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British Airways And Foreign Suppliers

Volume 387: debated on Wednesday 30 November 1977

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5.52 p.m.

rose to ask Her Majesty's Government whether they will make a Statement on the apparent intentions of British Airways to place their major re-equipment order for new aircraft with foreign suppliers. The noble Earl said: My Lords, it is not my intention to keep the noble Lord, Lord Oram, and other noble Lords—in particular the noble and learned Lord the Lord Chancellor—very long from the festivitities of St. Andrew's night with the bagpipes, dancing and everything that goes With it, including haggis.

The purpose in putting down this Unstarred Question tonight is a serious one. It stems entirely from remarks which the deputy chairman of British Airways, Mr. Ross Stainton, made on this subject at an informal Press conference in New York last week. I am informed that, in effect, Mr. Stainton was saying—I must be fair to him; I have not seen a transcript of exactly what he said because one is not available—that British Airways had evaluated the aircraft available to meet their immediate requirements. There are three aircraft—the Boeing 737, the Douglas DC.9 and the BAC.111—to replace the now ageing Viscount and Trident fleet. The evaluations point at this stage to an American buy. When one says "buy" in the terms of British Airways, on this first stage of their re-equipment programme one is talking of £120 million worth of aircraft, or some 20 new aircraft being purchased. So it is a major order.

This glimpse into what one supposes is the Board's thinking raises issues far beyond this single order in the first stage of the re-equipment programme. It spills over into what could prove to be the most catastrophic body-blow for the British aircraft industry, and could spill over to the European industry as well, about which my noble friend Lord Bessborough is so keen. The potential damage could prove far worse than the many cancellations of both civil and military projects which our aircraft industry has suffered in the past. It is feared that the effect could be that our once very proud industry could fast dwindle into a capability and rôle of subcontractor.

It is for this reason that I believe it is better to ask this Question now than at a stage when British Airways have come to their decision and the final sanction of Government is being sought. In raising this Question and in expressing a view, one is mindful of the pitfalls of apparently taking up a position either in one camp or another, with the camp of British Airways fiercely defending their right to make an independent commercial judgment to purchase what, in their view, is the most attractive, competitive aircraft, and on a time-scale that they require. On the other hand, there is the position in the industry's camp where they expect a right for home support from the major national flag carrier.

The ideal solution is for a close and continuing co-operation between these two parties. It is this apparent lack of close co-operation, demonstrated by the informal Press conference in New York, which is one of the prime purposes for my wishing to press Her Majesty's Government to try to rectify it. I do not profess to know what spurred Mr. Stainton, who has served British Airways with admiral dedication and zeal for many years, to make those remarks. I do not know whether it is that the British Airways Board as a whole are now fed up with the apparent incessant delays and procrastinations in making decisions, and are genuinely worried about the time-scale and delivery of their new aircraft.

But both the timing and the venue of the remarks were somewhat unfortunate, to say the least. To choose the occasion of an inaugural flight of Concorde to land at New York—which in itself is a great achievement and was not exactly encouraged by our American friends—to give this Press conference and indicate that British Airways were planning to buy American when, so my spies inform me, British Airways only a fortnight before invited British Aerospace to tender for this very market, is not a classical way towards close co-operation. I hope that the noble Lord, Lord Oram, will be able to say whether my information is correct; that is, that British Aerospace are currently preparing a tender to be submitted in a couple of weeks to British Airways.

What would be the consequence to the aircraft industry if British Airways decided to do this and received the blessing of the Government to place this vast order with American companies? I believe the damage would not just stop with British aerospace and its airframe division. The damage would reverberate to Rolls-Royce and all the thousands of equipment companies, and to in excess of 300,000 people who depend for their livelihood on this industry. The damage would not just stop at the loss of this huge order. Other airlines regard British Airways as pace-setters and they would also buy American. One would be faced with the familiar airline argument of commonality. One would see generations of American aircraft in the future.

One would have the repercussion on the potential European industry, which is still in its puberty and which so desperately requires even a medium-term policy and a demonstration of the Government's faith in that industry. Out of all this gloom one must recall that the Government when facing industrial problems have shown over the past three years a vigorous policy to protect jobs wherever possible. One must recall their attitude and policy in subsidising the American Chrysler car company. One must recall their recent attitude and policy towards the Polish shipping industry. I am not criticising them for that, and I am hopeful that the noble Lord, Lord Oram, will have something encouraging for the British Aircraft industry to say when he replies to the Question. Perhaps he could take this opportunity to confirm that the Government are willing, if asked, to provide finance for launching aid and funds for research and development, to help to secure the new generation of aircraft.

