§ Order for Second Reading read.
§ 3.33 p.m.
§ The Minister of Aviation (Mr. Roy Jenkins)
I beg to move, That the Bill be now read a Second time.
The main purpose of this Bill is to give effect to the financial settlement with B.O.A.C. which I announced in the House on 1st March this year. The need for the settlement arose out of the troubles which afflicted the Corporation under the previous Government. The promise that one would be negotiated was made by my predecessor, the right hon. Member for Preston, North (Mr. J. Amery), and in the debate on 22nd July, 1964, the right hon. Member for Barnet (Mr. Maudling), the Chancellor of the Exchequer, indicated that this settlement would deal both with the accumulated deficit and with any penalties which B.O.A.C. might be thought to incur as a result of its fleet composition. The actual terms of the settlement, however, fell to be negotiated by me. B.O.A.C. submitted a very big claim, considerably in excess of any capital relief which, in my view, it needed in order to face the future without feather-bedding but with a good prospect, under firm management, of achieving financial as well as operational success. Approaching the matter from this point of view, we eventually agreed upon £110 million as the correct figure for a capital write-off.
The House should be clear what is and what is not involved in such a write-off. It is not a subsidy. It does not enable B.O.A.C. to operate more cheaply or less efficiently than other airlines, or to show an operating surplus when there would not otherwise have been one. What it does do is to ensure that the incentive to make a surplus is not dulled by the knowledge that, once made, such a surplus will be more than swallowed up in interest on dead capital. It frees the Corporation from the incubus of the past, but by so doing it should make the management more and not less responsive to the financial disciplines of the future. Nor does the write-off involve the injection of new money into B.O.A.C., or the 33 transfer to it of real resources. The taxpayer will not next year be required to meet a bill of £110 million for a gilt to B.O.A.C. The only effect for the future upon the Exchequer and, therefore, upon the taxpayer, is that it and he will forgo the annual claim to interest upon this sum, amounting to about £5¼ million. But, as this had been met until recently only by adding to an accumulated deficit which in turn made the interest burden still higher but less meaningful, we are giving only retrospective recognition to reality.
Why £110 million? By far the greater part is accounted for by the operating deficit which had been built up in the seven years to 31st March, 1964. This then stood at £90.5 million. This was the position when we negotiated the settlement. In the year to March, 1965, however, the Corporation made a substantial profit and reduced this accumulated deficit to £82.5 million. This was to a large extent expected when the settlement was made, and I see no reason to reduce the total write-off as a result. It gives B.O.A.C. a somewhat larger reserve for the future, but I think this is justifiable —we want this to be a long-term and not a short-term solution—and, should the write-off settlement prove excessive, the Bill provides fully for possible adjustment in the shape of a claw-back to the Exchequer.
In the first place, the whole of the £110 million will be credited to reserve. Under Section 18 of the Air Corporations Act, 1949, I shall then approve the release from this sum of £82.5 million to eliminate the existing operating deficit. This will leave in reserve, as from April, 1965, the balance of £27.5 million plus the existing capital reserve of 3.3 million. B.O.A.C. will, therefore, start afresh, from a financial point of view, with a reserve of £30.8 million. What is the purpose of this'? It is not, in the view of the Government, directly geared to the fleet composition. The VC.l0, in both its standard and its super versions, is, as is accepted, a little more expensive to operate than the Boeing 707, but this is far from meaning that it is an uneconomic plane to operate. The passenger appeal and the consequent load factors which are being achieved—I shall have more to say about this later—are very powerful compensating factors. But, on general grounds, 1 believe it desirable that 34 B.O.A.C. should have a reasonable reserve behind it. Airline operation, particularly the long-haul version, is a variable business. I distinguish at least five reasons for fluctuation against which we should legitimately guard.
First, there is intense international competition on all routes. On the North Atlantic, for example, no less than 17 airlines are competing for the traffic.
Second, the rate of growth of the traffic offering itself has fluctuated widely in recent years, and will no doubt continue to do so in the future. Yet, because advance planning of equipment and capacity is essential, no airline can quickly adjust itself to these fluctuations. Varying profitability is, therefore, inevitable —the inevitable shock absorber of this situation.
Third, there is always a grave risk of premature obsolescence of aircraft. On the threshold of their period of maximum profitability aircraft may be made out-of-date by a technical break-through. The supersonic revolution may not be—I think it will not be—as destructive of what went before as was the jet revolution, but we would be extremely foolish not to guard against some repetition of the pattern.
Fourth, international fares are determined by a machinery over which B.O.A.C., or any other single national airline, has relatively little control. These could move in a direction inimical to the immediate interests of the Corporation.
Fifth, expected results—and results which appear to have been well planned —may be upset by political developments in the world, which this country—and still less B.O.A.C.—cannot determine. The recent erupting of the Indo-Pakistan dispute, which, had it continued for long, would have been highly damaging to the Corporation, is an obvious example.
For all these reasons B.O.A.C. needs a contingency reserve, and I do not think, having regard both to the scale of its operations and to what would be considered reasonable in private industry, that the £30 million is excessive. In certain circumstances, however, it might prove to be so. Were the current strength of the market for long-haul air transport to persist, contrary to previous experience, for another three or four years and were no other unexpected troubles to arise, I 35 think this might be the case. In these circumstances, there is provision in the Bill for the avoidance of the accumulation of excessive reserves and for the taking back of money to the Exchequer.
This provision, however, applies only after three years from the date at which the Bill comes into operation. For the immediate future B.O.A.C. will have its capital written down from £176 million to £66 million, plus a reserve account of £30.8 million. This £66 million capital will be divided into two parts—and this brings me to the second important provision of the Bill, which is new since the announcement of the settlement nine months ago. Of this £66 million, £31 million will be loan capital of the sort traditional in nationalised industries. The rate of interest which it will bear, following the precedent of the reconstruction of the transport industry in 1962, will be a weighted average of the rates applicable to the previously outstanding total of £176 million. This will probably work out at a little over 4 per cent. This is, of course appreciably below current rates, but it is, I believe, much the fairest arrangement. Otherwise a large part of the advantage to B.O.A.C. of the write-off would be dissipated by requiring the Corporation to re-borrow at the higher rates of today. Most established enterprises, public and private, enjoy the benefit of having acquired a substantial part of their fixed interest capital in the days of cheaper money. I certainly see no reason to discriminate against B.O.A.C. in this respect.
The remaining £35 million of capital will not carry a fixed rate of interest. It will be Exchequer Dividend Capital, giving a varying return according to the profitability of the Corporation. This is an experiment—I believe a valuable one and one for which B.O.A.C., unique among nationalised concerns, is particularly well suited. This is mainly for the reasons associated with the fluctuating nature of the business which I gave in justifying the size of the reserve. It is also the case that many of B.O.A.C.'s main competitors, including those substantially publicly owned—like Air France, KLM, Qantas and Air India—work with a mixture of fixed interest and variable return capital. Furthermore, B.O.A.C., once its capital liabilities have 36 been put on a realistic basis, is peculiarly free, for a public concern, from complications which might make it difficult or undesirable for the Corporation to operate in a fully commercial way. It has no domestic obligations to provide services of a social character. It has no approach anywhere in the world to a monopoly position and no ability to fix its own fares, but neither is it in serious competition with any other British nationalised concern. For all these reasons, I am sure it is right to start this experiment with B.O.A.C. But this does not mean that it should necessarily finish there. If it is a success, it could be extended, and B.E.A. would, in my view, be a strong candidate for such an extension.
In the first instance the experiment will run for five years. At the end of that period the arrangement may, by affirmative Order, either be extended for a further experimental period or put on a permanent basis. If no affirmative Order is passed, the experiment would come to an end and the Exchequer Dividend Capital would be converted into conventional loan stock. I think that five years is in the first instance about the right period. A span of approximately this length is clearly necessary if the appropriateness of the scheme to fluctuating trading conditions is to be tested.
There is another point in relation to this new arrangement which should be mentioned. The power to determine the dividend payment in each year rests with the Minister actingwith the approval of the Treasury and after consultation with the Corporation".Some hon. Members may think that it should be the other way round, that the power of determining the dividend, perhaps subject to Ministerial approval, should rest with the Board of the Corporation; a position more analogous to that in an ordinary company. Although I do not think there will in practice be a great deal to the issue—clearly, for the scheme to work well there must be a reasonable consensus between the Minister and the Corporation—I am sure that the way we have put the onus is in the circumstances the right one. The amount paid out in dividends is the reverse side of the coin of the amount put to reserve. For the Minister to give up control of the one would be to abandon control over the other; and 37 I do not think that it would be right, at a lime when the Government are accepting such a big write-off of the Corporation's debt, to give up the existing control over reserves.
The division between £35 million of dividend capital and £31 million of fixed interest capital is necessarily an arbitrary one. The intention is to effect a roughly equal split—although there is nothing magic about such an arrangement. But as loan capital is perhaps the more likely to be increased in the future it has been dole in this way, with the balance slightly in favour of the variable dividend capital. I do not, however, expect big increases in the foreseeable future in the amount of loan capital. The limit for this is being substantially reduced. Previously it stood at £260 million, which could be increased by order to £300 million. The Bill reduces these limits to £90 million and £120 million respectively. Both the £35 million and the £31 million count towards these figures. B.O.A.C. will, therefore, have a borrowing margin of only £24 million without an order, and £54 million with an order.
This, however, should be more than adequate. B.O.A.C. estimates its capital requirements, mainly on aircraft purchases, at £104 million over the next five years. It plans to find £100 million of this from its own internal resources, lea ring a balance of only £4 million to come from the Exchequer. The power to use Exchequer loans for deficit financing, which was introduced in the 1962 Act, comes to an end with this Bill. These and other changes, perhaps relatively minor ones, affecting——
§ Mr. Eric Lubbock (Orpington)
The right hon. Gentleman has just said that B.O.A.C.'s capital needs over the next five years are calculated to be £104 million. I speak from memory, but surely only £70 million was provided in the Corporation's accounts for future aircraft purchases. Does this mean that the Corporation has some other aircraft purchases in mind for this period of five years?
§ Mr. Jenkins
I will come to the question of future fleet equipment in a little while. I do not think there is any contradiction here. This takes us into the complicated question of accounts and reserves as they appear in the balance 38 sheet and the Corporation's estimated cash flow, which is a vital consideration from this point of view. Acute though the hon. Gentleman is in these matters, I do not think that he has here uncovered any change of plan by the Corporation.
I was saying that this and several other changes—affecting disclosure of information, Ministerial approval for major capital projects, the remuneration of Board members employed in an executive capacity and the Corporations' Joint pensions fund—apply equally to B.E.A. in this Bill as to B.O.A.C. In the case of B.E.A., however, there are at present, I am happy to say, no major financial problems to be solved.
B.E.A., partly because of different circumstances and partly also, I think, because of continuity of effective management, first under Lord Douglas and now under Mr. Anthony Milward, has achieved a remarkable consistency of financial success. It may not figure greatly in discussions on this Bill, but that will certainly be no lack of respect for its achievements. One is almost tempted to say, "Happy is the Corporation which has no history". That applies to the position of B.E.A. at this time, and the Bill will do little more for B.E.A. than give statutory effect to what is already the de facto position.
An example of this is the position about financial targets. In 1963 it was announced that B.E.A. would work to a target of achieving an average return of 6 per cent. on net assets over the forthcoming five years. In the first two years, the average return of 7½ per cent. has been achieved. For the current year, the expectation is that the target will again be reached or slightly bettered. This target, satisfactorily though it has worked, has hitherto had no statutory basis whatever, and there has been no statutory obligation upon B.E.A., unlike the position with most nationalised industries, to pay its way. This is remedied in Clause 5.
For B.O.A.C.—whose statutory position is dealt with in Clause 3—it has not hitherto been possible to agree to a target. In 1962 and 1963 negotiations to this end were vitiated by the financial condition of the Corporation. Now that reconstruction is taking place, however, 39 it is urgently necessary to arrive at such a target.
The need for one is not obviated by the Exchequer Dividend arrangement. The financial target is designed to measure the rate of return on the net assets as a whole, which in B.O.A.C.'s case now amount to £117 million, and is not the same as the dividend which may be paid out on the £35 million slice of its capital. It should now be possible, I believe, to fix a target substantially in excess of the 6 per cent. which applies to B.E.A.
I turn now to a matter which does not arise directly on the Bill but which I know is of considerable interest—the position of B.O.A.C.-Cunard, the company which was set up in 1962 on the basis of a 70 per cent. B.O.A.C. and 30 per cent. Cunard shareholding to take financial responsibility for air services on the North Atlantic. I say "financial responsibility" because the actual conduct of air operations remains exclusively in the hands of B.O.A.C.
The authorised capital of this concern is £30 million, of which £28 million has been issued. Cunard, it should be said, has paid for its share either in aircraft or in cash. In the early days of this partnership it was not profitable. In the 1964–65 financial year the company made a profit before tax of £4¼ million. This year will also be a good one. Approximately one third of the total revenue earned by the activities for which B.O.A.C. is responsible are on the account of this company. Cunard therefore has an interest of a little less than one-ninth in the total operations.
§ Mr. Anthony Royle (Richmond, Surrey)
Can the right hon. Gentleman tell us what the position was financially prior to 1964?
§ Mr. Jenkins
Yes, I can give the hon. Gentleman the figures. In 1962–63 the joint company made an operating loss of £460,000 and in 1963–64 a profit of £2.9 million, which turned into a profit of £4.5 million 1964–65. These profits should be adjusted, certainly in 1964–65, by a loss of £230,000 on a subsidiary owned by B.O.A.C.-Cunard, which accounts for the figure I gave for last year being £4¼ million and not £4¼ million.
40 I must say frankly to the House that I do not like this arrangement. This does not mean that the Government are in all circumstances opposed to partnerships between public and private enterprise. Cases must be judged on their merits. However, I see no sufficient reason why B.O.A.C. should not have continued to run its own services, on its own behalf and for its own reward, on this most important section of its routes, and had I been the Minister responsible at the time I would certainly have expressed that view in very clear terms to the Chairman of B.O.A.C.
I draw a sharp distinction, let me add, between a partnership derogating from B.O.A.C.s central purpose of running air services and one for peripheral activities such as catering, where outside expertise may be of great use to the Corporation.
However, the Cunard arrangement was made. Right hon. Gentlemen opposite who bear some part of the responsibility must decide for themselves how effectively they were acting as guardians of the nation's assets and the public purse. But, so far as B.O.A.C. was concerned, the contract was freely, even if mistakenly, entered into. I have to deal with the situation as I find it. If at some fairly early date it were possible to dissolve this partnership in a way that did no commercial harm to B.O.A.C. and was a reasonable bargain from the point of view of public property, I would welcome such a development, and I have left Sir Giles Guthrie in no doubt of this.
§ Mr. Ian Mikardo (Poplar)
I warmly appreciate what my right hon. Friend has said. He said that the contract was freely entered into by B.O.A.C. Is he really saying that there was no Ministerial pressure to enter into such a contract?
§ Sir Arthur Vere Harvey (Macclesfield)
Would the right hon. Gentleman have said what he has said today if the joint effort had continued to make losses?
§ Mr. Jenkins
I would not have regarded this as a desirable arrangement even had the North Atlantic route not turned out as profitable as it has. To some extent, the decision which the 41 A.T.L.B. gave, following the Measure passed by the House, and other matters, may have had some effect on the Board of B.O.A.C., but in general the Board, possibly mistakenly, as I have said, entered into this arrangement of its own free will, and that is something which I have to recognise.
However, having said what I have said, it would not be right to delay this urgent question of the financial reconstruction of B.O.A.C. until such a dissolution might be achieved, provided—and it is an important proviso—that no part of the benefit of the write-off which we are proposing today will find its way to the pockets of the Cunard shareholders.
§ Sir Ian Orr-Ewing (Hendon, North)
And the taxpayers. Surely the right hon. Gentleman would agree that half of the profits go to the taxpayers, so that the art arrangement is very advantageous to the taxpayers.
§ Mr. Jenkins
I find it extremely difficult to understand what point the hon Member is making. Is he saying that because, like every other company or individual, the Cunard Company pays taxation, we need be totally unconcerned about whether a public subsidy finds its way to that company? If so, it is a most extraordinary proposition.
§ Sir Ian Orr-Ewing
I am trying to make the point that it appears that, for doctrinaire reasons, the Minister is very much against this combination of public and private enterprise. I was saying that if it makes profits, half of the profits going to Cunard go back to the taxpayers, and that is very much to the advantage of the taxpayers.
§ Mr. Jenkins
I object to this arrangement, not for doctrinaire reasons, but because it appears to me that B.O.A.C. is fully competent to run its own airline services on the North Atlantic. I see no reason at all why in this most important sector of the Corporation's activities, unlike other sectors, it should share this arrangement with a private company. I am bound to say that the further intervention of the hon. Gentleman did not give me the view that his point had any mote force than I thought it had when he first made it.
42 The point I was making when I was interrupted was the proviso that no part of the write-off which we are proposing would find its way to the pockets of the Cunard shareholders. Can we be assured that this is the position? I think that we can. In the first place, the arrangements proposed will not add to the profitability of B.O.A.C. There will, as a result, be no additional profit which might find its way from one company to another. What we are proposing merely reduces B.O.A.C's capital debit, and B.O.A.C.-Cunard is responsible for no part of this. Secondly, I have the explicit written assurance of the Chairman of B.O.A.C. that no benefit will flow to Cunard. Sir Giles Guthrie wrote to me on 16th November this year referring to a query about the possible indirect benefit to Cunard which I had raised and replying in the following terms:I can assure you that there are no circumstances in which I can foresee that this is likely to happen, or indeed, in which B.O.A.C. would permit it to happen.I will gladly make the whole of the letter on the subject available to any hon. Member, or to the House as a whole.
§ Mr. Keith Stainton (Sudbury and Woodbridge)
I fully understand what the Minister is saying, but he has not touched specifically on the advances made by B.O.A.C. to B.O.A.C.-Cunard. On page 104 of B.O.A.C.'s Annual Report, these are given as totalling £8,514,000. What rate of interest is applied to those advances?
§ Mr. Jenkins
The rate of interest applied to the advances is a matter between the two boards, but I understand that it is a commercial rate of interest. I do not think that that has any bearing on the matter with which I have just been concerned.
I now come to the third matter which touches directly on this issue. I have asked the Corporation's auditors, who are also the auditors of B.O.A.C.-Cunard Ltd., to give me a certificate, annually or at any other moment when I might require it, that no part of the reconstruction benefit is in fact flowing to Cunard. We may retain our doubts about the advantages of this partnership, but there is not the slightest reason why this need affect our attitude to the financial reconstruction.
§ Mr. Cranley Onslow (Woking)
Can the Minister clarify what he has said by stating whether he has indicated to Sir Giles Guthrie that the response which the Board of B.O.A.C. makes to the expressed views of the Minister will not be allowed to influence the rate of Exchequer dividend which is required in future?
§ Mr. Jenkins
I very much regret that I find that intervention a little difficult to follow. Is the hon. Gentleman suggesting that some sanction would be used about the Exchequer dividend in order to lay down to B.O.A.C. what money it should retain?
§ Mr. Jenkins
Of course not. It seems an extraordinary suggestion. I intend to retain in B.O.A.C. the reserves which it needs to run itself as a thoroughly efficient concern.
§ Dr. Jeremy Bray (Middlesbrough, West)
In view of the fact, of which my right hon. Friend is well aware, that a major factor in the mind of B.O.A.C. when undertaking this arrangement was to get two initial Boeing 707s, can my right hon. Friend say what his policy is towards B.O.A.C. finding back-door ways in which to acquire aircraft of which he does not approve?
§ Mr Jenkins
The point was not that the Corporation was acquiring more Boeing 707s than the Minister thought reasonable for its operation, but that the Corporation urgently wanted to lay its hands on two more aircraft of that sort. There is no question of such an arrangement as now exists derogating from the Minister's right, subject to the Corporation's commercial remit, to express his views very forcefully about what aircraft the Corporation should purchase. Indeed, under Clause 3(6) the Minister's power to control major investment projects is substantially strengthened.
I turn almost finally to a rather happier subject—B.O.A.C.'s current performance and prospects. These are very good. Between 1960 and 1962, when B.O.A.C.'s troubles were at their worst, the average world passenger load factor on inter- 44 national services dropped from 58.8 per cent. to 52.1 per cent., but B.O.A.C.'s decline was worse than the average. Their load factor fell from 59.8 per cent. to 47.6 per cent. That, combined with rather higher than average operating costs, was the main cause of the trouble. By 1964, average world load factors were back to 55 per cent., but during this period B.O.A.C. did better than average and for the year to 31st March, 1965, it achieved a load factor of 59 per cent.
Put another way, world passenger traffic grew by 13 per cent. in 1963 and 17 per cent. in 1964. In the roughly equivalent periods B.O.A.C. saw its traffic grow by 14 per cent. and 22 per cent. That growth has continued strongly during the first half of the current financial year.
During this latter period it has been associated with the Phenomenal success of the Super VC.10. In the first six months of its operation on the New York route, this aircraft achieved an average passenger load factor of 79 per cent. In four consecutive September weeks, the average was no less than 84.6 per cent. On all routes for the first six months, the Super VC.10 achieved an average of 76.4 per cent. These figures are the most powerful possible tribute to the outstanding passenger appeal of this British aircraft.
At the same time, the new management of B.O.A.C. has proceeded with its policy of streamlining the operating costs and the labour force of the Corporation. By the end of this year the staff is likely to be down by 1,500 to fewer than 19,000. The plan is to reduce the staff to 17,000 by the end of 1966. Provided that this is done, as I believe it is being done, in a civilised and humane manner, I am sure that it is right. Compared with many of its rivals, B.O.A.C. has undoubtedly been somewhat overstaffed. The present lush days for long-haul traffic may not continue indefinitely. This year, indeed, the growth of traffic is a little less buoyant than last year and capacity is catching up. Even so, if the second six months are anything like the first, B.O.A.C. should again make a very good profit.
I turn, last, to B.O.A.C.'s future fleet composition and requirements. The present composition of the fleet is 20 45 Boeing 707's, 11 Comet IV's two Britannia 102's, 12 Standard VC10's and six Super VC10's. The two Britannia's and the 11 Comet IV's are not used for regular service at present but are used to some extent for charter services. They will, I think, be disposed of in the fairly near future. In addition to the aircraft which I have mentioned, two Boeing freighters and two more Super VC10's will be delivered during the next two weeks.
The House will recall that a year last summer it was agreed that B.O.A.C. would take phased delivery of 17 of the Super VC10's out of the 30 on order, while three were diverted to the R.A.F. and the manufacture of the remaining ten was put into suspense. It has now been agreed that delivery of the balance of these 17 aircraft will be spread over the period to the spring of 1969. Between 1969 and the introduction of the Concord, probably in 1972, for which B.O.A.C. has a provisional order of eight, the Corporation will have a need for further subsonic aircraft to cope with the traffic growth. I believe that these subsonic aircraft will continue to fly profitably and effectively throughout the 1970s, even after the supersonic age has begun. This need is likely to be concentrated on bigger jets, perhaps 250 seaters, with a range of up to 7,000 miles.
The British Aircraft Corporation have put forward proposals for fulfilling such a need. They have made it clear, however, that they would not themselves meet the development cost, which would be about £40 million for the airframe alone, and that it would therefore fall on public funds. If the plane were manufactured and available at a reasonable cost, B.O.A.C. would be happy to buy it. Whether such a development would be justifiable must turn on a realistic appraisal of the size of the likely market. To spend huge sums of money to manufacture such an aircraft and then to sell only to B.O.A.C. and a few closely associated companies would be a bad investment of public money. We have received, and are currently studying, a report on this market aspect of the matter from the Economist Intelligence Unit, assisted by Mr. Stephen Wheatcroft, a distinguished writer in this field.
46 A public investment of this size would also raise important questions touching the future capital structure and organisation of the aircraft industry. On this and other points, Lord Plowden's Committee is about to report. I hope to have their conclusions in my hands by the end of this month and to publish them before Christmas. So soon in advance of this advice, I think it would be wrong to take a final decision about the stretched version of the VC10, and this in turn means that we cannot reach a definite conclusion about the ten Super VC10's in suspense. I am most anxious to find solutions helpful to British industry, but it would be wrong, encouraged by the good recent years, to put pressure on B.O.A.C. to buy more planes than it needs. That way lies a return to the financial mess which we are endeavouring to clear up this afternoon.
I believe that we have cleared it up in the tidiest way possible and that we have given the Corporation under its new management—and it greatly needs continuity in this respect—a good financial basis for the future. On this basis I hope and believe that the airline can both maintain its outstanding record of service and operational efficiency and act as a good guardian of the nation's investment. B.O.A.C. is a very important piece of public property of which we all want to be proud.
§ 4.15 p.m.
§ Mr. Robert Carr (Mitcham)
It is always pleasant from this side of the House to welcome a Tory Measure, even when it is introduced by a Socialist Minister, and I do that in principle wholeheartedly, because there is no doubt that in principle this is a Tory Measure—first, because it carries out the specific decision of the last Conservative Minister of Aviation, my right hon. Friend the Member for Preston, North (Mr. Amery), to write off B.O.A.C.'s accumulated deficit and, secondly, because it attempts to set out a broad legislative framework for operating the nationalised Air Corporations on a commercial basis. That, too, is in line not only with the declared purpose of my right hon. Friend the Member for Preston, North for the airlines but also with general Conservative Party policy towards all nationalised industries.
47 In passing, it contrasts strongly with the general attitude of the Labour Party when in Opposition, because they did not seem to like the idea, when in Opposition, that nationalised industries should be run on commercial lines. However, we welcome the conversion as far as this Bill goes, and since in principle it is a Tory Measure, I want to make it clear at the outset that we shall support the Second Reading. In Committee, however, there may be a number of Amendments which we shall wish to make to improve the Bill and also to adduce the Government's intention as to how they will operate it because, as I shall stress. so much of the Bill depends in practice on the use which the Minister will make in the future of the powers which it gives him.
§ Mr. John Rankin (Glasgow, Govan)
If this is a Tory Measure, why should the hon. Member require to find so many Amendments for it in Committee?
§ Mr. Carr
I made it quite clear that we approved of the Bill in principle, but I shall also make it clear in my speech that there are a number of points on which we may wish, on consideration, to move Amendments and on which we shall certainly wish to probe in an exploratory manner in order to elucidate some information about how the Government intend to use the powers which the Bill will give the Minister.
It is interesting to note, in passing, and for the benefit of the hon. Member for Glasgow, Govan (Mr. Rankin), that the only other essay in legislation by the Minister so far, the Airports Authority Act, was also a Tory Measure. It is, of course, over his administrative acts that we come into conflict and quarrel with the Minister, because we believe that they have often been evil in their effect. We hope that the actions which he takes under this Bill will be more beneficial. In view of some of the Minister's closing remarks, perhaps I should assure him that the quarrel will quickly extend from the administrative to the legislative field and become even more intense if there turns out to be any truth in any of the leaks or other suggestions about nationalising the aircraft industry in whole or in part.
I was rather surprised to read in the Sunday newspapers a report of a speech 48 by the hon. Member for Loughborough (Mr. Cronin), who is a member of the Plowden Committee, about the subject of this Committee and, by implication, suggesting some of the evidence given to it and before that Committee has reported, I must register our disapproval of that. I did give the hon. Member notice that I would be referring to it in the course of my remarks.
