TNAG-0867-FCO40-1077-Air-services-between-China--Hong-Kong-and-the-UK-1979 — Page 128

GRS 330

CONFIDE

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HKK184/2

RELEINLO

FM HONG KONG 290910Z MAR

DESKBY 291200Z

TO IMMEDIATE F.C.O.

DESK

INDEX

TELEGRAM NUMBER 424 OF 29 MARCH, 1979

INFO IMMEDIATE PEKING AND ROUTINE HONG KONG GOVERNMENT OFFICE LONDON

HONGAID TELNO 351: AIR SERVICES AGREEMENT.

1. WE HAVE NOT SEEN FCO TELNO 20 SAVING, BUT ASSUME IT IS THE CONFIRMATION COPY OF FCO UNNUMBERED TELEGRAM OF 21 MARCH, WHICH WAS RECEIVED HERE VIA SKYNET.

2. AS WE HAVE PREVIOUSLY STATED, CPA ARE VERY CONCERNED AT THE RISK, ALSEIT SLIGHT, BOTH TO THEIR TAIWAN EARNINGS WHICH ARE OF THE ORDER OF HK DOLLARS 500 MILLION AND REPRESENT 27 PER CENT OF THEIR TOTAL REVENUE, AND INDIRECTLY TO THEIR JAPAN AND OTHER EARNINGS IF THEY HAVE TO FLY TO THE EAST OF TAIWAN,

3. THE LATTER COULD BE MET IF THE ASA COULD INCLUDE RIGHTS FOR

THEM TO OVERFLY CHINA.

4. THE FORMER WOULD INVOLVE LOSSES IN MONEY TERMS ROUGHLY EQUIVALENT

TO THEIR ANNUAL PROFIT, AS WELL AS UNEMPLOYED AIRCRAFT AND STAFF FOR WHAT COULD BE A PROTRACTED PERIOD. IN THE CIRCUMSTANCES, THE HELP THAT CPA WOULD REQUIRE (PARAGRAPH 2 OF YOUR U/N TEL OF 21 MARCH) WOULD NEED TO BE SUBSTANTIAL AND TO COME INTO EFFECT

QUICKLY.

5. IN THIS RESPECT WE NOTE AND AGREE THAT IN THE ABSENCE OF SUBSTANTIAL 5TH FREEDOM EARNINGS OUT OF JAPAN BETWEEN JAPAN AND TAIWAN, THE DOOR WOULD BE OPEN FOR NEGOTIATIONS WITH THE JAPANESE TO SUBSTITUTE THESE EARNINGS FOR 5TH FREEDOM RIGHTS BETWEEN JAPAN, CANADA AND THE USA. HOWEVER, WE FEEL THAT SUCH A MOVE MIGHT WELL BE STRONGLY RESISTED BY THE JAPANESE AND IN ANY CASE WOULD TAKE TIME TO NEGOTIATE. EVEN IF SUCH NEGOTIATIONS WERE SUCCESSFUL, IF CPA AIRCRAFT HAD STILL TO FLY EASTWARDS AROUND TAIWAN AIRSPACE (AS OPPOSED TO CROSSING CHINA DIRECT) THEN THE PROFITABILITY OF TRANS-PACIFIC SERVICES VIA TOK YO WOULD BE EVEN MORE DOUBTFUL THAN IT IS ALREADY.

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