HL Deb 08 May 1978 vol 391 cc759-76

6.38 p.m.

The Earl of KIMBERLEY rose to ask Her Majesty's Government whether they have given any directives to British Airways on the possible purchase of American aircraft, and if not, why not. The noble Earl said: My Lords, I beg leave to ask the Unstarred Question standing in my name on the Order Paper. This Unstarred Question is twofold. It is short term and long term. If we take the short term, the immediate question is the replacement of 19 aircraft, whereas the long term is replacing the rest of British Airways' short- and medium-haul fleet by the mid- to late-1980s, and in all there is a total of about 105 aircraft. Last November we had a debate on the short term, and so far as I can see, since then, alas! little progress has been made. Last Tuesday at Question Time the noble Earl, Lord Kinnoull, raised the point with the noble Baroness opposite and again I did not think that we got very far.

Who is to blame for the fact that this Unstarred Question is put down for debate tonight? Whether it is the Government I do not know, but it does not really matter. What matters is that there seem to be two nationalised companies which are both connected with the air, one of which does not appear, on the face of it, to want to co-operate that much with the other. So let me say here and now that this is no criticism in any way of British Aerospace. But it must be a slight criticism of British Airways whom I criticised last November for the same reason as I am going to criticise them tonight. They have got themselves into an unprecedented mess in that they, a world's major airline, find that they have to replace part of their fleet at 24 months' notice.

Somewhere along the way there must have been some forward planning which was badly at fault, and therefore somebody must have blundered. Therefore, if we can clear the air a little tonight and thereby perhaps see where we are all trying to go, the whole future, not only of British Airways hut of British Aerospace, should become much more positive and very much more lucrative.

Briefly, if we look at the timetable, we see that last November British Airways requested proposals from British Aerospace and other manufacturers. Proposals came from British Aerospace for an improved version of the BAC 1–11—the 600—and the other aircraft that was produced was the Boeing 737. British Airways have since made comparative technical and commercial evaluations of these two aircraft and I believe they are now asking the Government to give them the go-ahead to buy Boeing.

British Airways' arguments for the 737 are that, in spite of operating a multi-type fleet—they already have 25 1–11's—there will be a substantial improvement in their operating surplus during the years 1980 to 1994. I should like to ask the Government to say whether these costings, which have been produced by British Airways, have been audited by the Department of Trade or by some other independent body. British Airways say that they have gone through all the data and the assumptions with the Department of Trade and with British Aerospace and have explained how they did their sums. They go on to say that these have been audited—and I quote—"in all important respects". If that is so, presumably British Airways will have no objection to being cross-examined on this subject. I believe that British Aerospace could and should dispute the difference in profitability that British Airways claim. I presume that British Airways worked on a traffic forecast several years ahead and, on this assumption, worked out a percentage load factor and seat-mile cost.

We in this Chamber know only too well how such calculations can sometimes go awry. We only have to go back to the unhappy case of the VC 10 versus the 707, where all those assumptions were subsequently proved false. If we buy 19 Boeings, they will be considerably more expensive than 19 1–1l's and so to justify the 737 the operating revenue must be considerably higher—I repeat, considerably higher—in order to make it a commercially viable operation.

If we briefly take some comparisons, we find that the 1–11 600 is a considerable improvement on the existing 1–11 which has nevertheless been very successful worldwide. Also, due to the high commonality that British Airways would have because of their 400 and 500 1–11s, spares including engines and everything else would be much more economical and on British Airways routes both aircraft would perform equally well. Both aircraft conform to present and future noise requirements.

If we look at the commercial evaluation, it must surely he that British Airways have spread the high introductory costs of the 737 and then taken credit for the traffic growth in later years so that it may fill the slightly larger aircraft. But, by the mid-1980s, with the advent of high technology and new aircraft with improved environmental qualities and a lower fuel consumption, the existing aircraft that they have will be steadily replaced. At the best, this is a stopgap for British Airways and therefore in my opinion the 111–600 should be chosen while at the same time British Aerospace can simultaneously immerse itself in new projects. British Airways admit that their equipment and spares costs will be reduced by the 1–11 and I also think that British Aerospace believe that there are even greater benefits from introductory costs in commonality even though these may possibly be harder to account for.

