HL Deb 29 October 1990 vol 522 cc1708-41

3.56 p.m.

Lord Shepherd rose to move, That this House takes note of the reports of the European Communities Committee on Air Traffic Control (12th Report, HL Paper 41), and on Civil Aviation: A Free Market by 1992? (16th Report, HL Paper 63).

The noble Lord said: My Lords, I refer to the two reports that emanate from Sub-committee B of the Select Committee on European Communities. The first relates to air traffic control and the other to civil aviation and a free market by 1992. I feel that I should say a word of appreciation to the very many witnesses who provided valuable evidence to the committee. Without their evidence I do not believe that reports of this nature could have been produced. I would also like to thank our special adviser, Mr. Hofton, from the Cranfield Institute of Technology. I wish also to give a very special word of appreciation to our remarkable clerk, Simon Burton.

Since I shall be leaving Sub-committee B in November because of the rotation rules, I thank all my colleagues on that committee for the very noble work that they have done and the heavy burden that they have borne. It is not just taking evidence in inquiries that takes up the time; it is the mass of paper that has to be scrutinised if the proper process of scrutiny of these committees is to be performed. Despite the very heavy pressure, I am quite convinced that in no way should there be any diminution in the scrutiny of EC proposals before Parliament.

I am pleased that the noble Lord, Lord Brabazon, the Minister of State, Department of Transport, is present here to answer what are both complex and important issues. I am also delighted that my noble friend Lord Clinton Davis is here. I hope that he will be speaking from the Front Bench. I congratulate him on his promotion and on representing my party on the subject of transport. With his past connections with the Commission as a commissioner, he will be able to provide us with an enormous degree of information and advice.

Air traffic control is part of the infrastructure of transport. Infrastructure is a prerequisite for a healthy society, whether it be concerned with industry or trading, road, rail, the horse or shipping. Air transport is a component part of the infrastructure of transport. Air traffic control is an essential part of that infrastructure. We are already seeing signs of congestion and delay, particularly in the South East of England. It may be that new airport capacity will provide some answer. However, the provision of new facilities will only aggravate the situation unless we can finds ways and means to ensure that our air space is used more efficiently than at present.

The committee did not inquire into aspects of air traffic control such as equipment and staffing levels but we received evidence of the incompatibility of much of the equipment decided upon by national governments and also of very poor forms of communication between transport centres. We decided that we would concentrate on the Commission's proposals, particularly as the Select Committee on Transport of another place was looking into the question of air traffic control in this country.

The Commission's proposals are set out in paragraphs 4, 5 and 6 of the report. In taking evidence it became clear that the central issue was whether or not the Commission should have a significant role in setting and implementing policy. The committee concluded that it preferred at present—I stress "at present"—the decision of the Council of Ministers that the role should be more modest since there are already in existence various international organisations with legal competence for resolving political and economic problems, organisations representing countries which are not members of the Community. We took the view that if change was necessary it would be better done through evolution.

We make a number of proposals in the report which centre mainly around greater co-ordination between the various authorities already in existence. We suggest that the Commission should consider, and Ministers consider, whether an observer role would be more apposite than the role proposed by the Commission itself. I should like to ask the following questions. How will Ministers ensure that the present European Civil Aviation Conference recommendations are implemented? I refer to paragraph 35 of the report. In particular, will the Commission produce proposals for their implementation as part of Community law thus making them legally binding on the Twelve? I refer to paragraph 42 of the report. The Council of Ministers needs to ensure effective co-ordination between the work of the various bodies. Is the Minister confident that this will be sufficient to provide effective responsibility for long-term planning? Can he tell the House what use is being made of Community money under the structural funds to solve local air traffic control problems? That is referred to in paragraph 41.

I turn to the second report referred to in the Motion. All of us are aware of the dramatic increase in the past 25 years in both passengers and freight. And there is every sign that this increase will continue. We have all witnessed, or participated in, congestion and delays. What is now happening should be a warning to us.

The committee recognised that the industry has been and to some extent remains highly protected. In 1987 the Commission brought forward a series of proposals with the intention of liberalising the regime. It is fair to say that little change has taken place as a consequence of those proposals. Progress, where it has been achieved, has been through bilateral agreements such as that between the United Kingdom and the Netherlands.

The package of proposals is in many ways very radical and, taking the known attitude of some governments, very brave. If the proposals are implemented much greater opportunity for competition will arise. Whereas in the first report the committee preferred the Council of Ministers' approach, in the second report the committee fully supported the Commission and was in some ways critical of some governments' reactions to the proposals. If we can sweep away the legislative protection—an objective these proposals go a good way towards achieving—how will we drag this industry screaming into the free market? How will we create and maintain competition? The Commission's proposals are set out in paragraphs 4, 5 and 6. I shall deal with just two of them. I refer, first, to the question of fares.

Under the present provisions, if an airline wishes to introduce a new fare structure on a route—between, let us say, London and Paris—and one of the governments wants to refuse, that is the end of the matter and the air fare cannot be introduced. The new proposal means that there will have to be double disapproval. In other words, both governments concerned with the route will have to disagree. If that proposal were to be brought forward and implemented a great deal could be achieved in regard to the liberalisation of air transport.

The second and perhaps more important proposal relates to access and capacity sharing. This is set out in paragraph 5 of the report. The proposal on market access and capacity sharing would oblige a member state to grant an operating licence to any carrier established by that state without discrimination provided that it met the necessary technical and economic standards. Member states would also be required to grant route licences to all economically viable services, to grant traffic rights to carriers established by other member states—the so-called third and fourth freedom rights—on almost all of the intra-Community international routes, and increase the fifth freedom services and limited cabotage within the Community. This proposal received the fullest support of the committee. The two proposals taken together would bring about a radical change in the operating regime. The committee generally concluded that, while it welcomed the progress made by the Council of Ministers, a lot needed to be done if a fully liberalised market was to be achieved by 1992. The report commended the laudable zeal of the Government and recognised that it is not shared by other member states.

What is the main theme of the report? The committee started from the consumers' interest, which means reliable services at a realistic and affordable cost. One way to achieve this would be through competition between more airlines. However, for a number of reasons the committee concluded that this was not necessarily the answer. Those reasons are set out in paragraphs 88 and 90 of the report. The presence of a large number of carriers does not necessarily guarantee competition. If one adds to that the shortage of infrastructure capacity, the conclusion is that the number of airlines operating is less important than ensuring aggressive competition between them. We say in paragraph 100: It is airlines' behaviour that needs to be regulated and not the structure of the market".

The logical conclusion of that is that the committee would not be opposed to the European aviation industry containing only a few large airlines provided that those airlines competed. There is no reason why British Airways and Lufthansa should not fight hard to obtain the best deal for the consumer flying from London to Frankfurt, or, for that matter, from Frankfurt to Rome or from London to Paris.

The main question is how will this be achieved? American experience shows that deregulation without effective anti-trust laws led to high fares and a lack of consumer choice. There is a corresponding fear that without the stimulus of smaller airlines, Europe's large carriers will carve up the market and strike "under-the-counter" deals, or, as in the case of Lufthansa and Air France, a "non-aggression" pact. The report's conclusion is that the Community's competition rules provide the answer. In paragraph 102, we refer to this and say that, Community rules must protect the consumer".

The Commission should be given the powers it needs to enforce them.

I have several questions to put to the Minister in this respect. First, how adequate are the powers of the new merger control regulation? Secondly, how many, and what size, mergers in the aviation sector would it apply to? That is dealt with in paragraph 105. Thirdly, what other powers has the Commission to tackle anti-competitive practices, such as artificially low fares and unfair selling practices? Fourthly, what proposals are under discussion in the Community to boost the Commission's powers, and how soon will they be adopted by the Council?

There is a new proposal which has just been put before the Committee. In a sense it relates to one of the comments which were made in the report. It concerns the need to give the Commission power to act very quickly when there are signs of predatory practices being adopted by airlines. Can the noble Lord say whether the Government will be supporting that proposal and what are the chances of it being implemented in the very near future?

The committee spent a good deal of time on slot allocation. Efficient operation requires a slot for the aircraft's take off, a slot for the flight and a slot for its landing; it also needs a similar process for its return journey. The present slots available at London Heathrow and Gatwick Airports, and at other major airports, are those agreed by the airlines. They are known as the "grandfather rights". On the face of it the system appears to be working well, but it provides the opportunity for protectionism and the frustrating of new entrants.

Sub-Committee B took evidence on slot arrangements. It considered a number of alternative suggestions and proposals. Members of the committee recognised that the present system may hinder competition and frustrate new entrants. However, considering the complexity of ensuring the efficient movement of aircraft, the present system would appear to be the one which should remain in force. Nevertheless, we very much welcome the fact that the Commission is undertaking its own inquiries into the matter, and also the fact that the Minister has written to the CAA asking it to inquire in to the operation of the system.

