BOEING AND ALITALIA: THE WRITING ON THE WALL?

C O N F I D E N T I A L ROME 004931

SIPDIS


E.O. 12958: DECL: 10/22/2008
TAGS: EAIR ECON ETRD BEXP IT FAA AVIATION
SUBJECT: BOEING AND ALITALIA: THE WRITING ON THE WALL?

REF: 02 ROME 05339

CLASSIFIED BY: ECONOMIC MINISTER-COUNSELOR SCOTT F. KILNER FOR REASONS
1.5 (B) AND (D)


1. (C) SUMMARY: MANY ALITALIA EMPLOYEES BELIEVE THAT THE
MERGER OF THEIR SKYTEAM ALLIANCE PARTNER AIR FRANCE WITH KLM
WILL ONLY INCREASE THE INEVITABILITY THAT A POSSIBLE LARGE
ORDER OF MEDIUM-RANGE AIRCRAFT BY ALITALIA WILL GO TO AIRBUS
RATHER THAN BOEING. ALITALIA OFFICIALS ARE DOING THEIR BEST
TO REMAIN PUBLICLY NEUTRAL; HOWEVER, AIRBUS HAS ALREADY WOVEN
ITSELF DEEPLY INTO ALITALIA'S OPERATIONAL LIFE. IN ADDITION,
CONVERSATIONS WITH FLIGHT CREWS AND TICKETING AGENTS REVEAL
PREPARATIONS FOR AN AIRBUS FUTURE. THIS COMBINATION OF
MERGER-RELATED PRESSURE AND AGGRESSIVE AIRBUS TACTICS CLEARLY
HAS THE POTENTIAL TO SQUEEZE BOEING OUT OF THE ITALIAN
MARKET. END SUMMARY.


2. (C) ON OCTOBER 8, ALITALIA'S VICE PRESIDENT FOR ALLIANCES
AND BUSINESS DEVELOPMENT GIORGIO CALLEGARI TOLD ECONOFF THAT
ALITALIA WAS CONSIDERING REPLACING A FLEET OF 89 MD-80
PLANES. HE EXPLAINED, HOWEVER, THAT ANY FINAL DECISION ON
SUCH A LARGE-SCALE PURCHASE WOULD REMAIN FROZEN UNTIL DETAILS
OF THE KLM-AIR FRANCE DEAL TAKE SHAPE IN THE MONTHS AHEAD.
HE SAID ALITALIA OFFICIALS ARE NEUTRAL ON THE CHOICE OF
EITHER AIRBUS OR BOEING AIRCRAFT.


3. (C) IN DISCUSSIONS WITH ECONOFF, SEVERAL ALITALIA CREW
MEMBERS SCOFFED AT THIS OFFICIAL LINE AND SAID EMPHATICALLY
IT WAS A "DONE DEAL" THAT ALITALIA WOULD BUY REPLACEMENT
AIRCRAFTS FROM AIRBUS. CREW MEMBERS BELIEVE THAT AIRBUS IS
ALREADY POSITIONED PERFECTLY WITHIN THE ORGANIZATION. AIRBUS
PERSONNEL ARE AVAILABLE TO ALITALIA PILOTS AS CONSULTANTS AND
ADVISORS, AND PILOTS ARE TRAINED ON AIRBUS FLIGHT SIMULATORS.
THESE SIMULATORS PROVIDE TRAINING THAT IS INTERCHANGEABLE
AMONG THE A319, A320 AND A321 AIRCRAFT, EXACTLY THE SHORT-
AND MEDIUM-RANGE CRAFT THAT COULD FILL THE MD-80 NICHE. IN
CONTRAST, ALITALIA PILOTS AND CREW MEMBERS SAY THAT BOEING
HAS NO PRESENCE OR VISIBILITY WITHIN THE ORGANIZATION
WHATSOEVER, AND THAT ANY PREVIOUS BOEING TRAINING IS
AIRCRAFT-SPECIFIC, NOT INTERCHANGEABLE.


5. (C) COMMENT: AS DESCRIBED IN REFTEL, BOEING HAS BEEN
FEELING PRESSURE FOR SEVERAL YEARS FROM AIRBUS IN THE ITALIAN
MARKET, NOT ONLY WITH ALITALIA ITSELF BUT WITH OTHER
DEVELOPING REGIONAL AIRLINES. ALITALIA HAS SIGNED ON TO
"SLOW-TRACK" PARTICIPATION IN THE KLM-AIR FRANCE MERGER,
WHICH REQUIRES IT TO ORGANIZE ITS AFFAIRS PRIOR TO ACTUAL
INTEGRATION. SHOULD ALITALIA REMAIN INTACT AS THE MERGER
EVOLVES, THERE IS A VERY REAL POSSIBILITY THAT IT MAY
PURCHASE AS MANY AS 89 MEDIUM-RANGE AIRCRAFT. AIRBUS APPEARS
TO HAVE ALREADY WOVEN ITSELF TIGHTLY INTO ALITALIA'S
OPERATIONS AND THE STRONG ROLE AIR FRANCE IS LIKELY TO PLAY
IN THE DEVELOPING NEW CORPORATE ENTITY CAN ONLY SERVE TO
STRENGTHEN AIRBUS' POSITION. EMBASSY WILL KEEP A CLOSE WATCH
ON BOTH AIRBUS AND FRENCH GOVERNMENT ACTIONS TO PROMOTE
AIRBUS IN ITALY, AS BOTH MIGHT SEE THE KLM-AIR FRANCE MERGER
AS A GOLDEN OPPORTUNITY TO SQUEEZE BOEING OUT OF THE MARKET.
END COMMENT.
SEMBLER

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2003ROME04931 - Classification: CONFIDENTIAL