14 Nov 2001 : Column 249WH

Westminster Hall

Wednesday 14 November 2001

[Sylvia Heal in the Chair]

Airline Industry

Motion made, and Question proposed, That the sitting be now adjourned.—[Mr. Ainger.]

9.30 am

Mr. David Wilshire (Spelthorne): I should be grateful, Madam Deputy Speaker, if you would pass on to Mr. Speaker my thanks for being given this opportunity to raise an issue of fundamental importance to the British economy and, equally important to my constituents, Heathrow airport. I should also like to thank those involved in the aviation industry, including the airlines and the airport, who have helped me with much of the information on which I shall draw in the debate. It may be a surprise to hear a Conservative Member thank the Transport and General Workers Union for its help, but that makes the point that this is a national and local, not a party-political, issue.

Before I come to the substance of my speech, I want to make three preliminary points. First, whenever we discuss events that arise from 11 September and from Monday of this week, we must keep in mind that we are debating personal family tragedies because people have lost loved ones, and now people have loved ones at risk in Afghanistan. Whatever else we may say and however much we might argue, the foundation of the debate is personal family tragedy, and I want to add my regards to and concern for all those who have been affected by those events.

Secondly, despite what happened on 11 September and on Monday, air travel is still a safe activity. It is easy to become rapidly alarmed by such events, especially when one represents a community near an airport, as I do, and I understand those anxieties. I represent 70,000 people who live right next to Heathrow, near the boundary fence, and I live under a flight path, so I need no lectures about what that is like. The last time there was a crash at Heathrow, the Trident landed in my constituency. The community that I represent is directly involved, and the closer one gets to the airport, the more understanding and philosophical people are. It is easy to talk about the risks of living near an airport, as I heard on the media last night, but I remind everyone who becomes involved in the debate about safety that the Lockerbie crash occurred nowhere near any airport, so we must not allow ourselves to be carried away by the understandable emotion and anxiety surrounding that point.

Thirdly, my approach to the subject is not party political; I speak for all my constituents. I represent many people who use Heathrow regularly. I represent many shareholders of British Airways and the British Airports Authority. I represent many senior and middle managers—the bosses—and many people who belong to trade unions and who work at the airport. I represent 70,000 people, every one of whom is touched in some way by aviation. I speak for them all, not for any particular group.

14 Nov 2001 : Column 250WH

The British aviation industry faces a serious crisis and needs help from many sources, including the Government. I sought the debate because of my constituency connection. A growing number of my constituents face crisis and need help. The local context is that 26 per cent. of those among my constituents who are in work depend directly on Heathrow for their livelihood. In that sense, my constituency is similar to, say, a coal mining or shipbuilding community in its reliance on just one industry.

It is easy to see my part of what many people consider to be west London—I protest that it was, historically, in Middlesex and is now in Surrey—as commuter country, but that is not so. I represent people inextricably linked to the airport. At least 10,000 jobs have been, or will be, lost from the major airlines, and it is impossible to predict how many more will be lost among the airport's smaller employers. It is equally impossible to derive a constituency figure for how many of those job losses will affect Spelthorne. My best guess—it is only a guess, but I think that it is not too wide of the mark—is that between 2,000 and 3,000 of my constituents must be worried about their future, and they face a bleak Christmas.

Beyond the immediate job losses, the knock-on effect will be huge and is impossible to determine. Many depend on the airport, such as freight forwarders, spare part suppliers and catering businesses around the airport. The crisis will affect them all. Many more people will be indirectly affected, such as shopkeepers and garage proprietors in Spelthorne. All of them will feel the impact of what is taking place. That is why I sought the debate.

We must understand the causes of the crisis so that we may focus our suggestions for help. Some will say that the crisis is being hyped out of proportion to reality. Everyone must accept, however, that one cause of the crisis dates from before 11 September. The downturn in the world economy had an impact on aviation and one must accept that overcapacity in the aviation industry was already resulting in a shake-out. Although those problems arose before 11 September, they are no less real and they have affected current events.

One need not stress the horror of the events of 11 September. I retain to this day an image of what seems like a Hollywood movie. I find it hard to understand the reality of what happened that day. None the less, the impact on the world aviation industry, and on the British industry in particular, was immediate and dramatic. Two months on, some may have thought that the worst was behind us, that the crisis might be bottoming out and that people might be pulling their businesses together again. Then came Monday when a tragedy that seems to have been a dreadful coincidence—I imagine that what happened then will eventually be established as having been an accident—clearly set back any bottoming out of the crisis.

One other cause of the crisis requires our understanding. The events of 11 September and of Monday were catastrophic and tragic, but they also happened in the United States. The significance of that fact is that half the world's aviation market is in the United States, which contains the world's biggest carriers. The two tragedies unsettled the world's aviation business, but had their biggest impact on the largest part of that business. For that reason, the wider impact has been all the greater.

14 Nov 2001 : Column 251WH

We must understand the nature of the crisis as well as its causes. The crisis that has hit the British aviation industry has been dramatic. There has been an instant drop in demand, with awful consequences, and an immediate increase in costs. Insurance and security costs have increased. It is easy to focus on aircraft security because people understand it. The newspapers write about it, and when people travel they witness the effects of increased security on themselves and their baggage. There are, however, other security costs. Far less known but none the less serious for constituencies such as mine and for businesses such as the aviation industry, is the dramatic extra security cost on cargo handling. That will have an effect on jobs and on British business.

Many of those costs cannot be passed on. Newspapers and television programmes usually give examples of scheduled airlines. It could be argued that those airlines are hardest hit, but there is much less debate about charter airlines, which, particularly in this country, make up a large segment of the industry. I have before me some figures from the charter holiday trade. On 1 October, there were approximately 5 million advance bookings. Those who go on package holidays know only too well that once they have paid their money and entered into the contract, they are stuck with their part of it, and the ability to pass on extra costs from the charter airline is not good. Some 5 million people are, therefore, locked into contracts, and the suppliers of the flights face insurance and security costs, which they cannot recover. The impact of that on charter airlines could be considerable.

This debate is not solely about scheduled airlines, although that is easy to forget if one represents a constituency such as mine, because there is no charter business in and out of Heathrow. However, that affects others. It is easy to consider the drop in demand and the increased costs, but there are knock-on effects, to which I have already referred. There are considerable support industries to the aviation industry. For example, we all eat airline meals. Whether or not one likes the food, providing it creates jobs around an airport, so airport communities will lose jobs as a result.

