HL Deb 22 November 1978 vol 396 cc1036-56

5.29 p.m.

The Earl of KIMBERLEY rose to call attention to the desirability, in view of our membership of the EEC, of European airlines buying European and not American aircraft, if the standards and configuration arc similar; and to move for Papers. The noble Earl said: My Lords, I beg to move the Motion standing in my name on the Order Paper. Not being a great poet I thought I might start off by saying: For years people wanted to fly And aircraft now fill all the sky But can't Government see We are now in the EEC So we should not fill Yank banks so high". My Lords, in spite of very many difficulties the civil side of British Aerospace has at last successfully negotiated itself into Europe. This is a great step forward. The Anglo-French Concorde probably paved the way for this and for what could be a very substantial benefit, not only to the United Kingdom but also to the European Aerospace industry. However, there is an "if" and it is a very big "if", and the "if" is this: if we do not pursue the various projects with great speed then once again we shall miss the bus.

Two and a half years ago I raised on several occasions in your Lordships' House the development of the then BAC 1–11 as well as the joint European transport. These aircraft could, if not be flying now, have been flying in the very near future; but we dithered so alas they are not. Anyway, that is past history. However, when it comes to our air industry we seem very reluctant to learn from past history, so let us try to look at the present and the future and see whether we can learn something from them.

First, I should like briefly to give some comparisions between the EEC and the United States of America. The total population of the EEC is 260 million and that of the United States is 210 million. However, the landmass of the EEC is only 16 per cent. of that of the United States and therefore the EEC domestic routes—intra European—are of much shorter range than their American equivalents. There are 10 principal EEC airlines, as against 26 in the United States. The total revenue of passenger kilometers for 1977 was, for Europe, 115.7 billion and for the United States, 345.2 billion—and by "billion" I mean the modern equivalent which is a thousand million. If any noble Lord is puzzled let me explain that the figures for total revenue of passenger kilometers are worked out by multiplying the number of fare paying passengers by the number of kilometers flown. So, in Europe, the figure is roughly one-third of that for the United States.

British Aerospace forecasts that there will be a 6.3 per cent. annual rise for Europe as against 5.2 per cent. for the United States, up to 1995. That means a three-fold increase in Europe and only just over double for America.

Currently there are 819 jets in the EEC, of which 580, or 70 per cent., are short/medium haul—that is, within Europe or North Africa. The current value of the European fleet is £29 billion of which 55 per cent. is invested in the short/medium haul equipment.

At present the United States almost totally dominates the long haul market subsonically. It has 90 per cent. of the market and we really have no European contender at present. However, the short/medium haul fleet in Europe is today valued at £13.4 billion and 49 per cent. of that is of European origin. So, the world forecast for new aircraft by 1995, excluding spares and ancillary equipment, is enormous. Even if we omit the long haul subsonic figures—which we must because, as I have said, we really have no development to compete with the Americans—the amount of aircraft that will be required is still prodigious.

However, in the supersonic transport market the story is very different. The United States and Russia have abandoned their SST's, at any rate for the moment. Indeed, perhaps it is fitting to say this evening in your Lordships' House that today is a very memorable day: it is the birthday of Concorde's first passenger flight to New York which took place last year. During the last year it has carried over 62,000 passengers with something like a 90 per cent. plus occupancy.

We have spent £1,000 million on Concorde, so why do we not capitalise on our investment? Why do we not continue with its development? For a comparatively small sum of money, after the initial £1,000 million, we could improve the existing power plants in the aircraft which would make the noise considerably less and that could be done comparatively easily. If any noble Lord would like to ask me about this matter later I shall happily go into it in great detail. Furthermore, by this improvement there will be no loss of thrust and in consequence there will be no problems about take-off noise. I have been informed already that the jigs which manufacture these aeroplanes are being removed from Filton, Wey-bridge and Herne. However, so far as I know the people of this country have not been informed of that fact.

