HL Deb 21 January 1971 vol 314 cc601-48

3.54 p.m.


My Lords, on behalf of my noble friend Lord Drumalbyn, I beg to move that this Bill be now read a second time. In their White Paper of November, 1969, the previous Government welcomed the recognition of the Independent Committee of Inquiry into Civil Air Transport which they had set up, that the private sector of the industry should be encouraged to form what it called a "second force" airline. They said that they would welcome the emergence of such an airline by amalgamation of two or more existing independent carriers if it resulted in a strengthening of the industry as a whole and contributed to the realisation of the Government's policy objectives. They subsequently withheld approval of the proposed purchase of British United Airways by British Overseas Airways Corporation in order to provide further time for the desired amalgamation to be achieved.

We share the view of the previous Administration that air transport makes an important contribution to the economy and that the principal objective of civil aviation policy must be to encourage the provision of air services by British carriers in satisfaction of all substantial categories of public demand, at the lowest level of charges consistent with a high standard of safety, an economic return on investment and the stability and development of the industry. There are, of course, various ways in which this highly desirable goal might be achieved, but we agree with three further points set out in the previous Administration's White Paper. First, there is a place—indeed, I would say a need—in the industry for privately owned airlines. Secondly, the benefits of competition should be actively pursued wherever the practical considerations allow. Thirdly, the industry should be strengthened as a whole. The industry would not have been strengthened if the previous Government had allowed B.O.A.C. to buy British United. Not only would the rest of the private sector have remained fragmented, but it would have removed any possibility of strengthening that part of the industry for many years. Moreover, one large United Kingdom monopoly would be under less competitive pressure to advance the interest of the consumer and to strengthen the industry's contribution to the economy by exploiting future opportunities.

The Government recognise that the scope for future opportunities for the second force is limited by the way in which international routes are already shared. Neverthless, the existence of a new strong airline would enable a second British carrier to be licensed on those international routes where our bilateral agreements with other countries permit this and where it would be likely that the traffic carried by British airlines could be increased. Such an airline would, moreover, be able to sustain and develop extensive charter services and serve those domestic routes where it was desirable to offer the public a choice of airlines. Some of these roles will be exacting and the new airline will need to be strong. How was such an airline to be established? The nucleus of such a strong airline is being created by combining the operational skills and resources of Caledonian and British United into a powerful unit. Such a new airline will be able to offer a more secure future to those that work in it than is possible under present arrangements.

The increasingly high capital investment required in the air transport industry means it is essential that airlines must be sufficiently strong if they are to survive. One of the current dangers in civil aviation to-day is that of fragmentation into many small airlines. The purchase of British United by Caledonian means therefore that the general objective of strengthening the industry as a whole is being promoted. However, when the present Government came into office we found that discussions and subsequent negotiations between British United and Caledonian had been going on for some considerable time, and it quickly became apparent that it was unlikely that a successful conclusion would be reached if we did not take the policy of the previous Government to its logical conclusion.

The problem was that, having examined the financial position and prospects of a merger of their operations with British United, Caledonian came to the conclusion that little was to be gained by a straight combination of the existing route networks and that if the second force was to get off the ground some limited route transfers would have to take place. Only then would there be a fair prospect of achieving the degree of viability necessary to attract the large financial backing required. Accordingly, in our statement of policy of August 3 the Government indicated that if an independent second-force airline came into being we should be prepared to make some exceptional transfer of routes from the public sector to the new airline to provide it with a sufficient basis at the outset. I should now like to put this question of route transfers into perspective.

First, the new airline must be given a viable base now. It has been the lack of a firm base at the outset that has bedevilled the private sector of the industry in the past. No airline can succeed if it is not given the necessary opportunities to survive. The Edwards Committee recognised both this and the fact that fundamental viability would not be achieved by the amalgamation of B.U.A. and Caledonian. Some limited concession of Corporation territory was said to be required. The Committee recognised, however, that what B.U.A. had been seeking might be considered unreasonable and that it would be neither economic nor acceptable to handicap the Air Corporations unreasonably. The present Government share this view. We also have some sympathy with the view expressed by the previous Government in their White Paper (paragraph 41); namely, that they could not accept that the formation of such an airline should be made conditional upon the transfer to it of a significant part of the Air Corporations' route networks. It is the word "significant" which is crucial, and this brings me to my second point.

We are, I think, all agreed that the Air Corporations should remain our principal flag carriers. They are serving the nation well and there can be no question of undermining them by any wholesale or frequent transfers of routes. On the other hand, while the Air Corporations themselves cannot be expected to be pleased at the possibility of giving up any routes it is for the Government to decide what is in the best interests of the nation and of the industry as a whole. The importance and value of creating the second-force airline is such that it is the view of this Government that there should be some modest and exceptional transfer of routes.

Clearly, everything depends upon what the previous Administration meant by "significant" and what we mean by "modest". I do not pretend that the transfers proposed by the Government are insignificant. They are not. On the other hand, they are relatively small. An amount equivalent to between 2½ and 3 per cent. of B.O.A.C.'s current annual revenue is involved, which at the present time means from £5 to £6 million. But forecasts of inter-continental traffic point to an average expansion of about 14 per cent. a year up to 1975. Against that background, the transfer can only be described as modest, even though in the short term certain sectors of the air transport industry may be entering a period of retrenchment.

I would, furthermore, stress two fundamental points. First, this is an exceptional measure, providing the new airline with what they have accepted is a viable base. Secondly, the Government do not intend to put any public money into this venture. The suggestion of the Edwards Committee that the Airways Board should have a stake in the second force has been rejected as it would have inhibited competition. The Government are instead providing the private sector with the opportunity to prove itself. Because the owners of British United had decided to sell it or else consider putting it into liquidation, it seemed to the Government that if the concept of the second force was to be achieved, it must be achieved quickly. It is for this reason that the Government consider it important that the new airline should be serving the routes to be transferred by summer, 1971.

My Lords, I now come to the purpose of the Bill and the mechanics of the route transfers. While the Government would prefer the arrangements for the transfer of routes to be made through the normal licensing machinery, we recognise that the Air Corporations could not be expected willingly to give up even a small sector of their routes. They would be likely to contest B.U.A./Caledonian's application and any Order that might have been made, so that the transfer of routes would have been delayed. The Government therefore indicated that they would, if necessary, use their powers under Section 3(5) of the Air Corporations Act 1967 and under Section 1(3) of the Civil Aviation (Licensing) Act 1960 to ensure that the intended outcome was not unduly deferred, and they decided to introduce the present Bill. The Government are satisfied that they have adequate powers under these sections to prohibit the Air Corporations from providing certain air services and to grant the new airline a temporary exemption from the licensing requirement in respect of those services.

The Government have already announced their intentions with regard to the transfer of the West African routes. As soon as all the precise routes to be made available have been identified, the new airline will apply to the Air Transport Licensing Board for the necessary licences. If necessary, the Government will prohibit the Air Corporations from providing these air services, and they will do this by setting them out in an Order which will be subject to the Negative Resolution procedure. If necessary, the Government will grant to the new airline one or more exemptions from the obligations to hold an air service licence, but as a temporary measure only to prevent delay. The new airline will in any event have to satisfy the licensing authority in due course.

In determining the routes to be transferred, the Government have been seeking to provide the maximum benefit to the new airline's viability with the least impact on the Air Corporations. The Government are continuing their discussions with the Air Corporations and Caledonian/B.U.A. and hope to announce the remainder of the transfers shortly. The possibility of some reallocation or readjustment of routes now or in the future is rot ruled out. Clearly, we want both airlines to have the most coherent and profitable route networks, but as the principal objective at this time is to get the second force off the ground it has been necessary to concentrate on the routes which might form a straight transfer and to leave subsequent adjustments to the proposed new licensing authority to examine in depth and detail in accordance with the Government's policy.

My Lords, let no one think that the Government have no interest in the health of the public sector part of the industry. They have. Indeed, a major part of the Civil Aviation Bill which we plan to introduce is designed to strengthen this part of the industry, by putting B.E.A. and B.O.A.C. under the strategic control of the Airways Board. The second Bill that is due for Second Reading by your Lordships' House later tonight—the Air Corporations Bill—is concerned with this subject, enabling B.O.A.C. greatly to increase its borrowings and so further to expand its business, which has in recent years so admirably combined growth with profitability. The increases in borrowing limits proposed—from the present £120 million to £250 million and, by Order, to £380 million—are large. But B.O.A.C.'s estimate is that borrowings on this scale over the next five years or so will be needed if their fleet is to be re-equipped as they would wish. And the Government wish this, too. They want B.O.A.C. to remain in the van both in the aircraft and in the service they offer to their customers. Borrowing powers Bills give Parliament a chance from time to time to look at individual nationalised industries and to take their pulse. B.O.A.C. fully justify, in our view, the confidence that this second Bill will show Parliament has in them.

I should like to end on this note. The public sector has played in the past the predominant part in the development of British civil aviation, supported by successive Governments. This will continue. The private sector has also significant achievements to its credit. These too, the Government believe, should continue. While there can be no certainty of success for the new airline, I hope that the whole House will welcome equally the chance that the first Bill gives the second force to prove itself and the opportunity that the second Bill will give B.O.A.C. to carry further its past achievements. I commend this Bill to your Lordships.

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

4.7 p.m.


