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San José State University
Department of Economics |
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applet-magic.com Thayer Watkins Silicon Valley & Tornado Alley USA |
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The development of the Concorde is a prime example of the failure of government to function as it should. Special interests manipulated the levers of government to create a product whose costs far exceed its benefits. What is worse the benefits accrue to the wealthy while the costs are borne by the general population of taxpayers so the Concorde transfered (with losses) buying power of the poor to the wealthy. The most charitable thing that can be said about the British participation in the Anglo-French project is that British politicians may have believed that it was the necessary price for French acceptance of the United Kingdom into the European Common Market.
The history of British involvement starts in 1956 with the creation of the Supersonic Transport Aircraft Committee (STAC) within the Ministry of Supply, Civil Aviation and Transport. The committee was composed entirely of representatives of airlines and manufacturers of aircraft and their engines. The Ministry of the Treasury was given no representation then or later. A grant amounting to about $1 million was provided for basic research into the feasibility of a supersonic transport. The impetous for the project was the dream of jumping ahead of American aircraft companies into the next generation of airliners.
The STAC report called for the development of two models, a long range 150-passenger model capable of cruizing at 1200 mph and a slower, short haul 100-passenger model. It was asserted that the development costs would be between £78 million and £95. It was also asserted that there would be a market for 500 of the long range SST planes by 1970. Apparently these figures were simply made up by the Royal Aircraft Establishment at Farnborough. To see how far off they were, note that by 1980 the costs of development mounted to two billion pounds and the number of Concorde SST's manufactured was only 16 and of these only nine were sold. All of these nine were purchased by the state-owned airlines of Britain and France, British Airways and Air France.
It must be noted that the British Cabinet rejected a proposal based upon the 1959 STAC report. Nevertheless, Aubrey Jones,the Minister of Supply, kept the project alive and prevented the Ministry of the Treasury from making an official appraisal of the project.
Since the proponents of a SST knew that a Treasury appraisal would damn the project they undertook to get governmental committment to a joint project with another country, thus making the rejection of the project an issue of international affairs. America was not interested but Aubrey Jones, the Minister of Supply, proposed the joint project to French officials at the Paris Air Show in June 1959.
Shortly thereafter the Ministry of Supply awarded a contract for a feasibility study to the Bristol Aircraft Company and Hawker Siddely. With governmental encouragement several British Aircraft companies, including Bristol Aircraft and Vicker Armstrong, merged to form the British Aircraft Corporation. In 1960 a contract was awarded to British Aircraft for the preliminary design of a 120-passenger aircraft capable of flying at over twice the speed of sound (Mach 2.2).
In November of 1962, on the basis of the very sketchy report from the preliminary design study by British Aircraft, the governments of France and the United Kingdom signed the Supersonic Craft Agreement. This agreement called for an equal sharing of development costs, then estimated as £ 150-170 million. The Agreement made no provision for a maximum costs, no provision for the review and reassessment of the project and no provision for its cancellation. Thus the proponents of the SST were able to engineer an irrevocable committment of Britain to the Concorde despite the fact that the project had never been reviewed and appraised by the Treasury.
The Ministry of the Treasury had unofficially tried to stop the project but the force of its assessment of the projects and its cost and sales estimates was lost. The members of the Cabinet fought over the issue in 1962 but approval was gained on the basis of the arguments that the British aircraft industry needed a major develoment of the scale of the SST to remain viable but it could not afford it on its own. French participation would spread the cost and if Britain did not participate France would go ahead on its own and reap the benefits of it alone. The absence of any provision for cancellation of the project was justified as something that was necessary to hold France to its committment. This played into a prejudice of the British about the French. The no cancellation provision, instead of being something that was risky if not stupid was perceived as being clever.
At that time the estimated cost of a Concorde SST was taken to be £6 million. Since the price of a Boeing 707 was £2 million it was clear that the Concorde sales would either be negligible or the Concorde would have to sold at a loss. The Minster of Aviation had said, "Space beckons us with a golden finger." Lord Brabazon in the House of Lords replied, "My Lords, it beckons us with the three brass balls of the pawnbroker."
By 1973 the costs for the development of the Concorde SST had risen from the £150-170 million range to £1065 million. Of the increase about one third was due to inflation, one fifth from revision due to initial errors in the estimates and one third from additional development tasks. The additional development tasks may have been due to the structure of the contract with the developers. The contract was such that as the costs rose on a previously specified model the profit to the contractors fell but if there were revisions in the design the scheduled profits were also revised on a cost-plus basis. Thus the contractors had a profit incentive to call for revisions in the design specifications.
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