PRIVATIZING ARIANA?

UNCLAS SECTION 01 OF 02 KABUL 001994

SIPDIS

SENSITIVE
SIPDIS

DEPARTMENT FOR SCA/FO, SCA/A, EB/OTP, EB/CBA
NSC FOR AHARRIMAN, AMEND
CENTCOM FOR CG CFC-A
TREASURY FOR PARAMESWARAN
COMMERCE FOR AADLER AND ITA FOR BLOPP
TRANSPORTATION FOR DMODESITT
FAA FOR JHANCOCK AND TMARZIN

E.O. 12958: N/A
TAGS: EAID EAIR ECON AF
SUBJECT: PRIVATIZING ARIANA?

REF: A) 05 KABUL 4701

B) 05 KABUL 5033
C) KABUL 0359
D) KABUL 1719
E) KABUL 1791
F) KABUL 1798

KABUL 00001994 001.2 OF 002


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Summary
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1. (SBU) Dr. Atash, President of Ariana, plans to breakup
Ariana into smaller, more focused companies ahead of a
gradual, partial privatization. He is aggressively trying
to push this plan through the Afghan Government over the
next month. Atash will likely leave as soon as the plan is
approved, possibly to head up one of the new spin-off
companies. Post believes that even a refocused Ariana with
an influx of private capital will have problems surviving
without substantial GoA intervention. In our view, Ariana's
demise would ultimately allow for a safer, more competitive
civil aviation sector in Afghanistan. End summary.

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Privatizing in Pieces
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2. (SBU) In a meeting with EconCouns and Econoff, President
of Ariana Dr. Nadir Atash laid out his plans to first
corporatize, then privatize Ariana. His vision is to break
Ariana into six or seven smaller companies, each focusing on
a specific aspect of Ariana's current operations. Ariana
would retain the international air services while domestic
flights, cargo flights, cargo handling, catering, fuel and
ground services would become separate companies. According
to Atash, private investors would bring capital and know-how
to these new smaller companies. Ariana would keep an
interest (non-controlling) in each, and would sell 75
percent of its own shares over five years (beginning around
March 2007),with the GoA retaining a 25 percent stake.
Atash will propose this business plan to the Economic
Council of Ministers in Ariana's next strategic plan in
early May.


3. (SBU) Implementing Atash's strategy will require changes
to Ariana's bylaws to allow Ariana to form subsidiary
companies and to permit selling its shares to non-government
entities. On Saturday, April 22, Atash took the first step
by presenting amended bylaws to Ariana's Board Members for
approval. The Ministers of Transport, Commerce and Finance
as well as the directors of two major government-owned banks
sit on Ariana's Board of Directors. Minister of Transport
Qasimi and Minister of Commerce Arsala (both soon to be
replaced) attended, but a junior representative from the
Ministry of Finance sat in for Minister Ahady (in DC for the
World Bank/IMF meetings at the time). [Note: Previous
Ariana board meetings have also been held when Minister
Ahady has been out of the country, creating considerable
tension between the Ministry of Transport (including Ariana)
and the Ministry of Finance. End note.] Another
significant change in the bylaws would clearly delineate
Ariana's status as a government-owned corporation separate
from the Ministry of Transport. The Board approved the
bylaws which now go to the Cabinet, then the President for
approval. Atash was unclear on whether the Parliament would
also have to approve the changes. He hopes to obtain final
approval within the next two months.

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Co-opting the Competition
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KABUL 00001994 002.2 OF 002




4. (SBU) Atash noted that other Afghan investors are trying
to start airlines, "even prior Ariana employees that want to
see Ariana fail." [Note: Post believes this is a reference
to the head of Pamir Aviation who previously served as
President of Ariana. Pamir has so far been unable to renew
its air operating certificate (AOC),largely because of
resistance from Ariana. Another former employee of Ariana
is working with the Safi family to start up Safi Aviation;
however, as in the case of Pamir, Safi Aviation has also not
been able to obtain an AOC from the GoA. End note.] Atash
hopes that by providing the opportunity for such investors
to buy into Ariana, they will opt not to start rival
airlines.


5. (SBU) In questions directed to rejected Minister of
Transport-designate Gul Hussein Ahmadi, Afghan Members of
Parliament expressed keen interest in the future of Ariana.
While there was no clear consensus, some Members questioned
whether a privatized Ariana would survive.

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Comment
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6. (SBU) As noted in reftels, Atash does not plan to remain
with Ariana for much longer. Post believes he will try to
steer the bylaw changes and strategic plan through the
government quickly and then resign. (Note: It is unclear
whether or not a brand new Transport Minister would agree to
let this plan happen, and if so, how rapidly. End note.)
Atash expressed interest in investing in one of the proposed
Ariana affiliates and in serving on the Board of Ariana.
Post views the potential privatization as a positive
development, but does not see a line of willing investors.
In any case, the recent UAE suspension and problems with its
Boeing deal (see reftels) may cause even a privatized Ariana
to fail. Post believes that this will be in the medium to
long term interest of the civil aviation sector as it will
be easier to start a safe, reliable airline from scratch
than to bring Ariana back up to code. Post expects
substantial Afghan government intervention if Ariana's
situation continues to deteriorate. End comment.
NEUMANN