C O N F I D E N T I A L SECTION 01 OF 02 DAR ES SALAAM 001249

SIPDIS

SIPDIS

DEPT FOR AF/E RMEYERS, SHAMILTON
AF/EPS FOR THASTINGS, AF/EB
PASS TO DEPARTMENT OF COMMERCE FOR ITA
ALSO PASS TO MCC FOR MKAVANAGH, GBREVNOV
NAIROBI FOR FCS

E.O. 12958: DECL: 09/13/2017
TAGS: ETRD ECON PGOV BEXP TZ
SUBJECT: BOEING AND AIR TANZANIA: THE STRUGGLE TO ENSURE
TRANSPARENCY AND A LEVEL PLAYING FIELD

REF: DAR ES SALAAM 1074

Classified By: Deputy Chief of Mission D. Purnell Delly for
reasons 1.4 b and d.

SUMMARY
--------------

1. (C) As Air Tanzania shops for new airplanes for its aging
fleet, we remain troubled by separate press reports, quoting
Air Tanzania leadership and most recently the Minister of
Infrastructure, that a decision has been made in favor of
Airbus. This decision would have been made without any
serious negotiations with Boeing. We have actively engaged
at the highest reaches of this government, and for the moment
halted the rush to Airbus and opened a window that Boeing
intends to exploit. Air Tanzania now seems to be seriously
evaluating the leasing and sale options offered by Boeing.
But we do not believe we are out of the woods, in view of
early efforts to pressure Boeing to hire an "agent," and
subsequent rumors that China is tying aid to purchase of
Airbuses in order to give business to the joint manufacturing
facility being built in China. Ambassador Green raised MCC,
the importance of transparency to the investment climate, and
a level playing field for Boeing in his presentation of
credentials to President Kikwete on September 12. Earlier
the DCM had called on the Infrastructure Minister and spoken
with a close advisor to the President underscoring the same
points. We will continue to press hard not only on behalf of
Boeing, but the importance of transparency and a level
playing field to the positive investment climate Kikwete is
working to create. END SUMMARY.


2. (SBU) Air Tanzania plans to replace its aging fleet with
newer, more efficient aircraft, and has solicited proposals
from Boeing and Airbus. In June 2007, Boeing submitted a
request for advocacy through the Department of Commerce's

International Trade Administration, and Ambassador Retzer,
the DCM, and EconCouns met with Rob Faye, Regional Director
of Sales for Boeing Commercial Airplanes, on several
occasions. Boeing's early dealings with top officials of the
airline beginning in June suggested to Post that the
company's fear of outside influence or corruption might be
legitimate (reftel).


3. (C) Subsequent to meetings with Faye, the DCM raised the
issue of Air Tanzania's dealings with Boeing and Airbus in
conversations with a close advisor to President Jakaya
Kikwete. The DCM specifically noted Air Tanzania Managing
Director and CEO, David Mattaka's unusual "suggestion" that
Faye should contact a wealthy South Asian hotelier, who
subsequently suggested to Faye that he would need his
services to open the right doors in government. Faye flatly
refused, responding that Boeing does not use "agents" in
Tanzania or elsewhere. (Comment: "Agents" and steep
"commissions" have been at the heart of several corruption
scandals here, including a BAE radar deal in which the GOT
paid a 31 percent commission to a Tanzanian agent, much of
which ended up in Swiss bank accounts, according to a UK
Parliamentary investigation. Despite the fact that the UK
shared this evidence with Tanzania's corruption board, no
evident action has been taken. End Comment.) The
presidential advisor later got back to the DCM, telling him
that President Kikwete was "incensed" upon learning that
senior Air Tanzania officials might be intending to profit
personally from the deal.


