§ 7.2 p.m.
§ The Parliamentary Under-Secretary of State, Foreign, and Commonwealth Office (Lord Trefgarne)
My Lords, I beg to move that the Bill be now read a second time. This Bill is straightforward and uncontentious and I shall therefore be brief. It contains three main provisions: to increase the statutory financial limits of the British Airports Authority: to increase and clarify the financial limits of British Airways: and to enact amendments necessary for the consolidation of civil aviation legislation.
Before I come to the detail, I should like to deal briefly with a number of points common to the provisions for increasing the financial limits of British Airways and the British Airports Authority. The first, rather obvious, point is that these provisions do not in themselves increase public expenditure. Neither do they affect external financing limits which limit the new borrowings made by individual industries in any one year for the purposes of controlling the public sector borrowing requirement.
Secondly, I should point out that these provisions require the Secretary of State to seek the approval of another place for any increases in the financial limits over and above the levels initially provided for on enactment. Additionally, Government control over the borrowings of British Airways and the British Airports Authority is retained through existing statutes which require Government approval for specific new borrowings, even within the new financial limits. I should also add that the proposed limits will make no difference to present arrangements for controlling individual major items of capital expenditure. These 473 will continue to require Government approval which will normally be subject to their being expected to achieve a required rate of return.
Finally, although I hope that this is already clear, the Bill and these provisions for increasing the financial limits do not in any way represent a departure from current Government policy. The Government remain determined that British Airways and the British Airports Authority should operate efficiently. The Government will continue to work with the industries to this end by, for example, agreeing suitable performance aims with them. These are important points and I hope that they are useful in clarifying exactly what we are considering in this Bill.
Against this background I should like to turn to the increase in the financial limits of the British Airports Authority. Clause 1 increases the financial limit of the authority to £200 million on enactment and provides for a further increase, subject to the approval of another place, to £300 million. This is intended to provide adequate scope for the borrowings that we expect the British Airports Authority to need for its present medium-term investment plans. These are expected to cost £700 million at outturn prices over the next six to seven years. It is right that the British Airports Authority should be able to supplement internally generated funds with external borrowings to meet the extremely uneven investment profile which characterises large airport developments. The authority's cumulative debts can be expected to increase with the borrowings necessary for this programme from the current level of £62 million to £200 million in 1985. This increase in borrowings should be viewed against the British Airports Authority's capital base of £820 million, £763 million of which are reserves built up as a result of consistent profitability over the 15 years of the authority's existence. Indeed, the authority has been able to finance almost all of its capital expenditure so far without borrowing.
The British Airports Authority's investment plans include work on the fourth terminal at Heathrow which started last year and the continuing programme for improvement and modernisation of existing airport facilities. These also include the development of a second terminal at Gatwick, subject to the outcome of the current planning inquiry. But I must make it clear that the limits proposed in the Bill do not carry implications for whether the Gatwick development will go ahead. My right honourable friends the Secretaries of State for Trade and the Environment are still considering the additional submissions which they invited on that application following the publication of new air traffic forecasts.
Neither, for that matter, do the new limits have any implications for the developments which the authority have proposed at Stansted and which are being considered by the present public inquiry. The decision of my right honourable friends will be taken in the light of the inspector's report on that inquiry, and if this was in favour of the development the authority would still have to submit detailed costed plans for Government approval before any expenditure could be made. I hope I have made it clear that on increase in the authority's financial limits would have been required even if the developments at Stansted and Gatwick had not been proposed.
474 I should finally touch on one last issue of topical interest concerning the British Airports Authority—that is, user charges. My right honourable friend the Secretary of State for Trade and the British Airports Authority are currently joint defendants in a legal action taken by foreign airlines concerning user charges and the financial target agreed between the Government and the authority. I therefore note, but no more, the British Airports Authority's recent announcement of a freeze in user charges for the next financial year.
I turn now to British Airways. Clause 2 increases the airline's financial limits from the current level of £1,000 million to £1,200 million on enactment of the Bill, with provision for two further increases by order, subject to the approval of another place, to a maximum of £1,600 million, a figure designed to last the airline for another five years or so. The main reason for the increases lies in British Airways' heavy capital investment programme in new, fuel-efficient and quieter aircraft to replace their Tridents. This changeover to fuel-efficient aircraft must be accomplished, despite the present depressed trading conditions, if British Airways are to hold any prospect of competing with other world airlines on an equal footing in the future.
