British Aerospace: Launch Aid (Hansard, 14 May 1987)

§ The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Lucas of Chilworth)
My Lords, it may be for the convenience of your Lordships if, with your Lordships' leave, I now repeat a Statement being made in another place on the subject of launch aid to British Aerospace. The Statement is as follows:
"With permission, Mr. Speaker, I should like to make a statement about the Government's policy on the question of launch aid for British Aerospace's participation in the Airbus A.330/A.340 projects.
"After discussion with British Aerospace, I am glad to tell the House that agreement has been reached that up to £450 million in launch aid will be provided to enable the company to participate in the Airbus A.330 and 340 projects.
"This launch aid will be fully repayable on terms designed to yield an acceptable return in real terms on the Government's investment.
"At this stage our support is conditional upon our partner governments also making the arrangements that are necessary to enable their manufacturers to participate in the projects.
"At a time when the competitive pressures in the world aerospace industry are as strong as ever, I should like to praise the determination of Airbus Industrie and its partners to extend their family of large airliners."
My Lords, that concludes the Statement.

§ Lord Underhill
My Lords, the House will be grateful to the Minister for repeating the Statement given in another place. I am particularly pleased to note the last few words of the Statement where the Minister praises, the determination of Airbus Industrie and its partners to extend their family of large airliners. So far the programme of Airbus Industrie has been profitable. It has been successful for British Aerospace and successful for British employment. I understand that at its peak the present programme is likely to reach an employment level of 13,000, and if this additional programme goes ahead it will mean 25,000 jobs by the mid-1990s for British Aerospace.
I am a little mystified by the fourth paragraph, which reads: our support is conditional upon our partner governments also making the arrangements that are necessary", because my understanding is that if the partner governments do not make any arrangements Airbus Industrie just will not be able to proceed with its future programme on the A.330 and the A.340.
I should like to ask an important question. Airbus Industrie has its general launch aid costs. British Aerospace asked for £750 million. The Government by this Statement are agreeing up to £450 million. I take it that there is utter and complete agreement with British Aerospace that it can meet its obligations to Airbus Industrie in the general overall launch aid costs, because it is understood that if by any chance Britain should withdraw there will be other 730 manufacturers who will wish to come in and take our 20 per cent. Provided that British Aerospace is thoroughly satisfied that it can manage with this aid of up to £450 million and can meet the balance from its own funds, we welcome the Statement.

§ Lord Diamond
My Lords, we too should like to thank the Minister for making this Statement at this particularly opportune time. It is a further example of how general elections concentrate a government's mind on the employment needs in particular constituencies, and we welcome it accordingly. I too want to be assured as to the position with regard to the manufacturers' requirements. They have said that £750 million is their minimum figure and £450 million is the figure which has been—I hope—agreed upon. We on these Benches have no objection whatever to government expenditure being kept at figures which are acceptable to the Government, if the same purpose can be achieved, and we wish to congratulate the Government rather than criticise them on this reduction in the figure, provided that it is satisfactory on second thoughts to the manufacturers.
We regret also that there has been, in our view, unnecessary delay in reaching this conclusion. That has caused uncertainty all round, and I must say that it must have been damaging to the reputation of this country as a country which can be relied upon as a good partner, an interested partner and an enterprising one.
There are two further points of lesser detail which I should like to put to the Minister. First, could arrangements be made in the future for more accountability with regard to the joint enterprise? It has proved rather difficult to find out what the results have been, and we can see no damage to those concerned in more open disclosure of these figures and in what one would generally call accountability.
As to the Statement itself, could the Minister be a little more explicit on the third paragraph, which says: This launch aid will be fully repayable on terms designed to yield an acceptable return"? That is an extremely vague phrase. We would understand it if the Government felt that they had to rush through a Statement on this the last effective day before the general election in order to get matters clear. But we really think that this should be much more carefully considered, and I hope therefore that the Minister can give me a considered and satisfactory answer on the meaning of those words.