My Lords, we must thank the noble Lord, Lord Denham, for the way in which he has introduced this Bill. May I say at the outset that although it was my suggestion that a wider discussion on aviation should take place on the first Bill it was never my intention that the two Bills should be introduced as one, and I shall have certain things to say now on the second Bill, which I assume we shall take separately.

This is a debate on civil aviation and it was hoped that the keynote throughout what was to be said would be one of expansion. Though there is no special reference in this Bill to this, it would be quite impossible for me to go on to say what I have in mind without some reference to the unhappy news which we read this morning about Skyways Coach Air. This is a most extraordinary story, a most sad story, and it seems to me to indicate a complete lack of any ordinary commercial expertise on the part of this Government.

Skyways, one of the pioneers of independent air transport operating com- panies, has suffered various vicissitudes but throughout its life the new ideas which it put into operation have always seemed to me a justification for the independent air transport operator. The people behind the company throughout (although the ownership has changed somewhat) were in truth pioneers. They were enthusiasts in aviation. I see that the noble Lord, Lord Wakefield of Kendal, has just taken his seat opposite. He is a member of the board of the Skyways company, and I shall be interested to hear whether he has anything to say in this debate.

It so happens that by a curious development, almost an accident, the company found itself in the position that a 50 per cent. interest in its equity was publicly owned. It would appear to be this fact, and this fact alone, which has led to the present situation. It really is ironic that Mr. Rylands, the dean of the independent air transport operators in the country to-day, as I would call him, should be facing the situation that he does this morning because of the Government's prejudice against publicly-owned industry. So far as I can see, he is damaged for that reason, and for that reason only.

I would ask the Minister whether he will tell us something about the history of this matter. I have not had the opportunity to get the details, and I can only go on what is in the Press, but, so far as I understand it, it was not until December that Skyways were told that Transport Holdings would have to take out of their company the 50 per cent. holding which they had had up to that time. How much time were they given to find a new source of capital? What real opportunities in real life were given to the Skyways Company to go out and get capital to replace that which Transport Holdings were instructed by the Government to extract from the Skyways Company? I ask the Minister whether, even now, he cannot say that something is to be done to ensure that this company can be kept in existence to give the good service, as it has done, to the public and to provide employment for its staff.

For nearly two decades there has been an increasingly coherent and increasingly bipartisan appeal for the overall administration of, and the forward planning responsibility for, civil air transport to be taken out of the cockpit of Party political controversy. I have myself said with reasonable consistency over that period that the comparative merits of one air transport operator over another should be judged, not by Party political criteria but by ascertainable and objective facts and figures about safety and service to the public. As the various statistical tools developed, this became not only desirable, but practicable.

What we wanted primarily was an administration or licensing authority with full authority and proper independence. Of course there have been licensing authorities, but they have had neither the authority nor the independence to do the job required. One remembers that at one time licensing functions were attached to the Air Transport Advisory Council, and a former Member of this House, the late Lord Terrington, enjoyed great respect and affection as chairman of the council; but neither the A.T.A.C. nor the Air Transport Licensing Board which succeeded it could be said to fulfil the role which the situation demanded.

If I may be excused for quoting myself, I find that I wrote in 1964: Something certainly should be done about the A.T.L.B. Its present position is undignified as well as inefficient. Almost every major decision since it was established has been taken outside Therese House. The decisions affecting the whole of the British effort to North and South America were taken without informing, let alone consulting, the A.T.L.B., and the present appeals procedure from decisions which are taken by the Board is illogical and intolerable. History is now repeating itself as regards the British effort in West Africa. Without any consultation with the present Board, the Government are superseding their responsibility; and if these matters are to be referred to the Board at some time, as I gather from the noble Lord, Lord Denham, they are, they will be referred to the Board with instructions that they are, in practice, to carry out certain processes. That really is not the way that we should deal with civil aviation. Such an action, I understand, could have been challenged in the courts; and the only purpose of this Bill is to ensure that the action cannot in fact be challenged in the courts.

In July, 1967, there appeared to be the beginnings of a real breakthrough. The then President of the Board of Trade set up a Committee to conduct a real grassroots review of the air transport industry. It was an impressive Committee, with a chairman who commanded confidence. It conducted a most searching inquiry. It reported in May, 1969. Its findings as to general principles commanded wide support. There was, as the noble Lord said, a White Paper from the previous Administration, which again, in general, had all-Party support. But now we have this Bill, probably the most pathetic piece of legislation that it has been my misfortune to touch. It does not purport to implement anything in the Edwards Report. The Minister in another place even says that it is not really necessary; that they have the power to do what they want to do with regard to the reallocation of routes. What a sad reflection on a dynamic society dealing with a modern industry that 3½ years after the Edwards Committee was established, and nearly two years after it reported, we have only this non-Bill!

But the practical implication of the Bill is more serious. The Bill, though declared unnecessary, is the occasion for a reallocation of routes in a licensing operation. The Edwards Committee did not take the view, the Labour Government did not take the view, and certainly I never took the view that all routes for all time would be the inalienable property of the two nationalised Air Corporations. But if routes are to be reallocated, if licences are to be revoked and reissued, that should be the responsibility of the new licensing authority, the proposed new Civil Aviation Authority, which both the previous Government and the present Government committed themselves to establish. This is the real tragedy of this bit of Parliamentary time-wasting. Just when we were about to move into a new era of air transport responsibility, when we should indeed by now be considering constructive legislation to establish the Civil Aviation Authority, the Government produce this sad Bill to give legality to an action which they claim is legal, anyhow, and which they ought not to be taking, whether it is legal or illegal.

I believe that the action which Her Majesty's Government are taking under the cover of this Bill is unwise and unfortunate from all points of view, Certainly it is unwise and unfortunate from the viewpoint of the Corporations. It is bound to cause uncertainty and loss of morale. I believe it to be unwise and unfortunate from the viewpoint of the newly constituted company, Caledonian/B.U.A. I say so here, and I have said so to Mr. Adam Thomson. It gets him and his new company off to a bad start. All those interested in aviation have watched the rise of Mr. Thomson with interest and admiration. I wish him well; I have always wished his company well. But he must have so many problems of reorganisation and so much to do in the re-grouping of personnel that he could well be spared the extra problem of fitting in a slice of yet another company—and a slice which comes in involuntarily. I know that he had a case to make out as regards attracting new capital, but is it really going to give confidence to investors if the money is put into routes which may well be lost again? If one Government can take powers to do a thing like this, then another Government could use similar powers to undo it. And one of my right honourable friends, on behalf of Her Majesty's Opposition in another place, has said that they will indeed reverse this when in the course of time they again assume responsibility.

How much better if Caledonian/B.U.A. had made out a case for these or other routes to the new Civil Aviation Authority! How much more security there would be for whatever route changes might be agreed! Post-war history will show, I think, that in practically every case where route patterns have been established by a Government Department, and not as the result of discussion and analysis by a licensing body, they have always proved impermanent. It was so at the beginning when the wartime Coalition Government recommended, and the first post-war Labour Government implemented, the idea of three separate Corporations. Very soon, after experience, the neat pattern was redrawn and British South American Airways disappeared. Similarly with that curious short-lived episode of Atlantic operations by Cunard-Eagle. They, too, were the product of something which happened in a Government Department; and they, too, quickly passed on when the economic facts of the situation became clear. Looking at the matter solely from the point of view of British air transport growth, I should have been much happier and more confident if the proposed West African changes had been examined by a professional body.

Will the Minister confirm that this is the last territorial demand that he will make upon B.O.A.C.—the last transfer of business in this way? I should like him, if he is going to give an undertaking, to spell it out. It has been said that this was "once for all". But there was some qualification added to those words later. It is vitally important from the point of view of B.O.A.C. morale that there should be no doubts as to what their position is.

What about compensation? If one accepts the position that routes are not the property of the operator, then in the ordinary way there can be no question of compensation, but this situation is somewhat different. The circumstances of the transfer are quite different from the case in which a company was granted a licence for a period of years, and it was known that if they did not fulfil the conditions of that licence then it was open to be taken from them. These routes have been developed without any question of their being held only for a term of years. Money has been spent which is now to be lost as a result of this Government's action. Aircraft have been bought and will now be under-utilised. Will some way be found to give proper compensation to the Corporation for their loss of good will for the material damage suffered?

Then there is B.E.A. I understand that some threat still hangs over their head. Can the Minister say exactly what is the position there? If, as is reported, he is contemplating some reduction of B.E.A.'s Paris frequency, what is the position about traffic rights and the B.E.A./Air France pool? Is proper consideration being given to all these factors? Again, I would ask the Minister: would it not really be better, if an Authority is to be established with responsibility for these matters, that any proposed changes of this kind be left to the full consideration of that Authority?

That brings me to the question of the legislation required for this long-awaited Civil Aviation Authority. I freely admit that one might say that the previous Administration might have made more progress on the preparation of the necessary Bill. I know that there are some complicated issues involved. But will the Minister give an assurance this afternoon that the Bill will be given the necessary priority in the legislative programme? While this still remains in the offing there are bound to be uncertainties which can do no good at all to the British civil air transport effort. I hope that his right honourable friends are getting all the support they need in their claim for Parliamentary time.

