Short Brothers plc

Part of the debate – in the House of Commons at 3:31 pm on 7th June 1989.

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Photo of Mr Tom King Mr Tom King The Secretary of State for Northern Ireland 3:31 pm, 7th June 1989

With permission, Mr. Speaker, I wish to make a statement about the privatisation of Short Brothers plc.

Since last July the Government have been working with the management of Shorts to seek a successful transfer of the company to the private sector. On 3 March I advised the House that I had selected two out of the six preliminary proposals for the purchase of the company, and had invited those two to submit final proposals by 30 April. They were the Canadian company Bombardier, and a partnership of GEC and Fokker. Their final proposals have now been fully reviewed, and I can advise the House that I have today approved heads of agreement for the sale of Short Brothers plc to Bombardier.

Under the heads of agreement, Bombardier will pay £30 million for the share capital of Shorts. On behalf of the Government, I have offered Shorts, under its new ownership, grants of £79 million for new capital investment in the next four years and of £18 million for other costs, mainly for training. As regards the company's existing liabilities, the £390 million loan advanced by the Government earlier this year to repay commercial debts for past losses will be written off. I have also agreed to advance a further £275 million to recapitalise the company, to repay the remaining borrowings and to meet anticipated losses on existing contracts.

Of this sum at least £60 million will be in the form of an interest-free loan. That loan will be progressively cancelled as specified targets are met, but would be immediately repayable in the event of a material breach by Bombardier of the commitments it has given in relation to the future of the company. The Government will of course continue to fund the company until the completion of sale but as I announced on 10 January 1989, Government undertakings in respect of Short's liabilities will be withdrawn at privatisation as far as new obligations are concerned.

Beyond the period covered by the terms of the heads of agreement, Short's eligibility for assistance will be on the same basis as other private sector companies in Northern Ireland. In this respect, as I announced on 22 March 1989, I plan to repeal my powers in relation to Shorts in public ownership contained in the Aircraft and Shipbuilding Industries (Northern Ireland) Order 1979.

The terms of the agreement are subject to contract and also a number of conditions including the approval of the European Commission. The necessary estimates will be laid before the House at the appropriate times.

Bombardier recognises the important position occupied by Shorts in the Northern Ireland economy and intends to acquire the company as a long-term investment and to maintain it as a complete entity. Its objective is to develop the three main divisions of aircraft, aerostructures and missiles. In particular, Shorts aircraft division will become a full partner in the detailed design and development of the Canadair RJ regional jet and I have agreed to offer £18 million towards development costs on Short's part of this work.

Bombardier is a Canadian group with a range of products in the transportation industry. In 1986 it acquired Canadair, an aerospace company similar in size to Shorts, from the Canadian Government, and has since developed it successfully. It has recently launched its new regional jet for the short to medium range market. Overall, I believe that its activities provide an excellent fit with those of Shorts.

This agreement with Bombardier for the acquisition of Shorts opens the way for the transfer of the company from public ownership to the private sector. The scale of the sums involved illustrates very clearly the problems that the company has faced in public ownership and as a relatively small enterprise in the complex and competitive arena of aerospace. At the same time, it has developed products and skills which, with the right leadership and organisation, can once again make Shorts a successful and viable operation which contributes fully to the economy of Northern Ireland. The Government believe that operating under the commercial disciplines of the private sector and as part of a larger group under Bombardier's ownership, gives Shorts the best possible opportunity for a much brighter future and fully justifies this substantial investment of public funds.