The present depressed conditions of the air transport market will be well known to all. Many major airlines have been reporting heavy losses over the last year and expect similar losses this year. British Airways are no exception. Indeed, the airline's loss last year of £145 million, which led to borrowings of over £300 million, is one of the main reasons why an increase in British Airways' statutory financial limit is necessary so soon after the last increase. However, we can be encouraged by the economy measures which British Airways announced in September last year which showed the management's determination to get the airline into the most streamlined and competitive shape possible to take advantage of the upturn when it occurs. With market conditions still unpredictable, it is impossible for me to say how soon British Airways will have recovered sufficiently to enable us to privatise it, but I can say that the Government remain committed to this objective.
Another reason why British Airways' total borrowings are close to the current financial limit is found in the increase last year in the value of their uncovered foreign borrowings. This increase was beyond the airline's control and was solely the result of exchange rate movements. At the moment, foreign currency borrowings which are not covered by a Treasury exchange risk cover scheme are valued according to day-to-day exchange rates. With the cessation of the Treasury exchange cover scheme in April of last year and the fall in the value of the pound against the dollar, which is a major currency for British Airways foreign loans, the airline's borrowings would have increased in value by about £30 million even if no new borrowings had actually been made. This introduces an element of uncertainty into the assessment of British Airways' position against the financial limit and could even lead to British Airways exceeding the limit as a result of exchange rate movements alone. Clause 3 of the Bill aims to remove this uncertainty by fixing the value of British Airways' uncovered foreign borrowings against the limit.
475 Finally, I turn to Clause 4 of the Bill, which gives effect to the highly technical amendments and repeals in the two appended schedules. The bulk of civil aviation law has not been consolidated since 1949 and since then of course the law has developed enormously and is now spread over eight or more statutes. It is high time that these scattered provisions were brought together and put in order. A consolidation Bill for this purpose was prepared by the Law Commission and introduced into your Lordships' House on 17th December and, as is customary, will be taken by a Joint Committee of both Houses. The pre-consolidation amendments which we are considering here are necessary to iron out inconsistencies in the details of existing statutes which would otherwise make consolidation difficult. I hope that both sides of your Lordships' House will welcome this long overdue rationalisation of civil aviation legislation.
To conclude, this Bill aims to increase the borrowing powers of British Airways and the British Airports Authority to cover their necessary investment and other needs for at least the next five years—but it leaves parliamentary scrutiny and Government control over those borrowings intact. For their part, the Government are very much aware of the need for both British Airways and the British Airports Authority to operate their services in the most efficient way possible and, indeed, the investment allowed for by this Bill is directed towards this end. We must also recognise the very important contribution that a healthy and efficient British Airways and, likewise, British Airports Authority can make towards the United Kingdom's civil aviation sector. I therefore commend this Bill to your Lordships. I beg to move.
§ Moved, That the Bill be now read a second time.—(Lord Trefgarne.)
§ 7.13 p.m.
§ Lord Ponsonby of Shulbrede
My Lords, may I thank the noble Lord, Lord Trefgarne, for introducing this Bill in a very short, 10-minute speech and I shall certainly try to make certain that in making my remarks I shall not exceed the pattern which he has set us this evening. As the noble Lord has said, this is a very simple and non-controversial Bill to increase the borrowing powers of British Airways and the British Airports Authority and to enable consolidation of earlier civil aviation legislation to take place. However, it does give your Lordships the opportunity to discuss at some length—although in view of the lateness of the hour I hope it will not be at too great a length—some of the problems which affect the civil aviation industry at the present time. I have no doubt that some of the noble Lords who are to speak in this debate will be raising matters which are of particular concern to them.
The Bill is not perhaps as radical a measure as one would have hoped. The increases in the borrowing limits proposed are basically to restore the historic value of those limits. They do not in any way alter the basic concepts on which the financial arrangements for British Airways and the British Airports Authority are based. I have often expressed from this Dispatch Box my concern that today's users of the airports owned by the British Airports Authority are being asked to 476 pay for facilities which are to be used by tomorrow's users. That concern is in no way alleviated by this Bill, although I must say that I am glad to hear that the peak hour landing costs, which remain high at Heathrow, are to be frozen until April 1983. Whether this is the result of resistance shown by airlines to earlier increases or a phasing out of the policy of persuading airlines to switch their operations elsewhere—specifically to Gatwick—one does not know. Certainly one has noted yet again the increased activity by Schipol to be regarded as London's third airport and advertising in this connection. However, this is not really the opportunity, which I am sure we will have in the next session if not in this session, to debate the whole question of airports policy. I do regard this as a matter which is very vital to the prosperity of British Airways and to tourism generally. It is a matter for which I know a number of your Lordships have great concern.