§ Mr. John Cronin (Loughborough)
I seem to recollect that from the Opposition side of the House I and some of my hon. Friends made the same suggestions a long time ago—about two years ago. It is hardly making comment on whatever the Plowden Committee may decide to say when one refers to questions of nationalising parts of the aircraft industry.
§ Mr. Carr
I am prepared to leave the House to judge whether it is wise, if nothing worse, for a member of an important Committee to make public pronouncements just before that Committee's report is published.
I wish to divide what I have to say about the Bill into two parts. I want, first, to comment on some of the principal explicit provisions in the Bill and, secondly, to discuss the implications of the discretionary powers which the Bill gives the Minister and the effect that the use of those powers will have on the financial affairs of the Air Corporations.
Before I do that, I should like to say—and I am sure that hon. Members on both sides of the House will agree with me in this—how glad we are that we are able to have this debate against the background of good results from B.O.A.C. These good results seem to be justification for the present management of B.O.A.C. and for the policies of my right hon. Friend the Member for Preston, North, the previous Minister, because the pounds, shillings and pence and the financial structure which we are talking about would indeed be meaningless symbols unless we first had in B.O.A.C. a management of the right quality, properly deployed and with the right level of morale. I think that right hon. and hon. Members, regardless of party, must give praise to my right hon. Friend's courage in tackling what was a difficult and bound to be in some respects an unpopular exercise in putting this matter right.
§ Mr. Peter Mahon (Preston, South)
In view of the record of the right hon. Member for Preston, North (Mr. J. Amery), how can the right hon. Gentleman reconcile his remarks in the light of the fact that the right hon. Member for Preston, North is not today even shadow Minister of Aviation?
§ Mr. Carr
I think that deeds speak louder than the hon. Gentleman's words. If we are talking of changes of personality at the Dispatch Box, I cannot help noticing that the hon. Member for Loughborough is not addressing the House from the Government Front Bench today.
May I turn to Clauses 1 and 2—[Interruption.]
§ Mr. Speaker
Order. I hope that the hon. Member for Poplar (Mr. Mikardo) will refrain from speaking until he catches my eye. Honours are now even. May we get back to the Bill?
§ Mr. Carr
I am also sorry that I allowed myself to be diverted.
I turn to Clauses 1 and 2, which deal with the capital reconstruction of B.O.A.C. As the Minister pointed out, the amount being written off is £110 million. I agree that it is right that we should do more than merely write off the accumulated deficit and that we should provide, in addition, some reserve; but we ought to look critically at the amount of the reserve.
In March, when the Minister made his statement, he spoke about an accumulated deficit of £90 million. Therefore, it looked to us as though the contingency reserve for which he was preparing was of the order of £20 million. But, as the right hon. Gentleman made clear in his speech today, the latest accounts of B.O.A.C. show that it had such a good year in 1964–65 that the accumulated deficit dropped from £90 million to about £82½ million. Therefore, instead of the £20 million contingency reserve about which we were thinking when the Minister made his statement in March, we find that the contingency reserve is to be about £30 million. This is a pretty large sum of money.
50 I cannot pretend that I found the Minister's arguments as to the merits of this sum altogether convincing. This is bound to be a matter of judgment. There is no arithmetical law that I can see which one can apply to arrive at what would be a proper amount. But we should get clear our philosophy about reserves. I have always looked upon reserves in connection with the nationalised industries as being the means by which such industries could create out of their own operations some of the finance, not all, that they require for their future expansion. Is that the purpose here? I am not clear, even after listening to the Minister's speech.
Or is this provision of £30 million a hidden way of paying B.O.A.C. for commitments which it has already entered into? For example, does it include something in compensation for the higher cost of the VC10s which it was asked to take? If so, how much, and on what assumption is that amount calculated? Does it provide anything for the purchase, or possible purchase, of the ten Super VC1Os held in suspense? These are matters about which we must ask the Government to give us more information than we had from the Minister today.
When the Minister was in Opposition, he wrote some interesting articles in the Observer. In an article on 19th July, 1964, he made two points about the VC10. First, he said that B.O.A.C. should be instructed to sell off its Boeings gradually and to move to a fleet of 12 standard and 27 Super VC10s. Secondly, he said that the Government should cover the excess cost of taking the VC10 by adjusting the capital cost of the aircraft and not by providing an open-ended subsidy to B.O.A.C. because that would undermine the Corporation's financial stringency which should govern its operations.
In view of this pretty firm and definite view expressed by the Minister before he came to office, the House should know whether he still holds to those two points. I was sorry that he felt compelled to hedge today on the first question as to whether the Corporation should have the 10 Super VC10s in suspense because of the imminence of the publication of the Plowden Report, although, in fairness I am bound to say that I can sympathise with him in doing so. But, as he considers whatever may be in the Plowden 51 Report, I hope that he will not allow the conviction which he expressed in that article in the Observer to grow weak and be argued away.
§ Mr. Roy Jenkins
As the right hon. Gentleman has been kind enough to mention the article which I wrote in the freedom which comes not only from not being on this bench but not being even on the Opposition Front Bench, may I say that my recollection is that the second of the two articles concluded with not two but about six suggestions. I would certainly stand by the overwhelming majority of them. Certainly whatever else the Bill does, it does not provide B.O.A.C. with an open-ended subsidy, which I should be very much against.
§ Mr. Carr
I hope that we can have from the Government a better explanation about the philosphy about the uses behind this reserve because I think that £30 million is a little generous for the general purposes which the Minister mentioned and therefore I cannot help wondering whether it is meant to cover the Corporation for some of the things about which I have been talking.
I turn to the new capital of £66 million for B.O.A.C. First, I should like to say something about its composition and to welcome from this side of the House the idea of the equity element, or, I believe I am supposed to call it, the Exchequer dividend capital. That is the jargon which we shall have to adopt in future—one more E.D.C.; I hope that it may have better luck than an E.D.C. some years ago.
It seems to us that this new idea of Exchequer dividend capital is a sensible and valuable arrangement for B.O.A.C., an experiment which, as the right hon. Gentleman has said, we may well find to be applicable to other Government finance corporations, not only the nationalised industries, but, perhaps, other Government activities such as N.R.D.C. and the Commonwealth Development Corporation also. I hope that this is an experiment which will prove successful and will be carried through.
What, however, is the logic behind the proportion of the dividend capital? Why £35 million out of £66 million? The Minister suggested in his speech that the airline business was of a volatile and 52 variable nature. In such a volatile and variable business, there is surely a strong case for a bigger proportion of the total capital being in some form of equity investment.
I commend to the right hon. Gentleman the example of Australia. My reading of the Australian National Airlines Act, 1945–61, Section 30(3), seems to indicate that in Australia the whole of the capital is without fixed interest and that the Minister and the Treasury in the Commonwealth Government in Australia determine the target for the interest on the whole of the national airlines capital. They have, of course, borrowing powers as well, as we do here, but apparently none of their capital is at fixed interest. That, perhaps, is going to the extreme. All I am asking is, why have as small a proportion as just over 50 per cent.?
§ Mr. Roy Jenkins
As I indicated in my speech, there is nothing magic or essential about this division. We thought that it was, on the whole, the most reasonable one at which to arrive. It would, in the first place, be wrong, I think, to arrive at a straight 50–50 division of B.O.A.C.'s capital. As the right hon. Gentleman has pointed out, £30 million will be represented by a reserve. Therefore, another equally valid way of looking at it is that only about one-third or a little less will be fixed-interest capital. I think that if the right hon. Gentleman and the House look at the position of most other international airlines, they will find that B.O.A.C.'s equity proportion, if that is the right word, is higher than most.
§ Mr. Carr
I am grateful to the Minister for what he has said. This may be something which we can discuss in a little more detail in Committee.
I should, however, like to press the Minister on one further matter. He said that B.E.A. might well be the next candidate for this sort of financing. Could we not persuade the Government to be a little less cautious and to reconsider this matter now and to amend the Bill in that respect while it is going through Parliament? I am sure that B.E.A. would welcome it. If this sort of financing provides a healthy commercial discipline and incentive for B.O.A.C., it would surely do the same for B.E.A.
53 I recognise that B.E.A. is not in need of any capital reconstruction such as that required by B.O.A.C., but the proposal for this dividend capital does not appear in any way to arise from having to write off losses in B.O.A.C. and is put forward by the Government as a sound method of financing an airline and, therefore, it would be as meritorious for B.E.A. as for B.O.A.C. I therefore ask the Government not to be quite as cautious in this respect and to be prepared to extend their experiment here and now, because we in this country do not have all that time for making these improvements and this seems to be one which is welcome and should be pressed forward.
There is one further point while I am talking about this new capital. I should also like to press the Minister to discover whether he considered going a little further than he has done If the principle of equity financing is accepted, as it appears to be, might we not go further and allow some equity participation in these airlines on the part of the general public and also have the shares of B.O.A.C. quoted on the Stock Exchange? I have in mind the example of the Scandinavian airlines and K.L.M. Why not follow this example? If the Minister does not think that we can, will he or his Parliamentary Secretary explain why not?
There seem to me to be two possible advantages in following the example which I have mentioned. First, it increases the commercial discipline and atmosphere of commercial operation for the Corporations. Secondly, it seems to open up the possibility of gradually introducing private finance into the Corporations and, therefore, freeing Government finance for other purposes which may at the time be in greater need of it. In other words, this would be a gradual injection of ordinary public—in the sense of private—finance into these Corporations, freeing Government investment for other functions which in the years to come may be in even greater need of it. I should like to have an explanation about this.
I turn now to the financial duties imposed by the Bill on B.O.A.C. and B.E.A. 54 They are dealt with in Clauses 3 and 5. I realise that the different capital structures as at present proposed for the two Corporations require different definitions of financial duty for the two Corporations. It seems to me, however, that the differences contained in the Bill go further than they need. Clause 3 lays down for B.O.A.C. a statutory requirement that the Minister shall fix a rate of return whichit is reasonable for the Corporation to achievein a given period and places upon B.O.A.C. a duty to inform the Minister if it appears likely that that target will not be met and also to tell him what the Corporation proposes to do about it.
Clause 5, however, does not make any similar statutory provisions for B.E.A., and I cannot understand the reason. The Minister explained that the Corporations were now being brought into line with the other nationalised industries, but, when he is introducing legislation, why does he not bring B.E.A. into line with B.O.A.C. so far as is possible, as long as the two Corporations have different capital structures?
I simply do not understand the reason for this, unless, perhaps, which I hope is not the case, the Minister fears that he notices a downward trend in B.E.A. profits and envisages financial trouble within the next two or three years. I hope that that is not the reason. If it is, the Minister should tell the House and explain why such a prospect makes it inappropriate to write into the Bill the same statutory financial duties for B.E.A. as for B.O.A.C. The absence of this seems to me to be untidy legislatively and not to have any good economic or other sense behind it. I should have thought that we could take advantage of the Bill to get the Corporations on all fours in this respect.
I should like now to say a word about the vexed question of the B.O.A.C.-Cunard agreement, to which the Minister referred. He made it quite clear that he and the Government do not like it and that they would not have made the agreement had they been in power. [HON. MEMBERS: "Hear, hear."] That appears to meet with general approval from those on the benches behind the Minister.
A number of points need to be made. First, that agreement did not require 55 Ministerial approval. Secondly, it should be emphasised that the B.O.A.C. Board voluntarily entered into it.
§ Mr. Carr
Again from a sitting posture, the hon. Member for Poplar, with his usual certitude but with his frequent inaccuracy in these matters, says, "Nothing". I wonder whether that is true. They are sensible responsible men on the Board of B.O.A.C. and they felt that this was in their interests. I think if this is to be run down in the House and run down by the Government we really ought to have the chance of hearing what the members of the B.O.A.C. Board feel about this agreement and what advantages they have had out of it.
§ Mr. Mikardo
Rising to a standing position and apologising for having interrupted the right hon. Gentleman from a sedentary position, may I ask him whether he really believes that the B.O.A.C. Board entered into this agreement with no prompting and no representation from the then Minister? If he believes that he will believe the moon is made of green cheese.
§ Mr. Carr
We do not yet know what the moon is made of, but I have no doubt that the hon. Gentleman will be one of the first there to discover. But let us ask the Board of B.O.A.C. what they think of it.
I was disturbed when the right hon. Gentleman talked about dissolving this partnership, if possible. I hope that he will reflect very carefully, particularly as a Minister in a Government of his particular party. We on this side may not approve of it, but one of the things which the party opposite has talked so much 56 about has been semi-nationalisation—nationalisation with the Government and nationalised industry in partnership with private industry. They are not going to look very attractive or reliable partners if, when an agreement is made like this, the Minister and the party opposite talk about dissolving it, if possible. This sort of talk will have a very bad effect on the reputation of the Government and the nationalised industries as partners in the future, and that, I think, could be a bad thing for many reasons.
With regard to the other provisions of the Bill which I have not discussed, my hon. Friend, who hopes to catch your eye, Mr. Deputy Speaker, when we wind up this evening, will be dealing with a number of others, particularly Clauses 6 and 7, and, no doubt, others of my hon. Friends will do so in their speeches as well. All I will say about the other provisions at the moment is that we see no grave objection to them in principle, although, as I have said, when we consider them further in the light of this debate we may wish to move Amendments to some of them.
I want to conclude my remarks with some discussion of the uses which the Minister makes of the very wide discretionary powers which this Bill leaves him. As I see it, the object of this Bill, which we most warmly welcome, is to put the Air Corporations on a fully commercial basis. That is the first object, and it is an object we welcome, but the achievement of that object in practice depends not only, or even principally, on the explicit provisions of the Bill, but perhaps more than anything else on the policy and administrative rulings of the Minister as the years go by. We on this side of the House want the Air Corporations to have as full a degree as possible both of the disciplines and the incentives of genuine commercial operation but we are very doubtful from what we know of the philosophies and policies of this Government whether they are going to get either.
Here are some of the major points on which we want assurances. First of all, the question of the non-commercial operations. Both B.O.A.C. and B.E.A. have had to undertake operations for social and political reasons which could not be justified on strictly commercial grounds, even taking the longest view of profitability, 57 and they will probably have to continue to do such things in the future. We do not dispute that need. I hope that we can be clear about that. We do not dispute the need for these Corporations on occasions to undertake non-commercial operations, but we say that non-commercial operations should not he allowed to cloud the issue of basic efficiency and profitability and ought to be brought out into the open and be isolated and dealt with separately; they should not be a cover for hidden subsidies. This should apply whether the operations are non-commercial from the point of view of routes policy or whether they are sometimes non-commercial from the point of view of the types of aircraft which the Corporations may be required to use.
I should like to ask the right hon. Gentleman for one specific assurance. Can he confirm categorically to the House that the terms of the letter written by the previous Minister, my right hon. Friend the Member for Preston, North, to Sir Giles Guthrie on this subject still stand in all the terms of that letter? I am referring to the letter recorded in HANSARD on 5th February, 1964. We should like to have that assurance from the Minister or from the Parliamentary Secretary when he winds up. If he can give it us now, that will be so much the better. Well, I hope it will be coming later. I have no doubt that some of my hon. Friends will wish to probe this matter further.
We would like also to have some specific understanding with British European Airways Corporation regarding the financial implications of its non-commercial operations. Would the Minister consider writing some letter to the Chairman of B.E.A. so that this matter of the non-commercial operations is clearly defined?
Best of all, perhaps, might be to write some provisions into the Bill covering both Corporations. It is possible we may consider moving Amendments to this effect. This is what is done in Australia, and we commend to the House for consideration Section 25(2) of the Australian National Airlines Act, 1945–61, to which I have already referred in another context. I do not necesarily agree with the details of the Australian provisions, but the principle of writing this into the Bill 58 does seem to be one worthy of at least very serious consideration.
The second commercial matter which I want to touch on is the dividend policy of B.O.A.C. The Minister fixes the dividend. But what will his dividend policy be? It seems to me that he has several alternatives. How he chooses is crucial to the success of this new method of financing. Is he going to set an example of dividend restraint and so please his right hon. Friend the First Secretary? Or is he going to declare the maximum possible dividend every year and so please the Treasury and his right hon. Friend the Chancellor of the Exchequer? More particularly, will the dividend he fixes year by year be determined by the real commercial interests of B.O.A.C., or will it be determined more by the short-term needs of the Treasury in a particular year to claw back the greatest possible amount of money?
It does seem to us that the Bill pulls its punches in this important matter and shies away from the proper commercial considerations. It seem to us—and the Minister said that some people might take this view—that the Bill has the responsibility for dividend policy upside down. It is the board which should decide, and the shareholders' control comes through the power of appointment to the board. It is inconceivable that with the Government, represented by the right hon. Gentleman, as not only the controlling but the only shareholder, the Board would not have to take enormous note of the views of the Government in proposing its dividend policy and the Government would be in a very powerful position if the Board did not. The 100 per cent. power of control as the only shareholder is very strong. But I think that there is an important psychological, and, I believe, more than psychological, difference in saying to the Board, "The responsibility for proposing the dividend is yours" and the dividend should not be imposed on the Board by the Government, and I think, as I said, that the Bill at the moment has got it upside down.
Closely allied to that is the rate of interest on B.O.A.C.'s loan capital. All we are told at the moment is that the total interest payment on £31 million will not be less than £1.23 million, which is about 4 per cent. But anything like 59 4 per cent. would be very much below the commercial rate, as the Minister recognised in his speech. In private industry if a company were going in for any major capital reconstruction of this kind it would have to pay the current rate of interest. I appreciate that that would be a harsh discipline to put on B.O.A.C.
I take the Minister's point that most companies have a large part of their capital at any one time which is old-standing and, in days of high interest, at perhaps a lower rate of interest. Therefore, it is a matter of degree in fixing it, but I hope that the Government will be able to assure the House that the Corporations will not be allowed to pick and choose too much from amongst the variety of stocks which are mentioned in the Schedule to the Bill when it comes to fixing the overall final rate of interest. If we want them to operate commercially, as I have said, we must see that both sides of the coin apply—both the full discipline of commercial operation and the full incentives. I want to stress both sides of the coin.
I want next to say a few words about competition, because it seems to us that the essence of operating on a commercial basis is that an industry should be subject to competition, and it ought to apply just as much to a nationalised industry as to a private industry.
We accept that in the airline industry competition cannot be unrestricted and must be controlled, but in our view there ought to be as much competition as possible, and the trend ought always to be moving in favour of more competition and not less. But, under the present Government, the trend on B.E.A.'s domestic routes, for example, has been seriously moving towards less competition. We believe that the pressure of active competition is both a yardstick on performance and also an incentive.
It is worth briefly mentioning two recent examples to prove that. Take route development and, in particular, the South American example. Here was a route where B.O.A.C. said, no doubt in good faith, that on the basis of its experience it would need a subsidy of £5 million over four years, or £1¼ million a year, to operate it. B.U.A. is operating 60 it without a penny subsidy from the taxpayer now, and even in the first year its loss was very much less than the £1¼ million average asked for by B.O.A.C., and there are good prospects of a profit in the near future. There is a classic example.
The second example is that of the development of aircraft. The BAC.111 would not have got off the ground if it had been left to the Corporations. It was the independent and foreign airlines that gave a fair wind to that effort, yet it is one of the few planes which we have produced in recent years which clearly have a world market.
These are two examples where the competition of independent private airlines spurs on development and ought therefore to be encouraged.
There is one other use of it, and that is as a yardstick. Here again, Australia provides a precedent, because in the Australian Act to which I have referred one will find that in Section 32(2) there is provision that in fixing the dividend paid by the national airline the Minister must take into account the performance of comparable private airlines. Here is a legislative provision in Australia that the performance of independent airlines should be taken as one of the yardsticks in fixing the rate of return on the capital of the national one.
Closely related to competition is the interest of the ordinary traveller, but where does the convenience of the passenger come into the Bill or into the Minister's thinking? He did not mention it once in his speech. I thought that at least we might hear something today about the appointment of the consumer director of B.E.A. about whom we were told some months ago. We on this side have not much faith in such appointments, and we do not see what he could do, anyhow, because the whole Board ought to be consumer-orientated. Nevertheless, that is the poor sop which the right hon. Gentleman offered us to look after the consumer some months ago, but still there is no mention of an appointment.
Finally, I want to say a word about the management of the Corporations. The right hon. Gentleman himself today, referring to B.E.A., stressed the importance of continuity of management. He also stressed it very strongly in his 61 articles in the Observer to which I have already referred. We agree that it is extremely important, and we believe that the right hon. Gentleman has a situation in B.O.A.C. which can provide the basis of it, but we would like to hear something from the Government about any intention that they may have to ensure the continuity of management in B.O.A.C. which is essential.
Full managerial freedom of decision is another matter which we believe is important to commercial operation. Yet Clause 8 takes away from that, because it places on the Minister the job of fixing the whole remuneration of members of the Corporation. Surely that is something which ought to be for the Board itself. It is perhaps only a small matter, but it is one of the particulars in the Bill which make us fear that although it may set out in principle to provide a truly commercial basis, in practice we may not get it.
So, while the principles of the Bill are welcome and will have our support, we find some of its important provisions somewhat less than satisfactory. We also find it generally untidy as a piece of legislation, because there is certainly need for a consolidation measure. Unless we can move satisfactory Amendments in Committee, we believe that it will not be long before another piece of legislation is required to put the two Air Corporations on the same legal footing. Above all, we are extremely sceptical whether the Government really mean to do in practice what they say on paper in the Bill and whether the Minister or any successor of his in a Labour Government will use his powers to promote real commercial operation. That is why we are expressing some of these doubts, because the Bill, however good on paper, will be made or marred by the use of the Minister's powers. It is those that we intend to examine, and we shall go on examining them even after the Bill has become law.
§ 4.58 p.m.
§ Mr. Ian Mikardo (Poplar)
I scarcely reed to say that I support the Bill, the Second Reading of which was moved by my right hon. Friend. It seems to me that the five-point case which he made in support of it is absolutely unanswerable. It is obvious that the right hon. Gentleman the Member for Mitcham (Mr. R Carr) found it unanswerable, and if, in 62 deference to the lesser men beside him, he had to rationalise his logical appreciation of its provisions by saying that it is a Tory Bill, I for one do not deny him that balm and solace. His was a doctrinaire homage to semantics on behalf of his party, and we will forgive him that on the understanding that as a result of his speech we are now going to get an unopposed passage for the Bill and can therefore look at it in detail objectively, studying its virtues and its disadvantages without any party heat and passion.
Although no one apparently is going to vote against the Bill, that does not leave the House with an automatic job in passing it, nor does it leave hon. Members on both sides without any duties at all. We are voting a substantial amount of money in support of a public Corporation, and it is the duty of the House to investigate closely, and as objectively and impartially as we know how—not partially, as the right hon. Gentleman has just done—for what the money is wanted and for what it is to be used.
On this subject there are two questions which occur to my mind, and I want to put them frankly to the House. First, how much of this money and these financial facilities which we are voting today—it is not all money, but it comes to the same thing in the upshot—are a disguised subsidy to the aircraft manufacturers? My right hon. Friend touched lightly, I thought a little too lightly, on the question of the VC.10 and the Super VC.10 and how much of this money is being used to compensate B.O.A.C. for the duty which has been laid on it of using a British aircraft—a very good aircraft, one is happy to say—instead of a foreign aircraft which, at least in the short term, would he more economic and would produce more profits.
The right hon. Member for Mitcham, for once letting his back hair down, pushed the thing a bit further and asked the Minister quite flatly how much of this lolly was going, not to the B.O.A.C., but to the B.A.C., because that is what it comes to in the final issue. How much of it is in fact a disguised subsidy for the B.A.C.?
§ Mr. Lubbock
Can the hon. Gentleman explain how any of the money could possibly go to the B.A.C., when the B.O.A.C. 63 already has a firm contract in relation to the VC.10 and the Super VC.10, and the ordinary VC.10 is fully delivered already?
§ Mr. Mikardo
It is very easy. A firm contract is sometimes arrived at because somebody wants to buy something and thinks it is a fair price, and sometimes it is arrived at by somebody else saying, "This is a bit high, mate. We will give you a little lolly towards it", and the contract is entered into. [HON. MEMBERS: "Oh."] That is the way the thing has actually gone. The plain fact of the matter is that, judged on purely economic and commercial considerations of airline operation, without any other considerations—and I happen to think the other considerations are very important—the Corporation would not have bought the VC.10. It was induced by other, and, I believe, very proper, considerations to buy the VC.10. It was told to buy more than it otherwise would have bought to take account of factors outside the economics of its own operation but inside the general framework of the national welfare.
I offer no objection to that as a general matter of principle. I think it is right that publicly-owned enterprises should be used as instruments of economic planning, and should be the machinery through which, sometimes, ultimate national needs are safeguarded, instead of the immediate commercial needs of the public enterprise concerned. I am not complaining about that. I am simply stating it as a fact that for good national reasons of which the hon. Member for Orpington (Mr. Lubbock) will approve, and of which most right hon. and hon. Gentlemen opposite will approve, and of which I approve, the B.O.A.C. has been, if one likes to put it this way, a letterbox through which some money has been channelled from the Government to an aircraft manufacturer. I am not complaining about it. I am merely stating it as a fact.
This is not the only way in which it is done. This is not the only letterbox. The aircraft manufacturers get a great deal of public money through contracts which they obtain, a great many of which are not commercial, and everybody knows they are not, including the contractors themselves. They get a great deal of public money through the free, or nearly- 64 free, use of research and other facilities like those at Farnborough, which are provided by the Government, and so on. This is not new. It has gone on for a very long time, and I would remind the hon. Member for Orpington of the story of the Britannia.
That aircraft was delivered about two years late, and even when it was finally delivered its turbines flamed out. They were unusable when they were delivered and therefore there was a still longer delay before they became usable. That cost the B.O.A.C. £2,400,000 in extra training programmes, modification programmes, and all the rest of it, and it was all borne on the accounts of the B.O.A.C.
If the B.O.A.C. had not been a nationally-owned enterprise, but a commercial corporation, it would have made claims on, as it then was, the Bristol Aeroplane Co., and the thing would have been sorted out in that way, but, for reasons of national policy—with which I do not quarrel—this was hidden in the B.O.A.C., and in this way the Corporation and B.E.A. have been used as a mechanism for disguising subsidies to aircraft manufacturers.
I repeat that I do not object to that. I think it is very important that we should maintain in this country an independent aircraft manufacturing industry. We should not only maintain such an industry, but we should maintain one which is competent to sustain a design and development organisation of the first order. I also accept—and no hon. Member could deny this—that in present-day circumstances the maintenance of such an organisation is not possible without an injection of public funds. We may not like this fact, but we have to accept it, and it is therefore right to use public funds for this purpose. The question which arises—and I shall not develop it too closely because it arises only in an indirect way on the Bill—is whether it is right for all this public money to be channelled into a private industry manufacturing aircraft without any quid pro quo to the public.
If not in twentieth, at least in nineteenth century terms, I think there is a very formidable case to be made for private enterprise. Sometimes when I have listened at meetings and in debates 65 to the case which hon. Gentlemen opposite have put forward in favour of private enterprise, I have thought that they were putting forward a rather feeble case, and that I could do it much better.