The report calls for a greater transparency in the system and looks for the Commission to produce proposals for reform. Can the Minister say when this is likely to take place? Is the delay caused by the Commission trying to get as many views as it can, or has it occurred simply because there is no obvious solution to the problem? So far as concerns greater transparency, can he say whether he is satisfied that the working of the scheduling committees is open to effective scrutiny? How do the Government interpret the provision which exempts slot allocation from the competition rules, provided that it is carried out "without discrimination"? What do they have in mind by the use of those two words?

In paragraph 98 the report also calls for airlines using "grandfather rights" to justify the type of aircraft they use, so long as the customer's wish for frequency of service is considered. Is the Minister aware of any cases where airlines use an aircraft with an excessive passenger capacity merely to retain control over a slot?

There are two further points that I wish to make in connection with slot arrangements. First, the report recognises the importance of the worldwide system of slot allocation. Therefore the Commission ought to ensure that any proposals it makes can be fitted into the IATA procedures and should aim to develop and improve such procedures rather than trying to satisfy all parties (perhaps by some unworkable bureaucratic compromise). The committee will be looking at the Commission's proposals in more detail when they are published. Can the Minister say how the Government are contributing to the deliberations of the Commission? Are they working with the CAA on a study of slot allocation options and, if so, when will the results be published?

I am sorry that I have not given the Minister notice of this question, but it has become rather important in view of recent press reports. Do the Government believe that slots at Heathrow and Gatwick Airports can be sold as United Airlines and Pan Am have done in the United States? There is the further possibility of United acquiring the slots at present held by Pan Am at Heathrow. Are such slots a marketable asset of the airlines? If that is the case, such a purchase means that the acquiring company has those slots in perpetuity. Moreover, those slots are unlikely to become available to new entrants.

I return now to the subject covered in the package of measures agreed by Ministers. Especially welcome were: a greater limit for the fifth freedom and the inter-regional services; the relaxation of multiple designation thresholds; and, the abolition of capacity controls. However, two important decisions will not come into force until 1993. The first is the introduction of cabotage. Can the Minister say how the Community's proposals are affected by the Chicago convention? Secondly, in the case of double disapproval for fares, will the Government be urging the Commission to study the benefits of the double disapproval system which at present exists between the United Kingdom and Ireland?

The latter leads me to one final area of concern to the committee. I refer to safeguards against unjust fares. Do the Government agree with paragraph 109 of the report which calls for consumer groups and individuals to have a right to monitor fare levels and to make representations to the Commission in a more formal way than is now possible, perhaps through an advisory committee? What will they be doing to ensure that those concerned receive, accurate and timely data on airline costs and performance", as is applicable in the United States?

The report covers many other matters which could be passed over in the debate, except perhaps for the question of negotiations with "third countries". This is dealt with in paragraph 113 and it is a subject which Sub-Committee E on Law and Institutions will almost certainly be considering early in the new year.

In conclusion, I commend the two reports to the House. I believe that the Commission's proposal creates opportunities for competition and with it consumer choice. However, it does not ensure that the operators will compete. The Commission's objective is correct: it is the need for users to have a wide choice of services at as low a cost as is possible, while maintaining the highest safety standards. That will not be easy to accomplish. In many respects, it goes against the whole nature of commerce. As the noble Lord, Lord King (who was referred to in the report) said with great truth, It is the motivation in every businessman to become a monopoly".

I fully support that view. I believe that to be a fact and something which the Government and the Commission must bear in mind in seeking liberalisation through the Community.

Moved, That this House takes note of the Reports of the European Communities Committee on Air Traffic Control (12th Report, HL Paper 41), and on Civil Aviation: A Free Market by 1992? (16th Report, HL Paper 63). —(Lord Shepherd.)

4.19 p.m.

Lord Boyd-Carpenter

My Lords, the House is greatly indebted to the noble Lord, Lord Shepherd, not just for the extremely interesting and, if he will allow me to say so, extremely lucid speech explaining some highly complicated matters but for the work which his sub-committee has done on those two important subjects. I am glad that your Lordships' House is now debating the two reports. Perhaps I may also add how glad I am that I am to be followed by the noble Lord, Lord Clinton-Davis. Apart from his experience as a European Commissioner, he will recall that a number of years ago when I was chairman of the CAA he was a Minister in the Department of Trade, which for some reason was then the department concerned. We had many and, from my point of view, most helpful dealings at that time for which I have always been grateful to him. I shall listen to what he has to say with especial interest for that reason.

I have less enthusiasm for those who printed and bound the reports. As some of your Lordships may have discovered, there are pages missing and there are pages interposed at the wrong place. They are therefore not easy reading. In view of the high standard of government reports to which we are accustomed, it is a pity that these have suffered at the hands of the printers some considerable and dislocating errors. I hope that my noble friend the Minister is prepared—if I may use the phrase—to administer a raspberry in that direction.

I shall speak first about the report on air traffic control. The problem is that colloquially when we discuss the EC and its doings we refer to it as Europe, but it is not the whole of Europe by any manner of means. There are many important countries—from an aviation point of view Switzerland is one that is obvious, as well as the countries of Eastern Europe —that are not members of the Community. So it would be difficult to put into the hands of the Commission a system of European air traffic control because it would involve flying over countries that would have no say in the arrangements and which on the grounds of national sovereignty and interest might very well reject such flights.

It is a great mistake to use the word "Europe" as a synonym for the Commission, but it is a mistake that we all make. These two reports bring out the fact that, important though the Community is and important though the countries which it contains are, they are not the whole of Europe. There is a non-Community element and therefore when we are dealing with air traffic control, which in the nature of things involves flying aver the whole of the Continent, it is inconceivable that the Commission should be given responsibility for it. Eurocontrol, which for all its limitations and imperfections still exists, is the basis upon which development should take place.

Eurocontrol operates in and with the co-operation of all the countries of Europe concerned with aviation —the vast majority of countries—and does not suffer from the disadvantage from which the Commission suffers in respect of limited areas of responsibility. Perhaps. I may interpose the thought that that issue rather strengthens the view of those who feel that in general matters the Commission should concentrate more on widening rather than on deepening.

I come now to the more important of the two reports and perhaps the more difficult. It is the one dealing with the liberalisation of services. I agree with what the sub-committee says in the first paragraph of its report: The objective is to provide the customer with the range of services that he wants at a price reasonably related to the operating costs of efficient airlines. To achieve this, a radical transformation is now required in an industry traditionally dominated by a cosy cartel of national 'flag carrier' airlines each protected by its government and with no incentive to compete". That sets out the current situation in a nutshell. There are too many national airlines in Europe. It is natural for governments who have a national airline to try to preserve it, almost regardless of the needs of the customer. Some of the smaller countries in Europe —to avoid giving offence I shall not name them— would do better to drop their idea of having a national airline and collaborate with the larger airlines that operate on the Continent.

It is a sad fact, as the report brings out, that the cost of air travel per mile in Europe is far greater than the cost per mile in almost any other part of the world. If one contrasts it, for example, with air travel in the United States, people can travel about three times as far in the United States for the same money. The present situation, to which the sub-committee properly addressed itself, is an unfortunate and unhappy one.

Here again, of course, the issue is complicated by the matter to which I referred in the context of air traffic control; that is to say, that the Community embraces part but not the whole of Europe. That again makes it much more difficult for the Community to take effective action in the liberalisation of air transport because it has no authority in respect of airlines which are the property of non-Community countries. That is a difficulty which may again point to the desirability to which I referred of widening rather than deepening.

One or two points arose to which the subcommittee referred to which I should like to draw attention. It was apparently suggested by the Commission's officers in Brussels that VAT should be imposed upon air fares. I hope that that suggestion will be rejected. It will not cheapen air fares; it will make them more expensive. I believe that VAT is a bad tax, somewhat inflationary in effect and inequitable in operation; but, in any event, to extend it to air travel would be a retrograde step. I hope that Her Majesty's Government will reject the proposal. I hope that my noble friend the Minister will make it clear that the idea will not be given sympathetic consideration.

Genuine competition in air transport is essential if prices are to be kept at a reasonable level. I hope that my noble friend will say something about that topic. We have to distinguish—I do not believe that the noble Lord, Lord Shepherd, did altogether clearly distinguish—between air traffic inside the European Community and that from Community countries with the rest of the world. From the point of view of our own civil aviation, that is the most important aspect of all.

That brings me to another point on which I differ from the Commission; namely, the suggestion which it appears to be about to make that control of negotiations over flying rights from Community countries to the outside world should be vested in the Commission. I can imagine few things more disastrous for British civil aviation. After all, British civil aviation operates world-wide. After the United States, we have the largest international system of airlines in the world, whereas the overseas air navigation of some of our European friends is very restricted. It would be disastrous to hand over to the Commission negotiation of what is a matter of the greatest importance to civil aviation and thus to the British economy, for our civil aviation makes a major contribution to the balance of payments. After all, the interests of most of the European members of the Community in this matter are quite different from ours. They are much more concentrated on air traffic within Europe, whereas our interest is substantial in Europe but even greater all over the world. I hope that that idea will be rejected.

