EUROPEAN AIR-BUS PROJECT

HL Deb 19 July 1968 vol 295 cc642-55

LORD TREFGARNE rose to ask Her Majesty's Government whether they have any plans for discontinuing their participation in the European A.300 Airbus project and offering, instead, launching aid to the BAC 2–11 or other national projects. The noble Lord said: My Lords, in rising at five minutes to two o'clock on a Friday afternoon I am conscious of the need for brevity, and I will do my best to meet that need, so that at least the noble Lord, Lord Beswick, can get away for his lunch.

The issue before us was brought at into sharp focus a week or so ago when it was announced in another place, in answer to a Question from the honourable Member for Woking, that the Anglo-European air-bus project has now suffered an escalation in its estimated launching costs of no less than 50 per cent., and that we are now, jointly with our European partners, faced with a bill of something approaching £250 million. No doubt, judging by the previous rate of escalation, since that Question was answered there has been a further rise, but that question is not on the Order Paper to-day, and I will not labour it further.

The airbus project was, we were originally told, to be finalised in its design and other criteria by the end of the present month; indeed, it was originally hoped that by that time the principal airlines involved, that is to say, B.E.A., for Great Britain, Lufthansa, for Germany, and Air France and Air-Inter, for France, would have been able to reach a decision and the total option book—if not the order book—would stand at about 75 aeroplanes before the project received its final "go ahead". Alas! this has not happened. First, as a result, no doubt, among other things, of this recent almost shattering increase in R. & D. costs for the project, and for other reasons, the airlines (except, I understand, Air Inter, which is the French domestic airline) have said they are not yet in a position to reach a decision on their requirement for this aeroplane, and indeed I understand that only a week or so ago the aircraft design was altered fairly substantially, which of course produced a new set of circumstances for the airlines to consider.

The other difficulty that faces the project, if, as we are given to understand, there are options on 75 aeroplanes before the project proceeds, is that the interested airlines (if they can be so termed, although perhaps "interested" is a strong word in the case of some of them) have been unable to agree among themselves upon a specification for this aeroplane. I suggest that this is unfortunate, because no doubt the airlines do not always know what is best for themselves, but as a result of this the manufacturers are obliged to incorporate modifications in the aircraft for each different customer; and this of course has of itself tended to increase the R. & D. costs and, ultimately, the purchase price of the aeroplane. This increase in R. & D. costs, and thus the purchase price of the aeroplane will of course be finally reflected in the ultimate operating costs of the aeroplane, and no doubt this has further aggravated the difficulties facing the airline in reaching their decision.

The third difficulty is that after the first two difficulties, the reluctance of the airlines to commit themselves and the undoubted very substantial increase in costs, many people, again including the airlines—who are, after all, the ultimate customers—have considerable doubts about the ultimate wisdom of the design philosophy behind the aeroplane. No doubt, of course, a twin-engine aeroplane, such as has hitherto been put forward—that is to say with two large engines, which in the present design are to be mounted under the wings—has many economic advantages. But there are a number of difficulties alongside the advantages.

First, because we shall be using only two engines it will be necessary for an entirely new engine to be developed. This is to be designated the RB 207. which is an engine beyond the stage of the RB 211 and which recently was successful in achieving an order from the Lockheed Company for fitting to the Lockheed 1011 air-bus. Thus we are developing, no doubt at considerable expense (I understand the figure is to be around £70 million), an entirely new engine for this airframe, for which, at this stage at least, no other project is foreseen. There was, I understand, a proposed aeroplane in America for RB 207 engine but that project has since been abandoned.

Although the under-wing engine layout for a twin-engine aeroplane has considerable economic advantages, the disadvantages, apart from the fact that the engine itself must be a new one, are very serious when considered in the light of the recent accident at London Airport when, your Lordships will recall, a B.O.A.C. 707 had an engine disintegrate during the take-off phase of the flight and, as a result, an emergency landing had to be made. The aircraft took fire, and only by the skill of the pilot and a considerable amount of good luck was the death roll kept down to six.

In this new aircraft we are considering, if a similar accident occurred, if one of the engines—and it should be borne in mind that this is an entirely new engine—disintegrated at the same stage of the flight, the pilot would be faced with far more serious isometric problems, as they are called, than was the pilot of the Boeing 707 at London Airport. If the engine disintegrated to the same extent as the 707 engine did, and caused the same damage to systems as that accident caused, I think it would be fair to say that the entire passenger load of the aircraft would be placed in serious jeopardy. Indeed, I do not think it is overstating the case to say that the accident would be catastrophic.

