§ 5.38 p.m.
§ The Earl of Kimberley rose to call attention to the need for Her Majesty's Government to assist British Aerospace in the development of the Airbus A.320; and to move for Papers.
§ The noble Earl said: My Lords. Her Majesty's Government must decide very soon—perhaps in the next few days—whether or not to accede to British Aerospace's request for launch aid for the Airbus 280 A.320 project. The decision will be a crucial one for our entire aerospace industry.
§ Since the last war the aerospace industry has had its ups and downs, but over the years the country has invested heavily, and in many cases I would say wisely, in this high technology industry. It is probably true that we once had too many civil aircraft projects. We are now in danger, however, of going to the other extreme, particularly if we should opt out of the A.320. Should this happen, Boeing would be laughing all the way to the bank as it would be given a virtual monopoly in the civil aircraft market.
Four and a half years ago, in June 1979, I said in your Lordships' House:
Today France has the major share in European civil air transport". [Official Report; 28/6/79; col. 1669.]
Times do not change very much, but we must remember that we are partners in Airbus Industrie, so I think we can add ourselves to France in that instance. I maintain that there is a market for the A.320 and that it is being presented to us on a platter if we have the foresight to take it.
§ Today, in Britain, I think we can take a great pride in our air industry, which ranks second only in the Western world to that of the United States. The French might argue that they are our equal in aerospace, but I will claim that our industry's demonstrably superior strength in aero-engines and electronics systems puts us well ahead of them. Our aerospace industry employs 200,000 highly-trained workers. Its annual turnover, I believe, amounts to more than £6,000 million. Over half of this output is sold abroad, and its contribution to our annual trade balance currently exceeds £1,000 million.
The Prime Minister herself, speaking at the 1980 Farnborough air show dinner, said:
Our aerospace industry is a great national asset. Its importance to our economy cannot be overstated.
§ It has also been said that the Prime Minister is concerned not to have another Concorde on her hands. Let us get one fact straight. Concorde, of which I was a supporter and still am, was an investment in the then unknown. The A.320 is quite the reverse. The A.320 is not a technological leap in the dark. It will be a match for anything that Boeing can produce in the timescale, and will be far superior, more economic and more efficient than the thousands of aircraft it is intended to replace. It is merely a rational development of Airbus Industrie's larger and now well proven A.300 and A.310 airliners.
§ The crux of the matter is this. The Government, not unnaturally, wish to be sure that the A.320 will, in due course, provide a satisfactory return on the monies invested in it. British Aerospace believes that the A.320 is, indeed, a sound commercial proposition. The company is asking for launch aid; that is, a loan—a loan that British Aerospace is quite convinced it will be able to repay.
§ British Aerospace is certain that there is a large market for a new 150-seat medium-haul airliner such as the A.320. Those who are best able to judge these matters agree that this is so: Boeing, McDonnell Douglas, Pratt and Whitney, Rolls-Royce, British Aerospace, Merrill Lynch and others confidently predict that, by the end of this century, some 2,500 to 281 4,000 aging, noisy, fuel-thirsty, medium-haul, 150-seat-class airliners will just have to be replaced. The general estimate is 3,000 in the next 15 years.
§ British Aerospace believes that Airbus Industrie will be able to attract at least one-third of this market, for at the moment only two manufacturers are now competing for it, Boeing and Airbus Industrie. I believe that Lockheed and McDonnell Douglas have bowed out of this competition, at least temporarily.
§ Airbus Industrie needs to sell only some 400 A.320s to break even on the project. It has good reason to be confident that it will sell at least twice that number. The company has already established its reputation with the airlines with the A.300 and the A310, which have sold well. Airbus Industrie has already received orders and options from the airlines for 88 A.320s and this is a more than adequate launch base for the project. It has been established despite the recent recession in the fortunes of the airlines.
§ One might ask why Airbus Industrie needs to launch another enormously expensive project when it is doing so well with the A.300 and the A.310. The answer is that the Airbus Consortium needs to broaden its product base. Individual airlines operate a range of airliners—small, medium and large—but they prefer that their fleets should be supplied, if possible, by one manufacturer, for good commercial reasons. Boeing offers the airlines such a range of aircraft. By being able to offer the small A.320 as well as the medium-capacity A.310 and the larger A.300, Airbus Industrie can satisfy the needs of most airlines. Moreover, the availability of the A.320 would enhance further the sales prospects of the A.300 and the A.310.
§ The A.320, in my opinion, is a sound commercial project with every prospect of success. That the market for such an aircraft up to the year 2000 is there, even without growth, cannot be denied. British Aerospace, which has a 20 per cent. stake in Airbus Industrie, with several thousands of its workers producing high technology wings for these aircraft, is surely right in wanting to buy into the A.320 project.
§ Furthermore, British Aerospace makes the point that if it were possible to take on the 20 per cent. share of the A.320 programme without sensible long-term loan arrangement—in this case, launch aid—then the company would be the first to wish to do so. The company has, however, already made enormous investments in developing its space and communications business and other product lines such as the British Aerospace 125–800 business jet—an outstanding success from the outset—and the Jetstream 31, which is beginning to show signs of following the 125 in its success story. In fact, only last Friday another order came from California for more Jetstreams. The new British Aerospace 146 is demonstrating that it will sell well; and, yet again last week, Air Wisconsin ordered two more 146s.
§ The A.300 and the A.310 are already commercial successes. Since British Aerospace rejoined Airbus Industrie in 1977 it has financed the launch, development and initial production of the A.310, the A.310–300 and the A.300–600 a total of about £400 million entirely from the company's own resources. If one adds to this the company's other massive investments at the bottom end of the civil aircraft 282 range, one judges that it is reaching a prudent financial limit for the civil part of the business. If it were forced into excessive borrowing, the high cost of finance would eventually erode profits and undermine the business.
§ If Britain is to capitalise on Airbus Industrie's success and opt into the A.320, British Aerospace needs Government launch aid to tide the company over. The other European partners in Airbus Industrie already have similar support from their Governments, and have had on all previous airbus projects.
§ In the case of British Aerospace, launch aid will not cover all the costs. Much will still be borne by British Aerospace itself, which will fund all of the production work in progress while continuing to provide development funding for other airbus wide-body aircraft programmes. British Aerospace's investment in the A.320 alone will be worth some £200 million. Government launch aid, which relates to start-up costs comprising research and development, jigs, tools and education, will, in fact, represent approximately 70 per cent. of the total—in other words, some £430 million spread over several years, with peak annual requirements in the region of £97 million per annum in the years 1986 and 1987.
§ Without launch aid British Aerospace is adamant that it just cannot participate in the A.320 project. Let us be quite clear on that point—and on another. With or without Britain, France and her other European partners in Airbus will go ahead with the A.320. But what will be the consequences of Britain opting out? First, to opt out will be taken very badly by our European partners in the consortium, particularly by France and Germany, who will feel very badly let down. This could have a serious impact on our chances of involvement in future major collaborative aerospace projects such as, for instance, the future experimental fighter aircraft programme.
§ Secondly, a negative decision would spell the end of the United Kingdom industry's participation in the large civil aircraft, just as Europe is breaking down the stranglehold of the United States in this field. Britain will have no hope of retrieving the situation in future. Thirdly, if Britain opts out the chances of Rolls-Royce getting its engine accepted for the A.320 will be seriously affected. It is perhaps interesting to note here that the decision of British Airways on whether to order A.320s eventually will very largely depend on the aircraft having Rolls-Royce engines, as it makes a considerable economy on the maintenance of its power plants if they come from one manufacturer. I know that my noble friend Lord Bessborough is going to say a few words about that.
