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Transatlantic Air Routes

– in the House of Commons at 3:48 pm on 11th March 1991.

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Photo of Malcolm Rifkind Malcolm Rifkind The Secretary of State for Transport 3:48 pm, 11th March 1991

With permission, Mr. Speaker, I should like to make a statement on the United Kingdom-United States air negotiations.

I am pleased to announce to the House that the United Kingdom has this morning reached an agreement with the United States that offers major new opportunities to British airlines on transatlantic routes. The agreement allows two new United States airlines to take over Pan Am's and TWA's Heathrow routes, but with fewer rights than are currently available to Pan Am and TWA.

In addition, the United Kingdom will get an unprecedented wide range of new opportunities to compete in United States markets. United Kingdom airlines—especially British Airways—were closely involved in shaping the package throughout the negotiation, and I am grateful to them.

United Kingdom benefits include, first, the designation of a second British carrier to operate to the United States from Heathrow; secondly, a new facility for second or third United Kingdom airlines to fly on certain existing routes; thirdly, a completely new right to fly to the United States via continental Europe and to fly on from the United States to Mexico, the Caribbean, South America, and the Pacific; fourthly, a new ability to make marketing arrangements with United States airlines, known as code sharing, to all points from which United States carriers code share to the United Kingdom; and finally, opportunities for the first time for joint ventures between United Kingdom carriers and carriers from other European countries. Any growth of United States airlines' frequencies to and from Heathrow will be strictly limited for a three-year period.

Both sides agree that there will be further talks aimed at liberalisation of the British-American market, allowing airlines on both sides to compete on equal terms for transatlantic and internal United States traffic, without the limitations and complications of the present bilateral arrangements. Those talks will address complex questions such as cabotage and inward investment.

The agreement has not been easy to negotiate. The latest round continued throughout the weekend, and I place on record my appreciation of the skill and persistence of our negotiating team. The package that it thrashed out is a splendid one, which benefits United Kingdom carriers and offers a wide range of opportunties for airlines to compete in offering better services to the travelling public.

Photo of Mr Peter Snape Mr Peter Snape , West Bromwich East

Will the Secretary of State clarify his statement that the two new United States airlines will have fewer rights than those currently available to Pam Am and TWA? What exactly does that mean? Is it not a fact that both new airlines, American Airlines and United Airlines, have a comprehensive internal network in the United States, unlike their bankrupt predecessors?

Who is to be the second designated British carrier to the United States from Heathrow? Is the right hon. and learned Gentleman asking the House to believe that British Airways was closely involved in shaping the package when a second designation will obviously disadvantage that operator?

Which of the second and third United Kingdom airlines are to fly on certain existing routes? Will that not seriously divide British competition, to the detriment of our major national carrier?

Although the new rights to fly to the United States vis continental Europe will be useful in the long term, will that not involve agreement with other EEC countries? Will the right to fly on from the United States across the Pacific allow destinations to include Australia and New Zealand?

Is it not a fact that the code sharing to which the Secretary of State referred will depend on co-operation from rival United States airlines? What assurances has the Secretary of State received that such co-operation will be forthcoming?

As for cabotage and inward investment, will the Secretary of State confirm that much more discussion will be needed, and that, if any progress is to be made, the United States Congress will have to change its attitude considerably?

Finally, does the right hon. and learned Gentleman accept that the package, far from being a splendid one, which benefits United Kingdom carriers", represents a major victory for the United States, will divide and weaken the United Kingdom aviation effort, and is likely to make British Airways, for one, decide to reduce its comprehensive route network, in order better to marshal its financial resources for the transatlantic battle ahead?

Photo of Malcolm Rifkind Malcolm Rifkind The Secretary of State for Transport

No, I do not agree with the hon. Gentleman's interpretation. The limits on the new airlines that are to replace Pan Am and TWA are capped to the level of activity that those two airlines were planning for this summer. Thereafter, for the next three years, the two new airlines will be limited to a maximum growth equivalent to the services being provided by British airlines —whereas, under the existing Bermuda 2 agreement, their predecessors could have increased their operations to 150 per cent. of those of United Kingdom airlines.