In that context I read with great interest the excellent evidence tendered to the sub-committee by Singapore Airlines. Having travelled a certain amount with Singapore Airlines I have the highest regard for them. They are among the most efficient and comfortable airlines on which to travel anywhere in the world. I think that the noble Lord, Lord Shepherd, will agree that their evidence to his committee was clear and to the point. They make strongly the point, which I rather briefly made, about the unsuitability of the idea put forward by the Commission. I therefore hope that it will be rejected.

It is now rather a tendency of the Commission to seek to expand its activities in a great many directions. That is largely the work of the bureaucracy. I doubt whether it is the purpose and intention of those nominally responsible at the head of the organisation, but the Brussels bureaucracy—sometimes, as your Lordships know, known frivolously as the Brussels sprouts—is apt to extend its scope in human terms, as are most bureaucracies. It is important that we should watch that it does not extend its no doubt in many ways beneficent activities into areas such as this, which would be extremely unsuitable.

The issue that needs tackling, as the report brings out, is the high level of fares in Europe. If we can get rid of the cosy state of affairs in which national airlines have to be kept going and the consumers' interests rank below those of the people responsible for the airlines we shall greatly improve the facilities for the consumer. That is of the greatest importance. If the European concept is to be a success, people must be encouraged to travel to other European countries. The more they see of each other, the more they realise that the old-fashioned type of prejudice against foreigners is wholly unfounded; the more friendly they can be in personal terms, the better. However, if you make air travel, which is now the best and most used method of travel in Europe, inordinately expensive, you inevitably prevent people from travelling as much as they would wish. It is therefore not only in the interests of aviation, as it certainly is, but very much in the interests of the public and of the European Community that air fares in Europe should be restrained.

I hope that in considering that matter Her Majesty's Government will always have in mind the two aspects of civil aviation policy—the policy to be pursued in Europe, to which I have just referred, and the policy of developing our airlines' activities all over the world. Again, if one wants good advice on that subject, one can look at the evidence of Singapore Airlines because it is backed by a remarkable performance. As your Lordships know, Singapore is a tiny island. It consists of hardly any territory, yet it has built up an airline which operates successfully all over the world. I believe that the airline now operates to some 50 countries. We should treat its advice on that aspect of aviation seriously because it is based on experience and practical efficiency.

I am delighted that we are having this debate, not only to show respect for the work of the sub-committee but to underline your Lordships' concern with these enormously important matters. Having had some contact with the aviation industry in the past, as your Lordships know, I realise that a great deal of the future well-being of this country depends on the success, expansion and development of British civil aviation. In so far as the committee's report will help in that good work, it is doubly to be applauded.

4.37 p.m.

Lord Clinton-Davis

My Lords, it is a great pleasure to follow the noble Lord, Lord Boyd-Carpenter, with whom, as he said, I had the pleasure of working as a Minister and when he was Chairman of the Civil Aviation Authority. I think that ours was a positive, worthwhile and happy working relationship. He is always eloquent, persuasive and a wee bit provocative, as he has been this afternoon. He has not disappointed us in that regard. If I join issue with him on one or two matters, he will not be surprised.

Like the noble Lord, Lord Boyd-Carpenter, I should like to congratulate the noble Lord, Lord Shepherd, and his Committee on their excellent work. They have examined with great thoroughness a considerable amount of evidence on the most complex issues in relation to both matters.

I must declare my interests in a number of respects at the outset. First, I had some responsibility for the development of the 1987 package, as it has become known, together with Commissioner Peter Sutherland and the noble Lord, Lord Cockfield, who saw that quite rightly as an integral part of the development of the internal market proposals in which he played such a significant role in the Commission and, incidentally, was always a friendly and helpful colleague as far as I was concerned.

I have another interest in that I am the president of a newly formed organisation known rather inelegantly as the European Cockpit Association which is made up of pilots' organisations from the 12 member states and which seeks to negotiate pay and conditions on a pan-European basis. That is a worthwhile enterprise.

It is a great pity that the 1987 package was delayed for one year as a result of a dispute between the United Kingdom and Spain over the issue of Gibraltar. That was a wasted year. We had the package in place in December 1986 and that extra year would have given us an additional opportunity to see how the package would work out in practice. I do not agree with my noble friend Lord Shepherd that little was achieved by reason of that package. I should add that not too much was ever claimed for the package: it was a first step. But it provided the opportunities for removing the veto powers of member states and airlines over tariff proposals that were made by another member state's airlines. It provided new opportunities with regard to fares and more flexibility in relation to capacity. It provided greater market access and some limited fifth freedom rights—and I shall return to those rights later on if I have time to do so. Air traffic rights were created for the first time at European Community level. Some new services, although not enough, were started up. I claim therefore that there was value in what was achieved under that package.

On this highly complicated matter there is generally a clear need for a balanced approach. I acknowledge that balance is difficult to achieve. I believe it was the comedian Dave Allen who once said that if one seeks to achieve true balance, one needs a chip on both shoulders. He was right in many respects. There has been far too much special pleading in this area, and far too much ideology has been put forward over the years. I believe the Commission has been absolutely right to stress the virtues of greater competition. However, it has never spoken about deregulation in the American sense. It was right for the Commission to seek to meld aviation into a more comprehensive approach to transport problems generally. Under Commissioner Van Miert the concept of the complementarity of the different modes of transport is being developed. I believe that needs to be stressed quite as much as the need to stimulate competition. They are both important issues. It is also right for the Commission to assert that the Community and the member states must never lose sight of the importance of infrastructural progress, most especially in terms of civil aviation. Nor must they ever lose sight of the fact that safety must never be compromised.

This debate takes place at a period of immense difficulties for the airlines. I heard it predicted on the news today that in 10 years' time the industry is likely to suffer losses of approximately £5 billion a year. The chairman of American Airlines, when speaking of his results, said, succinctly, "We appear to be in a position that is stinko". That is not perhaps the most elegant term but we can all understand what he was getting at. The airlines are facing massive increases in overheads. Return; are diminishing and the climate for investment is poor. There are likely to be cutbacks in staff and in routes, and fuel-thirsty old aircraft must be phased out. The result of that is that overall fares are likely to increase, whatever decisions the Community may take. However, I suppose that some bargains may be available to fill the back of aircraft.

The major problem is that the Council of Transport Ministers have been guilty of inertia in all areas of transport. Indeed, the ministers had refined inertia into a fine art over the years. It has taken pressure from the public, the Commission and the courts—that point is demonstrated in the report we are considering —to get the show on the road. That has clearly been the case as regards transport policy on land, sea and air.

In the field of civil aviation some rather patchy progress has been made. But Ministers clearly stalled for too long over the Commission's aviation proposals which were tabled as long ago as 1985. The anti-liberalisers used any and every argument, and notably the argument about safety, to obstruct progress on policies they did not like. I know only too well that that was the case. The liberalisers argued for too long for the pace to be set at such a rate that the poorer member states who were operating national airlines often with heavy state aid—maintaining their airlines as virility symbols—simply could not keep up. The liberalisers did not pay enough attention in my view to the serious arguments about air traffic control problems and safety. The fact is that there is truth in both sets of arguments. They are not mutually exclusive. There is no reason why liberalisation cannot proceed by providing proper safeguards for safety, infrastructure and socially acceptable behaviour. As the noble Lord, Lord Boyd-Carpenter, pointed out, consumers must be taken into account, as must the people who are employed in the industry. They all have a real part to play. Above all, member states must willingly devote more resources to these objectives. However, they have declined to do so over the years.

I mention specifically in this connection the report on air traffic control and the criticisms of the Commission. Some of those criticisms are correct but some, I suggest, are misplaced. There is great public anxiety and irritation about the failure to provide a more effective pan-European air traffic control system. The public pay for that. Vested interests have stalled on this issue over a period of some 25 years. Absurd ideas about sovereignty have abounded and have prevented progress being made. In my judgment the present limited pan-European developments referred to in the report would not have come about if the Commission had not taken the initiative in the form of the communication to the council in 1988. I respectfully submit that the report fails to appreciate that point.

The Commission was right to address these issues. The Consumers' Association says that the matter has nothing to do with the Commission. However, I believe that it has everything to do with the Commission when consumer interests are prejudiced right across the Community. The initiative took place against the backcloth of the liberalisation proposals and massive public concern and the lassitude of member states to act, save for West Germany and the Benelux countries, in support of the concept on which Eurocontrol was founded. While the Commission has never sought to present itself as an air traffic control regulatory authority, I believe it has an important role to play—this again is not sufficiently emphasised in the report—in complementing the work of Eurocontrol and in harmonisation in significant areas such as technical harmonisation and improving communication and the compatibility of air traffic control systems. It could complement the work of Eurocontrol in pressing for more advanced automation and in focusing on the need to make more military airspace available for civil air transport. It could help to make more efficient use of airspace generally and its proposals for mutual acceptance of licences of controllers and other staff and of common training programmes are of major significance. The opinion of the committee made no reference to those matters although they are referred to in the evidence.

The Commission also has a role in research and in giving the force of Community law to decisions made by other institutions, thereby reinforcing those institutions. It has a role in providing support directly for airport and air traffic control developments. It can also encourage such developments on the part of member states. It is worth observing that the stance of the Commission on these matters has been substantially supported by the European Parliament.

