BCal 40th Anniversary P1b

October 21^st 1970

Released by
CALEDONIAN AIRWAYS;
Sussex House
High Street
Crawley, Sussex

Embargoed until 0930 Wednesday October 21^st 1970

Caledonian buys British United

“Second Force” Airline to be formed next month

Caledonian Airways and British United Airways are to be merged to form a new “Second Force” airline at the end of next Month.

This follows an agreement reached last night between Caledonian Airways and the owners of BUA, whereby Caledonian will take over BUA on completion day - November 30^th 1970.

Under the terms of the agreement, Caledonian will purchase the whole of the ordinary share capital of BUA at a price of £6,900,000.

£1 million will be paid as a deposit within eight days from today and the balance on November 30^th 1970.

The sale includes all the present subsidiaries of BUA and does not include British Island Airways Ltd. which will continue its present activities.

Caledonian has also agreed to buy from a subsidiary of British & Commonwealth Shipping at a total cost of £5,007,093, three BAC One Eleven aircraft and spares which were acquired in March 1970 for use by BUA. British & Commonwealth have agreed to continue various aircraft loan and leasing arrangements that they previously had with BUA.

Caledonian will make a Rights Issue of 2,115,000 Ordinary shares of £1 each at £2 per share; and will issue at par £4,000,000 of 10½ percent Convertible Unsecured Loan Stock 1990/95, convertible up to 31st, December, 1980 into Ordinary shares at £2’ 5shillings per share. The £8,300,000 so raised will cover the purchase price and provide initial working capital for the Second Force airline.

Caledonian’s financial advisors are Industrial & Commercial Finance Corporation and Kleinwort Benson, who have underwritten the issue of shares and convertible loan stock.

The Hon. Anthony Cayzer, Mr A Bristow, Mr R L Cumming and Mr. A E Lemon will resign at once from the BUA Board. Mr J. Thomson will be appointed Chairman of the Board until completion. Mr A. Thomson, Chairman and Managing Director of Caledonian Airways, will be elected to the Board of BUA. A full reconstruction of the Board will take place after November 30^th.
Airways lnterests (Thomson) Ltd, the controlling shareholder of Caledonian Airways (Prestwick) Ltd, will change its name to Caledonian Airways Ltd.

Under the parent company, scheduled services will be operated by British United Airways and charter services by Caledonian Airways (Prestwick) Ltd. Aircraft will carry the name “Caledonian//BUA)"

The staff of Caledonian and that of BUA were informed of the takeover by Mr Adam Thomson at special meetings at Gatwick Airport this morning.

Announcing the takeover today, Mr Adam Thomson said:

“It fell to Caledonian to attempt to form the Second Force airline recommended by the Edwards Committee - a recommendation endorsed by the Labour Government and actively encouraged by the present Government [Conservative].”

“I am delighted that my colleagues and I have been able to bring this to fruition”

“The new airline will provide an alternative source of stable employment in the airline industry and will contribute significantly to the national economy.”

Adam Thomson - 4th December 1970

Just a few days after the formation of Caledonian//BUA, Adam Thomson issued an internal memorandum.

That memo is fortunately in the collection and this anniversary is a great time to read Adam's words again

Below is the transcript:-

CALEDONIAN/BUA
Internal Memorandum

To: All Staff

From: Adam Thomson Date: 4th December 1970

On the launching of Caledonian/BUA I think it might be useful to all staff if I comment on some of the major areas that I feel will be of interest to you in your new airline. I shall endeavour to refrain from traditional type exaltations and messages; and simply give the facts and implications on various subjects as I see them.

The first and most important thing to appreciate is that the opportunity we now have is completely different from anything that has been available to Independent Operators in the past. This should be fairly obvious by now, but strangely enough some people are still saying "I have heard it all before so I will believe it when I see it”. If you happen to be one of these people I suggest you read the Edwards Report, the Labour Governments White Paper of last, November, the Conservative Governments Policy Statement issued in August of this year and the Civil Aviation (Declaratory Provisions) Bill which is at present going through Parliament. For the future, no doubt this Bill will be passed and route transfers will take place and the new routes will be in operation from the 1^st April I971.

Further, the Civil Aviation Authority will be set up and the policy statement to guide this Authority will undoubtedly contain a “Second Force" policy along the lines that the Government laid down in their August Policy statement. So a "wait and see what happens” attitude is negative to say the least as we have been given the opportunity and it is now up to us to prove that we are capable of taking it. A negative attitude to the whole situation will do nothing but reduce our chances of success.

For 1971 we will be looking towards the following developments:

Increased frequencies on all routes that are capable of viably standing an increase and where the regulatory authorities at home and abroad will permit greater frequency. Specifically this should affect East Africa, South America and the domestic trunk routes, if the various steps we are taking prove to be successful.

We shall be planning an increase in our charter passenger carryings on the North Atlantic and our European Inclusive Tours. The North Atlantic by way of further development in the market with our Boeing 707-320C fleet; the European Inclusive Tours with our Tour Operators who are mainly Global, Horizon and Blue Sky.

Our Far East charter programme, both affinity and Inclusive Tours, will continue to develop as will our participation in the worldwide Ad Hoc charter market.