However, the key question to which I should like the noble Lord to reply as regards this massive British Airways order is: can we as a nation afford to allow a British order for £120 million-worth of new aircraft to be placed abroad when we have the capability and the resources to provide them from our own industry?

I do not wish in any way to imply that British Airways should be forced to purchase unattractive, uncompetitive and uneconomic aircraft for their future fleets. Luckily, I do not think that buying British or, for that matter, buying European would have that effect. Certainly, in the past we have seen the VC.10s rated as the aircraft with the greatest passenger appeal of all time. We have also seen the Tridents, the Viscounts and of course the BAC. IIIs, which have served both British Airways and British Caledonian. I do not believe that any member of the British Airways Board would relish the decision to buy American, although I might add that British Airways' policy on purchasing equipment, and particularly training equipment—for instance, the flight simulator—has shown a singular lack of enthusiasm for the British equipment that was available. I think that is regrettable. But I believe that there is a national case for finding a formula for this re-equipment programme to sustain this—

My Lords, I apologise for interrupting the noble Earl, but, on a point of order, I wonder, as there are only two Back-Benchers on the other side of the House, whether they would refrain from conversation so that we can attend to this most interesting discussion.

My Lords, British Airways have, I believe, a duty to try to achieve this order through British industry. British Aerospace have a duty to make it feasible; and the Government have a responsibility to see that the duty is made possible. But, having said all that, it is not a bad duty, because most of us believe that British-designed and British-built aircraft happen to be the finest in the world.

6.3 p.m.

My Lords, I know that all your Lordships present tonight will be most grateful to the noble Earl, Lord Kinnoull, for putting down this Question. Likewise, I would think that practically everybody who is concerned with British Aerospace in whatever capacity would feel the same: but it is sad that such a Question should have had to be put down.

Very briefly, may I go into the back-ground to why this has arisen. British Airways appear to have been overwhelmed by a potential stifling by a shortage of equipment without becoming aware of it. I think that it is almost unheard of for any major airline to decide that it wants to add a new type of aircraft to its fleet at less than 24 months' notice. If British Airways' medium requirement is for 4 to 8 new aircraft by the 1979 summer season, I very much doubt whether even any of the American companies could supply those aircraft in time.

It is perfectly true that for quite a long time British Airways have been very short of short-haul aircraft. They have plenty of Tri-Stars but are very short of aircraft on the dense Continental routes. Perhaps one reason is that they, unlike certain major American airlines, have not reordered since 1967 types which they already use and which are in service. Perhaps that is because they regard the BAC. 111 or the Trident as passé, perhaps because they are too noisy or perhaps because British Airways have been waiting hopefully for a new-technology aircraft to appear.

Unfortunately, there is no sign of a new aircraft in the 100- to 120-seater bracket and that is what I believe British Airways would like. As the noble Earl said, that makes them fall back on the 111, the DC.9 or the Boeing 737, and of course those American aircraft are very fine products from the United States. There is one possible product which might do, but the time factor is wrong: that is the Fokker VFW Super F.28. However, I am given to understand that that will not be ready until 1983 at the earliest. So we are left with three choices among the existing more or less conventional aircraft. The BAC 111–500 was developed in the late 1960s specifically for British European Airways and all it is is a stretched version of the original 111. That was developed following a requirement by Freddie Laker, who was then running British United Airways. I believe it is no secret that, at that time, BEA said they would infinitely have preferred the Boeing 737.

One reason is that the 111's main problem is its engine. I agree that it is built by Rolls-Royce, but basically it is smaller and less powerful than the American JT 8B. The 111's capacity has been increased but at the expense of performance. Also, alas! the noise factor has not decreased. It is true that its operating costs per mile are lower than the American aircraft but that does not really offset its slightly smaller capacity. What is worse is that I believe that British Airways could not legally enlarge its fleet of 111's unless the new aircraft are fitted with silencers and water injection systems, because, after September 1978, British airlines will not be allowed to add aircraft to their fleets which do not meet British noise standards. Worse is to come, because the 111's payload is further restricted in hot weather and also from short and high-altitude runways.

However, after this somewhat gloomy picture, there are some rays of sunshine. If British Airways should buy American aircraft, it does not necessarily shut the door to a larger new British or Anglo-European aircraft. By the mid 1980s, I am led to believe that British Airways will need a new 160- to 200-seater aircraft. However, that is a somewhat vague requirement of theirs and, like the noble Earl, Lord Kinnoull, I should very much like to know whether the noble Lord, when he winds up, will confirm that British Airways have given a particular specification to British Aerospace about this.

