AIRBUS LIKELY TO EDGE OUT BOEING FOR YEMENIA DEAL

C O N F I D E N T I A L SANAA 000481

SIPDIS

PASS TO ADVOCACY CENTER/CHRISTOPHER JAMES. HELSINKI - PASS
TO FCS/ROBERT PEASLEE. RIYADH - PASS TO FCS/ NANCY
CHARLES-PARKER. DUBAI - PASS TO FCS. USDOC - PASS TO
ITA/TYLER HOFFMAN. STATE - PASS TO USTR/JASON BUNTIN

E.O. 12958: DECL: 02/28/2016
TAGS: EAIR ECON KTDB YM ECON COM
SUBJECT: AIRBUS LIKELY TO EDGE OUT BOEING FOR YEMENIA DEAL

REF: A. SANAA 3032 B. JEDDAH 4638 C. SANAA 3198 D.
SANNA 3423

Classified By: Ambassador Thomas C. Krajeski for reason 1.4s (b) and (d
).


1. (C) SUMMARY: Ambassador met with Captain Abdulhamid
Al-Qadi, Chairman and CEO of Yemenia Airlines, the national
airline of Yemen, on February 13, to make another push for
Boeing in its contest against Airbus for the purchase of ten
new airplanes (ref D). Ambassador reminded Al-Qadi that EXIM
funds may be available to finance the Boeing deal. Al-Qadi
was appreciative of the prospect of receiving EXIM financing
for the Boeing purchase. He indicated, however, that the
Airbus offer still appeared to be in the best financial
interests of Yemenia. Al-Qadi anticipated that Yemenia would
make its final decision on February 26. As of February 27,
however, Yemenia had yet to make a decision. END SUMMARY.

--------------
Airbus Looks Better to Us
--------------


2.(C) Al-Qadi said that the Airbus is a better financial
deal as it requires only a 15% down payment as opposed to a
30% down payment to Boeing. Airbus is willing to forgive $60
million of the lease amount remaining on the Airbus A310s as
opposed to Boeing's offer to refinance the lease at $50
million over 5 years with interest. Ambassador reminded
Al-Qadi that the Boeing 787 would modernize the Yemenia fleet
and be more cost effective due to greater fuel efficiency and
greater passenger capacity. Al-Qadi disagreed stating that
the Airbus A-350 is a sufficiently modernized plane for
Yemenia's needs.

--------------
Back to Boeing
--------------


3. (C) Ambassador met with Ehab Shihabi of Boeing Capital
Corporation, on February 15, and told Boeing that Yemenia was
possibly leaning toward the Airbus offer, primarily due to
the lower down-payment and the alleged opportunity to waive
the A-310 lease payments in arrears. Boeing suspects that
the partial lease "forgiveness" may be illusory with the
amount being reapplied to the back end of the purchase price
for the new aircraft. Shihabi stated that EXIM's involvement
in the financing represents an added plus for Yemenia and
Yemen in general. He asked the Ambassador to contact EXIM
and reiterate his support for Boeing's offer and encourage
EXIM to finance the deal (Note: Ambassador contacted EXIM on
February 25 to encourage their support).

--------------
No Decision Yet, but.......
--------------

4.(C) On February 27, Mr. Khaled Alhiyami, General Manager
of Yemenia in Hodeidah, contacted Post and stated that the
Yemenia Board did not reach a final decision during their
February 26 Board meeting. He did say, however, that the
general impression among the Board members is that Airbus
will be awarded the contract.


5. COMMENT: It is most likely that Airbus will be awarded
this contract in spite of the superiority of the Boeing
product and the fact the Boeing deal is the most
cost-effective choice for Yemenia in the long run.
Unfortunately, it is becoming increasingly clear in the
competition for contracts in Yemen, that tenders are awarded
based upon immediate financial benefits and not quality, past
performance or credibility of competitors. Post will update
Department and Commerce on further developments in this case.
END COMMENT.
Krajeski