AGREEMENT WITH MALAYAN AIRWAYS LIMITED

11.55 a.m.

The Minister for Communications and Works (Mr Francis Thomas): Mr Speaker, Sir, I must formally signify that I have His Excellency the Governor's consent to the moving of this motion, but perhaps before I move it I could refer to a typographical error in line 7 of the motion, page 135 of the Order Paper, where the word "North" Borneo should read "Northern" Borneo. North Borneo is a territory, Northern Borneo a geographical area. May I treat that as a typographical error, Sir?

Mr Speaker: Yes.

Mr Francis Thomas: Mr Speaker, Sir, I beg to move,

That this Assembly takes note that the Government of Singapore, in conjunction with the Government of the Federation of Malaya, proposes to conclude an agreement, in terms as set out in Sessional Paper No. Cmd. 44 of 1957, with Malayan Airways Limited, a company to be reconstituted as a public limited liability company registered in Singapore, for the maintenance and continued efficient operation of air services within and between the territories of Malaya, Singapore and Northern Borneo; and approves the purchase by the Government of Singapore, from the surplus funds of the Colony, of a proportion to the value of $500,000, of the share capital of the Company.

It is with a feeling of happy relief, Mr Speaker, that I have arrived at this motion in the Assembly. It fulfils my promise given last July that the Assembly should have an opportunity of debating matters connected with this agreement. It also concludes a most exacting and exhaustive period of work. The first file on this was opened at the beginning of 1954 and since the middle of 1955 we have been in frequent and continuous study of the problems involved in this agreement and in the very lengthy discussions which have been necessary in order to bring it to a satisfactory conclusion.

The agreement as tabled is substantially final and correctly represents the joint intentions of the Governments of the Federation of Malaya and of Singapore. It is still subject to drafting amendments. I would have wished to give the opportunity to the House for a longer period to study before this debate, but last Saturday was the earliest possible date for tabling and today is the latest practicable day for taking the debate if we are to complete all the necessary matters connected with the agreement before the end of the last extension of the agreement. And I must ask hon. Members to note that we cannot accept any amendments to the terms of the agreement. The Government has a constitutional responsibility for negotiating and signing agreements of this sort. We cannot shirk that responsibility or shove it off on to the House as a whole.

I do not, however, expect any amendment to be moved. The agreement is a sound one. It reconciles the divergent interests of all concerned and it undoubtedly serves all concerned in the best way possible in the practical circumstances.

I must also ask Members of the House, Sir, to note that this agreement covers only a part of the future operations of Malayan Airways. There is with us a complementary agreement which will be signed between the three Borneo territories of the one part and Malayan Airways of the other part. These two agreements are fully interlocking, complementary, interdependent, and they will together provide the firm basis on which Malayan Airways will be able to operate aviation services throughout the whole Malaya-Borneo area.

This agreement is particularly satisfactory, Mr Speaker, because it is an example of international co-operation on the best social principles. We have all been saddened no doubt in recent years by the unhappy spectacle of nations selfishly and greedily seeking what they consider to be their national interests at the expense of other nations. That selfish and greedy conduct of nations has in the past plunged the world into the tragic futility of war and may do so again with horrible results for us all. Here we have a reversal of that unhappy situation. We have five territories coming together and making an agreement which fully embodies the principle that the good of each is best served to the mutual good of all. It is a most happy augury that the Government of the Federation should, at the outset of its period of independence, have so fully accepted and carried out this principle; and that Singapore, with self-government in hand, should have gone along as well. It is a model which the greater Powers of the world might very well follow.

From our Singapore point of view, this agreement matches our historic function and duty of being a centre of communications and services for this part of the world, and indeed for the whole world. The five territories concerned will all benefit from having a strong, economically sound airline linking them efficiently. They will derive far greater benefits from that than they could have derived from any policy of isolationism.

I will deal briefly with the economic aspects of the agreement when I come to the end of my motion, Sir. But I would point out here that for sound investment the scale of operations of an airline must match the capital invested. If you have airplanes idle on the ground when they could be fruitfully carrying passengers and freight in the air, you are suffering a dead loss; and there is every hope that under this agreement the scale of operations of Malayan Airways will be such as to match the fixed capital employed, because we have these five territories working in real partnership together with Malayan Airways as their common servants.

And I should like to pay a high tribute to the Hon. Mr Ong Yoke Lin, who at the time of the major negotiations of this agreement was the Minister for Transport in the Federation. His negotiating skill, his grasp of principle, his statesmanlike leadership played a vital part in securing the general adherence of all concerned to this agreement. We owe him a great debt.

I do not think, Mr Speaker, I need go through this agreement clause by clause. If there is any clause I do not refer to which hon. Members would like me to explain, I shall be glad to do so in reply; but I think I ought to draw attention to a few clauses, particularly number 8. Number 8 bears the appearance of a subsidy clause but, as far as Singapore is concerned, it is an appearance rather than a reality. By international custom, international flights get their aviation spirit free of tax and, consequently, Malayan Airways will, under this clause, receive nothing more than all other operators through Singapore also receive. Similarly, as regards the freedom from duties on spare parts and engines and that kind of thing, Singapore is of course a free port so that, as far as Singapore goes, this is a dead-letter clause.