Two and a half years ago I begged the Government to get together with the French Government and lease Concorde, but nothing happened. I ask the noble Baroness how can we expect airlines to buy or lease Concorde if the Government appear to show so little confidence in it? Even the chairman of British Airways ran it down in the annual report for British Airways, but since then its Chief Executive, Mr. Ross Stainton, seems to have changed his posture and his mind completely about the aeroplane. Indeed, even a senior civil servant from the Treasury has admitted that they were wrong about Concorde. British Airways' figures of over 90 per cent. payload across the Atlantic prove that they were wrong and that Concorde is right. To go further, I believe that Rolls-Royce has a new engine for an SST which, if given the go ahead, could be being flight-tested within two years. Can we not get together with the French and Germans and get a second generation SST in the air—and if not, why not?

Reverting to the short/medium haul subsonic aircraft, I point out that by 1995 the United States will spend £22.7 billion; Europe £13 billion and the rest of the world £35.3 billion. Europe will want 1,000 short/medium haul aircraft valued at £1,300 million at today's prices. Those aircraft will be required in four types of seating arrangement. The EEC airframe manufacturers are at present in a position to supply three of those categories. Nevertheless, I believe that Europe could produce an aircraft for the fourth category—the 140 to 190 seater—if there were no further delay and the project was initiated and led by British Aerospace.

While on the subject of replacement aircraft, what, may I ask, will replace the RAF VC.l0s in Support Command which, very often even today have to rely largely on aircraft built for the civil market? It should and it must be possible for the EEC airframe manufacturers, with wholehearted support from their Governments, to obtain at least 30 per cent. of the European market in short/medium haul aircraft. This small, and I think grossly deplorable figure, would give a saving of imports in the next 18 years to the EEC of £4,000 million. If the great American aircraft manufacturers thought that they could only get 30 per cent. of their home market they would not laugh—they would pack up and shut up shop. We should set our sights on getting 100 per cent. of the European market and not 30 per cent.

I point out that all that I have said so far refers only to the major European airline market. I have left out the turboprop requirements, as other than the Queen's Flight their contribution and value is very small. However, in addition to the 10 EEC airlines which are members of the Association of European Airlines, there are 14 other scheduled Western European carriers and eight non-scheduled Western European airlines in the short/medium haul category.

We have had a nationalised air industry for nearly two years. We have cancelled the X11 which was on the point of getting orders. We have not given the go ahead for JET and we have not developed Concorde's potential. On the plus side we are building the 146 which I think will be a superb aeroplane but which at present I do not think has any orders. I do not in any way blame British Aerospace. I firmly believe that in the past it has not had anything like the support from the Government that it so richly deserves.

I maintain that now is the time for the Prime Minister to squash once and for all the anti-Market sentiments of the extreme Left of the Labour Party and, simultaneously, for the Leader of the Opposition to do the same with certain Right Wing elements in her Party. Therefore, I should like to propose that the Nine EEC Ministers, backed up by their Prime Ministers and Presidents, should get together and make a coherent and positive plan whereby Europe buys European aircraft. I sincerely hope that the noble Lord, Lord Trefgarne, the noble Lord, Lord Balfour of Inchrye, and, lastly, the Minister, the noble Baroness, Lady Stedman, will agree with me. My Lords, I beg to move for Papers.

5.40 p.m.


My Lords, although as always I am very grateful—as all noble Lords will be—to the noble Earl, Lord Kimberley, for introducing this short debate today, I am not sure that I can agree with him, as he invites me to do. However, I shall do my best. If one reads between the lines—and I hope that I am not misinterpreting the noble Earl—the basic question posed by the noble Earl's Motion, is whether we should insist that British Airways buys British or European aircraft when these aircraft in any way meet its requirements, or whether we should allow British Airways a totally unfettered choice to buy whatever aircraft it may think best, regardless of the social and economic consequences that its decisions may bring to the European industry.

I fear that that is not a question which I can answer definitively tonight, but I can perhaps put up some pointers as to the way in which my thinking at least is going on the matter. Recently, British Airways made two important decisions in this field. First, at the end of July, it announced that it intended to purchase a number of Boeing 737 aircraft, and not the same or a similar number of BAC 1–11 aircraft, to meet a fairly recent requirement caused by the accelerated retirement of the Trident fleet.