I shall refer later to the impact on Heathrow, but if there are fewer passengers and fewer flights, there is less revenue for the airports and that has an effect on them. Air traffic control is a particularly British issue, although I enter into the debate with as much care as I can, as I promised that this would not be a party political issue. We have had some debate about Railtrack, partly because of the need to invest. I will not go further than that, as I do not want to re-open that subject. Air traffic control was part privatised by the Government so that private money could be brought into air traffic control services and investment could take place. We have rapidly got to the stage where investment for future improvement of the service in Prestwick in Scotland has been pushed back, for the simple reason that air traffic control depends on the same principle of aircraft movements to generate its revenue. I simply flag up, without trying to score any points, that we need to be careful about the future of air traffic control in Britain after this crisis. I am not suggesting that what has happened will compromise

14 Nov 2001 : Column 252WH

safety, but it may compromise investment. That would lead to a diversion of world aviation business to our competitors and away from us. That is my concern, but I shall go no further than that.

The other obvious knock-on effect is on aircraft manufacturing. We note with concern that Boeing has said that it will lay off 30,000 people. What is less understood is how little of a Boeing aircraft is made directly by the company itself. All over the world businesses are making bits of Boeing and other aircraft. I do not have a figure for the total number of jobs in the United Kingdom that depend on Boeing contracts, but it looks as though the Minister does, and I am sure that he will give it to us in a moment. Nevertheless, the figure is large, as it is with the airbus. British Airways expects the delivery of 50 more airbuses during the next few years and will seek to renegotiate, cancel or delay some of those options, which conveys some sense of the impact on jobs in the manufacturing industry.

The last issue of concern is the knock-on effect on tourism. I have no figures, but it is blindingly obvious that we are suffering. At the moment, one has only to queue for the London Eye to find that no American accents are to be heard there. Indeed, there is often no queue at all. What is happening is clear from anecdotes alone.

We need to be clear about the extent of the problems that British airlines face. About 38 per cent. of British Airways' capacity worldwide is on the north Atlantic route, which has been hit hardest. Virgin Atlantic depends on the north Atlantic routes for about 60 per cent. of its passengers and is in a vulnerable position. In the first week after 11 September, British Airways experienced a 60 per cent. fall in its north Atlantic traffic. Throughout all its routes, there was a 36 per cent. decline in passenger numbers. For the longer term, British Airways anticipates between 20 and 30 per cent. fewer passengers. It does not specify for how long a period, but that is a question of how long the current crisis will last. The effects of the Gulf war seemed to last about four years. If the current crisis lasts a similar length of time, it would be big indeed. Virgin Atlantic reports a decline in north Atlantic business of 25 per cent., and the figure is higher in its business class, which is where most of its profits are made. Virgin Atlantic is finding the impact of the situation worse than that during the Gulf war—although others say that it is not as bad.

It is important to consider the question of insurance. There have been immediate cancellations of some policies, the immediate imposition of significant increases, extra payments per person, extra payments per aircraft and stringent extra conditions attached to new policies. That has been done on a take-it-or-leave-it basis, and a company can do nothing without insurance.

That is the nature of the crisis. We must also clarify the consequences for British aviation. First and foremost is the issue of cash flow. The aviation industry is not a manufacturing industry. It is not an industry in which, if times get difficult, one can sell off stock, or if times get more difficult, in which one can build up stock. Airlines cannot do that. They are service providers, and as such, they have no means of falling back on manufacturing to delay or spread the effects of a crisis. Airlines either fly today or cancel; their product is here

14 Nov 2001 : Column 253WH

and then it is gone. They are service providers and they are hardest hit in a downturn. It shows up instantly in cash flow. Without warning, British Airways and Virgin Atlantic, which depend so heavily on the north Atlantic routes, found that their entire income from those routes was closed off for four days.

If one believes the media, BA is losing something in the order of £2 million a day. That is a dramatic figure. One can speculate on what would happen if the cash flow of the four major airlines of Europe were to be switched off and they had to try to survive on reserves. According to the figures that have been calculated for me, Lufthansa would be the worst hit because it could survive for only 16 days on its cash reserves. Air France could manage for 29 days before going bankrupt. KLM could manage for 37 days and BA could survive for 40 days. We need to be honest. We are kidding ourselves if we pretend that the big European carriers are immune from bankruptcy. Some high stakes are being played for here.

Cash flow is the most obvious problem. The second most obvious problem is the cancellation of routes. British Airways has grounded 20 aircraft. Virgin Atlantic has grounded all its 747s. The only beneficiary from this exercise is the Evergreen air centre in Arizona, which provides storage space in the desert for unwanted aircraft. It is expecting well over 100 aircraft in the immediate future to join the others on their airfield. One of the most significant consequences is that whitetails—aircraft that have not even been painted in any airline's colours because they have never been used—are being mothballed. That gives some idea of the implications for airlines and manufacturers. I have not found it possible to come up with a complete list of the routes that have been suspended or cancelled but there are plenty of them. That clearly has a knock-on effect to passengers wanting to get from A to B who no longer find that possible.

Then we come to jobs. I do not know the exact figures although I know the current minimum figures for job losses. In the US alone between 20,000 and 30,000 jobs have been lost. At the last count BA had announced that it needed to shed 7,000 of its 60,000 employees. If things do not improve that figure will be bigger. British Midland, the next of the big carriers at Heathrow, has announced 600 job losses. That is more than 10 per cent. of its work force and half of the losses will be at Heathrow. Virgin Atlantic has announced 1,200 job losses. It is important to understand that when one is trying to deal with a cash flow crisis reducing staff gives no relief in the short term. Those are preliminary figures: unless action is taken or an upturn comes that is only the beginning of the job losses in the industry.

It should also be borne in mind that not only is the aviation industry suffering this immediate impact, but its long-term position is being undermined. Those aircraft that are being sent to Arizona and even some of those that are still operational were once all assets. Some are now valueless. A business that had good assets and good long-term prospects for using its aircraft suddenly finds itself having to write down its assets. In many cases those aircraft are not owned by the airlines themselves. They are leased and the banks and many others are finding that what they thought was good business may suddenly be turning into bad business. The knock-on

14 Nov 2001 : Column 254WH

effect of that is clear. The bottom line in any consideration of the effect on the aviation industry must be profit, because profit brings growth and continued employment.