There is one other thing I want to say about the structure of the proposed C.A.A. The one aspect of the promised new organisation which has aroused controversy is the proposed inclusion of the Air Registration Board within the responsibility of the Civil Aviation Authority. As the Department would tell the Minister, I personally was always against this inclusion. Certainly at this point of time it may be administratively more tidy to put everything together, but there is nothing in practical experience which suggests that a bigger organisation is necessarily better, or that a tidier pattern is necessarily more efficient.

There are bound to be growing pains when the C.A.A. assimilates its other functions. Why complicate the process by lumping in the A.R.B.? No one questions the technical expertise of the A.R.B. Its executive leadership has commanded the highest possible respect. Walter Hardingham and Sydney Tye are names which stand out for their contribution to aviation progress. The Air Registration Board has been similarly fortunate in having men like the late Lord Brabazon and his successor, my noble friend Lord Kings Norton to take the chair. I know that my noble friend Lord Kings Norton would have wished to say something this afternoon, but he is abroad on business. I hope that he will be back in time to give his view at a later stage of this Bill. The Board itself, as I think the noble Lord will agree, is extraordinarily well balanced as between the different interests directly concerned. Why then disturb this position? Why not concentrate on making a success of the reconstitution of all the other responsibilities which will be grouped under the new Authority?

I hope the Minister will be able to say that he has listened to the various representations that have been made, and that it is not too late to take them into account. I should also like to add this comment. If it is hoped to compromise with some form of Advisory Council, instead of the present Board, the power of that advisory body will have to be really effective if men of the right calibre are to be found to serve on the advisory body.

Finally, my Lords, I want to say one thing more about the effect of the announced route changes upon the fortunes of B.O.A.C.—and here I may well upset some of my own friends. The changes will be bad financially and psychologically. The staff, rightly, have protested. But I must say this: some of those who have protested most loudly have themselves, by their recent go-slow tactics, done more damage than Conservative Ministers. Those employed by the two Air Corporations are not among the lower-paid workers of this country. They cannot make out the same case as the Post Office workers, for example. They do not have any old-time capitalist boss to struggle with. They are privileged to be employed by a publicly owned, public-spirited organisation. Their masters are in truth their fellow citizens.

When, with others, I helped to set up those Corporations nearly a quarter of a century ago we always hoped that they would pioneer new social techniques as well as technological techniques. We spoke then of participation by the workers in the development of the organisations through which they earned a living and served the public. Many—indeed, one might say the majority—have responded. They have created modern advanced organisations of which they can be proud. But some—possibly a minority—talk more of wage-increase percentages than methods of management participation. Their action in hurting the travelling public is a more potent argument for private enterprise than anything the Government have said in favour of this Bill. I very much hope that the majority will ensure that the minority are not allowed to damage the good name of the Corporations which they serve. Meanwhile, my Lords, I hope that the Minister will be able to answer the specific questions that I have asked, and will take into account what I have said in determining future policy.

4.30 p.m.


My Lords, I also should like to thank the noble Lord, Lord Denham, for his speech on the Second Reading of this Bill and for making a reference to the Board of Trade announcement last August (which has saved me the trouble of requoting it to your Lordships) concerning the formation of the second-force airline, as it is to the formation of the second-force airline that I wish to confine my remarks this afternoon. So far as I understand it from what the noble Lord has already said, unless remunerative routes are transferred to this second force it must start off by being in the red; in fact, nonviable. Does not this point to the fact that if these routes are not transferred there is not enough business—and when I say "business" I mean payloads, passengers, freight and mail—to enable the new airline to establish itself?

The inference seems to me to be that it is essential that this new air force shall be viable from the word "Go". As a corollary, are we to assume that the private enterprise that backs it is not enterprising enough to go out after new business, pioneer new routes, and take the financial brunt of introducing new types of aircraft, in the way that State Corporations have done over the years, which has put them in the fine position they are in to-day? It seems that from its inception this new force is to be feather-bedded by being handed routes and frequencies that have been pioneered and built up over the years by the State Corporations—and, mark you! my Lords, by public money—otherwise, it will not be able to compete.

I have not seen any notice or suggestion that compensation is to be paid to the Corporations for handing over these routes—a point which the noble Lord, Lord Beswick, has made strongly and well. I understand that neither British Overseas Airways Corporation nor British European Airways will hand over any of these routes voluntarily: that, I think, was confirmed by the noble Lord, Lord Denham. I have read that the earnings of the routes to be handed over will represent only a small proportion of the Corporation's total earnings. But, large or small, does this not really mean the handing over of public money to private interests and investment?

What are the routes concerned? We are informed by the noble Lord, Lord Denham, that very shortly we shall be told what they are. So far as I understand at the present moment, the proposals are to take over some of the Atlantic routes from B.O.A.C. and the routes to West Africa, notably to Ghana. We have heard from the noble Lord, Lord Beswick, that there is possibly a proposal to take over some of the frequencies of the Paris route from B.E.A., if not this year then next year. I think I am right in saying that there was a proposal that B.E.A. should give up the Gibraltar route, but when the public and the Government of Gibraltar heard about it they raised such a hullabaloo that the proposal was hastily dropped. It may be that in respect of routes to other places similar trouble may arise locally. When it is proposed that the services they have had all these years should be given to somebody else, those concerned do not like it.

We have heard a good deal about competition, and it is perfectly true to say that healthy competition can and does make for better service. I would stress to your Lordships, however, that it can also make for bankruptcy. On this particular issue we are talking about—the flag-carrying of international civil aviation—I assure your Lordships (and I can do so from personal experience) that the competition put up by foreigners on the international routes is as much is, if not more than, the British can handle. There seems to be an illusion that if two operators are put on the same route the business is automatically increased. That is not so. One merely divides the capacity and the earnings, because when it comes to frequencies, which regulate the service, they are generally split 50/50 as between the British and their foreign opposite numbers. The foreigner is naturally not going to give up his 50 per cent. Therefore, if one is going to put a second operator, or a third operator, on the route one is merely dividing the British share of the business, to nobody's advantage.

If any of your Lordships are sceptical of what I am saying, I would counsel you to try to get in on some of the negotiations which the Foreign Office has to undertake in obtaining routes and permissions to fly foreign. To go a little further down the line, you might consider sitting in at some of the meetings of the International Air Transport Association, I.A.T.A., which deal with fares and even meals: the size of meals to be taken on aircraft is argued, discussed and agreed. I can assure your Lordships that the competition is fierce and the battles are tough. I know, because I have been at some of them.

On the object of forming this second airline, after listening to what the noble Lord, Lord Denham, said I hazard a guess that the intention is to make sure that some of the bigger independent airline companies are kept in being, with qualified staffs, their fleets, and the technique and know-how which they have built up; and, secondly, there is the desire to increase the British share of world markets in civil aviation. With regard to the first, I think everyone will agree that some of the large independent companies have done a very good job and have provided considerable travelling facilities for the general public, notably in the charter field. On the second issue, I repeat that it is a fallacy that one can increase business by putting a second or even a third operator on to an existing route. The frequencies are decided by international agreement, and so the payloads are merely split up. When routes have been established and run for many years it is surely not a good plan to change horses in mid-stream and put in somebody else to operate them. To increase new business you need to go out for new routes and improve the methods of the business you already have. If it is in the public interest that this second force is to be formed, would it not be better that it be induced to set about improving its existing business, to go out after new business, and pioneer new routes in the way the Corporations have done, rather than that it should be made viable from the start by hiving off routes from the State Corporations—which I submit is not in the public interest?

4.38 p.m.


My Lords, I have listened with great interest to this debate, including the expert speech of the noble Earl who has just sat down, who has a full knowledge of this matter. While I do not want to introduce any asperity, I want to introduce a little iconoclasm in respect of the speech delivered by the noble Lord who spoke first. It is very important at this juncture to look at the purpose behind this little Bill. I thought at first that I was at a Welsh funeral, where some of our Welsh colleagues receive such great praises that, if they are not on the right hand of the Lord Himself, I have no doubt they are not very far away. But when we look at this Bill in a little more depth we see that its purpose, more than anything else, is to prevent British Overseas Airways Corporation and others from taking up a legitimate case against the Government, as I think they could rightly do.

If I wanted to define in one sentence the policy of the Government, I would say it is now almost axiomatic that they have become Conservative Maoists. Their purpose and their philosophy is to socialise the losses and private-ise the profits of enterprise. We were told (I will not quote the exact words), rather brashly, by the President of the Board of Trade, Mr. John Davies, a fellow Welshman, that people were existing in the morass of a subsidised existence. We were told that public enterprise never showed any zip or any talents for making profits; that it needed the fierce winds of competition. I can say with knowledge here that B.O.A.C. and B.E.A. have suffered the fierce winds of competition from every corner of the earth. Like most noble Lords in this Chamber, I have had the privilege of travelling pretty well all over the world many times, and I have always been proud to be travelling with B.O.A.C. or in any of our aircraft. I have always had a sense of security about their safety. I have had a great sense of security about the aircraft of B.O.A.C. and B.E.A., and I have been privileged to have as a friend of mine a senior captain on one of these great routes.