I was going to say that the BAC XII would fall into this category but, unfortunately, I see from The Times today that it has come to a most untimely demise. I wonder whether the noble Lord can confirm today's report in The Times and also confirm that, if we have the new A.300 Airbus, the proportions quoted are right—namely, British 40 per cent. French 25 per cent. and West Germany and Holland 35 per cent. Also, will British Aerospace continue to negotiate to be a full member of the consortium for the A.300/B.10 Airbus? Basically, it seems that British Airways' requirements, if they are not already specified, are not very tangible. I think they really ought to look into the crystal ball and get right what it is they want.

To sum up, it seems almost unbelievable that the management of British Airways—one of the major airlines of the world—should allow themselves to be short of aircraft. They seem to have blinded themselves to the fact that too many of their short-medium range seats are tied up to too few large aircraft. They seem to have severely underestimated the task which they faced in re-equipping their fleet by 1980.

So they have got themselves into a terrible mess. But, as I say, something might be done which would, in the end, be beneficial in clearing up the mess. The mistakes could be put to some use by keeping the present 111–500 in production. This would cut production costs and give our sales team, who are presently in Japan, a great chance of selling some there. As the noble Earl said, the timing of Mr. Stainton's announcement in New York was very unfortunate, because he made it exactly 24 hours before a sales team from BAC went to Japan to try to sell the 111. Anyway, if the 111–500 could be kept in production, it would at least keep some work going in British Aerospace in the United Kingdom, instead of presenting it to Seattle and Long Beach.

I am also given to understand that Rolls-Royce are presently engaged in testing a new type of silencer, which is called an acoustic-lined ejector. That would make the present 111 much more sociable, and would also help improve the export sales drive for it. The development costs of this work would not be unreasonable, particularly if they were spread over an order of the size of British Airways. The old chestnut, or argument, that a captive home market leads to uncompetitive aircraft is a load of old rubbish, because we are talking about the continued production of an existing aircraft.

Before I finish, I should like to mention one of my favourite aeroplanes—the Concorde. Can the noble Lord say how much longer British Airways are going to take before there are enough crews to utilise fully their Concorde fleet? One wonders what would have happened if there had not been 19 months' delay in our arriving at Kennedy. And is Kennedy now going to delay the Australia route? I mention this only because there seems to have been a lack of forward thinking about this aircraft by British Airways, and there also seems to have been a lack of forward thinking about the training of their Concorde crews. So, to go along with the noble Earl, would the Government consider substantially subsidising British Aerospace to help it advance its new projects? Otherwise, if British Airways are allowed to buy American and other airlines follow them, as they are trend-setters for most of the other world airlines, our own newly nationalised aerospace industry will lose not only British orders but also wide export orders.

6.13 p.m.

My Lords, we are tonight, as so often, grateful to my noble friend Lord Kinnoull for raising this matter, and for having the luck—I suppose it is only luck at this stage in the Session—of being able to find a slot before the Christmas Recess for this Unstarred Question. It is indeed an appropriate moment to make these points, and I am happy that we have, as some Unstarred Questions go, come on to this debate at a fairly early hour. Some of us were here till nearly midnight last night on another matter.

Of course, as both noble Lords who have already spoken have said, this debate is prompted by Mr. Stainton's remarks in New York a week or so ago. British Airways' re-equipment problems differ significantly from division to division. There are four major divisions within British Airways—the overseas division, the European division, air tours and the helicopters. I shall not touch on the helicopters, but will run through the other three important divisions.

First, there is the overseas division and the problems which confront them are not as serious as those which confront the European division, but are worthy of mention. The present fleet consists of Tri-Stars, 707s, some elderly VC.10s, some 747s, including a small number of Rolls-Royce powered 747s, and of course the Concordes. As for new aircraft, the overseas division is planning for, and has indeed ordered, 500 series Tri-Stars which are a smaller aircraft with a longer range. We are told that they have been considering a variant of the DC.10, but I rather think that, for the moment at least, that option is closed. They will certainly be buying some more 747s fitted with the Rolls-Royce engine. Hopefully, they will be buying some more Concordes one day. But they are also faced with the problem of replacing the VC.10s and the 707s. This is not an immediate problem, certainly not so pressing as the problems facing the European division, but it is one which they ought to be, and no doubt are, considering now.

The options are fairly limited. For example, they could go along the route of a new variant of the 707 fitted with a quite new engine, the CFM 56, which is a joint venture between General Electric and a French manufacturer. Alternatively, they could choose the B.11 variant of the A.300. "Variant" is perhaps hardly the right word, because it is planned to equip that aeroplane with four engines instead of two, which by any standards is a major modification. None the less, that is a real possibility and one which they are no doubt exploring in depth. I Would not want to express a view on the technical merits of the two aeroplanes; they are both only paper projects at present. But I hope that the variant of the European aeroplane, the B.11, will prove to be the more acceptable for their requirements, because of course it has a much larger content of Anglo-European workmanship.