The next clause - of very great importance - is clause number 15. It deserves the closest attention of the House. In clause 15 (1) we provide that Malayan Airways shall have exclusive rights on the services in the First Schedule and on additions thereto during seven years, that is the first seven years of the 10-year franchise. And in 15 (2) we provide that Malayan Airways shall, for the remainder of the term of the agreement, a further three years, be entitled to operate all the services which it was operating at the end of the first seven years.

Simultaneously, the Federation and Borneo safeguard their special interests by making provision for the possible sharing of additional services between Malayan Airways and Borneo Airways for Borneo, and between Malayan Airways and an airline for Malaya during the last three years of the agreement.

This clause, in short, provides transitional possibilities if some transition is necessary during the latter years of the franchise. It is a difficult clause to summarise and indeed a difficult clause to understand. It involves both the technical complexities of the law and the technical complexities of civil aviation practice, and the combination of all these complexities produces a sort of verbal algebra which personally takes me a great deal of time to make sense of. If hon. Members want me to make it clear no doubt they will say so and I will try to clear up their minds in my reply to the debate.

This clause does illustrate the difficulty of putting into readily comprehensible and not too unwieldy language an agreement which concerns different territories with to some extent different special needs. We had envisaged the writing of an agreement which would have covered all the five territories of Malaya and Borneo on the one part and the Malayan Airways on the other part, but when we came to writing it down it became completely unwieldy and it was decided that there should be a separate Borneo agreement which would be complementary, as I have already stated.

So much for clause 15. Clause 16 is just worth a mention, Mr Speaker. It links up with clause 5 and it provides the basis for a potential expansion of Malayan Airways on to new overseas routes.

Now we can pass to clause 18, I think, Mr Speaker, and this is one to which the House will assuredly give very close attention. We are all agreed, I am sure, on the essential need that our local citizens should be able both to qualify themselves and to exercise their qualifications in positions of responsibility and authority and leadership; in short that Malayan Airways should be truly Malayan as well as fully efficient; and this clause provides the means to attain that objective. Careful thought and planning will be necessary in this connection since at present the local staff, excluding the air hostesses, form a little under 25 per cent of the air crews and a little under 50 per cent of the qualified engineers. There will inevitably be a period of years during which expatriate staff must be retained in employment. I do not propose to prejudice the work of the new Malayan Airways Board, nor of our Government directors on the Board, by a discussion of details or by acrimonious references to past history. I have full confidence that the new Malayan Airways will be wise and just and practical in dealing with both local and expatriate staff. If at present any member of Malayan Airways' staff has feelings of doubt as to his future, I am sure that those doubts will vanish as the new Malayan Airways Board develops its policies. In this connection the close links which will henceforth exist between our airline and two great international airlines offer marked advantages in staffing matters.

Clause 19 will also no doubt receive the close attention of hon. Members. Nothing is of greater importance to Singapore than that the development of our economy should not be obstructed by trade disputes. This clause provides for conciliation and discussion by which, properly used, trade disputes can be avoided, and I have full confidence again that in this matter the Board will act with practical wisdom for the good of all concerned.

Hon. Members will no doubt particularly welcome 19 (c) which envisages that the staff organisations will not concern themselves solely with their terms of employment and conditions of employment, but will also play their part in matters of the efficiency of the services which they help to provide for the general good of the five territories.

In regard to both these clauses, hon. Members will, I am sure, bear in mind that there will be two Government directors on the Board and that they will be well able to represent the best interests of Singapore and of the Federation, and of their citizens, in all matters.

Clause 23 remains for a brief mention, Mr Speaker. It is important because it enshrines the very valuable principle of continuing co-operation between the two Malayan Governments. Co-operation is a practical matter of great importance.

I do not think I need deal further now with the agreement but it does remain for me to deal with the question of the Government's purchase of part of the share capital of Malayan Airways.

Mr Speaker: I suggest this is an appropriate time to suspend?

Mr Francis Thomas: If you wish to, Sir.

Mr Speaker: I shall take the Chair again at half-past two.

Sitting accordingly suspended at 12.13 p.m. to 2.30 p.m. Sitting resumed at 2.30 p.m.

[Mr SPEAKER in the Chair]

Consideration of motion resumed.

Mr Francis Thomas: Mr Speaker, Sir, I have done my best to deal with the major points in the agreement. I must now deal with the last part of my motion which concerns the investment of $500,000 from the surplus funds of Singapore in the reconstructed public Malayan Airways.

