HL Deb 22 January 1976 vol 367 cc699-721

6.7 p.m.

The Earl of KINNOULL rose to ask Her Majesty's Government whether they are aware of the deep concern felt at their recent declared change of policy on civil air transport involving British Airways and British Caledonian and whether they will reconsider abandoning this change. The noble Earl said: My Lords, in the wake of the dramatic excitement of the British Airways Concorde going into service yesterday, the spectacle of which I am sure quickened everyone's pulse, it is perhaps almost untimely to be raising a Question on civil aviation policy which might disturb this happy and intoxicating euphoria.

The noble Lord, Lord Winterbottom, may also wonder why this Question should be put down, when only a week ago my noble friend Lord Trefgarne put down a similar Question as to when the White Paper on civil aviation policy was to be published. On that occasion the reply was somewhat brusque, with the immortal word "shortly". The reason why I have put down this Question today is that the word "shortly" has the most elusive connotation when used by Government spokesmen, and has been known to cover periods of days, weeks or even years—and I am almost tempted to say decades.

One of the purposes of my Question tonight is to emphasise to the Government as strongly as possible the very real and urgent need to publish the White Paper as soon as possible, and so put an end to a climate of uncertainty which has hung over the industry for far too long. It is, I think, not unfair to remind the noble Lord, Lord Winterbottom, that the White Paper was promised last autumn. While, of course, it is not unknown for Government timetables sometimes to go adrift, I hope he will agree with me that in this case uncertainty in the air transport business is both harmful and should be avoided. While urging the Government to publish the White Paper, I should like also to add something on which I am sure even British Airways and British Caledonian would not fail to agree—if they fail to agree on other matters.

It is that the sooner a balanced policy has been determined by the Secretary of State and approved by Parliament, and the sooner that the whole issue is taken out of the political arena and the industry left alone, the better.

It is a very real pity that the Government saw fit to disturb the industry so relatively soon after the 1972 policy guidance, which followed very closely on the recommendations of the Edwards Committee and gave wide and flexible powers to the Civil Aviation Authority to create and maintain a healthy industry. Of course, that is past history; but whatever is produced, a very clear responsibility is laid on the Secretary of State to create a balanced policy which could survive without being politically tampered with yet again for a good period of time to come. I hope that the noble Lord, Lord Winterbottom, will be able to con firm that the intention of the Secretary of State is that the framework which is now being prepared will give the industry room to expand and the hope that it will not be tampered with in the near future.

My Question tonight refers in partticular to the position of British Caledonian in the Government review. It is perhaps worth recalling that the company's very existence is owed to the last Labour Government. Unless my memory fails me, its immediate predecessor, the British United Company, was on the point of being secretly purchased by British Airways in 1969 when the Secretary of State stepped in and refused per mission for the purchase to proceed. At the time of the publication of the Report of the Edwards Committee—here may I say how sorry one was to learn of the recent death of Sir Ronald Edwards, for the industry owes a great deal to the distinguished Report of his Committee—I recall that all Parties accepted the recommendation that Britain should have an independent second force. The last five years have shown that British Caledonian have filled this role with great distinction.

I am told that they are now responsible for 50 per cent. of the traffic operations at Gatwick Airport. Since Gatwick is the second major London airport, with considerable room for expansion which Heathrow has not got, this is a very important factor. I understand that their operations now consist of 55 per cent. scheduled services and 45 per cent. charter services. They employ over 5,000 people and at least twice that number depend upon their operations. They regard with the greatest of pride their relations with their staff, for in the last five years they have never had one day's stoppage through strikes. When one recalls their forced cutback in October 1974, when 15 per cent. of their staff and 30 per cent. of their management had to leave, I feel that this record is quite remarkable. Their revenue earnings stand at something like £70 million a year, which is no mean achievement. Perhaps above all, their standard of safety, like that of British Airways, is excellent. Their standard of care and thought for their passengers, coupled with their delightful Scottish tartans, is a feature which has proved to be a great attraction in terms of their international reputation.

If the Edwards Committee were asked today how their second force recommendation has proved itself I believe that they would be more than pleased, despite the acute problems which British Caledonian faced, as did all other air operators, in the disastrous year of 1974. One sees that on the domestic routes both British Caledonian and British Airways have competed to the benefit of the travelling public. There is the shuttle service of British Airways, and cheap weekend fare rates to Scotland and Manchester have recently been introduced by British Caledonian. Turning to the international routes, again one sees that a greater share of the markets has been won. All these were the objectives of the Edwards Committee when they made their second force recommendation.

