397 Cabinet Submission by Drakeford

Agendum 1007 16 November 1945,

BRITISH AIR SERVICES IN THE PACIFIC

INTRODUCTION Following discussions between the British Commonwealth countries at Montreal and London last year, Cabinet on Agendum No. 805 [1] approved, inter alia, that the Australian Government join with the New Zealand and United Kingdom Governments in the formation of a tripartite operating organisation to operate a trans-Pacific civil air service. It was envisaged that the service operated by the tripartite organisation would run in a parallel partnership arrangement with a similar service to be operated by Trans-Canada Airlines. It is contemplated that a United States company would also operate a service from North America to Australasia.

2. At the C.A.T.C. Meeting held in London during July last certain subsidiary principles in regard to capacity to be operated, division of capacity, unused capacity, pooling of revenues, pooling of expenses, agency arrangements etc. in relation to the British services were agreed. The C.A.T.C. Meeting also confirmed the Montreal recommendation that, on the basis of four trips a fortnight operated by the tripartite organisation, three should operate from Sydney to the U.S.A. and Vancouver and one should operate from Auckland to the U.S.A. and Vancouver. Intermediate calls agreed upon were Fiji, Canton Island, Honolulu and San Francisco-a call at Noumea being dependent on the performance of the aircraft used and on the traffic offering.

NEED FOR A TRANS-PACIFIC AIR SERVICE 3. There is at present no adequate air connection between Australia and America, the only services between the two continents being military services operated by the British and the United States Forces respectively. The British (R.A.F.T.C.) service operates once a week between Sydney and Montreal via the United States, but is run primarily for military traffic and the accommodation available for civilian passengers and mails is very limited. The United States (U.S.A.T.C.) service also operates only once a week and this service is not generally available for Australian civil traffic. On the other hand the need for expeditious communications between Australia and the United States is growing and, in consequence, there is real requirement for the establishment of civil air services at the earliest possible moment.

4. A factor bearing on the urgency of establishing a British civil air service is the approach made some while ago by the United States Legation with a proposal that Australia should conclude an agreement conferring reciprocal rights for the operation of regular air services between Australia and the United States. The conclusion of such an agreement is a prerequisite to the establishment of a United States air service to Australia, and it is known that the American operating company (Pan American Airways) is anxious to commence such a service early next year. It is recalled that Pan American Airways operated between U.S.A. and New Zealand prior to the Pacific War. This matter of an agreement for reciprocal rights is the subject of a separate Cabinet submission. [2] It is most desirable, however, for obvious reasons that a British Commonwealth air service should be instituted across the Pacific prior to or at the same time as the United States service, otherwise the British Commonwealth will suffer considerably in prestige and may find great difficulty in overtaking the commercial advantage which would accrue to the American service if it should be established substantially prior to the British service.

5. For the reasons indicated in paragraphs 3 and 4 it is urgently necessary that prompt steps be taken towards the establishment of a British service. In view of the preoccupation of the United Kingdom with the Atlantic and other services of greater importance to that country and in view of the fact that Australia is the British country most concerned in the establishment of the Pacific service it behoves us to take the lead.

PROPOSED PACIFIC AIR COMMISSION 6. It is considered that the best course to secure real progress in this matter is for the three British Governments concerned in the proposed tripartite service to appoint a Pacific Air Commission-broadly on the lines of the Tasman Air Commission- representing the three Governments (and with headquarters in Australia) and to direct the Commission forthwith to investigate and recommend to the Governments how the service should be organised. The Commission's inquiries and recommendations should cover the constitution and organisation of the tripartite operating organisation as well as the operational and financial problems involved.

7. It is apparent that the organisation of a tripartite operating organisation as envisaged in the Inter-Governmental discussions hitherto will require considerable time and, in view of the extreme urgency of having a British civil service across the Pacific without delay, the Commission should be instructed also to investigate and report on the feasibility and method of instituting an interim British service until such time as the proposed joint corporation can be constituted and commence operations. On present information it seems unlikely that Trans- Canada Airlines will be able to commence their service to Australia before 1947.