As your Lordships will recall, the Trident fleet, or part of it at least, suffered some unfortunate problems in recent years and, although these problems have not proved fatal to the aircraft in question, they have meant that some of them will have to be retired earlier than was originally anticipated. Thus, British Airways was obliged to purchase additional aircraft to meet this unforeseen shortfall in its capacity, and it chose the Boeing 737. I must confess that I am not persuaded that that was the right decision. However, I must make it clear that in that matter at least I would not wish to prevent British Airways from exercising what, in its considered opinion, was the right course to adopt.

I should like to draw your Lordships' attention to what I think were some of the problems created by that decision, which I hope British Airways took fully into account. The first cost of the Boeing 737 fleet will be higher than the first cost of a BAC 1–11 fleet. Furthermore, that first cost will have to be met in foreign currency. No doubt, British Airways will say: "Yes, but we shall raise some of that money in the United States and repay those loans from revenue earned in the United States". No doubt that is true, but, of course, that is money which would otherwise have been remitted to the United Kingdom.

British Airways claimed that the resale value of the 737s was better than that of the 1–11s; but British Aerospace announced publicly that it was prepared to repurchase the 1–11s if necessary at an agreed price. British Airways maintains that the seat-mile costs of the 737 are superior to those of the 1–11; in other words, they are less. I agree that that may well be so, but that is caused principally by the fact that the 737 is a larger aircraft and carries more passengers than the 1–11. But, of course, the advantageous seat-mile costs which British Airways is hoping to achieve with the 737 depend upon the aircraft being flown full or nearly so, and I do not believe that British Airways is necessarily able to achieve that on all the routes over which it intends to use the aircraft. British Airways has not commented on the aircraft mile costs of the two types, but I do not think it would argue that the aircraft mile costs of the 1–11 are superior.

Another point which I have not seen aired publicly was that with the demise of the Trident fleet, or part of it, British Airways will find itself with a great number of spare engines not required for the Trident fleet, which, at minimal cost, could be converted for use in the 1–11s. I believe that this would make quite a significant difference to the operating costs of the 1–11, and I do not think that British Airways has, publicly at least, announced what that saving would amount to.

All these factors suggest to me that the "737/1–11 decision" if I can call it that, was more finely balanced than British Airways would care to admit, and I look forward to hearing from British Airways or from elsewhere exactly how it was that British Airways arrived at the decision that it did. I want to say quite clearly that the BAC 1–11 is a magnificent aeroplane and I do not think that British Airways has given it full credit. British Airways already operates a considerable number of the type and I think that it would have achieved greater economies of scale by adopting that aeroplane than perhaps it has given credit for. However, I want to make it clear that there is no question—in the future, anyway—of reviewing decisions that British Airways has taken in the past and which have had Government approval.

A little after the 1–11 decision, British Airways announced that it was to buy a fleet of Boeing 757 aircraft instead of a variant of the European Airbus, the A–300. I am not certain which of the variants of the A–300 found greatest favour with British Airways; clearly, none of them found complete favour. But, again, I am not certain that British Airways has, publicly at least, given full credit for some of the advantages that would have accrued from a decision to buy a European aeroplane.

Perhaps it would be fairer for me to point out what I think to be the disadvantages of the decision which it took to buy the American machine. The 757 is a newish aeroplane, although not completely new because the fuselage, we are told, is very much dependent for its design and detailed philosophy on the existing Boeing 707 fuselage, which has, of course, been in service for a good many years and of which at least 1,500 have already been built. The new aircraft—or the newish aircraft—is to be powered by a new variant of the famous RB.211 engine built by Rolls-Royce. Of course, I welcome the fact that British Airways has specified that engine in this aircraft.

However, there are a few hurdles yet to be overcome. The 535 is not yet a running engine. Furthermore, for its fruition the project requires that Eastern Airlines also buys the Boeing 757 fitted with these self-same engines. Eastern Airlines has not yet finally ordered the aircraft, and I hear from my network of spies that it may well be that it will decide against the RB.211 engine. If that happens, British Airways will indeed be in a serious mess in this matter and will very likely have to go for the A–300—but at what a price of pride and, indeed, money for joining at this late stage!

