§ 6.51 p.m.
§ Lord Glenarthur rose to ask Her Majesty's Government whether they will give an assurance that they will support continued operation of Concorde aircraft.
§ The noble Lord said: My Lords, I beg leave to ask the Question standing in my name on the Order Paper. My reasons for asking for this assurance from the Government are threefold. First, Concorde has now been in commercial operation for just over five years and many commentators have thought it a suitable moment to review its preformance during that time. Secondly, there is considerable public interest in Concorde. There is a wealth of enthusiasm and support for it but, at the same time, there are those who argue for the cancellation of any Government involvement in financially unrewarding projects. Thirdly, in this country Concorde is operated by British Airways which overall is forecasting a large deficit in this financial year with a rather gloomy outlook on next year. Concorde does, I am afraid, represent at present a small part of that loss, although not every individual aspect of the Concorde operation is loss-making.
§ I am also aware that a Select Committee in another place is looking critically at the continued cost to the Government of Concorde. Evidence, both written and oral, has been or will be given to this committee by interested parties. I hope that when the Government come to consider the report which will no doubt follow they will also take into account views that I expect will be expressed in your Lordships' House this evening. May I also say that I am delighted that so many noble Lords have indicated their intention to speak on the subject this evening. I find this most encouraging and I am very grateful to them.
§ Before going any further, I must declare an interest. I am employed by British Airways Helicopters, which is a wholly owned subsidiary of British Airways. Other than being one who subsidises British Airways in the same way that any taxpayer does, the financial results of the Concorde operation do not affect me in any particularly special way other than being aggregated with all the other parts of the concern to produce an overall financial result.
§ I do not propose to dwell on the development history of the Concorde project. Development and production costs together, less manufacturers' receipts from aircraft sales and sales of associated spares, amount, as far as I can tell, to something like £800 million in this country; and my view is that the taxpayer is entitled to have something really worthwhile to show for his investment at the end of the day. I believe, contrary to the views expressed by the pedlars of unrelieved economic gloom, that the taxpayer has got in Concorde something worth while and which he can 257 be justifiably proud of: an aircraft which no other country—other than France—has; one which is between 10 and 15 years ahead of its time; the envy of many nations, I have no doubt; and one of a type which we must develop for the future.
§ I hope that when he comes to reply my noble friend the Minister will be able to give a detailed up-to-date breakdown of exactly what the costs of development and production and of receipts from sales is. May I also say how grateful I am that the noble Lord, Lord Trefgarne, is here to reply tonight. I know he was to be abroad and I am sure that we are all very grateful that he is able to answer the Question.
§ I believe that the decision taken in 1978 effectively to give Concorde to British Airways was entirely right. The whole concept is so special and different that it justifies an unusual financial approach by the Government in order to make its operation financially feasible. When it comes to profit, however, the British Government take 80 per cent. of any operating surplus, leaving 20 per cent. to British Airways, no doubt as a stimulus to do their best. In France, however, as I understand it, the Government underwrite 90 per cent. of any loss which the airline makes in its Concorde operation. I assume that there are inter-governmental contacts over the operation of the aircraft because of the technical support required of British Aerospace and Rolls-Royce. I doubt whether the Minister will be able to go into any detail about the French Government's views on the operation of Concorde, but I hope that he will be able to reassure the House that there are indeed close contacts and a cross-fertilisation of ideas between the two Governments and their two national airlines, mutually pooling ideas on how best to continue to finance the operation and to increase utilisation and revenue.
§ The operation of Concorde as a sound financial venture was made difficult by three factors: the increase in the price of fuel; limited range and consequent limitations on routes; the latter compounded by the third problem: sonic boom. The aircraft cannot be flown at supersonic speeds over anywhere but the least densely populated parts of the world—over the sea and over the desert—and is inefficient when it is flying subsonically. It does not have the range to overcome these problems by extended routing.
§ Methods must he found of mitigating the effects of these factors. Fuel consumption has been cut by the most assiduous and careful planning by the operators and by the designers. No opportunity is missed to minimise consumption. I saw clear evidence of this when I flew in the aircraft the other day. It was one of the prime concerns of the crew operating it. Additionally, I understand that development of a new combustion chamber in the engines will improve fuel efficiency further as well as enhancing the integrity of that part of the engine which has been giving some trouble.
§ Looking at the existing route structure of Concorde, as operated by British Airways, I believe that there is much to be done to improve it. British Airways have seven aircraft but at present operate only two routes. This is done using three aircraft, with one on standby, one on maintenance and one undergoing modification. So there is one spare. Once the modification programme is complete, under this existing structure route 258 there will be two spare aircraft at least. This is not a healthy situation. It represents gross under-utilisation, removes the opportunity for much needed revenue, and in no way would be acceptable in conventional subsonic aircraft.
§ I know that British Airways are looking at other routes: Miami through Washington, Lagos and Toronto have all been and are being examined. But it is my belief that, notwithstanding their desire not to interfere, the Government must get together with British Airways over this problem. A far more positive and aggressive attempt must be made, coupled with a much more flexible and speedy response to changing markets and changes in complementary routes, to work out ways of improving the route structure and building upon the sound core provided by the North Atlantic routes, which carried nearly 100,000 people last year and, in the case of New York alone, should produce a profit of over £4 million, although the entire operation looks as though it will go down by about £6 million. I should like to know from the Minister whether the Government will consider this approach so that they and the airline can use all their powers of imagination and diplomacy to develop a worthwhile route structure and a timetable to meet demand.
§ I should be the first to agree that making technical stops for fuel in an aircraft such as Concorde makes it less efficient. But with 70 per cent. of the earth's surface being covered by water, there are I believe opportunities to stretch the range of the aircraft in this way, and it could open up routes to Japan, Australia and even South Africa. I see no reason why there should not be a market for Concorde to each of these. I should also like to ask the Minister about other opportunities for increasing revenue through charters and leasing. I hope that any opportunities in these respects will be given every assistance by the Government.
