PROPOSED AIR SERVICE DARWIN TO DILLI (PORTUGUESE TIMOR)
1. It is proposed for Cabinet consideration that an air service be established from Darwin to Dilli in Portuguese Timor.
2. This proposal arises from a visit made by Vice-Consul Lambert of the British Consular Service to Portuguese Timor in November/ December 1937, under instructions from the British Government. In a comprehensive report  Vice- Consul Lambert drew attention to the evidence of Japanese penetration into this Territory and stressed the need for establishing British interests to counteract such penetration. Vice-Consul Lambert reported that the then Governor of Portuguese Timor  was quite strongly pro-British and desired to see an extension of British interests in the Territory. The Governor suggested that a British air service to the Territory would be a valuable means of strengthening British interest and pressed that such a service should be established to the mutual benefit of British and Portuguese interests.
3. A proposal to include Dilli on the route of the Flying Boat Service to Australia was referred by the British Government to Imperial Airways but for operational reasons that Company found it impracticable to adopt the suggestion.
4. The British Consul-General, Batavia  in inviting attention to the dangers of Japanese penetration into Portuguese Timor, advocated that the Commonwealth Government should, largely for strategic reasons, develop a closer contact with Portuguese Timor. He suggested that an air connection would serve to strengthen this contact and that such would appear likely to be in the interests of the Commonwealth Government even if it did not offer any great prospect of immediate profit to the operating company.
5. A proposal by the Controller-General of Civil Aviation  to establish an Australian air service from Darwin to Dilli was referred to the Defence Committee in February 1938. The views expressed by the Committee upon this proposal were as follows:-
'The Defence Committee were of the opinion that from an Australian defence point of view this question did not present any features which would make it desirable to expend moneys available for our own defence needs, as much still remains to be done to place our defences on a satisfactory basis. Nevertheless, it was considered that any action which would further the development of British and Australian influence in Portuguese Timor should be encouraged.' 6. The proposal for the Darwin-Dilli air service was reviewed recently by the Inter-Departmental Committee on air transport services (comprising representatives of Civil Aviation, Defence, Postmaster-General's, Treasury and Interior Departments). The Inter-Departmental Committee had doubt as to whether the proposal came within the scope of the Committee's investigation but suggested that the project should be referred to the Department of External Affairs for its views. 
7. The proposal was duly referred to the Department of External Affairs which strongly supported the proposal in terms of the following extract from the memorandum by the Secretary of that Department  :-
'The possibility of Japanese penetration and infiltration into the Netherlands East Indies and Timor has been one of the main reasons why the Commonwealth Government has shown constant interest in Timor, which from its geographical and strategical position, vis-a-vis Australia, is of vital importance from a defence aspect.
During recent years, Japan's southward advance policy has come very much to the fore. In the debate on the Budget at Tokyo at the beginning of this year, attention was focused on the south seas, and the opinion was generally voiced that the guarantees for Japan's future lie in the south and not in the north. There was much talk to the effect that the time had now come when an effort was necessary to translate words into action. At the same time there was a certain amount of criticism about the lack of capital and technical resources for a country like the Netherlands or Australia to-exploit the vast areas they held. Further, the Prime Minister of Japan  has himself declared in the Diet "the southward advance is the irrevocable destiny of the Japanese race".
There is a special bureau of the Japanese Foreign Office to deal with south sea affairs and two major companies, the Formosa Development Company and the South Seas Development Company, have been established to promote the economic penetration of the southern islands. The Department has many reports of attempted economic penetration in Dutch New Guinea and the various islands in the Netherlands East Indies. At the moment a serious attempt is being made to capture the whole of the pearling trade and all the pearling fleets have now been amalgamated into one company.
So far as this policy affects Portuguese Timor, the Japanese have in recent years endeavoured to obtain all kinds of oil, agricultural and plantation concessions. They have successfully cornered the coffee crop, on whose export value the whole prosperity of the Territory depends.
In a despatch, dated 15th January, 1938, the British Consul- General at Batavia stated- "And if, for instance, Japanese activities in Portuguese Timor are not inspired by commercial motives, still less likely is it that Portuguese Timor constitutes a Naboth's vineyard on its own merits. Little doubt is left, therefore, that Japan's real interest in Portuguese Timor is but the move of a pawn in a big game of southward expansion, to be followed by moves of more aggressive pieces when the time seems propitious, Australia being the real objective" 
In recent years Japanese shipping service has been extended from Palao Islands to Dilli, the capital of Portuguese Timor, and Japan now desires to open a new line between Tokyo and Dilli, but has not yet obtained the necessary permission.
If she acquires increasing ascendency, there is reason to fear that she may endeavour to inaugurate an air service between her Mandate and Dilli, and conversations have already taken place with the local Governor to this end.
With this knowledge of Japanese penetration in mind, the Commonwealth Government has actively interested itself during the last two years in obtaining oil concessions for Australian interests in Portuguese Timor. A representative of Oil Search Limited is now in Lisbon endeavouring to obtain these concessions, in strong competition with other foreign interests.
In a memorandum on the present position, the Minister for External Affairs stated on 28th January, 1939- "In all the circumstances, I regard it as imperative that we should have a point d'appui in Timor." 
It is felt that the establishment of the proposed service will prove of far- reaching political value, and is most strongly supported for defence reasons.
Should the Australian Company obtain the oil concessions, it is proposed to create a new company of 500,000 to exploit them. Should this eventuate, the Air Service would be of inestimable value, and soon prove a most payable proposition.
In any case, it is clear that the Portuguese intend to grant oil concessions in the immediate future, whether to an Australian company or another concern, and if this Service is in early operation, Australia will be in a position to share the material benefits from the resultant development.
The British Consul-General in Batavia has strongly urged the Commonwealth Government to take steps to inaugurate this Air Service, and from his conversations with the local Governor, it appears that an application from Australia would be regarded far more favourably than one from Japan or the Netherlands.
In regard to the latter, it might be noted that the K.N.I.L.M. has sought permission to inaugurate an air service to Dilli, but so far this has not been granted.
From every aspect, strategical, political, and as a business proposition, I strongly support the proposal and, in view of the activities of other foreign countries, I am of the opinion that no time should be lost in obtaining Governmental approval and in seeking the necessary permission from the Portuguese Authorities.' 8. Preliminary investigations made by the Civil Aviation Department indicate that it would be practicable to arrange for the Adelaide-Darwin air service to be extended to Dilli using the twin-engined Lockheed Electras which are quite suitable for the oversea crossing involved. It is considered that an annual subsidy of approximately 2,500 would be required for such a service if operated once weekly in each direction.
9. Reports received from the Consular Authorities indicate that the Portuguese Timor Authorities would improve the existing landing ground at Dilli as necessary, and it is probable also that those Authorities would provide the radio and meteorological services necessary in the Portuguese Territory for safety of the service.
10. In view of the political advantage of establishing Commonwealth interests in Portuguese Timor and of counteracting Japanese penetration, it is considered that the relatively small expenditure involved in establishing this air service is amply justified. It is therefore recommended that Cabinet authorise steps being taken to establish this service as soon as possible.
Submitted for Cabinet consideration.