444. Memorandum From the Chief of the Aviation Division (Snowdon) to the Office of Southwest Pacific Affairs1

SUBJECT

  • Briefing Material for Ambassador John D. Hickerson re Philippine Air Transport Agreement

REF

  • Telephone Conversation Jarvis–Meadows2

We understand that SPA desires to acquaint Ambassador Hickerson with the background on the Philippine Air Transport Agreement along with any information relative to the U.S. position in the contemplated United States-Philippine negotiations. The following represents the situation to date:

Chronology

1.
The original Air Transport Agreement was signed in Manila on November 16, 19463 and provided the Philippines with a route from Manila to San Francisco and beyond over a reasonably direct route via intermediate points in the Pacific which are U.S. territory. In effect this restricted the Philippine-designated airline, Philippine Air Lines (PAL), to a direct route between the two countries without touching another foreign country. The U.S. route provided for service from the U.S. to Manila and beyond via intermediate points. Since the intermediate points were not specified, there were no restrictions on the routes which the U.S. might fly to Manila.
2.
Three U.S. carriers have been certificated by the CAB and designated to the Philippine Government to fly the U.S. route or parts thereof under the Air Transport Agreement—(a) PAA through the central Pacific to Manila and beyond to Hong Kong, (b) Northwest via the north Pacific, Tokyo, Taipeh to Manila, and (c) Trans World Airlines via Europe, Near East, Middle East, Ceylon and Bangkok to Manila. TWA has since suspended service from Bangkok to Manila due to low revenues.
3.
The Philippine Government has evidently felt that the Air Transport Agreement operated to its disadvantage, and at various times has initiated informal discussions with the view toward modifying [Page 939] the Agreement and obtaining additional rights. Such discussions were held in 1950, 1952/53 and in 1957. During the last round of conversations in 1957, tentative agreement was reached on holding formal negotiations for a new route exchange but the negotiations were never initiated due to the failure of the Philippines to present certain economic data requested by the U.S. to substantiate the Philippine route requests. At various times the Philippines has indicated it is interested in the following additional routes:
a)
To San Francisco and beyond via Tokyo and the central Pacific.
b)
To San Francisco and beyond to Mexico City.
c)
To New York and beyond via Tokyo and Alaska.
d)
To San Francisco or Los Angeles and beyond via Tokyo and Seattle.
4.
In 1954 PAL discontinued most of their international services including those to the U.S. because of substantial operating losses. However, it is understood that the U.S. route by itself was profitable.
5.
In March 1959 the Philippines and Japan signed a bilateral air transport agreement providing for service between the two countries on a restricted basis. It was subsequently learned that informal attempts have been made by the Philippines to obtain beyond rights at Tokyo for PAL in exchange for beyond rights for a Japanese airline at Manila. As far as can be determined these efforts have so far been unsuccessful.
6.
In a note dated February 26, 19594 the Philippine Government denounced the U.S.-Philippine Bilateral to be effective March 3, 1959. Under the terms of the Agreement the provisions of the original Agreement will remain in force until March 3, 1960.
7.
Informal conversations between the Embassy and the GOP indicate that the Philippines would prefer to open negotiations in November 1959 for the conclusion of a new agreement. The Department has advised the Embassy that for a number of reasons it will not be possible to hold the negotiations until after the first of the year. No reply has yet been received from this counter proposal.
8.
In the latter part of 1958 PAL signed a contract with the Douglas Aircraft Company for the delivery of two Douglas DC–8s to be used over the international routes. The contract was contingent upon satisfactory performance of certain conditions, namely, (a) conclusion of certain domestic legislation permitting PAL to resume international operations and collect subsidy payments, (b) negotiation of beyond rights with Japan, (c) negotiation of a new agreement with the U.S. providing PAL with a satisfactory route, and (d) conclusion of a loan agreement with the EXIM Bank. The domestic legislation has been [Page 940] passed and a loan agreement completed with the EXIM Bank (contingent on a satisfactory route to the U.S.). Negotiations with the U.S. and Japan have not yet been completed.

U.S. Position in Negotiations

A firm U.S. position has not yet been determined since the industry comments have not yet been received. However, it would appear in the preliminary view that the U.S. would adhere to the position that it has consistently maintained down through the years—that is, the U.S. would be prepared to grant the Philippines a route which can reasonably be justified on the basis of traffic between the two countries. It is evident that the Phils desire above all a route to the U.S. via Tokyo. The Tokyo–U.S. route is the most lucrative in the Orient and probably could not fail to be a profitable operation for PAL. By the same token the Tokyo–U.S. route is the most important route in the Pacific for the U.S. carriers and the one on which they are the most sensitive to competition. Since it would appear that PAL would be largely a fifth freedom carrier between Tokyo and the U.S., i.e., relying primarily on traffic other than that between the U.S. and the Philippines, the American carriers are bound to raise strenuous objections to according PAL this route. The U.S. carriers are likely to argue that the economic benefits accruing to the Philippines by virtue of this profitable route are substantially greater than any benefits U.S. airlines are receiving through their services to Manila. They might well contend that it would be better to cease service entirely to Manila rather than grant this valuable right.

The U.S. philosophy surrounding the negotiation of air transport agreements has been founded on two basic principles—a reasonable exchange of economic benefits and the requirement that the routes provided must be primarily justified on the basis of potential traffic between the other country, e.g., the Philippines, and the U.S. or points beyond the U.S. In the particular case of Tokyo, this criterion would require that a sufficient volume of Philippine traffic destined for the U.S. wished to travel via Japan in order to justify such a route. Some fifty international agreements have been concluded on the basis of these two principles. If the U.S. should make a drastic departure at this stage from the fundamental cornerstone of its international air transport agreements, it could well have widespread repercussions affecting those agreements already satisfactorily negotiated and in operation.

It is anticipated that these negotiations will be difficult. It is probable that the Philippines will be particularly intransigent on the subject of the Tokyo route. It is likely that an attempt will be made to interject political factors into the discussions. It is of course impossible at this time to predict the ramifications of the discussions but it can be safely [Page 941] prognosticated that the U.S. delegation will have a trying task in attempting to reach a satisfactory agreement with the Phils on the basis of economic principles alone.

It is anticipated that the formal U.S. position will be determined in the next month or so at which time it will be communicated to the Embassy in Manila.

  1. Source: Department of State, SPA Files: Lot 63 D 82, Air Agreements. Confidential. Drafted by John S. Meadows of the Office of Transport and Communications.
  2. Francis G. Jarvis was the Officer in Charge of Economic Affairs, SPA. No record of this telephone conversation has been found in Department of State files.
  3. U.S.-Philippine Air Transport Agreement was signed at Manila November 16, 1946; entered into force the same day. (61 Stat. (pt. 3) 2479)
  4. The note was transmitted to the Department in despatch 610 from Manila, March 3. (Department of State, Central Files, 611.9694/3–459)