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 NNNN 2003ROME04931 - Classification: CONFIDENTIAL