§ Finally, if Britain opts out, our aerospace industry will suffer reduced employment—some 10,000 jobs could go in British Aerospace and its subcontractors, and in the associated equipment industry. The industry's exports and its contribution to the nation's trade balance would inevitably decline. I repeat: since the last war Britain has invested heavily in aerospace. Today, we possess the technological know-how, the skilled workforce and the productive capacity which, together with our European partners, can be a challenge to the United States. Airbus Industrie, with British Aerospace, has already blazed the trail with the A.300 and the A.310.283
§ So I hope that my noble friend the Minister will agree with me that now is the time to capitalise on success and support our European partners. The risks are not as great as some would have us believe. On the other hand, the benefits of the A.320 being successful—which it almost certainly will be—to those who work in the industry and to our economy as a whole could be enormous. Britain must take up this challenge, as our European partners surely will. Not to do so would be sheer folly. My Lords, I beg to move for Papers.
§ 5.53 p.m.
§ Lord Bruce-Gardyne
My Lords, it is almost 20 years since I lost my virginity in another place. I must confess that it seems to me that this is one of those experiences where familiarity does not yield assurance and therefore it is with at least as much trepidation as then that I crave your Lordships' indulgence this afternoon. I think that a maiden speech in this House has at least one advantage over a maiden speech in the other place—certainly at the time when I made mine—in that in those days, at any rate, it was considered wise or prudent to devote at least one-third of one's speech to praising the beauties, perceptiveness and intelligence, first of one's constituents for sending one there and, secondly, of one's predecessor who, by his death or other indisposition, had made your journey possible. As I understand it, those problems do not arise in this House, and so one can turn at once to the subject of the debate.
First, I should like to thank my noble friend Lord Kimberley for raising this matter this afternoon. Certainly his timing could not have been more perfect, for, as he reminded your Lordships, we know the Government are poised on the very brink of decision in this matter. Moreover, as a result of my noble friend's judicious choice of subject this afternoon my noble friend who is to reply to the debate will be able to participate in the making of that decision fortified by the wisdom and advice of your Lordships' House.
My noble friend Lord Kimberley spoke with an experience and knowledge of this industry which I cannot begin to match. He made a most powerful and effective case. Inevitably, I suppose, like my noble friend who is to reply to this debate, I am inclined to approach issues of public investment tarred with the Treasury brush. In fact, I must confess to having been a sort of "Treasury toady" long before I was summoned by bells to Great George Street in 1981—a "Treasury toady" at least in the sense that, while I recognised that the Treasury was often wrong, I had an inclination to feel (as I still have) that if we had accepted all the Treasury's judgments, right or wrong, over the years we might have been a somewhat richer and more prosperous country than we are today.
Of course, I have no idea whatever what will be the Treasury's judgment in the matter of the A.320 which is before your Lordships tonight. I do not know whether my noble friend Lord Cockfield will be able to tell us that: perhaps not. But if one were looking at this proposition from within the Treasury, one might perhaps pause to consider the history of our support 284 for civil aviation in this country and certainly at least to ask a few questions about the present proposition.
I have made some inquiries, but it is extremely difficult to tell precisely what has been the total of our expenditure on civil aviation support over the whole of the post-war period, not least because, of course, during the period of the nationalisation of British Aerospace the concept of launch aid did not apply and it was the discipline of the external financial limit which counted. But the figures that I have obtained from the Library suggest that some sum in the range of £1,800 million may have been invested in all forms of support for civil aviation in this country over the last 30 years, and of that some £400 million or so is estimated to have come back. I must emphasise to your Lordships that that is not a dividend: it is more akin to a distribution by the receiver to the extent of 22p in the pound, because the total investment did not come back by any means.
We also know that of all the civil aircraft projects launched in this country since the war only one, the Viscount, has been in a position to return the initial capital investment in it by the taxpayer. As far as I know—and other noble Lords will be able to correct me on this—so far the Boeing 727 is the only civil jet in the world which has in fact made a commercial profit.
My noble friend Lord Kimberley rightly drew attention to the impressive success of Airbus Industrie in obtaining orders for its first two models. He also rightly drew your Lordships' attention to the large market which awaits the A.320 worldwide. However, I suggest to your Lordships that sales, like loyalty, are not enough. Sales must be achieved at a price which receives a commercial return. Sometimes that is an obligation which perhaps some of those in the civil aviation industry need to consider more closely than they always do.
Like others of your Lordships, this afternoon I have received some interesting briefing material from Airbus Industrie. I looked anxiously through it before this debate began, and my eyes seized on an item:A.320—new dimensions to profitability".But unfortunately the new dimensions to profitability, to which it refers, are the prospects of profitability for those who will buy the A.320 rather than the prospects of certain profitability from the A.320 itself. Sometimes one could wish that Airbus Industrie had produced some figures to show what profits it is making from the aircraft that it has already developed.
Furthermore, it occurs to me that, if the prospects for the A.320 are so encouraging, is it really beyond the capacity of the City of London, unaided by Her Majesty's Government, to produce the finance which is required in this instance on the terms which British Aerospace says is essential—that is, with servicing and repayment deferred until the moment of cash flow in the 1990s? After all, the City of London was capable of generating thousands of millions of pounds for investment in North Sea oil at a time when, long before the first oil shot, the prospects of a return from that investment were at best highly hazardous. At the other end of the scale, it is worth recalling that no less than £12 million was generated for a most surprising project called Nimslo in just half an hour in the City. 285 Therefore, I should have thought that if, indeed, the prospects are so glittering, there is no reason on earth why British Aerospace should not be able to raise the finance that it needs, on the terms that it needs, within the City of London.
I also note—and it seems to be a matter for small preoccupation in this context—that at the present time the airframe manufacturers of the world seem to be awash with aircraft which they are unable to sell. We read that Boeing has actually been reduced to purchasing back from one of Airbus Industrie's respected customers Airbus aircraft that have not yet been delivered, so that the customer will buy Boeing instead. Apparently there is a dramatic crop of aircraft on the shelves awaiting customers going by the elegant name of "white-tails".
Again, as I understand it, sales in this area are conducted in dollars. At the present time this is, of couse, tremendously to the advantage of the European aircraft industry owing to the enormous soaring strength of the dollar. But will that last? Will the rate for the pound be 1.40 dollars when the time comes for Airbus Industrie to be paid, or will it be 2 dollars, or will it be 2.20 dollars, and, if it were, what would be the implications of that for the profitability of the whole project?
I know it is pointed out that, if we were not to proceed with this launch aid, we would expose the airlines of the world to a monopoly supplier in Boeing. But, as my noble friend reminded us, it has also been pointed out very clearly that, if we were not to proceed in this country, our partners would do so. I can appreciate that one or other of these propositions must be correct, but for the life of me I find it difficult to believe that both of them can be correct at the same time.
Finally, of course, I realise only too well that there is a vital issue which we cannot possibly ignore of the security of employment which would be achieved by making this public investment. However, at the same time we must recall a subject which the noble Lord, Lord Cledwyn, introduced before your Lordships not very long ago about the desirability of public investment. Of course, the essence of investment is that it makes a commercial return, and I sometimes wonder whether perhaps one of the reasons for our uninspiring relative performance over the past 20 years or more may not be that the return which we have achieved on public sector investment, not least in the aircraft industry, has hardly by any means always been at commercial levels.
