1. Reference your telegram No.181 of 16th August in which you
confirmed the
offer made by the Admiralty to the Commonwealth Naval Board, to
transfer to the
Royal Australian Navy two of the suspended 'Majestic' Class light
fleet carriers at half total cost of construction, which was
estimated to be between 2,750,000 and 3,000,000 per vessel,
exclusive of their outfits of stores and armament which were to be
an Australian liability. It is now learned that these vessels will
require modernisation involving substantial additional
expenditure.

2. The dimensions of the Post-War Defence Programme were
determined by the amount which the Government considered could be
devoted to defence, and it was decided that the maximum amount
that could be provided over five years was 250,000,000. To enable
Australia to make a greater contribution to Empire Naval Defence,
the largest quota was allocated to the Navy, which received an
allotment of 75,000,000 as against 62,500,000 each for the Army
and Air Force.

3. The financial basis of the programme having thus been
determined, the Service advisers were requested to state the
strengths and organisation which could be provided from the
financial allotments approved for each Service.

4. The Naval Board's programme included the acquisition of the two
light fleet carriers, and this was approved by the Government on
the understanding that they could be provided within the allotment
for Naval Defence. It now transpires that this is not possible, as
no provision was made in the Naval programme for the additional
cost of modernisation. It is also understood that, even after
modernisation, the operational capacity of vessels of this class
will be limited after 1955 if future aircraft have increased
weight. This would appear to be a serious consideration from the
defence aspect, in view of such a large outlay for naval defence.

If modernisation is not carried out, the desirability of obtaining
this type of carrier appears to be a matter of even greater doubt.

5. In view of the statement made by me to the Conference of Prime
Ministers last year that it was recognised that Australia must, in
future, make a larger contribution towards the defence of the
British Commonwealth in the Pacific, I would appreciate advice of
the manner in which it is considered the Naval Programme might be
adjusted to provide for this intention. It may be mentioned that
the R.A.N. Squadron has already been reduced by one cruiser which
was to have been kept in commission as Hobart has been paid off to
provide the crew for the first carrier. [1]