HL Deb 26 April 1982 vol 429 cc762-72

7.8 p.m.

Lord Beswick rose to ask Her Majesty's Government to what extent they are prepared to finance a British component in the A320 Airbus as part of the policy of encouraging European collaboration in growth areas of advanced technology.

The noble Lord said: My Lords, the purpose of this Question is to get a statement, as clear as possible in present circumstances, about the Government's position regarding Britain's partnership in Airbus Industrie. I shall suggest that the future of that partnership will to an important degree depend upon Britain's contribution to the proposed A320 Airbus. Therefore, I am asking about the possibility of Government support—which means financial support, or launching aid as it was once called.

May I briefly say something about Airbus Industrie? It is one of the most successful examples—probably the most successful example—of the beneficial possibilities of European collaboration. At the time when I left the supervisory board, more remained in my view to be done about its financial control, but its technological and commercial expertise and achievements must be wholeheartedly admired. In this organisation it is not just a matter of talk; they have been successful in a very hard competitive market. Over 500 orders and options have been won for the A300 and A310 versions of the airbus. It is sad, at least in my opinion, to think that the only major airline in Europe which has not bought the airbus is British Airways.

The decision as to whether to take up a partnership in Airbus Industrie was one of the most important and probably the most difficult that the newly formed British Aerospace had to make. There was a quite fascinating body of opinion and interests in support of the idea that Britain's only hope of getting a place in the larger civil airliner business was as some sort of sub-contractor to the American Boeing company. I am sure that those views were held sincerely as well as strongly, though I thought then, and I think now, that British Airways and Rolls-Royce accepted the possibility of an American monopoly in this field with a touch of complacency. However, the decision was made for British Aerospace to join AI as an equal partner with our French and German friends. Most informed people have said subsequently that it was the right decision.

The other partners in AI now want to build on success and extend the airbus range with the A320 150-seater aircraft. Both the French and German partners have had encouragement from their respective Governments. The French, in their logical way, have said that Air France will buy 50 of these machines. I could say a lot about the advanced character of this fuel-saving aircraft, but it is not for me at this time to spell out the technical advantages. Others elsewhere will do that more completely than I. But I do stress that there is no doubt about the potential market. This is the market that we, Britain, know best. The A320 will replace the 1–11, the Trident, the 727, the 737 and the DC9. It is estimated that 2,500 aircraft of this size and range will be ordered by the year 2000. Present airbus customers are estimated to want 1,000 aircraft by the same end-of-century date. I understand that the financial forecasts are made on a rather more conservative sales figure of 750, and, given sales of that order, there should be a positive return by the 1990s.

My Lords, if these are the estimates, it is fair to ask why British Aerospace need to come for launching aid. The answer is that they do not have the amounts of money needed over the necessary years of peak investment. They have backed their own judgment with their own money with the smaller aircraft, the Jetstream and the BAe146. In those two cases, if on a smaller scale, the money invested on R and D and initial production involves a wait of years before there is a positive return.

When supporters of the present Government went round the BAe factories telling of the alleged advantages of selling off half the company, they said quite often and quite firmly that one of the advantages would be that the new company would be eligible for launching aid. It is a curious fact that under public ownership all the previous assistance to the industry—funds for civil aircraft research and for launching costs—was ended abruptly. I am now asking whether these promises of launching aid will be fulfilled, always assuming of course that further information as it becomes available will be considered, by both BAe and the Government, to justify the go-ahead. But it seems to me that the credibility of Britain as a partner will be accepted only if it is known that the money could be made available.

Conceivably the partners may want launch orders in addition to that of Air France. There are still important questions regarding engine availability. But in all those necessary decisions and discussions Britain should be taking part on the basis that they will be taking up their share of liabilities and opportunities. There is also the key question as to what that share should be. We have more experience in Britain in building this size of aircraft. We should be taking a leading part. Moreover, unless we are in at the beginning with a leading part the position of British suppliers of equipment, and indeed of engines, must be less favourable.

