Identifier
Created
Classification
Origin
04AMMAN351
2004-01-15 16:34:00
CONFIDENTIAL//NOFORN
Embassy Amman
Cable title:  

EXIM AND EB/CBA ADVOCATE FOR BOEING WITH RJ

Tags:  EAIR BEXP JO 
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This record is a partial extract of the original cable. The full text of the original cable is not available.

151634Z Jan 04
C O N F I D E N T I A L SECTION 01 OF 02 AMMAN 000351 

SIPDIS

SENSITIVE

EXIM FOR A. FOLEY
USDOC 4520/ITA/MAC/ONE/PTHANOS
DEPARTMENT FOR EB FOR WAYNE/MERMOUD

E.O. 12958: DECL: 01/13/2014
TAGS: EAIR BEXP JO
SUBJECT: EXIM AND EB/CBA ADVOCATE FOR BOEING WITH RJ

REF: A. AMMAN 7647


B. AMMAN 5205

Classified By: Ambassador Edward W. Gnehm for reasons 1.5 (b) and (d)

C O N F I D E N T I A L SECTION 01 OF 02 AMMAN 000351

SIPDIS

SENSITIVE

EXIM FOR A. FOLEY
USDOC 4520/ITA/MAC/ONE/PTHANOS
DEPARTMENT FOR EB FOR WAYNE/MERMOUD

E.O. 12958: DECL: 01/13/2014
TAGS: EAIR BEXP JO
SUBJECT: EXIM AND EB/CBA ADVOCATE FOR BOEING WITH RJ

REF: A. AMMAN 7647


B. AMMAN 5205

Classified By: Ambassador Edward W. Gnehm for reasons 1.5 (b) and (d)


1. (SBU) SUMMARY: In a meeting with representatives from
Ex-Im Bank and the State Department, Royal Jordanian Airlines
(RJ) CEO Majali stated that he is willing to allow a Boeing
team to review RJ's estimates of the costs associated with a
potential Boeing purchase so that they can form their own
estimate of the likely overall cost differential for RJ if it
replaces Airbus A320s with Boeing 737s. He complained,
however, about Boeing unresponsiveness and about CPA
foot-dragging in the creation of a new Iraqi flag carrier
with RJ participation. END SUMMARY.


2. (SBU) The Ambassador, U.S. Export-Import Bank First Vice
President April Foley, and DOS Special Representative for
Business Affairs J. Frank Mermoud met January 12, 2003 with
RJ CEO Samer Majali to discuss the sale of Boeing aircraft to
RJ. Referring to the letters sent by PM Fayez to NEA A/S
Burns that gave a figure of JD 50 million ($70 million) as
the differential that RJ would have to pay were it to replace
its old aircraft with new Boeings instead of Airbus, the
Ambassador noted that more than a year earlier, Majali
estimated the differential as $25 million. Majali said that
the smaller figure had covered only direct costs of
retraining A320 pilots for the 737 and of replacing RJ's
stock of A320 spare parts with 737 spares. The larger figure
included indirect costs, such as foregone benefits associated
with the compatibility between A320s and RJ's A340s, which
would continue to constitute RJ's long-range fleet.

--------------
RJ: BOEING CAN REVIEW COST ESTIMATES
--------------


3. (SBU) Noting our belief that even the $25 million was
overstated, the group conveyed to Majali its belief that the
RJ premium figure does not take into account a variety of
factors which favor Boeing aircraft. These include (1) the
greater cost efficiencies offered by 737 aircraft vs. A320
aircraft, (2) the willingness of Ex-Im Bank to match or beat
any financing deal put together by any other export credit
agency, and (3) a commitment that if Jordan were to ratify

the Cape Town Convention on Aircraft Financing, Ex-Im bank
would reduce exposure fees by a third. Majali said RJ had
not factored in the latter possibility because it was out of
the control of RJ, Boeing, or Ex-Im Bank. However, he had
offered from the beginning to allow both Airbus and Boeing to
examine the financial data and assumptions underlying RJ's
net present value estimates regarding the purchase of each
type of airplane. He said that this offer remained and that
RJ was ready to provide to Boeing the financial data and
assumptions used in forming RJ's NPV estimate of Boeing
aircraft, so that Boeing could re-run the numbers and come up
with a counterestimate of the changeover costs.

--------------
RJ'S COMPLAINTS
--------------


4. (SBU) Majali talked at length about his preference for
Boeing equipment and services and his worry that maintaining
only Airbus as a provider might cause Airbus to become less
responsive to RJ needs. He complained, however, that Boeing
had been unresponsive to RJ feelers in the past, stressing
especially a lack of availability of 777s after September 11,
2001, which had caused RJ to make a five-year lease of A340s
rather than to buy or lease Boeing equipment. (Note: By
2005, RJ will be looking to either buy these leased A340s or
replace them.) According to Majali, lack of Boeing
availability is also a factor in the current purchase
decision, as the 737s Boeing is offering would not be ready
for another 1 1/2 years. This is problematic not only
because it would mean that the current leases on all of the
A320s would have to be renewed, but also because the RJ fleet
- with an average age of 14 years, one of the oldest in the
region - is badly in need of rapid replacement.


5. (SBU) Majali also complained that despite RJ's best
efforts, he had been unable to secure a long-term commitment
from the CPA to partner with a new Iraqi carrier, which he
said would otherwise have given him a strong incentive to buy
Boeing (Reftels A and B). Earlier indications that RJ would
be a partner in a carrier that would be given a two-year
exclusivity period had been superseded by proposed deals with
fourth-rate carriers flying unsafe airplanes. The group
pointed out that for CPA to decide on such a high-profile
issue without full Iraqi agreement would be perceived as an
assault on Iraqi sovereignty, and closed by reiterating the
importance to the Administration of a Boeing sale to RJ.
--------------
NEED TO MOVE FAST
--------------


6. (C) Comment: We have had several indications over the
past days that those in the Jordanian government who support
Boeing have been energized. For example, in a separate
meeting with Foley and Mermoud, Finance Minister Abu Hammour
hinted that the GOJ might be able to cover part of the
transition cost, if the USG or Boeing were also able to help
close the gap. Especially if the tide is turning, it is
important that Boeing move quickly to reengage with RJ. In
addition, it could be very useful for senior USG officials,
particularly at the White House, to reiterate to Prince
Faisal (the King's brother and air force commander, who has a
royal oversight role for aviation) during his visit next week
the message he and his colleagues have been getting from the
Ambassador, EXIM, and others on the Administration's strong
interest in seeing Boeing make this sale.
GNEHM