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Ba/Bcal Merger

Volume 489: debated on Thursday 5 November 1987

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9.40 p.m.

rose to ask Her Majesty's Government whether, when considering the recommendation of the Monopolies and Mergers Commission on the proposed merger of British Airways and British Caledonian, they will take into account the fact that a merger would give the new company a 92 per cent. dominant interest in British scheduled air transport within Europe and the effect that this will have on the interests of passengers in terms of fares and quality of service.

The noble Lord said: My Lords, I make little excuse for rising at this late hour to ask the Question standing in my name on the Order Paper. We are led to believe that within a few days the Secretary of State for Trade and Industry will give his decision on the proposed merger between British Airways and British Caledonian Airways. If that decision is positive and the merger is allowed to proceed, as I have indicated in the text of my Unstarred Question it will leave the new company with as much as 92 per cent. (and some say 95 per cent.) of the British scheduled airline sector in the European market.

The question I should like to put to my noble friend is whether he will take that matter into account in considering the interests of passengers and the comfort and standard of service to be made available to those who fly. I am not expecting my noble friend to give me any decision or any hint of a decision as to what the Secretary of State will decide in a few days' time. However, I should be grateful if he could tell us whether it is true, as we have read in the press and heard on the media, that the Monopolies and Mergers Commission has submitted its report to the Secretary of State. It would be interesting to know when that submission took place, if it has, and how long the Secretary of State is expected to take to consider the matter. If my noble friend is able to give us an indication on that matter it will be a great help to those of us who are following the question with considerable care.

Some of the issues that I propose to raise this evening would have made more sense if they could have been put in the presence of my noble friend Lord King, the chairman of the public limited company that is most closely involved. Until a short time ago, he was within the precincts of the Palace. However, it seems that he has not been able to find time to attend your Lordships' House to speak on the matter. Perhaps we can gather his opinions from the media, television or various other sources.

The problem that seems to concern many of us is why British Airways should have seen fit to offer such a large amount of money—£237 million—for a company whose assets are less than half that sum. It would be a matter of no objection whatsoever if British Airways were to make an offer for the purchase of aircraft, buildings, offices, stands, reservation counters and other paraphernalia at Gatwick Airport. However, it seems that a much higher price is placed on the acquisition of British Caledonian. That leaves one to wonder what British Airways actually hopes to acquire.

It seems to me to be likely that British Airways hopes to acquire certain privileges presently enjoyed by British Caledonian Airways. I have in mind the landing slots, routes and various other facilities available for B.Cal at Gatwick Airport. Your Lordships will recall that British Airways already has a virtual monopoly on facilities at Heathrow Airport, with only a small input in terms of international scheduled travel from British Midland Airways. The proposed merger, if it goes through, will give the new company a pretty dominant position at Gatwick as well.

One therefore must pose the question, in all honesty, whether one major airport is enough. Is it really the case that the company needs the two main London airports? What will happen to the other airlines who run scheduled services to Europe? Will the 5 per cent. or 7 per cent. who remain be squeezed out to airports less attractive to passengers, such as Stansted and airports even further afield from central London?

I have no doubt as to the intentions of the Government in this matter. They have been proclaimed so clearly and carefully in recent years. In a recent White Paper called Airline Competition Policy it was stated that:

"The objectives of UK airline policy are to encourage a sound and competitive multi-airline industry with a variety of airlines of different characteristics".

The predecessor of the present Secretary of State for Transport, Mr. John Moore, said in October 1986:

"We want to break up the cartels, abolish the monopolies, lift the restrictions and let the people fly".

It has been my contention for some 10 years that it would be possible if there were indeed a break-up of the cartels and an abolition of the monopolies to let the people fly. It would give people freedom of the skies and air fares would fall by as much as 25 to 40 per cent. Losses or problems would not be created for airlines in the long term and there would be a certain tightening up and pulling in of slack. Ultimately it would lead to the opening up of an entirely new market in the scheduled airlines sector with people flying on a scheduled basis who had never done so before. In other words the market would increase even though prices might fall. This is the background to the proposal which I believe is now on the desk of the Secretary of State, that a merger should be permitted which would give the two British scheduled airlines most closely involved 92 to 93 per cent. of the market.