I happened to be in the South Pacific when the great conference was being held and this nationalised industry of the airlines was dynamic enough to be holding discussions in Honolulu with Americans, Australians, Japanese and others about the new routes that are being developed in the South Sea Islands between Tahiti, Samoa, Fiji and Western Samoa. All that area is expanding. Small island territories like Tonga are building hotels—in Tonga, for instance, they are building the Dateline Hotel—and these are being prepared for the new type of holiday-maker coming in from New Zealand and Australia. In this area our publicly owned airlines were behind no one so far as enterprise, enthusiasm and (this is a point I should like someone to take up) in trying to charge a fare that would be lower than any other in the Pacific area.

What is the purpose of the Bill? As I have said, in my view State industry is under attack. I do not want to be too bitter about this, but I regret that the philosophy of this Government seems to be the most abrasive Conservative philosophy that we have seen for a long time. I think it is just as abrasive—and I am old enough to remember it—as that of the Government of 1931, if one takes the relative increased affluence throughout the world. There seems to be some absurd view that by doing these things we shall get rid of the incubus of inflation that now spreads all over the world.

What is the fact about this acquisitive society in which we live, whether in the United States of America or anywhere in the Common Market, which is receiving great eulogies at the present moment? We are all suffering from inflation, and I regret to say that none of these things, such as robbing and hi-jacking B.O.A.C. and B.E.A., will in any way increase the economic health of this country. Lest it be said that I have exaggerated the position, I took the trouble to look up some references, and I find that a quiet, sedate magazine and weekly journal like the Economist describes this as coming close to making a gift of public assets to private investors. We had a typical example in 1962, when there was the B.O.A.C.-Cunard deal, very similar to the present one.

We were told in the other place the other day, when, incidentally, two Ministers contradicted one another, that this would be the one and only bite at the cherry. From the speech to which I listened to-day—and I apologise because I had to move out of the Chamber for a while—that now seems to be contradicted again. If B.O.A.C. and B.E.A. are cut away, and if they increase their trade and their opportunities and develop new airlines there is no guarantee, despite this Bill, that another bite at that cherry will not be taken.

Again, I should like to point out that when the Edwards Committee spoke about the new second-force airline they were remarkably sympathetic to the private airlines. In fact, when the Labour Government were in power they were by no means as doctrinaire as this Government because even in the Edwards Committee we found a slight justification (but not without compensation, as in this case) for some activities on the part of private airlines. They wanted to form a merger of British United Airways and Caledonian Airways, British and Commonwealth Shipping, which owns 92 per cent. of B.U.A. share capital. They agreed earlier to sell some of this, and at that time B.U.A. was one of the largest private airlines in existence. This plan was not approved by the Labour Government, but the proposal now is that Caledonian Airways should take over B.U.A. It is interesting to note the names of the principal shareholders. The Minister, Mr. Noble, speaking in another place the other day, was asked by a Member where the money would come from. He replied, "I am not concerned where the money comes from". That is a new philosophy for a Conservative Government and I want to know whether the noble Lord agrees with that. We were told categorically in the other place that the Party in power is not concerned where the money comes from. Are they not concerned whether it is Russian money, American money or anybody else's money?


My Lords, may I intervene for a moment? I wish to make a small point because I do not think it would be wise to let this go further. It is, of course, necessary for the companies to be British owned in order that they may get licences.


Well, my Lords, that should have been made clear. The noble Lord says that it is necessary for the companies to be British owned in order for them to get a licence. But there is nothing to stop an American company or any other company from having a share so long as it does not have the major holding. The principal shareholders of Caledonian Airways include Sir Isaac Wolfson's Great Universal Stores; the owner of Global Tours, one of the main travel tour operators in the country; Lyle Shipping, a Scottish shipping company; Hogarth Shipping; National and Commercial Development, the merchant banking subsidiary of the Royal Bank of Scotland; the Industrial and Commercial Finance Corporation; and Airways Interests (Thomson), whose head is Mr. Adam Thomson, the Chairman of Caledonian. But these are by no means all the private interests involved. It was stated in the Daily Telegraph that about £30 million will be needed to complete the deal, and that this is being supplied by financial backers whose identity was not known to Mr. Noble, the President of the Board of Trade, when he announced the deal on August 3. He said that it was not his job to ask where the money would come from.

Caledonian Airways subsequently declared that they were British, although the Daily Telegraph said that 4 per cent. of their shares were held by Scottish Air International, an American firm. I want to know—and I think we should be told—whether this is true. I think it is a proof of the brashness and of the doctrinaire approach of this Government, who are rushing in where angels fear to tread. This is a purely doctrinaire piece of activity. As I said that I did not want to develop this subject too bitterly, I should like to be told by the noble Lord, Lord Drumalbyn, whether he can guarantee to your Lordships that the money that will be in this concern will be money that is entirely British and that there will be no outside interest in it whatsoever. Quite frankly, I do not believe that at this juncture that guarantee can be given to either House of Parliament.

Finally, I think this matter is of importance all over the world, if we are worshipping, and if we are falling for, the apotheosis of profit at the expense of safety. I want to know whether the safety factor will be as high with these interests as it has been with the public airways concerned. In the special review of safety performance of United Kingdom airline operators published by the Board of Trade in 1968 it was shown that the safety levels of the private airlines were significantly lower than those of the Air Corporations over the 10-year period between 1955 and 1965. Perhaps this is an appropriate note on which to end this (I hope not too long) speech, for to me this question of safety is of more concern than the profit factor. I know that so far as the second Bill is concerned there are the borrowing powers, but before B.O.A.C. and B.E.A. had those borrowing powers they informed the Government of their new projects, their hopes of advancing into the most modern types of plane in the world today. I want to know that we are not having the same brash approach to safety as the President of the Board of Trade had to the question of the money being put into this concern.

This Administration's approach is the same all along the line. Now it is even becoming so undignified that it is after the poor beer houses of Carlisle because they are making a little profit. This is nothing like the Conservative Party of history. It is a Poujadist back-seat Tory Government that is just about capable of running a fish-and-chip shop, and swanking about it. I sincerely regret its unphilosophical and unpatriotic approach to British airways.

4.52 p.m.


My Lords, I do not think I could possibly follow the line of the noble Lord, Lord Davies of Leek, even in his jocular vein, and I am sure that my noble friend Lord Drumalbyn will deal with his arguments very satisfactorily. I would remind the noble Lord that a Government White Paper was published a year ago by the Party then in power which I think answered many of the questions he raised to-day. If he would like me to send him a copy, I should be glad to do so.

I should like to congratulate my noble friend Lord Denham on the clear and lucid way in which he introduced this Bill. He is no newcomer to aviation; if my memory serves me, he used to reply on behalf of the Government in 1963. It is notable that he has missed taking part in aviation matters for the past six years. I should also like to congratulate the Government on introducing, not this "sad Bill", as the noble Lord, Lord Beswick, described it, but indeed this very important Bill, in a very proper and firm way. They have immediately implemented a policy they announced soon after taking office. If I may say so again to the noble Lord, Lord Beswick, it took his Party over twelve months to come to any conclusion at all, and then a pretty unsatisfactory one.

The advantage of setting up a strong second force is, I think, generally accepted, and was certainly clearly stated in the Edwards Committee Report, and the need for this second force to have a greater share of the scheduled services, at present running at about 7 per cent., is again, I think, accepted on the ground that the second force must have a viable route structure. How one achieves this is apparently now in doubt. The Party opposite have taken a very curious change of policy in the last few months. Despite their support of the Edwards Committee, who in fact stated that they felt that a second force should get a greater share of the scheduled services, and despite their declaration in their White Paper, they apparently claim now that all the transfer of services could be achieved by agreement.

One finds this very difficult to understand or to believe when one sees the reaction of both B.O.A.C. and B.E.A. Indeed, I am sure that they are right, because as trustees of great public corporations both Boards could hardly willingly give away any of their scheduled services, either in the interests of their finances or of their staff; and one respects them for that. In my view, the Government have taken the only correct action, in introducing this Bill and clearly recognising the importance of the delicate balance of building up a viable second force without causing any real permanent damage to the Corporations.


My Lords, will the noble Earl forgive me? Does he contend that this will increase the volume of traffic?


My Lords, I think that in time it will undoubtedly increase traffic, when one gets the competitive benefits that will accrue, particularly on the dual designation routes. I wish, if I may say so, the second force every success; and, my goodness! they need it. They are going into the business in a climate in which the airline business generally throughout the world is in a state of depression. They are having to find great sums of money to equip with modern aircraft, and despite this they have found their financial support in what must be a very high risk investment.

Turning briefly to the reaction to this Bill in another place, I deeply regret the irresponsible threats (to which the noble Lord, Lord Beswick, referred) that were made in another place: that if or when, in due course, the other Party returned to power the second force routes would be returned to the Corporations. I consider this a very irresponsible way to behave, and I am glad that the noble Lord, Lord Beswick, did not follow in their footsteps. The noble Lord, if I may say so, has always been an enlightened aviation spokesman for the other Party in this House. I was also sorry to see the pounding of the trade union breasts over what must clearly have been a political interest, and I hope that, now that the dust has settled and, as I understand, agreement has been reached, and all the jobs are secure and on the same terms, the second force will be given a fair chance to make a fair start.