This achievement has not been won only by the skill and effort of all the staff of British Caledonian. Another vital factor was that they should have a framework of routes granted by the Government of the day in 1971 and added to by the Civil Aviation Authority in 1973. This gave them the necessary medium and long-term growth plans which were so vital to that company, coming from the private sector. Thus, it is understandable that British Caledonian felt concern when they saw the announcement last July by the Secretary of State that he had decided to abolish dual designation on the international long haul routes and create a separate sphere of influence for both British Airways and British Caledonian. In other words, he is to divide up the world between the two scheduled airlines, with British Air ways getting by far the majority share—90 per cent. or over.

At that stage—last July—it appeared that British Caledonian were to lose the North American and Singapore routes, that they were to retain the West African and South American routes and, presumably, that they were to argue over keeping their East African routes. From both the information published by the Department of Trade and that contained in the Statement, it seems that the decision of the Secretary of State to abolish dual designation, particularly on the North Atlantic routes, stems largely from the decision of British Caledonian temporarily to withdraw their North Atlantic scheduled services in October 1974.

The arguments used both in the July Statement and in the subsequent Department of Trade publication stressed that the depression of 1974 did not warrant dual designation. To back this up, they produced graphs which showed that the traffic won by British Airways and British Caledonian on these routes over the 18 month period had not proved beneficial. I am advised that so far as the Los Angeles service is concerned, the graphs published by the Department of Trade are not acceptable.

It has occurred to many people that both of these bits of evidence that the Government have produced, taken from an exceptional year of operations, will hardly help to create a balanced policy. The House will recall that the Civil Aviation Authority described 1974 as "the worst year in the history of civil aviation ". One had the oil price escalation, the world recession and the 10 per cent. negative growth in airline traffic. Every single airline operator suffered. On the North Atlantic routes, in 1974 the combined losses for the scheduled operations of all international operators amounted to over 300 million dollars. I have no idea what British Airways lost that year, but they, of course, have a unique position for survival. Understandably, British Caledonian pulled out, as did Pan Am, from their Los Angeles service.

What has happened since 1974 when all the evidence was taken? I am told that in 1975 the negative growth of the previous year was beginning to bottom out, and in 1976 there seem to be much better prospects for a gradual recovery. When the White Paper is published I hope that the Government will be able to find more convincing arguments for abolishing dual designation, which goes against the carefully thought out recommendations of the Edwards Committee. Perhaps more important than all this, in order to produce a new policy framework that can be left undisturbed I hope that the Government will reconsider their decision on dual designation—a matter that can be reviewed by the Civil Aviation Authority when, in their judgment, it needs to be reviewed and leave the Civil Aviation Authority its vital flexibility. As to the sphere of influence which British Airways and British Caledonian are to have in the future, of course one is not privy to any of the discussions which have been taking place between these two airlines but one must assume, as these discussions have now been going on since July and, as we learned last week, the White Paper still depended on a fruitful agreement, that no agreement has been reached. I hope the noble Lord, Lord Winterbottom, will be able to tell us whether or not an agreement has been reached between the two airlines.

I hope the noble Lord will agree, if one assumes that it has not been reached, that disagreement between the two airlines is quite understandable. On the one hand there is the giant British Air ways, who I suspect still deeply resent the forced handing over of certain routes in 1971 in order to establish British Caledonian as the second force. I am sure that resentment at the time was quite understandable as in many cases it had taken British Airways some time to build up the routes which they had to hand over. But that of course was the price of setting up a second force. At that time one often heard rumblings from British Airways that they looked forward to the day when they would be able to bury British Caledonian. It is thus understandable that British Airways do not wish to lose anything further in the exchange of groups; but of course, so far as that is concerned, the effect on them would be completely minimal.

With regard to British Caledonian, however, the situation is very different. They are the minnow of the party whose very survival rests on the structure of routes that are granted to them. They have already noted the decision of the Secretary of State to take away their North American and Singapore routes. I understand that this represented some 67 per cent. of their estimated traffic growth for 1979–80. They clearly, as well, will not easily be persuaded to agree to any loss of further routes. I am sure the Secretary of State is anxious to try to persuade these two airlines to reach an amicable solution but I suspect, with his already declared policy of July, he has placed himself in a position where he will have to act as an arbitrator.

I hope that tonight the noble Lord, Lord Winterbottom, will be able to advise us a little further as to how soon a decision on this matter is likely to be taken, and whether he expects the White Paper to be published by February. How soon is "soon"? In the July Statement the Secretary of State uttered some very soothing words and assurances about the future of British Caledonian, and I hope the noble Lord will be able to repeat them this evening. I am sure the Secretary of State included those words with complete sincerity but the proof of his intentions now rests with his actions, and in reaching his decision on what spheres of influence and what routes the two scheduled airlines should have I hope he will be in accord with the advice, whatever it is, that the Civil Aviation Authority has given him. We know that this body has now been led for five years by the noble Lord, Lord Boyd-Carpenter, and it has done a great job for the air transport industry. It is clearly vital to the future of British Caledonian that they should receive not only a sufficient network to operate as a viable concern but that this network should include the vital scope for future expansion.

