PROPOSED SARG AVIATION DEALS TO AVOID US SANCTIONS

C O N F I D E N T I A L SECTION 01 OF 02 DAMASCUS 003864

SIPDIS

SIPDIS

NEA/ELA
NSC FOR ABRAMS/DORAN/SINGH
TREASURY FOR GLASER/LEBENSON
EB/ESC/TFS FOR UNDERRINER/BRUNO
IO/T FOR TOBEY

E.O. 12958: DECL: 08/02/2016
TAGS: EAIR ECON EINV ETTC SY
SUBJECT: PROPOSED SARG AVIATION DEALS TO AVOID US SANCTIONS

REF: A. DAMASCUS 1811

B. DAMASCUS 3186

Classified By: Charge d'Affaires Michael Corbin, reasons 1.4 b/d


1. (U) Summary. Despite Minister of Transport Yador Sulieman
Bader,s public touting of the attractiveness of the January
2006 Russian offer (Ref B) to sell Syrian Arab Airlines
(SyrianAir) five to seven Russian-built aircraft to replace
their aging Airbus/Boeing fleet, no deal has yet been signed.
UNDP/ICAO efforts to assist the SARG in leasing Airbus or
Boeing airframes continue. Meanwhile, several creative
options are being explored by the SARG to skirt US sanctions
in an attempt to secure much-needed replacement aircraft for
SARG-controlled SyrianAir. End Summary.


2. (C) Under UNDP sponsorship, ICAO has worked since the
beginning of this year to help the SARG lease new Airbus or
Boeing aircraft for SyrianAir (Ref A). On 01 August, UNDP
staff in Damascus told us that ICAO, after meetings with the
Departments of Commerce and State on 12-14 July, was feeling
&positive8 about the chances of completing either a &wet8
(Lessor retains control of aircraft and provides aircrews) or
&dry8 (Lessee takes control of and provides aircrews for
all aircraft) lease of Boeing or Airbus aircraft on behalf of
SyrianAir. Resident UNDP Representative Ali Za,tari showed
us correspondence from ICAO stating that their arguments
concerning civil aviation safety waivers resonated especially
loudly at State. As a result, ICAO planned to release a
tender for both &wet8 and &dry8 leases of new aircraft
for SyrianAir. We asserted to Za,tari that, based on our
own consultations with the Department of Commerce, ICAO,s
assumption that a wet lease would not require a US license
was wrong, as any lease of Boeing or Airbus planes would in
fact require such a license.


3. (U) Since January 2006, the SARG has been discussing
purchasing Russian-built aircraft to replace SyrianAir's
aging fleet of Boeing and Airbus planes. While the SARG is
publicly positive about a proposed deal to buy Russian planes
(Ref B),claiming favorable financial terms and citing strong
business ties between Syria and Russia, it is thus far
reluctant to back its words with its wallet. Bader and
Russia,s Ambassador to Damascus have signed two Memoranda of
Understanding on aviation in the last month. The first is an
option to purchase two or three Ilyushin-96 planes (each with
a capacity of 300 pax and a range of 13,000 km) and three or
four Tupolev planes (150 pax, short range). The second is a
deal to open in Syria a regional maintenance hub for
servicing Russian-built aircraft. Initial press reports
asserted that studies would be finalized by the end of July
2006, a contract signed shortly thereafter, and delivery of
the first plane would occur in 2008, but no action has yet
been taken; Za,tari told us that despite the favorable terms
of the Russian contract, TransMin Bader doesn,t really want
to buy the Russian product (Ref A).


4. (SBU) The SARG also is looking towards regional friends
for assistance. Three separate efforts are underway. First,
TransMin Bader recently met with a Kuwaiti delegation to
discuss a joint Kuwaiti-Syrian airline company, funded by the
Kuwaiti Investment Fund. This airline would have local and
regional services based in Syria and would support SyrianAir.
Second, a recent press article claims that Emirati companies
are considering leasing unspecified aircraft to SyrianAir to
help expand their fleet. Finally, the latest entry is a
statement by the Chairman of SyrianAir that the next few days
will bring the official announcement of the establishment of
the first-ever private joint venture airline in Syria. To be
established before the end of 2006, this airline will have
Syrian and other Arab private investors, but not a SARG
component. Neither the Emirates nor Kuwaiti Embassies were
aware of any specifics on either initiative, leading us to
believe there is little to them beyond the press statements.


5. (C) Comment. According to Za,tari, SARG thinking is
two-fold: arrange a wet lease as a stopgap measure to relieve

DAMASCUS 00003864 002 OF 002


the burden on their aircraft, and keep working towards a
longer-term purchase solution through the various means
detailed above. Unfortunately, based on our conversation
with Za,tari and the letter he showed us from ICAO, it
appears ICAO still labors under the false assumption that
SyrianAir can lease Boeing or Airbus planes without going
through the US licensing process. These ongoing efforts by
the SARG to salvage the Airbus purchase deal, however, seem
to be slowly giving way to other initiatives as the
likelihood of success grows dimmer. With the current crisis
in Lebanon, SyrianAir is bragging that it is flying more
people in and out of Damascus than any other airline; left
unsaid is the added strain this puts on a fleet already
struggling with air-worthiness. SARG officials have recently
commented on the possibility of reducing or eliminating some
routes, which could be the first tacit acknowledgement that
their planes cannot safely continue as they have been.
Meanwhile these new investment options and private ventures
are creative attempts to thwart US sanctions; however, they
are quickly running out of time: SyrianAir's entire fleet
will meet recommended retirement age in 2008.
CORBIN