If we take the operating surplus, which is receipts less expenses for the 19 aircraft over 14 years, this can be the yardstick for British Airways. We find that the receipts over the total expenses are only marginal. The operating surplus is very sensitive to the smallest percentage change and 1 per cent. out—well within existing margins of error—makes a difference of £15 million. So, even if all the rest of British Airways' assumptions are fair, the degree of accuracy surely must be open to doubt. Also we must not forget that we may well put in jeopardy the 1–11 600 sales to Japan as well as the licensed production of these aircraft in Romania. At stake are potential exports of up to 50 Rolls-Royce Spey-powered 1–11's, with an export value of over £300 million, against stiff competition from Boeing, Douglas and Fokker.

So, according to my calculations, if we bought 19 737's, that would produce a negative balance of payments of nearly £250 million. US dollar assets of this magnitude have to be earned the hard way from other sectors of British industry. In the last few weeks, we have had a lot of publicity about Europe v. America and there can be no doubt that Boeing and the other United States manufacturers are very frightened of British Aerospace in Europe. This week the heads of the three giants are coming over here to see the Secretary of State for Industry. I say that they are coming on bended knee because they realise that if we were to go into Europe we should give the United States aerospace industry a very real setback. The 737 will, they hope, be the wedge in the door; the 757, their new-old aeroplane, is the trap they are laying for us. The bait is the power plants going to Rolls-Royce, while we build the wings and the under-carriage and a hit of the rear end of the fuselage, as a result of which British Airways will once again buy Boeing.

But the 757 is not the ultimate objective for Boeing. Their ultimate objective is two new—new aircraft—the 767, which is a twin 180-seater, and the 777, which is a tri-jet and a larger aircraft. So if British Airways should buy the 757, which may force British Aerospace to go in with Boeing, it will be the beginning of the final demise of our own aerospace industry. We shall just become plain sub-contractors. The Americans are the toughest businessmen in the world. They ride roughshod over all opposition. They have one objective, and let nobody forget it: that objective is the total and final destruction of British Aerospace, together with the aerospace industry of Europe. The easiest way for them to do this is to offer us the carrot of the 757 and probably on favourable terms the 737, as a result of which British Airways and British Aerospace will then have internal strife.

To me, it is incredible that Sir Leslie Murphy, the chairman of the NEB, came out in favour of Boeing, but maybe Rolls-Royce are very dear to his heart. That is quite right and proper: Rolls-Royce are very dear to my heart. But alas! it is a short-term view and I sometimes wonder why British Airways have this powerful Boeing lobby, particularly in view of what the Prime Minister said last April: "Buy British". I hope his speech is heeded by his senior Ministers in the Cabinet.

We so often seem to be like ostriches with our heads in the sand. Will we never learn? America has its anti-Concorde lobby; America has its "anti-Harrier to China" policy. We have the disaster of the TSR 2 and the F-111 and recently we have had the loss of the British landing guidance system. One-third of our aerospace industry is in the equipment and material sector, including avionics and there are many thousands of people employed in those sectors. The loss of our indigenous civil airframe design capability will lead to the decline and eventially the demise of these vital sectors and will lead to even more unemployment.

It will not end there. A further and equally important, but nevertheless disastrous consequence will occur. We shall inhibit and destroy our military aircraft design and capability. Rolls-Royce may argue that they will lose a big contract in America but to develop a derivative engine from the RB-211 at a cost of £250 million seems to me to be putting the cart before the horse. It is making a powerful engine less powerful; it is like putting the engine of a heavy duty truck into a sports car. I fear, too, that Rolls-Royce have little chance in the long-term market with the 767 and the 777 against the American engine giants. So the 757's engines can only be described as a short-term and short-sighted policy. I say categorically here and now that Rolls-Royce, for its capability in the long term, needs a European airframe industry to help support it.

