BOEING VS. AIRBUS: YEMENIA ATTRACTS SUITORS FOR

C O N F I D E N T I A L SECTION 01 OF 02 SANAA 003032

SIPDIS

USDOC - PASS TO ADVOCACY CENTER/CHRISTOPHER JAMES. HELSINKI
- PASS TO FCS/ROBERT PEASLEE. RIYADH - PASS TO FCS/NANCY
CHARLES-PARKER. DUBAI - PASS TO FCS. USDOC - PASS TO
ITA/TYLER HOFFMAN. STATE - PASS TO USTR/JASON BUNTIN.

E.O. 12958: DECL: 10/18/2015
TAGS: EAIR ECON KTDB YM ECON COM
SUBJECT: BOEING VS. AIRBUS: YEMENIA ATTRACTS SUITORS FOR
10-PLANE DEAL

Classified By: Ambassador Thomas C. Krajeski for reason 1.4s (b) and (d
).


1. (C) Summary: Ambassador Krajeski met with Captain
Abdulhamid AlQadi, Chairman and CEO of Yemenia Airlines, the
national airline of Yemen, on October 16 to discuss a
10-plane purchase they are planning. Both Airbus and Boeing
have demonstrated significant outreach to Yemenia management
for the deal. Airbus seeks to pressure Yemenia to make a
decision at the next Board of Directors meeting on October

19. Boeing requested commercial advocacy assistance from the
U.S. Department of Commerce Advocacy Center and the Embassy.
Boeing and the Ambassador recommended to AlQadi an unhurried
and well-examined decision. This deal, worth at least $1
billion in U.S. export content, could bring upwards of $1.35
billion to the United States if a separately negotiated
engine deal is made with the American engine manufacturer,
General Electric. End Summary.

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AIRBUS DIPLOMACY
--------------


2. (C) According to AlQadi, the French, German, and British
ambassadors have begun a lobbying campaign with President
Saleh's office in the last two weeks. In light of upcoming
trips by President Saleh to meet French President Jacques
Chirac as well as President Bush, Ambassador told AlQadi that
he anticipated the possibility of difficult conversation with
or pressure from Chirac on this matter. (Background:
President Saleh involves himself in virtually all high-stakes
tenders and deals.) He counseled AlQadi to recommend that
Yemenia experts decide the matter without involving higher
officials so as to remove the threat of undue influence from
Saleh.

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OPAQUE YEMENIA MANAGEMENT
--------------


3. (C) This summer, Yemen's Central Organization for Control
and Audit (COCA) released a report indicating opaque and
unhealthy financial and accounting practices by Yemenia
Airlines. For example, they noted the extensive practice of
free or discounted fares given to important government
officials and poor financial accounting which did not reveal
the real states of finances for the national airline.
Yemenia is half-owned by the Yemeni government with the other
half owned by either an unnamed Saudi investor or the Saudi
government. While the Saudi businessman appears to have
significant decision-making power, his name and background
are still unknown. Boeing representative Ehab Shihaby
reported that during his negotiations, Yemenia said that a
$60 million infusion will be coming from the Saudi government
later this year. Nonetheless, due to the non-transparent
financial accounting practices, it is difficult for Post to
determine how profitable Yemenia operations are and if they
will be able to enter into this financial transaction.

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OLD WOUNDS: AN UNSOUND DEAL
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4. (C) Hanging over Yemenia's head, is a fiscally imprudent
deal they signed several years ago with Airbus to pay half a
million dollars each for the lease of two planes. At current
market value, the lease would only pay a fraction of this
amount. In effect, Yemenia is paying more for older planes
than their present market value. Boeing claimed that Airbus
refused to renegotiate the terms of the older deal with
Yemenia management. After repeated attempts to obtain a
renegotiated deal, Yemenia decided to halt monthly payments
to Airbus. According to Boeing, Airbus will not take this
potential customer of new planes to court. Yemenia hopes to
use the prospect of a new purchase to force a renegotiation
of the previous two-plane lease. For these reasons, Shihaby
fears that Yemenia is only using the threat of a potential
deal with Boeing to obtain a better deal from Airbus.

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DOES BOEING HAVE A CHANCE?
--------------


5. (C) In the meantime, Airbus is pressuring Yemenia to
commit to a deal at the next Yemenia Board of Directors
meeting on October 19. AlQadi insists that if Boeing offers
an attractive deal in Jeddah on October 18, he will delay the
decision so that Saleh can avoid awkward conversations with
either Chirac or President Bush. If not, he says he will
perhaps press the Board, which he heads, to make a decision
on October 19.


6. (SBU) As events evolve, Post will update Department and
Commerce on developments on this case.
Krajeski