PP WASHINGTON
GR .. 360
CYPHER/CAT A
FN FCO 041613Z WAR
CONFIDENTIAL
REF.
19)(21)
NEXT
RE
TO PRIORITY WASHINGTON TELEGRAM NO. 523 OF 4 MA? 74.
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25
HKK 21/12.
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PA
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FOLLOWING TELEGRA NOW REPEATED TO YOU AT REQUEST OF DEPT. MAS RECEIVED FROM HONG KONG TELEGRAM NO. 273 OF 1 MAR LIFO SOUTIE 2 TC HONG KONG AND BCARFE.
YOUR TELNO. 227.
CHOICE OF WIDE BODIED AIRCRAFT BY CATHAY PACIFIC.
WE HAVE BEEN KEEPING IN CLOSE TOUCH WITH BLUCK OVER THIS ISSUE. FOLLOWING FURTHER DISCUSSION ON PRICE WITH BOTH LOCKHEED AND DOUGLAS, CPA'S LATEST CALCULATIONS OF THE NETTED DOWN COST, INCLUDING SPARES ARE
DC 13
TRISTAR
2 AIRCRAFT US DOLLARS 47.62 MILLION US DOLLARS 53.68 MILLION PURCHASE
4 AIRCRAFT US DOLLARS 96.67 MILLION US DOLLARS 103.33 ILLIC PURCHASE
211.14
THE DIFFERENCE IN COST PER AIRCRAFT IS US DOLLARS 3,330,000 FOR A TWO AIRCRAFT PURCHASE AND US DOLLARS 1,664,00 FOR FOUR AIRCRAFT PURCHASE.
2. ON THIS BASIS CPA'S CALCULATIONS ON THE BASIS OF THE INCREASED OPERATING COSTS AND LOWER EARNINGS POTENTIAL OF THE TRISTAN. ARE THAT IT WOULD TAKE 15 YEARS TO RECOUP THE INCREASED CAPITAL COST OF THE DC 13 ON THE BASIS OF A TWO AIRCRAFT PURCHASE AND EIGHT YEARS ON THE BASIS OF A FOUR AIRCRAFT PURCHASE. PURELY !! PRICE ALONE, THEREFORE, "LUCK CONSIDERS THAT THE DEAL NOT FAVOURS LOCKHEED.
3. LUCK CONFINED, HOWEVER, WHAT THE SWIRES AND JOHN BROWNE INDICATED TO THORNTON RA ELY THAT CPA'S MAJOR ORRY CONCERNS LOCKHEED'S FINANCIAL MUSCLE AND, INDEED, THE WHOLE FUTURE OF THE COMPANY, INCLUDING THE TRISTAR PROGRAMME. 11 PARTICULAR, CPA ARE AFRAID THAT LOCKHEED WILL BE EITHER UNABLE OR UN'ILLING TO DEVELOP NEW VERSIONS OF THE TRISTAR IN THE WAY DOUGLAS ARE DEVELOPING THE DC 10, INCLUDING A STRETCHED VERSION TO MEET CATHAY'S REQUIREMENTS ON, SAY, THEIR LONG RUN TO AUSTRALIA. AT THE WORST THEY ARE AFRAID OF THE POSSIBILITY THAT TRISTAR PRODUCTION MIGHT BE PREMATURELY CURTAILED.
4. WE UNDERSTAND THAT LOCKHEEDS ARE NOW DOING THEIR BEST TO DISPEL THIS FEELING AND ARE TALKING ABOUT GUARANTEES. KOCHIAN TELEPHONED BLUCK FROM SAN FRANCISCO YESTERDAY AND HAS PROMISED TO COME TO HONG KONG TOWARDS THE END OF NEXT WEEK TO DISCUSS THE QUESTION OF GUARANTEES IN DETAIL. IN THE MEANTIME CPA ARE KEEPING AN OPEN MIND AND WILL WAIT TO SEE WHAT KOCHIAN HAS TO SAY. 5. YOU WILL UNDERSTAND THAT THE CALCULATIONS IN PARAGRAPHS 1 AND 2 ABOVE WERE GIVEN US IN THE STRICTEST CONFIDENCE AND, IN VIEW OF OUR CLOSE RELATIONS WITH CPA, WE HOPE YOU WILL FEEL ABLE TO RESPECT IT.
MACLEHOUSE
DOUGLAS-HOME
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