Addressed to the Acting Prime Minister, Mr. Forde.
Reference my No. 17 of 16th May.  CIVIL AVIATION.
Advantage was taken of McVey's presence in London to have him present at the discussion on Civil Aviation.
2. The Lord Privy Seal (Lord Beaverbrook) reviewed developments in relation to Post-war arrangements for Civil Aviation and in particular gave an account of the recent discussions with Mr.
Berle of the United States State Department. Three main points had been under consideration in these discussions, the first international control of trunk routes, the second bases and the third cabotage.
3. It was clear from those discussions that the United States Government would not accept any plan for the international operation of trunk routes. Further they were not prepared to subscribe to the principle of international control of air services by an International Air authority on the lines of the plan worked out in the Draft Convention recently prepared by the Canadian Government. Mr. Berle had agreed that the outline plan adopted at the British Commonwealth discussions last autumn  would be used as the basis for future international discussions but it seemed clear that the United States would wish to interpret that plan in the sense of securing the greatest possible measure of freedom from control.
4. As regards bases Lord Beaverbrook had in his discussions adopted the formula proposed by the Australian and the New Zealand Governments which was supported by His Majesty's Government in the United Kingdom.  He had been at pains to handle the discussions in a non-challenging, though in a fair and determined, manner. The effect was that we should hold firmly to our bases until we could reach a satisfactory International Agreement for control, and he had secured acceptance of this point of view by the American negotiators. 
5. Mr. Berle had also accepted the principle that cabotage traffic between the United Kingdom and the Crown Colonies and the Empire excluding the self-governing Dominions and India could be reserved. Nor had he contested that in the self-governing Dominions and India the Governments of those countries could claim cabotage.
6. Lord Beaverbrook suggested that in the light of his conversations with Mr. Berle the next steps should be to pursue the course of international discussions in the hope of securing general agreement to some form of international control and at the same time to prepare in technical discussions between competent authorities a plan for the establishment of a British Commonwealth air route. He considered that at the International Conference in which we should base ourselves on the findings at the Commonwealth Conversations for the international handling of Civil Aviation, the wisest course would be to reach an agreement with Americans even at the cost of some concession, but to build up a Commonwealth and Empire organisation in addition to what we arrange with the United States. There was complete understanding with the United States and the proposed Commonwealth and Empire line would not be an alternative but a parallel to the line which it was hoped to negotiate with them.
7. I expressed general agreement with Lord Beaverbrook's statement but added that I [should]  like a chosen instrument for Civil Aviation. I concurred in the idea of a British Commonwealth line and said that the Australian Government thought there should be two routes and would be glad to see British air interests in the Pacific expanded. We would do our best to support, though the question of subsidy would present difficulty in view of the heavy demands of expenditure to continue essential International Air Services. I said we were anxious also for a British route to Great Britain, possibly via Darwin.
8. The following are the main points made during the discussion.
i. It was important for Australia and New Zealand that a British air route should be opened across the Pacific. For this purpose, an effort should be made to reach an agreement with the United States for landing rights etc. at Honolulu on a basis of reciprocity with the United States services to Australia and New Zealand. Alternative routes could be explored, but the stage involved appeared to be so long as to prevent the carriage of an adequate pay load.
ii. Plans should also be made for the reopening when practicable of the pre-war route via Singapore in which India would wish to participate on equal terms.
iii. The Canadian Government were still engaged in examining the various possibilities. They would wish to participate in the International Air Services through the medium of their chosen instrument-Trans-Canada Airways. They had agreed that each country or group of countries in the Commonwealth should take the responsibility for developing the air routes important to them, they had not contemplated handing over such routes in which they were interested to a joint operating body.
iv. It would be necessary to pay attention to the subsidy costs involved, since at any rate as far as Australia was concerned the cost of the essential International Air Services would not leave any substantial margin available for subsidising external services.
9. It was agreed that the next step would be to endeavour by international discussions to secure an agreement for as substantial a measure of international control as appeared practicable. Meanwhile, arrangements should be made for discussions between experts for drawing up plans for the British Commonwealth and Empire air routes.