HL Deb 03 August 1965 vol 269 cc246-66

8.59 p.m.

THE EARL OF KINNOULL rose to ask Her Majesty's Government, following the confirmation of the British order for American Phantom aircraft, whether they can now announce how many British aircraft manufacturers will be supplying equipment to these aircraft. The noble Earl said: My Lords, I feel that I must almost apologise to the House—all those who are left still in the House—for this being my second Unstarred Question within two days. The Question to-night on the Phantom aircraft was in fact postponed last week in order to have present to-night the considerable reinforcement or, perhaps I may say, the strike reinforcement, of my noble friend Lord Jellicoe, who, of course, has a wealth of background knowledge on the Phantom aircraft.

The question on the equipment to the Phantom aircraft really stems from the Government's Statement at the time of the cancellation of the TSR2 last April. The Government then undertook to see that as many British manufacturers as possible would be given a chance to submit a tender for supplying the equipment for the British order of some 300 American Phantom aircraft. If one hazards a guess that each aircraft will cost something in the region of £1 million and that the cost of each aircraft, if broken down in percentages, runs out at 35 per cent. for the airframe, 30 per cent. for the engine, and some 35 per cent. for the equipment—and perhaps the noble Lord would comment on these figures in his reply—the order at stake for the British manufacturers must be something approaching £100 million. On top of this must come the cost of spares, which I believe could well amount to a further 40 per cent. of the total cost of each aircraft. Thus the 130—odd British manufacturers competing to win some orders not only could well earn a large sum of money but could also save the country at the same time over £100 million worth of precious dollars.

Yet, my Lords, with all this information and background knowledge I was appalled to learn recently from a responsible aircraft manufacturing company that in the main the British manufacturers—and I do not include, of course, the Rolls-Royce Company with their Spey engine but the smaller companies—regard this Phantom aircraft order with a certain despair and apathy and are wondering whether winning a contract is really worth their while. This sounds incredible, but the reason is that the Phantom aircraft is a highly sophisticated aircraft and it naturally has highly sophisticated equipment. If the British companies do not have immediately available comparable equipment for which to tender, they feel it would be hardly worth their while going through all the processes of designing equipment to specification, testing it and eventually placing it for tender.

Besides all this extra expense, which I understand the Government are prepared to meet in the form of a 20 per cent. subsidy for successful tenders—and here again perhaps the noble Lord, Lord Shackleton, will confirm this—there is the problem of the delay of delivery. It could well be that the McDonnell Company would advise the British Government that if the delivery of this aircraft was wanted on time, say by 1969, they would not be able to wait for some of the British equipment to be specially designed and fitted. Yet a third problem which apparently may arise is that the American security will require a fairly extensive screening of any British technicians who wish to visit the McDonnell company, and this again can cause further delay.

All this paints a fairly gloomy picture, and I hope that the noble Lord, when he comes to reply, will have a more cheerful answer, for the aircraft industry is saying quite clearly at the present time, and I am sure the noble Lord is aware of this, that it cannot live without creative talent and that building other people's aircraft would eventually kill this talent. This industry is at present admired throughout the world for its skill and know—how, and if it ever loses its impetus it will also lose its advanced technical knowledge.

I should like to ask the noble Lord two specific questions regarding the Phantom aircraft. The first is about the cost of spares, for, as I have already stated, this may be as high as 40 per cent. of the total cost of the aircraft, or some £40 million. Will the cost of the American-supplied spares be on a fixed price basis, or will the cost be at the mercy of the American companies as to what they wish to charge? Secondly, when the aircraft goes into service, will the maintenance and support be entirely carried out by the British Support and Design Company, which I believe is working closely with the McDonnell Company in America at the moment, or will American technicians be required as well?

I hope I shall not be straying too far from the purpose of this Question if I say that many people believe there are important lessons to be learned from the Phantom order. One of the main lessons to be learned is that the aircraft industry is entitled to receive from the Government a specification of a military aircraft that the Government really want. Yet another lesson is that when the Government enter into a joint aircraft venture with another country, it is hoped that they will firmly declare at the outset what percentage of the project will be British-made, and not leave it to bargaining at a later stage.

