HL Deb 17 July 1978 vol 395 cc113-36

7.54 p.m.

The Earl of KIMBERLEY rose to ask Her Majesty's Government what progress has been made in formulating British Aerospace's future policy and commitments with Europe and/or the United States for both civil and military aircraft. The noble Earl said: My Lords, I beg leave to ask the Question standing in my name on the Order Paper. I should like to start by saying that I have had a letter from the Chairman of British Aerospace, Lord Beswick, very much regretting that he cannot be here to listen to us tonight. He is in Brussels talking to Viscount Davignon about aerospace matters, and I wish him well.

Since I first drafted what I was going to say tonight, the go-ahead for the Hawker Siddeley 146 has been given, with simultaneous authority to British Airways to purchase 19 737s from Boeing. The go-ahead for the 146 gives me great joy, but perhaps the purchase of the Boeings does not. In fact, I can only hope that it is not what I would call straws in the wind. The timing of the two announcements was perhaps slightly unfortunate; it seemed to me to be too coincidental, that it may be the 146 was offered as a sop to British Aerospace so that British Airways could be allowed to buy 737s instead of 1-11s.

While on the subject of the 737, I should like to know whether it is going to have a crew of two or three on the flight deck. If it is only a crew of two, have British Airways pilots agreed to this and have BALPA agreed to this? If it is going to be a crew of three, presumably the operating costs are going to be correspondingly higher. Before I reach the wider issue of tonight's Question, may I ask the noble Lord, Lord Winterbottom, what British Airways mean when they state that Boeings have offered the British aircraft industry very considerable work if 737s are purchased and that this offset work would, over the 737's presumed 15-year life, reimburse Britain for the whole of the initial foreign exchange expenditure on these aircraft? Could the noble Lord enlarge on this offset work; that is, how the figures have been arrived at which will reimburse the United Kingdom for the estimated £140 million spent on these aeroplanes? Lastly, when the costings were done, was the fact that spare American engines would be needed taken into account?

Turning briefly to the wider picture, as I have said before in this House, Boeing is very frightened of British and European Aerospace and will do everything it can to destroy this potential. The easiest way for it to do this is to turn us into subcontractors on its, Boeing's, terms; the offer of the Rolls-Royce engines in the 757s, for instance, a new but an ancient aeroplane, narrow-gutted, with a fuselage designed nearly 25 years ago; the market forecast is of 1,000 or more, which may well only turn out to be perhaps 100 or a few more.

Further, let us remember that it is airlines who stipulate what engines are going to be used. It appears recently that there have been some portents, which I hope were favourable, in that the Prime Minister has now entered into talks with different people, and he obviously realises the conflict which is raging between the engine manufacturers, the operators, the airframe builders and the designers. I think we should remember tonight that Rolls-Royce were bankrupted originally by putting all their eggs in one basket with Lockheed. All may be well now, but history must certainly not be allowed to repeat itself.

Only the other day, the Germans very emphatically expressed their views to Her Majesty's Government about our cooperation with Europe. We simply dare not turn our back on Europe over cooperation in relation to civil aircraft. If we did, there could be no doubt that it would have the most disastrous effect on the much larger military sphere, where at last Europe is beginning to show more and more successful collaboration. We have two current aeroplanes in the military field, the Jaguar and the Tornado. It is very unfortunate that the present situation seems to have become an internal fight with the noble Lord, Lord Beswick, and British Aerospace versus Sir Kenneth Keith and Rolls-Royce. But this seems to me a situation which could be resolved to everyone's advantage.

British Aerospace, newly nationalised and under the more than able chairman ship of the noble Lord, Lord Beswick—together with all the expertise he has behind him from what was BAC and Hawker Siddeley—is without doubt the leading aerospace company in the world. Its knowledge about designing, building and selling commercial aeroplanes, civil and military, is second to none. But with one proviso, which is that it must be given a free hand and not interfered with both bureaucratically and politically as has so often happened in the past.

I should like to point out that I am given to understand that the policy of British Aerospace is not one of Europe versus the United States. There is plenty of cake for all to eat if it is cut up and managed in the right way. I have said before that it is the airlines which buy aeroplanes and I am convinced that Sir Kenneth Keith could get Rolls-Royce's foot in the door of the A.300 and the B.10, particularly as Airbus Industrie are crying out for us to join them.

Rolls-Royce's estimated figures for employment on the Boeing 757 project also seem to be quite erroneous and leave much to be desired. For instance, its figure for possible future employment should take into account that at this moment nearly 2,000 are employed building the A.300 wing. Only 10 days ago a new order worth over £20 million was placed at Hatfield for 16 more sets of wings and the authority was given to purchase wing materials up to a total of 148. So far 80 sets of wings have been delivered. So, there is no doubt that the United States market if vulnerable to Europe and Eastern Airlines shows that. It is, I agree, unfortunate that United has now gone Boeing, but it is interesting that it has stipulated that it wants the 767 and not the 757.

