LIGHT AIRCRAFT INDUSTRY AND THE BEAGLE COMPANY

HL Deb 19 February 1970 vol 307 cc1307-31

4.26 p.m.

THE EARL OF KINNOULL rose to ask Her Majesty's Government whether they are aware of the deep concern over the present position of the Beagle Aircraft Company and the effect that this may have on the future of the British light aircraft industry. The noble Earl said: My Lords, I am raising this Question to-day on the future of the British light aircraft industry for two specific reasons. The first is because only three months ago the industry appeared, after ten years of fairly steady investment, to be on the threshold of a break-through into a rapidly expanding world market; and to-day 90 per cent. of that same industry lies, I submit, in a rather shattered state after the tragic and humiliating collapse of the Beagle Aircraft Company. Those of us who care about this industry and its future I believe are now entitled to ask the Government for more information on this matter, without in any way prejudicing any negotiations the liquidator of the company may be having.

The second reason, really springing from the first, is to ask Her Majesty's Government to state clearly what are their short and long term policies for the industry and what place they see it having in future in competing for world markets. Perhaps I may add a personal note that in having the noble Lord, Lord Delacourt-Smith, to answer on behalf of Her Majesty's Government this short debate I believe we are somewhat privileged, for I have never yet heard him give anything but a most thorough and forthright reply. I hope to-day he will be able to keep up this fine record.

In tracing back the recent history of the light aircraft industry, I believe it is fair to say that the most recent policy of the Government stems directly from the recommendations of the Plowden Report. The House will recall that the Plowden Committee, in its wisdom, considered that the light aircraft industry had a very good future, and indeed said, in paragraph 389: The market is buoyant, the sums at risk in development are not excessive, and lower wage rates should give British manufacturers a marked initial advantage in costs over their American competitors.

In paragraph 391, however, the Report warns: We do not believe that rewards from participation in light aircraft manufacture will be easily won.

I think now, looking back over the troubles, that that was a somewhat prophetic warning.

Later the Report went on to say, in paragraph 392: The Committee heard evidence that the most successful American light aircraft firms were those offering a wide range of products and that several others with only isolated types of aircraft had been in difficulties. This suggests that if Britain is to succeed in this field a well-balanced programme will be needed.

Finally, in the same Report, paragraph 394 went on to say: Though the sums needed to launch a light aircraft are small compared with those required to launch large airliners, we doubt if the necessary funds can be raised wholly in the private market at the present time. We recommend therefore that, in suitable cases, a measure of Government financial assistance should be given towards the production costs, as well as towards the launching costs, of promising light aircraft.

I think these are the three points that really are the guidelines under the Plow-den Report; namely, that the future is good, although markets will be hard fought, the industry must be well balanced; and that Government support will be required in addition to private investment.

The advice given by the Plowden Committee was supported at that time by what they saw of the world market. In 1964 the world market requirement was some 10,000 aircraft with a sales value of over £100 million a year. The Report went on to add that this market was growing at a rate of 8 per cent. a year. If my arithmetic is correct, this would now appear to bring the world market requirement up to £150 million a year, with perhaps sales of approximately 13,000 aircraft, a market, I would suggest, that no Government, however they list their priorities, would abandon lightly. Perhaps when the noble Lord comes to reply he could confirm the present estimate of the world market requirement.

When one talks of the British light aircraft industry—and here I am not counting the executive jet aircraft—I believe that we are really dealing with four companies in the field. In order of size, there was the Beagle Aircraft Company, carrying virtually the entire field of the smaller 2, 4 and 6 seater range aircraft. Then there was, and is, the highly successful Britten-Norman Islander, an 8 to 10 passenger aircraft, which I know my noble friend Lord Bessborough will be mentioning. Then there is Shorts, building the Skyvan, and lastly Rollason, building the Condor.

The Beagle Aircraft Company, the House will recall, was created by Pressed Steel in 1960 and arose largely out of an amalgamation from the old Auster Company and the Miles Company. Up to the time the company was taken over by the Government, in August, 1966, I am advised, some £3 million of private investment had been placed in it. That investment had allowed the Beagle Company to design four types of aircraft, and so one might say one saw the beginning of a family of light aircraft; and it is perhaps interesting to look back to see that by 1963 the company had won orders for 357 aircraft, over 60 per cent. of which were for export.

The history of the company since tins Government acquired it in August, 1966, is, of course, already very well known. Parliament was asked finally to approve the purchase of the company in September, 1968, under the Industrial Expansion Act. At that time we were informed that the anticipated total Government investment in the company, up to the breakeven stage in 1972, would be approximately £6 million. Over the next 12 months the company appeared to be realising much of what the Plowden Re-port had forecast. Its Pup and Bulldog aircraft were proving particularly attractive to the market. Orders had been won for some 58 Bulldog aircraft for the Swedish Air Force, delivery starting in mid-1970. The Zambian and Kenyan Governments had already placed orders, and a backlog of some 350 aircraft had built up. Production had risen to one aircraft per working day, and the company was employing approximately 1,080 people.