My Lords, the question of the Phantom aircraft has been debated many times before, and mostly in a heated atmosphere, which I am sure will not be the case this evening. But I believe everybody recognises that this is a magnificent aircraft, and the purpose of my Question to-night is simply to find out how successful the British companies have been so far in their tendering for supplying equipment to this aircraft. I hope the noble Lord, when he replies, will have something heartening to tell the House on this matter.

9.7 p.m.

EARL JELLICOE

My Lords, my noble friend need make no apology for introducing, this subject to your Lordships even at this late hour. The Phantom will be an absolutely key aircraft for the Royal Air Force and the Royal Navy in the next decade or so; I cannot see how either Service will be able to do without it. The decisions which the Government take on it will, as my noble friend has said, intimately affect the British aircraft industry, especially on the engine and components side, and—this is of a different order of importance—I am glad that my noble friend has introduced this topic because I must confess to a certain personal interest in this particular aircraft. I disclaim that wealth of knowledge which my noble friend kindly but incorrectly attributed to me, but it just does happen to be the only aircraft in which I have flown really fast and fairly high personally. In view of this, I hope the noble Lord, when he replies, will be able to tell us much more than we have learned hitherto about the intentions of the Government.

There has been a great deal of speculation about this project lately, and I hope the noble Lord will be able to take this opportunity of scotching some, at least, of the wilder rumours we have read in the Press. As for the general setting, my colleagues and I do not claim that we should never place orders for military aircraft abroad, but we do feel that we should tread carefully. We shall not maintain a healthy aero-engine industry or a healthy avionics industry in this country unless it is based on a healthy airframe industry, and it is difficult to see how that can be maintained without some British orders for British military aircraft.

I hold that when we go shopping or co-operating abroad for military aircraft we should look first to Europe, and Western Europe as a whole. If in the last analysis we need to buy American military aircraft—and I would not and could not deny that there may be occasions when there is that need—we should aim to get something really solid in return, a really adequate quid pro quo. The obvious and direct quid pro quo, as my noble friend mentioned, is the incorporation in any such aircraft of the maximum amount of British manufactured equipment. I should have thought this would be an absolute condition of any substantial "buy" across the Atlantic, and across the exchanges, provided that the performance of the aircraft is not impaired, provided that its date of entry into service is not prejudiced, and provided that the cost of the resulting modifications is acceptable. I would assume that the noble Lord would accept this broad position, but can he tell us what the Government have done, and are doing, about it?

In this context, I should like to put two general questions to him. My first is to ask whether the Government have safeguarded these principles in their contractual arrangements with the Americans. Do our inter-Governmental agreements provide, or will they provide, for the fitting of British designed equipment when it is readily available? Or, alternatively, do they provide, or will they provide, that the main contractor, in this case the McDonnell Aircraft Company, will give preference to the fitting of British equipment manufactured under licence in this country? Can the noble Lord confirm that there is a firm understanding on those two points between the two Governments?

My second question is a corollary of my first. I understand (I may be wrong about this) that the British-engined Phantom should have a substantially better performance than the Americanengined Phantom. I also understand that the British engine, the Rolls Royce RB.25, has considerably more development potential than its American counterpart, the General Electric J.79. That being so, there seems an obvious case for the Americans to adopt the British variant for their later production models, possibly for the United States Air Force, and probably, I should have thought, for the United States Navy and for the Marine Corps. There is a lot at stake here commercially.

Each of these aircraft has two engines and a couple of these engines, quite apart from research and developments costs, cost something over a quarter of a million pounds plus. Thousands of these aircraft have been ordered for the United States Forces. The adoption of this engine by the United States Armed Forces, if only for the later production models, could in itself be very important. One hundred American aircraft fitted with this engine would mean £25 million plus in sterling for this country. It would not only be important in itself, but would also be important in doing perhaps more than anything else to open the door for the introduction of the Rolls Royce-engined Phantom into countries other than the United Kingdom and the United States. Can the noble Lord tell us what chance there is of persuading the Americans to adopt the Rolls Royce engine for their own Phantoms? Can he tell us what the Government have done to further what seems, to me at least, to be a great export opportunity for the British aero-engine industry?