Let us not also forget that the other options that there are already on the B.10 include Lufthansa, Swissair and Air France. In fact, only 10 days ago Lufthansa gave a memorandum of understanding for 25 B.10s. I believe that the right policy is for us to join Airbus Industrie but on a proper basis. The basis must be economically viable, and the French and the Germans must be given to understand that we do not want to be involved in undertaking any financial deficits from the past.

The chairman of British Aerospace, the noble Lord, Lord Beswick, has publicly stated that we must not have another Concorde financing fiasco, and I hope that that is a lesson which we have all learned. But neither do we want a fight between the United States and Europe which not only would probably be approved of by Boeing, but in all probability could be encouraged. British Airways' base should be in Europe, but with collaboration and co-operation from the United States. That is why the McDonnell Douglas deal looks fairly favourable: one-third British, one-third European and one-third American. It would help in the marketing of the Hawker Siddeley 146; it would help with military aircraft like the advanced Harrier; it would help with missiles—the Harpoon anti-ship missile; and it would also help Rolls-Royce. We would eventually, in the not too distant future, have a second generation supersonic transport, because there is no doubt that supersonic travel is here to stay.

I wish to revert to the British Airways' statement as regards the problem of the 737 or the 1-11—about it being nothing unusual for an airline to leave its ordering as late as possible, that is, 24 months. How, with so many projects currently under active discussion and consideration, can British Airways possibly favour the new, old narrow-bodied 757? Perhaps I should point out here that in an internal memorandum that was leaked the British Airways Flight Operations Department stated that it was much more keen on McDonnell Douglas than on Boeing. That may not be the feeling of its masters, but it is certainly the feeling of a section of British Airways.

Again, in the last Press release from British Airways on the 29th June it was stated that a narrow-bodied subsonic service that cannot operate non-stop would be unattractive to passengers. I agree that they were discussing a long distance route, but nevertheless if in 1978 narrow-bodied aeroplanes are unattractive—which is also confirmed by British Airways purchase of 737s instead of the 1-11—they must be out of their minds if they think that by the mid and late 1980s they could operate successfully and viably a narrow-bodied and obsolescent aeroplane like the 757.

So, I believe that the best course for British Aerospace to pursue must be a collaborative course. But that course must depend upon a number of complex factors which must include the best match of industrial partners, work-sharing and aircraft marketing ability. We have the finest design and capability technologists in aerospace throughout the world. Do not let anyone in authority forget that. Do not let us this time miss the bus, and I mean the B.10 Airbus. The French have given the go-ahead. If we wait any longer we shall not even build the wings; Fokker VFW will do so in Holland. So I am very pleased that this question has arisen tonight because I gather that the Secretary of State for Industry, Mr. Varley, is going to Europe at the end of the week to talk to the Germans and the French.

I wish to raise one specific point. During the Committee discussions on the Aircraft and Shipbuilding Industries Bill the Minister of State stated on 10th February 1976, at column 1061 of Commons Hansard that: Market strategy in new projects must be for the board of British Aerospace and not for the Secretary of State". There is still time for us to join the B.10 project, but time is running low. If we join with Europe, from this would come the Joint European Transport—JET, as it is called—and/or the McDonnell Douglas ATMR. Only the other day the EEC announced an initial programme of technological research in aeronautical manufacture. Twenty two million units of account are to be invested in research and development of airframes and 14.7 million units of account in helicoper research.

We have reached a T-junction: one road is right and one is wrong. The wrong road would be the one that makes us subcontractors to Boeing and will lead to total and utter disaster to our own aerospace industry, a disaster from which it will never recover. But the right road will open up untold vistas—hitherto undreamed—of progress, employment, prosperity and unqualified success. Right is Europe. Britain and Europe can get afterwards the collaboration they require from the United States. We have the key of Wonderland in our hand at this moment: let us use it now. United we stand, divided we fall. I do not know what the brief of the noble Lord, Lord Winterbottom, will say tonight, but I can only hope that those in authority will pay some heed to my few words as well as to the much wiser and more knowledgeable words that are to come.

8.9 p.m.

Lord TREFGARNE

My Lords, the House is always grateful to the noble Earl, Lord Kimberley, for raising these matters which he does quite regularly. However, I wonder whether tonight the issues are quite as black and white as he suggests. My personal inclination is to follow him down the road that he charts, but if that is the way my heart points, my head says that we should pause and consider.

First, let us consider the very recent history in these matters, namely, the Government's authority to British Airways to purchase the Boeing 737 aircraft and, almost in the same breath, the Government's approval of the plans of British Aerospace to proceed with development of the HS.146. I shall deal first with the 737. There is no doubt at all that the 737 is a very fine aircraft. It is marginally bigger than the BAC 1-11, which was the British competitor for the order. All the figures that I have seen suggest a lower seat-mile operating cost. I suspect that that lower cost stems almost entirely from the larger size of the American aircraft.

I am tempted to think that the other great merit of the 737 was that British Airways had no hand in its design. I cannot but reflect on the sagas of the Trident and Comet, and even the Vanguard years ago, which were designed—and this is certainly the case of the Trident and the Vanguard—to the precise requirements of BEA, as it then was. Although those aeroplanes may well have been right for BEA at the time, they did not seem to be right for anybody else, and thus the sales were very disappointing.