The best figures that I know for the effects of the Gulf war suggest that the world aviation industry lost some $15 billion in the four years that followed. Some people suggest that the world aviation industry will lose $12 billion in the first year following 11 September. If we are to believe financial analysts, British Airways alone is set to lose £600 million this year. It lost £125 million in the month following 11 September.

We cannot consider the aviation industry without considering airports, so I shall focus on the one that I know best. Heathrow airport reports that it had 900,000 fewer passengers this October than in October last year. That is a decrease of 20 per cent. Some might say that that is good news, but that is not so for my constituents, or for the airlines, BAA or those who work in duty-free shops. Some may not like duty-free shops, but they create employment for my constituents. All those factors add up to a serious situation.

BAA has produced only one redeeming statistic: it reports that the passenger decrease is less than it was during the Gulf war. That is the opposite of what others report, so we are receiving some mixed messages. Airports suffer because of the charge levied per passenger and per aircraft. That has a knock-on effect on airport businesses.

I should like to explain why I wanted a debate on the topic, and why I want the Government to do something. Some might smile quietly or show surprise that a Tory Member should urge the Government to become involved and rescue a private industry, but I have good and compelling reasons for doing so, and they do not compromise my political principles. United Kingdom airlines play a vital role in the economy. They are a lynchpin in the success of UK plc, and all of us, the Government included, must take care of them.

Whether we like it or not—I do not—we must accept that the world aviation industry is hugely Government-regulated. There are frequent debates about flag carriers. Aeroplanes are not allowed to land, take off, or pick up passengers unless some Government say that they can. Whether or not we approve, such private industries are beholden to Governments all over the world to carry on their businesses, so we cannot escape discussions with Governments when considering the industry.

We must face up to the fact that foreign airlines, which are just as troubled as British airlines, receive massive amounts of Government aid to keep them afloat. If we do not take note, we will lose the most jobs, while foreign Governments support local airlines at our expense.

Mr. Geoffrey Clifton-Brown (Cotswold): My hon. Friend has touched on an extremely important point. Does he recognise that the Government must keep in close touch with the European Union competition authorities to see what state aid EU countries are likely to give to their flag carriers? It would be unacceptable

14 Nov 2001 : Column 255WH

for our flag carriers to compete on unequal terms with EU countries' flag carriers that have received subsidies from their Governments.

Mr. Wilshire : My hon. Friend anticipates what I was about to say, and knows that I am unlikely not to mention the EU in such a speech, although I keep it in mind that my party likes to sideline the subject. Nevertheless, we cannot escape discussing the EU, because it is a subject to which the Government must respond. We cannot leave it to the EU to respond to the crisis for reasons that I will mention in a moment. It is simply not adequate to say that it is an EU problem, not a British Government problem.

Without apology, I am advancing the argument that aviation is a special case. I know that everyone always tries that argument, but on this occasion I think that I am right to do so. Aviation as an industry is untypically vulnerable. Therefore, when a crisis arises, particularly an unexpected and instant crisis such as the present one, that industry is much more likely to need support. As I have explained, for the simple reason that airlines are service providers, the effect on them is dramatic, and they do not have time to take avoiding action.

However, in saying that the Government must take action, I would not escape with my life until lunchtime, and Michael Bishop of British Midland would not let me get away with it, if I did not add the caveat that any Government help from any country must not be an excuse to bail out uncompetitive, unprofitable airlines. There is a dividing line, and I readily acknowledge that the case for Government help can be made for genuine reasons or used as an excuse to continue some of the nonsenses of the past.

My hon. Friend touched on foreign aid, and we need to understand what we are up against and why we cannot leave the matter to the EU. Its approach—I mean this kindly—is to say that its business is to ensure a level playing field within the internal market. If that is what the treaty of Rome is all about, it is right that the EU should ensure that British Airways can compete with Iberia, Alitalia and other airlines on a level playing field. However, that is not the point, because the real competition does not come from the rest of the EU. We have to achieve a level playing field between us and the United States.

To understand why fairly urgent and radical action is required, we need only consider what the American Government are doing. They instantly gave US airlines some $5 billion in cash to see them over their difficulties and backed that up with another $10 billion worth of guarantees. The US Government are also providing several billion dollars worth of help for extra security measures and $150 million to support routes in the US, which they know as thin routes. That is what we are up against and it will hit us hard if we do not take action.

Notwithstanding the European Union, Sabena—do we not love it dearly?—is bankrupt yet again, and Belgium is bailing it out to the tune of $391 million as a straightforward internal national exercise. The French have provided $276 million in aid for its airlines, and the last I heard Italy was debating whether to waive VAT on domestic ticket sales to help its aviation industry. All

14 Nov 2001 : Column 256WH

that help is provided on a national basis. Admittedly, the EU will support some of that help, but they are not EU initiatives. The only European initiative of which I am aware is the allowing of short-term help for insurance costs.

Let me explain what I hope the Government response to the crisis will be. As I stressed initially, I am not criticising the Government; I am trying to work with them as they are working with everyone at Heathrow and elsewhere. The crisis requires all of us to work together. Immediate responses and confidence building are needed, and longer-term issues have to be considered.

Incidentally, I am aware that the Government attended a meeting at Heathrow to discuss those issues. Indeed, I am sure that the Minister will refer to it. It is sad to report, however, that no Conservative councillor or Member of Parliament was invited to that meeting. I stress that that was not the fault of the Government, who attended the meeting as the guests of its organisers.

Mr. John Wilkinson (Ruislip-Northwood): It is interesting to note, however, that on this occasion only the Minister is present on the Labour Benches.

Mr. Wilshire : Yes. Those who set up that meeting do not want to get involved when Conservatives on the other side of the airport raise these issues. However, I will not pursue that matter.

The Government are giving short-term insurance help to the aviation industry and I urge them to make it longer term, because the effect of increased premiums will not go away within the Government's time scale. I have no quarrel with many of the necessary security requirements, but they are nationally imposed standards, not airline-imposed requirements. It is possible to go even further to reassure the travelling public, and the Government should think about making financial help available for the extra security costs.