British Airways face many severe problems, some of which are in the competence of this Government to solve. The noble Lord, Lord Trefgarne, in introducing the debate, reaffirmed the Government's insistence on keeping the measure to privatise British Airways on the statute book. This threat has been hanging over British Airways for more than a year. I thought at the time we passed this piece of legislation that it was a waste of time passing it at that point in time because the financial state of the international airline industry was such that the sale of the coporation at that time, and even more so the sale of part of the corporation now, was a forlorn hope. That has proved to be the case. Could not the Government at least remove this fear from British Airways? I fear that the noble Lord, in his introductory remarks, has already removed any hope that that might happen.
As the noble Lord said, the international civil aviation industry is facing a major challenge at the present time. Many operators are finding themselves in dire financial difficulty. Some have had to sell off precious assets to stay alive and others have had tortuously to renegotiate their arrangements with their bankers. These problems have come about as a result of the dual effect of unrestricted competition on the North Atlantic routes and the vast increase in fuel costs, so that an airline such as British Airways finds that almost a third of their costs are on fuel as opposed to a mere 10 per cent. not so long ago. Such a situation is particularly difficult for an airline such as British Airways with such a vast network of routes to contain.
In this sort of situation we must be particularly concerned about the competitive edge of British Airways and of their ability to compete effectively in a very difficult market. The noble Lord has referred to the economy measures which British Airways have achieved. They have managed during the past year to sell surplus planes and property to the value of some £105 million. They have managed to reduce their staff by some 11,000 employees. They have managed to bring into service more fuel-efficient aircraft. They are very much concerned in fact to see that they are effectively operating as an airline. Their levels of punctuality have increased, and in many other spheres they have managed to meet some of this challenge.
One of the areas which we have not discussed at length in your Lordships' House, but which I know 477 British Airways are very concerned about, is that they believe that their profitability could be very much enhanced if they were able to carry out all their international operations from a single terminal in the United Kingdom. I have no doubt that when your Lordships come to discuss airports policy the plea of British Airways for a fifth terminal at Heathrow will be one which your Lordships will want to consider. We do know that in fact many other airlines throughout the world have found very great economies in being able to operate their services from a single terminal and not having them spread over. British Airways are in the position of being not only spread over terminals at Heathrow but also having various operations from Gatwick as well. This is an area which we will have to look at later.
On the final clause of the Bill, concerning consolidation, we of course welcome very much the proposal to combine the earlier statutes into a single Act. This measure of consolidation, which has been going on in various fields, is one which is always welcome. I think the noble Lord, Lord Trefgarne, although he has now moved from the Department of Trade to the Foreign Office, will know that in the field of company legislation it would be even more welcome if we were able very soon to have that particular Bill.
§ 7.22 p.m.
§ Earl Amherst
My Lords, I also should like to thank the Minister for taking us through this short amendment Bill. Although short, it does have implications and does raise some questions. We welcome the consolidation aspects, as they should clear away some of the anomalies and confusion which have long plagued the industry. We also welcome the provision of increased borrowing powers of British Airways which we understand should take care of that corporation's needs in that aspect for the next five years. I understand that all but some 25 per cent. of these funds will be allotted to the provision of new more fuel-efficient and less noisy aircraft, and the balance of 25 per cent. will be used mainly to re-equip such technical equipment as engineering computers, and the improvement of sales offices. This relief comes usefully at a very critical time when the corporation is coming close to the successful culmination of an extremely difficult and delicate operation to reduce and reconstruct the corporation to what Mr. Roy Watts, the chief executive, has described as a leaner, more efficient and more competitive airline. Can the Minister assure us that once this Bill is passed there will be no delay in the corporation being able to start to reap the benefits of this so as to proceed at once with their forward planning.
Although these reorganisation plans are still to be completed, I think it right and timely to offer congratulations to the chairman, Sir John King, his chief executive and deputy chairman, Mr. Roy Watts, and their staff, for their valiant work in effecting this reorganisation, and indeed also to the workforce, who are reported to have been most co-operative in the general effort to overcome the considerable problems involved.
We understand that the increase in the borrowing powers to be afforded to the British Airports Authority is to provide that authority's immediate requirements 478 for the improvement of facilities for both users, the airlines and the public, with special reference to Heathrow and Gatwick, to provide finance for the fourth terminal at Heathrow, but not, if I heard the Minister aright, to provide funds for the development of Stansted as it is now planned. As we know, the public inquiry on the Stansted proposition is in full spate and likely to go on for some time, to the end of this year or even longer. The authority is concerned with legal actions taken against it by various airlines on the question of its charges. Even so, there are questions which arise which I want to ask and put on record, despite the possibility that I may be fobbed off with the excuse that matters are now sub judice and cannot be discussed today.