§ Turning to the question of continuing Government costs in supporting the operation, I hope that my noble friend will be able to give your Lordships' House a good idea of what the costs are going to be over the next few years. I have a fairly sound idea myself of what they are going to be, but, although I fully support all the Government's attempts to bring down public spending, I think they must be very careful in their judgments on advanced technology in this respect. One simply cannot measure the success or failure of every enterprise in this area just by looking at a balance-sheet or a profit and loss account. There are much wider implications involved, and nowhere is this more true than over Concorde, which has captured the imagination of thousands, if not millions, of people in this country and abroad.
§ I would go so far as to say that, despite any economic misgivings they might have, there is a certain amount of jealousy on the part of the United States and the Soviet Union—both technical innovators on a grand scale—that Europe has pulled off a technical achievement in passenger transport which they have not. It is one which really works and which is in service, and whose realiability and punctuality is outstandingly good. Let no one under-estimate that.
§ The achievement in engineering and operation is huge. Added to that there is a considerable "rub-off" 259 or what British Airways call a "halo effect on the rest of their operations. The fact that they are seen to operate Concorde brings them additional customers for their subsonic routes, amounting in their view to something between 10 and 15 per cent. In arguing the merits of Concorde, this may not be a theme which British Airways are keen to overplay. Using Concorde as a loss leader, so to speak, is unsufficient reason by itself for continuing to operate it. However, it is a considerable bonus in its favour.
§ Much more important, to my mind, is the huge prestige value which the country gets from Concorde. It turns heads wherever it goes and attracts thousands to air shows, which are the shop windows of aviation. Everyone stops to watch it; even our traffic controllers stop to watch it. It is an achievement in aviation which is available to the public and which matches that of space flight. I believe it is highly desirable, at a time of economic upheaval, that Britain is able to bask in a certain amount of pride at something so highly prized as Concorde.
§ Looking to the future, it seems to me there are bound to be financial penalties which would be invoked if Concorde operations were stopped, either unilaterally or bilaterally. Perhaps the Minister will be able to confirm that this is the case and say how these figures compare with the cost of continuing the operation. However, I doubt very much whether he or anybody else can measure the damage that would be done to the national spirit and prestige, as seen both here and abroad, by cancellation. That is a much harder problem to work out. It cannot be quantified; one can only take an educated guess at it. My guess is that it would be positively damaging to this country's image, nationally and internationally, at a time when I believe there is international acceptance that our affairs are taking a turn for the better and that we are once again on the right course. I believe it would demonstrate that we do not have the courage of our convictions in the highly technological age in which we live. Advanced technology of all sorts is one part of our industrial life which we must build on and in which we must maintain pre-eminence.
§ Man is innovative; he will always strive to improve on what exists and to do what has not been done before, to go faster. In supersonic passenger transport aircraft, we and the French have achieved a world lead second to none. We must develop the theme and I hope that the Minister will be able to assure the House that research is being carried on, perhaps with partners overseas in addition to the French, to enable us to develop it.
§ In summary, I hope that the Government will recognise the need for a far more positive approach to the problem of improving Concorde's revenue and although I understand the difficulties of asking them to commit themselves to years ahead, I hope that in conjunction with the operators and manufacturers they will be forceful in seeking improvements in operating techniques, route structure and technological innovation, and that they will not allow the enterprise to drift, as I detect it is beginning to do at present. Concorde is a technological marvel. Its development has done much to enhance the reputation of British engineering in aerospace, and although it may not be a great 260 financial success it is by no means a huge financial disaster. It is a mighty good first effort. It has done, and is doing, untold good to this country and to abandon it now would do considerable harm. That is why I ask the Minister for this assurance tonight.
§ 7.5 p.m.
§ Lord Beswick
My Lords, I am sure we are very grateful to the noble Lord, Lord Glenarthur, for raising this matter and for the informative and balanced way in which he made his speech. I was particularly glad to follow him when he reminded us again that he was a pilot in the service of British Airways. I am bound to say I wondered whether he was a member of the pilots' association of which I still have the privilege of being president. I will not go over the ground covered by the noble Lord, but as far as the very practical questions which he posed are concerned, I look forward to the answers which he will in due course get; and I hope that they are satisfactory.
If any message is to go out from here, I hope it will be quite clear that in our view the Concorde operation should continue, that a degree of development of supersonic transport should be funded and that the necessary project support will be maintained. To throw away the knowledge we have now assembled both in the manufacture and operation of supersonic transport—and assembled at such enormous cost in terms of money, man-hours and skills—to throw that away now would be nothing short of criminal. It has become almost trite and boring to say that Britain is good at invention and innovation but bad at exploitation. Surely we have now learned something of the lesson and I hope that in this particular case, at any rate, we are not going to commit the sort of mistake we have made in times past.
The noble Lord himself said a good deal about the "halo effect" to British Airways of the Concorde operation. I hope that will not be written off as some sort of romantic aviation enthusiasm. It seems to me that British Airways are now exercising sound commercial judgment when they declare their wish to continue and indeed to expand their current operations. I am not sure why the noble Lord said the operation was likely to bring a net loss under next year's operations. My understanding is that with the £4 million profit on the New York route, even with the £2 million loss on the Washington route, there is a net gain.
I find this wish of British Airways to continue the operation all the more impressive because I have reason to remember very clearly that at any rate some people in British Airways were once very much against the Concorde project. Looking back and assessing some of the cost factors, it is fair to say that their arguments at that time—I am thinking of six or more years ago—were probably deserving of more respect than I was inclined to give them in the discussions we then had. However, the capital costs have now been incurred and as far as British Airways is concerned they have been written off. Given those facts, it seems to me inconceivable that present operational plans and programmes should be cut out and that Britain should quit the one technical and industrial field in which, with their French partners, they are now supreme.