In conclusion, as I shall not have a chance later, I should like to thank all those noble Lords who have indicated that they will be taking part in this short debate. Without anticipating their remarks, I believe their support will reinforce the wish for the Government to get on and publish the White Paper and also to leave the second force as a viable concern, as envisaged in the Edwards Committee Report.

6.25 p.m.

Lord POLWARTH

My Lords, I am sure we are all grateful to the noble Earl for raising this matter and giving us the opportunity to discuss it. My only excuse for taking part is that I am a regular commuter from Scotland on both airlines, that I travel upwards of 50,000 miles a year on the long-haul routes and that I have taken an interest in their place in aviation for close on 30 years. I should like to start by associating myself with the tribute paid by the noble Earl to Sir Ronald Edwards, whose tragic death earlier this week was a great loss to the country. He was a colleague of mine in one place and I have seldom met a man of such brilliant intellect, great common sense, and modest and unassuming withal. We shall greatly miss him.

The report of his Committee was debated nearly six years ago and was received remarkably unanimously by all sides in Parliament. Why then is it thought necessary to review it now? So far we have had only statements of the need; statements of certain supposed facts without any evidence and this we await in a White Paper which has been brewing for nearly two years. I think one can only assume that the idea of a review arose from the passion which every Government have to show that they can do everything differently from their predecessor. This process of digging up by the roots is extremely unsettling in matters of industry and commerce.

What it is certain we shall want to know is whether it is the intention of the Minister to abolish competition between British airlines on the long-haul routes—what is known as "double designation". I would remind your Lordships that air services are run not simply for the benefit of their operators and their owners but for the passengers. Down the years I think it has been perfectly clear that it is thanks to competition that passengers today enjoy the services and standards that they do. We have seen this on the Scottish services, where the introduction of British Caledonian pro- vided a useful spur to British Airways in the standard and frequency of service that they offered. We have seen it on the North Atlantic services in the competition between British and other lines; it is interesting to see what happens in the other direction.

Not so long ago the route from Manchester via Prestwick to Montreal and Toronto, which was divided between British Airways and Air Canada, was carved up and the whole of that route given to British Airways alone. One consequence has been the abolition of any first-class accommodation on those flights. When I asked the airline why, they said that they could quite easily fill every seat if it was all economy, so they could not afford to provide any first-class service. This seems to be a poor deal for the businessman from the North of England and Scotland who is trying to sell this country's goods.

What happened when the Caledonian came on the North Atlantic for a short time? They did not take revenue away from British Airways: they had a good share and British Airways increased theirs—a process which I believe would have continued had we not experienced the oil crisis. With that, of course, is tied up the currency earnings of this country. I simply cannot believe that British Airways—this Goliath of an airline which advertises itself as the largest air network in the world, with all its advantages of scale and State-backing—is so vulnerable to competition from the David of an airline with only 10 per cent. of their total combined revenue.

My Lords, look at the position in some other countries where State and private airlines run simultaneously. In France UTA, a privately-owned airline, takes 23 per cent. of the combined revenues. In Canada, where I have personal experience from an indirect connection with the Canadian Pacific Airline—a private carrier—that line carries 33 per cent. of the combined traffics in competition on a number of routes with Air Canada;that is despite considerable restriction on the allocation of routes to it. Yet in neither case is there evidence of damage to the flag carrier.

Even if we restrict our routes to one of the airlines we shall still be in competition with other countries. Surely it is better to have two strings to one's bow, or two arrows in one's quiver. I am particularly concerned by the proposed withdrawal of the rights to certain North American routes which Caledonian have not yet, for reasons of the present economic state, been able to take up. I am thinking particularly of the route to Atlanta and Houston. At present there is no direct service between Texas and this country. I have to make this journey three or four times a year; it is something like 10,000 miles for the round trip. I have tried every combination of inter-lining at different points, and can assure your Lordships that it is a far from pleasant journey. Many of my friends in the oil business who come from Texas complain loudly that here we are, the centre of the North Sea operation, and yet, while they can fly from Texas to Paris they cannot fly direct from Texas to the United Kingdom. It is quite wrong to take away the prospect of this route from British Caledonian, particularly when there is no application by British Airways to take it up.

My Lords, in his Statement in another place last July, the Minister acknowledged the contribution of British Caledonian and expressed anxiety for it to continue as the significant centre of airline experience—I think he said—in this country. We were very glad to hear it. At the same time, it is all very well to pay lip service to these concepts if they are not followed up in practice. No plant can flourish without sunlight and room for growth. If British Caledonian is to starve through lack of positive help and the prospects of expansion, then just as sure as a plant that is starved, British Caledonian will wither and die. That would be a disaster for this country, and I can assure your Lordships it would be a further boost for nationalism in Scotland, for which they have done so much.

