CIVIL AIR TRANSPORT, INC.

• Document Type: FOIA
• Collection: FOIA Collection
• Document Number (FOIA) /ESDN (CREST): 05267575
• Release Decision: RIPPUB
• Original Classification: U
• Document Page Count: 12
• Document Creation Date: July 13, 2023
• Document Release Date: August 29, 2022
• Case Number: F-2019-01100
• Publication Date: June 1, 1950

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DRAFT
CIVIL AIR TRANSPORT, INC.
1. Problem
ite,oF
95 0
To make recommendations for a course of action concerning Civil
Air Transport, Inc. and the former assets of CATO and CNAC outside
Communist China.
2. Facts Bearinkon the Problem
a. Upon the fall of Canton, Generalissimo Chiang Kai-shek was
unable to secure compliance with his orders to Hong Kong elements of
the China National Aviation Corporation (CNAC) and the Central Air
Transport Corporation (CATC) to bring the planes, physical assets
and other resources of these organizations at Hong Kong to Formosa.
There ensued a complicated
and reorganization actions
proceedings covering three
b.
and tortuous series of business organization
and formalities, court actions and legal
continents which is still in process.
reported in December 1949 that the CNAC
inventory included five DC-4 (C-54) planes, thirty C-46's, eleven
0-471s, four DC-3130 one AT-6 and a FEY on charter from Air Carriers
Limited. The assets of CATO apparently included some 5 or 6 Convairs
and additional planes. On 30 March 1950, Rankin, Department of State,
Hong Kong, relayed a report of Biennan, CAT, that latter's rep-
resentative had seen the following aircraft stored at various places
in Kaitak air port:
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Type
CNAC
CATC
TOTAL
C-46
18
18
36
C-47
61
172
231,2
DC-4
5
0
5
Convair
0
5
5
PBY
1
0
1
AT-6
1
0
1
311 711,2
TOTAL 402
1
Plus one
2
Plus one
C-47 in inoperable condition, partially dismantled.
C-47 in inoperable condition, partially dismantled.
The assets at Hong Kong of these organizations also included consider-
able quantities of spare parts, machinery, tools, materials and other
property. In November 1949 our field staff reported that a conservative
evaluation of the assets then held by CNAC and CATC was in the orddr of
30 million dollars. Since the fall of Canton these assets have suffered
considerably from weather action, theft and sabotage, particularly by
removal of vital parts fran aircraft. Some of these parts and other
materials have been reported removed from Hong Kong. A considerable
quantity was reported to have moved toward Canton.
c. The British recognition of Communist China has highly com-
plicated the problem of denying these former CNAC and CATC assets to
the Chinese Communists. As a part of the efforts to achieve this
denial, the officials in authority of the COX and CATC and of the
Chinese Nationalist Government transferred the ownership of these
enterprises to General Claire L. Chennault and Mr. Whiting Wiflauer
on or about 11 December 1949. Chennault and Willauer then transferred
their holdings so obtained Igepervare corporation entitled isCivil
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Air Transport, Inc.", which was formed for the purpose. Legal guidance
in these operations was supplied by Mr. Thomas O. Corcoran, attorney,
Washington, D, C. The CiTC had been wholly owned by the Chinese Nationalist
Government. This government, however, only held SO% ownership in
CNAC and the remaining 20%, was held by Pan American Airways. In order
that Civil Air Transport, Inc. might obtain complete title to all of
the assets of CNAC, arrangements were made through Mr. Corcoran whereby
an unknown source, presumably Chinese, (and rumored to be T.V.Soong or
someone associated with him) advanced $1,250,000 which was paid to Pan
American for their 20% ownership. Payments made by Chennault and
Willauer for the assets of CNAC and CATC apparently have been in the
nature of promisory notes and agreements to take contingent actions
should the appropriate opportunities arise.
d. The former CNAC and CATC planes have now been registered as
American-owned by the U.S. Civil Aeronautics Authority. Strenuous
efforts have been made in Hong Kong to secure a determination by
court action that these assets are the property of Civil Air Transport
Inc. and to obtain full legal title and posseesion for this company.
Through February 1950 the actions of the Hong Kong courts were un-
favorable. Appeals were made and United Kingdom King's Order in
Council threw the problem back to Hong Kong courts where litigation
is still in process. After several thousand dollars had been expended
to pay for the services of British lawyers in Hong Kong, General William
Donovan and a legal team which he assembled, the sources of ready funds
* Some rumor has held that Pan American activities in China over a
number of years have included fronting for T.V. Soong interests.