Of course there is a case for saying that if the private investor takes a great deal of risk, and sometimes unlimited risk, even to the point of final ruin of himself, and the risk comes off and there s a great deal of profit, he should have at least the first, if not the total, claim on such profit. Equally there is a case, which will be familiar to my right hon. Friend, for public enterprise. One can make a good case for either, but one thing that one cannot make a case for is private enterprise on the dole; private enterprise with public dole. This is an insupportable case. One cannot make a case for a situation in which the entrepreneur does not take the risks, because they are covered by public money, but yet takes the profit if public money produces one for the privately-owned organisation.
What we are in grave danger of doing with regard to the aircraft manufacturing industry is finding the worst of all compromises between public and private ownership. What we are in grave danger of doing is "privatising" the profits and nationalising the losses. In other words, the taxpayer guarantees the privately-owned organisation, that is the shareholder, against any loss, but if there is a profit the shareholder takes it all.
The whole thesis of the capitalist doctrine that the right to profit should follow the acceptance of risk has broken down in the circumstances of aircraft manufacture in the middle of this century, because the entrepreneur, the shareholder, takes no risk whatsoever. Every penny of risk is covered by right hon. and hon. Gentlemen and myself as taxpayers. We cover every penny of risk. There is no danger at all of the shareholders of these companies losing any money whatever, so on what grounds do they stake their claim for profits which have been created largely by public money?
I hope that the Parliamentary Secretary will say something about this when he winds up the debate, and will note that some, if not all, of us on this side of the House will want to know—as the right hon. Member for Mitcham rightly 66 wants to know—how much of this money which we are voting in the Bill is a coverage to B.O.A.C. for the losses of money on the VC.10 and Super VC.10, as against the aircraft which, on narrow commercial considerations, they would have proposed to buy. Like the right hon. Member for Mitcham, I should like to know what the figure is.
§ Mr. Stephen Hastings (Mid-Bedfordshire)
The hon Member has been talking about aviation firms. Is he aware that three major projects for civil aircraft by the Hawker-Siddeley Group—certainly in the case of the Herald and the company with which I am associated—are being undertaken without one single penny of public money?
§ Mr. Mikardo
I am well aware of that. I have been involved in this subject for 30 years—long before the hon. Member came into the picture, if I may say so without disrespect. I have gone into every private project and every public project. The sort of enterprise of which the hon. Member is talking is utterly marginal in the economics of aircraft manufacture. It is microscopic. At best, Hawker-Siddeley has done one or two of these projects. I beg the hon. Member to consider the strategic and not the tactical situation. I ask him to consider the global picture. All the things about which he is talking are absolutely marginal.
If he wants to test the matter I ask him to invite my right hon Friend to withdraw all subsidies, direct and indirect, from the aircraft manufacturers and to see how they get on with private projects, privately financed. They would not last until the end of the week.
The first question we must ask is: how much of the money which the House is voting today is going in subsidy to aircraft manufacturers? The second is: how much money is going through one back door or another to some private company?
I want to refer to a matter which has already been referred to in both the speeches that have been made so far, namely, the story of B.O.A.C.-Cunard. As you know, Mr. Deputy Speaker, I am not a man to use strong words, but if one looks back over the story of B.O.A.C.-Cunard one realises that it is, to put it 67 moderately, a very smelly story, and one which reflects great discredit on my right hon. Friend's predecessors in the Ministry. It is highly significant that not one of them is here for this debate.
§ Mr. R. Carr
I cannot allow this to pass. My right hon. Friend the Member for Preston, North (Mr. J. Amery) has been sitting here the whole time. He has now left the House temporarily. I wonder whether the hon. Member even had the courtesy to let him know that he was going to make this disgraceful and unsubstantiated charge, of which he ought to be thoroughly ashamed.
§ Mr. Mikardo
The right hon. Member for Mitcham is a nice guy and he ought not to work himself up. I did not notice that the right hon. Member for Preston, North (Mr. J. Amery) was in the Chamber. I apologise for not having done so.
But the story of B.O.A.C.-Cunard is largely a story of the guilt of the right hon. Member for Streatham (Mr. Sandys) and the right hon. Member for Monmouth (Mr. Thorneycroft). Neither of them is here. The right hon. Member for Preston, North, came along as a victim after all that was over, and it is very significant that the two right hon. Gentlemen who were responsible for this situation are not here.
§ Sir Ian Orr-Ewing
For the sake of integrity the hon. Member ought to bear in mind that my right hon. Friend the Member for Streatham (Mr. Sandys) was standing by the side of the Chair for a long time during both the opening speeches.
§ Mr. Mikardo
I did not see him. [Interruption.] If I have done either right hon. Gentleman an injustice, I apologise. It is a small point. I utterly withdraw what I have said. But the fact is that those people have left the right hon. Member for Mitcham today to carry the can for their misdeeds, and the poor fellow has obviously been very uncomfortable about the carrying of this can. He looks uncomfortable now, and my heart bleeds for him.
Although this story is familiar to many of us, I want to say a word or two about the way in which it developed. It started with the Civil Aviation (Licensing) Act, 68 1960, which gave private airlines the right to compete with the Corporations on scheduled services. In an intervention from the hon. Member for Hendon, North (Sir Ian Orr-Ewing) we heard something about doctrinaire considerations. Nothing was more doctrinaire than the basis of the Civil Aviation (Licensing) Act, 1960, because, although the Conservative Party, from bitter experience, going back to before the war, and before the hon. Member was concerned with the subject, had learned by burning their fingers that it is not possible to have competition within one nation on scheduled airlines because the competition from other countries is much too fierce, it introduced the 1960 Act, which was motivated by the idea that the Conservatives had to break up what they choose to call the B.O.A.C. monopoly on scheduled airlines.
So they gave a right to private airlines to apply for licences to operate on the scheduled services of the two Corporations, notwithstanding—as the Minister has told us this afternoon—that on the North Atlantic crossing B.O.A.C. already has 17 foreign competitors, including some of the most effective and best airlines in the world, and notwithstanding the fact that, to anybody except a blind man, giving them an additional British competitor would make it terribly difficult both for the Corporation and its British competitor to compete with those 17 foreign airlines.
Their doctrinaire considerations waved these practical considerations aside. They said, "You have to have competition; you cannot allow B.O.A.C. to go it alone. Never mind about Pan-Am, Trans-World Airlines, Sabena, E1 A1 and the rest; you cannot allow B.O.A.C. to go it alone." It was like a phrase culled out of a novice Tory candidate's election address. In this way the Tories did great damage to British aviation—not to B.O.A.C. and not to Cunard, but to British civil aviation. It was a wicked and doctrinaire act.
As soon as the Act was passed Cunard said, "Boys, our sea business is going down. Here is our chance to get into the air". So they bought up Eagle Aviation and applied for a licence to operate on the North Atlantic route. They immediately put in an order for three Boeing 707s and took delivery of 69 two of them in order to substantiate their claim for a piece of the North Atlantic route in competition with B.O.A.C.
B.O.N.C. then appealed against the decision of the Air Transport Licensing Board to give Cunard-Eagle a licence, and the right hon. Member for Monmouth, the then Minister—the party opposite changed their Ministers of Aviation approximately three times a day after meals, which is why the right hon. Member for Mitcham was a little defensive on the subject of changes in personnel—to his credit reversed the decision of the Board and withdrew the right of Cunard-Eagle to operate across the Atlantic in competition with B.O.A.C. Cunard-Eagle was then left with no right to operate any worthwhile route at all. That is to say, as far as the North Atlantic was concerned, they had no assets at all.
However, they had a tremendous liability. They had two large and expensive aircraft on their hands, both of which were unusable, so they were not in a very strong commercial position. Hon. Gentlemen opposite have been talking about commercial considerations: the right hon. Member for Mitcham talked about commercial considerations. t is not much of a commercial situation—as the right hon. Member will agree—if one has a large amount of plant and equipment and nothing on which one can use it. One is not in a very strong bargaining position.
That is the position in which Cunard-Eagle then were, with these two large, expensive aircraft whose cost ran into millions of £s and with nothing on which they could use them, because they had no routes across the North Atlantic and no usable and worth-while routes at all. Then, along came the Minister, motivated, of course, by only the purest commercial considerations, and he arranged a shotgun wedding between B.O.A.C. and Cunard-Eagle. My right hon. Friend said this afternoon that B.O.A.C. entered into this contract freely. The right hon. Member for Mitcham was glad to echo this point.
I am sorry to put my opinion against those of two right hon. Gentlemen both of whom I respect very much, but I must tell the House that I happen to know a bit more about it than either of them, because I was closely associated with it 70 as a member of the National Joint Council for Civil Air Transport. The facts are that, without very heavy Ministerial pressure, B.O.A.C. would not have entered into that contract. There is no question about that. It was a shotgun wedding.
What is fascinating about it—I appeal to the hon. Member for Hendon, North to think about this, because he keeps using the word "doctrinaire"—is the sudden reversal of the Conservative doctrinaire story. They made public statements to the House justifying this enforced merger between B.O.A.C. and Cunard-Eagle. On what grounds? On the grounds that the economic situation of the North Atlantic route made it impossible to envisage two British competitors on it, and on the grounds subsequently echoed in a leading article in The Times inspired by the then Minister of Aviation—as I know that we could get efficient operation only by a rationalisation of the services of B.O.A.C. and Cunard-Eagle.
It was only a year or two before that they had been saying that the demands of doctrine demanded competition, and now they were saying that the demands of doctrine demanded rationalisation, otherwise the thing could not possibly be effective. I was sorry to hear the right hon. Member carry this further now. He has gone back one. First of all, it was competition, then it was merger and rationalisation which they justified on doctrinal grounds and this afternoon he went back to the theme of competition. Where does he stand now?
If there were, as I do not expect, a change of Government, and he became Minister of Aviation—I am sure that he would be the best Tory Minister of Aviation we have had up to now, although that is not saying much—would he really encourage a British private operator to work the North Atlantic route in competition with B.O.A.C. and the 17 foreign operators? If he is not saying that, I cannot make head or tail of what he said this afternoon.
Sometimes I think that a Tory is a man who is prone always to make the same mistake twice. After all, this modern story is not the first such. We had it all before the war, when there were British Airways and Imperial Airways, one partially publicly owned and one privately 71 owned and in intense competition with each other.
British aviation at that time was in a heck of a mess. One inquiry after another—notably the Cadman Committee—described it rightly as an absolute shambles and, in the end, a Conservative Government cut it all out and merged these two competitors into the publicly-owned British Overseas Airways Corporation. It is sometimes forgotten that B.O.A.C. is not an industry nationalised by the Socialists, but by the Conservatives, in 1939. They nationalised it by merging two competing airlines because, after several years of creating an absolute shambles in British civil aviation, they realised that there could not be two major competitors and that the two would have to be rationalised.
Of course, they never learn from their mistakes. So, some 25 years later, they make the same mistake again and then they are forced into a corner and have to rationalise the two. Now, to my horror, I hear so intelligent a man as the right hon. Member for Mitcham, who must have got his brief from Conservative Central Office—these are not his own ideas: he knows better than that—talking about turning the clock back to 1939 and having British competition as well. So——
§ Mr. Lubbock
I am sorry to keep interrupting, but this is a very important point. I agree with the hon. Member that the then Minister sought to defend the agreement between B.O.A.C. and Cunard in the House after it had been reached, but he must be aware that Mr. Keith Granville, giving evidence to the Select Committee on the Nationalised Industries, categorically denied that any pressure had been brought to bear by the Government on the Board of B.O.A.C. to enter into this agreement with Cunard. This was said this afternoon by the Minister and by the right hon. Member for Mitcham. The hon. Member for Poplar has sought to contradict that, and I think he ought to produce some evidence for the allegations he has made.
§ Mr. Mikardo
I know all the people who have said this. My right hon. Friend has said it, as has the right hon. Member for Mitcham, for both of whom, as I have said, I have a great respect. Mr. Keith Granville has said it and I know 72 him well. I just happen to know that a great many conversations went on between the then Minister and the then Chairman. I happen to know that the then Chairman and the then Managing Director were very unhappy—terribly unhappy—about it, and I put two and two together and made four——
§ Mr. Nicholas Ridley (Cirencester and Tewkesbury) rose——
§ Mr. Mikardo
I have given way a lot—no one can accuse me of not giving way—but I should like to finish this point first.
It is no good anybody saying, "Ah." Let us have a Royal Commission. I am prepared to have any independent investigation and, if the hon. Gentlemen who say, "Ah" agree with me, let them lend their support to it. I am prepared to have any investigation at which witnesses can be called under oath to decide what pressures were put on B.O.A.C. If the hon. Members for Macclesfield (Sir A. V. Harvey) and Cheadle (Mr. Shepherd) will lend their support, I will be absolutely delighted. I know what I am talking about.
I will give way now.
§ Mr. Ridley
As I was a member of the Select Committee which took evidence on this subject from all those concerned, I see no reason why we should have a further inquiry, which would, presumably, produce only the same evidence, at two further years' removal. May I also remind the hon. Gentleman that he has left out of his account of the story that part where B.O.A.C. and Cunard found themselves in heavy competition on the Bahamas route. That was the situation which made it in the mutual interests of both airlines to amalgamate into the one company.
§ Mr. Mikardo
That is the story. It is true that there was a residual possibility for competition in the Caribbean area and it was a commercial factor to take into account——
§ Mr. Mikardo
It was right that B.O.A.C. should take that into account, 73 but I do not believe that it was anything like enough—nor did the then management of B.O.A.C. believe that it was anything like enough—to account for the enormous price they paid, which I will describe in a moment, for this agreement. As for the question whether there was pressure, I have said what I have said. I stand by what I have said. I make no aspersions about Mr. Granville. I am not sure that he was in the picture at the time. He was not then in as senior a position as he is now. And I know what I am talking about.
In any event, the proof of the pudding is in the eating. I have said that this was a shotgun wedding. It was a shotgun wedding with the most one-sided marriage settlement in the whole of history. I do not believe for one moment that the chaps in charge of B.O.A.C., if they had been left to their own discretion, would ever have entered into an agreement under which they gave away so much in return for practically nothing at all.
Here is the evidence of the shotgun. Forty-five per cent, of B.O.A.C.'s turnover is on the North Atlantic route. B.O.A.C. gave away a share of that for practically nothing at all. My right hon. Friend said today that there were a couple of aircraft which belonged then to Cunard-Eagle and which, as a part of the agreement, the new company took over commercially at their going values. What is the going value of an aeroplane? For that matter, what is the going value of a sausage or a pair of silk stockings? It is the price at which it can be sold to a willing buyer. There was nobody else in the world at that time who would have bought those two aeroplanes. They could not have found any other customer. What B.O.A.C. did as a part of this agreement was to take over at going commercial values two aircraft which could not have been sold to anyone else at that time. In addition, B.O.A.C. passed over to the new organisation the benefit of the costs—they are enormous costs—of pioneering routes which B.O.A.C. had undertaken.
B.O.A.C. passed over to the new organisation—this is absolutely unprecedented in any merger agreement I have ever come across; perhaps the right hon. Member for Mitcham will tell me if he has ever come across a merger agreement 74 like it—an undertaking that 6 per cent. dividend would be paid before one single penny went to reserve. What sort of commercial agreement is that? B.O.A.C. passed over to them the right that there would be no change in these terms without the consent of both parties.
The right hon. Gentleman spoke, quite rightly, about partnership between public and private enterprise. But partnership is fair partnership. Like a marriage, it is a matter of give and take. This was all take and no give on one side, and all give and no take on the other side. The right hon. Gentleman should not assume from my right hon. Friend's dissatisfaction with this particular partnership that he has weakened to any extent in his general belief in such partnerships. The point here is that this was a most outrageously one-sided arrangement which was not capable of support.
I ask hon. Members to reflect on what Cunard got out of it. It got out of it the sale of two aircraft which it could not otherwise have sold. It got out of it participation in a profitable airline route which it had been refused permission to handle itself. It got out of it participation in a very profitable enterprise, with 6 per cent. dividend before anything was put to reserve. Cunard also got out of it an understanding that, even though it was a minority shareholder, the majority shareholders would not change the agreement without its consent.
This is really like a bookmaker telling a punter, "If you put a bet on with me I will pay you out in full if you win. If your horse loses, I will give you back your stake with a bit of profit. Further, I will guarantee you against any change in these arrangements in perpetuity". That is a pretty good arrangement.
Anybody who tries to tell me that practical men like Matthew Slattery and Basil Smallpeice entered into that arrangement of their own free will without the screws being turned on them really is living in cloud-cuckoo-land. I will go so far as to say that, if it had not been B.O.A.C. but a privately-owned company which had entered with another company into an agreement similar to the one B.O.A.C. entered into with Cunard and had given away so much of its assets with so little return, at the next annual meeting of the company there 75 would have been the most flaming row in all history. I have no doubt that the directors would have been chucked out. I have no doubt that there would have been a demand from the shareholders for a Board of Trade inquiry. I am not sure that the directors would even have escaped some sort of prosecution for criminal mismanagement of the company's assets.
If anybody thinks that these are strong words, I have evidence to support them. The give-away is that nobody has ever dared to publish that agreement. This in the give-away. Why has the B.O.A.C.-Cunard agreement never been published? Who has prevented its publication? What are they afraid of? What are they ashamed of?
§ Mr. Mikardo
Not at all. It was Cunard. Both parties, B.O.A.C. and Cunard, objected to its being published—Cunard because it did not want the world to know what a carve-up it had got and B.O.A.C. because the management did not want the world to know what suckers they had been in falling for the carve-up. This is why the agreement has never been published. The Minister refused to publish it. He refused even to put a copy of it in the Library.
I hold in my hand my copy of the agreement. I have had it since two days after it was signed. If the Minister will not put a copy in the Library, Mr. Deputy Speaker, and if Mr. Speaker gives me permission, I will put my copy in the Library. Why should not other hon. Members have the advantage I have got of having a copy of the agreement and being able to peruse it? The fact of the matter is that the agreement was not published because the parties to it dared not face the howl of criticism that would have gone up if it had been published.
Here is the agreement, Mr. Deputy Speaker. I will drop it on a table in the Library when I walk out of the Chamber. [Interruption.] My hon. Friend says that it is in The Guardian. Bits of it are in The Guardian. Here is all of it. The juiciest bits are not in The Guardian. I will drop it on a table 76 so that every hon. Member who wants to read it can do so.
If anybody wants to know why I have got it and other hon. Members have not got it, I will tell them. It is because of what became the practice when right hon. Members opposite were in office. Before this agreement was signed there were copies of it floating round the City. Within a day or two, copies of it were floating round Fleet Street. A day or two afterwards, the television organisations, the independents and the B.B.C., had copies of it. This was the usual rule when right hon. Members opposite were in office—first, the City; second, Fleet Street; third, the television organisations; also ran, the House of Commons. We were always last in getting to know what was going on.
I know that there are difficulties about publication now because of some provisions in the agreement itself. I am well aware of that. I know of the difficulties about changing it because of the built-in safeguard which Cunard "blagged" its way into getting. I say to my right hon. Friend, with all the respect which he knows I hold for him, that somehow or other he must find a way to organising a divorce of this shotgun marriage between B.O.A.C. and Cunard.
Another one is coming along, namely, Bofort, which is the marriage between B.O.A.C. and Forte's to run some hotels so that one can buy an aircraft and a hotel ticket, one ticket which will provide aircraft travel and hotel accommodation somewhere in the Caribbean or elsewhere in the world. The arrangement is, as I understand it, that 51 per cent. of the shares are to be held by B.O.A.C. and 49 per cent. by Forte's organisation, that each side is to appoint three directors, and the matter of the balancing vote on the board was left open according to who would be the chairman. I understand that a meeting was held last week, I think on Thursday, at which a certain Mr. Eric Hartwell, a member of the Forte's organisation, was elected chairman, so effectively Forte's have a minority vote on the board.
77 This is an interesting situation. The growth of package holidays, tours and "comprehensives" is such that we are bound to have more and more airline tickets sold not as airline tickets but as airline-hotel tickets, sometimes with tours and other facilities as well. If this is done one can easily switch profits from the airline to the hotel company or from the hotel company to the airline by merely changing with a stroke of the pen and without publicity the proportion of the money which is paid from each. It can be changed, for example, from 20 per cent. airline and 80 per cent. hotel to 40 per cent. airline and 60 per cent. hotel. One can do this as much as one likes and it is an open-ended commitment. Hon. Members opposite always object to an open-ended cheque, and quite rightly, but this is an open-ended commitment to switch about just as one likes the profits of B.O.A.C. on certain routes away from B.O.A.C. to this new organisation of B.O.A.C. and Forte's.
In justification the Minister said to me today that B.O.A.C. had to have the expertise of Forte's. This is nonsense. Forte's are not hoteliers. If B.O.A.C. wants the expertise it should go to an hotel company. Forte's are caterers. As far as I know, they own only one hotel and that not a very good one. I think that it is a pretty poor one. I have been there two or three times and I do not reckon it to be much. They have no overseas hotels at all, and overseas hotels demand an expertise very different from that demanded by hotels in this country.
In any event, is my right hon. Friend satisfied that to buy expertise one has to give away 49 per cent. of one's equity and one's majority on the board? There are companies all over the country, and some of them are our best, who pay for specialist expertise by way of salary and sometimes by way of participation, but does anybody know any privately-owned company in the country which has given away 49 per cent. of its equity in order:0 buy expertise?
The right hon. Member for Mitcham talked about commercial discipline. I know of no airline where commercial discipline is so hard as it is in Pan-American Airways. It runs its own hotels in many parts of the world. It buys the expertise to run hotels, but it awns the hotels and Bets a lot of revenue from them. Pan-American would not 78 agree for one moment to give an hotel company the benefit of 49 per cent. of all the work and money that Pan-American had put into pioneering its routes. But B.O.A.C. is giving 49 per cent. of the work and money which it has put into pioneering its routes to this organisation.
Where will all this end? is the next thing going to be a joint company with Mr. Clore—"Boclore", I suppose it will be called—for the running and management of B.O.A.C. properties? Or will there be a joint company between B.O.A.C. and the little garage at Blackbird Cross for the maintenance work of B.O.A.C., or a joint company between B.O.A.C. and a consortium of Oxford Street pavement-traders and barrow-boys for the sale of whisky, cigarettes, perfume, stockings and souvenirs on the flights of B.O.A.C. aircraft? How much further is this bleeding away of slice after slice of B.O.A.C. profits to go on for the benefit of commercial enterprises which contribute very little and take an awful lot?
The right hon. Member for Mitcham said that in supporting the Bill he and his hon. Friends would take a good look in Committee at some of the things in it. I should like to say that that is not the only source from which a penetrating look at the Committee stage will come. I hesitate to say this because if I say that there are some matters on which I should like to suggest some Amendments in Committee, that is a pretty fair guarantee that I shall not be chosen as a member of the Committee. Therefore I do not say any such thing. All I would say is that some ideas about changes in Committee may come from sources additional to those from which the right hon. Member for Mitcham draws his inspiration.
It is clear that the House will give a fair wind to this Bill, but I hope that I have not gone too far in suggesting to my right hon. Friend that in so doing we have the right to put forward some of our doubts about the present management of B.O.A.C. and its commercial operations which my right hon. Friend should seriously take into account. My right hon. Friend has been one of the great successes of a very successful Government. [Laughter.] What are the chumps over there laughing at? I know that my right 79 hon. Friend will keep an eye on B.O.A.C., but from what I have heard he will not be very much longer in a position to do so. He may leave for a higher peak on Olympus, and I do not trust his successors to keep as close an eye on things as he would do. I therefore urge him to give careful consideration to the matters which I have put forward, to make sure that the Bill will be absolutely certain of setting B.O.A.C. on the road to even greater success.
§ 5.47 p.m.
§ Sir Arthur Vere Harvey (Macclesfield)
We have listened to a very long speech from the hon. Member for Poplar (Mr. Mikardo). I have had the privilege of following him in debate on many occasions. This time, during the first few moments of his speech, I thought that in the years he had been out of the House he had begun to mellow, but the latter part of his speech brought me back to my original view that the hon. Gentleman was living 20 years in the past. I did not hear one constructive item in the speech. The hon. Gentleman talked about "lolly through the letterbox" and "putting the screw on". I do not think that he was very helpful to the cause of B.O.A.C., and certainly not when he queried the decisions of the Corporation's Board and senior executives.
The hon. Gentleman went on to say, if I have it aright, that foreign aircraft would have produced more profits. If he was referring to the Boeing as producing more profits than the VC.10, I am not certain that that is the case. We know that the operating costs of the VC.10 are higher and that here is a slightly higher initial cost, but when it comes to the load factor I should like to see a breakdown of the profitability of loads carried by commercial aircraft. I do not think that the hon. Gentleman is doing a great service in making this implication.
The hon. Gentleman talked about a "smelly story" 20 years ago. To make these implications about men of the ability of members of the B.O.A.C. Board is absolutely wrong. They may make mistakes, but, whatever they do, they are eminent men acting in what they think to be the best interests of the Corporation.
§ Mr. Mikardo
I am sure that the hon. Gentleman is not deliberately misunderstanding me. The word "smelly" was not an imputation against any people on the B.O.A.C. Board or employees of B.O.A.C. It was directed entirely to former Conservative Ministers of Aviation.
§ Sir A. V. Harvey
I shall not return to that. There are other things I wish to say, and I shall pursue the hon. Gentleman's speech no longer.
When the B.O.A.C.-Cunard arrangement came about, B.O.A.C. had a loss in the current year of about £450,000. The Corporation's affairs were not in very good shape at the time. Morale was low. We have been told by the Minister that there was a very big staff at the time, 21,000 or 22,000, I think, and it is now coming down to 16,000. I thought and said at the time that Cunard was making a rather bad investment. Nothing has been said about what Cunard have to offer in the organisation. [Interruption.] The hon. Member for Poplar makes speeches sitting down. He mutters away to himself but says nothing. If he will look across the North Atlantic, he will find that Cunard has a very fine sales organisation throughout all North America, and it is throwing its weight behind this joint arrangement. That is just one aspect of it. The Americans have two main operators on the North Atlantic route. Why should they have two and Britain one? That question has never really been answered.
I am myself satisfied that this agreement was freely negotiated. It has been gone into by the Select Committee. The Minister says that it was freely negotiated and I do not think that he was trying to be helpful to previous Conservative Ministers. I am quite prepared to set his word against that of the hon. Member for Poplar.
On the subject of the forward thinking of the Corporation it is interesting to note that in the structure of KLM 49 per cent. or 48 per cent. of the equity is held by the public. That airline went through a rough time, but it is now coming out of it. It may be worth thinking in the future about letting in the small shareholders of Britain. They would have to pay the market price to the Government 81 for any shares in the Corporation which they obtained.
Obviously, B.O.A.C. had to be reorganised financially. It could not go on indefinitely as it was. The reasons go back over many years. Governments could be blamed in the past. The DC7Cs were bought when we were very short of dollars and the House was given a firm assurance that we should be paid back in dollars. In fact, when it came to it, the aircraft were practically given away. It is very easy to be wise after the event. In fact, these aircraft should never have been ordered. But decisions of this kind came about because of wavering policies towards nationalised industries. It is right now to clear off some of the burdens of past losses. If it is not done, the morale of the Corporation will suffer, and that is the last thing that any of us want to see happen.