Before going on to my questions, may I take the opportunity to offer congratulations to the authority for the many improvements they have made at both Heathrow and Gatwick in the past year. And as far as Gatwick is concerned we might also include British Rail. In my experience many things are a good deal better there now than they were a year ago. That is not to say that there is not room for considerable improvement. There seem to have been conflicting reports on how the Government are now thinking regarding the proposals to develop Stansted. Can the Minister tell us if the Government still have an open mind on this matter? Further, have the Government finally decided against consideration of the development of the Perry Oak site at Heathrow as an alternative proposition, bearing in mind that, apart from other important considerations, it is estimated that it would cost £324 million, including removal of the sewage farm, as opposed to the estimated cost of £869 million for Stansted, and that the majority of the airlines now using Heathrow would much prefer it to Stansted, notably British Airways, and they are the largest operator at Heathrow?
Has any thought been given to taking a leaf out of the John F. Kennedy book and handing over such a fifth terminal to British Airways for its use and management? I understand the corporation would welcome such an idea. During the last Session (this was a point raised by the noble Lord, Lord Ponsonby of Shulbrede) I asked as a supplementary question if the financing of future capital requirements almost exclusively out of present revenue was not to some extent responsible for the fantastically high charges the authority is levying on the airlines, which in turn impinges on the high air fares now charged at least domestically. I received a somewhat abrupt, " No " as an answer. With respect, I still think that this practice must reflect to a certan extent on the reason for these monstrously high charges, the highest in the world, and as an on-going result the high air fares.
What is the reason why the authority cannot go to the market for at least some of its finance or, as is sometimes done in the United States, go for a bond issue? I have read that in another place it was said that the reason was that it was not contained in the Government's election manifesto. If that is so, it must be that it is a result of some regulation or order, possibly Treasury inspired. But, even so, Treasury inspired or not, cannot such regulation or order be altered, amended or even cancelled? Also, by the same token, is the rigid demand that the authority must 479 achieve a 6 per cent. per annum return on investment still valid in the light of continuing recession in the airline business? Perhaps the Minister will be able to throw some light on these queries.
It is reported that an earlier decision to increase the airport charges by 12 per cent, this year has now been rescinded, but even so the present charges remain the highest in the world. Even if the Minister cannot give an answer today, can he indicate when we may be able to discuss these questions together with the whole set-up of the British Airports Authority and even that startling question asked in another place as to whether the authority in its present shape is really a national requirement? Apart from all that, my colleagues on these Benches will be happy to give the Bill a Second Reading.
§ 7.31 p.m.
§ Baroness Burton of Coventry
My Lords, as the Minister implied, this is a straightforward Bill containing only five clauses. There was no real dissension from this proposition when it was put forward in another place by the Minister and I think that there has been no dissension here today. As the noble Lord, Lord Trefgarne, said, of course, this Bill does increase the borrowing power of the British Airports Authority, and the Secretary of State in another place gave valid reasons as to why that should be done. But there was a considerable amount of discussion about the manner in which the British Airports Authority is financed, and I should like to return to that aspect later in my remarks.
It does seem questionable, to me anyway, that the customers of today should pay for the airports of tomorrow. This was a point which disturbed—I note that the noble Lord, Lord Trefgarne, is shaking his head—the noble Lord, Lord Ponsonby of Shulbrede, and it certainly has disturbed me. I regret that my noble friend, Lord Taylor of Gryfe, is not with us today, because he has knowledge and experience of the financing of public bodies, monopolies and nationalised industries. For myself, speaking as a customer, and as I have just said, I do think it would be much fairer that the customers of tomorrow should pay for the airports of tomorrow. While accepting, as I believe the Minister also said, that the restraint on these matters is the concept of the public sector borrowing requirement, I am going to leave that to the economists and the financial experts. But it does seem to me that this restraint and concept are in need of urgent revision.
Obviously, in the absence of my noble friend Lord Taylor, I have made certain inquiries only to realise more than ever that the financing of nationalised industries is, to use an understatement, most complex if one is not well versed in financial matters. I am sure that the House will know that in December last the 100 Group of chartered accountants published a report on The Financing of State-Owned Industries. Then I found out that we have volumes 1, 2 and 3 of the Eighth Annual Report of the Treasury and Civil Service Committee, which includes submissions from the chairmen of the nationalised industries. Obviously, I could have read extracts from all this invaluable information, but I never think that to read material with which one is not really familiar renders a service 480 either to the House or to the Member concerned. So the House will be spared that, and I am serving notice on my noble friend Lord Taylor of Gryfe that these are all matters for him at our Committee stage.
However, included in any financial consideration must be the aspect of airport charges. It really is nonsense for the Government to imply that these have little effect on air fares. Indeed, the noble Lord, Lord Trefgarne, told us on 26th November last that the cost of airport landing charges does not increase the price of air travel. I should like to know where the noble Lord thinks the airlines get the money from if it is not from their customers.
