BOEING WINS $8.5 BILLION AIR INDIA ORDER, LARGEST

C O N F I D E N T I A L SECTION 01 OF 03 NEW DELHI 003147

SIPDIS

COMMERCE FOR ADVOCACY CENTER/LOPP
DOT FOR BHATIA
FAA FOR LAVIN
DEPT FOR E, SA, EB
USDOC FOR 3131/OIO/ANESA/DHARRIS
USDOC FOR 4530/ITA/MAC/OSA/ASTERN

E.O. 12958: DECL: 04/26/2015
TAGS: EAIR BEXP IN
SUBJECT: BOEING WINS $8.5 BILLION AIR INDIA ORDER, LARGEST
COMMERCIAL AIRCRAFT DEAL IN WORLD IN PAST YEAR

REF: A. 2004 NEW DELHI 8096/8024


B. 2004 NEW DELHI 7702/7530/7343

C. 2004 NEW DELHI 6604/5054/4682 3587/3186/140

D. 2003 NEW DELHI 6556

E. 2003 NEW DELHI 6232

F. 2003 NEW DELHI 5978/5639/4628/4274/4212

G. 2003 NEW DELHI 3305/3042/2242/2212/2080

H. 2003 NEW DELHI 2624

I. 2003 NEW DELHI 2516

J. 2003 NEW DELHI 2282

K. 2003 NEW DELHI 2041

L. 2003 US DEL SECRETARY 51

M. 2003 STATE 123630

N. 2003 STATE 99494

Classified By: Charge Robert O. Blake, Reasons 1.4 b,d


1. Summary: (C) On April 26, Boeing won a $8.5 billion order
from Air India to supply 50 wide body B777-B787 class
aircraft powered by GE engines. Embassy believes it is
unlikely that the PIB or the cabinet would reverse the
selection, but advises we use high level visits to urge the
GOI to quickly approve the sale. We must be prepared to
respond quickly and aggressively to Airbus efforts to derail
the tender on technical grounds, as Air India has already
done in its initial press release by dismissing Airbus'
protests of seating configurations and delivery schedules.
Boeing officials have told us lessons learned from this sale
would be used in developing a new world wide sales strategy
to counter Airbus' inroads on commercial aircraft sales. Our
attention must now turn to getting Boeing to use its offset
requirement of over $1 billion to build lasting strategic
partnerships with Indian companies. The Boeing selection is
one more in a long line of indications that the UPA
government considers the U.S. its most important
relationship. End Summary.


2. (C) Boeing won its biggest commercial aircraft order ever
in South Asia on April 26 when state-owned carrier Air India
picked Boeing over Airbus to fill a fiercely contested $8.5
billion order to supply 50 wide body, double aisle aircraft.
The order, which includes the new Boeing 787 Dreamliner,
consists of three aircraft configurations: 8 Ultra Long
Range (250 seats) B777-200LR; 15 Long Range (350 seats)
B777-300ER; and 27 Long Range (250 seats) B787-8. The
desired schedule for delivery is from 2006-7 through 2012-13.
All three aircraft types will be powered by GE engines. We
are told that in monetary value this is the largest
commercial aircraft deal in the world during the last year.
In addition, Boeing late last year won a $1 billion Air India
order for 18 B737-800 aircraft (Ref B).


3. (C) Cabinet Approval: The Civil Aviation Ministry will
now chaperone the two Air India procurements through the
Public Investment Board (PIB) and Cabinet approval process.
Civil Aviation Secretary Ajay Prasad told ECON M/C that he
expects the PIB and Cabinet approval process to be completed
within 3 months. While the PIB or the cabinet can
theoretically reverse the decision, Embassy believes it is
highly unlikely these bodies would do so in the absence of
some dramatic unforeseen development. Nonetheless, we should
urge the GOI to quickly approve the sale. The longer the
decision drags on, the greater the opportunity for Airbus to
orchestrate a campaign to disrupt the sale.


4. (C) Airbus Reaction: Embassy expects Airbus to protest
loudly and claim flaws in the technical evaluation. Boeing
and the USG should be prepared to respond quickly and
aggressively to such allegations. Even before Air India
announced the Boeing award, Airbus wrote the Air India
Chairman asking that Boeing be disqualified because its offer
of seat configuration and delivery schedules on the B787 were
in violation of tender requirements. In its press release on
the Boeing selection yesterday, Air India Board responded
directly to Airbus' allegation and attempted to close the
door on further protests by noting that there was no truth to
the allegations. Charge took the opportunity to suggest to
MEA Joint Secretary Jaishankar that the GOI conclude the deal
prior to PM Singh's visit to Washington in mid-July.
Jaishankar agreed to put this request into the system.


