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Bcal/Sas Negotiations

Volume 490: debated on Thursday 3 December 1987

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3.27 p.m.

My Lords, with the leave of the House, I will now repeat the Answer to a Private Notice Question in the form of a Statement currently being delivered by my right honourable friend the Secretary of State for Transport in another place. It is as follows:

"The Government's policy remains as set out in the 1984 airline competition policy White Paper." That is the end of the Answer.

My Lords, before I attempt to reply to that Statement, which gives no information, will the Minister amplify what it is about?

My Lords, the Question asked for a Statement on the Government's policy in the light of the latest developments in the negotiations between B.Cal and SAS.

My Lords, does this mean that the Government have no intention of referring the matter to the Monopolies and Mergers Commission? If so, the House would like to know why not, in view of the adamant attitude that his noble friend the Secretary of State for Trade and Industry took over a reference to the MMC of the BA/B.Cal merger. Is there not as much public interest in this matter?

Are there not very serious implications for the British airlines industry in a merger between B.Cal and SAS? What effect would the new company have on the obtaining of routes? Would other countries accept that a company combining SAS and B.Cal was still a UK company? Will that not affect possible future bilateral agreements? Does the CAA have a view on this matter? Will it consider seriously whether a company with substantial foreign interests should retain B.Cal licences? Might not the new company (SAS/B.Cal) lessen the opportunities for independent companies in the United Kingdom to gain routes? That was a distinct possibility underlying BA's agreement with the MMC, under which it was to give up various routes. My last question is—some noble Lord said, "Hear, hear". We are discussing a serious matter. I am certain that the Minister, with his usual competence and with his interest in aviation matters, is only too pleased to answer this question. In view of the substantial state interest in SAS of three Scandinavian countries, are the Government beginning to change their view of public ownership?

My Lords, I have become rather lost, what with the brevity of the Minister's Statement, for which I must thank him, and the length of the supplementary questions asked by the noble Lord, Lord Underhill. I do not know quite what to put a supplementary to. Did I understand the Minister to say that the Government were adhering to the policy that they had declared in 1984?

My Lords, I did understand that. As I understand it, government policy in 1984 was that we should establish a strong second-force airline in our aviation industry. At least, that was the CAA's intention, which the Government did not take up. Secondly, quite apart from the merits of any bids, is it not right that the shareholders of British Caledonian should decide with whom they want to fly? Surely it is a matter for them to decide.

The next point I would put to the Minister is this: since the CAA already treats other foreign-controlled airlines as British for the purpose of licensing policies it would hardly seem right that an SAS-controlled British Caledonian hid should be treated differently. Then, may I ask the Minister whether he would agree with some of us that it is in the best interests of the public that the status quo should continue at Gatwick, with charter and scheduled services competing on equal terms for the remaining limited capacity there? Finally, I hope that the Minister's reply will enlighten me anyway as to what he said so briefly to begin with.

My Lords, I shall attempt to deal with the questions asked by the noble Lord, Lord Underhill, and the noble Baroness, Lady Burton of Coventry. The noble Lord, Lord Underhill, asked why my noble friend the Secretary of State for Trade and Industry had decided not to refer the merger to the MMC. My noble friend considered that the proposal raised no competition or other public interest issues which merited investigation by the MMC. In reaching his decision, he took into account all the relevant factors, including the powers available to my right honourable friend the Secretary of State for Transport to decide whether to direct the revocation of an airline's licences in the circumstances prescribed in the Civil Aviation Act 1982.

Lord Underhill went on to ask whether the CAA had a view, what effect a merger with SAS would have on our bilateral route negotiations with other countries, and whether the company would still be a United Kingdom company. Under the powers contained in the Civil Aviation Act, the CAA cannot take a formal position until a merger becomes an accomplished fact. However, it gave a formal indication to B.Cal and to my right honourable friend the Secretary of State that on the facts available to it yesterday morning it would be likely to notify the Secretary of State that it was no longer satisfied that control of B.Cal remained in British hands.

It has not had an opportunity to form a view on the more recent proposal from B.Cal and SAS. That is why my right honourable friend the Secretary of State for Transport wrote to the chairman of B.Cal about the possible use of his powers under the Act, which enable him to decide whether to direct the revocation of licences in the event of the proposed merger. He said that on the advice of the CAA he would be minded to revoke those routes if the merger took place on the terms as we then knew them. That is the present situation.

The noble Lord, Lord Underhill, asked me whether the proposed merger between SAS and B.Cal would lessen the independent companies' chances of gaining routes. I do not think that I can comment on that, in view of what I have said. The state interest in SAS was one of the matters about which my right honourable friend wrote today in his letter to B.Cal, a copy of which is in the Library. He said:
"Though I was grateful for the explanations furnished at our meeting as to the relationship between the three governments and SAS, I affirmed the view that it would he neither right nor conducive to fair competition between airlines in Britain that, the Government having earlier this year finally achieved the privatisation of the British airline industry, a major British airline should pass under control of an airline in which three other governments have a predominant interest".
In answer to the noble Baroness, Lady Burton of Coventry, as I said in the Statement, the Government maintain the airline competition policy as set out in the White Paper of 1984. The objectives were, first, to encourage a competitive multi-airline industry, with a variety of airlines serving travellers' needs and strong enough to compete aggressively against foreign airlines. The second objective was to promote competition in all markets, international and domestic, by working, to reduce restrictions on services and making it easier for new airlines to enter the market.