4. (SBU) On August 9, Boeing's Faye met with Maua Daftari,
Deputy Minister of Infrastructure, and Dr. Bartholomew
Rufunjo, Director of Transport and Communications in the
Ministry of Infrastructure (the Ministry that makes all
financial decisions regarding Air Tanzania). Faye reported
his meetings with both Daftari and Rufunjo were promising.
Both officials mentioned more than once the importance of a
fair and level acquisition process for Air Tanzania's
development. David Mattaka, CEO of Air Tanzania, went out of
his way to tell Faye on August 10 that Air Tanzania did not
use agents. Mattaka repeated this statement during a meeting
between Faye and the Air Tanzania board of directors. Faye
reported that it was apparent that there had been some
communication with the Ministry, presumably from State House,
to ensure there would be no "go-betweens" in Air Tanzania's
dealings with Boeing. On the sidelines, Mattaka mentioned to
Faye that he thought the pressure was originating with the
U.S. Embassy.

DAR ES SAL 00001249 002 OF 002




5. (U) Ambassador Retzer forcefully raised the issue of
combating corruption in his last public speech before
departing Post on August 31. On September 2, forty-eight
hours after Retzer departed country, the Tanzanian press
reported for the second time that Air Tanzania was in the
process of procuring eight Airbus planes, and extensively
quoted Tanzanian Minister of Infrastructure, Andrew Chenge.
We did not view the timing of the second announcement -- on
the heels of Retzer's departure and before Ambassador Green
had arrived and been credentialed -- as a coincidence.


6. (C) On September 7, the DCM and EconOff met with Minister
Chenge. The DCM began by raising President Kikwete,s
upcoming trip to the United States and his plan to take a
large business delegation. Kikwete would be marketing
Tanzania as a prime location to trade and invest. It was
important, therefore, that a major U.S. corporation like
Boeing compete on a level playing field with Airbus, so its
message to the U.S. business community would echo Kikwete's
message. The DCM said Boeing and the Embassy had been
confused by recent press reports regarding Air Tanzania,s
acquisition of new aircraft, and asked Chenge to clarify the
status of negotiations.


7. (C) Chenge said contrary to his purported statements to
the Tanzanian press, no final decision had been made on
whether Air Tanzania would acquire Airbus or Boeing
airplanes. The first decision was what type of airplanes to
buy, and Boeing was the obvious choice since Air Tanzania
already owned and maintained several Boeing airplanes.
However, the issue of financing was also a primary concern
due to a lack of government funding for the new aircraft. He
stated that he could say "with certainty" that no decision
has been made, but his Ministry was "very cautious on how to
proceed because (they) don,t have the money." He said he
understood Boeing could help open doors to financing
possibilities, but "certain deadlines" needed to be met. The
DCM stressed that regardless of the outcome, the Embassy
wants to see that Air Tanzania is engaged in fair and
transparent negotiations. He pointed out that Tanzania would
benefit from giving Boeing the chance to underbid Airbus.


8. (C) The DCM ended the meeting by mentioning the upcoming
vote on the Millennium Challenge Corporation (MCC) Compact
for Tanzania, and the importance of transparency to
sustaining any Compact that eventually would be signed. On
the way out, Chenge,s staffer told the DCM that he was aware
that Chenge had "misspoken" and been "misquoted" in the
press, and that his office had already received several calls
for clarification. (Comment: We think one of the calls to
Chenge,s office may have come from State House. End Comment)

Comment
--------------

9. (C) Although Air Tanzania is a small airline, looking to
expand its fleet of two Boeing 737's to a fleet of about 10
planes, this deal has the potential to result in USD 537
million in sales for Boeing. Boeing is ready to offer Air
Tanzania a number of capacity-building services to enable the
airline to better serve the Tanzanian public. More broadly,
if done right, the deal can reinforce the impression that
Tanzania is a promising place to invest. Done wrongly, it
can reinforce impressions that have been building here for
the past 18 months that this is a government without the
political will to tackle senior-level corruption. To us,
reinforcing the view that Tanzania is a positive place to
invest is almost as important as ensuring one of America's
premier private sector "champions" is accorded the
transparency and level playing field it is due. We remain
concerned, however, in part due to rumors that the Chinese
have tied aid to buying Airbus. We will continue to monitor
this case closely, intervening decisively with the government
when necessary.
GREEN