I should like to turn to some more detailed matters. First of all, a word or two more about the engine. In all I have been saying up to now I have been assuming that the project for incorporating the Rolls-Royce engine into this aircraft was going ahead. That was certainly the case when I last knew something in detail about this project. It was certainly my opinion that, so far as the Royal Navy was concerned, this particular aspect of the project had to be proceeded with. As I understood it—and I should like to know whether this is still the position—the American-engined Phantom could not be satisfactorily operated from at least our smaller carriers. But we have recently seen rumours in the Press that this whole programme is likely to be abandoned, that the Royal Navy was to receive no Phantoms at all, and the Royal Air Force was going to receive only the American-engined Phantoms. The Ministry of Defence have dismissed these reports, I am glad to say, as purely speculative. I hope that this evening the noble Lord opposite will be able to go much further than that by telling us that these reports are in fact quite unfounded.

On June 30 he told us (I am referring to column 960 of Hansard) that he did not foresee any increase in cost of a kind which would affect the numbers ultimately to be decided upon by the Defence review. He was there referring to the possible escalation of the project of "engining" this aircraft with British engines. I hope he can confirm this evening that the programme itself is secure and also that the numbers within that programme are secure. I will not ask for precise details about numbers, although, given the American directness about numbers, I have always thought that our coyness about aircraft numbers was rather absurd. However, I hope that he will be able to give your Lordships and myself some general assurance both about the numbers of aircraft in this programme and about the programme itself, I know that this involves money, and I know that I may here be treading possibly on rather delicate ground, in view of the decision taken by the Parliamentary Labour Party yesterday about Defence economies. That perhaps makes it all the more important that we should have some assurance on this particular point.

I hope and trust that we may receive this assurance, because I can see no particular reason, in the quite imperfect state of my knowledge, why this particular programme for incorporating British engines in this aircraft should be endangered. There have been some technical difficulties—there are bound to be—over the marriage of the Spey to the Phantom. I understand that these difficulties have been overcome. I gather that the cooperation between the McDonnell Company and Rolls Royce has been excellent, as indeed has the co-operation between the managers of this programme across the Atlantic—the United States Bureau of Weapons and the Ministries of Defence and of Aviation. I gather, further, that Rolls Royce have met all the pretty tight dates in the development of these engines.

Finally, the noble Lord himself told us five weeks ago that we need not accept that the costs of this programme on the engine side are mounting excessively at the present time. That, I may add, is also my information. In view of this, I trust that the noble Lord can scotch these rumours that the programme for the Spey-engined Phantom is in any way threatened. As I see it, the Spey engine represents by far the most important piece of British equipment which can be married into this project.

Like my noble friend, however, I should like to know what other opportunities for the introduction of other British components into this aircraft there may be. Avionics (to use the jargon) represents a high proportion of the cost of any military aircraft. What British avionics will be incorporated into the Phantom project? Will there be a British-produced flight simulator? Or will there be a British-produced reconnaissance pod, of which we have read in the Press recently? What about the weapons system? Most of this, as I see it, must inevitably be American. A modern military aircraft is more or less built around its weapons system, and to tackle that at this fairly late stage in development is probably a dangerous thing to do. However, I should like to ask the noble Lord whether it is intended to incorporate a British weapons system into this aircraft and, more particularly, whether he believes that the Anglo-French A.J. 168, the air-to-surface missile which is under development, could, and should, be fitted to the Phantom.

There is also certain ancillary equipment. I assume that the noble Lord will be able to tell us that it is the intention to fit the British Martin Baker ejector seat into the aircraft. I take that to be axiomatic, as I think it is going into the American versions of the Phantom. I also trust that he can confirm that the tyres will be British, and that the wheels and brakes, if not of British design, will at least be of British manufacture. I know that these items may sound fairly small beer, especially at this hour of the night—indeed, they are rather small beer. But this sort of equipment has a fairly short life, and the aircraft itself has a fairly long life. Therefore, in the long run these items are quite important.

