The Acting Secretary of State to the Ambassador in Mexico (Messersmith)
A–45. The Board of Directors of the Eximbank has been requested to authorize the extension of a line of credit to Aeronautical Radio de Mexico, S.A. in an amount not to exceed $3,000,000 for the purpose of assisting in the purchase of United States equipment, materials and services on the following terms: (1) the line of credit to be outstanding until June 30, 1948; (2) interest rate 4%; (3) repayment of amounts drawn against the line of credit to be made in equal quarterly installments over a period not exceeding 7 years from the date of each withdrawal under the line of credit; (4) assurances satisfactory to Eximbank shall be obtained by the Company from the Government of [Page 998] Mexico regarding the availability dollar exchange required for the full payment of the interest and principal.
If credit is approved Eximbank would be financing approximately 90 percent of cost of new equipment, engineering survey and purchase of existing equipment. The Company would only have to raise approximately $415,000, plus $271,000 for new buildings and lands to meet its anticipated needs of $3,685,251.
The Company states that while the average estimated life of the equipment is 7 years, it is expected that much of it will be useful for 10 years or more after installation. Through the Department of Commerce, a list of the equipment to be purchased has been submitted to technicians of CAA. After review of conditions under which this equipment is to be used in Mexico, Commerce informed the Eximbank that it was its opinion that the installation of low frequency equipment is suitable for purpose involved if proper radio frequency assignments can be worked out. However, Commerce recommended that such low frequency equipment should be replaced by VHF equipment wherever practicable within 5 years.
Eximbank states that Aeronautical Radio de Mexico will operate as a non-profit corporation with all costs of operations plus interest and amortization being made by service charges to stockholders or members on a contractual basis. This, in effect, means that the real security for credits to the Company (other than a possible lien on its physical assets) is the capacity of the service subscribers to meet their contractural obligations.
The Eximbank feels that since the principal subscribers are important subsidiaries of well-established and successful United States air transportation companies and since under their contracts with Aeronautical Radio de Mexico they appear to be jointly and severally liable for all its costs of operation including the interest and amortization on loans, as long as its services are utilized, there would seem to be justification for concluding that payments of credits can be met on schedule.
The Department questions the advisability of giving its approval to the extension of credit under the foregoing conditions.
The Embassy’s comments are urgently requested.