I would like to say something about the terms of any financial support, and I hope there is no need for me to stress that I am only giving my personal views. As I understand it, the requirement is for a repayable loan, not a gift. The terms of that loan will no doubt be open to negotiation. In the old days of private ownership the repayment of any launching aid was usually dependent upon the success of the project concerned. The company itself took little risk. There were exceptions and it is true that successive Governments were beginning to tire of the "heads you win, tails we lose" sort of arrangement. What I want to say here is that if the aid can be given only on the basis that its return is guaranteed by the company and not by the success of the particular project, then I hope that that arrangement will be acceptable to all concerned.

Then I want to ask the Minister who is to reply for the Government whether they have contemplated the situation if Britain fails to keep up with the other partners. McDonnell Douglas have now pulled out of this particular market. There would be an absolute killing to be made if Boeing were left with a monopoly, but there would also be a very good living for two competing manufacturers, one American and one European.

If BAe dropped out of the European project almost certainly others would come forward. I believe the Australians are interested. So are the Canadians. The Spaniards no doubt will take up their small share, and I gather that the Italians are beginning to change their minds about the merits of A.I. membership. Then there is always Fokker, who can be expected to do what is necessary to keep their capacity employed. It is not unfair to say that our standing in this business would be a diminishing one if we did drop out and others took our place.

I make one last point. According to a report issued by the West German Embassy after the meeting of Chancellor Schmidt with President Mitterrand, the Chancellor referred to what he called the special relationship between Germany and France and gave the collaboration of the two countries on aircraft manufacture as one piece of evidence, and he suggested it should be taken further. The implications of that are quite wide and they should be considered.

My Lords, I am sure that the Minister who is to reply will agree that we are not here talking of a prestige project, but of a practical commercial development in the sort of growth industry in which we can earn a living. I hope that the Minister will be able to say that he agrees with that line of thought and that the Government are prepared, given all the necessary information, to back up their thinking with the necessary funds.

7.20 p.m.

Earl Amherst

My Lords, I rise to support the noble Lord, Lord Beswick, in his Unstarred Question. He has explained it in such great detail that he has left hardly anything for me to say. There surely can be no question that joining their European partners, the French and the Germans, in the production of the A320 Airbus, would provide Eurospace with the unique opportunity of participating in the field of advanced technology involved in the production of this particular civil aircraft. So I shall not take up your Lordships' time in repeating what we have already been told, save to emphasise that the A320 is undoubtedly an important advance in the medium/short range, 150 passenger capacity, particularly in fuel economy and noise reduction.

In comparison with the Boeing 727, it is reported that this airbus has a 46 per cent. lower fuel burn and a 23 per cent. to 27 per cent. lower operating cost than the American aircraft. As the noble Lord, Lord Beswick, has already told us, backed by the French Government, Air France has already ordered 50 of these aircraft, and I believe that the Germans are reported to be giving high priority to the project.

It is true that, for better or for worse, British Airways have placed their bet on the Boeing 727 partly, as far as I can make out, on the score that this Boeing—the one that the corporation will get—is to be powered by Rolls-Royce engines. However, I think that it should be noted that this does not apply to the whole range of this aircraft.

It is, of course, for British Aerospace to take the final decision. But I am told that it cannot do so unless it is assured of Government financial backing in one form or another. Discussions have been going on for quite a while. Meantime it is said that the French and Germans are becoming impatient at the delay and are pressuring Aerospace for an answer. Therefore, there does seem to be an urgency in the matter and a good reason to ask the Government the Question that is now put down and when a reply might be received. If there is to be further delay or, indeed, the Government finally decided to say, "No", then no doubt British Aerospace will have missed the bus, and through no fault of its own. Therefore, from these Benches, we strongly support the noble Lord, Lord Beswick, in his Unstarred Question.

7.24 p.m.

Earl De La Warr

My Lords, I should like to add my thanks to the noble Lord, Lord Beswick, for asking this very appropriate Unstarred Question at this particular time. It seems to me that with the question of the A320 and the future of this country's association with it, go very much wider issues. I want to be careful not to embarrass either British Aerospace or the Government—or perhaps I should put it in the other order—because I know that careful discussions are going on at this moment. Indeed, some very senior members of British Aerospace were in Toulouse only about a fortnight ago doing some heavy work about the future of the aeroplane.