However, on this occasion British Airways have clearly stated their preference for the American aeroplane and the Government have agreed with them. Certainly the decision not to proceed with a purchase of 1-11 aircraft will be a disappointment to British Aerospace, but British Aerospace were not proposing—and never did propose—to produce a fundamentally different variant of the 1-11, and it was simply a continuation of an existing line. The business will no doubt be missed, but not, I hope, fatally so.

I turn now to the HS.146. The Government have announced that they are to finance the development of that aeroplane. I am certainly lost in admiration for all the statistics which British Aerospace have produced and which they have sent to me and, no doubt, to other noble Lords. But I am still wondering exactly who will buy this aeroplane in the very considerable numbers that are necessary for the project to prove viable. I hope that the confidence of British Aerospace proves justified.

Turning to the future, we do not yet know what British Airways would choose after the Boeing 737 purchase. We have heard suggestions that they would prefer an American route, but certainly the purchase of the 737 in no way commits them or the Government to pursue the Boeing proposals to which so much publicity has been given. If I understood him aright, the noble Earl, Lord Kimberley, suggested that we ought to go full tilt into the new variant of the A.300, the B.10 as it is called, but the noble Earl did not tell us—perhaps the noble Lord, Lord Winterbottom, can—quite what the terms would be if we were to go into that project now.

That aircraft has been in service for some years and it is widely known that we should have to buy our way into the project as it now is. How much would that cost? I have no idea, but I suspect that the price would be very high. As the noble Earl said, we are at present major sub-contractors in that project, and it may be wise to continue in that role, at least for the moment.

Following on from the A.300 are the JET 1 and the JET 2 projects, as they are called. Provided that these projects are at least compatible with Rolls-Royce engines, I should certainly think that we ought to participate in them. But for the time being they are both paper aeroplanes and I would want to reserve final judgment until more details are known and, in particular, until it was more readily apparent than it is now who would buy both aeroplanes should the go-ahead be given.

I think that the history of British aerospace—and I mean that with a small "a" for aerospace—is one where great initial promise has not always been fulfilled. Despite the undoubted technical merit of all the aeroplanes that we have produced in the last 20 years or more, very few of them have sold in numbers sufficient to recover development costs. I do not think that we can go down that road indefinitely. After all, nowadays development costs are astronomic compared with what they were 10 or 20 years ago.

The initial figure for the HS.146, which is a very modest aeroplane and which in no way advances the state of the art, is £250 million which is enormous for such a simple aeroplane. We certainly ought not to be going into that project with that sort of money if we are not pretty sure that costs of that sort could be recovered. I must say that I am not very enamoured with the proposals that I have seen for participation with the Americans. I think that the one I dislike least is the one put forward by McDonnell Douglas, but I must say that I have not seen very much of the detail and I would wish to reserve final judgment on that, too. However, there is one other area which, in my view, British Aerospace ought to be considering, which came to light during the proceedings on the Aircraft and Shipbuilding Industries Act, to which the noble Earl has already referred. Your Lordships will recall that among the companies included for nationalisation was a small firm called Scottish Aviation, which is now based at Prestwick in Ayrshire. During those proceedings I and others suggested to your Lordships that Scottish Aviation was not a suitable company for nationalisation. Be that as it may, one of the arguments advanced by the Government in support of their proposal to include that company was that Scottish Aviation would be the nucleus of a new light aircraft industry.

Scottish Aviation has a history of manufacturing small aeroplanes, mostly under licence, although in the more distance past it has designed aeroplanes from scratch. But more recently it has produced a number of different designs, including the Bulldog, the Jetstream and others, from plans that were already in existence when it acquired them. Therefore, it was suggested by the Government that Scottish Aviation would be in a good position to start a new light aircraft industry in this country; indeed, this was given as an important argument in supporting the inclusion of Scottish Aviation in the aircraft and shipbuilding industry maw. I wonder whether we can now hear what plans have been drawn up to proceed along these lines. After all, British Aerospace is now firmly in existence.

The Farnborough Air Show is just a few months round the corner. If I am lucky enough to be invited, I shall go and ask British Aerospace, "Where are the light aircraft we were promised?" It was definitely maintained that only by this means could a light aircraft industry be assured in this country, and I hope that the noble Lord, if not tonight then perhaps at some future occasion, will he able to tell us what has been achieved.

Having said that, the fundamental question which the noble Earl poses in his Question is whether we should proceed, on the one hand, into partnership with the Americans or, on the other hand, into partnership with our European colleagues. I do not think that the answer is quite as simple as the noble Earl suggested. As I said, with my heart I would happily go with the Europeans, but I suspect that if we really consider this matter in all its detail we should have to weigh very carefully the brilliant commercial success of the American aircraft industry, on the one hand, and the rather more patchy performance of the European industry, on the other. I emphasise that I am speaking only in terms of commercial success, because technical success has never eluded the British industry or indeed the European industry; but this is a matter which we have to weigh very carefully before reaching a firm conclusion.

