HL Deb 14 May 1968 vol 292 cc219-40

3.18 p.m.


My Lords, this is a simple but important Bill. Its purpose is to raise the British European Airways Corporation's borrowing powers. At present they relate primarily to borrowing on capital account, but this Bill confers a limited new power to borrow to finance a deficit on revenue account. May be, briefly, I can give the relevant figures. The 1962 Act set a limit of £110 million which could be increased to £125 million by an Affirmative Order in another place. It now looks as if that £125 million will be reached within the next few weeks. This, I might add, is a little longer period than was originally estimated. The money so far borrowed has been invested in a successful and expanding airline in one of the most important of our growth industries.

The House will not wish me to go into all the details of the present operating fleet, but 80 per cent. of investment to-day has been in aircraft. Of course, terminals, ground equipment, workshops and a widespread sales organisation have also taken money. More money is needed for the new aircraft now coming along. Deliveries have now started of the 15 Trident 2s, which will cater for B.E.A.'s longer haul services, and on which some £20 million is still outstanding. Deliveries of 18 BAC 1–11s will start this summer, and some £24 million is still needed to pay for those. Then there is the recently announced purchase of 26 Trident 3Bs, which will cost some £80 million. Finally, B.E.A. have now to think of the advance payments on the air-bus, which is expected to come into use in the mid-1970s.

These items go to make up B.E.A.'s present estimate of a capital outlay over the next five years of some £199 million. B.E.A. expect to be able to provide £86 million from their own resources, from depreciation, sales of aircraft, and so forth. This leaves an additional borrowing requirement of £113 million, which added to the £117 million already borrowed, gives a total of £230 million towards the overall limit of £240 million specified in Clause 1 of the Bill.

It is also the practice to set, for about half-way through these five-year spans, an intermediate borrowing limit which can be exceeded only after a draft Order approved by Resolution in another place. By about the end of 1970 B.E.A. are likely to spend on capital outlay about £126 million; of this they are likely to need to borrow some £83 million. Adding this £83 million to the £117 million already borrowed gives a figure of £200 million out of the £210 million intermediate limit specified in Clause 1(1). There is one important unknown in these estimates; that is, the precise scope of the measures which the Government will bring forward in due course to implement the undertaking of 1966 in connection with B.E.A.'s re-equipment programme. At that time, on August 2, 1966, in fact, it was stated that the Government would take steps to ensure that B.E.A. is able to operate as a fully commercial undertaking with the fleet it acquires". Just how one construes this undertaking in money terms is still a matter under negotiation. The ultimate agreement, which ought not to be much longer delayed, could alter somewhat the basis of the figures in this Bill, but only to the extent that the period of time which the new borrowing limits would cover would differ somewhat from those at present envisaged.

Clause 1(2) of the Bill confers on B.E.A. a fresh power to borrow to finance a deficit on revenue account. Since they became fully independent financially in 1955–56 B.E.A. have achieved an overall net profit in nine of the eleven years up to and including 1966–67. It is not yet possible to say exactly what the 196768 results will be. Some reports suggest a loss of about £3 million, after paying all interest charges, but my information is that the picture may not be quite so bad as that. However, some substantial loss unfortunately seems to be inevitable. B.E.A. also claim that unsettled economic conditions are likely to make a loss inevitable for 1968–69. In addition to these economic factors influencing their business, there will be inevitably initial net losses from the introduction of the BAC 1–11 and the Trident 3B. Clause 1(2) of the Bill is a holding operation which will enable B.E.A. to borrow to finance such deficits as may accrue up to the end of their 1969–70 financial year, provided such deficits do not in total exceed £10 million. This sum, plus the use of B.E.A.'s accumulated reserves, is estimated to be fully adequate to hold the posititon until about March 1970.

My Lords, this Bill does not attempt to deal with the whole position of B.E.A., still less with the future of civil aviation. It will be necessary to introduce before March, 1970, more comprehensive legislation to implement that 1966 pledge. Meanwhile, I hope the House will agree to the Second Reading of this Bill as being essential to give B.E.A. access to the resources they will need to maintain and to improve upon their position as the sixth largest carrier of air passengers in the world and the largest intra-European airline. I beg to move.

Moved, That the Bill be now read 2a.—(Lord Beswick.)

3.25 p.m.


My Lords, I am sure that the House should congratulate the noble Lord, Lord Beswick, on introducing this short Air Corporations Bill with such brevity and lucidity. Despite the fact that it is only a one-clause Money Bill it raises, I suggest, important issues—not only of the £115 million involved, but of the future of B.E.A. and its place among the world's civil airlines. It also gives the House and those who are interested in civil aviation a far too rare opportunity to discuss these issues and to seek further information from the Government.