The only way that the competition which the Government sincerely support will be brought about is by creating entirely new airlines to compete with the old-fashioned carriers, which up to now have charged very high fares. This means a number of Davids coming to fight against Goliath. It is certainly to the credit of the Government that British Midland Airways has been given every facility to expand its domestic operations in the United Kingdom and on the Heathrow to Amsterdam route. The Government have a lot to be proud of in bringing this about.

If new airlines such as Air Europe, which has been given certain routes to exploit, is confronted with a monopoly of more than 90 per cent. it is like sending David to fight Goliath without a sling and without a stone. It is not fair and I hope that my noble friend Lord Young will take this into account.

I wish to mention certain facts which arouse my apprehension. Last Saturday British Airways lifted its unrestricted one-way fare from Heathrow to Brussels to £101. At the beginning of this year the fare was £93. There has therefore been an increase of around 9 per cent., which is twice the level of inflation. That means that those people who fly on an unrestricted basis from London to Brussels have to pay £202 for a return air ticket plus a further £5 for the airport tax at Brussels.

I suggest to your Lordships that a fare of over £200 for a return trip from London to Brussels is way out of proportion to the service provided. It is out of all proportion when one bears in mind the possibility of flying from London to Tenerife and back for less than £200. There are also the very reasonable fares which are available on the transatlantic routes, including those available on an unrestricted basis.

I see little justification for the increase in fares announced by British Airways last Saturday. I wish that my noble friend Lord King were here to give the reasons especially since on the same day Sabena increased its fare by exactly the same amount and to exactly the same point—£101. I wonder whether this is coincidence, whether it just happened, whether there was consultation or whether it is true, as British Airways have announced recently, that they have abolished or are abolishing their bilateral agreements with foreign airways in order to comply with the obligations imposed by our membership of the European Community and the requests—indeed, demands—sent to British Airways and other European airlines by the competition commissioner.

One cannot have it both ways. Either the airlines in question have done away with their bilateral agreements which, in the Commission's view, could be shown to have contravened the treaty, or there is still some sort of procedure that allows air fares to be lifted by exactly the same amount on exactly the same day from exactly the same number of pounds to exactly the same number of pounds. The same, of course, applies not only to the London-Brussels route but to the London-Frankfurt and the London-Rome routes.

My noble friend can make no comment on this because we are dealing with a public company but it could well be that the European Commission in Brussels will have to look at this situation very carefully. I do not know if it will conclude that what took place was consistent with European law, particularly if one bears in mind the fact that on certain other routes where there is competition in Europe—namely, Heathrow-Amsterdam and Heathrow-Dublin and Gatwick-Gibraltar—there has not been a hike in prices. Prices have stayed as they were a week ago. It certainly is a question that I wish British Airways could answer. Why is it possible to hold prices down on routes like Dublin-Gibraltar or Amsterdam, where there is competition, whereas where there is no competition prices increase by twice the rate of inflation?

All this augurs badly for the future if the merger is allowed to proceed. It augurs badly for the track record of British Airways, who, while they try to proclaim their belief in free enterprise and liberalisation, and even deregulation, in reality find that they are pitching their prices at what they believe the market will bear. That makes it all the more important for other airlines such as Air Europe, British Midland and London European to have every possible encouragement by the Government to compete with these giants and provide a better service at a cheaper price.

That will not happen if this merger goes through. How can it, given the capacity, the ability and potential for predatory pricing that will be at the disposal of an airline that possesses more than 90 per cent. of the European scheduled market in British hands?

I ask my noble friend whether he will undertake to communicate my remarks to the Secretary of State for Trade and Industry and whether he will be able to give us some information about the timetable of the decision-making process on this very important matter.

I have to say I think it is a pity that this has been, so far as I know, the only substantive debate on this important decision within the British Parliament since the proposed merger was announced in July. We then had the long Recess and there has been very little opportunity for this crucial matter, affecting a central plank of the Government's policy, to be debated either in your Lordships' House or in another place.

