit. There are many significant figures that your Lordships can find if you look at the Report; and I would commend to the House the Reports of both B.E.A. and B.O.A.C. They are well worth reading, being full of fascinating information.
801 It is quite clear that on the operational side B.O.A.C. have made great strides. I suppose the real crux of B.O.A.C.'s position is the decision of the board (and for this I think the Government must accept equal responsibility) after the Comet disasters rapidly to expand the airline. They expanded it on the basis of firm figures which indicated a rapid increase of passengers and freight, particularly on the Atlantic service. The B.O.A.C. board made the decision, and they have increased their capacity considerably. But, unfortunately, during 1961 and 1962, as the noble Lord, Lord Chesham, has said, the traffic increase declined, which has meant that B.O.A.C. were faced with the position that their load factor came quite considerably below what is called the "break even" load factor. I understand that even in August, when we were hoping that the position would be better, the load factor of B.O.A.C. was still well below this break-even figure. The figure I have is that the B.O.A.C. break-even factor is 52.4, and at present they are running at 45.7. Therefore, it would appear that B.O.A.C. are still in some difficulties in spite of all the major improvements they have made in their service.
With their new aircraft B.O.A.C. have had to increase their capital. I see that in 1957 and 1958 they were using capital in the region of £58 million. But in 1961–62 this had risen to £112 million. I believe that this is the heart of the problem; that this rapid expansion, both of aircraft and of capital, has resulted in the Corporation having insufficient revenue to cover, not only the operating costs but the interest charges. I believe the Chairman has complained about the rate of interest charged and the structure of B.O.A.C. capital. But I believe it is a fact that 4½ per cent, is about the average interest charged on the monies loaned to B.O.A.C. That is not a very high figure, but I understand that, in spite of a number of very good years of profit-making, they were still short by £1½ million of the interest to be paid to the Government. Therefore, I think the Government must look very seriously at the capital structure of both the Corporations, perhaps especially at B.O.A.C.'s, in much the same way as they looked at the capital structure of 802 the railways. I do not expect that at this stage the Government are ready to say they are preparing to take action, but there has been some rumour that the Government may well be changing the board of B.O.A.C. If that is the case, then is the time to effect a change in the capital structure.
With regard to the writing down of the aircraft of B.O.A.C., both the Comets and the Britannias, hard words have been said as this may well affect the selling of Comets by de Havillands. I think it is right that the Comets now in production, and being bought by B.E.A., are giving remarkable service and are quite a considerable advance on the Comets now flown by B.O.A.C. The Comet—and I am sure that most noble Lords have flown in one at some time or another—is a first-class aircraft. The only difficulty with it is that it came too late to make a major impact on airline business, and its size compares unfavourably with the Boeing 707s. I cannot help but feel that the Comet still has many years of useful service to give, particularly on the Far East routes. I hope that there will be no question of putting the Comet out of service. I believe it has a very big part to play yet.
With regard to the Britannias, again this was an aircraft which was delivered very late to B.O.A.C. They have these aircraft, but at the moment they appear to be not in use or, if they are doing anything, it is some part-lime charter. These aircraft are remaining on the books, and I wonder whether the noble Lord would consider passing these aircraft over to Transport Command. They may not be competitive with the modern jet aircraft which are required for commercial purposes, but I think they would be very useful indeed to Transport Command, who are in fact operating Britannias to-day.
I want to say something with regard to the Air Licensing Board. The Government had the Act of 1960, an Act to which we on this side of the House gave support, particularly to those items which provided closer control over aircraft that are flown and airlines that are to operate. But we were very concerned, as the noble Lord, Lord Chesham, will remember, about Section 2, which was the section which made it possible for this Board to authorise 803 independent airlines to operate on routes that were already provided by our two Corporations. I am afraid that the fears we expressed then have turned out to be justified. Ministers, both in this House and in another place, have repeatedly said that the purpose of the Act was not to create competition for competition's sake. In fact, I think that was the spirit in which this House passed the Bill.
However, immediately the Bill was passed, the independent airlines put in a considerable number of applications. I believe at one stage 50 applications were made for independent airlines to operate on the most profitable routes of B.E.A. There was, of course, the application made by Cunard-Eagle for routes to the United States. This application was considered by the Board, who granted a licence. But B.O.A.C., as it had the right to do, appealed to the Minister. A Commissioner considered the case on the instructions of the Minister and upset the decision, or gave contrary advice to the Minister, that the Cunard-Eagle application should be rejected. In that case the Minister accepted that advice, and the appeal was upheld. But I think it is right to point out that in the meantime Cunard-Eagle had committed themselves to two Boeing 707s.
In the case of the applications to operate on B.E.A. routes, approximately half the 50 applications were granted by the Licensing Board, and I understand the new Minister has rejected the appeal of B.E.A. In other words, so far as B.E.A. are concerned, we now find that independent airlines will be operating on some of their most profitable routes. I think we must take into account the fact that you cannot look at routes in isolation, and the fact that, because a particular route could bear perhaps another aircraft in the week, that does not in itself justify another line operating on that route. When Cunard-Eagle made their application, B.O.A.C. were facing 18 different international lines on the American route, of which 8 came from Europe, through London. It is a fact that at that time the B.O.A.C. load factor was falling seriously, and there is no doubt of the view of B.O.A.C. that a further airline to dilute the trade 804 would have most serious effects upon the B.O.A.C. accounts.
I think the story is perhaps much the same in regard to B.E.A., who are facing very considerable competition in Europe; competition that is growing stronger, particularly through amalgamations and unions. It is equally a fact that their own load factor has fallen and that they are certainly not in a position, unless they are to run into deficit, for any dilution or any material diversion of trade from their line.
I fully accept that it is the Government's case that it is not their intention to have competition for competition's sake, but I would ask the Minister whether he would look at the Report of the Air Transport Licensing Board. They say in paragraph 6 on page 6:As we noted in our first Report, the Act does not provide any positive guidance on policy for the Board to follow in deciding whether or not to grant an application, and it appears to have been the intention of the Legislature to leave the Board unfettered as regards the general policies they should pursue.The absence of a general policy is criticised from time to time. It is quite clear from the Board that they believe that they have been permitted to act within the Act, but that there is no clear policy laid down. Their previous Report shows that they would have liked some guidance, but then one reads in paragraph (d) on page 7:We must interpret the Act as it stands and not by reference to statements made by Ministers regarding its intention or probable effect. We shall continue to rely upon our own interpretation of the Act unless we are overruled by a court of law.I have looked at this Act again and I find it extremely difficult to see how any Corporation would be able to take a case to a court of law on a decision made by the Board. I do not think there is any doubt that there is uncertainty in the minds of the Corporations and also the independent companies as to what the future policy will be in the granting of licences either by the Board or by the Minister, and I would suggest in the present circumstances that it would be well for us to consider a new Act laying down specifically what Parliament really intend on how these licences are to be judged and how they are to be granted.
805 I spoke of the position of B.O.A.C. and Cunard Eagle. It was quite clear that the routes on which Cunard were seeking permission to fly were routes on which B.O.A.C. could not afford a competitor, particularly with the British flag. It says in this Report that, stemming from the uncertainty, both B.O.A.C. and Cunard felt it was necessary to come to a pooling arrangement; which in the end turned out to be the creation of a new company to be known as B.O.A.C.-Cunard. I do not think there is any doubt that both B.O.A.C. and Cunard, particularly B.O.A.C., went into this agreement merely to protect themselves against the possible granting of licences by the Transport Board and because of the uncertainty under which they could not continue to plan and to operate.
We have this new company and there is a series of questions I should like to ask the Minister about it. First of all, the capital of this company is to be £30 million, of which B.O.A.C. are to have 70 per cent. and Cunard 30 per cent. Can the Minister tell me whether all the capital has now been paid by both parties, either by aircraft, facilities or cash? I am still not sure how Cunard-Eagle or Cunard were able to obtain 30 per cent. of this share capital, because, if these had been two private enterprise companies, on the facts and figures available this division would never have come about. Because of the figures I gave in the middle of this year, that B.O.A.C. were operating 27 flights to America per week, 5 flights to the Caribbean, and 5 to South America, and Cunard were operating only 3 flights a week, I cannot believe, if these had been two strong private enterprise companies, that such a division would have been entered into or even contemplated when an agreement or an amalgamation was being made.