8.22 p.m.

Lord KINGS NORTON

My Lords, it would seem that the future of British Aviation is of even less interest to your Lordships than the future of the Judiciary but presumably in both cases the importance of the matter is in inverse ratio to your Lordships' interest in it. However, I think all of us here are grateful to the noble Earl for putting down his Unstarred Question for today. I am a little less grateful to him than I might have been because he has dealt so effectively with most of the matters I was going to raise myself. Nevertheless, I should like to emphasise and underline some of the points he made.

I am glad too that the noble Lord, Lord Trefgarne, introduced what I might term a note of realism. I thought at one moment that it was going to be a note of pessimism, but when he got on to light aircraft I felt that he was then voicing views which most of us would whole-heartedly support, and I hope that we shall have an answer from the noble Lord on that matter. As the noble Earl, Lord Kimberley, made clear, since he put down this Question part of it has been answered. He referred of course to the ordering of 19 Boeing 737 aircraft. He did not mention—which was mentioned at the same time as that order was announced—that we also heard of the possible ordering of a trifling number of BAC 1-11 aircraft for British Airways.

The most important news on that day when those announcements were made was the decision to go ahead with the HS 146. I think many of us have been puzzled as to why that decision could not have been made long ago, but to me it is still welcome, and I hope it is not too late. The rest of the pattern is still not clear. We have heard nevertheless quite a lot about the possible options. They have been described to us by the noble Earl. He told of us the proposals by Boeing for collaboration between Boeing and British Aerospace on the 757, which it is presumed—though I do not know with what certainty—would have Rolls-Royce RB 211-535 engines. We have heard of the proposal of McDonnell-Douglas for their ATMR, by which the aircraft would be the result of collaboration between that company, British Aerospace, and European Aerospace on a one-third, one-third, one-third basis. Those proposals were explained to the Prime Minister when he was in the United States last by representatives of the two big American companies concerned.

Another more immediate proposal which has also been referred to twice this evening is for British Aerospace to work with Airbus Industrie on the A.300 B.10 design, and on this my understanding is that the Prime Minister himself is taking an interest, and with the Industry Minister is talking to their European opposite numbers. How far these talks have got I think none of us is clear, but if the noble Lord, Lord Winterbottom, can give us an interim report I know that we should all be very interested indeed. What is much more important, and what I cannot guess, is how the Prime Minister's mind is moving on the longer-term and far more momentous problem—and momentous it is. The course shortly to be set can only have far-reaching consequences for the British Aircraft industry. There are some considerations which I am sure are vital, and no doubt they are already in the Prime Minister's mind but I should still like to underline them.

The first is—and this has been said already by the noble Earl—that British Aerospace must be in a position to take a strong line. Once the broad policy is decided upon, it must be free to negotiate with whosoever it may be—Americans, Continentals, or both. It is a thousand pities that there has not been a stronger British initiative. Except for the rather embryonic JET proposals, where indeed we have been involved from the outset, we are talking about designs initiated outside this country. We have, however, taken what appears to be a lead with the HS.146, and there I do not have the sort of doubts which the noble Lord, Lord Trefgarne, appears to have. In certain circumstances I think we all agree that it could, too, be an important negotiating factor.

Secondly, my Lords, I would advise quite definitely against a deal with Boeing. This is the biggest aircraft company in the world. It is a wonderful company, it has wonderful facilities, and a wonderful record. This is a company which cannot, in my view, of its very size and nature readily understand collaboration. It does not need help, especially with United Airlines' enormous order for 767s under its belt. It can really only be in a position to dictate. British Aerospace is the biggest airframe constructor outside America, but it could just become a sub-contractor to Boeing, and even the HS.146 would not retrieve its morale. Moreover, I do not think that Rolls-Royce would long be the preferred engine for the Boeing 757. It is not sense to suppose that Pratt and Whitney and General Electric would take lying down an invasion from Derby.

The second option is much more attractive—I mean the collaboration between McDonnell-Douglas, British Aerospace, and the Continental companies—and I think it is worth very serious attention, and I am sure it is getting it. The three groups are much more evenly matched, and I believe that here is something which could be made to work, either on the ATMR or on one or more of the European JET projects. I suppose, too, that a purely European policy could be made to work, though the reorganisation necessary would need agonising reappraisal in Airbus Industrie. We just could not allow control, financial or technical, from Toulouse. There would have to be a genuine partnership, and the history of Airbus Industrie and British relations with it is not at all encouraging. I am not referring to the relationship of the Hawker Siddeley company with it which seems to have been a notable success, but the official relationship above that.

My Lords, whichever way we go—and I hope it is not the first way I mentioned—we must play from strength. British Aerospace is, in brains and brawn, immensely strong. Rolls-Royce in brains and brawn is immenseley strong -too. With British Aerospace and Rolls-Royce sculling together, if I may be permitted a Henley analogy, we ought to have another British gold. But I feel I must ask, while I have no doubt they are pulling together, are they in phase? It is absolutely essential that they should be. Airframes and the engines for them must come to fruition at the same time.