As described by the noble Lord, the Bill has two main purposes: first, to provide B.E.A. with further borrowing powers and, secondly, to grant them overdraft facilities on their revenue account. No one, I think, would deny B.E.A. the opportunity of maintaining and bettering its present hard-earned position as the sixth largest airline in the world; nor of carrying over 7½ million passengers a year; nor of handling over 22 per cent. of the entire traffic market coming from Western Europe. And with all this fine record, they have an even finer record of safety.

In order to maintain this high position B.E.A. require to equip, and re-equip themselves continually, with the latest and best of British aircraft. But many of us, I think, are uncertain—and I hope that the noble Lord, Lord Beswick, may enlighten us on this at the end of the Second Reading—as to exactly what is meant by these borrowing powers. For, as I understand it, B.E.A. are not just given these borrowing powers and told, "Now get on with it, re-equip yourselves". They are told that they may now borrow up to a further £115 million; that they may pay 7 per cent. interest on this money; but that before any aircraft are purchased they must first seek Government approval. In other words, it is not a question of letting management manage, as the Government preach so often in the case of the Railways Board and their investments; it is a question of letting management manage but of first letting the Government take the big decisions on re-equipment.

It is natural then to ask: Are the Government the best judges of what equipment is best for B.E.A.? We know that a Select Committee in another place examined in some detail the relationship between the Government and the Corporation and produced a Report last October. But I would suggest to the Government that even with this guidance it seems a pretty untidy state of affairs if in future every time a B.E.A. proposal to purchase aircraft is rejected by the Government a compensation payment has to be negotiated with the Corporation in order to keep faith with the pledge of ensuring that B.E.A. can operate as a fully commercial undertaking. I am not saying that this pledge is wrong; I am not saying that to buy British aircraft is wrong; and of course, I am not casting any doubt on the wisdom of the Select Committee. But I am suggesting to the noble Lord, Lord Beswick, that the role of the Government vis-a-vis the Corporation should be further re-examined and clarified.

My Lords, turning to the capital requirements of B.E.A., one finds by examination of Clause 1(1) of the Bill—and the noble Lord, Lord Beswick, mentioned this—that we are speaking in terms of a requirement of £199 million over the next five years. Details of this were given in another place of 15 Trident 2s, 18 BAC 1–11s and 26 Trident 3Bs. We are told the total amount of this investment comes to £124 million and therefore there is a balance, if my arithmetic is correct, of £75 million. This is a very large sum, and I am wondering whether the noble Lord can give us a further breakdown of the figure and tell us whether it includes the cost of converting the Vanguards into freight carriers.

Clause 1(2) deals with the borrowing powers granted to B.E.A. in respect of future revenue deficits which may occur. I suggest it is a little ominous to learn that the B.E.A. 1967–68 accounts may show a loss of around £3 million. Over the past ten years B.E.A. have had a very good trading record, as the noble Lord, Lord Balfour of Inchrye, well knows. Despite losses in 1962 and 1963 they have built up a very useful revenue reserve of over £6 million. It is therefore rather a drastic turn of the tables for the 1967/68 accounts to show this possible loss of £3 million. I think that it would be of interest if the noble Lord, Lord Beswick, would tell us whether other European air lines have suffered a passenger traffic recession in this last year and what the general percentage increase in passenger traffic has been throughout Western Europe. I should also like to ask the Government what action B.E.A. are taking to try to increase the proportion of their revenue earnings from passengers coming into Britain, as against those going out, bearing in mind that the British passengers make up (I think it is) two-thirds of the revenue in B.E.A.'s accounts.

There is another factor that I should like to bring to the notice of the noble Lord, Lord Beswick. It is the relevant factor of the annual interest charge that B.E.A. have to suffer. I think I am correct in saying that the present annual interest charge is approximately £4.8 million a year, and with the purchase of BAC 1–11s and the Trident 2s, this will come to over £7 million within the next two years. While, of course, this makes good commercial sense, one wonders why B.E.A. should suffer this while B.O.A.C. have an entirely different concept of their financial arrangements. Under the Air Corporations Act 1965 they were allowed to write off their loans and now have a system of equity sharing with the Government. I should be grateful if the noble Lord, Lord Beswick, could tell us later whether it is intended in the near future to allow B.E.A. interest payments to fall in line with the procedure of B.O.A.C.

The noble Lord, Lord Beswick, has already mentioned the question of the compensation payments to which B.E.A. are entitled, as a result of the Government decision over the BAC 2–11 against the Trident 3B, but as it was stated in another place on April 4 that negotiations were drawing to a close, I should like to ask the noble Lord in whose court the ball is now. Are the Board of Trade waiting for B.E.A. to advise them that they agree the terms, or are B.E.A. waiting for the Board of Trade?