In addition to the specific points I have mentioned I further criticise the report for failing to address the impediments to progress such as the scope for delay and the obstruction on the part of member states despite the resolution of the transport council in June 1989. That resolution failed to suggest the need for and the ways towards effective monitoring of its recommendations.

The report calls for better co-ordination of the existing institutions but it does not help in indicating how that might be accomplished. Indeed, I believe it has the reverse effect. It takes too pessimistic a line towards the creation of what it clearly wants to see set up—a single new multilateral organisation. It ignores the force of public opinion in accelerating the pace for institutional and other reforms. We have seen that in the environment field and I believe that we shall see it also in this field. In addition, it tends to support those who call for no role or a very limited one for the Commission. At least it concedes observer status in Eurocontrol, but that is to ignore the importance of full membership in achieving the very goals which have been supported by the committee. It also ignores precedents. The Community has used very effectively its membership of United Nations agencies to stimulate progress in the maritime safety and environmental fields in the International Maritime Organisation and in the United Nations Environment Programme.

In over-emphasising the value of the work of technicians as against generalists—and I consider that there is a place for both—I believe that the committee has made a mistake. The technicians have sometimes tended to engage in empire building. I believe that we have to be very careful to ensure that there is a useful balance between both.

Of course, I agree that technical competence does need to be built up. So far as concerns the Commission, that will require additional budgetary resources. I also believe that the committee is wrong in asserting that Community finance to develop infrastructure should come from existing structural funds. That is to take far too limited a view of the matter. What happens, for example, in areas which are not eligible for the use of existing structural funds?

I turn, albeit briefly, to the report on civil aviation and 1992. I agree with the committee that deferral by the council of major decisions, which are to remain simply as objectives for 1992, is grotesquely unsatisfactory having regard to the commitments made by heads of state and government back in 1986 and again in 1987. For the council to wait beyond 1992, as I think will happen, provides opportunities for those who are hostile to progress to engage in all sorts of subterfuge.

On the question of the development of oligopoly we need to give very careful attention to what has happened in the United States. Most recently the United States experience has been unhelpful for the consumer: in Act I, some 12 years ago, there were dozens of new airlines challenging the giants; Act II led to merger mania; in Act III, debt-burdened airlines, such as Eastern, TWA and Midway, are now candidates for merger or failure. It is a question of the survival of the fittest, the fattest, the meanest and the strongest. That is not good for consumers and we need to be on our guard for there is a real risk that we face the same problems. There are those who say that only the strong will be able to compete with the few huge United States and Far Eastern carriers. They are not wholly wrong.

There are others who express doubts about the Commission having the powers to control or eliminate collusion, cartels and predatory practices on the part of the dominant few. Proper questions are asked about the inadequacies of the merger regulation, a point eloquently argued in paragraph 86. However, this Government were anxious to control the limits of the merger regulation itself. Then there are questions about the computerised reservation systems. I do not believe that anyone has the right answer to these problems yet, except, perhaps, the CAA is pointing in the right direction. It is a pity that the committee has not given adequate attention to the views of the Civil Aviation Authority in that regard.

Nor have we been able to achieve any clear or coherent ideas about the questions of slots and airport access, which are critical if we are to achieve fairer competition. Unquestionably, the incumbents are unduly favoured by the present system, which is explained very fully in the report. I do not believe that airlines ought to expect to continue to have those cosy arrangements among themselves. There needs to be more transparency. There needs to be much more control, perhaps by the national authorities, such as the CAA, or perhaps by the Commission. Frankly, I am uncertain about the right solutions in this regard and, like the noble Lord, Lord Boyd-Carpenter, I am not sure that the Commission has come forward with the right proposals on this subject. However, I do not believe that grandfathering or slot auctions will be the correct answers. They will only help the big boys.

I believe that the question of consumer representation is also tremendously important. Consumers need a share in the determination of matters relating to slots and computerised reservation systems. However, I must say that the Consumers' Association has not helped its case with the evidence that they have given to the committee. If they could see a top, they could not resist going over it. Some of their criticisms are ill-founded and unduly pejorative. Having said that, I believe that we must not forget the role of the consumer in relation to these issues.

On the question of fifth freedom services I very much agree with the opinion of the committee. However, we should recall that when the crunch came in 1986 and 1987 and the question of giving fifth freedom rights to some of the smaller, peripheral countries was raised in the Council of Ministers, the great liberalisers were found wanting. Britain and Holland, who had argued impressively for greater liberalisation—and I very much agreed with most of the arguments that they adduced—did not like the idea of introducing fifth freedom rights to Aer Lingus and TAP. However, it has to come and I hope that we shall make significant progress in that regard.

I am sorry that I have exceeded the usual speaking time, but there has been a lot of ground to cover. My penultimate point is that criticism has been made about the roles of Directorate-General IV and Directorate-General VII—competition and transport respectively. The word used by the committee in its report is "dismay" that those directorates-general are working on separate proposals. The committee finds that totally unacceptable.

I direct the attention of the House to some very pertinent remarks made by Mr. Argyris of Directorate-General IV reported on page 87 in paragraph 297. He said, in relation to the computerised reservation system: The proposal from…DG VII is a proposal which would be for a regulation to be adopted by the Council, and its content is a separate matter. It would be a proposal to the Council for a Council regulation. The Commission's proposal from DG IV will be a proposal for a Commission regulation to be adopted by around the end of the year by the Commission after engaging in consultations". There were two different approaches. Yet the directorates-general are able to work together. But there is a constructive tension, it is perfectly true. Does that not apply in Whitehall occasionally? Indeed, we saw an example only this weekend. I believe that the kind of relationship that I had with Commissioner Sutherland, which led to fierce arguments from time to time, was an example of such a constructive relationship. The roles of DG IV and DG VII are, to some extent, different. That is a point which the committee has not taken on board.

I conclude by saying that during my time in the Commission, and the same is true today, the Commission has never striven for a free-for-all in civil aviation. It has never striven for complete deregulation but rather has adopted an approach which is based on creating order in the market place with greater opportunities for competitive enterprise, for fairer competition and for efficiency. I believe that those ideas have been largely supported, notwithstanding some criticism, by the committee. I conclude by once again congratulating the noble Lord, Lord Shepherd, and his colleagues on a very comprehensive and well argued report and for enabling us to debate the issues today.

5 p.m.

Lord Bethell

My Lords, I should like to join those noble Lords who congratulated the noble Lord, Lord Shepherd, on his excellent report. It is a true and exhaustive contribution to the long-standing debate on civil aviation policy and the controversy over the high cost of European air travel. As one who has taken some interest in this question in recent years, I should like to pay tribute to both the Commission in Brussels and the British Government for being the twin pillars of any progress that has been made.

One sometimes forgets how dire was the situation 10 years ago. At that time there was hardly any competition in European air travel permitted between European airlines. There was the famous prohibition on an excessive number of prawns in a prawn cocktail, and rules about whether a piece of tomato could be placed on a piece of lettuce. It was forbidden to provide extra leg room in aircraft, and baggage restrictions were carefully enforced. Much of that nonsense has been removed.

Indeed, in the wake of the 1987 package in which the two former Commissioners present in this House (one of whom has now left the Chamber) played a very important part there has been the possibility of true progress toward a more liberal European air regime. The conditions are there—or if not, they could be and soon will be—in which imaginative, enterprising airlines could move in and provide a better and cheaper product for the European consumer. In other words, the horse has been led to the water. However, I am not yet sure whether he is ready to drink. The conditions have been created, but an industry still remains which consists largely of sharks and minnows. I was about to say Davids and Goliaths, but in that respect a parallel is not perhaps exact since David killed Goliath.

However, the competition between the very large European airlines, including our own British Airways, and the small airlines which are allowed to pick up the crumbs is not necessarily in the consumers' best interest. The noble Lord, Lord Shepherd, referred to the series of non-aggression pacts made, tacitly or not, between a fair number of traditional European carriers. There are probably more than we know about. Certainly, looking at any airline's timetable one finds very little variation in the fare charged from A to B or from B to A between those (usually the two flag carrying airlines) that operate the route. If there is any variation, it is the exception rather than the rule. Somehow they manage to charge the same fare.

I do not say that that is done by secret discussion and agreement in cartel as used to be the case. Maybe it is a question of water finding its own level. Still, there is little variation, little price differentiation and little scope for the consumer to shop around in the way that he or she might prefer to go to Safeway or Tesco in order get the best bargain.

There are a few exceptions, most of them brought about, as the noble Lord, Lord Shepherd, pointed out, by bilateral arrangements rather than by implementation of the Treaty of Rome. Bilateral arrangements exist between this country and the Netherlands, Ireland and Belgium, and there is some flexibility with France and Germany. As a result a large number of carriers now operate between London and Amsterdam, some flying from Heathrow and some from Gatwick. For instance, it is possible at British Midland to obtain an off-peak return flight from London to Amsterdam for £116 or a three-day excursion return for £159. That is a lot cheaper than the ordinary unrestricted fare of £194 return and much cheaper than the fares between London and Brussels which are now in the region of £210. That is a route which is shorter than London-Amsterdam.