The second designated British carrier is likely to be Virgin Atlantic Airways, because it is currently the only applicant.

Not only British Airways but other airlines were involved with our negotiating team, and were consulted during the long weeks of negotiations as to the kind of package that would, at the end of the day, be acceptable in terms of the interests of British airlines. I am grateful not only to British Airways but to the other airlines that have adopted the same position.

Of course the hon. Gentleman is right in saying that British Airways will see the matter purely in terms of the impact on the company itself; but I believe that, even when seen in that perspective, the agreement presents exciting new opportunities. [HON. MEMBERS: "Where?"] I am referring especially to the seventh freedom rights, which will allow British Airways in particular the opportunity, for the first time, to fly from continental locations across the Atlantic to the United States.

In its discussions with us, British Airways identified that as one of the most important objectives that it hoped the negotiation would achieve. I am delighted that such opportunities have been agreed in the United Kingdom —almost for the first time anywhere in the world—and it is important that British Airways will be able to benefit.

The hon. Gentleman is also correct in saying that the discussions on cabotage and inward investment could lead to liberalisation only with the approval of the United States Congress, as well as that of the Administration. It is precisely for those reasons that we did not consider statements on intent by the United States Administration on those issues sufficient to form a crucial part of the existing package.

Photo of Mr Terry Dicks Mr Terry Dicks , Hayes and Harlington

Is my right hon. and learned Friend aware that no other country in the world treats its national flag carriers as badly as the Government treat British Airways? What are calculated to be the financial trading benefits to the United Kingdom and the United States? According to my estimation, and, I think, that of British Airways, we will lose and the Americans will gain.

Photo of Malcolm Rifkind Malcolm Rifkind The Secretary of State for Transport

That is simply not true. According to our estimate, British airlines will enjoy a gross benefit of some £200 million—more than the likely financial benefit to the United States from the substitution of United and American on the routes currently served by Pan Am and TWA.

Photo of Mr James Molyneaux Mr James Molyneaux , Lagan Valley

In view of the probable benefits to British airlines in general, does the Secretary of State share my hope that the current staff reductions will be no more than temporary?

Photo of Malcolm Rifkind Malcolm Rifkind The Secretary of State for Transport

Of course we hope that that will be the case. I am aware that British Airways, along with many other airlines throughout the world, has been cutting down on the frequency of flights, and airlines—perhaps including British Airways—will no doubt make further announcements to that effect. That is a consequence of the general state of the aviation industry throughout the world, and it is therefore all the more important that new opportunities for growth for British Airways and other British airlines are provided.

We cannot ourselves ensure that the airlines take advantage of the commercial benefits available to them; our job as a Government is to provide the legal framework within which the opportunities become available for the first time. I have great confidence in, especially, British Airways under Lord King: in the past, it has shown itself very able to act as a competitive force when the need has arisen, and I believe that it now has the opportunity to show exactly what it is capable of achieving—even in circumstances that are difficult for all the world's airlines.

Photo of Alan Haselhurst Alan Haselhurst , Saffron Walden

May I place on record my appreciation of the skill and persistence with which my right hon. and learned Friend has pursued the opportunity available to him in achieving this deal? Is it not worth a large amount of money to British aviation interests? Has it any implications in regard to when an American airline might start a transatlantic service from Stansted?

Photo of Malcolm Rifkind Malcolm Rifkind The Secretary of State for Transport

I am grateful to my hon. Friend for his kind remarks. As I said earlier, according to our best estimate, the United Kingdom will benefit by about £200 million. As for the use of Stansted, we believe that the agreement will result in a substantial increase in the number of transatlantic flights provided by a number of carriers, both British and. American. Given the limited capacity of both Heathrow and Gatwick, it is probably only a matter of time before airlines will use the excellent opportunities provided by Stansted.