I think that there are two basic commercial factors that are at work today, both of which have been referred to. The first is that we are going into one of the crucial phases of aeroplane manufacture, for the reason that the noble Lord has told us—namely, that the present range of short and medium haul aircraft are just getting to the stage where they are obsolescent. Whether they like it or not—and many airlines do not like it because they have not had a very prosperous time recently—they have got to be replaced over the next, say, naught to ten years.

The second fundamental factor is that Boeings are likely to be left as the only civil aircraft manufacturer of any size unless Airbus Industrie are vigorous enough to give them a good run for their money. Although we all love our American allies, I do not think that we in Europe as a whole would wish to see the Boeing Company have a monopoly of that type.

I shall refer very briefly to the glittering success that Airbus Industrie have had in their very short career. There are 550 or so sold or on order; the 350-seater airbus is already flying and a smaller 240 to 250-seater—the A310—is just about to start. I suppose that Airbus Industrie could have taken the decision that they would go for the longer haul. I think that they have the possibility of stretching the airbus or giving it four engines. But they have decided that their priority is the A320. This will give them a complete range from 350-seaters down to 150, and should enable them to take on almost anything that Boeings can produce within that range. The noble Lord referred to the fact that the A320 was likely to be the most advanced plane technologically, and I think that we can be very optimistic about it. It will, I suppose, compete successfully with the B757, and I believe that it will also compete with the stretched version of the 737—that is the 737–300—which is already being sold, but which of course is not a new aircraft technologically or in any other way.

I am quite sure that Airbus Industrie, and the partners individually, have had very extensive marketing investigations and that they are very sure of their facts. I know them to be optimistic. They say 700 to 800 A320's and they add, and rightly, that if the A320 can break into the American market then, of course, the orders go up almost 100 at a time.

That brings us to the crucial question that has been raised—the question of United Kingdom participation. The noble Lord has said all that needs to be said about the details of the financial aid that is needed. I think we can take it that British Aerospace would like at least 30 per cent., and that means something like £500 million to £600 milion. That, for the reasons that we have heard, can only come from the Government. It will give British Aerospace a much larger slice of the manufacture of the aeroplane than it has had with the airbus, where it has had only the wings. I suppose that the wings are fairly important. When I am airborne I am more especially aware of that. There would be the possibility that we could get the front end. I suppose that there is a possibility that we might get all or part of the assembly. However, these are matters which we must leave to British Aerospace and its partners.

There is one specific point that I should like to make which has not been made previously, and it concerns all the components that go into a modern aircraft. The whole of the avionics industry is interested in the various electrical bits and pieces which make up a modern aircraft. I think it is true to say that in the A300 and the A310 the British manufacturers have had a pretty thin slice; it has really been carved up between the French and the Germans. Whether or not this is the responsibility of British Aerospace, I should not like to say, but I think that, in addition to an extra slice of the assembly of the aircraft itself, there is a chance for the avionics industry as a whole to get a good deal more business in the future, particularly if we are assembling a large part of the aeroplane.

Launch aid has been promised and I have no reason to doubt that it will be forthcoming; in my view so compelling are the reasons. But bigger issues are raised. They have been raised by the noble Lord, Lord Beswick, and by the noble Earl, Lord Amherst. These are the issues of the long-term relationship of British Aerospace with Airbus Industrie, and therefore with the whole orbit of civil aircraft manufacture. At this moment we must ask ourselves: "Are we to be full partners in this great enterprise, or not?" This is not an easy question because the French and the German philosophy of aid to growth industries is different from ours. They tend to go further and they tend to go quicker. This is not meant to imply any direct or indirect criticism of the Government, but it is a factor that we have to face.

It must be immensely difficult to negotiate in a consortium of this complexity when you do not know whether you have the money or, if you have, how much. I do not know how British Aerospace can do it and, if I may say so, I think that they are being extremely patient. Surely in any consortium it is an ordinary business rule that the chap who gets into the consortium last never gets the best. You could say that the early bird gets the worm and the last one gets the wings. We hope that it will be different this time.

Therefore, I say that there is much at stake in terms of the British national interest. I put it that the mind of British Aerospace must be very exercised at this moment, and, like the noble Lord, Lord Beswick, I very much hope to hear from the Government that their minds too are exercised and that they will give us some information tonight which will help us in the solution of these problems.

