Pergau pay-off to BA cost taxpayer pounds 2m (CORRECTED)

CORRECTION (PUBLISHED 12 FEBRUARY 1994) APPENDED TO THIS ARTICLE

BRITISH AIRWAYS was paid pounds 2.1m out of public funds to relinquish a landing slot at Heathrow to Malaysian Airlines as part of the Pergau aid and arms package.

The extra flight from Kuala Lumpur to Heathrow was demanded by the Malaysian government in return for buying British arms. Another condition was pounds 234m in aid for the Pergau dam project. Both were agreed to by Margaret Thatcher, as Prime Minister, when she signed the arms accord with Mahathir Mohamad, her opposite number, in September 1988.

Malaysian Airlines, or MAS, already had six flights a week to Heathrow and wanted a full daily service. MAS could not be persuaded to go to Gatwick, regarded as less of a draw for business travel. With most of the Heathrow slots allocated to BA, pressure was brought to bear on Lord King of Wartnaby, the BA chairman. At the time, BA was a major contributor to Conservative Party funds.

But Lord King, a former senior BA executive said yesterday, was annoyed at the way his company had been used as a bargaining tool by the Government and at first refused to give up one of the valuable Heathrow spaces.

The issue, said the former BA official, went 'all the way to Number 10' with Sir Tim Bell, the public affairs consultant, making representations on behalf of the Malaysians.

Lord Younger, who was Secretary of State for Defence at the time, has told the Independent: 'I remember Mrs Thatcher leaning on Lord King, who didn't like it all.'

The BA chairman, said a source close to the negotiations, 'took a very hard line'. Only after Baroness Thatcher said it was important for UK trade with Malaysia did he give any ground, and then only if BA was compensated. A figure of pounds 2.1m was agreed, with the money coming from the Treasury's contingency reserve.

Alan Williams, Labour MP for Swansea West and a member of the Public Accounts Committee, which is looking into Pergau, said last night the payment to BA was 'another example of the Government's furtive approach to this project, where a sum of over pounds 2m can be concealed from Parliament and public view. It leaves you wondering if there are any more financial skeletons waiting to appear.'

Mr Williams has tabled parliamentary questions on the payment.

It emerged yesterday that the Commons Foreign Affairs Committee, which is also examining Pergau, will take evidence from Douglas Hurd, the Foreign Secretary, on 2 March. He will be followed next day by Baroness Chalker of Wallasey, the overseas development minister. Her evidence could prove embarrassing for the Government since she is known to share the view of her officials that Pergau was a waste of public money.

Controversy has raged about Pergau since it became apparent that overseas aid intended for deserving causes was being used as a sweetener in arms sales. This week, the Government admitted that it originally agreed to the amount of aid being a percentage of arms orders.

Sir Tim Lankester, until recently Lady Chalker's Permanent Secretary at the Overseas Development Administration, has described it as 'an abuse' of the aid system.

A BA spokeswoman said the MAS deal was a confidential matter. 'The seventh MAS frequency from Kuala Lumpur to Heathrow has been operational under a commercial agreement agreed with BA.' She said the negotiations and compensation were 'a normal arrangement where an agreement is reached when there are not equal benefits to both sides'. She would not disclose the terms of the deal: 'BA has commercial agreements with a number of airlines, the details of which are confidential to the parties involved.'

A Treasury spokesman said he could not comment.

CORRECTION

Sir Tim Bell, the chairman of Lowe Bell Communications, has asked us to point out that he did not represent the Malaysian government in talks with No 10 about landing slots at Heathrow airport being transferred in connection with the Pergau dam project.