I think I had better start by giving a simple account of what is actually going to happen over the capital of Malayan Airways. The existing issued share capital amounts to $2� million made up of 250,000 shares of $10 each. 550,000 new shares are to be issued, thus making a total capital of $8 million: that is, 800,000 shares of $10 each. This new share issue will be distributed amongst the existing shareholders in appropriate proportions according to their holdings. Thereafter, the Government of Singapore will buy 50,000 shares. The Government of the Federation of Malaya will do the same and so acting jointly will the three Borneo Governments. There will thus be a total holding of $l� million held by the three Governments. Just over $4� million worth of shares will be bought by QANTAS/BOAC and just under $2� million will be offered to the public of Malaya and Borneo. Simultaneously, Malayan Airways will be transformed into a public limited liability company.

The effect of these transactions deserves the attention of the House. It is best illustrated by considering the profits reaped by a single $10 share. These will amount altogether to $22 made up of $11.40 from past profits, formerly allocated to Reserve, and $10.60 from appreciation of fixed assets. In short, a $10 share-based on an accountant's valuation - now has a market value of $32. From the point of view of the shareholders, that is no doubt a very happy situation but I think I had better make a few comments on it in order that Members of the House may see the situation in a more precise perspective. I should not like Members of the House to form the impression that by putting in $500,000 into the new Malayan Airways, we can expect to reap profits on that scale and to take them out of Malayan Airways and use them in some way to supplement the general revenue of the Colony.

Let us first examine the $11.40 which comes from profits formerly allocated to Reserve. The management of Malayan Airways has consistently followed the very wise and very desirable policy of ploughing back a large proportion of profits into the industry. The result has been a relatively low rate of annual dividend. On capital actually invested, as distinct from the original capital, dividends have averaged only 5 per cent before tax. Shareholders who have forgone larger dividends in the past are now drawing in a lump sum what they have forgone in the past and if we add together the dividends actually distributed plus the lump sum which is now being drawn in respect of dividends forgone in the past, we find that we get an average annual return on the capital invested of about, I think, 14.2 per cent. If hon. Members are tempted to deduce from this that we ought to invest all our money in this sort of enterprise because we are getting a very high rate of profit, they ought to think again. This rate of profit of 14 per cent is not a very high rate for a risk-bearing enterprise and an airline is emphatically a risk-bearing enterprise. One single crashed aeroplane can wipe out its profits. There is no salvage from a crashed aeroplane; there is a dead loss of capital. Moreover, if you have an accident or accidents, you also suffer a loss of public confidence and a loss of goodwill amongst the travelling public and that will be reflected in a lasting loss of revenue. Now, thanks to the skill and reliability of its staff, Malayan Airways has a high - I can say an extraordinarily high-record for safety and for punctuality. I do not think that any other airline in the world has a better record. Malayan Airways has a 100 per cent safety record and about 98 to 99 per cent record for regularity of services. Over ten years of operation, during which it has carried some 1,040,000 passengers and it has operated some 159,000 revenue hours, Malayan Airways has never killed a passenger or lost an aeroplane. That remarkable record of safe flying is reflected in the fact that reserves have been built up and that they have not been wiped out through disastrous accidents.

Now to provide for future re-equipment, it will continue to be necessary for Malayan Airways to put aside large sums to Reserve. Consequently, it will be necessary for them to seek to operate at a satisfactory rate of profit. Every effort must be made to ensure that the future operations of Malayan Airways are as satisfactory in regard to punctuality, safety, efficiency and financial return as their past operations have been. So much for the reserve aspect of the gain on the shares.

The other aspect is the appreciation of fixed assets, and, of course, I need hardly point out that all fixed assets inevitably increase in their money value on the grounds of what the hon. Mr Sutherland was saying just now : -that there is a world-wide creeping inflation: as the money gets smaller, so the value of any assets in terms of the smaller money gets bigger. But the Malayan dollar has probably suffered less inflation than many other currencies and I would not like to guess what the element of inflation is in this appreciation of fixed assets; I do not think we need attach too much importance to it.

A much more significant factor is the eleven Dakotas which belong to Malayan Airways. Although the Dakota is old and in a sense obsolescent, it has up till now had a high market value. The Dakota is a very suitable aeroplane for the sort of operations that Malayan Airways has conducted and as those operations are fairly widespread, naturally it has fairly high value in the world market. But we must remember this, that insofar as appreciation of fixed assets accounts for profits in this case, those profits are a windfall which cannot be expected to recur. It is possible, of course, that they may recur; there may be a favourable world market at some future date for the aircraft which may be owned by Malayan Airways, but it is not a thing on which anybody can count, or which you can take into your expectations or your planning. It is purely in the nature of a windfall.

So much for the past profitability of Malayan Airways. We cannot in this matter attempt to predict the future profitability on the basis of the past. I am not going to attempt to guess what the future profitability may be. There are a great many factors which, in some cases, are necessarily unknown factors, in the sense that we cannot predict or control them. They operate by causes lying outside our own country.

Direct profitability is not, however, the criterion by which we should judge our proposed investment in Malaya Airways. We are concerned not with making profits but with providing services. Our aim is set out in the second "Whereas" in the Agreement:

"... it is the desire of the Governments to continue to provide for safe, economic and efficient air transport services;".

