SAUDIA TECHNICAL INSPECTION AND PROSPECTS FOR

C O N F I D E N T I A L SECTION 01 OF 03 JEDDAH 000244 SIPDIS SIPDIS RIYADH, PLEASE PASS TO DHAHRAN; DEPARTMENT OF NEA/ARP; PARIS FOR ZEYA; LONDON FOR TSOU E.O. 12958: DECL: 03/26/2015 TAGS: EAIR ECON KISL PREL SA SUBJECT: SAUDIA TECHNICAL INSPECTION AND PROSPECTS FOR PRIVATIZATION REF: 05 JEDDAH 4961 Classified By: Consul General Tatiana Gfoeller, for reasons 1.4 (b) and (d). ¶1. SUMMARY. This is one in a series of cables reporting on the civil aviation sector in Saudi Arabia. Saudi Arabian Airlines (Saudia) technical repair facility in Jeddah was subject to an FAA re-certification inspection in mid-March. The inspectors found no serious deficiencies. Corrective action was immediately undertaken by the airlines, although some remedial steps may take as much as a year to complete. Saudia's training academy was praised by one inspector. The results of the inspection suggest that Saudia's preparation for privatization could impose difficult budget demands and require significant reductions in personnel. END SUMMARY. FAA INSPECTS SAUDIA TECHNICAL CAPABILITIES ¶2. (C) On March 22, Saudi newspapers reported that the Supreme Economic Council had approved the plan presented by Saudia management for the privatization of the Company. This announcement chanced to come the week after an FAA technical re-certification inspection team was in Jeddah to assess the Saudia maintenance facility's compliance with FAA guidelines. Jeddah Pol/Econ Chief attended their initial and final briefing with Saudia Quality Control executives. (Note: The final briefing was also attended by ConOff. End Note.). Pol/Econ Chief also accompanied one of the FAA inspectors during his tour of Saudia's Prince Sultan Aviation Academy facility for training aircraft maintenance technicians. The results of the technical evaluation, the expert assessment of the FAA inspectors provided to Pol/Econ Chief, and observation of Saudia management's response to the team's findings provide insight into the airline's performance and potential for successful privatization. The FAA has not cleared this cable. TECHNICAL CONDITION TYPICAL ¶3. (C) The FAA team characterized their findings concerning the Saudia maintenance facility as routine. No major, serious deficiencies were discovered. Many of the repair stations they examined were judged to be well-maintained and managed and staffed by knowledgeable and competent staff. However, they did find a number of practices and conditions that deviated from the standards specified by FAA regulations. AREAS IN NEED OF ATTENTION ¶4. (C) The technical library, the inspectors discovered, was not verifying that manuals Saudia used were current, but the inspectors were confident that this problem could be corrected quickly. A greater problem was the repair facility's "High Bay" spare parts store, a large warehouse with parts storage drawers twenty feet high, storing all spare parts for the repair facility and the airline. The team found "the entire place was very dirty and there were a lot of parts that did not have paperwork to trace where they came from. They seem to have a pretty good handle on how to correct this, but it will take several months, if not an entire year to accomplish this." Re-certification requirements will be satisfied when the FAA receives a copy of an acceptable corrective plan from Saudia. INSPECTORS IMPRESSED BY MANAGEMENT ATTITUDE ¶5. (C) In an aside to Pol/Econ Chief, the FAA examiners unanimously complimented the Saudia managers with which they worked for their willingness to rectify the deficiencies cited. Saudia management accepted the findings and planned remedial measures while the inspection team was still conducting its assessment. The lead investigator stated that several of the deficiencies were successfully corrected by the time the team left the facility. He also noted that in the other cases, including the very daunting task of cleaning their massive parts storage facility, management had already committed significant staff and resources to carrying out or planning corrective action. In observing the out-brief between FAA and Saudia Quality Control management, Pol/Econ also noted that the senior managers present accepted the inspectors assessment with a determination to correct JEDDAH 00000244 002 OF 003 problems and acknowledged the immediate need for reformation. INSPECTION OF TECHNICAL TRAINING ACADEMY ¶6. (C) At the request of Saudia management, one of the inspectors, with a background in technical training, accompanied by Pol/Econ Chief, toured the airline's Prince