CONFIDENTIAL
HONG KONG/SHANGHAI AIR SERVICES : ESSENTIAL FACTS
1.
Services between Hong Kong and Shanghai started in June,
operated by CPA and CAAC, When CPA started to fly to London,
they stopped operating to Shanghai, since under the terms of the
Confidential Memorandum of Understanding (CMU), an airline was
not permitted to operate both on that route and on the trunk
route to London. We therefore suggested to the Chinese that a
subsidiary of CPA, Hong Kong Airways (HKA) should be allowed to
operate in place of CPA; they objected to this arrangement on
the grounds that HKA was undistinguishable from CPA. KKA was
then reconstituted in a different way to weaken its links with
CPA (although it would still lease CPA aircraft) and we formally
designated it to operate on the route. The Chinese, however,
still did not accept HKA. We therefore stopped CAA's service
to Shanghai. Recently, in an effort to settle the problem, we
have granted licences for CAAC to operate from Kumming, Tianjin
and Hangzhou to Hong Kong until 31 March (although they were
entitled to operate these services, we had been withholding this
permission as a bargaining counter). A further round of talks
takes place in Peking in December, at which the Hong Kong
Government will be represented.
2。
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The Chinese have made counter proposals including rights for
CAAC through Hong Kong to London and across the Pacific. There
is little in this for us, but we have told the Chinese that we
are willing to discuss their proposals once the existing agreement
is implemented in full. We would not give them rights Hong Kong/
London (which is technically an internal or cabotage route on
which only UK airlines may fly) and there is little likelihood
that we would give them rights over the Pacific either.
CONFIDENTIAL