So, to conclude, let British Airways buy the 1–11 600 which will then help British Aerospace to develop the Jet 2—the wide-bodied new European aircraft—instead of sub-contracting for a narrow-bodied new-old 757 fuselage designed in 1974. Let the Cabinet tell British Airways that it must think and buy British and Anglo-European, by which means British Aerospace and British Airways will keep their rightful places as leaders of the world in their respective spheres.

6.51 p.m.


My Lords, we are, as so often, grateful to the noble Earl, Lord Kimberley, for raising a matter such as this in your Lordships' House. But having said that, and having listened to his speech with great care, I am tempted to wonder whether the matter is quite as black and white as he would have us believe. Nobody is a greater champion of British Aerospace than I am, and I yield to no one in my admiration of the BAC 1–11 and the other products which they now produce. It would indeed be tempting to follow the noble Earl along the lines suggested in his Question and try to persuade the Government to direct British Airways to buy a British product, which is what I fancy the noble Earl would wish.

Without doubt the Government have the power to issue such a direction. Section 40 of the 1971 Civil Aviation Act certainly enables them to issue directions to British Airways in matters such as this when the national interest is thought to be at stake, and certainly it would not be difficult to argue that this was such a case. The law—if that is the right word—of that particular clause has been explored fully in your Lordships' House in 1973, when the noble Baroness, Lady Burton, was anxious that British Airways should be directed to follow a certain course. Indeed, I remember your Lordships supporting her in the Lobby to that effect. But that particular matter was not held to be in the national interest and no direction was issued.

I doubt, however, whether that would be a very good idea. Nor will I follow the temptation of attempting to compare the two aircraft, the merits of which the noble Earl has so graphically described. But I think we should consider the implications of the Government forcing British Airways, with or without a Section 40 direction, to buy one or other of the two aeroplanes which the noble Earl has discussed. The first and perhaps the most important implication, we are told, would be that the decision on subsequent requirements of British Airways, the Boeing 757, for example, or the European Jet 1 or Jet 2 aircraft would be pre-empted by a decision to buy one or other of the two options now before us. I am not entirely pursuaded by that argument, because I am not sure that a decision, for example, to buy the 737 now would necessarily prevent our proceeding with one of the European options for a later requirement. However, that is one of the points that is put to us. Of course, it would be bad PR for the 737 or the 1–11—and I imagine it is the 1–11 we are really considering—if British Airways were clearly shown to be buying the aircraft against their so-called better judgment. It would be bad, I think, for the management of British Airways to have an aircraft, as they saw it, foisted upon them, because they would then feel that they were not being given the tools which they thought were best for the job. Tied up with that would be the possible need for a subsidy. It is common knowledge that British Airways were pressured—I will put it no stronger—to buy the Trident 2 and 3 and were able to extract from the Government of the day a subsidy of £25 million, if my memory serves me right, to cover what they thought were the increased operating costs of the Trident aeroplane. They at that time, I believe, would have preferred to have bought the Boeing 727, but the Trident was felt to be a better idea for political and social reasons.

There are, of course, a number of equally powerful arguments, many of which the noble Earl has described, as to what would be the outcome of a Government direction to British Airways to buy the American aeroplane. I do not think it needs a Government direction for that; it would be the outcome of British Airways following their own inclination. Maybe it would preclude British Airways from proceeding to buy the Boeing 757 in due course, with all the implications that that would have, not least, perhaps, the loss to Rolls-Royce of the sale of their engines for that aeroplane. It would mean that there was no immediate work to British Aerospace in the manufacture of the 18 or 20 1–11s which are now under consideration.

It would mean that the cost of the Boeing 737 aircraft would have to be paid across the foreign exchange market and thus to the disadvantage of our balance of payments. It may be that, on the other hand, it would allow some form of redress in that way to British Airways' operating figures, because British Airways themselves claim that they will make better profits by the use of the American aeroplane.