On 1st January, 1964, my right hon. Friend the Member for Preston, North (Mr. J. Amery) charged the new Chairman, Sir Giles Guthrie, to produce a plan to break even. As I saw it at the time, the Super VC10s were a very large factor in this plan for earning profits for the Corporation. I have never has any doubt, in spite of what has been said, that the order should have been placed. The Corporation ordered the number of VC10s which it thought necessary. Admittedly, at a later stage, it said that it had to have minimum of, I think, 35 or it would not take the job on, but that is fairly normal. These intelligent gentlemen knew what they were doing. They knew the number of VC10s on order, and they paid the deposits. But we know that they ordered 23 too many, not three, and I wonder how on earth the reckonings came to be so far out on the traffic figures.
In July last year, many hon. Members and many people in B.O.A.C. told the world in the strongest possible terms that the VC10 was a flop. That was said in the House, and it was certainly said outside. We told the world. Why should we be surprised now if we cannot sell it to foreign airlines? Here I pay a tribute to the Parliamentary Secretary, who has been travelling round the world doing his utmost to assist in the conclusion of contracts to sell the VC10. He has done extremely well. I hope that the people who made those remarks about 82 the VC10, including the chairman of B.O.A.C. at the time, will now eat their words.
The story of the VC10 is the story of a remarkable feat. Within four or five months' flying, this aircraft was averaging the same level of utilisation as the Boeing got in two or three years of operation—an incredible feat. I hear suggestions that we are out of the race and that we ought to order Boeings. What are we coming to in this country, with suggestions that we have failed, when, in fact, we have one of the great successes of all time? The VC10 is probably the best aircraft in the world today. The Minister spoke of a load factor of up to 85 per cent. I was told the other day that Sir George Edwards, the leader of the design team, wanted to fly to New York recently and he could not get a seat on a VC10. It is invariably full, and he had to fly on a Boeing. How degrading for him!
I have a technical broadsheet here which says thatIn its first six months of service on the world's most fiercely competitive air route—the North Atlantic—the rear-engined VC10 has clearly established itself as today's top moneymaker. Over that period, the Super V10s (B.O.A.C. at present operates a fleet of five) recorded an average load factor of almost 80 per cent., easily the highest figure for any jet on the North Atlantic routes.Moreover, analysis of traffic returns showed that, for much of the time, each Super VC10 was producing 40 per cent. more revenue than any other jet trip over the North Atlantic".The figures speak for themselves. It is a remarkable performance.
On 22nd July, 1964, the right hon. Member for Newton (Mr. Lee), who is now Minister of Power, said, referring to the Minister at that time:He does not help us much by going to the United States for our defence at a time when the British aircraft industry could very well do with orders for weapons of the type which he proposes to get from the United States."—[OFFICIAL REPORT, 22nd July 1964; Vol. 699, c. 509–10.]That is a good one from this Government who are about to order 300 Phantoms from the United States, and probably the F111. In July last year, the right hon. Gentleman was saying that we should not go to America to order equipment.
§ Mr. Cronin
In fairness, the hon. Gentleman should tell the House that 83 there is no alternative whatever to the Phantom if we are to re-equip the Royal Air Force and the Fleet Air Arm.
§ Sir A. V. Harvey
I do not want to get into a long argument about the Phantom, and I should be out of order if I tried to do so. I remind the hon. Gentleman that at least three TSR2s were flying very adequately at the time when this Government came into office, and the TSR2 could have been made today in British factories. I say no more about it than that.
In the debate in 1964, I advocated that B.O.A.C. should be made to take the VC10s as a fleet and sell its Boeings. I am glad to see that the right hon. Gentleman the present Minister of Aviation supported me on that occasion not only in articles which he wrote but in which he said in the House. In his speech, he said:Accepting, reluctantly, the position into which we have got, it would be better, once the Super VC10 has proved itself in flight to a somewhat greater extent—I would do it reluctantly, but I still think that it would be the better course—to require B.O.A.C. gradually to sell its Boeings, for which I think a good price could he obtained, and to move towards a large VC10 fleet …"—[OFFICIAL REPORT, 22nd July, 1964; Vol. 699, c. 544–5.]and he went on to say that this would help to keep production going, and so on.
What has been done about this? I am very disturbed when I hear that B.O.A.C. has been allowed to buy two new Boeing freighters with windows in them. They are the first freighters I have ever heard of with windows all along the fuselage. Have they been obtained with a view, possibly to buying more Boeings? Are these to become part of the passenger fleet if the Corporation does not get the remainder of the VC10s? I want to know because a freighter with windows in strikes me as being a rather odd sort of aircraft. I do not know whether the idea is that they should carry animals, the view from the windows being intended to cheer them up on the trip. Perhaps we can be told what it is all about. I should like to see an all-British fleet being flown by B.A.O.C.
It looks as though Middle East airlines will not take British aircraft. Again I would refer to the visit of the Parliamentary Secretary. Whenever Britain has something worth while, we have the Ameri- 84 cans coming in and somehow or other overriding the British offer. The last time the Australians and the New Zealanders bought a British aircraft, except for a few small Executives, it was their purchase of the Viscount 12 years ago. We talk about the great Dominions, the blood relationship and the rest. Let us have a little more trade coming to Britain. That might be more helpful. After all, the Australians were the first to squeal when there was a possibility of Britain going into Europe. They should be reminded of these things, when an aircraft like the BAC111 is offered to them, for it is cheaper and has more flying behind it and is comparable in every way. There is a very strong case for their ordering from Britain. But no, they order from America. I do not begin to understand why. The Commonwealth will not stay together unless we can trade effectively, because the Commonwealth was built on trade relations.
About a year ago B.O.A.C. decided that it had 112 surplus captains on its staff and it worked out a redundancy scheme, offering up to about £10,000 in cash plus a pension. It all looked attractive. I am told that 53 accepted the offer, and then the door was shut. Now B.O.A.C. is in the market, I am told, like all the other airlines of the world, looking for pilots. It seems crazy to pay off 53 very experienced men with thousands of flying hours to their credit and then have to hire some more elsewhere. One of those captains is now flying with a British independent airline. He got his £10,000 and a pension, and is now drawing a good salary. If the P. & O. or even Cunard dealt with the masters of their vessels in this way, what a mess they would get into!
We are told that the ten Super VC10s are to remain in suspense. If they are not taken I imagine there will be compensation for the manufacturers. May we know what this is? It is very disturbing to the people in the British Aircraft Corporation and to everybody else concerned to be kept in suspense indefinitely. It is holding up orders abroad. The Americans go to Australia and New Zealand and say, "It is no good buying the BAC111. B.O.A.C. will not be ready to buy any more. B.A.C. will go broke, and you will not get spares. Why do 85 business with B.A.C.? It would be far better to buy from us and get continuity." This is being said all over the world by the Americans. The matter cannot be left in abeyance, as it has been for 16 months, waiting for a report. I should like to see an early decision.
The Minister talked about a large aircraft which could be built in this country. I am told that the specification is for a 265-seater designed to reduce by 20 per cent. the seat/mile cost, with accommodation on two decks, and I understand that the aircraft is capable of even further development after its initial stages. It will be able to fly with a full load from Rome to New York or with a useful payload from London to Los Angeles. I think that this would be a case for a consortium between Britain, France, Germany and probably Italy. I do not think that we would necessarily want to do this alone. I am sure that the Concord arrangement between Britain and France is a very satisfactory one indeed, in spite of the fact that it will cost 10 per cent. more than if it were built in one country. A senior American official over here recently could not believe that the relationship was so good between the British and the French.
If we fail to go ahead with this large aircraft in Europe, there will never be a large aircraft built in Britain again. It will be the finish. Let us make no mistake about it. If we hand the market over to the United States we shall be entirely in the hands of the Americans not only for the aircraft but for the electronics which go with them, and we shall be taken for a ride over the price of spares for the rest of our lives, and, indeed, for ever. I ask the Minister to review the matter very carefully with our friends in Europe.
My impression—I may be wrong—is that the VC10 will last probably until 1980. I give it 15 years' life. Even when the Concord is in, and even if it is successful, as we all hope it will be, it will have a limited operation, certainly in the early years, until we know far more about supersonics. Not only over the Atlantic and other oceans, but certainly flying out to the Middle East and the Far East, we shall have to use a subsonic aircraft of the DC10 type.
The Boeing Company will stretch its aircraft. Let hon. Members privately ask 86 any captain in B.O.A.C. what he thinks of the Boeing to fly. The pilots do not like it. The nose comes up very quickly, and it is a menace to bring in in bad weather. But the pilots will tell one that the VC10 gets off in half the distance and lands in half the distance. Surely this is what aviation today ought to be aiming at—safety. It has been saying this for years. The hon. Gentleman opposite who said that he had been in the business for 30 years is surprised that one has to pay a penalty to get this safety factor. But I think that it is well worth while, and the public certainly realise it because they pay to fly in the aircraft.
B.E.A. has had a very great record. When Mr. Anthony Millward took it over it was not the "bed of roses" that certain people thought it was. I think that Lord Douglas did a good job of work. But Mr. Millward has a very difficult job in running the domestic routes and the European flights. I make one suggestion to him, that he should take a little more trouble over the passenger. I did three consecutive flights in a Vanguard recently, two to Ringway and one to Malta. The seat would remain only in the down position. I spent five hours in the aircraft in the middle of the night flying to Malta, and at four o'clock in the morning I wrote a letter about this. I do not suppose that it was very well worded, but I think that it has struck home. B.E.A. must pay attention to this matter and renew the seats. It repairs the ratchets, or thinks that it has, but there is no proper maintenance of these things. It should tear the seats out and put in new ones. B.E.A. should also smarten up its crews a little and bring about a better relationship with the passengers. But it is a magnificent airline in every other way. Its safety record is good, and we get good reports of it. But to keep pace with its European competitors it must do what I have suggested.
The Corporations have good prospects for the future. They have a record second to none. Many mistakes have been made in the past by successive Governments and by the Corporations. I hope that from now on we shall avoid those mistakes. We are now in an era where there is more science attached to make long-reaching decisions. I hope that when everything is gone into Britain will be 87 able to play its part in building the fleets of these great Corporations.
§ 6.8 p.m.
§ Mr. John Cronin (Loughborough)
I strongly support the Bill. I think that the reasons which my right hon. Friend the Minister gave for the Measure are most comprehensive and incontrovertible. I feel that I shall have the approbation of my right hon. and hon. Friends when I say that it would be appropriate to congratulate the Minister on a very distinguished and successful year of office.
It is always a pleasure and instructive to follow the hon. Member for Macclesfield (Sir A. V. Harvey), but I think that on this occasion he has been a little unfair on this side of the House. He said that in the days when we sat on the Opposition benches in the last Parliament we stated that the VC.10 was a flop. In those days I used to attend aviation debates with considerable assiduity, and I cannot recollect a single Opposition Member of those days saying anything whatsoever against the VC.10.
§ Sir A. V. Harvey
If the hon. Gentleman studies HANSARD he will find that there was great leaning towards buying American, both from the Air Corporations and from the then Opposition.
§ Mr. Cronin
I think the hon. Gentleman's intervention is something of a non sequitur. All I am saying is that there was no "herd" criticism by Labour Members of the VC.10. Indeed, I recollect my right hon. Friend the Member for Newton (Mr. Frederick Lee), now the Minister of Power, and myself severely criticising the then Government for allowing the Chairman of B.O.A.C. to make remarks which in general were derogatory to the VC.10. We backed the VC.10 very heavily.
The hon. Member for Macclesfield was rather critical of the Government having to buy 300 Phantoms, or at least considering doing so. But the fact is that there is no alternative to the Phantom. No other aircraft exists that can perform the same rôle. There is not even such an aircraft on the drawing board. The Government, therefore, have no alternative. He has suggested that the Government should extract a sub- 88 stantial quid pro quo from the United States, but it is difficult to do so.
As recently as two weeks ago, I was talking to Defence Department officials in Washington about it. Their attitude was quite tough. In effect, they said, "You need the Phantoms. You have nothing else to take their place. You must take them or leave them." It is difficult to drive a hard bargain for something to which there is no alternative.
The right hon. Member for Mitcham (Mr. R. Carr) said that this was a Tory Measure. He should have the grace to blush when I refer to this, because I recall that during the last three years of the last Parliament right hon. and hon. Gentlemen on this side of the House, then in Opposition, used to question the right hon. Member for Preston, North (Mr. J. Amery) regularly, asking when he intended to undertake a capital reconstruction of B.O.A.C. He always avoided the issue. He always answered negatively. If the right hon. Member for Preston, North has any doubt of what I say, I ask him to tell us when at any time he informed the House that he was proposing capital reconstruction or a write-off of financial liabilities of B.O.A.C.
§ Mr. Julian Amery (Preston, North)
I will respond to the hon. Gentleman's invitation. I told the House on several occasions that, when Sir Giles Guthrie's plan was to hand and had been studied and discussed with him, I would come to the House with proposals if I was Minister. The right hon. Gentleman the present Minister of Aviation made a statement some months ago in which he said that the plan was now to hand, that it was being studied and that he hoped to come to the House with proposals, which he has done. There is, therefore, direct continuity between the right hon. Gentleman's policy and mine.
§ Mr. Cronin
I think that the right hon. Gentleman is being a little devious this afternoon. He said that he would come with proposals, but at no time did he suggest that he would propose capital reconstruction or the writing off of financial liabilities of B.O.A.C. He must have known, as he knows now, that it would have produced a howl of rage in 89 every single Conservative association throughout the country if he had suggested such a thing. Thus, to call this a Tory Measure is something which one might say requires hardihood, if the right hon. Member for Mitcham will forgive my using that expression.
The right hon. Member for Mitcham talked of the desirability of having part of B.O.A.C.'s issue of ordinary shares on the Stock Exchange. That is something that would certainly produce approbation in all local Conservative associations, for it sounds good. But I hope that the hon. Member for Sudbury and Woodbridge (Mr. Stainton), who is to wind up the debate for the Opposition, will tell us when any equity shares of a company which has just had its deficit of £110 million written off have ever been floated on the Stock Exchange.
Presumably, equity shares are bought for the purpose of making profits. When have equity shares been launched on the Stock Exchange on behalf of a company which has not made a substantial loss in only two years out of 12? I am sure the right hon. Gentleman will agree in his heart that his remark was meant more for the people in the backwoods of the Conservative Party all over the country than for the intelligent interest of right hon. and hon. Members of this House.
§ Mr. Cronin
I am strongly opposed to any part of the equity of B.O.A.C. or of B.E.A., or of any other nationalised corporation, being handed over to the public. [HON. MEMBERS: "Why?"] The answer is very simple. This concerns the division between the two sides of this House. We believe that certain things are best run by publicly-owned corporations, and I make the point that they are best run when they have the intelligence and sympathetic co-operation of Ministers, something they did not have during the 13 years prior to the present Government.
One of the principal causes of B.O.A.C.'s heavy losses in the past has been the aircraft procurement policy. As ray hon. Friend the Member for Poplar 90 (Mr. Mikardo) pointed out, often in the past it has been obliged to buy aircraft contrary to its judgment of their commercial value. There are numerous examples. My hon. Friend referred to the loss of £2,400,000 as a result of the delays and difficulties with the Britannia. Because, in the 13 years prior to the formation of the present Government, B.O.A.C. was not allowed to buy as many aircraft as it wished of the type it wanted, it had to purchase aircraft which often it had to run at a very considerable loss.
For the last ten years much of the B.O.A.C. fleet has consisted of Britannias and Comets, although it really wished to fly Boeing 707s. The Comet has an operating cost of 1s. 9d. per passenger ton mile, the Britannia 1s. 6d. and the Boeing 707, which B.O.A.C. made no secret of wanting, 1s. 1d. Thus, B.O.A.C. has been incurring a heavy financial penalty over the years for buying aircraft which were not in its commercial interest.
I support what my hon. Friend the Member for Poplar said—that the Air Corporations have been to a very large extent used to ensure that the airframe companies remain in a profitable situation as far as possible. This state of affairs must stop, however. When my right hon. Friend has disposed of this Bill, I hope that he will turn his attention to the Augean stables of the aviation industry. Certainly he will have to take some vigorous action.
The right hon. Member for Mitcham criticised me for a few sentences I uttered during a weekend speech, which was devoted largely to other matters. These sentences obtained some publicity in the national Press. In them, I referred to the desirability of nationalising part of the aviation industry or at least of the Government having some control in the form of taking some of the equity of the industry. The right hon. Gentleman suggested that I should not make such a remark because I am a member of the Plowden Committee. I strongly suggest that when one becomes a member of a committee, it does not mean that one must remain in complete silence about the subject concerned.
For several years I have been saying—and I have said it from the Opposition Dispatch Box—that part of the aviation 91 industry should be under public ownership. That has been part of the policy of the Labour Party for several years. My hon. Friend the Member for Poplar will recollect that he and I were once on a committee, of which I was deputy chairman, which recommended—and this was about three years ago—that part of the aviation industry should be taken into public ownership. It is a little hard of the right hon. Member for Mitcham to suggest that I must not make a speech about aviation because I am a member of a committee considering aviation.
§ Mr. William Shepherd (Cheadle)
Would not the hon. Gentleman agree that it would have been very much wiser not to have made those remarks? Further, wilt he tell the House when it was the official policy of the Labour Party to nationalise part of the aircraft construction industry?
§ Mr. Cronin
I recollect that as long as two years ago my right hon. Friend the Minister of Power, who was then the chief spokesman for aviation, said at the Labour Party conference that it was Labour policy to nationalise it. I do not think there is much to be gained by pursuing this further. I do not withdraw the remarks which I made on Saturday, and I hope that if such a possibility arises my right hon. Friend will not shrink from taking appropriate action.
§ Mr. Onslow
Can the hon. Gentleman help the House by saying what he means by "part"? Does he believe that the Government should take a holding in the shares of one or more of the major manufacturers, or that they should acquire one of the major manufacturers outright?
§ Mr. Cronin
This is even more unfair. I have been taken to task for speaking about the subject at all, and now the hon. Gentleman wants me to go into details. I hope he will forgive me if I do not reply to his question.
92 I come now to the B.O.A.C.-Cunard agreement. It is interesting to consider the history of this merger. It was made in the days when B.O.A.C. had suffered very heavy financial losses, largely as a result of a very large decrease in load factors. At that time B.O.A.C. urgently needed two large jet aircraft and Cunard-Eagle had two large jet aircraft at its disposal. B.O.A.C. could not obtain permission from the then Conservative Minister of Aviation to purchase large jet aircraft from the United States. To obtain those aircraft it had to make some sort of arrangement with Cunard-Eagle which had them at its disposal.
A much more serious circumstance motivated B.O.A.C. into entering into this agreement. It was the most unfortunate Civil Aviation (Licensing) Act, 1960, which was introduced by right hon. Gentlemen opposite. As a result of that Act, Cunard-Eagle applied for a licence for trans-Atlantic routes. Admittedly, the application for the licence was quite rightly turned down by the right hon. Member for Preston, North.
§ Mr. Maxwell
Will my hon. Friend allow me to correct him? The licence was applied for and granted. The Corporation appealed and won on appeal.
§ Mr. Cronin
I am grateful for that correction. B.O.A.C. succeeded in having that application turned down. However, there was a constant menace that the application would be considered again and considered favourably. It was turned down for a limited period and not for an infinite length of time. Cunard-Eagle could have applied for the licence at any time in the next few years. This would have seriously jeopardised B.O.A.C.'s position on the Atlantic routes which it was already running at a heavy loss. For that reason, B.O.A.C. was more or less forced to make some sort of agreement or merger with Cunard-Eagle, which was a subsidiary of the Cunard line.
It has been suggested that the Minister of the day was in no way responsible. However, under the Air Corporations Act, which set up the Corporations, the Minister of Aviation has a specific right to give directions to the Corporations on matters of general policy, and if this was not a matter of general policy, I do not 93 know what would be. The Minister of the day had the fullest possible responsibility for the B.O.A.C.-Cunard merger.
The reasons for that merger are no longer operative. B.O.A.C.'s financial difficulties are very much eased, particularly by the Bill. B.O.A.C. no longer needs large jet aircraft and in fact has an excess of them. There is no possibility, while there is a Labour Government, of some other airline being allowed to obtain a licence and so cream off the profit from the trans-Atlantic or any other routes.
The agreement has no useful purpose now. It is of no advantage to B.O.A.C. The right hon. Member for Mitcham spoke of the valuable sales organisation of the Cunard line, but the arrangements are that Cunard should sell both B.O.A.C. and Cunard passenger capacity equally. It is very easy to talk of doing things equally, but very difficult to imagine the agents of the Cunard company all over the United States and other parts of the world being quite as equal as they should be when applying sales pressure on behalf of either Cunard or B.O.A.C.
§ Mr. Mikardo
Is it not a fact that the contribution of Cunard in this respect is that its sales offices act as travel agents for B.O.A.C., like hundreds and thousands of other offices, drawing 15 per cent. commission for it? Cunard is no better and no worse than any other travel agent.
§ Mr. Cronin
I entirely accept what my hon. Friend said. Cunard is acting as a travel agency and at a very high price to B.O.A.C. As hon. Members on both sides of the House know, Cunard-Eagle obtained a 6 per cent. preferential dividend with a 30 per cent share of B O.A.C.-Cunard. That is a 6 per cent. preferential share on all the profits of the North Atlantic route, which in the first six months of this year brought Cunard £150,000. I cannot believe that Cunard is doing anything to help B.O.A.C. which is worth anything like £300,000 a year. This is now a very unfavourable situation for B.O.A.C.
The Minister said that he disapproved of the B.O.A.C.-Cunard arrangement. Disapprobation is not enough. I do not think that B.O.A.C. can get out of this arrangement. I do not believe that it has the legal powers to 94 do so. One of the clauses of the agreement makes it clear that B.O.A.C. cannot retract from this agreement, or even move a resolution to modify it, while Cunard holds 20 per cent. of the equity. There is probably no legal way at present for B.O.A.C. to get rid of this burden on its back. It is probable that the Minister will have to introduce some legislation to cope with that situation, and I hope that that is something from which he will not shrink. It is very important for the Minister to realise in this particular instance that he should represent the interests of B.O.A.C. and that Cunard shareholders are not his concern at all. I hope that at any early opportunity he will introduce appropriate amending legislation.
May I turn to one of the Acts passed when right hon. and hon. Gentlemen opposite were in power which had a peculiar baleful effect on the affairs of B.O.A.C.? I refer to the Civil Aviation (Licensing) Act, 1960. This has potentially taken away from B.O.A.C. a large part of the monopoly which it had on many of the routes, including the North Atlantic route. Unless an airline makes an application, B.O.A.C. still retains the monopoly, but these applications have been made. I do not think it likely that any application which takes away from B.O.A.C. part of its profitable trunk routes will receive serious consideration from a Labour Minister of Aviation, but we cannot expect this desirable state of affairs to continue indefinitely. In a democratic country one must visualise the possibility that at some time in the late 1970s or 1980s there may be a Conservative Government for a short time, and then we may well find that once again competition is introduced on the main trunk routes.
The right hon. Member for Mitcham spoke in a most eulogistic manner about the desirability of competition, but this country, and indeed only one party in this country, is singular in wanting competition on the main trunk routes. No other country wants such competition, because it is realised everywhere that competition from foreign countries is quite enough and that it is best for a country that it should have its own national air line running the trunk routes. We intend to ask the hon. Member for Sudbury and Woodbridge (Mr. Stainton) 95 to let us know which other country introduces competition in its overseas routes.
§ Mr. Cronin
I know that the hon. Baronet is the brightest boy in the class, and I apologise for not directing the question at him. I am fully aware that there is competition in the overseas routes of the United States. The hon. Baronet is referring to Pan American and T.W.A. But the fact is that both these companies want to merge, and it is only the most intricate legal difficulties which prevent them from merging. A merger has been proposed and considered for several years. Even in the United States, therefore, there is nothing like the enthusiasm for competition in foreign air routes which exists among hon. Members opposite.
Several references have been made to the letter which the right hon. Member for Preston, North wrote to the Chairman of B.O.A.C. on 1st January, 1964, calling for a plan to achieve a breakthrough by B.O.A.C. May I refer to the reply of the Chairman of B.O.A.C. on 31st December, 1964, to that letter? He gave the Minister an assurance that B.O.A.C. would be capable of maintaining a consistently profitable operation if, in turn, it had an assurance from the Government on three points. The first point was that there should be a financial reconstruction, and this is what the Bill achieves. The second point was that the Government would give B.O.A.C. support in the matter of traffic rights. I hope that this support will continue. Indeed, I am sure that it will continue. But I hope that very soon amending legislation will be introduced to the Civil Aviation (Licensing) Act, 1960, to ensure that there is no possibility of that support being withdrawn if there is some change of Government in future. The third point is that the Government should accept the fundamental responsibility of B.O.A.C. to act in accordance with its commercial judgment.
I hope that B.O.A.C. will no longer be obliged to prop up airframe companies and will be able to buy the aircraft it requires in accordance with its commercial judgment. I suggest that we give the Bill the fullest possible approbation, let those thousands of gallant and 96 devoted people from B.O.A.C., who work so hard all over the world, have their heads and let them make the success of the Corporation which they all wish to achieve.
§ Mr. Speaker
Before I call the next speaker, I must point out that two backbench Members have taken eighty minutes between them. I hope that some day we shall come to a time when we can give fair shares to each other.
§ 6.36 p.m.
§ Sir Ian Orr-Ewing (Hendon, North)
I am glad to have the opportunity of following the hon. Member for Loughborough (Mr. Cronin). I was glad to hear him confirm what we have always suspected—that the reason why hon. Members opposite object to the joint enterprise between B.O.A.C. and Cunard is doctrinaire. This is exactly what we suspected. The Minister was at pains to deny it, but the hon. Member, who is a great expert, has confirmed that the reason is doctrinaire. He thinks that no one else should play a part. We have a different view. I was sorry to hear him say what he did about Cunard shareholders because he is a very respected director of a company in which I am a shareholder. I am sorry that he said what he did about respect for the rights of shareholders. I am sure that he will not fail to look after my interests on the board on which he sits and I feel confident that what he says in the House is not what he does in his business life.
§ Mr. Cronin
The hon. Baronet is unfair. What he says is that anything argued from this side of the House is doctrinaire whereas anything from his side of the House is quite proper.
§ Sir Ian Orr-Ewing
We are at pains to say that we believe that there is a place for the nationalised Corporations. We welcome the Bill. We always praise the service, reliability and much else of the State Corporations. But we say that in certain aspects competition can produce some salutary and very beneficial effects. We are not doctrinaire by trying to run down the Corporations, because we believe that they have a very important part to play. One has only to look at the air transport industry in the world to see that the State airlines have come 97 to stay. We just wonder whether there is a part to play through the finance of private enterprise rather than of the taxpayers. This was the point which my right hon. Friend the Member for Mitcham (Mr. R. Carr) made.
§ Mr. Maxwell
It is true that right hon. and hon Gentlemen opposite always speak about how much they welcome competition. Could the hon. Baronet explain what kind of competition it is in which a private enterprise firm pushed by the former Administration, allowed to suck profits out of the State Corporations and to hand them out in dividends to its shareholders when the management is running its business as private enterprise?