But, as we all know, despite this apparent success of the company, built up over 9½ years of steady investment, created from a small team and built into over 1,000 employees, the Minister announced in another place on December 2 that he was placing the company in liquidation. He further announced that the estimated public investment lost in this company amounted to approximately £6 million, but that he was in no way sorry that the Government had made this effort to bring the industry back to its feet. It was, of course, the same Minister who had recommended and persuaded another place to back his judgment in buying the company only 14 months earlier. One could ask why has this happened and why the Government took this step. Was it because the company had asked for a further £6 million to be spread over five years—that is, less than £1 million a year—and the Government considered that there was not sufficient priority to justify this investment? I hope we shall discover more information to-day.

Those briefly, as I see it, are the facts as we read them. There are, I believe, so many important aspects of this affair arising out of the tragic collapse of Beagle, a few of which I have given notice to the noble Lord, Lord Delacourt-Smith, that I wish to ask him to-day, that I believe there is an overwhelming case for a public inquiry into this matter. I hope the noble Lord will be able to announce this afternoon the setting up of such an inquiry.

The first question I should like to put to the noble Lord concerns the manner in which the Minister of Technology put the company into liquidation, in what was apparently such a panicstricken measure, when such action was bound to prejudice the public funds invested in the company and was bound to lead to damage to the sale value of the Beagle Aircraft Company. What has clearly happened now and has transpired is that any would-be purchaser of this company has decided, and possibly rightly, to hold off for the moment and to come only when the time is ripe for negotiation on virtually the deathbed of this company, when Beagle has been reduced by redundancy to its knees.

The second aspect I should like to ask the noble Lord about is the very un-pleasant situation in which Her Majesty's Government have placed the 1,080 employees. So far as we read, the redundancy notices have now been sent out to approximately 40 per cent. of the staff, and perhaps the noble Lord could give us the up-to-date figure on this when he comes to reply. Would the noble Lord also say something about the matter raised in another place on January 27 about the enhanced redundancy payments or the ex gratia payments to the employees? Perhaps the noble Lord could advise us what these ex gratia payments will amount to in cash to each employee.

The third aspect is the very serious question of where the creditors of the company stand. When this matter was raised in another place in the debate on January 27, the Government gave what I believe to be a most curious answer: The Government have received representations from a number of creditors of the company which raise a number of issues which are still the subject of legal advice."—[OFFICIAL REPORT (Commons) 27/1/70, col. 1252.]

Perhaps to-day the noble Lord can unveil to us what this legal advice amounts to, and tell us simply whether or not the present Government intend to honour to every penny any credit debt incurred by the company.

The list of creditors to a certain degree is formidable. I am informed, for instance, that the creditors include the Swedish Government, the Zambian Government and the Kenyan Government, all of whom placed large deposits, in the region I understand of over £200,000, for proposed orders. Among British sup-pliers to the company, I personally have knowledge of one company which was forced to issue a writ against the Beagle Aircraft Company last autumn before it went into liquidation. That company subsequently withdrew its writ on the promise of partial payment, which it received. On the strength of that payment, that small company delivered goods to the value of over £2,000 one day before the Beagle Aircraft Company went into liquidation. That small company is I believe a creditor to-day for over £6,000. I submit that that is not a very happy commentary on the way the Beagle Aircraft Company has conducted its affairs. The fourth aspect of the collapse of the Beagle Company that crosses one's mind, and strongly, is, how do the Government intend to make certain that proper facilities are made available for future spares and support for the aircraft already sold? Again I should be grateful if the noble Lord would deal with that aspect.

The fifth point I would put to the noble Lord is, in a sense, a technical question on the lease at Shoreham. It was a little surprising to be informed that since the Government took over the company a large hanger at Shoreham was built, at a cost to the company of £125,000. Now the hanger technically belongs to the landlords at Shoreham, because the existing lease of the premises to the company expired last October. I shall be grateful if the noble Lord can throw more light on this question at the end of the debate and can advise us whether that hanger is an asset of the company. But perhaps the most import-ant information that we wish to have is on what progress the liquidator is making to date on the negotiations over the sale of the company, and what likelihood can he hold out that a British consortium will come forward to take it over.

Out of this whole tragic affair two disturbing features particularly spring to mind. The first is the lack of confidence that must reside in foreign purchasers, for here, unfortunately, is another example of a British aircraft company can-celling on the point of delivery to a foreign customer an aircraft which that customer, as in the case of the Swedish Government, has settled upon only after the most searching examination, and no doubt at some cost. I fear that such action will have the most damaging repercussions on the future confidence and good will of foreign customers, particularly Government customers.

The second point that appears to emerge is the attitude over the past years of the Royal Air Force towards the industry. The House will recall that the Plowden Report recommended—here again I quote: We consider, too, that the Services should be encouraged to buy British Light Aircraft wherever possible.

