HL Deb 23 June 1977 vol 384 cc776-86

4.14 p.m.


My Lords, with the leave of the House, I will now repeat a Statement being made in another place by my right honourable friend the Secretary of State for Trade. The Statement is as follows:

"Agreement was reached yesterday on the main provisions of a new Air Services Agreement. Final texts still have to be completed before the new Agreement can be formally signed and come into effect. This will probably be at the end of next month. The Agreement will then be laid before Parliament as a Command Paper. Meanwhile services will continue as at present.

"The most important and novel feature of the new Agreement is the mechanism to control capacity on North Atlantic routes. This is designed to reduce the waste of fuel and other resources that results from flying too many empty seats, while preserving competition and benefiting the travelling public. This has from the outset been one of our most important objectives.

"Moreover our airlines will be able to open up new routes to the United States. The new points are Houston, Atlanta, Seattle and Dallas/Forth Worth, and a non-stop route to San Francisco. These routes will enable us to increase our penetration of the North Atlantic market. We have also got a better route across the Pacific for future passenger and cargo services from Hong Kong to the West Coast of the United States.

"We have also secured agreement to single designation by both sides on all the North Atlantic routes, except two. This means that with these exceptions the British carrier will face competition from only one American airline. The Americans will be putting two airlines on New York and Los Angeles. My intention is to designate Laker as our second carrier to New York. We will retain the option to designate a second carrier on some other route. I intend to keep this open.

"We have obtained substantial reductions in the rights of United States airlines to carry 5th Freedom traffic beyond London and Hong Kong to other destinations, although some important 5th Freedom rights will continue. A number of these rights will disappear immediately, others after three and five years.

"There will also be greater flexibility for the airlines, our own as well as the American, to carry passengers on the same aircraft to more than one destination, but without the right to pick up passengers from one destination point and take them to another. This is a new concept which should contribute to more economic use of resources. But we have given notice to the US Authorities that, if it turns out to our disadvantage, we would want to review it.

"A new Tariffs Article has been agreed which removes the ambiguities of the old Tariffs Article and should avoid the disputes that have occurred in the past.

"It has also been agreed that, in accordance with my airports policy Statement of 5th April, the new routes to Houston and Atlanta will from the start come into Gatwick. This will also apply to the Dallas route provided the British carrier uses Gatwick.

"New routes have also been agreed linking Bermuda and our dependencies in the Caribbean to the United States.

"Finally, the Americans have agreed to work with us towards a new multilateral arrangement on charter services between North America and Europe. We already have a bilateral arrangement with the United States which is working well. This will now become part of the new air services agreement. The development of charter services, which both sides desire to foster, will offer further benefits to the travelling public.

"I believe this Agreement will open a new and expanding era. It will provide significant new opportunities for the airlines of both sides, and promises real benefits to the consumer. It will give British airlines a fairer opportunity to fight for a bigger share of a growing market."

My Lords, that is the end of the Statement.

4.20 p.m.


My Lords, we are grateful to the noble Lord for repeating that Statement to us. I think I should say at the outset that my noble friends, my right honourable friends and I are not over-enthusiastic about the Statement and about the outcome of the negotiations. I think that the timing of the abrogation of the original Bermuda Agreement was really most unfortunate. Your Lordships will recall that the American Bicentennial celebrations were in progress, so they were not able to proceed immediately with the new negotiations; the question of the landing rights of Concorde in New York was then, as it is now, unresolved; and the Presidential elections—most important of all—were pending in the United States, and it was clear from the outset that meaningful negotiations on the new agreement could not begin until President Carter's team had taken office in January of this year. So from the very day that we abrogated the agreement we must have known that there were going to be only six months instead of 12, as we might have thought, to negotiate a new one. I should like to ask the noble Lord, in that context, whether the decision to abrogate the Bermuda Agreement, and particularly the decision on the timing of it, was taken with the concurrence of the Civil Aviation Authority. Presumably they were consulted. What was their view?

