CONFIDENTIAL
equipment. It would not be easy to do this in Singapore, given the contraction in storage facilities which will occur as the rundown proceeds. It would look very odd to have a number of crated aircraft in Hong Kong, not in operational use until the Hong Kong Government were ready to pay for them. To bring the aircraft and equipment back to this country would not be particularly sensible, only to ship them out to Hong Kong a year or so later. Any of these courses would require people to maintain the aircraft and equipment in storage. Moreover, they would all cost money, and it is not clear how you envisage these costs would be met. We should be extremely reluctant to assume them in any event, particularly if there were no certainty that the Hong Kong Government would eventually be prepared to take over financial responsibility for the unit.
3. The other obvious course is simply to go ahead and form the flight in Hong Kong in the spring of 1970 and for Defence Votes to bear the costs until the Hong Kong Government were ready to assume responsibility. There are two obvious snags about this course. The first is that, since there is no UK military requirement for this unit in Hong Kong - or at that stage, anywhere else we could not justify the expenditure; the second, which I think I had better put to you quite frankly, is that we suspect that, once this unit were provided for a year at our expense, the incentive to make future provision on the part of the Hong Kong Government might be very much weakened.
4. The reason for proposing that the Hong Kong Government should meet the capital costs of the aircraft is quite simply that, for the next three years or so, there is a very ready market for Hunter aircraft, which will certainly have disappeared by about 1975 which is as long as we could expect the Hunter unit to last. We should there- fore be foregoing real receipts to the Defence budget. Indeed, having looked into this afresh, I am not at all sure that the figure quoted by Whitmore, in his letter of 5th February, was the correct one for the purpose;
some people here hold the view that the correct charge is £300,000. We also seem to have failed to include the cost
which would not of the necessary reconditioning of these aircraft be needed but for there proposed use in Hong Kong and which we believe to be upwards of £50,000. I shall need time to look further into these points, but I thought it right to warm you of them at this stage. However, there is one possible way here in which we might be able to mitigate one of the difficulties which seems to be arising about this whole transaction. If the difficulty about meeting the capital costs is purely a one of presentation, then I think that we may well find it possible to substitute an annual hire charge. I cannot quickly give you a figure.
K
5. I am afraid that the point about running costs does not seem to have any real validity. Given that we have always held that there is no military justification for a unit of this kind in Hong Kong and the lack of facilities in the way of adequate ground environment, we have no plans to deploy fighters to Hong Kong for training or other purposes.
Even if we were to make such detachments, the additional costs would be small, since the bulk of the cost would relate to the normal flying effort of the aircraft, which would not be increased for this purpose. Any extra costs would be pretty marginal in relation to the annual running cost figure of £335,000 which has
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CONFIDENTIAL