TAJIK AIR STILL NOT SOARING

UNCLAS SECTION 01 OF 02 DUSHANBE 001573 SIPDIS SIPDIS SENSITIVE. NOT FOR INTERNET DISTRIBUTION. E.O. 12958: N/A TAGS: PGOV ECON EAIR EAID TI SUBJECT: TAJIK AIR STILL NOT SOARING REF: A) DUSHANBE 1314 B) DUSHANBE 626 DUSHANBE 00001573 001.2 OF 002 ¶1. (U) SUMMARY: On the surface, two recent developments in the airline sector appeared to signal forward progress. However, despite opening the long-completed air terminal at Khujand and coming closer to leasing two Airbus aircraft, Tajik Air remains a protectionist, Soviet-style state-run entity, flying in the wrong direction. Without the modernization and significant restructuring donors have long recommended, Tajik Air will continue to frustrate Western passengers while lining the pockets of a handful in power. END SUMMARY. BETTER AIRCRAFT INCOMING? ¶2. (U) An August 2 press release announced that state-owned Tajikistan State Air (TSA) signed a Memorandum of Understanding to lease two Airbus 320 aircraft from the India-based Sister Trading Company, according to a representative of the trading company. Under the preliminary agreement, Sister Trading will "wet lease" the aircraft, pilots and technical support crew for a one-year period, costing Tajik Air $2,500 per hour. The 150 passenger aircraft will serve international routes 30 hours per month. Representatives of TSA declined to comment until the agreement was signed. However, according to the Air Code, the legislation that regulates Tajikistan's airspace, only citizens of Tajikistan are allowed to be a member of crew. It is unclear how an international crew under "wet-lease" would be able to operate an aircraft. ¶3. (SBU) Tajik Air has long toyed with the idea of leasing either Boeings or Airbuses to upgrade their aging fleet of Soviet-era Tupelovs and Yaks. President Rahmonov is rumored to want new Western planes flying under a Tajik flag at any cost, particularly before Tajikistan's 15th anniversary of independence September 9. Despite much talk about leasing Boeings, and several fruitless discussions between the government and Boeing's representative in Moscow, TSA representatives have not disclosed any concrete plan to lease any particular aircraft (Reftel A). The Sister Trading Company, previously reported to be located in Dubai, has undisclosed backers, possibly a Tajik businessman looking to capitalize on personal connections to Tajik Air. ¶4. (SBU) The current structure of Tajik Air may be designed to serve President Rahmonov's needs first, and the customer base second. At present, Tajik Air has one Tupelov-154M for President Rahmonov's trips. He travels once or twice per month on average, costing Tajik Air hundreds of thousands of dollars per year. Were Tajik Air to privatize, as donors and advisors have long recommended, President Rahomonov would need to pay out of the budget or from the "President's account" for his trips. The current organization of Tajik Air makes it possible for President to travel for "free" as Tajik Air fully covers the President's expenses. ¶5. (SBU) The European Bank for Reconstruction and Development (EBRD) offered Tajikistan a $5 million commercial credit to modernize its operations months ago, but TSA has yet to meet the audit requirements and fully take advantage of the assistance. The EBRD project includes a component for training pilots for western carriers, but does not support the wet lease approach to upgrading the fleet, due to the high costs. The EBRD credit could also help Tajik Air operate profitably with leased jets. However, at an estimated $200-$300 thousand per month each, according to the Dushanbe EBRD representative, Tajik Air would need to reform business practices and reduce costs by over 50% in order to become profitable. KHUJAND AIR TERMINAL OPEN FOR BUSINESS - TWO YEARS AFTER COMPLETION ¶6. (U) On August 5, Authorities officially opened a new international terminal in the northern city of Khujand. The terminal was completed in 2004, but sat dormant due to bureaucratic wrangling and political jealously, possibly involving the President's family demanding a significant share in the company (Reftel B). Nurullo Usmonov, chairman of "Noorafshon", the company that constructed the terminal, said in his inaugural remarks that the terminal would provide jobs for 300 people and hoped to host transit flights with Indian and British air companies. The new international terminal includes a zone for duty-free trade, business-center with computers connected to Internet, and a mosque. DUSHANBE 00001573 002.2 OF 002 ¶7. (SBU) COMMENT: The opening of the Khujand international air terminal and the announcement about leasing Airbuses from a little-known trading company do not represent real progress in Tajikistan's airline sector, but instead suggest that things only happen after the right palm has been greased. Leasing planes under a hurry-up wet lease agreement will ultimately hemorrhage money and instead of demonstrating that Tajik Air is modernizing, will show the world just how little TSA has managed to reform. END COMMENT. HUSHEK