8. An aspect of the problem which requires early settlement is the proportionate interests which each of the three Governments should have in the joint operating organisation and the corresponding proportions of the financial liability which each will assume.

From discussions in London it is understood that the United Kingdom Authorities would not be averse to a 20% interest, but the New Zealand representatives at the C.A.T.C. Meeting were unable to give any indication of what share New Zealand would wish to assume. Having regard to the relative status of Australia and New Zealand and the probable traffic potentialities of the two countries (as indicated by the three to one frequency agreed upon- vide paragraph 2) it would appear that the appropriate proportions for Australia and New Zealand would be 60 and 20-thus making the respective interests, Australia 60%; United Kingdom 20%; New Zealand 20%. Should, however, New Zealand desire to assume a higher proportion it is thought that Australia might agree, provided our interest is not less than 50%.

COSTS OF THE SERVICE 9. The financial liability involved for either the interim or ultimate joint organisation services cannot be closely estimated at this stage-these being aspects to be investigated by the proposed Commission-but British Overseas Airways Corporation estimated some months ago that a four times fortnightly service with trips terminating three at Sydney and one at Auckland (vide paragraph 2) operated with Canadian-built Douglas DC4M aircraft would involve a capital expenditure of the order of 750,000 sterling and an annual payment of the order 350,000 sterling (assuming 60% traffic loading) against which there would be considerable credit to the Governments from airmail fees. The DC4M aircraft may not be available before early 1947, and one of the major problems for the Commission to investigate is the question of aircraft to be used on the interim service. Further, it is unlikely that the interim service would commence with a greater frequency than one trip per week (the initial frequency proposed for the Pan American service). It is likely, therefore, that the costs of the interim service would be less than the amounts estimated by B.O.A.C. for the permanent service.

AUSTRALIA - NEW ZEALAND CONSULTATION 10. The New Zealand Government has recently indicated its desire to arrange a conference on the Ministerial level to discuss, amongst other subjects, the subject of the trans-Pacific service.

Such a conference will undoubtedly have to be held at an appropriate time but the immediate need is to establish the proposed Pacific Air Commission, as has already been agreed by the three Governments concerned, so that the Commission may make the inquiries and recommendations already mentioned. The Ministerial conference would then be in a better position to reach decisions on the trans-Pacific service.

RECOMMENDATIONS 11. It is recommended that Cabinet endorse the views expressed in this Agendum and give authority for the United Kingdom and New Zealand Governments to be informed of the proposal to constitute immediately a Pacific Air Commission, broadly on the lines of the Tasman Air Commission. Although the ultimate function of the Commission would be to control and supervise on behalf of the Governments the operations of the joint operating organisation, its immediate task should be to submit recommendations regarding the detailed organisation and functioning of the operating corporation and the financial implications involved. If the Commission endorses the view held here, that it would be impracticable for the tripartite operating organisation to be constituted and commence operating by approximately the time the American service will be ready to start, then the Commission should immediately examine and submit proposals for an interim British Commonwealth service to commence prior to or simultaneously with the American service. This objective can probably be best attained by the Commission selecting an existing operator to run the service pending the establishment of the permanent joint operating organisation.

12. It is also recommended that Australia indicate its readiness in principle to accept a 50 to 60 per cent share in the joint organisation, and in the consequential financial liability. [3]

1 Document 43.

2 Document 396.

3 See Document 396, note 1. The cabinet sub-committee referred to therein accepted the recommendations in this submission. The U.K.

and N.Z. Govts were informed accordingly (see note of meeting on file AA : A1066, P45/150/2). On 13 December Australian and N.Z.

ministers and officials met in Canberra to begin discussions on establishment of a Pacific Air Commission and regional civil air services (see notes of the conference, attached to agendums 1006- 7, in AA : A2700, vol. 21).

[AA : A2700, VOL. 21]