In particular it is a shame that those persons most closely involved have not been able to take part in this debate this evening. Nevertheless I have made my points. I feel sure that the Secretary of State will study what is said and what other noble Lords will contribute to this debate. I am very glad it has been found possible to interject at least some parliamentary input into the process of deciding on this matter. I look forward with keen interest to what my noble friend will have to say to us in a few minutes' time.

9.56 p.m.

My Lords, I am conscious of the lateness of the hour, but I want to begin by congratulating the noble Lord, Lord Bethell, on seizing the opportunity. I know how these things are handled by the business managers. They have provided us, even as late in the day as this, with the opportunity, although perhaps the significance of what we say may not be capable of being taken into account. But I live in hope.

The Secretary of State has an onerous responsibility. We are aware that he will want to act quickly now that he has the report. I would very much hope that, in the manner in which he constantly seeks to ensure that he has the matter right, he will listen to the words spoken tonight. The debate has provided an opportunity not only for the contribution of the noble Lord, Lord Bethel, whose experience and tenacity in these matters is well understood. It has also provided my noble friend Lord Underhill with the opportunity to say a few words, as it were, officially from this side of the House.

I speak, if I have any claim at all, without a direct vested interest but with a strong connection, as the House knows, with the Co-operative movement. That movement has always professed to represent the interests of consumers. I was impressed by the words chosen by the noble Lord, Lord Bethell: they were the ones that rang bells with me and my responsibility to look very carefully at what is said in this House.

We are talking here about the possibility of a dominance which certainly amounts to a monopoly. We are talking of the interests of passengers in terms of fares and the quality of service. The noble Lord, Lord Bethell, said that what we want from anything that happens in the future is better service at a cheaper price. That is a laudable ambition. I very much hope that the decision announced by the Secretary of State, when it comes, will be seen by all as leading to that.

I am bound to say that the Co-operative movement, which has 8 million consumer members and trade amounting to £5 billion, increasingly takes an interest in the travel business, not least from the lower end of the market. Everyone is affected by air fares and service. I respect the interests of the businessman and of the Government, but I am also very much concerned about the effect of prices both on scheduled services and the charter business. It is a totality of business. I am very interested in the prices at which package holidays can be offered to the kind of people in whom the Co-operative movement has a great interest.

I look at some of the arguments for the merger which may well be approved with or without caveat. The first argument is the need to compete with other airlines of size. The mega-carrier argument is quite plainly a myth. If one wants bigness for its own sake, then of course the merger provides a bigger business. But it will not necessarily provide a more efficient business. Bigness of itself does not guarantee efficiency. It does not guarantee good service.

The noble Lord, Lord Bethell, was fair enough to mention a number of other independent airlines which are much smaller than BA or the possible merged company. He referred to British Midland, Air Europe and Dan-Air which are all giving first class service to the consumer. I hope that the "mega" argument will not be taken into account whatever decision the Minister comes to. He is of course entitled to come to his own conclusion. I hope that the "mega" argument will not form part of it.

I am conscious of the proscription on the Minister's ability to talk tonight. But if he can I want him to say something which will reconcile the contents of the Government White Paper Airline Competition Policy with a merged company. He will be speaking on behalf of a Government whose White Paper says:
"The object of UK airline policy is to encourage a sound and competitive multi-airline industry with a variety of airlines with different characteristics".
That point needs to be answered. If the merger is approved, it will fly in the face of the Ark of the Covenant of the Government's airline policy—to promote competition in all markets. I cannot see that. I cannot see the Government continuing to profess that they remain committed to airline deregulation in Europe. It is not too strong to say that if the merger is approved, after all that has been said in the past two or three years, it could be seen as a U-turn by the Government.

A number of matters have been raised by the noble Lord, Lord Bethell. Not the least of those have been some of the nonsensical illustrations he has given of the cost per mile of travelling by scheduled flight in Europe in comparison to travelling in other parts of the world. I hope the noble Lord will forgive me but my prime source is submissions he made to the House of Lords committee two or three years ago when it looked at the whole question of costs. He mentioned the London-Brussels fare. At that time it was £81; it has now been put up. The fare was 38.38p per mile when comparable mile rates for London to New York were 6.22p and for London to Athens 4.19p. Those were the rates of the competitors of the European scheduled air lines.