I should like to consider for a moment the question 261 of the future and the possibility of keeping Britain in the SST business. Without any doubt at all, supersonic transport over certain routes will be commonplace in the future. The question is whether they will be operated with aircraft which we have had a share in making.
I gather that there were recently some rather silly remarks about the snob appeal of the Concorde. If it is snobbish to travel quickly and comfortably from A to B, then I confess to being snobbish. But few who have actually travelled from Europe to the United States by Concorde, or, for that matter, from London to Bahrain, will deny that it is a superior form of travel. It is not only quicker; it is less tiring in kind as well as in time. If I am told that it is a form of transport that is reserved for the few, then I can only say that when I first crossed the Atlantic in a converted Liberator that was considered a little eccentric, and other people were said to be practical if they took four or five days on the sea trip. But times have changed and they will go on changing, and I hope that the Minister will be able to give us some assurances that Britain will be kept abreast of those changes.
Some little time ago, I had discussions with Mr Sandy McDonnell of McDonnell Douglas, about collaboration with them on the SST. I believe that a certain amount of work has been done together on noise reduction, and I should be glad if the Minister could tell us whether this working together will be encouraged. At some point, there will need to be decisions about a larger SST, with longer range and a quieter power plant. It has always seemed to me that this will best be done on a tripartite basis—the United Kingdom, France and the United States of America. Again, it will be good to hear from the Minister who is to reply that there will be active encouragement from the present Government of any practical moves in that direction.
I make one further point. The so-called halo effect has been mentioned by the noble Lord and by myself. I agree with him that it is not easy, or indeed possible, to quantify the additional commercial value to British Airways; that is to say, the additional revenue earned by the airline which has an enhanced reputation springing from its supersonic experience. But there is also an additional spin-off for the manufacturers—for the component manufacturer as well as for the airframe and aero-engine manufacturer. I can think of more than one example of skills learned on the Concorde being applied to other projects, and at least one other major maintenance contract was on the back of the Concorde experience.
But in addition to the value to the operator and to the manufacturer, we should not, as the noble Lord, Lord Glenarthur, said, underrate its value to Britain itself and our reputation in the world. As the noble Lord said, it has captured the imagination of people throughout the world. I recall landing at Mexico City in the Concorde. It was estimated that there were 500,000 people at the airport—a most remarkable reception.
The noble Lord said that it turns the head of everyone who hears it passing by. I can remember one seasoned old reporter at the Washington Inaugural, telling me how it was not simply a matter of heads turning, but of some ladies bursting into tears when they first saw this aircraft coming out of the sky and landing at Washington 262 It was not just that it is a beautiful aircraft—and it is a supremely beautiful aircraft—coming in to land. It was the feeling that the New World and the Old World were being brought closer together.
We heard earlier today of one more industrial failure in this country and the general economic outlook is bleak, almost without relief. But many in the world see this great Anglo-French technical achievement of Concorde as something which is immensely to our credit, and I hope that we can keep the picture that has been created of Britain and France, by the technical achievement there, as bright as is possible. I hope that the answer we shall get later will be an encouraging one.
§ 7.15 p.m.
§ Earl Amherst
My Lords, I, too, should like to thank the noble Lord, Lord Glenarthur, for giving us the opportunity to discuss this matter, and I strongly support him in his request to the Government for an assurance that they will continue their support of the Concorde services, for the following reasons, which I should like to give quite briefly.
Although the New York service had a very rough start, which was in no way the fault of British Airways, in the present financial year, 1980–81—and British Airways' financial year goes from April to March—the New York service has shown a cash surplus of some £4 million. Over the same period, the Washington service showed a cash loss of £2 million. As your Lordships know, the service to Singapore ran into a great many difficulties and made great losses, so it was withdrawn. For the 1981–82 period, it is anticipated that the New York service will again make a cash surplus of some £4 million, but again, too, the Washington service is likely to show a cash loss of £2 million, leaving a surplus of about £2 million.
In the period 1982–83, an overall cash surplus of about £5 million is anticipated, but this relies to a certain extent on British Airways being able to extend its Washington service through to Miami. I understand that there are also plans for new services to Japan, South Africa and Canada, as the noble Lord has already mentioned. But a lot must depend on there being no serious increases in fuel costs and airport charges, and a cessation of our industrial difficulties and disputes, any one of which can play havoc with the present services and plans. It should be noted that if the existing services are to be cancelled or withdrawn, there will probably be a loss of about 600 jobs, which I should have thought was a totally unacceptable prospect at any time, especially at the present moment.
An analysis of the track record of the Concorde service to the States shows that business travel accounts for something like 86 per cent. The reason for this is that time is now of the essence in so many contracts, agreements and regulations and that, and the saving of other travel costs, such as hotels, more than compensates for the extra cost of the flight. With time being very much of the essence, it is also important to note that very expensive airmail services, with their heavy delays of delivery on both sides of the Atlantic, no longer meet the needs of the average business man.
263 Apparently, this business traffic goes from all over the United States to New York in order to catch the Concorde service, and, indeed it comes from a great many points in Europe to London for the same reason. I think I am right in saying that we know the French Government support their Concorde service mainly in the interests of national prestige, but British Airways operate mainly on a commercial basis. There can be no doubt that the Concorde is a unique technological achievement and a forceful commercial power. So I hope we shall hear from the noble Lord, Lord Trefgarne, that the Government will give the assurance for which the noble Lord, Lord Glenarthur, has asked.
§ 7.20 p.m.