§ Lord Lucas of Chilworth
My Lords, I am most grateful to the noble Lords, Lord Underhill and Lord Diamond, for their reception of the Statement which I have just repeated. Perhaps I may comment on one or two of the points. Both noble Lords have drawn attention to the importance for the employment market of our joining in this venture. The noble Lord, Lord Underhill, mentioned figures which are a little larger than those I might have given, but certainly when this project goes ahead a number of jobs will be secured and as we move into the 1990s there is a good prospect of more jobs being created.
The noble Lord, Lord Underhill, spoke about our governmental partners' involvement. Perhaps I may 731 say this in response to him and indeed in response to the noble Lord, Lord Diamond, who spoke of delay. In fact, we are the first of the partner governments to make a statement of our commitment to the project. So there has been no delay alongside our partner governments in this. I recall answering a Question of the noble Baroness, Lady Burton, in, I think, March or April of this year, and certainly nothing has been lost for Airbus Industrie in the time that these long and very complex negotiations have taken.
In October last year, British Aerospace asked for a sum of money very much in excess of the £450 million which I have announced this afternoon. The programme has indeed changed since October last year. The fortunes of the industry and of British Aerospace itself have changed, and this amount has been agreed between the Government and British Aerospace as being practicable. I should perhaps remind your Lordships that the whole project—that is, the launch aid and the development—will cost some £1,200 million. The company is quite confident of being able to provide from its own resources and resources available to it the balance of those moneys.
I noted carefully what the noble Lord, Lord Diamond, had to say about accountability. I have answered that question on more than one occasion. The noble Lord himself will know that Airbus Industrie is protected under French law from the necessity of publishing accounts. British Aerospace's involvement in the partnership—its 20 per cent. share—is reflected in its own accounts. That is the avenue of accountability.
Launch aid is designed to assist the company, not only in monetary terms but also in establishing the confidence that the Government have in the industry. That enhances the company's ability to raise funds in the City as may be necessary.

§ Baroness Burton of Coventry
My Lords, I welcome very much the £450 million launch aid, although it is considerably less than the £750 million asked for by British Aerospace. However, in spite of the most helpful letter that the Minister sent me in reply to my query on the delay, and while I am glad that our delay is less than that of other governments, I still feel that there has been a considerable delay in this matter. I am glad that the imminence of the general election has rather hastened a decision on it.
Does the Minister agree that failure to offer the launch aid would have meant the loss of our credibility as a European partner and all chance of participating in large-scale civil aircraft manufacture for the foreseeable future? I, in common with everyone else, I am sure, welcome what the Government have done and hope that it will spur the other governments in Europe to do the same.

§ Lord Lucas of Chilworth
My Lords, I recognise the interest of the noble Baroness, Lady Burton, in this matter. However, I am rather sorry that she should draw the inference she has with regard to the matter of delay and a general election. That is perhaps a little unworthy since the noble Baroness among many others has consistently urged us to come to an early conclusion on the matter. We have come to the earliest 732 conclusion that we could—in fact, in advance of our partners.
The matter has been complex and there have been changes in the project. There has been no real delay that has caused damage, either to the credibility of Her Majesty's Government or indeed to British Aerospace or to Airbus Industrie. As we have not failed to make an offer of lauch aid, I do not feel the necessity (if the noble Baroness will forgive me for saying so) to answer the hypothetical question that she addressed at the end of her remarks.

§ Lord Bruce-Gardyne
My Lords, in the light of the remarks of the noble Lord, Lord Underhill, can my noble friend confirm that Airbus Industrie has acknowledged that to date it has never made a profit and that there is no conceivable expectation of a profit before the 1990s—if then?
Can my noble friend shed some light on what he means by an acceptable rate of return in real terms? If Her Majesty's Government really believe that the project will be a winner, what is the point of giving British Aerospace a little more than half of what it believes to be the essential initial investment? Is it the assumption that once we are committed to that extent British Aerospace will be able to come back, like Oliver Twist, for a top-up in due course?

§ Lord Lucas of Chilworth
My Lords, my noble friend Lord Bruce-Gardyne knows very well that according to the criteria that have been established for a number of years under more than one administration launch aid is repayable and is neither a grant nor a subsidy. The intention is that the principal sum advanced shall be repaid in full, together with an adequate return during the programme life of the A.330 and the A.340 by a levy on sales designed to yield a positive rate of return to the Government in real terms.
As the life of a new plane is about 20 years and it is estimated that the plane will come into service in 1991 we are talking about a very long time. When I said a positive rate of return, I meant exactly that—a positive rate of return. It would be imprudent in 1987 to suggest a figure for something that will not mature for 22 years or so.
As regards the profits of Airbus Industrie, I cannot agree that, with the success of the A.320 which will go into service next year, and for which some 442 orders have already been placed, that company will not be in profit and that British Aerospace's share in that profitability will not accrue. We believe that the programme is a good one; otherwise we should not have committed the taxpayer to the launch aid as we have done.