May I now come to the European division, which is really the core of the problem raised by my noble friend tonight. As he said, the urgent requirement is to replace the Trident Is and IIs. Both of these marks are approaching the end of their working life, and are becoming very noisy by modern-day standards. Certainly the Trident Is must be considered ripe for retirement by next year or early 1979. Indeed, we are told that British Airways will require the replacement for the summer season of 1979. As has been said, the choice in front of British Airways to replace those two types is the III, the Boeing 737 or the Douglas DC.9, but none of those three types would do as a replacement for the Trident III, and thus they can be regarded only as an interim solution.

Of course, the Trident Ills will have to be replaced in due course and, in parenthesis, may I ask the noble Lord, Lord Oram, whether he can give us some guidance as to the planned retirement date for the Trident Ills, particularly in the light of the much publicised difficulties with those aeroplanes which occurred a few months ago? Is it the case that the retirement date has been brought forward and, if so, will that affect the decisions concerning British Airways which we are discussing tonight? In the long term, whenever they may come up for retirement, all the Tridents must be replaced with a somewhat larger aeroplane than the three types which we have mentioned this evening, and that would be either the BAC.XII—the British Aerospace production, which I understand would be manufactured in conjunction with French partners—or the A.200, which would be a totally new technology of aeroplane, as distinct from the 2.XII which would have a strong flavour of the 111 about it.

The immediate problem which faces British Airways is to replace the Trident Is and IIs. I certainly believe that the BAC.111 alternative—the 500 series aeroplane—is the best solution. None of the three types under consideration is ideal. However, when one remembers the drain on the balance of payments which would follow from a decision to buy the American aeroplanes, I believe that these wider considerations, which may not be immediately apparent to the directors of British Airways whose responsibilities lie elsewhere, ought to weigh with the Government at least, and that they ought to use their influence to see that the 111 is the aeroplane which British Airways purchase.

We come now to perhaps the most thorny problem, and perhaps a political minefield for the unwary—namely, Air Tours. Air Tours is the charter company that was operated originally by BEA; it is now part of the British Airways group. If my memory serves me aright, the company was originally set up in 1968 for the single purpose of finding a home for the Comet fleet of British European Airways, aeroplanes which were then coming to the end of their life with BEA but which still had some flying left in them. Therefore a separate charter company was set up, based at Gatwick, and it has been operating from there ever since. The Comets lasted for three or four years with Air Tours and were then replaced by the early Boeing 707 models which were then becoming surplus to the requirements of BOAC. Now those 707s are also coming towards the end of their life and British Airways have to decide what to replace the 707s with.

As I have explained, Air Tours have always operated, so far at least, cast-offs from British Airways main line divisions, but no suitable cast-off is now available. For various technical reasons, the Trident Is and IIs, which will become surplus shortly, are not suitable for the Air Tours operation, so British Airways have been endeavouring for some time to acquire a fleet of second-hand Boeing 737 aeroplanes for this purpose. I do not believe that to be a proper operation for Air Tours to undertake. They were set up originally for the distinct purpose of operating cast-off aeroplanes—that is, a home for aeroplanes which might not otherwise have been saleable was found for them in that company—and it was very proper for them to do that. However, during their time in the charter business Air Tours have been able to establish a highly competitive position because of certain favourable arrangements which they enjoy as part of British Airways, not the least of which is access to cheap aeroplanes. But another favourable arrangement—one which is most important nowadays—is access to comparatively cheap fuel, since British Airways, as a huge consumer of aircraft fuel, enjoy the most favourable price. Thus, British Airways Air Tours have been able to compete very favourably, and some may say unfairly, in the passenger charter business.

For most of the period of the existence of Air Tours, the market has been under-subscribed. That is, there has been more business than aeroplanes. However, that situation has not always pertained. When there has been a shortage of business Air Tours have, by and large, taken at least as much of their share as anybody, and perhaps more than their share. I believe that the protection which British Airways generally enjoy in the scheduled service market is such that the same kind of protection ought to be enjoyed by the major independents in some areas of charter business. For that reason, I believe that British Airways Air Tours should not be allowed to purchase 737 aircraft, be they new or secondhand, and that now that there is no suitable aircraft available for their use the operation should be progressively wound down and the staff reabsorbed into British Airways main line divisions.