Sultan Aviation Academy for technical training. After touring the facility located in central Jeddah, only a few blocks from the Consulate, the inspector described himself as quite impressed with the facility. The facility, tools, and instructors were deemed capable of providing very good training to students beginning with the most basic maintenance tasks for untrained students to training of experienced technicians in new, sophisticated repair techniques. ACADEMY HAS ROOM TO EXPAND ¶7. (C) Notable at the time of the visit was that there were comparatively few students for a facility of its size and range of potential training courses. There seemed to be substantial numbers of students in the basic training courses for new employees, but many of the classrooms had only a few students, and a number seemed to be unoccupied. In that respect, after privatization, the academy would be in a good position to take in students from outside sources for paid training courses. General Authority of Civil Aviation VP Berenji has told the Consulate that that this is his plan (reftel). WILL ACADEMY BE ABLE TO MAINTAIN ITSELF UNTIL IT BECOMES PROFITABLE? ¶8. (C) COMMENT: As Saudia progresses toward privatization one must consider if the academy will be able to maintain its budget and facilities. Many analysts have commented that Saudia staffing and budgets will have to be cut dramatically if the airline is to become competitive. Over the course of two to four years, until privatization becomes a reality, will the relatively lightly used Academy be able to maintain its capabilities or will budget considerations degrade it? END COMMENT. SAUDIA'S MARCH TOWARD PRIVATIZATION COULD BE BUMPY ¶9. (C) At the request of Pol/Econ Chief, the FAA team leader shared the team's observations of Saudia's potential for transformation into a private company, based on their experience of seeing many airlines throughout the world struggle to privatize. He foresaw no "issues that would stop them from privatization, but some areas might make them less attractive to investors." MANPOWER ¶10. (C) The inspector observed that "they will probably have to down-size the work force to make it attractive for privatization. Saudi Arabian Airlines Repair Station seems to have plenty of workers to keep up with the needs of the repair Station (and the airline). In fact, I believe they are over-staffed compared to the way private companies work. I have watched other companies go through privatization and it can be quite painful on the workers, which will probably be the case for Saudi Arabian Airlines Repair Station." Confirming this observation, during the tour of the Repair Station, personnel could be seen standing around. As one inspector confided to Pol/Econ Chief, "for every guy they have working, there is one standing over him watching him work." FACILITIES ¶11. (C) "The actual size of the facility is just barely adequate. For one thing, most of their hangars are not large enough to house their largest aircraft. In addition, the hangars are not air conditioned. Human factors are becoming an issue now, and I would say that the quality of work might be affected by the discomfort of the workers during hot times. (Furthermore)...without air-conditioned hangars, the doors will likely remain open much of the time which makes them susceptible to dirt and dust being blown in. I did JEDDAH 00000244 003 OF 003 notice that a lot of areas are dirty around the facility, i.e. covered with dust." TECHNOLOGY ¶12. (C) In this category the inspector referred to how modern the facility is in terms of equipment and methods. "Generally speaking, I would say that some updating is needed. For instance, a lot of the manuals they are currently using are provided to them on disk (CD or DVD). But they do not have a central server to make them available to everyone, so they simply copy the disks and distribute them to those that need them. Also the aviation test equipment they are using, while adequate, is not the latest available." He speculated that the lack of some modern equipment is compensated for with extra manpower. ¶13. (C) COMMENT: These criticisms suggest that Saudia will be faced with the unattractive option of being required to make substantial expenditures on facilities and procedural reforms just as they are trying to cut their costs, in order to become a competitive carrier. It will bear careful watching in the future to see if the repair managers are able to wrest sufficient funds from an increasingly cost-conscious executive as they move towards full competition. END COMMENT. Gfoeller