I have only one further question to put to the noble Lord. My noble friend touched on the question of the servicing and maintenance arrangements for the Phantoms for the Royal Air Force and the Royal Navy. I shall be interested to hear what the noble Lord has to say in reply to that point.

I should like to ventilate one further possibility with the noble Lord. A vast number of Phantoms will soon be in service with the United States armed forces. Presumably, a large number of these are likely to be deployed in Europe. Is there not a chance of securing for British firms the potentially important contracts for servicing these aircraft? Has this possibility been explored?

At the start of my brief contribution to this discussion I confessed to a certain personal interest in this project. But I should like, in conclusion, to make it clear that I am not asking the noble Lord for information about this project merely to satisfy my personal curiosity. I am asking for it—and I hope that he will be able to give us full and satisfactory answers—because I believe that the way in which the Government handle this project is very important indeed for the Royal Air Force, for the Royal Navy and for the British aircraft industry, and not least for the future pattern of British American co-operation in armaments production.

9.22 p.m.

THE MINISTER OF DEFENCE FOR THE ROYAL AIR FORCE (LORD SHACKLETON)

My Lords, even if the noble Earl, Lord Kinnoull, was gloomy—I think quite unnecessarily gloomy; and he hoped that I should be able to allay his gloom—I agree entirely with him, as with the noble Earl, Lord Jellicoe, that this is a very important subject. It is very important that the Government should give as much information as they can. I hope to give rather more information than the previous Administration were wont to do on this sort of subject. Certain points were mentioned by the noble Earl where, fortunately or unfortunately, we are following the precedents set by our predecessors, but we hope even to put some of that right in the course of time. There is much to be said for giving as much information as one can.

Both the noble Earl, Lord Kinnoull, and the noble Earl, Lord Jellicoe, went rather outside the Question at certain points, and in the interests of good order in this House I do not propose to enter into a general debate on the aircraft industry. I would just say to the noble Earl, Lord Kinnoull, that if he wants to discuss this on another occasion we shall be glad to do so; but I do not think I can enter into questions about whether the aircraft industry has been given the right specifications. This is a much more complex subject, and I would not accept for one moment that they have not been given the right specifications. I repeat, for the record again, that the TSR 2, whose passing we all lament, and whose operational requirement never changed, was a good aircraft, but the cost got beyond our capacity to meet. That was the difficulty, and I must make that point clear.

For reasons which I hope will become obvious in the course of my answer, I cannot reply to the noble Earl's Question in precisely the form in which he asked it. My answer will be very much in the nature of a progress report. Your Lordships will appreciate that the building of an aircraft is a lengthy process, and not all decisions about its equipment need to be taken at the moment when the initial order is placed. Although, as noble Lords know, the initial order has been placed, certain decisions can follow that afterwards, even though the main configuration—to use the appropriate American jargon—we are now using is established.

First of all, let me deal with the point which the noble Earl, Lord Jellicoe, made, about what he described as the quid pro quo. I have always understood quid pro quo to be a question of selling other equipment in return for buying a foreign country's equipment. But in the context in which the noble Earl was using the expression, it was related to the amount of British equipment that can go into American aircraft which we are buying. I think I am correct in saying that that was his meaning. Here I am glad to say that under the agreement which we have entered into, up to 50 per cent. of the fly-away value of the whole aircraft can be of British manufacture, and we are certainly hoping that we shall be able to get up to that figure.

The noble Earl, Lord Kinnoull, gave a breakdown between equipment, engine and airframe. I think his broad division is near enough. I could quibble on a few percentages, but for convenience in this context we might as well say one-third each—perhaps a rather higher proportion on equipment. At the moment, about one-third, by value, of the equipment to be installed in both the Royal Naval and Royal Air Force Phantoms will, we hope, be of actual British design and manufacture—and I stress that this is British-designed as well as British-manufactured equipment. This proportion may well increase as time goes on. In addition, we hope that some of the American-designed equipment and components will be made in this country. If we are to discuss this, I think it would help your Lordships if I went into some detail, because it is important to get the detail in order to get the full flavour of what is happening.