In conclusion, I believe noble Lords are entitled to ask whether British Airways ought to have a totally free rein in choosing their aeroplanes or whether any political or national constraints should be placed upon them. I believe that British Airways ought to buy British aeroplanes, particularly when they can be shown to suffer no significant penalty. Indeed, I recall that when British Airways ordered the Trident III some years ago they complained that the aeroplane was less competitive than the Boeing 727, which they were then considering as an alternative, and that they were able to persuade the Government of the day, which I believe was a Labour Government, that they were entitled to a subsidy because they were being required to buy the Trident. Whether or not that subsidy was justified I cannot say, because I am not sufficiently in tune with the figures to be able to judge, but they received a subsidy of £25 million or £26 million and they bought the Trident III.

I do not believe that British Airways should again be paid a subsidy. I believe that British Aerospace, in conjunction with Europe, ought to be able to stand on its own two feet. But I also believe that British Airways ought to be sufficiently patriotic, if that is the right word, to buy the European aeroplane, certainly in the long term. As I have explained, they have a choice, so far as the European division goes, of American or European aeroplanes in the short term, but in the long term the choice is either the X.II or the A.200. Both of those aeroplanes are, of course, European.

I hope very much that British Airways will choose the BAC 111 for its immediate requirements in the European division. From what I have heard and from what the noble Earl, Lord Kimberley, has said tonight, I believe that that aeroplane can be supplied to comply with the very properly strict noise regulations which are now in force and that, furthermore, the aeroplane will be compatible with the fleet of 111s which British Airways already operate.

I always hesitate before suggesting any kind of interference in the management of nationalised industries, but noble Lords will recall that under Section 40 of the Civil Aviation Act, which set up British Airways, power was retained to the Minister, in certain situations where the national interest was said to be involved, to make directions to British Airways to adopt a certain course of action. Whether it will be necessary to go to those lengths in this case remains to be seen, but if occasion demands I believe that the Minister should stand ready to use that power. I say this with hesitation, because I am wary about interfering in the day-to-day management matters, or even in the major management matters of nationalised corporations, but, unhappily, British Airways have not always got it right in the past when purchasing aeroplanes. For example, the Trident I, although a splendid aeroplane in many ways, was too small and was made too small at the insistence of British European Airways. If they had followed what was the manufacturers' wish at that time, the Trident I would have been a larger and perhaps more successful aeroplane. For that reason, I believe that British Airways ought to listen very carefully to what British Aerospace, the largest single unit of British manufacturing expertise, have to say, and I hope that they will buy their products.

6.30 p.m.

My Lords, I agree with the previous speakers that we should be grateful to the noble Earl, Lord Kinnoull, for putting down this Unstarred Question at this time, and we should be grateful to him, too, for the speech he made in support of it. I am sure that noble Lords will agree that the speeches we have heard so far show how extraordinarily well-informed are the noble Earls, Lord Kinnoull and Lord Kimberley, and the noble Lord, Lord Trefgarne. I agree with all they have said. Consequently I shall be extremely brief for I have not very much to add.

With the noble Lord, Lord Trefgarne, I believe that the first thought of British Airways should be to buy British, unless there is nothing British suitable. From what we have already heard this evening it is clear that there is something British suitable—the latest BAC.111, Series 500, and still further editions of that aircraft, which could replace the aging fleet of Viscounts, BAC. 111s and Tridents I and II, so I heartily agree with the noble Earl, Lord Kimberley, that the BAC. 111, Series 500, should be kept in production.

My own information, which comes from a most reliable source, confirms what we heard from the noble Earl, Lord Kinnoull, that British Airways and the British Aerospace Corporation were indeed in negotiation and I think, from the Corporation's point of view, are still in negotiation for a solution on the lines I have mentioned. So Mr. Ross Stainton's reported remarks in New York are particularly surprising.

The noble Earl, Lord Kinnoull, referred to an evaluation of the three aircraft we have been speaking of. I do not know how far that evaluation has gone. Indeed, I am surprised that it has finished. My own evaluation, which is certainly not detailed, suggests that there is little to choose between these three aircraft—the BAC.111, the 737 and the Douglas DC. 9. Short of some very compelling reason, of which I am not aware, British Airways should choose the BAC. 111, Series 500. The noble Earl, Lord Kimberley, said that this aircraft is noisy. The fact that the BAC. 111 is noisy has been a thorn in its flesh for quite a long time. Many years ago when I was chairman of the Air Registration Board we were conscious of this fact, but all those years ago there was designed by Rolls-Royce what they called a "hush-kit" which would have reduced the decibel level very appreciably indeed; I have no doubt that what can be done today would be better than what would have been done then.

On price the BAC.111 obviously scores. The airline would pay in pounds and not in expensive dollars; a significant proportion of that would come back to the Inland Revenue, and it certainly would not come back to the Inland Revenue in the case of the 737 and the DC.9. Moreover, my understanding of the situation is that those aircraft would incur a 5 per cent. import duty. So on sheer financial grounds there seems a very strong case for the BAC. 111. Furthermore—and this is not insignificant—British Airways is used to BAC.111 spares, simulators and training. That means that the later versions of the 111 aircraft would require only modification to those three things and not wholesale change which would follow the adoption of a foreign aircraft.

