§ 5.23 p.m.
§ Order of the Day for the Second Reading read.
§ LORD BOWLES
My Lords, I beg to move that this Bill be now read a second time. The main purpose of the Bill is to give effect to the promised financial reconstruction of B.O.A.C. This House is fully familiar with the troubled history of B.O.A.C. in the past, but if any noble Lord wishes to remind himself of the facts I recommend him to study the Report of the Select Committee on Nationalised Industries regarding B.O.A.C., which is dated June 9, 1964, and the Minister's reply which appeared in December, 1965. I may also remind the House of the important statements made by the then Minister of Aviation and by the then Chancellor of the Exchequer in another place on July 22, 1964.
The position reached at that time was that B.O.A.C.'s future fleet composition was settled by the agreement of the Corporation to take 17 Super-VC.10s. In return it was accepted by the Government that not only would B.O.A.C.'s accumulated deficit be dealt with, but the capital structure of B.O.A.C. would be so reconstituted as to put the Corporation, for the future, on a fully commercial basis, taking into account its future fleet composition. In fulfilment of this commitment, the last Minister of Aviation announced the terms of the proposed reconstruction in another place on March 1, 1965, in the course of a debate on civil aviation policy. In short, B.O.A.C. was promised assistance of £110 million, which was large enough to enable both the accumulated deficit to be written-off and a useful reserve to be formed. The then Minister of Aviation judged this to be the right figure, on the one hand avoiding "featherbedding", and, on the other, offering the prospect, under firm management, of achieving financial as well as operational success. The first object of the Bill is, therefore, to bring to fruition, during the current financial year, the process of financial reconstruction of B.O.A.C. which can be said to have begun when Sir Giles Guthrie was appointed Chairman of the Corporation just over two years ago.
1026 The second object of the Bill, and from your Lordships' point of view probably its most interesting feature, is one which grows out of the first. This is the introduction of an experiment in what we term Exchequer dividend capital, whereby the Corporation, instead of paying to the Treasury fixed interest on all its borrowings, pays fixed interest on part only and a dividend, related to its actual results, on the rest.
The third object of the Bill, which need not, I think, occupy much of your Lordships' attention, is to use this opportunity to amend the Air Corporations Act 1949 in several respects, in regard to both B.O.A.C. and B.E.A., so as to put the two Air Corporations in the same statutory position as other nationalised industries. The most important innovation under this head is the Minister's right to approve capital investment plans of the Air Corporations, a power which has hitherto been assumed to exist but had no statutory basis. In addition, the opportunity has been taken for a number of useful but minor amendments, mostly in relation to the Corporations' finances.
I should not like it to be thought that the financial reconstruction for which this Bill provides reflects in any way discreditably on B.O.A.C. Throughout its past difficulties, the Corporation has preserved its enviable reputation for safety and standards of service, and it remains to-day a national flag carrier in which we can all take a legitimate pride. Over the past two years its financial results demonstrate that, following on the lead given by the previous Chairman, the Corporation has taken action to set its own house in order. It is now for the Government to do its part. I will now describe in more detail what the Bill will achieve in regard to these three objectives.
At the present time, B.O.A.C.'s borrowings from the Exchequer amount to £176 million, comprising £52 million of Stock and £124 million of Exchequer Advances. Clause 1 of the Bill reduces this figure by £110 million to £66 million, which will then be divided between £31 million of loan capital and £35 million of Exchequer dividend capital. I want to make it clear at the start that this £110 million is not a subsidy and in fact involves no new public expenditure of any 1027 kind. B.O.A.C. will, however, no longer be obliged to pay to the Exchequer annual interest on this sum of £110 million. The saving in interest to B.O.A.C. in a full year will amount to £5¼ million, and the taxpayer will forgo this amount of revenue, though the loss of interest will to some extent be offset by the introduction of Exchequer dividends, to which I shall come later. The whole of the £110 million will initially be credited to reserve. Of this sum £82½ million represents B.O.A.C.'s accumulated deficit. as at April, 1965—the operative date of the Bill—of the past losses which have necessitated the reconstruction. This will be written off. Your Lordships will not expect me to go in detail into the sad and ancient story of how these losses occurred. The aftermath of the Comet disaster; premature obsolescence of stopgap and late-delivered aircraft; unhappy experiences in overseas investments—even the need to borrow from the Exchequer to pay interest due on past losses: all these and other causes are well known to your Lordships and it is only a recognition of realities that B.O.A.C., under its new management, should be relieved of this legacy of the past.