5. (C) Strengthening the State-owned Carriers: Along with
the 18 single aisle B737 order last year and a handful of
recently leased B777 aircraft, the wide body order represents
Air India's first fleet enhancement in over a decade and a
half. This contract, when approved, would bring an end to an
on-again off-again procurement process that began in 1996.
Air India's acquisitions are part of a broader GOI strategy
to reform the civil aviation sector and revamp the two
state-owned carriers. It has been clear to most observers
that unless the GOI and the 2 state-owned carriers moved fast
to replenish their fleets, they would fall even further
behind their competitors. Prolonged uncertainty about
whether to privatize or sell or IPO the carriers had caused
them to decay and deteriorate. The new GOI plan is to:
strengthen the carriers quickly by expanding their fleet;
restore their financial strength and raise their value on the
markets; float an IPO on the bourses; and then gradually
privatize them completely. The GOI's offer of its sovereign
guarantee for fleet expansion is a sign of the urgency and
seriousness with which the GOI is committing itself to
turning around the carriers.


6. (C) India's Growing Aviation Market: The Indian
commercial aircraft market is fast becoming one of Boeing's
best and one of the few where Boeing is beginning to trounce
Airbus. When the two Air India orders are combined with over
$1 billion in orders from private Indian carriers, Boeing has
picked up $10.5 billion worth of orders in India during the
last year. This is several times greater than Airbus' $2
billion order for 43 A320 aircraft from Indian airlines and a
few much smaller orders from private Indian carriers. With
the imminent entry of several new start-up airlines in the
domestic market and the plans of Jet Airways and Air Sahara
to start international service, there is potential for the
Indian market to continue to be strong. Some analysts
estimate the Indian market could absorb $25 billion dollars
worth of aircraft in the next 20 years. The spending on
aviation facilities, equipment, and systems to service this
growth could be equally high.


7. (C) The Perfect Campaign: This USG-Boeing effort was
well scripted and provided a new paradigm in how to marry USG
advocacy with a commensurate level of company commitment at
the highest levels. Boeing officials have told us lessons
learned would be used in developing a new world wide sales
strategy to counter Airbus' inroads on commercial aircraft
sales. Embassy believes that the USG played a pivotal role
in the campaign. The Embassy felt that large procurements
such as this one require multi-pronged strategies. While it
is important to nurture the technical interlocutors on
technical aspects of the bid (e.g., price, delivery
schedules, counter-trade offsets),it is equally if not more
important for the company leadership to touch the right
political bases at the right levels. We made USG advocacy
conditional on two actions by Boeing: an assurance by Boeing
that it would make its most competitive offer the first time
around; and the visible commitment of the Boeing leadership
to the sale. We made clear that the Embassy would not
support any effort to reopen or renegotiate terms if Boeing
lost the bid on the basis of an uncompetitive offer as it did
last year in the Indian Airlines and Air India tenders (Ref
B). The Boeing Chairman flew to New Delhi on short notice in
December (Ref A) to deliver a strong message to the Indian
leadership of the company's long-term commitment to India
across the whole range of its businesses. The Boeing
Chairman also pledged that the company would make its best
and most competitive offer up front. The USG weighed in with
the top of the GOI leadership in a multi-pronged advocacy
effort in which the economic, political, public affairs and
foreign commercial service all contributed.


8. (C) Strategic Relationship: The Boeing selection is
significant for the US-India relationship from many angles.
Boeing's Indian orders during the last year ($10.5 billion)
are about twice the annual U.S. exports to India ($5.3
billion in 2004). They will help redress the growing trade
imbalance between the two countries. The order for 27
Dreamliner 787s helps strengthen the viability of this new
aircraft, on which Boeing has bet heavily. The Boeing sale
can also open up good strategic opportunities in India. We
understand that the offset requirement could be more than $1
billion. This requirement could be used by Boeing to enter
into strategic partnerships in joint ventures or
co-production in the defense and related sectors. The sale
also helps to alleviate some of the concerns analysts and
policy makers have had on whether the UPA government, with
the socialist past of the Congress party and heavy influence
of the Left parties, would be able to sustain the momentum of
closer US-India relations. The Boeing selection is one more
in a long line of indications that the UPA government
considers this its most important relationship. Other recent
cases where the UPA government took decisions to move forward
the bilateral relationship are: -- Open Skies, Tsunami
Relief, Nepal Cooperation, Dabhol, the US-India Economic
Dialogue, and the US-India Energy Dialogue.
BLAKE