E/TRC/AV files, lot 59 D 206, “Middle East—General 1945–1954”

Memorandum by the Civil Air Attaché for the Middle East (Thayer) 1

secret
  • Subject:
  • Aspects of United States Policy Toward Certain Aviation Problems in the Near and Middle East.

On the basis of observations by the Civil Air Attaché, three major aspects of United States civil aviation policy toward the Near and Middle East merit review at the present time as follows.

(1)
Associated airline contracts.
(2)
Re-equipment of regional carriers with new aircraft.
(3)
Development of adequate navigational aids and communications facilities.

The strategic importance of the Near and Middle East, in relation to the world situation, and the nature of the political, economic and psychological structure of society in this area are such that a more clearly defined and aggressive policy toward these three problems appears desirable in the furtherance of general American foreign policy objectives.

A basic United States policy objective toward the Near and Middle East is to orient the peoples and governments of the area in the direction of the United States and our Western allies in view of (1) the oil resources of the area, (2) the strategic location of the area in terms of world shipping and air transport routes, (3) military requirements for base rights. Various tools of foreign policy have been chosen to accomplish this objective, including governmental economic and military aid programs, and support of private American educational, religious and commercial activities. The development of U.S. national interest air routes as well as the assistance rendered through government and private channels toward the development of regional air transport have also been an instrument of foreign policy.

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Associated Airline Contracts

The assistance rendered by American aviation interests in establishing and operating important elements of the regional air transport system through associated airline contracts has contributed substantially toward the achievement of the above basic objective. Following World War II, it became possible for the advances made in aeronautics to be applied to the solution of the transport problem of this area where surface means of transport were either nonexistent or inadequate. This was possible because of the development of transport aircraft during the war, the wartime construction of ground facilities, and the availability of surplus transport type aircraft at very low cost from United States sources. Of all the powers, the United States thus was in the best position to assist the countries of this area in the establishment of regional and local air services adequate to their needs and in so doing to promote American political, economic, and strategic objectives in the area. The negotiation of management contracts and/or partnerships between American carriers and Iranian Airways, Saudi Arabian Airlines, Ethiopian Airlines, Greek National Airlines, Syrian Airlines, and Middle East Airlines are examples of what was and has been done in this direction. The commercial interests of the air carriers in the development of feeder lines and the creation of a friendly political atmosphere in the states through which certificated trunk routes were to be operated were motivating factors insofar as the American companies were concerned. This farsighted policy on the part of the U.S. Government and the air carriers, (despite reverses in Iran and Syria which led to withdrawal of the American companies) resulted in placing American aviation interests in a predominant position in Saudi Arabia, Ethiopia, and Lebanon. In these three states, the associated airline contract constitutes one of the most important tangible evidences of American activity and interest in the country. In all three countries in varying degrees the technical and/or management assistance rendered through private channels is of the utmost importance in the maintenance of the air transport system. In Saudi Arabia and Ethiopia the airline provides virtually the only means of tying the country together and is therefore essential to economic and political stability. These contracts provide the means for a continuing program of technical and management assistance through non-governmental channels to a vital public service at a minimum cost to both the United States and the country concerned. As such, these contracts demonstrate what can be done through private investment channels in the furtherance of our objective of helping the foreign country to improve its economy. The associated airline contract also provides a means [Page 410] for establishing the type of relationship between the United States and foreign countries which affords the best long range opportunity for building a better understanding of Americans, American techniques and the American way of life. Furthermore, the dependence of a foreign government upon American assistance of this type for the maintenance of a vital segment of the economy of the country encourages the orientation of the government of that country toward the United States. Contrary to programs of assistance through government channels, the development of increased relationships on a private level provides a more normal and permanent basis for close relations with the United States.

Lastly, the military advantages of foreign airline associated contracts are believed important, including the opportunity provided for intelligence, the availability of airlift under American control, and the building up of a corps of trained American personnel familiar with local conditions, and skilled in flying under the unique conditions of this area.

If it be assumed, therefore, that the associated airline contract can in many cases further U.S. national interests, two questions arise:

First, whether the American carrier should be required to defray the costs arising from a contract of this kind which are not defensible for purely commercial reasons. For example, TWA has clearly indicated that its connection with EAL would be terminated forthwith were it not for considerations of U.S. foreign policy. How long these broader objectives of national interest can be protected in the face of a situation which places an increasing financial burden upon TWA is doubtful. If the American carrier is to serve as an instrument of national policy in such cases, it would appear reasonable that the U.S. Government should be prepared to bear costs which can properly be ascribed to the public interest.

Secondly, if currently effective associated airline contracts in this area have served the U.S. national interest, a question arises as to whether in certain specific cases it would not be wise to encourage additional arrangements of this type by joint effort of government and industry, under a plan whereby the government would undertake, as suggested above, to compensate the carrier for losses incurred in the public interest, such as advances to cover unpaid debts, losses due to inconvertibility of funds paid the managing carrier in local currencies, etc. Three potential opportunities for associated contracts with foreign carriers in this area which would appear to be commercially unattractive but in the best interests of the United States are; Iranian Airways, Air Jordan, and MISR Airlines.