However, it has been made, so I should like first of all to know whether this capital has been paid up. And I want to know how this capital rates. Does it rate like some ordinary equity, sharing in the profits and losses that may arise, with no interest or dividend paid unless there is a proper profit at the end after taking depreciation and the like into account? Is it similar to the B.O.A.C. investment in Cathay-Pacific-Malayan Airways? Or is it 806 rated in the same way as B.O.A.C. capital in which there is interest to be charged, and which arises and must be paid for out of the operating account, even if it means at the end of the year that the company will show a deficit or a loss? Because the noble Lord will appreciate that B.O.A.C. capital bears interest whether the Corporation makes a profit or not. I want to know whether the capital of B.O.A.C.-Cunard is comparable to that of B.O.A.C.
The other matter of concern to me is future operations. At the present moment the B.O.A.C.-Cunard Company are operating Boeing 707s and they have been able to do so within the capital structure of the company. But what is going to be the case—and this is where it is very close to the Bill which is under discussion this afternoon—when we have VC.10s at approximately £4 million each? How are the B.O.A.C. Cunard Company to purchase these new aircraft? is this new company going to raise money from the Government by loan? Perhaps B.O.A.C. will be able to out of this Bill. But are Cunard, with their 30 per cent. responsibility for finding new money, going to be able to borrow the funds raised by this Bill? Or is it going to be the case that once the Boeing 707s, the initial contribution to the creation of this company, are depreciated and taken out of service and the VC.10s come in, the B.O.A.C.-Cunard Company to operate the Atlantic service will charter or lease these aircraft from B.O.A.C.; because, if so, it means we are to-day providing public money of which the Cunard Company will have the use because of their participation with B.O.A.C. in this company. I think this question should be made very clear to us.
I have one further point. This is the question of the subsidiaries of B.O.A.C. Last year they lost £3,394,000, taking into account depreciation of aircraft and their accumulated deficits of nearly £14 million. I question whether B.O.A.C. should continue this association with the subsidiaries. The case has been made that they act as feeder services to B.O.A.C. It may be that that is a case. I wonder whether the Government or the Corporation have any details as to how many passengers who fly on these feeder services eventually fly on B.O.A.C. 807 When you book with Malayan Airways or Cathay Pacific, the feeder service is for you to fly B.O.A.C., but you can fly on any other airline; there is no advantage in fare or anything else. I wonder whether it is necessary for us to sustain these yearly losses, because they are yearly losses, by the subsidiary companies.
I have one last point, and this is one which must give everyone considerable concern; that is, the position of the British aircraft industry. The Government some years ago endeavoured to rationalise, to make more efficient, the British aircraft industry. Certain aircraft have sold exceedingly well, the Viscount in particular, and I think here one might well say that perhaps one of the greatest successes in the sale of the Viscount has been its operational use by B.E.A. The success of B.E.A. in using these aircraft has played a very big part in their continued sale overseas. But other aircraft have not done so well. One is disturbed to see that the Australian Airlines, instead of buying the Trident, are now going to buy from the United States. I think a great deal more has to be done to improve the efficiency and capability of the aircraft industry.
Of course this is not the time to consider the question of Skybolt, but if we do not get Skybolt (and I must say this to the Minister) it will not only be important from its having a disastrous effect on our defence policy; it may well be a disastrous point for the aircraft industry, because if bombers and fighters are no longer required, the main Government support for the industry, which has been very considerable over the years, will undoubtedly go. This may well result in considerable chaos and considerable unemployment. I think the Government should look very carefully again at the aircraft industry. If it is to be reduced in size to make it efficient, if there is to be redundancy, then obviously it should be done in a planned phase to reduce all possible hardship. I do not think this is a matter from which the Government can stand apart. I believe they must look and take action before hardship and perhaps financial disaster overtakes a major part of our industry. I hope the Government will do this.
§ 4.25 p.m.
§ VISCOUNT MASSEREENE AND FERRARD
My Lords, in rising to support this Bill, which is, of course, a purely borrowing measure, I do so in the hope that Her Majesty's Government will not have to return to Parliament every three or four years to ask for further borrowing powers, further finance for the Air Corporations. I believe that the inquiry which is being inaugurated by the Minister for Air will put the finances and management of B.O.A.C. on a sound basis. We must hope so. They cannot come back every three or four years asking for £150 million or £200 million, because it becomes far too great a drain on the economy. In the B.O.A.C. Report for 1961–62 the Chairman is reported as having said that "an airline can be no better than its aircraft". I should personally prefer to change that to "an airline can be no better than its management".
§ VISCOUNT MASSEREENE AND FERRARD
It is in the Report of the Chairman for 1961–62. I am afraid I cannot give the exact page. I quite agree that airlines have had a bad year, but some have made profits. I understand that the Australian Airline Qantas has made a 5 per cent. increase in its net profit; Aer Lingus has had £250,000 profit; Trans-World Airlines on their international operations had a £3 million profit. But I quite agree that their balance sheets may hide certain things, and perhaps it is not quite a fair estimate. I have heard it said that our Corporations have had unsuitable aircraft imposed on them. I do not think there is any evidence to support that view at all. I would fully support, and I am sure everybody in your Lordships' House does, the Corporations' desire to buy British aircraft. It is obvious that it must be a great advantage to the Corporations to have the first use of aircraft that are designed to their requirements. I really cannot agree with some of these people who write in the newspapers. To read their accounts one would really think that they were working on behalf of the American aircraft industry. I think that that is deplorable.
809 On this subject of our aircraft, may I say that, as we have heard, B.E.A. have been eminently successful primarily with British aircraft, and particularly the Viscount. It is true that they have incurred a marginal loss this last year, but that is, I think, chiefly due to extraneous circumstances. We are also told that they are going to have a small deficit next year; but I am told that that is owing to the fact that they are going to have to prove the new Trident. So I do not think we can really blame B.E.A. at all. Same people say that it is easier to make a profit on a short haul rather than on a long haul; but I personally should think that it is harder to make a profit on a short haul, because surely there is far more handling of the aircraft on the ground in refuelling and servicing.
I should like here to pay a tribute, as did the noble Lord, Lord Shepherd, to the noble Lord, Lord Douglas of Kirtleside, for his chairmanship of B.E.A. We all know of his fine war record; but he has also done an extremely good job, over the last ten years or so, with B.E.A. We can only hope, as I am sure will happen, that the advent of the Trident will change the whole picture as regards B.E.A. I should also like to pay tribute to the extremely high safety standards of both Corporations. Often I hear Americans say that they would rather fly with B.O.A.C. across the Atlantic than with any other airline. That is a great tribute to the safety of our Corporations. But perhaps the fact that we take such safety precautions may affect the profit margin. I have not checked that at all; but perhaps it is so.
The Corporations have this extremely large loss of £67 million, and it is a serious matter. They have their stories of bad luck. It was extremely unfortunate that the Comet I had a particular disaster which put B.O.A.C. behind by about four years. But I think we must have had some bad planning also. I understand that the aircraft originally ordered for B.O.A.C.—the Britannia, the D.C. 7C's and the long-range Comet—were supposed to last for seven years. Now apparently they are being written off after five years. That is one reason for these bad accounts. I cannot understand why this depreciation has only just came to light in the accounts of B.O.A.C. 810 The Corporation must have known about it, for two years at any rate. Surely it is not possible—it is, of course, laughable—that they can have been issuing "cooked" accounts. It seems odd that this depreciation has only just come to light. I cannot understand it. While I can forgive B.O.A.C. for making a loss, if it was owing to helping our aircraft industry, I cannot forgive the Chairman for saying that it is "bloody crazy" for the Corporation to have to pay interest on its capital.
§ LORD SHACKLETON
My Lords, would the noble Viscount allow me to ask on what authority he says that the Chairman said that? Would he quote exactly what the Chairman of B.O.A.C. said?
