TACA AIRLINES FINDS HOME FIELD ADVANTAGE IN THE

UNCLAS SECTION 01 OF 02 SAN SALVADOR 000103

SIPDIS

SENSITIVE

FAA FOR ANNA SABELLA EAIR/API/AWH

E.O. 12958: N/A
TAGS: ECON EAIR ES
SUBJECT: TACA AIRLINES FINDS HOME FIELD ADVANTAGE IN THE
SUPREME COURT OF EL SALVADOR



1. (U) Sensitive but Unclassified. Not for Internet
Distribution.


2. (U) Summary: The Supreme Court of El Salvador has ruled
that the Civil Aviation Authority (AAC) of El Salvador
violated the constitutional rights of TACA International
Airlines S.A. (TACA) in allowing Compania Panamena de
Aviacion, S.A. (COPA) of Panama a second daily flight to El
Salvador and revoked permission for the second flight. The
ruling stranded hundreds of passengers at the height of the
holiday season. The ruling came only three days after TACA
filed suit, an extremely short time for the Supreme Court,
and cast a shadow over the ability of AAC to act as an
independent regulatory body. End Summary.


3. (U) In November 2004, Compania Panamena de Aviacion,
S.A. (COPA) of Panama applied to the Salvadoran Civil
Aviation Authority (AAC) for permission to add a second daily
flight to El Salvador from Panama. This second flight would
be direct, their current flight operating via Managua. The
AAC granted permission for the second flight pending a public
hearing, a requirement under Salvadoran civil aviation law.
As required, COPA submitted a notice for the hearing in the
Official Journal, as well as in La Prensa Grafica, one of the
two largest newspapers in El Salvador. The Official Journal
prints entries several days after receipt, and so the entry
was not published until the day of the hearing. The
advertisement of the hearing in La Prensa Grafica was
published on Saturday, the 11th of December 2004, with the
hearing scheduled for December 15th 2004. TACA did not
appear at the public hearing to oppose the decision, and AAC
granted permission to COPA to fly the second route to begin
after the 1st of December 2005.


4. (U) On June 1, 2005, TACA submitted a complaint to the
AAC board of directors, saying COPA was using non competitive
practices on the route. The AAC board rejected the complaint
on November 1st, saying they could not determine if there
were non competitive practices when COPA had not yet started
flying the second route. On December 6th TACA submitted a
complaint to the Executive Director of the AAC, Renzo
Zaghini, charging irregularities in the public hearing
process. They claimed the Official Journal was published the
same day of the hearing, and the La Prensa Grafica
announcement was on a Saturday, not a workday. On December
13 Zaghini informed TACA he had no legal authority to deny
the new route based on TACA's allegations. On December 6
TACA also submitted a complaint to the AAC Board of
Directors, saying they had not received the AAC's report on
the result of an inspection of COPA's operations. This
request was denied on December 20th, as there is no law
stating that the AAC must make public this information.

5. (U) On December 12, 2005, TACA took a different route,
and submitted a request for protection ("amparo") with the
constitutional chamber of the Supreme Court of El Salvador.
In an unusually fast decision for the Supreme Court, on
December 15 it ruled that the decision by AAC to grant the
permission for the flight may have been handled in an
unconstitutional manner, and repealed the authorization for
the flight by the AAC pending a final decision. The ruling
was issued only hours before the first flight was to depart
Panama for El Salvador, but effectively canceled the second
flight, stranding many passengers wishing to travel from
Panama to El Salvador and vice versa. Eduardo Aguilar,
General Manager of COPA in El Salvador, told econoff that
almost 500 people were affected in the days leading up to the
Christmas holidays.


6. (SBU) On December 16, the AAC asked the Supreme Court to
allow the COPA service to continue pending the Court's final
decision, on the grounds that the suspension of service was
having a detrimental affect on the public, particularly
during the runup to the holidays. The Supreme Court to date
has not answered the request. In the words of Renzo Zaghini,
the answer could come in 'One day or 25 years'. Zaghini was
upset by the Court decision on TACA's amparo request, which
he saw as interference in a regulatory matter. In addition,
on January 12 AAC will have to renew COPA's operational
permit and must decide if it should be renewed for one or two
daily flights, possibly without having received a final
decision by the Supreme Court.


7. (SBU) Comment. COPA is a Panamanian company but is 49
percent owned by Continental Airlines. Continental has not
specifically asked for advocacy on this issue, but Embassy El
Salvador is interested in the ramifications of the case on
both civil aviation and the general investment climate. The
decision of the Supreme Court to suspend the authorization
for the flight appears to be an end run around the authority
of the AAC. The AAC and Zaghini in particular have a very
good reputation within the aviation industry in El Salvador,
and, we believe, with the Department of Transportation in the
United States. COPA's Eduardo Aguilar characterized AAC as
very impartial, going as far as returning a large number of
'fly for free' cards offered by TACA that would have allowed
AAC employees to fly anywhere TACA flys. Zaghini said the
AAC has earned a reputation for resisting political pressure
from the public sector, and by going to the Supreme Court,
TACA has created a 'ridiculous' situation. The government of
El Salvador has promoted the country as good for investment,
and surveys have indeed borne out this claim. However, TACA
is one of the most well known corporate entities in El
Salvador, and one that has good connections at all levels of
government. There is no direct evidence of TACA using their
influence in this case, but their appeal to the Supreme Court
and the speed of the response is an avenue that few companies
in El Salvador would be able to use so effectively.
Barclay