835.796/256
The Ambassador in Argentina ( Armour ) to the Secretary of State
[Received May 11.]
Subject: Corporación Sudamericana de Servicios Aéreos.
Sir: With reference to the Department’s strictly confidential telegram no. 594 of April 28, 8 p.m. regarding the possible inclusion of the above named company on the Proclaimed List, and to the Embassy’s telegraphic reply no. 811 of May 2, 3 p.m.,10 I have the honor to report the following additional information.
Mr. Grant Mason Jr. of the Defense Supplies Corporation arrived in Buenos Aires on the afternoon of April 29 on his way to the United States, and left for Rio de Janeiro on the morning of May 1. In company with Mr. Thomas D. Park11 and Asst. Commercial Attaché Walstrom, he conferred on April 30 with Dr. Samuel Bosch, director of civil aeronautics, in order to discuss American technical assistance in developing an Argentine civil flying program (referred to in Embassy’s confidential despatch no. 4870 of April 2712). At this meeting Dr. Bosch stated his desire to have Mr. Park remain here to help establish an advanced flying school, and also agreed that one or two more American advisers should be obtained, if possible, for a period of one to two months. (See Embassy’s confidential despatch no. 4933 of May 2.)12
The placing of the Corporación on the Proclaimed List would not be in harmony with our efforts to assist in the general development of Argentine flying. Consequently, the opportunity was taken to inform Dr. Bosch that the airline was still being seriously considered for listing. However, the possible embarrassment or difficulties arising therefrom apparently were not considered serious enough by Dr. Bosch for him to withdraw his request for continued assistance from Mr. Park and other advisers.
Apropos of the 60-day extension granted to the Corporación for improving its situation, Dr. Bosch was questioned as to what progress [Page 438] had been made recently. He asked Messrs. Mason and Walstrom to return to his clinic that evening, when he would show them a report submitted on this subject by the Corporación to the Bureau of Civil Aeronautics. It was agreed that it might be advisable to invite Dr. Ramón Castillo Jr., son of the Acting President who is affiliated with the company, to this meeting for a frank discussion, but it developed that he was out of the city.
The Corporación report shown to Messrs. Mason and Walstrom by Dr. Bosch outlined the claims of this company as to the manner in which it had complied with the Government’s requirements, as set forth in the official decree of December 22, 1941, wherein the airline’s concession was revised and the Government made stipulations regarding nationality of personnel and improvement of the company’s financial situation. A translation of this decree was given in the Embassy’s report no. 789 of January 22 (“Argentine Aviation Notes”).14
Article VII, paragraph 2, of this decree reads as follows:
“The president of the board of directors of the company, at least two-thirds of the members or administrators and the manager, should be native or naturalized Argentines with a minimum of ten years citizenship.”
The Corporatión’s report, which apparently was submitted during the first part of April, gave the following revised list of the board of directors:
- Carlos Rueda, president (Argentine);
- Ricardo C. Cranwell, 1st vice-president (Argentine);
- Ramón Castillo Jr., 2nd vice-president (Argentine);
- Roberto Magugliani (Italian);
- Carlos Menendez Behety Jr. (Argentine);
- Wenceslao Escalante (Argentine);
- Francisco Roncoroni (Argentine);
- Enrique Lorenzo Mira (Argentine);
- Pierre Colin Jeannel (French);
- Enrique Mario Vasquez, manager (Argentine).
Dr. Bosch said that the above complied with the Argentine requirements as to nationality, but that he was suspicious that the two foreigners, Magugliani and Jeannel, exerted an abnormal amount of influence in the company’s operations, and that he was considering the appointment of a supervisory commission to make sure that the Corporación was administered as a truly Argentine company. Attention is invited to the enclosure forwarded with the Embassy’s confidential despatch no. 4600 of March 27, where it is mentioned that the majority of the directors is either affiliated directly with Fiat or else connected with that company’s firm of legal advisers.
[Page 439]Article VII, paragraph 3, of the aforementioned decree reads as follows:
“The company shall proceed within the period of 60 days from the date of the present decree: a) to clear up its financial situation through the elimination of its balance of losses; b) after having amended the statutes to increase the capital under the following conditions: the new investments shall be effected through the issuance of nominative shares, intransferable without authorization of the Executive Power, whose subscribers, in the proportion necessary to constitute an absolute majority of the whole of the firm’s capital, should be native or naturalized Argentines with more than 10 years citizenship. Excess shares shall be taken up only by stock companies or private individuals residing in the country.”