We have Europe's most powerful airframe constructor; we have Europe's most powerful engine constructor. We have surely a combination here which is a world beater. Are we using, I ask, this combination to our best advantage? Are the two constructors in close enough touch with one of the world's largest operators, British Airways? I hope that the noble Lord, Lord Winterbottom, will reassure us on this. He may think that because he knows of my long connection with aviation, I know the answers. Quite frankly, I do not. All I know is that the companies should be in the closest communion not only in negotiating the next phase of British aviation policy but in planning the next one after that.

To me it is rather a pity that the HS.146 has not got Rolls-Royce engines. In some quarters this is seen as a merit. Forty per cent. of the aircraft, we are told, will be USA equipped, and I suppose that that 40 per cent. includes the engines. This, we are told, makes the aircraft more acceptable in the USA. Well, perhaps. But had there been a Rolls-Royce engine of the right size available, I think that the HS.146 would have had Rolls-Royce engines. Had British Aerospace's predecessor Hawker Siddeley and Rolls-Royce planned together closely enough years ago, I think that that could have come to pass. Indeed, if Rolls-Royce and British Aerospace's other predecessor, the British Aircraft Corporation, had planned together more closely in the past, there might have been a Spey development leading to a bigger BAC 1-11 and so to an order for 19 BAC 1-11s instead of 19 Boeing 737s.

All this, my Lords, you will say just illustrates that of all sad words of tongue or pen the saddes are these—'What might have been'.". Also it underlines what I have been saying about collaboration between our two great British aviation constructors. Collaboration with Boeing, collaboration with McDonnell-Douglas, collaboration with Airbus Industrie—all these are secondary to what can be for us the most effective collaboration of all: British Aerospace and Rolls-Royce.

8.33 p.m.

The Earl of KINNOULL

My Lords, I am sure that the House—even if it is a little thin—is grateful to the noble Earl, Lord Kimberley, for raising this interesting debate tonight in such a lucid, attractive and informed way. The noble Earl has built up a reputation in this House for his academic and practical knowledge and experience. I well remember his unofficial trip in a Harrier a few days before a debate on the Maritime Harrier, which we all admired and which some of the braver ones envied.

The noble Earl asked a pretty wide Question. I do not think that many of the speakers in front of me devoted much time to the military side. However, I hope that the noble Lord, Lord Winterbottom, will have an answer in what I suspect will be a very thick brief. I hope that his brief is a little more informative than his almost embarrassingly thin brief on the Fairford airfield, on which a Question was asked a week or so ago by the noble Earl, Lord Kimberley.

It is interesting to note in the first annual report of British Aerospace that its sales have a ratio of about 90 per cent. military to only 10 per cent. civil. Indeed a great deal of that goes abroad. It is equally interesting to note that about 90 per cent. of the Parliamentary debates are on the civil side and only 10 per cent. on the military. I suspect the reason for this is that everyone wishes to see a much more balanced industry and a much more balanced policy for the national interest.

I shall turn briefly to the civil side and ask, as indeed the noble Earl, Lord Kimberley asked, who is responsible for policy for the industry? That sounds a very simple question, but I would say that it has become somewhat confusing in recent months. Is the policy left to British Aerospace, as we thought it was when the Act went through? What is the role of the National Enterprise Board? What indeed is the role of the Cabinet Committee that was recently set up? Indeed, what is the role of the Prime Minister? There has been some confusion in recent months not only as to whether the Prime Minister has now become the Secretary of State, but what the Government meant by the phrase "reviewing the matter urgently" or "a decision very soon". Those are phrases which I hope the noble Lord will avoid this evening. However, they have been repeated now for over nine months.

I do not pretend, on the civil side, to belittle the gravity, the seriousness, or the complexity of reaching a policy decision. The present options on the civil side offer a teasing jigsaw. Added to this is the knowledge that what looks right now could well look very wrong in 1985. What I fear is that there are so many people in on this decision of policy—as to whether we go European or McDonnell-Douglas, Boeing, Lockheed, or a combination of these—that the eventual decision will come by default, rather than by the firm hand of vision. How long do we have left, in fairness to British Aerospace and to Rolls-Royce, before the delay becomes penal and before the apparent policy of indecision becomes a policy of lame necessity?

As to the decision, I must say that I support a mixed collaboration, if it is possible. European collaboration will still need to stay with us—and indeed with McDonnell-Douglas. I was a little surprised when my noble friend said that he was not in favour of McDonnell-Douglas, when one sees apparently what it offers as scope in the United States.

Lord TREFGARNE

My Lords, I did not say that I was not in favour of it. I said that it was the most attractive arrangement that I had seen.

The Earl of KINNOULL

My Lords, I am very grateful to the noble Lord. I am not at all surprised that he should correct me because it offered this vital scope and possibility in the United States market, assistance with the HS.146, and work on the military side. It must be that this combination, coupled with the European combination, would be the answer.

