HL Deb 26 June 1962 vol 241 cc933-46

8.42 p.m.

LORD SHEPHERD rose to ask Her Majesty's Government whether they approved the arrangements announced on June 6, 1962, between British Overseas Airways Corporation and Cunard-Eagle Ltd., whether they are satisfied that the terms are in the interests of B.O.A.C, and whether they will make a statement. The noble Lord said: My Lords, I beg to ask the Question that stands in my name on the Order Paper. Perhaps on reflection the House may well regret the action that it took earlier in regard to legislation on the Sea Fish Industry Bill, in which we saw the might of Tory strength in this House used to upset a carefully considered decision on the Committee stage. I would not have mentioned this if I did not feel it was my duty to draw it to the attention or this relatively thin House. Many of us feel that again the Government have treated Parliament with the utmost contempt in relation to the matters about which I have placed the Question on the Order Paper.

My Lords, in the afternoon newspapers of June 6, the chairman of the British Overseas Airways Corporation and the chairman of Cunard announced their agreement to the creation of a new limited company, to be known in future as B.O.A.C.-Cunard Ltd., in which B.O.A.C. would have 70 per cent. of the capital and Cunard 30 per cent. The House rose on June 7. Both Houses of Parliament were, therefore, precluded from considering what was a major change of Government policy, because the announcement that was made came into effect last Monday. It came into effect during a period of Parliamentary Recess, when both Houses of Parliament were unable to consider the matter or even to question the Minister on policy. In fact, it is only to-day in another place, and here by my raising the question this evening, that Parliament has had the opportunity of having a statement from the Government as to whether they approved of this agreement, as to whether it was the Government's view that this agreement was in the interests of the British Overseas Airways Corporation—a public corporation—and about the manner in which this agreement will affect future policy.

As I understand it from the little information that is available, we have this new company, 70 per cent. B.O.A.C, 30 per cent. Cunard, which is to be the Flag carrier. It is to replace the statutory body on the Atlantic route, from the United Kingdom to the east coast and central part of North America, the Caribbean and the northern part of South America. We have the position that Cunard, a private company, is now going to participate in what was a nationalised monopoly, but we have very little detail. The purpose of asking the Government this Question is, first, to find out from them how this decision, with their approval, will affect future Government policy. The Government may well say that this agreement has been brought about because it would not be possible for B.O.A.C. to operate with a competitor on this route. This competitor was brought in on the route, or could be brought in on the route, by the Government Act of 1960.

B.O.A.C. are operating—if my information taken from the timetable is correct—27 flights a week from the United Kingdom to the United States, 5 down to the Caribbean and 5 down to South America. Like all other airlines, they are having a very difficult time. At present Cunard are operating three services a week into the Caribbean, but under the 1960 Act they had made application for a service to the United States. That application was refused by the Minister, because he felt, as he said in his statement, that an added service would seriously affect the capacity and ability of B.O.A.C. With this agreement, obviously, the element of competition has been dismissed.

What I want to know from the Government this evening is whether they have agreed with the new Flag carrier—B.O.A.C. and Cunard—that there will be no other competitor on that service. If that is the case, as I suspect, then what the Government did not like by way of a State organisation having a monopoly of that service, they are prepared to tolerate when a private operator is integrated and taking part of the risks and advantages that may come from that service. Can the Minister say whether this agreement that has now been made means, in effect, that no other private operator will obtain a licence to operate this service and that, therefore, the service of the Flag carrier—B.O.A.C. and Cunard—will maintain the monopoly?

My Lords, this is very important because it makes one wonder how it was that the Government decided that Cunard should participate in this service. We know that Cunard made this application to fly to the States; we know that it was accepted by the Air Transport Tribunal; and we know that they invested a very large sum of money in the purchase of two Boeing 707s and spent close on a million pounds in providing facilities and for the training of crews. It would look very much as though the Government have accepted this situation to compensate for the disastrous position the Cunard company have probably got themselves into because they obtained this licence only to have it then rejected; because obviously the aircraft that they have would be quite unsuitable and certainly would not be profitable to them operating purely on the Caribbean service.

