JORDAN: YET ANOTHER DELAY FOR BOEING

UNCLAS SECTION 01 OF 02 AMMAN 007229

SIPDIS

SENSITIVE

USDOC FOR ADVOCACY CENTER - C JAMES
USDOC FOR 4520/ITA/MAC/ONE/COBERG
EXIMBANK FOR ROBERT MORIN
TDA FOR STEINGASS/SIGLER

E.O. 12958: N/A
TAGS: BEXP EFIN EAIR JO
SUBJECT: JORDAN: YET ANOTHER DELAY FOR BOEING

REF: AMMAN 6022

SENSITIVE BUT UNCLASSIFIED. PROTECT SENSITIVE BUSINESS
INFORMATION.


1. (SBU) Summary. Minister of Transportation Nader Dahabi
informed the Charge that an independent airline consultant
has been brought in to analyze Boeing/Airbus offers to sell
short-haul jets to Royal Jordanian Airlines (RJ) (REFTEL).
The analysis, which will delay yet again a decision by RJ by
approximately six months, will be done as the government and
RJ deliberate a proposal that the Social Security Corporation
(SSC) purchase the jets and lease them back to RJ. This
delay is likely to disappoint Boeing as it further extends an
already long and arduous process. End Summary.

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YET ANOTHER DELAY
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2. (SBU) During a meeting that covered a range of
transportation issues (SEPTEL),Minister Dahabi informed the
Charge that, as a possible option to upgrade Royal
Jordanian's fleet (REFTEL),the Ministry of Transport (MOT)
may ask the Social Security Corporation (SSC) to purchase the
jets and lease them back to RJ. Dahabi said he is going to
sit down with the minister of Labor and the CEO of the SSC to
"look at RJ's case". If it looks like the right idea, the
SSC will negotiate directly with RJ. He emphasized that the
SSC would need to see a viable business plan from RJ to be
sure the investment makes sense.


3. (SBU) Concurrently, Dahabi said, RJ has asked an
independent airline consultant, SH & E, to examine competing
offers from Boeing and Airbus to determine which would be
best for RJ, or whether leasing rather than direct purchase
might be a more viable option. He said SH & E, which is
based in London but has offices in New York and Chicago,
would come to Jordan after the holidays to begin the
analysis. He said using an external consultant would ensure
that the process was transparent. Acknowledging that this
would stretch out the process, Dahabi said that "if we take
another five to six months, it won't hurt us". He added that
he had recently informed the French Ambassador about the SSC
option, but had yet to inform him about the consultants.


4. (SBU) Dahabi said, in a meeting RJ CEO Samir Majali had
with PM Abul Ragheb two months ago, the PM advised Majali and
the RJ Board that "now was not the right time to buy, because
we don't know what will happen with Iraq". Dahabi said the
PM suggested that, given cash flow concerns at RJ, leasing
might be a better option. He reiterated the government's
strong position that it would not guarantee any RJ loans,
consistent with its strategy since 1994, and RJ's status as a
self-sustaining company, even if state-owned.


5. (SBU) Dahabi said that the Jordanian Government and RJ's
caution goes back to the Gulf War. He said RJ made a deal in
1987 to purchase 14 Airbus A-310s. The first one was
delivered on schedule in 1990. However, with the impact on
air travel due to the Gulf War, RJ was unable to make its
monthly payments and defaulted. When Dahabi became CEO of RJ
in 1994, he said he noticed that RJ was paying JD1 million
($1.4 million) per month for the deal, "twice what anyone
else in the world was paying for A-310s". He said RJ
defaulted again, and, following a restructuring of the deal,
is still paying $500,000 per month. (Note: Despite the
government's and RJ's wariness over the 1987 deal, RJ
concluded a deal in January with Airbus to lease widebody
aircraft. End note.)

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COMMENT
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6. (SBU) Thus opens yet another chapter in an unnecessarily
long saga. While the possibility of the SSC getting involved
in the RJ deal is intriguing, Boeing is likely to be
disappointed by the selection of an independent consultant to
analyze the Boeing/Airbus offers. We are inclined to be
skeptical of the additional credibility it could bring to the
process, which has already been painstaking. In the past,
Boeing has been reluctant to share proprietary information,
so a lot will depend on the consultant to be selected. We
will continue to keep a close watch on the process, with
particular emphasis on the prospective benefits to the
bilateral relationship of contracts being awarded to Boeing
as soon as possible.
BERRY