Finally, if British Airways go abroad for their new aircraft, as indeed the noble Earl, Lord Kinnoull, pointed out, this would be a body-blow. It would mean another nail in a coffin which has already had too many nails stuck in it. To deny the British aircraft industry the opportunity of this vital order would be disastrous for the Aerospace Corporation and the aircraft industry as a whole. This unfortunate affair suggests an unexpected lack of co-operation between the nationalised airline and the nationalised construction industry. I suggest that the Government should insist that their two organisations should work together for the national, and indeed the European, good.

6.36 p.m.

My Lords, I am sure we are all indebted to the noble Earl, Lord Kinnoull, for raising this very important subject. It seems to me that it can give no pleasure to the British Airways Board to have to contemplate placing an order in America. Obviously they are as patriotic and as wishful to help British industry as any other body of citizens. It seems to me that this raises a simple question, but one of major Government policy. Do you wish British Airways to be allowed to order and use aircraft which the Board consider are the most efficient in performance, in price and in delivery? Or do you wish to handicap them in their maximum operational efficiency by compelling them to buy what they do not consider is absolutely the best for their purpose? That is an issue of major Government policy.

We have heard tonight from many noble Lords very powerful arguments in favour of British products. I am not going into the technicalities of the various possible replacements for obsolete and semi-obsolete equipment, but I am fearful of the suggestion of the noble Lord, Lord Trefgarne; that is, that the Minister should consider issuing a direction to British Airways to order a particular type of aircraft on wide national grounds. If you do this you open the door again to what British Airways had to tackle with the Trident III; that is, making our nationalised operational airline a subsidised servant of the Government and remembering also that that airline has to compete with the airlines of other countries and therefore that you are imposing upon it a handicap.

The noble Earl, Lord Kinnoull, asked: "Can we afford to allow an £120 million order to go overseas?" Equally, I would put the question: Can we afford to impose upon our nationalised major airline a handicap in their competitive ability against other airlines unless they are continually subsidised to make up that deficiency? That seems to me the major question and, in my view, British Airways—and I shall regret it if they have to do it—should be free to buy equipment most suitable for their purposes. Whitehall support, advice, and assistance, short of subsidy, I am sure are needed by British Airways and welcomed by British Airways. But I do not believe that it is sound national policy from the operational point of view to come down on the side of forcing the company to order what they do not want, for general industrial reasons, even for political reasons.

I would conclude with this. I have been involved in this in the past. Many years ago, when I was a member of the British European Airways Board, we as a Board wished to order a product from de Havillands, the Trident I. I would differ very much from the noble Earl, Lord Kinnoull, in his criticism of the Trident I. In its day it was a splendid aircraft which did much for British prestige in Europe, in China, and in other countries.

My Lords, I think the noble Lord is referring to what I was saying about Trident I. Yes, indeed, it was a magnificent aeroplane. It was a bit noisy by modern-day standards, but even by the standards of its own day it was too small.

My Lords, I am not going to argue on that. But it was a better aircraft than the one which Her Majesty's Government at that time endeavoured to force upon British European Airways. The Board wished to order the Trident. Heavy political pressure was brought upon us to order a product from a large and very fine aircraft factory in the Midlands, for industrial reasons. No doubt politics was a background to that, but there is no harm in that. As a Board we stuck to our guns and said that if the Minister gave that direction, as the noble Lord suggests the Minister should give it in this case, the day we opened the post and found that direction we as a Board, including executive members—I was not an executive member—would resign and say why. That is the danger of allowing Ministers to exceed what I believe is their power in a great national issue. It is a balance of considerations. Noble Lords here have all been on one side. I am rather on the other side, because I am for the operator having the maximum chance. So I shall be interested to hear on which side of this balance the noble Lord, Lord Oram, comes down.

My Lords, can I ask the noble Lord, before he sits down, whether he is saying that at no stage should there be an attempt to bring two nationalised corporations into such agreement with one another? Is it not, therefore, essential that at some stage Ministers do intervene?

My Lords, I certainly agree that the construction industry and the operational industry should work closely together. It is no good trying to dig up the past, who was to blame and to what extent either party was to blame for the lack of cooperation, or the lack of foresight, if you like. We are today facing a situation where we must not have an inquest on the past but resolution and decisions for the future.

6.45 p.m.

