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The proposals now put forward are an extension of the principle of renting out machines ordered and paid for by the Air Ministry (a policy already adopted in connexion with the temporary scheme now in operation), so as to secure that the orders placed shall be for the most up-to-date types of commercial machines, and that the operating companies shall be equipped with machines which can compete successfully on a financial basis with foreign aircraft flying in competition on the same routes.

The proposals of the Council are that the financial assistance to companies, new or existing and to be approved by the Air Ministry, should take the form of :

(1) A continuation, for a maximum period of five years, of the principle (already approved by Their Lordships) by which subsidies of 25 per cent. on the firm's gross earnings can be given to approved firms operating approved routes, with certain requirements governing the machines and engines employed, the regularity of the service provided, and the maximum time taken on individual flights.

(2) The ordering in advance by the Air Ministry, during the next five years, of a limited number of machines for transport purposes, which will embody the latest improvements as suggested by experience and by information gained from actual running, for the purpose of renting them out, when constructed, in augmentation of the machines purchased and ordered by the firms themselves. I am to explain that five years is suggested in the second proposal as it is thought that any shorter period would render the development of a consecutive policy impossible, but it may be found possible to recommend the abolition or reduction of the 25 per cent. direct subsidy payments at an earlier date.

I am to add that the Council, while unable to give at the moment an accurate estimate of the expenditure likely to be involved by these proposals, are prepared to give an undertaking that whatever amount is finally allocated to these subsidies it will be met out of the vote sanctioned for civil aviation purposes.

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I have laid before the Lords Commissioners of His Majesty's Treasury your letter of the 26th ultimo, submitting a permanent scheme for the assistance of Cross Channel Aerial Services during the next five years. Their Lordships have also had under consideration subsequent semi-official communications on the same subject.

The Air Council propose subject to certain conditions:

(1) To continue subsidies on the existing basis of 25 per cent. of gross earnings. (2) To purchase commercial machines of a modern type embodying the latest improvements, and to let them out to approved firms in augmentation of the machines purchased and owned by the firms themselves,

and they contemplate the possibility of terminating or reducing the 25 per cent. subsidy before the end of the five-year period, and in any case of reducing it if the firm earns 15 per cent. on its capital.

In reply I am to request you to inform the Air Council that while My Lords are prepared to sanction this scheme in principle, They are unable to commit themselves unconditionally to the continuance of the subsidy for the full period of five years proposed, and They regard it as essential that a limit should be fixed to the annual expenditure involved.

My Lords are, however, willing, subject to what is stated below, that a total sum not exceeding 200,000l. shall be provided for this purpose in each of the years 1921-22, 1922-23, and 1923-24 within the approved total of Air Vote 8, the allocation of this sum between the two classes of subsidy to be left to the discretion of the Air Council.

It must not, however, be assumed that there will be available for Civil Aviation as a matter of course in future years an annual sum of one million pounds. The estimates must in each year be justified, and the strict rule as to the limitation of expenditure which is imposed on all Departments must be kept in view in considering the amount which can be made available for Civil Aviation.

I am to add that the existing temporary arrangement, under which certain firms are receiving subsidies based on their actual costs, is, in Their Lordships' view, fundamentally unsound, and I am to request that it may be terminated at the earliest possible date. I am also to inquire on what conditions it is proposed to let out the machines to approved firms. I am, &c., (Signed)

The Secretary, Air Ministry.

G. L. Barstow.

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I am commanded by the Air Council to acquaint you, for the information of the Lords Commissioners of His Majesty's Treasury, that they have had under consideration the financial adjustment with the United States of America which is rendered necess by the unfortunate loss of the Airship R.38.

Their Lordships will recollect that, under the terms of the agreement with the Un States Government which received their approval, the loss involved is to be shared equ by the British and United States Governments.

In these circumstances the amount payable by the United States Government w be $1,000,000, this being half of the agreed price of the Airship.

Payments have already been made amounting to $1,500,000, and the sum $500,000 will therefore be refunded to the United States Government.

On the other hand a sum of approximately 23,0007. is due from the United Stat Government in respect of the training of the United States personnel at Howden, an the Council have proposed that the difference between the two amounts should be refunded.

If this course were adopted allowance would have to be made for any difference in exchange between New York and London, the larger sum being payable in dollars in New York whilst the smaller amount is payable in sterling in London.

The acceptance of this proposal has not yet been notified by the American Embassy, but, as in any case a large dollar payment will be involved, the Council conceive that Their Lordships would desire to be informed in case any special arrangements may require to be made.