I want to make it clear that the technical decision on which of the two aeroplanes is the best is not one on which nor I fancy is any Member of your Lordships' House really competent to make a judgment. It is a very highly technical matter. British Airways have said quite clearly that they prefer the Boeing aeroplane, but even their judgments, with all the information available to them, with all the skill and expertise at their command, have not always proved to be entirely correct. The early Tridents—not the ones to which I was referring just now—were later thought to be too small, and they were tailored precisely to British Airways' own requirements. The noble Earl, Lord Kimberley, referred to the question of the VC 10. Certainly British Airways were very reluctant to take on board all the VC 10s which they were subsequently obliged to do, but in the upshot they wished they had had more. Thus, if the technical decision is really so difficult, I think we ought to take very real care before we endeavour to force a decision for political or social reasons upon British Airways. I am not saying that there are no circumstances under which Section 40 or any other directive power should be used, but I believe that this in particular is a case in which we should take the greatest care.

Having said that, I hope and believe that British Airways themselves will take the greatest care before reaching a hasty conclusion, and I do not think it would be right for them to dismiss the 1–11, particularly the improved version which has been offered to them, with quite the alacrity which they seem to have done thus far.

7 p.m.


My Lords, the noble Earl, Lord Kimberley, deserves more robust support on the Question, and the way in which he presented it, than my noble friend Lord Trefgarne felt he could give him on this occasion. I agree with my noble friend that one should not be precipitate in using reserve Government powers to force an organisation such as British Airways to change its mind on a matter as important as this. But that, as I understand it, is not what the noble Earl asked for. Both in his Question and his speech he said that this decision seemed to have been taken purely on economic grounds, that figures had been produced to show that in operating costs it would be better for British Airways if they had the American aircraft; and they have given all the details to try to arrive at that conclusion. The noble Earl doubted whether those figures, which perhaps caused the decision to be made, could withstand detailed examination. He asked whether the Board of Trade, or the people who vetted the figures, could be questioned; could they be examined technically to find out whether or not the conclusions at which they arrived could withstand examination? That, as I understand it, is all that he has asked for at this stage.


If the noble Lord, Lord Harmar-Nicholls, reads the Question on the Order Paper, he will see that the noble Earl, Lord Kimberley, asked whether the Government had issued a direction to British Airways, and if not, why not?


Yes. That is right. But the noble Earl in presenting his case on this made it perfectly clear that the first step for which he asked was that the facts on which the decision had been made should be proved to be well based. He went on to say, in his judgment—this is perhaps where I am with my noble friend and not with the noble Earl—that if on that initial examination by experts the main facts could not be sustained, then he would like the Government to use any powers they have to bring about what he would obviously prefer; that is, the purchase of British aircraft rather than American aircraft. I believe that the noble Earl should be supported as strongly as we can do so in asking the Government to examine and re-examine the figures which have apparently caused the decision.

The figure I have heard is that on payload and so forth it is worth about £10 million a year, on the figures that have been put forward, which have caused British Airways to come down on the side of the purchase of American aircraft.

That £10 million is under question. I believe that we owe it certainly to the future of the British aircraft industry, to see that any possible doubt be removed on that issue. If we have reached the point where the operating costs of British aircraft as against Amercian aircraft were about the same, we would have a duty to see that the benefit of the doubt was given to the British aircraft.

The part which I do not think has been taken fully into account is that by giving the orders to the British builders we are likely to help the unemployment situation, which will get worse and worse if we lose our world market for aircraft. We should take into account the future prospects of the aircraft industry such as the noble Earl described. There can be no doubt that if we eventually purchase the American aircraft, as against the British one, it is bound to undermine the appeal of the British aircraft industry over the whole field of building aircraft. That is bound to happen.

This is where we come up against one of the problems of the industry being nationalised. If this were still a private industry, if British Airways were a private company, and if it had a duty only to look after the interests of that private company, it could be excused for coming to a decision where the immediate operating cost and the short-term advantages must be taken into account. However, this is not a private enterprise industry. It is nationalised. The Government have these reserve powers if they want to use them. If the impression is given abroad that, although the British Government have these powers they are so convinced that the American aircraft is so much better than the British that they must use those powers, that is bound to affect the appeal of the British aircraft industry over the whole factor. That is a danger. We must avert that if we possibly can.