I should like to deal, first of all, with the question of British-designed equipment. In this case we are taking an item which has been, or is being, developed in this country, possibly for a completely different aircraft, and adapting it to fit another aircraft—in this case the Phantom. In some cases the amount of adaptation—integration, I believe, is the term commonly used—may be small; in other cases large. Integration is the actual fitting of the equipment into the weapon system. Adaptation is not the end of the story, for this equipment has then to be installed in the Phantom, probably necessitating some changes in the detailed aircraft design; and then the aircraft has to undergo a period of test flying in order to prove that the equipment works satisfactorily in the aircraft, in conjunction with all the other equipment already in it. For we must not forget, my Lords, that the Phantom, as I think the noble Earl, Lord Jellicoe, said, is a highly complex weapon system; and a change in one part of it, however small, is almost certainly going to affect the performance of some other parts unless special precautions are taken.

All this design effort by the equipment supplier and the aircraft constructor, and the subsequent proving flying, is bound to cost money, and since it is highly skilled labour that is involved, the cost must inevitably be heavy. Your Lordships will therefore see that changes of design in the equipment for the aircraft are not to be entered into lightly. But this does not mean that there may not be good reasons for accepting the costs of such changes as are required to operate it under conditions which are not quite the same as those under which the Americans at present operate it.

A major example—and the noble Earl, Lord Jellicoe, is quite correct about this—is the engine. It is necessary to have more thrust, in order to enable the Phantim to be operated from some of our aircraft carriers which are smaller than the American carriers. The previous Government—and the noble Earl played a valuable part in this—decided that the Pratt and Whitney J.79 should be replaced by a developed version of the Rolls-Royce Spey—the engine which also powers the Buccaneer aircraft, as well as the B.A.C. 1–11 airliner. A programme to develop the Spey to the required power, a task which involves the addition of reheat, was begun last year, and I am glad to be able to say that it is proceeding well. Under the present programme the first Spey-powered Phantom is planned to begin its flight trials in June, 1966. The R.A.F. Phantoms do not need the Spey in order to perform the tasks that the R.A.F. require of them, but there are obvious advantages in keeping the R.A.F. version as similar as possible to the naval version. We are therefore planning at present to have the Spey in all our Phantoms, together with a starter unit made by Plessey and a fuel-flow meter made by Elliott.

Now I come to the point at which the noble Earl referred to certain remarks which I made in a debate on June 30, just before the agreement was signed. I must tell your Lordships that the cost of the Spey has increased considerably—for research, development and production. In this connection, let me also say that the present progress in the development programme, which has not yet passed beyond the bench-testing stage, is most satisfactory. The engine is producing a thrust greater than its design value, and the fuel consumption is well within the specified limits. But the present estimates—and I stress this—considerably exceed the estimates made when the noble Earl was himself in office. They were estimates which were considered by him and his colleagues to contain an adequate allowance for possible cost increase. I am not getting at the noble Earl here; I am merely stating a fact. We know these difficulties.

As a consequence of this, and in the light of the importance which must be paid to the cost of this aircraft, the engine programme is being kept under the most careful review; and I fear I cannot say more on this aspect beyond referring to the point the noble Earl made in relation to remarks I myself made in the earlier debate. There I did say that there were difficulties, but that they were not such as seriously to affect its viability. I was referring there to the aircraft as a whole: I was not referring, as he implied, specifically to the engine. I was being very careful about it at that particular moment, and was indicating that the future of the programme was not affected significantly by the increase in cost. But we have got to watch these costs, and it is for this reason that the engine programme is being kept under very careful review. As I said during the debate on the Motion moved by the noble Lord, Lord Thurlow, in accepting British equipment in our own American-built aircraft we must be careful not to get the worst of both worlds. I shall come on to other aspects of the Spey later.

