The Aerospace Industry (Hansard, 1 March 1984)

§ The Parliamentary Under-Secretary of State for the Armed Forces (Lord Trefgarne)
My Lords, with your Lordships' permission, I should like to repeat a Statement which has already been made in another place by my right honourable friend the Secretary of State for Trade and Industry about the Government's policy towards the aerospace industry. The Statement is as follows:
"Last November the Government announced launch aid of £ 70 million to assist with the development of the E.4 version of the Rolls-Royce RB.211–535 now powering all Boeing 757s in airline service. Earlier this month I informed the House that approval had been given for Rolls-Royce to participate in the V.2500 project, and to collaborate with General Electric of the USA on larger civil engines. These programmes represent the core of a civil engine strategy based on international collaboration and dedicated to commercial success. The House will be informed when launch aid arrangements for the V.2500 are finalised but as with the E.4 scheme the Government will expect a real return on the taxpayers' investment.
"In September 1982 launch aid of £ 41 million to assist Westland was agreed for their W.30 civil helicopter, and last month the Government 1393 announced £ 60 million in launch aid towards Westland's civil costs in the anglo-Italian EH.101 project for a helicopter for civil and naval use in the 1990s and beyond. These investments will help to bring Westland into the expanding civil market and will be repayable with a return in real terms by a levy on sales.
"British Aerospace have now decided to participate in the A.320 and to launch the ATP. The Government have reached agreement with British Aerospace on the terms of launch aid for the A.320. Launch aid of up to £ 250 million repayable on terms designed to yield a return in real terms on the Government's investment has now been agreed. As a result of our agreement I understand that the company will now join its partners in formally launching the A.320 programme. My honourable friend the Minister of State for Industry will be meeting his French, German and Spanish colleagues shortly to endorse this. British Aerospace will also proceed, without Government assistance, with the ATP aircraft. I am sure the House will join me in wishing these projects every success.
"Taken together these decisions express a clear commitment by the Government to support the efforts of the aerospace sector to maintain its position as an internationally competitive industry for the future. I believe the House will welcome our determination to see this sector of British industry, management and production workforce alike, given the chance to succeed".

§ Lord Underhill
My Lords, the House will be grateful to the noble Lord for repeating this Statement. In general from these Benches we welcome the various decisions as set out in the Statement and join in wishing success to all the projects. I shall deal with only two of them. When your Lordships debated the question of the A.320 Airbus on 25th January there was general support throughout the House for British participation. Therefore, we welcome the support that is proposed for this project. But the launch aid of £ 250 million falls well short of the £ 437 million which I understand Aerospace had requested. Are the Government satisfied that the company will be able to raise the difference and meet any costs that may be involved?
Also important is the approval, previously announced, for Rolls-Royce to participate in the V.2500 engine project. There appears to be general agreement that this development will enable Airbus Industrie to offer its customers for the A.320 an alternative engine, which is obviously in Britain's interests. Is the Minister able to say what figure of launch aid is in mind for this Rolls-Royce engine project?
Although, as I have said, from these Benches we give general support to these various projects and the assistance being given, it is obvious that particularly in the case of Rolls-Royce and Aerospace some of these projects can only be embarked upon with public financial help. It therefore appears rather tragic that we are not leaving the aerospace industry where it should be, in public hands.

§ Baroness Burton of Coventry
My Lords, in thanking the Minister for repeating the Statement, may I come to the last part first. We on these Benches have been waiting anxiously for a Government decision on the A.320 Airbus. It has always seemed to us an excellent proposition from many points of view: for the workforce it will keep together; for the cooperation with our European partners; and, above all, for the excellence of the Airbus family.
While wishing that the launch aid could have been more than £ 250 million—I gather from the Statement that agreement has been reached with British Aerospace about this—we are glad that the company will now join its partners in formally launching the A.320 programme. We wish it well and we hope that this very fine aeroplane will fulfil all expectations.
In addition, may I say that in so far as Rolls-Royce is concerned everyone will welcome the approval given for the company to participate in the V.2500 project and to collaborate with General Electric of the United States of America on larger civil engines. We look forward to a further announcement on these points when launch aid arrangements are finalised. On these Benches—and I am sure throughout the House—we hope that the new Rolls-Royce engine may be ready in 1988 at the same time as the launch of the A.320 Airbus. In noting all the decisions contained in the Statement, we believe that the Government have indicated a clear commitment to the aerospace industry, and we appreciate the action taken.