My Lords, there is another aspect. It is good news to hear that it is Government policy to encourage and help those industries in this country with a prospect of success and which are run efficiently. On every count I submit that British Caledonian qualifies as just such a concern. It is efficiently and economically managed; it gives first-rate service to its customers; it gives valuable employment; it enjoys excellent labour relations, including a high degree of consultation with its employees; it is a valuable earner of foreign currency. On all these grounds, it is a concern which deserves to be fed with encouragement, and to be given the prospect of growth, rather than being fed a subsistence diet of crumbs from its richer brother's table.

Finally, a lot of water has flowed under the bridge since the announcement in the spring of 1974 of an impending review. It was then expected that we should have a firm policy within a few months. Two years later, we still have only an outline indication of what the Government intend, and that is the way things work, as all of us know who have been in Government. But what is not appreciated is the demoralising effect of this kind of delay and uncertainty; a demoralisation that is bound to occur, particularly in an industry where plans must be laid, and new aircraft ordered, as much as 10 years ahead. For example, we know there is speculation in East Africa and the Seychelles as to who is to be the airline operator in future. The morale of the staff in East Africa is being sorely tried in their attempts to tie up travel contracts with tour operators, and so on, not knowing whether they will still have the rights.

Lastly, things have settled down and changed considerably since the upheaval of the oil crisis in 1973, which really was the genesis of this whole affair. Oil prices have stabilised; the airline recession, as my noble friend said, is bottoming out, and will continue to improve with the return to prosperity of world trade. The Edwards Committee always envisaged there would be ups and downs in the industry; that is why they produced a policy based on a hard, long look, designed to take the ups and downs in its stride. Through this difficult time, British Caledonian have conducted themselves with prudence and skill. Therefore, I ask the Government to think again before they finally make up their minds on restricting the scope of the growth of British Caledonian, and give the Edwards Report a chance to show what it can do for the whole British airline industry.

6.34 p.m.

Lord SEEBOHM

My Lords, although I personally have no financial interest whatsoever in British Caledonian, I am chairman of a company that has, so to that extent I must declare my interest. This involvement has enabled me to get a picture of British Caledonian which perhaps many of your Lordships here have not had. I have visited Gatwick; I have spent the day with the management and staff and I have formed certain opinions. British Caledonian is an absolutely first-class airline; it is well led, and in addition, as has been pointed out by the noble Lord, Lord Polwarth, staff relations are absolutely first class. It is the sort of organisation I should hate to cease. I would also point out that since the disasters of 1974, when everyone was in trouble, British Caledonian have taken a very firm line with themselves. They have slimmed down and eliminated their losses. For that reason, and because they are an efficient and courageous organisation, they deserve support.

However, at the moment, there are intolerable delays in a firm statement on the future of British Caledonian. This is bound to have an adverse effect on the morale of the staff if something does not happen fairly soon. The Edwards Report, which took three years to produce, was a study in depth. Its main conclusions are as true today as they were then. But the most important thing now is to stop this shilly-shallying so that British Caledonian can get on with the job. I would remind the House that there is a lot of money at stake and a lot of plans. There are plans for development which are held up until something happens.

There seems to be some idea that if British Caledonian is deprived of certain routes, traffic will automatically be transferred to British Airways. As the noble Lord, Lord Polwarth, pointed out this afternoon, this is just not true. What is true is that where British Caledonian has operated, it has steadily increased the British share of the traffic and therefore has made a positive contribution to our earnings of foreign exchange, which we sacrifice at our peril. This raises the very material point of whether or not there should be dual designations on international routes. I strongly urge that the Civil Aviation Authority should not be inhibited in reconsidering their present policy which is presumably to refuse dual designations.

6.37 p.m.

Lord MERRIVALE

My Lords, first of all I should like to congratulate my noble friend Lord Kinnoull for initiating this short debate today. Secondly, I apologise to the noble Lord, Lord Winterbottom, because I feel that some of our arguments and conclusions may be similar but may be presented in a slightly different way or with a slightly different emphasis. My Lords, like other noble Lords in this House I am becoming rather concerned by the time it has taken for the civil aviation review to be concluded. I think we would all agree that there should be fair play in this matter, and that the decisions taken should be equitable to both British Airways and British Caledonian. As the Edwards Report says in paragraph 1065 with regard to a second force: One motive for proposing it is a sense of fair play. Therefore it is essential, I feel, that this motivation should be carried through in the future as in the past.

