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Aviation History
1961
1961 - 1463.PDF
FLIGHT, 5 October 1961 567 (modified on August 22), and both parties had indicated that theyintended to call new evidence. The decision of the Board Mr Fisher described as strange, indeed almost perverse. Having found in favourof BOAC on the principal points, it had then decided that a licence should, nevertheless, be granted. He argued, supporting his argument by references to the transcriptof the hearing by the Board, that Cunard Eagle had based their whole case on the claim that there would be no material diversion of trafficfrom BOAC. Mr Ashton Hill had said more than once that Cunard Eagle were not out to take traffic from BOAC or to take the cream fromroutes which the corporation had developed: he had said that it was for Cunard Eagle to satisfy the Board that there was an existing or potentialneed for the proposed service, that the facilities existing were not ade- quate to satisfy the demand, and that there would not be wasteful dupli-cation of BOAC's services or material diversion of traffic from them. Mr Ashton Hill had said that these requirements were virtually identical.But the Board had decided that, although there would be diversion of traffic, there would be no wasteful duplication. Mr Fisher suggested that both wasteful duplication and materialdiversion had been covered by the Act as the latter could exist without the former; for example, a service London - Tangier could materiallydivert traffic from the London - Gibraltar route. In the present case, however, the routes were identical; therefore, if there was diversion,there must also be wasteful duplication. Mr Fisher said that Sir Basil Smallpeice had given evidence on thepreparation of traffic forecasts and the need for accuracy. This year, however, the expected increases had not materialized and the Board'sgrant was therefore not correct on these grounds. In any case, however many the passengers, there would be wasteful duplication of services—even with increased traffic—if the capacity provided was excessive. Therefore, if the decision to grant a licence was based on a great increasein traffic it was a non sequitur. The decision was also odd in making no special reference to the needor demand for the service or the adequacy of the existing service, both matters to which the Board was required to pay particular attention.Nor was there any indication that matters other than those specified in Section 2(2) of the Act had been taken into consideration. The decisionwas merely stated to be based on a rapid rate of traffic growth. The Board had agreed that there would be diversion of traffic and hadaccepted that BOAC had reasonably entered into commitments for the purchase of aircraft to carry the expected traffic. By contrast, the appli-cants had not relied on purchase commitments in their application, having contracted for the purchase of aircraft in March 1961, knowingthat their application might fail. If a licence was to be granted despite acceptance of this evidence what was the point of Section 2(2)(g) of theAct? BOAC's Three Propositions The Board seemed to have disregarded this provision as well as thequestion of diversion of traffic and to have decided that the repeal of Section 24 of the Air Corporations Act of 1949 was in itself grounds forgranting a licence to an independent operator. They had found that there was no need or demand for the service, that the existing servicewas not inadequate, that there would be diversion of traffic, and that BOAC's financial commitments had been reasonably entered into.Yet they had granted a licence. The Board had given no reason why this grant would further the development of British civil aviation: theirreasoning on this score could not therefore be challenged in detail, but no facts were found in the decision on which a finding that it wouldbenefit British civil aviation could be based. In any case, there had been no evidence to support such a finding. Mr Fisher stated three propositions containing the substance ofBOAC's argument. Briefly, these propositions may be summarized as follows: (1) The Civil Aviation (Licensing) Act. 1960, while removing theabsolute bar against independent operators coming in on BOAC routes, was intended by Parliament—through the provisions of Section 2(2)(d)to (g)—to preserve the position the corporation had built up. It was clearly Parliament's intention that independents should be licensed onBOAC routes only if BOAC were not satisfying—or likely to satisfy— the demand. (2) Although enjoined to further the development of British civilaviation, the Board was required particularly to consider the matters specified in Section 2(2). Other considerations might be in favour ofthe grant of a licence, but if the requirements of Section 2(2) were not met the application should be rejected. In the present case, where theapplicant failed to satisfy the Board on Section 2(2) and advanced no other arguments, the Board was acting perversely and in disregard ofthe intentions of Parliament. (3) The grant of the licence to Cunard Eagle Airways would notfurther the development of British civil aviation for five reasons: (i) As enjoined by the Air Corporations Act, 1949, BOAC had alwaysexercised its powers to carry out the duty of developing long range routes throughout the world. Cunard Eagle, under the CompaniesAct, had a prior duty to their shareholders, (ii) There had been no evidence that the introduction of Cunard Eagle would increase eitherthe total market or the total number of passengers on UK carriers, but rather the reverse, (iii) The introduction of a new carrier would curtailBOAC's activities and render them less profitable (or more unprofitable). Aircraft would become redundant, load factors would be