In one matter I go the whole way with the noble Earl. When dealing with the American aircraft industry we are dealing with some very tough "cookies" indeed. We are dealing with people who really understand the subtleties and tactics of giving short-term advantages to the customer in order to obtain long-term advantages for themselves.

I was struck over the weekend when discussing this with what the noble Earl would call one of the sub-contracting companies. I was trying to examine them upon the arguments that have been presented here today. One manager said to me, "It is all a bit phoney, really, because we are actually going to produce quite a large part of the aircraft that will be bought. It will be made of British components. British parts will go in. On balance it is not as bad as you think. We shall not lose the order."

I personally am knowledgeable only on what are called small businesses. In all small businesses this trick is as old as the hills; that one has a loss leader in order to collar the market. When one has the market one makes up in later sales for the losses sustained on the loss leaders that one had to gain the monopoly. I am convinced that Tesco Stores do it. The stores in the High Street do it. It often works. The American aircraft industry is likely to do it in this instance. We should be alerted to that.

I believe that all the long-term arguments—and that is what we should be concerned with because we hope that the aircraft industry will go on for many years—insist that the most rigorous and careful examination is made of the supposed economic advantages in the short term of buying the American aircraft. If those advantages are proved to be correct, it makes it much more difficult to take the next step that the noble Earl has in mind. But if those short-term advantages are proved to be ill-based, or have been exaggerated, it could well be that those would be good grounds for the Government using the powers given to them to have the whole matter looked at again over the whole of the field.

I want to support the speech of the noble Earl. I believe he made it clear that there is some doubt about the advantages, which seem to have tipped the scales, as to whether they are soundly based. If we cannot, at any rate, promise our own aircraft industry that we shall look at that as a Government and make certain that is so, by means of actuaries, accountants, quantity surveyors and engineers' figures being examined, we shall be ill-serving one of the major industries of the next century.

7.8 p.m.

Baroness STEDMAN

My Lords, I began to realise on Tuesday of last week, when the noble Earl, Lord Kinnoull, asked a Question on this subject, that your Lordships are not only interested in this matter, but also very knowledgeable about it. Although this has been only a short debate tonight, in the light of the fact that we had a similar one with many more speakers six months ago and have had Questions since then, I should like to thank those noble Lords who have taken part tonight, and the noble Earl, Lord Kimberley, for giving us the opportunity to have some further discussions on the matter, and also to thank them for the valuable contributions that they are making, by degrees, to my knowledge of aviation matters.

The subject has a number of important aspects. It gives rise to the varying viewpoints that we have heard tonight with only a very few speakers. Additionally, it is important to be clear that some of the issues to be discussed are, to an extent, separate. I shall say more about that later in my speech.

The noble Earl's primary Question is whether the Government have given any directions to British Airways on the purchase of American aircraft. The answer to that is, no. All aircraft acquisition proposals by British Airways require the approval of the Government under the British Airways Board Act 1977. But there is no power of specific direction which can be used to instruct an airline to acquire a particular aircraft. Therefore, the formal reason why the Government have given no directive is that we did not have the power to do so—our power is a negative one in that we can withhold approval for a particular proposal.


My Lords, I am sorry to interrupt the noble Baroness, but I am not sure that she is right, or to put it another way, perhaps I am quite wrong. Is not Section 40 of the Civil Aviation Act 1971 available to the Government and is this not a matter in the national interest as required by that section?

Baroness STEDMAN

My Lords, yes, in so far as it is a matter of national interest, but it is still a negative power. We can say, "You cannot do this," but we cannot specify what you can do under it. That is my interpretation. I see that the noble Lord does not agree. I shall take the matter up with my advisers and we shall certainly write to him about it. However that is my understanding.

The Government's White Paper on the nationalised industries, of course, proposes that there shall be powers of specific direction for the nationalised industries. But this proposal has yet to be enacted and it is therefore not relevant to our debate tonight because it needs legislative time. The immediate issue which has prompted the debate is the proposal by British Airways to acquire 19 Boeing 737 aircraft.