The basic objection, though, to the 757 aeroplane is not the difficulties with the politics, but the fact that it is a narrow-bodied aircraft. When British Airways brings this aeroplane into service it will, if you can credit it, be the only major airline in Europe operating a narrow-bodied aircraft on major trunk routes. It will be the only airline operating on the major trunk routes an aircraft which cannot carry the standard freight containers. I find this incredible and surprising. It is contrary to what British Airways said was a requirement some years ago, but now it has apparently buried That requirement in order that it can order this aeroplane. I am extremely disturbed by that aspect at least of this decision.

British Airways apparently rejoices in the fact that this is to be a launch order. It seems to enjoy being the first customer for aeroplanes. It seems to think it has some merit, but it does not. The first customer for a new type of aeroplane always has problems when the aircraft comes into service. I do not think that British Airways needed to be the first customer for this aeroplane, and could have saved itself and the taxpayers a lot of money if it had been the second or third customer instead of the first customer, but we shall see. Certainly the engine to be fitted to this aeroplane has a fine ancestry, and that at least will work.

However, we must revert to the general point of how we decide on the difficulty of controlling British Airways in this matter. The fact is that, having appointed the directors of British Airways to run that Corporation, then we must allow them to get on with the job, and certainly not interfere with the day-to-day running of the Corporation. Where the day-to-day running ends and matters of major national importance begin I would not care to say; certainly not without much more careful consideration than I can give tonight. But I believe (and here I am speaking personally) that there are areas of major national importance—indeed matters that transcend national considerations but in this context could be considered Community considerations—where British Airways ought to be subject to some measure of control and some measure of direction.

Having said that, the decisions which I have commented on tonight are decisions which have now been taken by British Airways, have been endorsed by the Government of the day, and I can see no future in suggesting that the decisions ought now to be reviewed. But I do not think that that prevents us from criticising the decisions when they are taken, even if there is nothing now we can do about them. Finally, I say that British Airways can only be directed when the matter is of major national or international importance, and then only with the greatest care and circumspection.

5.53 p.m.


My Lords, I should like to associate myself with the thanks that the noble Lord, Lord Trefgarne, has given to the noble Earl, Lord Kimberley, for moving this Motion with which I am, in general terms, in agreement. Really the guts of his Motion is in the words: … if the standards and configuration are similar …"; that is, if the aircraft which are European made are equal to those which come from America and which British Airways is buying. I think it depends on what aircraft is best for commercial success, in an increasingly competitive world, for British Airways to choose.

As the noble Lord, Lord Trefgarne, said, the Board has been appointed to achieve maximum commercial efficiency in an increasingly competitive world where the low-fare passenger is going to provide the bulk of traffic over the next few years. If the Board's judgment is to be amended in any way in the interests of, as I think Lord Kimberley thought, the British aircraft industry, well and good, but that should have been written into the Act, because the Act lays down that British Airways should go for maximum commercial efficiency.

Until freedom of procurement is eroded, the British Airways Board must be allowed to decide its needs with untrammelled freedom. I think the noble Lord, Lord Trefgarne, agreed with that proposition, although he was at some pains to criticise nearly every decision which British Airways has been making. The remedy is in the hands of the Government, provided they can get Parliamentary support; namely, sack the Board. But do not interfere so long as the Board carries the responsibility for British Airways' success.

British Airways has to fade out the Trident aircraft by 1986. The Board decided, after very full examination of every British, European and American type, that to meet this low-fare passenger influx four types are needed in the future: the 747; the TriStar; the 737; and the 757. Those, British Airways maintain, will provide seating capacity ranging from 100 to 500, and cover ranges in flying distance from 100 to 5,500 miles. It considers that that is an adequate programme to meet the immediate needs of the next several years.

I think we are none of us qualified here, with great respect to the noble Lord, Lord Trefgarne, and the noble Earl, Lord Kimberley, to have a sort of technical post-mortem of what British Airways' decisions mean and whether they are right or whether they are wrong. They are commercial decisions in fulfilment, I repeat, of the laid-down requirement for British Airways' maximum commercial efficiency and success. So while agreeing with the noble Earl, Lord Kimberley, in his wish, if to fulfil it means putting British Airways at a commercial disadvantage for any reason, political or helping the British aircraft industry, then the responsibility for that must lie with the Government and not with the Board. If the Government wish to force European aircraft against British Airways' view that the ones it has chosen are the most efficient economically, well and good. Do not dispute Board decisions, but sack the Board and replace them. However, so long as we have that Board we must trust them in their technical judgment of what types are best for maximum efficiency.

