ROYAL JORDANIAN IPO ON SCHEDULE FOR DECEMBER

UNCLAS SECTION 01 OF 02 AMMAN 004426 SIPDIS SENSITIVE SIPDIS STATE FOR NEA/ELA AND EEB E.O. 12958: N/A TAGS: EAIR ECON EINV KPRV JO SUBJECT: ROYAL JORDANIAN IPO ON SCHEDULE FOR DECEMBER Sensitive but unclassified. Not for internet distribution. REF: A) Amman 4072 B) Amman 3286 C) Amman 1299 ¶1. (U) Summary: Royal Jordanian (RJ) Airlines president Samer Majali said that RJ's initial public offering is on schedule for completion in 2007. Majali expects that 60 percent of shares will be Jordanian-owned. RJ selected the GEnx engine for its previously-ordered Boeing 787s due in 2010. RJ had its highest monthly volume of passengers ever in August 2007, and expects its business will grow its regional focus. End Summary. IPO PROSPECTUSES WILL GO OUT IN MID-NOVEMBER -------------- ¶2. (U) EconCouns met with Samer Majali, President of Royal Jordanian Airlines, on October 29 to discuss the status of RJ's initial private offering (IPO) and its recent performance. Majali said RJ is working closely with its lead investment bank Citigroup, and IPO prospectuses are expected to go out in mid-November. He said he is consulting with multiple investment banks, and that a share price will be set on December 8. Majali expected that RJ's IPO and its listing on the Amman Stock Exchange would be completed by the end of December. ¶3. (U) When RJ's privatization was first planned, Majali said that RJ expected to sell its shares to a foreign carrier that would serve as a strategic partner. The growing strength of RJ as a business, as well as increased travel to Jordan and the Middle East, has meant that RJ is able to go public independently without a strategic partner. According to the GoJ plan (Ref B),the current sole owner - the government - will sell up to 74 percent of the RJ shares, of which 51 percent must be sold to Jordanians. Majali said he expected that 60 percent of the shares would be Jordanian-owned after the IPO. Three percent of shares will be allocated for the Jordanian Armed Forces (JAF),and eight percent of shares are set aside for RJ employees. RJ CHOOSES GE ENGINE -------------- ¶4. (U) In October, RJ selected the GEnx engine to power its previously-ordered Boeing 787s (Ref C). RJ's first 787s are scheduled to be delivered in 2010, and when delivered, RJ will be the first carrier in the Middle East flying GEnx-powered 787s. While Boeing has announced a six-month delay for the first 787s, Majali expressed hope that Boeing will be on-schedule by the time RJ's airplanes are due for delivery. Majali said that RJ will use the 787s for trans-Atlantic travel, and that its current Airbus and Embraer airplanes will fly regional routes. BUSINESS IS GROWING -------------- ¶5. (U) RJ announced that in August 2007 it had its highest volume of passenger traffic ever with 256,000 passengers, marking a 16 percent increase over August 2006. RJ operated 2708 departures in August, an increase of 23 percent over August 2006. Aircraft utilization increased 16 percent from 10.1 to 11.7 hours per day. Majali told EconCouns that he expected RJ's business to grow regionally and to focus less on long-haul flights. He said that RJ has difficulty competing with the state-subsidized Emirates airline, noting that other Middle Eastern carriers are also less affected by fuel price increases because of government support. ¶6. (SBU) Majali did not express concern about Delta's recent decision to provide non-stop service to Amman (Ref A). He said Delta would operate just four flights weekly, while RJ would provide ¶16. He hoped that Delta's service would encourage more Americans to visit Jordan. He did question Delta's decision to fly from New York's John F. Kennedy (JFK) Airport rather than its main hub in Atlanta, which he thought would provide greater product differentiation. LONG-TERM EMPLOYEES -------------- ¶7. (SBU) Majali said that he has worked for RJ since 1979. He described RJ as a family, and said the company has benefited from employees' tenure and multi-generations of employees from the same AMMAN 00004426 002 OF 002 families. Many of these employees remained loyal to RJ following the 1988 economic crisis and the 1990 Gulf War that almost crippled RJ when its fleet was evacuated to Vienna. The decision to privatize resulted in down-sizing, and for many employees the transition from a public-owned utility to a private company has been difficult. Nevertheless, most current employees want to stay, and he predicted the employee stock options from the IPO will help retention. He commented that RJ's salaries are above average Jordanian government salaries but far below other private sector employers, but perks such as free tickets helped to offset the differences. He estimated that 20 percent of his employees were non-Jordanian, especially flight attendants who are recruited for their language ability. He said Jordanian pilots are particularly in demand and serve in airlines around the world, employing their private sector and military experience. Visit Amman's Classified Website at http://www.state.sgov.gov/p/nea/amman HALE