I am hoping that the Minister will clarify this area for us today, because it really does seem as though those in authority do not know their own mind, or at any rate did not anticipate the opposition that would be provoked. When we rose for the Christmas Recess, existing landing charges were sub judice because of the action brought by airlines in protest at what they had to pay. But I did intend anyway to raise what we thought were to be the proposed new charges. Now we are told that the British Airports Authority is to freeze landing charges until April 1983. I should like to ask the Minister whether other charges are to be frozen too, or will they rise as forecast and, in that case, could we be told the actual figures?
I noticed that when the noble Lord, Lord Trefgarne, was speaking he said that " user charges " were to be frozen. My understanding is—and he certainly should know better than me—that it was the landing charges which were to be frozen. I should have thought that all the others put together were user charges, but perhaps the noble Lord can help us about that when he comes to wind up.
§ Lord Trefgarne
My Lords, I should be very happy to try to do that in a moment. In the meantime, can the noble Baroness explain what she defines as " user charges " in this context?
§ Baroness Burton of Coventry
Yes, my Lords, I am coming to that. The noble Lord, Lord Trefgarne, will know that there was considerable discussion on airport charges at all stages during the progress of the Bill in another place. The problem of security charges is one of particular relevance to this House. Those of us opposed to the method of raising this money by direct charge on the customer lost by only two votes at the Committee stage on 20th March 1978 when the previous Government were in power. I remain opposed. As the House will know, these charges have been reduced from £1.50 to £1.20—but only for a period of six months and they will then revert to £1.50. On this particular matter, I was glad to note that the Under-Secretary of State in another place said that he would look again at this problem of the security levy and how it is dealt with in other countries. I remember saying, when we discussed the matter on Second Reading, that no other country in the EEC did so in this way. Therefore, we were being a trend-setter in the wrong direction. That was on 9th March 1978, and it now appears, unfortunately, that I was right. So security charges are a user charge, and I shall come on to the others later.
While we sympathise with all airlines, I think that 481 we should emphasise to the Government, as indeed the noble Lord, Lord Ponsonby, did, too, the position of our national airline, British Airways. In a debate which we had on 23rd July 1980, I stressed to the Government the concern of British Airways at the recent demand for a considerable increase in what they termed " Government charges "—namely, route navigation, airport and security charges—which would average 40 per cent. for them in the year ahead. They emphasised that this was an increase of 40 per cent. over the charges paid the year before. British Airways suggested to the British Airports Authority and the Civil Aviation Authority that they should do something about their own productivity improvements and not just say that these total costs should be passed on to the consumer.
The Minister, I am sure, will clarify this area. However, all sorts of figures were bandied about before the Recess and it would be a help to know whether they were right or wrong. For example, there was talk of increases in general of 17 per cent. for Gatwick and Heathrow. There was talk of an increase of 30 per cent. for parking charges at Heathrow during peak hours. There was talk of an increase of 16 per cent., from £52 million to more than £60 million, in the total bill for British Airways from the British Airports Authority.
I was interested, and depressed, to note that British Airways say that their charges and those of other Government-supplied services now represent a significant part of airlines' total costs and that in the case of British Airways the figure is 9 per cent. It does seem a great deal. I understand that the freezing of landing charges will save them some £10 million, but I should be glad if the Minister could clarify some of those other figures.
Airport users, airlines, customers: we all feel, frequently, that we are just brushed aside by Government and Government-appointed agencies, or fobbed off with meaningless answers when we raise this matter. Yet it is not only us. Some of these charges specifically, or the total collectively, will also have an impact on the actual location of flights. We expect and will be glad to receive a detailed and up-to-date picture from the Minister.
This may be a straightforward Bill with only five clauses, but in another place Members found that it gave them an opportunity to raise many topics of general interest in civil aviation. I hope that we shall discover the same opportunity. After all, the whole House wants a healthy civil aviation sector in our economy. Here I should like to congratulate Mr. Roy Watts, the chief executive of British Airways, on his plans—which I expect noble Lords have read—for a consortium of airlines. He wants these to collaborate on the introduction of a European air shuttle service. This he would like to serve at least five capital cities.
Mr. Watts envisages the creation of a single, London-based, international organisation with airlines pooling their aircraft. As the House will he aware, in addition to his position with British Airways, Mr. Watts this year holds office as chairman of the Association of European Airlines. Not resting content with his suggestion that his proposed European air shuttle service should cover London, Paris, Brussels, Amsterdam and Dublin, Mr. Watts is encouraging British 482 Airways in new talks with European airlines in the hope that travellers will see much reduced one-way tourist fares to many European cities.