5.58 p.m.

Baroness STEDMAN

My Lords, I am grateful to the noble Earl for raising this subject in your Lordships' House today, because debates such as these are most valuable since they provide us with an opportunity to stand back from the details of immediate events and allow us to take a proper stock of some of the more important developments which are now taking place around us. The present debate, although not acquiring quite so many speakers as did the one on poetry preceding it, has been no exception; and it has permitted us to try to put into perspective the recent important developments in the world of aerospace and civil aviation.

The Motion of the noble Earl, Lord Kimberley, puts these developments into a European context, but since they involve the interests of three of our own most successful nationalised industries perhaps I ought to begin by summarising the recent events in the United Kingdom, some of which have been referred to directly and indirectly in the speeches of other noble Lords.

Perhaps I might also take this opportunity to seek forebearance if much of what I have to say refers to our own industries, since they provide the prime examples for discussion of the issue raised in the Motion and it is evident from the speeches we have heard that they are, understandably, at the forefront in the minds of noble Lords.

First, British Aerospace, with the support of the Government, have taken two important decisions. First, they have decided to proceed with the construction of the BAE 146 aircraft and to join the Airbus Industrie consortium as a full partner in the development of the A310 version of the Airbus. Secondly, British Airways has taken some vital decisions on aircraft procurement; they have received approval to order 19 Boeing 737s and 19 Boeing 757s and to enter into negotiations with British Aerospace on the purchase of three to six BAC 1–11s. Finally, Rolls Royce are to engage in a major new project, the development and manufacture of the RB 211–535 engine which is designed to power the new generation of civil aircraft now emerging and which will open up further world markets to this company.

These are major decisions that will have a significant and continuing impact on the international role of the United Kingdom in all aspects of the manufacture and operation of civil aircraft. It is only right, therefore, that such decisions should have been taken with the approval of Her Majesty's Government. Indeed, the Government would have been failing in their responsibilities if they did not look most carefully at such decisons, taking into account the needs of the nationalised industries, the interests of their employees and of the travelling public and other broader economic implications which are involved. Having considered all these relevant factors, the Government have decided to back the commercial judgement of each of the nationalised industries involved, and this is a most important point to which I will return later.

It is clear from the speeches of some noble Lords that there are those who would argue for a different approach and perhaps hanker for total co-ordination of interests in the aerospace and aviation sectors. Some say that, since British Airways has decided to purchase the Boeing 757 and Rolls Royce is to build the engines for the aircraft, then British Aerospace should have entered into collaboration with Boeing rather than joining Airbus Industrie. Others see the problem completely the other way round and would suggest—as indeed the noble Earl, Lord Kimberley, suggested—that British Airways and other European airlines should buy the A310 because it is built by Airbus Industrie which British Aerospace is to join.

I can understand both points of view and I can sympathise with the desire expressed in the Motion for an orderly world in which one nationalised or European industry builds what another nationalised or European industry buys, and vice versa. However, I cannot accept that this is the right approach when one looks more closely at the highly competitive international environment in which these particular industries operate, and I am led inevitably to the conclusion that this is one of those areas where what is good sauce for the goose may prove very different for the gander. To explain this conclusion, let us consider more carefully one of the decisions which British Airways has recently taken.

On the basis of a detailed assessment of the merits of a number of aircraft, British Airways concluded that the Boeing 757, powered by Rolls Royce engines, better suited their requirements for a medium-range, medium-capacity aircraft, than others which could be regarded as broadly comparable, including the Airbus A310. They did not conclude that the Boeing 757 was automatically and inherently a better aircraft than any other. But they looked at the technical considerations which noble Lords would expect them to examine, and at the capital cost, the operating costs and the revenue which these aircraft might generate. All these calculations were not done in the abstract but were related to the needs of British Airways' own route network.

This last is a very important point about the appraisal which British Airways conducted and one that I would ask noble Lords to reflect upon most carefully. Different airlines serve different route networks and carry different mixes and numbers of passengers on those routes. It is essential that airlines should have the right aircraft for their own individual needs if they are to keep prices down and earn a satisfactory economic return.