When he comes to reply, the noble Lord, Lord Winterbottom, may say that one of the reasons for the long delay is the safeguard to the vital interests of British Caledonian. But I wonder! The Civil Aviation Review, as has been mentioned before, was first mooted in the spring of 1974, and a formal committee was announced in October of that year. Of course, as the noble Lord, Lord Polwarth, mentioned, 1974 was the worst year in the history of the airline industry. There were soaring fuel prices; there was economic recession in the Western world leading to reduced air travel and airline over-capacity. Since then, oil prices, while still high, have stabilised, and the economies of a number of Western Powers have undoubtedly improved. Certainly I can say that about the United States, France, Germany and so forth. So that in effect British Caledonian has been operating in a state of uncertainty for almost two years now.

I would agree that the statement by the Secretary of State for Trade, Mr. Peter Shore, in another place, repeated here on 29th July last, may have removed some of the uncertainty, but it still left many matters unresolved. I think this has not been cleared up by his reply in a Written Answer on 6th August (col. 238), or by the remarks of the Under-Secretary of State for Trade, Mr. Clinton Davis, on 13th October (col. 1101/6), nor by Mr. Peter Shore's reply to oral Questions on 15th December last, when he said: I expect to publish the White Paper early next year ". He also added: I hope that the discussions between British Airways and British Caledonian will come to a conclusion, and I hope further to announce the results, and indeed more broadly the new policy statement, in the new year. Therefore, my Lords, expectations and hopes only.

For my part, I doubt whether a final agreement will be reached on the spheres of influence or route structures that will be operated by British Airways and British Caledonian—that is, on a scheduled basis—in which case I sincerely hope that the Minister will not feel that something should be imposed, which in effect neither airline might want. In that case, would it not be better to continue along the guidelines recommended by Edwards, for basic factors affecting the airline industry have changed again since the Committee was formed in 1974. I think that was a point that was very well made by the noble Lord, Lord Polwarth. Also, as has been mentioned, the Edwards Committee studied the industry for almost three years before coming to conclusions. They also took account of the fact that there would be difficulties and setbacks along the way, but basically a sound policy was recommended that would stand the test of time at least during the 1970s.

In 1974 Mr. Peter Shore may have intended only minor modifications to the policy followed since 1970 and approved by both Parties, but since then there have been unaccountable delays and these have certainly meant mounting uncertainty. For example, there has been more than speculation—this has been mentioned before, but I think it should be stressed—in East Africa and the Seychelles to the effect that British Caledonian will be ceasing to operate to these points and that British Airways will be taking over. Would the noble Lord not agree that this can be most demoralising for the staff in spite of Mr. Clinton Davis's statement on 13th October last, at col. 1106, where he says: I stress that we have to bear in mind the employment prospects of thousands of people, not only those who are employed by British Caledonian but those who are heavily dependent on British Caledonian. I think it might be relevant, too, at a time when this country is at grips with a difficult economic situation, to recall the recent words of Mr. Arthur Day, Director General of the Institute of Exports. I should like to quote his words, because I think they are important. He said: Before we change any existing institution, we have seriously to examine the contribution to the nation. British Caledonian's history indicates that it saved our South American route operation; operates services to 35 destinations in 23 countries; has achieved increases in the United Kingdom's share of total air markets traffic on several routes; has provided alternative terminal facilities; has pioneered charter operations; has placed high priority on air cargo traffic; has shown flexibility in management in difficult times; has provided an alternative source of airline management skills; and given employment to around 5,000 technical personnel. For these reasons I sincerely hope that the Edwards recommendations will continue to be followed. There is no need for a change to the present guidance. Airlines holding Civil Aviation Authority licences should be designated to the points named in those licences. The industry as a whole should be encouraged to go out and fight for a larger share of world markets in the interests of the country as a whole and those directly dependent on the airlines for their employment.

In conclusion, I feel that the CAR will certainly not give this essential encouragement and boost. And to end, as a traveller, and particularly with regard to travelling to Africa, perhaps I may just give two personal experiences, because I think the voice of the traveller is important airlines do need travellers. This month I had the pleasure of being invited by the Government of Senegal for a five-day official visit and flew out there and back by British Caledonian. The service was absolutely perfect, and in effect the reactions about British Caledonian I received from Ministers in Senegal could not have been higher praise.

A few months before that, in September—this is relevant as regards the route from Gatwick to Nairobi and the Seychelles—I flew out to Tananarive. Madagascar. I had to fly out by Air France and fly back by East African Airways. I remember a few years ago the Malagasy Government applied to Her Majesty's Government for landing rights in the Seychelles so that there could be a link between Tananarive, Nossi Bé, the Seychelles. That was turned down. They might apply again. I remember a few months ago speaking to Mr. Andriasitohaina, who is the chairman of Air Madagascar, and he was very pleased because he had received another destination for the airline and had permission to land in Mauritius. So I think that in effect if British Caledonian, as I hope sincerely, continue to fly to the Seychelles, and Air Madagascar extends its destinations in the area it would open up new horizons for the airline in the future. Therefore, I would end by hoping that the noble Lord will be able to reply very constructively to this debate.