I think that it might be helpful if I sketched the background to this. British Airways' most pressing need is for a short-haul aircraft to replace some of its older Tridents which will not meet the noise regulations due for application in the United Kingdom on 1st January 1986 and these are also becoming increasingly uneconomic to operate. Against this need, the Board evaluated three aircraft: the BAC 1–11–600, the Boeing 737 and the McDonnell Douglas DC 9–40 and following such detailed evaluation the British Airways Board decided unanimously that the Boeing 737 is the plane which would best meet their requirements. Accordingly, they have proposed to the Government that they should be given permission to acquire it. In doing so they have made it quite clear that they are in no way denigrating the BAC 1–11, of which they already have a number in their fleet. It is now the Government's responsibility to consider that proposal and, in reaching their decision, to take into account all the relevant wider considerations including those which have been raised by noble Lords this evening.

Considerable concern has been expressed about the effects on British Aerospace of a decision in favour of Boeing 737s, and I should like to take this opportunity to assure your Lordships that all aspects of the interests of British Aerospace are certainly factors which the Government will take properly into account in reaching their decision. As the noble Earl, Lord Kimberley, said, one aspect which has caused particular concern in some quarters is the possible effect on British Aerospace current efforts to sell a version of the BAC 1–11 to Japan. In this respect I am grateful also for the opportunity to make it clear that the Japanese requirement is for a specialised aircraft with short take off and landing capability and this requirement is met by the version of the BAC 1–11 which British Aerospace have offered to them. This is not the same version considered by British Airways who applied quite different criteria in assessing their own replacement needs and the two cases are therefore not comparable. I hope that all concerned will bear this point in mind.

There has also been reference in your Lordships' House and elsewhere to recent exhortations to buy British and it has been suggested that this should apply to British Airways in the national interest. However, it has never been proposed that buying British should involve any element of compulsion and indeed it is not only a matter for purchasers but also for domestic suppliers who should aim to offer the the right goods at the right time at competitive prices in the domestic market. This is one of the objectives of the Government's Industrial Strategy. As I have mentioned, all aspects of the national interest will be given due weight by the Government in considering British Airways proposal including the position of British Aerospace, the need for the airline itself to continue to be competitive and profitable and also all the environmental considerations. Some reference has been made to the evaluations which British Airways carried out in the course of considering their proposal and the fact that these have been subject to some dispute by British Aerospace.

The operating cost has been referred to this evening. The 737 has 114 seats as against 99 in the BAC 1–11. British Airways claim that the former's extra seats will be filled in a high proportion of the flights. So, because of its smaller size, the BAC 1–11 is more expensive per seat to operate. British Airways have calculated that the operating surplus of a fleet of 19 Boeing 737s would be £10 million a year more than for a fleet of 19 BAC 1–11 s, or, to put it another way, £500,000 per aircraft per year, which is a total of £140 million over the life of the aircraft. British Aerospace have disputed these figures. They say that the assumptions upon which they are based are unfairly biased towards the 737. Therefore, the Departments of Trade and Industry are attempting to establish the facts in consultation with British Aerospace and British Airways with a view to reaching agreement on these details between the two industries so that a proper decision can be made. The question of aircraft noise is also an important aspect.


My Lords, can the noble Baroness—I do not suppose that she can—if it is found that the £10 million (which I also mentioned had been put to me) could be questioned, give an indication whether that would affect the Government's attitude as regards the advice they would give to British Airways?

Baroness STEDMAN

My Lords, I cannot commit the Departments of Trade and Industry as to what their line would be, but I should have thought that if the facts are not as they have been put and are proved to be wrong, then these are facts which must be taken into consideration before the final decision is made. That surely is sensible and good business practice.

As regards environmental considerations we must face the question of aircraft noise. That also is one of the factors of British Airways' proposal. The airline is faced with a need to replace some 80 aircraft including the older Tridents before the end of 1985 in order to comply with the more stringent noise regulations which are in firm prospect. In this respect noble Lords will no doubt be pleased to know that any aircraft that British Airways may acquire will be distinctly quieter than the Trident 1's and 2's which they are to replace. Some people have argued that British Airways should wait until the next generation of even quieter aircraft becomes available before they even begin their replacement programme.