Cash handouts are not popular in my party, but I plead for one in this case because every operator on the north Atlantic route instantly lost four days' business, without being able to take precautions. British aviation companies are having to carry losses of £48 million because of the shutdown of the north Atlantic routes, unlike those of other countries, whose Governments did something about it. There is scope for help from the Government, which they may care to consider: they raise about £1 billion a year from passenger duty, so they have a ready means of showing their support for the aviation industry in the short-to-medium term by returning some or all of the £1 billion.

The Government must make it clear immediately, notwithstanding the fact that they want to play fair by the European Union or that they are led by someone who wants to be at the heart of Europe, that on this occasion they will stand up for the national interest. They must say, "We will work with the European Union but we will not be dictated to unless and until everyone else is, and unless and until the European Union deals with the unfair competition from the United States."

It is a technical matter, but the Government should also consider giving immediate help to airports by way of indemnities against war risk.

14 Nov 2001 : Column 257WH

I have outlined what I think should be the Government's immediate responses and I shall now say what should be done to build confidence, as this is not only a factual, dull, dry economic debate, but a hearts and minds debate, too. The Government have one card that they can play with the minimum of effort to build confidence: they can take the opportunity to say, "We give permission to build terminal 5." The Minister would probably love to say so here and now, but I do not think that he will do so, and I understand why. However, it would help if he went back to the office and said, "Please, please."

The biggest single boost to the British aviation industry, especially in my constituency, would be to give T5 the go-ahead now. We need that confidence building; it would be a shot in the arm and proof that we have confidence in the future, not only of Heathrow but of British aviation, and show that we are determined to act straight away. Even if action is taken now it must be understood that the delay to the decision on terminal 5 has caused much harm—apart from utterly discrediting the British planning system with the farce and nonsense at the public inquiry. The delay in allowing T5 to go ahead has cost UK airlines dear.

A few years ago, before Heathrow became so overcrowded, passengers could be ticketed through that airport in three quarters of an hour. The process now takes an hour and a quarter and it is getting longer, which means that many people who used to use Heathrow in transit are choosing other routes. They are not going via Stansted, Gatwick, Manchester or Bristol but choosing Paris, Amsterdam or Frankfurt, thus jobs and opportunities go to other countries.

The delay in T5 has helped foreign competition. While we have dithered and listened endlessly to the head-in-the-sand brigade—who seem determined to close Heathrow and bankrupt my constituency—foreign competitors have laughed happily. Charles de Gaulle airport alone has built a terminal and a runway while we squabbled. We have undermined UK plc by undermining Heathrow. I know that the growth of an airport upsets some people, and the growth in Heathrow during the past five years has been about 14 per cent.—some say that that should not have happened, but I say that it should have—but during the same period, Charles de Gaulle in Paris has grown by 54 per cent. That is a direct threat to local jobs and UK plc. In 1990, Heathrow was the No. 1 European hub for destinations served out of that airport. Today it is fourth, after Paris, Frankfurt and Amsterdam.

One other factor that we must make clear on terminal 5, confidence building and helping the British aviation industry—I say this with feeling to the head-in-the-sand brigade who are desperately trying to wreck my constituency—is that the T5 debate is not about safety. Trying to scare people on the back of an application to build a terminal is irresponsible. The number of flights adds to the safety risk, not the number of passengers, and terminals are about passengers, not the number of flights. The T5 debate is not rendered unnecessary by the events of 11 September, because Heathrow was overcrowded anyway and, despite the 900,000 fewer passengers last month, is still overcrowded. Many of the passengers who want to use terminal 5 already use the airport and still use it, despite recent events. Even if the downturn in the aviation industry of the past few

14 Nov 2001 : Column 258WH

weeks continues for the same length of time as the Gulf war, that would not be an argument against T5. Even if the Minister were to stand up in a minute and say, "I allow it now," the terminal would not be operational until 2007. If anyone is suggesting that the crisis will last until 2007, I can say only heaven help the British aviation industry.

T5 is the confidence boost that the industry wants now, and I wish people would stop continually harping on and saying that an unbuilt terminal caused last year's flooding and led to an outbreak of ragwort on Staines moor. They say that a terminal 4 inspector, had he had a crystal ball and been able to see the future, would have taken a different decision. He would not have done. If that inspector could have seen the future, he would have backed a grand national winner and gone to live in the Bahamas. He would not have bothered to get involved in planning applications.

The Government should consider longer-term measures to help the British aviation industry. They should learn from what the United States has done to help its industry and take a far tougher line in bilateral negotiations with it. All too often, we roll over and play dead at the first shout of a threat from the USA. I am in favour of open skies across the Atlantic, but only if that is fair to both sides and not an American attempt to bankrupt us and bail out its airlines. We must take a tougher stance in negotiations.

We must take steps to help consolidation in the European aviation industry, provided that we do not damage our interests by being kinder than anyone else. One difficulty of competing with the Americans is that we have much smaller airlines. It is easy to fool ourselves and think that our big players are the biggest in the world, but they are not. They are at the top end of the medium-sized players or the bottom end of the big players, and are vulnerable. In the Brussels discussions, the Government must resist the European Union's crazy idea of imposing a tax on aviation fuel while it applies only in the EU. It will simply cripple us if we allow others to use untaxed fuel while EU airlines cannot. Having said that, I will not be party political, so I gently urge the Government to introduce an aviation policy; they have been silent for four or five years. We need to know where we are going and to take decisions about our runways and infrastructure. Information on those issues would help.

I make no apology for my long contribution, because the issue affects the whole of the United Kingdom and forms a basic part of a prosperous British economy. It fundamentally affects my constituency and others immediately around the airport. As I said at the beginning, what has happened arose from personal tragedies, mainly in the United States, and our hearts go out to all the families that have been affected. However, a serious crisis faces the British aviation industry. Problems will be experienced in the constituencies of all colleagues who represent areas immediately near airports. Whether we like it or not, whatever our party politics, the problems will be solved only by Government action, alongside the actions of the airlines. The airlines are doing everything that they possibly can to meet the crisis, which they could not have expected and for which, therefore, they could not have planned. Without Government assistance, they will be struggling.

14 Nov 2001 : Column 259WH

The issue transcends party politics. All local and national politicians of whatever political persuasion must work with the Government to meet the crisis and to ensure that our industries, people and jobs survive.