6.49 p.m.

Lord TREFGARNE

My Lords, in rising to support my noble friend Lord Kinnoull tonight I have to confess that I have nothing very new to say and not a great deal to add to what has already been said by noble Lords beside me and behind me. I would emphasise and underline the major point that has been made: that the delay in producing this White Paper, and the subsequent guidance to the Civil Aviation Authority which will flow from it, has really been less than satisfactory, has been damaging —I can use no other word—to British Caledonian, and so far at least has not been satisfactorily explained.

I would also ask the noble Lord, Lord Winterbottom, whether the consultations, which I gather have only recently moved into any substantial phase, have taken in any of the other independent airlines in addition to British Caledonian? It may be that the Government's proposals do not extend to them, but we do not know that. I should like to hear from the noble Lord whether the consultations have gone wider than just British Caledonian. I presume that the consultations have included people other than airlines. It is said, for example, that the views of the TUC have weighed heavily with the Government and have caused them to move away from support for British Caledonian. I hope that this is not so, but perhaps the noble Lord can clarify that also.

My Lords, the time has now come for the Government to state their case clearly in this matter. They have dithered for nearly two years. I hope that when the noble Lord, Lord Winterbottom, replies in a moment he will give us some clear and concise guidelines.

6.51 p.m.

Lord BELSTEAD

My Lords, I hope that the Government will agree that this debate comes at a useful moment. The Report of the Committee under the late Sir Ronald Edwards, who is going to be so sorely missed in these difficult times, allowed for a good deal of public and Parliamentary discussion before the Labour Government of the day published their 1969 White Paper which accepted the principle that two national airlines would further the interests of British civil aviation on scheduled services, and it is now desirable, and surely in the interests of more open government, if some comments are made about the general situation upon which the current consultations between the Secretary of State, the Civil Aviation Authority, British Airways, and British Caledonian Airways are being based.

I am sure that the Government appreciate the real concern which has prompted my noble friend Lord Kinnoull to ask his Question today. The problem is that the Secretary of State's policy statement of the 29th July of last year in effect puts a stop to much of British Caledonian Airways' plans for development. Six months later, as all noble Lords who have spoken have said, we still await the White Paper which will set out the alternative proposals for that airline's future. I thought that the speech of the noble Lord, Lord Seebohm, was valuable in that he reminded us that many institutions have invested in British Caledonian, not least institutions in Scotland. I think they have had reason to be proud of their trust. Whether it is service to the customer, safety of operations, opportunity for employment, or improvement in communications—all subjects which were dealt with by the Edwards Report—British Caledonian bear any comparison.

At a time when we are fighting for our financial existence this airline, as my noble friend Lord Polwarth said, has been a valuable foreign currency earner. Therefore, I welcome that part of the Secretary of State's statement of last July which endorsed the second force airline. The Secretary of State confirmed the approval of the travelling public, and he made the point that Gatwick Airport needs to be expanded as part of our national airport strategy. Indeed, this must be so with already some £70 million spent on the airport and a substantial number of jobs dependent directly, and indirectly, upon Gatwick. I would ask the noble Lord, Lord Winterbottom, as I am sure he is willing to do, to repeat in this House that the Government are anxious to retain British Caledonian Air ways as the second force airline.

Having asked that, may I add, in all fairness, that I understand the reasons which prompted the Secretary of State to make his statement last year. Of course that was six months ago, and I seriously wonder whether, on reflection, the Secretary of State is now convinced that the changes that he was envisaging then are in fact necessary. Airlines have suffered a recession, yet I wonder whether the Government are not being unduly severe in declaring that there will be practically no opportunity for dual designations in the foreseeable future.

Last November the Department of Trade published its first Consultative Document on Airport Strategy, looking ahead to 1990 and beyond. In Chapter 4 of that document the forecast for the four airports of the London area is that numbers of passengers could increase from 27.4 million in 1974 to between 36.1 million and 52.5 million by 1982, with a possibility of a faster rate of growth thereafter. Of course I appreciate that those are forecasts and that they refer to all passengers. But I would ask whether the Government believe that in principle two national flag carriers on a scheduled route is something which is undesirable, or whether that conclusion derives from current economic circum stances. I hope that we may be assured that the Government take the latter view. Both my noble friends Lord Kinnoull and Lord Polwarth have said that there are some signs of recovery in air passenger traffic, and if the forecasts which I have just quoted for passenger movements have any accuracy at all, it would appear that there is going to be scope for development and opportunities for British airlines in the longer-term future.

