AMBASSADOR BRIEFED ON SAUDIA FUTURE

C O N F I D E N T I A L SECTION 01 OF 03 JEDDAH 000614

SIPDIS

SIPDIS

RIYADH, PLEASE PASS TO DHAHRAN; DEPARTMENT FOR NEA/ARP;
PARIS FOR WALLER; LONDON FOR TSOU; ABU DHABI FOR PAUL BARTKO

E.O. 12958: DECL: 09/17/2016
TAGS: PGOV PREL BTIO EAIR ECON KISL KPRV SA
SUBJECT: AMBASSADOR BRIEFED ON SAUDIA FUTURE

REF: A. A) JEDDAH 244

B. B) JEDDAH 452

Classified By: Ambassador James C. Oberwetter
for reasons 1.4 (b) and (d).


1. (C) SUMMARY: On September 10, the Ambassador and
Consulate General Jeddah, and FCS staff met the New
Director General of Saudi Arabian Airlines (Saudia) and
his senior staff. The Director General offered an optimistic
assessment of the airline's future. Privatization is planned
over the next two or three years. A number of non-core activities
will be developed into separate businesses. The fleet will
be modernized. The management staff were favorable towards
Boeing, but guarded in discussing future purchases. The
managers expressed concern that the manufacturer would have
to provide logistical support and suggested that Embassy
assurances that airline staff could travel for training and
administration in support of a purchase would be important
considerations. The Saudi government is making major
investments in infrastructure, including aviation and
airports, in the Hejaz. END SUMMARY.

PROMISING FUTURE FOR SAUDIA


2. (C) On September 10 the Ambassador met with the new
Director General of Saudia, Khalid Molhem, and his senior
operations staff. Also present were Riyadh FCS Counselor
and Jeddah Pol/Econ Chief. Molhem gave the Ambassador an
optimistic picture of the airline's future. He noted that
in the two weeks ending on September 5, Saudia carried
348,000 passengers on 1,200 international flights. Saudia
officials said that the airline could fill 15 to 20 flights
from the Kingdom to Egypt every day. These figures did not
include their domestic flights which are usually filled to
capacity.

FUTURE TIED TO ECONOMY AND PILGRIMS


3. (C) Unlike other airlines in the Gulf region that
strive to increase transit passengers, Saudia management is
pursuing a stable, long-term market aimed at passengers
coming to the Kingdom, rather than passing through to
elsewhere. This strategy depends in part on continued
economic growth in Saudi Arabia attracting business from
throughout the world. Another element of this strategy is
pursuit of the uniquely Muslim pilgrimage traveler. Haj
dominates passenger travel in Saudi Arabia, attracting some
3 million travelers every year, the majority of whom travel
on Saudia. This traffic is limited by quotas set by the
Saudi Arabian government and cannot increase appreciably in
the near future. However, umrah, or the little pilgrimage,
which can be conducted anytime during the year, is a
rapidly growing market. Currently umrah brings 8-10
million visitors to the Kingdom, and Molhem speculated that
it could easily increase to 20 million passengers per year.

COMPETITION WELCOMED


4. (C) Saudia management insisted it is not afraid of
competition in the heretofore closed Saudi Arabian aviation
sector. In fact, they count on competition to increase
passenger numbers. Currently, fares are high and the
millions of expatriate and budget travelers in Saudi Arabia
travel only occasionally. They theorize that cheaper fares
would encourage more frequent travel by these customers.

SELECTIVE SECURITY REQUIREMENTS


5. (C) The Ambassador, relating his own experience the
previous day boarding a Saudia flight from Nairobi to
Jeddah, said he had never gone through such a stringent
security screening. The Director General responded that on
flights to and from certain destinations, Beirut and
Nairobi notable among them, the Ministry of Interior issue
special security directives and supplies specialy trained
security agents, although they wear Saudia uniforms, to
inspect passengers and baggage.

PRIVATIZATION PREPARATIONS


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6. (C) Molhem was optimistic that full privatization of
Saudia can be effected in the course of the next two or
three years. The airline is presently involved in an
aggressive campaign to cut its costs. It is divesting
itself of its catering operations, which are seen as an
attractive investment. They have received 48 inquiries,
including 10 substantial offers from European concerns.


7. (C) The airline is also preparing to spin-off its
training facilities. In a candid statement, the Director
General stated that he would like to see interest from U.S.
concerns in this portion of the operations. They are also
preparing to divest the maintenance facility which would
remove more than 5,000 people from their work force.
Maintenance accounts for some SR 5 billion in revenue.
Ground handling services, which are expected to be a
lucrative activity as more airlines begin operating to and
within Saudi Arabia will also be made into a separate
company. The cargo operations will also be separated,
leaving the airline to its primary mission--flight
services.

NEW FLEET - BOEING?


8. (C) Saudia anticipates spending over USD 12 billion on
new aircraft over the next few years. Prominent on the
coffee table around which the Ambassador and Saudia
officials held their discussions was a model of the new
Airbus A-380. However, the Ambassador and FCS Counselor
aggressively advocated for Boeing. The airline staff are
well-disposed towards Boeing products, but cautioned that
Boeing must accommodate their logistical needs.

CONSULATE WILL TRY TO ACCOMMODATE SAUDIA


9. (C) The airline managers also suggested the ability for
their staff to travel to the United states would be a major
factor in their purchase decision. The Director of Flight
Operations noted that obtaining a visa in Riyadh could
result in air crew members being unavailable for as many as
four days, a serious problem considering the stringent
regulations that govern air crew activities. (Note:
Saudia currently employs 1,200 cockpit crew and 4,200 cabin
crew among its approximately 24,000 employees. End note.)


10. (C) Although the airline trains crews in France,
Helsinki, and the Emirates, many of these air crew members,
as well as hundreds of other staff, would have to travel to
the U.S. for training if new aircraft are purchased.
Consequently, they asked if the Embassy could assure them
that their staff could travel when necessary for training
and administration connected with any major purchases. The
Ambassador suggested that the Embassy would explore options
such as those employed by ARAMCO and a few other major
companies to facilitate visa issuance.

AIRPORT MANAGEMENT


11. (C) Airport management in Saudi Arabia is under the
administration of the General Authority of Civil Aviation
(GACA). Saudia management has had intensive discussions
with them, because airport improvements are vital to their
future success. As currently configured, Jeddah's King
Abdul Aziz Airport is not suitable to act as an
international hub, and the airline is anxious that future
improvements and new airports constructed in the Kingdom
are compatible with its future operations.


12. (C) However, potential developments are especially
promising for western Saudia Arabia. Mecca recently became
an international airport. Molhem predicted that Taif and
Tabuk would follow suit. He thought that Saudi Arabia
could have as many as seven or eight international airports
in the next decade.

MAJOR INFRASTRUCTURE DEVELOPMENT IN THE WEST


13. (C) The Ambassador was impressed to learn that USD 30
billion is being committed to economic development projects
in the Hejaz, including redevelopment of King Abdul Aziz
Airport in Jeddah, planning for an entirely new airport

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that could accommodate an international airport hub
operation by Saudia and upgrading other airports. Added to
the funds earmarked for new aircraft, and the development
projects, such as King Abdullah Economic City,
infrastructure investment in western Saudi Arabia may well
equal or exceed the 50 billion investment in ARAMCO in the
Eastern Province.

TONEY