§ VISCOUNT MASSEREENE AND FERRARD
I saw reported in the Press that he said that he thought it was "bloody crazy" that the Corporation had to pay interest on the money it borrowed. That is what I have read in the Press.
§ LORD SHACKLETON
If the noble Viscount is going to make statements about public servants who cannot answer for themselves, I think he ought not just to rely on Press reports, but should go back and find out exactly what was said. I will do so later, and I will tell the noble Viscount that he is wrong and unfair in what he has said.
§ VISCOUNT MASSEREENE AND FERRARD
My Lords, I am sorry if that is not so, but I certainly read it in, I think, three papers. The point is that I cannot agree that nationalised industries should not have to pay interest on their capital. Neither can I agree that their capital should be written off, as has happened with the £400 million in British Railways. After all, how does private industry feel about that? We have to pay our interest and make a profit to pay taxes in order to support the nationalised industries. So I do not think there can be any question of the Corporations getting out of paying interest. I think it is iniquitous. The point that I am anxious to make concerns the question of waiving the interest and writing off the capital. Looking at the figures, I would say that even if B.O.A.C. had not paid any interest, they would still have a deficit of £32 million; so whether they have paid interest or not, they are still "in the red".
811 I have also heard it suggested that the Corporations ought to merge. Since so many aircraft flying from America to Europe land in Paris or in other European capitals, there is probably something to be said for this proposal, because if they were merged some of the short-haul routes now operated by B.E.A. would become merged with the long-distance routes. That suggestion, however, requires a good deal of investigation by experts, and perhaps the time is not ripe at the moment. The 1958–59 Select Committee on the Nationalised Industries came to the conclusion that it was preferable to concentrate on coordination; but I personally think that by far the most important thing at the moment is to concentrate on finding out what is wrong with B.O.A.C. There must be something wrong, otherwise they would not lose some £60 million.
My Lords, I feel that I have spoken long enough, because the House has a good deal of other work to do. I should just like to point out again, on the question of the waiving of interest, that if I were to go to my bank manager and say to him, "I do not think I need pay any interest on my overdraft", he would think that I was "bloody crazy." In my view, Her Majesty's Government will have to stand firm on this question of nationalised corporations getting these huge sums of money from the public and being able to write them off and forgo paying interest. It is the thin end of the wedge, and if this habit increases it can end only in a general depression of the standard of living throughout the whole country—something that I should deplore. My Lords, I support the Bill, it is an extremely simple Bill, a borrowing Bill, and I sincerely hope that the efforts—which I think are the right efforts—of Her Majesty's Government to solve this problem of B.O.A.C. will have the desired effect.
§ 4.45 p.m.
§ LORD OGMORE
My Lords, I should like to say a few words on this Bill, as one who takes a considerable interest in both Corporations and who, this year as in previous years, has had the pleasure of being a customer of theirs in travelling about the world. Let me say here and now that, whenever I can, I always travel with one of the two 812 Corporations, as I believe that they are the finest airlines in the world. Speaking for myself, I do not mind about the quality of the champagne. What I am concerned about when I fly in aircraft is getting to the other end in one piece; and there are no airlines in the world that will do that better for you than our two great Corporations, B.O.A.C. and B.E.A. I should like here and now to congratulate the noble Lord who sits on my left, Lord Douglas of Kirtleside, and his staff of B.E.A., and also the Chairman and staff of B.O.A.C., for keeping the British flag flying in the air in most difficult times during the past year.
The Minister said to-day that we must try to improve the results of the two Corporations. The noble Viscount who has just spoken (and he spoke, I thought, in a rather depressing way) asked: What is wrong? The airlines of course, fly their aircraft in the air, but they must have a great deal of help, both international and national. They cannot determine the circumstances in which they fly; nor can they determine the climate of opinion in the world. They are under the most severe competition the whole time: often they have to face highly subsidised competition. We must, therefore, give them all the support we can—and I am not sure that we always do.
Let us take some tests. The Minister to-day referred to the question of the Highlands and Islands services. I have not asked Lord Douglas of Kirtleside about this matter, but I am quite sure that, if one were to ask him, he would say that having regard to the cost of modern aircraft, and the expenses of running an airline, no airline in its senses would try to operate services to the Highlands and Islands on a commercial basis. I think it is a fact that no one would do it. But B.E.A. have done it—not, of course, as a commercial enterprise, but as a social service. And for years past, B.E.A. should have been given a grant—not a subsidy—for that social service: that ought to have been done years ago. I was very pleased to hear the Minister say that the Government are now reviewing that situation, and I hope that we shall soon have a belated decision from them on this score—because it is a belated decision. 813 I am all for this service; it is an essential sort of service which the community ought to provide for those who live in the Highlands and Islands. I only wish that we could do far more of this in the Highlands of Scotland, in mid-Wales and in other places. I do not want it to be said that I am against such a service, because I am all for it. But, as I say, it is we, the community, the richer part of the country, which should bear the cost of that service, and not B.E.A.
The second point, upon which the noble Lord, Lord Shepherd, touched, is the question of licences to private airlines. As the noble Lord quite rightly said on the Licensing Bill, he and I—and, I expect, others—raised doubts about this. We pointed out that if there were airlines, like B.O.A.C. and B.E.A., which had to provide a regular and scheduled service it was a very dangerous thing to allow competitors to come in and scoop the cream off the market. And that is what very often happens. I am all for competition; I like it, and I think it is a good thing. But it must be fair competition. Moreover, these two Corporations already face plenty of competition. One must not expect the main contractor to run a service all the year round if a competitor comes in and runs a service only on bank holidays and in the summer, when there is great competition for the service.
What happened? I quote here from what the noble Lord, Lord Douglas of Kirtleside, said in his own publication; and apparently what happened was this. After decisions had been given by the Licensing Board, B.E.A. appealed to the Minister, but the Minister confirmed all the Licensing Board's decisions except two. He revoked the licences given to B.U.A. on the London-Zurich route, and to Cunard-Eagle in respect of the London-Geneva route. The noble Lord, Lord Douglas of Kirtleside, ended up by saying thatTime will show whether our warnings about the effects of the diversion on this country's air transport effort were well founded. Now that the decisions have gone against us, it is up to us to meet this additional challenge, and to try to mitigate the effect on B.E.A.'s economy of the diversion of revenue which the award of these licences is bound to involve.The noble Viscount, Lord Massereene and Ferrard, was talking about what is 814 going wrong. Here is one case in which revenue is being lost. It is no fault of B.E.A. If you put a lot of competitors on their routes, you must expect that they are going to lose revenue. You cannot have it both ways. I am not saying that the Licensing Board were wrong, and I am not saying that the Minister was wrong. All I am saying is that the natural result of the decisions is that B.E.A. are bound to lose revenue; and the same will apply to B.O.A.C.
Take a third test. Year after year the Government have pressed the Corporations, particularly B.O.A.C., to buy British. We have heard the warning given to-day by the noble Lord, Lord Shepherd, on what is going to happen to the aircraft industry if Skybolt is dropped. I can quite appreciate his anxiety; and it must be a terrible anxiety to the aircraft industry. But it is that sort of anxiety which the various Ministers at the Ministry of Transport have always tried to press upon the aircraft Corporations. They have said, "You must, if possible, buy British". The Corporations being British, they want to buy British if they can; but it does not often give them the right choice. It has happened that the best aircraft for a particular service has been a foreign aircraft, maybe an American aircraft. I think that from time to time the British Corporations have had to pay quite heavily for their decision to fly British aircraft. Here, again, they were not free in the way that an ordinary commercial operator would have been free.
Again, they have often had to test these aircraft and bring them into service after an enormous expenditure. I remember, for instance, the amount of trouble they had bringing the Britannia into service, because the engines were cutting out due to icing. Eventually, in order to find out what the trouble was, they had to put television sets into the engines to test them. They finally found that the trouble was dry ice. But all this took a long time; and of the expenditure involved, a considerable proportion was borne by the company. We had the first Comet, which has been referred to by the noble Viscount. That first Comet involved an enormous amount of expense, not only in money, but in time spent by B.O.A.C. and by Sir Miles Thomas himself. It failed but, as we know, through 815 no fault of B.O.A.C. and no fault of the makers. It was a new phenomenon at those heights; but all of that was lost.
