TNAG-0643-FCO40-791-Involvement-of-Hong-Kong-in-air-services-agreements-1977 — Page 141

CODE 18.77

Mr Morland

Mr Burrows

MR Morlanw 1511

Refernes.

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Thank you.

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UK/NETHERLANDS AIR SERVICES TALKS (14-15 NOVEMBER)

1.

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You wished to know the outcome of the Air Services talks held over the past two days under Mr Standen's chairmanship. Mr Standen effectively raised the price of allowing KLM to operate its once a week service to Hong Kong by a wide body aircraft rather than a DC 8 by $250,000 per annum and KIM were pleased to pay that amount for the privelege. We also agreed to certain minor amendments to the route schedule and undertook to consider looking at the route schedules again in a couple of years' time in the light of our experiences with the present route schedule.

2. At first I got the impression that the Department of Trade were adopting a rather "dog in the manger" attitude towards the KLM request. They did not deny that any British airways loss to the Dutch following the introduction of a wide body would be negligible. They accepted that the Hong Kong authorities were keen to see the introduction of another wide body service and agreed that they did not have much to lose from an amendment to the route schedule. There seemed however to be an idée-fixe about giving something for nothing and at one stage it seemed as if Mr Standen was prepared to allow the talks to break down rather than accept the terms of the commercial arrangement which British airways found totally acceptable. However, in the course of negotiation it became quite obvious that KIM were prepared to go much further than they had done with British Airways in order to get a wide body on to the route and when possible increases in passenger and cargo loads were discussed it was quite clear that KIM were planning to make a lot of money on the route (conservatively estimated at something like 5 million per annum). So when Mr Standen introduced the idea of a fixed payment plus a percentage of the increase in KLM's earnings for the privelege of operating a wide body KLM were quite amenable although Mr Schreurs (leader of the delegation) seemed less willing to accommodate our demands.

3. In the end it was agreed that KLM would pay British airways a sum fixed at £100,000 for the operating year 1978-79, £75,000 for the operating year 79-80, and £50,000 for the operating year 80-81, plus 15% of their, earnings over a baseline of 8,000 passengers per annum and 64000 tons of cargo per annum.

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