Photo of Mr Tam Dalyell Mr Tam Dalyell , Linlithgow

Can the Secretary of State persuade the House—perhaps he can—that we have not been had as suckers by the Americans in one respect? Has it been agreed that British aircraft on the other side of the Atlantic will be maintained and repaired at approximately the same prices as American aircraft? Has any agreement been reached on that crucial question?

Photo of Malcolm Rifkind Malcolm Rifkind The Secretary of State for Transport

The cost of the maintenance and repair of aircraft is the responsibility of the airline companies. Governments do not involve themselves in those negotiations. It is for the airline companies to negotiate with other companies, whether British or American, the precise contractual relationships.

Photo of Mr Alan Amos Mr Alan Amos , Hexham

I congratulate my right hon. and learned Friend on a very good agreement for British passengers and customers. May I ask him to confirm that the agreement will help to bring about a competitive, multi-airline industry in Great Britain?

Photo of Malcolm Rifkind Malcolm Rifkind The Secretary of State for Transport

I believe that it will help in that direction. Certain of the agreements that we have extracted from the Americans allow for a second and, in some circumstances, a third British carrier to use routes that in the past were only used by one carrier. That will maximise the opportunities for the British travelling public to use the British airline of their choice, something which the House will wish to endorse.

Photo of Mr Andrew Bennett Mr Andrew Bennett , Denton and Reddish

I am sure that the Secretary of State is aware of the feeling in greater Manchester that, all too often, the Government forget about Manchester airport. How many additional flights to the United States will Manchester get out of this deal? What did he ask for?

Photo of Malcolm Rifkind Malcolm Rifkind The Secretary of State for Transport

I cannot give an exact answer. The airline companies will have to decide whether they wish to use these new opportunities. I repeat that the Government's responsibility is to liberalise the opportunities available to British airlines. It is then for the airlines to use those opportunities, according to their commercial judgment.

Photo of Mr Robert Hayward Mr Robert Hayward , Kingswood

May I congratulate my right hon. and learned Friend on the completed negotiations and echo his comments about the, negotiators, given that the American negotiators originally said that they wanted a straight swop, with no compensation whatsoever? May I ask him to take this opportunity to reiterate to the United States Government that we want an early decision on inward, investment for airlines?

Photo of Malcolm Rifkind Malcolm Rifkind The Secretary of State for Transport

I agree with my hon. Friend's latter remarks. He is correct to remind the House that the United States began by suggesting that the substitution of United Airlines and American Airlines for Pan Am and. TWA should be considered as merely a technical adjustment requiring no negotiation and no further changes. Due to the skill of our negotiators, we have received some extremely valuable concessions which have been identified by both British Airways and other British airlines as the ones that they wanted. I cannot emphasise too strongly that the concessions that we have extracted from the United States were identified by British airlines as the price that needed to be paid if the two existing American airlines were to be replaced by two stronger American airlines.

Photo of Dennis Skinner Dennis Skinner Member, Labour Party National Executive Committee

Is not the truth of the matter that, when the agreement was negotiated, the American airlines were in deep economic trouble? Therefore, the Government and their negotiators were in a strong bargaining position. They could have screwed the Americans into the ground, but, for some reason that the Minister is not prepared to give to the House, they have finished up with an agreement that is nothing less than a carve-up for the Americans and a victory for Bush.

Photo of Malcolm Rifkind Malcolm Rifkind The Secretary of State for Transport

The hon. Gentleman's premise, although not his conclusion, is indeed correct—that the Americans on this occasion were the demanders. It was therefore appropriate for the United States Secretary for Transport, who enjoys the name of Mr. Sam Skinner, to be persuaded of the need to make important concessions.[Interruption.] I am not aware whether there is a family relationship between the hon. Member for Bolsover (Mr. Skinner) and the American Secretary for Transport.