The Corporación’s report said that at the stockholders’ meeting of last December 23, it had been resolved to reduce the capital by 70 percent, which would conform with stipulation “a” in paragraph 3, Article VII, of the December 22 decree, since the balance sheet as of September 30, 1941, is understood to have shown a loss of about 585,000 pesos, and the capitalization at that time was approximately 815,000 pesos.
The Corporación’s report also said that on March 28 it had been decided to issue two new stock series of 10,000 shares each with a value of 30 pesos per share, in order to raise the company’s capitalization to its previous level. (Mr. Mason suggested the possibility that the new capital subscribed might be used to pay off some of the debt to Fiat and Ala Littoria.) The report likewise showed a list of stockholders, and the number of shares held by each. Of a total 27, 166 shares of stock, 18,593 or 68.44 percent were held by Argentine citizens, whereas the balance was held by companies and individuals not necessarily Argentine. This also appears to conform with stipulation “b” in paragraph 3, Article VII, quoted above. The list showed that Fiat held a relatively small block of shares, although Dr. Bosch admitted confidentially that it would be possible for Fiat to make fictitious stock transfers to individuals.
Incidentally, in referring to its compliance with other stipulations of the decree, the Corporación mentioned that its insurance had been placed with British Aviation Insurance Company Ltd. and Aviation & General Insurance Company Ltd., 3–4 Lime St., London.
It appears that the Argentine authorities are endeavoring to make the Corporación as Argentine as possible, and that certain progress has been made. It is also evident that Dr. Bosch himself is quite sincere. However, he admitted that it was difficult for him to effect a complete elimination of Italian influence. The Corporación having ostensibly complied with the stipulations in the December 22 decree, and a notable improvement having been effected in the company’s [Page 440] financial situation and in the elimination of practically all non-Argentine personnel, it might be difficult for Dr. Bosch to make further demands without antagonizing the friends of the Acting President affiliated with the company.
Nevertheless, it was pointed out to Dr. Bosch that the Corporación apparently was still heavily indebted to Fiat and Ala Littoria, and that the primary interest of at least some of the directors would be in liquidating this obligation to the Italians. Dr. Bosch thought he could demand that this not be done, and that whatever earnings accrued under the revised concession should be used for improving the service and not for paying off questionable commitments incurred previously. Mr. Mason mentioned that when he was a member of the Civil Aeronautics Board, this principle had also been followed in certain cases involving U. S. subsidies to American airlines.
Dr. Bosch was told that while the inclusion of the Corporación on the Proclaimed List might still be considered necessary, some consideration would be given to an arrangement whereby the Corporación would agree to the freezing of its debt to the Italian interests, and the blocking of any profits which might find their way into pro-Axis hands. Dr. Bosch seemed to think that this would be a good solution, and it was the general impression that, should this meet with the approval of Washington, such a proposal would be made to the Corporación by the Embassy.
Dr. Bosch was not fully familiar with certain aspects of the Corporación’s reorganization, and as stated above, he further admitted that it might be possible for the company to effect fictitious stock transfers. However, if the company is willing to consider the blocking of its funds, it is believed that this would offer the Embassy an opportunity to demand full details as to its finances.
Previous despatches (Nos. 4383 and 4600 of March 11 and 27) have outlined the reasons for not taking definite action against the Corporación up to the present time. To recapitulate, the principal restraining factors are as follows:
- a)
- Both the son and the law partner of the Acting President are directors of the company, and the placing of the airline on the Proclaimed List might antagonize the Argentine authorities and prejudice the heretofore satisfactory operation of the Proclaimed List in Argentina.
- b)
- It is generally conceded that present operations of the line constitute little or no threat to hemisphere defense. It offers a public service to Argentina, Uruguay and Paraguay, and if it is forced to suspend operations due to inability to get gasoline, apparently we are in no position to offer a substitute service, as we have done in other countries.
Under normal circumstances the Embassy would have recommended the inclusion of this firm on the Proclaimed List. Due, however, to the above mentioned considerations, it is felt that other possible solutions should be explored before taking final action. Consequently, my telegram no. 811 of May 2, 3 p.m.,16 requested the Department’s opinion as to the advisability of a proposal for blocking this company’s funds.
Respectfully yours,