The Earl of Bessborough
My Lords, like other noble Lords, I am most grateful to my noble friend Lord Glenarthur for raising this Question this evening and I am happy to support him in his general argument, as well as the remarks of the noble Lord, Lord Beswick, and the noble Earl, Lord Amherst. Having visited oil rigs in the North Sea by helicopter, I know some of the problems with which my noble friend has been faced. I once got lost in the fog there. It reminded me of the times, before the war, when I used to fly to the Arctic.
Being half French, I have been interested in the development of Concorde ever since its conception. During five and a half years at our Embassy in Paris immediately after the war, I was concerned to encourage joint Anglo-French projects in advanced technology—civil nuclear power, electronics and aerospace. For many reasons, not all potential co-operative projects were successfully achieved. We both went our own way on television standards and we never co-operated as fully as I think we should have done in atomic energy for electricity generation. Nor, indeed, in aviation, over the Viscount, the Comet, the VC10 or the Caravelle did we effectively co-operate.
However, despite all the differences arising out of working in two languages, on different standards and from two bases, Bristol and Toulouse, Concorde became and still is the tremendously impressive joint technological achievement which other noble Lords have already mentioned. I am glad that more general European technological co-operation in aerospace has also been successful in so far as the European airbus is concerned, the multi-range combat aircraft, the Tornado, and more than one Anglo-French helicopter. As my noble friend knows full well, they have been successes; so it can be done.
In 1962–63 I was involved as a Minister for Science with my noble and learned friend, now the Lord Chancellor, and with my right honourable friend Mr. Julian Amery, then Minister for Aviation, in the decision finally to go ahead with Concorde. Later, as an Opposition spokesman on these questions from 1964 to 1970, I continued to take a close interest in the SST project, and even attended technical working parties in Toulouse which were conducted in the two languages. As the noble Lord, Lord Beswick, knows, it was slow work. None the less, it produced what is technically this quite remarkable aircraft.
During the later 'sixties, I also visited the American aircraft industry on the West Coast. As a result—I 264 want to admit this to your Lordships, perhaps for the first time—and partly because of the then already escalating costs, I became in favour of France and Britain bringing in an American partner. At that time when the United States Government had given their SST contract to Boeing, I thought that Lockheed, who had designed a somewhat similar supersonic transport to Concorde, would be our best partners. I still believe that I was right and that the aircraft would have been more successful, especially in the United States and indeed in other parts of the world, if the project had then been tripartite. But in those days my friends in both the British Aircraft Corporation and Sud-Aviation, the predecessor of Aerospatiale, feared that if the Americans were brought in they would dominate the whole project. However, I still regret that this never happened. As we know, the Boeing design never got off the ground and was cancelled by the United States Government.
Then in 1970, as Minister of State (Aviation) at the Ministry of Technology, I was concerned with supersonic operational problems and the cost-effectiveness of the aircraft at that time. That was before the energy crisis hit us and the cost of aviation fuel exploded, if I may put it like that. Then again, in the mid- 1970s, as a spokesman on advanced technology in the European Parliament, I continued to support the project and flew on a proving flight to Newfoundland, leaving at nine o'clock in the morning, attending a three-hour meeting in Gander and getting back to London very early in the afternoon of the same day—I may say as fresh as a daisy—to find, if this is not irrelevant, that my daughter had produced a grandson just at the moment when I was going through the sound barrier. I need hardly say that the grandson's middle name is now, unofficially, "Concorde". I hope noble Lords will forgive me for this irrelevant interpolation, but that was a remarkable experience. Having gone through the sound barrier of all these development phases and had the good fortune to travel on recent scheduled Concorde services, I would regret it if commercial supersonic flying was stopped from this country, especially if the French continued to fly.
However, I feel now, even more strongly than in the 'sixties, that the next generation of supersonic aircraft must be developed in conjunction with the United States and, maybe, even other countries. I think now that McDonnell Douglas—I saw their representative this afternoon and he authorised me to say this—would be the most appropriate partner with whom we should now co-operate, although perhaps it might be a wider United States consortium. In these circumstances I am certain, from what I have heard from my American friends, that British Aerospace and Aerospatiale would be assured of full participation in such a tripartite project.
I am also interested in the possibility—I do not know whether my noble friend Lord Trefgarne could say anything on this; I am sorry that I have not warned him—that we might offer to the National Aeronautics and Space Administration in the United States a Concorde as a gift or on hire, on condition that Britain and France have a full share in any commercial SST developed in the United States. I hope that the new Republican Administration under President Reagan may be well disposed to Britain and 265 France participating in the development and returns in respect of such an aircraft. Having pioneered in commercial supersonic transport, Europe must in my view retain its foothold in a project which in some respects is, I think, more practically significant and important to mankind than landing on the moon. That was a message which my noble friend implied in his remarks introducing this Question.
Technically, Concorde has demonstrated that supersonic transport is feasible and can operate safely and consistently within the present framework of airways and airports. The two airlines, British Airways and Air France, have had no significant problems in absorbing Concorde into their operating and maintenance procedures, as I am sure the noble Lord, Lord Beswick, knows. Exceptional levels of product support have not been required.
I should like to add that British Aerospace and Rolls-Royce have also derived, as has already been mentioned, "spin-off" benefits from the project. I am glad to learn that continuing technical advantages are seen from future in-service experience. Moreover, cancellation of Concorde services would enable competitors to claim that Concorde was technically not supportable. Commercially, the prime route is of course the North Atlantic where a small but steady increase in passengers is evident. I might add—I am not certain whether another noble Lord has already mentioned this—that Concorde is the only daylight service from Kennedy to Heathrow; that is to say, eastbound. Despite the dramatic increase in fuel costs and predicted future increases, British Airways, I gather, forecast a £2 million surplus on existing routes in 1981, rising to £5 million by 1985.