The noble Lord has played a major part in prodding the Government to do what I think they want to do—to have an impact on the nonsense of the cartel arrangement. It costs more for those who travel on scheduled flights and there is a spin-off for those of us who may not be regular travellers like the noble Lord (that is why he is so knowledgeable and fed up with the situation) but who travel only once a year.

I hope that the Secretary of State will recognise that if the merger is approved there may be some benefits of scale, but I doubt it. The impact on the Government's competition philosophy which is designed to reduce costs and widen opportunities for millions more people will be badly affected.

We need to find ways of opening up the charter market and scheduled flights rather than closing them down. The Government will be well advised to look at ways in which they can encourage some of the entrepreneurs who seek to look after themselves and establish a business but also to provide a service to consumers. Mr. John Moore said:
"We want to see ludicrously high fares within Europe cut down to size. We want to break up the cartels, abolish the monopolies, lift the restrictions and let the people fly".
Those words are being negatived with the possibility of the merger. There is no promise that the merger is designed to reduce costs or to enable more people to fly at a reasonable price. The evidence is that the consumer has been badly affected.

Reference has been made to the European Court of Justice. There is a tremendous amount of work to be done. I do not think that we will have the competition needed to help cut costs to the consumer if the merger takes place.

I appreciate that the Minster will not be able to say very much on the prime issue of what will happen to the reference. However, I think that he can say something useful to those outside the House. Many companies, many individuals and many organisations will want to hear from the Minister that he is concerned continually to provide a better service at a cheaper cost to the consumer.

10.7 p.m.

My Lords, I am glad to support the noble Lord, Lord Bethell, in the proposition that he has put forward, particularly since he has fought such a long, often lonely and costly battle in his attempt to achieve a better deal for people using air transport. Like him, I regret that the debate is being held at a time when the noble Lords, Lord King and Lord Young, are absent so that we seem to be playing Hamlet without the prince and the ghost.

The Government's position does not surprise us. We on these Benches very much hope that the Government will oppose the increased monopoly power that the merger would bring about. In various privatisation discussions in this House, we have always stressed that what matters is not ownership but competition, because it is through competition that the consumer is served.

The Government in certain moods and with certain hats on have always supported the idea of competition. They have told us repeatedly that competition in a free market is at the centre of their economic policy. In dealing with airlines and air fares in the past they have attempted to put that policy into practice. We recall that it was as a result of such effort that the reduction in the fares from London to Amsterdam was effected—not a great triumph and one that could have gone a great deal further, but it was a step in the right direction.

We hope that the Government are not turning their backs on their determination to introduce competition into civil aviation. As other noble Lords have said, we hope that the Government will be consistent with the policies put forward in their White Paper on airline competition policy, which has been quoted by other noble Lords. The White Paper says that the Government's objective is to encourage a sound and competitive multi-airline industry and to promote competition in all markets. It notes that the Civil Aviation Authority came to the conclusion that there should be some reduction in the relative size of British Airways. It is true that that was three years ago and that times change. Other airlines have an adequate opportunity to develop and prosper, including at least one airline fit to replace British Airways on any major intercontinental route should the need arise.

Which of the Government's two lines of approach will they adopt? Will they back their own conviction and the importance of competition or will they retreat from it, as on occasion they seem to have done in their privatisation policies, and support the large organisation with its near monopolistic powers instead of backing the competitive line which it has been their policy in the past to pursue?

It has already been said that British Airways need to be larger in order to compete with the large airlines throughout the world. But when one looks at the figures which support the claim of these mega-airlines one can easily be misled because the numbers using many American airlines are greatly swollen by internal flights in the United States. That does not affect the competitive position of British Airways vis à vis these airlines because British Airways are not competing and are unlikely ever to compete on those routes. Why should they?

Another point on competition—the argument is surely strongest inside the United Kingdom—is this. Whatever competition will there be on the UK routes if British Airways are allowed to swallow British Caledonian? The great fear is that not only will their strength make it extremely difficult for charter lines and other lines in this country to compete but, as a previous speaker has asked, what will happen at Gatwick?