After the events of last week one is very conscious of not wishing to abuse the procedures of the House, but there are many aspects about B.E.A. and civil aviation generally which I believe warrant a much fuller debate than the Second Reading of this Bill offers. I very much hope that in his dual capacity as spokesman for aviation in this House and business manager, the noble Lord, Lord Beswick, will allow a day to be set aside in the reasonably near future for a debate on civil aviation. There are many aspects waiting to be discussed, such as the noise certification for aircraft, the Air Safety Review report, questions about the amalgamation of the Corporations (on which I think that the noble Lord, Lord Balfour of Inchrye, wishes to touch to-day) and, of course, the question of the national airport policy.

On this last question I should like to ask the noble Lord, Lord Beswick, whether there is any more news about a Government announcement on the terms of reference for a third London airport. My Lords, I appreciate that many of these aspects would fall within the scope of the Edwards Committee, and it is for this reason that I would suggest to the noble Lord, Lord Beswick, that we should be allowed a day to debate civil aviation. I believe it is right that the views of Members of your Lordships' House should be put on record before, rather than after, the Edwards Committee draft their Final Report.

There is a final aspect that I should like to draw to the attention of the noble Lord, Lord Beswick. It concerns the much-disputed increase in the landing fees at London Airport. As the noble Lord well knows, this will cost B.E.A. a further £200,000 a year. I have carefully read the debate on this matter in another place, and while one cannot dispute that raising the landing fees will earn the country more foreign currency, what caused great concern was the way in which the announcement was made. The honourable Member for Woking, in another place, recalled that Mr. Masefield, when speaking to the Select Committee on Nationalised Industries about landing fees, said: If we wanted to alter them we would go to the Board of Trade. I think that we would then go to the Prices and Incomes Board. In fact, as the noble Lord, Lord Beswick, will know, the question was not referred to the Prices and Incomes Board.

What I suggest to him was even more discourteous was that no prior consultation took place, either between the airlines and the Board of Trade or between the British Airports Authority and the airlines. I should like to ask the Government again to-day whether they consider that such consultations with the airlines are or are not necessary, and whether, in the event of landing fees being raised again by the British Airports Authority, they are prepared to state that prior consultation with airline authorities will in future be held?

My Lords, I will end these remarks by saying that I believe that B.E.A. will be well served in future, as it has been in the past, by British aircraft, and I hope very much that with these new aircraft that B.E.A. are able to purchase, and will be able to purchase under the terms of this Bill, they will retain the place they have fought so hard to secure among the international airlines.

3.38 p.m.


My Lords, I am sure that the noble Lord, Lord Beswick, who moved the Second Reading of this Bill with efficiency and brevity, will not dispute that the Bill raises important public issues for Parliament and for the taxpayer. With borrowing up to £240 million in a period of five years I think we may well ask two questions. First, is this a wise investment? Secondly, is it the end of the borrowing needs for the Corporation? The answer to the second question is, "No", and I think the answer to the first is, "Yes, it is a wise investment."

On the second question, aviation is essentially a growth industry for this country and, I should think, for the rest of the world. One can already foresee the need for expenditure on aircraft, ground equipment and airports going well beyond what your Lordships are being asked to assent to to-day. I do not believe that we need to be alarmed at all at the prospect of further borrowings, provided that they are lent to an efficient, well-managed organisation.

That brings me again to my first question: is this a wise investment? This money will largely re-equip B.E.A. with BAC 1–11 and Trident 2 aircraft. My regret is that the promised financial compensation to enable the corporation to run efficiently, because they were not allowed their first or their second choice of aircraft but had to take the third, is not settled yet and incorporated in the Bill so that your Lordships would know what was the amount in question. My regret is twofold. First, we should know the liability and not just have an unknown figure for the future. Secondly, my information is that the matter remaining unsettled prevents a commercial enterprise like the Corporation from being able to present its order for Trident 3. There is a sort of game of battledore and shuttlecock going on within Government Departments, and the sooner the matter is settled the sooner the order can be placed, and the sooner that is done the better the prospects for British civil aviation. I hope that the Minister can give us something a little more definite than the words he used in his speech, that he hoped there would not be long delay. I would urge him to satisfy the House with some closer information on this point. Do the Government expect B.E.A. to order in the dark, before they know the figures of financial compensation?—because if the B.E.A. are to be run as a commercial entity, it would be wrong to expect them to do that.