The record of the Royal Air Force over recent years has, I consider, been lamentable. Only back in 1963, I believe, did they place a small, a reduced, order for Bassets. In fact, it was left to the Swedish Air Force to lead the way by placing a large order for the Bulldog trainer. Why the Royal Air Force could not themselves have placed an order for the Bulldog trainer to replace the Chipmunks, even some few months ago when it might have assisted the company, remains one of the disturbing mysteries. Another example was quoted only the other day. The Royal Air Force are apparently to refurbish their old Pembroke aircraft at a cost of £25,000 per aircraft, rather than purchase the Britten-Norman Islander at £10,000 more. I suggest that such a decision must demonstrate to the industry a distinct lack of support.

My Lords, I apologise for taking some time on what I believe to be a most important subject. Out of all the sorry story of Beagle there is one person deeply involved who apparently regards himself as untarnished. I have in mind the right honourable gentleman the Minister of Technology. It was he who, two years ago, asked another place to support his judgment in purchasing Beagle. That same right honourable gentleman 18 months later returned to another place and unashamedly announced the failure of his judgment and that this failure would probably cost over £6 million of public money; and he appears to have no regrets.

Such apparent arrogance and such a total disregard for what used to be known as "Ministerial responsibility" has, I believe, never before been displayed on such a scale by any Minister of the Crown. Yet this same Minister on April 25, 1968, publicly scolded, castigated and removed from all Government appointments two directors of the Bristol Siddeley Aircraft Company because of their positions of responsibility to that company. In my submission it is the weakest of defences for this Minister of the Crown now to say that although the Government owned the company, and although it comes under his Ministry, he left it entirely to others to manage, and for that reason disclaims responsibility. I believe, in all earnestness, that the Minister has a duty to review his position in this unhappy situation. Finally, may I say that I am in no way imputing any blame to the noble Lord, Lord Delacourt-Smith, who of course, both in this House and in the industry, is held in the highest regard.

4.46 p.m.

THE EARL OF BESSBOROUGH

My Lords, I think that my noble friend was quite right to put down this Question this afternoon. There has been considerable concern in the country about the future of the light aircraft industry, ever since the Government decided in December last that they were not able to justify the investment of further public funds in Beagle. I am not going to speak at length; my noble friend has given us the history. But what, above all, I should like now to know from the noble Lord, Lord Delacourt-Smith, is this: Is there still a chance of rescuing the company? Are any companies in this country or overseas—say, Piper in America, or Messerschmidt in Germany—really interested? I have heard several rumours.

As your Lordships know, I have in principle always thought that in this shrinking world it was sensible to establish multinational companies, either European, West or East, Anglo-American or both. It always seems to me that if you have partners in other countries the prospect of marketing your product in them is much more promising. We know, of course, that the French are already manufacturing the Jodel aircraft successfully, and I dare say they do not need any further partners, but I shall be interested to know whether the noble Lord can say anything about the possibility of forming a multinational company to support Beagle. The Parliamentary Secretary in another place on January 27 said that the Government had been having discussions with prospective purchasers. Can the noble Lord give us any further information as to who they are?

Like my noble friend Lord Kinnoull, I am much concerned about the redundancies and treatment of employees and former employees of the company. I was particularly struck by the fact that in the debate in another place at the end of last month it was a responsible trade unionist who criticised the Government most strongly, declaring that a company wholly owned by the Government was one for which they must accept a greater measure of responsibility. In my view it is clearly not possible to accept from Government, as sole owners of a company, lower standards of behaviour with regard to redundancies than might obtain in private enterprise. I hope that the noble Lord can repeat the assurances on this matter given by the Parliamentary Secretary in another place, and also tell us now whether all the claims are being met.

No one would wish employees of a Government-owned company to be treated in a cavalier way, but if some figures I have seen are correct, the Government's behaviour could well be described, as it has been, as disgraceful and a betrayal of those who put their trust in them. It must have come as a peculiar shock to the noble Lord, himself a much respected former trade unionist, to hear the sort of criticism a trade unionist has made about the Government's handling of this affair.

But the responsibility for all this, as my noble friend has indicated, lies firmly with the noble Lord's right honourable friend the Minister of Technology. He it was who decided to take over the company—and in saying this, I am in no way blaming or criticising the noble Lord, Lord Delacourt-Smith. He only recently accepted responsibility for these matters, and I know from a number of conversations that he has been giving sympathetic and conscientious consideration to the matter. Indeed, I have heard recently some very nice things about the noble Lord—and I am glad to say this here—from those closely concerned. I am sorry, deeply sorry, for more than one reason, as the noble Lord will guess, that I cannot say the same about his right honourable friend.

I have been struck by one particular point: that Jodel, in France, have only 120 workers and yet produced 200 light aircraft similar to Beagle, while Beagle itself was employing upwards of 1,000 workers, as my noble friend has said, and has not yet, I think, produced many more than 100 aircraft. Surely that must be another example of extraordinary mismanagement for which in this case I fear the Government must be held responsible. To put it mildly—and this may be an interesting example of British understatement on my part—it can hardly be said that nationalisation of the company has improved the efficiency of management. There has indeed been a terrible management muddle here, and I do not see how the Government can disclaim responsibility.

