SYRIAN ARAB AIRWAYS CONTINUES TO PURSUE A WET LEASE

C O N F I D E N T I A L DAMASCUS 000295 SIPDIS SIPDIS NEA/ELA NSC FOR MARCHESE E.O. 12958: DECL: 03/24/2017 TAGS: EAIR ECON ETTC KCRM SY SUBJECT: SYRIAN ARAB AIRWAYS CONTINUES TO PURSUE A WET LEASE REF: 06 DAMASCUS 1811 Classified By: CDA Michael H. Corbin for reasons 1.5 b/d ¶1. (SBU) Summary. Syria Arab Airways has reportedly signed an agreement to lease Boeing airplanes from a new company set up by Rami Makhlouf. End summary. ¶2. (C) As he has with nearly every other economic sector in Syria, we've heard from local contacts that Rami Makhlouf, President Asad,s first cousin, is about to enter the Syrian air transportation industry. Makhlouf has reportedly established a new charter airline, possibly based out of the Virgin Islands. After establishing his airline, Makhlouf coerced and cajoled managers at Syrian Arab Airlines (SAA) to lease aircraft from his new airline to fly SAA's most lucrative routes. Others in the industry have described Makhlouf's contract with SAA as something more than a conventional wet lease and instead insist Makhlouf's airline will actually take over SAA's most profitable routes. According to this scenario, Makhlouf's airline would fly 80 percent of SAA,s existing routes, all routes under a certain distance from Damascus (700 miles was mentioned to us as the cutoff). Makhlouf would then leave SAA with only the longer-haul, money-losing routes, mostly to Europe. ¶3. (SBU) In a recent meeting with SAA managers to discuss spare parts licenses, the SAA managers asked for our opinion on a &hypothetical.8 The SAA managers wanted to know if a wet lease of Boeing aircraft from another airline would violate US sanctions. When we replied affirmatively, the managers asked what if SAA had already signed a lease and paid a deposit. We opined that from our understanding of US law such a lease would be a violation of US sanctions. ¶4. (C) Comment. Given what we have heard about Makhlouf,s contract with SAA, it seems safe to guess that the SAA,s hypothetical actually had to do with the airline's new contract with Makhlouf. Reportedly SAA managers are none too pleased with the very generous terms they were forced to give to Makhlouf's new airline and may want to use US sanctions as a way to get the issue revisited. In any case, we will pass on any new information we are able to acquire on the details of Makhlouf,s contract. Given everything we have heard, however, the day when Makhlouf,s airline may be landing in Damascus may not be too far off. CORBIN