I am no longer on the board of B.E.A., but I served for ten years on the board. I think that broadly speaking B.E.A. are an efficient organisation. The Corporation are conscious of their imperfections, and it is always a good start for any organisation not to be complacent and self-satisfied. The carriage of 7½ million passengers a year is bound to raise great complexities and imperfections which are felt by many passengers, and perhaps noble Lords have had complaints when they have travelled by B.E.A.

One of the difficulties I see is the manner in which air passengers are to be treated. If people travel by train, they buy their tickets and go on to the platform, without expecting to see the station-master or any official, get on the train and are taken from one point to another. If people travel by steamship they are met by somebody in gold braid, who escorts them and generally looks after them until they get their cabins. Is air travel to be on the lines of the railways, at the cheapest possible fare with the minimum of personal attention, or on steamship lines. The problem for the Corporation is that many people expect to travel on steamship lines and pay the low railway fares.

I should like to say a word on the most important aspect of the work of both B.E.A. and B.O.A.C.—namely, safety. This is very relevant in view of what has appeared in the Press to-day about air safety. I took my pilot's certificate, I regret to say, in 1915, and safety to my mind has always been the essential. I would forgive much commercial inefficiency if I knew that safety was the paramount aim of an airline. And safety depends not only on the aircrew but on everyone, from the management to the shop floor. One of the finest recollections of my happy years on the Board of B.E.A. is of that feeling of responsibility for safety which runs right through the whole Corporation.

It is interesting to think that as your Lordships sit here and for 24 hours of the day and night for 365 days in the year, Christmas and holidays included, there are never fewer than two B.E.A. aircraft in the air, usually more, and that in a single day B.E.A. aircraft do 2,000 landings in Europe. To me these are forcible and visible proofs of this desire for safety, of which the Corporation is rightly proud. I say nothing about the independent lines; most of them, like British United and Eagle, have just as good safety records. But I must say that those who fly by B.E.A. and B.O.A.C. are served with the maximum safety that our British airlines can produce.

In another place many points were raised on Second Reading—Scottish questions, the British Airline Pilots Association, labour relations, the licensing system—in fact there was a "regular day out" on issues affecting civil aviation, but I assure your Lordships that I am going to resist any temptation lying along those paths. There is one point I should like to touch on, a question which is disturbing to everyone in both Corporations, right down from management to shop floor. That is the question of whether there should be an amalgamation between the two Corporations so as to have one great nationalised Corporation or whether we should continue with two separate organisations. No doubt the Edwards Committee will be reporting on this point and will bring forward forceful and convincing answers to the various questions involved before we can think of an amalgamation.

May I put this thought into your Lordships' minds. The two Corporations sell different products. One sells long-distance travel and the other short-haul travel. They tap different markets; therefore their sales approach must be different. Then the equipment which is suitable for long-range travel is not the economic optimum for short-range, and, conversely, what is suitable for short-range is not really suitable for optimum economy in the long-range. Therefore, their aircraft are different and their bases must be different. B.E.A. have aircraft coming in at all hours of the day and night, which have to be serviced to go out again in a matter of a few hours. The aircraft comes in from Stockholm and must be ready three hours later to go to Edinburgh or Glasgow. B.A.O.C. aircraft make voyages over a great part of the world and then come back for appropriate, but longer, overhauls. Therefore, the maintenance base is different. The pilots are different. Some pilots are trained for long distance, and others for short distance. The experience they get is different, and the application of basic training must be different.

The main economy which I can see from a single Corporation is one board of directors. But I think it would be a very big board, which would then have to divide itself into two, one to look after the short hauls and the other to look after the long hauls. We should then be back very much where we are at the moment. There is no particular merit in size qua size: because something is big, it does not necessarily mean that it is efficient or desirable. I believe that these points must be answered clearly to the satisfaction of your Lordships and of another place by the Edwards Committee before any legislation is thought of to make one single Corporation. I conclude by saying that I am glad the Government have introduced this Bill. I believe that it will be one further step towards the advancement of civil aviation, the new growth industry of the 20th century.

3.52 p.m.


My Lords, in rising to approve the Second Reading of this Bill, it seems to me appropriate to consider briefly the purposes to which B.E.A. have in the past put the money that has been lent to them or paid to them by Parliament, and perhaps also to consider the purposes to which they are now proposing to put these additional funds that we are making available.

The first turbine aircraft ordered by B.E.A. (and it may be appropriate to start our thinking then) was the Viscount. As a result of B.E.A.'s order the Viscount was perhaps the most successful, at least hitherto, of our British commercial aeroplane ventures. And as the Dart engine which powered the Viscount was itself developed, the Viscount was stretched in size, and ultimately, I think, 450 aeroplanes were sold, including some to China and to Poland.