I often ask myself why London-Brussels is a more expensive route than London-Amsterdam. I have to conclude that because there is more competition on the London-Amsterdam route, the fares are more competitive. There is some competition on the London-Brussels route now. There is Air Europe, although it operates out of Gatwick and is not always the most convenient way to go to Brussels. However, Air Europe has made some inroads. I suggest that flights between this country and Ireland have been totally revolutionised by the emergence of Ryanair, both in the creation of new airports and new traffic, and in the provision of better and cheaper services for the traveller. The product has been made both better and cheaper as a result of the emergence of one enterprising, brave airline on routes between the two countries.

That shows that it can be done. But it is not easy, given the power of airlines such as British Airways which, in spite of all the reforms, controls more than 90 per cent. of British scheduled air traffic to Europe. Under those conditions it is very difficult for a smaller airline to come in on a route and make a profit. Usually it can be seen off with some dispatch by the noble Lord, Lord King, and his employees.

I want to concentrate on a subject mentioned by previous speakers; namely, take-off and landing slots. It is fair to say that that is one area which has not been seriously tackled by those who are trying to create fairer competition. It has been pointed out that the situation still remains whereby an airline that has had previous facilities at the overcrowded airports (such as Heathrow and Gatwick in this country, and Munich, Frankfurt, Milan and popular airports on the Continent) enjoys the privilege known as "grandfather rights". That means that as the incumbent airline, it gets first call on any slot which has been available to it during the previous six months. I fail to see why that practice should be allowed to continue. I see no justice in it. Why should some airline have a valuable privilege worth a considerable sum of money passed down to itself every six months in perpetuity so that it can steal a march on a new airline which might be willing to charge a cheaper fare if only it could obtain the take-off and landing slots?

British Midland is a company that is very heavily penalised by the present situation. If noble Lords wish to fly tomorrow from London to Paris by British Midland they will find that there are flights at 6.45 a.m. and 7.45 a.m., and the next flight available is at 11.25 a.m. The peak hours of the morning—when business people wish to fly from London to Paris in large numbers—are not available to British Midland because they are all bequeathed (I believe that would be the right word) to Air France and British Airways. This puts the new interloper airline, British Midland, at a considerable commercial disadvantage.

Why does that happen? We are told by the Government—and it is in the report—that the system is enshrined in the rules of the International Air Transport Association. Why should IATA have the final say in the matter? Why should we bow down in our obedience to the IATA organisation? Some of us feel that it has no right to be seriously interfering in such matters. Indeed, many feel that its existence should be called into question. I understand that that is happening in the United States. Some people across the Atlantic in the Department of Commerce believe that anti-trust legislation should be taken against IATA to remove it from the United States. I shall be interested to know whether the British Government believe that it is right to renew the block exemption on competition rules which may be renewed in order to allow IATA to continue to function in European Community countries. I am coming to the view that that body has been sitting in Geneva for too long for any good that it has done and that perhaps it should go. However, it should certainly persist in its imposition of the principle of grandfather rights over the allocation of slots.

I hope that I did not misunderstand the noble Lord, Lord Shepherd, when he stated that the present system of allocating slots should be maintained. As I understood him, he was in favour of reform of the present system. He mentioned the proposals which I believe have now been tabled by the Commission in Brussels. If implemented, they will give new airlines priority on new slots that may be created. If no new slots are created, they will oblige the older airlines to relinquish some of the slots that they have inherited. That would be a substantial, and I believe excellent, reform although it would be maintaining the old system. I believe that it is a step in the right direction. I hope that the Government will support it. I shall be interested to know whether they have a view on what the Commission is about to put forward.

With great respect, I felt that my noble friend Lord Boyd-Carpenter was a little harsh on the Commission. After all, if it were not for the Commission, I doubt whether we would have taken some of the modest steps that have been taken towards a better deal for the air traveller in Europe. They have been very much at the forefront of the struggle for a more liberal air policy in Europe. Commissioners such as the two noble Lords who have taken part in the present debate, and Mr. Sutherland, have been pre-eminent in the fight, as have Her Majesty's Government, as I suggested earlier. However, it will not be easy for the Commission to implement the rules about the allocation of slots unless we have steadfast pressure in support of them from British Ministers. I very much hope that I can be assured that this pressure will be maintained when those proposals are tabled.

Such proposals are our only hope. Airlines must have the ability to take off and land, otherwise they cannot offer the best fares and facilities which I believe they could offer if only there were free competition in Europe. The aim of the committee chaired by the noble Lord, Lord Shepherd is to create free competition to create the conditions in air travel that we hope to achieve as a result of the free internal market in 1992, and to benefit the consumer.

I therefore trust that the Commission, as guardians of the Treaty of Rome—which has been referred to by the Prime Minister as a charter for economic liberty —will see fit to interpret that aim with regard to the airline sector to the benefit of the European air traveller.

5.15 p.m.

Lord Renwick

My Lords, I too am very grateful to the noble Lord, Lord Shepherd, for the opportunity to discuss the subject. I felt that another member of his committee, should speak in the debate. However, having put my name down and observed that no other member of the committee had, I looked into the subject and then realised why.

The two inquiries took place some time ago. We had the first evidence on traffic management and air traffic control last November. The larger report, A free market by 1992? was published in March or April of this year. It therefore required some mugging-up on the subject. I shall not keep noble Lords too long today. The Minister has been asked relevant questions and we all look forward to hearing his answers.

I speak today if only to draw attention to the absolutely vital importance of air transport in Europe to the trade of Europe. We know that the Single European Act will take effect by the end of 1992 and the beginning of 1993. The recommendations of the Commission are timed to coincide with that. Ease of transportation and of travelling through Europe is of similar importance to telecommunications. Air communications is one of the infrastructures that is absolutely vital for a healthy two-way trade between nations.

I hope that the Minister will bear in mind that his influence on the liberalisation of air transport will be much welcomed. There have been discussions today about the roles of the great national governments and of the Commission and how the right motivation can influence the protectionist monopolist structures of the European aviation industry. I am sure in my own mind that double disapproval, and the competition that it creates, is one such motivation. It does not force lower fares but it creates the opportunity for them. I hope that pressure will be brought so that that system can be introduced by other countries.

The existence of national airlines is another restriction. The sovereignty of the countries is reflected through their airlines. It would be difficult to impose privatisation on Europe's national airlines. However, the experience of British Airways has made it profitable and it has never been more healthy or active.

The future of air transport in Europe is constantly evolving. The technologies, thank goodness, are always improving. As regards air traffic management, communications are becoming ever better. Eurocontrol is in the process of making communication systems common throughout Europe. Of course, the European field is likely to become wider, with the additional traffic that will come from Eastern Europe. There has been an enormous advance in the speed of aeroplanes and the loads that they carry, and that advance will continue. I am sure that the problem of slots will be eased by further improvements in speed and carrying capacity.

5.21 p.m.

Lord Underhill

My Lords, I too thank my noble friend Lord Shepherd for introducing the two excellent reports. Whether or not we agree with all the committee's decisions and findings, noble Lords will agree that they are two first-class reports. I echo my noble friend's appreciation for the many witnesses who gave oral evidence and for the useful memoranda which will hold all noble Lords in good stead for the future. I was particularly interested in the many questions that my noble friend directed to the Minister. I hope that he will be in a position to reply.

Although there is a link between the two reports, I propose to deal with them separately. My intention is not to roam over the general aviation field but to pick up what are important passages from various paragraphs of the report and, where necessary, comment upon them. I too am pleased that my noble friend Lord Clinton-Davis has taken part in the debate. He gave the House valuable information from his knowledge as a Commissioner in Europe responsible for many transport issues. That will be extremely helpful.

Paragraph 8 of the report reminds us that in 1989 the Council of Transport Ministers adopted the resolution on the need for improved co-operation on air traffic control. Although that was a unanimous decision, it was non-binding. As is stated in paragraph 6, the Commission called on member states to become members of Eurocontrol. I share the view expressed by my noble friend Lord Shepherd that the decision should have been legally binding. Will the Minister say what efforts are being made to ensure that in future it is made legally binding?

Part II sums up the evidence given on the possible role of the Commission. After reading the report I share the anxiety expressed by many witnesses about the plethora of organisations involved in some way or another in air traffic control in Europe. Although details of the composition of several organisations are given in the report, there is little indication of exactly how they function and the work that they undertake as regards air traffic control. Various organisations which submitted evidence put forward the view that the intervention of the Commission would further duplicate matters. However, the Joint Airports Committee of Local Authorities would support Commission activity in order to harmonise, coordinate and implement the work of other bodies upon which it argued that no other body was taking speedy and effective action.

Some witnesses suggested that Eurocontrol had not been allowed to develop as intended for nationalistic reasons. There is a tendency by some states to want to go it alone. If that is the position, surely the Commission should step in to tackle the situation. The International Federation of Air Line Pilots Associations put forward the view that the fragmented nature of air traffic control facilities and the growth in control deficiencies arose because aviation traffic had increased much faster than capacity. That increase was mentioned by the noble Lord, Lord Boyd-Carpenter.