I turn to the scheduled services to be transferred. One appreciates that this is a very complicated business involving bilateral agreements. I hope that the Government will see that the dual-designation services will be implemented so far as possible, particularly on the routes to Paris and on the routes over the Atlantic. I was glad also to see that in another place the Government did give an undertaking—and I hope my noble friend will repeat it this evening—that this transfer of routes for setting up the second force airline will be once and for all. I think that in an earlier Statement the Minister said that they are now on their own. This is obviously important for the Corporations, both for their management and for staff. I do not think the Corporations have been particularly complimented today, but they have done a tremendous job over the last twenty years and I personally have the greatest admiration for the way in which they have been operated. I still believe they will have a great future, despite what one has heard from the other side. If no undertaking had been given that this would be a once for all effort, then of course it would have weakened their position.

Finally, I would ask my noble friend how soon the scheduled services will be transferred to the second force airline? How far have the discussions got? And will the financial targets of the Corporations be reviewed at that time? I believe that the Air Corporations Bill emphasises the enormous sums of capital needed now for long-haul operations. I understand that we are dealing separately with that Bill. I conclude by saying that I welcome this Bill. I do not accept what the other side have said about its effects. I believe that it will be warmly received.

5.0 p.m.


My Lords, I had not intended to intervene in this debate, but in his opening remarks the noble Lord, Lord Beswick, referred to the sad news (which no doubt your Lordships saw in the newspapers this morning) of the closing by the Government of the Skyways Coach-Air cross-Channel services. I declare an interest in that I am a director of this company. I have no financial interest, but I represent other interests in the company. As the noble Lord, Lord Beswick, has said, the Transport Holding Company on behalf of the Government own a 50 per cent. interest in the equity of this company, and there are a substantial number of debentures as a prior charge.

As the noble Lord, Lord Beswick, pointed out, Mr. Rylands (with whom I have been associated for close on twenty years) was a pioneer in coach-air services. It may interest your Lordships to know that the first services were those from Blackpool across to the Isle of Man. That service was run in conjunction with the Ribble Motor Services. Right from the start this coach-air service proved to be popular. In the industrial North people started their journey by coach, then continued by aircraft across the water to the Isle of Man.

Then opportunity arose to expand this short-haul, across-the-water service, linked with coaches, to the English Channel. Your Lordships will remember the Silver City Company which operated from Lympne Airport. They ceased to operate from that airport and went to another airport not far away, called Lydd. That move gave Skyways Coach-Air the opportunity to acquire Lympne Airport, recently (some 18 months ago) renamed Ashford Airport by the Prime Minister. Skyways Coach-Air now own this airport, which is the oldest civil airport in the country. Indeed, I remember that some 53 years ago I landed a Camel there for refuelling when on my way to France. So I have long and happy memories of that civil airport which, in two world wars, has been of great advantage for military aviation as well.

These coach-air services across to the Continent—mainly to Beauvais for Paris, more recently extended to Ostend for Brussels, and down to the centre of France to Clermont Ferrand and further South to Montpelier, with special flights to Basle, and so on—have been of immense value to students and others who cannot afford the full air fare. Close on 1 million passengers have been carried by this form of service, without injury to anybody, over the last 12 or 15 years. This record of service to the public cannot be lightly brushed aside in this way. The company has struggled along, gradually improving Ashford Airport runways and installing modern facilities. These improvements are still in progress.

In 1969, the company made a profit on the total capital invested in the business. In 1970, there was a loss of some £50,000. That loss was due to circumstances quite outside the company's control; namely, to restrictions on travel imposed on the French public by the French Government. This company earns an immense amount of foreign exchange. It is not like B.E.A., which has to share with Air France and other companies. Foreign exchange which is earned in France by passengers travelling from France to here is earned for the benefit of this country.

Last year, this company was faced with political conditions quite outside their control. They were exceptional conditions. But there was another factor of great importance. At Whitsuntide, which is a highly profitable time for the company to operate, contrary to their agreement the ground staff went on unofficial strike. The strike was also contrary to trade union agreement. Thus, instead of the company making a big profit, a heavy loss was incurred, because aircraft could not operate. But, worse than that, in August, again a most profitable time of operation for the company, the ground staff threatened to go on strike again. That, more than anything else, has meant that there has been a shortfall in cash during the winter months to carry the company through to the very profitable operations of the summer. So these unofficial strikers, by their deliberate action, have now put not only themselves but hundreds of other people as well out of a job—as well as preventing the public from getting across the Channel, and otherwise inconveniencing them, although nobody will be prevented from being carried by other means in the coming weeks.

What, then, is happening? In the autumn the company has plenty of cash, but it needs money to see it through the lean winter period. Last autumn, not only the board of Skyways but the Transport Holding Company had a good look at future prospects. They considered whether the company should be closed down or kept in being. It was decided that the prospects were very good. The budget estimate for this year was a profit of £200,000 for the servicing of the total capital invested. This figure was looked at by the Transport Holding Company, and it was agreed that £300,000 should, if necessary, be available to see the company through. Provided that there were no unforeseen conditions beyond the control of the company it was expected that it could be shown again to be a viable commercial proposition.

What happened then to make the Government intervene? So far as the record of the company is concerned, nothing. It is running exactly to budget. The figures are 25 per cent. up on the carriage of passengers. Profitability is quite in order. Why, then, should the Minister, early in December suddenly—this was the first I heard about it—say that within 48 hours a receiver must be put in? I told the Minister, "You are crazy. We are just about to enter into a profitable operation over Christmas and the New Year. Are you really going to put a lot of people out of work suddenly like this, and upset all those people who have booked to go across the Channel for Christmas and the New Year? You must be mad." He said, "I am going to do it." We then managed to get somebody to agree to put down a deposit of £50,000 to implement the purchasing of the whole business, and the disaster was staved off. In spite of fog, snow, and other difficulties, the passengers were carried according to budget, and a very substantial profit was made.

In the meantime, the directors—not the Transport Holding Company directors, but the other directors—got busy. Of two big groups one was prepared to go ahead with any amount of money, and another was so interested that they put down £100,000 in cash as deposit to complete at the end of this month. Having done that, they were told that, as from yesterday, they must accept all liabilities of this company, whatever they may be, until completion day in ten days' time. They said, "This is not reasonable. It is not fair or right. We cannot accept unknown liabilities. We are a very big company." They are the biggest in the world in their line of business.

There are tens of thousands of employees, any amount of money, and the company wanted to do the business. Nevertheless, the Minister was adamant. He said, "No", and so the axe came down. Scheduled services are stopping, and people are being put out of work. I really do not understand the sense of this. I entirely agree with the policy and principle of the Government in getting out of what ought to be commercial operations—that is right without any doubt at all—but surely what is important is the timing and the method. The Transport Holding Company, and the directors of this company, when they made the decision to carry on, took a good look at it. They said, "If we meet our budget and make our profit, very well, we carry on. We have a viable commercial proposition. If, on the other hand, we do not meet it, the time to close down in an orderly fashion—when we can get far more money for our assets, our aircraft and the aerodrome—without entering into future commitments, is September". And all plans were made to do so. You do not close down now when two-thirds of the winter is through, when you are through most of the worst period, and when your bookings and prospects are exactly according to budget. It just does not make sense. It is not commercial.

I deplore this hasty and, what I believe to be, unnecessary action in closing down at this moment without giving the directors of Skyways Coach-Air the opportunity to find the money—which they could have found given a reasonable amount of time. After all, the Transport Holding Company took 15 months to decide to come into this business—and they came into it because, as we all know, they originally had an interest in all the buses all over the country and it was a very natural tying up. Of course Transport Holding Company, as your Lordships know, own Thomas Cook & Sons and Lunn-Poly, and so forth. There could not be a more appropriate and desirable link-up. Since the Government are getting rid of Thomas Cook, quite rightly, and Lunn-Poly, quite rightly, there is no point in keeping Skyways Coach-Air on, but it should not be thrown away in this irresponsible manner. Surely it should be done in an orderly and proper fashion. I quite deplore what I would describe as the unnecessary destruction of a service which for all these years, to a million or more people, has given the most wonderful value, and has brought foreign exchange to this country. This action can only be to the disadvantage of the taxpayer.

5.14 p.m.


My Lords, until this afternoon I had no intention of coming in on this debate, any more than had the noble Lord, Lord Wakefield of Kendal, for whom I have considerable sympathy. After listening to the noble Lord's moving of this Bill and to various other matters, I begin to smell a smell of cream about this business which I do not like. I am all the more suspicious because a miasma of this smell hangs about many other transactions of this Government.

Let me explain myself. Everybody knows that in any large business, whether it be a public corporation or a major private business, some parts of the business are more profitable than others. That is perfectly normal. It often happens that it pays the owners of the business, the managers of the business, whether it be public or private, to hive off and sell off part of the business for the purpose of reinvesting the capital in the rest of the business. That is a perfectly reasonable thing to do, and it is reasonable whether it is a private business or a public corporation. I have no feelings about nationalisation or denationalisation, or anything like that, which would make me take a different attitude; if it was a public corporation or a private business, I would accept it as a reasonable thing to do.

However, it is possible that it is not done voluntarily by the managers of the business but is forced upon them from outside by a Government for purposes which are quite different. It is sometimes forced on them by a Government for the purpose of taking a profitable part of the business and selling it off—or it even appears, in a case like this, of giving it away to somebody for political purposes. As I say, there is a name for this; it is "creaming".