The write-off of the accumulated deficit will leave a balance of £27½ million to form a starting reserve. The Government believe that, in a wholesale reconstruction of this kind, designed to enable B.O.A.C. to operate, in a competitive and fluctuating market, on a fully commercial basis for the future, there is a clear need to permit the Corporation to have a reserve of this character. The amount of such a reserve is a matter of judgment—not of precise calculation. The figure finally agreed is based on the Government's judgment of what the Corporation needs in order to be able to face its competitors on terms of equality, without the danger that it may need to come again to the Government for more assistance next time it runs into a squall.
The purposes which a reserve may serve include a defence against a downturn in the international market (there are no fewer than 17 competitors on the North Atlantic, and more seeking to join in), premature obsolescence of aircraft (a permanently recurring danger in this industry), a decline in the revenue rate, 1028 due to reductions in international fares (which are not in the Corporation's control), or even the political disasters to which all airlines, and particularly a world airline such as B.O.A.C., may be subject. And losses consequent on the Indo-Pakistan dispute are a recent example. Moreover, a decision has yet to be taken on the last ten Super VC 10s of the B.O.A.C. order which were in suspense at the time of the July, 1964, settlement and were not affected by it. If these ten aircraft are cancelled, the cost will be in the order of £7½ million, and this is something which could be charged against the reserve.
Thus the Government consider the figure of £27½ million out of the £110 million, write-off, a reasonable initial reserve, given the scale, nature and risks of B.O.A.C.'s operations. Under existing powers, the Minister possesses ultimate sanction over the application of reserves. However, because elements of judgment come in and such judgments can be at fault, I would draw your Lordships' attention to two precautions which have been provided in the Bill. The first will be found in Clause 2(2), which provides, among other things, that the funds from the reserves may be capitalised, in the form of Exchequer dividend capital. The second is in Clause 3(9), which gives the Minister power in three years' time, after March 31, 1969, to claw back to the Exchequer any sums which in his view are then surplus to the Corporation's requirements. In other words, if time has proved the accumulated reserves to have become too large, the Minister of the day can either capitalise the excess or require it to be paid into the Exchequer.
The £66 million of B.O.A.C.s remaining capital has been divided more or less evenly between loan-capital and Exchequer dividend capital. This gearing is a matter of judgment, but there are commercial as well as airline precedents. The loan capital figure of £31 million is a variable figure, which will go up or down according to B.O.A.C.s cash flow, and its need to borrow capital. The interest paid on this £31 million will be a weighted average of the interest rates payable on its present borrowing of £176 million; and this has been worked out and agreed 1029 at 4 per cent. The £35 million Exchequer dividend capital is of more interest to your Lordships, since this represents an important and potentially very valuable innovation in the policy towards nationalised industries.
The Government have decided that, following this reconstruction, B.O.A.C. becomes the most suitable of the nationalised enterprises for an experiment with a system of dividend-paying capital, in many respects equivalent to the equity capital of the normal commercial company. The essence of the system is that B.O.A.C. should pay on £35 million of its capital a sum to the Government each year related to its earnings in that year and not merely a fixed rate of interest, as in the past. Thus the Exchequer's receipts from B.O.A.C., on this element of its capital, would be directly related to B.O.A.C.s fortunes in the year in question—in other words, the Exchequer would share with B.O.A.C. the risks of the business and reap the benefit of any bonuses. Such an arrangement is undoubtedly particularly appropriate to an industry with the fluctuating results of civil aviation. It may also prove appropriate to other nationalised industries, if the experiment with B.O.A.C. turns out to be, as I hope it will, a success. But that is something which we must wait and see. We are concerned, for the moment, only with B.O.A.C., and the experiment will put the airline in much the same position as other large world carriers such as its partners, Air India and QANTAS, which, while substantially publicly owned, work on a basis of fixed interest and equity capital.