§ The Earl of Kinnoull
My Lords, I wish to support my noble friend not only by saying that the programme is an important one, but also by saying that it is a very good programme for not merely the British aerospace industry but all the many support companies. What does the project mean for the many sub-contractors who will obtain the benefits of being able to join in the scheme? It is very easy when one looks back at Concorde and all the other projects that have taken place to take a negative view. This project is long term.
733 I wish to ask my noble friend a little more about the potential orders for the project. What do they mean and how do they compare with the considerable impact that the European industry has had on American orders? That is a very substantial impact and I should like my noble friend to recall what that means, because this is the movement of a European industry going forward in a civil industry. That takes tremendous courage and it is a watershed for any government to come in and support launch aid for a private company. I congratulate my noble friend.

§ Lord Lucas of Chilworth
My Lords, I am grateful to my noble friend Lord Kinnoull for his support of the Government's action. The Government are advised that British Aerospace expects to have a 25 per cent. work-share in the new A.330, A.340 programme, as compared with its 20 per cent. partnership in Airbus Industrie. The work-share on the current airbus programme is 25 per cent. in respect of the A.320 and in the 16 to 18 per cent. range in respect of the 300 and the 600. There will therefore be a major British involvement in and contribution to all those programmes. That will, in its turn, have an effect upon the component industry.
Such is the success of the A.320 that a number of US airlines have either placed orders or taken options. We, with British Aerospace, anticipate that the new programme, when it comes into service in 1990, will also enjoy its share of the medium-haul and short-haul markets and, with the A.330, the long-haul market.

§ Lord Diamond
My Lords, I wish to press the Minister again on one point. Of course we are all in favour of the project and we hope that it will be very successful, both in terms of the profits for those participating in it and because it illustrates what we on these Benches believe is a very good principle and one which should be carried out as often as possible in joint enterprise in European activity. This is a time when the Minister could make his reservations felt. I hope that he has more reservations than he has expressed in replying to my question about accountability.
I hope that he will think that now is a time when he can make representations that, although Airbus Industrie is protected and does not necessarily need to disclose its accounts, profits and returns fully, it could nevertheless willingly do so. There is nothing to compel it to hide under the cover which it has. It would be far better for all concerned if everyone knew what the total results were, both in terms of the present project and as a precedent for future activity.

§ Lord Lucas of Chilworth
My Lords, I appreciate what perhaps lies behind the question of the noble Lord, Lord Diamond. I do not think that there is any question here of Airbus Industrie hiding under the cover of anything. The company is established under French law and that law, because of the arrangement of the company, does not require the full disclosure for which the noble Lord is looking.
I can assure the noble Lord that Her Majesty's Government and British Aerospace have access to the figures and all the circumstances in regard to Airbus 734 Industrie's activities. I think that the noble Lord may have confidence in both British Aerospace to ensure that its 20 per cent. share is properly looked after and in Her Majesty's Government to ensure that our share is properly taken care of.

§ Lord Bruce-Gardyne
My Lords, perhaps I may ask my noble friend whether he, together with his right honourable friends the other Ministers in the Department of Trade and Industry, has taken up the suggestion I made to him on the last occasion on which we discussed this matter. I suggested that perhaps, as a gesture of their confidence in this great venture, they might commit some portion of their own personal net wealth to the success of British Aerospace in this respect.

§ Lord Lucas of Chilworth
My Lords, since I do not have knowledge and do not seek knowledge of the shareholding of my colleagues in my department in any company, anywhere, I do not think I can be of any further help to my noble friend Lord Bruce-Gardyne than I was on the last occasion when he raised the matter.

§ Baroness Seear
My Lords, would it not be highly improper for them to invest in this venture?

§ Lord Lucas of Chilworth
My Lords, the proprieties of the shareholdings of Ministers are well known. I believe that I said—I shall check it in Hansard—that I have no knowledge of my colleagues' shareholdings, nor would I seek to have any knowledge of their shareholding anywhere in the stock market.