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. [1] 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. [2] 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 [3] 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 [4] 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 [5] 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. [6]