Mr. Frank Cook (in the Chair): As we are now 46 minutes into a 90-minute debate, it might be useful if I remind hon. Members, particularly the hon. Member who is about to address the House, that it is customary to start the first of the three winding-up speeches 30 minutes before termination, which will be at 11 o'clock. We will commence the winding-up speeches at 10.30 am.

10.17 am

Mr. John Wilkinson (Ruislip-Northwood): I am grateful to my hon. Friend the Member for Spelthorne (Mr. Wilshire) for this timely debate. Like his constituents, many of mine work at Heathrow and depend for their livelihood on the vigour, strength and prosperity of the airline industry, and that is the case throughout west London. The industry is crucial to London's economy as a whole. The London airport system includes Heathrow in the west, Luton in the north, Stansted to the north-east, City, and even the two business airports at Farnborough and Biggin Hill. It is important to our country's prosperity that we develop policies that will revive the airline industry, which has suffered acutely not just from the economic downturn but from the acts of aerial terrorism on 11 September. Obviously, confidence in the industry will have been further shaken by the recent tragic accident involving an American Airlines airbus in New York.

It behoves us all to see what we can do to help the industry. I am sure that most hon. Members were deeply impressed by the lobby from airline workers last week. I addressed a huge meeting, as did other hon. Members, at which I said that the Government must introduce a policy for the air transport industry at the earliest possible date. As my hon. Friend made clear, that is overdue and now is the time to do it.

No decision would give greater confidence to the industry and the travelling public than a favourable decision on T5. The opening of that terminal as early as possible—my hon. Friend says that it could not be done before 2007—would help British Airways to consolidate its operations at Heathrow. It would also assist the smooth flow of passengers. The current terminal system was designed for a maximum of 54 million passengers a year, but around 62 million a year now use it in conditions of some discomfort. That must be rectified by the construction of the overdue fifth terminal and improvements to the surface transport system to help to bring passengers more smoothly and easily into the fifth terminal and into Heathrow for the benefit of our airlines. The airport needs railway links from Reading and Waterloo, the construction of the M25 motorway spur and, last but not least, the crossrail link. Surface transport access is an important determinant for passengers in deciding from which airport to depart.

It is noteworthy that in October passenger numbers fell by 12.7 per cent. at Gatwick and some 20 per cent. at Heathrow, but increased by 4.9 per cent. at Stansted. To a large extent, that was because north Atlantic traffic

14 Nov 2001 : Column 260WH

suffered severely after the aerial terrorism in the United States in September. Numbers fell by one third at Gatwick and Heathrow. Regional traffic and intra-European traffic has not been so adversely affected and airport passenger figures have increased not just at Stansted, but at Scottish airports. It is interesting that low-cost carriers such as easyJet, Ryanair, go and buzz and, to some degree, British Midland are weathering the storm more effectively than the high-cost flag carriers.

In the aftermath of the demise of Sabena and Swissair and, most recently, of Canada's No. 2 carrier, it is instructive to ensure that the European Commission produces measures on a European scale to allow a competitive environment to exist while tiding the industry over its current difficulties. I note that the Belgian Government are to be permitted to make a temporary loan of some 125 million euro to Delta Air Transport, Sabena's subsidiary. That may be acceptable if it is temporary, but long-term subsidies such as those described by my hon. Friend are not acceptable. The Government must either eliminate the passenger departure tax or, perhaps more intelligently, allow its revenue to be applied to airlines for the provision of the security measures necessary in the current emergency situation. It is also necessary for the Government to bear part of the burden of insurance costs on a more continuing basis and that they reimburse the revenue lost during the four days when north American airports were closed.

Last, but not least, I hope that in pursuing a competitive strategy, Her Majesty's Government will encourage the confidence necessary to get passengers back into aircraft. They have done so to some degree with the Prime Minister's flight to the United States on Concorde, and the re-establishment of the Concorde service across the Atlantic by Air France; and British Airways symbolises the determination of the European airline industry to get back in the business and not to be put off. I was pleased that the Minister for Transport also went on the inaugural restored Concorde service.

In pursuing that competitive strategy, I hope that airlines will also play their part. British Airways must not only consolidate, as Mr. Eddington wishes to do, with other European carriers, such as KLM, but move towards meeting the needs of the majority of the travelling public by attracting more passengers back into aircraft. It should not devote its attention to premium traffic, which has been its strategy in recent months.

I am pleased that my hon. Friend secured this debate and I am confident that the industry will be restored to strength, but that needs the support and encouragement of Her Majesty's Government.

10.24 am

Dr. Vincent Cable (Twickenham): I congratulate the hon. Member for Spelthorne (Mr. Wilshire) on securing the debate and on the forceful and articulate way in which he made his case. To add to the ideological confusion of the argument, I follow two rather right-wing Conservatives from a right-wing party who made a case for Government intervention, but I come from a party to the left of them and will argue for a liberal, competitive market and against Government intervention. However, I acknowledge that the issue is

14 Nov 2001 : Column 261WH

more subtle and the hon. Gentleman made it clear that we are discussing not just broad dogma, but specific problems concerning security costs, the insurance market and so on. Those matters must be examined individually on their merits and the outcome is not a straight yes or no.

Although I am my party's spokesman on the matter, I also represent an airport constituency. It is not as large as that of the hon. Gentleman, but several hundreds, perhaps thousands, of my constituents work at the airport and many others use it for business purposes. Its commercial and broad economic importance is understood, and many people live under the flight path, as I do, and are conscious of the environmental impact and safety implications. The debate in my constituency is better balanced than that in Spelthorne.

It is important to understand that the situation in airport-dependent constituencies is not the same as in coal mining and shipbuilding constituencies. South-west London is part of the wider London and Surrey labour market; mining communities are not like that. A basic feature of the economy in my constituency—I am sure that this is true of Spelthorne—is a chronic labour shortage and there is a great deal of ability to absorb job losses in one area as against another for precisely that reason. The matter must be considered in its broader economic context.

The hon. Gentleman set out clearly the problems in the aviation industry: the massive loss of profitability for large carriers such as British Airways, the failure of Swissair and Sabena, and the collapse of air traffic. I want to emphasise what the hon. Gentleman said about the second round effects. It is not only the airlines that are affected, but the equipment manufacturers that supply the airlines, the aero engine industry and the tourism industry. The aviation industry, like livestock farmers, is well organised and has effective lobbies, but the tourist industry does not and its concerns are always overlooked, although it is a bigger industry. The impact of the disaster on the tourist industry has been much greater than that on the higher profile sectors.