Such services are of the greatest importance not only for Singapore but also for the Federation and for the three Borneo territories - in fact, for all the Government partners who are now undertaking this new aviation development. Now, if we are going to maintain those efficient air services which are so important, there will necessarily have to be a large capital investment because the aviation world is an intensely competitive one. We must have aeroplanes that fully match the needs and expectations of the travelling public and aeroplanes of that sort necessarily cost money.

Now, it is very proper that we should aim and the new Malayan Airways should aim to provide all or as much as possible of the capital required out of profits. That can only happen if the rate of profit is reasonably high and if there is thoroughly safe flying to make sure that there are no accidents to wipe out profits which have been accumulated. If Malayan Airways or any other airline cannot find its capital from its own profits, then it will necessarily have to find the capital elsewhere: that is to say, either in the private market, the ordinary money market or from Government support of one kind or another. Now, the chances of getting large scale capital investment in an airline are not, on the world picture, very good. I have got here some world figures of airline profit or loss expressed as a percentage of turnover. In 1951, over the whole world picture, the loss was 1.9 per cent; in 1952, it was 3.6 per cent; in 1953, it was 1.3 per cent; in 1954, it was .4 per cent. Over all those four years, there was a loss - in some cases, a substantial loss. In 1955, the tide turned and there was a profit of 2.4 per cent gross on turnover. 2.4 per cent, I can point out, is hardly a commercial rate of profit. These figures are before payment of fixed interest.

Mr Lee Kuan Yew: On a point of information, Sir. Am I right in assuming that these figures being provided to us are figures of international airlines and not of internal monopoly airlines?

Mr Francis Thomas: They were given to me as world figures taking in all types of airlines together. It will be a mistake to assume that the international airlines are necessarily more in the red than the, what is called, monopoly airlines.

Mr Lee Kuan Yew: Giving a monopoly. There is no competition.

Mr Francis Thomas: It is surely an extraordinary illusion that Malayan Airways has no competition. There is, of course, vigorous competition from road and rail. [Interruption.] The hon. Member is not aware of it. He will only find out by experience that there is in fact real competition between road, rail and air in Singapore and in Malaya and if he doubts it, he can refer to Malayan Railways and get their views about it.

On the question of monopoly operators or local operators - not international ones - making better profits, as he seems to be implying, perhaps I should give him an example. The United States of America is an extremely rich and wealthy country with a very high standard of efficiency and low operational cost - particularly staff cost - and there in that great and free economy, the Congress has found it necessary to pass a Bill (it went to the President last August) authorising Government guarantees up to 90 per cent on loans required by local U.S. operators. If Singapore had had to find from public funds - from the surplus funds of the Government - the capital now needed for Malayan Airways, the burden would have been very considerable indeed. It could only be met by sacrificing other development - schools, hospitals, a unified transport system or flood control or some other equally important work.

Our investment in Malayan Airways is partly an act of partnership. It is an act of partnership between the five Governments concerned and it is also an act of partnership between the commercial operators and the Government cooperating. It is also a guarantee of our firm purpose to do all in our power to maintain our aviation services at the very high level which our status as a world communications centre requires. We must therefore note with satisfaction that the very efficient past management of the operations of Malayan Airways has made it possible to provide for the continued operation of this airline with strong new backing, with every reasonable prospect of economic soundness and of operational efficiency, and without a heavy requirement for investment from public funds. There has been no loss of capital for Singapore in this matter. All the capital accumulated from the past will continue to be employed and to give employment. We are also retaining an excellent working organisation with a very high level of skill, of experience and of public goodwill.

Mr Speaker, Sir, I beg to move.

Mr Chew Swee Kee: I second the motion.

Question proposed.

Mr Lee Kuan Yew: On a point of elucidation, Sir. The Minister for Communications and Works rattled off at some speed the distribution of the $10 million worth of shares. I would be obliged if he could at a slower speed tell us how this $10 million will be distributed.

Mr Francis Thomas: I am afraid I must have indeed spoken too fast, which complaint has often been made to me by those who have to record my spoken words.

The situation is that it is not $10 million but $8 million on revaluation - the capital altogether in the new Malayan Airways. Of this $8 million, after all transactions are completed, QANTAS/BOAC will hold just over $4 million. The five Governments (the Federation of Malaya, Singapore and the three Borneo territories) will each hold $500,000 making a total of $1� million; and the remainder which is just under $2� million will be offered to the public of Malaya and Borneo.

Mr Lee Kuan Yew: On a further point of elucidation, Sir. What about the present capital of $2� million of Malayan Airways?

Mr Francis Thomas: I think, Mr Speaker, Sir, I had better read very slowly what I have already read very carefully once. I think the hon. Member must have not quite heard what I was saying. There is an existing issued share capital of $2� million made up of 250,000 shares of $10 each. New shares are being issued - 550,000 new shares - which make up a total of 800.000 shares still at $10 each, thus making a total capital of $8 million. This new share issue will, in the first instance, be distributed amongst the existing shareholders who will then in their capacity as owners sell them out to those who wish to buy them.

