To the Deputy Prime Minister.
Commonwealth talks were resumed at Montreal on afternoon of 9th December. It was agreed to establish a Commonwealth Air Transport Council. Details are as follows:
1. Functions. The following shall be the functions of the Commonwealth Air Transport Council 'to keep under review the progress and development of Commonwealth Council Air Communications. To serve as a medium for exchange of views and information between the Commonwealth countries on civil air transport matters. To consider and advise on such civil aviation matters as any Commonwealth Government, may desire to refer to the Council.' 2. Composition. It is suggested that membership should initially be as follows:-
United Kingdom, Canada, Australia, New Zealand, South Africa, India, Newfoundland, Southern Rhodesia and the Colonial Empire.
Additional representations will be considered from time to time.
3. Frequency of Meetings. The Council should meet fairly regularly and frequently. The first meeting will be held in March, 1945. The Council will then decide when the second meeting shall be held.
4. Place of Meetings. The meetings should be held in various countries represented on the Council as may be agreed to be convenient and appropriate on each occasion. The first meeting might be held in London. The chairman on each occasion would be designated by the country in which the meeting is held.
5. Level of Representation. It should be open to Governments to decide on each occasion whether to be represented at the Ministerial or Official level.
6. Secretariat. The Council will in due course require a small permanent Secretariat. For the time being the Civil Aviation Department in London will act as the focal point for Council business.
7. Rules of Procedure. The Council shall determine its own rules of procedure.
8. Financial Arrangements. Each country will bear the cost of its own representation.
9. Other Organisations. Any Committees of Commonwealth Countries that may be set up to deal with particular Commonwealth routes should keep the Secretariat of the Council fully informed of their deliberations and of any decisions taken.
Since an early announcement may be necessary, kindly telegraph Dominions Office whether the Australian Government concurs in proposal.  If all Commonwealth Governments support the proposal, arrangements will be made for simultaneous press release. Establishment of civil air services across the Pacific was also discussed. At the entire talks at expert level, Canada had made it clear she was not interested in joining an operating corporation with other Commonwealth Countries and that insofar as the Pacific Service is concerned she desired only to operate between Vancouver and Honolulu leaving Honolulu-Sydney operation to Australia as an individual operator, or in collaboration with such other Commonwealth Countries as Australia might see fit.
McVey later discussed the subject with Howe at Chicago and Howe agreed if Australia wished it that T.C.A.  should operate from Honolulu via San Francisco through to Sydney in parallel operation with Australia, traffics and resources to be pooled but each country bearing its own costs. The New Zealand Delegation has been insistent, however, that the understanding is that New Zealand will be permitted to join with Australia in partnership in any Pacific operations and that the United Kingdom too, must be included in such an operating corporation which would be similar in character to Tasman Empire Airways. We have constantly pointed out that while the Australian Government was willing to join all Commonwealth Countries in an operating corporation to own and operate all services between Commonwealth Countries, no Governmental consideration had been given to join operation with certain Commonwealth Countries on certain routes only and that so long as some Commonwealth Countries remain determined to operate services under their own flag, as for example Canada, Australia may wish to do likewise.
Insofar as the route via India to the United Kingdom is concerned, we have made it plain that we intend to operate an Australian service from Sydney to London with parallel operations and the pooling of traffics and resources with B.O.A.C. The New Zealand Delegation has objected strongly to this, but we have maintained our attitude. It is more difficult to justify a similar attitude in respect of the Pacific service since New Zealand and the United Kingdom are partners with Australia operating east of Sydney across the Tasman. We have, however, reserved our position pending consideration by the Australian Government of the following minute recorded at Sunday's meeting at Montreal:-
I. Mr. Howe presided over a meeting this evening which was attended by Representatives of Canada, Australia, New Zealand and the United Kingdom to discuss arrangements for securing co- operation between the four Countries in the operation of trans Pacific services between North America and Australia and New Zealand.