B.O.A.C's environment, which is free of the complications of domestic obligations of a social service nature or any suggestions of monopoly status, is much more suitable for an initial experiment of this kind than B.E.A. I hope that it will before long prove right and suitable to extend the system to B.E.A. also: but for the present it is the Government's view, with which I do not think that your Lordships will differ, that any such experiment is best confined to an individual undertaking, and that there is none more suitable than B.O.A.C.
The proposals for Exchequer dividend capital are set out in Clause 2 of the Bill, and there are two aspects to which I 1030 would particularly draw your Lordships' attention. The first is that, whereas it rests with B.O.A.C. to propose the dividend, it is reserved to the Minister, with the approval of the Treasury, to determine it. The dividend cannot be decided in total separation from the appropriations to reserves, which, under the existing Statutes, are determined by the Corporations but are subject to the Minister's direction. Thus, the arrangements which the Bill provides in relation to Exchequer dividend capital are consistent with those long in existence in relation to the treatment of the Corporation's reserves.
The second point is that the experiment is to be in the first instance for a period of five years. Under Clause 4, at the end of that period it will either lapse, in which case the relevant Exchequer dividend capital will revert to the status of loan capital, or the new system may be continued by order, temporarily or permanently. In the latter event it will have ceased to be an experiment, and become established, as indeed I believe it will. Your Lordships will note that this order will require an Affirmative Resolution of both Houses of Parliament, and that your approval will therefore be required for its continuance.
The Bill permits future capital needs of B.O.A.C. to be met either by the provision of more loan capital or more Exchequer dividend capital, as the Minister may decide; but, because of the write-off, the existing statutory limits (260 million, increasable to £300 million) have ceased to be appropriate. The limit of combined loan capital and Exchequer dividend capital will be £90 million, which can be increased under Clause 1(3) by Affirmative Resolution to £120 million. There is no need to alter the existing limits of borrowing powers for B.E.A.—that is, £110 million, increasable to £125 million: the outstanding borrowings at March 31, 1965 being £87½ million. In both cases, the limits should be high enough to cover needs over the next three to four years, and in B.O.A.C's case they allow for progress and delivery payments on some pre-Concord capacity, as well as for some of the earlier progress payments on the Concord itself.
Having described B.O.A.C.'s financial reconstruction and the experiment in Exchequer dividend capital, I turn now to the third of the main purposes of the 1031 Bill, to bring the statutory position of B.O.A.C. and B.E.A. into line with that of other nationalised industries. The legislation governing the Air Corporations was among the first of the post-war nationalisation Statutes, and it owed much to the Act of 1939 which first created B.O.A.C. Moreover, the two Air Corporations' financial duties were dominated at the time by provisions relating to the subsidies which they were receiving. There are, therefore, significant divergences between the provisions of the Air Corporations Act 1949 and the other main nationalisation Statutes which the Government think it right on this occasion to eliminate.
Your Lordships' House is, for instance, familiar with the White Paper of 1961 on theFinancial and Economic Obligations of the Nationalised Industries(Cmnd. 1337), which laid down the principles on which targets of performance should be set for each industry. These targets are based on the Government's interpretation of the obligation placed on each one of them, so to conduct their affairs as at least to break even, after meeting all proper charges on revenue, taking one year with another. For the reasons I have explained, neither of the Air Corporations was set such a duty. Although B.E.A. has, in fact, been set a target (of 6 per cent. return on net assets over a five-year period from April 1, 1963, to March 31, 1968), this had no statutory basis. In fact, B.E.A., has more than met its target in the first two years of the five-year period. Accordingly, Clause 5(1) of the Bill creates for B.E.A., whose financial structure is identical with that of most other nationalised industries, a financial duty identical with theirs.
