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 -------------- Summary -------------- ¶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. -------------- Privatizing in Pieces -------------- ¶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. -------------- Co-opting the Competition -------------- 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. -------------- Comment -------------- ¶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