With regard to Freight, we anticipate putting a Boeing 707-320C on the Africargo run and continuing to develop our worldwide charter freight services with this type of aircraft.

In addition to the above we shall be operating the routes transferred from BOAC and/or BEA. I am not in the position at the moment to give further information as to what these routes might be. However, a statement covering the transfers will be made as soon as possible. The operation will commence on the 1^st April 1971.

For our future development we will be looking to new scheduled services which fit into the Caledonian/BUA scheduled service network; developing new charter services such as long haul inclusive tour holidays; operating services alongside another British operator by means of dual designation where the traffic density on the route justifies this concept, for example, on the North Atlantic; a continuing development of our passenger and freight charter services.

For the above operation we shall require additional aircraft; these will include a number of 707-320 type aircraft. Decisions on the applicable dates are being taken at the moment and this will include a number of Boeings to be introduced in the Spring of 1971. We do not anticipate adding any BAC 1-11/500s to our fleet in 1971; present estimates show an additional two BAC 1-11/500 aircraft for 1972 and an additional two aircraft for 1973. With regard to wide bodied aircraft, our requirements over the next five years call for about five 747’s and from about 1975 a number of Tri-jets or wide body twin jets. It. will be appreciated that a lot more detail will have to go into our planning before a final decision on the fleet requirement is made, but certainly a fleet along the lines of that outlined above, plus our existing 31 jets, will be required to carry out the type of development we envisage.

With regard to financing the type of fleet we shall require, It is significant to remember that separately BUA and Caledonian has financed the lease or purchase of 31 jet aeroplanes I if we make a success of our airline then I do not envisage insurmountable problems with the financing requirements for the fleet of aircraft that we shall need. Equipment finance can be obtained by way of loans on aircraft when they are purchased, or by way of obtaining the aircraft from leasing companies. Both schemes will be utilised but both will require a certain amount of additional development capital. Again I do not envisage serious problems in raising this additional capital provided as before, that we make a success of our airline. In fact our financial aim will be to obtain a quotation from the Stock Exchange so that our shares will be available to the general public and by this means our growing demands can be met. The timing for this will depend on a number of factors, including a satisfactory profit record, but we are hoping that it will be possible after the first few years.

Financially, airlines throughout the world are going through a bad period, therefore investors are bound to be cautious regarding airline commitments, although it can be pointed out to them that because an industry is going through a bad time that does not necessarily mean that every participant in the industry is doing likewise. There are a number of airlines throughout the world who, even during this present period of difficulty, show that they can continue to be profitable. It is up to us to ensure that we remain in this category and so long as we can, then our financial requirements will be covered.

Staff integration has already started; the speed of integration will vary with the complications that apply to the department concerned, in some areas it will take some time to complete because of the different procedures that previously applied in the separate companies, but we recognise that we will be most effective when we are operating as a completely combined unit rather than with duplication, which not only causes confusion, but costs money. We are seeking a fair way for the integration of staff, but there is no doubt that everyone will not be fully satisfied when the integration is completed. One thing I can assure you of and that is there will be no favouritism by way of BUA as the larger organisation swamping Caledonian, or by way of Caledonian as the company that is implementing the takeover taking unfair advantage of this position.

We are fortunate in that with our expansion plans for 1971 we shall be substantially increasing our passenger carrying, that is, our production. Normally in a merger redundancy occurs because the new larger unit can cope with the combined production requirement with fewer staff.

During the winter months even we shall have too many employees, but by the time the summer comes along and with our additional production, we should be able to absorb the additional people as part of our overall organisation. If you are under-worked in the early days, rest assured this will not be the norm, but will simply be a phase of the integration.

During the winter months even we shall have too many employees, but by the time the summer comes along and with our additional production, we should be able to absorb the additional people as part of our overall organisation. If you are under-worked in the early days, rest assured this will not be the norm, but will simply be a phase of the integration.

You will have seen our appointment of an Industrial Relations Director and you will appreciate that in making this appointment we recognise the importance of industrial relations in today's environment. I do not think that industrial relations are simply a matter of how much pay an employee gets for how many hours he works, and proof of this of course, can be seen time and time again in the industrial disputes which occur so frequently in industry in this country today. We in the airline industry are fortunate in that most of our jobs are not day to day routine as they are, for instance, to people working on an assembly line. I am sure that the vast majority of Caledonian/BUA employees are interested in aviation as an industry; the vast majority have interesting jobs which call for their skill and which demand effort and initiative. We are also fortunate in that we can see the end result clearly, that is our aircraft providing a public service by transporting businessmen and goods all over the world and developing the tourist trade to this country, thereby earning foreign currency, and also by playing our part in the development of holidays abroad for the British public.

Another thing that I feel is important to the individual is the area where he works and here we shall do everything possible to ensure that good standards are maintained. Company activities and Company schemes also play their part, the latter by way of staff travel on the airline's network, housing schemes, share participation, etc. All of these will be investigated at an early date and they will all come under the general industrial relations heading. Certainly pay and hours of work are extremely important, but a satisfactory environment, good communication and everything else connected with the job are equally as essential if we are to build the right spirit for our organisation. Your co-operation, assistance and suggestions will be welcome, but remember it will take time to implement all of our plans.

