§ 2.53 p.m.
THE SECRETARY OF STATE FOR DEFENCE AND MINISTER OF AVIATION SUPPLY (LORD ARRINGTON)
My Lords, I should like to make a Statement about the progress of the RB.211 negotiations. As the House knows, Her Majesty's Government and Rolls-Royce (1971) Ltd. have been in negotiations with the Lockheed Aircraft Corporation for the supply of the RB.211 engine to power the Lockheed TriStar aircraft. We have also had discussions with the United States Government. Negotiations with the Lockheed Aircraft Corporation have been in two parts. First, Her Majesty's Government have agreed with the Lockheed Corporation to finance Rolls-Royce (1971) Ltd. in the development and production of the engine and to enable them to maintain the necessary support facilities throughout the life of the engine 622 —provided that we can be satisfied that there is sufficient support to enable the TriStar project to be completed.
For their part, the Lockheed Corporation have agreed to a substantial increase in the price of the engine, equivalent to some £50 million for the first 555 engines, and to annul penalties under the old contract for delay in delivery of the engine. On that basis Rolls-Royce (1971) Ltd. have been negotiating a new contract with the Lockheed Aircraft Corporation, which is on the point of agreement. The new contract will be governed by English law. Because the RB.211 has been designed for the Tri-Star and there is at present no other significant market for it, it was clearly necessary, as part of the contract negotiations, to be sure about the future of the TriStar project itself. Given the risk involved in large aviation projects and the known problems of Lockheed, it is clear that effective support for financing the TriStar project can only be provided with the assistance of the United States Government, just as support for the RB.211 engine can only be given by Her Majesty's Government.
The United States Administration have now announced that they are seeking authority from the United States Congress to guarantee up to 250 million dollars additional credits for Lockheed, which amount they anticipate will be sufficient to assure the continuity of the TriStar project. Before providing such guarantees, the Administration will, of course, have taken steps to satisfy themselves that the other requirements for the completion of the project are met. The main outstanding point here is that it will be necessary for both Governments to be sure that the airlines customers will still buy the Tri-Star, notwithstanding the delay and the increase in price. Representatives of Lockheed and the airlines are meeting in London at this moment with Rolls-Royce (1971) Ltd. for detailed discussions on this point and on the arrangements for completing the RB.211 project.
Meanwhile, Her Majesty's Government are continuing to finance work on the RB.211 engine and the Department of Trade and Industry is discussing with Rolls-Royce (1971) Ltd. arrangements to provide the company with the finance it will need to give effect to the agreement 623 with Lockheed. This will involve some £100 million for completition of the development of the engine: to the extent that costs are not covered by the price increase which Lockheed have agreed there will have to be additional support for initial production engines. Against these costs we must of course set those which would be incurred, if the project did not continue, and the profits arising from the sale of spares.
The House will appreciate that there are still problems to resolve before we can be sure that RB.211 will go ahead. Her Majesty's Government have done everything they can to establish a basis for agreement that is acceptable to all concerned. In particular, they have kept RB.211 going, and will continue to do so, in the expectation of a satisfactory agreement. An early decision from the other parties concerned is a matter of increasing urgency. Meantime, the House will appreciate that delicate and complex negotiations are continuing.
§ LORD BESWICK
My Lords, I am sure that the whole House will be grateful to the noble Lord, Lord Carrington, for making that Statement. I am sure, too, that the House will welcome the substance of the Statement. We welcome it on this side particularly because it appears to re-establish the commercial integrity of this country. I would offer my congratulations, if I may, to the noble Lord, Lord Carrington, and indeed my admiration, for the way in which he has appeared to handle this affair. It seems a very long while since the day when the noble and learned Lord who sits on the Woolsack told us that there was no difference between Rolls-Royce and a sweet and tobacconist shop on the corner.
May I ask the noble Lord, Lord Carrington, one or two questions? First, he said in the Statement that £100 million would be involved for the completion of the development of the engine but that further sums would be required if the costs of production are not covered by the price increase. May I ask whether this is an open-ended commitment? If not, to what extent is it intended to support Rolls-Royce in this regard? Secondly, may I ask to what extent the possible B.E.A. TriStar order has been involved in these discussions? Would 624 the noble Lord confirm that it would be quite intolerable if any undertaking were given to compel the British Corporation to go against whatever might be their commercial judgment when they came to buy their next generation of aircraft? May I also ask what the position is now of sub-contractors? They are people who will have built parts of the engine and have not received a proper return; yet we now understand that Rolls-Royce is to receive the full cost of the engine. Is this reflected in any way in the position of the sub-contractors?
§ LORD BYERS
My Lords, may I also add our congratulations to the noble Lord, Lord Carrington, on the way he has regained the initiative for this country? After a very shaky start indeed it is wonderful to hear a progress report indicating that there is some chance of getting a viable package deal going. In view of the complicated and tricky negotiations which still have to be finalised, I do not propose to ask any questions.
§ LORD CARRINGTON
My Lords, I am grateful both to the noble Lord, Lord Beswick, and to the noble Lord, Lord Byers, for what they have said. It would be churlish of me to quarrel with the noble Lord, Lord Beswick, after what he said, but I think I must defend, if he needs any defence, my noble and learned friend on the Woolsack. I do not think he said anything of the kind. If the noble Lord, Lord Beswick, will re-read my noble friend's speech, he will find that the context of his remarks was quite different from that in which the noble Lord, I am quite sure mistakenly, sought to place them.