If we accept the objection to fitting the RB 207 and seek to fit the RB 211, we must remember that for a 300-seater aircraft the RB 211 engine is not big enough if only two of them are fitted, and it is necessary to fit a third. But if we do this, if we evolve a tri-jet design, we shall be overcoming, even if we retain the under-wing conception for the two principal engines, the principal objection to the isometric difficulties that are envisaged in a simple two-engine design.

Finally, there is a fourth reason why we should take an early decision on this Anglo-European A-300 project. That is that, as I am advised, in connection with certain offset purchases that are proposed by the Lockheed company in regard to their 1011 project, the company take the view that if the A-300 project goes ahead this to some extent will reduce the potential sales of the 1011 project. This would mean that they would not be prepared to go ahead with certain offset purchase agreements they are proposing to enter into in the event of the A-300 not proceeding. I do not suggest that that of itself is a reason for abandoning or otherwise the A-300 project; but at least it is a reason for an early decision, one way or the other.

The objections to the A-300 are, in a nutshell, first, that the aircraft appears to be too expensive, although it may be possible for further cost-effectiveness studies to be carried out, and perhaps the price could be kept down or the efficiency of the aircraft could be increased. Secondly, there is no unanimity of requirements among airlines for the particular perimeters that shall be applied to the aircraft's performance. Thirdly, the aircraft is not using the RB 211 engine but the entirely new RB 207, which will need additional expenditure of, we are told, some £70 million for development, bearing in mind that the RB 211, a smaller engine, is already paid for R. and D-wise by the American order for the 1011 air-bus.

Fourthly, the danger that I and others see in the basic design philosophy of this aircraft is that it is fitted with only two engines and, furthermore, they are under-wing engines, which cause considerable isometric difficulties to pilots in certain disadvantageous circumstances. Fifthly, we need to have a decision, and I imagine that if it is to be early it must be a cancellation decision, so that the proposed offset purchases that it is hoped that certain American firms will place may go ahead without delay.

My Lords, if the A 300 is to go—and rumour has it that in fact it has already been cancelled by the Government, though they have not yet announced it—what are we to do in its place? I would submit that the answer is to appoint a requirements committee, including, but not ruled by, the airlines, to finalise a specification and to make it a general specification from which departure could be made only at the expense of the par- ticular customer. I would submit, secondly, that this national project should be fitted not with two RB 207 engines, the design philosophy of which is at best suspect, but three RB 211 engines, because they have already been r aid for R. and D.-wise. I have no doubt that this aircraft would be similar to the L. 1011 project, but there would be a number of differences, because the requirements of the A-300 replacement, as this would be, would not be by any means the same as those for the L. 1011, principally because it would be a shorter-range aircraft.

Perhaps in considering the finance of this project, the Government could well offer, say, 50 per cent. of the airframe launching costs and at the same time direct B.E.A. to purchase the aircraft or prevent them, if need be, from too radically altering the specification, except at their own expense.

There remains the suggestion that B.E.A. should then be subsidised to operate this aircraft. I submit that if the specification has been settled by the committee of airlines, on which the B.E.A. would have a voice—but not an overriding one—there is no reason why they, along with the other airlines, should not be able to operate the aircraft economically. We are led to believe that B.E.A. have recently been offered a £27 million subsidy (I think that was the figure) to operate the Trident 3B, which they were directed to purchase. But some of us believe that that was entirely unjustified. B.E.A. ought to be able to operate the Trident without any subsidy, because there is nothing the matter with that, or with any of the Trident variations, as an airplane, whether economicaly or from any other point of view. It may be that the Committee which look into this matter will consider that the BAC 3–11 will be the right aeroplane, though I imagine that they will find it too small. In passing, the BAC 3–11 was announced only after I had put my Question down on the Order Paper, and clearly it is now superseded by this aircraft which my Question specifically mentions. At all events, cancellation of the A-300 project must not mean a substantial sum of money lost to the British aircraft industry, because I feel that it is essential for the wellbeing of that industry and of the airlines, that a new generation of aeroplanes should be produced, if not through Anglo-European co-operation then nationally; and I believe that our British aircraft industry is fully capable and willing to produce a national viable alternative.

2.20 p.m.

THE EARL OF KINN OULL

My Lords, I am sure the House is grateful to my noble friend Lord Trefgarne for raising this Question on the future of the European Airbus. I do not see that he has any reason to apologise to the House for raising it at this hour, and I am sorry that the attendance of the House is not perhaps worthy of the Question. It gives us a valuable opportunity of probing the Government on their plans and contingency plans if the European Airbus does not proceed.

