NEW SAUDIA DIRECTOR GENERAL EXPOUNDS ON FUTURE OF

C O N F I D E N T I A L SECTION 01 OF 02 JEDDAH 000452

SIPDIS

SIPDIS

RIYADH, PLEASE PASS TO DHAHRAN; DEPARTMENT FOR NEA/ARP; EB
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E.O. 12958: DECL: 07/01/2016
TAGS: EAIR ECON KISL PGOV PREL SA
SUBJECT: NEW SAUDIA DIRECTOR GENERAL EXPOUNDS ON FUTURE OF
AIRLINE


Classified By: Consul General Tatiana Gfoeller, for
reasons 1.4 (b) and (d).


1. This is one of a series of cables relating to the civil
aviation sector in the Kingdom of Saudi Arabia.


2. SUMMARY: On June 25, Pol/Econ Chief and Jeddah
Commercial Officer met the newly appointed Director General
of Saudi Arabia Airlines (Saudia),Khalid Almolhem. He had
earlier presided over the privatization of Saudi Telecom. He
is guardedly optimistic about the future of Saudia, although
he had reservations about meeting the current schedule for
privatizing the company by the end of this year. Current
plans are to divest the airline of catering, cargo and
maintenance services. Among the problems facing Saudia's
operations as a private carrier is a skewed passenger demand
which taxes personnel and equipment and outdated facilities
at King Abdulaziz International Airport in Jeddah, which are
not well-suited to act as an air service hub. Almolhem is
interested in exploring code-sharing agreements with U.S
carriers. He voiced dissatisfaction with the service
provided by Boeing to Saudia in recent years. END SUMMARY.

NEW DIRECTOR GENERAL OF SAUDIA


3. (C) On June 25, Jeddah Pol/Econ Chief and Commercial
Officer met with Khalid Abdullah Almolhem. Almolhem was
appointed Director General of Saudi Arabian Airlines (Saudia)
earlier in the month. Almolhem, had been, until February of
this year, the Director of Saudi Telecom and had presided
over the privatization of that enterprise. His success at
Saudi Telecom is thought to have been a primary reason for
his appointment to Saudia. It is also rumored that his
reputation for integrity and honesty were important factors,
in contrast to the suspicions that swirled around the
previous Director General.


4. (C) Almolhem met Consulate officers in his office at the
Saudia Headquarters in the Khaldya Section of north Jeddah.
Almolhem appeared to be in his late fifties and was cordial
throughout the meeting. He exhibited a pragmatic attitude
and advocated continued reform and opening of the Saudi
economy and society. He expressed the belief that a
continued close relationship with the U.S. was essential for
Saudi Arabia's development.

IMPENDING PRIVATIZATION WILL BE A CHALLENGE, BUT IS ESSENTIAL


5. (C) Having been at the helm of Saudia for less than two
weeks, Almolhem confessed that he was still learning the
details of the job. Overall he was optimistic about the
Saudi economy and the plan to privatize Saudia. However he
was rather less sanguine about the recently announced
time-table to privatize Saudia by the end of the year. He
told officers that privatization was essential, but noted
that it would be something of a challenge to divest the
airline of non-core components, excess staff, initiate
management changes and create the conditions for a private
business in that short time frame.

CATERING, CARGO, AND MAINTENANCE TO BE SPUN OFF


6. (C) His immediate goals were to separate the catering,
cargo services, and maintenance components of the airline
into independent, private operations. His most recent annual
figures were that the catering services generated revenues of
SR 800 million, the cargo services SR 4.5 billion, and
maintenance SR 5 billion. Saudia planned to give each of
these companies an exclusive contract to provide services for
Saudia, but they would have to compete for contracts with
other private companies for additional revenue. He estimated
that divesting the airline of these segments would reduce its
work force by approximately half.

COMPETITION IS TO BE EXPECTED, BUT ORGANIZATION AND
INFRASTRUCTURE PRESENT CHALLENGES TO SAUDIA


7. (C) Almolhem was not overly concerned about the
competition from the several start-up airlines that have
begun or soon will begin competing with Saudia on domestic
routes. In discussing Saudia's ability to compete as a
private airline, he observed that it was inevitable. He felt

JEDDAH 00000452 002 OF 002


there was no possibility of a non-private airline competing
in the modern international environment. He lamented that
competition had been blocked for so long. He observed that
it would have been easier to become competitive earlier than
it is in today's global airline sector. He readily admitted
that a number of obstacles pose problems for Saudia's
operations.

UNIQUE PASSENGER PATTERNS CONFRONT SAUDIA


8. (C) Among the obstacles confronting Saudia identified by
Almolhem was the unique passenger demand that was both an
asset and a liability. Almolhem noted Saudis who are able,
leave the Kingdom in droves during the searing summer months.
Additionally, religious pilgrims traveling on umrah
pilgrimage, during Ramadan and the Haj, all place an
extraordinary burden on Saudi transportation producing a very
skewed pattern of usage. This is compounded at the present
time when all of these events succeed each other in quick
succession. Consequently, rather than a relatively level,
year-round demand, Saudia will face peak demands for service
between now and the end of Haj early in the new year with
little respite. Almolhem admitted that this would severely
tax the airline's personnel and equipment during the coming
months (and, not incidentally, complicate the process of
divesting itself of its non-core units.). The beneficial
facet of these circumstances, is that the airline will be
generating maximum revenues during the remainder of the year.

AIRPORT INFRASTRUCTURE MUST BE IMPROVED


9. (C) Another obstacle to the long-term viability of
Saudia's operations was that Jeddah's King Abdulaziz
International Airport was old and lacked the infrastructure
to operate efficiently as a Hub airport for Saudia. He was
optimistic that when the recently inaugurated airport
renovation is completed in a year or two, Saudia will be much
better able to develop a domestic and international hub
system of operations.

CODE-SHARING ESSENTIAL FOR SUCCESS


10. (C) When asked about the prospect for establishing
"code-sharing" arrangements with American airlines. He
immediately said this would be vital. "No airline," he
observed, "could operate effectively today without
code-sharing," and he was eager to explore these arrangements
with foreign and American carriers. Evidence confirms their
pursuit of this policy. Over the last few days, Saudi
newspapers have announced that Saudia has entered into a
code-sharing arrangement with Cyprus Airlines and an
"interline agreement" with Libyan-based Afriqiyah Airways.

BOEING ATTRACTIVE, BUT IT WILL HAVE TO MAKE AN EFFORT


11. (C) Commercial Officer queried Almolhem about his views
regarding Boeing, which has been contesting Airbus sales in
the region with only mixed success. He readily expressed an
admiration for Boeing, but was cautious about its future
relationship with Saudia. He said that Boeing would have to
give more if its relationship with Saudia was to flourish.
He said he "wished someone would tell Boeing that they would
have to give them more support and particularly be more
helpful in providing needed spare parts." Commercial Officer
agreed to forward this message to Boeing.


12. (C) COMMENT: Almolhem impressed officers as an
experienced, pragmatic and forward-looking manager. He was
responsible for one of the largest and most successful
privatizations yet completed in Saudi Arabia. By all
indications he has the confidence of the King in undertaking
this next critical step in Saudi economic development. He
explicitly described the U.S.-Saudi relationship as important
to both parties. He also expressed a desire to maintain
contact with the Consulate General. Almolhem is not yet
well-known to the Mission; he said he had met the Ambassador
briefly, and it would seem useful if relations between
Almolhem and the Mission could be strengthened in coming
months. His comments concerning code-sharing suggest that
interested American airlines should approach Saudia
representatives to explore this issue. END COMMENT.
Gfoeller