AFGHANISTAN: PULL THE PLUG ON ARIANA AIRLINES

UNCLAS SECTION 01 OF 02 KABUL 001935 SIPDIS SENSITIVE, SIPDIS STATE FOR SCA/FO SCA/A STATE FOR EB/OTP EB/TRA/AN EB/CBA EB/IFD/OMA STATE PASS USAID/ANE STATE PASS OPIC:DZAHNISER CENTCOM FOR CG CFC-A COMMERCE FOR ITA/ACHAMS-EDDINE AND DFONOVICH FAA FOR JHANCOCK AND RSMITH E.O. 12958: N/A TAGS: EAIR EFIN ECON EAID AF SUBJECT: AFGHANISTAN: PULL THE PLUG ON ARIANA AIRLINES Ref: A. Kabul 1090 ¶B. Kabul 1914 This message is sensitive but unclassified--not for Internet distribution. SUMMARY -------------- ¶1. (SBU) The IMF's recent mission report urging the GoA not to rescue Ariana Afghan Airlines has kept the ongoing discussion about what to do with Ariana before the GOA and the international community. While the top level of the GoA agrees with the JCMB V decision to seek Ariana's privatization, there is no such consensus further down in the government. The popular GoA rationalization that the market needs Ariana has become untenable: the market is increasingly well served by new Afghan airlines--two are operating now, with another two in the wings--and also by international airlines. Boeing has recently clawed back a $2.5 million purchase deposit to pay off Ariana's $2 million lease arrears, which clears the way for us to support wholeheartedly the IMF message that the GoA should not take on the failing airline's liabilities. END SUMMARY. IMF MESSAGE: DON'T BAIL OUT ARIANA -------------- ¶2. (SBU) The IMF's May 10 mission report urging non-intervention in Ariana has sparked further discussion is Kabul--and further agonizing--over the fate of the troubled airline. The report notes that, "Given Ariana's acute financial weaknesses and the lack of a comprehensive restructuring plan, the mission urges the government not to use its scarce resources to support it." The report goes further, urging that the GoA not assume obligations for Ariana, guarantee its debts, or pressure banks to provide loans or guarantees. ¶3. (SBU) This unusually clear guidance, combined with the recent decision at JCMB V to add privatization of Ariana to the list of infrastructure benchmarks, has kept the question of what is to be done with the airline before GOA policymakers and the international community (ref A). While there may be consensus on this in the forum of the JCMB, it is hardly a decided question at the operational level (ref B). (NOTE: The new president of Ariana reportedly refused the President's senior economic advisor's demand that Ariana prepare a privatization plan. We have not yet heard how--or whether--this impasse has been resolved. End note.) Some within GoA have expressed concern that the privatization or liquidation of the state airline will leave Afghanistan under-served for public passenger air service. Of all the arguments against privatization, this is perhaps the least tenable. GOING TO KABUL? YOU'VE GOT OPTIONS -------------- ¶4. (SBU) Kam Air, the first viable post-Taliban private airline, recently announced plans to begin a second daily flight between Kabul and Dubai. The company now provides regular international service to Almaty, Delhi, Istanbul, and Mashhad (Iran),and it is the main domestic competitor for Ariana, with service between Kabul, Herat, and Mazar-i-Sharif. We have recently heard that Kam Air is shopping for more aircraft, including longer-range B-767s to augment its mixed owned and leased fleet of B-737 and B-727 aircraft. ¶5. (U) Pamir Airways, which had earlier operated a small-scale international service out of Kabul, has recently started daily service to Dubai and plans expansion to other regional destinations. Pamir's Dubai pricing ($315 r/t Kabul to Dubai) significantly undercuts Kam Air's $400 fare. The United National Humanitarian Air Service (UNHAS) has recently reduced its fares from $800 return to $600, possibly in response to this downward pressure from the new KABUL 00001935 002 OF 002 entrants. Like Kam Air, Pamir bases its aircraft in Dubai and operates under ICAO-compliant safety oversight regimes. ¶6. (U) At least two other Afghan companies plan to start flying out of Kabul soon. Safi Airlines hopes to start regional service in the next few months, and the Alokozay company has similar plans and is reportedly now shopping for aircraft. Both Safi and Alokozay have already gone through the initial steps of registering their airlines. ¶7. (U) In addition to the local start-ups, several international airlines also serve the Afghan market. Azerbaijan Airlines has resumed service to Kabul in the past few months; Indian Airlines and Pakistan International Airlines fly into Kabul regularly. COMMENT: IMF IS RIGHT: DON'T SAVE ARIANA -------------- ¶8. (SBU) This lively competitive scene leaves little room to think that Afghans would be left short of air service if Ariana were to dramatically reduce or close down its service. The GoA is therefore in a good position to make a decision on the money-losing airline, and the IMF's clear position on the issue should counter the temptation of further subsidies. As reported in reftel, until recently Ariana owed Boeing nearly $2 million in arrears on a defaulted lease. Boeing has since clawed back a $2.5 million deposit on the future purchase of four B-737s. While Boeing is still balancing the overall account, we understand that Ariana is not likely to have any sizable arrears. This clears any reservations the USG might otherwise have had about emphasizing the IMF's message. WOOD