Now we come to the supersonic airliner, and this is where international affairs affect aircraft. If we are going into the supersonic field, it means that a great number of the present aircraft will have to be written off long before their real life has expired. In answer to the noble Viscount, Lord Massereene and Ferrard, that is one reason why there are these great losses—because aircraft in the modern competitive field, especially across the Atlantic, are never allowed to live out their economic lives. They are always succeeded by something bigger and faster, before they can live out their lives. As regards the second-hand market for aircraft, I think it has improved a little recently, though it has not been good. This, again, is no fault of the Corporations; this is an international factor. The international airlines have never been able to agree on it. But here again the Corporations have had to suffer, and will suffer still more, of course, if these supersonic airliners come in and cause many of the present aircraft to be thrown out.
As a matter of fact, I think I am right in saying that although B.E.A. made a loss last year, this loss has been made good, as it were, from their reserves; so no part of that loss falls on the taxpayer: they recouped it. And they still have £4½ million in reserve. There are very few companies, either private enterprise companies or State Corporations, which can go year after year without ever making a loss in such a highly competitive field. In my view, B.E.A. should be praised for the way in which they have made a profit year after year, and I do not think we should jump on them in the one year In which, owing to the climate of the industry, they have made a small loss which they have recouped from their reserves.
The noble Lord, Lord Shepherd, was not quite right in criticising these associated companies. Some of them may make a loss, but some of them at least make a profit. I should like to refer here to the East African Airways, because it is a corporation with which I have myself flown this year, both in East Africa and from London to Entebbe. The East African Airways, with which B.O.A.C. 816 is associated, had a record year this year, increasing their revenue by more than 13 per cent. over 1960, which was itself a record year, to £4,925,785, and for the eighth successive year the corporation made a profit. This time it was £263,927. The assets exceed liabilities by some £1,355,000. We all say that that is a very profitable airline, and I should like to except it from the wholesale condemnation given to airlines of this sort by the noble Lord, Lord Shepherd. They run not only in East Africa, but also, as I have said, from London to East Africa by arrangement with B.O.A.C.
There are one or two other points which I should like to make. First I should like to congratulate our Welsh airline, Cambrian. I think B.E.A. has a 30 per cent. interest in Cambrian, and they are a first-class little airline. They have gone through tremendous difficulties over the years, and have had very little help from anybody. I think the turning point came when B.E.A. took a 30 per cent. interest. They now operate to a large number of places, not only in this country but overseas. Last year they made a profit of £35,558, and a total dividend of 8 per cent. is being recommended. I should like to congratulate Cambrian Airways and also B.E.A., on what is a first-class result for this small but enterprising airway. I am particularly pleased, because only a few years ago it seemed that Cambrian would have to close down and that we should not have the Red Dragon, the symbol of Wales, flying in the sky, either physically or on an aircraft.
My Lords, may I say in conclusion, on behalf of my noble friends on these Benches, that we wish both the Corporations the best of success in the coming year and throughout the years to come. They may be assured that in all reasonable and proper ways we will give them every support we can.
§ 5.0 p.m.
§ LORD SHACKLETON
My Lords, so many encouraging, friendly and admiring remarks have been made about B.E.A. and my noble friend Lord Douglas of Kirtleside that I do not think I need talk about them beyond saying that, having been a staff officer on his staff during the war—and I correct the noble Viscount, Lord Massereene and Ferrard: he was in both wars, and he 817 had a very distinguished war record in the first war—it has been no surprise to those of us who knew him that he should have achieved the success that he and his Corporation have. Perhaps I might even reassure my noble friend Lord Shepherd on the question of writing down the value of Viscount aircraft. I am told that the noble Lord, Lord Douglas of Kirtleside, has in fact succeeded in selling some of his Viscounts for a sum considerably mare than the written down value. These seem to me to be very successful commercial operations.
My remarks will be mainly devoted to the position of B.O.A.C., the problems that confront it and the way in which I think we ought to think about it. I must say that I regretted the speech of the noble Viscount, Lord Massereene and Ferrard, which seemed to me to show a certain hostility based on an inadequate appreciation of the facts and, in particular, on one misquotation or misinterpretation which had also previously been uttered by the Minister of Aviation in another place—but I will come to that. I should like just to set a little of the background in which B.O.A.C. and B.E.A. have to operate. Under the various Acts under which they operate, the object of these Corporations has never really been properly stated. It is not quite clear whether they are to make money, although in the context it is clearly intended that they are not meant to make losses. B.O.A.C., in its modern form, was set up, and its capital construction was established, against a background of cheap money and monopoly—and that position has certainly altered. But the real difficulty is; what do we expect our public Corporations to do? Do we expect them merely to operate commercially, in which case we should not have a civil aircraft manufacturing industry? Do we expect them to serve British interests overseas, in which case we must expect to have losses? Are they in fact expected to help foster underdeveloped areas? These, are clearly the sort of matters which the members of the board of B.O.A.C.—and this is where they have to take the decisions—must take into account.
Certain consequences flow from this, and I should like to suggest that B.O.A.C. and B.E.A. do have a responsibility and 818 a definite obligation—and the noble Lord, Lord Ogmore, who has been actively concerned with civil aviation, has already indicated this, and I am sure will support me in it—to buy British aircraft even if their sheerest commercial instincts would lead them to buy another kind of aircraft. They have, of course, borne the cost of the development and the introduction of new aircraft, and it is interesting, looking at the Report of B.O.A.C., to find among the figures certain costs which any line not responsible for developing these new aircraft would not have to encounter. There is a figure given of about £5 million as the extra cost for the Comet, and there are other figures—another £2 million, I think the total figure is—in relation to the Britannia. These are things which are done in the British interest and in the national interest, and it must be recognised that the Board of B.O.A.C. have consciously taken this course.
Furthermore—and here I am sure the noble Lord, Lord Douglas of Kirtleside, would agree—in addition to their success and their efficiency B.E.A. have been more fortunate with their aircraft. The Viscount has been a success from the beginning; whereas the B.O.A.C. has had a long line of difficulties with their aircraft—the Tudor, the Hermes. I remember a deputation of shop stewards waiting on me when I was a Member of another place demanding that pressure be brought on the nationalised airline to buy Tudor aircraft. I remember there was a telegram from Sir Roy Dobson, also. This was fine co-operation within the industry—although the Tudor did in fact belong to what was then, I believe, British South American Airways. But there have been very heavy expenses, and not all the aircraft have been successful. There was the particularly tragic outcome of the Comet; then we had the Britannia, for which no engine was available when the time came; and, admittedly, there was a miscalculation on the economics and profitability of jets. This is the one major error which has been made, not only by B.O.A.C. but by Her Majesty's Government and by other airlines: that the life of the turbo-prop aircraft, the Britannia, would be very much longer—something, like eight years rather than four. Then, B.O.A.C. have lost their sabotage routes. There have 819 been those emerging, independent countries, each insisting, largely because of prestige, on having their airlines. And the result of all this is a loss of £64 million.
I should now like to deal with some of what I think is the grossly unfair criticism for which the Government are responsible. I really consider that in this matter—and I do not often take quite such a strong view of these matters—the Government have done a disservice, and I hope that when the Minister comes to reply he will set the record straight. The first point is this statement which the noble Viscount, Lord Massereene and Ferrard, also made—but I excuse him here, because the Minister had said it previously. The Minister said [OFFICIAL REPORT, Commons, Vol. 666 (No. 6) col. 814]:What I cannot accept so easily is that the depreciation in the value of the Corporation's aircraft fleet has only been fully revealed this year. This is not a situation which has come up upon us in the night. It has been building up for two or three years past; and in any business efficient management must call for a clear understanding and a clear presentation of the balance sheet".If I may say so, that is an admirable statement but is absolute rubbish when made by the Minister, in view of the interference of his Ministry in this matter.
