TNAG-0868-FCO40-1078-Air-services-between-China--Hong-Kong-and-the-UK-1979 — Page 106

CONFIDENTIAL

TO BA. ANY SUCH CALCULATIONS DEPEND UPON A NUMBER OF ASSUMPTIONS WHICH CANNOT BE TESTD. THE MOST THAT CAN BE SAID WITH A

REASON ABLE DEGREE OF ASSURANCE IS THAT

(1) OPTION A IS LIKELY TO BE TOLERABLY VIABLE FROM A FAIRLY EARLY STAGE.

(2) OPTION B WOULD PROBABLY ENTAIL DELIBERATELY OPERATING AT A LOSS FOR A PERIOD IN THE HOPE THAT THE NEGOTIATIONS ABOUT ARRANGEMENTS FOR THE REGIONAL ROUTES WOULD GAIN AN OPPORTUNITY FOR BA TO CARRY TRAFFIC ON THE HONG KONG PEKING SECTOR. (3) BOTH OPTION A AND OPTION B ARE FAR PREFERABLE TO THE WASTE OF RESOURCES AND HEAVY FINANCIAL LOSSES THAT WOULD BE INVOLVED IN FLYING LARGELY EMPTY AIRCRAFT ON A DIRECT ROUTEING BETWEEN LONDON AND PEKING.

(4) BA ARE STRONGLY OPPOSED TO OPTION D. THEY DO NOT BELIEVE WE WOULD GET ANY BETTER DEAL AS A RESULT OF WAITING LONGER AND THEY ARE CONCERNED ABOUT THE FACT THAT IF THEY DO NOT GET

INTO THE MARKET NOW, OTHER EUROPEAN CARRIERS WILL BE FIRMLY ENTRENCHED AND WILL BE CARRYING ALL THE UK TRAFFIC. (5) ALTHOUGH OPTION A FALLS SHORT OF WHAT BA WANT, THEY ARE PREPARED AS A COMMERCIAL ORGANISATION TO ACCEPT THE RISK OF STARTING ON THAT BASIS. IN THE LAST RESORT THEY WOULD BE PREPARED TO OPERATE UNDER THE TERMS OF OPTION B RATHER THAN HAVE NO SERVICE AT ALL.

CONCLUSIONS

12. WE BELIEVE IT WOULD DO NO GOOD TO ADJOURN THE NEGOTIATIONS AT THIS STAGE. THE CHINESE HAVE COME QUITE A LONG WAY FROM THEIR STARTING POSITION. AS LU HAS REITERATED MANY TIMES IN HIS DISCUSSIONS WITH ROGERS, CAAC ARE VERY UNCERTAIN ABOUT THE ECONOMICS OF ESTABLISHING SERVICES TO LONDON, ESPECIALLY ON THE BASIS OF TWO FREQUENCIES ON EACH SIDE FROM THE OUTSET, WHICH THEY HAVE NEVER AGREED FOR ANY OTHER EUROPEAN CARRIER. THEY ARE THEREFORE BEING OBLIGED TO TAKE BIG RISKS THAT THEY DO NOT WANT TO TAKE, WHEREAS AS THEY SEE IT THE ROUTEING

VIA HONG KONG MINIMISES THE RISKS FOR BA. THE RIGHT FOR A BRITISH CARRIER TO OPERATE TO SHANGHAI, EVEN WITH A CAPACITY DIFFERENTIAL, CLEARLY GOES WELL BEYONG WHAT THEY HAD INTENDED. EVEN THE PEKING-HONG KONG ROUTE LOOKS MUCH LESS DESIRABLE TO THEM THAN IT DOES TO US AND THEY HAVE SWALLOWED A COMMITMENT

5 CONTRÁIGNTIAI,

SINITIAL

/PO ALLOW