What is stopping this apparent jigsaw from being assembled? One must presume it is the attitude of our European partners, the Airbus Indudstrie. What is the penalty, as the noble Lord asked, if Airbus Industrie is asking us to rejoin the club? Will it accept McDonnell-Douglas in the proposals? If we do not join the club, will it cancel the present contract that Hawker-Siddeley has for the Airbus wings? One has heard this said. I hope that the noble Lord will give us more information.

In a recent debate in another place the Government set out clearly the options open on the civil projects. Besides deciding which partner British Aerospace should have, it was stated then that Rolls-Royce would require equal support from the Government in the development of the 211–535 engine. On that occasion no mention was made whether Rolls-Royce would be collaborating with either a European partner or an American partner. I hope that the noble Lord will tell us not only what the development costs of this new engine would be to Rolls-Royce, but with which company, if any, Rolls-Royce is talking at the present time.

Turning to the recent announcement of the British Airways order. I too was saddened to see only a trickle of BAC 1-11s coming in with the general order, particularly after the encouraging Romanian contract that British Aerospace won for the 1-11. One accepts that British Airways have a right to exercise commercial judgment. Indeed they have that duty. But the Government equally have a duty to protect our industry. I ask, what work, if any, from the order placed with Boeing will come to our industry? Has there been some commitment, as the noble Earl, Lord Kimberley, mentioned earlier? Is there any commitment at all for British industry to benefit from this order? On the HS.146 decision, we very much welcomed the Government's decision, when it eventually came. One wishes the project well. I should like to ask the noble Lord whether Rolls-Royce will, or is likely to, play any part in supplying engines, or will there be exclusively an American engine?

On the military side, perhaps the key question which I ask the noble Lord, Lord Winterbottom, to answer is about the likely successor or the policy on the likely successor to the Harrier/Jaguar replacement. Can the noble Lord say anything tonight about that and, for instance, is Panavia likely to be used as a vehicle for other projects, as it is so successfully developing Tornado? It would be a great shame if the invaluable experience gained by the industries concerned was lost by Panavia not continuing.

I should also like the noble Lord to answer some questions about the Harrier. As we know, the United States have now taken on the second stage of the advanced Harrier development in order to put it into operation for the Marine Corps. What rights do we have over this design? In recent months a large delegation from China has been to this country looking at our industry—at what we can produce both on the civil and military side—and I should like to know what the position would be if, for example, the Chinese said, "We would like your advanced Harrier". What would our position be regarding the United States?

My final point is about the research policy of the Government. Noble Lords will have noted from the first report of British Aerospace that comment was made on the Government's policy of providing no funding for civil projects for British Aerospace; that is, no funding on basic research. I understand that the Government's answer is, "This is public money coming from the same source—from the Government—whether it be support or research, and there is no necessity to define the two and simply put them together".

British Aerospace as a body feels very strongly about that. Their competitors in Europe and the United States have an advantage over them; they are given research money for basic research for civil projects. I suggest that the present policy proves harmful and is unfair and damaging, unfair because research often springs a wider application and damaging because, as British Aerospace say, it gives a competitive disadvantage and a disincentive to go into this vital part of research. Has Lord Winterbottom noted the remarks of the chairman of British Aerospace on this matter? What is the Government's answer to that point?

The policy on aerospace by Governments has not been one of our proudest achievements in the last 10 years. During that time we have been more noted for our cancellations, but today we have little to cancel, so we cannot be noted for that. There is very little in the basket. Despite that, we are being wooed today by no fewer than four different partners on our civil policy, by Europe and by the three American companies. I am not cynical enough to believe that it is only our money and muscle they want. I believe it is for our expertise, our know-how and our reputation. I hope Government policy will always cherish and guard our reputation and I hope we will be able to say in 10 years' time in this House that the policy, soon to be decided, was a policy of vision.

8.45 p.m.

Lord WINTERBOTTOM

My Lords I join the noble Lord, Lord Trefgarne, in thanking the noble Earl, Lord Kimberley, for giving us the opportunity this evening to debate the present state of play of the aerospace industry. The debate will enable the House to make its views known before some very important decisions are taken in respect of future civil aircraft projects. The Question also provides a timely opportunity to consider the military aspects of British Aerospace's activities which, it must be remembered, as the noble Earl, Lord Kinnoull, pointed out, form the lion's share of the Corporation's work. The Question reads: To ask Her Majesty's Government what progress has been made in formulating British Aerospace's future policy and commitments with Europe and/or the United Slates for both civil and military aircraft". What the Question is asking for is a progress report, and that I hope to give this evening. I shall, I regret to say, cling slightly to my brief; where I can answer questions I will about any questions I cannot answer I will either write directly to the noble Lords who asked them or give a Written Answer if the noble Lord concerned wishes the information to be made public.

Let me quickly get two points out of the way, having made that rather guarded approach. First, the noble Earl, Lord Kimberley, asked me about the crewing of the Boeing 737s. BALPA have agreed to two pilots on the deck of the 737. Secondly, concerning the Boeing offset, a question asked by two noble Lords, Boeing have offered to place substantial orders for United Kingdom equipment as offset to the purchase of the 737s. The details are under negotiation and are commercial in confidence.