Before concluding, I want to raise one other aspect, and for today I am leaving aside bucket shops and discount fares. There is uncertainty about the number of future air travellers. There is certainly uncertainty about what the Government really believe and what they intend to do. We all hope for the major growth assumed by airlines, airport authorities and the Government. But forecasts have been altered, with the result that the Government have announced that they are postponing a decision on the Gatwick extension, which had been recommended after a inquiry in 1980.
The muddle in policy becomes even more pronounced when we realise that two nationalised bodies—British Airways and the British Airports Authority—are totally opposed, one to the other, over whether there should be a new airport at Stansted or a fifth terminal at Heathrow. As the House knows, an inquiry is now proceeding into this matter. It is expected to take until at least the end of the summer or early autumn. Following that, informed criticism assumes that it will take at least a further 10 months or so for the Government to rule on the matter and that by then we shall be in the run-up to a general election.
Apart from this apparently endless delay, I am worried about something else, and I do not like what I am worried about and hope that the House will realise the real concern that I have on this matter. It is assumed—I believe correctly—that the two front runners at this inquiry are Stansted and Heathrow. But the Government have said that it is quite definitely their policy that the fifth terminal at Heathrow should not be built. As recently as 13th May last year, the Secretary of State, replying to a Parliamentary Question, reaffirmed the Government's view that a fifth terminal at Heathrow should not be provided. So that no doubt could possibly be left in the Member's mind, the Minister concluded:I do not think this can leave you in any doubt about the Government's view on the matter ".If the noble Lord, Lord Trefgarne, would care for the reference, it is the House of Commons Hansard as recently as 16th November 1981, at column 79.
So I ask, what is this inquiry about? If the Government have decided not to allow a fifth terminal at Heathrow, why are we wasting all this money on an inquiry? Is it simply a smokescreen to cover Government intentions? I should like to make it quite clear to the House that today I am holding no brief either for Stansted or for Heathrow in what I am trying to convey to the House. But I think that the whole procedure has a nasty smell, and that is the best way I can describe my feelings.
My quarrel is with bureaucracy, which seems to exist and to flourish whatever political party is in power. Today I think that we are in danger of being choked by it, but perhaps I may return to the inquiry. On 29th June last, I told the House how I had met this bureaucratic machine over Stansted as long ago as 1968, when I was chairman of the Council on Tribunals. On that occasion we made a special report to the noble and learned Lord the Lord Chancellor under the Tribunals and Inquiries Acts 1958 and 1966. If I may 483 quote just one sentence, at column 62 of Hansard of 29th June last year, I said:Stansted has now reared its head again and I would warn the House that we are by no means through that battle ".Perhaps if we probe enough we may be able to discover what part of the bureaucratic machine, wielding considerable power and intluence—we should never forget that—is determined to have a major airport at Stansted. After all, this is the third attempt.
In common with many other noble Lords, I have been following the evidence given at this inquiry, and what has really shaken me and given rise to what I am trying to convey to the House today is what Mr. Graham Eyre, QC, the independent inspector appointed by the Government, has had to say about evidence given by the Ministry of Agriculture in December last. I should like to interpose here a comment as to the high opinion of Mr. Eyre held by all with whom I have come into contact. What was worrying him about this evidence was that it was too limited and the scope most unsatisfactory. As a result, the Ministry of Agriculture is to make new surveys, the details of which I need not relate to the House.
But the Minister must be aware of all this. When he comes to wind up the debate today, will he tell us what reply the Government make to the comments made by critics last year that the Ministry had limited its evidence deliberately because, although it opposed the expansion of Stansted, it was bound by a Cabinet minute to promote the airport there? The noble Lord, Lord Trefgarne, will find this theme developed by the environment correspondent of The Times, Mr. Hugh Clayton, on 8th January. Having read that, I then read in the paper on 15th January—and I have not had time to check this—that the inspector has had further cause for concern. Perhaps I may just quote this; it is from The Times of 15th January:The inspector at the Stansted public inquiry complained yesterday that he had been placed in an intolerable situation by the failure of the Department of Transport and British Rail to produce a proper feasibility study for a new rail link from London to the proposed airport ".If we are getting insufficient evidence or no evidence from Government departments to bolster this third attempt to have an airport at Stansted, I think that we should all be aware of it and I hope that the noble Lord will give us some information when he comes to reply.
In conclusion, I should like to remind the Minister that I have limited my remarks to three main sections: the financing of the British Airports Authority, airport charges in general and the financing of security charges, or the security levy, in other countries, and the inquiry into a third London airport. I hope that the noble Lord will deal with all three so that we may have a correct picture of the present position. That is the only way to correct misleading impressions, if indeed they be misleading.
