British Leyland is to be granted a further £300m of state aid next year, with £133m to follow if the vehicle group’s performance improves. The Government appears to have been persuaded by Sir Michael Edwardes that the company should be given a last chance. Survival not certain, Sir Keith says
By Edward Townsend
The Government has agreed to provide British Levland with up to £300m of additional public money next year to fund its new model and reorganization programmes. A further tranche of £133m will depend upon the vehicle group’s level of success in the coming 12 months. Announcing the decision in the Commons yesterday, Sir Keith Joseph, Secretary of State for Industry, said that BL’s situation was not encouraging, the company continued to be in a poor financial state and faced strong competitive pressures in the 1980s
‘Only with very substantial improvements in BL’s all-round performance will the company survive; success cannot by any means be guaranteed,’ he said. Although there are no Government strings attached to the handouts, the board of BL has given warning that failure to meet the stringent requirements of its 1980 corporate plan will lead to further factory closures and widespread redundancies.
It was also revealed that BL’s own attempts to revive its flagging finances next year will include the disposal of four of its major subsidiaries, which it is hoped will raise £250m. As well as seeking purchasers for Aveling Barford and Prestcold, BL is planning to sell the Alvis military vehicle and Coventry Climax industrial trucks operations in Coventry. Some smaller property assets may be sold, and negotiations are continuing on the possible sale of MG. Sir Keith was finally persuaded to accede to BL’s request after receiving a forthright letter from Sir Michael Edwardes, the company’s chairman earlier this month. Sir Michael said they faced considerable hazards
‘ from within and without and if the corporate plan was placed in jeopardy it would be abandoned. Utmost determination and commitment ‘ In particular if there is a significant shortfall in cash flow, whether due to major disruptions through internal or external strikes or to delays in any of our programmes for investment and launch of new products, restructuring and redundancies, or for improving productivity and working practices, or to any other cause, internal or external, the board will abandon the plan.’
Given the funds, he said, the board and management would pursue the plan ‘with the utmost determination and commitment.’
The plan calls for public funds totalling £297m in 1980 with, a further £133m between 1981 and 1983. The two sums represent the remaining £225m of the £1,000m proposed for BL under the Ryder plan, plus £205m for the restructuring programme. In the event, the Government is to provide £150m in new equity with ‘an additional facility’, on which BL will be entitled to draw on evidence of need, up to a maximum of a further £150m.
It was not clear yesterday whether the latter would be in the form of equity or grants. European Commission approval will be needed for granting the excess over the original £1,000m. Sir Keith has also consented to BL’s request that £150m of State loans provided in 1977 be converted into equity. This will cause the Government to lose interest on the remainder of the loans estimated at £22m, part of which would have gone to the National Enterprise Board, BL’s parent, and part directly to the Treasury.
BL is also expected to contribute to its funding needs from its own internal resources, including disposal of assets ‘where this makes commercial sense ‘. BL expects cash flow on depreciation to be about £100m next year, and plans to borrow ‘ tens of millions ‘ of pounds from the banks. Sir Keith said at a press conference that City borrowings would continue to be guaranteed by the Government. Total capital expenditure for BL as a whole is forecast at £331m.
Remaining under wing of enterprise board Sir Keith said that the new NEB and its chairman, Sir Arthur Knight, had not had time to consider the BL plan, but he confirmed that BL would remain under the board’s wing. With a ‘ new set of faces ‘ at the NEB, the BL board might reconsider its wish to follow Rolls-Royce and become directly responsible to Whitehall.
Whether BL received the extra £133m at the end of next year depended upon it staying on course. Details of the BL plan, contained in an NEB report to Sir Keith this month, showed that the company had no chance of achieving its financial duty of a 10 per cent return on assets before 1982, but would then be on course to achieve 15 per cent in the long term. Reaction to the plan from management and unions was positive.
Sir Michael Edwardes welcomed the Government’s move as ‘the last chance’ for BL. He appealed to the workforce to make 1980 a year free of disputes. He added: ‘We cannot live on Government money for ever. We are still on a knife-edge.’
Mr Terence Duffy, president of the Amalgamated Union of Engineering Workers, said: ‘I am pleased that the Government has made this decision to inject a further tranche of money into British Leyland. We still believe that a healthy car industry can regenerate the country’s economy.’
He added that union leaders were not ‘enamoured ‘ with the clause in Sir Michael’s letter to Sir Keith saying that the plan could be abandoned in the event of a significant cash shortfall because of internal or external disputes.