This financial duty will not, however, do for B.O.A.C. because of the introduction of Exchequer dividend capital. It would not be enough to require B.O.A.C. merely to break even, after meeting all proper charges on revenue (which include interest on loan capital). This would be a far less onerous duty for B.O.A.C. than for the other industries who pay interest on the whole of their capital. And it would impose no obligation on B.O.A.C. to pay a respectable dividend—and the Minister and the Chancellor of the Exchequer certainly expect that the proceeds of the dividends, one year with 1032 another, will be no less, and perhaps more, than the corresponding interest would have been. The stimulus of Exchequer dividend capital, the creation of a substantial contingency reserve and the Corporation's new more commercial approach should enable B.O.A.C. to show a much better return than that of breaking even. Consequently, Clause 3, subsections (1) to (5), of the Bill prescribes an appropriate procedure whereby the Minister can determine a target for B.O.A.C. over a given period large enough to permit the payment of a reasonable dividend to him under Clause 2. If B.O.A.C. do not think they are going to be able to achieve that target, then they have to tell the Minister and suggest remedies. The target is to be expressed as a percentage return on net assets. This is the usual way in which such targets are expressed, but it was recognised in Cmnd. 1337 that this was not the only way in which this could be done. In case it is desired, in the course of reconsidering the policy towards nationalised industries to express the targets differently, Clause 3, subsections (6) to (7), permits a change in the method of reckoning to be made, by order by the Minister, subject to Affirmative Resolution. Thus, in different ways for the two Corporations the Bill takes an important step forward in bringing to both a statutory financial duty, which I am sure the House will support.
Another duty, to be imposed by the Bill similarly on both Corporations relates to their capital investment programmes. The original Air Corporations Act failed to require the Corporations, alone of nationalised industries, to submit their capital investment programmes to the Minister for approval. This is a serious defect, since it is a cardinal feature in machinery for controlling public expenditure that the Government should have the power of approving or influencing the investment of all nationalised industries. This, indeed, is one of the reasons why they are nationalised. In practice, of course, both Corporations have been in the habit of seeking approval for substantial investment projects, particularly purchases of aircraft and investments in associated and subsidiary companies, more particularly overseas. It has always been unsatisfactory that this consideration was on a non-statutory basis, and has relied for such formal basis as it 1033 had on the Minister's position as the source of the Corporations' borrowings. Accordingly the Bill introduces, for B.O.A.C. and B.E.A. alike, in Clauses 3(8) and 5(2), an obligation, in framing and carrying out proposals involving substantial outlay on capital account, to act on lines settled from time to time with the approval of the Minister. This obligation relates not only to the Corporations themselves but also to their subsidiaries, of which B.O.A.C.-Cunard is the largest but by no means the only example. These provisions resemble those found in the governing statutes of other nationalised industries and thus bring the two Air Corporations into line. In the same way, Clause 8(3) of the Bill removes an anomaly of the Air Corporations whereby the remuneration of Board members determined by the Minister could be supplemented in respect of executive duties by payments determined by the Board. No other nationalised industry has such a provision, which has given rise to much argument in practice over the years. The Government considers it desirable that in this respect the Air Corporations should conform to the principle that the total remuneration received by Board members is a matter for the Minister.
The remaining provisions of the Bill, though minor and subsidiary, are useful. The opportunity is being taken to remove out-of-date provisions and otherwise bring up to date the statutory provisions in the Air Corporations Act 1949 with regard to the provision of information to the Minister. This information is required for various returns and estimates. These changes are made in Clauses 8(1) and (2). A useful extension is made in Clause 6(1) of the powers of the Corporations to borrow overseas, because this can sometimes be the cheapest course for them, especially in relation to overseas investments. At the same time the Treasury is given, in Clause 6(2), power to guarantee such borrowings, which can help to keep the cost down. These are sensible and, I hope, non-controversial provisions, for which experience has shown a need.