My Lords, we are grateful to the noble Earl, Lord Kinnoull, for raising this question tonight. I think he has rendered considerable service to the aircraft industry by constantly initiating these debates and raising these very important questions which affect the future of the whole of the industry. I am afraid I do not agree with the noble Lord, Lord Balfour of Inchrye, in his exchange with my noble friend. I think that what is really behind all this is the question whether or not we are to have an aircraft industry in this country. I do not know much about the motor industry, or shipbuilding or steel, but the aircraft industry is a vital technological industry which feeds a great field of engineering in this country; that is what we proved in 1935 when the rearmament programme was begun.

I think we know the power of the American lobby, certainly with regard to recent happenings in relation to Concorde. Of course, we get our aerospace orders and we get our co-operation with Europe; we get sub-contracting in the supply of hovercraft and equipment and engines and so on. But we have proved in the past that we are makers of aircraft, and if we had not been so in 1939 we should have been in a sorry state. We need employment in this country. I suggest that we should send Mr. Harold Lever to talk to the aerospace industry lobby in Washington: it is their power which is the whole problem. It is no good sending the Foreign Secretary because he does not understand the problem. America understands straight talk. If we tell them that we are determined to have a viable aircraft industry in this country, and if we stick to our guns, I think they will understand. Without an efficiently designed technological aircraft industry we have no real defence in this country, and this was, of course, proved in 1937, 1938 and 1939. Therefore, I hope very much that the Minister will tell us tonight, in reply to the case so adequately made by noble Lords, that the Government are to give a new deal to the aircraft industry in this country. We have nationalised it. We are constantly losing our best brains overseas. I think that the time has come, if only in terms of employment, for the Government to give a new deal to the aircraft industry.

6.48 p.m.

My Lords, all speakers in this debate have begun by complimenting the noble Earl, Lord Kinnoull, on having raised this Question tonight, and I am sure that in no case was it a formality; it was, and certainly it is in my case, a genuine compliment to him for having raised the matter. This subject is, of course, one of very great importance; it has generated a great deal of attention in the Press and on the radio; the noble Earl is to be congratulated on being quick off the mark and timely in bringing it to your Lordships' House. I rather gathered from his earlier comments that he thought his timing was rather better than the timing of the Press conference in New York. He may be right in that. In any case, it has certainly led to a balanced, responsible and well-informed debate, and I am sure that he takes satisfaction from that.

The balance was particularly helped, in my view, by the contribution from the noble Lord, Lord Balfour of Inchrye. He looked forward to seeing upon which side of the argument I would come down, but I am sure he would not expect me to admit to coming down on either side. However, I genuinely point out that I felt that many of the points which he raised about the need for an airline company to be able to exercise its commercial judgment in these matters were extremely wise.

A number of speakers have been able to inform the House on the basis of a great deal of technical knowledge about varieties of aircraft. In that respect I would not attempt to rival or comment upon what they have said. I do not think that it is my role, certainly this evening, to enter into that area, but the debate was improved by the knowledge which quite a number of noble Lords obviously have in this area.

Before turning to the main controversy, I should like to deal with two specific points which were directed to me. The first was raised by the noble Earl, Lord Kimberley, and the second by the noble Lord, Lord Trefgarne. The noble Earl, Lord Kimberley, referred to The Times article this morning. I think he asked me whether I would confirm it or otherwise. Once again, that is a question that the questioner would not expect anyone at this Despatch Box to say Yea or Nay to, knowing journalism as we do. However, I point out that the article was purely speculative. According to my information, the Government have not yet received a report on the meetings of the study groups of British and European manufacturers and therefore it is not possible for me to comment. However, we may have other opportunities for pursuing the matters that he has raised.

The specific matter that the noble Lord, Lord Trefgarne, raised with me—I am grateful to him for having given me notice—concerned the retirement date of the Tridents and whether the recent difficulties with the cracks in the wings had altered the schedule in that respect. It is not yet clear whether those difficulties with the Trident aircraft will have an effect on their operating economics and hence on their retirement date. I am informed by British Airways that this was not a significant factor in their fleet studies for the progressive replacement of the Trident fleet, the older members of which are not, of course, affected by the wing cracks. There were considerations other than the one to which the noble Lord has referred.

It might be useful if I remind the House of the procedure which exists for the sanction of purchases of aircraft by British Airways. Under the requirements of the British Airways Board Act, approval of the Government needs to be sought by the airline for the acquisition of any aircraft. It has been widely known that some time in the next few years British Airways would need to begin to replace some of the older aircraft in its European and domestic fleets. The precise timing of the replacement programme has been dictated by the operating economics of the existing fleet and of possible replacement aircraft, but the airline now feels that it must shortly take a decision on a short to medium range aircraft of 100 to 130 seats with which to begin the replacement programme.