§ 7.50 p.m.
§ Lord Balfour of Inchrye
My Lords, I do not propose to say one word about airports, but I should like to be allowed for a few minutes to make some remarks concerning British Airways. The background to this increase of borrowing powers, as the Minister said, is world airlines going into the red and each of them trying 484 to avoid a slow slide down to a state of bankruptcy. Every airline is losing money. So appropriate to this Bill is one fundamental question: how far will the exercise of these borrowing powers lift British Airways from being a big loser to a position of solvency, or would the exercise of these powers only increase the risk of raising British Airways' debt, and increase the inevitable crisis from which the corporation is now suffering. I have here the latest issue of British Airways' News. The words of Mr. Roy Watts are:The crisis is by no means over ".It is worth considering whether this will help to restore British Airways to solvency; or might it possibly increase British Airways' indebtedness. Here I should like to associate myself with the noble Lord, Lord Ponsonby of Shulbrede, in his tribute to Mr. Roy Watts and to the organisation of British Airways. It is something to have reduced manpower from 58,000 to 43,000 this June without any great industrial upheaval. It is something to have increased pilot productivity by 12 per cent. It is something to have cut away the thoroughly uneconomic routes. It is something to their credit that new types of aircraft are on o[...]der.
It must be said that British Airways Corporation has done its part in making an effort to try to meet the justified demand for low cost travel, but I say with all the force I can, and after some good many years in aviation, that low cost travel must allow a reasonable return on capital invested and at the present time that is not the position. As the noble Lord, Lord Trefgarne, said, even on the North Atlantic, which should be one of the most profitable routes, the combined airlines last year lost £340 million. British Airways themselves lost approximately £3 million. Here I should like to interpose one sentence. I believe that airlines have brought this very much upon themselves by their past conduct in the fat years. They exploited the public by international agreements, pools, operation of monopolies, and unjustified high levels of fares on closed routes. Now things are different. Even Laker, who did so much to break the high cost levels in the fat days, is now suffering and is in difficulties in maintaining solvency.
Last year British Airways lost, I think it was, £140 million. I think they are budgeting this year for a loss of £100 million. British Airways is responsible for about 80 per cent. of our civil air effort. Another 10 per cent. is represented by British Caledonian. There were £140 million lost last year, £100 million this year, but British Caledonian is still, I believe, just within the profit margin. Why this difference? It needs some examination.
Is the answer that big is not always beautiful in nationalised corporations? We have the example of British Leyland. With hindsight were we right to have followed the Edwards Committee in merging two small enterprises with profitable histories and smaller structures into one vast great organisation? In the air world of those days economic conditions were right for creating one single, grand structure, but unfortunately it has turned out a loser. I think with hindsight those in charge of aviation were right to have done what they did, but it has not worked out as was intended. It is a line of thought worth considering when we are offering borrowing powers for another £200 million.
485 I hope that the answer to the fundamental question that I asked at the beginning is that British Airways will be restored to solvency and helped materially by this increase in borrowing powers. But the future alone can tell whether that is the positive answer, or some other answer on which I do not wish to dwell at all.
§ 7.57 p.m.
§ Lord Trefgarne
My Lords, I am grateful that this debate has not been too strictly confined within the terms of the Bill before us, for it has thus allowed the Government, in particular myself, an opportunity to hear and note the views of your Lordships on a wide range of topics of interest within the civil aviation sector generally, as well as specific points about British Airways and the British Airports Authority. I shall endeavour to deal with as many points as I can. If time prevents me from dealing with all of them I shall certainly undertake to write to those noble Lords whose points I have not been able to cover, with as full an explanation as I can manage.
I shall run through the speeches broadly in the order in which they were delivered. May I first take up the point made by the noble Lord, Lord Ponsonby, about the privatisation of British Airways. As I said in my opening remarks, it is still most certainly our policy that British Airways should be privatised as soon as is ever possible. The noble Lord referred to this as a threat hanging over British Airways. It is no such thing. It will be a very good thing for British Airways when they eventually come into the private sector, as I hope they will in the not too distant future.
The noble Earl, Lord Amherst, referred first to the Government's position relating to the development of Stansted, and the noble Baroness, Lady Burton, raised this matter as well. The Government's attitude to the Stansted development has been made clear at the inquiry and by my right honourable friend the Prime Minister in a letter to the local Member of Parliament which has, I think, been published. Our preference is that Stansted Airport should be developed to meet the forecast growth of air traffic in the South-East. But other alternative sites have been put forward for consideration by the inquiry and the inspector has been asked to hear the evidence on these too and to take them into account in formulating his recommendations. If, having heard the evidence, he recommends development at another site, other than Stansted we shall of course weigh that advice most carefully before taking the final decision.