I want to ask the Minister how the percentage of this new company was decided upon—B.O.A.C. at 70 per cent., Cunard at 30 per cent. Was it based upon what assets the Cunard company were prepared to put into the new company? We know that the Cunard contribution, basically, will be these two Boeing 707s that they have, and possibly £2 million in cash. Or was it a division based upon the flights, the services, that are provided? I can hardly believe that that is the case when one looks at the large number of daily and weekly services that B.O.A.C. provide in comparison with those of Cunard.

My Lords, I should like to know if the Minister can tell us whether this division of capital was based upon the revenue that the two companies could put into the service. Can the Minister say what proportion of revenue B.O.A.C. are sacrificing to this new company, and what Cunard are putting in? Obviously there must be some basis upon which the two chairmen decided how these shares should be allocated. We have very little information; but it seems to me extraordinary that Cunard, by providing £9 million capital, made up of aircraft and cash, should be able to buy in and acquire, basically, 30 per cent. of all the goodwill, of all the capital—public money—that has been put into the Atlantic services in the last ten, twelve or fifteen years. This is an extraordinary thing, and I think that Parliament is entitled to know on what basis this shareholding division was made.

I should also like to ask the Minister: what is going to be the future position of possible losses? Are Cunard going to share in those losses which at the present moment all airlines are suffering on the Atlantic route? Are they going to bear their 30 per cent. share of the losses that will be involved? I wonder whether the Cunard Company, with all its difficulties, its genuine difficulties, in sea transport, will be in a position to bear some of the very heavy losses that are being borne to-day on the Atlantic route. And what of the future? We know the cost of new aircraft. The Boeing 707s will shortly be obsolescent; they will shortly be replaced, we hope, by the V.C.10s. It is questionable whether the £30 million capital of this new company will be able to buy the aircraft to operate these large areas, these large services. Are Cunard in a position, are they willing, to provide 30 per cent. of the new money that will be required to put these aircraft into operation? Or is it, as one can well imagine from the sort of mixture of arrangements that are being made—with aircraft being handed over to this B.O.A.C.-Cunard company; then being leased to B.O.A.C., B.O.A.C. having to maintain them and operate them and then charge the new company for their use, for the actual flights that are made—that in the long term B.O.A.C. will have to bear the heavy burden of these new aircraft? Because I cannot imagine that, on their capital of £30 million, this new company will be in a position to buy the equivalent number of aircraft to replace the Boeing 707s.

My Lords, there are many things about which we shall need to know from the Government, but the main thing which worries us is that the Government, without any announcement, without any statement in Parliament, without any indication that their policy has changed, appear to have agreed to what is nothing more than the denationalisation of a third of the B.O.A.C.—and let it be on record that it is what will be, in the future, the most lucrative side of the British Overseas Airways Corporation. What are these shares? This B.O.A.C.-Cunard company will be a limited company, and 70 per cent. of its shares will be held by B.O.A.C. But we may well wake up one morning to find that the B.O.A.C. board, with the agreement of the Government opposite, have agreed to the sale of their shares in this new company. It may be another case of W. G. Brown. My Lords, can the Government say whether this new company will be regarded as a subsidiary of B.O.A.C.; whether the shares that are held by B.O.A.C. will be regarded as statutory, so that they cannot be disposed of without an Act of Parliament? I think the House is entitled to know what is at the back of this extraordinary policy of Her Majesty's Government.

It is not only B.O.A.C. that we must consider to-day. We may well find that B.E.A. have been put into a similar position; that a new company has been created in which they share some of the main routes, the most lucrative routes, to Europe with British United Airways; and then we may find that the shareholding of this limited company has suddenly been sold without any approval of Parliament, and that Parliament has never been in a position to say "Yea" or "Nay". My Lords, I think we have embarked, in the late stage of this Government's life, upon a very serious course. The Government appear to be able, they appear to be willing, to change their policies without announcement in Parliament, denying Parliament the opportunity to discuss and approve. The nation has put a great deal of money into B.O.A.C. Its most lucrative routes, the most expanding routes, will be across the Atlantic. The Government appear, for an investment of £9 million, to have given to a private corporation 30 per cent. of a monopoly.

My Lords, I do not like monopolies of any sort, but if there is to be a monopoly, let it be a State monopoly answerable to Parliament. I think it is quite wrong that, behind the scenes, representatives of a private board have made this arrangement with a public corporation. In fact, I would suspect that what they have done is quite contrary to what Parliament understood of the Act when it created B.O.A.C. and B.E.A., and I am certain it was not in the mind of the noble Lord, Lord Mills, when he advocated and piloted the 1960 Act which gave greater freedom to transport. I do not think he ever contemplated that by this Act a private operator would be put into such a position that a public board would decide that it would be convenient to make this deal. This is possibly only the beginning.