§ Sir Ian Orr-Ewing
I do not want to be drawn too far into these matters. It always lengthens one's speech. But both speeches from the Front Benches confirmed that B.O.A.C. were not pushed into this arrangement. Certainly it shows little confidence in the management of this nationalised industry if one accepts the view of the hon. Member for Poplar (Mr. Mikardo) that not only was this a sorry deal for B.O.A.C.—and the Select Committee have different views—but that it would be quite wrong for an association with Charles Forte or anybody else. This seems a vote of no confidence in the management. We should let them use their judgment.
These two State Corporations have been a little unfortunate in drawing up the operational requirements which they believed were necessary for future transport aircraft. Let us look through the history of the last 20 years. I will mention some of the earlier matters, which were, perhaps, a legacy from wartime—the and the Britannia. I do not want to knock British aircraft. I wonder whether perhaps more notice should be taken of the aircraft companies' advice because it is often very far-sighted indeed and they have their fingers on the pulse not just of the Corporations in this country but of overseas customers' desires. The Minister has the task of saying to the Corporations, "Are you bearing in mind the export potential because this can be very important?" We on this side believe that the task of the Government in purchasing, or guiding nationalised industries to purchase, should be to pay 98 some attention to the export record and export potential because this could be very helpful to our long-term balance of payments. Here is a field in which that could be done.
Another problem which was not dealt with by the Minister and which I feel acutely affects the financial position of the Corporations is the necessary expense involved in flying, route-proving and the training of air crews for an entirely new aircraft which, through teething troubles, must be more expensive than would be the case if the aircraft concerned had been already proved. I should like to see these costs carefully kept, set aside and analysed because there might well be a case for Government help in this direction. I have no doctrinaire view. The Government should perhaps help if an airline is prepared to pioneer a new aircraft, to route-prove it and carry it through its teething troubles.
There must be two views about the Minister's success. The trouble about Ministers of Aviation is that one never knows whether they have done well or badly until approximately seven years later, by which time they have moved to something totally different. My anxiety about the Minister of Aviation is that he has cancelled large numbers of projects, and, although he has said to the House that he will order new aircraft, no orders have been placed, with the exception of orders for one or two development aircraft. We were told almost a year ago that the maritime Comet would be ordered. Still no order has been placed.
§ Sir Ian Orr-Ewing
It is true that, I think, six development models of the Kestrel have been ordered, but no production orders have been placed in the year that the Government have been in power, although many aircraft have been cancelled. I am glad that at last the Minister is waking up to the fact that he must not go ahead with any more cancellations until after the Plowden Report has been published. The dice have been very heavily loaded against the British aircraft industry before the Plowden Committee has been able to report on its future.
99 I wonder whether this reluctance to place orders is an aftermath, a psychological result, of the Ferranti case. Perhaps the Government are so desperately anxious not to make a mistake on fixed price contracts which might allow a company to make a profit that they place no orders at all. If so, I hope that they will forget this prejudice and will get on with ordering aircraft, because, unless they do, the research and development teams will fall apart and we shall not be able to resurrect the aircraft industry which I am sure even the Labour Government—in fact, the Prime Minister has said this—wishes to be a viable organisation. Therefore, the placing of an order is important and I hope that we shall hear soon that some arrangement has been made in connection with the 10 Super VC.10s which are suspended.
It would have been nice, perhaps, if the Minister had paid some credit to his predecessor, my right hon. Friend the Member for Preston, North (Mr. J. Amery), for the very robust way in which he persuaded B.O.A.C. not to cancel the VC.10 or the Super VC.10 and not to take the Boeing 707. Sir Giles Guthrie, when he first took up office, somehow received advice that the future economic viability of B.O.A.C. was utterly dependent on the flying of Boeing 707s. We on these benches said at the time that the VC.10 and the Super VC.10 would be eminently successful aircraft. The Minister, in the well quoted articles of his which were published in the Observer on 12th July, 1964, and 19th July, 1964, had some doubts about the matter. He said that the VC.10 was quite a good aircraft and then commented:Whether it adds up to the six points in the load factor is another matter".Today he ate his words and said that we were right when we forecast good load factors and that there were not only six but about twenty points or more concerning improved load factor which had been shown as a result of customer choice—those who preferred to travel by the VC.10 or the Super VC.10.
I am sorry that the hon. Member for Poplar has left the Chamber. I had hoped that, in view of his close concern over many years with the air transport industry and the trades union organisation in the 100 aircraft industry, he would tell us something about the staffing of B.O.A.C. and B.E.A. and what views he had for running down the staff. This problem has existed ever since I have been in the House. There has been a swollen staff in B.O.A.C. I have not been able to obtain the very latest figures, but those which date to the end of 1962 show that, of all international airlines, B.O.A.C. has far and away the largest staff.
These figures show that B.O.A.C. is operating 58 aircraft with a staff of 21,749–375 people for every aircraft in its fleet. The next largest staff is that of K.L.M. It has 67 aircraft, rather more than B.O.A.C., but a staff not of 21,000 but of 16,000—that is, 5,000 fewer. Then one comes to such international airlines as Sabena, Air France and Lufthansa, all with comparable air fleets but materially fewer staff. I know that it is difficult to compare like with like, and, as a scientist and someone trained in his early days as a mathematician, I am loth to make comparisons in this respect. However, these differences are so great that one must say that there is still a very large measure of overstaffing in B.O.A.C.
§ Mr. Lubbock
To be fair, the hon. Gentleman should make his comparison on the basis of capacity ton mile per employee because the other airlines which he quoted may have aircraft of different sizes from B.O.A.C. Furthermore, these comparisons can never be strictly accurate because they must depend upon the route structure of the airline concerned. I hope that the hon. Gentleman will qualify what he said.
§ Sir Ian Orr-Ewing
I was at pains to say that it is difficult to compare because of the route structure and capacity of aircraft. But take the example of S.A.S. which has a fleet of 52 aircraft with a total staff of 11,000. At that time, B.O.A.C. had 58 aircraft, but a staff of 21,700—over 10,000 more people.
§ Sir Ian Orr-Ewing
These are international figures which I have obtained from the Library showing the number of aircraft and personnel in selected airlines at the end of 1962.
101 The Minister said today that B.O.A.C. was improving its staffing position. I think that the staff has been cut by 1,500 people and that it is now down to 19,000. That is the figure which I have dated March, 1965. There are 52 aircraft in the fleet and a staff of 19,600. This means that there are 378 staff per aircraft. This is a most glaring difference from any other international airline. The next worst, if one may use that term, has 250 personnel per aircraft.
§ Mr. Shepherd
Quite a percentage of B.O.A.C. fleet is not operative. Therefore, if one relates these figures to the operative fleet, one gets an even more disturbing picture.
§ Sir Ian Orr-Ewing
That may be so; I am not sure. I think that these numbers apply to the operational fleet rasher than to the reserve. I would not wish to make the figures appear blacker than they are. They are serious enough.
Now that Treasury equity capital is to be put into these airlines, I hope that the Minister, with all his adroitness and astuteness, his brains and his resolve, will try to make sure that the rundown of personnel, which he said could be done relatively painlessly, will proceed and that we will get a streamlined B.O.A.C. In his earlier articles to which reference has been made, the Minister said that B.E.A. is much better in this respect. I know that B.E.A. has a different route structure, but I hope that B.O.A.C. can be encouraged in every possible way to examine and to use method study and every other modern management technique to reduce its staff to more sensible proportions so that it is comparable with other world airlines.
We have heard much in this debate, as we always do, about the tremendous competitions between airlines. It should be remembered that I.A.T.A. fixes prices. There is competition, but it is not competition in price. Most travellers, except, perhaps, those who travel on expenses, are concerned foremost with the price of a journey. Whether they have a glass of wine or champagne or an extra 2 in. for their legs is of secondary importance compared with the price. Even the pitch and the width of seats is laid down by I.A.T.A.
Therefore, the ways in which competition operates in international air travel 102 are very small. It is more in the "service" that competition exists. Therefore, one hopes that B.O.A.C. and B.E.A. are mindful of what has been said about this in earlier speeches. I deplore gimmicks or anything which adds to the price of the ticket for the traveller. Anything of that kind is a bad thing, particularly on the shorter routes. I include in this the notion that people have to spend money to have colour films shown throughout their journey. A good book would be just as good and would keep down the cost, as the passenger would buy it himself.
There is still a valuable place for the independents to give the taxpayer and the traveller competition in the sphere of service. I well remember that for some time people were advocating trickle loading on internal air routes. For example, on arriving at the airport, why should passengers have to sit around in the lounge? In the first place, they have to report 30 minutes early, which always seems to me to be excessive on an internal route. Having reported, they must sit around until the moment comes to go aboard the aircraft. Too often they are loaded into buses. All this is wasteful of time and energy. They are taken not to the adjoining apron, but generally to the other side of the airfield, where they are taken out of the bus and put into the aircraft.
It was significant that when a measure of competition was allowed—I think that it was British Eagle who introduced trickle loading—B.E.A., which previously said that it was impossible, suddenly found itself well able to do exactly the same thing. This shows the importance of a measure of competition, small though the illustration may be, for the well-being of the travelling public.
The same kind of thing applies in catering, in which standards are slipping a bit. I am not in any way in favour of luxurious meals—I should be quite happy if people carried their own food, as they do on most occasions when journeying by train—hut if catering is to be provided and competition in price is not allowed, catering is important and reasonable standards should be maintained.
My third illustration is that one of the independents now drives its buses right up to the place where the aircraft 103 stops, so that people with hand luggage can get straight out of the aircraft, do not have to be processed through the terminal buildings, wait for taxis or anything else, but get straight into the bus and go to the town terminal. This, again, is a measure of competition in the service which is given to the travelling public and it seems to me to be highly desirable.
§ Mr. Rankin rose——
§ Sir Ian Orr-Ewing
If the hon. Member does not mind, I will not give way, because Mr. Speaker is anxious that we should be brief to give others an opportunity to speak.
To summarise, I have tried to suggest some of the directions in which we have anxieties. We have anxiety, first, concerning the manner in which operational requirements are framed by the Air Corporations. Experience has shown that aircraft manufacturers often have a more sensitive nose for what is likely to be most in demand in five or seven years' time than, perhaps, the Corporations' advisers. More respect should be paid to the views of the aircraft companies.
Secondly, I should like the charges for route proving, training and the initiation of new aircraft to be brought out separately in the accounts. I should have no objection if the Government of the day thought it desirable to subsidise this as an effort to keep the British aircraft industry alive. Thirdly, I hope that the Minister, who has not been slow to cancel aircraft, but who is, I appreciate, now awaiting the outcome of the Plowden Report, will try to ensure, when he has that Report, that there is not too much delay. We shall, of course, want a debate upon it. I hope that positive production orders will be forthcoming, because we cannot keep our aircraft construction industry waiting any longer. With those provisos, I welcome the Bill. I have certain qualifications, which we will have the opportunity to debate during its remaining stages.
§ 6.57 p.m.
§ Mr. Peter Doig (Dundee, West)
The right hon. Member for Mitcham (Mr. R. Carr) expressed his surprise that my right hon. Friend the Minister was opposed to the B.O.A.C.-Cunard agreement and 104 he went on to say that his reason for surprise was that the Labour Party had advocated partnership in nationalised industry. Surely, the right hon. Gentleman realises that this is not a normal partnership in a nationalised industry. What was asked for and what was received in this instance was a partnership in the most profitable routes of this nationalised industry and not in any of the other routes. If what had been wanted was a straight partnership, a partnership on not only the profitable routes but the unprofitable routes also, nobody on this side would have objected. We most certainly object to a partnership as one-sided as this one, which is a partnership only on the most profitable routes.
The right hon. Member said he wanted the Air Corporations to be run on a purely commercial basis, yet in the next breath he approved of non-commercial operations by them. The only explanation for this apparent contradiction seems to me to be that the right hon. Member wanted the shares of the Air Corporations to be sold on the Stock Exchange. This would ensure their becoming a profitable medium, since the Corporations would be subsidised by the Government on the unprofitable routes and, obviously, they would be bound to make a profit, which would make the shares attractive on the Stock Exchange.
On one thing, however, I agree with the right hon. Member. He said that he would like to see B.E.A. included in the provisions of the Bill, and I should like to see this also. One of the things that has disturbed me about B.E.A. is the lack of enterprise which it has shown on its internal routes, and particularly concerning new routes for Scotland. During conversation, the Chairman of B.E.A. said emphatically that he would be opposed to starting any new routes in Scotland now or at any time in the future, unless they were from airports from which the Corporation already ran services. This is an astonishing state of affairs. It means that constituencies such as mine in Dundee will never get an air service from B.E.A. as long as the present Chairman remains and that continues to be the policy of the Corporation. If we could include B.E.A. in this Bill, in the same way as B.O.A.C., it might well be that, 105 with this financial help from the Government, he might then be able to start considering running services of this kind.
§ Mr. Ridley
Does the hon. Gentleman not feel, in the light of what he has just said, that this might be a very suitable situation for a private airline to take over what a State Corporation will not?
§ Mr. Doig
In the meantime, the Chairman went on to explain that he was already running enough non-profitable services in Scotland and he was not prepared to take on any more. On closer questioning he admitted that the air service between Aberdeen and London now pays, and so I asked him why did he think an air service between London and Dundee would not pay, because Dundee has within the city a bigger population than has Aberdeen and a bigger population round about it than Aberdeen has, and it has more industry than Aberdeen.
I got a most surprising explanation from him. He said to me, "Ah, but in Aberdeen there are a number of services and they help to share the costs of maintenance on operating from Aberdeen." He went on to admit that those other services lost money. This seemed a strange way of sharing costs. So I pointed out to him again that the number of people who travel between Dundee and Glasgow is greater than the number of people who travel between Aberdeen and Glasgow, and that the number who travel between Dundee and Edinburgh is greater that the number who travel between Aberdeen and Edinburgh. Therefore, in the light of all these facts, if he merely wanted subsidiary, feeder services to spread the costs he could spread them financially much more soundly on services from Dundee than on services from Aberdeen. This is not a village we are talking about. Dundee is a city of 186,000 people. It is the fastest growing city in Scotland. It is the second in commercial and industrial importance in Scotland. The population round about is over 500,000.
What do we find? This is the reply to the hon. Member for Cirencester and 106 Tewkesbury (Mr. Ridley) and his question about private airlines. They are not prepared even to consider it. I wrote a letter to one of the largest of the private airlines, namely, British Eagle, over a fortnight ago, and I have not even received an acknowledgment yet. That is how interested they are. They also are interested only in services likely to make a substantial profit.
Every Government report which has examined the future air needs of Scotland has admitted that Dundee ought to have and has to have an air service. Every one, without exception. Ministers in this House have said it. Ministers in the previous Government said it. The right hon. Gentleman the Member for Kinross and West Perthshire (Sir Alec Douglas-Home) has said it. A whole variety of Ministers have said it and at different times, but no one, apparently, is prepared to do anything about it, and least of all the private companies and, next to them, B.E.A.
If the only way we can get this is by financial help from the Government then I sincerely hope that my right hon. Friend will consider including B.E.A. in this Bill in the same way as B.O.A.C., if for no other purpose than to satisfy a need which everybody agrees exists.
What do we find B.E.A. doing? B.E.A. is running services to places like Machrihanish. The nearest town, Campbeltown, has a population of 5,000. The entire peninsula of Kintyre has a total population of 8,000. They can get an air service. Why do they get it? A friend of mine who lived in the area told me that he frequently travelled on that service and that on a number of occasions he was the only passenger—the one and only passenger. Whenever B.E.A. was short of aircraft on any other service it took this one off that service. That is understandable, but it shows that there is no great need for it there.
Therefore, if this is the case, if the Corporation cannot afford any more unprofitable routes, I would suggest that it would be wise policy now to substitute a Dundee service for the Machrihanish service since there is a vast difference between serving a peninsula with 8,000 people and serving an area with 500,000 people in it, and that is the difference just now.
107 It seems to me that pressure has got to be brought on B.E.A. to get the Corporation to operate a service of this kind. If previous Ministers of Aviation have dragooned B.E.A. by saying it has got to make a profit and pay its way we can understand the reluctance of the Chairman of B.E.A. to start any new services, at least where profits are not completely certain. Then I can understand this attitude. It is, however, a wrong attitude if in Scotland we are to be in the position that we cannot get any more new services of any kind, except where there are existing services. If that is to be the case, then the outlook for Scotland is very bleak, and the outlook for the future of air transport in this country is very bleak. If this is to be the attitude it would seem to me that the Minister ought to be turning his attention to bringing some pressure on B.E.A. to provide the services which everybody says ought to be provided.
§ 7.6 p.m.
§ Mr. William Shepherd (Cheadle)
I sympathise with the hon. Gentleman the Member for Dundee, West (Mr. Doig) in his difficulty in improving the communications between Scotland and this country. I believe that a lot of Scotsmen would like to do what my father did and move from the more uninhabitable north down to the rather more habitable regions of the south. If it is any further consolation to the hon. Gentleman I may say that there was a time when, on several occasions, I was the only passenger on the aircraft between Manchester and London. Today, there is a very formidable service indeed, though still not adequate to meet the real needs of the people.
I would add that in the same way as the hon. Gentleman is pressing the present Chairman of B.E.A. to provide services between Dundee and London I was, 10 or 12 years ago, pressing the then Chairman to provide frequency of flights; I said that if he would provide frequency he would get the business. It was a very long time indeed before B.E.A. had the commercial courage to provide the frequency which attracted the business. It is true that, on the whole, there is the great danger that people will not see and take an opportunity and they want it ready-made and 108 polished up before they attempt any sort of commercial risk. I hope that hon. Gentlemen opposite will learn that the best way of running any enterprise is by competitive processes, and that on the whole one should indulge in monopoly only when it becomes absolutely unavoidable.
I have, however, a feeling of sympathy with the hon. Gentleman and with the Corporation in that I always consider it unreasonable that an airline, even a State monopoly, should be involved in substantial social services without some form of compensation from the State. I believe that these social services ought to be evaluated, and perhaps some deduction made for the monopoly which is enjoyed, and then payment made by the State in order to assimilate as far as possible the conditions of true competition. I hope that if the right hon. Gentleman has any time in the office he now occupies he will think seriously in these terms.
I welcome, as do my hon. and right hon. Friends, the Bill which we now have. I regret that the Minister saw fit to throw a Christian to the lions—in the form of the B.O.A.C.-Cunard agreement, which his hon. Friends have been savaging ever since. It was not strictly germane to the issues here involved, and it could have been better left to another occasion, in my opinion. It is not fitting to comment upon the merits or demerits of the B.O.A.C.-Cunard agreement. In common with many other people in business, I know be very glad if I could tear up some of the agreements that I have made in the past, and it seems to me that the action of the right hon. Gentleman, whom I recognise is an intelligent man, is: "Tails I win, heads you lose".
One cannot enter into an agreement in good faith and then start moaning if it turns out to be less satisfactory to one party than to the other. It is quite true that at the material time there was a great loss on the Atlantic operation, and there may well be a loss in the future, and my advice to Cunard is that it might be possible at this happy and halcyon stage of the game to arrange a deal with B.O.A.C. If I were controlling Cunard, I might think in those terms.
I should like to make one comment on the speech of the hon. Member for Poplar 109 (Mr. Mikardo), when he said that there was a nefarious clause in the agreement which made it impossible for the majority shareholder to alter the agreement. Really, the hon. Gentleman ought to have enough knowledge of commerce to know that in such agreements there is always some sort of safeguard for the minority shareholder. It would be quite impossible to have agreements of this nature which did not involve a safeguard for the minority shareholder.
Now may I turn to the general question of the proposals that we have before us? While I welcome the Bill, I am not as happy about the situation as the Minister and some of my right hon. Friends, because I do not believe that there is anything like enough competition in aviation. As my hon. Friend the Member for Hendon, North (Sir Ian Orr-Ewing) pointed out, not only are there restrictions in the form of bilateral agreements and the artificial fixing of fares. If those were the only restrictions, I should not be as worried as I am.
The truth is that airlines in international operation have gone far beyond that position and are engaged in wide-scale pooling arrangements which remove what vestige of competition remains. B.E.A.'s pooling arrangement covers something of the order of 60 or 70 per cent. of its external operations. It is probably less in the case of B.O.A.C., but it is a substantial and, I regret to say, a growing area of airline operation. Not only have we bilateral arrangements and I.A.T.A. fares, but, in addition, there are widespread pooling arrangements which make airlines non-competitive. In those circumstances, it is not at all surprising that things go sadly wrong.
I was worried by the size of the reserve that the right hon. Gentleman is proposing to give to the Corporation, but when I look at the enormous loss made in one year by K.L.M., which is an airline involved in these pooling arrangements, I can see how easy it is for B O.A.C. to lose the whole of the amount of the reserve in one year.
I want now to turn to the question of the efficiency of B.O.A.C. I have been extremely critical of it in the past and have spoken very strongly against the boards which have been responsible for its direction. I am very glad to see that 110 there has been an improvement in B.O.A.C.'s actual operations. However, the improvement is not as good as the Minister has made out or as some hon. and right hon. Gentlemen think.
The situation today in B.O.A.C. is illusory to some extent. I am sorry in a way that it has arisen, because it has resulted in a lessening of the urgent pressure on B.O.A.C. to improve its operational efficiency. B.O.A.C. today is doing very well because of an inordinately high load factor, and that is the worst possible way to do well in the airline business. The test of an efficient airline is not whether it can make a profit at a high load factor but whether it can make a profit at a low load factor. The truth is that B.O.A.C. is making a profit today only at the expense of an abnormal, and in some ways an undesirably high, load factor.
My hon. Friend the Member for Macclesfield (Sir A. V. Harvey) made a comment which was interesting, and I was conscious of the point that he was making. He said that Sir George Edwards had not been able to get on his own aircraft. It is true that if one has any commercial airline operating at something over a 70 per cent. load factor, one is not operating at the optimum level from the point of view of catering for the passenger.
§ Mr. Mikardo
The point that the hon. Gentleman is making is an interesting one, and I am following his speech very closely, but surely he will agree that if an airline can operate profitably at a low load factor, it means that the fares must be much higher than they could and ought to be.
§ Mr. Shepherd
The load factor at which an airline can operate effectively is determined by a number of factors, including the mechanism of booking. One hopes that with the new computer arrangements it will be possible for airlines to operate at a higher load factor without affecting the level of convenience which at present obtains for passengers.
I reiterate what I said just now, because it is important. The test of an airline in commercial terms, like the test of an aircraft, is at what load factor it can operate and still break even.
I am worried about B.O.A.C. because it is doing very well at the moment on 111 the basis of the 80 to 85 per cent. load factors of its VC.10s. That does not necessarily mean that B.O.A.C. is an efficient airline or that what has already been done is sufficient to produce an airline that compares with its competitors in the world.
May I draw the attention of the House to one single fact that I quoted at the end of the 1963 debate, because it answers the point raised by some hon. Gentlemen opposite? Pan American, with roughly the same sort of staff as B.O.A.C., has roughly twice the carrying capacity and five times the number of passengers. I know that these things are not strictly comparable. Such factors as whether an airline does its own engine maintenance and its own servicing at terminals will affect the position. But, broadly speaking, the figures are comparable and they show that B.O.A.C. has far too large a staff and is still hopelessly overweighted.
May I ask the Parliamentary Secretary to tell the House at what level the VC.10 breaks even on B.O.A.C. operations? It is an aircraft which I find very acceptable, but in the last 12 months or so there has been controversy about its efficiency. If we could have from the Parliamentary Secretary the figure which shows the level at which the VC.10 breaks even, it would be very interesting.
May I also ask the Parliamentary Secretary to what extent B.O.A.C. is seeking to improve its labour relations? I once asked a chief executive of the B.O.A.C. to have lunch with me, in the rather forlorn hope that he might himself take a personal interest in the consultative machinery of the airline. I believe that if we are to get a first-class relationship in an organisation like an airline, those at the top must take a personal interest in this way. It is no good saying that this is a waste of time. It is a terrible waste of time not to take a personal interest, and I hope that the Parliamenary Secretary will say whether now some of the top people really take a personal interest and appear at these committees, or whether they prefer to leave the Communists to make all the running.
I conclude by making one reference to the construction industry. I do not want to make a speech of any length on this, because we shall obviously have the 112 opportunity of discussing it in detail in the not too distant future, but there is one field in which the impact of the Airline Corporations on the construction industry is very real indeed, and that is the extent to which the Corporations themselves determine the kind of aircraft which British aircraft manufacturers are to make.
Whatever one may say against British aircraft constructors, and I am not saying that a case cannot be made, they have been bedevilled by their customers where their customers have been the Air Corporations, on the one hand, and Service Ministries, on the other, coming in with highly sophisticated requirements. The truth is that British aircraft manufacturers without a base at home can scarcely get off the ground, and if they get off the ground on the basis of the aircraft which B.E.A. or the B.O.A.C. want it is very difficult for them to get any orders anywhere outside this country.
One does not have to look at many instances to see how true this is. The VC.10 was made virtually uneconomic because it had to fulfil a requirement of the B.O.A.C. in respect of take-off at high altitudes, a requirement which had evaporated by the time the aircraft was in service. In the same way the Trident was hopelessly under-sized and underpowered because B.E.A. said that this was the kind of aircraft it wanted.
To some extent that is not the fault of either of the Corporations, but the same is true of the BAC111. Its payload and range are not good enough at the moment to get the world market, and. whatever else is done in respect of the British aircraft industry, I urge that it should be freed from the necessity to obey the diktat of the operators in this country. They must be freed from this necessity of following plans which it is true will get them a handful of orders, but which will prevent them from getting overseas business, and in the end bring them into a situation where they cannot get back their original investment.
I hope that all the requirements which are at present imposed, for example the requirement that they must fly British, will no longer be insisted upon. I want to see British airlines flying British aircraft, but I do not want to see it made mandatory on the airlines, because I know 113 that the effect of such an instruction will not be bad in the sense that it may foist on airlines aircraft which they do not want, but it will foist on manufacturers specifications which will make it virtually impossible for them to sell in the markets of the world. I hope that the Parliamentary Secretary will tell us that any instructions which have been either explicit or implicit that our Airline Corporations should fly only British aircraft no longer apply.
I join those hon. Members who have welcomed the Bill, but I have very severe reservations about whether it is possible efficiently to operate our airline business if we are to see a further deterioration in the true competitive values which are being established. I look with considerable concern at the increasing number of pooling arrangements, and I hope that the right hon. Gentleman will start doing something about them.
§ 7.25 p.m.
§ Mr. John Rankin (Glasgow, Govan)
There is very little about which I differ from the hon. Member for Cheadle (Mr. Shepherd). He has spoken in his usual thoughtful and well-informed manner, so I have nothing to add to what I hope are kind words about him, and I propose new to concentrate on one or two of his absent colleagues.
I refer first to the hon. Member for Hendon, North (Sir Ian Orr-Ewing), who trade one or two remarkable statements. Having had some experience of travelling between London and Glasgow, and of seeing what actually happens at London Airport, I wondered how it was that British Eagle could take a bus out to an aircraft at London Airport, pick up the passengers that have landed from it, and Ming them back to the terminal in the centre of London or whatever place it is to which they go.
I remember standing in Richmond Park on a Sunday afternoon and counting the aircraft as they flew over the pool there. I counted one aircraft every minute on its way to land at London Airport, and sometimes it seemed as though there was one every few seconds. Is the hon. Member for Hendon, North telling the House that, even assuming that British Eagle did what he says it did, an aircraft company, in association with those who carry on the land transport 114 side of the business, could take a bus to London Airport every minute of the day to transport passengers from aircraft landing on the runways at that frequency? The idea is absolutely fantastic, and nobody would dream of doing such a thing.