There is a problem, but there are qualifications. As the hon. Member for Ruislip-Northwood (Mr. Wilkinson) said, some parts of the aviation industry are doing rather well. Ryanair, easyJet and other low-cost airlines are relatively flourishing because they seem to have a business model that is better suited to the current environment than some of the flag carriers. The proprietors of easyJet and Ryanair have been aggressive in arguing against Government intervention precisely because they believe that they have made good commercial judgments and that they should be rewarded for that in the market. They argue that British Airways, for example, made serious commercial errors in opting for concentration on the executive market. The executive market may have been rewarding some years ago, but it has collapsed in the short term. The low-cost airlines have opted for a different segment of the market and have done well from that. Partly for that reason, Luton and Stansted are surviving the present crisis much better than Heathrow. There is an issue of commercial judgment as well as the knock-on effects of an international crisis.

I must emphasise that some of the airlines that are crying out for help have been bleeding money for many years. Sabena has been losing money for 39 of the past

14 Nov 2001 : Column 262WH

40 years. The crisis has triggered its insolvency and subsequent rescue, but the problem is of long standing and had to be dealt with at some time.

It is dangerous to take at face value airlines' claims that they desperately need financial help. They will make claims in their own defence and argue for help, but it is clear from a superficial examination of British Airways' accounts—I have not analysed them carefully—that it is in a strong position. It has £1 billion in cash and probably £2 billion to £2.5 billion in realisable cash from disposal of property and credit lines. It must use its commercial judgment to deal with the problem and not run to the Government; it has the asset base to cope with it. That is what a commercial enterprise should do.

I want to confront the broad policy issues. Should a flag carrier go bust? Technically, it can, but there has always been an assumption that our national flag carrier and others should never be allowed to go bankrupt. I should like to pose the question why. These are privatised companies—I am in favour of the privatisation of airlines—that have assumed commercial risks. Their shareholders have done well over the years, and if they are in financial difficulties why should they not face the risk of insolvency like any other commercial operation? In extremis that should be contemplated.

There are several reasons why it is not the Government's job to protect the national flag carrier from the verdict of the market. It is unfair to other operators in the business. Ryanair and easyJet argue that they are competing with British Midland, which is now part of Lufthansa, and British Airways. If British Airways makes commercial misjudgments and suffers bad luck, that is its problem, not the Government's.

The hon. Member for Spelthorne did not touch on hidden implicit subsidies to the industry. Airlines pay passenger tax, which they argue it is an unfair and difficult imposition, but they enjoy many implicit subsidies. Until the Government began to reform the system, the airlines paid highly subsidised landing charges because of the way in which the regulatory system works—the so-called single till principle. The Government are addressing the problem, but landing charges at Heathrow are ridiculously low. Unlike United States' airlines, British airlines pay nothing for their landing slots. The slots are grandfathered and are effectively a large gift from the taxpayer. Those are hidden subsidies built into the airline business, and if airlines cannot make money in that environment, something is seriously wrong. We must question the assumption that the flag carrier must always be baled out by the Government.

A trickier argument, which must nevertheless be confronted, concerns the case made by the hon. Gentleman that if the Americans are helping their industry, we must help ours—the UK plc argument. I understand the level playing field argument, but it is not as clear cut as the hon. Gentleman implies. If one country chooses to waste its taxpayers' money, why should other countries do the same? The previous Government chose to take a firm line on industrial subsidies, and they understood this point. It used to be argued that we should subsidise the coal industry because the Germans do, but the previous Conservative Government rightly rejected the logic of that argument. People used to argue that the Koreans subsidise their

14 Nov 2001 : Column 263WH

shipbuilding industry so we must subsidise ours. Others said that the French subsidise their farmers so we must subsidise ours. That is the road to ruin, and we cannot do that on a national basis. That the Americans have done something so we should do the same is not a logical justification for industrial support.

Moreover, the American situation is different because its industry has been exposed to greater competition than the European industry. The issue of auctioning licence slots is a good example. American airlines in America pay the price of scarce landing facilities while our airlines do not. The Americans can reasonably question whether their position is exactly the same as ours.

Having made a general argument against Government intervention, I come to policy issues. There are some specific problems that must be addressed individually. I sympathise with the airlines on the compulsory four-day grounding, which resulted from a specific crisis for a specific period of time over which they had no control. The principle of compensation for that limited period, which occurred due to factors outside of the airlines' control that were induced by political circumstances, is fundamentally reasonable.

Similarly, I have some sympathy with the argument that the Government were right to help the industry with emergency insurance cover. It would have been wrong if the aviation industry had been grounded indefinitely because of a failure in a segment of the insurance market. The Government were right to act as a temporary insurer of last resort but, unlike the hon. Gentleman, I think that it is important to stick to the principle that that is temporary. Companies providing commercial insurance and reinsurance are emerging, and that market should provide for the needs of the industry. Even if that is at a relatively high cost, there is no need for an indefinite subsidy.

If there are additional security costs they should be paid for by the industry, which means that passengers will ultimately pay. That principle would apply to every other industry. However, there may be specific cases concerning security at airports, the cost of which will fall on the public.

The hon. Gentleman made a point with which I sympathise about the problems of cash flow in the industry. There may be ways in which the Government can affect the timing of payments of passenger tax. That would not represent a subsidy, but it would ease the cash flow position in the industry. I would be open to the argument that that is fundamentally reasonable. However, it is wrong to argue that the Government should provide open-ended support or large-scale assistance of the type that appears to have been provided by the US Government. The European Union is right to take a hard line on state aids—it may have relented in the case of Sabena, which would be unfortunate—and Loyola de Palacio, the European Union Transport Commissioner, has said the right things and has taken the correct view on industrial assistance.

At the end of his speech, the hon. Gentleman forcefully discussed whether the Government should give a signal of support for the industry by backing T5.

14 Nov 2001 : Column 264WH

I do not want to prejudge the argument, which we may have as early as tomorrow, about T5, but it would be wrong to decide that large, complex argument on the basis of a current crisis of confidence in the industry. There are strong long-term arguments, which we shall rehearse in due course, for and against T5, but it is wrong to argue that because there is a temporary crisis of confidence, we should give the industry a shot in the arm by giving planning approval. When the decision comes—I suspect that it will be an approval—the important issues will concern the conditions attached to it on matters such as night flights and restrictions on flights. Treating T5 in terms of a general crisis of confidence is not the way in which to approach a complex planning issue.

