TNAG-1177-FCO40-1479-Air-services-between-Hong-Kong-and-South-East-Asia-1982 — Page 125

CONFIDENTIAL

we would give sympathetic consideration to a Malaysian request

for additional capacity on its Kuala Lumpur

London services

within the context of Annex B of the 1979 Confidential

Memorandum of Understanding on United Kingdom/Malaysia air

services. The Malaysians pressed for a promise of "favourable"

consideration which we declined to give. Their bluff was called

and the deal went through, but they have not ceased to press us to condede the additional capacity, regardless of the 1979

guidelines, ever since.

2 On the regional route we have for more than a year resisted appeals from Cathay Pacific, supported by the Hong Kong Government, to call for negotiations with the Malaysians with a view to reducing the excessive capacity operated by MAS between points in East and West Malaysia and Hong Kong. MAS

are now asking for more capacity on these routes too, and if Cathay Pacific are right about excessive capacity, as we expect, we shall at the very least have to refuse any increase.

3

Following talks between Cathay Pacific and MAS it has been reported from Hong Kong that there are individuals in the Malaysian Government who are not pressing for a date for talks since they feel that all the traffic rights can be satisfactorily settled during the Foreign Secretary's visit. This is a familar Malaysian tactic which has served them well in the past, but there are now, since 1979, agreed procedures for dealing with air services matters, and there is no good reason why these should be short-circuited on the present occasion. These procedures onvisage discussion at airline level first with recourse to negotiations between aeronautical

authorities thereafter. It is much too soon to appeal to Ministers

at present.