§ Dr. McDonaldasked the Secretary of State for Trade if he will make a statement on the issue of public dividend capital to British Airways as it affects Concorde.
Mr. John SmthIt is three years since the introduction of Concorde services. In spite of difficulties in developing particular routes, the Government feel that sufficient experience of operating Concorde has been obtained to justify a review of British Airways financial position. This review has been carried out by a group on which the Departments concerned and the airline were represented. I have today placed a copy of the group's report in the Library of the House.
Concorde is now earning for British Airways a positive cash flow and it is hoped that over the remaining lifetime of the aircraft, the surpluses, after meeting operating costs, will be substantial. How-ever, the report indicates that, whatever may be the situation in the longer term, these surpluses will be insufficient for the foreseeable future to cover amortisation of the aircraft and its spares in accordance with the airline's normal accounting criteria. They will likewise be insufficient to pay an appropriate dividend on public dividend capital.
The Government have accepted the recommendation of the review group that the Concorde aircraft and spares should be entered in British Airways' accounts as a fully depreciated asset and that a corresponding amount of public dividend capital, amounting to £160 million, should be cancelled. Any surpluses earned on Concorde operations will be divided between the Government, who will take 80 per cent., and British Airways, who will retain 20 per cent. by way of incentive to operate the aircraft economically. The arrangements do not therefore involve any operating subsidy being paid to the airline.
British Airways will continue to use their commercial judgment to seek to achieve a financial surplus on Concorde operations consistent with the maintenance of a reasonable level of utilisation and the exploitation of a balanced route pattern.
259WThese arrangements will take effect at the end of the airline's current financial year on 31 March 1979. British Airways will now pay an interim dividend to make up for reduced dividends paid in earlier years to 31 March 1978. For 1978–79, and subsequently, British Airways will pay dividends on the remainder of their holding of public dividend capital in accordance with paragraph 86 of the White Paper on nationalised industries (Cmnd. 7131).
The write-off of public dividend capital will require legislation and a Bill to this effect will be introduced in due course. Until this can be done, transitional accounting arrangements will be made by British Airways.
This decision will assist the British Airways Board to maintain a sound financial position. At the same time it will secure the best long-term exploitation of the nation's investment in Concorde.