The Government must not be deflected from regulatory reform. As part of their aviation review, they have rightly begun to examine the system by which the aviation industry is regulated on matters such as slot allocation and landing charges. Airlines may have to pay more for landing rights because that is what the economy and the environment require. The Government must not be deflected by demands from the aviation industry.

10.38 am

Mr. Geoffrey Clifton-Brown (Cotswold): I am grateful to catch your eye, Mr. Cook, in this, the third debate on this subject in as many weeks in this Chamber. That reflects hon. Members' concern, and I congratulate my hon. Friend the Member for Spelthorne (Mr. Wilshire) on obtaining the debate. He made a thoughtful and analytical speech on a subject of critical importance to his constituents, and to the constituents of my hon. Friend the Member for Ruislip-Northwood (Mr. Wilkinson) and the hon. Member for Twickenham (Dr. Cable). All three hon. Members made important points.

We must not say anything in this debate that would discourage people from continuing to travel by air. Air travel is one of the safest forms of transport in the world, despite the terrible crash of flight 587 in New York on Monday, which was a hammer blow to the American people after their experiences on 11 September. On behalf of the Opposition, I should like to send our deepest possible sympathy to those affected.

We must try to ensure that something positive comes out of recent events. We have already seen that the US Congress and Senate have stopped their bickering over the new security Bill, which they will pass in the shortest possible time. The Home Secretary has announced that the Anti-Terrorism, Crime and Security Bill will come before the House next Monday. We shall, of course, want to scrutinise that Bill, but it contains several important measures on nuclear security, aviation security and hoax calls. I hope that the Government will enable the Bill's speedy passage through the House, and where possible we will assist in that process.

It is particularly important to stress the need to update the Aviation Security Act 1982 in respect of access to our airports. Many of the constituents of my hon. Friend the Member for Spelthorne work at Heathrow. It is one of the safest airports in the world, and its workers have to be carefully screened. Given that the airline industry depends on north Atlantic trade, we

14 Nov 2001 : Column 265WH

must make it clear to the American people in particular that it is safe to travel to this country. The sooner we can return to normality, the better, and as my hon. Friend and my hon. Friend the Member for Ruislip-Northwood said, anything that we can do to engender confidence must be of benefit.

It has rightly been pointed out that the aviation industry was experiencing major problems before 11 September, and some restructuring was planned in any case. Given that we want to maintain competition where possible, I ask the Government to scrutinise carefully the proposed merger of British Airways and the American airlines. That merger would account for about 50 per cent. of all passengers on north Atlantic routes and some 85 per cent. of the market as a whole. It would lead to 100 per cent. dominance of 13 routes to the United States, and more than 50 per cent. dominance of five other routes. We therefore need to look at that issue critically.

The International Air Transport Association has predicted that, as a result of the events of 11 September, the industry as a whole will lose £7 billion this year. My hon. Friend the Member for Spelthorne pointed out that many businesses and industries in his constituency that are connected with Heathrow airport will suffer, but so will the wider economy. It is estimated that for every job that depends directly on the aviation industry, another three depend on it indirectly. Many other types of business have already been affected, from a creamery in Cornwall, which has lost half its business because there is no winter market for its products, to laundries and a host of other businesses. The economy will undoubtedly suffer, and anything that the Government can do in the short term would be welcome.

It is worth reiterating one or two points that I have made in previous debates. It is part of the Opposition's duty to give credit to the Government when they do things right, and I duly give them credit for stepping in commendably quickly as the insurer of last resort for a period of one month. However, as I said the other day, they should give the industry a great boost by making it clear that they are prepared to extend that period.

Having increased the airport passenger duty rate on taking office, the Government now raise more than £1 billion from it. There is a clear case for recycling some of that tax to pay for specific security measures at airports. It is unreasonable to expect individual airlines to bear the cost of increased security measures, and the Government need to consider that issue carefully.

Time is getting on, so I shall turn to one or two other key points. The T5 announcement, which is becoming a farce, has been mentioned. Everybody in the industry believes that the Government have made up their mind, so why can they not reveal their decision to the House? That would give the industry a huge boost in the light of the haemorrhaging of business elsewhere. Reference has been made to increased capacity at Charles de Gaulle airport. Since the T5 application was made in 1993, two more runways have been built at Schipol, and capacity at Frankfurt is also being increased. As my hon. Friend said, at the moment we are simply exporting jobs to other European centres.

The new terminal would provide a great boost, and would not necessarily lead to increased flights. An extra terminal is necessary to handle existing passenger

14 Nov 2001 : Column 266WH

numbers in greater comfort, and to provide more parking room for the larger aircraft to which the airline industry is turning. There are a host of issues that airlines must plan for, and the sooner the T5 announcement is made, the better.

I want to press the Government strongly on the question of the future of the National Air Traffic Services, which I have raised in recent debates. The NATS public-private partnership was predicated on the basis that £1 billion of private capital would be injected into the industry. On 26 October, the Minister for Transport, in a written answer to a question from the hon. Member for Crewe and Nantwich (Mrs. Dunwoody), said:

Given that the plan and the entire future of air traffic control centres at Prestwick and in the south are predicated on the basis of private investment, the Government must make a clear statement on how matters will proceed. We cannot operate in a vacuum, and if the Minister cannot provide that information today, I should be grateful if he would write to me and make it available in the Library.

As time is short, and so that the Minister can respond to the many issues raised by my hon. Friend the Member for Spelthorne, I am prepared to curtail my speech. I conclude by pointing out that we need some positive proposals from the Minister today on how to build confidence in the industry. Perhaps the most important issues are competition and state aid. Some $5 billion has been made available immediately to American airlines, and a further $10 billion may be in the pipeline. I have already asked, in an intervention on my hon. Friend, about the precise nature of the Government's negotiations with European Union competition authorities. One thing is sure: if European flag carriers are subsidised, our airlines will face unfair competition. I am not necessarily saying that our own flag carriers should be subsidised, but it is incumbent on the Government to ensure that the competition that they face from Europe and from across the Atlantic is fair. Only the Government can do that.