It would be perfectly possible for a Government—I do not believe this is possible even for this Government, although I begin to have suspicions—to do this with, say, the Post Office. For example, we all know that to post and transmit a letter from one address in London to another costs rather less than a penny, because such an enormous number of letters is passing to and fro over a short distance; whereas to transmit a letter from one address to another in the Highlands of Scotland costs about 5s. What is happening is that the Post Office subsidise the transmission of letters in the Highlands of Scotland from its profitable business in London. It would be perfectly possible for a Government, deeply wedded to the idea of private enterprise, to hive off the postage of letters in London to a private corporation, who would do it profitably at a very much cheaper rate.

The public corporation would have to "carry the can" of the unprofitable sector of the business. It would have to raise its prices much higher and would be accused of making losses as a public corporation. What would actually have happened would be that it had been robbed, and the public had been robbed. They would have been robbed of the profits from the profitable part of the business, which would have gone into other people's pockets, and the public would find themselves paying through higher prices, through taxation, subsidy, and all the rest of it, for the resultant loss forced on the public corporation.

As we all know, the reason why the airlines have been given a monopoly of certain profitable routes is that, as public corporations, they have the absolute duty to carry certain unprofitable air routes. They cannot just throw them away, any more than the Post Office can throw away the business of distributing letters in the Highlands of Scotland. I am not an expert in the airways field, but it seems to ordinary people such as myself that there is a distinct smell of cream, of skimming the cream off the business and giving it away for the purpose of making somebody else's business more profitable. I hope I am wrong. It may be that the words "Cream for the boys" are only a murmur at the moment; but if this sort of thing goes on, they will be louder than a murmur; they can become a shout. They can become a trumpet call like the call that brought down the walls of Jericho. If so, they may well become a trumpet call that brings down a majority on the heads of noble Lords opposite.

5.19 p.m.


My Lords, the core of the debate to-day is whether or not there should be a second force airline. The noble Lord shakes his head, and I know he thinks that this is not so, but I hope to show that if we are to have a second force airline we should not have been able to act differently from the way in which we have acted. I quite understand that political suspicions are bound to come under consideration in circumstances of this type. I sincerely believe that, just as the noble Viscount has said that it has been his endeavour to keep politics out of aviation, the Government are doing the same and I hope I shall be able to show that.

We listened to the noble Lord, Lord Beswick, who speaks with greater knowledge of civil aviation from the Ministerial side than anybody else in this House, or in the other place. I can remember him speaking as Parliamentary Secretary. Even in those days he had much more knowledge than I had and to-day he has immense experience behind him. But I thought he jumped to conclusions once or twice. I do not complain at all of his introducing the subject of Skyways. Furthermore, I certainly do not complain of my noble friend Lord Wakefield of Kendal speaking to-day as a director of the company. As I understood it, his complaint was that the Government have probably done the right thing at the wrong time. Of course the whole country is sad when a private civil airline is liable to go out of operation.

I have been asked about the reports appearing in the Press to-day about Skyways, and it may be helpful if I make a statement about the events leading up to the appointment of a Receiver for Skyways last night. Since the Transport Holding Company acquired a half share of the equity capital of Skyways for £27,000 in 1967, they have had to lend the company £1½ million to keep it going. That includes secured interest. The background is that after last summer, when it became apparent that the company would make a substantial loss in 1970, the Transport Holding Company informed the Government that up to another £300,000 would be needed to help keep the company going through the winter. They sought consent to lend this money on the basis that it would enable the various alternatives to be explored, including the sale of the company or eventual liquidation. However, Skyways is essentially a high risk venture and, after careful consideration, my right honourable friend the Minister for Transport Industries informed the Transport Holding Company on December 3 that, in view of the company's past record, the scale of its liabilities to the Transport Holding Company in relation to the likely value of the assets, and the size of the traffic increase needed to meet the forecast budget in 1971, he did not consider that further public funds should be committed for this purpose.

Nevertheless, my right honourable friend agreed that the Transport Holding Company should be given an opportunity to try to find a buyer for their interest in the company. Since then the Transport Holding Company have made every effort to do so. Unfortunately, they have been unsuccessful and both the Government and the Transport Holding Company consider there is now no justification for putting further money into Skyways. It is of course open to other airlines to apply for licences to run these services. The Department would be ready to consider granting an exemption to an airline for this purpose if it was necessary before the licensing processes could be completed.


My Lords, surely the critical factor here is how much time was allowed for finding this separate money.


My Lords, my noble friend will be able to correct me on that, but I think it was on December 3 that they asked for this to be done.


My Lords, if it will help my noble friend, may I say that 48 hours was all the notice I had. Perhaps I may correct my noble friend on this point. I know of no efforts which the Transport Holding Company made to find other buyers. All the efforts, which were highly successful, were made not by the directors of the Transport Holding Company who were on the Skyways Coach-Air board but by the other directors, and, as I have told your Lordships, the intensive efforts made at a few days' notice were highly successful. That is my complaint: that a fair and reasonable opportunity has not been given to enable the implementation of the £100,000 deposit already put down for completion at the end of the month. That is not the way to carry out commercial transactions.


My Lords, I note my noble friend's criticism of the way in which these things have been done, and also his criticism of the timing. But this decision has been taken and I have discharged my duty of informing the House of the basis on which it was taken.


My Lords, I have listened to this discussion as a complete outsider and layman, but it seems that the crux of the whole matter, which has not been answered, is why the Government did not give an opportunity for these deposits to be implemented. If the company could have carried on—been given a few days' grace—they should have been allowed to do so, because a great deal of public money is involved, in the sense of people having invested money for their holidays. That is a major consideration.


My Lords, the noble Lord places me in a difficulty, because I, too, read of these matters in the newspapers only this morning and I am not in a position to answer his criticism, which I shall of course pass on to my right honourable friend. But I am quite certain that my right honourable friend took the decision in what he thought was the course of his duty and in good faith.


My Lords, I think this matter of such importance that, out of fairness to this House, it would be a good thing if the Minister could arrange for a Statement when there has been time for consideration. This matter has been introduced into the debate en passant, and it would be a good thing if we could get a firm statement, which we deserve so that we may know exactly what the position is.


My Lords, may I ask Her Majesty's Government whether they will give to this matter the same consideration as the previous Government did to British Eagle?


My Lords, that is a rather different question. In view of the obvious interest which your Lordships have taken in this matter, I will certainly discuss it with my right honourable friend and my noble friend the Leader of the House, and see whether it will be appropriate at a later time to inform your Lordships further. Of course, it will always be open to any of your Lordships to explore the matter further in the usual ways.


My Lords, that will of course be acceptable and we shall appreciate it if it is done. But is the Minister quite sure that nothing more can be done to help keep the organisation going? Is it really good enough to wash one's hands of the affair like this? If it is a matter of tiding the company over for a short time—and we understand from the noble Lord, Lord Wakefield of Kendal, that it is only a matter of a short time—surely some assistance can be given.


My Lords, as I understand the matter action in putting in a Receiver has already been taken. I am not a lawyer and I am not certain what that entails as regards any further action to help in this matter. But I will certainly convey to my right honourable friend what the noble Lord has said, and I hope that there will be a good outcome from what is obviously a sad affair.

My Lords, as I said, what we are really discussing is whether or not there should be a second force, and I think it would be well if I were to start by quoting from the Edwards Report, to make this quite clear. The Edwards Report said, in paragraph 591: A considerable effort is worth making to bring about the second force we propose. The combined experience, resources and skills of the best and strongest of the private airlines would provide a strong addition to Britain's civil aviation strength". But they also said, in paragraph 421: The second force is bound to require some concession of territory from B.O.A.C.; the question is how much and on what terms". My Lords, that is the context in which we are debating this Bill to-day.

In introducing the Bill, my noble friend made the case for a second force airline and I think quite faithfully reported the attitude of the Party opposite in this regard—and indeed there has not been a very great deal of difference between the Parties on this matter. As he said, the attitude of the Labour Party was to express a welcome in principle to the idea of companies getting together and forming a second force airline, but, they said, with the reservation that there should be no significant transfer of routes. At the same time they also accepted double designation in appropriate cases. Furthermore, they also rejected the idea of State participation.

My Lords, perhaps it would simplify things if I went back a little to see the choice that was open to the Government at the time. The obvious candidate to form the nucleus of a second force was British United Airways. They had proved themselves in South America, thereby demonstrating the obvious advantage of an alternative airline. Had an alternative airline not been in existence when B.O.A.C. decided to withdraw from South America, the British share of the market would then have been lost. They were the obvious nucleus. But they saw no prospect of a transfer of routes sufficient to make what they considered a viable second force, and there were therefore only three courses open to them: absorption by B.O.A.C., liquidation or merger with Caledonian. This was still the situation confronting the new Government last June, the last Government having in the meantime withheld permission for B.O.A.C. to acquire B.U.A.