However, I should like to ask the noble Lord this question: am I right in thinking that if the necessary £6 million were raised it would enable Beagle not only to develop a wider product range and new designs, as the noble Lord said in his statement in the House before Christmas, but would also help Beagle to meet the heavy debts which have been incurred and which have already been mentioned by my noble friend? I believe that one creditor firm, at least, believe that for the first time in a long life they have incurred a considerable bad debt. Can the noble Lord tell me what the present liabilities of the company stand at, and whether those debts are to be met?

I agree with my noble friend that there should be an investigation of this affair. For instance, how was it decided to sell an aircraft at £5,000 when it costs £6,000 to produce? We must have a fuller explanation than has so far been given. It is indeed staggering that only 18 months after taking on the company the Minister of Technology should say that he had decided that it was not worth taking it further from a commercial point of view. My mind, like the minds of some of my honourable friends, boggles at the ineptitude of the original cashflow forecast.

Above all, I think it extraordinary that the Government should have given so little time to would-be purchasers—I think only a week—io try to raise the necessary funds elsewhere after the Government had decided to pull out. They ought to have given more time to the company to make alternative arrangements rather than put in the receiver so rapidly and peremptorily. I would also ask the noble Lord whether he can give the Government's reasons for disbanding Beagle at a time when, as my noble friend has said, development of the Bulldog trainer version of the Pup was within a few months of completion. There is, I believe, a known requirement by the R.A.F., who will need within a year or two an estimated 250 trainers of this type to replace the Chipmunk. There is a similar requirement in other Air Forces overseas. The Swedes, as we known from my noble friend, have already placed a substantial order for this aircraft, and other countries have, too.

This kind of faintheartedness is doing the industry—other firms, not only Beagle —great harm. Only yesterday the sales department of one firm told me that they had a substantial prospective customer cross-questioning them. He had previously purchased a Beagle and thought he was being left with an orphan to look after, because no after-sales service could be guaranteed. It is clearly essential for the success of all British aircraft that after-sales support should be exemplary. If he could not get this service, this customer said, "Then to hell with British aircraft!" Some may hold the view that the Government decision is similar to that taken by the Ministry of Defence in not replacing the Pembroke by the Britten Norman Islander. I do not think there is a complete parallel between the two cases, but both decisions may well prove to have been short-sighted and likely to reflect on British trade in general.

At this late hour, the eleventh hour maybe, in the fate of Beagle, a narration of the long history of the affair would be fruitless. We all know that the Plowden Report felt that the manufacture of light aircraft ought to be well suited to the aptitudes and resources of British industry. I would agree with them. They may well have been right, and that is borne out by the success which aircraft manufactured by Beagle and others have enjoyed in a number of export markets. The liquidation of the company is certainly a blow to the British light aircraft industry. I am glad, however, that there are at least two other firms, Britten Norman of the Isle of Wight, who build the Islander, as my noble friend has told us, and the smaller Rollason Aircraft of Croydon, who build the Condor, and I am glad that it is believed that they should continue to be successful, even if Beagle cannot be saved.

Like my noble friend Lord Kinnoull, I am much impressed by Britten Norman's record. They have delivered, I believe, 130 Islanders—100 abroad— and are busily completing orders at a rate of 10 to 12 per month. As your Lordships know, this aircraft is a short take-off, 10-seater aircraft, ideal for taxi or commuter services. It can be seen in the Orkneys and the Channel Islands, and I gather there are now ten in use in New Guinea. Your Lordships may remember that it was a New Guinea-owned Islander which won the recent England to Australia air race. The firm appear to be flourishing. At all events, it seems that they have sold £10 million-worth of aircraft since they were founded in 1954. They employ only 250, sub- contracting much of the work to the British Hovercraft Corporation. In so far as links with Europe are concerned, I was happy to learn today of their arrangement with Rumania who, I gather, are themselves building Islanders now at the rate of one a week. I understand that the company are trying to establish co-operative marketing links with Rumania as well as with other countries in Eastern Europe and, I hope, India. This is good news, and I am certainly much impressed by what they are doing.

Rollason Aircraft seem to be another example of a small firm who are doing well. Their Condor is originally French-designed, but considerably modified. It is all-wood as opposed to all-steel. It is about the Beagle's size, and ideal for training purposes. I believe that they have sold over 36 of these aircraft in the last five years and are now producing at the rate of one a month, for lease as well as for sale. I understand that they also build a single-seater, the Turbulent, costing only £1,500, of which they have sold 30. It is comforting to learn that some firms in the light aircraft industry are keeping their heads above water. I hope they will continue to do so and not be taken over by the Government. Government should help them, but not take them over or nationalise them. Let these firms themselves forge their own links with Europe or elsewhere overseas.

But, to go back to Beagle itself. I only hope that with the noble Lord taking charge—and we all have great respect for him—there may be a last-minute satisfactory outcome. That is why I end as I began, by asking him the direct question: is there a chance of rescuing the company?

5.2 p.m.