As to whether at the end of the day it should be for B.Cal's shareholders to decide, yes, it is for them to decide. My right honourable friend felt it right to make known his preliminary views as to the powers available under the Act with regard to non-British control.

The noble Baroness's last question was about the position of Gatwick and the balance to be drawn between charter and scheduled operators. It is something at which we are looking carefully. We shall probably need to look at it again when we know what will finally happen to British Caledonian. Until then, we cannot.

My Lords, in that convoluted reply are the Government saying that they want to have a merger between British Airways and British Caledonian and that everybody else can take their hat and ball away and play somewhere else?

My Lords, not at all. If SAS comes back with proposals which do not attract the CAA's opinion that control would be passing out of United Kingdom hands, that would be a different matter. Indeed, if another United Kingdom airline made a bid for B.Cal, that would be a different matter.

My Lords, does the Minister agree that the Secretary of State for Trade and Industry did not think that it was worth referring the matter to the MMC? Having listened to the ill-informed voices of many people and of the British people generally, would not a responsible Minister agree to say, "All right; very well; I will refer it to the Monopolies and Mergers Commission"? Does he agree that that is now the right thing to do?

My Lords, no. I said that my noble friend took into account the powers available to my right honourable friend the Secretary of State for Transport, which are especially important in this case. That was one of the reasons he decided not to refer the merger to the MMC. In my opinion, another important reason is to try to end the uncertainty currently hanging over B.Cal. A further reference to the MMC would take another three months.

My Lords, I fully accept the decision of the Secretary of State for Trade and Industry not to make a referral, but will my noble friend agree that the chairman of British Caledonian is following good and true Conservative principles by trying to get the very best deal he can for his shareholders? If the Government feel that this is not the way to proceed, and that they have in any way to interfere, would it not be more realistic for any interference to take the form of persuading the noble Lord, Lord King, that his offer should be upgraded?

My Lords, the Government would certainly not wish to get involved with trying to persuade the noble Lord, Lord King, to raise his offer for British Caledonian. The reason my right honourable friend wrote to the chairman of British Caledonian in the terms that he did was largely because of the tremendous difficulties which we would have bilaterally with other countries if B.Cal was not a British airline. My noble friend will be aware that all route licensing is done on a bilateral basis between this country and others. Even if we decided ourselves that B.Cal was a British airline, other countries might well decide that it was not and try to reopen negotiations. They might even stop the airline flying in.

My Lords, I very much appreciate the detailed answers that the noble Lord has given. I said at the beginning that I thought he would give very good explanations on these civil aviation matters. However, has he not now proved that there are matters of great public interest at stake? That is why the matter should be considered further. From what he says, are we to conclude that the Government are in favour of an SAS/B.Cal merger, or have they real apprehensions about it?

My Lords, we have grave apprehensions under the terms proposed originally by SAS for a 40 per cent. shareholding in B.Cal.

My Lords, that is the whole point of what I have been trying to say. Under the terms of the original possible offer by SAS for B.Cal it was the opinion of the Civil Aviation Authority, which is the statutory body concerned with this matter, that control would no longer be in British hands and it would therefore be regarded as a foreign airline.

My Lords, it is so difficult to conduct this matter by question and answer. This is a matter of great importance. Will the Minister, without going through the usual channels, ask the Leader of the House whether we could at some not too distant date have some discussion on this? All the facts can then be laid before us to see which of the several bids the House is in favour of.

My Lords, in one of her earlier supplementaries the noble Baroness said that it should be the shareholders of B.Cal who decide, and not the House. I do not know whether there would be any value in a debate on this subject at the moment. As I have said, if the House requires further information on the subject a copy of the letter which my right honourable friend wrote to the chairman of British Caledonian Airways has been placed in the Library.

My Lords, the Minister must have known that I would come back on that reply. Is he aware that I am not suggesting the shareholders should not have the last word? However, I think the shareholders would be interested in what this House has to say as we represent all sides of the political spectrum.

My Lords, obviously my noble friend the Leader of the House heard the request of the noble Baroness for a debate. As one usually says, that is a matter for the usual channels.

My Lords, with regard to the very important letter that the Minister mentioned, quite correctly, will he agree that the agony is this? We cannot ask a letter questions. We can only ask a Minister questions. That is why we should have a short debate.

My Lords, on this very important issue, with the best will in the world I know that the Minister will agree that he does not mean to dismiss it as casually as that. When he says that we are having a short debate, can he name the date that we shall have it?

My Lords, I meant that I am trying to answer all the questions as best I can at the moment