The noble Lord, Lord Trefgarne, has, in his usual crisp manner, presented and painted a fairly black picture about the future of the European Airbus project. As the noble Lord, Lord Beswick, will know, my noble friend is one of the few Members of this House who has built up a considerable reputation in the aviation world and can speak with considerable practical knowledge and authority on aircraft. The noble Lord, Lord Beswick, himself has a reputation as a former pilot and one who was in the aviation world, and I hope he will be able to match up today and answer, and not avoid, the searching and penetrating argument that my noble friend has put forward.

The timing of my noble friend's Question is, I believe, apt, because we are all aware that at the end of this month the consortium of the three countries, Germany, France and ourselves, will be engaged in trying to reach a final decision on whether or not to go ahead with the European project. By that time one presumes they will have before them information on the agreed specification, on the launching costs, on the production costs and, of course, on the market potential. We understand that with this information before them they will be in a position to come to a decision. Having said that, and having read an undertaking given in another place on June 24, that a final decision would be made at this meeting, I think it is worth asking the noble Lord, Lord Beswick, to-day to confirm the Government's intention that this meeting is to be the deadline and that the final judgment to remove all these uncertainties on whether or not the project proceeds will be settled.

I believe that a firm decision is essential now, not only for the good of the European Airbus project but also for the good of an alternative project should the original be cancelled. We are told that the American Airbus, the Lockheed, already has a lead of about a year over the European Airbus project. As the gap widens, the difficulty must be for the European Airbus to come into the market and compete with the Lockheed Airbus. I am sure the noble Lord, Lord Beswick would agree that the European Airbus project has been surrounded over the last few months with a continual volume of conflicting and confusing rumours as to how the airline operators themselves view the project. From the point of view of the airline operators, their judgment must of course rest with the aircraft's cost, with the time of delivery and with the operating performance in comparison with other aircraft available at the time of purchase. On all these points I find it difficult to see how any airline operator at present can make a proper judgment on the European Airbus project.

But, having said that, we find that the consortium engaged in this project said some months ago, that before coming to their final conclusion they would require a support order of not less than 75 aircraft from the home national airline operators. I hope the noble Lord, Lord Beswick, will to-day take the opportunity, which in fact we invite him to take, of clearing away the clouds of uninformed opinion and rumour surrounding the proposed order, and will tell us the answer to three points. First, are the consortium sticking definitely to this requirement of 75 aircraft? Secondly, can he confirm the newspaper comment we have all seen that at present only about 40 aircraft have been suggested as being required by the national airlines? Thirdly, does he agree that it is perhaps still too early for airline operators to commit themselves? If he does agree with that, are the consortium prepared to press ahead with a project before a final commitment?

One of the main purposes of my noble friend's Question to-day, on which I hope we shall get a satisfactory reply, is what is the Government's contingency planning on the European Airbus project should it be cancelled? In view of the widespread doubts that have been expressed within the past few months, not only by noble friend but even by former colleagues of the noble Lord, Lord Beswick—Mr. Douglas Jay in particular, and others—I think we are entitled to an undertaking by the Government to-day that they are prepared to invest an equivalent sum of money into a British Airbus project should their investment in a European project be frustrated by cancellation?

My noble friend has dealt fully with the question of the engine of the proposed Airbus project, and I think most convincingly on the technical reasons against the use of the RB.207 engine. I should like to support his argument, not so much on the technical grounds, on which I have no qualifications to speak, but more on what I consider the practical grounds of cost and production. As my noble friend has said, we were told on June 24 in another place that the launching costs of the RB.207 had risen to over £70 million. This, in our calculation, appears to amount to about 25 per cent. of the total launching costs of the European project. The wisdom of proceeding with the RB.207 engine in the European Airbus project—and I assume here that we are talking about the British engine going into the European aircraft project; I hope that the noble Lord, Lord Beswick, will be able to confirm that, in the end, it will not be an American Pratt and Whitney engine—appears suspect on three grounds.

The first ground is the airline operators' obvious dislike, certainly in America, of having only two engines in the aircraft. My noble friend has dealt with this fully. The second ground is the obvious one of the cost of launching. Of course, we have the RB.211 engine mentioned already with substantial orders in America which could be fitted into the project so long as the design of the project at present was altered. Finally, we have a real problem in regard to production, and I should like to ask the noble Lord whether the Government are quite cer- tain that Rolls Royce, being fully stretched with the American order for the RB.211 and with the stringent conditions of delivery of this engine, will be capable of producing a second major new technology engine at the time required.

