336. Memorandum From the President’s Assistant for National Security Affairs (Kissinger) to President Nixon 1

SUBJECT

  • Telephone Call From Prime Minister Heath on Rolls-Royce Problem

Prime Minister Heath called Monday, while you were away, to indicate his concern about the financial problems of Rolls Royce which has contracted to produce engines for the Lockheed L–1011 airbus.2 The two firms are currently discussing Rolls Royce’s serious delivery and financial problems. Prime Minister Heath felt that if they couldn’t find a way out of the dilemma that perhaps he and you could work out a solution. He indicated that he might call you back on Wednesday.

At Tab B3 is a memorandum from Deputy Secretary Packard summarizing the problem. In brief:

—Because of technical difficulties, Rolls Royce will be at least six months late in delivering the engines.

—Because the company is already technically in bankruptcy it must be publicly taken over by the British government unless some special action materializes in the next few days.

[Page 1005]

—In the event of receivership action, Rolls Royce would discontinue production of the engines because costs are well in excess of the present fixed price.

—If Rolls Royce cannot meet its contractual obligations to Lockheed and goes into receivership or is taken over by the British government, Lockheed will also most likely face bankruptcy.4

—Bankruptcy would have very serious repercussions for both suppliers and customers of Lockheed. The airline companies, Lockheed’s suppliers, and the banks have invested heavily in the airbus program and can only be repaid if Lockheed delivers the aircraft. Losses to US companies and banks could exceed a billion dollars and affect several hundred thousand jobs.

In discussing this problem with Prime Minister Heath, it is important that you stress that failure of Rolls Royce to deliver engines to Lockheed will cause some very serious problems in the US and that we would hope that he could delay any action or announcement for several weeks to give us a chance to assess the situation and determine whether there are any viable alternatives. The Chairman of Lockheed was in London yesterday and without further discussions with him, we would not be able to make an evaluation as to whether or not the problem can be solved.

Suggested talking points for your conversation with Prime Minister Heath are at Tab A.5

  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 728, Country Files—Europe, United Kingdom, Vol. V. Confidential; Sensitive. Sent for action. A stamped notation on the memorandum reads: “The President has seen.”
  2. February 1. An unknown hand wrote “Call put through” and “shortly after 12 noon” on the memorandum. The President was in St. John, Virgin Islands.
  3. Not printed.
  4. In a February 3 memorandum to Kissinger, Bergsten commented that Heath’s “request boils down to a hint that DOD should increase its subvention to Lockheed, so that Lockheed can increase its payments to Rolls Royce.” (National Archives, Nixon Presidential Materials, NSC Files, Box 728, Country Files—Europe, United Kingdom, Vol. V)
  5. Not printed. According to the President’s Daily Diary, Nixon and Heath spoke on the telephone at 12:18 p.m., February 3. (Ibid., White House Central Files) No record of the conversation was found. In telegram 1006 from London, February 4, Annenberg reported that Heath had summoned him to 10 Downing Street the previous evening to inform him that the British Cabinet had decided that it would not be justified in using public money to subsidize Rolls Royce and was prepared to accept its bankruptcy. The government would, however, preserve the aero-engine capacity of Rolls as a matter of national security. (Ibid., NSC Files, Box 728, Country Files—Europe, United Kingdom, Vol. V) Following a statement of British policy issued on February 4, Rolls Royce declared bankruptcy. In a February 4 message to Nixon, Heath thanked him for an “understanding and constructive approach” during their February 3 conversation. (Ibid., Box 764, Presidential Correspondence, United Kingdom Prime Minister Edward Heath)