I feel that I ought also to emphasise here that contractually unilateral cancellation has not been catered for in the constructors' inter-company agreements. British Aerospace and Rolls-Royce have technical airworthiness and product support responsibilities for 50 per cent. of the aircraft's elements. Withdrawal of their support, as I think my noble friends would agree, would make it impossible for either airline or the French manufacturers to continue to operate. Claims for breach of contract could be made against British Aerospace and Rolls-Royce, who would seek to recover any damages from Her Majesty's Government under an indemnity clause in their contracts with the Government. Such an event would certainly affect our status as collaborators with our European partners at a time when I believe European technological co-operation should be intensified.
As I understand it, the social consequences of cancellation would involve an estimated 2,145 redundancies at British Aerospace and Rolls-Royce and their sub-contractors; some redundancies, as noble Lords know, at the Royal Aircraft Establishment and sub-contractors and suppliers. Some 564 redundancies is the figure that I have been given for British Airways. Therefore, let us hope and pray that Her Majesty's Government will, in their wisdom, give some kind of assurance. I am not asking them, any more than the noble Lord, Lord Glenarthur, for an unqualified assurance, but for some optimistic noises that support of the present Concordes will be continued, even if perhaps no more are built, and also that some consideration will be given to possible military uses 266 of the aircraft. I will not go into details of that this evening, although 1 imagine it would be useful for the Chief of the Defence Staff and his staff, if they felt it necessary, to get from here to Washington or Ottawa, or let us say Singapore or Canberra in an emergency.
I hope, too, that Her Majesty's Government will also support Anglo-French collaboration with a United States consortium when the time is ripe and appropriate negotiations have been concluded. I know that we must control Government expenditure, but in this field we and France are ahead of the whole of the rest of the world and I think we should invest in it. The prestige element has been mentioned by all noble Lords. It is not insignificant. I think we should continue to invest in this great supersonic aircraft.
I am grateful to the noble Lord, Lord Glenarthur, for having raised this matter, which in my view is of very great importance to the Western World. We have to wait and hear what my noble friend says, and perhaps this plea may not necessarily be very well received by Her Majesty's Government; but I do think that my noble friend was right to make it.
§ 7.35 p.m.
§ Lord Gore-Booth
My Lords, as I have very little technical knowledge of this great enterprise which we are in a sense developing from debating into celebrating —and quite rightly—I will be very short indeed. But I should like it to be felt that there is some particular exhilaration in being here at this time as a retired member of the Diplomatic Service. All the people engaged in this tremendous profession perhaps owe quite a lot to our service for the collection of fares, even if they are payments from one Government to another !
As autobiography is apparently just allowable on this occasion, perhaps I may join other noble Lords in a slight personal reminiscence. In my official duties, I have had the privilege of being present at the first landing ever of the Concorde in Kenya, arranged for me by my late friend Malcolm MacDonald, who was a great supporter of all your acts and inventions. Also, I saw the first descent of this aircraft in India, at a horrible time in the middle of a cold night; but there it was. There was one of the earlier "births", if we can fairly say that, of the extension of the Concorde services, and its appreciation elsewhere. One waits hopefully, particularly in view of the tone of so many of these speeches, for a rapid expansion of, particularly, the earning power of this wonderful aircraft. But I must express my satisfaction at being here at this time.
Obviously, I am not going to try to make suggestions to this extremely distinguished and technically learned company; I am going to make only one suggestion, and that is about something which did not start too well but about which I think those handling the flights have now learned a great deal. On those occasions which I mentioned, which should have been very splendid occasions, we were still in an era of being rather shy about public relations, and I should like to congratulate all those who have been engaged in the work on this side; to express congratulations on the improvement of that arm, which quite frankly at the early stage was almost amateur in what it did not do. I am sure that lesson has now been learned, but I 267 have no shame in mentioning it, so that it shall be understood that this will remain, for a country which is still apt to be a bit diffident about itself, not of the standard which a great enterprise like this needs and deserves.
I should like very much to express, again in my former capacity, the greatest pleasure which it gives all people in my kind of occupation to know that this has all been accomplished in partnership with our great French allies. People in my profession certainly know that sometimes we and our French friends get a bit across each other, although not for long, and it is wonderful to have an unparalleled form of partnership which we have developed as a result of this great aircraft. It is wonderful to know and it has enriched the performance and the character of this great enterprise that it has been performed as an international partnership.
I would just express a hope en passant that our political relations in general with our French friends should be inspired by the spirit which animated those brilliant engineers and others who brought the Concorde aircraft into existence. It has been an immense accomplishment which will never be forgotten, an accomplishment which will live in the lives and thoughts of all of us here, and will, as I say, continue to animate the memories of those of us who have in our time, or are even now like Lord Trefgarne, dealing with each other as individuals, as members of organisations, knowing that we have as a pair of nations something unique to live up to. In other walks of life we should always have in mind what we could do together; we have done many other great things together before, but this is something so conspicuous.
I think from the way noble Lords have spoken this evening it will remain not only part of the common accomplishment which will exist in the lives of our two peoples. To others who have helped and worked with us, who go on increasing, that will be part of what one might call la vie Anglo-Francais. That is really what one has to say. But, once again, I would simply like to emphasise the privilege which it is to be here on this occasion and to wish—even if this has become a different kind of speech—all those with whom I have worked, and my successors in the business of diplomacy, a happy co-existence of an active and useful kind to all the rest of the world.
§ 7.42 p.m.
§ The Earl of Kinnoull
My Lords, I should like to echo the praise of other noble Lords to my noble friend for introducing this debate tonight, and indeed for attracting and maintaining here the presence of such heavyweight pilots as the President of the British Airline Pilots Association, sitting, I am delighted to see, in his increasingly rightful position on the Front Bench of the Opposition, and long may it last on the Front Bench of the Opposition. It is a pleasure to hear my noble friend combining his professional knowledge as a pilot with now the persuasive tongue of a practising advocate, very much in the mould and style of my noble friend who will reply.