The immediate problem is that the practical implications of the Secretary of State's policy statement are very serious for the development of British Caledonian Airways' business, and not least, as the noble Lord, Lord Seebohm, said, for British Caledonian's employees. The rights to New York and Los Angeles, which I believe were not only licensed but also designated, are to be lost, and the licences to Bahrain, Singapore, Toronto, Boston, and Houston are to be withdrawn. I have a slender knowledge of business, but presumably to plan to serve routes of those kinds requires having to secure a very great deal of capital. My noble friend Lord Kinnoull analysed in his speech some of the adverse operating factors which cautioned British Caledonian not to proceed with those services at the present time. But they are potentially very valuable routes, which British Caledonian, as my noble friend quoted, estimates would have produced about 67 per cent. of the airline's scheduled service revenue by 1979 to 1980.

Therefore, may I ask the Government three questions. First, can the noble Lord tell the House that the Government are taking seriously into account the estimated profitability of routes which may be transferred to British Caledonian's sphere of influence, if that is the type of decision that the Secretary of State is going to reach? Secondly, in arriving at his conclusions, will the Secretary of State weigh with the greatest care the prospects for the development of the second force airline? For instance, I cannot believe that those prospects are going to be very bright unless British Caledonian has the opportunity to introduce wide bodied jets, and that opportunity is bound to depend upon the designation of suitable routes. Thirdly, may I join my noble friend Lord Polwarth in asking why, as British Airways does not fly to Houston, is there any reason why British Caledonian should not serve that route, on which it was licensed, and the Atlanta route also?

It is because civil aviation generally needs time to plan that decisions from the Secretary of State are urgently needed. I realise that the development programme for Concorde is something which has been unique. In saying this, may I wish Birtish Airways the very best of luck with this wonderful aircraft. The Concorde programme is a reminder of the immense problems (not least of cost) which are involved in civil aviation development. The longer the Government delay, the more difficult become commercial decisions for British Caledonian and also, to some extent, for British Airways. But this is crucial for British Caledonian. In no sense is the airline a threat to the Corporation. Its revenue is no more than one-tenth of that of British Airways, yet British Caledonian provides that most necessary of all ingredients, healthy competition. Despite all the difficulties, I believe that it succeeded last year in operating at a profit It has earned foreign currency without damaging the prospects of British Airways and it provides employment for about 5,000 people—who are, I believe, solid in their support for the company—and for 70,000 or more who depend on Gatwick for their living.

Having listened to this debate, I wonder whether the Secretary of State may perhaps be reconsidering his statement of last year. The Edward Report recognised that civil aviation must contend with all sorts of problems, but that Report was made after nearly three years of study and to change the present guidance does not help the confidence of airlines. What, therefore, is needed urgently is a Government decision. My Lords, I hope the noble Lord will be able this evening to assure the House that this is now imminent.

7.1 p.m.

Lord WINTERBOTTOM

My Lords, I am grateful to the noble Earl, Lord Kinnoull, for raising the question of civil aviation policy and for giving the House an opportunity to debate this important subject. I wish also to express my appreciation to noble Lords who have taken the trouble to take part in this discussion and for keeping their comments so concise and to the point. It has been a useful debate. As the noble Earl will be aware, the Secretary of State has promised that the White Paper on policy review will be published early this year, and that is what is meant by "soon". I am informed that it really is not too far off and I certainly hope that it will come before the swallow dares. He will obviously appreciate that I cannot anticipate the contents of the White Paper and that I can only reassure him and other noble Lords about the Government's intentions.

Several noble Lords asked whether the Government are aware of the "deep concern felt at their recent declared change of policy ". My reply is that the Government are not aware of any such "deep concern", hoping rather that the proposals are generally recognised as sensible and intended solely to strengthen the position of British Airways, British Caledonian and the United Kingdom civil air transport industry as a whole. I thought the Secretary of State's Statement in July made that quite clear. We must admit that the disastrous year of 1974 was the result of circumstances which could not have been foreseen in 1969, and what we must do is accept the fact that progress does not go forward in a straight line; we must adapt policies to circumstances when the situation changes radically.

British Caledonian, in a statement made immediately after the Secretary of State's announcement to the other House last July on the main findings of the review, recognised that there were, from its own point of view, both good and bad sides to it, but that it would form the basis of careful analysis and further consultations. Similarly, a leader in the Financial Times commented: The conclusions appear for the most part to be a reasonable compromise. They recognise the practical limits to competition in an industry which is in any case dominated by Governments … at the same time they accept that the private sector has made a considerable contribution and must be allowed to prosper". I appreciate the concern with which British Caledonian is awaiting the publication of the Government's proposals, but noble Lords will agree that it is much better that we get decisions right than that we get them fast. Negotiations—genuine negotiations—are going on at the moment. There is still some uncertainty over the likely outcome of the route exchange talks and whether the package of measures likely to emerge will command the support of both airlines. This is one of the factors that leaves the timing of the publication of the White Paper in some doubt, as the Secretary of State wishes to do all he can to secure general acceptance of its provisions before publication—and, as I say, these are genuine negotiations.