We have received letters, as I am sure has the Minister, from the charter lines pointing out that if British Airways can dominate Gatwick, as they already dominate Heathrow, the charter lines may well be pushed out to Luton and Stansted, which are by no means such good bases from which to conduct their operations. In the interests of having competition inside this country it is extremely important that British Airways should not be able to dominate the entire field.

It is said, and it is true, that the financial position of British Caledonian at the moment requires that some action should be taken if British Caledonian is to survive and the people employed by British Caledonian are not to lose their jobs. That is a matter of very considerable importance. However, it must be argued that it is not necessary for this salvage operation to be carried out by British Airways. Is it not possible for an arrangement to be made with one of the other airlines in this country? I do not know whether they are prepared to come forward or not but it could be encouraged.

I would even go so far as to ask why we should be afraid of an amalgamation with a Continental airline. I know that this is anathema to many people, but we are now inside the European Community. I understand that the Government are determined to have a single internal market. How very odd it is that we should be so frightened of money coming in from foreign airlines to collaborate with British Caledonian if that is a possible option. Surely such options should at least be examined.

I know it will be said that there is a limit of 25 per cent. upon ownership by a foreign organisation if it were to purchase British Caledonian. But that is a man-made obstacle. If the Government wanted to establish competition and to salvage British Caledonian without forcing it to sell out to British Airways, then surely there would be some other way in which an arrangement could be made, a sale organised, which would salvage British Caledonian without creating this monopoly which will undoubtedly have a devastating effect on competition.

The Government have declared themselves in favour of competition. We need to reduce the absurd air fares quoted by the noble Lord, Lord Bethell, with which we are all familiar. It is perfectly ridiculous that we have to pay the prices we pay in order to fly to Brussels. You only have to compare British fares with the cost of flights internally in the United States to see how farcical the situation is. It is a scandal that it will continue. It will be the negation of the Government's declared competition policy if they support action which will further rather than reduce the already excessive monopoly in civil aviation.

10.15 p.m.

My Lords, the noble Lord, Lord Bethell, has given an opportunity for views to be expressed on what might be the Monopolies and Mergers Commission's decision on the proposed merger. Very definitive stands have been taken against the merger. Frankly I cannot be so definitive as other noble Lords in saying either yes or no to the merger. I want to see the MMC's report. I want to see the evidence presented to it. I want to see the reasons for its recommendation. I want to see the Minister's decision and I want to see the reasons for it. Then we shall be able to have, I hope, a full discussion on it in Parliament, because this matter just cannot be dealt with by saying, "We think the merger is good", or not, "for these reasons". It involves the whole question of civil aviation policy and of international agreements and the position of BA as our national airline, which is a matter we have discussed on other occasions. Therefore it is not a simple yes or no to the merger.

When the Answer to the PNQ in another place was repeated here on 16th July my noble friend Lord Williams of Elvel dealt with the matter on that occasion. He urged that the merger should go to the Monopolies and Mergers Commission. He did so because he said it was of an exceptional nature as it involved a reversal of government policy in trying to promote a second force airline. All noble Lords who have spoken referred to that. I refreshed myself on the Government's airline competition policy over the weekend. Therefore I am fully aware of the difference that a merger could make to the Government's airline policy. I also refreshed myself on the Edwards Report of 1969, which recommended a publicly-owned national airline with a viable second force.

Noble Lords have received briefings from all sides. It is true that figures have been given which would justify the statements that have been made, including the possibility that the merger would mean that 92 per cent. of all United Kingdom passengers to Europe would be carried by the one carrier. There are fears that charter flights may be transferred to Stansted. There are also fears that the BA-B.Cal merger would mean that the airline might be a dominant body both at Gatwick and Heathrow.

What we know is that B.Cal wants a partner. I use that word but we understand that it might have to be a take-over. It is in some financial difficulties. I do not share the view of the noble Baroness, Lady Seear, that it would not matter if that partner were a Continental airline. There are certain problems about that.

