ABU DHABI CIVIL AVIATION: RAISING THE PROFILE

C O N F I D E N T I A L SECTION 01 OF 02 ABU DHABI 003966

SIPDIS

STATE PASS FEDERAL AVIATION ADMINISTRATION

E.O. 12958: DECL: 09/19/2015
TAGS: EAIR ETRD PREL PINR TC
SUBJECT: ABU DHABI CIVIL AVIATION: RAISING THE PROFILE

Classified By: (U) Classified by Ambassador Michele J. Sison, reasons 1
.4 (b) and (d)


1. (C) Summary: Abu Dhabi is raising its profile in the
civil aviation arena, building a new government-sponsored
airline and renovating the airport to accommodate significant
growth, as it begins investing money to raise Abu Dhabi's
international profile. Although Abu Dhabi is the capital
city of the UAE and controls the UAE's oil wealth, Dubai
Emirate in recent years has focused on building its aviation,
financial, and tourism industries. Since Sheikh Zayed died
in November 2004, the new Abu Dhabi leadership has refocused
on enhancing Abu Dhabi's status as a destination city. By
concentrating on a new airline and airport (which will
largely compete with similar projects in Dubai Emirate and
nearby Qatar),Abu Dhabi Emirate is beginning the long-term
political and financial investment necessary to enhance Abu
Dhabi's status. UAEG officials eagerly await the planned
opening of the FAA's Middle East regional office in fall

2005. End Summary.

Political Prestige of Civil Aviation
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2. (C) Abu Dhabi views investment in civil aviation as a
primary part of enhancing the tourism infrastructure within
Abu Dhabi Emirate. Abu Dhabi's key objectives in
establishing a viable civil aviation industry are to increase
Abu Dhabi's international profile and to increase passenger
and cargo movement through Abu Dhabi -- and to compete with
Dubai Emirate's strong civil aviation sector. Dubai has been
involved in aviation for more than 20 years through
government-funded Emirates Airlines and is currently involved
in a major renovation project of Dubai International Airport
(for increased passenger capacity) and Jebel Ali Airport
(primarily for cargo growth).


3. (C) Abu Dhabi Crown Prince Mohammed bin Zayed Al Nahyan is
personally involved in decisions in aviation, particularly in
making airplane purchases and identifying key leaders for Abu
Dhabi's airline and airport growth. The primary player in
Abu Dhabi's civil aviation sector is Sheikh Ahmed bin Saif Al
Nahyan, a member of Abu Dhabi's ruling family. Sheikh Ahmed
bin Saif is chairman of the board of Etihad Airways, chairman
of the Gulf Air Maintenance Company (GAMCO),and chairman of
Abu Dhabi's Department of Civil Aviation. He was also CEO of
Gulf Air from 1994 to 2000 (when Abu Dhabi Emirate held a 25
percent share in the airline),although he was criticized for
his activities during that period. Sheikh Ahmed's multiple
key roles in the civil aviation sector have led to some
complaints of conflict of interest, and include criticism
that he has allowed a maintenance company (GAMCO) to make
decisions for the airline, slowing its growth. Although
Sheikh Ahmed remains a key decision maker for Etihad Airways,
Abu Dhabi's leadership has made significant changes in an
attempt to allow Etihad to become a more financially-viable
operation and to allow free market growth of Abu Dhabi's
aviation sector. (Bio Note: Sheikh Ahmed is also a pilot and
holds a Ph.D.).

Etihad Airways
--------------

4. (C) Abu Dhabi Emirate established Etihad Airways in
November 2003 as a state-sponsored carrier. Since inception,
the airline has been running at a significant loss due to
organizational and management difficulties. In recent
months, the Abu Dhabi leadership appointed Austrian Robert
Strodel as CEO and has given him broad authorities to make
changes in the internal and external organization of the
airline. Strodel, who has 30 plus years of airline
experience (primarily with Lufthansa),has started by
restructuring Etihad, replacing many section heads (although
some of these changes were subsequently vetoed by Etihad's
board of directors),and most significantly, breaking
Etihad's contract with GAMCO. Until Strodel's appointment as
CEO, Sheikh Ahmed bin Saif Al-Nahyan had ensured the
continuing, if non-profitable, relationship with GAMCO. The
difficulty in separating Etihad and GAMCO (the two companies
are currently renegotiating a contract) illustrates the
political level investments in Etihad, but the freedom
Strodel has been given demonstrates that Abu Dhabi Emirate is
serious about making Etihad a financially-feasible airline,
rather than just a government showpiece.