Finally, in Clause 7 provision is made for the Minister to extend by regulation the scope of the existing Airways Corporations Joint Pension Scheme so that it can also incorporate the subsidiaries of the Corporations and comparable bodies. 1034 This is a sensible extension, which is acceptable to the Corporations and to the employees' side. It will be observed that under subsection (3) no regulations will be made by the Minister except after consultation with the Corporations and with any appropriate trade union organisation. It will be seen, especially from these latter amendments, that the Air Corporations Acts are becoming somewhat of a jig-saw puzzle. I am happy to say that the minor amendments which I have been describing, together with the repeals in Schedule 2, have been designed to facilitate the process of consolidation, on which work has already started. I am sure your Lordships will join me in wishing a speedy outcome to this necessary step, as soon as the present Bill has become law.
I have no hesitation in recommending this useful Bill to your Lordships at the present time and inviting you to give it a speedy passage. It is needed by the end of the current financial year, so that it can readily and fully be reflected in B.O.A.C.'s annual accounts for 1965–66. We are just in time for that. We are launching a new era for B.O.A.C., which deserves all the success it is securing as well as all the support this House can give it. I understand its results for 1965–66 will be about the same as for 1964–65, which were a record.
Because we are to-day concentrating primarily on B.O.A.C., I do not want your Lordships to think that we in any way overlook or disparage the achievements of B.E.A. Indeed, it is a token of the remarkable success over the years of that organisation, both under the chairmanship of a much respected Member of this House, the noble Lord, Lord Douglas of Kirtleside, and of his successor Mr. Milward, that it has not needed any such financial reorganisation as is contained in this Bill. As I have mentioned before, it has more than met the target which the Government have set it. B.E.A. is confidently expected again to meet the target return in the present year. Nevertheless, I trust that, though mainly in relatively minor respects, the Bill will have its utility for B.E.A.
In presenting to your Lordships the Air Corporations Bill, I want to make clear that the Bill is not about B.O.A.C.- Cunard, except incidentally. It is about B.O.A.C. The financial reconstruction 1035 of B.O.A.C. has taken a form in which the House may be assured that no benefit front it will find its way into the hands of the private shareholders in the Cunard Steamship Company. It would not be right for the relief afforded by the Bill to B.O.A.C. to operate to the benefit of private shareholders who have neither had any hand in the past losses nor made any contribution to the present reorganisation. Sir Giles Guthrie has given an assurance that there are no circumstances he can foresee in which any indirect benefit to Cunard is likely to happen, or indeed in which B.O.A.C. would permit it to happen. Moreover, the Corporation's auditors, appointed by the Minister, have agreed to give the Minister an annual certificate that no part of the reconstruction benefit is in fact flowing to Cunard. I think, therefore, your Lordships can safely leave aside from consideration, in connection with the Bill, the possibility of any unjustifiable financial benefits to the Cunard shareholders. Whatever doubts some of your Lordships may entertain about the benefits of the B.O.A.C.-Cunard association, they offer no sound reason to affect our attitude towards this Bill.
I do not wish unduly to detain your Lordships and I have, therefore, refrained from enlarging on many other topics regarding B.O.A.C.'s fleet plans, B.E.A.'s social services and other interesting questions discussed in another place in connection with the Bill. My noble friend Lord Shackleton will, I am sure, satisfy your Lordships on any such matters which you may wish to raise in the course of the debate, and I omit them now because I do not think they are truly germane to the questions to which this Bill addresses itself. These are important enough in their own right, and I trust that the measure I am putting before your Lordships to-day will help B.O.A.C. to maintain its record of outstanding service to the nation and Commonwealth, will put to the best possible use the national investment in the Air Corporations, and will fortify the high hopes we entertain for the continued success of both. I beg to move.