In its memorandum National Air Traffic Services held that the Commission had overlooked the fact that it had no technical knowledge of air traffic control, whereas the Eurocontrol staff were of good quality, with sound experience. I failed to find any reference in the report to the fact that the Commission's proposals are that it should play a positive part in air traffic control. I may have read the report too quickly or missed something but I did not gather that to be its intention.

As stated in paragraph 32, some witnesses pointed to the shortage of controllers as a contributory factor in air traffic control problems. I appreciate the further view expressed by NATS that the many existing organisations which are mentioned as taking some part in air traffic control take a significant amount of the valuable staff resources. The resources of experienced people should be deployed to areas where they can do the most good. We must consider how that position can be alleviated so that we may make the best use of the efficient staff members who are available in the various units of air traffic control.

I note the point made in paragraph 34, and it was stressed by the noble Lord, Lord Boyd-Carpenter. It is the significant factor that the issue will affect European countries which are not members of the Community. Paragraph 38 makes the point that individual states should recognise that air traffic control is a matter for the whole Continent of Europe and not only for the Community. How will that be achieved other than by an effective Eurocontrol organisation? I cannot see how it can be achieved other than by a Eurocontrol organisation that is effective, efficient and adequate.

The view of the committee is that there is a sound case for the involvement of the Commission in Eurocontrol, but that does not require full membership. However, it must be agreed that the Commission can ensure not only that member states take a part in Eurocontrol but that they do so effectively by providing adequate control staff who have intensive training and up-to-date equipment, using Community funds where appropriate.

The report also mentioned flow management, a subject to which no noble Lord has yet referred. It was first referred to in paragraph 16 as being the development to manage the flow of air traffic throughout Western Europe from 1993. Paragraph 28 sets out a very useful explanation of the difference between air traffic control and management. I believe that it is worthy of quotation: Control was designed to prevent collisions and would be exercised by each controller to deal with every aircraft in the airspace under his control, however congested that became. Flow management was exercised to organise the traffic flow so that no controller was overloaded with more aircraft than he could safely handle". That is a very useful, simple explanation of the difference.

Some witnesses put forward a proposal for a central flow control unit under Eurocontrol. However, I support the view expressed by the committee as set out at paragraph 43 that flow management is a short term measure which will not address the long term problem of capacity. I share also the opinion of the committee that the Council should now turn its attention to those very urgent matters and maintain a sense of urgency created by recent crises in air traffic management. Can that best be achieved by giving to the Commission full membership of Eurocontrol or observer status only? In my view the committee's argument which supports observer status only is not fully convincing. It will be interesting to know the view of the Minister on that issue.

I was pleased that the noble Lord, Lord Boyd-Carpenter, quoted from the other document on civil aviation because that had been my intention. I considered it very important in showing what is desired of the single market in 1992 as regards aviation and also the cosy cartel situation which exists today.

The Department of Transport in a supplementary memorandum states: The task now is to ensure that interim arrangements are as liberal as possible in the three crucial areas (fares, market access and capacity constraints)". At paragraph 84 the committee observes that the zeal for greater liberalisation is not shared by some other member states of the Community. If that is the case, what is to be done? What action will the Government take to ensure that that position does not continue? That seems to be a matter for consideration by the Commission and also by the Council of Transport Ministers.

To most people, talk of liberalisation of aviation means some movement towards lower fares. From the evidence in the report, there would appear to be general approval of the proposal for a double disapproval regime for fares. I believe that the Community can play a great part in that, but adequate competition may be the key, especially in view of the fact that there are airlines outside the Community—a point stressed by one or two noble Lords including the noble Lord, Lord Boyd-Carpenter. I repeat it.

I ask one question. If we are to move towards lower fares, what sort of regulatory system can there be? A regulatory system may be possible with those airlines attached to member states. But what about those airlines outside the Community? What attention are the Commission and the Council of Transport Ministers giving to that matter?

We must keep in mind also that liberalisation could bring something which may not be helpful to us; that is, encouragement to use smaller planes and the duplication of route services with increased congestion at airports and in the air. Therefore, when we speak of open access for all airlines, those particular points must be borne in mind.

The point is made at paragraph 20 that competition for new entrants depends on physical access to airports and airways. Paragraph 23 emphasises that most witnesses saw proposals on market access as crucial to the development of competition. One questions how small carriers can compete if they cannot obtain permission to operate the services they want and are unable to secure access to airports became of congestion. That is an issue about which one cannot be airy-fairy. It must depend upon the national position regarding agreements. I do not believe that it can be said that any airline must be permitted to fly anywhere and land at any airport. That would be an impossible situation; yet that viewpoint has been advanced.

Section 5 of the CAA memo deals with the lessons of the United States in the move towards liberalisation. That is dealt with also at paragraphs 61 to 63 of the report. I should like to emphasise what is in those paragraphs to which reference has been made by other noble Lords. It is emphasised that mega-airlines now dominate the United States' industry more than they did before deregulation. New entrants is came in to provide competition but with few exceptions failed to survive. It is said that the entry of new or substantially new airlines in the United States has now dried up. At paragraph 62 the Civil Aviation Authority argues that what went wrong in the United States was that deregulation akin to laissez faire replaced regulation.

I make the declaration—and it may not please all noble Lords—that looking at the lessons of the United States, it is clear that there must be some degree of regulation. It cannot be possible to allow any airline to decide to land at any airport where there may be congestion and where it may be impossible to take in further routes.

On the question of mergers, a number of paragraphs are headed "The Threat of Oligopoly". In paragraph 86 the committee suggests that larger and stronger European carriers may be necessary to compete internationally with the giants which dominate the American and Far Eastern markets. My noble friend Lord Shepherd made some reference to the question of how that will affect consumers for whom we desire the liberalisation.

Paragraph 17 questions whether market forces will lead to the domination by a small number of mega-carriers and what may be needed to protect the interests of consumers. The tendency towards mergers is dealt with in detail in the 14 pages of evidence of Mr. John Loder, the aviation consultant, which I found of considerable interest.

The CAA memo at paragraph 17.2 states that there are now agreements between already dominant airlines in five EC countries, including three of the largest carriers. It goes on to comment that regional airlines are becoming increasingly dominated or even swallowed up by their larger brethren, as has happened in the United States.

Again, I may have missed matters in the report but I can see nothing in the Commission's conclusions as to how to deal with the question of mergers, some of which could be contrary to the interests of consumers. I do not know whether the Minister can say what action the Government propose to take on the question of monitoring and control of mergers. They will inevitably occur, as we saw only this week with Pan Am in the United States. We already know of the activities of British Airways in making overtures, and in some cases completing mergers or agreements with other bodies.

That leads me on to the question of slots, to which a number of noble Lords referred. In paragraph 94 the committee questions whether, if there are to be new entrants wishing to compete, the present system of slot allocation gives them a fair chance. I note that that matter was dealt with by some very probing questions from members of the committee on pages 7, 8 and 9 of the evidence.

Paragraphs 27 to 32 deal with the important question of who obtains the slots. It is recognised that the grandfather allocation, to which some noble Lords referred, is dealt with through the scheduling committee system and is extensively applied. I noted that in paragraph 96 the committee conclude that there is as yet no obvious alternative to the present system of slot allocation. It would seem that the committee is opposed to a pricing system or auction of slots.

My noble friend Lord Shepherd asked some questions in that regard. In response to noble Lords who said that we must tackle the question of the allocation of slots, I ask how it is to be done. Has anyone suggested how it should be done? Will it be left to the CAA to become the regulatory organisation dealing with the allocation of slots? How is it to be done? The last thing we want to see is an auctioning of slots with possible increases in costs to the consumer. Therefore I say again that airy-fairy talk is not the answer to the problem of allocation of slots. We may not like it. We may feel that the grandfather system must be tackled. But how is that to be done? Do the Government have a definite view on the matter? Should we ask the CAA to give its viewpoint?

The opinions of the committee are set out in Part 3 of the report. One could speak for a long time if one attempted to deal with the 32 paragraphs of that section. It is clearly recognised by the committee that there are matters beyond the competence of the Commission to determine. That would appear to be the tone of the general conclusion in paragraph 116 of the report. That view applies to the question of external policy. Although that is referred to in paragraphs 78, 79 and 80, in paragraph 113 the committee makes clear that it decided not to comment on the proposal that the Commission should negotiate agreements with third world countries on behalf of EC member states. I agree with the noble Lord, Lord Boyd-Carpenter, that the giving of that power to the Commission would be disastrous.

The committee decided to deal with the matter in due course in view of what it referred to as the complex matter of policy and law which the proposal raises. My noble friend Lord Shepherd said that the committee would consider that matter in the new year. That is encouraging. I should like to know the Government's view on the matter. The question of negotiation with third world countries is an important matter and one that we cannot leave to the Commission to handle.