The Government had to decide, as their predecessors would have had to decide, whether there should be a transfer of routes without which any possibility of a viable second force was illusory, because with the possibility of B.U.A. going into liquidation if it could not be acquired either by Caledonian or by B.O.A.C., and with the key to this matter being the ability of Caledonian to finance therefore the take-over of B.U.A., it was essential that there should be a viable basis for the merger. So the Government decided to accept the Edwards Committee's recommendation, and they announced their decision on August 3 last. I placed a copy of this Paper in the Library, and those of your Lordships who were interested have no doubt seen it. But perhaps I may quote from it. In paragraph 3 it was stated: The Government wish the private sector of the civil aviation industry to be given the opportunity to form by amalgamation a 'second force' airline that would till the role of second flag carrier on major international routes as well as sustaining extensive charter services. Such an airline, combining the resources and skills of British United and Caledonian, could provide a powerful additional source of airline management and innovation; its existence would permit the licensing of a second British carrier on those international routes such as the North Atlantic where this should increase the traffic carried by British airlines; and it could serve those domestic routes where it was desirable to offer the public a choice of airlines". The noble Lord, Lord Wynne-Jones, asked whether it would necessarily increase the traffic to have double designation. Not in itself; but with the competition which might lead to increased innovation, better service to the public and so on, they might well be able to attract a higher share of the traffic.


My Lords, I thank the noble Lord for giving way. Would he say just a little more on this increase in traffic, because, at a time when the airlines, not only of this country—in fact, less in this country; but certainly the American airlines—are finding it very difficult to make any profit at all, and have grossly over-estimated the increase of traffic, I find it difficult to understand how we can assume that we shall get more traffic.


As my noble friend said in an intervention here, I think this would not come about overnight. It would be a question of developing a larger share of the available and ever-increasing traffic: because it is, after all, increasing at the rate of about 14 per cent. a year. It is a fact, as the noble Lord knows well, that there is an over-provision, particularly on the American side, of capacity at the present time. I do not think that that necessarily applies to all parts of the world, but undoubtedly this might make it more difficult to increase the share in the early stages. Nevertheless, we should hope that by licensing a second force (this, of course, is not a matter for the Government, but we will come to that later) it would be possible, when the new air company felt able to make an application for a share of the Atlantic route, to accommodate them in it.


My Lords, all the noble Lord's arguments are directed to the situation of double designation, but that is quite irrelevant to the routes we are talking about. There is no double designation along the West African routes. How, then, can there be competition along there?


My Lords, perhaps if there were fewer interventions I should not have to direct my arguments to those interventions. I merely made a passing reference to double designation as not very much had been said about it. I think I should also put on record what the statement of August 3 said about the second force airline and the transfers. It said: The Government therefore consider that some exceptional transfer of routes from the public sector—and possibly some rationalisation including an exchange of routes—will be necessary in the first instance, though not as a continuing process, in order to provide the new airline with a sufficient basis at the outset. I shall come back to this, so perhaps the noble Lord will allow me to continue painting in the background.

It has been said that there should be some modest transfer of routes. Noble Lords will have in mind, of course, that the revenue of the B.O.A.C. last year was very nearly £200 million, and the combined turnover of B.O.A.C. and B.E.A. together was about £324 million. The proposal is for a transfer of routes not exceeding 2½ or 3 per cent. of B.O.A.C.'s current revenue. My Lords, the choice, then, was either to cede (if that is the right expression) a block of routes, a package of routes, at the present time, so as to make a viable base for a second force, or else to lose the opportunity to have a second force at the present time at all. This was the choice which the Government had to face. It would not make sense to transfer a route which was unprofitable, because that would not form the basis of a sound operation.

I have been asked about this and I can say that one block of routes, the West African block, has already been announced. I am not in a position to announce the rest of the package to-day; but it will be announced shortly, and it will be within the scope of what was contained in the Government Statement.


My Lords, we were going to get clarification; but in fact we had increased confusion. B.O.A.C. have been told that this was a once-and-for-all operation. The Minister is now saying that the rest of the package will be announced shortly. Does he mean that B.O.A.C. are to be required to make further sacrifices?


My Lords, I would rather not be drawn at all on the exact amount of the package until we are in a position to announce the package. It is the package that is once and for all. This will be announced all at once, and it will then be possible for it to be judged.


My Lords, may I press the noble Lord?—because assurances have been given to B.O.A.C. in this matter of the package. Are more routes to be taken from B.O.A.C.? Will he give a straightforward answer to that question? I am not asking him to describe them; I am simply asking whether B.O.A.C. will be asked to make further sacrifice of routes.


My Lords, this is a matter that is still under consideration, and I regret to tell the noble Lord that I am not in a position to say exactly what the whole package will be. This will be announced at the appropriate time, and I hope that it will be in quite a short time.

The question is asked: why should these arrangements not be carried out in the normal way, by application to the Air Transport Licensing Board for route licences and for revocation of existing route licences? And why should the Government use the powers of exemption from the need to be authorised by an air service licence and of making an order that the Air Corporation should not continue to provide air services on particular routes? The Government recognised in their announcement that it was important that the new airlines should be formed as quickly as possible and should have the new routes by the summer of 1971. Therefore the answer to my noble friend Lord Kinnoull is that the hope is that these new routes will be in operation on April 1. There was a strong likelihood that if there were undue delay the second force airline would not come into existence at all; and if it came into existence, then the longer the delay, the larger the package of transfers would have had to have been if the second force airline was to make a return on capital sufficient to attract investors.

There was no certainty that the Air Transport Licensing Board would be able to complete its examination of applications in time to meet this programme. The Air Corporations could hardly have been expected not to contest them. If the Government have the powers, why do they need this Bill?—that was another question implicit in what the noble Lord said. The answers are, first, that there have been suggestions that the powers do not cover the use the Government propose to make of them; and, secondly, it it a fact that the Bill gives Parliament the opportunity to discuss the policy of a second force airline. The Government are satisfied that they have the powers.

Perhaps I may at this point inform the House of what was said at an earlier stage. An Order made under Section 3(5) of the Air Corporations Act 1967, it is suggested, cannot limit the basic powers of the Air Corporations to provide transport services but only their ancillary powers—for example, to provide hotels. As to that suggestion, I would say that the history of that section is significant. The section is derived through two consolidations from Section 2(5) of the Civil Aviation Act 1946. In the course of the debate on the 1946 Bill the Attorney General of the day, the noble Lord, Lord Shawcross, made it clear that its purpose was to enable the Corporations to be restrained, if need be, not only from engaging in activities ancillary to the provision of air transport services but also from engaging in activities of any kind which might be contrary to the policy of the Government and of Parliament. That was in Standing Committee B's final Report on May 23, 1946, and is reported in columns 169 and 170. So there was never any doubt as to the intention of Parliament and the use of these powers.

I am asked also whether the powers will be used again? The Government have given the fullest possible assurances that the powers will not be used again for further transfers of this kind. If, however, one airline were to withdraw from providing certain essential air services, it is important that there should still be powers to enable those services to be maintained by another operator pending the completion of the licensing requirements. The final form of these powers will be presented when the proposed Bill to set up a Civil Aviation Authority and Airways Board is introduced.


My Lords, I am sorry, but I must again interrupt the noble Lord. What he has just said surely contradicts what he said earlier. The assurance upon which the Corporation is relying is that these powers will not be used in order to transfer more routes in this way—or whatever the exact words are. Yet the noble Lord earlier said that there will be further transfers; that the package is not yet compelte. Are B.O.A.C. to sacrifice additional routes?


My Lords, the noble Lord is under a misapprehension. There have been no transfers so far; there has been no package. The package referred to in the announcement of August 3 has not yet been fully decided. That is the position.

I go on to deal with the mechanics of route transfers. Once all the routes to be transferred have been identified and announced, an order will be made, if necessary, under Section 3(5) of the Air Corporation Acts 1967 soon after the Bill receives the Royal Assent, so as to limit B.O.A.C.'s powers in respect of routes to be transferred. This order will be subject to Negative Resolution procedure and it will be debateable. One or more exemptions will be made if necessary under Section 1(3) of the Civil Aviation Licensing Act 1960 to enable Caledonian/B.U.A. to start to serve the transferred routes on the due date; that is, April 1, 1971. This action will be necessary only if the licensing procedures are not completed in time; and this will not be known until nearer the time.

The next question which emerges is this: does not the use of the powers cut right across the Air Transport Licensing Board's procedure? The powers exist now, and have long existed side by side with the Air Transport Licensing Board. Even if the Government make an Order under Section 3(5) of the Air Corporations Act, this will impose no greater limitation on the Air Transport Licensing Board's choice than if, for any reason, an airline ceased to serve a route—for example, it might be Skyway—whether voluntarily, as in the case of B.O.A.C.'s South American service or, another example, B.U.A.'s decision two years ago to stop their service to Alderney; or involuntarily as in the case of an airline going out of business. The powers may not have to be used.


My Lords, I wonder whether the noble Lord can add a little more confusion to the clarity. What he has just said is that these routes will not be transferred until the due processes of the Air Transport Licensing Board have been completed. That is what the noble Lord said. Is that not so?




I am paraphrasing what the noble Lord said. I advise him to read what he has said. He has said that it will have to go before the Air Transport Licensing Board and the procedures will have to be completed. That is what he said; and I am about to ask this: suppose, when it goes before the Air Transport Licensing Board, they say, "No, we cannot agree to this because we do not think it is in the best interests of British civil aviation", what happens then?


My Lords, the noble Lords' trouble is that he is so eager and impatient. If only he would wait until I had completed what I was trying to say, he would get the answer.