That consideration becomes even more important when one takes into account the increasingly competitive nature of the international civil aviation market. I am sure many noble Lords will be aware of the recent comments by senior British Airways officials at the roll-out of the airline's first Lockheed TriStar-500s. They said they saw the process of deregulation of air fares continuing and the era of low-cost air travel stretching ahead into the foreseeable future. By 1986, they estimate that 82 per cent. of long-haul passengers and 75 per cent. of short-haul passengers will be travelling at reduced fares. They estimate that fares will fall, in real terms, by up to 25 per cent. on the longer routes.

That can only mean that competition will increase and that the airlines that will succeed in retaining their market-shares, be they European or otherwise, will be those that are most efficient in containing costs. There are many areas where British Airways, along with other airlines, will be looking to contain their costs, but an essential contribution will come from the ability to fly the right aircraft on the right routes, and failure to do so could make the difference between success or failure in the highly competitive airline market which will exist from here on.

The recent decision by British Airways to purchase the Boeing 757 illustrates very clearly the point about differences in the fleet requirements of individual airlines. Some airlines have decided that the structure of their routes is such that they would best be served by the acquisition of a wide-bodied aircraft with two aisles; they will have opted either for the Boeing 767 or the Airbus A310. British Airways, on the other hand, concluded that their own requirements would best be met, as the noble Lord, Lord Trefgarne, reminded us, by the purchase of a narrow-bodied single-aisle aircraft such as the Boeing 757. This is not to say that British Airways consider that the A310 is in some sense second-rate. Indeed, they have told the Government that, if, over and above the aircraft they have just ordered, needs were to be identified in the area of wide-bodied, medium range aircraft of 200 seats, comparisons they have made show that the A310 to be the aircraft which would best meet such new needs.

However, in case there are noble Lords who do not accept that there is such a distinction between wide-bodied and narrow-bodied aircraft, I would ask them to consider why it is that Boeing, the most successful aircraft company in the world, should have decided to develop both the 757 narrow body and the 767 wide body models, where one of the most significant differences between the two is in body width.

This broad argument about matching aircraft to route structures is just as true in the case of British Airways' proposal for Boeing 737s where the BAC 1–11 was a possible alternative. The airline was not saying that the 1–11 was a poor aircraft or that they must operate one aircraft rather than another because they already have 25 1–11s in their fleet. What they were saying was that in evaluating different mixes of aircraft against their route structure, the mix which included 737s projected the best results. By the same token, the best result for another airline might look quite different. As the noble Lord, Lord Balfour of Inchrye, reminded us, while we have a board at British Airways charged with responsibility for making a commercial success of the job, we cannot interfere in those decisions.

There have been references in the debate to the question of British Airways acquiring more 1–11 aircraft, and in particular Lord Trefgarne raised the complex subject of British Aerospace buying back aircraft from British Airways. I am afraid there is nothing I can add today to the replies I gave earlier at Question Time. These negotiations are a matter for the two corporations and each will be governed by its respective commercial judgment as regards price, delivery dates, the number of aircraft or any of the more detailed terms that may have been considered during the negotiations; and at this stage any speculation from me on such details would be quite inappropriate. I do not propose, nor am I qualified, to enter into detailed discussion of the technical aspects of alternative aircraft. The simple point that I am trying to establish is that any airline which hopes to compete effectively in world markets must have the right aircraft for the right job, and that it would therefore be totally inappropriate to fetter the commercial judgment of any European airline by insisting that it buys only European aircraft.

As regards similarity of standards and configurations with American, or any other aircraft, I hope that I have illustrated that the question cannot properly be considered in quite such simple terms, and that the circumstances of each of the airlines themselves dictate what will best suit them. If their judgment leads them to acquire European aircraft, then I need hardly add that such decisions will be welcomed by all of us but if it does not, let us try to remember that this is not a condemnation of the European aircraft industry, or a display of an inherent lack of patriotism. Rather, it reflects airlines trying to make the best possible choice to enable them to survive successfully the rigours of increased competition.

That is the position as it must be considered from the airline's point of view, but the word "competition" leads me to another most important aspect of this subject on a wider front. Noble Lords will have read that the world's airlines face the necessity to replace and re-equip their fleets over the next 10 years or more on a scale which represents the greatest potential market for the aerospace industry that has ever been known. A great proportion of that market lies in the United States, whose airlines have already announced some very large orders, but there are more to come, both there and throughout the remainder of the Western World.