§ Moved, That the Bill be now read 2. —(Lord Bowles.)1036
§ 5.55 p.m.
THE DUKE OF DEVONSHIRE
My Lords, I am quite sure that the whole House will join with me in thanking the noble Lord, Lord Bowles, for the most comprehensive and lucid way in which he introduced the Bill. I say at once that I accept his statements that there is no connection between the matters which are dealt with by this Bill and the affairs of B.O.A.C.-Cunard, and therefore I do not in my brief remarks propose to make any reference to B.O.A.C.-Cunard.
We on this side of the House welcome this Bill, because it was originally a measure conceived in the previous Administration by my right honourable friend Mr. Amery. As I understand it, it is designed primarily for two purposes: first, to write off B.O.A.C.'s accumulated deficit; and, secondly, and even more important, to put B.O.A.C. on a sound commercial basis. It is therefore designed to show that a nationalised air corporation can work in the best commercial manner. The principle of a nationalised industry working along the lines of best commercial practice is something which will be most welcomed by those of us on this side of the House. I propose to be brief, but I give the noble Lord warning that when we reach Committee stage it may well be that we shall wish to examine the Bill more closely and may wish to put down Amendments to certain clauses.
This evening I wish only to ask the noble Lord two general questions. The first arises out of Clauses 1 and 2 of the Bill and concerns the size of the amount involved. I think the figure given by the noble Lord was £110 million. This sum includes the £90 million required to wipe out the deficit and also to provide B.O.A.C. with an adequate working reserve. I think the noble Lord in his speech said that the amount for reserve would be useful in preventing any "feather-bedding". Originally when the Bill was drafted it was estimated that B.O.A.C.'s accumulated deficit would be some £90 million. This provided a reserve of some £20 million, but in the event, thanks to the admirable results achieved by B.O.A.C. in 1964–65—and I associate myself with the remarks of the noble Lord as to the great service which B.O.A.C. has given to this country —and as a result of their high level of 1037 efficiency, the accumulated deficit dropped by some £81½ million. Therefore, the reserve has increased by that amount.
THE DUKE OF DEVONSHIRE
Yes; if they made a profit it could be deducted from their accumulated deficit. Therefore, their accumulated deficit is now some £81½ million as opposed to £90 million, and therefore the reserve has risen by that amount.
I was interested to hear the noble Lord say that B.O.A.C.'s record in 1965–66 would be of the same order, so that we may assume that there will be another substantial profit. This is wholly admirable, and the last thing I should wish is to be thought to be taking a carping attitude in this connection. The point I want to make is that the reserve has risen quite substantially from what it was originally intended to be, and I query whether it is necessary to have such a very large reserve. I would have accepted the figure of £20 million in the first place, but now that it has increased to some £28 million—and it may well as a result of another splendid year's working be increased even further—I must express doubts as to whether the amount is not too large.
May I ask how these reserves are to be used? As I understand it, the object of reserves being held by nationalised industries is to permit those industries to carry out the expansion required by their activities. Any good large concern needs to expand its activities and at times has to call fully on reserves. This is a justifiable activity. I hope that I shall not be thought to be unduly suspicious if I say that I trust this is what these substantially increased reserves are to be used for. I hope there is no question that they might be used for any other purpose—possibly, for example, because they might be required by B.O.A.C. to honour commercial undertakings which they are already committed to. I have in mind those to meet the increased cost of the VC 10s which the Corporation are to purchase; or, again, whether part of those reserves have been earmarked for the purchase of the remaining ten Super VC 10s which are at present held in suspense and to which the noble Lord 1038 referred. These would be quite improper uses of the reserves which would become available once the Bill becomes law. So the question of the size of the reserves, which have increased since the Bill was originally drafted and which were designed to be £20 million, is something which it is highly possible we shall wish to probe further in the Committee stage.