On 2nd December at column 1175 the Minister of State at the Department of Industry said in another place that the Government must:examine the prospects of the project yielding a commercial rate of return".As my noble friend Lord Kimberley pointed out to your Lordships, that is the criteria which we would all accept. If the verdict of that examination is positive, let us proceed with a high heart. But if the verdict of that examination is negative, I am bound to suggest to your Lordships that our children, who would have to foot the bills in their taxation, would not necessarily thank us in years to come if we proceeded on that basis.
§ 6.7 p.m.
§ Baroness Burton of Coventry
My Lords, before thanking the noble Earl, Lord Kimberley, it falls to me to thank the noble Lord, Lord Bruce-Gardyne, for his contribution. As he said, he is an ex-Treasury Minister, and those of us who listened to him today who were not Treasury Ministers will "recognise the breed", if I may put it that particular way. I should like to tell the noble Lord—and this has nothing to do with his speech this evening—how much I personally have enjoyed his articles in The Times between last June and today. I have not had time to digest his article on freeports today, but I am quite sure that I speak for the House when I say that we are very glad to have him. I hope that sometimes he will be able to speak to us with the authority of an ex-Treasury Minister, but not as an ex-Treasury Minister. In other words, I am trying politely to say that, although I have been delighted to hear him, I do not know whether I entirely agree with what he says. As we move on, perhaps I shall be able to say that.
I thought that the noble Lord must have been a journalist when I read his articles in The Times, and having chased up further details about him this afternoon I see that he was also the Paris correspondent for the Financial Times. Therefore, we welcome him: we are glad to have him. However, in spite of his last remarks, I do not think I would be wrong in assuming that really and truly he is not in favour of what we seek to obtain today by means of this Motion. To be perfectly fair, perhaps I should say that if it can be proved otherwise, I believe that the noble Lord would go along with it.
In common with everybody else, I want to thank the noble Earl, Lord Kimberley, for raising this matter today. I think that his timing has been impeccable. We shall only know when we come to the end of the debate whether or not it has been successful. However, I should like to comment on something which the noble Earl mentioned in opening. He spoke of Concorde and I believe he said that the Prime Minister had said she did not want another Concorde on her back. Obviously, if the Prime Minister said that—and I have seen it quoted in several places—she would mean that she does not want such a financial burden, because, even to the layman, Concorde is a brilliant example of British aeronautical engineering.
I should only like, if I may—and I brought this in quite by chance—to quote two paragraphs from a letter in The Times of 16th January by Mr. James Moorhouse, MEP, who, as many Members of this House will know, is the Conservative spokesman on transport in the European Parliament. I have met Mr. Moorhouse several times. Whether or not one agrees with him, there is not the slightest doubt that he knows his subject. In case anybody else mentions Concorde, I should like to quote these twoparagraphs, if I may:It is very fashionable to say that the commercially unsuccessful Concorde is positive proof of the folly of all major projects. But it needs to be appreciated that the A.320 and the Concorde are two very different animals.While the supersonic Concorde was designed, as indeed was the de Havilland Comet, to push back the frontiers of knowledge and technology, the subsonic A.320, cast in a more conventional mode, will aim fully to exploit known technology while offering super-fuel economy and minimal maintenance costs.".287 If it can do all those things I hope that it will win the noble Lord, Lord Bruce-Gardyne, on to our side.
I hope that the Government will support by offering launch aid to British Aerospace, which I believe has a 20 per cent. share in this, and which British Aerospace itself hopes will be 26 per cent. I think we are talking in terms of some £400 million plus as a loan. I thought that the Economist of 27th August carried a salutary warning in the article War in the Air, when its opening sentence read:The risk is that airlines will soon be able to buy any long-distance passenger aircraft so long as it is a Boeing.That has worried quite a few of us during recent months.
That fear spreads much wider than readers of the Economist. I wonder whether the noble Lord, Lord Cockfield, when he comes to reply on this aspect, can say whether it is correct that the Americans want to oust Britain from the European airbus project? It would be useful if the noble Lord, Lord Cockfield, could help us there, because this is something I have heard repeated on very good authority from several sources.
The Under-Secretary of State for Trade and Industry, Mr. Butcher, made an encouraging comment in another place on 19th December, when he said at column 87 that:the orders and options for the A.320 are at the largest pre-launch level achieved.An encouragement in more than words has come from three airlines, and there are probably others. British Caledonian—and all credit to it—led the way in October last year by ordering seven A.320s for delivery in the spring of 1988, with options for a further three. Earlier this month the president of Airbus Industrie announced a contract to build 10 A.320s for the French domestic line Air Inter. And the Yugoslav airline, Inex-Adria, has ordered five of the aircraft, with options for a further three.
I do not know whether the noble Lord, Lord Cockfield, when he comes to reply can also answer this point. I personally wish, and I am sure other Members of your Lordships' House would wish, that British Airways could have been on that list—I should have liked to add them to those names—instead of feeling that it could only place an order when the airbus was safely launched. Arising out of that, I should like to ask the Minister whether he feels that British Airways' decision to lease rather than buy American jets outright at the present time really gives them more scope for endorsing the A.320 in the future? I should be grateful if he feels able to comment on that.
As the noble Lord, Lord Bruce-Gardyne, has pointed out to us, obviously any new aircraft must carry some degree of financial risk where large sums of money are concerned. But the general feeling seems to be that the A.320, seating 150, will justify the optimism of those who have placed orders already, rather than the reverse. For one thing, as the noble Earl, Lord Kimberley, said, this aircraft does not stand by itself. It stands with a group, or family, which includes the A.300, seating 265, and the A.310, seating 210.
288 In the summer, I returned from a civil aviation conference in Frankfurt and was fortunate enough to fly on the A.300. Personally, I have never experienced such comfortable seating and configuration on any economy flight. I do not know what it was like in the grander aspects, but I thought it was wonderfully comfortable. As of course is known by the industry—and I am sorry to keep going back to the noble Lord. Lord Bruce-Gardyne, but as an ex-Treasury Minister he is worth coming back to—the A.300 has been a success and it has reached a financial break-even point. It is important that we should remember that.
I for one, and very much as a layman, am prepared to accept the opinion of people well qualified to know that the A.320 will offer super-fuel economy and minimal maintenance costs, besides of course satisfying the new noise regulations. Some of those spare aircraft, which I was about to say are running around the world but they are lying around at the moment not being used, would not meet those minimal noise regulations which we know will come into force in 1986. I wonder whether the noble Lord, Lord Cockfield, can tell me whether it is true that the A.320 is British Aerospace's only major civil aircraft?
I feel that all of us who strongly support the European Community believe that an additional asset in all this is that in these matters we have a proven partnership with the French, German and Spanish industries and including, I believe, Belgium. Surely we would not wish, and the Government would not wish, that the A.320 should continue with new partners and minus Britain. As the House knows, we aim to build the wings plus, I am told, for the first time, virtually all the complicated wing flaps, securing some 4,500 jobs.
The noble Lord, Lord Beswick, will know a great deal more about this than I do, but it is useful that lay Members know something. Then of course there is the opportunity which will be offered to Rolls-Royce. Others besides myself will have noted the comments made in another place on 19th December, by those particularly interested in this project, to the effect that it is just possible that the new Rolls-Royce engine may be ready in 1988 at the same time as the launch of the airbus.