My Lords, if at the last moment my right honourable friend does use his powers of exemption under Section 1(3) of the Civil Aviation Licensing Act 1960 so that Caledonian/B.U.A. could start serving the new routes even though the licensing process had not been completed, he will follow the normal practice, which is to say that the exemptions are without prejudice to the eventual decision of the Air Transport Licensing Board. In any event—and this is the answer to the noble Lord; I think he talked about the matter being referred to the Air Transport Licensing Board with a direction—there is no reference to the Air Transport Licensing Board. It is straight application and there is no direction. In any event, Caledonian/B.U.A. will have to satisfy the licensing authority that they are fit and competent in all respects, including being under British control, to be granted the licences for which they will be applying.

If noble Lords choose to look at the Civil Aviation Air Licensing Act, they will see that it is there laid down in Section 2 and Section 4 what considerations the Air Transport Licensing Board must have regard to. Among them is the financial considerations, which are important. Also, of course, there are the questions of the nationality of the applicant. It is laid down quite clearly that a licence cannot be given where the ownership of the applicant is not substantially in British hands. The noble Lord said that 4 per cent. of the capital of Caledonian was in the hands of an American company. That of course is diluted by the time you come to the capital of B.U.A. and Caledonian combined. I understand that in fact the ownership is less than 2 per cent. But the noble Lord may wish to know that this is a body of Scottish patriot expatriates.


My Lords, all Americans are expatriates so far as Europe is concerned—except the Red Indians. But that does not fit in with the argument.


My Lords, this is a Caledonian airline, and surely there is no change—


There are Welsh in it as well.


All right; but 2 per cent. my Lords! Surely that is not being "substantially controlled". So I do not think that the Air Transport Licensing Board will find any great trouble about that.

I come to the question of compensation. Air services licences are of course not a form of property. They are granted, withheld, revoked, suspended or varied as the licensing authority thinks fit. The law does not provide for compensation to be paid. The Air Transport Licensing Board made clear in their consideration of the liquidation of British Eagle that air service licences were not a form of property or asset which may be disposed of by the holder. There are ample precedents in other industries to demonstrate that compensation cannot be, and is not, paid for the loss of licences which do not create property rights.

The Government had to take a view of what will best serve the interests of the country. We are satisfied that the creation of a new private airline is desirable in the national interest. We are also satisfied that this could be achieved only by some modest and exceptional route transfers. The Government recognise that this course will have the effect of reducing the returns that would otherwise have been secured from the public investment in the Air Corporations; and the Government accept that account of this will have to be taken in fixing their financial objectives. This has been done—I shall mention it when we come to the next Bill. The possible reduction in the annual revenue of £5 million to £6 million has then to be viewed in relation to a combined annual revenue of the two Corporations in the last financial year of £324 million.

The noble Lord, Lord Beswick, referred also to future licensing decisions. This, as he suggested, will be the responsibility of the proposed Civil Aviation Authority, which will be guided in its actions by a statement of policy by the Government which will be debatable in Parliament. This, again, was what was in the Edwards recommendations. The Government intend that the second force should be given a measure of preference over the other operators in the licensing of the new scheduled routes which would contribute to a viable route network in the licensing of a second carrier on existing scheduled routes or in any other section of the market, such as long-haul inclusive tour charters, where there may for a time be room for only a limited number of operators. I have made clear why it is one cannot wait until this has been set up, but it is certainly not the intention that this preference for the new airline should be absolute or automatic. The licensing authority will have to consider each case on its merits, and it will give preference to the new airline only where on balance this would be to the greatest national advantage. My Lords, I hope that that satisfies the noble Lord, at any rate on that score.

The noble Lord asked about a Civil Aviation Bill. The position is that the Bill is in preparation and it is hoped to introduce it at the earliest opportunity. This will depend, of course, on the conduct of business in the House, but it is very much hoped that it will be possible to get the new system in operation in the course of next year. The noble Lord referred to the structure of the new Civil Aviation Authority and in particular to the recommendation of the Edwards Committee that the Air Registration Board should be included in the Authority. He asked, why complicate the matter? With respect, we have noted what he has to say—he speaks with great authority—but the proper time to debate this matter will be when the Civil Aviation Bill comes before the House. I have been trying to deal with various questions which have been raised and I think I have covered most of them. There is one that I have not covered, and that is the question of the staff situation.


My Lords, I did not ask about that. I asked about compensation.


I apologise to the noble Lord. Regarding compensation for loss of revenue, I thought that I had dealt substantially with that already. The target fixed for B.O.A.C.—the return to the nation that the Government expect from this nationalised industry—takes into account the transfer of routes. But ought not the nation to be compensated?—that, I think, was the point made by the noble Earl, Lord Amherst. Should there not be some State participation in the second force representing the routes assigned to it? My Lords, both the present and also the previous Government agree in rejecting the recommendation of the Edwards Committee that there should be State participation in the independent airline; it would affect its independence and it would inhibit competition. It is better that the two forces should be independent of one another. There is, as I have already said, no right to compensation for loss or suspension of any licences.


My Lords, I went into this matter rather more deeply than that and I pointed out that it was not simply a question of loss of revenue. It is going to be the under-utilisation of assets in the future. Do I gather from what has been said that it is proposed to demand that much less return on the public equity because of the damage they have sustained in this transfer?


My Lords, one of the factors in fixing the target for the present period is that there will be some diminution of revenue as a result of these routes. I do not think it is possible to take that matter further. I hope that I have dealt with it fully.

The noble Lord finished his speech on the subject of the staff. He did not ask a question, but he made some pretty cogent remarks. So far as the arrangements for the transfer of routes is concerned, it is clearly in everyone's interest that the transfer should be implemented as smoothly as possible. It has been with this in mind that the Chairman and other senior representatives of Caledonian/B.U.A. have been to West Africa. It is understood that B.O.A.C. staff in Accra wilt be employed by Caledonian-B.U.A. The Government hope that equally satisfactory arrangements can be made with regard to other B.O.A.C. locally engaged staff.

As to industrial relations with Caledonian-B.U.A. the creation of a strong second-force airline will not detract in any way from the terms and conditions of employment of those working for B.U.A. and Caledonian. I think I should make plain that the new airline has made clear its desire to work in co-operation with the unions in dealing with the problems arising from amalgamation and will be negotiating the terms and conditions of employment comparable to those offered by the Air Corporations for similar work. In this way the creation of a new airline will be beneficial to those who work for it, offering better prospects and greater security. Caledonian/B.U.A. are now in full membership of the National Joint Council for Civil Air Transport and thus a party to the same negotiating procedures as the Air corporations. There seem to be no substantial grounds for the trade unions to fear the consequences to their members of the creation of a second-force airline, although there will certainly be matters for normal industrial relations.

I share the noble Lord's regret that industrial action has been taken by the Corporation's employees at Heathrow and that it has not yet ended. The terms and conditions of employment offered by the Air Corporations are among the highest in British industry, as the noble Lord, Lord Beswick, said. When constitutional methods exist for settling difficulties, this sort of action can operate only to the disadvantage of British civil aviation and all employed in it, and I join most heartily in what the noble Lord said. Much as we must regret the damage that may result from the irresponsible industrial action, there will certainly be no pressure by the Government on the employers concerned to concede unreasonable demands.

My Lords, I hope that I have covered the points that have been raised. I have sought to demonstrate that this was certainly not a political decision but one taken in the light of the options that were open at the time; and however much one may accept or reject that decision, it was taken in good faith in what the Government believe to be the interests of civil aviation.


My Lords, before the noble Lord sits down, may I say that I have been asked to intervene in this debate, because many of my noble friends are so dissatisfied with the reply that there is a strong inclination to divide the House? I should be against dividing the House at this moment without warning because, on constitutional grounds, we do not as a rule vote on Second Readings. But I am bound to warn the noble Lord that we shall have to consider the position very carefully, and I shall not be able to guarantee that the Opposition will not divide the House when replies of this kind are given. I speak with respect to the noble Lord, but the feeling which has been communicated to me is very strong.


My Lords, before the noble Lord the Minister finishes, may I ask him this question? Do the Government really think that the substitution of the new second force for B.O.A.C. on any Atlantic route is going to increase the British share of air traffic by one kilo or by one passenger?


My Lords, I thought I had dealt with that matter. Given good management, two companies can get a bigger share of the market than one. This varies in different parts of the world. It so happens that, so far as America is concerned, we have not a 50–50 arrangement, as we have in other parts of the world. Again this was something that was recommended by the Edwards Committee. I think it is something we shall have to consider, but it is not a matter that we are considering in this Bill. It is something for the future.


My Lords, the noble Lord really is exasperating some of my noble friends. He was asked a straightforward question about the proposed transfer of particular routes. The question is: how can that increase competition? The noble Lord gets up on this occasion, as he has done on others, and tells us about dual designation: that when two companies compete they can get a better share. It is not a question of two different British companies competing on this route. That is the point we are trying to get over, and the noble Lord insists on ignoring it.


My Lords, is the noble Lord saying that there is no possibility of two companies' competing on the North Atlantic route?


My Lords, the noble Lord should know that what we are talking about is the West African route, which it is proposed to transfer.


My Lords, I beg the noble Earl's pardon if he said North Africa. I thought he said North Atlantic.


I did, my Lords. There is some confusion on this. I should have thought that two operators on one route must divide the traffic between them, because of the international arrangements.


My Lords, the noble Earl is right in most markets where arrangements are of that character, but he does not happen to be right so far as the North Atlantic routes are concerned.


My Lords, perhaps the noble Lord will allow me to differ.

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