§ Lord Trefgarne
My Lords, I am grateful to the noble Lord, Lord Underhill, and to the noble Baroness, Lady Burton, for their response to this Statement. In reply to the questions put to me by the noble Lord, may I say that it is indeed the case that the amount that has been agreed with British Aerospace is rather less than that company originally sought by way of launch aid for this particular aircraft project. However, I can tell the noble Lord that the negotiations have been conducted in the best of spirit. There has been give and take on both sides, and the Government too have given way in some particular aspects of the discussions, particularly with regard to the rate of dispersement of the funds which we were able to agree to more in line with British Aerospace's requirements. Thus it was that we were able to reach agreement on the sum of money referred to in the Statement.
The noble Lord asked whether I could give him a figure for the launch aid for the V.2500 engine. Negotiations are still in progress on this matter. I cannot therefore give him the figure that he asks for, but an announcement will be made in due course when agreement has been reached. Those, I think, were the principal points raised by the noble Baroness, Lady Burton. I hope I have covered them adequately, but if there are any that I have omitted I shall be happy to rectify the position.

§ Lord Mulley
My Lords, may I ask the noble Lord the Minister, first, to give us a little more information as to why it took so long for the Government to come to a decision, and, secondly, why the figures are so much below that which, as I understood it, British Aerospace thought essential? Is he not aware that all 1395 these hesitations and reservations put us in a very bad position with our partners in Europe and raise doubts as to whether this country really wants to sustain and continue a viable civil aircraft industry? If we do not do this, I think he is well aware that, in terms of major civil aviation, we shall no longer have a stake. Would it not be more feasible to give a more generous and more rapid response, and to do as we did when I had some responsibility in the matter; that is, to have arrangements whereby, when the project was a success, we received a payback according to the profits that were earned? Would not that kind of partnership be more satisfactory than what seems to be a very lengthy and not at all satisfactory approach to the problem?

§ Lord Trefgarne
My Lords, the reason why it sometimes takes rather a long time to reach a conclusion in these matters is that the Government have to be very clear indeed that the project that they are backing is a project that will in due course come to a profitable conclusion, because (as was not, I think, referred to in the Statement, but which I am happy to say now) in fact the money is by way of launch-aid. A certain proportion of the money will be repaid on a fixed schedule, but the remainder of the money will be repaid by means of a levy on sales in due course. It is necessary for the Government to take a very careful approach to these matters to make sure that the forecasts of the company, particularly with regard to sales of the aircraft and the likely size of the market, are proper estimates. The Government have done that and have reached these conclusions.

§ Lord Bruce-Gardyne
My Lords, I wonder whether my noble friend can tell us a little more about the raising of the balance of the money that British Aerospace were seeking. Are we to understand that there will be no question of a Government guarantee for raising these funds? If it is possible for British Aerospace to raise £ 180 million-odd for the Airbus project in the City without Government guarantees—and presumably the Government are themselves satisfied as to the prospects of a return on the project—why cannot the whole of the sum which British Airways have sought be raised in the same manner? Finally, could my noble friend tell us whether it is the case that British Aerospace have effectively written off £ 240 million in the last two years on its civil aviation projects? And is my noble friend satisfied that British Aerospace can finance that part of the cost of the Airbus project that it is expected to produce from its own return in profits without undue strain?

§ Lord Trefgarne
My Lords, I can assure my noble friend that these matters were very much in the Government's mind when we conducted these negotiations with British Aerospace, but I must tell him that the answer as to where the rest of the money will come from must be provided by British Aerospace and not by the Government. British Aerospace are now a private-sector company. They have the responsibility for these matters, and the Government are satisfied that they are in a position to do that. We would not have proceeded in the way that we have if we had not been so satisfied. I might add that the sort 1396 of proportion of the launch funds required which we are providing in this particular instance is very much in line with the proportions that we have provided in the past, save for one particular case, and that was Concorde, where the Government provided a much larger proportion—virtually all, in fact—of the money that was required. This, however, is a wholly different project, essentially within the range of existing technology, whereas Concorde was pushing the frontiers of technology considerably further back. I think that the Government are right to proceed along these lines, providing about half of the launch money required by British Aerospace. I believe it will be a successful project.