I would not be competent to comment on a further point concerning Rolls-Royce, but I think it should be referred to. As I have asked the noble Lord, Lord Cockfield, only three simple points, perhaps he will comment on this also when he comes to reply. It was said how unwise it would be for the United Kingdom not to get its Rolls-Royce power plant certificated for the A.320. Indeed, the point was made that Rolls-Royce must now bitterly regret the fact that it never got the RB-211 certificated for the B2–B4 and the A.310 airbus. The man who spoke to me, who was very knowledgeable, said that he was sure that the company feels today that it would never make the same mistake again.
I hope that the Government will provide financial aid for this project. If they do not feel able to offer the full amount, perhaps they could do two other things in addition to their own contribution: first, they could persuade others in Europe to help; and, secondly, they could demand some means of independent private 289 sector finance. My Lords, we all know really that the A.320 will be built with or without British participation. Airbus, British Aerospace and the Government have an opportunity here to seize the initiative, and I hope that we do not miss the bus this time.
§ 6.19 p.m.
§ Lord Beswick
My Lords, I join in congratulating the noble Lord, Lord Bruce-Gardyne, on his maiden speech in this House. I should also like to offer my thanks to the noble Earl, Lord Kimberley, for his informed and persistent advocacy of all that is good in aeronautics. The noble Lord, Lord Bruce-Gardyne, gave some figures about the amount of public moneys put into the aircraft industry in the post-war period. I remember that some time ago I wrote a pamphlet about these moneys and I think if the noble Lord were ever to read it he would probably not disagree with a good deal of what I said.
If it is any consolation to the noble Lord, since public ownership no launch aid was asked for, none was given and, on the publicly-owned capital in British Aerospace, a proper dividend was declared each year. I am not unhopeful that that good practice will be continued in the future.
I am not absolutely convinced that the strictly commercial case for the A.320 airbus can properly be discussed in a Chamber of this kind. But I agree with the noble Baroness and with the noble Earl that there are wider issues which are properly the concern of Parliament and which should be taken into account if a decision is made to advance public funds.
On the strictly commercial side there are obviously facts and figures which are confidential. I can imagine that the method and amount of payment by Airbus Industrie to the constituent companies for work done are probably relevant to any commercial decision, but they cannot and should not be brought into public discussion.
However, as I have said, there is a wider national interest here. It will be bad for Britain if we do not build our share of the A.320 airbus. British Aerospace is a member of Airbus Industrie. We paid £50 million for our share of the assets when we joined. It was not a political decision to join; it was a commercial decision. In so far as there was Government pressure at the time it was to stay out, but BAe decided that it was better to be an equal partner of a European consortium rather than a sub-contractor of an American company—which latter option our embassy in Washington at the time was not backward in canvassing.
I have said that it will be bad for Britain if we back out of an Airbus Industrie decision to go ahead with the A.320 and I will give three broad reasons why I say that. First, it would be contrary to the Government's declared policy of supporting new industry based on modern technology. We are here talking about a growth industry. We are only on the threshold, as yet, of transport and communication in air and space. I have known the time when the military side of the aircraft industry was supported by the civil side. I can well see in the next decade or so that we could return to that position, given the right decisions now.
290 My second reason is that it will seriously weaken the position of the British partner in Airbus Industrie if we cannot take our share of what could be the most important project so far. We joined Airbus Industrie late and I always saw the need to develop our influence and the contribution of British personnel. Improvements were possible, but we shall reverse that process of development and slip back into a second-rate partnership if we cannot keep up with the others. Indeed, I would go as far as to say that the British position as a partner of Airbus Industrie will be near impossible if we have to withdraw each time the A.320 project comes up for discussion at board or technical committee level.
Thirdly, following from what I have just said, a negative decision by us would reflect upon our standing in Europe. I have always maintained that membership of AI was a much more realistic and cost-effective exercise in European co-operation than the bureaucratic extravagance in Brussels.
I firmly support the Government's refusal to continue an open-ended subsidy for the production of overpriced commodities which we cannot sell, but if at the same time as that refusal the Government also refuse to support precisely the kind of joint industrial ventures which they advocated at Stuttgart in June then their credentials as Europeans will be derisory.
I hope the Minister will agree that those three reasons will carry some weight in the Government's consideration. But I would agree with him, with others and with the noble Lord, Lord Bruce-Gardyne, that those reasons should carry weight only on the understanding that over an appropriate period the A.320 project is judged to be a profitable venture showing a real return on the investment.
That leads to the question of who shall be the judge of potential profitability? I know of no better qualified authority than the manufacturers. I do not believe that British Aerospace would want to go ahead unless it was satisfied about the eventual return. Some will say—and I can understand the noble Lord, Lord Bruce-Gardyne, saying, as has been said in the press—that such a judgment is made easy if it is not one's own money at stake. In this case BAe will have its own money at stake. It will have a great deal of money at stake in production costs. My understanding is that the company will be committed to repaying the loan now under discussion. The precise nature of the repayment terms is no doubt a matter for negotiation, but I hope the Minister will make clear for the benefit of the critics that no one is here talking about the old style launch aid. I hope that he will make it doubly clear that there is not the slightest resemblance to the Concorde contract.
Commentators have made the point, and so did the noble Lord, Lord Bruce-Gardyne, that, in the past, very few aircraft projects have proved profitable. That is absolutely true, but it is the principal reason why the number of aircraft manufacturers has gradually dwindled. We are now nearing the situation when there will be only two major manufacturers of mainline aircraft in the Western world. In that situation profitability for the manufacturer becomes possible, together with a degree of competition which I should still like to see, to benefit the operator. A 291 decision to go ahead with the A.320 will mean that Europe will have one of those two remaining potentially profitable manufacturing bases.
Another commentator has suggested that the decision to launch should wait until enough machines have been sold to guarantee break even. I suggest that that is a formula for closing down the industry. It is about as sensible as saying that a motor manufacturer should not lay down a production line until enough drivers have paid a deposit on cars to guarantee success. As the noble Baroness said, and as I believe the noble Earl has already said, more A.320s have been sold than most marketeers had thought possible in today's depressed conditions. But to expect a break-even order book is just talking nonsense.
It is this very fact of the exceptionally long timescale between design study to a positive cash flow that makes it necessary and justifiable for the company to turn to the Government for funds. In that respect we are dealing here with an exceptional industry. I hope that the Minister will be able to give us reason for believing that funding will be forthcoming to enable British Aerospace to maintain its position in Airbus Industrie. I hope that he will be able to see—and I hope that the Treasury especially understand—the need to relate repayments to this long timescale which is necessarily involved. I am bound to add that if this Government, who are selling off thousands of millions of pounds of public assets accumulated over the years by successive Governments, cannot find the money for this promising venture, then it is a pretty bad outlook for Britain.
§ 6.30 p.m.
The Earl of Bessborough
My Lords, first, I should like to congratulate my noble friend Lord Bruce-Gardyne on his most interesting contribution, even if I could not exactly agree with him. He is clearly a great asset to your Lordships' House. His eloquence and humour this evening made it clear that we shall all want to hear him again very often. It is also clear that he is no longer, at any rate, just a "Treasury toady". I do not think that he ever was; but I agree with him that if the City were to invest in this project that would be ideal. I hope that inquiries are still proceeding in the City to see whether some risk capital cannot be raised there.
I am very glad indeed to follow the noble Lord, Lord Beswick. I have discussed these matters with him at crucial moments. I remember especially 1970, when I became Minister of State responsible for aerospace. Over a period of seven years—for a short time in Government and at length in Opposition—I was a spokesman for the Conservative Party in these matters. I was very glad to hear the noble Lord, Lord Beswick, this evening, and I agreed with every word he said. I shall tell your Lordships later why I find that a little surprising. I agreed also with every word that my noble friend Lord Kimberley said in introducing this Motion; and also with the noble Baroness, Lady Burton of Coventry. We certainly are at one.