The noble Lord asked me three questions. As to the open-ended commitment on the costs of production, this is a firm commitment on the part of Her Majesty's Government backing up Rolls-Royce (1971) in a contract with Lockheed to produce these engines at a price upon which we have agreed. Therefore those engines will be produced. Since the collapse of Rolls-Royce—since the old board asked for a receiver to be appointed—we have carried out a great many investigations into Rolls-Royce including one by the Committee of Three which I set up to inquire into the whole position of the production of the engine and the cost of the development. I think that the 625 position now is much more known to us than it was in those days. It is very unlikely—at least, I hope so, but all these things are uncertain—that the estimates that have been made about the cost of production will be greatly exceeded. So, to that extent, there is not an open-ended commitment, but there is a firm undertaking on our part to deliver the engine at that price.
With regard to B.E.A., Lockheed have made no condition in the contract that there should be an undertaking by B.E.A. to buy the TriStar. I have only seen reports that Trans World Airlines have made some such condition. I know nothing of them. With regard to subcontractors, the position is that Rolls-Royce (1971) will be responsible for the sub-contractors. In the case of what happened before the receiver was appointed, the contractors will of course take their place with the other creditors of Rolls-Royce.
§ LORD BALFOUR OF INCHRYE
My Lords, is my noble friend aware that we on this side of the House should like to add our congratulations to him on what he has achieved? Could my noble friend confirm that the trial engines, which are at present in the prototype, are functioning as well as the reports tell us is the case?
§ LORD CARRINGTON
My Lords, I am obliged to my noble friend. Yes, indeed. I read a report this morning that the engines were functioning extremely well and that Lockheeds and the test pilots were very pleased with them.
§ LORD WYNNE-JONES
My Lords, I am sure that we should all like to congratulate the noble Lord for the vigour and shrewdness with which he has conducted these negotiations. Can he tell us whether on the best technical advice available to him the RB.211 is now going to be the beginning of a new family of aero engines? This, it seems to me, will be of extreme importance for the development of the engine.
§ LORD CARRINGTON
My Lords, the only thing that I have learned after being four months in charge of this project is not to believe everything that everybody tells me. To the best of my knowledge and belief, this is a new engine, designed on a new principle. It will 626 certainly be much quieter than the existing run of engines, and to that extent I believe it has a great future.
§ LORD SHINWELL
My Lords, in order to inform the noble Lord, Lord Carrington, that I am ready to believe what he tells me, I ask him this question. Would he clarify the position of the £100 million, presumably credit, provided for Rolls-Royce (1971) for the purpose of continuing the production of the engine? Is not the return on this capital provision for Rolls-Royce (1971) dependent upon the financial success of the Lockheed firm? If they fail, is there any possibility of a return of the main part of the capital?
§ LORD CARRINGTON
My Lords, the noble Lord is quite right. The success of this project depends on the success of this aircraft. From all accounts of those who have flown in it and seen it, this is a very good aircraft indeed. If we can manage to get the airlines to continue their contract with Lockheed which they had under the old Rolls-Royce/Lockheed contract, I do not believe that this aircraft will be anything else than a success. But, of course, there is always in this matter an element of chance. What the Government are trying to do is to weigh up the pros and cons of continuing with the project; the pros and cons of the unemployment which would be created here; the question of British prestige; the question of the failure of Rolls-Royce, and a number of other factors: and to weigh them against the money that will be spent by continuing the development. What we have tried to do, and rightly I think, is to assess all these factors. We have come to the conclusion that if the airlines go ahead with ordering the aircraft, there is a good chance that this will be a successful aircraft and that, on balance, we shall be plus, rather than minus, taken as a total.
§ LORD PARGITER
My Lords, may I ask the noble Lord whether or not the production will go on prior to the giving by Congress of approval to the American guarantee?
§ LORD CARRINGTON
My Lords, the development of the RB211 has been going on ever since February when the I receiver went into Rolls-Royce, and this 627 will continue. Your Lordships will appreciate that quite a lot of money is spent every week on the development of this engine. It really is to the benefit of not only us, but of Lockheed, who are spending a good deal of money every week on the development of the TriStar itself—the airframe—that there should be a decision one way or the other. It really is urgent that the airlines should make up their minds.
§ LORD BESWICK
My Lords, I do not think what the noble Lord, Lord Carrington, told me about the position of the sub-contractors can really be said to be satisfactory. If they are not paid in full for the goods that they have supplied to Rolls-Royce Ltd., does it not follow that, to the extent that there is a short-fall, that amount must also be added to the Government's subvention as the true cost of supplying this engine to the American company? Is this really a satisfactory state of affairs? I might add that if I was unfair to the noble and learned Lord who sits on the Woolsack I would withdraw what I said. But I can only rely on what I heard him say in the debate and what I subsequently read, when he said that the rules, the law, in these matters must apply impartiallyas much to directors of world-wide companies as to the trader operating as a sweet and tobacco shop.
§ THE LORD CHANCELLOR (LORD HAILSHAM OF ST. MARYLEBONE)
My Lords, in view of the grossly inaccurate reference, which has now been withdrawn, will my noble friend confirm that what I told the House then, and what I repeat now, is that from the point of view of the legality of dishonest trading the same rules apply to the directors of a world-wide company as to the owners of a sweet and tobacco shop. I never said, or implied, or was thought to imply, that there was no difference between Rolls-Royce and a sweet and tobacco shop on the High Street corner.
§ LORD CARRINGTON
My Lords, I have never hitherto been asked to confirm the legal opinion of a Lord Chancellor, but I willingly do so. With regard to the sub-contractors, as I understand it the position is this. Ever since Rolls- 628 Royce went into receivership, the receiver has been paying the sub-contractors. There will now be new contracts between Rolls-Royce (1971) and the sub-contractors. The debts that were not paid hitherto, of course, are in the same category as the other debts of the old Rolls-Royce Company.