HL Deb 12 December 1983 vol 446 cc28-35

4.22 p.m.

Lord Lucas of Chilworth

My Lords, with permission, I shall now repeat a Statement made in another place by my right honourable friend the Secretary of State for Transport. The Statement is as follows:

"The Government's intention of moving British Airways into the private sector was announced by my right honourable friend the then Secretary of State for Trade in July 1979. Legislation to achieve this was passed in the Civil Aviation Act 1980.

"Our original intention was to go ahead with a sale soon after the passing of the Act, but the decline in the airline's profits in 1979–80 and the large losses in the two subsequent years made that impracticable.

"Over the last two years, however, decisiveness on the part of management and determined cooperation from the workforce have sharply improved British Airways' productivity; and the airline industry is now emerging from the world recession. British Airways made a net profit of £77 million in the financial year ended last March; and they are set to make significantly higher profits this year.

"British Airways have also begun to restore their balance sheet. Since March they have repaid well over f100 million of borrowings without any assistance from the Government. Their external finance limit fixed for 1984–85 means we expect British Airways to repay at least £160 million of borrowings next year.

"Following this transformation of British Airways' financial prospects, I have decided to aim for privatisation as soon as possible, hopefully in early 1985. To this end I propose to establish British Airways as a public limited company under Government ownership in accordance with the 1980 Act.

"I am accordingly arranging for the registration of a public limited company under the name of British Airways Plc, without at this stage giving it the right to trade: and I shall shortly make an order nominating it as the successor company to the British Airways Board under Section 3(2) of the 1980 Act. I shall place a copy of the memorandum and articles of association of the new company in the Library of the House. I also propose soon to make an order under Section 10(1) of the 1980 Act, appointing 1st April 1984 as the day on which the property, rights, liabilities and obligations of the British Airways Board in the United Kingdom are vested in British Airways Plc. All this needs to be done well in advance of vesting to allow time for the necessary administrative steps, such as arranging the transfer of overseas property and rights from the British Airways Board to British Airways Plc.

"Shortly before vesting, British Airways Plc should be issued with a certificate to trade under Section 4 of the Companies Act 1980, so that it can take over the airline's business from 1st April. At that stage I shall provide British Airways Plc with the statutory minimum of £50,000 share capital. I shall be seeking a supplementary vote for this purpose in due course.

"From 1st April 1984 onwards, therefore, British Airways will be trading as a Companies Act company wholly owned by the Government. During this period we shall exercise the degree of financial control appropriate to our role as sole shareholder. I shall inform the House early next year of the regime that will govern relations between the Government and British Airways in the period between vesting and the offer for sale: but one element will be an assurance in similar terms to that given in 1980 to British Aerospace in similar circumstances, declaring that the Government continue to stand behind the company and will not allow it to default on its debts. This commitment will not of course extend to any debts falling due after the offer for sale.

"Final decisions on the timing of privatisation will depend on the airline's financial performance in the meantime, on the state of the stock market and on the general prospects for the airline industry.

"There has been considerable interest in the press lately, and in some parts of the airline industry, about whether a capital reconstruction of the airline will be necessary. I have reached no firm decision about this. It will depend in part on British Airways' financial performance over the coming year. My aim is that as far as possible the necessary improvement to the airline's balance sheet should come through its own efforts.

"Mr. Speaker, British Airways has remained for too long preparing for take-off. It is a great tribute to Lord King, the British Airways Board and the entire staff of the airline that I can today position the airline on the runway for take-off into the private sector."

My Lords, that concludes the Statement.

Lord Underhill

My Lords, the House will be grateful to the noble Lord the Minister for repeating this Statement made in the other place by the Secretary of State for Transport. I must make it clear on behalf of the Opposition that whatever may be the future structure of British Airways, we wish British Airways and its staff well in its position as one of the major airlines in the world. The Statement pays tribute to the chairman, to the board and staff for the improvements achieved. There must be the obvious question: why then interfere with it? Why not leave it in the hands of the present management and staff?

One thing is absolutely clear from the Statement. The Government are apprehensive about the problems that would be created by the flotation of British Airways at the same time as they hope—I repeat "hope"—to float British Telecom. But the Government do not appear to recognise the effect that these various flotations of public assets have on the essential need for investment in our manufacturing industry. The decision cannot be on the grounds of competition, as British Airways holds 83 per cent. of the routes and other matters of the British aviation industry—unless, of course, the Government are proposing some changes in that respect.