Mr Lee Kuan Yew: Could we be informed of the financial operations by which the $2� million worth of shares in the existing Malayan Airways will be converted into $4 million or $5 million worth of shares in the new Malayan Airways? How does that come about?

Mr Francis Thomas: I think the hon. Member is taking me to a level of commercial practice where my approach is timid like that of a rabbit on meeting a boa-constrictor. I am not sure that I could explain in detail precisely how this operates under the company law and commercial practice. As I understand it, you create 550,000 new bits of paper, each entitled "$10 share", and these are distributed amongst various shareholders in proportion to their existing holdings. If I hold one quarter, then I have o get one quarter of the new issue; and then I shall have a claim on the actual property of the airline in relation to the shares I hold; so that its break-up or distribution value would be on that basis. But I am afraid that I have not expected to be taken into this type of company practice.

Mr Lee Kuan Yew: Since we do not propose to be rabbits in the face of boa-constrictors, could we ask the Minister for Communications and Works to table a memorandum or a White Paper giving all these essential facts before we debate this matter?

Mr Francis Thomas: Surely, the hon. Member will appreciate that this has nothing whatever to do with this Assembly. It is purely a transaction between commercial shareholders who are making a normal share transaction in the ordinary way. This Assembly has nothing to do with it except insofar as, by not altering the company laws, this Assembly gives sanction to whatever they do. It is not a matter in which this Assembly should interfere in any way. All that we have to say is that we approve the Government proposals to acquire a holding in the newly reorganised and reconstituted public limited liability company.

Mr Lee Kuan Yew: We are not quite such rabbits as to believe that $500,000 worth of Government funds is not our business. It is our business and we want to know just what we are buying and why we are giving this monopoly away on these terms.

Mr Francis Thomas: Sir, it is still elucidation. I take it?

Mr Speaker: It is still elucidation.

Mr Francis Thomas: Sir, what we are buying is 1/16th of the new Malayan Airways.

2:54 p.m.

Mr Lee Kuan Yew: The Minister for Communications and Works had hoped to take the sting out of our criticism because very little time had been given to the Opposition to study what is a very important agreement offered by the two Governments to a private limited company.

The first thing he has not explained is: why did the Government give BOAC and QANTAS - two public corporations of the British and Australian Governments - 51 per cent of our national airline's controlling share? The way he presented his argument this morning indicated that it was a case of the Government not having sufficient funds to acquire 51 per cent of the shares. Therefore it decided to give BOAC/QANTAS 51 per cent, sell by public auction or even by public subscriptions $24, million worth of shares and the three Governments together raise $14 million worth of shares. Now I would like to ask him and have a categorical answer, yes or no: was it or was it not a demand of QANTAS and BOAC or Malayan Airways that they should have a controlling interest in the company? That is the first point. If they did not want the controlling interest, why were they given a controlling interest and if they wanted the controlling interest, what was the reason for it?

Mr Speaker, Sir, we are now presented with a fait accompli. Last year when we raised this question of the renewal of the franchise we were informed that there would be a full opportunity for debate of all the terms and conditions. Now we are told, "Here is the agreement. We are not obliged to tell it to the Assembly but we are doing it as a matter of courtesy." We are first of all informed that all this is the good work of the Minister of Transport of the Federation and a large bouquet was handed to him. Well, Sir, the bouquet may well have been deserved but I have a feeling that this is another instance where the Singapore Government has decided to hide behind the Federation sarong.

Mr Speaker, Sir, the Minister took us through several clauses in the proposed agreement rather rapidly this morning. The first question I would like to ask him is: why is there no provision in the proposed agreement as to what is to happen if the agreement is not renewed at the end of the franchise? Clause 21 reads:

"(1) Not later than the 30th day of October, 1964, the parties shall consult together to consider what further arrangements, if any, should be made at the end of the period of this Agreement.

(2) Each party shall, as soon as possible after such consultation and, in any case, not later than the 30th day of October, 1966, inform the other party whether or not it desires-

(a) to continue this Agreement for a further term; or

(b) to negotiate a fresh agreement to take effect on the termination of this Agreement."

This is the typical case of an agreement to agree and is no agreement whatsoever. What happens if there is no agreement? Does the company just wind up and sell its assets? Or we going to be confronted with a situation where if we want to nationalise the airline, we shall have to pay a terrific price for it, just as Malayan Airways by very skilful accounting had been able to increase its share value from a nominal $10 to $32? Now, from the $10 which we are going to pay for a share in 1957, how many dollars is it going to be if we want to buy over this company and run it as a national airline in 1964 or 1966? That, I should imagine, is one of the most important factors. The Government, for better or for worse, have decided not to have a controlling voice in this airline. The Government have left the matter in abeyance as to what is to happen at the end of this period. Surely, it must have a policy and it should tell us what that policy is.