At that time, and subsequently in the late 'fifties, a B.E.A. order was really considered essential for any manufacturer proceeding with a short or medium haul aircraft: project, and there was thus a tendency for the manufacturer to submit to B.E.A. pressure to modify his project to meet B.E.A.'s precise requirements. As a result of this, many sound aeroplanes—and, indeed, aeroplanes that have remained sound under B.E.A. management—were modified to B.E.A.'s requirements, which in many cases are peculiar to B.E.A., and as a result these aeroplanes did not achieve the worldwide sales that might otherwise have been expected. Examples of this are the Comet 4B, a special variant of the Comet 4, which I think only one other carrier bought.

The Vanguard, again a magnificent aeroplane, was bought by only one carrier other than B.E.A. The Argosy was bought by one civil carrier, and although the R.A.F. had a number of those aeroplanes they were somewhat different from the B.E.A. aeroplanes. But perhaps most important of all was the Trident. The Trident 1A, 1B and 1C, the three first variants of that aeroplane, were all substantially modified to B.E.A. requirements and, as a result, no other carrier bought that aeroplane, although the Trident 1E, which is substantially different from the others, has been bought, I think, by three other carriers.

So the past record has not been of such great service to the British aircraft manufacturing industry, and indirectly, therefore, to the nation as a whole, as we might perhaps have wished. Could we not in the future hope that B.E.A. will be able to temper their own desire for a perfect aeroplane by the requirements of the air transport industry of the world at large, so that aeroplanes, which may indeed need a B.E.A. order to be produced, will at least have a wider sales market around the world? I have omitted the VC 10 from these brief remarks, because, of course, that aeroplane is in no way applicable to B.E.A.'s operation; and the peculiar circumstances applying to B.O.A.C.'s operation, which the noble Lord, Lord Balfour of Inchrye, has mentioned, really produce a separate set of circumstances and make it impossible to consider the aeroplanes under the same heading.

Looking to the future, B.E.A. have ordered, and will shortly receive, their first BAC 1–11 500 series aircraft, and in due course their Trident 3s. The BAC 1–11 500 was tailored quite closely to B.E.A.'s requirements. Although there seems to be a possibility of other sales there—I believe that one British independent carrier has so far placed a small order—it seems unlikely that the Trident 3B will achieve any sale success other than with B.E.A. Perhaps the point of most immediate concern in B.E.A.'s re-equipment plans is the proposal for the acquisition of the Anglo-European A300 air-bus. I wonder whether the noble Lord, Lord Beswick, when he replies could tell us the latest position on this aeroplane. We were told originally that the three national airlines involved, without whose order the project would not proceed—namely, B.E.A., Air France and Lufthansa—were to commit themselves to the basic design of this aeroplane by May 1. But nothing was heard on May 1, nor has it been heard since, and many rumours are rife. I hope that the noble Lord will be able to clarify the position.

If I may now dwell for a moment on this proposed aeroplane, it is, as most noble Lords may know, a twin-engined aircraft, and some of us wonder how wise that policy is. An aeroplane of this nature, with two underwing mounted engines instead of the conventional three or four engines, which on take-off loses power from one of its engines loses, of course, 50 per cent. of its available power; and in certain circumstances, the asymmetric control problems, as they are called—in other words, the pilot's ability to keep the aeroplane straight—resulting from the power being produced on only one side of the aeroplane, are very substantial. Indeed, this was one of the problems, successfully overcome, that confronted the pilot of the B.O.A.C. 707 that recently made an emergency landing at London Airport and from which most of the passengers were mercifully saved. But a similar accident to that occuring to this proposed A.300 airbus would, I am certain, not have such a satisfactory outcome.

This design defect, as many people believe it to be, is fundamental and is not to be simply rectified by increasing the power of the existing engines or other simple solution like that. It is necessary to consider a more fundamental solution; for example, mounting engines near the tail, or, alternatively—this is the solution that has been adopted by the Lockheed Company with their 10–11 project—mounting a third engine in the tail but leaving the two other engines under-slung on the wings. I hope, therefore, that if the decision to proceed with the A.300 air-bus is to be delayed, the opportunity will be taken to reconsider and I hope change this design philosophy. I would add only in closing my thanks to the noble Earl, Lord Kinnoull, for raising many interesting points on the financing of B.E.A. and supporting the Second Reading of this Bill.


My Lords, as my noble friend Lord Beswick said when he introduced this Bill, it is a narrow Bill, in a sense, and it is for the purpose of increasing the borrowing powers of B.E.A. to this rather large amount. Therefore we are precluded today from discussing the wider aspects of Government policy on civil aviation. I would re-echo the plea made by the noble Earl, Lord Kinnoull, that there should be an opportunity in the future for full discussion on civil aviation policy. I was also interested to hear the noble Lord, Lord Balfour of Inchrye, refer to the two reports which have appeared in the Press recently on the all-important question of safety and also the possibility of a merger between B.O.A.C. and B.E.A.