5. (C) Etihad still faces a number of serious challenges,
however. It has major ambitions -- purchasing 54 aircraft to
replace the current leased fleet (orders have been given for
29 already including 5 Boeing 777s and 4 Airbus E380s) to fly
to 70 destinations (currently they fly to 20) within the next
four years. In order to succeed in this ambitious plan,
Etihad will need to restructure the company, purchase spare
parts and make maintenance arrangements for the mix of Boeing
and Airbus planes -- all within a short timeframe. Despite
Etihad's past financial difficulties, Abu Dhabi Emirate is
solidly behind promoting the airline. The Emirate will
formally announce its withdrawal from Gulf Air this week; Abu
Dhabi has held a 1/3 share with Bahrain and Oman (Note: Qatar
similarly pulled out in 2002 to focus on Qatar Airways). By
pulling out of Gulf Air, Abu Dhabi both eliminates
competition and cuts costs(Gulf Air will likely reduce the
number of flights through Abu Dhabi). Gulf Air has been
operating in the red for several years while undergoing major
strategic and operational changes, but still faces challenges
of an outdated fleet that will need to be revamped in the
near future. In the region, there are now four major
airlines: Etihad, Gulf Air, Emirates Air (based in Dubai) and
Qatar Airways. It is likely that some of these airlines will
either need to "downsize" or "rightsize" in the near future
with the rising regional competition. Abu Dhabi's withdrawal
from Gulf Air may indicate the first casualty. Abu Dhabi
Emirate is investing the resources -- both financial and
human - to ensure the same does not happen to Etihad in its
nascent stage.
Abu Dhabi Airport Expansion
--------------

6. (C) Abu Dhabi International Airport is currently
undergoing major expansion to raise capacity to 20-25 million
passengers a year by 2009 (equaling Dubai's expansion plans).
The project includes adding a new runway (large enough to
accommodate Etihad's planned E380s),new passenger and cargo
terminals, and outbuilding support for the increased
passenger load. Supporting this expanded airport is the
federal Civil Aviation Authority's new air traffic control
center, scheduled to open in 2006 with the capacity to handle
the increased air traffic over Abu Dhabi and Dubai Emirates.


7. (C) The airport expansion project still faces significant
obstacles to providing a successful base for an expanded
civil aviation sector. Although tourist infrastructure
development plans are being considered for Abu Dhabi,
including reports to increase hotel space by more than 2,000
rooms, the majority of these hotels will be located in
central Abu Dhabi rather than in the rather bleak area
surrounding the airport (approximately 40 km outside of
town). In order to support the increased passenger load -
and particularly considering the possible overnight stays
required for some connection flights between Europe and Asia
- sufficient infrastructure will need to be constructed near
the airport to support the planned passenger load.
Additionally, the Civil Aviation Authority (CAA) is facing
severe human resource shortages, particularly among air
traffic controllers. While there are enough personnel to
maintain current staffing levels, limitations in training
facilities have made growth difficult. The UAE will need to
address these infrastructure and personnel concerns, to match
their already committed financial resources, in order to
achieve success in the airport growth.

Comment
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8. (C) Abu Dhabi Emirate has demonstrated that it is
financially committed to ensuring the success of the civil
aviation sector. However, there are still significant
challenges in infrastructure development and human resources
facing both the airport expansion plan and Etihad Airways.
In order to achieve the long-term success of the civil
aviation and tourism infrastructure goals, the Abu Dhabi
leadership needs to ensure that key aviation leaders have the
freedom to make the required economic decisions that will
ensure financially-feasible aviation operations.
SISON