TNAG-1176-FCO40-1478-Air-services-between-the-UK--China-and-Hong-Kong-1982 — Page 43

CONFIDENTIAL

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File No.

allowed to operate on an interim basis since 1981 at the

"

cost of a 5% royalty on all sales, and we expect that

this arrangement, unsatisfactory as it is, can be extended, though there will doubtless be an argument about the amount

of capacity required.

6

The more delicate issue this time around concerns

The Chinese airline services from Hong Kong to Peking.

CAAC were given 5 x B707 services a week between

Traffic

these

points in compensation for BA's right to route their London-Peking services via Hong Kong (without which the services would be hopelessly uneconomic). between Hong Kong and Peking has now grown to the point where their 5 services are quite inadequate, and a UK airline ought now to have some share in any increase. The 1979 agreements do not provide for this situation. They only stipulate that when BA comes off the Hong Kong routeing for its London services the competent authorities will make appropriate arrangements for the Chinese airline and the UK airline designated for services to Shanghai to operate between Peking and Hong Kong with capacity

and frequency to be decided jointly.

7 In any normal circumstances Cathay Pacific would be the natural choice to operate services between Hong Kong and Peking, but we know the Chinese will resist this very strongly, resting on the argument that Cathay are disqualified from serving Shanghai and a fortiori Peking

Form GS/20A

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