With regard to the content of the new agreement, I believe that the balance of advantage is very fine, and I do not think it is possible for the Government to say that the new agreement is clearly better than the old one. The details are very technical, and it will take a little while to evaluate the results of the new agreement and to decide whether, indeed, we have achieved any advantage. In any event, my Lords, I personally believe that such small advantage as we may have gained could easily have been achieved within the context of the old agreement without the drama and trauma of abrogating it at a totally inappropriate time.

To turn to what the noble Lord has announced as being contained in the new agreement, I should like to ask him, in particular, what provision there is to be for the regulation of charter flights, which for my own part, at any rate, I welcome as being included in the new agreement. When I asked the noble Lord some months ago whether charter flights were to be included, my recollection is that he was not clear, and it may be that that point had not then been decided. But I welcome their inclusion, and I think that the fact that 50 per cent. or so of the traffic across the North Atlantic, which is carried in charter flights, is now to come under the protection of a formal agreement as distinct from the old memorandum of understanding is a good step forward.

The other major point is the question of 5th Freedom rights. We gather that American carriers are to be progressively denied certain of the rights that they presently enjoy from the United Kingdom, but that in return they will be granted certain additional rights in the Far East. I wonder whether the noble Lord can give us an indication of how the balance of the value of business is seen to lie; whether the loss of business in Europe will be offset or not offset by the additional business that these American carriers will be granted out of Hong Kong.

One final point I should like to ask the noble Lord about is related to the 5th Freedom point, which applies in the Far East, and concerns the item in the fourth paragraph of the Statement, which refers to the better route for British carriers across the Pacific for certain passenger and cargo services between Hong Kong and the West Coast of the United States. As the noble Lord may know, there is already a very strong American presence on that route, in particular with North-West Orient Airlines, and there are, indeed, certain other Far Eastern airlines which possess rights to operate on that route even if they are not doing so. I hope that the noble Lord feels that the great advantage claimed for that point is really worth having.

4.25 p.m.


My Lords, from these Benches we, too, should like to thank the noble Lord for repeating this Statement, which seems, on the face of it, to have gone quite a long way towards what we wanted, even if we have not got 100 per cent. of what we wanted. I think we ought to congratulate the British team of negotiators who have got through this very long, difficult and, if we are to believe our Press, at times acrimonious negotiation without any breakdown of the services. We should like to reserve any further comment on this matter until we have seen the vital details concerning 5th Freedom traffic rights through London, the charter arrangements across the Atlantic and the fare arrangements. All these details have not yet been resolved, and they are all vital to the agreement. Until we have seen those, which presumably we shall when we get this Command Paper in which they will be fully set out, we do not think we can say further than, "So far, so good.".


My Lords, would the noble Lord clarify a little the effect of this agreement on British Caledonian Airways? He will no doubt have observed that the chairman of that airline is reported in this morning's Press as having expressed extreme disappointment. Indeed, he is said to have used the strong expression that he had been "sold down the river". Can the noble Lord make it clear whether or not it is true, as alleged in the Press, that British Caledonian will not be allowed to operate on Atlanta immediately but only after an interval of some years? Can he also confirm the position of services into Dallas/Fort Worth? Is he aware that Dallas/Fort Worth serves broadly the same traffic areas as Houston, and that if another airline is operating out of Dallas/Fort Worth then the value of Houston is of course very much diminished? Can the noble Lord in fact confirm that British Caledonian have been given what the Government themselves promised to them in paragraph 9 of Future Aviation Policy, issued as recently as last year?

4.28 p.m.


My Lords, I should like to thank the three noble Lords who have asked their various questions, even though the noble Lord, Lord Trefgarne, prefaced his remarks with expressions of lack of enthusiasm. I do not think that his lack of enthusiasm is generally reflected in the comments that we have received so far. I believe, as I indicated yesterday, that this is a new agreement which will be advantageous to British interests. The noble Lord raised the question of the timing of our notice to terminate the old agreement. This was a matter for the Government. The Civil Aviation Authority were in support of our objectives, but the timing had to be decided by my right honourable friend the Secretary of State, who took careful account of the points that have been made, quite rightly, by the noble Lord, Lord Trefgarne, this afternoon. But it is so often the case with important decisions of this kind that no particular point of time is ideal, and one has to make a choice, sometimes in difficult circumstances.