Photo of Malcolm Rifkind Malcolm Rifkind The Secretary of State for Transport

I am sure that the hon. Gentleman wishes to represent the interests of his British constituents rather than those of his American namesake.

Photo of Mr Teddy Taylor Mr Teddy Taylor , Southend East

Although the Secretary of State has worked very hard to obtain a net benefit for British airlines, is he aware of the opinion that British Airways—our major airline company with a glorious record of achievement and profitability—has to some degree been less advantageously dealt with? At a time when many airlines are disappearing, at great expense to banks, the economy and the travelling public, does he accept that it would be a mistake to deal with new airlines more favourably than with established, leading airlines?

Photo of Malcolm Rifkind Malcolm Rifkind The Secretary of State for Transport

I entirely agree with my hon. Friend. I am sure that he will be pleased to know that, as a result of the agreement, quite apart from the other concessions that we have extracted to which I referred in my statement, the two new United States airlines have fewer rights at Heathrow than their two predecessors.

Photo of Mr Ronnie Fearn Mr Ronnie Fearn , Southport

Is the Minister aware that there will probably be no growth in airline frequencies in the next three years, but have we anticipated the considerable growth thereafter at Heathrow? What did the right hon. and learned Gentleman mean by "joint carriers" at Heathrow?

Photo of Malcolm Rifkind Malcolm Rifkind The Secretary of State for Transport

On the early part of the hon. Gentleman's question; the ability of airlines to use the new opportunities will partly depend on the availability of slots at Heathrow, which takes us back to our exchange last week on the' constraints caused by the virtual full use of Heathrow. Joint ventures provide new opportunities for British Airways to join other European airlines in challenging American providers of frequencies on transatlantic routes. In the past, such joint ventures have been impossible or very difficult, but they will be permitted under our bilateral agreements with the United States.

Photo of Mr Michael Shersby Mr Michael Shersby , Uxbridge

Is my right hon. and learned Friend aware that the seventh freedom facility for British Airways will be warmly welcomed? I congratulate him on negotiating that. Will he comment on the new facilities for the second and third United Kingdom airlines to fly on existing routes? Are any of the airlines that participated in the discussions interested in using those routes?

Photo of Malcolm Rifkind Malcolm Rifkind The Secretary of State for Transport

It is desirable that frequencies that are not fully used by the sole carrier permitted to operate on them should be available to other British carriers. I believe that there is some interest in using the new opportunities, but the airline companies will have to make a statement to that effect.

The opportunities available under the seventh freedom facility are a major step in the right direction. They were identified by British Airways as one of its major objectives in the negotiations, but were resisted very strongly by the Americans up to the last stage of the negotiations. I am particularly pleased, therefore, that they now form part of the agreed package.

Photo of David Marshall David Marshall , Glasgow Shettleston

Does the Secretary of State realise that the agreement is a poor deal in return for his decision to open Heathrow to all and sundry? Does he realise that he will never be in a stronger bargaining position to obtain cabotage within the United States? The agreement sells Britain short. Does that mean that he has given up all hope of achieving cabotage in the United States?

Photo of Malcolm Rifkind Malcolm Rifkind The Secretary of State for Transport

The hon. Gentleman is clearly under a deep misapprehension. He seems to be unaware that British Airways and other British airlines thought that it would be inappropriate to seek progress on cabotage in the negotiations, because any realisation of our objectives on cabotage would justify the agreement not only of the United States Administration but of Congress, and that could not be guaranteed by the Administration. With the full agreement of British Airlines, we therefore concen-trated on concessions that the United States Administration were able to deliver, and therefore could be seen as bankable assurances in the way that I have described.

Photo of Anthony Steen Anthony Steen , South Hams

I welcome the statement, but will my right hon. and learned Friend the Secretary of State comment on its impact on regional and local airlines and say whether the dominance of British Airways since it took over British Caledonian will be increased or diminished?