EARL AMHERST

My Lords, during the brief discussion that took place when the Statement on the Beagle Aircraft Company was made in your Lordships' House, the Minister made reference to the possibility of a White Paper, or a fuller Statement, to tell us what progress had been' made with regard to this Company. That was on December 2 last year. We are now nearing the end of February and, with the exception of a report that I received this afternoon of a reply made in another place, which I do not think takes us very much further (it says merely that the Government are now considering the disposal of the business and closure of the company, and that they accept the company's liabilities in full), we have had nothing from the Government. So we are indebted to the noble Earl, Lord Kinnoull, for giving us the opportunity of discussing the matter by putting down this Unstarred Question this afternoon.

Your Lordships will remember that the Statement described how the Beagle Company came to find itself in further difficulties after the Government had made an investment in it. As I understand it, the real difficulty and crisis arose after the board of directors had come to the conclusion that unless the company could undertake the development of new types of light aircraft, with particular reference to a twin-engined type, there was little hope of its being able to break into the all-important American market. This particular reference to a twin-engined aircraft refers I think, to the company's inability to compete successfully with the Cessna aircraft, which I am told is most efficient, and, what is most important, to the fact that the Americans can produce more cheaply than anything the British manufacturer has so far been able to build in this category.

The board then estimated that to carry out this new development the company would need a further £6 million, in addition to that already subscribed by the Government, to provide the appropriate working capital. But £6 million is a great deal of anybody's money, and the fact that it happens to be public money does not make it any less. At that time, I understand in the light of other fiscal retrenchments, the Government said, "No." A receiver was appointed who was also to act as manager. What some of us may find it a little difficult to understand, is why this situation calling for the production of new types had not apparently been realised, or, if it had, had not been properly costed before the Government made their original investment. Perhaps the Minister will be able to say something about this rather disturbing circumstance.

In the Statement it was said that at that time there had been, and were, encouraging signs that other interested parties, both in this country and in Europe, and indeed in America, might come forward with the necessary finance to provide for this new development and to put the Beagle company on a viable basis. The noble Earl, Lord Bessborough, made reference to this, and I wonder whether the Minister can tell us if any of these hopes have matured or will be likely to mature. In our discussion on December 2, both the noble Earl, Lord Bessborough, and I asked whether full exploraton had been made of possible additional markets in Europe, Australia and Africa, apart from the American market. Perhaps the Minister can tell us, also, whether the receiver, in his capacity of manager, has been able to extend the hope of new markets in the meantime.

I have been told that at the time of appointing the receiver the company had a considerable number of aircraft in its possession, completed and ready for sale. It would be interesting to know whether any of these have been disposed of in the meantime, and how many aircraft the company has which are halfway towards completion for sale. Here I reiterate something which the noble Earl, Lord Kinnoull, said, when he mentioned the back-up of spare parts. As your Lord-ships know, no purchaser will consider buying an aircraft unless he can be reasonably assured that there will be spares available for at least the major life of the aircraft. Can we be told what is the present position with regard to these three aspects?

Last, but by no means least, I come to the question of staff. In reply to a Question which I put on December 2, I was told that there were then some 580 staff at Shoreham-on-Sea and a further 500 at Reasby, near Leicester. Has there been any change in the number since that time? With regard to what the noble Earl, Lord Bessborough, said about treatment, I have been credibly informed that the company has always acted in the best traditions of a model employer in its relations with its staff, and has done so in full consultation with the trade unions concerned. I am sure your Lordships will be happy to know whether the Minister can confirm this.

If the worst comes to the worst—(and it rather looks from the Statement that we may be coming to the worst), and no further financial help is coming, either from commercial interests or from the Government—and perhaps the Minister could say whether the Government have changed their mind, or are likely to do so, on this matter—it seems that there will be nothing for it but to wind up the company, seek reemployment for its staff and dispose of its assets. I should like to ask whether, in the event of that happening, it will mean that this country no longer has an important stake in the light aircraft construction business; and, secondly, will it not cause consider-able official concern about the resulting adverse impact on our exports and, in turn, on the balance of payments?

5.9 p.m.

LORD BROUGHAM AND VAUX

My Lords, I must apologise for not putting my name down to speak, but I was not sure whether I should be able to be here. Before going any further, I must state that I have a slight interest in light aviation as I am a director of an aerial spraying company. Our biggest problem was that we had to buy foreign-made light aircraft, since the industry in this country, which was once a big pioneer in this field, now finds itself on the brink of disaster. We had to buy American aircraft as there was no comparable aircraft made in this country. In addition to buying these machines, we had to pay a vast import duty and we also had to pay 7s. 2d to 7s. 6d. a gallon for light aircraft fuel. I should like to ask two questions of the noble Lord who will be replying for the Government, and I have given him proper notice of them.