My Lords, the timing of my noble friend's Question is extremely opportune because even the most loyal supporters of Concorde, and there are many here tonight, must feel a certain apprehension, in the economic 268 climate in which we move, for its future; the fear that some hard-nosed, narrow, blinkered accountant will try to persuade either British Airways or Her Majesty's Government to pull the plug and so end an era of Concorde and of supersonic commercial flight, and indeed, as other speakers have said, leave Air France to operate alone. The economic conditions, with the cost of fuel and the apparently increasingly high cost of engine maintenance of the aircraft, together with the recession in air travel, are fairly daunting conditions. But even more so, of course, are the daunting problems of British Airways with their cutbacks in staff and in aircraft and in services.
It is therefore immensely encouraging to hear from British Airways that this small operation, part of their very large international service and network, does have, in their unemotional and clinical view, a commercial and prestigious value which they have no wish to lose. Perhaps my noble friend may feel that the most important contribution of this debate tonight is that it has emphasised in one way or another the points that should be hammered home, the inestimable value of Concorde, not only its prestigious commercial value but also its value to British industry, as the noble Lord, Lord Beswick, mentioned. The value to our aerospace industry of the experience drawn from five years' service of Concorde, a reason to keep a test bed operation, a reason to keep a team together at British Aerospace, and to keep the hope alive of a future supersonic development programme.
These are the sort of arguments that no doubt do not persuade hard-nosed accountants, or those who throw jibes at Concorde, that it is only fit to fly pop stars. But my noble friend Lord Trefgarne, is I am sure, inside —and we shall see whether his brief allows him to be—a supporter of Concorde. I hope he will be positive tonight on the value of continuing the Concorde service, positive on the examination of other routes for Concorde, to Singapore and Australia as one and New York and Miami as another. It does require Government support to assist the operators to achieve these routes. I hope he will be positive on future collaboration on the next Concorde, as Lord Bessborough said.
My noble friend Lord Glenarthur reiterated the British Airways' view: their confidence in moving from operating losses to operating profits on the North Atlantic routes; their determination to find an increased market with the decision on the standby services they are planning to introduce; the possibility of their freight service, and the value they see in retaining Condorde as a supreme service. Those who have witnessed the pride which those who operate Concorde show to the passengers, or who see this great big beautiful bird take off from Heathrow and disappear into the sky—even they forgive the noise. They see indeed that here is the British crown jewel of achievement, of pride, and yet of great commercial value. I hope my noble friend will say from his brief that Her Majesty's Government should not abandon this, but will endorse my noble friend's plea tonight.
§ 7.48 p.m.
§ The Parliamentary Under-Secretary of State, Department of Trade (Lord Trefgarne)
My Lords, the agreement between the British and French Governments for 269 the development and production of the Concorde supersonic transport aircraft was signed on 29th November 1962. Indeed, as one noble Lord reminded me, I think it was my right honourable friend Mr. Julian Amery who affixed his signature for the British Government. Some 13 years later, on 21st January 1976, the aircraft entered commercial airline service with British Airways and Air France on inaugural flights to Bahrain and Rio de Janeiro. During 1979 the last Concorde was completed, ending a production run of only 16 aircraft. Of these 16, two were retained by the manufacturers for development testing and seven each have been placed with British Airways and Air France. My noble friend's Question therefore comes at a time when development and production of the aircraft have been completed, and when the two airlines have just passed the fifth anniversary of Concorde's introduction into service.
It may, therefore, come as somewhat of a surprise to some of your Lordships that there is still a substantial programme of Government support for Concorde. I shall, therefore, if I may, take a little time to describe the nature of this support and the policy that has underlain it. As your Lordships will know, an aircraft manufacturer's responsibilities do not end when his product has been delivered to the customer. Indeed, as my honourable friend the then Minister of State for Industry, Mr. Adam Butler, and the French Minister for Transport noted when they met to consider these matters in September 1979, continuing technical support for the aircraft and engines by the manufacturers will be necessary so long as Concorde remains in service with either airline.
The manufacturer is obliged by the contract of sale to provide a continuing supply of spares, to replace under warranty parts which fail during the period specified, to undertake continuing development work required for airworthiness and operating reliability, to provide a technical back-up to the aircraft and analyse incidents which occur, to provide updated technical literature, and a number of other matters. In addition to these manufacturers' tasks, the British Government are responsible for the cost of continuing work on the major fatigue test specimen at the Royal Aircraft Establishment at Farnborough.
These commitments to support Concorde are therefore very broad ranging; and the cost has been considerable. In the five years 1976 to 1980, the British Government, whether directly or through the manufacturers, have spent about £250 million at historic prices on the support of Concorde, which includes post certificate of airworthiness development of the aircraft and engine. This is additional to amounts spent on production during the same period. Expenditures in France have been the equivalent of somewhat in excess of £200 million. Offsetting this the British manufacturers have sold to British Airways and Air France some £75 million of spare parts and other support services, and the French manufacturers about £50 million worth.
To cover the substantial differences between expenditures and receipts—some £175 million in Britain and about £150 million in France—the manufacturers have understandably had to look to their respective Governments. It was indeed inherent in the decision taken by the two heads of Government in July 1974 270 to continue only the 16 aircraft programme already authorised, that such Government financial support would be provided. In Britain the arrangement is that the Government, under contracts with the manufacturers, meet all agreed and verified expenditures (including an amount for a non-risk rate of profit) and take all receipts. Though no time limit has been set for these arrangements—which incidentally remain unaffected by the impending infusion of private capital into British Aerospace the Government have the right, as with all Government contracts, to give three months' notice of termination. Additionally the Government finance directly work undertaken in Government research and development establishments, notably, as I have already mentioned, for the major fatigue test specimen at Farnborough. It is essentially a continuation of these financial commitments that my noble friend seeks in the Question that he has asked this evening.