However, the noble Earl, Lord Kimberley, has already chided us that we were behind in starting our replacement programme. As I have explained, the current proposal is now the first stage of the major replacement programme linked to noise considerations and in order to train the new pilots for the new aircraft and to ensure that normal operations are not too severely disrupted it is essential that the total programme should be phased in between now and 1986 and that we should start it soon. No new technology quieter aircraft yet exists which would meet British Airways' immediate requirements. We understand that it is unlikely to exist until well into the 1980s. The airline's immediate requirement on the other hand is for replacement aircraft which can be in service by 1980 and British Airways has therefore to make its selection from the aircraft that are, at present, available.

I turn now to some of the wider issues which have been raised. At the forefront of these is the decision which has yet to be taken on whether British Aero space should look to Europe or to America for future collaboration on new aircraft projects. The current position is that there are a number of new projects, mostly in the medium size range, on the drawing board in Europe and America and British Aerospace are examining the various options very closely to determine which is the best course to pursue. In this respect I am sure that British Aerospace will note the views expressed by noble Lords in this debate on the relative merits of the options that will be available. It will be clear from what has been said that the issue is highly complex with very far-reaching implications for the future of our Aerospace Industry. Therefore, all of us concerned are most anxious that the eventual decision should be the right one. The initial assessment is one for British Aerospace themselves to make and the Government await their final view on this.


My Lords, I am sorry to interrupt the noble Baroness, but could she please give some assurance tonight that she will tell her right honourable friend that when these American chiefs arrive he must be very wary of the carrot he will be offered?

Baroness STEDMAN

My Lords, I am sure that my right honourable friend does not need telling by me, but I shall certainly draw his attention to the comments of the noble Earl. In the circumstances, there is nothing more definite that I can say on this matter at present, but the views expressed by noble Lords represent a valuable contribution to our continuing consideration of the subject.

As regards British Airways future aircraft requirements, it has been argued that their proposal to acquire Boeing 737s to meet their immediate replacement needs is the thin end of the wedge and binds them inextricably to American sources for future requirements of medium-sized aircraft. Others argue that the best prospects for British Aerospace in the future do lie in American collaboration, and that therefore their interests will be further served by British Airways choosing further United States aircraft.

The fact is that, if British Airways were permitted to acquire Boeing 737s now, it does not commit them to American sources in the future for medium-sized aircraft replacements and in that respect the two issues are distinct. When the time comes British Airways will be free to consider which of all the aircraft that are then available—whether they be European or American—is the one which seems best fitted and best suited to their needs. The question of commonality is only one of a number of considerations that the airline will need to take into account when the time comes and, as in the present case, Government approval will be required for any acquisition proposals. It is important to remember that the future projects about which we hear and read so much are still in a sense "paper planes" and that British Airways have yet to reach a firm view on their future acquisitions.

Noble Lords have in this debate and at Question Time last week expressed their concern about the possible effects of an acquisition of Boeing 737s by British Airways on our relationships in Europe, and in response to this I would make two points. First, apart from the BAC 1–11, there is no alternative European aircraft available which can be considered to meet British Airways immediate short-haul requirements. In this respect, it is interesting to note that the national airline of one of our EEC partners, France, has been trying to lease 737s to replace their ageing Caravelles and was only prevented from finalising this by a pilots' dispute over related manning levels. Secondly, as regards the future, I have made it clear that British Airways acquisition of 737s would not prevent them from considering whatever European aircraft may be developed to meet further replacement needs in respect of other types of aircraft.

I am sure, from all this and from my answers to Questions last week, that noble Lords will realise that the Government are not yet in a position to announce decisions on the main issues which have been raised in this debate; nor can I tonight give any indication of when they will be able to do so. However, I can give noble Lords the assurance that all the relevant factors and viewpoints—a number of which have been covered by contributions from Members of this House—will be given due weight by the Government in their continuing deliberations. Perhaps I may conclude by saying, as I did at Question Time last week, that when we have considered all these, I hope that we shall have made the right decision for British Airways and for British Aerospace.