I conclude by saying that this has been a useful debate by noble Lords who know a great deal about the aircraft industry. I congratulate the members of the committee on their report, and I thank my noble friend Lord Shepherd for introducing it in the way that he did.

5.45 p.m.

The Minister of State, Department of Transport (Lord Brabazon of Tara)

My Lords, the Government welcome these two reports by the Select Committee on the European Communities. While they cover separately the important issues of European liberalisation and air traffic control, their subject matters are obviously interrelated, as the full benefits of liberalisation will only come about with improved air traffic control facilities. I warmly commend your Lordships' hard work, and I congratulate the noble Lord, Lord Shepherd, on introducing the two reports. I am also grateful to him for giving me the opportunity to answer this afternoon. It is the first occasion on which I have had to speak on these matters since returning to my responsibilities in the Department of Transport.

On the European front, the Government's clear aim is that civil aviation in the Community should be liberalised. With increased competition between airlines, consumers will benefit through a greater choice of services and fares offered in response to consumer demand. Unnecessary restrictions must be removed, without prejudicing safety, and without exposing consumers or airlines to exploitative practices or unfair competition.

We are making progress. On 18th June the Council of Ministers agreed a second package of aviation liberalisation measures. In the Government's view, the most important aspect of the agreement was the commitment in Community law to complete the final stage of introducing a single market in aviation by the beginning of 1993. That commitment consists of the introduction of uniform licensing criteria by July 1992, and of double disapproval for fares and the abolition of bilateral capacity sharing by the end of 1992. That is of course subject to safeguards against exploitative and anti-competitive behaviour.

The second package agreed in June, which comes into effect on 1st November, builds on the first set of measures agreed in 1987. It contains arrangements for setting fares which introduce an element of double disapproval and simplify the existing zonal system. The package also eases access to the market by opening up routes between virtually all EC airports, relaxing restrictions on fifth freedom services within the Community—which I assure the noble Lord, Lord Clinton-Davis, the United Kingdom fully welcomes —and progressively lowering the thresholds above which multiple designation of airlines on a particular route is allowed.

The Government's attention is now focused on the vitally important final stage. Like the noble Lord, Lord Shepherd, we fully support the system of double disapproval for fares, which will replace the double approval system under which the approval of both authorities at either end of the route has been required before a new fare could be introduced. The new system will remove the present impediment to introducing cheaper fares, and allow freedom to airlines to respond to the market.

The noble Lord, Lord Shepherd, asked the Government to urge the Commission to study the benefits of the existing double disapproval system between, for example, the United Kingdom and Ireland.

The noble Lord, Lord Bethell, gave some good examples of what we achieved by that bilateral agreement, which I had the pleasure of signing with the Dublin Government a couple of years ago. There have been substantial cuts in fares. On-demand fares are available at approximately 20 per cent. below their 1987 prices in real terms. The number of airlines serving London and Dublin has increased from three to five, and the number of routes flown between the United Kingdom and Ireland has increased from 26 to 34. Those are the benefits which may be seen by all. I assure noble Lords that we shall continue to preach those benefits to those who still need persuading of the benefits of liberalisation. I would add, in response to the noble Lord, Lord Clinton-Davis, that we even gave additional fifth freedom rights on that particular package.

The Government believe that fare setting must be accompanied by proper safeguards to ensure that fares are neither excessive nor predatory. We have already laid some of the ground in the context of the second package, but we shall be seeking to build on and adapt that to meet the circumstances which will be created with the full introduction of the single market. We shall examine the suggestion of the committee to allow wider representation to the Commission on fare levels.

The noble Lord, Lord Shepherd, asked about the Commission's proposal to tackle anti-competitive practices. Other noble Lords also mentioned that point. The Government regard it as essential that liberalisation is accompanied by proper safeguards against carriers who abuse or threaten to abuse their position in the market through predatory behaviour. We welcome the commitment made by the council in June to apply a suitable mechanism to stop carriers before their predatory activities can do any damage, which can happen very quickly. With UK support, the presidency is working for a formal adoption of such a "cease and desist" mechanism at the December transport council meeting. I hope that clarifies the position.

The Government can see no reason for the continuation of constraints on market access within the Community, and welcome the fact that bilateral capacity limits will be removed entirely from the final stage. A true single market in aviation should allow equality of opportunity for airlines of all member states. The Government therefore also warmly welcome the commitment to uniform licensing criteria by 1st July 1992. This means that member states will be obliged to apply uniform criteria in deciding whether to grant an operating licence to an airline established in any member state. The details remain to be worked out, but the important goal is to do away with the ability of member states to favour their flag carriers and discriminate against other airlines.

The noble Lord, Lord Shepherd, asked about the compatibility of cabotage with the Chicago Convention. I am bound to say that this an extremely complicated issue. We, like the Commission, do not think that the exercise of cabotage is contrary to Article 7 of the Chicago convention, because any cabotage rights granted within the Community would not infringe the rights of third countries. Under such circumstances, third countries might apply for cabotage rights, which would then become a matter for negotiation.

The Government are also aware that competition cannot be fair while some airlines are protected from the full discipline of the market. They will continue to urge that provisions in EC legislation covering state aids should be strictly enforced.

The Government will continue to play a leading role in discussions in Brussels on the final stage of liberalisation with the aim of introducing a single market in aviation in which a multi-airline industry can flourish to the benefit of consumers and the economy.

The noble Lords, Lord Shepherd, and Lord Clinton-Davis, and my noble friend Lord Bethell, drew attention to the report's discussion of slot allocation. This is a complex issue, as I think is agreed, with wide ramifications and no easy solutions, as the noble Lord, Lord Underhill, pointed out. The Commission has expressed some ideas for change, and a proposal for council discussion is awaited. This is an important issue and the council must decide on policy after full debate. Our concern is shared by other member states as well as by the aviation industry. What we seek is a system that can generate fair and vigorous competition, and reward efficiency and innovation, without sacrificing the flexibility and practicability of the existing arrangements.

We are concerned to ensure that it is indeed the council which decides what changes may be appropriate, and that the Commission should not unilaterally develop policy without council approval. There are clear signs that the Commission intends to introduce a new slot allocation policy unilaterally as part of the removal of a group exemption from the Treaty's competition rules. My noble friend Lord Bethell referred to that. That would be done without decision by the Council. At the same time, the Commission is preparing a proposal for a code of conduct on slot allocation. This would be decided on by the council. I can tell your Lordships that we are not prepared to see scope for council debate on the proposed code of conduct limited by any pre-emptive measures taken unilaterally by the Commission. The UK will be raising this important point at the council meeting in Luxembourg tomorrow. I would say to my noble friend Lord Bethell that we have received representations from airlines such as British Midland who fear that if these proposals are followed through it could result in that airline losing slots as well as some of the larger airlines.

Noble Lords have commented that, in collaboration with the CAA, the Government have recently Commissioned their own consultants' report on possible new ways of allocating slots among airlines at congested airports. The consultants are working to a tight time schedule, with Stage 1 of the study due to be completed at the end of November. Stage 1 will identify alternative methods of slot allocation that appear to merit more detailed study in Stage 2. Assuming Stage 2 goes ahead, it will be completed by the early Spring of next year.

We hope that the consultants' work will help to inform the debate in the council. The consultants have been asked to report on arrangements for slot allocation within the EC which would be compatible with the system based on the IATA procedures which are applied on a world-wide basis. Even at congested airports the current slot allocation system can work flexibly. I can give two examples. My noble friend Lord Bethell has already referred to British Midland. British Midland had 3 per cent. of the slots at Heathrow in 1979. It now has 12 per cent. Air Europe has increased its slots dramatically at Gatwick, from just 3 per cent. four years ago to more than 21 per cent. now; so one can say that the existing system can work reasonably effectively.

My right honourable friend the Secretary of State for Transport recently visited the chairman of the Heathrow scheduling committee. He was most impressed by the scheduling operation and was satisfied that the airport co-ordinator and his team carry out their tasks without discrimination. However, it would be fair to say that the UK is ahead of most, if not all, other countries in the transparency and quantity of scheduling information available to user airlines. For example, I understand that the Heathrow scheduling committee is currently considering moving from the British Airways building to offices owned by BAA, further to reinforce its already apparent independence. Incidentally, I am not aware of any cases where airlines have used an aircraft with an excessive passenger capacity merely to retain control over a slot. In that context the noble Lord, Lord Shepherd, referred to the United Airlines' purchase of the Pan American routes to London. He apologised for not having given me notice of his question. However, I can assure him that no notice was necessary. Since this announcement, which came to us as a complete surprise last Wednesday morning, we have thought of little else. It raises some important issues. We were not consulted before the announcement was made and we understand that approval for the purchase has not yet been obtained from the United States Government.

Any proposals for United Airlines to operate flights from the United States to London would need to be considered in the light of the Bermuda 2 agreement governing air services between the two countries and the traffic distribution rules for airports serving the London area. The current TDRs would not permit United Airlines to operate flights to and from Heathrow. Clearly, I cannot speculate now on the outcome of any discussions between the US and the UK which might be held under Bermuda 2; but, as I believe I mentioned a moment ago, the traffic distribution rules are already under review by the Civil Aviation Authority at my request, and the authority will be submitting advice to the Secretary of State early next year. At this stage I cannot predict the outcome of that.