I am further to state that the whole of the sum of $1,500,000, which was paid during the financial year 1920/21, has been regarded as an appropriation in aid of Vote 9 in that year, provision for the receipt of this credit having been made under this subhead in Air Estimates.

In these circumstances it will be necessary to meet the amount of the repayment to the United States Government from the aggregate of Air Votes for the current financial year. As the payment will be of an entirely exceptional character the Council presume that a special subhead of Vote 9 should be set up to record the transaction and, if Their Lordships concur in this view, would suggest that the title of the subhead should be "J.J.-Loss of H.M. Airship R.38."

I am, &c.,

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I have laid before the Lords Commissioners of His Majesty's Treasury Mr. McAnally's letter of the 24th ultimo (161770/21 (F.E.)), relative to the financial adjustment with the United States of America rendered necessary by the loss of the Airship R.38, and I am to request you to lay before the Air Council the following reply.

My Lords note that a refund of $500,000 to the United States Government will be necessary, and that a sum of approximately 23,000l. is due from that Government in respect of the cost of training certain of its personnel at Howden. They consider that in order to avoid complications it will be best for each side to pay separately. Arrangements will accordingly be made for the payment of the sum of $500,000 by Messrs. from the Treasury account in New York, if your Department will inform Their Lordships of the date upon which payment should be made, and the exact name of the payee. The sterling equivalent will be reclaimed by this Department from Air Votes. The Air Council will then make its own arrangements for the recovery of the sum of 23,0001. from the United States Government, and this amount should be credited to Air Votes for the current year as an appropriation in aid.

My Lords agree to the opening of a special subhead of Air Vote 9 to record the repayment to the United States Government of the equivalent of $500,000, and to the title proposed. They note that this amount will be met from the aggregate of Air Votes for the current financial year upon which, They understand, savings are available.

The Secretary, Air Ministry.

I am, &c.,

(Signed) G. L. Barstow.

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No. 11.

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SIR,

(261770/21 (F.Q.).)

Air Ministry, 31 January 1922..

I am commanded by the Air Council to acquaint you, for the information of the ords Commissioners of His Majesty's Treasury, that they find it necessary to seek Their ordships' authority for certain expenditure incurred in connexion with the wreck of the Airship R.38 in September last.

The Council had intended to defray from the extra-regulation fund of 1,000l., which is at their disposal, such items of expense in connexion with the disaster as were not covered by regulations but were considered properly payable from Air Votes. They find, however, that the total amount is too large to be dealt with in this way.

The largest item involved is one of 5117. 9s. 3d., in respect of a claim from the North Castern Railway Company on account of the conveyance from Hull to Devonport of the Sodies of certain of the American personnel who were killed in the wreck, and the fares of the accompanying Royal Air Force escort. Their Lordships will remember that His Majesty's Government offered a war vessel for the purpose of conveying the bodies of the American personnel to the United States, and the Council feel that it would be inconsistent with the Government's action to ask the United States' authorities to pay any part of this bill.

The expenditure at present known to this office, amounts to 1,0187. as detailed on the enclosed schedule, which is believed to be exhaustive; but it is possible that there may be further small charges in accounts not yet received.

I am accordingly to request Their Lordships' authority to charge against Air Votes the items noted on the enclosure, and any other similar charges of small amount which may possibly come to notice.

As the charges are of an unusual character and arise solely from the loss of His Majesty's Airship R.38, the Council would suggest that they should be brought to account under the special subhead Vote 9 J.J. Loss of His Majesty's Airship R.38" for the setting up of which authority was given in your letter of the 10th ultimo, number S.13280.

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SIR,

(S. 13280.)

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I am, &c.,

(Signed) B. E. Holloway.

No. 12.

Treasury Chambers, 28 February 1922.

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I have laid before the Lords Commissioners of His Majesty's Treasury, Mr. Holloway's letter of the 31st ultimo (261770/21 (F.Q.)) relative to certain expenditure incurred in connexion with the wreck of the Airship R. 38.

In reply I am to request you to convey to the Air Council Their Lordships' sanction for the charge to the special subhead, Vote 9 J.J. "Loss of His Majesty's Airship R.38," of expenditure amounting, as at present ascertained, to 1,0187. 10s. 4d. and of any further similar expenditure of small amount which may possibly come to notice.

My Lords trust that, in view of the original intention of the Air Council to charge expenditure of this nature to the extra regulation fund of 1,000!., the Council will so far as possible restrict further expenditure from this fund during the remainder of the current financial year, as a set-off to the additional charge to Air Vote 9.