The Statement points out that the Secretary of State has not yet made up his mind on capital reconstruction. In the balance-sheet up to the end of March this year the debt stands at £1,053 million. The Statement recalls that £100 million has been repaid since then and it is estimated that a further £160 million will be repaid in the current year. That will still leave debts of £740 million. I must make it clear on behalf of the Opposition that there will be considerable concern if a considerable part of that debt is written off to launch a privatised British Airways.

As well as seeking capital reconstruction, the chairman of British Airways is reported as desiring relief from the Government in relation to pension commitments. There is no reference whatever to that in the Statement. My recollection of the 1980 Act is that it does not say that 100 per cent. shall necessarily be sold. What is the intention of the Government when eventually they decide to have the flotation? I must also make it clear that the Labour Party is committed to there being a major, publicly-owned airline in this country. I would stress that this was one of the major recommendations of the Edwards Report into the airline industry in 1969, and I urge that the Labour Party's commitment in this respect should be made clear in any prospectus for sale. In view of this fact and of the general acceptance at the time of the recommendations contained in the Edwards Report, will the Government now consider having a full review of aviation policy in order to retain Britain's preeminence in this field?

Baroness Burton of Coventry

My Lords, it would seem from the Statement we have heard today that the earlier plan to sell a controlling 51 per cent. slice of British Airways has been replaced by a determination to sell the whole company in the spring of 1985. May I ask the Minister—I apologise for forgetting to thank him for making the Statement—whether it is true that the Government expect some £800 million to £900 million to be realised by this flotation? If that is so, can the Minister say whether it will be used to wipe out at least £800 million of British Airways' crippling bank debts? May I also ask the Minister whether the plan means that British Airways' balance sheet will be restructured without further cost to the taxpayer? In the past, British Airways would certainly have gone bankrupt but for the taxpayer standing behind them. I ask this question because in the Statement we have just heard the Minister said—and this is a point to which the noble Lord, Lord Underhill, also referred—that he has not yet reached a decision about whether a capital reconstruction of the airline will be necessary.

I should like to ask the Minister what effect this privatisation will have on other airlines. Is the Minister aware that some people have wondered why it was not possible to consider selling British Airways as the major but not necessarily the dominant British airline in the future? It seems to me that civil aviation in this country would have a much more prosperous future if British Airways, British Caledonian and other scheduled British airlines were combined together in the effort. It would seem that this proposed action by the Government offers such an opportunity.

Furthermore, I wonder whether the Minister would agree that it is not possible just to privatise British Airways alone. There is a much wider aspect to be considered. For example, what are we going to do in Europe? How are our airlines going to be affected there? I should like to add my plea to that of the noble Lord, Lord Underhill: I think—and I believe that many people in the civil aviation industry think—that the Government should now have a wide-ranging review of civil aviation policy.

In conclusion, I should like to pay tribute, as did the noble Lord, Lord Underhill, to the whole of British Airways for the great efforts they have made to pull the airline round. It should not have been necessary; this should have been done long ago. It has resulted in a great deal of hard work and sadness, and a great deal of money has been spent upon putting British Airways on the right lines. I hope that now it will be successful and that the Minister will consider some of the points I have raised.

Lord Lucas of Chilworth

My Lords, I thank both the noble Lord, Lord Underhill, and the noble Baroness, Lady Burton of Coventry, for the way they have received this Statement. I am also indebted to both of them for the tribute they have paid to Lord King, the directors and the staff of British Airways, and for the good wishes for the future which they have extended to these people.

The noble Lord, Lord Underhill, asked a number of questions, some of which I shall try to answer. He asked specifically why we should interfere with British Airways. We believe, as do the board of British Airways, that the disciplines of the private sector will give more opportunities to the airline to improve its fortunes. We do not have, as the noble Lord, Lord Underhill, suggested, any apprehensions at all about privatisation. It makes good sense, with the privatisation of British Telecom next year, not to carry out a similar major privatisation scheme in the same year. It will also give to British Airways the opportunity to improve their performance even further. It is that improvement which we hope will be reflected in their balance sheet at the appropriate time. The prospectus to which the noble Lord referred will certainly be comprehensive.