My Lords, I conclude by hoping that the Government will reach a firm decision by the end of this month on whether or not the European Airbus project goes ahead. The struggle between the American aircraft industry and the industries in Britain and in Europe seems to intensify year by year, and the requirement of a clear Government lead to safeguard the future of the British aircraft industry, perhaps the European aircraft industry, is vital to its future. The world market for the airbus project we all know is large. I hope the Government, by lack of a decision, will not miss the bus.

2.31 p.m.

LORD BESWICK

My Lords, the noble Lord, Lord Trefgarne, as etas said by his noble colleague the noble Earl, Lord Kinnoull, made a very searching analysis of some very important problems that face the European and British aircraft industry. I only wish that the very straightforward and piercing questions that were put to me by the noble Earl, Lord Kinnoull, and the noble Lord, Lord Trefgarne, were capable of similarly straightforward answers, but I fear that in this field of aircraft production, which is so tied up with national politics and national economies and international politics and international economies, it is just not feasible to give absolutely straightforward answers. But I will do my best to say how the situation appears to Her Majesty's Government at this point of time.

As we are talking about the possibility of Government subvention of British aircraft manufacturers, probably it will be useful if I state in the first place the two basic criteria which Her Majesty's Government apply when deciding whether or not to support financially a new civil aircraft project. I stress this because I feel that the noble Lord, Lord Trefgarne, when he put forward his idea of some committee which was going to recommend something and on the basis of its recommendation Her Majesty's Government would provide 50 per cent. of the cost of it, was I fear being a little bit starry-eyed as far as practical politics are concerned. First of all, we have to decide what the numbers of the designed aircraft are likely to be. Secondly, will there be a sufficient margin between the production costs and the selling price to enable the Government to recover their investment over a reasonable number of sales. Those are the two basic criteria which we have applied to the proposed projects we are considering. With these criteria in mind, it is up to the manufacturer to make the best proposition he can. In parallel, the Ministry of Technology carries out its own studies of the proposed design and its estimated development and production cost, makes its own market evaluation and discusses with the company concerned the possible terms of a launching aid agreement.

This process of decision was applied when the British Aircraft Corporation proposed development of the BAC 2–11. Since a lot was said about the BAC 2–11, even though the noble Lord himself is now agreeing we have moved on a little, possibly I can say something about what happened when this proposal was put forward. There is no doubt that the aircraft would have been attractive at that time for some airlines. One airline has continued to be interested, I understand, and B.E.A. certainly had an interest in it at the time of the recent controversy.

But the risk investment was large: it was some £120 million. The financial terms proposed by B.A.C. left the Government carrying a very large part of the total risk and dependent on sales of some 300 BAC 2–11s to recover their investment, without interest, in the airframe. The prospects in that case were just not judged sufficiently favourable to warrant Her Majesty's Government taking a risk. There was no question on that occasion of the British Aircraft Corporation putting up 50 per cent. They did eventually come forward with a proposal, but even then it was far below the 50 per cent. figure.

The BAC 2–11 had the attraction of promising to be the first 200-seater on the market and it had, as the noble Lord himself said, these new technology engines, the RB211. But this advantage in time was to be gained by drawing largely on existing airframe technology, which the Government judged likely to be outdated not so very long after the aircraft went into service. The selection of the RB211 engine to power the Lockheed 1011 aircraft, though an event of great significance in its own right, did not dramatically change the picture of the BAC 2–11. Even with the engine launched for another application, there remained the requirement of £80 million risk investment in an airframe which, in the judgment of the Government, was not ideally matched to the commercial requirements of the 1970s.

When I dealt with this matter in answer to a Question in this House only a few weeks ago I was severely criticised. I am not sure whether the noble Lord himself did not join in the criticism certainly put by another noble Lord on a Bench further along, but I think he will probably agree that in this case Her Majesty's Government were proven correct: we were right in our decision about the BAC 2–11.

I understand it is fair to say that there has since been an evolution of thinking, along these lines, by the British Aircraft Corporation. The Corporation have come to consider the requirement for a civil transport aircraft of about 200 seats in the 1970s and have just announced their latest ideas in the Press. These ideas differ from the BAC 2–11 in important respects. In particular, the BAC 3–11, as it has been named, does away with the long narrow body of the BAC 2–11 in favour of a more spacious fuselage capable of seating seven or eight abreast. This appears to be more consistent with the standards set by the Boeing 747, Lockheed 1011 and Douglas DC 10.

The Government have not yet been approached about the BAC 3–11 proposal. B.A.C. rightly say that they must take their studies further before committing themselves to the necessary large private risk investment and recognise that the Government are likely to be more responsive to an application for launching aid which is backed by a firm intention to buy on the part of two or three airlines.