Now, Sir, why were only BOAC and QANTAS brought into it? If it is a question of Commonwealth airlines, why was not Air India invited to participate in the development of our internal air services? Why two "white" Governments in close collaboration over the Far Eastern routes? I have a particular antipathy towards monopolies in which foreign or Commonwealth Governments will be able indirectly to run our essential services. It may well be that airlines are difficult things to run. They are risky; they may incur terrific losses. We have been regaled with a whole series of figures as to how international airlines have been losing money. But this is one airline that has been making money and it is more than likely that it will continue to make money for no other reason than that there is no other internal air service to be allowed in Singapore, the Federation and the Borneo territories. Unless something unexpected happens to the air-travelling habits of the people of this area, it is likely that the air traffic is going to increase and profits also will increase.

Now, Sir, we were told that clause 18 is a progressive clause. It sets the duty of this company to Malayanise, train local personnel as air crews and ground maintenance staff. I would like to read a few of the operative words in clause 18. It says here:

"The Company undertakes that provision shall be made for training and promotion schemes to ensure the fullest practicable employment and advancement of locally domiciled staff . . . ".

What does "locally domiciled staff" mean? We know that all kinds of people come here, live here two years and evince an intention to reside here longer than they expected when they first arrived here because they found conditions for them very satisfactory. Are they locally domiciled staff? I always believed that Malayanisation is a process by which we displace expatriates with local citizens and subjects, not just locally domiciled staff. I may come from Timbuctu and after two years, I say, "Well, I like Singapore and I like to be domiciled here." So I would come within this phrase of "locally domiciled staff". I am quite sure that that is not the intention of the Minister for Transport.

Clause 18 goes on to say in the next sentence:

". . . recruiting, training and promotion air crews and certificated ground maintenance staff . . .". What about the administration and the managerial side? We know that it is always more difficult to Malayanise the technical side because it takes a longer time training technicians and technocrats than to train administrators. We know also that large numbers of expatriates have arrived to head the various departments in the new Malayan Airways. It may well be that, at the beginning, experienced administrative personnel are necessary to get the machinery going but why is there in clause 18 no provision for the training and the eventual taking over of these jobs by local men?

Now, Sir, this is an agreement which is full of loopholes. It says in clause 4 "fares and rates" and variations thereof. This is a key clause because if the service is to run efficiently, it does not only mean that there should be no crashes of planes and that planes should arrive on schedule but that it should be run cheaply and it is acknowledged amongst all air operators that Malayan Airways have some of the highest fares in South East Asia. It says here:

"The Company shall charge for the carriage of passengers and cargo such fares and rates as may from time to time be approved by the Ministers. The Company may submit to the Ministers proposals to vary fares and rates, together with such information in support thereof as may be required by the Ministers and the Ministers' approval of such proposals shall not be withheld without good cause being shown."

Now, who is to decide whether it is "good cause" or not? Clause 3 says that if there is any disagreement, it goes to arbitration. Clause 22 says that if there is arbitration, the two Governments shall appoint one arbitrator and the Company shall appoint the other arbitrator, and it says that if there is no agreement between the arbitrators, there shall be an umpire:

"... in case of disagreement between the arbitrators so appointed and so far only as they disagree, to their umpire to be appointed by them in writing before they enter on the business of the reference."

Government Ministers disagree with the company; Ministers appoint one arbitrator, the company appoints one arbitrator. Two arbitrators disagree and it goes to one umpire. What if they cannot agree on an umpire? Then what happens? But surely, Mr Speaker, Sir, this business of fares is a matter which cannot be left just to the company and if it is not agreed to, to an umpire!

The Government has rightly said that they are interested in this as a public service and not as a commercial concern. Now, Sir, I am quite sure that QANTAS/BOAC are interested in this as a profit-making concern and not as a public service. We do not expect the Australian Government or the British Government to do a public service for us. What I would like to know is this: if they consider it sufficiently profit making, why is the Government only taking a token share of $500,000? Is it suggested that if the three Governments between them or the two Governments - the Federation of Malaya and Singapore - were to raise slightly more than $4 million, the two Governments will go bankrupt? That is the explanation which we must have before we give our approval or before we even take note of this agreement.

Now, Sir, I do not appreciate the argument that because we are not interested in running it as a profit-making concern we should therefore leave the profit making to two public corporations which are profit-making concerns. I seriously suggest to the Minister for Communications and Works that it must be written into this agreement that the right to appoint directors should not vest in proportion to the number of shares held. It was indicated to us this morning, although it does not say so anywhere in the agreement, that the Singapore Government will appoint one director and the Federation Government will appoint the other director. We have not been told how many directors there will be on this company and how they will be appointed. By the ordinary operation of most of the rules and memoranda of companies, they are appointed on the basis of the number of shares held in a particular company. I do not see how two Governments can give a monopoly to a public corporation not knowing how many directors there are going to be and what voice they are going to have in that directorate. The only provision that is laid down for directors is in clause 12 which says:

"... all the Directors of the Company including the Chairman shall be British subjects, British protected persons or citizens of the Federation of Malaya;".