Reference has been made to the United States mega carriers. We ought to look at the position carefully. I do not want to go into detail because, as I said, I do not think this is the occasion to go into details of civil aviation policy. But I have referred on previous occasions to the effects of deregulation in the United States. Figures have been advanced, which have not been challenged, that the original 36 carriers in the States were joined by some 198 new carriers, but 160 of these have been lost by being taken over, by merger or by bankruptcy.

In 1986 five major airlines in the United States handled 76 per cent. of passenger miles. Despite deregulation the nine major airlines carried 94 per cent. of United States traffic. It has been said that we should not worry about the mega carriers. Do the mega carriers pose a threat? I hope that the Monopolies and Mergers Commission will go into that question and give us the answer.

Five of the United States airlines each carry 50 million or more passengers a year. In contrast the British Airways-British Caledonian merger will carry some 20 million passengers a year. Therefore there is a great difference. It has been argued that, because a great proportion of the mega carriers' flights are internal to the United States, it is not important; but if it puts a carrier in a financial position from which it can exercise considerable clout in trying to get agreements for other routes then it is of some importance.

I am one of those who believes that for a long time governments will still be involved in bilateral agreements. A carrier carrying 80 million passengers a year compared with one carrying 50 million a year may be in a position with possible financial advantages to exercise clout. I want to know whether the Monopolies and Mergers Commission—and the Minister cannot tell me this yet—has looked at this aspect and taken into consideration the point that there may a threat. I believe it is correct to say that over the past five years the large carriers of the United States have taken a larger share of the North Atlantic market.

Reference has been made to the traffic to Europe. Of the scheduled international passengers flying in and out of Britain 57 per cent. are with foreign airlines. If that is correct then it is a fact that has not been mentioned tonight. British Airways and British Caledonian between them carry only 38 per cent. If that is true we have to worry about it. We have said before when debating other issues of aviation policy that British Airways—and I am referring to the time when BA was a publicly-owned corporation—had to compete with other international airlines on many of its routes. It had to compete not only with companies from this country but with international airlines. We have to consider whether a merger would assist Britain in retaining and perhaps increasing its share of the airline market for those flying in and out of Britain. That surely is of vital interest to us. Would a strong British airline be better able to resist United States mega carriers pushing into various routes?

Reference has been made to the domestic routes. I understand that airlines other than British Caledonian and British Airways carry nearly half the domestic scheduled passengers in the United Kingdom. My noble friend referred to the independent carriers. It would appear that the independent carriers are doing what we want, at least in competition on domestic routes in this country.

Perhaps I should quote the statement on the merger made by the chairman of the Civil Aviation Authority on 23rd July. Mr. Tugendhat said:
"There are benefits to be derived from the takeover and there have been changes in world civil aviation in recent years. Nevertheless, as the CAA has already said, the proposed takeover raises important issues of airline competition and airports policy".
That is why I say it is a detailed question which cannot be dealt with by a short speech at this time of night. The chairman went on to say:
"It is important that those who will have to take decisions about this proposed takeover should also understand what we cannot do"—
that is, what the Civil Aviation Authority cannot do.
"We have the power to substitute one carrier for another on a route, but not in order to make structural changes as such and it is clear that our ability to respond to structural changes in the industry is limited".
I think that is an important statement, because, if the Monopolies and Mergers Commission should approve the merger but lay down certain conditions such as transfer of routes, that does not bring in extra competition but it is a policy of substitution or of transfer. That must therefore be looked at carefully when we see the MMC report.

Major considerations must be to see what is in the best interests of the consumers; that is, the passengers using the airlines. They must also be to see what is in the best interests of the aviation industry. I think that both those aspects must be considered together.

I should like to see the MMC report. Like the noble Lord, Lord Bethell, I wish to be told when we may see it—not just when it will be given to the Minister but when it will be published—rather than have a leakage through the press. I should like to see the evidence advanced by the various bodies to the MMC; I should like to see its conclusions and to know why it has arrived at those conclusions. When the Secretary of State has made his decision upon the recommendations, I should like to know the reason on which he has based his decision.

I believe that when we have that information it will be the time when Parliament should have a full-scale discussion involving the whole question of civil aviation policy, because I do not believe that the question of this particular merger can be divorced from the general question of aviation policy and even that of airports policy.

10.26 p.m.