There are arguments on both sides, as Lord Balfour knows, on whether to merge B.E.A. and B.O.A.C. B.E.A. have, in my view, the plum routes, the dense traffic routes, the paying routes; and I imagine that in comparison with B.O.A.C. it is much easier for them to make a profit than for B.O.A.C. to do so on the long overseas routes. I was interested to hear my noble friend give some estimates of the likely profit B.E.A. may make in the future. But I think that in the long run we shall have to face this question of the amalgamation of B.O.A.C. and B.E.A. In fact, there is one noble Lord in this House who, I remember, in another place in all civil aviation debates constantly said that in the end we should have world airlines and not simply the question of national prestige embodied in the flying of national airlines. Airlines use the same airports; they use the same planes or buy the same planes; they have the same trade; they have the same meteorological information and service which is available. To-day I.A.T.A. has complete control of traffic and fares, and I believe that in the long run we shall see, if not world airlines, at any rate the amalgamation of B.O.A.C. and B.E.A., I believe to the benefit of civil aviation in this country.

As other noble Lords have already done, I would emphasise the safety factor. The important factor in making airlines successful and profitable and in making them pay is to get people to use them; and the most important factor in the mind of the public who are not in civil aviation to-day is the safety factor. I hope that in the ordering of planes, with the new power B.E.A. will have, we shall continue, as at the present time, always to give the highest priority to the safety factor in civil aviation.

From time to time we are regaled in the Press with differences of opinion between the Chairman of B.E.A. and the Minister with regard to the planes they are going to purchase for future use. I gather from my noble friend that the bulk of money available to be borrowed, up to £215 million on capital revenue account, will probably be used for the purchase of aeroplanes. I should like to ask this question. In the event of a dispute between the Chairman of B.E.A. and the Government as to which aeroplane is to be ordered, who has the final say? Is it the Minister of Technology? As the noble Lord asked in his speech, does the long-term interest of the British aircraft industry have some relevance in this matter, or are the views of the users of these aircraft, after discussion has taken place, really the deciding factor? I think that if my noble friend can tell us something about this it will clear up some misunderstanding.

This is extremely big money and the independent airlines cannot get this money; it can be made available only to Government Corporations. In view of yesterday's report on the safety factor which related to the independent airlines, I hope that the Government will give consideration to the possibility of money being made available under the Industrial Expansion Bill, because this safety factor should not be subject to the pros and cons of cut prices and profit-making in order to enable people to go to the free market in the City to get the capital for running airlines and expanding them. I hope, therefore, that when my noble friend replies he will be able to tell us something about the policy the Government have in mind and who in fact has the final say in the buying of these aeroplanes for use by B.E.A.

4.8 p.m.


My Lords, I think I can agree with one thing completely. The noble Earl, Lord Kinnoull, and the noble Lords, Lord Balfour of Inchyre, Lord Trefgarne and Lord Granville of Eye, all asked whether I would agree in another capacity to provide time for a further debate on aviation matters. I am happy to say two things. First, I hope that it will be possible to have such a debate in the future; and secondly, I hope that this afternoon we can fairly speedily go on to discuss some of the other business on the Order Paper.

The noble Earl, Lord Kinnoull, asked me whether I could say anything about the progress made on the terms of reference for the inquiry into the third London Airport. I do not believe that, strictly speaking, we can say that this comes within the terms of this Bill, but I hope that a statement about the terms of reference will not be much longer delayed. I hope that it will be a matter of days rather than weeks, and I am sure that we are all looking forward to that.

I was asked by the noble Earl, Lord Kinnoull, about the difference or distinction between the Corporation's borrowing powers and the Government's authorisation of expenditure. This is an interesting question, as he says, and one on which there has been in the past some confusion. More recently, in fact in their Report last year, the Select Committee on Nationalised Industries did a good deal to clarify the position. The Select Committee emphasised that the borrowing limit which is the subject of this Bill is a limitation on the Government's power to lend; it is not an authorisation to B.E.A. to spend. The Corporation's forward plans are a guide in making provision for borrowing needs, but when plans are being made there may or may not be specific commitments on individual items. Within the borrowing limits the major investment proposals of B.E.A. require Government approval. I hope that this goes far to answer the question put to me by my noble friend Lord Granville of Eye.