reduced, andoverheads would be spread over less traffic, (iv) Taking away traffic Acquired by the French independent Airnautic CECA in i960, this Douglas DC-2—photographed recently at Nice—is the only one of its type in airline service in Europe. Delivered to Swissair before the war as HB-ITO, it was later sold to South Africa as ZS-DFX from BOAC on a route which had been, and would again become,profitable would make BOAC less able to develop new routes. Cunard Eagle had no similar obligation and could stick to profitable routes anddistribute their profits to their shareholders, (v) If BOAC were unable, because of the threat of removal of traffic, to give firm developmentorders for new British aircraft as they had with the Comet, VC10 and Super VC10, the manufacturing side of British civil aviation wouldsuffer; Cunard Eagle had no commitments to British manufacturers. The policy underlying the 1960 Act had, said Mr Fisher (afterreviewing the history of previous legislation), been apparent from the debates on its various stages and could be summarized in threepropositions: (1) The corporations were to continue to be the main British flagcarriers and the Act was not intended to undermine their position. (2) A carrier who had built up custom on a route was to be protectedagainst others who might wish to come in and "reap where he had sown." (3) There must be a measure of protection for established operatorsand consideration of their commercial commitments. In the case of BOAC there had been exchequer grants amounting to£26m between 1947 and 1952. BOAC's capital—£137m at March 31. I960, and over £150m at March 31, 1961—represented a large sum ofpublic money invested in the corporation. In addition. BOAC had. with the approval of the Minister and on the assumption that theywould continue to carry the full British share of the traffic on their own routes, placed orders in 1958 for VC10 and Super VC10 aircraft to thevalue of £ 100m. A "Slap in the Face" The Board had found that the result of upholding BOAC's objectionwould have been to freeze the existing situation on the North Atlantic "which was not what Parliament intended." This was not so, as anapplicant could obtain a licence by showing that BOAC's services were inadequate or by making an application for a revocation or variationof their licence; or another operator might be welcomed if the licensed operator was unable to carry the traffic, as had happened when theComet disasters compelled BOAC to re-deploy their fleet and withdraw from the South American routes. The Government might change itspolicy and decide not to permit further expansion by BOAC but Mr Fisher submitted that to do this before the end of the life of the VC10and Super VC10 aircraft ordered with the approval of the Government and on the basis of the supposition that BOAC would continue to carrythe fulj British share of the traffic would be a breach of faith. Asking the Commissioner to consider the consequences to BOAC ifpart of the North Atlantic traffic were taken away from them, Mr Fisher referred to the Command White Paper on the Financial andEconomic Obligations of Nationalized Industries which made it clear that it was Government policy that BOAC should cover its costs andprovide for reasonable interest on capital. Reduction of BOAC's earning capacity would be incompatible with this principle. Further-more, BOAC would be unable to plan for the future if they were faced with the threat of losing part of their traffic on any route they haddeveloped to profitable operation and no benefit to British civil aviation could accrue from this or from giving BOAC a "slap in the face" andordering them to relinquish part of the traffic as soon as a route had been built up. Another effect would be thai BOAC. no longer assured of their futuretraffic as a result of this decision and possible future grants influenced by the precedent, would not be in a position to place developmentorders for aircraft with the British aircraft industry as they had done when ordering VClOs and super VClOs in 1958 for delivery between1963 and 1965. Cunard Eagle were proposing to start operations with Boeing 707s and "might order" VClOs later if the traffic warranted. Before proceeding to deal with the additional evidence to be offeredby BOAC, Mr Fisher defined the expression "British share of the traffic," used throughout the hearing, as meaning that percentage of thetotal traffic which British airlines might reasonably expect to carry. He also defined for the benefit of the Commissioner the "five freedoms"and " Bermuda-type agreement." Cunard Eagle's claim that there would not be material diversion oftraffic from BOAC rested on an "elementary blunder"—the assump- tion that all Cunard Eagle traffic would be taken from operators otherthan BOAC. Cunard Eagle's "naive supposition" that traffic would increase by 20 per cent per annum ad infinitum was based on trafficover the last four years, years which had contained a large number of abnormal factors: their case disregarded the effect of bilateral agreementsand they had not seriously challenged the case in objection presented by BOAC. Supplementary evidence to be given by Sir Basil Smallpeice wouldshow that the load factor on the route had fallen below 50 per cent in the four months since the hearing and BOAC faced a financially disastrousyear with last year's profits turned to a considerable loss: this would be the worst possible moment to introduce a new carrier on the London -New York route. Mr Fisher quoted Sir Basil's evidence of the unlikeli- hood of the "British share" of the traffic increasing beyond 43 per centof the whole over any lengthy period, and his reasons for estimating that the traffic increase over the period up to 1966-67 would be at an
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