All the arguments have already been deployed, and I shall not detain your Lordships for too long. But, having been spokesman on aerospace for all those 292 years, and especially at the time when, in 1969, Mr Benn, as Minister for Technology, withdrew Government support for the original A.300 airbus I recall that we, the Conservative Opposition, opposed him strongly. I remember in this connection my noble friend Lord Jellicoe and others. We greatly regretted that withdrawal, and I think that the noble Lord, Lord Beswick—almost my noble friend—probably regretted it as well. Certainly he gives the impression of regretting it now.
My point is this. I should not like to see the present Government do what I might call "another Benn" in not granting launching aid to enable Britain to make its fair contribution to this aircraft, which, as already made clear, will be the only European wide-bodied aircraft to compete with Boeing and, perhaps, McDonnell Douglas. Having visited Seattle more than once, I need hardly say that I have the greatest admiration for Boeing's remarkable achievements in aerospace and their domination, more or less, of the world airline market. I am glad, too, that Boeing accept Rolls-Royce engines in their machines. They are our friends. Nonetheless, I should not like to see them gain a virtual world-wide monopoly which, in a curious way and in view of the anti-trust laws in the United States, I do not think that they themselves really want. European airbus or no European airbus, Boeing will do all right.
I believe strongly that Europe, the European Community, and perhaps its associated states, should be capable of putting up some kind of competition with our American friends and allies. Therefore, I support very much the arguments so ably deployed by my noble friend, by the noble Lord, Lord Beswick, and by the noble Baroness. I will not repeat all their cogent arguments, with which, in general and in principle, I agree. I hope that British Airways will keep its options open to order the plane, as British Caledonian and others have done, even if as a stop gap and in the interim they have to order some Boeings.
Although, as a Minister and as an Opposition spokesman, I was one of those who supported the building of Concorde from the very outset and hope that a larger and more economic "Son of Concorde" will ultimately be produced with our French, American, Japanese and maybe other friends, I must emphasise, like my noble friend, that this airbus is not another Concorde. As my noble friend has said, it represents a known technology in which it should be well worth investing. As he says, it is, indeed, merely a development of the original A.300 and the A.310, which have proved themselves to be highly successful as commercial aircraft. I hope, of course, that the A.320 will eventually have a Rolls-Royce engine. I was glad to see in the Sunday Times this week that the Government will support Rolls-Royce's participation in the five-nation project to develop the new V-2500 engine. I hope, too, that the Government will support Rolls-Royce and British Aerospace in building the engine, the air-frame and, particularly, the wings—and the flaps, as the noble Baroness has said—of the A.320.
I agree very much with all that the noble Baroness said and with the letter that she read out from Mr. James Moorhouse, MEP in The Times. If we really 293 wish to be wholehearted supporters of European economic (and, to some extent, industrial) unity, I think that the Government should provide this support. This does not mean that we should not co-operate with the United States in other ways, including perhaps the building of other aircraft such as the Harrier jump jet and, particularly, as I have said, a more economic supersonic transport. In the mid-1960s, when Boeing were given the contract, later cancelled, to build America's first supersonic transport, I was in favour of bringing in Lockheed as a partner in Concorde, but neither BAC (later British Aerospace) nor Sud-Aviation (later Aerospatiale) would agree. They thought that if we did so Lockheed would take over the whole project. However, if we had had an American partner in that project, then perhaps there might have been a modest market for Concorde in the United States.
The A.320, the European airbus, is a very different proposition for there is, as your Lordships have already said, a recognised market for it in the United States and in other parts of the world. I hope that my noble friend Lord Cockfield, for whom I have a great admiration, recognises this. If we do not give Government launching aid, then, as I see it, the wings as well as the aero engine will be built in the United States. As a result, there will be unemployment, as has already been said, to the extent of some 10,000 jobs in a number of British Aerospace establishments and their sub-contractors. That unemployment will be considerable. I agree with my noble friend that Britain must take up this challenge.
§ 6.41 p.m.
§ Lord Briginshaw
My Lords, I join with other noble Lords in giving congratulations upon the maiden speech of the noble Lord, Lord Bruce-Gardyne, and I join them too in hoping that we shall hear from him again many times during the process of our business. I particularly want to congratulate the noble Earl, Lord Kimberley—I join other noble Lords in doing so—for the timing of this debate and I would seek the understanding of your Lordships in having discarded the few notes that I had prepared to participate in this timely debate.
What I want to do is to emphasise, alongside the urgency and the importance of the contribution that is being sought from the Government for the aerospace contribution itself, to underline in a complex situation the importance of viewing the whole canvas that was presented so ably by the noble Earl. Almost everything that has been said in the debate contributes towards my assessment that this is a unique debate and a unique situation which has developed, if one looks at the positions taken up by so many of us at other times. I have a feeling that the Treasury are right on some things it is possible for them to be doing at present and in some attitudes. One needs to be careful, although purposely I do not want to be word perfect in speaking off the cuff. It would be churlish of me not to indicate that perhaps the position emerging as a result of the matter before us does not lead me to say that for once I would be on the side of the Treasury position too, because everything is tied up.
294 The noble Earl, Lord Bessborough, mentioned one of the things I had made a note of: how does this question affect the wider issues of European unity? I had a position which was very doubtful, to say the least of it, concerning the prospects of Europe as a whole. Here is the very essence and test as to whether things go on in a positive way or not. This is not a question of milk or mutton; it is a question of the very essence and future of the possibility of progress on the front we have in mind.
I do not submit to your Lordships that my contribution is other than a lay contribution, but I would direct your attention from the contribution made by the noble Baroness, Lady Burton, which reminded me of the maiden speech I made seven years ago. The attitudes I was seeking in that maiden speech for the RB.211 are being met in the prospects we have before us in the technology that has developed since that time—the silence of the Rolls-Royce engines and such factors. And if one were to look hack at the record of the time, seven years ago, it would be worth two minutes' reading.
I have sought to see whether I could use my short time in this debate to set pointers, and particularly one pointer, which is the importance of what is involved in our connections with Europe, whatever one's views are. Secondly, certainly it is an international competitive situation, a struggle—and I use the word advisedly—that we are involved in. One cannot complain, when one talks of Boeing, that the Americans are pro-American and that the aircraft groups are patriotic. What I do complain of—at least I suspect it—is that we are not pro-British enough in a robust assessment of what we need to do. Some of the factors that came out in the noble Earl's presentation carefully drew attention to this. I would hope that Government Ministers will bring their weight to bear on these important factors, rather than worrying too much about commercialism.
The future employment situation has been brought out by your Lordships in many ways. All the factors that the noble Lord, Lord Beswick, drew attention to are involved in looking at the whole canvas, and if in the few minutes I have been able to address your Lordships I have been able to stress that, my purpose will have been served.
§ 6.48 p.m.
§ Lord Marley
My Lords, I also should like to thank my noble friend Lord Kimberley for introducing this subject. It is an absolutely vital one and this debate was impeccably timed, as others have said. I should like also to congratulate my noble friend Lord Bruce-Gardyne on his excellent contribution to this debate.
I have myself travelled a fair amount throughout the world and in various types of aircraft. I should like to agree totally with the noble Baroness, Lady Burton, in that I have never travelled in a more comfortable, quiet and smooth-running aircraft than the current A.300. I really think it is a very, very fine aircraft. It is one of the few European-built aircraft to penetrate the impregnable fortress of the United States air network and I think that is most important to the European Community, particularly because of the number of countries contributing to the airbus.
