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CONFIDENTIAL
From the Secretary of State
(ii)
Working within the framework of the 1979 arrangements. we should seek increased services for Cathay
to Shanghai, in line with market growth: and we should try to obtain local rights for BA between Hong Kong and Peking in exchange for additional
services on the same routes by CAAC.
to
I would much prefer the first option. It provides a good chance of securing unqualified acceptance of Cathay operating the local services between Hong Kong and both Shanghai and Peking, and possibly end the inequity of their present royalty obligations or tne restriction
one-thira capacity written into tne 1979 arrangements. If necessary, allowing CAAC one
allowing CAAC one or two London/Hong Kong services a week would be a tolerable price for maintaining BA's London/Peking services over Hong Kong in addition to Cathay operating into Peking. I recognise that you and the Governor of Hong Kong may not want to adopt a strategy which might lead to a
trial of strength in the early months of 1984, when other negotiations might be at a critical stage. My own view is, in fact, the opposite namely that weakness in negotiations over
air transport would be regarded as weakness in negotiations generally. But, if a decision were taken not to follow the first
option, something might be made out of the second. Its main
problem, of course, is that it appears to favour BA rather than
Cathay, but it would at least get a United Kingdom airline a share of the Hong Kong Peking local traffic for the first time.
CONFIDENTIAL
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