The noble Lord asked about the balance of advantages, and doubted whether the claims which have been made by myself and others can be substantiated. I have again this afternoon said that I believe it will work out to our advantage, and I think it is worth quoting the view on this matter of the chairman of Pan-Am, who said: The new agreement transfers net economic benefit from the United States flag system to the British flag. That was the purpose of the British denunciation of the old agreement". So there is, I think, an expert view that we should take into account.

On charter flights, I am glad that the noble Lord raised this point because it is important and there have been some misunderstandings about it. I think I should, therefore—I am sure the noble Lord would wish it—spell the situation out a little. The Americans had a restriction on the carriage of their charter traffic by foreign operators, and this imposed severe restrictions on the accession of our independent airlines to the US charter market.

We were able to obtain the lifting of these restrictions as a result of very hard bargaining in a Memorandum of Understanding which we negotiated in the spring of 1976. This Memorandum was renewed for a further year in April 1977. As a result of this Memorandum, our airlines are now carrying at least half the total UK-US charter traffic. Without that agreement, we could not compete effectively. This Memorandum has been caught up in the new air services agreement. It obliges both sides, subject to certain conditions, to renew that Memorandum annually until a permanent bilateral agreement covering charters takes its place. The Americans have also undertaken a formal commitment to work with us and our fellow members of ECAC towards a multilateral arrangement on charter services between North America and Europe. I apologise to the House for taking so long, but it is an important elem wenthich, perhaps, has not been spelled out sufficiently.

I think that the noble Lord, Lord Trefgarne, asked about the freedoms. He correctly said that some will be phased out but that others will continue. This, as the noble Earl, Lord Amherst, has said, is a very detailed and complex question. A full statement on this is being prepared and copies will be placed in the Library. I would say by way of general answer to the noble Lord, since he asked me to quantify, that these things really are not easily capable of being quantified. They are points on which judgments have to be reached and the actual effect on quantities can be seen only after a period of operation.

I welcomed what the noble Earl, Lord Amherst, said in his statement. I welcomed, also, the fact that he prefers to defer comment or question until the details are available. It is, as I have indicated yesterday and today, a most complex question and informed comment must await sight of the complex documents. These will be available, in the form that the noble Earl mentioned, in a Command Paper. I should indicate that there are already in the Library copies of the two Press statements issued yesterday, one by the Department of Trade and one by the American Embassy; but they were in only rather general terms.

The noble Lord, Lord Boyd-Carpenter, asked me about the situation of British Caledonian since, as lie said, the chairman of that organisation has expressed disappointment. I can confirm the point that he asked specifically: that British Caledonian will not be able to operate London to Atlanta until three years have elapsed; solo operation rights will be for the Americans on that route. But the important point which has, perhaps, not been stressed is that British Caledonian will have solo rights on the London-Houston leg. That should be a very important asset for them. Indeed, they will be able to get going on that operation, I believe, well before the Americans begin their operations on the London-Atlanta route, because they have not yet decided which carrier should be used and I believe that a considerable process will necessarily have to be gone through before that decision can be reached. So I think that British Caledonian will have, in practice, an advantage of that kind. British Caledonian have not only that advantage which I have mentioned, but they will derive considerable advantage from the capacity mechanism which was referred to in my right honourable friend's Statement when there are the two carriers operating on the London-Atlanta route.

My Lords, a further point which is of some significance, although I would accept that it is not perhaps the major point, is that British Caledonian now have established freedom rights beyond Houston into certain Latin American countries; namely, Venezuela, Peru and Colombia, and one airport, I think Manaus, in Brazil. I should emphasise here that only as far as the agreement between the Americans and ourselves is concerned has that been agreed. The negotiations have yet to take place with the authorities in Venezuela, Peru and Colombia; but we see no ultimate difficulty about that. It is a matter of time and of going through the correct procedures.


And Dallas?


My Lords, the noble Lord means it is nearer to Houston. Yes, this I accept. This is part of a competitive situation between the Americans and ourselves. In terms of jet aircraft there is only a comparatively small distance between Dallas/Fort Worth and Houston. That, I accept, would be a hard competitive situation that British Caledonian will have to face.