295 Eastern Airlines is the airline I am referring to. They have in use at the moment 34 A.300s, and I had a report this morning from their headquarters in America. They are very pleased and satisfied with this aircraft. They find it has great "passenger appeal", as the Americans put it. They find that its operation is efficient and economical, and I think that they should be encouraged in every way, if possible, by our Government to take an option on the new A.320.
It is vital to speed up the promotion of the new A.320, particularly in view of the announcement a couple of days ago of the new Boeing 737-300 which, as reported at its inauguration, will be in direct competition with the airbus. It is very important that the Government should take note of the announcement. I hope that they will support British Aerospace in the development of this aircraft. If it does not happen now—and I mean now—it may well be too late.
§ 6.51 p.m.
§ Lord Underhill
My Lords, first, perhaps I may congratulate and thank the noble Lord, Lord Bruce-Gardyne, for his maiden speech. As other noble Lords have said, it sounded a cautionary note, which was welcome, although I did not agree with its general tenor. All noble Lords who have taken part in the debate are, with perhaps the exception of the noble Lord, Lord Bruce-Gardyne, of one view. Help is needed for the launching of the airbus. I also thank the noble Earl, Lord Kimberley, for opening the debate with a well-informed speech, based upon his experience and knowledge.
This issue has been debated on five occasions in the two Houses. Two Adjournment debates were held in the other place in December of last year. A great deal of information is already available about this vital issue, therefore. My noble friend Lord Beswick, with all his experience of the industry, opened debates in your Lordships' House on two Unstarred Questions. They were held on 26th April 1982 and 5th July 1983. In the debate on 26th April 1982, the noble Lord, Lord Cullen of Ashbourne, speaking for the Government, said that an assessment of the commercial viability of the A.320 project had not yet been completed; therefore it would be premature to take a decision. Further information from British Aerospace was awaited; however, the Government certainly intended to reach a decision with the minimum delay compatible with a proper appraisal of the case. That debate took place nearly two years ago. In the debates which took place last December in the other place, Government Ministers said that it was hoped to deliver a decision by the end of January 1984. This, therefore, is the time for decision.
Ministers have said time and time again that the A.320 is vital for the future of the civil aviation industry in Britain. I shall not give the references. There can be no disagreement that Airbus Industrie is an outstanding example of productive European co-operation. The way in which Airbus Industrie brought on stream the A.300 and the A.310 is clear evidence of that fact. I do not possess detailed knowledge of the aircraft manufacturing industry, but it is claimed that 296 the A.300 and the A.310 are the most economical and operationally reliable of any of the wide-bodied aeroplanes. I have not heard anybody deny those facts.
As has been stressed by other speakers, both the A.300 and the A.310 have had a successful sales programme. May I remind your Lordships that over 352 firm orders have been placed for the A.300 and the A.310 aircraft by 46 airlines, with options for another 100 aircraft? It is important to note that 70 per cent. of these aeroplanes have been bought by airlines which are not partners of Airbus Industrie. This is a very important point. About 200 of the A.300 and A.310 aeroplanes are operating successfully in various parts of the world.
In the last debate, on 5th July 1983, the noble Lord, Lord Lyell, at col. 553 said:We are most gratified by the successes—I stress 'the successes'—which Airbus Industrie has achieved in establishing a position second only to Boeing as a manufacturer of wide-bodied civil aircraft and also in demonstrating that a European collaborative venture can rival the major United States manufacturers".That was obviously an agreed Government statement. Almost precisely the same words were used by Mr. John Butcher, the Parliamentary Under-Secretary of State for Industry, in a debate in the other place on 19th December 1983. Therefore the Government recognise the success which has already been achieved and the importance of the programme to the British civil aviation industry.
There seems to be no argument that there will be a demand throughout the world for the replacement of many of the ageing and noisy aircraft. Government Ministers agree that there will be a demand for new aeroplanes in the next 20 years. Airbus Industrie have carried out research with airlines throughout the world into the type of aircraft that is required to meet these needs. Airbus Industrie claim, and I have no reason to doubt it, that the A.320 fully meets the requirements of the world's airlines, as expressed in the survey they have carried out. They have also carried out a survey which suggests that, even at the lowest figure, only 30 per cent. of the possible demand for aircraft would mean that about 700 of the A.320 aeroplanes would be required.
Reference has been made to the 88 orders and options which have already been secured for the A.320. I understand that until today there were 47 firm orders and 41 options, but I was told only this morning that another four firm orders have been placed and that another four options have been taken up by an existing A.310 customer. I should like noble Lords to keep that point in mind.
In the debate on 19th December in another place, Mr. John Butcher joined in the congratulations upon an order for five A.320s having been placed by the Yugoslavian State Airline. He said:It is further evidence of the commercial appeal of the A.320".He agreed that it was absolutely right to say that orders and options for the A.320 were at the largest pre-launch level achieved. Mr. John Butcher recognised that an unusually large pre-launch order had been placed.
Airlines do not place orders on grounds of sentiment. Reference has been made to British Caledonian Airways. Sir Adam Thomson and his 297 board did not place that order merely on grounds of sentiment. I was present when Sir Adam Thomson was asked whether British involvement in a European enterprise was a factor in their decision. He said that the decision was taken almost solely on the commercial needs of British Caledonian and that it was necessary for them to have the A.320. I hope, as other noble Lords have already said, that British Airways will also place orders for aircraft. Airbus Industrie should be mentioned, as they offered to provide interim aircraft to BA on the same lease arrangements as those offered by Boeing.
In passing, perhaps I should say that many countries would love to enjoy the British situation of having a very efficient aeroplane manufacturer, as we have in British Aerospace; one of the world's leading aircraft engine manufacturers, as we have in Rolls-Royce; and one of the leading state airlines, as we have in the form of British Airways. I regret that we do not have all the collaboration between those three bodies which I should like to see, but there is not the slightest doubt that an order from British Airways will greatly enhance the prestige of the whole Airbus Industrie programme. As other noble Lords have said, there is already development in progress at Rolls-Royce on an engine which will be suitable for use in the A.320 programme.
My noble friend Lord Beswick emphasised the position of British Aerospace; that they believe this is a good aeroplane. As laymen, we must take note of those people who understand what is required in the production of an aeroplane. I should like to emphasise, as other noble Lords have done, that up to now there has been no development support given to British Aerospace, or required by British Aerospace, for their part of the production of the A.300 and A.310 programmes.
As more than one noble Lord has said, if the Government do not help with this matter, and if British Aerospace have to withdraw, nevertheless the A.320 programme will continue with the share of British Aerospace being offered to other members of the partnership. The noble Lord, Lord Bruce-Gardyne, asked a question about returns. When my noble friend Lord Ponsonby of Shulbrede spoke in the debate in July last year, he referred to the loans towards production costs incurred which Airbus Industrie had already repaid.
Airbus Industrie have made it quite clear that the share of the A.320 programme falling on British Aerospace might be nearer 26 per cent., rather than the 20 per cent. they had in the previous programme. I have heard Government Ministers echo that that could be so. We must bear in mind that British Aerospace and Airbus Industrie buy equipment from some 40 other British companies. We have also possibilities for Rolls-Royce engines because Airbus Industrie have made it clear that they will welcome the opportunity to offer the alternative Rolls-Royce engine to customers instead of that which is currently used.
Ministers have time and time again expressed the view that the success of the A.320 is vital for the future of our aerospace industry. One can refer to numerous speeches to prove that fact. If that is so, and if 298 Ministers do consider it vital for the future of our aerospace industry, then what will be the situation if we do not participate in the A.320?
