BRITISH TRANS-PACIFIC AIR SERVICES
On 22nd June Cabinet in dealing with Agenda No. 77  on this subject endorsed generally the recommendations of the Wellington Conference for the establishment of a British service across the Pacific and Cabinet authorised certain expenditure on survey work flights preparatory to the establishment of such a service on a permanent basis (copy of Cabinet decision attached hereto).
Cabinet decision was duly communicated to the Prime Minister of New Zealand. 
The United Kingdom Government in commenting on the report of the Wellington Conference on this subject (Part 3 of the Conference report) stressed the desirability of seeking the participation of the Canadian Government in the enterprise both as regards the cost of the surveys and as regards the proposed representations to Washington for the use of facilities at Hawaii and in the United States.  The New Zealand Government was duly advised that the Commonwealth shared this view  and it is believed that the New Zealand Government has taken steps to seek the co-operation of Canada in the proposals.
In the same cable the United Kingdom Government asked that pending receipt of Canada's views the Commonwealth and New Zealand Governments should confirm the United Kingdom Government's understanding on the following two points:-
(a) Until Canada's attitude towards participation becomes known it appears impracticable to take early steps envisaged in the Report with regard to ground organisation and flights other than preparatory flying boat base at Suva which is dealt with in my telegram No. New Zealand so Commonwealth of Australia 59.  It is agreed that as soon as Canadian participation has been secured the application for facilities can nevertheless be made at Washington on behalf of Tasman Empire Airways, this company being nominated provisionally pending a future decision as to arrangements for operating the service on behalf of the British Commonwealth Governments concerned. (b) Assuming again that the Canadian Government decides to cooperate in the representations and the service and that the diplomatic representations are made accordingly can U.K. Government assume that their understanding of the position is correct, namely that if the United States Government made difficulties over granting this application notwithstanding preparations being made for the establishment of a British Commonwealth trans-Pacific service, New Zealand Government will for their part make it clear that they are prepared to terminate their agreement with Pan American Airways and the Commonwealth Government will for their part keep the joint services bargaining position intact by withholding their consent to any application by Pan American Airways for terminal facilities in Australia.
As regards point (a) the other two Governments have already been advised that the Commonwealth agrees with the United Kingdom view that pending advice of Canada's attitude the actual preparations for the services should be limited to those necessary for the survey flights to Suva.  It does seem desirable however that steps should be taken to ascertain the approximate cost of the permanent service from New Zealand to Canada (assuming that permission can be secured for the use of American territory which is essential at this stage of aviation development). Some information in this respect seems essential before the Governments enter into any major commitment in regard to the route beyond Suva. It is therefore recommended that the other two Governments be advised that the Commonwealth considers that approximate information on this point is essential.
As regards point (b) the position is that the Delegates at the Wellington Conference whilst agreeing with the objective for the establishment of a through British air service from New Zealand to Canada realise that there was a major obstacle to be overcome in the securing of American permission for landings in the Hawaiian Islands. The Conference therefore gave careful consideration to a proposal emanating from the Commonwealth Delegation that following [sic]  the granting of permission to use Hawaiian Islands the best alternative arrangement appeared to be a British service over the southern portion junctioning at some convenient centre with an American service bearing over the northern section on to the American Continent. This arrangement would be brought about, it was contemplated, by withdrawing existing permission for the American service to New Zealand and refusing permission (if such were requested) for the American service to terminate in Australia. This arrangement though not as acceptable as a through British service running side by side and in close co-operation with a through United States service was accepted by the Delegates as the best alternative if American permission for the use of Hawaiian Island[s] could not be secured.
Whilst the Wellington Conference favoured this alternative course in the event of the use of Hawaii being refused the Delegates drew attention to the desirability of maintaining friendly relationship and co-operation between the British Government and the United States in the South Pacific. The feeling of the Delegates was that important as is the establishment of a British air service in the Pacific the Governments concerned would no doubt hesitate to take any action which might have the result of disturbing the relationship with the United States or of curtailing that nation's interest in the South Pacific.
The question raised by the British Government in point (b) is whether the Commonwealth and New Zealand Governments are in fact prepared to refuse permission to the American service in the South Pacific if the U.S. Government does not grant permission for the use of Hawaii by the British service. In this connection a recent advice  from the Australian Counsellor of Embassy, Washington , and the United States Secretary of State  made it clear 'that there was little or no hope of obtaining landing rights at Hawaii'.
In considering what reply we should give to the British Government's enquiries, it must be appreciated that although we and the other Governments concerned may be loath to and in fact would refrain from a course of action that would finally debar U.S. interest from the South Pacific, nevertheless we should not acquiesce in a refusal of British use of Hawaii when we have such a good bargaining counter in the permission for landings in Australia and New Zealand which are essential to any American service into the South Pacific. It therefore seems that we must use these counters and at least threaten at the appropriate time to withdraw permission for the American service to New Zealand and perhaps actually withdraw it unless U.S. Government can be induced to permit the use of Hawaiian Island[s] for a British service.
For Cabinet decision.