The civil side of the aircraft industry is at a crossroads. On the one hand, the industry can turn to co-operation with Europe as full partners of the Airbus Industrie consortium. On the other, the industry could turn to a partnership with the United States. A less well defined road, though in many ways at least as attractive, lies down the middle, with partnership with both our American and European friends. Whichever path his chosen, we must be certain that the collaborative project chosen has sound commercial prospects. The future healthy growth of the industry can be built only on such a foundation.

I should emphasise the need for collaboration with other manufacturers in the civil aircraft market, and I believe that has been the feeling of the House. Although British Aerospace is the largest manufacturer of aircraft in Europe and is capable of designing and building civil aircraft on its own, good overseas sales of its products must be achieved for the project to be commercially viable. There is also a need in today's world for the sharing of the financial risks involved in launching new aircraft. It is for these reasons that we look to other nations to join in the collaborative manufacture of these aircraft. It is not in any way a sign of weakness in the United Kingdom industry that such collaboration is sought, as a study of the Corporation's annual report will demonstrate. It is a tribute to our industry that so many powerful foreign airframe manufacturers seek to collaborate with us, and the noble Earl, Lord Kinnoull, made that point. It is not, I think, the rather cynical view expressed by the noble Earl, Lord Kimberley, that Boeing might wish to reduce us to the position of sub-contractors in their major projects. British Aerospace has a great deal to offer and that is why other national groupings are courting it.

Within Europe, there is the possibility of joining with Airbus Industrie in the manufacture of the B.10 derivative of the successful A.300 Airbus. British Aerospace is already engaged on the production of the B.2 and B.4 variants of the Airbus through a sub-contract to manufacture the wing box. Participation in the manufacture of present and possible future Airbus Industrie products could eventually lead to the creation of a commercially sound basis for the European aerospace industry. Since American manufacturers are also offering collaboration on their products, it is only right and sensible that British Aerospace should give full consideration to all the options open to it. Collaboration with Boeing on the B.757, a 180-seat narrow-bodied development of the B.727, has considerable attractions in the employment prospects which it would offer the airframe and aeroengine industry in the United Kingdom. Boeing is a very successful company holding 60 per cent. of the world's aircraft market. Its past record suggests that any aircraft it sells is likely to do well. But, as noble Lords will realize—and who better than the noble Lord, Lord Kings Norton? —there would be much hard bargaining in terms of any contract, and the possible longer term effects on British Aerospace must also be taken into account. The Government will also have in mind, when the time comes to take final decisions, the effect of collaboration with Boeing on Rolls-Royce since they see good prospects for their proposed RB211-535 engine in the -757 airframe.

Noble Lords will also be aware of the ATMR, a project by the McDonnell Douglas Company for a 190-seat medium-range 6-abreast aircraft. The project has great attractions in that it involves three-way collaboration between America, British Aerospace and other European manufacturers. However, your Lordships should realise that the project is not so well advanced in its design and the collaborative terms of manufacture—indeed, the collaborative partners themselves—have not yet been identified.

At this point I should make the Government's position quite clear. We are encouraging British Aerospace to seek commercially viable projects. It is on this basis that the final decisions will be taken. However, just to clarify that a little further, I have been asked directly, who is ultimately responsible for policy? My answer is that it is for British Aerospace to reach a judgment on the complex commercial issues involved in the various collaborative projects under discussion, but Government approval for major projects is required by Section 7 of the Aircraft and Shipbuilding Act 1977. That reflects the size of public financial resources at stake in any major aircraft project.

The Earl of KINNOULL

My Lords, could the noble Lord say whether British Aerospace has reached a judgment?

Lord WINTERBOTTOM

My Lords, I thought I had made that clear. We are just taking a photograph of the stage reached in the various options open to the British Aerospace industry as of, presumably, yesterday evening when my brief was prepared.

The Earl of KINNOULL

My Lords, I should like to make my point clear. What I think the noble Lord was saying in reply to a question by my noble friend was that under Section 7 of the Act, British Aerospace have to make a judgment, but it is then up to the Government of the day to make a political judgment. What I am saying is this: has British Aerospace at this point—after all, they are a nationalised industry—reported to the Government now with a judgment—perhaps forgetting the political judgment?

Lord WINTERBOTTOM

My Lords, I do not think I said that. This is a point which one has to express rather carefully. British Aerospace can form a technical judgment. It is considering the options which we are discussing this evening. We have reached only one firm decision in the interim period between the creation of British Aerospace and today and that is the point I am coming to next about the decision on the HS. 146. Noble Lords who will be fair-minded about this I know, will realise that any major project will demand a substantial injection of public money into research, development and the manufacture of any major new project. No company would be able to launch into a project of this magnitude without the financial support of the Government. It would only be in the tradition of public accountability for the Government to have the last say as to whether or not they thought the project was viable in terms of the actual project in itself and the capacity of the country to support it. I am trying to make it clear, at least as clear as I understand it. At the end of the day money must rule what we do and that is where the Government come in.