It is essential that our participation in this great European construction effort should continue. It is generally agreed that production of this type of aircraft is far too large a project for any single European country. Therefore, if we did not participate and there was not the Airbus Industrie effort in our programme, then there would be sole reliance upon Boeing production. The Government decision could give a considerable impetus to Airbus Industrie. It could give great impetus to the A.320 programme, and it could have a considerable effect upon sales. There is clear evidence that the A. 300 and A.310 programmes have been successful and are continuing to be successful. There are no reliable grounds for believing that the A.320 programme could not be the same.
Perhaps I may conclude by quoting what the noble Lord, Lord Lyell, said on 5th July 1983, speaking on behalf of the Government:The Government recognise that the future of British Aerospace as a civil aircraft manufacturer is now very closely linked to participation in viable new air industry projects. The valuable opportunities which the A.320 could present to British engine and aircraft equipment manufacturers is also clearly recognised".—[Official Report, 5/7/83; col. 554.]What I believe noble Lords are asking tonight is that that recognition should now be backed by real, positive assistance to the launch programme.
§ 7.10 p.m.
§ The Chancellor of the Duchy of Lancaster (Lord Cockfield)
My Lords, may I start by congratulating my noble friend and former colleague Lord Bruce-Gardyne on a thoughtful, well-argued and well-documented maiden speech. He brings to this House great experience in economic affairs, a penetrating insight into the activities of government, and a facility of expression which makes even the most trenchant criticism a pleasure to listen to.
As my noble friend Lord Kimberley, who initiated this debate, will readily appreciate, I am not in a position to make any announcement of the Government's intentions this evening. Indeed, I believe that my noble friend recognises that that is so. Nevertheless, the debate has served the valuable purpose of enabling us to survey the field as a whole, and it has given your Lordships an opportunity to make your views known. I can assure all noble Lords who have spoken that very careful consideration will be given to everything that has been said.
When British Aerospace was privatised in February 1981, it was stated that the company would have the same eligibility for Government finance as other companies in the private sector and as its predecessor companies had prior to nationalisation. That remains the position. We have made it clear that we are prepared in principle to consider launch aid for participation by British Aerospace, and indeed by other aerospace companies, in viable new projects. The present application by British Aerospace for launch aid is in respect of its share of the development costs of the A.320 airbus, and this will need to be judged on its merits.
299 It is important that I indicate the basis on which we approach these matters. Launch aid is not a subsidy—at least, it is not intended to be a subsidy, although it has very often ended up that way. Its intention is that when an enterprise operating in a field of public importance has a commercially viable proposition, the development costs of which are very heavy and which have to be incurred before—and sometimes long before—revenue from the project accrues, then in appropriate cases Government will assist by providing launch aid which will help to meet development costs and which will be repaid out of revenues when they accrue.
There is a parliamentary requirement that one should vote in accordance with one's voice. There is a commercial equivalent. One of the prime tests of commercial viability must be whether the enterprise promoting the project is prepared to back it with its own money. That is why when launch aid is sought the company concerned is usually expected to bear at least 50 per cent. of the cost itself. This risk sharing between the company and the Government means that the company still has a real incentive to ensure that the project does make sufficient money to meet the full development costs, including repayment of launch aid, as well as making a reasonable profit. To cover the whole of the development costs by launch aid would leave the company with no such incentive.
As my noble friend Lord Bruce-Gardyne has said, the history of launch aid to the aerospace industry over the last 30 years or so has been far from a happy one. On the airframe side only the Viscount has been sold in sufficient numbers for the Government aid to have been repaid in full. Of the total launch aid or equivalent provided, revalued at current prices, only about one-seventh has been repaid. On the civil aero-engine side, only the Spey, Avon and Tyne have repaid the Government investment.
This is not in itself an acceptable situation, and the position is made even more difficult by the enormous escalation of the cost of new aircraft development and the competing claims which exist in the field of public expenditure. It is essential to realise just how large the sums sought for aerospace programmes are. The total development cost of the A.320 at outturn prices is put at something like £2,000 million. British Aerospace are now seeking some £460 million at outturn prices in launch aid. This is 100 per cent. of British Aerospace's share of the total development cost.
In addition to the launch aid now being requested by British Aerospace, Rolls-Royce in their turn have submitted an application for launch aid of £113 million at 1983 prices for the V.2500 engine programme. The amount at outturn prices will, of course, be substantially greater than that. Nor is this the end of the story. Launch aid of £70 million has been approved for the Rolls-Royce 211.535/4 engine and £41 million for the Westland WG.30 helicopter. Still to come is the EH. 101 helicopter, a joint Anglo-Italian project. The amounts of money involved, both applied for and already given, are therefore very substantial.
Firm orders for the existing A.300 and A.310, including deliveries already made, have totalled some 350 aircraft from 46 airlines around the world. This 300 gives Airbus a valuable customer base on which the A.320 can draw. This, I imagine, is one of the points my noble friend Lord Kimberley had in mind when he said that there was a market for the A.320 which is presented to us on a platter. But we must equally face the fact that the United States manufacturers who currently dominate this section of the market will offer the strongest competition. The rolling out of the new Boeing 737.300 last Wednesday amply illustrates that.
The noble Baroness, Lady Burton, asked whether it is true that the Americans want to oust Britain from the Airbus consortium. Obviously there will be those in the American industry who would prefer to see the United Kingdom industry not participate in the A.320 project, but I am assured that Boeing themselves have denied that this is their view. It follows that with the development costs of the Airbus 320 likely to come out at some £2,000 million, as I have said, high volume production running at the level achieved in recent years only by the major United States companies will be essential to recover the investment involved.
Of key importance for the A.320 will be improvements in productivity to match the levels achieved in the United States aerospace industry. The question whether such improvements can be achieved must be one of the major factors in deciding whether launch aid should be given. What we have to face is that the civil aviation market is almost wholly denominated in United States dollars regardless of where the aircraft are built or sold. The selling price of the A.320 will, therefore, be conditioned by the dollar price of competing United States aircraft. The economic viability of the A.320 will thus be influenced by the pricing policies of United States manufacturers and by movements in currency exchange rates. We need to match United States levels of productivity if we are to have a product saleable in world markets.
§ Lord Beswick
My Lords, will the noble Lord allow me to intervene? He is emphasising this point of productivity and the importance of the exchange rates. To what extent is the situation with the proposed 320 any different at all as compared with the 300 and 310, where we have matched the Americans? Why does he not accept the fact?
§ Lord Cockfield
My Lords, the noble Lord is supporting the point I am making, no doubt much to his surprise. It is very important that we do match the United States levels of productivity, and I am glad that he entirely agrees on this point. I do not understand really what the noble Lord is arguing about, because this is clearly one of the factors that have to be taken into account. The evidence produced by British Aerospace on this point is being considered very carefully.
§ Lord Beswick
My Lords, it is obvious that the noble Lord did not understand what I was talking about, otherwise he would not have given that answer. The noble Lord was advancing that the difficulty with a positive decision on the A.320 arises because, he said, we have to match productivity; and he said it in such a way as to suggest that there was doubt about this. I am asking him, will he not accept as evidence the fact that we have matched them in productivity in the 300 and the 310?