If allowance is made for price changes and account taken of rising receipts, the net cost to the two Governments of Concorde support has fallen sharply over the past five years, and it is still falling. However, even now not inconsiderable sums are involved. Financial Estimates that will shortly be laid before Parliament envisage gross expenditures in 1981–82 at forecast outturn prices of some £65 million, covered as to £33 million by expected receipts, leaving a balance of net expenditures of some £32 million.
It is consequently perhaps not surprising that the House of Commons Select Committee on Industry and Trade should have decided last July to call for evidence on the operating and associated costs of Concorde, and subsequently to have decided to inquire into these matters with a view to reporting to Parliament. This is the first substantive inquiry by a parliamentary body into the in-service support phase of Concorde, just as the debate we are having tonight is the first occasion on which either House of Parliament has discussed Concorde support, as distinct of course from the development and production of the aircraft.
The Departments of Industry and Trade have been co-operating fully with the committee in their inquiry, as have British Airways, British Aerospace and Rolls-Royce. Three departmental memoranda have been submitted; and on 4th February my honourable friend the Minister of State for Industry Mr. Tebbit appeared before the committee in public session. The matters into which the committee are inquiring are of some complexity, and none more so than the question of the relative costs of continuing Her Majesty's Government's contracts with the manufacturers for Concorde support—as my noble friend advocates—or of cancelling them. The Department of Industry has submitted both written and oral evidence on this topic, so closely linked to tonight's debate. As my honourable friend indicated in his oral evidence, it is now beginning to look as if cancellation, even if agreed by all the parties after consultations with them, would result in there being no significant net savings to public funds over the next few years.
This assessment was based on estimated costs of cancellation in the 15-month period beginning 1st October 1981 of some £36 million, as compared with net costs to public funds of continued support of somewhat under £2 million a month. The estimated 271 costs of cancellation assume cancellation on an agreed basis and after consultation with interested parties. The costs of unilateral withdrawal could well be higher. However, a definitive picture has yet to emerge; and this will remain the case until the department can re-work the estimates on the one hand to take account of the on-going social costs of cancellation beyond the 15-month period, and on the other hand to update the costs of continued support using the 1981 Public Expenditure Survey forecasts as a basis.
Meanwhile, I think that it is generally accepted that any assessments as to whether it would be cheaper to cancel Government support for Concorde than to continue it are necessarily tentative, not to say hazardous. Indeed, it is just because the position is so uncertain that the committee has asked for further calculations to be submitted. These are in hand. Your Lordships will therefore understand if, on behalf of the Government, I am unable to give tonight the clear-cut and unqualified assurance which my noble friend seeks in his Question.
§ Lord Beswick
My Lords, I hope that the noble Lord will allow me to intervene for a moment. He said, or he gave the impression at any rate, that the decision would be made on examination of the cash-in, cash-out basis. Who is making the assessment of the incidental advantages of this continuation?
§ Lord Trefgarne
My Lords, if the noble Lord is referring to the advantages, other than the purely financial considerations to which I have referred, then I feel sure that those will in the first instance, in any event, be matters which the Select Committee, which is currently considering the matter, will want to take very carefully into consideration. I wish to say quite clearly that the Government will not reach any premature decision in this matter, and certainly not before they have had a chance to consider and study the report being prepared by the Select Committee in the other place.
What I can, however, say—and this, I hope, will provide some assurance to my noble friend and to others who have spoken for the continuation of Government support to Concorde—is that the Government have no plans to terminate arrangements of a contractual nature for the project's continued support. This is inherent in the request that the Government will shortly be making to Parliament for funding to meet the full costs of support in the financial year 1981–82, and to which I have referred earlier in my reply.
I should now like to turn to some of the points that have been made in the debate tonight.
§ Lord Davies of Leek
My Lords, I do not wish to delay the House because I did not take part in the debate, but I presume there is some sense of urgency in the Select Committee getting down to work in order to get an early answer to this problem?
§ Lord Trefgarne
My Lords, it is not for me to suggest how the Select Committee should conduct its affairs, but I understand that we expect to receive a report from it in about three months' time.
I shall now turn to some of the points which have 272 been made. I should like to start on a personal note. This year, as in previous years, I went to the Farnborough Air Show and for the first time I took my two small sons. I recall—surprisingly, as I thought at the time—that the two things that really thrilled them were the Lancaster of some 40 years of age, I imagine—older than I am, I think—and the Concorde. They seemed not in the least interested in the modern jet fighters which whistled by with such regularity at Farnborough. But the Concorde coming over and suddenly applying its power and climbing away into the sky was something which they talked about for at least a whole day afterwards.
I return now specifically to the points which have been raised in this debate. In addition to referring to the costs of in-service support, my noble friend Lord Glenarthur has spoken of the costs of developing the Concorde aircraft and engine, of the costs of production, and of production receipts. It has been the practice of successive Governments to report periodically to Parliament on these matters and to give figures for the French contribution as well as those for Britain.
The most recent such statement was contained in an answer which my honourable friend the Parliamentary Under-Secretary of State for Industry, Mr. Marshall, gave to the House of Commons on 16th June last year. This showed the British manufacturers estimated total development costs as £580 million, their total production costs to the end of 1979 as £366 million, and their receipts from the sale of aircraft, and from the sale or lease of engines and spares, also to the end of 1979, as £146 million.
My noble friend also referred to the financial assistance which the French Government gives to Air France. This is of two kinds. The Government meets 100 per cent. of Air France's capital expenditures on Concorde, this being almost entirely to enable Air France to repay monies which they borrowed to acquire their original fleet of four Concordes and spares. This accounts for about two-thirds of the total financial assistance, or about £20 million equivalent annually.