I should like to give the House the facts. In 1951 B.O.A.C. proposed to amortise at a very much faster rate. There was criticism of this: it was suggested that they must just be watchful; and realistic figures were put in. In their 1958–59 Report, they attempted to write down the values of their DC.7Cs, but they were stopped from doing so by Mr. Watkinson. The auditor appointed by the Minister recommended this, as was perfectly proper, just as would the auditor to any business recommend what are the proper figures. Then in came the Ministry accountant and prevented it (perhaps for a political reason of some kind; life was not very easy for Mr. Watkinson at the time), and they were told by the Minister of Transport. I suspect illegally, that they should not do so. In 1961, they put a note in saying that they expected these aircraft would have to be written down. Now how could the Corporation have "come clean" except in the accounts? What is 820 the point of publishing accounts and then having a statement saying, "We ourselves do not believe them, but the Minister has prevented us from doing the right thing"? I hope that this investigation by the special investigator, the accountant appointed by the Government, will reveal these facts, because it really is doing no good to the public interest if we are misled in these matters. I should like to hear from the Minister whether he wishes, in fact, to deny or confirm them. I can only conclude that the Minister of Aviation, for whom I have a very strong personal regard, has been misled, but he must take the responsibility for these statements.
The next thing is that the suggestion was also made by the Minister of Aviation that no pressure has been brought to bear. Here he said:It is sometimes suggested that B.O.A.C.'s participation"—and this is apropos the subsidiaries on which they have lost money—has been inspired by the Government for reasons of foreign or Commonwealth policy and I have done my best to look into these allegations. Frankly, I believe they are unfounded.Here is the Select Committee Report of 1959 on Nationalised Industries. It says:Although the Minister has no express statutory control over the Corporation's capital expenditure they always seek his approval and that of the Treasury for orders of aircraft, and these amount to 80 per cent. of their total capital. They have agreed not to open new routes without the Minister's consent. They fly on various routes, domestic or international, because he asked them to, and they lose money on it. They seek his approval for all fares and rates on non-international routes. They refrain at his wish from keeping aircraft specifically available for charter work; they come to him for permission before creating or investing in subsidiary companies.My Lords, the Committee has a number of remarks to make on this.
§ LORD CHESHAM
I hope the noble Lord will forgive me, but he has gone into such a rash of quotations and reports that he has confused me for the moment. I was not with him in the last report from which he quoted about what the Minister calls to be done. Would he just re-check?
§ LORD SHACKLETON
I am sorry. I have, of course, been quoting mainly from the Minister of Aviation's speech in another place. The particular quotation I have just made—and I am sorry 821 I was not clearer—is from the Report from the Select Committee on Nationalised Industries, Reports and Accounts, May 14, 1959, and it is made perfectly clear there that the airlines do in fact take orders and indeed have pressure brought on them. I am quite sure that if the noble Lord, or any other noble Lord, were to ask Mr. Watkinson, who was then Minister of Transport and who is an honest man, he would be the first to admit that pressures of this sort have been brought to bear.
This brings us back to the statement Sir Matthew Slattery is alleged to have made. The Minister of Aviation said in another place:It seems to me the Corporations have been concerned first and foremost with arriving at a sound commercial judgment. I have been able to find only one instance on record where B.O.A.C. were persuaded to act against its commercial judgment on grounds of national policy. This was in respect of Kuwait Airlines".If you are trying to run a public Corporation in the public interest it really is not reasonable always to expect a certificate in writing from the Minister that what you are doing is against the commercial interest. Very properly, nationalised Corporations—and there will also be private industries—will occasionally undertake things not in their commercial interest and they do not expect a certificate and nor necessarily is this the certificate they would have to produce to Lord Massereene and Ferrard's bank manager. If he were asked to do the sort of things by his bank manager that we are asking the Corporation to do, these results would happen, and he of course would be forced to refuse or to ask to be underwritten. This is what, in fact, Sir Matthew Slattery said. I have read these Reports and I have in fact got a verbatim report of the Press conference. I am sorry to take the time of the House, but I want to put the picture perfectly clearly. What he said was:I think it is quite right the Corporation should try to buy British aircraft. It was right that they went in to help industry to develop new types and paid the penalty. I am not criticising the fact this was done, but stating it is a fact and pointing out that it cost the Corporation a lot of money. What was and is completely wrong at the present time is that when the Corporation is required or expected to do something not wholly commercial, it gets nothing for it; there is no balancing item on its account. Worse that that, 822 when it has lost a loss of a considerable sum of money as a result of doing this, at present it is expected to go on paying interest on this until Kingdom come. This is crazy finance.He then went on to describe another nationalised airline where the losses were calmly written off annually by a grant in aid, and he said on this point:This has not happened to the Corporations and the day of reckoning has got to come. If you go on piling up deficits of this sort as a result of non-commercial activities and pay interest on them, there must come a time when the books do not balance.I am sure that any noble Lord in business will realise that if you do things which are commercially unsound, in the end your books do not balance. He also said:I have taken the opportunity at the end of my first full year as Chairman of the Corporation of pointing out that I think the financial structure of the Corporation, and the way it is expected to operate is just bloody crazy".And this seems to be a fair comment—and a very unfair comment by the Minister of Aviation when he said:Sir Matthew has asked that past losses should be written off. I cannot see any good reason why the Corporation should be specially exempted from the servicing of its borrowed capital.He said, again,What I tried to indicate was that to dismiss as 'bloody crazy' the idea that one should pay interest charges on borrowed capital was not something which commended itself to me.My Lords, I think an apology is owed to the Chairman of B.O.A.C. The facts are there; they were available. The Press may not always gat things right, and clearly they choose the juicier bits, but it was a statement made in a Press Conference, very properly, in my opinion, which related to the special activities of the Board. One thinks of the Board of B.E.A. in regard to the Highlands and Islands Airline, to which the noble Lord, Lord Ogmore, referred. And when they are landed with this position not only noble Lords but also the Minister in another place get up and criticise the action of the Corporation in these respects. I think we ought to try to be a little fairer.
This is not good for morale in the Corporation. They are still handicapped from undertaking certain operations that they would like to do. They are not allowed to go in for charter work. Troops 823 have to be flown out to the Far East. There are vacant spaces in aeroplanes, on British B.O.A.C. lines, and it would be perfectly possible to get a price as cheap as is obtained from chartering independent aircraft. I understand why the Government do this. I do not regard this as purely private enterprise prejudice on their part. They are again in favour of providing this steady work. But you cannot expect a nationalised airline when it is in fact prevented from operating commercially and is compelled to do uncommercial things, to end up without possibly making a loss.
I think we also ought to look at the gain that comes from these particular activities. The noble Viscount, Lord Massereene and Ferrard, said that this is too great a drain on our economy. If we look at the economy as a whole and at the value of the nationalised airlines, I should have said that we cannot afford not to do this. It is essential that we should do it, first of all because of the British aircraft industry. At the end of the war, there were 2 million people in the aircraft industry. That number has now shrunk to about 200,000. Some of the industry works on defence, but there is this very important civil work, and in the last ten years the value of exports of British aircraft—which, of course, include a large amount of military aircraft—has come to £592 million. This is one of the indirect gains we get from fostering an industry.
Over these years, B.O.A.C. have lost £65 million, but they earn in a year £65 million in foreign exchange, which, even when balanced with overseas expenditure, which is pretty heavy, means £30 million of foreign exchange to this country. In addition, somewhere around 78 per cent. of passenger tickets are bought abroad with foreign exchange. This is an important strength to an economy which, as we know, is plainly bedevilled by the balance-of-payments situation. Against this background, I think that we ought to be grateful that the results have not been worse, especially in the light, I would have said, of the improper action of the Minister in putting his views to the boards of a nationalised industry.