§ Lord Cockfield
My Lords, I am not in a position, off the cuff, to give actual figures for productivity on the A.300 and the A.310. It nevertheless remains absolutely true that one of the crucial issues is that we must match productivity. The noble Lord is saying that he is certain that we will match United States levels of productivity. If we do, that is splendid, but it must be, and it must continue to be, a matter of considerable concern in this field. This is particularly so because we are looking at a 20-year programme, and it would be quite wrong to believe that United States levels of productivity will remain exactly where they are. The point I am putting to the noble Lord—and I really do not know why he is disputing this—is that we really need to look at all of the factors involved; and this we are doing. We look at them with an open mind, and I hope the noble Lord does the same.
May I go on to a further point here. The share of the A.320 programme for which it is proposed British Aerospace should have design responsibility is about 26 per cent., which is somewhat larger than their 16 to 18 percent. stake in the current programme. Although the work share is based primarily on the design and manufacture of the wings, as was the case with the A.300 programme, British Aerospace would have overall control of the complete wing design, and in addition responsibility for the undercarriage and load alleviation system.
As a full partner in Airbus, the United Kingdom is entitled to look for a share of equipment broadly proportionate to our partnership share. We recognise that there are historical and commercial reasons for the low levels of participation by British equipment suppliers in the original A.300 programme. There have been some modest improvements in our share in the A.310 and A.300–600. However, there is scope for further improvement in this area, and if Government support for the A.320 programme is given we should want to ensure that British equipment companies, which can offer commercially and technically competitive products, have a fair opportunity to participate in the programme.
The depth of the recession which the air transport industry has recently experienced and the consequent financial problems facing the great majority of the world's airlines have inhibited them from committing themselves to purchases of new generation aircraft for delivery some five years or so from now. Airbus Industrie has therefore faced difficulties in obtaining launch orders for the A.320. But the A.320 does have the advantage that it is aimed predominantly at replacement of existing aircraft rather than on a market sector dependent upon future traffic growth.
The British Caledonian order for seven A.320s is encouraging; and it is the response of the airlines like British Caledonian operating in a highly competitive market environment which will determine whether the A.320 will be commercially attractive, In all, 47 orders and 41 options have been obtained to date. I gather that the additional orders and options mentioned by the noble Lord, Lord Underhill, will not, in fact, be finalised and announced until mid-February, but that does not significantly alter the total figures.
302 However, it is important to remember the sort of numbers involved in the successful United States civil aircraft programmes. The Boeing 727 production line has just closed after the sale of some 1,800 aircraft: the one-thousandth Boeing 737 has just been completed. Over 1,000 DC9s have been sold. The A.320 will likewise need to achieve very substantial sales if it is to provide an adequate return on investment.
Initially the A.320 is being offered with the derivative CFM56–4 engine. But we believe that the aircraft's sales potential will be maximised by the availability of an advanced technology engine to complement the advanced technology airframe specification. The V.2500 engine, in which Rolls-Royce would have a 30 per cent. stake, thus offers valuable prospects for the A.320 in a new technology engined version. The companies concerned are studying whether the V.2500 could be available to match the A.320's projected 1988 entry into service date. That answers the specific point raised by the noble Baroness, Lady Burton of Coventry.
Rolls-Royce have submitted an application to the Government for launch aid in respect of their participation in the V.2500 engine programme and a decision on this will be taken broadly on the same timescale as on the A.320 application.
There is one further point, raised by the noble Baroness, Lady Burton of Coventry, relating to British Airways. The British Airways statement which announced the Boeing 737 short-term leasing arrangements specifically pointed out that these provided the airline with the flexibility to review, without long-term commitment, its aircraft requirements for the late 1980s and the early 1990s, when the next generation of short-haul aircraft such as the A.320 are expected to become available.
Of the four prospective partners in the Airbus 320 consortium, France and Spain—and Spain has a relatively small share—have specified their willingness to support the project. Germany, like ourselves, has not yet reached a decision but is likely to do so very shortly. I appreciate the concern and hopes of all those involved in the civil aerospace industry about this matter. These concerns and hopes have been expressed in your Lordships' House this evening, as they have on previous occasions. I assure my noble friend, and all your Lordships who have spoken, that the most careful consideration will be given to what has been said this evening. My noble friend's felicity of timing means that your Lordships' views will form part of the input into the decision.
§ The Earl of Kimberley
My Lords, first, I should like to congratulate my noble friend Lord Bruce-Gardyne on his maiden speech. I also thank him for the very kind words he said about me. I am sure that I speak for the whole House when I say that we all hope we shall hear a lot more from him. I agree with him that sales must achieve a commercial return and, like that noble aeroplane the Viscount, I am sure that the A.320 will. I agree with every word said by the noble Baroness, Lady Burton of Coventry. Would that I had her gift of oratory, because she puts my case much better than I can. I was very encouraged by what the noble Lord, Lord Beswick, said about the money which has gone to British Aerospace in the past four years. I thought he 303 was completely right in emphasising that what is needed is a wider national interest. We joined Airbus Industrie perhaps too late, but at least we got there. Whatever we do we must not reverse the decision now. The noble Lord asked, "Who is to judge?" and "Who better to judge than the manufacturer?" If noble Lords will bear with me for a moment, I should like to quote what Sir Austin Pearce said in his New Year message to British Aerospace in British Aerospace News:So we have to demonstrate we've got a good product and are prepared to produce it in a way that makes it really competitive with Boeing, because that's who we're up against. I think we can. I am optimistic we can.We do, however, require an awful lot of support from the work force, and provided we can get that then I am quite clear that the outlook for the A.320 will be encouraging. But we've also got to convince the Government to help us with launch aid. If we can't do that, then we've got problems, very severe problems.I'm hoping that it won't be too long into the New Year before we hear the Government's decision, and then I'm hoping—but, of course, I can't guarantee it now—that we shall be able to go ahead.".I think that those are probably very prophetic and true words, because Sir Austin Pearce is a very capable, commercially minded and able business man.
My noble friend Lord Bessborough again emphasised how right we must be about Europe. It is only if we stay with Europe that we can have any competition with the United States. There is no doubt that competitiveness is a good thing.
I particularly liked the contribution of the noble Lord, Lord Briginshaw. I thought he made a wonderful speech. He hides his light under a bushel in saying that he is a layman. He knows a lot about Rolls-Royce engines and a lot about Europe. He is right to say that the only people who will be pro-British are us, the British. We must be more pro-British. I liked what was said by my noble friend Lord Marley. He has flown all over the world in many types of airliners. He knows a lot about the airbus, and is right in what he says.
The noble Lord, Lord Underhill, referred to the five debates we have had in the two Houses. We must have productive European co-operation. He mentioned what my noble friend Lord Lyell and the Under-Secretary of State at the Department of Trade and Industry. Mr. John Butcher, said on 19th December 1983. I want to emphasise what he said. He spoke about the importance of the A.320 programme. He went on to say that we have the largest pre-launch level for an aeroplane. I think that we should have a much larger pre-launch level if the industry knew that we would give British Aerospace the launch aid that it requires. We must not forget that 40 other companies are affected by this.
I did not expect my noble friend the Minister to give me an answer tonight. I am sure that he and many others will have noted the feeling in your Lordships' House tonight. Last night as I was leaving the House I saw my noble friend and said, "We are going to do battle tomorrow evening". He said, "No. We are going to bandy words". I think that we have done that fairly successfully this evening.
I thank noble Lords in all parts of the House who have participated in the debate for their support. It can leave no possible doubt in the Government's mind that, if democracy is to work and the House of Lords 304 required that launch aid be given to the A.320, it would be. I beg leave to withdraw my Motion for Papers.
§ Motion for Papers, by leave, withdrawn.