How many there are going to be and what weight the Singapore and the Federation directors are going to have on this board of directors is another matter altogether.

Finally, I would like to ask the Minister for Communications and Works why it is he who has moved this motion when, in fact, he will not sign the agreement at all. This agreement will be signed, according to page 9 of the White Paper, by the Minister of Transport on behalf of the Government of the Federation of Malaya in the presence of: ......and by the Chief Secretary for and on behalf of the Government of the Colony of Singapore in the presence of: ..... I think it is significant, although there may be a good constitutional explanation for it, that it is an agreement to be signed by the Chief Secretary for and on behalf of the Government of the Colony of Singapore.

3.10 p.m.

Mr Francis Thomas: Well, Sir, that is a nice easy passage for this happy agreement. We have had a very lengthy speech from the Member for Tanjong Pagar. Most of it was prepared and was unnecessary in the light of explanations already given: but since he has asked for them, I will try and give those explanations again. And the rest of it, there was not much in it. I will take his points as I got them down in my notes.

"Why not enough time?" Well, I have dealt with that one. We had just got to the point during this week that I received the Borneo agreement; and that agreement necessarily had to be assured-

Mr Lee Kuan Yew: On a point of elucidation, Sir.

Mr Speaker: If the Minister will give way.

Mr Francis Thomas resumed his seat.

Mr Lee Kuan Yew: I hesitated to put forward this information in case the Minister explained that he knew nothing about it but will the Minister confirm that, in fact, in the case of the Borneo Airways, the three Governments will hold 51 per cent of the shares?

Mr Francis Thomas: This is really a matter concerning the Borneo Government.

Mr Lee Kuan Yew: That is not the point. It is a matter of principle.

Mr Francis Thomas: I do not think I can safely deal with what the Borneo Governments are doing in their subsidiary airline which is again an airline linked with the BOAC and which they regard as a very vital airline for their own internal purposes. I could find out from the Borneo Governments whether they object to the hon. Member having the information he asked for but I do not think that I should try to give him the precise nature of the rather complicated proceedings between the Borneo Governments and the other interests.

He asked, "Why a monopoly?" Air services must be a monopoly if they are going to pay. It is possible to increase the number of taxis on the street indefinitely, but an aeroplane must fly at a proper loading. If the load is insufficient, then it flies at a loss. You cannot expect to have capital invested in airlines unless you give the investors at least a reasonable chance of recovering their costs. I have indicated that although the profits of Malayan Airways have been satisfactory in the past, there is no certainty of their continuing at that level in the future. On the world picture, they have done extremely well but you cannot gamble on the fortunate past.

He made a point about not enough public funds. Well, the simple fact is there: We are just hard up for money. We could invest our money in Malayan Airways if we wanted to, but of course if Singapore had wished to have a controlling interest, then obviously the other countries would have said, "Well,, we are not going to have our airlines at the mercy of the Singapore Government. It has to be a partnership." It would have been necessary to carry out a joint purchase, presumably in equal proportions, by all the Governments holding an equal proportion of the capital. It is a most difficult manoeuvre and would certainly be doomed to failure if it were to be tried at all.

He wanted a categorical answer to the question why BOAC/QANTAS wanted a controlling interest. Well, the obvious answer is that they wanted to control the thing. The obvious danger to all people likely to invest in this country is that ill-judged and inexperienced people may get into power and that they may then carry out ill-judged and inexperienced policies. I do not think you will get anybody to put capital into Singapore in partnership with the Government unless they have a reasonable guarantee that their voice will be heard and that they will not be pushed around in an ill-judged way as a result of political pressures.

I forget if I have dealt fully with the question of not enough time. I think I was interrupted at that stage. The simple fact is, of course, that we had to spend a good deal of time in getting this agreement up to tabling stage. There had to be a completion; we had to wait for the Borneo Governments to complete their parallel complementary agreement and the consequence has been that we are rather pushed for time.

Now, a rather curious question, of what happens at the end of the franchise? The hon. Member read clause 21 and I do not think I need read it again. It says perfectly plainly "what further arrangements, if any, should be made at the end of the period of this agreement." The only thing that emerged from his question was an apparent assumption on his part that this Government would still be in power in 1967. At least he asks what our policy would be and what we intended to do in 1967. The fact of the matter, of course, is that we have provided a very adequate agreement with, as I pointed out in my original remarks, a transitional clause for a transitional period of three years - the last three out of the ten years of the franchise - and there is no point in trying to go further and to presume that we are going to do this or that at the end of ten years. We have not got that amount of foresight to see the future; nor has anybody else.

"Why was not Air India invited to participate?" The hon. Member objected to what he called "whites", I think. I can only say that we do not-at least I certainly do not - when conducting negotiations, work from any racialist or racist approach. Air India is an efficiently run and a highly competitive international airline and if they had approached us, we would have considered it. In fact, they did not, and we are perfectly satisfied with QANTAS/BOAC as an effective partnership on a larger scale, with more advantages to offer to us. There is no reason whatever to suppose that Air India would have been able to give us any better or more helpful terms than what we have got from QANTAS/BOAC.