7.33 p.m.

Lord Whaddon

My Lords, I must admit that I am always biased in favour of an aeroplane when it looks right. When it looks right it usually flies right, and from the sketches and drawings that I have seen, this A320 project certainly looks right. So I start off biased in favour of the project anyway.

The noble Lord, Lord Beswick, spoke of the great decisions that had to be made a few years ago as to which way the British aircraft industry went—with America or into the great European consortium. It chose to go with Europe, as it now turns out very rightly. In his modesty, the noble Lord did not mention his own vital part in this. He deserves the sincere compliments of the whole country on the part he played. I understand that it was quite a battle, but he was right.

Of course, the decision on the A320 must partly depend on what we make of the success or otherwise of Airbus Industrie up to now. To date it has been a surprisingly great success. Airbus took half of the going market in wide-bodied jets in the last 12 months, which is a very impressive performance. The spread of the sales was also very impressive. We were not restricted to a very few customers, but there were some 40 airline customers throughout the world, which gives a very solid base for future expansion. Moreover, the project was on time—a rather rare achievement in the industry.

The Hatfield and Chester branches of British Aerospace have benefited to the extent of some £650 million-worth of orders—a very important input into those highly technological areas. What else can one say about the present airbuses? Last but not least, the pilots love them. One has only to talk to the pilots to appreciate that they really like these aircraft, which, again, is an important factor. So there is a good base of success on which to judge future proposals.

But where do we go from here? Lockheed is out and the ending of the TriStar means less work in the future on that project for Rolls-Royce. So we must think in terms of Rolls-Royce as well. McDonnell Douglas retreating leaves Boeing in a massively dominant position. As has already been mentioned—and I would underline it—we dare not leave a monopoly position to one company in the world. There must be at least a second company in the big jet market, and a European Airbus competitor must be our number one priority.

There is the possibility of going for a stretched 300. The TA-11 has been mentioned and has been pushed, particularly by Germany. It is tempting, but on several counts it does not commend itself to me and I doubt whether we are in a position to do both projects, simultaneously at any rate. I understand that the potential market is much smaller for the TA-11, and I do not think that we should stand to gain so much from the engine side. Therefore the A320 looks a very tempting option indeed, dictated largely by the market, with 2,500 possible sales for this size of aircraft and, hopefully, a potential of around 1,000 for Airbus Industrie.

An integral part of this project would be the engines and the Rolls-Royce Japan 500, the RJ500, is integral in considering this matter. There are two partners interested up to now—Japan and Rolls-Royce—and a strong possibility of an American partner coming in. So hopefully the cost of that engine will be divided three ways. Guessing off the top of my head, we are still likely to be in for perhaps £300 million for the cost of the engines. But we must be in aero engines: that is an absolute must. The A320 provides a massive market for that engine as well. So there is a very strong extra reason to go for the A320.

The running down of the BAC 1–11 means that the Weybridge/Bristol part of British Aerospace will be looking for some work. The A320 provides that future for those parts of British Aerospace. I seem to remember that some 12,000 workers are employed in those factories. Those factories have some of the finest technological teams in the world. If we do not provide continuity of work for them, some of the best engineering teams in the world will begin to break up and disperse. It is imperative that we provide continuity for those teams and hold them together. The A320 provides such an opportunity.

Lastly, the extension of the range of aircraft from the A320, the 150-seater, up to the big A300 extends the range of products we can offer to customers and strengthens the whole base of the company, so that it makes sense from a number of sides. The Government say that the upturn of the economy is just about with us, and I do not disagree with that. It is difficult on timing, but it seems that we may have bottomed out. The lead time on these aircraft is years. We cannot afford to wait for the time when the boom is with us before we start work on the aircraft. The aircraft have to be ready by the time the boom arrives, which means that a decision is urgent on this matter.

The Cambridge economists pointed out in the press only this morning the dangers of the British economy depending too much on service industries, and how we must not and dare not allow the high technology industries to rot away. Here is an absolutely core industry that we must back. The decision time is imminent. The noble Earl went for the 30 per cent. option. I would not object, but, bearing in mind the RJ 500 costs as well, plus the fact that the French are undoubtedly going to be pushing to continue the assembly, I think that the 20 per cent./£400 million option plus the RJ 500 might possibly be more realistic.