The noble Lords, Lord Shepherd and Lord Underhill, asked whether the powers in the new merger control regulation are adequate and how many mergers in the aviation sector it would apply to. The regulation gives significant new powers to the European Commission: indeed, it seems appropriate that larger mergers should be considered on a Europe-wide basis, since the companies concerned are so often international. Where a merger is not a concentration but rather a joint venture, the Commission will still have powers to investigate. Under the regulation, mergers will be judged on strict competition criteria.

I emphasise that the merger control regulation leaves the UK authorities with a significant role in this sphere. UK merger law, with the central role of the Monopolies and Mergers Commission, gives substantial powers in respect of mergers. The Government believe that appropriate powers are available for the various circumstances which arise. The noble Lord, Lord Shepherd, will appreciate that I cannot foresee how many aviation cases are likely to arise which may be caught by the new mergers regulation and he will understand why it would not be appropriate for me to speculate in this area.

My noble friend Lord Boyd-Carpenter and the noble Lord, Lord Underhill, asked about the Commission's proposals on external competence and arranging air service agreements with countries outside Europe. The Government believe that it is premature for the Commission to seek exclusive competence in external aviation relations, at least before the conclusion of the single market. The proposal has extremely grave complications which I believe would become obvious if they were to be discussed.

My noble friend Lord Boyd-Carpenter also asked about the imposition of VAT on air fares. I hope that noble Lords will understand that I cannot give the Government's views on the proposal at this very early stage. I can assure my noble friend that we have taken account of his views.

I now turn to the Select Committee's report on air traffic control. The Government welcome this well-balanced and thorough survey of the European situation, and we are in agreement with many of the committee's opinions. Again, I am most grateful for your Lordships' hard work. And I am glad to have the opportunity to update the House on recent initiatives in this area, which I trust your Lordships will agree are in line with the thinking underlying the report. There have been significant developments since the European Commission submitted its proposals nearly two years ago.

I am delighted to see that since 1988 two additional countries have joined Eurocontrol, making a total of 11 full members. A further seven states have either applied to join or indicated that they intend to join Eurocontrol. They are all at the moment actively participating in its meetings as observers.

The noble Lord, Lord Underhill, asked whether, as all members of the Community have joined Eurocontrol, except at this stage Italy, Spain and Denmark, all member states would be required to join. Italy and Spain have already applied and Denmark is considering the position. I hope that before very long all members of the Community will become full members of Eurocontrol. As my noble friend Lord Boyd-Carpenter said, we want more than just the members of the EC to join. That is why we are pleased that there are other European countries outside the Community which are also members.

I was pleased that the committee noted the importance of establishing a central flow management unit for Europe under the auspices of Eurocontrol. The noble Lord, Lord Underhill, referred to that. As many noble Lords will recall, the Government put forward this proposal and played a leading role in getting it endorsed. At that time I was President of Eurocontrol's permanent Commission, and was heavily involved in this work. The unit is to be operated by Eurocontrol in Brussels, and is being progressively introduced, with full implementation in October 1993. It will increasingly ensure that air traffic in Western Europe is managed in the most efficient and safe manner, with the least delay to traffic and the maximum utilisation of all available system capacity.

However, perhaps the most important development for many years was the unanimous agreement on 24th April last by my right honourable friend the Secretary of State and 22 other transport Ministers from Western Europe of an action programme to increase capacity in Europe. My noble friend Lord Boyd-Carpenter emphasised the need for air traffic control in Europe to be co-ordinated on a pan-European basis rather than just within the European Community. As I have said, the Government strongly support that view. This programme, which again was the result of a UK initiative, will integrate air traffic control systems throughout Western Europe, thus facilitating the flow of traffic from area to area, and will optimise the air traffic route network. The effect should be an increase in capacity over the coming years, with great benefits to passengers through a reduction in congestion and delays.

The noble Lord, Lord Shepherd, asked how Ministers will ensure that this programme is implemented. The directors general of civil aviation for each of the participating states will of course be monitoring the implementation of the programme. Transport Ministers of the participating states have agreed to meet again next autumn to review progress and consider whether acceleration of the programme's implementation is a possibility.

This programme of integration is being managed by Eurocontrol. The Government are in full agreement with the committee's opinion that Eurocontrol should be strengthened; it is the organisation best placed, in terms of membership and expertise, to handle matters on European air traffic control, and its key role in the integration programme is evidence of this. But as well as enhancing the role of Eurocontrol this programme will also assist coordination throughout Europe. We have seen this to be the case in the agreement between the 23 participating states of the European Civil Aviation Conference, but in addition Eurocontol, the European Commission, the International Civil Aviation Organisation, NATO and several organisations representing airspace users have all been represented at meetings to plan the implementation of the programme. Congestion is a European problem, and the problem cannot be resolved in isolation. We do indeed take seriously the need for co-ordination, especially where long-term planning is concerned.

The committee considers that decisions taken by bodies such as Eurocontrol or ECAC should be made legally binding within Community law, and the noble Lord, Lord Shepherd, asked this afternoon that this might be applied to the programme agreed by the ECAC member states in April. I do not know of any proposals within the Community to take such action, and I have to say that I do not think that it would be necessary. The ECAC agreement revealed a sense of common purpose and commitment among the participating states. The will to implement the programme is there, which surely makes legislation unnecessary.

In addition, work is being undertaken in parallel with the integration programme to examine the interface between airports and air traffic control, concentrating on terminal areas and the main airports. The working group concerned, in which the UK is playing a leading part, is looking for ways to increase capacity and eliminate the bottlenecks which cause so much congestion. The group's findings will be presented to ECAC transport Ministers next autumn.

The noble Lord, Lord Shepherd, and the noble Lord, Lord Underhill, asked about use of Community funds for infrastructure funding. There is only one significant area where the Government beg to differ from your Lordships' committee, and that is the suggestion that the EC infrastructure funding should be used to overcome problems in those member states whose air traffic control systems do not yet meet the highest standards.

Clearly, there is a need for high standards and compatibility to handle the growing air traffic in Europe. However, Eurocontrol has recently taken out loans with the European Investment Bank in order to fund the development of new systems, recovery of the financing costs being made through the established en-route charging system; the charges being paid by airlines—that is to say, by those who actually use the air traffic control system. I submit to your Lordships that this is the right way forward to bring in the necessary infrastructure improvements. I suggest that there is no reason why taxpayers' money should be used to subsidise the buoyant aviation industry.

Turning to the part being played by the UK itself in increasing capacity, I am pleased to be able to inform the House of the strenuous efforts being made by the Civil Aviation Authority to provide the equipment, facilities and systems which will enable the increasing volume of traffic to be handled. The CAA has embarked on a £750 million investment programme, its largest and most ambitious ever. Already this year a new computer system has been installed at the London air traffic control centre at a cost of £22 million, on budget and on time. But the most significant projects are the central control function (CCF) and the new en-route centre. CCF will organise airspace in the London terminal manoeuvring area, and will increase the area's capacity by at least 30 per cent. on present levels by the end of 1995. The new en-route centre, for which a site has very recently been purchased in Hampshire, and planning permission gained, will handle all en-route flights over England and Wales outside the London area, and should provide a 40 per cent. increase in capacity by 1996.

But the CAA is investing in people as well as in equipment and new systems. Recruitment of air traffic controllers has risen from 80 to 200 a year, rising to a record level of 240 in 1991. The CAA's College of Air Traffic Control is being expanded. Safety remains the paramount concern of the CAA, and its investment programme and recruitment drive will enable the authority to maintain, and where possible improve, the existing high standards.

I hope that the House will recognise the full part the Government have played in tackling the problems of air traffic control in Europe. Much remains to be done; and nobody suggests that the tasks ahead are easy. I believe that with our European partners we are on the right path towards relegating the inconvenience of congestion and delays to the past.

In conclusion, I should like to say again how much the Government have welcomed the opportunity to debate these two very thoughtful and, if I may say so, constructive reports. I hope that your Lordships will realise from what I have said that the Government are highly conscious of the need to ensure that the objectives of liberalisation are not thwarted by congestion problems. We are working hard to tackle these issues in the forums where they can most appropriately be addressed. I trust your Lordships will agree with me that the Government are acting on lines consistent with the reports.

Lord Shepherd

My Lords, I hope that the House will not think it discourteous on my part if I do not seek to reply to the very many points made in regard to the two reports. I should like to express great appreciation to the Minister for the way in which he replied to the debate. I also thank all other noble Lords for their contributions. It has been helpful because it has not been a debate solely of praise of the committee. There has been some criticism, which I take in the spirit in which it was given. Instead of seeking to reply I undertake to go through the Hansard report of the debate and where I think it necessary I shall write to noble Lords in regard to the matters they have raised. I again thank the Minister and all noble Lords for their contributions.

On Question, Motion agreed to.