British Airways have not yet completed their evaluation of the various types of aircraft on offer. I think that the noble Lord, Lord Kings Norton, said that he would be suprised to hear that they had done so. I can confirm that they have not yet finished this evaluation, but their examination includes the British BAC.111, the Boeing 737 and the McDonnell Douglas DC.9.

The initial evaluation process is one for British Airways to make on the basis of their requirements in terms of aircraft size, range and other operating factors governed by the markets which they serve. As has been pointed out by several noble Lords, this Question arose from remarks attributed to Mr. Stainton, the Deputy Chairman of British Airways, at a Press briefing in New York last week. Some of the reports that have followed that Press conference may have given the impression that decisions have already been taken. However, I assure your Lordships that that is far from the case. Indeed, I should like to quote, first, from a statement which British Airways issued only today and, secondly, from Mr. Stainton's interview. The British Airways statement said:
"No new aircraft of this type is on offer or seems likely to be within the time available. The choice must therefore be between three existing types or comparatively minor developments of them. They are the BAC.111, the Boeing 737 and the McDonnell Douglas DC 9. British Airways has notified these manufacturers of its requirement".
I think that that meets the point raised by the noble Earl, Lord Kinnoull. British Aerospace has been notified, as one of the manufacturers, of British Airways requirements and British Airways is awaiting their response. It then says:
"No immediate decision is likely".
I suggest that that is in line with one of the answers which Mr. Stainton gave. He said:
"It looks to me as though there are probably not more than two or three candidates for this and they are British and American in origin, and I think during the next three months or so we shall be making up our minds which it is".
I think that those two quotations substantiate the point I have made that decisions have not already been taken despite the implications to the contrary in some recent statements.

I have been making inquiries and I can quite definitely say that the British Airways Board has not yet decided on a replacement aircraft. Again, it was the noble Earl, Lord Kinnoull, who said that some of his informants—I think that he called them spies—had indicated that British Aerospace was in a position to put something before British Airways. It so happens that in quite an unofficial capacity today I met my noble friend Lord Beswick and discussed the matter with him. Although, naturally, he is not anxious to become involved in public controversy on this matter at this stage, he authorised me to say that British Aerospace is in a position to make a very attractive proposal and that that would be made within the time-scale that British Airways has laid down. So I hope that that reassures the noble Earl on one of his points.

He then raised two other matters, some of which have been repeated or backed up by other speakers. He asked, as he put it: Can the United Kingdom afford a British Airways order to be placed abroad? It is clearly desirable that the requirements of our national airline should be met as far as possible by the British aerospace industry or possibly by collaborative ventures involving the British aerospace industry, but only British Airways can make a commercial judgment as to whether there is a suitable British aircraft available to meet their requirements. Both British Airways and British Aerospace are expected to make an adequate return on the capital which they employ and they must, therefore, formulate their proposals on a commercial basis.

The noble Earl also asked me—and this has been echoed elsewhere—to state the Government's position in respect of possible aid to British Aerospace. Since nationalisation of the industry British Aerospace's finances are provided by loans from the National Loans Fund, public dividend capital and its own internal resources. British Aerospace is not eligible for assistance for civil aircraft projects under the Civil Aviation Act 1949, under which launching aid has previously been provided. The Aircraft and Shipbuilding Industries Act enables up to £30 million, which can be extended to £50 million by Order, to be granted for projects which it would not otherwise be in the Corporation's commercial interest to undertake, but both the Corporation and the Government intend that any new developments should show an adequate financial return.

I hope that that at least sets out the legal situation. I do not think that the noble Earl would be disposed to press me for any further indication of possible future developments. I hope I have made it clear from what I have said and from the quotations I have given that the decision on this matter has yet to be made. But once the airline has made up its mind, as I said earlier, it will then need to seek Government approval for its intentions. The Government will, of course, need to take into account all the wider implications of national interest, and particularly the interests of the British aerospace industry, before they come to a decision. They certainly will take that sort of factor very much into account. As I have said, no proposals have yet been put to the Government and noble Lords will not therefore be surprised if I say again, as I have implied before, that it would be quite premature for me to speculate on the outcome. Each case must be considered very carefully on its merits, and each case will be considered very carefully on its merits.

In conclusion, I would assure the noble Earl, Lord Kinnoull, and others who have spoken, that in reaching decisions in the procedure that I have mentioned, certainly this evening's Question and the debate which ensued have been a valuable contribution. All these expressions of view will be carefully taken into account, not only by Her Majesty's Government, for whom I speak, but also one would expect by British Airways, who can read Hansard. Again, I thank the noble Earl, Lord Kinnoull, and the other noble Lords who have contributed to the debate.