I say to the Government, pluck up your courage and make this decision. It is a chicken and egg. Do we wait for the boom to set in? We cannot afford to wait. If the Government make this decision and lose money over it, I promise now that I shall not complain. But if the Government procrastinate so long that they miss the bus—in this case the airbus—then I shall complain most bitterly.

7.42 p.m.

Lord Ponsonby of Shulbrede

My Lords, may I first thank the noble Lord, Lord Beswick, for initiating this debate this evening on the A320 Airbus. It is fair to say that nobody is better qualified than the noble Lord to speak on this subject. He has been ably supported by a number of noble Lords, including the noble Earl, Lord Amherst, who speaks as one who first qualified as a commercial pilot over 50 years ago. Therefore his experience must be particularly relevant to a debate such as this.

The noble Lord, Lord Beswick, underlined the success of British Aerospace in securing orders for the A300 and the A310: over 300 for the A300 and almost 200 for the A310. As we were reminded by another noble Lord, these orders were spread over 40 separate airlines, indicating a wide measure of support for these two initial airbuses. I have no doubt that similar success would follow if British Aerospace participated in the manufacture of the A320.

It could well be that the future development of the aircraft manufacturing field could mean that in the not too distant future there will be only two major aircraft manufacturers in the world; Boeing and Airbus Industrie. This fact was referred to by the noble Lord, Lord Beswick. He also mentioned that other competitors might try to enter this field. This point was underlined by the noble Earl, Lord De La Warr, and the noble Lord, Lord Whaddon. It is very much in our interests that we should participate.

As those of your Lordships who are very much concerned in the civil aviation field will know, there has been frequent criticism of the air fares charged in Europe as compared with the air fares charged for similar journeys in the United States. This criticism is in some ways well justified, although we know that there are special reasons why this should be so. Therefore, it is right and proper that all efforts should be made to encourage airlines—indeed, as they are encouraged by the very force of economics—to operate economically and effectively; and also that they should be able to operate effectively on those routes which do not carry as much traffic as the routes on which the large Jumbos are operating. The A320 will be able to cater particularly for that need.

The Question asked by the noble Lord, Lord Beswick, refers particularly to launching aid for the A320. The amount involved is large. The development costs will not be recuperated for several years. As the noble Lord, Lord Beswick, stressed, the amount advanced would be a repayable loan. As he suggested, it should be guaranteed by the success of the enterprise. I do do know whether it was coincidental or not, but I received this morning in the post the annual report and accounts of British Aerospace. I read with interest the chairman of British Aerospace in his annual report stating: Two projects under consideration are the 150 seat airliner, the Airbus A320, and a new military combat aircraft, the P110. Both are good examples of projects which have particular slots in the market which will last beyond the year 2000. They are programmes which are significant for the long term future of the current aircraft manufacturing base in this country. Each is in a market in which the dominant competitors are directly or indirectly assisted by their Governments in the national interest. Unless the Company is placed in a position comparable with its competitors it will be unable to compete and will be forced to reduce its capacity in aircraft design and manufacture. Active discussions are taking place with the Government regarding this aspect of the Company's future". A large number of jobs are dependent on the Government's decision on this matter. This was a point underlined by the noble Lord, Lord Whaddon, in his speech. A recent estimate in the Financial Times put the figure at something like 3,000 jobs being dependent on our participation. I hope that the noble Lord, Lord Cullen of Ashbourne, who is going to reply this evening for the Government will be able to give some encouragement. As the noble Lord, Lord Whaddon, said, whatever option the Government are going to choose, let them make a decision, because this is something which we cannot pass up.

7.49 p.m.

Lord Cullen of Ashbourne

My Lords, we have had an extremely interesting debate on this subject, a very exciting project in which all noble Lords are interested, and nobody better to raise this matter than the noble Lord, Lord Beswick, with his great experience in the industry and a person who has made such a distinguished contribution in the service of that industry. The British Government continue to give their support to Airbus Industrie within which British Aerospace has a 20 per cent. partnership share. We congratulate Airbus Industrie on the successes it has achieved. It has shown that a European collaborative venture can rival the major United States manufacturers. Indeed, Airbus Industrie is now second only to Boeing as a producer of wide-bodied aircraft.

