L. With reference to your memorandum of 12th January 1938  and previous correspondence on the subject of the development of Australian influence in Portuguese Timor, it is noted from your memorandum of 29th September 1937  that the Government has been seized for some time with the desirability of precluding Japanese interests from obtaining a predominant control over Portuguese Timor. From the point of view of the development of air communications to this end, it is now clear that it is impracticable to extend the Empire Air Mail Scheme to include Dilli. It would be possible to provide an air service from Australia, terminating at Dilli at an estimated annual cost of 5,000, but although such a service would be of advantage as a factor in the extension of Australian influence in Portuguese Timor, there appears to be little prospect of the service becoming self-supporting.
2. The Defence Committee consider that from the aspect of Australian Defence, there are no features which would make it desirable to expend on this service, monies otherwise available for our own Defence needs and which are required for the maintenance of our defences on a satisfactory basis.
Nevertheless, it is appreciated that on broader political grounds, any action which would be instrumental in the development of Australian influence in Portuguese Timor should be encouraged, and this memorandum might be read in conjunction with my secret letter of 6th December 1937 (concerning Yampi Sound Iron Ore Deposit) , which touches upon the question of Japanese penetration in North Australian waters.