I welcome the comments of the noble Earl, Lord Kimberley, on Concorde. It is indeed a magnificent technological achievement, and I hope that it will find the route opportunities that will enable it to make a valuable economic return. However, as the noble Earl has said, the cost of developing Concorde was somewhat considerable, and if a second generation SST is to be built, it will be necessary for the manufacturers to look very carefully at the costs involved and at the market opportunities.

I should be very surprised indeed if any noble Lord were to suggest that this was other than a tremendous opportunity at this time for European aircraft and aeroengine manufacturers, or that those industries should be prevented from pursuing those opportunities to the best of their ability. However, if we were in any way to move towards a protectionist stance towards these European industries by seeking to provide a captive market for European airlines, then I am certain that our ability to compete effectively in these other markets would be impaired. Again, to take the example of the United States, noble Lords will be aware that there have been some very real successes for European manufacturers over the past year or so with Airbuses and Rolls-Royce engines both securing significant airline orders totally on their own merits and in free competition with United States manufacturers. This is a very significant breakthrough, and one which we can build upon. However, it is true to say that this development was less than popular in some quarters in the United States, and that there is a strong lobby watching closely to ensure that the freedom which the American airline market offers to foreign competition is reciprocated elsewhere in the world.

My Lords, the European aerospace industry is proving that it can compete in world markets, and the potential rewards if it can build on this are enormous. I would suggest that the industry's interests could only be harmed by any trend towards what I might call protectionist policies in international trade in aerospace products.

This brings me to a further point concerning the nature of that trade. The essential components of an aircraft are the airframe itself and the engines. To take first this simple breakdown, there are now an increasing number of instances where an airframe built in one country is powered by engines manufactured in another country. The success of Rolls-Royce engines in American built aircraft is perhaps the prime example of this, and since engines are a significant proportion of an aircraft's price—about 33⅓ per cent.—this is a factor to be weighed very carefully when talking of aircraft being made in this country or that.

The British Airways' order for Boeing 757s springs immediately to mind in this context because, although an American plane, it has been ordered with Rolls-Royce engines. Furthermore, the United States domestic airline Eastern has also ordered Rolls-Royce engines in joining British Airways to place the launch order for the 757. By this means Rolls-Royce have secured what is known as the lead engine on this new aircraft, thus placing the British company in a prime position to supply engines for further 757 orders for other airlines. Therefore, although a European airline has ordered an American aircraft, significant orders and advantages have also been secured for another European aerospace supplier in the process.

Such interdependence does not stop at aero-engines. There are thousands of small components which go to make up an aircraft, and a great many of these are sub-contracted by the major manufacturers. This is proving an increasing trend, particularly with American companies such as Boeing, who simply do not have the resources to cope themselves with the immense demand for their aircraft, and who are even contracting out significant parts of the airframes to foreign companies. European companies are already benefiting from these sub-contract arrangements, and I have no doubt that the volume of this work will increase as demand rises.

In this sense therefore it is misguided to think of the European aerospace industry merely in terms of the manufacture of European aircraft. In practice, today collaboration goes much wider than this, and the corollary is that the phrase "American aircraft" is similarly far too simple, because it fails to take account of the many foreign, including European, components in such aircraft.

I trust that your Lordships will appreciate that, while my remarks have tried to put these issues into a slightly different light and a greater perspective, I have no wish to take direct issue with the terms of this Motion. It is sensibly phrased, since it refers to the desirability of the course which the noble Earl, Lord Kimberley, has advocated so ably, and the Government certainly have no wish to quarrel with that. There are, however, those who would go further and seek some mandatory force for such a policy, and it is to them that the considerations I have outlined are particularly addressed.

The European aircraft industry is now proving a most positive force in its own right in the world's aviation markets, and the Government welcome the fact that British Aerospace is soon to become a full partner in Airbus Industrie which is spearheading that success. However, the Government are also convinced that the most sound basis from which to build on that success is a truly free and competitive international market for all aerospace products. That is a policy from which our European industry has nothing to fear and everything to gain. I am sure that those concerned with British Airways and British Aerospace will take note of what has been said in your Lordships' House this evening, and will bear your Lordships' comments in mind.