We note Airbus Industrie's desire to extend their family of aircraft by developing the A320 to serve as a replacement for the present generation of narrow-bodied aircraft. There is certainly a major world market for an aircraft of that type and I would in no way disagree with the order of magnitude quoted by the noble Lord, Lord Beswick. The Government have been approached by British Aerospace about the availability of launch aid to support its participation in the project. As a private sector concern, British Aerospace is now eligible to apply for such launch aid, but the Government have no obligation to provide financial assistance. Each application must be looked at on its merits against the background of current public expenditure constraints.

We shall have regard to wider industrial benefits and to the general desirability of fostering European industrial collaboration, but we must build aircraft for profit and not for prestige, and it was on that note that the noble Lord, Lord Beswick, concluded his speech. The prospect of a satisfactory real rate of return on the investment is what the Government have to be satisfied about. The noble Lord, Lord Beswick, is of course well aware that the aerospace industry has in the past benefited from significant Government investment, but has not always provided a commercial return. I was very interested in a suggestion the noble Lord made, that it might be worth considering the repayment of launch aid being guaranteed by British Aerospace. Coming from the noble Lord, that is a suggestion which I am sure my right honourable friend the Secretary of State will wish to study.

We recognise that the French Government have already been able to announce their willingness in principle to give financial support provided there is evidence that airlines will commit themselves to the aircraft. We understand that the German Government, while like ourselves supporting the participation of their national industry in Airbus Industrie, have as yet taken no position on the A320. They are waiting a firm proposal from German industrialists together with an assessment of the project's viability. There is thus some similarity between the British and German positions.

Just how far the world's airlines would be prepared to commit themselves to a new aircraft for delivery as from 1986 is uncertain. Airlines undoubtedly see the need for a fuel-efficient aircraft of the size and range of the proposed A320. On the other hand, as my noble friend Lord De La Warr pointed out, few airlines at present have the financial strength or confidence to commit themselves to massive investment in new aircraft. For the aircraft manufacturers, the problem is compounded by the minimum lead time of four to five years for a new civil aircraft, incorporating major advances in technology, to progress from drawing board to entry into service.

The Government understand the strategic importance for British Aerospace's future, as a civil aircraft manufacturer, of participation in commercially viable new Airbus Industrie projects. The level of that participation—the main alternatives, as noble Lords have said, in the case of the A320 are 30 per cent. or 20 per cent.—is, however, ultimately a commercial matter for negotiation between British Aerospace and its partners in Airbus Industrie; they must determine the most cost-effective basis for each new programme.

The Government realise that the A320 could represent important opportunities for British engine and equipment suppliers, the importance of which was pointed out by my noble friend Lord De La Warr. We shall certainly take that factor into account in our assessment of the case for launch aid. Airbus Industrie may, of course, see advantages in commonality as between the equipment on the A320 and the equipment currently on the wide-bodied models. On the particular question of engines, to which the noble Lord, Lord Whaddon, referred, Rolls-Royce are in close contact with Airbus Industrie about the prospective use on the A320 of the Anglo-Japanese RJ 500 engine. It is up to Rolls-Royce to demonstrate they have a competitive and cost-effective product. Rolls-Royce are also actively exploring, with the Government's encouragement, the possibility of widening the collaboration on the RJ 500 to include partners other than the Japanese. That is a matter entirely for Rolls-Royce in the first instance. An application from Rolls-Royce for launch aid for the RJ 500 would be treated on its merits and within the general criteria I have described.

The short answer to the noble Lord's Question, therefore, is that the Government's assessment of the commercial viability of, and likely financial returns from, the A320 project has not yet been completed. We await further information from British Aerospace. The Government believe it would be premature to take any view on the question of launch aid for the A320 until those studies have been completed. We are not waiting for the boom to which the noble Lord, Lord Whaddon, referred, but we certainly intend to reach a decision with the minimum delay compatible with a proper appraisal of the case.