My noble friend also wanted to know who made the final decision about the purchase of these aircraft. The final decision really depends on which part of the decision is concerned—in fact, there are three final decisions. B.E.A. finally decide what they want to buy, but it would be for the Board of Trade finally to decide what investment plans they proposed to approve, and the legislation provides that they should give their final approval. On the other hand, if research and development expenditure were involved on a particular aircraft, then the final decision about whether a sum of money should be allocated for such development—for example, on an aircraft such as the BAC 2–11 which the B.E.A. may want to purchase—would, I suppose, lie with the Ministry of Technology. But in all these matters consultation, negotiation and discussion would mean, I hope, a compromise which would be in the best interests of the Corporation and of the nation as a whole; and that is the sort of process through which we are now going in relation to the present re-equipment programme of B.E.A.

As the noble Lord, Lord Trefgarne, and also the noble Earl, Lord Kinnoull, said, there has been some criticism; and this point was also made by the noble Lord, Lord Balfour of Inchrye, with regard to the delay in securing Government authorisation to re-equip. But I think that the Select Committee effectively disposed of this general criticism, and although we have a current problem with the Trident 3B it is true to say, looking at the situation generally, that progress has been made in codifying, both for B.E.A. and B.O.A.C., the information that will be required for their annual investment forecast and investment proposals, so that in future the two Corporations will be able to follow the same pattern in their internal discussions and projects. In other words, I hope that it will now be possible to save both time and effort in the formulation of forward plans and the securing of Government approval.

There is, of course, a quite separate issue in this matter of aid to assist the phasing of deliveries of the BAC 1–11 500s and the Trident 3B. That is a matter on which questions were put to me by the noble Lords, Lord Balfour and Lord Trefgarne, and also the noble Earl, Lord Kinnoull. I think we shall all agree that both these aircraft will prove to be a fine addition to the B.E.A. fleet, but they will not be phased in at the time B.E.A. would have wished. The gap in this phasing will not permit the most economic use of the B.E.A. fleet resources as a whole. We have to face this fact, and it is to this factor that the Government's pledge to enable B.E.A. to function as a fully commercial undertaking, with the fleet it acquires, actually relates.

I was asked where this issue now rests. As the noble Earl put it, in whose court does the ball lie? The noble Lord, Lord Balfour, spoke about the game of badminton that was going on, but one cannot decide the amount of aid until one knows precisely the number of Trident 3Bs which the Corporation propose to order. On the other hand, the Corporation would say that they cannot decide about the number of aircraft they intend to order until they know some more detail about the aid. To that extent the ball is in two courts at the same time, but I can say that the Corporation have put forward certain proposals to the Government. Those proposals are being considered very urgently and I hope—I cannot go further than this—that very soon a decision will be forthcoming.


My Lords, may I ask whether the Minister would agree that it would be unreasonable to expect the Corporation to place an order until this particular position is resolved?


Yes, my Lords; but until they place an order it is not unreasonable to say that we cannot decide how much it is proposed to pay.


It is a case of the chicken or the egg.


This is a complex issue, and this is one reason why this matter has gone on for so long.


My Lords, would the noble Lord also agree that this is most unsatisfactory for Hawker Siddeley to find that no firm order has yet been placed?


It is in one way, my Lords; on the other hand, I am absolutely assured that there is no delay in the development of the aircraft, and although the final order has not been placed it will not set back the date on which the aircraft will be delivered.

I was asked by the noble Earl about the impact on other airlines of the recession in air traffic development. I can say that there has been a recession, not only in this country but in the remainder of Europe. In fact the figure given to me is that whereas in the summers of the preceding five years we have had an average annual growth of 12 per cent., last year it was only 4 per cent. (that is in European traffic as a whole), so it is not only B.E.A. that is affected. The noble Earl put some rather detailed questions to me about the breakdown of the cost of re-equipping. I can read it out if he would like me to, but the information is so detailed that I think it would be better if I dealt with it separately.

He also asked me about the possibility of financing B.E.A. in the future on an equity basis, or, as current jargon goes, on the basis of Exchequer dividend capital, rather than by fixed-interest loans. One can see the advantage of being able in a difficult year to pass over the payment of interest without incurring the apparent stigma of a deficit. On the other hand, it can be said that neither deficit financing nor the passing of an interest on a equity holding removes the necessity for dealing with an operating loss, and the need for increased efficiency, essential economies and a vigorous sales expansion remains; and this is accepted by the Corporation. I would only add this comment to the noble Earl, Lord Kinnoull: that the possibility of extending the experiment now being carried out with B.O.A.C. is not ruled out.

The noble Lord, Lord Balfour, and the noble Earl, Lord Kinnoull, raised the question of a possible merger between B.O.A.C. and B.E.A. I was interested to hear what Lord Balfour said, from his considerable experience in these matters. As he rightly said, this is a matter with which the inquiry now being conducted by Sir Ronald Edwards will have to deal. Sir Ronald Edwards will or will not make, according to his own judgment, a recommendation in this matter. Obviously, I can say nothing on behalf of the Government at this stage.