British Airways and British Caledonian have co-operated fully in the discussions, although both have naturally sought to protect their interests, and the Government remain confident that an outcome satisfactory to both sides will be achieved. That is a statement of hope, but let us trust that it will be achieved. At this point it might be valid for me to tell the noble Lord. Lord Trefgarne, that other airlines, particularly Dan Air and Laker Airways, have recently entered the discussions and have met Ministers in order to put their points of view to them.

As I said, the civil aviation policy review was instigated solely as a result of the Government's concern about the health of the United Kingdom airline industry in the aftermath of the oil crisis and the consequent economic recession. It was not doctrinaire but reaction to an unfavourable economic climate. The changes envisaged are the minimum necessary to ensure that United Kingdom resources are deployed to the maximum advantage in what are now extremely competitive markets and to ensure that the United Kingdom market share on international routes is retained or increased.

The Edwards Committee Report based its recommendations on the assumption that the industry would continue to expand rapidly throughout the 1970s, and the existing policy of "dual designation" of British airlines on selected long-haul routes of course reflected the Edwards recommendations. Economic circum stances have, however, undermined their validity. In 1974—the "black year" to which noble Lords have referred—the traffic carried by United Kingdom airlines, following a worldwide pattern, fell by about 10 per cent. and British Caledonian was forced to abandon the scheduled services it had been operating across the North Atlantic. The routes for which British Caledonian held licences in 1973, in particular London to Atlanta and Houston, to Toronto or to Bahrain and Singapore. were never operated. There were some general signs of recovery in the industry during 1975, but current forecasts still suggest that growth will be much slower in the markets involving United Kingdom airlines for the rest of this decade than it was in the 1960s and early 1970s.

Aviation authorities throughout the world, including the United States, have been seeking to restrict competition with their own flag carriers and there are few routes on which we could now hope to introduce a second United Kingdom carrier on terms which would help to increase the British share of the traffic or revenue. Dual designation would often only be feasible at the expense of reducing British Airways existing capacity allocation on that route, thereby cutting the profitability of British Airways operations without providing sufficient potential for operations by the second force airline. It is important to stress that it also tends to weaken United Kingdom negotiating strength with other countries, especially those which have only one international airline themselves. Conflicts of interest can arise, even when the two British airlines seek different routes the other country is able to play off one against the other resulting in a poorer bargain being achieved for the United Kingdom overall. In the present economic climate, these factors become accentuated and a United Kingdom policy of dual designation for the two airlines just not practicable.

I hope that I can now say something of comfort. The Government want British Caledonian to continue operating as a scheduled carrier on major inter national routes. They recognise the airline's achievements of the last few years and that it has now accumulated valuable operating experience. Many passengers appreciate having a choice of United Kingdom airlines on domestic and European routes. In addition to what the noble Lord, Lord Seebohm, said. I have heard many nice things said about British Caledonian, whose role as the largest operator at Gatwick, where national airports strategy dictates the need for a progressive increase in the volume of traffic, should not be overlooked.

The Government are also anxious to do what they can to make the jobs of the airlines employees more secure. The Government believe that the limited exchange of scheduled international routes envisaged between the two airlines will he of mutual benefit to both. It has taken time carefully to balance the Interests of all interested parties, but Mr. Adam Thomson, the chairman of British Caledonian, has stressed as much as anyone that the route rationalisation talks should not be rushed but reach a sensible, considered and long-term agreement, as I said earlier.

The Government want a long-term solution to the industry's problems, giving future stability to British Caledonian while ensuring the optimum use of existing resources by all airlines. They want to see long-term planning and long-term investment in the industry, which has suffered too long from uncertainty following frequent and major policy changes by successive Governments. I believe that many noble Lords will say Amen! to that. The Government also hope that the activities of the two airlines on scheduled long-haul routes will become increasingly complementary rather than being waste fully competitive, and that a closer spirit of co-operation may emerge, mutually benefiting the airlines and helping to maximise the value of the routes in question so far as the United Kingdom as a whole is concerned. There seem to be many areas, both technical and commercial, where such co-operation could bring benefits, and the Government hope that their proposals will encourage this to come about.

As I said earlier this evening, I cannot anticipate the final conclusions of the talks on route rationalisation which have been continuing for several months now. These will be incorporated in proposals for a revised policy guidance for the Civil Aviation Authority in the White Paper on civil aviation policy to be published shortly. Noble Lords will of course have an opportunity to discuss the details of the Government' policy when the proposals are before them. In the meantime, I can only assure them that the Secretary of State's main objective is to get a settlement which is fair to both airlines, likely to endure for a reasonable period and which will not lead to redundancies either in British Airways or in British Caledonian. I hope that the proposals will be seen in this light, and that they will command a wide degree of support in your Lordships' House when the opportunity to discuss them arrives.