Mr. Howe stated his willingness to consider either:
(A) A Canadian operation between Vancouver and Honolulu linking with a joint organisation operating from Australia and New Zealand to San Francisco or (B) A Canadian operation in parallel with a joint organisation operating throughout the route via San Francisco. The feasibility of the latter alternative would be dependent on United Kingdom agreement with Australia and New Zealand that both operating organisation[s] would share commercial rights at San Francisco.
II. Preference for parallel but not competitive operations was expressed. It was accordingly agreed that subject to satisfactory arrangements with the United States in this matter the following possible basis of operation should be further examined.
1. That T.C.A. and a Joint Organisation comprising the interests of Australia, New Zealand and the United Kingdom would operate in parallel throughout the route between Canada and Australia and New Zealand.
2. That the operations of the two Organisations would be under independent management but fully coordinated.
3. The Services would operate via San Francisco provided that satisfactory arrangements could be made with the United States for T.C.A. to share in the traffic which Australia and New Zealand could claim reciprocally for traffic between the United States and these countries.
4. The traffic on the route would be pooled.
5. Receipts would be pooled on a mutually satisfactory basis through the medium of an operators agreement.
6. Each operating organisation would bear its own expenses and its own deficits on operation.
7. Each Country would be responsible for maintaining the ground organisation in its own territory and maintenance facilities would be provided on a basis of common user.
III. The arrangements for the formation of a joint organisation comprising the interests of Australia, New Zealand and the United Kingdom were left over for later discussion between the representatives of the three countries. If the Governments approve and arrangements can be made with the United States Government for Canada to pick up traffic in San Francisco for Fiji, Australia and New Zealand, then I(B) will be adopted. If not, then I(A).
It has been made evident that Canada is willing to operate in parallel with Australia over the whole route or on a sectional basis with Honolulu as the junction and that Howe is quite disinterested in whether Australia has partners or not.
New Zealand is strongly urging, however, partnership between herself and Australia and the United Kingdom and also for Auckland to be a calling point in the Pacific service. In order to make Auckland attractive to a United States service, the New Zealand Delegation was agreeable at Chicago to grant fifth freedom traffic rights  between New Zealand and Australia notwithstanding the probable adverse effect upon Tasman Empire Airways operations. The Australian Delegation opposed the granting of such rights.
The stated attitude of Sullivan may be summarised thus. New Zealand must have the Pacific Service calling at Auckland and will concede a lot to ensure this. She wishes to maintain best possible relations with the United States, she desires collaboration with the United Kingdom and at the same time she does not want to do anything contrary to the Australia - New Zealand Agreement  or inimical to Australia's interests.
At times it was not possible because of conflicting interests for the New Zealand Delegation to pay due regard to the obligations which all three objectives entitled and their attitude in consequence occasionally has proved embarrassing to the Australian Delegation particularly when they played up to the ideas of the United States Delegation when contrary views were necessary in Commonwealth interests.
From an operating point of view, particularly when regard is paid to the necessarily competitive aspect with American services, a call at Auckland increases distance, time and cost of the Commonwealth service and may not be justified if there will be, as is likely a daily service between Auckland and Sydney which could link up with the service operating via India to London and also the service across the Pacific to San Francisco and Vancouver. As an alternative, one schedule in four across the Pacific could call at Auckland and this may be the solution. No decisions have been taken and the matter is left over for later consideration, but meantime I should be glad if the Government's views could be cabled to me in London on the proposed joint operation by Australia, United Kingdom and New Zealand across the Pacific.
The only other matter of importance discussed at Montreal was a standard clause for bilateral agreements. Since Commonwealth Delegations failed to have inserted in the Chicago Convention, certain articles which would have safeguarded the air transport interests of countries which because of the war may not be able to commence International air operation for several years it is considered necessary that no  lateral agreements should contain provisions which will secure the same objective. Unanimity was not reached at Montreal regarding these clauses and the subject is to be further discussed in London. Talks in London are scheduled for 22/12 and I shall report fully on my return to Australia.