The hour is late, but I hope the noble Lord, Lord Mills, will give us a full and frank statement as to why the Government have decided on this agreement, and how it will affect future policy. Because I must remind the noble Lord that the chairman of the board has stated that he looks to this agreement as being on one side; that he would not be averse to any other suggestions from a shipping company or an air line company for a similar operation to be made. We must face the fact—the Government may welcome it—that our air lines, our statutory bodies, are in fact being denationalised. If that is the Government's intention, then let them be honest to Parliament.

9.2 p.m.


My Lords, I must say that the noble Lord, Lord Shepherd, in asking his Question, has betrayed a very suspicious mind. He has not seen that this is just a business arrangement of a type which was foreseen, and which B.O.A.C. were fully empowered to make under Section 3 (4) of the Air Corporations Act, 1949. He need not look at the Act of 1960 and say that that is the reason for it.

I think it might be helpful, my Lords, if I first explain the nature and the origin of the agreement between the British Overseas Airways Corporation and the Cunard Steam-Ship Company. This was an agreement which was freely negotiated between the two companies. It so happened that the agreement was reached on June 6. On June 7 my right honourable friend the Minister of Aviation informed Parliament about it. I do not think there is anything in that to which the noble Lord could say that any discredit attaches. It was the obvious thing to do. As soon as the companies reached agreement, the Minister informed Parliament. It is true of course that it was on the eve of the Recess, but things do happen like that.

On June 6 these two companies announced their decision that it would be in their mutual interests to pool their resources on certain trans-Atlantic air routes, mainly between this country, the United States, and the Caribbean, and that they had therefore set up a joint subsidiary company in the United Kingdom for that purpose. This, I repeat, was a commercial agreement made between these two companies, and—let me repeat this too, because it is important—the agreement was one which B.O.A.C. were fully empowered to make under Section 3 (4) of the Air Corporations Act, 1949. There is no provision in that Act requiring them to seek the approval of the Government to agreements made under this section. However, it is customary, and I think right, for the Corporations, especially where questions of investment and other major issues of public policy are involved, to consult the Government before entering into agreements of this kind.

When the Corporation informed my right honourable friend the Minister of Aviation of this proposal, his first responsibility was to decide whether or not it was against the public interest, or whether or not there was any overriding objection to it. As he said in another place, he was able to inform the Corporation that the Government had no objection to the proposal which, moreover, they considered might well be of benefit to the British civil aviation effort in this important area.

The noble Lord, Lord Shepherd, has told us what was the essence of the agreement: that it was to form a company with a capital of £30 million, 70 per cent. of which was to be provided by B.O.A.C. and 30 per cent. by Cunard. The noble Lord asked me on what basis that was decided. Well, the answer is a very simple one: it was decided because it was felt by B.O.A.C. that Cunard must have a sufficient stake in this joint enterprise to keep and sustain their interest in it.


My Lords, there is no relation, then, either to revenue or to flights, but purely to what was of interest to Cunard?


My Lords, purely the appreciation by B.O.A.C. of what it was necessary Cunard should bring to this company in order that B.O.A.C. might benefit from what Cunard had to offer. It is quite true that the routes which were being covered consisted of what have been the most competitive, yet potentially the most profitable, in the world. The noble Lord knows that recently there have been losses, and I have no doubt very heavy losses, on the part of operators concerned. British operators are in competition on the Atlantic route with nearly 20 international air lines, including two major United States air lines who are themselves understood to be considering proposals for a merger. The new B.O.A.C.—Cunard arrangement should open up new opportunities for increased efficiency and economy in operating British aircraft on these routes, because both companies, whatever else they have done, have earned a fine reputation for service, reliability and safety.

The new company will take over all this good will, and they will be able to achieve economies by rationalising their operations, their sales, their maintenance arrangements and so on. As regards sales, in particular, the experienced and widely spread sales organisation of Cunard should bring considerable benefits to the new company. I think that there should be benefits for both companies. I am sure that the two companies have a lot to offer each other and that, working in collaboration in the way they have decided, they have a lot to offer in the future to the British civil aviation effort.

