EXIM AND EB/CBA ADVOCATE FOR BOEING WITH RJ

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