The Earl of KINNOULL

My Lords, I am sorry to pursue this matter and I will not pursue it any more after this. What I am saying is, if British Aerospace come down on a decision and the Government disagree, would it be made public?

Lord WINTERBOTTOM

My Lords, this open government business is something that ought to be debated by itself. It is a very important question. Speaking purely personally, I do not believe that everybody ought to be allowed to listen to our discussions and arguments. What they have a right to know is what the decisions are and, where possible, the reasons for those decisions, but too much open government is as dangerous as too little.

I should now like to turn to the HS.146 which I believe from now on will be known as the British Aerospace 146. As will be recalled, work on this project was suspended in late 1974 but continued development work has been possible under Government contract and, more recently, by British Aerospace. The corporation recommended in March 1978 that the project should he launched and last week the Government announced its consent. With the full commitment of the workers in British Aerospace to achieving a high level of productivity, I am sure that this project will be recorded as a great success for the new corporation. The project will also provide a basis for limited collaboration with other manufacturers and that aspect of the programme is now being pursued. May I say how much I personally welcome the blessing of the noble Lord, Lord Kings Norton, on this proposal.

As regards Rolls-Royce, the Government are at present giving detailed consideration to their proposal that the RB211-535 should now be launched as an engine for the aerospace market. As with the British Aerospace 146, this is a very important decision which will have important repercussions for Rolls-Royce. We owe it to the thousands of people employed by the company, and by its suppliers, to decide this issue in the light of the best possible information. The decision on the -535 project is being considered by the Government along with the wider collaborative options now facing the industry.

I should now like to turn your attention to certain military aspects of aerospace policy. On the military aircraft side British Aerospace has been and is still involved in major collaborative projects with European partners, and their experience will provide an invaluable basis for the future collaborative projects which the Government is striving to establish. I would mention in particular the Jaguar programme, which is now drawing to a close after successful Anglo-French collaboration, and the Tornado project, the multi-role combat aircraft on which we are engaged with West Germany and Italy. The latter is now in full production and represents, as it will for several years, the largest military aircraft programme on which British Aerospace is engaged.

Looking to future military aircraft, and the noble Earl, Lord Kinnoull was doing just that, the most important project in prospect for the 1980s will be a new tactical combat aircraft which the Royal Air Force sees as meeting its requirement to replace the Harrier and Jaguar when these aircraft reach the end of their operational life towards the end of the next decade. The Government remain hopeful that sufficient common ground can be established with other European allies with broadly similar requirements to enable another collaborative project to be launched. Who the collaborators will be I cannot at this moment say, but the collaborative possibilities are being explored with other interested Governments, mainly through the Independent European Programme Group, which has already devoted considerable collective effort to the complex and often intractable issues that will have to be resolved if the Independent European Programme Group's objectives are to be realised.

Reconciling views on operational requirements, time-scales and possible solutions for a costly advanced new aircraft of this sort is inevitably a difficult and protracted process, and it is not yet possible to forecast the outcome. Further discussions will be needed to establish whether agreement is possible on the basis for a collaborative project. The Government are pursuing this as a matter of urgency—forgive the phrase—and hope that substantial progress can be made during the coming year in establishing how much common ground exists and in arriving at a common solution.

If a European collaborative project proves unattainable the Government will need to consider the options of proceeding with a national project or of seeking collaboration with the United States. Whatever the outcome, in respect of this project there should be substantial further work in prospect for British Aerospace over the next decade. Meanwhile, the corporation is continuing studies for the Ministry of Defence of possible designs and of the advanced technology relevant to a new tactical combat aircraft, and the results of this work will make a valuable contribution to the process of defining solutions.

In conclusion, I can assure your Lordships that the Government are very well aware of the pressures upon them to reach early decisions in respect of the civil aricraft projects and Rolls-Royce—

The Earl of KINNOULL

My Lords, I am sorry to interrupt, but I have the feeling that the noble Lord is about to come to the end of his speech. Can he mention the two points on which I tried to give him notice earlier? One is the Harrier question, and the other is the matter of basic research.

Lord WINTERBOTTOM

My Lords, I think that I have mentioned basic research. As regards the Harrier, I shall write to the noble Earl particularly in relation to the Chinese interest in the aircraft. Obviously, this is a very sensitive matter.

As I was saying, the Government are very well aware of the pressures upon them to reach early decisions in respect of the civil aircraft projects and Rolls-Royce. I hope that my short speech this evening has indicated that these are complicated matters and that the decisions will need careful consideration. The remarks made this evening in your Lordships' House will be most helpful to the Government in reaching their conclusions. I should like to thank all noble Lords who have taken part in the debate, and though comparisons may be odious, may I particularly thank the noble Lord, Lord Kings Norton, for the interesting point he has made about the great organisations existing in this country when considering the future of the British aerospace industry—

Lord TREFGARNE

My Lords, before the noble Lord sits down, is he able to tell me anything at all about the plans for the light aircraft manufacture at Scottish Aviation? If not, will he be able to write to me on the matter?

Lord WINTERBOTTOM

My Lords, I should be grateful if the noble Lord would permit me to write to him. I have nothing firm to say this evening.