A second reason for having British-designed equipment installed in our aircraft is that its performance is superior to, or as good as, that of the American equipment installed—I am talking about equipment generally—and that, while the latter (that is, the American equipment) may be adequate for our minimum needs, we are prepared to pay a premium in order to obtain the superior performance in the use of British equipment. This is a matter which calls for fine judgment. We have all the time to consider delivery schedules, for our Phantom construction programme is integrated with the programmes for the United States Services, and we have to be certain that all the necessary development and production can be done in time to catch the first production aircraft. Failure to do this would cause a hiatus on the aircraft production line, and thus inevitably cause us heavy additional costs. With these considerations in mind, present plans provide for the installation in the R.A.F. Phantoms of the navigation and attack system being developed by Ferranti, radio sets made by Plessey and Ultra and other electronic equipment made by Cossor. Some of these equipments may also go into the Royal Navy Phantoms.

The noble Earl has referred to other items of equipment. Again, I will try to pick these up. I believe he asked about the United Kingdom weapons, and said he meant to ask about the simulator and reccepods. I cannot remember whether he actually asked these questions.

EARL JELLICOE

My Lords, I can reassure the noble Lord. I did.

LORD SHACKLETON

I may say that I appreciate the willingness of the two noble Earl to give me information which has enabled me to give them information in exchange. It is our intention that the simulator shall be of British manufacture, again provided that it does not prove to be too expensive. We also intend to design and manufacture our own reconnaissance pod. As regards weapons, it is our intention to try to make provision for the carriage of many British stores. We still confirm the possibility of incorporating the AJ. 168 into the weapon system. We are hopeful that it may be possible to incorporate this.

There is also another category of British-designed equipment that we wish to have in American aircraft that we buy. This consists of items which the Americans have themselves installed in their own aircraft. In the case of the Phantom there is one such item, the Martin-Baker ejection seat, two of which are installed in each aircraft. I think I should like to take the opportunity of saying how very delighted we are that the Americans have made this choice and we are very happy that this company's long association with aircraft flown by our pilots as well as those of other countries will be continued. Those of your Lordships who are aware of the history of the Martin-Baker ejection seat will, I am sure, join with me in saying how delighted we are to see that Sir James Martin's great contribution was recognised in the Birthday Honours. There are many pilots who owe their lives to his design. This list does not necessarily exhaust all the British-designed items that will go into Phantoms. There are a number of items which do not have to be built into the aircraft during construction—I mentioned a few—but can be added afterwards. There are other items about which the final decision does not have to be made at the time the aircraft are ordered.

Quite apart from the question of British designed items, there is another field where we hope that there will be significant work for British industry, and that is in the manufacture of equipment, components and materials to American designs. Here there is no question of any expensive development programme, but the product must be identical with the American one so that we can integrate our own spares organisation with that of the United States armed forces and thus reduce our supply costs. Where British firms are invited at our request by the McDonnell Aircraft Corporation to tender for the delivery of items to American design, they will, of course, be in competition with American sub-contractors.

The decision whether or not a British bid shall be accepted will be based primarily on two criteria: will the offered delivery date match the aircraft production programme and does the price compare favourably with the price of the lowest American bid? Obviously, many of the competing American firms will already have produced some of these items for the Phantom. Their capital costs may well have been largely amortised, and their workers' experience will have cheapened considerably their production costs. This would naturally put our own manufacturers at a considerable disadvantage and, in order to overcome this, we have decided that a British bid will be accepted if the total cost—that is, the delivered price to McDonnell's—does not exceed the lowest American bid by more than a reasonable margin. The figure of 20 per cent. which the noble Earl gave is broadly correct, but I must emphasise that it is only one of several criteria to be taken into account in reaching a decision on a particular item. This premium is, of course, a special measure in somewhat exceptional circumstances.

We consider this arrangement a reasonable compromise between our desire, on the one hand, to obtain a large share of the aircraft for British industry and, on the other, to avoid having to pay too great a cost for it. The same condition will apply in the case of the C.130 aircraft. The United States Government has agreed also that no United States Customs or other duties will be payable on items of British manufacture imported into the United States for incorporation into our aircraft and that the provisions of the "Buy American" Act will not apply.