Noble Lords, including my noble friend Lord Shepherd, have referred to the Air 824 Licensing Act. We were given solemn assurances by the noble Viscount, Lord Mills—and we took him at his word—that he did not calculate that it would harm the British flag carriers, the two great Corporations. And I still believe that the noble Lord was perfectly sincere in what he said. But there is evidence here to show that, though it has not gone too far, the granting of licences, especially on the more profitable routes, is bound to affect the profitability of the Corporations. We ought to realise, however, that while important criticisms of the B.O.A.C. can be made in regard to certain aspects of management and engineering (I do not know the details and I am not competent to criticise) there are few firms of which one could not make serious criticisms. However that may be, these Corporations are a great national asset. Their Reports are read by every airline and are regarded by foreign airline operators as textbooks, not only on how to give information and in honesty of reporting, but also on how to think about modern airline operation. I hope that we shall find a more sympathetic attitude from the Minister of Aviation than his speech would suggest. I hope that we shall not indulge in these boring private versus public enterprise battles over the Corporations, which are an established part of our national wealth. I hope very much that when the noble Lord, Lord Chesham, comes to reply he will set right the record which was so grievously miswritten by the Minister of Aviation in another place.
§ 5.25 p.m.
§ LORD CHESHAM
My Lords, this definitely is the opportunity for me to do just that, but, if the noble Lord does not mind, perhaps he will allow me to come to it in the logical arrangement of events. Your Lordships have landed me with a fairly formidable task to perform, and if I spend a little time in replying, I hope that your Lordships will forgive me in the interests of trying to cover the majority of the important points that have been raised. I wonder whether it might help the noble Lord, Lord Shackleton, if I say that the quotation for which he was searching, about an airline being as good as its aircraft, he will find in the B.O.A.C. Report, 1961–62, Chapter 3, page 24.
825 I was glad to hear the tributes which have been paid to B.E.A. Their performance has been very good, as most noble Lords have agreed. The noble Lord, Lord Shepherd, said he understood that the loss they would make in the ensuing year would be met from reserves. That may be so, but I cannot say at the moment exactly how their accounts will be presented for the next year. On the question of whether depreciation is adequate or not, may I say that I have no reason to think that it is otherwise than adequate. The noble Lord, Lord Shackleton, mentioned the fact that the Corporation had sold a number of Viscount 700.s and made a profit on their written-down value. I think that that must indicate that they are fairly well on the right lines in regard to the level of charging depreciation.
The noble Lord, Lord Shepherd, referred to difficulties that B.O.A.C. were in because of too rapid expansion. Had it not been for unforeseen factors, such as the tragic disaster which overtook the Comet—and the decision to go ahead with it was a sound and right decision at the time and would have put the B.O.A.C. in the forefront of modern operators—and the remedial action of buying D.C/'s to fill the gap, these difficulties would have been overcome.
I want to turn to what the noble Lord, Lord Shepherd, said about the capital structure of B.O.A.C. I would leave aside any consideration of the other quotation which has been under discussion—I would prefer to leave it to the noble Lord, Lord Shackleton, and my noble friend Lord Massereene and Ferrard to work that out between them.
§ LORD SHACKLETON
My Lords, before the noble Lord leaves that completely, may I ask whether he realises that it was the Minister of Aviation whom I was quoting and not the noble Viscount, Lord Massereene and Ferrard? I am suggesting that he should correct the record on behalf of the Government.
§ LORD SHACKLETON
I do not know whether we are on the same point. Is it in regard to Sir Matthew Slattery's statement about the writing off—the "bloody crazy" statement?
§ LORD SHACKLETON
It was the Minister of Aviation in another place who in fact misinterpreted Sir Matthew Slattery and suggested that what he was referring to was the service of the interest on the money borrowed generally, whereas Sir Matthew was relating only to these special operations.
§ LORD CHESHAM
Very well: if the noble Lord would like it, we will deal with that point. I am sorry that I found difficulty in following exactly what the noble Lord wanted in that connection. We know what was said and where it was said; at least those two things are established. I think that his words as they were used, or as they were reported, were open to misinterpretation. At any rate, let me say this. Sir Matthew certainly tried to make it clear that what he regarded as crazy was that B.O.A.C. should pay interest year after year on losses that he claimed to have been forced upon them. I think that has become abundantly clear. It is difficult to say categorically that B.O.A.C. have been required or forced to do anything against their commercial judgment, except possibly in their association with the Kuwait Airways. So if this is what the Chiarman meant by that, it would not seem to be a very large matter and seems to be one to have merited rather less attention than it has in fact had, perhaps because of his forceful choice of expletives.
That leads logically to the question of capital reconstruction. The noble Lord asked me about what might be done, he alleged, on a possible change of Board, about which I know nothing, but I can certainly take his point just the same. By that he means, I take it, to write off some portion of the accumulated deficit. What would be the effect of it? It would certainly relieve B.O.A.C. of interest payments on the capital that has been lost. That is an obvious matter. As the noble Lord, Lord Shackleton, pointed out, it is certainly a factor that when you have a better chance of success it improves morale. That it would be likely to do, and I would not say that in due course it is not a point that might well have to be actively considered. It depends how things go. But I do not think it would of itself cure B.O.A.C.'s fundamental problems. My right honourable 827 friend in another place referred to it as tinkering with the thermometer—if you alter the scale on the thermometer it reduces the temperature reading, but it does not cure the patient.
I do not think that this is a matter to be decided until we know more from the result of Mr. Corbett's investigations into B.O.A.C., and until we know or feel more certain of what steps should be taken to put B.O.A.C. on a sound financial course. I think that is how we should view this matter at the present time.
§ LORD SHEPHERD
My Lords, may I say, just to get the record straight, that when I was talking about capital structure I was thinking not only of the question of deficit but the initial capital on which B.O.A.C. are operating? At the moment, all their capital and borrowings sustain interest from the beginning. Considering what B.O.A.C. can reasonably earn and what they are now paying in interest, I think it might be better if the initial capital or the capital that is set aside for the Corporation were treated, as is done in the majority of airlines, as equity, sharing in the profits as and when they arise.
§ LORD CHESHAM
I am glad the noble Lord has said that, because I should not want there to be any lack of clarity about the matter. All I would say is that he has brought in (which I did not understand him to do before) this question of equity, which raises a rather different aspect. Certainly one can see how it would be advantageous to B.O.A.C., in that they would not have to pay interest or dividend or whatever you like to call it in bad times. But where I think it is difficult is that I do not believe B.O.A.C. in their present state would attract equity capital from the market.
§ LORD CHESHAM
In that case, it seems to me that if the Government 828 take the equity it amounts to nothing more nor less than a concealed subsidy from the Government. If one were to contemplate that sort of thing, I think consideration should certainly be given to whether it should not be an open subsidy rather than to adopt a move of that kind. While the noble Lord has made himself quite clear, I still feel that what I said was right and that this is not the time—apart from advancing opinions as to what should be done, which we all have—to come to a decision until we know just what it is we are talking about.
While I am mentioning Mr. Corbett and his investigation, I may say that at some time a point arose that he might find effects of policy or Government action or something of that kind. If there is something of that kind to find, then he must find it; and if there is something wrong with B.O.A.C.—I do not for one moment admit that there is—that is due to some kind of policy or alleged enforced action of some kind (I shall come back to that later on), then he must find it: because the object of the inquiry, as I have said, is to get B.O.A.C. on a sound financial course. So it must be.
The noble Lord, again talking of aircraft, mentioned the Comet, and he put in a plea for the Comet. I am sure that B.O.A.C. will go on operating their Comet fleet as long as they possibly can. But I want to remind the noble Lord that the Comets which B.O.A.C. are now writing down more rapidly are not the same as the 4C, which is still being manufactured and finding quite a lively market around the world. So we are not pushing a good aeroplane out of the sphere of the industry. The noble Lord then made a suggestion about passing the Britannias to Transport Command. I have no doubt that he will not expect me to accept them on behalf of Transport Command this afternoon; but I am sure, as he said, that they are aware of the situation. The Britannia 312s are still in service; it is the 102s that have been removed.