What was the alternative? It was that they would have to continue to light each other and I cannot see that that would have brought any benefit to British civil aviation.


My Lords, did the Government correlate this with the 1960 Act?


My Lords, in the 1960 Act, the Government did not insist on competition for the sake of competition. Indeed, the Minister of Aviation said during the Second Reading of the Bill that it should not be assumed that the Corporations and the Independents would always be in conflict with one another, and that he saw no reason why genuine pooling arrangements should not be made between them on certain routes.

The noble Lord asked me how this position would affect future Government policy. I do not think that it affects it at all. This is a commercial arrangement made between two companies, one of which is a nationalised company, which saw benefit in it for both. The noble Lord asked whether the Government have given an undertaking that there will be no future competition on this route. Again I think he asked that question because he has a suspicious mind.




My Lords, the answer quite categorically is that the Government gave no such undertaking. Anyone is free to apply for a licence to the Air Transport Licensing Board, which would consider the application under the procedure laid down in the 1960 Act.


So this arrangement has not eliminated the fear of competition which, from the Minister's statement, was obviously the cause for the creation of this company.


It has eliminated a certain competition. It is always open to anyone under the Act, if he is so bold, to apply for a licence. This arrangement has done nothing to make that impossible. The noble Lord asked what was going to be the future position about the apportionment of losses. That is quite clear from the financing of the company; that is, roughly one-third by Cunard-Eagle and two-thirds by B.O.A.C. The noble Lord may believe what he says, that the capital is insufficient. Time will show. For the moment the parties to the agreement think that it is the right capital they ought to have.

The noble Lord asked me if the new company would be regarded as a subsidiary of B.O.A.C. It is a subsidiary of B.O.A.C., which has the majority of the capital. On the question of who will provide new money, if new money should be required for replacements or for any other purpose, the noble Lord has sufficient experience of business to know that that is a matter which will have to be considered when the case arises. There is nothing in the agreement to anticipate that. I think it is quite right that they should determine the amount of capital they need to operate on this line and decide the proportions which they are both going to have. That is just ordinary common-sense business.

I should like to reply to the noble Lord's statement about denationalisation. It is not denationalisation. Let us keep a sense of proportion here. The capital of B.O.A.C. is £150 million; the shareholding of Cunard-Eagle will be £9 million. That is not denationalisation. I would read to your Lordships a paragraph from the Spectator of June 15, dealing with this question of nationalisation. This is what they said: B.O.A.C.'s interest in the Cunard organisation, especially in the United States, goes back a long way. For some years the B.O.A.C. management has been trying to get Cunard to collaborate in sales. Now they are getting much more than this: they will be combining their sales offices, parading each other's slogans and hammering the American and West Indies markets with the doubly familiar name of B.O.A.C.-Cunard. Criticism is coming from believers in pure nationalisation (though they might take comfort from the disappearance of a separate airline in favour of a mere minority holding) and those who fear monopoly. There is so little to be said about nationalisation these days that its advocates cannot be blamed for making the best of an irrelevant job. There is no question here of denationalising anything. It is a purely commercial agreement, which I believe has been wisely arrived at. The Times of June 7 said this: It is to be welcomed as a sensible practical arrangement". And so I present it to your Lordships. It should be of very great benefit not only to the Cunard Company but particularly to B.O.A.C, whom I am sure we all wish well.


My Lords, before the noble Lord sits down, he did not deal with one point which I think is very important: the question of B.O.A.C. shares in the new company. Can the Minister undertake to say that it is not the Government's intention to agree to the sale of these shares in this new company to any other organisation, even if it is the Cunard, who may wish to increase their shareholding in this company? Can the Minister give that undertaking?


My Lords, I wish to be careful about what I say here. There is a provision which your Lordships will see from the announcement by the two companies that if Cunard changes hands the shares must be offered to B.O.A.C. at their asset value. There is no intention that these shares should be offered on the market, and the Government would make it their business to take steps if there were.

9.21 p.m.