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for these purposes became greatly limited. In order to avoid possibly
unwise further complications it was deemed appropriate for OPC to loan
to Civil Air Transport some $12,000 to defray legal expenses and
recent approval has been given to make a further loan of $5,000.00 for
this purpose.
e. For the moment, the process of litigation continues to deny
to tlis Chinese Communists the use of the airplanes which formerly
belonged to CNAC and CATC and the use of a considerable quantity of
other assets which formerly belonged to these organizations. The
British are under pressure from the Chinese Communists to assure that
the latter secures title and possession of these assets. Our field
staff reported in late November that the Chinese Communists had publically
proclaimed that a billion dollars worth of British assets in Shanghai
would be forfeit if the CNAC and CATC properties were not released to
the Chinese Communists. The U.S. Department of State has made strong
representations to the British authorities both in London and Hong
Kong to the effect that they wished these assets denied to the Chinese
Communists and that they wished them releasedcto the American owners.
f. The King's Order in Council which was issued daring the second
week of May 1950 returned to Hong Kong jurisdiction the problem of the
determination of ownership rights which was raised in litigation with
Civil Air Transport, Inc. as plaintiffs and CNAC and CATC as defendants.
Accordingly, on 19 May 1950 the attorneys for Civil Air Transport, Inc.
issued writs against CNAC and CATC holding that the plaintiffs are the
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owners of the aircraft, equipment, etc, as defined in the Order in
Council and that they are solely entitled to possession thereof.
By 25 May 1950 the attorneys for Civil Air Transport, Inc. had been
unable to get the solicitors for CHAC and CATC to accept service of these
writs on behalf of CNAC and CATC. On 31 May 1950, therefore, the
attorneys for Civil Air Transport, Inc. presented a petition to the
Hong Kong courts requesting directions of the court as to the mode in
which service of such writs should be effected. At the tine the writs
were issued, on 19 May 1950, it was thought that the suit for deter-
mination of ownership probably might come before Justice Williams of
the Hong Kong courts sometime in the winter of 1950-51. This
apparently was the status of the litigation as of the beginning of
June 1950.
g. As of the end of May 1950 the Hong Kong Civil Aviation Depart-
ment was continuing to refuse representatives of Civil Air Transport,
Inc. permission to inspect and catalogue assets which the corporation
claims to own and which are located at Kaitak airport in Hong Kong.
As of the end of May 1950 the aircraft were in the process of dis-
assembly and a special brick compound was being constructed to protect
the large elements of these aircraft from typhoon damage. This
indicates the high degree of protective measures tieing taken by the
Hong Kong government respecting these assets.
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3. Discussion
a. The "little NSC" has indicated, for example, in the dis-
cussions on 13 March 1950, that it is in the national interest to
deny to the Chinese Communists the aircraft and other assets in Hong
Kong which were previously owned by CRAC and CATC. The representations
by the Department of State to the British, both in London and Hong
Kong, provide a parallel reflection of the national interest. Liti-
gation in the courts of Hong Kong has served and is serving to assist
in denial of these assets to the Chinese Communists. It is, therefore,
appropriate that insofar as funds are not available from resources of
Civil Air Transport, Inc. to defray reasonable legal fees and other
proper reasonable costs incident to continued attempts by the company
in the courts of Hong Kong to obtain legal title and possession of
these assets which were transferred to it late in 1949, that OPC
continue to make loans to Civil Air Transport, Inc. to defray such
proper and reasonable fees and costs.
b. Inasmuch as the British at Hong Kong are caught in the con-
flicting interests of the Chinese Communist Government, which the
British Government has recognized, and the U.S., it is probable that
they will delay making a clear-cut and definitive decision as long as
possible or until something turns up which will permit than a relatively
easy way out. Under these conditions the only sure way to prevent
the former CNAC/CATC assets in Hong Kong fran falling into the hands
of the Chinese Communists is to destroy these assets. For this reason,
at the earliest practicable date plans should be prepared to destroy
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Et,
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these assets in place in Hong Kong. Such destruction will probably
be extremely difficult in view of the high degree of surveillance being
exercised over these assets both by the Hong Kong British authorities
and by the Chinese Communists and their agents. It maybe that the
British would be highly grateful for an "act of God" which mould
destroy these assets. The outside possibility should be explored as
to whether elements of the British Secret Service should be approached
for the purpose of bringing about some "act of God" or reasonable
facsimile thereof which would accomplish the destruction of these
assets.
c. In the event some turn of fortune would provide the British
at Bong Kong a way out which would include awarding title and
possession of the former CNAC and CATC assets to Civil Air Transport,
Inc., the most definite plane possible should be ready for implementation
which would provide for the disposal of these assets, that is, their
removal from Hong Kong to a safe haven, and provide for interim
counter sabotage protection of these assets pending their removal to
safe haven. In order to provide maximum definiteness to preparation
of plans for the destruction of the assets in question and for the
alternative contingency involving their disposal and counter sabotage
protection, specific individuals should be designated to serve on a
task group to make these plans. TO further lend definiteness to the
planning efforts a chief of the task group should be designated and
directed to assume the responsibility for the efforts of the task
group and for the preparation of plans.
