The Secretary of State to the Minister in Ecuador (Long)
126. 1. On the clear understanding that the Ecuadoran Government will take prompt and effective steps for the elimination of Sedta, following the establishment by Panagra of a service duplicating that now provided by Sedta, this Government is now prepared to authorize Panagra to establish such a duplicate service as outlined in paragraph 5 following and to underwrite all the initial expenditures and probable initial operating losses in connection with the new service. In order that there may be no misunderstanding on this score, it is suggested that you discuss the situation with the President-Elect, as well as with such other officials as you deem necessary, and obtain from them a clear commitment (which need not however in our opinion be in writing) so that you feel satisfied they intend to see the matter through to actual elimination of Sedta, as well as to facilitate the inauguration of operations by a Panagra subsidiary as outlined in paragraph 6 of this telegram.
2. The new service provided by Panagra would be authorized by this Government with the clear understanding that the Ecuadoran Government would undertake to grant no further aviation concessions or franchises except to citizens of the American republics or to organizations owned, operated and controlled by such citizens.
3. It would of course be provided also that present Panagra cabotage and other contractual rights in Ecuador would be maintained.
4. The method by which elimination of Sedta will be effected must, of course, be left to the decision of the Ecuadoran authorities. In the [Page 843] event funds are required for this purpose, such funds as may be necessary, after an accurate determination of the value of Sedta assets, will be made available by this Government through the new national company as outlined in paragraph 6 of this telegram, without cost to the Ecuadoran Government.
5. The service provided by Panagra would comprise a trip at least once a week in each direction between Esmeraldas, Quito, Manta, Salinas, Guayaquil, Cuenca and Loja, or such other points as now served by Sedta and to which the Ecuadoran Government may desire service, in addition to the present international service three times a week in each direction between Quito and Guayaquil. Rates for the new service would be no higher than the scheduled Sedta rates as of July 1, 1940. As soon as the organization and operating contract outlined in paragraph 6 of this telegram are established, services would be instituted between those of the cities mentioned in this paragraph where adequate ground facilities now exist, and service would be instituted to the rest of the cities mentioned as soon as satisfactory ground facilities could be provided. Panagra would cooperate with the Ecuadoran Government to the end that such ground facilities may be promptly established.
6. The new Ecuadoran domestic services would be provided by Panagra through the organization of an air transport company which it would incorporate in Ecuador and which would perform the services by the arrangement of an operating contract with Panagra so that the service would actually all be performed by Panagra but under the insignia of the Ecuadoran national company. For your confidential information, in order to take advantage at first of the proviso in the last sentence in Article 20 of the Sedta 1938 contract, it would seem advisable to emphasize the Panagra identity of the new Ecuadoran subsidiary company; but as explained in the last sentence of section 2 (a) of the Department’s telegram no. 87 of July 3, this company might in due course be developed into an Ecuadoran-controlled air transport company through purchase of controlling interest by the Ecuadoran Government and/or Ecuadoran nationals. The attitude of the Ecuadoran Government toward this possibility will determine whether you consider it advisable to discuss it at this time.
7. You should emphasize to the Ecuadoran authorities again that Panagra has offered, in connection with the operation of the new Ecuadoran domestic services, to provide facilities for training Ecuadoran mechanics and technicians.
8. With general reference to all of the foregoing, it may be stated for your strictly confidential information that Panagra has indicated an interest in undertaking, in addition to the foregoing and as a direct Panagra operation, a fourth trip per week in each direction from [Page 844] Guayaquil and Quito to Cali and Panama. The Civil Aeronautics Board has indicated that it is favorably disposed toward this additional service but has not yet given formal approval to the service mentioned in this paragraph, so you should not mention it to the Ecuadoran authorities at this time.