The first is whether in the near future we may see a reduction in, or a cancellation of, this import duty. If that is not possible over the whole field of light aircraft, would it be possible to lift the duty in the case of the eight or so companies who use these aircraft, which are specialised and can be used only for the one purpose, and which the companies need for their livelihood? Secondly, may we see a reduction in the tax on light aircraft fuel? If not, could there be a dispensation for these eight or so companies? Finally, as the noble Earl, Lord Bess-borough, has said, the Government should help the light aircraft industry which, as I have mentioned, was one of the pioneers in this field.

5.11 p.m.

LORD TREFGARNE

My Lords, like the noble Lord who has just sat down, I must apologise for not putting my name on the list of speakers to-day. I was not certain whether I would be able to get here in time. I would also apologise to my noble friend Lord Kinnoull for not being in my place when he rose to ask his Question. I am going to speak only very briefly and say that, like all noble Lords, I greatly regret the situation which has now arisen in respect of Beagle Aircraft. But I would also say how glad I was to read the Answer to the Question in another place which tells us that the creditors are to be paid in full, because this was a matter which was causing the very gravest concern, particularly in relation to the sort of case that my noble friend Lord Kinnoull described.

My Lords, there comes a time in the development of every company when one has to decide whether or not one should inject further capital, and that decision is particularly difficult when the company might not be at that time profitable— and this was apparently the situation in the case of Beagle. When the directors came to the Government for the additional £6 million, the company was not at that time profitable. But the right honourable gentleman the Minister of Technology took the decision that additional Government money should not be subscribed to this company. Frankly, I believe that that was the wrong decision. It showed only one thing: that the judgment of the right honourable gentleman is defective—and this, perhaps, is not the first example of that. However, that is now the situation, and the company is to be wound up. That is a decision which all of us regret, but the decision having been taken not to inject further capital, it must have been inevitable. Like other noble Lords, I would thank the noble Earl, Lord Kinnoull, for asking this Question, and say how much I, too, regret this untimely end to the British light aircraft industry.

5.13 p.m.

LORD WYNNE-JONES

My Lords, may I, too, apologise for rising without having given prior notice? The Question which the noble Earl has put down for us to discuss is an important one, but I think that we are in grave danger of confusing issues. There are, to my mind, three different matters here: one is the question of the aircraft industry; the second is the viability of a particular firm; and the third one, which (if he will allow me so to call him) my noble friend Lord Bessborough brought in, is the issue of nationalisation. So far as I am aware, this must have been dragged in by its hind leg, because I do not think the firm was nationalised. Nevertheless, any stick is useful for beating a dog you do not like.

I think that the trouble we have been faced with for many years with the aircraft industry is that it can live only with heavy Government support; yet at the same time it demands the right to be regarded as an entirely independent industry, to be run by all the principles of private enterprise, which it flouts. Now this is a very difficult thing. You cannot, on the one hand, demand that your industry should be entirely free from all Government control, that no Minister should be allowed to come along and say that you are not to have more money or that you are not to have more orders, and at the same time demand that you should have very heavy Government subsidies. It is unfortunate that these things do not go together; and I am surprised that anyone should suggest that one can have both these things at the same time

With regard to this particular firm, I have no knowledge of it at all, but I think it is pretty clear that we have not succeeded over the whole range in being able to produce light aircraft in competition with the Americans. We may say that we can produce a particular machine which is technically excellent. The history of our aircraft industry is one of technical excellence and economic catastrophe. It is because we have been able to do things well—and as a scientist I naturally take pride in the technological achievements of the aircraft industry, but I am appalled at their economic mismanagement. I think that really we are faced with this situation. It is no good saying, when something technically excellent has been produced but its production has been mismanaged, that for national reasons, for reasons of pride in our technology, we should shovel more money into it in order to have the satisfaction of saying, "Look at what a beautiful thing we have produced". My Lords, I am not an industrialist, I am not an economist. As a mere scientist, I am shocked at the lack of commercial and economic sense which is being displayed.

5.18 p.m.

LORD DELACOURT-SMITH

My Lords, the questions which have been put by the noble Earl and by other noble Lords who have spoken in the debate arise from the natural questioning and from the widely-shared disappointment at the situation which has arisen in respect of the development of Beagle Aircraft. Perhaps I may briefly recall the background. The Government became involved in Beagle Aircraft substantially as a rescue operation. In early 1966 the Pressed Steel Company, who were then the owners of Beagle, informed the Government that they proposed to cease the operations of the company. The Government wished to preserve a stake for the United Kingdom in the expanding world market for light aircraft, and they agreed in June, 1966, that they would purchase the assets of the company as soon as statutory authority could be obtained for so doing.

In making this decision in 1966, the Government were of course influenced by the Report of the Plowden Committee which in 1965 recommended that the manufacture of light aircraft in the United Kingdom merited Government help. The Committee then took the view that such help should be limited, that the industry's progress towards self-sufficiency should be reviewed from time to time, and that if the objective of self-sufficiency was not being approached within a few years the case for continuing assistance would be open to question. I think it is well to recall those aspects of the Plowden Committee's view of the subject.