My Lords, may I make a brief comment, and also ask a question on a point of information? The brief comment is that I regretted, and I hope the House regretted, the unmitigated gloom that came from the noble Lord, Lord Trefgarne, on this particular matter. A great deal of work has gone into this matter and I think that every credit is due to the people who brought about this result. The noble Lord, Lord Trefgarne, may be better informed than I am, but my understanding is that this agreement will bring considerable benefit to this country. I know, as the noble Earl, Lord Amherst, has said, that we must wait and see the exact results; but I think it would have been nice if the noble Lord, Lord Trefgarne, had exchanged the unmitigated gloom which took up at least half of his statement for some measure of congratulation.

The point of information is this. It may be that I should know the answer, but I do not. What happens now regarding the negotiations concerning Concorde? I understood my noble friend to say that this agreement provides for double designation from London to New York. We have British Airways and Laker as the two airlines from here; and we have the two from America. Does this mean that if—and, certainly, as I am sure we all hope, when—Concorde is given landing rights in New York, there would have to be designation of three airlines? Or am I wrong in assuming that any of this comes under the terms of the Bermuda Agreement?


My Lords, I think the noble Baroness has been scarcely fair to my noble friend Lord Trefgarne who was not gloomy but, I think, was accurate in his analysis; because this agreement gives no great cause for rejoicing. Whether the concessions which we make offset the advantages we are supposed to get, as the Minister himself has said, only time and experience will show. I think the Minister was slightly contradictory in that he lauded this agreement as being something of tremendous value and of great benefit and then, in almost the next sentence, he, himself, said that only experience will show where the margin of advantage lies.

My fear is that restriction of capacity growth in order to match the demands will not be to the advantage of a consuming public and, indeed, the Airline Users' Committee—in which the noble Baroness played such a prominent and distinguished part—may in due course have to play its part if restriction of growth to match capacity is found to be penalising the consumers who wish to travel across the Atlantic. We shall have to watch that.

My other worry is the 5th Freedom position. The Americans are going to be allowed to continue indefinitely the 5th Freedom to take traffic from London to West Berlin, and 5th Freedom rights will continue to exist for three years to Belgium and Holland, and five years to Norway and Spain. We all know that once somebody has practised something for a period of years with some success they have dug themselves in, so in fact in this agreement we are giving away 5th Freedom rights indefinitely to those particular countries, and the question is: What are we getting in return? Only time will show and we await the White Paper which the Government have promised, setting out the full agreement, to make our judgment. Until then, I do not think that this agreement is worthy of great rejoicing and great praise.


My Lords, I will leave aside the question of whether I was too optimistic and the noble Lord, Lord Trefgarne, was too pessimistic. Let us all agree that we all hope—I would say expect—that this will provide an agreement wherein, if we take our chances, we can have an increased share of the North Atlantic business. I believe that that will prove to be the case. My noble friend Lady Burton asked about Concorde. British Airways are already designated to operate Concorde and any other aircraft to New York, and all our rights for Concorde will be continued in the new agreement. The provisions of the new agreement concerning Concorde are basically the same as in Bermuda. There has been some useful tightening up in the text, but basically the situation about Concorde remains unaltered.

The noble Lord, Lord Balfour of Inchrye, was too apprehensive about the capacity mechanism. It is complicated and I will not delay your Lordships by spelling it out, even if I thought I could with great success do so. But there is a minimum growth which is assured, and there is full opportunity for airlines and Governments to make proper comment on the way in which airlines' plans match demand. When the noble Lord comes to study the details, his fears will prove groundless. The same is true about his fears over the 5th Freedom. Serious reductions are planned in the Americans' 5th Freedom rights. It is not that they are being given new ones; they are being phased out. I accept the statement that the noble Lord made in outline as to how this will operate. Here again, as I indicated in reply to the noble Earl, Lord Amherst, this is a lengthy part of the subject and we all ought to await the full statement and study it.


My Lords, may I for the Record say that I made one stupid mistake when I said we were giving away our 5th Feeedom rights. Of course I meant to say that we are giving away our restriction rights of 5th Freedom which the Germans enjoy.