§ Mr. Eldon Griffiths (Bury St. Edmunds) rose——
§ Mr. Rankin
I hope that the hon. Gentleman will allow me to finish what I am saying. What the hon. Member for Hendon does not know is that for some time B.E.A. has been providing a bus service to meet the 8 o'clock plane from Glasgow every morning. The passengers leave the plane, board the bus, and are brought into London, and a similar service is provided in the opposite direction at night. It would have been only fair if the hon. Gentleman had said that in order to complete the story.
§ Mr. Eldon Griffiths
If the hon. Gentleman thinks that landing aircraft at London Airport at the rate of one a minute is such a remarkable thing, he ought to recognise that in the United States, at Chicago Airport, and many others, aircraft land much more frequently than that, and that passengers are handled with a great deal more expedition than are passengers at London Airport.
§ Mr. Rankin
I shall deal with that point in a moment when I deal with what has been said by one or two other hon. Gentlemen opposite who have now, unfortunately, disappeared from the Chamber.
The hon. Member for Hendon, North cited that case so that he might say a kind word about the efficient way in which the independents operated their services, and I am not going to quarrel with that. Trickle loading is easy with one aircraft, but it is not so easy with hosts of aircraft coming in every minute at an airport designed as London Airport is. Who is responsible for the design of London Airport? The party opposite.
We heard a great deal about staffing, and about the number of persons employed at London Airport as loaders, firemen and in similar jobs. There were 21,000. The number has since been reduced to 19,000, and according to a report that we have just had it is hoped to reduce the number to 16,000. This 115 organisation was created in the Session 1947–48. The Bill was then passed which brought it to life. Two years later the Government who brought in the Bill stood for return at a General Election and got back with a majority of six. They were out of office in a year. Therefore, even supposing that a lot could have been done between 1950 and 1951 there is no doubt that the Government of that time were cribbed, cabined, and confined by the shortness of the period between the passage of the nationalisation Measure and their final exit from office.
All the piling up and congestion that has taken place has occurred during the period when the party opposite was in power. For 13 years we saw these numbers rising continually. Now hon. Members opposite turn on us, after one year back in power, and say, "Why have not you cleared up in one year this mess that has been going on for 13 years?". I am not a believer in eternally going back to what the party opposite did not do when it was in power. We are in power, and we must stand or fall by what we do in power and not by what the party opposite did not do when it was in power. I accept that, and I have no grudge about it. But it is a simple fact that this enormous pile-up of persons operating for good or partially good reasons at London Airport was solely caused by the inactivity of the party opposite.
There was a basic reason for that. Hon. Members opposite hated the very guts of the word "nationalisation". [Interruption.] Of course they did; nobody knows that better than the hon. Member for Cheadle. They are still breathing a little fire and modified spirit against it tonight. In spite of not wanting to speak for too long, I have set aside what I was prepared to say. It is not often that I do that. I have heard so much from hon. Members opposite that I am beginning to overlook the points that I wished to raise.
The hon. Member for Hendon, North is becoming a part-nationaliser. He said, "There is a place for the nationalised Corporations." That was very kind of him. It was very thoughtful of him—a Tory publicly finding a place for a nationalised Corporation. But should not he find a place for the Army, the 116 Navy and the Air Force? They are all nationalised organisations. He admits that there is a place for the Corporations, but he also wants to see private enterprise. In the merely dialectical sense, I have no fundamental objection to private enterprise. Nobody can have, because time and again the life of a person or even a building may depend upon the private enterprise of a certain individual.
But what has happened during the less-than-20 years since the nationalised Corporations were formed? Can we say that they have failed? Can we say that, witnessing their failure, private enterprise stepped in and said, "We will do it better than the publicly-owned industries are doing it"? My hon. Friend the Member for Dundee, West (Mr. Doig) mentioned the example of Dundee, and I can give the House others. Besides Dundee and Prestwick there is the question of the Highlands and Islands and the west coast of Scotland.
Private enterprise has had years of opportunity to step in and say, "Here is one of the finest airports in Europe, which has recently been completed. B.E.A. is not operating from it to London therefore we, as pioneers and as blazers of new trails—even though they are up in the air, where the blaze is not seen—will operate from Prestwick." Not a single independent organisation or individual has yet operated a service to meet what is said to be the public demand from Prestwick Airport.
One bold private enterpriser applied for the right to run a service from Prestwick. He was braver than the rest, but before his application came before the Air Transport Licensing Board and after thinking about the appalling dangers and difficulties of running a service of this kind, he hastily withdrew his application.
The Highlands and Islands of Scotland are left without an independent operator, and depend solely for their continued existence not on private enterprise but on the publicly-owned services run by British European Airways at an annual loss of £300,000. The Corporation is paying for those services by itself, out of the profits it is making on the South European and Mediterranean routes. Because of the efficient way in which it is running those routes it is able to provide those services to the Western 117 Islands. These facts are well known. In addition, without help, it provides the medical aid service. It carries people to life or to better health in its aircraft time and time again, without any public help.
I will leave to their consciences the further remarks made by hon. Members opposite. I am sure that every hon. Member thinks over what he has said when he goes to bed at night. The hon. Member for Bury St. Edmunds (Mr. Eldon Griffiths) does. Sometimes he must say to himself, "I wish that I had not said that."
§ Mr. Rankin
I am sorry, Mr. Speaker.
I want now to refer to one or two things said by the right hon. Member for Mitcham (Mr. R. Carr). He, too, if I followed his speech correctly, is a believer in partial nationalisation. What he said took me back to that famous Air Transport Licensing Bill. I served on the Committee and we fought that Pill tooth and nail. We believed it to be a bad Bill. The member of the Government in charge was the right hon. Member for Streatham (Mr. Sandys) who, of course, was doing what his Government wanted to do. When my hon. Friend the Member for Poplar (Mr. Mikardo) was telling us that the Bill put the British Overseas Airways Corporation in the position of having to compete with 17 other airlines on the North Atlantic route—which he said was a terrible handicap and very difficult to do—he forgot one other thing which was laid down in that Bill.
I remember it vividly. I remember the right hon. Member for Streatham saying it time and time again—that the function of British airways not only B.O.A.C. but B.E.A., was to "show the flag". That was his phrase: I have it off by heart. That was the function—not to be commercial, not to bother so much about passengers, but to show the flag, even though there was only one full seat in the plane. Whether in the Middle East or the Caribbean, they had to show the flag.
Who had to pay for that? No provision was made to enable B.O.A.C. to do this without losses. Of course, B.O.A.C. 118 suffered losses created because of the unfair competition in the North Atlantic and through the policy of showing the flag in those parts of the world where it was essential, for political reasons, to show the flag.
If the right hon. Member for Mitcham defends this policy of showing the flag for political reasons, I would ask him to support me in proposing that aircraft be used not merely for political and economic reasons but also for social reasons. That is why I support my hon. Friend the Member for Dundee, West in his attitude. He want a service from Dundee for social reasons—[Interruption.] Does the hon. Member for Orpington (Mr. Lubbock) object to that? If he does, let me tell him something of the history of this.
Way back in 1949—I am sorry if I have to recapture the attention of the hon. Member for Orpington on this point. It is very interesting and must appeal to the Liberal attitude which he so well expresses in the House.
Way back in 1949, the people of Aberdeen were asking for the same thing as the people of Dundee—an air service to London for social reasons. In this House, along with others, I helped to get that service started and I flew on the opening flight. However, in a short while, B.E.A. were forced to say that the service was not paying for itself and they took it off. They did not get support. The same thing happened in Edinburgh, which had to face the same threat: "If you are not getting support, we shall have to remove the service." However, in each case Edinburgh and Aberdeen rallied to the support of their aircraft service when its existence was threatened and it is now thriving in both cases.
Therefore, I suggest to my right hon. Friend that he look at the lessons of Aberdeen and Edinburgh and realise that no service starts right away with queues of people. Even the Glasgow service which, last year, catered for one million people, started in 1947 with myself and another four passengers flying in a DH Rapide. This morning, a Vanguard carrying over 100 passengers had every seat full. In 1947 to 1948, when we took over this nationalised method of transport in the air, nobody thought that such a revolution would be created within 119 20 years—from flying in an aircraft which could hold five persons to coming down this morning in an aircraft carrying 139 people and which supplies an excellent meal.
Therefore, I feel that it is somewhat unfair of a man who is normally so fair as the hon. Member for Macclesfield (Sir A. V. Harvey) to criticise because, on one occasion when he flew in a Vanguard, a seat was loose and when he tried to go back he went further back than he expected.
I know that that can happen, but it seldom does. I have far more experience of flying in Vanguards between Glasgow and London than the hon. Gentleman. While I have sat in a seat which was in very bad condition on two occasions, it is by no means a regular occurrence. I hope, therefore, that the hon. Gentleman, when he reads what I have said, will try to make good a little harm which was quite unnecessary.
I give my blessing, for what it is worth, to this Bill. I am glad to hear that the Tories will not oppose it, although, as I suggested to the right hon. Member for Mitcham, it is a pity that they should claim it as a Tory Bill with all its perfections, and then tell us that they are going to put up a hell of a fight in Committee against it. That is I suppose, a philosophical attitude of turning inwards and fighting against oneself, struggling with one's soul.
I welcome the Bill. I hope that my right hon. Friend will keep clearly before him the position of the Highlands and the Islands and of Prestwick and Dundee in Scotland. After all, I am a Scottish Member. I speak in the House for Scotland and her needs, but I am also a firm internationalist, ready to speak not only for Scotland but for all nations of the world.
I should like to ask one or two questions about an appointment which my right hon. Friend has made to the vice-chairmanship of the British European Airways. These appointments must be of interest to us, and they deserve our attention and a little scrutiny. I like to see people of eminence, with qualifications and all that sort of thing, appointed to these important positions, but I notice that the latest appointment reveals a 120 tendency which I think should be modified. Bankers—presidents of banking institutions and such people—have an importance in life, but I feel that at the moment British European Airways is fully staffed with all the bankers it can usefully employ.
I notice that the newly appointed part-time Deputy Chairman of the B.E.A. board, an important job, is already chairman of five companies, vice-chairman of three companies, managing director of one company, and chief executive of another, out of the total of 22 companies for which he works, as well as being a member of the National Economic Development Council and an individual with experience in the Political Intelligence Department of the Foreign Office. He also has time to engage in farming. This shows, I suppose, the wide qualifications which are inherent in the man who haunles the ploo.
Obviously this gentleman is well qualified and widely experienced, but in the midst of such a busy life how will he find time to serve such a huge and expanding industry as British European Airways? Therefore, I hope that when my right hon. Friend begins to think about any other appointments to these important positions he will think, not only of the money that is necessary for running British European Airways, but also of the labour which is essential for running them. If he can give the voice of the banker and the accountant the right to be heard on the board of B.E.A., I ask him to think also about finding some way of getting representatives of the men who do the actual work on to the board of B.E.A. and also on to the board of B.O.A.C., although it runs in my mind that B.O.A.C. took a step of this nature as regards its operating staff some time ago.
I believe that if we could get that unity of outlook on the board it would prevent the trouble that takes place in the workroom. If men are always animated with the proper idea of safeguarding their own jobs at all costs, it might be possible to moderate that idea and give them a wider horizon if they, too, ceased merely to be workmen and were given some opportunity to direct the work of controlling and furthering the interests of these two great Corporations throughout the world. I hope that 121 my right hon. Friend will keep this in mind. I know that it is the desire of the trade unions associated with the industry that this should be done. I believe it is also completely in keeping with the policy of the Party to which I have the privilege and honour of belonging.
§ 7.55 p.m.
§ Mr. Eric Lubbock (Orpington)
It is something of a paradox that our debates on aviation seem to be rather slow-moving. I reflected as I listened to the hon. Member for Glasgow, Govan (Mr. Rankin), with great attention, as I always do, that when the Concord comes into service he will be able to fly no fewer than 725 miles in the time that it took him to make his speech.
§ Mr. Rankin
I am sure that the hon. Gentleman will go a little further. If he had been in the House he would have realised that I was ever so much quicker than some of my predecessors.
§ Mr. Lubbock
That must be an occasion that I do not recollect, because I always listen to the right hon. Gentleman with great attention, although I do not think I have ever heard him make a short speech.
§ Mr. Lubbock
Very well; I will do so. I am not going to take up any of the points the hon. Gentleman raised, except one, which has been mentioned by a number of other hon. Members; that is, the size of the labour force in B O.A.C. It is rather dangerous for us to discuss this topic in the rather superficial way that we do on the Floor of the House. It is such a complex and technical subject that the rather superficial figures which are often given in the course of our debates can be misleading. They can be really misleading if they are quoted as authoritative in the reports of the Press, which sometimes thinks that we would not make these statements unless we had the fullest possible authority for them.
I was a little disappointed by the presentation of the hon. Member for Hendon, North (Sir Ian Orr-Ewing), who I am sure thought very carefully before he gave those figures to the House. It 122 is extremely misleading and inaccurate to compare the performance of different airlines on the basis of the number of employees per aircraft in service. A much more satisfactory measure is the number of employees per thousand or million capacity ton miles. This was the basis on which comparisons were made by the Select Committee on Nationalised Industries. A Memorandum by the Ministry of Aviation, which is Appendix 26 to the Report of that Committee, lists a number of factors which must be taken into account even if a comparison is being made on this basis. For example, the annual utilisation of the aircraft in the fleet must be taken into account.
Nobody has yet mentioned, but it is a fact, that B.O.A.C.'s utilisation is a great deal better than many of its international competitors such as Pan American Airways and Trans-World Airlines. In 1964–65 B.O.A.C. has succeeded in getting the best ever utilisation out of its Boeing 707s of 10.5 hours a day, which is quite unprecedented and which has not been anything like approached by any of its international competitors. I plead with hon. Members who intend to make these comparisons on the Floor of the House to think very carefully before they speak.
The Minister made some remarks about B.O.A.C.'s future aircraft requirements. I wish the right hon. Gentleman had been able to develop this a little, because it is of vital importance. He said that between 1969 and 1972 the Corporation thinks it will need some more subsonic aircraft and that the need then will be for bigger jets. He went on to mention B.A.C.'s proposal that it should develop a super super version of the VC10, for which it would require £40 million of Government money.
I should like to be absolutely certain that B.O.A.C.'s calculations are correct on the amount of capacity that it will need in the next few years. The Corporation has made mistakes on this subject in the past and it appears to me from a study of the figures given in its last Annual Report that it may need additional capacity well before 1969. The Corporation has taken out of service all its Britannia's and Comet IVs. In fact, the last Comet IV on a scheduled service 123 was operated by the Corporation today. That has released 188 million capacity ton miles on Comets and 36 million capacity ton miles on Britannia 312s. I take these figures from the last Annual Report. That is equal to something like the capacity of six Boeing 707s. If one takes a 15 per cent. expansion rate, which the Corporation has achieved in the last two years, that amounts to nearly another five equivalent Boeing 707s. Therefore, in 1965–66 the Corporation's need will be for an additional eleven Boeing 707 equivalents.
I am using this comparison because it provides a reasonable figure upon which to base these estimates, from the performance of the Boeing 707 of which we have 20 in service and which I suppose have reached the maximum that they can attain. It appears to me, therefore, that these seventeen Super VC.10s, which the Minister says will be delivered progressively up to 1969—if the Corporation's rate of expansion in the last couple of years is maintained—may well be needed sooner than that. It appears to me that in 1967–68 the Corporation will require some additional capacity. To get at the root of this matter it is necessary to put on paper the number of passenger miles and the number of freight-ton miles the Corporation estimates it will be flying in each of the years up to 1969–70 and see how closely those estimates are matched by 20 Boeing 707s, 12 Standard VC.10s and 17 Super VC.10s which it will have delivered during that period. If we have these figures they enable us to look at the additional 10 Super VC.10s on a much more realistic basis.
It is disappointing that the Minister had nothing further to tell us on this subject today, although I can well understand his reasons for waiting for the Plowden Report which is due just before Christmas. I hope that we shall have an assurance that soon after Christmas he will tell us what the prospects are for these additional Super VC.10s. Presumably, since the Corporation's original original order was firm, the Minister has decided that if the Corporation does not take delivery it will be responsible for cancellation. Therefore, in deciding whether the Corporation should be permitted to have stretched Boeings or Douglas aircraft, he must take into 124 account that the Corporation will have to pay these cancellation charges unless they are taken account of already in the write-off provided in the Bill. If the right hon. Gentleman has already told B.O.A.C. that that is the case, we need not wait for the Plowden Report. He should tell us now.
If B.O.A.C. is given permission to use stretched Boeings or Douglas aircraft this means a capital expenditure of £30 million to £40 million in terms of dollars which will have an effect on our balance of payments in the late 1960s. Therefore, I hope this matter will be looked at carefully from a balance of payments point of view. As the Minister said this afternoon, the Super VC.10 has exceeded all our best expectations on the North Atlantic route so far. It is most remarkable that during the first six months of operation it has achieved a passenger load factor of about 76 per cent. on all trans-Atlantic services. This is indeed a phenomenal performance compared with 61 per cent. for the airline industry's operations as a whole on the North Atlantic routes. There is no doubt, therefore, that these aircraft will make a great deal of money for B.O.A.C.
In looking further ahead to the question whether the further VC.10s should be taken up or stretched Boeings and Douglases ordered instead, there will be the point that the Super VC.10 would have been in service for a considerable time with B.O.A.C. and that if more of these aircraft were ordered they would not need route proving or additional introduction costs. I hope therefore that we shall look carefully at this before a decision is taken.
As for the financial implications, the Minister said that over the next five years the Corporation would need £104 million for new capital expenditure and he expected that £100 million of that would be provided out of the resources of B.O.A.C. itself. I should like the Parliamentary Secretary to tell us, when he replies to the debate, how exactly these figures are calculated, because in the Corporation's Annual Report for 1964–65 the outstanding capital commitments of B.O.A.C. amount to only £69.5 million. Actually I said £70 million in my intervention a few minutes ago. This means that the Corporation expects to spend £30 million on capital account over this five-year 125 period. not yet provided for, and this on something other than the Super VC.10s. I should therefore like to know what the Corporation has in mind.
Secondly, taking the £100 million which the Minister says will be provided from the Corporation's own resources, I should like to know how this figure is calculated, because in the Corporation's accounts this year we have £13.8 million depreciation and £12.3 million surplus, making a matter of £26.1 million. If we take interest at 5 per cent. on the loan capital of £31 million, that is £1.5 million, the Corporation will have £24.6 million from its own resources in 1964–65 to finance new capital expenditure.
Let us also assume that the Minister asks the Corporation to pay 10 per cent. dividend on its equity capital of £35 million, that is £3. 5 million of the £24.5 million, it will have £21 million after loan interest and dividend payments with which to finance new capital expenditure. Over five years that will be £105 million retained out of profits and depreciation, in comparison with a figure of £100 million which the Minister has given to us. It appears to me therefore that the Minister has been extremely cautious in these estimates, and he has not provided for any increase in the surplus of 13.0.A.C. over the five years of which he spoke.
To turn to the B.O.A.C.-Cunard arrangements which we have discussed today, I am not in favour of competition on international routes between British carriers. This is wasteful and damaging, and at the time that it entered into arrangement with Cunard the Corporation was absolutely correct in what it did. One hon. Member opposite pointed out that Cunard-Eagle could have applied to the A.T.L.B. at any time for this licence in the North Atlantic, and the A.T.L.B. knows nothing of the doctrine of res judicata. The first application was turned down on appeal to the Minister but another one might have come at any moment and therefore the Corporation was taking a wise precaution in entering into this agreement with Cunard.
In the Select Committee on Nationalised Industries, Sir Matthew Slattery gave the other reasons why the agreement was 126 entered into. He said, on page 146 of the Report:It avoided wasteful and very damaging competition in the Caribbean area and we thought that the sales effort, the joint sales effort of ship and sea, would bring benefit to us, as they have in fact done.We find from page 231 of the Report that one of the consequences of this arrangement was that the Bahamas Airways, which was a B.O.A.C. subsidiary operating in the Caribbean, has had its losses reduced from £592,000 in 1961–62 toa figure for 1963–64 which is not likely to exceed £150,000.Therefore, the answer to those who ask what financial benefit B.O.A.C. gets out of the deal with Cunard is that one tangible benefit capable of measurement was the very excellent reduction of its losses in the West Indian area through the elimination of competition. Actually, the realisation was not quite as good as had been hoped. I think that Bahamas Airways made a loss of £229,000 in the year just passed, but that was mainly because of fare-cutting by competing airlines on those routes. Competition has not been removed altogether, although the effect of it had been reduced.
It is important that the agreement between Cunard and B.O.A.C. should be published in full so that some of the anxieties expressed by the hon. Member for Poplar (Mr. Mikardo) can be removed. I do not imagine that they will be removed from his mind. He has read the report—he had it in front of him—and I hope that he will lend me his copy so that I may have it photographed in case the Minister decides not to accept my suggestion that it be published.
The right hon. Member for Preston, North (Mr. J. Amery), the former Minister, explained that the agreement could not be published because it might prejudice B.O.A.C.'s chances of success in any future negotiations of this kind. It seems to me that, since large extracts have appeared in The Guardian today, that argument is no longer relevant, and, furthermore, since the present Minister's policy is not to permit parallel licensing, the circumstances in which B.O.A.C. might benefit from further agreements of this kind could never arise again under the present Government. Therefore, 127 those two reasons which might have justified not publishing have now disappeared. It is important that the text should be published so as to remove the anxiety which has been expressed by hon. Members opposite that the terms were unnecessarily favourable to Cunard.
One of the provisions of the agreement was that all services should be operated by B.O.A.C. on behalf of B.O.A.C.Cunard. I regard this as sensible because it ensured that there should be maximum possible integration of the two fleets. But it is sensible only so long as the charge which is made by B.O.A.C. to B.O.A.C.Cunard for its operations allows the Corporation to make a profit from these transactions. This is absolutely critical, and I want to know what the agreement says about it. All one can glean from the accounts of B.O.A.C. is that the charge in the operating account was £27 million, but one does not know how much it cost B.O.A.C. to provide that capacity on the joint operation or what profit it managed to make on it.
Since something has been made of the inability of either party to get out of the agreement which they had entered into, it is worth remembering that, since the minority shareholder, that is, Cunard, holds 30 per cent, of the capital, it would not be possible to alter the articles of the company or wind it up without Cunard's consent under the terms of the Companies Act. I am surprised that no one has noticed this. Section 10 of the Companies Act provides that a company may not alter or add to its articles save by special resolution, and Section 141 provides that a special resolution requires the consent of three-fourths of the members. I wonder whether this is partly the reason why the Treasury persuaded B.O.A.C. and Cunard that Cunard should hold 30 per cent. of the capital and not 25 per cent. If Cunard had held only 25 per cent. of the capital, it would not have been protected against unilateral alterations of the articles.
I come now to the Bill itself. I listened with pleasure to the remarks of the right hon. Member for Mitcham (Mr. R. Carr), except that, if he will forgive my saying so, I thought that it was a piece of breathtaking impudence to claim this as a Tory measure. I was extremely sur- 128 prised when the right hon. Gentleman said that because I had told him in the Lobby the other day—I hope that he remembers this conversation—that I was delighted by the Bill because it followed the terms of a speech which I had made in the House on 6th November 1962 and I, therefore, could claim this as a Liberal Measure. Lest the right hon. Gentleman does not believe me, I refer him to HANSARD of 6th November, 1962, which reports my words, with reference to the capital of B.O.A.C. as follows:If one had part of the capital in the form of ordinary shares and the rest in the form of loans, at least when a loss was made one would not have to pay interest on that which was represented by the ordinary capital…" —[OFFICIAL REPORT, 6th November, 1962; Vol. 666, c. 858.]and I went on to develop that theme a little further. But the right hon. Member for Preston, North, then Minister of Aviation, said that this was a ludicrous suggestion which could not possibly be worked. He said that B.O.A.C. could not be compared to a commercial company. Yet today all the Tories who have spoken in the debate said what a marvellous idea it was to make B.O.A.C. comparable to a commercial company.
To make quite sure that there is no doubt about where this idea came from, I quote from a statement issued by the Liberal Party before the last election:The financial structure of B.O.A.C. must be reorganised. Investment representing un-commercial decisions, imposed by successive Governments should be written off, but the remainder of the Minister's advances to the Corporation should be replaced by Government-held ordinary shares to the same total value. Dividends relating to the Corporation's financial results should replace the present fixed interest charges.As far as I know, that was not the policy of the Labour Party before the election. I note in the same document a statement by the right hon. Member for Newton (Mr. Lee), and all he said was that the agreement between B.O.A.C. and Cunard ought to be cancelled. But that is not what we are doing in the Bill. It gives effect to our proposals, and I am delighted to have them enshrined in the Bill, not the proposals of the Labour Party at the last election.
I come now to some questions on the Bill. The Minister told us what he had in mind regarding the rate of interest 129 for the £31 million loan money. He also has powers under Section 3 of the Air Corporations Act, 1962, to determine the repayment dates for any loans which he may make to the Corporation. Has he anything in mind for that? Are these loans to be for a fixed term, will they be repaid at the Corporation's Option, or what?
Second—the right hon. Member for Mitcham mentioned this, and I put it only as a question without intending criticism until I have heard what the Minister says in reply—I want to know why the financial responsibilities of B.E.A. and B.O.A.C. are so different. 13.O.A.C. has to achieve a certain return on its net assets, as laid down by the Minister. Yet it appears that B.E.A. has only to ensure that its revenue is sufficient to meet charges, taking one year with another. This appears to be a less onerous requirement. I suppose that the obligations of B.E.A. ought to be slightly less difficult to meet than those of B.O.A.C. because it has to run the Highlands and Islands services which, as we know, make a loss of about £300,000. But I should have thought that this could be met by applying the same financial criteria to both Corporations and then imposing a slightly less difficult financial target on B.E.A. than on B.O.A.C.
Now, a question about publication. Clause 3(3) provides that the Minister shall give notice to the Corporation of any determination under Clause 3(1), that is on the return on assets which he will require it to make. I want him to assure us that this will invariably be published and that we shall know what rate of return B.O.A.C. is required to achieve. Second, under Clause 3(5), if the Corporation finds that these financial targets cannot be attained, it has to inform the Minister of that fact and consider what special measures should be taken. I want an assurance that, if the Corporation has so to inform the Minister, this fact also will be published to hon. Members and the public generally.
In asking these questions I am not making any criticisms of the Bill, which T think is excellent. I am merely seeking information. My party as a whole will give a very hearty welcome to the Bill, which I think will be a great boost to the morale of all who work in B.O.A.C.
§ 8.20 p.m.
§ Mr. Robert Maxwell (Buckingham)
The Bill must be a brilliant one because both parties opposite are absolutely determined to claim parentage of it. I welcome it. It was an inevitable Bill, and it is a good one.