From 1966 the Beagle Company was kept going by grants from the Government on a no-profit no-loss basis for Pressed Steel. During that period the advances totalled some £3.3 million; and the company was acquired in 1968 under the authority of the Industrial Expansion Act of that year. Since 1968 the needs of the company for working capital have been provided by the Government in the form of interest-bearing loans, but I should say that the interest payments on these were deferred until March, 1971, and they have not been a factor in the company's present financial position.

As was recognised by the Plowden Committee and has been recognised by noble Lords who spoke this evening, any light aviation industry outside the North American continent is subject to strong competition from an American industry which has the advantage of a large home market. I was asked about estimates of the world market for light aircraft. They vary as such estimates tend to do, but a reasonable figure for the total demand over the next five years for light aircraft is upwards of 100,000 aircraft of which more than 80 per cent. will arise in the United States. The American domestic market for light aircraft dominates the scene and it is not surprising therefore that American manufacturers dominate the Western World in respect of production. Any firm outside North America is in competition with American firms offering a family of aircraft. The production of such a family allows the manufacturer to offer the smallest aircraft at tempting prices, at low-profit margins, with the expectation that customers will in due course buy the larger and more profitable aircraft.

The problem that Beagle has been faced with therefore has been basically one of scale of operation. It is difficult to get the sales required for profitable operation without a significant pentration of the American market. A significant penetration requires technical quality backed by competitive prices; but price in its turn depends to no small extent on the scale of production. This is clearly therefore a considerable commercial problem attended with a great deal of commercial risk.

In the autumn of 1969 the board of Beagle came to the conclusion that if the company was to obtain a commercially viable future a wider product range, including new designs of twin-engined aircraft, would have to be developed and sold. This programme, as they put it to the Government, would have required at least £6 million of new capital —I emphasise "new capital"—over the next four years, and probably more later, to build on the foundations which would by then have been laid. This put the anticipated breakeven point for the company three years further away than had previously been expected; and I think that it is fair to say that the plan was to a large extent based upon an aircraft which had not yet come into production and upon other aircraft which had not yet been designed.

As I told the House on December 2 last, the Government, after careful examination of this position, regretfully have had to come to the conclusion that having regard to the need to contain Government expenditure there was not sufficient priority attaching to this to justify the investment of further public funds in Beagle on the scale that was envisaged. This was a decision which the Government felt bound to reach in view of the many competing demands upon national resources. Since the appointment in December of the receiver and manager, and the statement to which I have referred, a number of tentative discussions have been held—and I was asked about this—with a number of parties, some from the United Kingdom, some from overseas, on the basis of the possible purchase of the undertaking as a going concern.

The Government held themselves ready to join such talks at any time and I have myself had an opportunity 0to have discussions with some of the prospective purchasers. In response to the inquiry that has been made, let me say that I am still ready for discussions with any who have expressed an interest and who have not so far indicated a possibility of withdrawal of that interest. I should have been particularly glad to discuss any scheme which might have linked Beagle with one of the existing British companies in the aviation field; but no concrete proposals have been put to me which appeared to provide a basis for such discussions.

I must make it quite clear that what the Government could not contemplate, in the light of their other commitments, which include commitments to the aviation industry and to industry generally, is a scheme whereby the Government themselves continued to bear the predominant share of the financing of the company.

Some possibilities do remain, but un-fortunately in each case the prospects have not so far led to the putting forward of a viable scheme. A point has been reached at which the Government have not felt able to guarantee further funds to keep the company going, and this has left the receiver with no alternative but to issue redundancy notices on a considerable scale and run down the business. I have been asked to give figures. The situation is that prior to the appointment of the receiver the company employed 580 people, men and women, at Reasby and 500 at Shoreham. Notice has been given to all but half-a-dozen or so at Reasby and to all but about 280 at Shoreham.

May I turn to the questions which have been put to me about the position of the creditors and of the staff? This after-noon my right honourable friend the Minister of Technology, in a Written Answer in another place, made a statement about the position of the creditors, in the following terms: The unique circumstances of Beagle's acquisition by Her Majesty's Government and its present position have led the Government, after considering all the aspects of this matter, to decide to meet the company's liabilities in full. It is accordingly proposed to liquidate the company by a members' voluntary winding-up. The noble Earl, Lord Bessborough, asked whether I could give a figure for the outstanding liabilities of the company. That is not easy to do. There is the question of contingent liabilities, the question of possible realisation of the assets and the proceeds from whatever the receiver and manager is able to do. But the known net liabilities are of the order of £1 million.

I should like to say a brief word about the position of the staff, because throughout the establishment of Beagle the management has received first-rate sup-port from the employees of the company. The receiver and manager had no funds available to make payments to redundant staff and no responsibility to meet their former entitlements; although, of course, all workers who become redundant are assured of their statutory entitlement under the Redundancy Payments scheme. But the Government have made it clear that they wish the employees of Beagle to be treated as they would be by any good commercial employer, and have asked the receiver and manager, on the Government's behalf and not in his capacity as receiver, to carry out discussions with the employees' representatives with a view to settling satisfactory severance terms. Apart from their entitlement under the Redundancy Payments Act, the Government have assured all employees that under the Contracts of Employment Act they will receive their full entitlement to payment in lieu of notice to them where it would arise. To avoid hardship where employees—because, for example, of the shortness of their service—would fall out-side the terms of that Act, we have-agreed that they should be given a minimum of one week's notice or pay in lieu.