Turning to competition, most of the competition British Airways faces is from overseas airlines. Undue competition would not necessarily, therefore, result from privatisation. The noble Lord, Lord Underhill, asked about routes, and in reply I have to say to him that these are not the concern of the Secretary of State for Transport, who has only appellate jurisdiction. Both the noble Lord, Lord Underhill, and the noble Baroness, Lady Burton of Coventry, asked how much of the equity the Government will sell. The Government have not yet come to a decision on this matter, but of course we are giving it a good deal of thought. Nevertheless, we would wish to retain as much flexibility as possible until nearer the date of flotation. The Government do not believe that at this stage an overall review of the airline industry is necessary.

The noble Baroness, Lady Burton of Coventry, asked how much the Government anticipate they will realise by the sale of British Airways. It would be unwise for me to attempt to forecast until we see the balance sheet of British Airways at that time, and the prospectus, and until we have some knowledge of the current state of the airline industry and the general position regarding world trade.

Lord Harvey of Prestbury

My Lords, is my noble friend aware that at the end of the day we may finish up with a private monopoly instead of a Government monopoly? Is it not rough justice on companies like British Caledonian and British Midland, which have fought all the way along since the end of the war without one penny of public money and which have been successful? I do not agree with my noble friend that most of the competition is from overseas. Surely it would be of great help to give these companies, which are making much foreign currency for this country, a better break. British Airways have about 85 per cent. of the scheduled services, which were acquired only by the goodwill of the Government; they were handed over to British Airways. I would make a special plea that in the intervening period these other companies should be given full consideration.

Lord Lucas of Chilworth

My Lords, I cannot agree with my noble friend Lord Harvey of Prestbury that there is to be the transfer of a monopoly. Indeed, British Airways have no monopoly. British Airways are subject to market conditions, in particular to those overseas. As to making any change in the competitive situation, my noble friend will know that this is not within the purview of Government. It is the Civil Aviation Authority which controls routes and prices. The prospective privatisation of British Airways raises implications for competition and for the sound development of the British airline industry.

The Civil Aviation Act 1982 places these responsibilities on the Civil Aviation Authority. My right honourable friend therefore asked the chairman of the authority for advice. The chairman has responded that the authority will review those matters in consultation with the industry and, of course, with representatives of users. They will make any desirable changes within the framework of the Act in their Statement of Policies on Air Transport Licensing and other matters. That, of course, is to be welcomed. My noble friend will know that the CAA have a responsibility to make reviews of this nature from time to time, or as the Secretary of State may request.

Lord Beswick

My Lords, the Statement again pays a most generous tribute to the new direction of British Airways—but would it not be fairer and more in accordance with the facts if a tribute were paid also to those who had previous responsibility for British Airways? Is it not a fact that Mr. Roy Watts and his team, before they were displaced, made a 15 per cent. cut in operating costs, which is reflected in the accounts we are now discussing? Is it not a fact that in this last year, British Airways are £300 million better off as a result of the efforts which were made by Mr. Roy Watts and his team—efforts which were not very popular at the time they were made?

Also, may I ask again about the possible capital reconstruction, which really is another term for the taxpayer taking over responsibility for the outstanding loans of the company? If we have a situation in the future where British Caledonian and British Midland are having to compete with an airline whose aircraft, if they have not been acquired for free, have been acquired at a greatly written down price, how can that be reconciled with any concept of fair competition?

Lord Lucas of Chilworth

My Lords, I am glad that the noble Lord, Lord Beswick, has reminded us that we should also pay some tribute and regard to the work done by the management and board of British Airways before the present regime. It would not be for me to ascribe responsibility for disappointing results in the late 1970s and early 1980s. It is sufficient to say that the airline is in a far more healthy state now than it was then.

So far as the restructuring is concerned, the Statement I have repeated sets out quite clearly that my right honourable friend has an open mind as to whether there is a necessity to restructure. There can be no question that a privatised British Airways will be allowed to operate with an unfair advantage in so competitive an area as the international or, indeed, the national airline industry.

Lord Boyd-Carpenter

My Lords, can my noble friend say whether, when the stock in British Airways is made available, the Government will take steps to ensure that a certain amount of stock is made available to the employees of British Airways, so as to give the new company the enormous advantage of substantial employee shareholding, with all the benefits that follow from that? Secondly, in respect of the tributes paid by my noble friend Lord King of Wartnaby and the noble Lord, Lord Beswick, to Mr. Watts—with which I wholly agree—is it not a fact that British Airways have, over the past year or two, recovered far more rapidly from the effects of the depression than have any other major airline in the world? Does not that reflect great credit on all those who have been responsible for that recovery?