My Lords, the same general principles will also apply to British-designed items of equipment where the operational requirement is not paramount. In this case, however, I should make it plain that the premium must cover not only the delivered price of the item but also the appropriate research, development and production costs of installing and proving it in the aircraft. The competition for the supply of "Chinese copies" is now in progress, and up to the present time some 77 British firms, including our main aircraft constructors, have been, or are, in the process of being invited by McDonnell's to submit quotations for a great number of items for the Phantom. But until the closing dates for these competitions have passed and we can see the quotations which have been made, we shall not know the final results and be in a position to give a fuller answer to the noble Earl's question.

There were a number of other items which I should like to pick up: I wish to try to answer all the points raised by the noble Earl. He referred to wheels, brakes and tyres—and I agree that these are important. The design of the wheels, brakes and tyres for our Phantoms, which will be the same as used by the United States Navy, was put out to open competition and British firms were invited to tender. A technical assessment of these tenders proved an American design to be the best, and this has therefore been selected. However, we hope that it will be possible for this design to be manufactured under licence in this country. The noble Earl referred to the size of the Phantom order. Certainly there has been speculation in the Press on this subject. I am afraid that I am not in a position to give the final numbers. Obviously, any significant rise in cost is bound, depending on its amount, to affect consideration of the numbers of aircraft that we can afford. But in the first instance the number of Phantoms to be ordered will be determined by the outcome of the Defence review. In the meantime, we are conforming to American practice in ordering these aircraft by batches, rather than by one single large order. At the moment I do not think I can go beyond this. I stress that, in arriving at numbers, the decision and proposals will be related to the Defence review and the numbers that we think we shall need. Clearly at some point, if the cost became too excessive, it might affect the numbers we should buy. Plans for the in-service date I should mention still remain pretty well the same. We hope to introduce the Spey-engined Phantom into squadron service with the Royal Navy and the Royal Air Force during 1968–69.

My Lords, let me refer briefly to the possibility of the American use of the Spey in their Phantoms. Although we have not lost all hope of persuading the Americans to adopt the Spey in some of their Phantoms, I must admit that prospects are not too bright. It is not here a simple question of a quid pro quo, but an assessment by the Americans of their need in terms of cost effectiveness for the advantage that the Spey would undoubtedly confer, and this is particularly an aspect of the cost sensitivity study. There were some references also by both noble Earls to the service and maintenance side.

EARL JELLICOE

My Lords, is the noble Lord now leaving the question of engines?

LORD SHACKLETON

Yes.

EARL JELLICOE

He said that he would come back to it, but I should like to ask him a couple of questions. I am disappointed about what the noble Lord has to say about the expectation of America buying the British engine. I assume from what he has said that the Government will continue to bring pressure on the Americans in this respect.

But the point I wish to pick him up on is this. He said that the Spey programme was being kept under review by the Government because of cost increases. I do not wish to quarrel with this being kept under review, or with the contractual disciplines to which the noble Lord referred, but could he tell us whether the increase is mainly on the "R and D" side or on estimates for actual production costs of the engines? Secondly, can he tell us whether the order for the first production batch of these engines has been placed? Finally, when he referred to ordering by batches, it seemed to me that there is a danger that if we order by batches we are likely to increase the ultimate costs. Can the noble Lord say how that danger is being circumvented?

LORD SHACKLETON

My Lords, the noble Earl has asked me a lot of questions and I will try to answer them. The cost of the Spey has increased both in relation to research and development and in relation to unit costs. It is a very fine engine and we hope that it will be possible to sell it in other countries. We think that it is going to give a fine performance. The fact is that the cost has increased considerably, but I should prefer not to make more of that. Perhaps I should tell the noble Earl that if he based his estimated costs of the Spey engine on his memory, his memory was faulty, because he quoted a rather excessive figure on that occasion.

EARL JELLICOE

For two.

LORD SHACKLETON

Perhaps we shall leave the price factor at the moment, but I should be glad to go into this matter in more detail with him. I forget the noble Earl's other questions.