Further, I understand that entitlements to holiday pay have been accepted by the receiver as a preferential charge and will be met. Individual service contracts will be honoured. The Government have recognised that some outside employers, when faced with a redundancy situation, have arranged to make severance payments to their workers in addition to those to which they are statutorily entitled under the Redundancy Payments Act. A sum of money has accordingly been authorised—it is upwards of £30,000— which will leave a margin to permit some sum to be distributed among the workers and staff as additional severance payments. I understand that broad agreement has been reached on the method of distributing such sum, but that consideration of the adequacy of the sum itself is still proceeding. That is the position at the moment.

Perhaps I should add a brief word about the superannuation fund. As a result of changes which were taking place at the time the receiver and manager was appointed, arrangements with the life assurance companies broke down, and Her Majesty's Government accordingly made arrangements with those companies to ensure that valid claims would continue to be met. I understand that these funds cover both production workers and clerical staff. I have been asked a number of questions on specific points. I was asked about the new hanger at Shoreham and its present value to the company. I do not think that noble Lords would press me to discuss details of the valuation of the assets of the company while negotiations are still going on between the receiver and interested parties concerning their disposal.

I have been asked about the servicing of existing aircraft, and we recognise the importance of this point. It is for the time being a matter for the receiver and manager, and I would say that it is not unreasonable to expect that the rights to manufacture spares and so forth for existing aircraft will be taken over by some other company. In the case of the R.A.F. Bassets, about which this point has been raised in some quarters, the principle applies as in the case of civil aircraft, and certainly spares and support services will be required by the Bassets for some considerable time. I understand that the receiver and manager is having discussions with a number of companies in this connection and is hopeful that the matter will be settled without undue delay.

Now, my Lords, we turn to the question of the future of the light aviation industry to which the noble Earl directed attention in asking his Question. Beagle is not, and has not been, the whole of the British light aviation industry, and the future manufacture of light aviation depends, of course, upon the initiative and the abilities of the manufacturers themselves. The Plowden Report put emphasis, rather in the way that noble Lords have done, and as I did earlier, on the importance of America in the world light aircraft market. It pointed out that British aircraft need to be more attractive than the competing aircraft, in design, performance and price, if our manufacturers are to regain the remunerative share of the market; and these considerations set out by Plowden still remain valid. It has been the policy of successive Governments since 1960 to give assistance with launching costs for promising civil airframes and engines when it has not been possible to obtain finance from market sources. I am always ready to consider any proposal that the aircraft industry may wish to put to me.

The Britten-Norman Islander, to which reference has been made by the noble Earl, and the Handley Page Jetstream are two of the light aircraft which have been assisted in this way, and financial assistance has also been provided by the Government to Short Brothers and Harland in connection with Skyvan. Normally the maximum assistance given is 50 per cent. of the launching costs, which is recoverable to the Government by a levy on sales; and before assistance is given the Government must be satisfied about the reasonable commercial viability of the project.

Reference was made (I think by the noble Earl, Lord Kinnoull) to the contracts with Sweden, Zambia and Kenya. We have been at pains to keep the Swedish Government, which has the largest of these contracts, fully informed of the position, and I understand that in the case of the Swedish Government repayment of the deposit which they had made is guaranteed under arrangements made by the company's bank. The question has been put whether there should not be an inquiry into the position of the Beagle Company. This is a suggestion which the Government will note as having been raised in this debate; but I am bound to say that at present I cannot see what inquiry would be justified, or what would be gained by an inquiry that will not be secured by the normal processes of Parliament.

In raising the Question in the first place, the noble Earl thought it proper to refer very sharply to the position of my right honourable friend the Minister of Technology, and so did the noble Earl, Lord Bessborough. I am not sure what the line of criticism was: whether they were criticising him for having taken the course of extending assistance to Beagle in the first place, or for having withdrawn that support in the light of the arguments and considerations and recognition of priorities that I have tried to explain; or whether it was criticism for having recognised, in what was found to be a controversial decision open to criticism, that, for the reasons I have tried to set out, the continuance of support in the form in which it was sought could not be justified in the light of other priorities to which the Government have to have regard. I think we all know that in politics and in Government many difficult decisions have to be made. I can assure noble Lords that this has been a difficult decision for all of us who have participated in it.

Very naturally, we deeply regret the disappointment and inconvenience caused to many by the failure of the company. We recognise too, very fully, the effort and the enthusiasm which many contributed to the Beagle Aircraft Company, and the Government did not reach this decision without great regret. We do not, however, believe that it was wrong to seek to extend this measure of assistance to the light aircraft industry, and again, in the light of the facts as they have developed and as I have tried to set them before noble Lords, we feel that the course which has been taken has been the right one.