Lord Lucas of Chilworth

My Lords I am greatly obliged to my noble friend Lord Boyd-Carpenter. If I may deal with his last point first, he is quite right in reminding your Lordships of the tremendous recovery British Airways have made in recent years. He is quite right in reminding us that that is due solely to the efforts of those "in the field", so to speak, right up to the board and the chairman—because that is where recovery really happens. It is quite right to say that they have put in a tremendous amount of effort, and many have indeed made great sacrifices. I am very glad to endorse my noble friend's comments in that respect.

My noble friend asked about shareholdings for British Airways employees. In any arrangements with regard to the sale of shares, employees will have an opportunity to buy or to obtain a stake in their company's performance. That is one of the salutary effects and one of the disciplines which moving the airline into the private sector will bring—I am quite sure, to the benefit of everybody.

While answering that question, perhaps I may anticipate another question which might arise. In the sale of shares, while the Government have not yet decided the mechanism to be adopted, it will be one that prevents foreign interests from obtaining control of the company.

Lord Glenkinglas

My Lords, will my noble friend. if I heard him aright, explain to me how 83 per cent. of the market is not a monopoly? The noble Lord, Lord Underhill, talked about the Edwards Committee. It fell to my lot to have to bring about what Edwards recommended at that time. The main opposition came from British Airways and from the noble Lord, Lord Beswick, because British Airways had a total monopoly; and the committee was taking away that monopoly by giving it to British Caledonian.

British Caledonian have done extremely well and I do not understand what industry in the world is not in a monopoly position if it has 83 per cent. of the market. Certainly in the days when I was at the Board of Trade that was regarded as total monopoly.

Lord Lucas of Chilworth

My Lords, perhaps I may remind my noble friend Lord Glenkinglas of my comments about the CAA. It is because of the prospect of privatising British Airways in 1985 that there will be changes in the domestic airline field. It is for that reason that the CAA are to undertake a review of the implications for competition and for the development of the British airline industry. It is through the CAA, and not the Government through the offices of my right honourable friend, that any change is likely to come about.

Lord Glenkinglas

My Lords, does my noble friend not realise that the Government give the CAA instructions in these matters?

Lord Lucas of Chilworth

My Lords, I understand that the Government do not give the CAA instructions.

Lord Glenkinglas

I understand that they do, my Lords.

Lord Lucas of Chilworth

My Lords, if my noble friend will allow me to finish, then he will recall that it is the Civil Aviation Act 1982—a consolidation Act which picked up on a number of Acts of previous years—which gives the CAA their authority. My right honourable friend—and, therefore, the Government—has an appellant role only in those matters.

Lord Beswick

My Lords, may I put one fact right for the record? I did not oppose the changes which were made in the late 1950s. Professor Edwards actually paid tribute to the contribution I made in the discussions I had with him. Is the noble Lord further aware that, far from trying to impede any of those changes, I had helped to start British Midland Airways—which is still operating successfully?

Lord Lucas of Chilworth

My Lords, I do not consider that I can add anything to the remarks of the noble Lord, Lord Beswick, because he was merely putting the record straight.

Lord Boyd-Carpenter

My Lords, will my noble friend allow me to reinforce his reply to my noble friend Lord Glenkinglas, to the effect that the CAA act under the statute and not under the instructions of the Government? Does my noble friend recall, in support of that, that when, some years ago, the Government tried to order the CAA as to how they should deal with the Laker application, the Court of Appeal, headed by the noble and learned Lord, Lord Denning, told them that they had no power so to do and quashed their action?

Lord Lucas of Chilworth

My Lords, I am again obliged to my noble friend Lord Boyd-Carpenter. I recall that occasion and I am grateful to my noble friend for endorsing and underlining my remarks from his own knowledge.

Lord Morris

My Lords, may I ask my noble friend whether, when Her Majesty's Government consider the design of the powers to be granted to the new company by virtue of Clause 5 of the memorandum of association of the new company, they will ensure that those powers are not written so broadly that the company might diversify its endeavours too far from its purpose of providing airline and ancillary services to the public?

Lord Lucas of Chilworth

My Lords, I will certainly draw my noble friend's comments to the attention of my right honourable friend. I can assure my noble friend that both the articles of association and the memorandum will be placed in the Library, and he will then be able to see exactly what they say.