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With respect to Iranian, the Embassy at Tehran has already analysed the factors of U.S. national interest involved in keeping the national airline in operation with Western rather than Soviet assistance, and has indicated the requirements of Iranian Airways for equipment and personnel. Failure to maintain Iranian Airways services through outside help from non-Soviet sources might well provide unfriendly elements in Iran with the opportunity for seeking Soviet aid. A first step toward Soviet penetration of Iran could well be an attempt to place the air transport system under Communist control. It would not be the first time that foreign subversion of a state began by attempts to control the transport system. The U.S. Government fully recognized the danger in South America shortly after the outbreak of World War II and conducted an aggressive program to combat German infiltration of Latin American aviation.

With respect to Jordan, Air Jordan in association with Trans-ocean represents the sole American business venture in the country, is understood to be in a very shaky financial position, and is under pressure by British interests who probably wish to exclude this type of American influence from the country. Transocean does not now appear to be in a position to provide the financial backing to place Air Jordan on its feet in order that the operation may be conducted in accordance with accepted airline practices. In view of this situation it is possible that insufficient support by the American associate may bring about a condition which will reflect unfavorably rather than creditably upon American aviation generally and may adversely affect the climate for additional American investment.

With respect to MISR, the Embassy at Cairo is of the opinion that the negotiation of a management contract with an American carrier (logically TWA) would advance U.S. objectives in Egypt. The Embassy therefore is hopeful that some form of contract will be entered into. In all probability an examination by TWA of the factors involved in concluding a management contract will reveal at least two problems to be overcome; namely, (1) conversion of earnings under the contract, and (2) the requirement of MISR for a substantial increase in capital for the purchase of new equipment. Whether TWA will be in a position to invest large sums in MISR and whether such investment would be viewed sympathetically by the Civil Aeronautics Board are questions which would require study. Prior to the time when the above probable obstacles in the path of the conclusion of a contract between an American company and MISR lead the American interests involved to react negatively to a specific MISR proposal, it would seem that avenues of U.S. [Page 412] Government assistance to the American company should be explored fully.

Re-equipment of Regional Carriers with American Manufactured Aircraft

The problem of associated airline contracts and the problem faced by the regional carriers of this area in obtaining modern aircraft to replace equipment becoming obsolescent are closely related. Factors of U.S. public interest in the continued use of American aircraft by foreign carriers in this area have been outlined in Beirut despatch No. 473 of February 172 and are believed applicable elsewhere in the Near and Middle East. Present trends toward increasing incursions into the U.S. aircraft export market in this area indicate the desirability of a study by the Department and other interested agencies of steps which might be taken to encourage the purchase of American equipment by foreign carriers. While it is true that extending governmental aid to promote the sale of American aviation products in competition with British manufacturers raises a policy question of the extent of U.S. interest in the British economy, it is felt that the issues involved should be considered in all aspects including the apparent political purposes behind current British efforts to sell British equipment to airlines in this area, as well as the political and strategic interests of the U.S. in the Near and Middle East.

Major difficulties facing local carriers desiring to purchase new American equipment are:

(1)
The absence of a relatively low priced replacement for the DC–3, C–47, C–46 aircraft in use in this area.
(2)
The inability of many Near Eastern carriers to finance new equipment due to low capitalization and lack of reserves for such purchases. The policy of a quick return on capital invested so typical of Eastern business policy has now “come home to roost”.
(3)
Foreign exchange difficulties.
(4)
Unavailability of financing terms competitive with those which foreign manufacturers are able to quote by virtue of governmental subsidy or loan assistance.
(5)
The limitation upon export availabilities caused by military production demands, which in turn has tended to cause American manufacturers to minimize sales efforts in soft currency areas.
(6)
The psychological factor, namely the inherent preference for four engined rather than two engined equipment. This problem is most apparent in any consideration of the advantages of the Vickers Viscount versus the Convair 340 for use on regional services.

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If American equipment is to remain predominant in this area, a way must be found to offer the Convair 340 or similar aircraft at prices and on terms competitive with the Viscount. This might be done by offering longer term and more liberal loans to the prospective purchaser or seller. The availability of this type of assistance should, however, be reasonably certain in advance in order that the seller may be in a position to quote accordingly. Secondly, manufacturers should be encouraged to be more aggressive in their sales efforts once governmental support is assured. Numerous aviation officials in this area have expressed the opinion, for example, that Convair appears somewhat less interested than Vickers in selling its aircraft. Thirdly, in cases where the U.S. national interest would clearly be served thereby, means should be at hand, if feasible, for placing priority on the delivery of aircraft to selected foreign customers. As pointed out in a recent despatch from London, British European Airways has released to foreign purchasers aircraft on order scheduled for early deliveries to BEA. Fourthly, an effort should be made to educate the public away from technically unsound beliefs concerning the lesser safety of two as opposed to four engined aircraft. A statistical analysis of accident rates per miles flown by four and two engined aircraft might be useful in this connection. Lastly, and perhaps in some respects most important, the desirability of developing an economical and less expensive replacement for the DC–3 should again be reviewed, bearing in mind that time is a real factor insofar as putting such an airplane in use in this area is concerned.