My Lords, I should like to thank the noble Lord, Lord Bethell, for raising this matter and for giving me the opportunity to hear the range of opinions which have been expressed this evening about aspects of this Government's policy both towards mergers and towards the airline industry. The noble Lord, Lord Bethell, has made clear his concerns about the dominance which a merged British Airways and British Caledonian could have in the market for European scheduled airline services. I have noted with interest all the points which have been made by noble Lords this evening and will draw them to the attention of my noble friend Lord Young of Graffham and, where appropriate, my right honourable friend the Secretary of State for Transport.

Today is the day on which the report of the Monopolies and Mergers Commission was due to be submitted to my noble friend the Secretary of State for Trade and Industry. I can confirm that the report has been duly submitted by the commission within the three-month period which my noble friend Lord Young of Graffham specified in making that reference on 6th August. It now falls to him to read that report and consider its conclusions.

I do not know what that report says; and even if I did it would not be appropriate for me to discuss its findings before they have been fully considered by my noble friend Lord Young of Graffham, the report published and an announcement made. I am sure that he will want to consider the report very carefully in the light of the comments which have been made this evening. I am sure too that he will wish to take into account the Government's policy towards airlines and airports and to seek the views of his ministerial colleagues at the Department of Transport before reaching any decision which may be called for.

At this point I should like to draw your Lordships' attention to the commission's reporting periods for mergers. The Fair Trading Act 1973 states that a merger reference shall specify a period not greater than six months within which the commission is required to report. There is also the possibility of one extension of up to three months if it is requested by the commission for special reasons, and agreed by the Secretary of State for Trade and Industry.

My noble friend Lord Young of Graffham and his predecessor at his department have been concerned that in general the maximum six-month reporting period is too long. In response to this concern the commission took steps to speed up its procedures, and such was its success that it has been allocated periods of only three months or four months to report in the case of all the merger references which have been made so far in 1987. The commission deserves particular credit for meeting its three-month target in the case of the merger which we are considering this evening, on which I have no doubt it will have received many representations.

As I have explained, it would not be appropriate for me to discuss issues directly arising from the MMC's investigation, but several noble Lords have raised some other points with which I shall attempt to deal.

One concern that has frequently been expressed—and it has been mentioned tonight by the noble Lord, Lord Graham—is that this merger proposal should be considered in the context of the Government's airline policy and that that policy should be safeguarded.

That policy, which was set out in the 1984 White Paper entitled Airline Competition Policy and reiterated in the British Airways prospectus, is very much concerned with the need to create competition opportunities for United Kingdom airlines and to ensure that there are adequate safeguards against anti-competitive behaviour. I am sure that my right honourable friend the Secretary of State for Transport and the Civil Aviation Authority will wish to consider the commission's report very carefully with an eye to any implications that it may have for airline competition policy and for air transport licensing policy.

My noble friend Lord Bethell made a number of comments on air fares and I think I should just say that the Government's main priority on aviation matters in Europe has been to open up opportunities for competition. Our view is that this is the best way of bringing fares down as well as encouraging more and better services for customers. Notable progress has been made, for instance on the London to Amsterdam route as was mentioned by my noble friend, but we continue to press for more. We hope at last to see agreement on a liberalisation package by the European Commission when the Council of Transport Ministers next meets in December.

The noble Lord, Lord Underhill, made a number of points about transatlantic fares and internal fares in America. No doubt many of the answers for which he is looking will be contained in the MMC report and I am sure that he will look at that with great care and interest.

The noble Baroness, Lady Seear, made a suggestion about the possibility of some other solution for a merger or perhaps for someone to take an interest in British Caledonian. The MMC report is concerned only with the British Airways proposal and I think it is far too early to consider what could happen if there were the possibility of an alternative being required. Again I am sure that she will look at the MMC report with care and interest.

As I said, my noble friend Lord Young is considering very carefully the MMC's report on this merger proposal. I am sure that he will wish to publish the report and announce his decision, if there is any decision for him to make, as soon as is reasonably practical. I am confident that in considering the report he will take into account all the views that your Lordships have expressed in the Chamber this evening.

House adjourned at twenty-four minutes before eleven o'clock.