Reaching for the sky
Peter Paterson
British Aerospace, along with British Shipbuilders and the British National Oil Corporation the newest of our nationalised industries, is in a sore predicament. In a three, or four-way stretch it is having to make up its mind whether to choose an American partner for future joint airline projects, to go into Europe rather more wholeheartedly than the aviation industry, with the disastrous exception of Concorde, has in the past been inclined to do, or to go it alone with all the huge expense entailed. Or it might keep itself in business with some combination of European and American collaboration, plus a degree of independence, though that could mean missing out altogether on some plump contracts.
As though this weren't enough, it is also locked in combat with two other nationalised concerns, British Airways and RollsRoyce. Each of these organisations is exerting pressure on British Aerospace to plump for a transatlantic partnership — British Airways because it wants to re-equip its fleet with American aircraft, and RollsRoyce because it has broken into the American market in a big way, and wants that to continue.
Quite apart from the prospect of hysterical rows with the French if we — as they see it — turn our backs on Europe, and the likely loss of orders for Rolls-Royce if we spurn the Americans, the domestic politics of British Aerospace's dilemma, or series of dilemmas, is fascinating. At the head of both Rolls-Royce and British Airways are basically private enterprise men who seldom care to acknowledge that they are in charge of concerns that are nationalised.
Sir Frank McFadzean, chairman of British Airways, came from Shell. He finds it difficult to get on with the unions, but his aggressive sales and marketing policy seems to have spread through British Airways' upper echelons. He is insistent that he wants to buy nineteen Boeing 737 airliners as the first step in the airline's re-equipment programme because his statistics show them to be more profitable than the British-made One-Elevens he is being pressurised to buy instead. If the Government, with an election in the offing, decides to force him to have the One-Eleven, he will almost certainly resign, and other chairmen in the nationalised industries 'club' could well join the protest. Of course, the Government might offer a subsidy to the airline to fly British, as, they did with the Trident. But British European Airways, as it was then, only collected half the Trident money: the rest was blocked when the Tories came into office in 1970. So they would probably not leap at this now. But Sir Frank has pretty well made up his mind to buy another set of Boeings for delivery after 1982, and in this ambition he is being egged on by Sir Kenneth Keith, chairman of Rolls-Royce. This is because the planned new Boeing, the 757, would have a version of Rolls's RB 211 as the lead', or manufacturer's first choice, engine. On Boeing's record, and its own estimates, the 757 could sell around a thousand to the world's airlines, which would create jobs and profits for Rolls.
Sir Kenneth Keith may have other reasons for backing both the purchase of the 737 and the 757, although the former is powered by an American engine. The fact is that the success of Rolls-Royce in the American market is creating opposition on Capitol Hill among congressmen representing engine-making districts. If the British Government were to veto our state-owned airline's choice of the 737 on political grounds, the backlash would be felt, painfully, by Rolls.
There is something else behind Rolls's advocacy of the Boeing 757. The US firm has offered British Aerospace a partnership in the design and construction of this aircraft, which, with British engines, could amount to some 70 per cent of the project. Everyone at Rolls has searing memories of what a tie-up with the Americans can mean. The Lockheed Tri-Star, with RB 211 engines, almost ruined both companies: indeed, it was a major contributory factor in Rolls's bankruptcy in 1971 But the name of Daniel Haughton, the boss of Lockheed, who virtually ran both companies for a critical period, is now almost as revered at Derby as Sir Henry Rolls. In the words of one Rolls executive: 'Lockheed supposedly was our customer. But they came in, picked us up by the scruff of the neck and shook us. It was hard to take, but it worked, and we're now an altogether different company.'
Without American management and production systems it is doubtful whether Rolls, in spite of the design brilliance of the RB 211, could have fulfilled the Lockheed order, let alone go on to sell the engine for the British Airways' jumbo-jets or to win Pan-American's latest order specifying it for a new TriStar fleet. So quite apart from the fact that there seems little scope for a Rolls-Royce engine in any of the projected European projects, there is a feeling at Rolls that what Lockheed did for them Boeing might well do for British Aerospace.
But will it have the chance? The third personality involved in the triangle is a very different animal to Sir Frank or Sir Kenneth. Lord Beswick had no recorded commercial experience before he was chosen to run British Aerospace. A former Labour MP (Class of '45) for Uxbridge, his past record hardly suggests a man of action. Delay seems more his métier, as he demonstrated when called in by the government to arbitrate between the eagerness of British Steel to close down a number of plants, and the understandable reluctance to see them closed of the steel industry unions and those Cabinet ministers representing steel constituencies. Lord Beswick for the most part counselled delay, but subsequent events seem to have proved that in this respect at any rate the management's instinct was correct.
This instinct for delay also seems to be apparent in Lord Beswick's running of British Aerospace. Boeing, naturally anxious to get moving on the 757 project in order to have the first pickings of the market, wants a swift answer to its offer of collaboration. British Aerospace's reaction is to continue talking to the Europeans about the French-inspired JET (Joint European Transport) with its American engines — having promised not to negotiate with anyone else in the meantime — and to seize eagerly on a new collaborative offer made by another American firm, McDonnell-Douglas. But the latter is unlikely to become a reality before the Boeing, and McDonnell-Douglas — with an eye on national airline orders —would want to share production among a number of countries, thus reducing British Aerospace's share.
Nevertheless, Lord Beswick does have one clear advantage over the other two chairmen. His political past makes him a better Whitehall in-fighter, and he has skilfully mobilised most of the trade unions into backing his ideas, however tentative. Not only would he like to scotch British Airways' choice of the Boeing 737 — he also sees a `stretched' One-Eleven as an alternative to the 757. That, however, may be over-ambitious, since it would require something like .E300 million to develop, much of the cost being eaten up by a completely new engine from Rolls-Royce. Rolls have plans to build such an engine, but not yet awhile — and all the money for both airframe and engine would have to come from the National Enterprise Board, whose chairman is already on record as favouring the Boeing deal. Perhaps the best bet is that Lord Beswick will be able to keep a foot in Europe as a wing contractor on JET, without becoming a full partner. He will be overruled on the immediate 737 deal, but might get it watered down by a government edict ordering British Airways to buy three or four of the One-Elevens now being built on spec. And Boeing will make him an offer he can't refuse to share the cost and the production of the new 757. The crunch for British
Aerospace will then come as Boeing's demanding production methods make their impact on our trade unions, and an ability to delay will be the last talent needed by a chairman of British Aerospace.
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