Mr Lee Kuan Yew: All your Ministers prefer to travel by Air India.

Mr Francis Thomas: As to that, I cannot say. There are sabotage problems.

He asked, "What is locally domiciled staff?" I am afraid that is a very thin one again in respect of clause 18. Obviously, a person locally domiciled in Singapore is not locally domiciled in Kuala Lumpur nor is he locally domiciled in Kuching, Brunei or Jesselton and you have got to find some phrase which adequately represents the fact that we are dealing with five different territories, and not with one. We have provided in clause 12 what is much more significant:

"The restriction in favour of British subjects . . . shall be extended to include Singapore citizens when Singapore citizenship has been established by legislation."

And the company is bound to employ them. Eighty per centum under that category should provide adequately for the point which the hon. Member has in mind.

"Malayan Airways' fares are the highest in South-East Asia." I have a great deal of information here, Mr Speaker, but it will take me a little time to find the exact references I want. Now, here are the average fares in Malayan cents per passenger mile for some of the airlines operating in this part of the world: Laos, Cambodia and Vietnam 39.5 cents per passenger mile. Indonesia 39.6 cents per passenger mile. Malayan Airways 28.1 cents per passenger mile for what they call their standard service, I think and 21.1 cents per passenger mile for their tourist services.

The tourist services are the more accurately comparable with the standard of service provided in the other airlines: Thailand 20.9 cents per passenger mile. Burma 20.6 cents per passenger mile. India 15.4 cents per passenger mile.

Now, on that table, there are two airlines with a very much higher rate indeed, not very far off double, that is, Indonesia and Laos, Cambodia and Vietnam: then there are more which are substantially the same - Thailand and Burma running just level with Malayan Airways; then there is India down below five or six cents cheaper per passenger mile. Of course, there is a difference in the standard of living in these territories and in the standard of wage rates. I think it is fair to say that probably the passengers in Malayan Airways can (a) well afford these fares and (b) get a better standard of service or a very good standard of service; and that the possibility of keeping the prices down does, of course, depend on the wage rates prevailing in that particular territory. But anyhow there is no ground at all for saying that Malayan Airways' fares are the highest in South-East Asia. That sort of remark should be withdrawn when it is made. These wild allegations should not be made against what is in fact very largely a Malayan-operated concern. From a suggestion that our fares are unreasonably high, it would naturally follow that either the Malayans on the staff are unreasonably inefficient or that their wages are too high.

Mr Lee Kuan Yew: Or their expatriates are getting too much.

Mr Francis Thomas: Another rather empty point: he noted that disputes go to an umpire; first you put up two arbitrators and if they cannot agree, it goes to an umpire. Then he asked, "How if they cannot agree on an umpire?" Well, of course, if he had read the clause with any attention, he would have seen that the arbitrators agree on their umpire in writing before they enter on the business of the reference. If they could not agree on an umpire, we should with draw our arbitrators and find two arbitrators who could agree on an umpire.

"Why is Government taking only a token share in Malayan Airways?" Really, Mr Speaker, I thought half my remarks were directed to that point. Perhaps that is why I said that it was probably a prepared speech which had not been readjusted in the light of what I actually had to say but I do not think that it is necessary to say it all over again. The only way in which we could have found the money would have been by sacrificing development in other directions. Of course, the bottom of the barrel is not empty. There is some money but we have also got a great many calls on our money and we cannot-

Mr Lee Kuan Yew: Find $4 million.

Mr Francis Thomas: - find $4 million without taking $4 million away from something else. It is a simple concept to understand. The hon. Member seems to think that the Government has a bottomless purse from which it can draw out money without ever coming to the end of it.

I think the last point of any significance he made was: why was this motion moved by myself when it is in fact the Chief Secretary who has to sign it? I should point out that international air agreements have a dual aspect. They are partly commercial but they are also diplomatic or foreign affairs types of agreements and in this case the foreign affairs aspect predominates to the extent that it is appropriate that the Minister who has to concern himself with foreign affairs has to sign the agreement. That is why although I am the unhappy Minister who has had to do all the work, the pleasure of signing will fall to my friend and colleague the Chief Secretary.

Mr Lee Kuan Yew: Your Federation counterpart is signing.

Mr Francis Thomas: My Federation counterpart is in an independent territory. We are not yet independent.

Question put, and agreed to.

Resolved,

That this Assembly takes note that the Government of Singapore, in conjunction with the Government of the Federation of Malaya, proposes to conclude an agreement, in terms as set out in Sessional Paper No. Cmd. 44 of 1957, with Malayan Airways Limited, a company to be reconstituted as a public limited liability company registered in Singapore, for the maintenance and continued efficient operation of air services within and between the territories of Malaya, Singapore and Northern Borneo; and approves the purchase by the Government of Singapore, from the surplus funds of the Colony, of a proportion, to the value of 5500,000, of the share capital of the Company.