The Secretary, Air Ministry.

I am, &c.,

(Signed) G. L. Barstow.

FORECAST OF SURPLUSES AND DEFICITS.

(334535/22/F.1.)

SIR,

No. 13.

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Air Ministry, 12 April 1922.

I am commanded by the Air Council to forward here with for the information of the Lords Commissioners of His Majesty's Treasury tables showing the probable out-turn of the Votes for 1921/22.

Their Lordships will observe that it is anticipated that there will be considerable surpluses on all Votes and that, including the whole of the sum to be repaid by the Middle East Department, the sum to be surrendered to the Exchequer will be in the - neighbourhood of 4,000,0007.

The causes which have led to the probable surrender of so large a sum may be 'summarized as follows:

(a) The decision, after the Air Estimates had been presented, that services in Iraq and Palestine were to be subject to repayment from the Vote of the Middle East Department involved the receipt by Air Votes of extra Appropriations in Aid amounting to 1,571,000. The increase in the gross expenditure in 1921/22 resulting from the revised programme

(8281)

*Not printed.

for the defence of these countries is estimated at 440,000l., so that a net surplus of 1,131,000. would have accrued to Air Votes but for the fact that provision was taken in the Supplementary Estimate, recently voted by the House of Commons, for meeting expenditure incurred during the industrial crisis in the early part of the year from these extra receipts instead of from savings on Air Votes.

(b) The decision of His Majesty's Government that expenditure in 1922/23, and so far as possible in 1921/22, was to be curtailed within the narrowest limits involved a drastic revision of the programme for Air Services upon which the estimates for 1921/22 had been based. Not only were all possible economies effected in the current financial year, but, in order to reduce commitments in 1922/23, the programmes for the replacement of aeronautical equipment, for new works services and for civil aviation were drastically curtailed.

(c) Prices and wages have in many instances fallen during the course of the year below the figures which were anticipated when the estimates were framed.

(d) Delays have occurred in the assessment of awards by the Royal Commission on awards to inventors, in the execution of works services, in the construction and development of experimental aircraft, engines, &c., causing postponement of expenditure until the succeeding financial year.

(e) The development of Civil Aviation has been less rapid than was anticipated, although the saving on Vote 8, due to this cause, has to some extent been off-set by the adoption of the Scheme for the grant of subsidies.

On the other hand the Air Council have been called upon to meet certain charges for which provision was either inadequate or not included, e.g., arrear charges by the Shipping Department of the Board of Trade, and expenditure consequent upon the loss of the Airship R.38, together with a diminution of the Appropriations in Aid of Vote 9. The above explanations cover the salient features of the variations on all Votes. Detailed explanations of the variations on each Vote and subhead will be furnished when final figures are available.

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I have laid before the Lords Commissioners of His Majesty's Treasury Mr. McAnally's letter of 12 April last (334,535/22 F.1) enclosing tables showing the probable outturn of Air Votes 1921-22,

My Lords note that no excess is anticipated on any Vote and that the net total saving is estimated at 4,121,4487. or, deducting the net decrease of expenditure due to repayments from the Middle East Vote, at 2,990,4487.

Their Lordships note this result with satisfaction in so far as it is due to the administrative economies explained in sub-paragraph (b) of the third paragraph of the letter under reply, but They would be obliged if the Air Council could cause Them to be furnished with an approximate estimate of the total savings under this head.

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In reply to Treasury letter of the 7th instant, (S. 15345) relative to the probable out-turn of Air Votes for 1921/22, I am commanded by the Air Council to acquaint you, for the information of the Lords Commissioners of His Majesty's Trasury, that they estimate that, of the total surplus anticipated, the following amounts may be ascribed to administrative economies effected during the year. Reductions in the numbers of personnel employed as compared

with the programme.

Abandonment of the Airship programme.

Curtailment of the programme for Civil Aviation.

Deferment of the purchase of new machines and of the programme

of New Works Services.

£

1,260,000

876,000

I am to explain that these figures are necessarily only rough approximations of gross savings based on the salient cause in each case and that they have been arrived at by comparison with the original programme, i.e., no deduction has been made for services not included in the original programme such as the cost of the new scheme of subsidies to Civil Aerial Transport Companies estimated at 61,0007.

I am, &c.,

The Secretary, H.M. Treasury.

(Signed) H. McAnally.

Enclosure to Letter No. 13.

ANTICIPATED OUT-TURN OF AIR VOTES, 1921-22.

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