Now we come to the matters raised on the Air Licensing Board, and in particular to the plea put in by the noble Lord that there should be a fresh Ball upon the matter in order to produce a policy. By the way noble Lords opposite 829 have gone for the matter, it sounds almost trite for me to repeat the argument about not competition for competition's sake. I think that is well enough known for me not to have to do so. Instead, I am going to point out that this Board of distinguished men was set up in order to encourage the operation of the British civil air business. If you have an industry which is dynamic in a world where flexibility is of some value, because it is a dynamic industry it seemed that an independent quasi-judicial Board of this kind was the right way to decide on applications for routes which were made by operators of aircraft, whether they be nationalised or private operators.
I would ask this. If such an independent tribunal is going to operate and function as it should, how can it use its judgment and its independence of thought if it is completely hedged round with legal requirements as to what it shall do? It is already hedged round to a certain extent, because the Act lays down what they are trying to achieve, and, indeed, some of the criteria that they should take into consideration in coming to their decisions. I do not think there is any question of people being able to come along and, I think the expression used was, "scooping off the cream", because rather in the way that the Licensing Board of Road Transport operates, they must have regard to such matters as what will be the diversion from other airlines, what is the need, what are the existing facilities, and so on. I should have thought that that would have safeguarded the position sufficiently to enable the Board to carry out their operations properly, without the necessity for a further Bill to indicate to them exactly the brackets within which they should work.
§ LORD SHEPHERD
My Lords, may I draw the noble Lord's attention to the paragraph I read? It is to the effect that the Board will interpret the Act as it stands, and not by reference to statements made by Ministers regarding its intentions or probable effect. In other words, the Board are carrying out what they interpret the Act to be. They are making decisions which are obviously not to the public interest. I think it is a question of putting the Board straight.
§ LORD CHESHAM
I do not think that that statement is a very wrong one for a Board of this character, because I would stress again that it is an independent quasi-judicial Board. It is not the tool of the Minister, if you like it to put it that way, or something of that kind.
§ VISCOUNT ALEXANDER OF HILLSBOROUGH
My Lords, I must point out that the Government introduced the whole business of setting up this Board. We prophesied at the time that it would be inimical to the interests of this great series of nationally-owned capital and equipment, and yet the noble Lord seems to persist now in defending the action as if it does no harm to the traffic of the nationalised fleets.
§ LORD CHESHAM
Of course, this is no surprise, because I knew the view that the noble Viscount and his colleagues took at the time. It is inevitably one that they would have taken. But I still make the point that I know it was the Government who set this thing up. But they did not set it up as a creature of their own; they set it up as an independent Board to adjudicate upon these matters. I do not think that the view that, in the circumstances, it is up to the Board to interpret the Act, is an improper view for a tribunal of this kind to take. Moreover, there is a right of appeal.
§ VISCOUNT ALEXANDER OF HILLSBOROUGH
My Lords, may I point out that, if that is so, what it means is that they may repudiate, in fact, by their method of examining the matter—they may be quite right from a legal point of view—the kind of promise made during the passage of the Bill through this House, which was made quite honestly by the noble Viscount, Lord Mills, that it was not calculated to interfere with the interests of the nationally-owned fleets.
§ LORD CHESHAM
Neither is it calculated to interfere with their interests. I imagine it must be a matter of opinion. I was just coming at that moment to say that there remains the right of appeal, which has already been exercised. In some cases the Minister has allowed the appeal, and in other cases he has rejected it. Therefore, I should have thought that where there is an influence of policy, and if, as the noble Viscount says, the Board is inimical to 831 the interests of the nationalised airlines, the place where that matter is put right is on appeal. But I do not accept that the Board, as such, is inimical.
I should like to pass on to the questions which the noble Lord put to me on the subject of B.O.A.C.-Cunard, because there are a number of them and they are quite interesting. The first question I noted down—they may not have come in this order—was, had the capital all been paid up? Approximately speaking, at the moment B.O.A.C. have put in eight Boeings, and Cunard have put in the two that they own. The answer really is, No, the capital is not fully paid up, but the rest can be called up when wanted.
§ LORD SHEPHERD
My Lords, are we to assume from that that if there were to be a profit this year and it was distributed on the basis of shareholding, 70 per cent. would go to B.O.A.C. and 30 per cent. to Cunard? In fact, B.O.A.C. will have put in eight-tenths and Cunard two-tenths. I should have thought there was considerable discrepancy on capital invested and raised.
§ LORD CHESHAM
That could be my understanding of the matter. Until such time as the capital is fully paid up any distribution such as the noble Lord foresees for the year—and I hope, rightly—would be, as I understand it, in the proportion of the amount actually put in by the two parties. I do not think that what certainly strikes me at first instance as a somewhat unfair situation would arise in the way that he said.
§ LORD SHEPHERD
If there were a dividend, it would be paid on the shares issued. I presume the shares have been issued 70–30.
§ LORD CHESHAM
As I say, my understanding was—I am repeating myself, I know—that until such time as it was fully in operation, the division, if any, would be in relation to what had been put in. There is nothing I can add to that, I think.
The noble Lord was also interested in the division of capital between them, and wanted to know how it was that Cunard took up 30 per cent. of the capital, or why it was divided in that way between them. There are two reasons 832 for that. One of them is that it is desirable that Cunard, if they are going to be a partner, should be a proper one, because they have a good deal to offer in the way of facilities on the ground, booking offices and so on. If they were going to have an interest, which I should imagine, in the circumstances the noble Lord said, would work out as an interest of 2 per cent., they would be hardly likely to be very active partners, and would be more in the nature of sleeping partners.
The other point is, as has been said already, that I do not think anyone can deny that by putting in 30 per cent. of the capital in this matter they are benefiting B.O.A.C. and, more indirectly, the taxpayer.
§ LORD SHACKLETON
My Lords, the noble Lord is being extremely patient, and I do not quite share my noble friend Lord Shepherd's suspicion of this arrangement for the interest of B.O.A.C.; but I should like to know how the 30 per cent. was arrived at. The noble Lord is talking rather as if the Government fixed it. Was this another case of direction behind the scenes by the Minister? If the noble Lord cannot answer, could he ask for this also to be investigated?
§ LORD CHESHAM
Fortunately I can answer it. This was no question of sinister interference by the Government, of which the noble Lord is so suspicious, because this agreement is one which is perfectly properly open to B.O.A.C. to make, and which they and Cunard freely entered into between themselves. The Minister supported it because, to be brief, it seemed a good thing to do and to be in the interests of both parties and of British civil aviation in general.
§ LORD SHEPHERD
Would the noble Lord accept a "shotgun marriage" as being perhaps the best description?
§ LORD CHESHAM
No, I would not. I would not accept that at all. I know that the noble Lord takes that view, but I do not agree with it. I think they got together and produced this thing. If the noble Lord insists on referring to it as a "shotgun marriage" I can assure him that the Government certainly were not doing anything like holding the shotgun. The two companies may have been 833 pointing a gun at each other, but it was nothing to do with the Government. I would not accept that.
The noble Lord's next question, I think, was on the subject of supplementing their operations by the use of VC.10s and how that operation could be financed out of their very limited capital. He pointed out to us that that could not happen, and asked: were they, therefore, going to charter them, or what was the intention. One solution—and quite a possible one—would be that B.O.A.C wall continue to own the VC.10s, and will, as it were, sell flying hours to B.O.A.C.-Cunard; so they will operate them and, if you like, hire the services. The noble Lord went on to say that if they did that, then Gurnard would be obtaining the use of the borrowings under the powers that we are discussing to-day. You cam argue it that way, my Lords, but you can also argue it the other way round; that it is a source of income for B.O.A.C., who will presumably, charge a realistic price for making available to Cunard use of the equipment obtained with the aid of the loan. I should have preferred to look at it that way.
§ LORD SHEPHERD
Surely what the noble Lord is now saying is that Cunard, having obtained 30 per cent. of these very profitable routes, will perhaps be making an arrangement by which they will use public aircraft on charter, yet all depreciation and loss, and so on, has to be borne by the Corporation. I think that is a very raw deal for the Corporation.