Now about the European airbus. The decision to seek a collaborative basis for this project was taken in the knowledge that it would be costly to develop. Sharing the cost and widening the "home" market makes a lot of sense, as I know the noble Lords opposite will agree.

The first year's work on this basis has shown that the industries of the United Kingdom, France and Germany can collaborate together. Moreover, the passage of time confirms that the basic concept of the aircraft is right. I was asked by the noble Earl whether I could confirm or deny that the 75 aircraft requirement still stands. As I understand it, it does still stand.

Air France certainly maintain their interest in it. Although there is a good deal of argument whether Lufthansa want it, I am assured that the German Federal Government say that, if a decision is made, Lufthansa will honour their obligation. B.E.A. have said that they would want 19 of these aircraft, provided that the price and performance specifications are right, by 1980. But there has been controversy about this. The decision by the two American manufacturers to concentrate on a rather longer range market, for which a three-engined aircraft is better suited, kept us away from a head-on collision with the Americans on this requirement. It seemed to suggest that the complimentary shorter-range aircraft, with a twin-engine concept, was justified.

The noble Lord, Lord Trefgarne, said something about the safety factor. I understand why he said it I know that there is concern by a number of people. Possibly in that connection it would be fair to give him this extract from one report. Initial tests on the R.A.E. flight simulator have given very encouraging results with regard to ease of handling when an engine fails, despite the higher yawing moment which occurs. With regard to the engine-cut climb gradient, which is at least as important as the handling aspect, the European airbus is being designed, to be better than current aircraft with either two, three or four engines, and there is therefore no cause for concern on this score. As the noble Lord said, there have been apprehensions by some pilots on this matter, but I would draw his attention to what was said at a meeting of European pilots' association organised by BALPA in 1966: Provided a two-engined aircraft could be shown to meet the standard laid down for one having four engines, and provided that pilots could be satisfied that the work load in both the normal and emergency case was not excessive, then a two-engine/2 crew concept might be acceptable. So much for the safety factor.

The noble Earl, Lord Kinnoull, had something to say about the cost of the A 300. He was absolutely right. Costs have risen. Airfame development and tooling costs are now estimated by Sud Aviation, the leading company on he airframe, at not less than £215 million. I think that the noble Lord, Lord Trefgarne, said that they had escalated to £250 million. This was a figure which was floated by Sud Aviation. They were told to go away and have another look at it, and they came back with something rather lower, and the figure I am now giving is £215 million.

LORD TREFGARNE

My Lords, does the figure of £215 million include the development of the RB 207?

LORD BESWICK

No; I am talking now about the airframe only; that is to say, £215 million by Sud Aviation, the firm which is leading the airframe side of the project. But this compares, I readily agree, with a pre-devaluation figure of £130 million. So there has been escalation, although not as much as the noble Lord indicated. Similarly engine launching costs have increased, with a requirement for increased thrust, to over £70 million. The manufacturers have to show that these costs can be recovered over a reasonable number of aircraft in a highly competitive market. This involves a high standard of production efficiency. The standards the manufacturers felt they could achieve were set out in their reports on the results of their first year's work submitted in May.

Officials from the three countries concerned have been jointly evaluating these reports and exploring their implications with the companies wherever necessary. They have concluded their analysts only this week and have prepared a report to put before the three responsible Ministers of the three countries concerned. They will meet later this month or at the latest on August 1, when some conclusion should be reached. The noble Lord said that a final decision ought to be made whether to stop the project or go on with it. A conclusion will be reached, but again I say that on these matters it is not always as simple as that. But some decision will certainly have to he reached, and it is expected at the meeting later this month. Whatever the decision on the A-300, I foresee a requirement for a 200-seater as a complement to the higher capacity airbus. This could provide an alternative application for the RB 211 engine.

I was asked by the noble Lord about the costs involved here for the RB 211 now that it is applied to the Lockheed project. As I understand it, the United Kingdom Government are investing, or have invested, something of the order of £46 million in the development of the RB 211 for the American market. I am sure we all agree that it will be a very good investment, but that is for a particular application. There would still be further development costs. If it were put into another British or European aircraft, I am advised it would cost something of the order of £10 million more for that engine. In addition, there would be development costs for the airframe. In the case of the BAC 2–11 they would be of the order of £80 million, and for the rather larger machine, they would be of the order of £100 million. Therefore a lot of money is involved, and some care has to be exercised before any decision can be made. But one hopes that an application of this kind can profitably be found for this fine new British engine. I end by saying that any proposal for Government assistance for a new civil aircraft of this type—or any other—will be given careful consideration, within the limits dictated by the need to contain increases in public expenditure.