6.18 p.m.


My Lords, I thank the noble Baroness for that very complete answer to many points. The noble Lord, Lord Trefgarne, said that he thought that possibly my Question was directed more at British Airways than at other European airlines. In a way the noble Lord was right, but in a way he was wrong. It was directed at both; it was supposed to be right and left. Naturally I should prefer British Airways to buy Europe, and I can only hope that it has made the right decision. I have always been puzzled by the decision of British Airways about the 757, because when it ordered the 737 I remember saying in your Lordships' House that two years did not seem to be a very long time within which to order a new aircraft. The answer I got from British Airways was that two years was a perfectly reasonable time within which to order a new aeroplane. The answer I have never been able to get out of British Airways is to the question: If two years was sufficient in which to order the 737, why does it have to order the 757 five years before it can possibly have it? Could the Corporation not have waited a little longer to see what else was on the shelf? It would then have had a much bigger choice.

Earlier, and again this afternoon, the noble Baroness raised the matter, as did the noble Lord, Lord Trefgarne, of the British Airways' order for the 1–11. I remember saying in your Lordships' House about six months ago that British Aerospace were perfectly happy to accept a built-in clause whereby they would buy back these 1–11s, if necessary; and the second-hand value of a 1–11 is very high. I still cannot understand, if British Airways want to buy the 1–11, why it has taken so long to do this deal, because it has been floating around between the two companies for months and months.

The noble Lord, Lord Balfour of Inchrye, said that in my Motion I refer to equal standards. Perhaps I should have worded it slightly differently and said "approximately", or "of the same quality". Of course I do not want a European airline or British Airways to buy the wrong aeroplane, but if these aircraft are vaguely similar in economics, performance and everything else, I still maintain that Europe should try to stick with Europe. I also entirely agree with the noble Lord, Lord Balfour, when he says that British Airways should have the maximum commercial efficiency, and that it should be allowed to decide its needs without being ordered about. I entirely concur with this; but one thing which worries me is that, from past history, some of its business decisions have not been that good. There is another point that the noble Lord brought up; that is, suppose British Airways should buy the 757, as it appears it is going to, and all the other airlines in Europe buy Europe. It may be that, once again, history will, sadly, be repeating itself. I hope not, though.

My Lords, the noble Baroness gave a complete answer. She obviously has a very good brief and she knows a lot about her subject, despite her claiming the other day that she did not. But there is one point I should like to raise again—and I have raised it before in your Lordships' House. No matter what Mr. Boeing says to Mr. Rolls-Royce by way of, "I want your engine in the 757", if the customer says he does not want a Rolls-Royce engine in it he will have the aeroplane with an American engine in it, and that is a fact. Boeing may say that they will sell 200, 400 or 1,000 757s. They may not. I still think, as I said before, that the 757 was a carrot for us; but, luckily, we did not swallow the whole thing, and if it does lead to the satisfactory development of the RB.211 535, then so be it, and I hope it will work.

I remember the noble Lord, Lord Kings Norton, once said in one of these debates that he would like to see more co-operation among British Airways, British Aerospace and Rolls-Royce. So would I. We have three vast, powerful, wonderful companies. They are all nationalised, but they very rarely seem to pull in the right direction at once; one wants to go one way, one another and one another. Surely it is possible in this day and age for them to sit round a table and decide where we as a country, Britain in Europe, want to go. The market for Europe, as I have said before, is vast—it is 1,000 aeroplanes—and I am very glad that British Airways says that it does not want to run down the A.310. It may be that in the future British Airways will decide that it wants it.

I should also like to say to the noble Baroness that I would not want the Ministers to insist that European airlines should buy Europe, but I should like them to do their best to encourage them to do so. I think the way they could encourage them to do this is to bolster up the whole of British Aerospace and the European aerospace industry so that, not in any way trying to "knock" the Americans through a cocked hat, we could at least hold our own and, by being in a position of strength, be able to negotiate better deals with the United States in the future. My Lords. I beg leave to withdraw the Motion which stands in my name.

Motion for Papers, by leave, withdrawn.