§ LORD CHESHAM
If the Corporation were providing the aircraft free, that would certainly be so. But I should have thought that, if they are providing the aircraft on a chargeable basis, the charge they made would reflect the depreciation and other charges the noble Lord mentioned. They would have to do that, or the situation would be very much like the noble Lord said; but I am sure that will not be the case.
§ LORD SHEPHERD
My Lords, before the noble Lord leaves B.O.A.C.-Cunard, may I remind him that I have not had an answer to my question about the standing position of the capital of B.O.A.C.-Cunard; whether it is straightforward equity, or whether it is similar 834 to B.O.A.C., where the interest charge is borne against the operating account.
§ LORD CHESHAM
I apologise to the noble Lord for not mentioning that point—I think I went straight over it in my note. From what I gather, the noble Lord wants to draw, or perhaps find, a contrast between the situation (this is what I really take it to mean) of B.O.A.C., who have to pay interest to the Government, whether or not they are able to earn it out of profits on their capital, and, on the other hand, Cunard, who, regardless of profits, do not have to pay interest and pay only whatever dividend they can. It does not, as I see it, affect the position one way or another. B.O.A.C., in financing this arrangement, will continue to pay interest on the capital which they have borrowed from the Government, some of which they are putting into this enterprise. This is where we must be very careful and differentiate between interest and dividend. I do not know from where Cunard have obtained their share of the capital, but I presume that in some shape or form they are paying interest on it. If they have borrowed it from the bank, they are certainly paying interest on it. If they had the money in cash they are paying interest on it, in the sense that they are forgoing interest which they would otherwise earn in order to invest it in this enterprise, in the hope, no doubt, of making some profit. That is what I mean when I say that I do not see that it affects the position. I hope that the noble Lord feels a little more satisfied.
§ LORD SHEPHERD
The noble Lord is most kind; he has put up with a great deal of interruption, but he will appreciate that this is a matter in which we have got a lot of interest. The question I really want answered is this: does the capital of B.O.A.C.-Cunard bear interest which is attributed to its operating account? Does it pay interest, as B.O.A.C. pays interest ion its own capital, to the Government? This is quite straightforward. Does the capital of B.O.A.C.-Cunard pay interest?
§ LORD CHESHAM
No. The interest paid to the Government is on that element of capital which B.O.A.C. have put into the enterprise; on that they pay interest to the Government at the rate at which they borrowed it. It is just the same as if the noble Lord and I go into partnership with £500 apiece and both of His have borrowed it; he may have borrowed it at 4½ per cent. and I may have borrowed it at 5 per cent. I continue to pay 5 per cent. and he continues to pay 4½ per cent. The position is very similar in regard to B.O.A.C. and Cunard in this matter. They doubtless pay interest in some manner or other on their share of the capital, as B.O.A.C. do on theirs.
§ LORD SHACKLETON
I think we are perhaps getting into deep water. The capital here is all equity. You cannot pay different rates, unless they are different shares, and I understand that the arrangement is that there will always be a minimum dividend on the equity, equivalent to the service of the money that B.O.A.C. borrow from the Government, and presumably this will be at the same rate, whatever it is—4½ per cent., whatever B.O.A.C. has to pay, as part of service charges.
§ LORD CHESHAM
This involves me, as usual, in the realms of doing something that a dictionary ought to do. May I, without answering that question, just repeat what my right honourable friend said in another place about this matter, because I knew that there was some misunderstanding about the fixed minimum dividends and that sort of thing. He said [OFFICIAL REPORT, Commons, Vol. 666 (No. 6), col. 895]:… there is no guaranteed dividend to anybody, and the profit would first have to be earned. In the light of recent results, a profit would be welcome and would indicate that the agreement had improved the situation.It was the first part that I wanted to make clear. I do not want to get at 836 cross-purposes, and I do not want to mislead anybody; but I do think that I am right about this and that what I have said is correct. In one way, technically, I suppose it could be described as equity, but I am hesitant to say it can at the moment, because I think the situation is rather a complicated one by virtue of definition.
If the noble Lord is a little clearer, if not quite clear, perhaps I may now go on to the subsidiaries that he mentioned, as did the noble Lord, Lord Ogmore. I agree with him that some of them are most useful. It is very difficult to assess exactly what benefits arise indirectly as the result of feeder services and so on; but clearly there are some where any possible advantage they have is outweighed considerably by the disadvantages of the great losses they make, and they have either been got rid of or are in the process of being got rid of just as quickly as various agreements will permit. What I want to say must now become brief.
The noble Lord, Lord Shackleton, brought up the question of trooping, and I would say to him briefly only this. He mentioned, in particular, aircraft flying about on scheduled flights with empty seats. He may like to know that that is a matter which is under consideration and discussion at the present time. With regard to trooping on charter, and the Corporations' coming in on that, the reason they have not done so in the past is because it was a sort of quid pro quo for their monopoly position, which is now, at any rate formally, ended. That may come, but it is a bit more difficult, because if they have that as their quid pro quo for having now lost their monopoly position at least they must be seen not to have it; it is a matter of whether other airlines will be able to take up the so-called advantage they have obtained from it. Certainly the noble Lord's point is under discussion at the present time.
I will try to end briefly, and I hope to Lord Shackleton's partial satisfaction, at any rate. He made quite a detailed intervention, backed up with quotations on the subject of ministerial control and interference. I am not going to take him on at great length at this time, because there are a great many other things to do. In particular, he 837 made the point of ministerial interference with depreciation. That certainly is quite different from any understanding of the matter that I had. I agree that the Minister is in a position to prescribe the form of the accounts, but not, as I understand it, the content. I simply cannot accept from the noble Lord that the position we have been discussing is wholly and solely the fault of the Government, unless he wishes me to regard it—and I certainly did not so regard anything he said—as a rather lighthearted political matter; and I am sure he did not say it in that sense.
§ LORD SHACKLETON
What I was really asking for was an apology from the Government for the criticism (and the noble Viscount, Lord Massereene and Ferrard, fell into it as a result) that B.O.A.C. had been given these facts before. My point was that the Government auditors did know what B.O.A.C. wanted to do, and they were prevented, through the interference of the Minister of Transport, through the action of the Government's accountants in this matter. This is something that can be settled, and I would ask the noble Lord whether he would undertake to inquire of the auditors appointed by the Government in regard to this particular matter. We might then know whether the Minister would see fit to withdraw his statement.
§ LORD CHESHAM
If the noble Lord is saying things like that, then inquire I will. What I shall find or what I shall say about it I just do not know, and I am not prepared to commit myself. I am certainly not thinking of the matter in terms of apology at the moment. I will read very carefully to-morrow what the noble Lord said, and read again the words about which he complains. I would rather do it coldly in the office than in the pleasant temperature of this debate. I will do that. But certainly my understanding was that the criticism was devoted not to the mechanics of the thing but to the thought lying behind it: that it ought to have been thought of before; not that there had been delay in putting it into the accounts. Finally, may I suggest to the noble Lord that if he will do me the kindness of reading fairly carefully through what I said, and really thinking out some of the points I made in my opening speech, he will find that 838 in fact I covered a certain amount of the ground about which he spoke.
§ VISCOUNT ALEXANDER OF HILLSBOROUGH
My Lords, in support of my noble friend I only wish to say that I thought that, by the quoted evidence he put before the House from the Select Committee on Nationalised Industries, he had proved his case, and I have heard no real answer from the noble Lord, Lord Chesham, on that case to-night. I am happy that he is going to look into it further, but I want him to go away knowing that we feel that that point was proved conclusively in the actual Minutes of the Select Committee on Nationalised Industries.
§ LORD CHESHAM
As I said, I do not want to get involved in a lengthy discussion on that point now. If noble Lords opposite and their noble Leader feel convinced, convinced they must feel. I am sure that if I were to go on until Domesday they would remain equally convinced. We have had a most interesting debate. It has made my brain buzz like anything from trying to deal with the variety of extremely interesting points raised by noble Lords who have taken part. Even if I have been given some wet towel work, I thank noble Lords for having produced their points in the way that they have, and I hope that your Lordships will now give this Bill a Second Reading.
§ On Question, Bill read 2a, and committed to a Committee of the Whole House.