It is generally conceded that there may be too many airlines in this area. Those who obtain modern equipment first will be most likely to survive the coming financial storms and remain in business on a reasonably sound economic basis. If the United States has reason to be concerned that the airlines associated with American interests continue to develop and to provide the major share of the airlift in this area, ways should be explored to assist in overcoming the difficulties outlined above.

At the present time, it is believed important to concentrate upon the provision of new aircraft to BEA and MISR Air in particular.

The promotion of a reasonably sound air transport system in the Near and Middle East is important not only to American national interests in the direct sense. The economy of the area depends in large measure upon this air transport system. At a time when U.S. efforts are directed toward economic development of the area, assistance toward the purchase of more modern airline equipment would be an important factor toward a strengthening of the transport system of the region. Unless the existing airline fleets of the stronger regional carriers can be modernized, it is unlikely that the [Page 414] air transport system can indefinitely meet the needs of the economy of the region or continue to stimulate economic growth. A program of loan or grant assistance for the purchase of new equipment by carriers serving this area therefore appears a desirable part of an economic development program. Such assistance, while relatively unique as concerns the Near and Middle East would not be new, witness grant aid programs to France and Italy under ECA for the purchase of modern four engined equipment to rehabilitate the international air transport systems of those countries. Furthermore, an aid program to Near and Middle Eastern carriers such as suggested would not involve providing them with equipment competitive with U.S. subsidized airlines and would be consistent with our policy of encouraging export markets for United States aircraft manufacturers in the interest of minimizing the impact upon this vital industry of a decline in military purchases.

Development of Adequate Navigational Aids and Communications Facilities

The need for improvement of ground aids to air transport in this area has been recognized by airline operators, by ICAO, and by United States technicians. Progress toward rectification of some of the most glaring deficiencies is being made slowly by the governments concerned both with and without U.S. assistance. An expanded program of technical and financial aid from fiscal 1954 appropriations for economic and military aid to this area is needed and it is hoped will be recommended during the course of the next few months as area requirements can be more clearly defined by personnel now in the field. Agreements covering the installation of VOR equipment at Beirut have virtually been completed and similar agreements are under discussion with respect to Saudi Arabia and Egypt. It is hoped that funds can be obligated for equipment in these two countries prior to July 1953. A recommendation from Washington to the TCA Country Directors to the effect that every effort be made to obligate funds for this purpose within current fiscal 1953 programs would be helpful.

The need for, as well as the use of, improved aids is regional in scope. Allocation of funds on a country by country program basis therefore appears somewhat unrealistic. A more logical approach might be to earmark sufficient funds from overall aid program funds for the Near and Middle East to permit allocation of monies to country program funds as specific projects are developed and approved. The objective of bringing about improvement of ground aids which are used regionally and benefit the area as a whole would thus be assured without regard to country program planning. In some cases, a facility may be required for use by foreign [Page 415] carriers operating into a given airport or along a route where only an indirect benefit to the state in whose territory the facility is located can be seen. In cases of this kind, TCA may be reluctant to provide, from country program funds, an allocation to cover the cost of installing the equipment. It is suggested that an administrative decision in Washington to place the carrying out of the program under discussion on a regional basis is desirable.

Given the attitude of suspicion which exists on the part of many Near Eastern States concerning motives behind U.S. Government administered programs of aid, the desirability of channeling assistance toward the development of ground facilities through U.S. airline organizations to the extent feasible might be considered. In this way the air carrier, under contract to the U.S. Government, would undertake to provide the equipment and the necessary installation and training.

Recommendations

1.
That the active promotion of associated airline contracts between American air carriers and local and regional airlines in the Near and Middle East be made a policy objective; that, in cases where an associated contract considered to be in the U.S. national interest places a financial burden upon the American company (over and beyond that which, in the case of certificated carriers, can reasonably be viewed as a cost incident to performance under its certificate of public convenience and necessity, or in other cases would otherwise make the association commercially unfeasible) financial assistance be extended by the Government to the U.S. carrier involved.
2.
That in cases where U.S. foreign policy objectives would be advanced through the purchase of American manufactured equipment by airlines of the Near and Middle East;
(a)
liberal loan terms be made available to the prospective purchaser or seller,
(b)
priorities on delivery of new equipment be established,
(c)
the manufacturer or seller be encouraged to aggressively promote the sale of the equipment.
3.
That a regional program for development of air navigation and communications facilities in the Near and Middle East with U.S. Government assistance be established in its general outlines with funds tentatively allocated to supplement country programs as projects are drawn up and approved for implementation through established country program organizations.
  1. A covering memorandum by Thayer to Assistant Secretary of State for Near Eastern, South Asian, and African Affairs Henry A. Byroade, dated May 15, 1953, indicates that this memorandum was prepared with the concurrence of Ambassador Minor for presentation to Byroade during his visit to Beirut with Secretary Dulles and Director for Mutual Security Harold E. Stassen. For additional documentation concerning the Secretary’s and Stassen’s trip to the Middle East, see volume ix .
  2. Not printed. (483A.119/2–1753)