EARL JELLICOE

My Lords, they were two, and I apologise for being rather lengthy. The noble Lord said that the costs of the Spey engine were being kept under review, and I asked whether he could confirm that the order for the first production batch had been placed. It is my understanding that it ought to have been placed some little time ago, if dates were to be kept. The second question was: could he explain how he can reconcile ordering by batches with keeping costs down?

LORD SHACKLETON

My Lords, let me deal with the last question first. It is the American experience that ordering in batches is a good way of doing it. Obviously, this is a matter to which consideration has to be given, but I think it is fair to say that the manufacturers have some idea of the ultimate order given. Of course, there is always some element of risk. There is always the possibility that aircraft projects may be cancelled, as has happened in the past, either by the previous Government or by this one. The American system which we are following we find to be a satisfactory one. The basic order for the Phantom has only just been placed and, to the best of my knowledge, the order for the first batch of Speys has not been placed. On this I will let the noble Earl and, if he wishes, the House know.

On the question of service and maintenance, Hawker-Siddeley Aircraft have received a contract to learn all about Phantom in order that they may perform such post-design work as may be necessary in the course of time and also repair and maintenance work which is beyond the facilities of the Service. Ferranti will work in connection with Hawker-Siddeley on the electronic side and the weapon system in the aircraft. I think the noble Earl was concerned that a high proportion of HawkerSiddeley servicing staff would have to be American. Frankly, I do not know where he got this information from. The fact of the 'matter is that HawkerSiddeley's people are already in America for the purpose of getting all the knowledge and experience which will enable them to do all the future maintenance and servicing over here. I have inquired into this, so far as I can in the time, and that is my information.

The noble Earl also referred to security clearance, and this ties in with the question of co-operation by McDonnells. There is this question of delays in security clearance of United Kingdom personnel wishing to discuss classified matters with U.S. manufacturers. Your Lordships will appreciate that many aspects of the Phantom are naturally classified by the U.S. Government, and in order for U.K. personnel to obtain security clearance United States Government security procedures must be observed. But in order to facilitate the participation of British firms in the Phantom programme, the time taken to obtain clearance has been reduced, on average, to approximately one-third of the normal time. This could be informative, or it could not be, but I can assure the noble Earl that I have heard no complaints on this, and it is one of the matters to which attention was paid. That is why we were most gratified that there was this improvement in clearance.

I can now confirm the answer that I gave to the noble Earl on the Phantom. Although full engine contracts have not been placed, we have placed sufficient contract authority to enable the manufacturing programme to be maintained. In other words, we are well up with the game on the Spey.

I should like to take this opportunity of acknowledging the very ready cooperation in this matter—and, indeed, in the matter of installing other British equipment—that has been extended by the United States Government and the McDonnell Aircraft Corporation. We have on all occasions found the utmost willingness to meet us in our desire to obtain a large share for British industry. Having myself spoken to officers who have recently been over there, I know that they have been immensely impressed by the co-operation and willingness, indeed the keenness, of McDonnells to get British equipment into their aircraft. The challenge is now for British industry, and it is up to British industry to meet it.

THE EARL OF KINNOULL

My Lords, before the noble Lord sits down, can be answer a point that I made regarding the cost of repairs? I asked whether the American-supplied spares are on a fixed-cost basis or not.

LORD SHACKLETON

American-supplied spares will be related to the American Armed Forces' own system of support. There are two kinds (I do not want to go into too much detail), one called the Augmented Support System, run mainly by the manufacturers, and also the Co-operative Logistics Supply System. Under our agreement, we are entitled to participate in the Co-operative Logistics Supply System at the same prices as are paid by the American services.

EARL JELLICOE

My Lords, before the noble Lord finally sits down, I should like to thank him for the full information he has given to your Lordships on this matter. I think it has more than justified my noble friend's Question. I only wish that he had been able to scotch just a little further some of the rumours we have heard. However, he has done a great deal to reassure us on at least some of the points.

THE EARL OF KINNOULL

My Lords, perhaps I may associate myself with those remarks, and thank the noble Lord for his interesting reply.