HC Deb 18 July 1968 vol 768 cc274-5W
Mr. Howie

asked the Secretary of State for Defence, what arrangements have been made with the United States Govment about credit facilities for the Phantom and Hercules aircraft ordered for the Royal Air Force and Royal Navy.

Mr. Merlyn Rees

Following the cancellation of the United Kingdom purchase of F.111 aircraft in January this year, discussions have been held with the United States Government about the credit needed for the capital and initial support costs of our remaining purchases of United States aircraft (Phantom and Hercules). For the full purchase, including the F.111 a credit of $1,250 million had been agreed.

Before the United Kingdom Government decided to order F.111 aircraft the United States Government had agreed to grant a credit of $700 million to cover the orders for Phantom and Hercules aircraft for the R.A.F. However, as a result of changes in the numbers and cost of aircraft since the original agreement was reached, and because the Phantoms ordered for the Royal Navy which were originally to be paid for in cash have also been brought within the credit arrangements, the total capital and initial support costs of the Phantom and Hercules orders will now exceed $700 million.

The United States Government have agreed to grant a total credit of $750 million to cover the estimated total credit requirement up to 30th June, 1969 and to increase this figure if the requirement should show signs of being greater in the period. The credit requirements for the period after 30th June, 1969 are to be discussed again between the two Governments later this year.

Because interest rates have increased since the original agreement for a credit of $700 million at an interest rate of 4¾ per cent. was reached the United States Government have felt obliged to charge interest at 6 per cent. on the additional credit of $50 million.

We have also undertaken to repay the $49 million which we had already drawn on the credits for the F111 prior to the cancellation of our order. The further cancellation payments which will be payable are still under discussion with the United States Government together with the possibility that the United States Air Force will re-purchase some of our F111 components for their own use. If this possibility is realised the net cost of cancellation will be substantially reduced.

An agreement with the EX-Im bank covering our credit requirements for the year ending 30th June, 1969 has been signed. In form this is an extension of and increase in the previous year's credit agreement of $500 million which was not fully used because of the cancellation of the F111 and because progress payments on the other aircraft were lower than had been expected.