CONFIDENTIAL
Centication Sheet No.
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File No.
by the fact that they also serve London. At a deeper
level we think they may fear and resent the existence
of a powerful airline based in Hong Kong and will do
everything in their power to keep it out of Peking.
There are indications that they would be less sensitive
to the provision of a service by BA.
8 In these circumstances my negotiators believe that
the only way to get Cathay into Peking is to negotiate a
completely new Memorandum of Understanding on the regional
services. But it takes two to write a new agreement,
and the only way to persuade the Chinese to co-operate?
is to withdraw from the old one so that they will have
no choice. Fortunately the 1979 Memorandum makes 'specific
provision for either party to give 12 months notice.
Having given notice we would have to be prepared to see
services terminate after 12 months if the Chinese were not
prepared to reach a satisfactory new agreement, but we
believe that any interruption of services though it
cannot be ruled out is unlikely because CAAC's fifty
services a week into and out of Hong Kong are their only
major source of profit (apart from Peking/Tokyo) and
they will not allow them to cease for that reason.
9 There is another factor which complicates the issue.
When the arrangements with the Chinese were agreed in
July 1979 there was an informal understanding between my Department, British Airways and the then Governor of
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