Photo of Malcolm Rifkind Malcolm Rifkind The Secretary of State for Transport

My statement is on British-United States agreement on transatlantic routes. I believe that it will lead to a net increase in flights across the Atlantic in both directions, which will benefit not only the airlines but the travelling public. I look forward to the day when there are direct flights across the Atlantic from regional centres in the United Kingdom rather than them being overwhelmingly concentrated from airports in the south-east.

Photo of Mr John Wilkinson Mr John Wilkinson , Ruislip - Northwood

Does my right hon. and learned Friend envisage the routes that are operated by TWA and Pan Am from Heathrow to German destinations—Berlin and Frankfurt—being an issue for negotiation between the Government and the United States Administration, or will the status quo persist?

Photo of Malcolm Rifkind Malcolm Rifkind The Secretary of State for Transport

I would have to check the precise details of the agreement hammered out a few hours ago. I think that part of the agreement is to put a cap on the exercise of the fifth freedom by American airlines at the level which is currently operated by Pan Am and TWA.

Photo of Mr Kenneth Warren Mr Kenneth Warren , Hastings and Rye

Following that question, may I ask my right hon. and learned Friend for clarification on the fifth freedom in the United States of America, because, de facto, the Americans will have it with this arrangement within the European Community? I welcome the arrangement overall, but there may be an imbalance there. In the light of his open skies policy at Heathrow, which was announced last week, does this give rights to American carriers to have any slots at Heathrow?

Photo of Malcolm Rifkind Malcolm Rifkind The Secretary of State for Transport

No, the agreement has no implications for slots. That is not a matter for the Government to determine: it is purely the responsibility of the scheduling committee at Heathrow. Therefore, American or other airlines that wish to use Heathrow may find that slots are available for the future. As I said a few moments ago, there are constraints on the extent to which these new American airlines can provide fifth freedom services arising from this arrangement.

Photo of Mr Michael Colvin Mr Michael Colvin , Romsey and Waterside

My right hon. and learned Friend has estimated the gains to British airlines at about £200 million a year which no doubt is at the expense of our continental competitors. Can we have another look at the other side of the coin? Has he calculated what the net gains to American carriers are in this deal, which is broadly welcome?

Photo of Malcolm Rifkind Malcolm Rifkind The Secretary of State for Transport

Yes. Although it is not possible to give an exact figure, either in our case or the American case, it is our view that the facilities available to United Airlines and American Airlines are unlikely to be worth as much as those available to British airlines. Indeed, the figure is likely to be £20 million to £30 million less in value. I must stress that those are the best judgments that can be obtained. Clearly they will depend on the extent to which the various airlines, British and American, use the new opportunities that are now available to them. That is not within our control.

Photo of Mr Robert McCrindle Mr Robert McCrindle , Brentwood and Ongar

Although I in no way underestimate the announcement which my right hon. and learned Friend the Secretary of State has been able to make this afternoon, may I ask him whether he agrees that the principal aspiration of British Airways, as yet unfulfilled, might be said to be on the cabotage front, which is another way of saying that it would like to be able to pick up passengers in New York and fly them to Chicago or Los Angeles? Although I recognise that some reference is made in his statement to continuing negotiations on that extremely important matter, can he say whether the negotiations will start now or whether there will be an interval? Indeed, as Congress must put its imprimatur on this, how realistic is it to talk about this at all?

Photo of Malcolm Rifkind Malcolm Rifkind The Secretary of State for Transport

Both Secretary Skinner and I agreed that it would be desirable, in the event of a successful outcome of these negotiations, to begin talks on further liberalisation as soon as possible. Cabotage was not included in these negotiations, with the agreement of British Airways and other British airlines, because it would not have been a power which the United States Administration alone could have delivered. Clearly, any further discussions will have to take place on the basis that if such a facility is to be permitted, it can be implemented only once the United States Congress has passed the necessary legislation. That is an inescapable part of the provision of cabotage opportunities, so it will be reflected in our attitude towards the negotiations.