I must disagree with the hon. Member for Orpington (Mr. Lubbock) who seems to be saying that the deal between B.O.A.C. and Cunard-Eagle was a first-rate one. It was a rotten deal, and a poor dear for the taxpayer, for B.O.A.C. and for everybody else involved in the former Administration. I take it that since the Minister also says that it was a bad deal he had before taking this position consulted the Board of B.O.A.C. Although the Board of B.O.A.C. has not said so publicly, I assume—I hope that the Parliamentary Secretary will confirm this—that it is the view of the Chairman of B.O.A.C. that it was a very poor deal and that B.O.A.C. would like to get out of it.
I would draw the attention of the Minister to the Clause in the Bill which entitles Cunard to appoint three directors to the Board of B.O.A.C. I wonder whether my right hon. Friend will bear in mind that in these circumstances Sir Basil Smallpeice, who was managing director of B.O.A.C. and financial director for a total period of 11 years during which the Corporation was run at a loss, is now in the incredible position of being able to appoint himself to the Board of B.O.A.C. Having been sacked by the former Administration and having got a golden handshake of about £20,000 a year, he can now, of his own volition, appoint himself to the Board of B.O.A.C. I call on my right hon. Friend to point out to the managing director or new chairman of Cunard how distasteful this would be were he to do so.
I am sure that it would not prove embarrassing to his old colleagues on the B.O.A.C. Board, but it would be most embarrassing to the senior staff of B.O.A.C. to find themselves faced with a minority shareholder sitting on their Board. It cannot be possible that when the former Administration set up this agreement it was ever intended that a man who had had the sack from the Corporation and got a golden handshake should be able to appoint himself again 131 to the Board. It is quite monstrous, and I hope that it will be avoided.
§ Mr. Roy Jenkins
I would point out to my hon. Friend that the Cunard representatives are on the Board of B.O.A.C.Cunard, not the Board of B.O.A.C.
§ Mr. Maxwell
I am sorry. I meant the B.O.A.C.-Cunard Board. Even in the case of the B.O.A.C.-Cunard Board, it surely cannot be that a man who has had the sack from it is able to appoint himself to it again. I hope this will not happen.
The whole of this episode of the Cunard-B.O.A.C. agreement is a squalid and sorry affair. It was a bad deal. The responsibility for it rests entirely on the shoulders of the former Administration and much more personally on the shoulders of the right hon. Member for Preston, North (Mr. J. Amery). One of the things that I was looking forward to before the election was coming into the House and charging the former Minister with crass incompetence. In my view, he entered into the agreement because he was biased against this national Corporation and wanted to bring some form of denationalisation into being. He found himself dealing with a weak and miserable chairman, who should have told the Minister, "Under the Act under which I am appointed I have to look after the interests of B.O.A.C. I am not interested in any political shenanigans about you and your Government wanting to give Cunard a piece of my Corporation." Instead of that, the Chairman found himself faced with a strong Minister, and he yielded. He allowed the Corporation to enter into an agreement.
I, too, read Sir Matthew Slattery's excuses, reasons and justifications, so-called, about why he entered into the agreement. One was that Cunard had two Boeings which B.O.A.C. wanted. But let me remind the House what the position really was. Cunard, presumably with the blessing—it could not have been otherwise—of the former Administration, with its nod and weight, went ahead and bought two Boeings, plus spares, for a total investment of £6 million on the understanding that it would be able to use them profitably in competition against B.O.A.C. Much to its horror it found that the licensing board upheld the 132 application by B.O.A.C. and refused it permission to fly these aircraft. What was then the position of Cunard?
§ Mr. Maxwell
The Minister, having given Cunard advice to go ahead and make the investment, found that he had to uphold B.O.A.C.'s rights to a monopoly. over the route because he knew that my party would not stand for anything else. Hon. Members opposite may not agree, but the fact nevertheless was that Cunard found itself with an investment of £6 million in aircraft and spares without any rights to fly the aircraft. The then chairman of Cunard could not possibly use them as cruise ships or as hotels. Therefore, he was in the position of having to go to B.O.A.C. and say "Please bail me out. Otherwise we shall be losing £6 million, and the demurrage on these aircraft is fantastic."In fact, the chairman of Cunard would have been glad to have had from B.O.A.C. half the money which he had paid for the aircraft in order to be taken off the hook.
§ Mr. Lubbock
The initiative did not come from Cunard to B.O.A.C. Sir Matthew Slattery said that he originally approached Cunard in 1960, but it was not at that time interested. He found that it had acquired two Boeings which he wanted, and there was then another opportunity of returning to his discussions with Cunard.
§ Mr. Maxwell
The hon. Member will know that who takes the initiative in such circumstances is a matter of simple arrangement. If Sir Matthew took the initiative personally, he must be a very incompetent chairman, which is what I thought him to be. Here was Cunard without a licence and unable to fly its aircraft.
§ Mr. Maxwell
The hon. Gentleman will also know that the line is running profitably in the Bahamas only in certain parts of the year. Cunard hoped to use the aircraft in competition with B.O.A.C. Once permission was refused, there was no reason why B.O.A.C. should have entered into an agreement.
133 Another excuse was that B.O.A.C. had some advantage in having its sales effort increased by the addition of the Cunard sales offices. Here again, this was proved by many hon. Members to be quite illusory and almost useless to Cunard.
Everyone agrees that this was a bad deal. The agreement as it stands may not be formally cancelled so the only way to terminate it, if there is no other way, is by legislation. I hope that my hon. Friend the Parliamentary Secretary will give us an assurance that, unless B.O.A.C. and Cunard, as the two managements concerned, can get together amicably so that Cunard disposes of its shares back to B.O.A.C., the Government will not hesitate to introduce legislation.
The amount of money that Cunard is taking out of this deal is many times more than the published figures. I am certain it would pay B.O.A.C. to look very carefully at how the deal has really worked out on a cash flow basis. Has 13.0.A.C. obtained every penny to which it is entitled? Is Cunard-Eagle doing everything that it is required to do under the agreement? I am convinced that 13.0.A.C. could easily tighten up the agreement to make sure that this baemorrhage of profits out of the deal is reduced. It certainly needs to be reduced.
For years right hon. and hon. Gentlemen opposite have lauded the wonderful advantages of private enterprise. A few days ago, I felt the need to attack the inefficient use of the assets and the failure to take advantage of export opportunities and orders at home by the very stuffy management of Vickers. Is Cunard any better an example of private enterprise? It is not for a public corporation to bail out. Cunard. Is it not the case that, if it had not been for the money which Canard is taking out of the deal with B O.A.C., there would be no dividend for the Cunard shareholders?
Where has the management of Cunard been that it has dissipated its chances and opportunities to earn money out of the huge assets it has been entrusted with by, the shareholders? Can it really be said to be the responsibility of B.O.A.C. to have some of its profits syphoned off to Cunard so that it becomes the only source of cash for the paying of the shareholders' dividend? Although it has 134 just announced a loss of staggering proportions, and although it has just sacked the chairman and the whole of its management, Cunard is still paying dividends on the same basis and form. Where is the cash coming from? It comes basically out of the B.O.A.C.-Cunard deal.
I believe that this debate has been very valuable in that it has ventilated a piece of incompetence and shocking behaviour by the former Administration in the way they treated a great national corporation and its assets. Instead of kicking the Board of Cunard and telling it to "get with it" and use the company's assets more efficiently, the last Government were willing to give the company a hand-out from public funds so that the Board could use that money instead of waking up to the realities of the competition it should have been facing.
I ask my hon. Friend for assurance that this agreement will be published in full tomorrow. The bulk of it has been made public already in The Guardian and one or two other papers. I am convinced that the Minister must have consulted the Board to be sure that it agreed with him that it was a bad agreement. That being the case, I appeal to Sir Basil Smallpeice, the former managing director of the Corporation and now the chairman of Cunard, to appreciate that the best thing he can do is to take the initiative and offer to sell his holding back to B.O.A.C.
I have seen it mentioned in financial journals that the investment of about £6 million by Cunard is today worth about £17 million. What has Cunard done to deserve that kind of massive appreciation of an investment of this kind when in the first instance it was bailed out by B.O.A.C. from making a very serious loss? I hope that Sir Basil Smallpeice will tell B.O.A.C., "If you consider this to be a bad deal, we of Cunard are prepared to renegotiate it". I hope that he is prepared to take a fair and reasonable profit on his investment and release the Corporation from this shocking deal which should never have been made and certainly could never happen under the present Administration.
§ 8.36 p.m.
§ Mr. Nicholas Ridley (Cirencester and Tewkesbury)
I do not intend to follow 135 the hon. Member for Buckingham (Mr. Maxwell) into a discussion of B.O.A.C.-Cunard, a subject which has been greatly discussed today. I thought that it was a little inconsistent of him to adjure Cunard to go out and make the most of its assets and use them to the best of its ability and then, in the next breath, to castigate Cunard for having got on to a good thing. He must make up his mind whether he believes in private enterprise and, to be just to him, I rather suspect that he does.
I want to refer to the deficit which the Bill proposes to write off. As a member of the Select Committee which considered the affairs of B.O.A.C., I was impressed by the history of muddle and mismanagement over the many years that B.O.A.C. has existed. The Select Committee pinpointed the main reasons for this. In passing, I should like to say that it is one of the great functions of a Select Committee that it can investigate what has happened with a very high degree of accuracy and impartiality. A Select Committee is not nearly so successful in making prescriptions for the future, because rival philosophies and politics then come into it. However, in the work of investigating the past, the Select Committee did a very good job.
There was first the confusion between the interests of ordering British aeroplanes and the commercial interests of the Corporation. Secondly, certainly too many aeroplanes were ordered, and in order to keep these aeroplanes in business, the Corporation had to fly routes which were certainly not profitable, thereby increasing the loss. Thirdly, there were some unfortunate investments in subsidiary airlines overseas nearly all of which proved to be unprofitable. Fourthly, there was the inefficient staffing on repair and maintenance, which has been mentioned by many hon. Members.
My right hon. Friend the Member for Mitcham (Mr. R. Carr) suggested—and the Select Committee was very strong on this—that the airline's main concern must be its commercial interests. If the Government wish to interfere for social, political or other reasons, or reasons to do with the British aircraft industry, they must pay the cost of any additional burden placed on the Corporation. We can all agree that it is useful to spotlight 136 non-strictly commercial operations which the Corporation is asked to undertake, but I ask the House to consider whether it is wise to have every little piece of policy brought into the open and made public and, as it were, valued and then paid for by the Government over and above the normal finances of the Corporation.
I want to give an example. If at the time of the VC.10 discussion the Corporation had come to the Government and said," If we order the VC.10 we shall want £500,000 for each aircraft from you because that is the extent of their non-profitability," it would not have been a very good advertisement for the VC.10. We can all see now that the VC.10 is a very good and economical aircraft but at the time such a statement might have done great damage to the reputation of that aircraft.
It seems reasonable to me to pay now for the losses incurred—whether in running aircraft to the Islands and Highlands or in introducing a new British aircraft —and that is what we are doing today. We are engaged in paying for the cost of the various social, political and other decisions which various Governments have taken. I disagree slightly with my hon. Friends for I hope that the Government will not put the Corporation into too tight a statutory straitjacket. Whichever way we look at it, we must have first-class management. This is the only guarantee that the right decisions are taken. If we know that over the years we have the best management available in the country then I am sure that the House will pass such Bills as this, because we shall know that we have had our money's worth in the various non-commercial activities which have been undertaken.
The Government propose to write off £110 million, leaving B.O.A.C. with a £66 million capital value. The Select Committee would have thought that a reasonably fair solution to the problem. But it is depressing that it is so large. Also published last week was a Bill to write off £415 million for the coal industry. A few years back we wrote off £1,200 million for the railways. This makes about £1,700 million discharged as capital losses in the nationalised industries.
I am tempted to ask where all this is coming from. Last year there was a net 137 dissaving in gilt-edged. They paid out more than they took in by £357 million. Since then in the Budget the Government have penalised capital gains on gilt-edged stock, have put up the rate of Income Tax arid have done everything they possibly can to discourage people from buying Government stock or from being wicked capitalists". Their general attitude is hostile to the investor. No capital at all is coming in from the public; on the contrary, a stream of money is going out of Government stock into other forms of investment. The Minister said that taxpayers are being asked only to forgo the interest, but surely a pertinent question is—where is the money coming from? We are writing off £1,700 million. No saving is going on.
The truth is that this has partly been covered by taxation, because the Budget surplus is applied to cover outgoing capital requirements, but the bulk is being borrowed from America and European countries under our present heavy borrowlig. We are borrowing short on a vast scale to cover losses which have been made because of wrong investment decisions in the past in these and other industries. We must take better decisions, we must get our decisions right, because we cannot afford to go on like this. No ordinary private business could continue to make losses of this order. Again we come to the need for the best possible management, which is the only safeguard for our money in the big nationalised corporations.
I support my right hon. Friend the Member for Mitcham in his call for a contribution in equity capital from private people if such a scheme can be arranged. It has been arranged in some countries. I believe that in France part of the capital in the electricity industry is subscribed by direct equity subscribers. Whatever schemes are devised, I am sure that something is possible. I know that there are many difficulties, but I hope that, in the face of this scarcity of Government capital, the Government will do everything that they can to try to achieve a source of supply from private investors.
The new capital structure consists of £31 million worth of stock. I feel that it could pay more than the 4 per cent. interest which the Government suggest. It seems strange that we should fix a leery cheap rate of interest which does not 138 reflect the true value of capital in the market. We could well charge the current rate after such a large write-off has been made.
I should like to talk principally about the £35 million of so-called equity capital which has been discussed today. There has been a slight confusion in the Minister's mind over this. On the one hand, he is thinking of the financial target which the Corporation has to meet. On the other hand, he is thinking in terms of equity shares which will pay a dividend according to profits. The right hon. Gentleman has confused the two. They are quite separate things. I am entirely in favour of the financial target outlined in the White Paper of three or four years ago. The Government ought to be congratulated on having accepted this step forward in nationalised industry financing and having for the first time written it into legislation both for B.E.A. and B.O.A.C. It is essential to try to fix targets. It is a sort of financial discipline and a guide to the sort of profits which B.O.A.C. will be expected to earn.
When it comes to the question of an equity capital, what is required is that the Corporation should pay the biggest dividend it can on its equity depending on the profits which it has made, because it will not always, or hardly ever, achieve the exact target. Surely it should be encouraged to suggest as big a dividend as it can pay. That is why my right hon. Friend the Member for Mitcham was right when he said this afternoon that the Government have got it the wrong way round. The Corporation should suggest the dividend, having been set a target by the Government which it should try to match or better and then suggest to the Government, when it has its results, what it can pay.
We need a better explanation from the Government about this and how it is supposed to work. Will targets be set for one, two, three, four or five years ahead? Will the Government clawback—that rather unfortunate word which the Minister used—be fixed two, three, four or five years ahead and vary each year according to tthe prospects? The House is entitled to be told much more about how the whole scheme will work.
I am not sure that this equity suggestion, although it is quite a sensible 139 idea, will really be a financial discipline in the way that the shareholders and bankruptcy courts eventually are to a private company. If the Corporation does not meet its target or is not likely to supply what the Minister has asked for on the equity capital, I wonder whether this will be enough to force the management to take unpopular and difficult decisions which might be in the interests of the Corporation.
I should like to talk about the maintenance costs of B.O.A.C. which several hon. Members have mentioned. Here is a situation which some tough manager has to tackle. It is not only in B.O.A.C. that these situations exist, but here is one which has been spotlighted by my hon. Friend the Member for Hendon, North and by the Select Committee's Report which somebody must tackle. I ask myself whether the imposition of a certain target on the £35 million of equity capital will be a sufficiently direct incentive for the managers of B.O.A.C. to put their minds to it.
My set of figures, which are taken from the table at page 66 of the Select Committee's Report, shows the maintenance expenditure per capacity ton mile of B.O.A.C. and the other major world airlines. When one multiplies the 1962 British figure of 5.6d., as against Pan American's 3.4d., by the difference in wage rates, which might be anything up to two or three times, one gets the impression that in one way and another, although it is difficult to particularise, our engineering maintenance costs are very high compared with those of the Americans.
The hon. Member for Orpington (Mr. Lubbock) pointed out that there were many reasons why we cannot accept figures in their entirety, but every set of figures which one sees suggests that all is not right in this part of the organisation. I hope that this restrictive practice or group of restrictive practices which has been pinpointed and spotlighted in reports and in this House on other occasions will seriously be tackled, because I am not convinced that enough has been done.
Again, therefore, one comes to the conclusion that there is no substitute for good management, because this is not a financial discipline that will be strong 140 enough to force people to do this unless they are of the calibre and stamp that they can do this sort of job when it crops up and it is necessary to do it. In general, therefore, in all our nationalised industries, the only real safeguard for efficiency and for the proper investment and use of the taxpayer's money must be that these industries are run by the best of the first-class people that the country can provide. I make no reflection on any individual, past or present. A lot of names have been mentioned today and it is not my intention to mention any. I believe, however, that to get first-class management in all our nationalised industries, particularly airlines, we must pay the sort of salaries that are being paid in businesses of similar size all over the world as well as in this country.
One must remember that added to the difficulties of running a nationalised industry as opposed to private industry, these chairmen and their directors are subject to censorious debates in this House, to abuse in the newspapers and to a very large correspondence from members of the public; that they are subject to interference by Ministers, of either party, and that their lives are made much more difficult than is the life of the ordinary chairman of a private company. I am glad that the salary of the Chairman of B.O.A.C. has been raised from £8,500 to £15,000, but when it is remembered that Dr. Beeching asked for £24,000 I still feel that the Minister could take a little more elbow room on this occasion. For that reason, I welcome Clause 8, which gives the Minister power to fix the salaries of all the members of the Boards. I hope that in the two industries for which the Minister is responsible—B.O.A.C. and B.E.A.—he will not hesitate to create conditions at the top which are good enough to attract the very best people in the land which in turn will allow room for the second-grade management beneath them, which will have conditions of service which will attract the best people at that level also.
It is vital that the job of a chairman of a nationalised industry should not be treated as something which is done purely as a vocation but should be as well paid and as highly rewarded as any in the land. That is the only way in which this House can guarantee that the affairs of the Corporations are run with maximum 141 efficiency. It is the only way that, as guardians of the taxpayer's money, we can be certain that the £110 million that we are today being asked to write off has been incurred in every way correctly.
I therefore welcome the Bill. I hope, however, that the Government will not think that we write off this large sum of money lightly, because it is important to bring home to the public that in the long run they are paying for this money out of their pockets. It is only right, therefore, to make certain that it has been properly expended and that the Corporations will be properly run in the future.
§ 8.55 p.m.
§ Mr. Keith Stainton (Sudbury and. Woodbridge)
This debate today has certain connotations with the kind of debates we normally get on the Consolidated Fund: we tend to wander all over the place. Of course, while the Consolidated Fund is somewhat imaginary—a sort of Parliamentary fiction in our debates—it is not so with the £110 million which we are being asked to deal with now. However, although it has been a wide-ranging debate, which has touched on many matters which at first sight may appear extraneous to this Bill, it has thrown up a number of issues of great relevance, and will be of assistance to the House and the Government in considering the Measure now before us.
The Minister even squeezed in a reference to the Plowden Committee, and just as Samuel Beckett was waiting for Godot, so indeed is B.O.A.C. and the whole of the aircraft industry waiting for Plowden. The sub-title of Beckett's play was, "A tragi-comedy in two acts" Well, let us hope that the tragedy in this case will not be spun out much longer.
Relevant as this Committee's Report is to the future of B.O.A.C. and the 10 Viscount Supers in suspense, it was, perhaps, a surprising omission on the part of the Minister that he did not tell us precisely when it will be published and what facilities there will be for early debate. Perhaps the Parliamentary Secretary will clear this up when he closes the debate.
Another theme which has recurred from the other side of the House is the advocacy from those benches of further nationalisation. "Those whom the gods wish to destroy they first make mad" is, 142 perhaps, a quotation which tonight might appropriately be adapted to read, "Those whom you wish to nationalise you first knock on the head and destroy". The 17 Super VC.10s, for example, spread over the period indicated by the Minister this afternoon, suggest a striking rate on average of merely one every 10 weeks or so.
During the debate many tributes have been paid to—in fact, heaped on—the Parliamentary Secretary as the result of his global sales activities, and I must say we all admire him for the considerable energy and initiative which he has shown; but that is one side of the coin; the other side of the coin is, how many VC.10s has he actually sold or organised to be sold? Perhaps he will comment on this again when he speaks to us in a few minutes' time.
The B.O.A.C.-Cunard controversy has also re-emerged today with, indeed, a good measure of passion. The hon. Member for Buckingham (Mr. Maxwell)—now, alas, absent—is truly a passionate man, as, indeed, is his hon. Friend the Member for Poplar (Mr. Mikardo). In this matter I should like to give further emphasis to points already made from this side of the House. In particular, firstly, the B.O.A.C.-Cunard agreement was freely negotiated. The Minister has said so, and the initiative, judging by the Report of the Select Committee on Nationalised Industries, came from B.O.A.C.
The second point I should like to take up is a theme which was excellently expressed by my hon. Friend the Member for Cheadle (Mr. Shepherd): they cannot have second thoughts just because the thing has gone all right; if they do, then certainly any Government plans for joint ventures will never get off the ground, much as I would wish them to, perhaps, in many cases.
The third point of great relevance is why the Treasury insisted on a 30 per cent. holding by Cunard, and not 25 per cent. as originally proposed. In other words, again quoting from the Select Committee on Nationalised Industries, the Treasury appears to have hijacked Cunard into taking a larger stake than it was prepared to countenance when the deal was in its formative stages.
Fourthly, I must repeat the question put by my right hon. Friend the Member for Mitcham (Mr. R. Carr) and ask what 143 B.O.A.C. itself now thinks of the Cunard deal. Is it at one with the Minister? Should it not have an opportunity to speak up? I think the Parliamentary Secretary must come quite clean on that point tonight.
Fifthly, now that the Minister has precipitated the controversy all over again, should he not try to let us all see a copy of the agreement? It is not true that my right hon. Friend the Member for Preston, North (Mr. J. Amery) refused to reveal the agreement to the House. Again, it is recorded quite clearly in the Report of the Select Committee on Nationalised Industries that he sought to do so and the move was declined on the initiative both of B.O.A.C. and of Cunard itself.
I recognise the Minister's anguish that there should be a private enterprise link at the very heart of B.O.A.C.'s operations, and I do that very sincerely and meaningfully. But the fact is that the arrangement has now come about and it would be a great blow to commercial morality just opportunely to turn one's back on it.
I think that the Minister tended to exaggerate the Cunard share in operations by quite a margin. I should prefer to look at the B.O.A.C. operating statement where, if allowance is made for the minority interest, it will be seen that B.O.A.C.'s share of the B.O.A.C.-Cunard tie-up accounts for 20 per cent. of B.O.A.C.'s operating profit and not very nearly 30 per cent., as defined by the right hon. Gentleman.
Before leaving the B.O.A.C.-Cunard agreement, I should like to mention a different point and say a few words about any advantages which the Bill itself might confer on the Cunard partner and, therefore, the private shareholders. I accept what the Minister says that there is no such advantage, on the face of things, anyway. The company's structure works in a pyramid, and to operate on a capital structure at the top of the pyramid cannot, on the face of it, confer benefits further down. It would be different if the reorganisation were lower down the pyramid, because then it would work its way up. But I am still unclear whether such an advantage to private shareholders in Cunard might not automatically go to them via the substantial loan advances made by B.O.A.C. to the joint venture, 144 and in the last published accounts in B.O.A.C. for the year ended 31st March, 1965, I see that something like £.8½ million was on advance at the time that the accounts were drawn up.
We must insist that we be told clearly and with authority what interest rates are charged on these advances and how they are arrived at. With regret, I must say that I regarded the Minister's explanation in reply to my question as quite inadequate.
Turning now to the Bill, in assessing it I suggest that in relation to the B.O.A.C. part we must have three criteria very much in mind all the time. First, we have to be quite clear as to how the losses occurred. Secondly, we have to be satisfied that the faults have been put right. Thirdly, we must be sure that this Measure is the right way to go forward.
As to the first criterion—how did these losses occur?—I do not think that I need detain the House for long. The Minister's account this afternoon was substantially in line with the White Paper laid before the House on 20th November, 1963, and although the Minister, quite pardonably perhaps, put several of his own glosses on the accounts, it is worth making the point that a not insubstantial part of the accumulated deficit arose through investments in subsidiary and associated companies. I think that this point relates very pertinently to the partnership with Cunard and the desire of the B.O.A.C. to get linked up with another organisation with commercial expertise and a spread of sales offices and experience in the North American continent. This factor must be clearly borne in mind when one is reviewing the B.O.A.C.-Cunard situation.
As regards my second question—have the faults been put right?—I must reemphasise with all the power at my command the point made by my right hon. Friend the Member for Mitcham, namely, that a capital reconstruction would be meaningless if it was not founded on effective management. We now seem, happily, to have got this, and I hope that the Minister will let the House and the country know that the rather left-handed compliments which he paid to Sir Giles Guthrie in the Observer articles in 1964 are well and truly out of his mind now, 145 and that there is a true entente between the Ministry and the heads of the Boards of the two Corporations.
When one goes round and talks to the personnel of the B.O.A.C.—and this has to do with my question about whether the faults have been put right—one hears the quip from several persons that we should make sure that the B.O.A.C. is not being cursed with its own success. I think that my hon. Friend the Member for Macclesfield (Sir A. V. Harvey) touched on this point this afternoon when he told the story about the apparent con-fu don in regard to pilots, and on talking to personnel of the B.O.A.C. one hears the suggestion that perhaps the impetus that was there 12 months ago might now be slacking somewhat. As my hon. Friend the Member for Hendon, North (Sir Ian Orr-Ewing) and my hon. Friend the Member for Cheadle pointed out, the B.O.A.C. still has a long way to go in such obvious matters as personnel and engineering.
Also—and the Minister made this point this afternoon in defence of the reserve fund—the point can be made separately, and must be made, without, I hope, doing any harm to the B.O.A.C.'s trading position, that while it has apparently had virtually two brilliant years, its outlook now is slightly precarious. The very fact that the load factor of the VC.10 is so high could of itself be the seed of a future setback. being in business, I am always very worried when I have a large share of the market. I am much more comfortable when I am getting the volume that I want with a lower share of the market, and looking at the Minister's face I feel sure that that point has gone home.
My second point about the B.O.A.C's. position being slightly precarious at the present time is that it might have to revise its fares structure backwards. The Minister touched on this partly this afternoon. There are two points to be made here. One is the fares structure within the B.O.A.C. network. It is intolerable that we should have all the propaganda and advertising for a reduction in fares on the North Atlantic routes, while on other routes fares have by no means cone down comparably. This situation wilt concern B.O.A.C. in some emendation, certainly in 1968 and possibly as soon as 1967. Then there is the prospect 146 of a general downward trend in fares, internationally, by 1968, and again this may be emerging with a great impact on fares by 1967.
In relation to my third question or criterion as to the Bill's reorganisation of B.O.A.C.—is this Measure the right way to go forward?—there are a number of points which I should like to stress and which we intend to pursue in Committee, partly through probing Amendments and partly through debate. First, there is the question of the adequacy of the borrowing powers. The Minister did not say much about this this afternoon, but there is a bracket from £90 million to £120 million, and although this bears correspondence to what the figure is in B.E.A. the House would he more comforted to have some kind of forecast of the cash load so that it can assess the adequacy of this against the future capital and similar commitments.