The second point to which the noble Lord also made reference is the matter of the new capital. This amounts to some £66 million, as the noble Lord told the House, £35 million of which is to be Exchequer dividend capital. I think it would be fair to say that it is the equity element of the capital. Again, we on this side of the House warmly welcome this, because it seems to be an admirable innovation and one which we hope we will see extended. But it seems to me that this division of £35 million equity element and £31 million of fixed interest element is artificial and, indeed, arbitrary, and I see no reason why the equity element should not be larger. I believe I am right in saying that in the State airlines of Australia the whole of the capital is based on equities. I do not say that we should go that far, but it seems to me than an artificial division has been made.
The main question which I want to ask on this equity element is this. Why should it be confined only to B.O.A.C.? It seems to me that this idea will bring to B.O.A.C.'s affairs a valuable commercial stringency. Why should not the same idea be applied to B.E.A. now, rather than at some hypothetical date in the future? I listened with interest to the arguments put forward by the noble Lord, as to why it should not be done for B.E.A., but I must confess that I was not convinced. It is wholly in the interests of the industry and, indeed, of the nation—as, after all, we are here dealing entirely with the taxpayers' money—that the stringency and the disciplines of equity capital should apply as widely as possible. So I should like to see this idea of equity capital playing a part in the finances of B.O.A.C. extended at once, rather than at some possible date in the future, to the affairs of B.E.A.
Those are the only two queries I have. We regard this Bill to put it rather vulgarly, as our baby. We welcome it in 1039 principle, but reserve the right to probe it in considerable detail on the Committee stage.
§ 6.3 p.m.
§ THE MINISTER OF DEFENCE FOR THE ROYAL AIR FORCE (LORD SHACKLETON)
My Lords, I take your Lordships' silence as acquiescence, after, as the noble Duke said, the extremely lucid explanation of my noble friend Lord Bowles of a very complicated subject indeed. It is so complicated that I fear the noble Duke is a little confused on certain of the matters contained in the Bill, and I think it is right that we should perhaps pursue some of them in the Committee stage. It will be an educational experience for him and also for me, because I appreciate the difficulties.
However, I must make one point clear. The noble Duke really misunderstands the use of the word "reserves". The reserves are not cash, and it seems to me, if he is speaking on behalf of the Opposition on this matter—because this question was raised in another place—that he has not yet fully grasped the purpose of this reconstruction. The question of whether B.O.A.C. is being given too much or too little in the way of reserves is really not at all relevant to the future financing of B.O.A.C.'s operations. It seems to me that, having had a good year—although to a large extent the figure we are discussing is notional—it would be rather arbitrary, and indeed irrelevant, having thought of a figure, so to speak, merely to reduce the figure by the amount of that particular profit. I should be very willing to go into this matter in more detail, and I have some fairly lengthy explanations, but at this late hour I will not go any further into it. However, if the noble Duke really wishes to press me further I shall be happy to go into it at length.
THE DUKE OF DEVONSHIRE
My Lords, I have no wish to detain the noble Lord, although perhaps his idea of "a late hour" is rather different from mine. Of course, I accept the fact that the reserve is not cash, but the reserve can presumably be spent; otherwise, what is the point of having a reserve? Presumably it is on call. I stick to my point, that it was originally estimated that the accumulated deficit would be £90 million. The figure quoted by the noble Lord 1040 in moving the Second Reading, and, indeed, quoted in another place, was £110 million which gave a reserve of some £20 million. We were told that the profit was £8½ million, but we are now told that this is a notional figure. I am afraid that I must ask for further enlightenment on that. What does the noble Lord, Lord Shackleton, mean by a "notional figure"? Is it £8½ million, or is it not?
§ LORD SHACKLETON
My Lords, I did not say that the reserve was a notional figure. But I think it would be better if we pursued this point in more detail in Committee. This is a very good individual clause point, and if it would help the noble Duke in any way in this matter I should be very willing to provide him with a more detailed explanation of what is a very technical subject. My reference to the late hour was largely because (although I have been in another place where this would be a very early hour) I have frequently heard your Lordships refer to "this late hour", and I thought I was merely conforming to the conventions of the House. But I am gratified to see that the noble Duke, who I think may have been in another place at one stage, thinks in terms of rather longer hours.