The other form of assistance is that the French Government now meets 90 per cent. of Air France's Concorde operating deficits, which is about £10 million equivalent annually. Until the end of 1980 the figure was 70 per cent., and, as the price of obtaining a higher contribution from the state, Air France has surrendered to the Government the right to determine on which routes Concorde should be operated and at what frequencies.
These arrangements are tailor-made to the particular circumstances of Air France, namely, the continued reliance on outside capital and the fact that, with the marginal exception of New York, none of Air France's Concorde services returns an operating surplus, even if no allowance is made for amortisation or return on capital employed.
The circumstances of British Airways are very different. The airline have been relieved of the capital debt associated with the purchase of Concorde by the decision to write off £160 million of public dividend capital under the provisions of the Civil Aviation Act 1980. The airline receive no subsidy to cover any Concorde operating losses; and, under arrangements made following a review of the airline's 273 finances and announced by the then Secretary of State for Trade to Parliament on 22nd February 1979, 80 per cent. of any accumulated operating surpluses are to be paid over to the Government.
These arrangements were agreed with the airline against the background, first, that British Airways set high store on retaining commercial freedom to decide whether to operate Concorde and, if so, on which routes and at which frequencies; and, secondly, that the airline at that time foresaw a rising trend of operating surpluses. In the event, as noble Lords will be aware, there have been substantial operating deficits; and the cumulative effect of these will delay any return to the Government under the 80 per cent. arrangements.
The airline are now hopeful that, with the suspension of the heavily loss-making route between London and Singapore and with revenues on their remaining services to North America having caught up with the sharp rises in fuel and other costs of the last two years, they have turned the corner financially. In this connection they recently advised the Select Committee on Industry and Trade that in 1981–82 the airline expect to earn a surplus of some £2 million overall on their Concorde operations, and significantly larger amounts in ensuing years. This is in contrast with the continued operating deficits expected by Air France with its much less profitable route structure.
Given the very heavy investment which the Government have made in providing Concordes and associated spares to British Airways without charge, it is only right—as I am sure your Lordships would agree—that the Government should have the major share of any future operating surpluses.
My noble friend Lord Glenarthur also outlined various ways in which there might be closer collaboration between the Government and British Airways to improve the profitability of the airline's Concorde operation. His specific suggestions, as I recall them, were that the Government and the airline should get together to devise a better route structure for the airline's Concordes, which was mentioned by at least one other noble Lord, and that the Government should support such non-scheduled activities as charter flights and so on.
The Government, as the major beneficiary of any accumulated operating surpluses earned by British Airways' Concordes, have a direct interest in seeing that the airline turns in the best possible financial performance. To this end, as well as undertaking such services as negotiating to secure landing and overflying rights, the Departments of Trade and of Industry maintain a close dialogue with the airline about their Concorde operations and how these might be improved. Several years ago, for example, the Department of Industry, which was then concerned with placing the remaining unsold British-assembled Concordes, took the initiative in establishing a Concorde Potential Routes Committee, This brought into one forum British Airways, the various interested departments, British Aerospace and Rolls-Royce. Shortly afterwards, the department formulated the concept of the maximum profitable utilisation of Concorde, rather than its maximum utilisation, as being the objective towards which it seemed right to aim. This is now very much the British Airways Concorde operating philosophy.
274 In maintaining this dialogue, the department have no wish to seem either to be trying to teach the airline their business, or to be formulating British Airways' commercial policy towards Concorde. As I mentioned when speaking about the Air France arrangements, British Airways set high store by retaining their commercial freedom on Concorde, no less than in their subsonic operations.
Within these limits, I accept, however, my noble friends view that the Government have a role to play in the cross-fertilisation of ideas that is so necessary for the commercial and financial success of this aircraft to the mutual advantage of the airline and ourselves. As is to be expected in a collaborative project, this cross-fertilisation does not stop short in Britain. Thus there are regular exchanges of view between the British and French officials who constitute the Concorde Management Board established under the 1962 Treaty, and also directly between British Airways and Air France on the support and operating aspects of Concorde.
As part of the new financial arrangements for British Airways' Concorde operations announced in 1979, it was agreed that from the year 1978–79 onwards surpluses from such operations would, as I have already said, be shared, with 80 per cent. being paid to the Government and 20 per cent. retained by British Airways. The airline are, however, entitled to set off any accumulated Concorde operating losses before such surpluses are shared in this way. In the years 1978–79 and 1979–80 British Airways' Concorde operations made a total loss of £8.5 million on the basis of the new financial arrangements. The forecast for 1980–81 is a further loss of around £6 million, but, as I indicated earlier, British Airways expect Concorde services to begin to generate surpluses from 1981–82 onwards.
My noble friend Lord Glenarthur also asked me about expenditure on developing an advanced supersonic aircraft. The continuing operation of the aircraft in airline service and support of the manufacturers are themselves valuable contributions to the development of supersonic technology. They will add to the potential contribution that the United Kingdom and France could make to the development of an advanced supersonic transport aircraft. But I have to say, regretfully, that most observers put such development many years in the future.
My noble friend Lord Bessborough suggested that we should give a Concorde aircraft to the National Aeronautics and Space Administration in the United States in return for a share for the United Kingdom and France in a future SST programme. I understand that British Aerospace has, in fact, been holding discussions with NASA about the possible use of a Concorde aircraft in its supersonic cruise research programme. If and when a firm proposal is made by NASA, it will be carefully considered by the British and French authorities.
My noble friend has raised issues of very considerable public importance. Your Lordships will be grateful to him for the opportunity that he has given for these to be debated and, indeed, for the contributions that other noble Lords have made to the debate tonight. The Government will naturally take careful note of these sentiments in the months to come.