The second matter which we intend to probe in Committee is the size of the reserve. I cannot do better here than to quote what Sir Giles Guthrie said in his last Annual Report. He asked very dramatically for a launching pad and not a mattress. The reserve now emerges at virtually 50 per cent. more than would have been deduced from the figures given by the Minister in his statement to the House at the beginning of March, when he based his calculations on the fact that when we start with £110 million and there is an accumulated deficit of £90 million we finish with £20 million. We now finish with £30 million—and the Minister gaily added in the capital reserve. It is a highly dubious practice to lump together in one figure the capital reserve and the revenue reserve when their applicability in legal terms is usually very different indeed.
In Committee, in relation to the B.O.A.C. proposals, we shall stress the gearing of fixed interest to equity. This, of itself, poses the straightforward problem of the actual gearing. Perhaps the Minister had a convincing answer this afternoon in terms of a comparison with the practice followed by United States airlines, but if we are going to rest on that analysis he ought to follow it through and tell us on what terms they borrow at fixed interest, together with other relevant matters. His bald statement does not dispose of the problem for us.
147 The question of dividend policy and equity has been fairly fully explored today. We regret rather deeply that the initiative is not seen as coming from the Board itself, rather than the other way round, from the Minister, but whoever will take on this responsibility, I hope that the Minister will remember that there is a great argument in both Corporations that concerns prestige. Obviously, they do not want to pay a dividend one year if they cannot certainly pay it in the next, and they do not want to pay too much because they have to meet their staff on the basis of a public Corporation. I hope that these factors will not bear very heavily with them, and that the more commercial aspect will be paramount.
The right hon. Gentleman referred to the fourth point, in relation to B.O.A.C. and reorganisation, which bears re-emphasis, which is the rate of interest on fixed capital. One has the impression that B.O.A.C. may have been a little too grasping in this. The Minister referred to weighted averages, but he is sufficient of a mathematician to realise that that need not mean very much when it is possible to make this weighted average calculation in 50 or 60 different ways. What we on this side would set our faces against is any selectivity by B.O.A.C. to choose only those stocks which offer the lowest rate of interest and let the Treasury and the taxpayer handle the remainder at the higher coupon rate.
The fifth point which has been much aired today in relation to B.O.A.C. concerns the commercial integrity of the Board of the Corporation vis-à-vis the Minister. Many of us were distressed this afternoon when the Minister declined the invitation of my right hon. Friend the Member for Mitcham to get up and say that he stood by the letter of 1st January, 1964, written by his predecessor in office to Sir Giles Guthrie. We will expect the Parliamentary Secretary to say more about this and, if not tonight, we shall probe in Committee the compatibility of the contents of that letter with the Bill as it now stands, because the Minister has taken unto himself very considerable powers.
I should like to turn now to the revision of B.E.A.'s responsibilities as envisaged 148 in the Bill. I suppose one can say that this new wording puts B.E.A. on all fours with the Coal Board. This is precisely what it does, but I do not think that this is good enough. We want to know why the whole approach and philosophy of the definition is different from that concerning B.O.A.C., even ignoring the equity element in the reconstructed capital of B.O.A.C. I will ask again a question put this afternoon. Is this to do with the fact that, possibly, B.O.A.C.'s fortunes are on the wane? I will not enlarge on this: it is a point which might, if unduly blown up, do damage to B.E.A. But it is a matter on which the House is entitled to know the frank assessment of the Minister.
Before leaving the subject of B.E.A., I would ask the Parliamentary Secretary whether, in bringing forward the Bill, the Government have, like their predecessors, discarded with fair finality the idea of merging B.E.A. and B.O.A.C. This matter was not touched on by the Minister this afternoon, but it has occupied many people's minds for some time. I see from the White Paper presented to the House in November, 1963, that its authors concluded, in paragraph 44, that the arguments for and against the merging of B.E.A. and B.O.A.C.:…are finely balanced. Nevertheless, neither of the Corporations is in favour of merger at the present time …This certainly left several doors not simply ajar but wide open, with a good deal of draught coming through.
It is up to the Parliamentary Secretary to embrace this idea and tell the Government's thinking on it. Speaking purely personally, my feeling would be that we should keep the two separate as long as we possibly can, while working along the lines of joint organisation, joint medical staffs, joint engineering shops, perhaps, and joint service facilities of that kind. I do not think that we will get the best commercial effort out of these two very large Corporations if we merge them.
I should like to turn to a few detailed points before I give way to the Parliamentary Secretary. My first concerns Clauses 3(6) and 5(2), regarding capital outlay, in both of which occurs a phrase which I should like to draw to the attention of the Parliamentary Secretary and upon 149 which we should appreciate his guidance. Both subsections read:… in framing and carrying out proposals involving substantial outlay on capital account by the Corporation"—which means either Corporation—or by a subsidiary of the Corporation …It is the phrase, "or by a subsidiary of the Corporation" upon which I should be grateful for some comment. I suggest that this could be onerous to existing subsidiaries where a substantial outside interest already exists, something approaching perhaps 50 per cent. This might be the case with Gulf, although that is not a particularly large subsidiary of B.O.A.C. However, in quoting that name I hope I am illustrating my point.
My second point is perhaps of greater substance. Could this wordingor by a subsidiary of the Corporationwork in the future so as to inhibit any mergers? None of us can see into the future. Despite the Minister's wrath with the B.O.A.C.-Cunard turn-out, I do not think that even he would deny that perhaps in the future it would be highly ad vantageous for either Corporation to enter into various mergers. Yet the third party would have to be told that, if it became a subsidiary of the Corporation, it would be tied up cheek and jowl with the Minister and the Treasury. This is a thought that merits careful consideration, or perhaps even reconsideration, by the Minister.
My observation on Clause 6, which deals with borrowing powers and Treasury guarantees, is brief. This makes excellent good sense and I hope that the Minister will bring it to the attention of the Chancellor of the Exchequer. To have the backing of the Treasury in raising money overseas is entirely straightforward. One is just bewildered as to why this kind of thing never came about previously.
Clause 7, which deals with pensions, brings in the employees of certain subsidiaries—I think of all subsidiaries—the joint medical service, and the joint pension scheme. How is it intended that the past service of these employees should be funded, if at all? This is a very important matter which must be dealt with on Second Reading and not submerged in Committee. I draw the Parliamentary Secretary's attention to the 150 big items in the accounts of both Corporations which keep cropping up—£2 million to £3 million at a time—for contributions to the pension funds. Is this the best and smoothest method of financing the pension fund, out of the earnings of the two Corporations? I doubt it very much. This is a matter which could well come under further examination in Committee.
Clause 8 deals with the remuneration of, to put it colloquially, the directors. All I can do is to pose a question to the Parliamentary Secretary. What is one entitled to read into the change? It could be a change of some significance. The difference in wording is subtle but nevertheless quite clear. One would like to know precisely what is in the Government's mind. Is this to do with interlocking directorships between B.O.A.C. and B.E.A., or is there perhaps something a little more sinister about it? One does not know.
My final points, which I hope the Parliamentary Secretary will not overlook when replying to the debate, concern, first, B.O.A.C.'s tax losses. These must be the best part of £100 million. Can the Parliamentary Secretary assure the House that the Chancellor of the Exchequer has been consulted to ensure that these will not be prejudiced by the provisions of the Bill? The answer to this question will have a vital effect upon cash flow, and hence on capital and reserves, and the whole of our consideration of the figuring in the Bill.
Secondly I ask the Parliamentary Secretary to explain to the House exactly how Corporation Tax will affect the two Corporations from the standpoint of investment allowances. This, again, is an important point in terms of reckoning the cash flow and determining, however broadly, the adequacy of the figures which the House is being asked to agree to in the Bill.
As my right hon. Friend the Member for Mitcham said, we approve of this Measure, subject to close scrutiny in Committee on the lines I have indicated. Its workings will depend for their success on the line taken by the Minister. His powers are enormous. Its workings will depend also on the good will developed by the Boards of the two Corporations. 151 It is only a pity that the Bill is not presented in a consolidated form. It will provide the Law Commission with yet another task to perform in the years ahead. But by then perhaps the rumours which we are now hearing that the Minister is hellbent on winding up the Ministry of Aviation and cannot be bothered with these considerations may have come true. It is a pity that the right hon. Gentleman has not embraced the whole issue of producing a consolidating Bill. In any event, we on this side of the House, at least, intend to go on doing all we can to ensure that we have an efficient, competitive, customer-orientated air transport industry backed by a viable aircraft setup.
§ 9.25 p.m.
The Parliamentary Secretary to the Ministry of Aviation (Mr. John Stone-house)
The House has seen a number of Opposition spokesmen on aviation questions. We have had a fair succession of them. It is, however, very pleasing to have the hon. Member for Sudbury and Woodbridge (Mr. Stainton) addressing the House tonight in his capacity as a spokesman on the Opposition Front Bench. I congratulate him on his appointment as a spokesman. We hope that he will remain there for a very long time—certainly longer than his predecessor. We wish him well in his new spokesmanship. He has brought a great deal of background knowledge to the subject. He has done a considerable amount of research, and I should like to start my speech by trying to answer some of the points he has raised.
Firstly, the hon. Member was good enough to make some comments about our attempts in the Ministry of Aviation to assist the export drive. I do not want to get drawn into the details of this, but we have been delighted to have the thanks of the aircraft firms which are producing some excellent aircraft. We have been glad to have their encouragement in the job which we have been trying to do to assist them. We are confident that our aircraft industry is producing some first-rate aircraft. We are glad that B.O.A.C. and B.E.A. are flying these aircraft on international routes and showing them to the rest of the world with great success. We trust that many other airlines will 152 follow their example and the example also of B.U.A. and the other independents who have also been very loyal and steadfast in their support of British aircraft production.
The hon. Member asked why it was that the Treasury insisted that Cunard should take a higher share than 20 per cent. or 25 per cent. in the joint project with B.O.A.C. I suggest that this is a question which he could better address to some of his right hon. Friends who were the responsible Ministers at the time. This agreement between B.O.A.C. and Cunard was entered into long before this Administration came into any responsibility. We take no responsibility whatsoever for the terms of that agreement or for any percentage that any Minister may have insisted that Cunard should take at that time.
I was also asked by the hon. Gentleman what was the position of B.O.A.C. with regard to this agreement "at this point of time". I judge my words carefully. At this point of time B.O.A.C. says that this agreement is to its commercial advantage, and it is not proposing that there should be any change at this point of time. The hon. Gentleman also raised the question about the loan advances to the joint venture and he referred to the last B.O.A.C. Report in this connection. I have looked at this matter since he first raised it this afternoon. The position is that there is no interest charge on the loans that are made by B.O.A.C. to B.O.A.C.-Cunard in respect of aircraft which B.O.A.C.-Cunard is acquiring for the use both of B.O.A.C.-Cunard and of B.O.A.C. itself. This is simply an accountancy decision and does not have any vital effect on the relationship between B.O.A.C. and B.O.A.C.-Cunard. That is the exact position.
The hon. Gentleman made several points about the amount of B.O.A.C. losses and wanted to go over some old ground. I prefer not to be drawn on that. A great deal of responsibility in this matter lies with his former Ministerial colleagues. In this Bill, we are concerned not with dragging up the history of the past but with assisting B.O.A.C. and putting it on a realistic basis in 1966 and onwards so that this great Corporation may have an opportunity to operate successfully and efficiently in a very competitive market.
153 The hon. Gentleman asked about the size of the dividend. I shall come to this question when I come to the points raised by the right hon. Member for Mitcham (Mr. R. Carr), but it struck me as odd that the hon. Gentleman should say that it was important for the Minister to have strict control over the rate of dividend payment made by B.O.A.C.— I took careful note of his words—in order that the Minister could insist that it had a commercial outlook. That seemed to contradict the point made by the right hon. Member for Mitcham, who wanted B.O.A.0 to make the decision in this particular respect.
The hon. Gentleman asked whether we were proposing to have a merger of B.E.A. and B.O.A.C. This is certainly not in our minds. There are many supposed advantages, of course. There could be some savings if the two Corporations were merged. On the other hand, there co aid be substantial disadvantages, considering that B.E.A. operates largely in the European context and B.O.A.C. in anther environment altogether. But agree that, although there may not be a merger, it is most important that B.O.A.C. and B.E.A. should develop as many common services as possible in order to avoid unnecessary troubles which they may incur if they continue to operate independently of one another in this respect.
Next, the hon. Gentleman asked about the control over capital outlay which the Minister would have under Clause 3(6) and Clause 5(2). This power will help the Minister to prevent B.O.A.C. or B.E.A. entering into big commitments with subsidiaries which are not considered to be in the wider public interest. This is partly an answer to those of my hon. Friends who have raised the question of Bo loft, the agreement between B.O.A.C. and Fortes to operate catering services.
If, in the future, the Minister felt that B.O.A.C. was proposing to put too much money into this joint enterprise, it would be possible for him to use his power under these provisions of the Bill to control it. This is a factor which any organisation or private company would have to take into account if B.O.A.C. or B.E.A. were to propose an agreement or arrangement with it, but it should not be construed as being an expression of opposition on principle from this Ministry to 154 such arrangements. We are in favour of partnership—I speak now for the Government as a whole—between nationalised industries and private organisations. Our objection in regard to the B.O.A.C.-Cunard agreement is not to the principle of partnership but to the terms of the partnership as negotiated between the two organisations in 1962.
We have had a very close look at this. As the Minister himself said, we ourselves take a point of view on it which corresponds in many ways to the observations made today by hon. Gentlemen who have been very concerned about the development of this arrangement. However, this is an agreement between B.O.A.C. and Cunard, and it is one which has some very strict clauses in it, and it would be a difficult operation to force a separation or divorce between B.O.A.C. and Cunard at this point in time. However, the House has heard the observations of the Minister, and my right hon. Friend will be keeping the matter under very close review indeed.
The hon. Gentleman raised the question of the remuneration of directors and the fact that increased powers are to be taken in the Bill to control the freedom of the Corporations to pay extra remuneration to the directors. There is nothing sinister in this, I assure the hon. Gentleman. It simply brings the air Corporations into line with the other nationalised industries which have similar power in their legislation. It was simply an anomaly; the Corporations were the first bodies to be brought into public ownership, and the power we now suggest was not included in their legislation. This will not affect existing arrangements.
§ Mr. Ridley
Does the power enable the Minister to increase salaries, including the salary of the Chairman, at any stage if he wishes to do so?
§ Mr. Stonehouse
That is another point completely, and I should prefer not to be drawn on that. I do not think that the situation is affected by the Bill.
The right hon. Member for Mitcham made six or seven major points to which I shall reply in some detail. First, he raised objections to the amount of the reserves. I find it difficult to follow him here. What is he trying to get at? Is he suggesting that B.O.A.C. should have a 155 very small reserve? If so, he cannot be aware of the operations in which B.O.A.C. is engaging. The Minister said that it is liable to be affected by international factors beyond its control. Also, it is operating on a fare structure which is agreed internationally and which it cannot dictate. These are important factors. It is operating in a very special climate in which it needs larger reserves rather than the average reserve of a company of its size. In fact, other companies are in many cases, if not in most cases, operating with reserves very much larger than the reserve we are proposing for B.O.A.C. For instance, the British American Tobacco Co. operates with reserves of 70 per cent., Babcock and Wilcox 52 per cent., I.C.I. 27 per cent., Leyland 28 per cent. and Imperial Tobacco 30 per cent. The average for 2,000 companies quoted on the Stock Exchange with assets of more than £500,000 is about 42 per cent. What we are suggesting for B.O.A.C. is very much in line with other companies of similar size—25 per cent. —and yet B.O.A.C. is operating in another climate altogether from some of the other firms, and it may, indeed, be argued that it should have a larger reserve than some of those firms.
As my right hon. Friend said, he has chosen this figure almost arbitrarily. It has certainly been affected by the fact that B.O.A.C., we are glad to say, made a substantial profit last year. But if in future—after the three years' experiment with this Bill—the reserves are found to be larger than B.O.A.C. needs, then the Minister will have power to take some of those reserves back.
§ Mr. Shepherd
The companies mentioned by the hon. Gentleman have actually earned their reserves whereas B.O.A.C. has lost large sums of public money. Is there not some anxiety that the Government are affording B.O.A.C. an even bigger opportunity to do the same again?
§ Mr. Stonehouse
We feel that B.O.A.C. has had to operate in very special conditions during the last 15 years and it is only right and proper that we should give this very important Corporation a chance of starting again with a fair chance of success. If it began with no or very small reserves, it would be hampered in 156 its task to make itself pay in a highly competitive activity in bad years as well as good. It is right that it should have sufficient reserves to do the job.
Indeed, a powerful argument could well be deployed against the right hon. Member for Mitcham on this issue, in favour of much larger reserves than are to be allowed. However, we believe that the amount is about right. As I have said, if in future it is found that the reserves are building up to too great an extent it will be possible for the Minister to draw some back.
§ Mr. R. Carr
I appreciate what the hon. Gentleman has said. I was not so much suggesting that the reserves were necessarily too large as noticing that they appear to have increased by about 50 per cent. since the Minister spoke in March. I was also concerned about their purpose. Are they for genuine commercial contingencies or will they include a pay-off for the Super VC.10s?
§ Mr. Stonehouse
There is a possibility that B.O.A.C. will decide not to take up its full commitment to buy the VC.10s and some of the reserves may he involved in that decision. It is possible that the money now being proposed for the reserves could be used to assist towards that position. In fact, there is, I believe, a majority view in this House that the reserve should be used in that eventuality because there would be some reluctance to vote new aid to meet that position.
§ Mr. Lubbock
B.O.A.C. would be liable for cancellation charges if the last 10 Super VC.10s were not taken up. Is the hon. Gentleman now saying that these reserves take that into account? If so, why is an appropriate sum not shown in B.O.A.C.'s accounts for contingency liabilities?
§ Mr. Stonehouse
I do not know what B.O.A.C. may decide to do in its relations with the British Aircraft Corporation in years ahead. If B.O.A.C. decides not to take the VC.10s in future it will be possible for it to use money in the reserves towards the position of B.A.C. But I must emphasise that no decision on this has been taken. Nevertheless, there will be no reason why the money could not be used to that end if such a decision were made.
§ Mr. Stonehouse
I do not think that B.O.A.C. needs to show a liability if it has made no decision—and no decision has been made about the remaining VC10s. I am trying, in all honesty, to reply to a hypothetical question raised by the right hon. Member for Mitcham. At I have said, if such a decision were to be made eventually by B.O.A.C. it would be possible for these reserves to be used for the purpose—and indeed there would be a strong feeling in the House that they should be used in this way.
§ Mr. Onslow rose——
§ Mr. Stonehouse
I am sorry, but I cannot give way again.
The right hon. Member for Mitcham referred to the Exchequer dividend capital and asked whether this proportion was logical. I know the objection to calling it "equity", but for shorthand purposes we can well call it Exchequer equity. It is certainly not comparable with proper equity, but this is a simple way of referring to it and I will use that term if the House will allow me. As my right hon. Friend said, this proportion of Exchequer equity is an arbitrary figure, as, of course, it must be, but it is very similar to that adopted by other airlines. For instance, Pan American has a 54 per cent. equity shareholding, QANTAS, 57 per cent.; K.L.M., 26 per cent.; and Air France, 40 per cent. Taking the mean of those, I think that it will be agreed that the equity figure which we have chosen in the Bill is fair and corresponds to international practice.
The right hon. Gentleman made a great point about the Australian airlines having their capital interest free. I refer him to Section 31(6) of the Australian Airlines Act which reads:The moneys that may be borrowed by the Commission under this section in addition to the amounts that constitute the capital of the Commission under the last preceding section.The Australian airlines have borrowed considerable sums of money to equip their new fleets and that money carries a rate of interest.
The right hon. Gentleman asked about the position of B.E.A. and whether it 158 should not be included in this experiment with Exchequer equity. We feel that when an experiment is being conducted, it is better to choose one example rather than spread it too far and wide. We chose one airline for three reasons. We chose B.O.A.C., first, because it operates internationally in a competitive environment; secondly, because it has no monopoly on any one route; thirdly, because there is no question of a domestic social service being operated by B.O.A.C.
We chose B.O.A.C. for all those reasons instead of B.E.A. I go further; it would have been a mistake to have chosen B.E.A. to share in this Exchequer equity experiment when it is recognised that this is an experiment and that in five years' time B.O.A.C. might be back on its existing arrangement. As this is an experiment, it is better to conduct it with one airline and then bring in B.E.A. if we consider the experiment to have been a success.
The right hon. Gentleman also suggested that there should be a share in B.E.A. and B.O.A.C. by the public at large. He and his party must get the story right. What do they want to happen? The right hon. Member for Wolverhampton, South-West (Mr. Powell) and the hon. Member for Banbury (Mr. Marten) want to denationalise B.E.A. altogether. Now the right hon. Member for Mitcham suggests that some shares of B.E.A. and B.O.A.C. should be sold to the public. Hon. Members opposite probably have other views, too. What does the Conservative Party want? If it wants shares in a public Corporation to be sold to the public only when such a Corporation is making profits, then we on this side of the House completely reject that philosophy.
§ Mr. Stonehouse
Certainly. The hon. Member for Cheadle (Mr. Shepherd) makes my point for me. It would be impossible to sell such shares if the Corporations were operating at a loss. Therefore, if such shares were to be sold when the Air Corporations were making a profit, that would be bringing in private shareholders who had not taken any share of the burden of building up the 159 Corporations to a profit-making position. We say that if, as we hope, the Corporations continue to make profits, it is right and it is justice that the taxpayer and the community as a whole should have the profits which have been made in their name. We reject absolutely the right hon. Gentleman's suggestion, although I have no doubt at all that in a future aviation debate, and perhaps with other aviation spokesmen from the other side of the House, yet another nonsensical idea will be put forward.
§ Mr. R. Carr
I asked the Government what their views were on the S.A.S. and K.L.M. experiment and whether this had been considered. Evidently the hon. Gentleman is against it, but it would be pleasant to know why. Scandinavia contains good Socialist countries.
§ Mr. Stonehouse
I have stated why. One can sell these shares only if the Corporations are making a surplus. We think that if they are making a profit, then the taxpayer, the community, the country as a whole should have the benefit. Shareholders who will buy these shares only when the Corporations are making a profit are not taking any risk with their investment.
The right hon. Gentleman raised the question of the independent airlines on the international routes. He made great play of the point that they had a big part to play in improving the efficiency on these routes and acting as a counter to these Corporations. Was he suggesting that we should have an independent operator on the Atlantic route? I very much doubt that. I follow with some sympathy what he said about the South American route. British United Airways have done an excellent job during the last 12 months. I had an opportunity at the beginning of this year of seeing something of their operations. We applaud the energy and enthusiasm with which B.U.A. attacked a very difficult job of taking on the South American route from B.O.A.C. We very much regret that B.O.A.C. decided to withdraw from this route. It happened before we came into power, and there was nothing we could do about it at the time, but we are glad that B.U.A. took on the route, we are glad that they are now making ends meet on it and we 160 hope that they will continue to make a great success of it.
The right hon. Gentleman asked whether the Minister endorsed the action of his predecessor in writing to B.O.A.C. and asking them to operate on commercial terms. I can confirm that on 7th April last the Minister wrote to B.O.A.C. confirming that the fundamental responsibility of B.O.A.C. was to act in accordance with its commercial judgment on the lines set out by his predecessor. I confirm that fact in reply to the right hon. Gentleman's question.
§ Mr. Onslow
Will the Minister tell the House whether the decision on the suspended VC.10's is now a matter entirely for B.O.A.C. or whether there is any residual safeguard left in the Minister's hands.
§ Mr. Stonehouse
We are very much concerned with it. It will not be a decision which will be completely in B.O.A.C.'s hands.
I turn to questions raised by my hon. Friend the Member for Poplar (Mr. Mikardo). I recognise that he speaks from a great deal of background experience when he refers to the affairs of B.O.A.C. and its associated companies. We see no real parallel between the agreement between B.O.A.C. and Fortes and that between B.O.A.C. and Cunard. B.O.A.C.-Cunard is an operation of international air transport. The Bofort arrangement is concerned with catering facilities and is a peripheral aspect of B.O.A.C. operations. We have gone into this question in great detail, and we are satisfied that the Bofort agreement is primarily concerned with staff catering and passenger catering facilities at Heathrow and elsewhere. It is not a substantial operation as is the case with B.O.A.C.-Cunard, and, although we have had full opportunities to consider the question with representatives of the trade unions and B.O.A.C. officials concerned, we see no reason to interfere in B.O.A.C.'s decision to make this agreement.
However, I confirm what I said in answer to the question raised by the hon. Member for Sudbury and Woodbridge. In the event of a large capital investment being made by B.O.A.C. in one of its subsidiaries—this would be equally applicable to the Bofort agreement or any other—there is power in the Bill for 161 the Minister to intervene and to prevent that investment from being made.
My hon. Friend the Member for Poplar raised a number of questions about B.O.A.C.-Cunard. I think that I have already replied to some of them, but I repeat that, although we are unhappy with the terms of this agreement, we do not feel at this stage that we can insist that B.O.A.C. and Cunard break the agreement. We are, however, keeping it very much under review and we hope that there will be a satisfactory outcome to this story of partnership between B.O.A.C. and Cunard. Generally, we are not against partnerships as such. We are in favour of any satisfactory arrangement which can he made between a Corporation and a private organisation. But the terms of this agreement do not seem to us to be particularly satisfactory.
§ Mr. Mikardo
What does my hon. Friend mean by saying that the Government are keeping the agreement under review? The terms are static. However much he reviews them, they will not change. The situation is either right now and will be right next year, or wrong now and will be wrong next year. Since my hon. Friend says that the terms are wrong, why does not he do something about them now?
§ Mr. Stonehouse
The problem is that this is an agreement between B.O.A.C. ant Cunard, and, although we have very considerable powers, we cannot at this stage attempt to interfere in it. We are however, keeping it under review, and I would ask my hon. Friend, who I know feels very strongly about this matter, to realise that we view with very great sympathy some of the objections which he and his hon. Friends have made to this agreement.
I turn to one of the points made by the hon. Member for Hendon, North (Sir Ian Orr-Ewing). He said, rightly I believe, that in building up the fleets of B.O.A.C. and B.E.A. we must have regard to the export potential of the aircraft being produced in Britain. I confirm that is very much in our minds. It was very much in our minds a few months ago when we agreed that launching aid should be provided for the Trident 2E, 15 of which have been bought by B.E.A. We are putting £1,875,000 into the Trident 2E, and we feel that this 162 aircraft will have very good export prospects.
The hon. Member for Orpington (Mr. Lubbock) raised some questions about the target for B.O.A.C. I confirm that that target, when it is fixed, will be made public, and B.O.A.C.'s reaction to it will also be publicised. We believe that this is important so that the morale of staff in B.O.A.C. can be built up so that the Corporation and the staff can work together towards a real objective.
The whole House has welcomed the Bill, and we are very glad to have the unanimous support of the House. This is a very big step for a great Corporation operating successfully and efficiently, flying the flag of Britain on the international routes. We wish B.O.A.C. and all its staff success in this job.
§ Question put and agreed to.
§ Bill accordingly read a Second time.
§ Bill committed to a Standing Committee pursuant to Standing Order No. 40 (Committal of Bills).