About the most important single item in our new airline will be customer relations. If I were an advertising man and were looking for a slogan for our internal use I would come up with "Every Man's A Salesman". I would choose this because if we could all appreciate the importance of sales, then our attitude towards our customers would be correctly orientated. Nowadays passengers take airline efficiency for granted, they are not interested in how sophisticated our Engineering or Reservations systems have to be, or how complicated Flight Planning or Traffic Control is or all of the skills that have to go into the sharp end of an aeroplane to ensure their safe carriage between A and B; they judge us (provided of course we are as efficient as we should be) by how co-operative and friendly the Traffic staff are, by whether the coffee is cold and by whether the Stewardess smiles or frowns - simple, straightforward everyday items; how we answer the telephone, the quality of the Captain’s announcements in flight, how we deal with delays. These are the things on which he will compare us with our competitors and these are the things that will be the governing factors on whether or not he decided to fly by Caledonian/BUA again. We have a good start in this particular area because our service and our standards and our attitude are vastly superior to the standards achieved by many of our competitors, but make no mistake; their standards will improve as soon as they see their passengers being diverted to our expanding airline. So, all the time we will have to be that much more innovative and that much better in providing our customers with the service for which they pay.

Now I come to one of the most difficult areas, that of profitability, Caledonian as an entity has always been profitable and in fact was at the start of its most profitable year when the takeover was implemented. BUA’s record is chequered and a loss for 1970 is forecast. BUA has developed in such a way that as an entity it could be said to be no longer viable without additional opportunities.

The simple facts are that the investment required for the Second Force could not be justified by way of Caledonian’s profit balancing BUA's loss, because the base of the operation was insufficiently large to carry the overhead the new company required. Additional opportunities, which give us increased production, were required and these are being obtained by way of the route transfers, but it will take some time for the new unit to be operating and it will take some time before the benefits of our total production are effective. At the same time we are committed to a policy of no redundancy and we are also committed to a policy of paying comparable wages to those that apply in the corporations. The policy statements we have made on wages have been tied to wages that would apply in an established Second Force airline. However, developments have been such that phasing wage increases during the establishment period (which may have taken a year to 18 months) is not fully taking place and wages are being very substantially increased right from the beginning. The cost of these wage increases during our first year’s operation is still to be fully evaluated, but it will certainly be well in excess of £1,000,000, and I think that it is right that you should be aware of this fact. We have to balance these increased costs by obtaining benefits in a number of ways; more sales along the lines mentioned above, better staff productivity in all departments, better spread of our overheads, for example by maintaining the Boeings at the Gatwick base without a proportionate increase in our overhead costs; negotiating better contracts which our suppliers because of our larger requirements and by improving our overall efficiency. In this latter area every single individual must play his part. Our estimates clearly show that the new company can be viable but not without our combined effort.

There are a number of calls going out for strike action against one Government policy or another, there is also talk of "Blacking” our operations. Frankly we cannot afford to become involved in this. We must ensure that the people concerned are fully aware of the damage such a situation would do to Caledonian/BUA. Apart from our direct financial loss with scheduled service passengers, remember that more than half of our operation is on charter flying. Therefore, we would be stranding passengers all over the world - we could not catch up with our programme, we would suffer a severe financial loss and have poor publicity and we would undoubtedly lose charterers for future business. Our development - therefore your own individual prospects - would be directly affected and any individual, who tells you this would be good because BOAC will then take the Second Force over, is either suffering from delusions or rather a fool. The Government have stated clearly their intention to encourage private industry to develop and in our case have clearly stated that, having given us our opportunity, look to us to make a success of it - they look to us to be collectively responsible management towards employees and employees towards management. But clearly they will not bail us out - we stand or fall on our own.

I know there are individuals who will wish to play a complete part in the Company’s activities and others who simply wish to provide their skills and services during working hours for a set payment and have no further interest in the Company. Both are welcome in the new organisation. I also know that there are a number of people, perhaps just a few, who would prefer to be employed by the Corporations. The Corporations are fine airlines and are expanding at a substantial rate every year and have vacancies for staff. I would suggest that those of you who are not happy with the thought of being employed by the Second Force in Independent Aviation seriously consider joining the Corporations. Unhappy and unwilling employees will only be a disturbing factor to their colleagues and a destructive factor to our new airline as a whole.

If this note makes you doubt the prospects for Caledonian/BUA, then the tone has been too pessimistic. If it helps to ensure appreciation of the prospects we have, but clearly, indicates our own responsibility in dealing with the opportunity, then something will have been achieved.

The note is not meant for distribution outside of staff members and, although there are obvious probabilities, I would appreciate it if you could endeavour to keep it within the Company.

Finally, may I sincerely wish you all good luck and success in your new positions in our new Company. I look forward to the challenge and I have every confidence chat together we can build an airline for which we shall be proud to work.

If you wish to comment on the above, drop me a line, I’ll be pleased to hear from you - critical or not, but please try to be constructive.

Adam Thomson
Chairman & Managing Director

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