My Lords, we are obliged to the noble Lord, Lord Mills, for having said as much as he has to-night about this agreement. Certainly it has become a little more intelligible to me than could have been possible in the circumstances in which we adjourned before the Whitsun Recess. The noble Lord says that my noble friend Lord Shepherd must have a suspicious mind to take this matter up in this way. But surely the noble Lord does not think that anybody on this side of the House can be less suspicious, having regard to the policies of the Government in relation to nationalised industries in the last ten years. Here is a great Corporation which has always been a public Corporation, and we get this sudden announcement that an agreement has already been made. Whether the Ministerial colleagues of the noble Lord like it or not, the general comment in commercial, as well as in ordinary, society about this matter seems to be that this, if anything, was much more a question of getting Cunard-Eagle and the Cunard Steam Ship Company out of difficulties in the hope that this would create new business for them by the generosity of the agreement with B.O.A.C. This is not just something springing from my noble friend Lord Shepherd and myself; it has been canvassed in many quarters.

Everybody knows what the latest report of the Cunard Company is in general and of their difficulties; and I sympathise with them, because I want to see our shipping companies prosperous. Nobody can say that so far they have received an enormous amount of help in their overall difficulty from the Cunard-Eagle. However, if there is any other report to be made in that connection, we shall be glad to hear it, because it will help to relieve suspicion. But I think that in these matters Parliament ought to be informed much more in the open and with full details as to what has taken place. The statement in another place on June 7, just before the Recess, escaped the attention of a large number of Members of Parliament. I hope the noble Lord will not mind if I say that we ought to be furnished with a Government White Paper as to what was the reason for their approval, what is the agreement, and what they are pledged to for the future.

I will not challenge any of the statements made by the noble Lord, Lord Mills, on this point to-night, at short notice, but perhaps he would agree to recommend to the Government that they issue a White Paper giving not only Parliament but the public full details. After all, the noble Lord can speak with some pride; and so do we feel some pride, because we were the initiators of B.O.A.C. That Corporation has a capital of £150 million, but a large part of it, if not all of it, came from public money. The whole nation is interested in B.O.A.C. When you come to break out into this sort of agreement, then surely Parliament and the public ought to be given the fullest possible details. My noble friend Lord Shepherd quoted a case of a much smaller transaction in which I was personally interested as First Lord of the Admiralty during the war, when we were forced by circumstances to take over the Brown firm; and from its nationalisation onwards it became a very profitable concern. But what do the Conservative Government do? They sell it, just at the point when the public were perhaps getting some little set-off in one company which was taken over, reorganised, brought to profit-bearing and might have been at least some help in paying interest on war damage. No; sell it; let private enterprise have it! We have had the same thing in regard to the railways. The railways now, instead of being maintained as a public service, are to be cut to pieces in order to provide a profit without giving a proper service to the public. We never know what will be the next move of the Government in these matters. We think this is a very sad state of affairs. If the Government are going to allay the kind of suspicions which the noble Lord attributed to my noble friend Lord Shepherd to-night, then I think they should give us a full, detailed White Paper; and I hope that this will be done.


My Lords, I will not detain your Lordships for more than a couple of minutes, but as the noble Viscount the Leader of the Opposition said that there is perhaps a feeling abroad that B.O.A.C. have rather come into this agreement at the coat-tails of Cunard, I should like to read to your Lordships an extract from B.O.A.C.s own newspaper to its staff. It is an extract of a statement made to them by the Managing Director of B.O.A.C. He ends in this way: This"— that is the agreement— is good for B.O.A.C.—otherwise we should not have done it. It is good for Cunard—otherwise, presumably, they would not have done it either. It is good for British Air Transport, in that it rallies the best brains and experience in the trans-Atlantic business against foreign competition. It is good for the travelling public and freight shippers, in that it offers them the combined facilities of two great British undertakings with unrivalled reputations for service. That does not sound to me like an unwilling B.O.A.C.


That sounds to me like well-written propaganda to a stall without any facts at all. It is just a propaganda statement to the staff to persuade them to work well, with no facts at all behind it. I still think that is not a substitute for a White Paper from the Government.


I hope I shall be forgiven for interrupting again, but I said that it was only an extract. At this late hour I could not read the whole item. But if the noble Viscount would like to see it, I will let him have it.


What I want is that the public should have it.


My Lords, with the leave of the House, I should like to add just one word. I do not think the noble Viscount would want me to start debating the merits of nationalisation or denationalisation, what has happened in the past or what is likely to happen in the future. But I should like to say this to the noble Viscount the Leader of the Opposition, who is always so courteous: that if he wishes to take the matter further, perhaps he would have a word With me and we will see what can be done.