TRANSPORT OFFICIAL OPTIMISTIC ON OPEN SKIES,

UNCLAS SECTION 01 OF 02 ALGIERS 001772

SIPDIS

SIPDIS

STATE FOR EB/TRA - JBYERLY, JREIFMAN
DEPT OF TRANSPORTATION FOR SEHATLEY

E.O. 12958: N/A
TAGS: EAIR ETRD ECON AG
SUBJECT: TRANSPORT OFFICIAL OPTIMISTIC ON OPEN SKIES,
CIVAIR OUTLOOK FOR 2008

REF: ALGIERS 946


1. SUMMARY: Although the main impasse to an Open Skies
agreement remains unchanged, the Algerian transport ministry
is optimistic about progress in 2008. Meanwhile, despite
American firm FSI losing a Boeing 737 flight simulator
contract to Canadian firm CAE, Algeria seems committed to
continue supplying state-run national carrier Air Algerie
with mid-range Boeing aircraft and says it will need to
"refresh" this aging segment of its fleet within the next few
years. Air Algerie is struggling to develop a compensation
package for its pilots that will prevent them being poached
by carriers in the three largest areas of current global
civil aviation growth: India, China and the Gulf. Finally,
contrary to what we were told in June (reftel),direct
flights to the U.S. are "not on the agenda" for Air Algerie.
Instead, direct service between Algiers and Beijing is due to
begin within the next few months. END SUMMARY.

OPEN SKIES - STILL 80 GRAMS AWAY
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2. We met on December 5 with Messaoud Benchemam, Director of
Civil Aviation at the Ministry of Transportation. Benchemam
told us Algeria was "eager" to work out an Open Skies
agreement, but that the sticking point remained protecting
the monopoly of Algeria's state-controlled postal service on
the delivery of domestic mail weighing less than 80 grams.
Benchemam said the current limit was still 250 grams, but
that Algeria had already committed to lowering the limit to
80 grams in early 2008. According to Benchemam, it was "a
shame" that such a "fine point" prevented an agreement. He
referred to a negotiated civil aviation agreement that
Algeria had reached with France, which he said had involved
some compromise on both sides and respected the concerns of
the Algerian postal monopoly. Benchemam did concede that
Algeria would be examining the issue further in 2008, as
market realities made it "extremely difficult to believe"
that couriers such as FedEx or UPS would have any interest in
competing for interna
l Algerian postal services with letters weighing less than 80
grams.


3. In response to our underscoring that Open Skies was an
all-or-nothing free trade agreement, Benchemam did not insist
on a U.S. compromise on the 80-gram weight limit. Rather, he
stressed that Algeria had made significant progress in 2007
towards bringing its regulations in line with Open Skies and
ICAO standards. As examples, he stated that Algeria has
eliminated the distinction between residents and
non-residents for the purchase of airline tickets in foreign
currency, as well as the reduction or elimination of several
tariffs. According to Benchemam, Algeria was still in the
process of changing its regulations, and he told us that
Algeria still considered Open Skies to be "a very active
file." The process, Benchemam said, was slow and difficult
due to the involvement of several ministries. While the
Ministry of Transportation had a clear interest in Open
Skies, the postal monopoly was of far greater concern for the
Ministry of Communications, he pointed out. He said he hoped
that in "early 2008" Al
geria planned to examine the 80-gram obstacle and explore
ways to overcome it so that an Open Skies agreement could be
signed during the 2008 calendar year.

BOEING'S FUTURE IN ALGERIA APPEARS SECURE
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4. Regarding the recent Algerian decision to award a contract
for Boeing 737 flight simulators to Canadian company CAE,
Benchemam simply said they felt the CAE offer was the most
attractive. He quickly went on to emphasize Air Algerie's
reliance on Boeing aircraft for its mid-range fleet.
Benchemam told us that Air Algerie's long-range aircraft
consisted of three Airbus 330s and two Boeing 767s, of which
the Boeings were "getting old" but would probably not be

ALGIERS 00001772 002 OF 002


replaced as three long-range aircraft were probably enough
for Air Algerie. In contrast, he said that the vast majority
of Air Algerie's service relied on mid-range 100-150 seat
aircraft, specifically the Boeing 737. Benchemam said the
737 simulator contract was a sign that Algeria was interested
in keeping costs down by standardizing training, spare parts
and maintenance, and that "within the next few years" Algeria
would likely begin to replace its older 737s with newer
versions.

A GLOBAL PILOT SHORTAGE
--------------


5. Benchemam told us that the most immediate challenge for
Air Algerie was to develop a new compensation package for its
pilots to avoid losing them to China, India and the Gulf. He
said this was a problem faced by airlines worldwide, as civil
aviation was "exploding" in those three areas without enough
pilots to fill the demand. As a result, Gulf, Indian and
Chinese airlines were hunting for pilots in Africa, Latin
America and parts of Asia. Countries like the UAE, he said,
were offering pilots as much as ten times an Air Algerie
salary plus housing and family relocation and education
expenses. Benchemam said that Air Algerie had enough pilots
to absorb a five percent annual attrition rate, but that over
four or five years, this could become a serious problem.

NEXT STOP: BEIJING
--------------


6. Benchemam said that the only major new area of civil
aviation expansion currently on the Algerian agenda was with
China. Negotiations were almost complete to begin direct
service between Algiers and Beijing, due to what he called
"the large number of Chinese laborers and contractors now
working on civil engineering projects in Algeria." Contrary
to what we reported in reftel, when the Algerian government
had told us it was "interested" in exploring flights to New
York, Benchemam said that Algeria was satisfied that Air
Algerie's current direct service to Montreal provided
sufficient access to North America for the time being and
that service to any U.S. destination "is not on the agenda."

OPTIMISM FOR 2008?
--------------


7. Benchemam said he believed Algeria was getting closer to
an Open Skies agreement with the U.S, and took great pains to
point out the changes it had made in 2007. While indicating
that the transport ministry's desire for Open Skies remained
strong, he also lamented the slow pace of change in Algeria.
Benchemam said the Algerian government would be ready to
discuss a civil aviation agreement similar to the one it
signed with France, outside the context of Open Skies, but he
understood the all-or-nothing free trade backbone of Open
Skies and believed the remaining hurdles would move up the
Algerian agenda in 2008. He pledged to inform us as soon as
the Ministry of Transportation discussed the 80-gram issue
with the cabinet, and repeated at the end of our meeting that
he considered the file "very much alive."
FORD