Again, the noble Duke referred to the size of what he called the equity. I really do not see that there is anything very secret about it. To start with, this particular form of shareholding, if one likes to call it that, is not strictly comparable to equity; but if we were to treat it as if it were, the figure is pretty similar to that of other airlines. In this case, it will be very much in line with the equity shareholding in a number of B.O.A.C.'s competitors. But, frankly, the proportion of equity to loan capital is a matter which we could argue about at very great length. In private enterprise public companies there is usually a ratio between the shareholding and the loan capital. This is, of course, determined not by legislation but under general rules which the Stock Exchange Council press on companies. It is sometimes an embarrassment to companies who rely very much more on loan capital and debentures than they do on ordinary and preference share issues. However, I do not think there is very much to this particular point.
The final question which the noble Duke asked was, if this is a good thing, 1041 why should we not apply it to B.E.A.? I think that if this is a good thing it is quite likely that in due course it will be applied to B.E.A. But it is an experiment, and at this stage I certainly could not say whether or not there is virtue in it. I think it is an intriguing idea, and it has certain attractions in the concept of B.O.A.C. which has had a great deal of money from the Exchequer. Of course, there is power to call back funds directly under this Bill if the Corporation's profits become too large. It is possible, indeed, in effect, to call back reserves: whereas in the case of the other Corporation, B.E.A., I think I am right in saying that it is possible to call back only the profits in a single year.
In due course, B.E.A. may or may not be a candidate; but I think that if one is embarking on what is an unusual experiment in this country it is only wise in this matter to follow the view to which we have come and apply it to B.O.A.C. Therefore, although these are interesting points, and are well worth making and discussing, I am inclined to think that the issues which the noble Duke has put forward are not ones of a kind to warrant a change in the Bill. But I shall certainly be willing to consider anything he may put forward on Committee stage.
My Lords, I should like to conclude my remarks by paying a tribute to B.O.A.C. I think we have all been rather obsessed by their unfortunate financial position; but, of course, B.O.A.C. are now well on the way to seeing the solution. In fact, noble Lords will recall that that very able and somewhat outspoken Chairman, Sir Matthew Slattery, did point the way very clearly as to how this reconstruction should be carried out. I do not wish to rake up the errors of the previous Administration, but I seem to remember that he did get rather at cross-purposes with the noble Duke's right honourable friend who was then the Minister of Aviation. Of course, we could, if we wanted to, go through this whole sad story. There are a number of former directors of B.O.A.C. who are Members of your Lordships' House, sitting on the Opposition Benches, who feel rather strongly on this subject.
However, B.O.A.C. has an enviable record for safety and efficiency; and I am sure that, while we can point to the satisfaction of the more profitable nature of B.E.A.'s operations—and again we pay 1042 full tribute to them—I do not think they had quite the same complications, particularly in the matter of equipment, as B.O.A.C. B.E.A. had an aircraft which was "a winner" right the way through: B.O.A.C., on the other hand, had great difficulties. And, of course, the Comet disaster was a great tragedy for B.O.A.C. as well as for this country's aircraft industry. None the less, although it was at fairly heavy cost, the investment is still paying off to this country; and, if I may revert to the Shackleton replacement, the Maritime Comet, that, of course, derives from the early Comets which B.O.A.C. helped to sponsor.
I am therefore glad that this Bill has been welcomed on its Second Reading, and I hope that, after some discussion on these rather interesting and technical points, your Lordships will speed it as quickly as possible on to the Statute Book. I may say that if we take too long over it we shall be in difficulty, because some of the figures may be altered by the next year's trading figures.
§ On Question, Bill read 2, and committed to a Committee of the Whole House.