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d. In order to have the full benefit of the views of the field
staff and to possibly further sensitize the field staff for the need
for plans and preparation for these alternatives, appropriate messages
should be sent to the field. A draft message to the field is attached
as attachment A. Before this message is dispatched this problem should
be discussed with
who is to be in
Washington in the last half of June 1950. It may be that protective
measures being taken by the British at Hong Kong are so effective as
to require the work of a clandestine survey team before any effective
sabotage plan can be developed.
4. Conclusion
It is concluded that the following recommendations should be
approved and action taken in accordance therewith.
5. Recommendations
It is recommended that:
a. Funds, insofar as unavailable from the resources of Civil
Air Transport, Inc., continue to be advanced to defray reasonable
legal fees and other proper and reasonable costs incident to continued
attempts by the company in the courts of Hong Kong to obtain legal
title and possession of the isomer CNAC and CATC assets in Hong Kong
sold to the company late in 1949.
b. A task group and chief thereof be designated to devise:
(i) Flans to destroy in place in Hong Kong former CKAC and
CATC assets.
(a) The plans be developed at the earliest practicable
date.
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(b) The plans be kept under review until execution
thereof is accomplished or the need therefor no longer exists.
(ii) Plans for disposal and interim counter sabotage pro�
tection of the former MAC and CATO assets should the Hong Kong
courts award title and possession of these assets to Civil Air
Transport, Inc.
c. be directed:
(i) TO forward project plans for:
(a) Destruction of the former CATO and CNAC assets in
Hong Kong.
(b) Disposal and interim counter sabotage protection
of these assets should the Hong Kong courts award legal title
and possession to Civil Air Transport, Inc.
(ii) To continue consideration of these problems and to
furnish amendments to these projects plans as further consideration
and new developments appear to warrant.
d. The foregoing be discussed with
to be in Washington during the last half of June 1950
0 A-
and the substance of attachment be considered in these discussions.
A
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OUTGOING CLASSIFIED MESSAGE
MhliELY MATTER OF TIME.
2. SIMILARLY FURNISH DRAFT WITH YOUR RECOWNDATIONS AND INTENTIONS FOR
DISPOSAL AND INTERIM COUNTER SABOTAGE PROTECTION OF THESE ASSETS SHOULD COURTS
AWARD TITLE AND POSSESSION TO
3. KEEP FOREGOING UNDER CONTINUING CONSIDERATION AND ADVISE CURRENTLY
SIGNIFICANT CHANGES IN YOUR INTENTIONS AND RECOMMENDATIONS AS APPEAR WARRANTED.
PAGE NO.
CENTRAL INTELLIGENCE AGENCY
DATE: 15 June 1950
FROM: Policy Coordination
ROUTINE
PRIORITY
(ORIGINATING OFFICER)
URGENT
PHONE EXT.)
TRANSMIT TO:
SECRET
(CLASSIFICATION)
TO:
TYPE IN CAPITAL LETTERS. DOUBLE SPACED
CITE: WASHEI
(b)(1)
(b)(3)
(b)(1)
(b)(3)
1. AT EARLIEST PRACTICABLE DATE FURNISH DRAFT PLANS WITH YOUR RECOMMENDATIONS
AND INTENTIONS FOR DESTRUCTION OF FORMER
AND
ASSETS IN HONG KONG
TO BE ACCOMPLISHED IMMEDIATELY AFTER IT APPEARS POSSESSION BY CHINESE COMMUNISTS
(W(1)
(b)(3)
GEE FE Plans FE II
RELEASING OFFICER
ADSO
COORDINATING OFFICERS
SECRET
AUTHENTICATING OFFICER
FDZ
(b)(1)
(b)(3)
FORM NO.
35.7
JUN 1948 PREVIOUS
CLASSIFICATION
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MEMORANDUM FOR RECORD
15 June 1950
1. Search of the files fails to show any plan for the
destruction of the former assets of CNAC and CATC located in
Hong Kong which were transferred to the ownership of Civil Air
Transport, Inc. in December 1949. (Our field staff has suggest-
ed that litigation tie up movement until weather deterioration
takes its full toll.) Such plans should be approved and im-
plemented to the point of execution in order that they would be
fully executed immediately after it appears possession of these
assets by the Chinese Communists is merely a matter of time.
(In fact, it might be better judgment to accomplish this
destruction at the earliest possible moment if a sufficiently
satisfactory plan can be devised, that is, with a high probabili-
ty of accomplishing the desired results.) In order to have the
benefit of fuller views of the field staff it is the purpose of
the first paragraph of this message to obtain these views.
2. Similarly a search of the files fails to reveal an
integrated plan for the disposal and interim counter-sabotage
protection of the former CNAC and CATC assets in Hong Kong
should the courts award title and possession of these assets to
Civil Air Transport, Inc. It is the purpose of the second
paragraph of this message to request the views of the field
staff on this problem.
3. This message requests the intentions of the field
staff as well as their recommendations for a plan in order that
we may be brought up-to-date as to the field's intention with
respect to these assets and possible sabotage thereof or other
disposal and counter-sabotage protection.
(b)(3)
SEClit
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