10.48 am

The Parliamentary Under-Secretary of State for Transport, Local Government and the Regions (Mr. David Jamieson) : I congratulate the hon. Member for Spelthorne (Mr. Wilshire) on securing this debate, and on the measured and largely consensual way in which he conducted it. The hon. Member for Cotswold (Mr. Clifton-Brown) said that he cut short his speech, but he took longer than the allotted 10 minutes. The hon. Member for Twickenham (Dr. Cable) is smiling, but he took even longer. It seems that those who ask the questions in debates such as this have considerably more time than those who must reply to them, which I shall now attempt to do.

The hon. Member for Spelthorne rightly pointed out that the airline industry is of fundamental importance to our economy, and the Government fully recognise that fact. I agree entirely that the recent events that we are debating have in some cases resulted in personal family

14 Nov 2001 : Column 267WH

tragedies. I also want to reinforce the view that air travel is safe. During all our debates, we should bear in mind that the number of air travel-related casualties, injuries and accidents is very low compared with other forms of transport. I realise how important those issues are to the hon. Gentleman's constituency and to those of other hon. Members, and we are mindful of the jobs and associated industries involved.

I noticed that two Conservative Members talked, with some affection, of Government involvement in private industry, resonating yesterday's Railtrack debate. We are interested to see a gradual movement in policy by those hon. Gentlemen.

I shall deal with specific matters because there is little time to talk in generalities. First, the Government recognise the importance of the T5 announcement. Alas, I cannot give the hon. Gentleman a decision today—he will have to contain his disappointment for a while longer, but he may not have to wait long. I noted his comments about the planning system and the time that it has taken to be resolved. I am sure that he welcomes the Government's new approach to planning.

The hon. Gentleman referred to the issue of aid from the United States Government to the airline industry across the Atlantic. We agree on the need to prevent competitive distortion with the United States and I assure him that we are carefully watching that. The European Commission is considering drawing up a code of conduct with the US Government to prevent anti-competitive behaviour, and we are mindful of the importance of that.

The hon. Gentleman also referred to the number of jobs concerned with Boeing. I thought that I had a figure for the amount of exports from this country to Boeing but it is not precise so I shall only say that it is substantial. I met Boeing on that subject last week. He is right to say that a substantial number of jobs rely on Boeing. In response to his question on indemnities to airports for war risk, the Government have given indemnity to them and other service providers, including NATS. I hope that that satisfies him.

I know that the European Union is a somewhat sensitive point for Conservative Members. The hon. Gentleman is right to say that the solutions to the problems of the airline industry in the United Kingdom must be found in this country, but we must also find agreement in the European Union. We cannot tackle such matters alone. If we did, we might find even the 15 countries in the European Union having to compete against one another, which would offer no benefit or advantage. I take his point on not bailing out failing airlines, but sometimes our national interests are closely interwoven with those of the European Union.

National Air Traffic Services has been clearly affected by what has unfolded during the past two months because its revenue comes from airline movements, which have been substantially depleted. It now faces an extraordinary and totally unexpected situation. It asked us for a pause in the building of the new centre at Prestwick, and we sanctioned that, but we remain totally committed to the two-centre strategy. We have received no financial request from it, but are keeping the situation under close review.

14 Nov 2001 : Column 268WH

I am aware of the concern about the situation in the airline industry. The hon. Gentleman referred to last week's debate, which was fortunately extended owing to House business. A number of hon. Members whose constituencies surround the Heathrow area spoke with passion then about the issues raised today. I emphasise that the Government recognise the great importance of the aviation industry to the United Kingdom, and are paying close attention to its problems.

As pointed out—I am grateful for the comments of the hon. Member for Cotswold—we reacted quickly to the events of 11 September to counteract the failure in the aviation insurance market and enhance security measures at all United Kingdom airports. We are actively considering payment of emergency aid to airlines for the four days that United States' airspace was closed, but any decision will be in accordance with European Commission guidelines.

In addition to those measures, we are doing what we can to restore confidence in air travel. Much of the difficulty lies with that intangible thing called confidence. The airlines need not only state aid, which may help them for a while, but a return of their customer base and confidence. A fortnight ago, I made a trip to some British regional airports to encourage confidence in air travel and boost morale. Heathrow is holding up well at present, but it is important that all concerned should be in a position to react quickly to a deterioration in the situation. The job transition service is engaging with employers to ensure that those employees adversely affected by recent events have access to the fullest advice. I think that that was discussed with my right hon. Friend the Minister for Transport when he visited recently.

Despite the Government's long-standing policy not to intervene in the aviation market, the exceptional circumstances warrant Government action. As I have already said, we took immediate steps to counteract the failure in the insurance market: within a few days, and before the imminent withdrawal of cover grounded the entire UK fleet, we made the necessary third party war risks cover available to our airlines and related industry. We were so quick off the mark, and our remedy so effective, that our lead has been widely followed throughout the world. Initially, the cover was for one month, but it has recently been extended until 23 November and we are examining that almost on a daily basis.

Despite a few deplorable lapses that have been reported recently, pre-existing standards of security in the United Kingdom are among the highest in the world. None the less, we have enhanced security measures at all UK airports, and for airlines leaving this country. We are also carrying out a fundamental review of aviation security to make air travel as safe from terrorist attacks as we can, while balancing that with freedom to travel. I am sure that the hon. Members will welcome the fact that BAA estimates that it will need something like 150 extra security staff at Heathrow—it expects a good response to job adverts in the local press.

With one eye on United States Government support for its airline industry, some are calling for more generous aid for United Kingdom airlines. I stress that that is a matter for the European Community, which has exclusive competence for monitoring state aid that could distort or threaten competition in so far as it

14 Nov 2001 : Column 269WH

affects trade between member states. The European Commission acted quickly to address the repercussions of the terrorist attacks for the air transport industry and issued a communication reiterating that member states must not depart from Community rules on state aid and set out how the Commission will interpret the rules in the current situation. We will monitor how that is done with great care. The extra costs of security, together with the losses directly attributable to the closure of US airspace and the provisions of insurance cover by Governments are identified as areas where state aid would be justifiable. The Government are considering whether further aid to UK airlines should be made available, taking relevant guidelines into account.

This debate has been useful and many matters have been aired again. I have had little time to cover the enormous number of points raised by hon. Members, but they are welcome to drop me a line about anything that I have not covered, and I will endeavour to send them a full, written response.

Next Section

IndexHome Page