Perhaps while on the question of the Stansted inquiry I could cover some of the points, rather out of sequence, made by the noble Baroness, Lady Burton. She described a number of shortcomings, as she thought, with regard to the Government evidence being put forward to that inquiry at Stansted, and I would make two points on that. With regard to the evidence of the Ministry of Agriculture, I am not specifically briefed on the point to which she was referring, but naturally that Ministry will be delighted to provide the inquiry with further assistance when the inspector has called for it, and that, I imagine, is what they are doing. As for the unsatisfactory nature of some of the other evidence that was put forward, if that is what the inspector thinks, 486 then doubtless that view will be reflected in his final report.
§ Baroness Burton of Coventry
My Lords, I interrupt the Minister simply to say that he surely does not think that what he has said is the slightest answer to what I was trying to convey to the House.
§ Lord Trefgarne
I listened carefully to what the noble Baroness said tonight, my Lords, as I always do. She is aware that the inquiry is proceeding at present and I do not think it would be right for me to go into greater detail than I have, because of the nature of the inquiry, of which she is well aware, but I shall return shortly to the other points the noble Baroness made. To revert to the speech of the noble Earl, Lord Amherst, who referred also to the question of the Perry Oak site which might be a site for a fifth terminal at Heathrow, that is of course covered at the Stansted inquiry and if there is merit in that proposal, doubtless, it will come forward in the report which the inspector will prepare.
It might not be entirely appropriate this evening to go into the philosophy behind the British Airports Authority's finances, a matter raised both by the noble Earl, Lord Amherst, and the noble Baroness, Lady Burton, but it is perhaps worth saying—I fear I have said it before to your Lordships—that the mere possibility of BAA borrowing substantially to cover current capital costs would not necessarily have any effect on the current level of charges. A properly conducted business organisation like BAA must depreciate its existing assets in accordance with current values. That is what they do and that is, thus far at least, the source of the majority of their capital funds.
The noble Baroness, Lady Burton, to whose speech I now come, also raised the question of the terminal charges on air fares, and I have discussed this matter with her across the Floor of the House before. It is of course the case that the longer the flight, the smaller proportion of total costs is represented by terminal charges. I do not have the figures in my head, but I shall, if I can discover them and write to the noble Baroness with them. I think that terminal charges on medium and long-haul routes account for about 5 per cent. of the total operating cost, although I would accept that the percentage is rather higher than that on short-range flights, particularly domestic flights within the United Kingdom.
The noble Baroness also asked for details of the freeze which BAA announced recently. The situation regarding BAA's proposals for their user charges is that their original proposal was that their charges, including landing fees, parking fees and passenger charges—we are not here talking of security charges, to which the noble Baroness referred, which are not specifically raised by BAA—should be increased by an average of 12 per cent. They now propose, however, to make no increase in those charges until April 1983 at any of their airports, and the effects on their costs (claimed by British Airways, for example, and I think those were referred to in the debate in the other place) are clearly no longer relevant.
My noble friend Lord Balfour asked particularly about the borrowing powers that we are granting to British Airways and he asked specifically whether I could give an assurance that these borrowing powers 487 would restore British Airways to profitability. British Airways will need to do a number of things to regain profitability. One is to slim down the operation to make sure that their operations are more efficiently conducted than they have been in the past, most specifically with regard to manpower, and as at least one noble Lord said, British Airways have been able very significantly to reduce their manpower in recent months, and they are certainly continuing to do that.
The other arm of their return to profitability must be the acquisition of more efficient aircraft, particularly aircraft which use less fuel, aircraft which make less noise and are thus able to operate for a longer period during the day, and aircraft which carry in many cases more passengers. Among the aircraft which British Airways are in the process of acquiring is, for example, the Boeing 757, and the new borrowing which is being authorised for British Airways by this legislation and any orders which may be made under it will be used largely for those capital purposes, and I hope that reassures my noble friend about the purposes for which the funds will be used.
I hope I have covered the main points that have been raised this evening, maybe not to the total satisfaction at least of the noble Baroness, Lady Burton, who I hope will understand the constraints upon me with regard to the Stansted inquiry and with respect to the legal action to which I referred in my opening remarks. Doubtless there will be an opportunity for further debate of some of these points in Committee on the Bill, but as I said at the beginning of the debate, we are not dealing here with a major policy change. Indeed, the Bill is in itself, uncontentious and its main provisions are necessary and straigthforward. As such, I hope your Lordships will agree that it should now be read a second time. My Lords, I beg to move.
§ On Question, Bill read as second time, and committed to a Committee of the Whole House.