On this point about a possible merger, I would venture to indulge in three personal observations, one of which was stimulated by the noble Viscount, Lord Boyd of Merton. First, I regret the fact that over so many years there has always been this speculation about the possibility of a merger between the Corporations. I cannot think that it has made for increased stability in either Corporation. Secondly, it is also a matter of some regret to me that over the years, when one has contemplated the possibility of one Corporation, no one name has ever leapt to mind as being the leader of such a unified Corporation. This strikes me as being one of the most astonishing things in the field of our civil aviation.

In the earlier days I took the view that whether we had one or two Corporations—or indeed three, as at the beginning—what we needed for a start was to have a variation of ideas and method; and organisational skills, so that we could give an opportunity for some technique, some expertise, to prove itself. One would have hoped that from within the corporation there would emerge one individual whom one would regard as being a natural leader for the future. One can of course think of individuals. The names of Sir Miles Thomas or Lord Douglas of Kirtleside come to mind; they came from outside the industry. But so far there has been no one leader emerging from within. I draw no moral from this; I simply think it is rather strange and somewhat unfortunate. It is relevant to the point raised by the noble Lord, Lord Balfour of Inchrye.

Thirdly, I would say this to him. Without in any way trying to influence whatever Sir Ronald Edwards may say, I do not think the choice is necessarily between one Corporation and two. I believe there are sophisticated possibilities of achieving a unified strategy, even if executive responsibility is still divided between different bodies.

I was asked about the rather controversial question of the increased landing charges at Heathrow Airport. The Chairman of the British Airports Authority, I think we all agree, has set a very high standard indeed, in all the enterprises with which he has been associated, of a policy of full information and of joint consultation. In this particular matter I think it might be claimed that he fell below the very high standard which he himself had set, but there were special circumstances in this case which I think most people would agree absolve him from any blame. After all, we do not de-value every year. The Authority were faced with a very special problem. The Chairman wished to maintain the earnings of foreign currency, and this the Authority have done. All I say here is that the recent changes do not in any way set back any airline, including B.E.A., to a worse position than they were in before devaluation or before the increase in landing charges. I will not go into the detail of this now, because I know that the House wants to go on to other business, but I am prepared to prove that point, if I am pressed upon it.


My Lords, would not the noble Lord agree that it will cost B.E.A. £200,000 a year?


My Lords, what I said was that no airline, including B.E.A., has been set back because of the increase in landing charges or because of devaluation. The fact is, as the noble Earl knows, that although the landing charges have been increased because of devaluation, the airline's earnings—their foreign currency earnings—have been increased; the fares have in fact been increased by the amount of devaluation, and it could be claimed that they are now financially better off as a result of the two changes. In the case of the domestic services the domestic fares have not been increased; but neither have the domestic landing charges.

I was asked by the noble Lord, Lord Balfour, about safety standards, and I entirely agree with him that safety is of paramount importance in this business of air transport. At this very moment the President of the Board of Trade is dealing with this matter, following the publication of the Air Safety Review. Most noble Lords will wish to study the facts and findings of that Review. They are very complicated. I think it is very dangerous to try to over-simplify any of these matters. Only one thing I think does emerge, and that is that the safety standard of B.E.A., the Corporation whose affairs we are now dealing with, will bear comparison with any other airline in the world.

I was asked a question about the future of the European airbus. I am sorry that I cannot satisfy the noble Lord, Lord Trefgarne, on this point. He, himself, made some very interesting suggestions about possible modifications of the airbus. and if any of those is accepted the time when the airbus will be flying will be set back very far indeed. I think he was only indicating some of the problems that exist in this matter. All I would say is that the airlines, including B.E.A., cannot be expected to commit themselves until they have had a detailed specification and a firm indication of price, and time to study both. These matters are now the subject of consultation and consideration. I hope that there will be a decision in the summer. With that, I hope that I have said sufficient to persuade your Lordships to give this Bill a Second Reading.


My Lord, I hesitated to interrupt my noble friend's train of thought in the course of his excellent reply, but on the question of whether there should be one or two Corporations would he not agree that on the technical operation there is considerable difference between short haul and long haul, which makes it almost essential that there should be two Corporations?


My Lords, nothing that I have said, my noble friend will agree, in any way disproves what he has said. I should hope that the eventual structure would reflect the technical facts to which he has referred but also that consideration would be given to the needs of some overall planning of our British civil aviation effort.

On Question, Bill read 2a, and committed to a Committee of the Whole House.