Identifier
Created
Classification
Origin
07ULAANBAATAR257
2007-04-30 08:30:00
UNCLASSIFIED
Embassy Ulaanbaatar
Cable title:  

Mongolia's Newest Domestic Private Airline: EZnis

Tags:  EAIR PGOV ECON MG 
pdf how-to read a cable
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ZNR UUUUU ZZH
R 300830Z APR 07
FM AMEMBASSY ULAANBAATAR
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INFO RUEHBJ/AMEMBASSY BEIJING 5531
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RHEFHLC/DEPT OF HOMELAND SECURITY WASHINGTON DC
RUEBBEA/DEPT OF TRANSPORTATION WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEKJCS/SECDEF WASHDC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC 0555
RHMCSUU/FAA NATIONAL HQ WASHINGTON DC
RUEAZCA/FAA WESTERN PACIFIC RGN LOS ANGELES CA 0013
UNCLAS SECTION 01 OF 03 ULAANBAATAR 000257 

SIPDIS

SIPDIS

STATE PASS EXIMBANK AND OPIC
STATE PASS TO AID/ANE, EB/TRAN/AN AND EAP/CM
TOKYO, BEIJING AND SINGAPORE FOR FAA REP

E.O. 12958: N/A
TAGS: EAIR PGOV ECON MG
SUBJECT: Mongolia's Newest Domestic Private Airline: EZnis

Ref: A) 04 Ulaanbaatar 602 B) 05 Ulaanbaatar 59

UNCLAS SECTION 01 OF 03 ULAANBAATAR 000257

SIPDIS

SIPDIS

STATE PASS EXIMBANK AND OPIC
STATE PASS TO AID/ANE, EB/TRAN/AN AND EAP/CM
TOKYO, BEIJING AND SINGAPORE FOR FAA REP

E.O. 12958: N/A
TAGS: EAIR PGOV ECON MG
SUBJECT: Mongolia's Newest Domestic Private Airline: EZnis

Ref: A) 04 Ulaanbaatar 602 B) 05 Ulaanbaatar 59


1. Summary: Mongolia's second domestic private airline, EZnis
Airways, was launched in December 2006, taking advantage of the
vacuum created when the country's flag carrier MIAT sharply reduced
domestic routes (reftel a). Mongolian telecom/IT company Newcom has
funneled substantial amounts of money and expertise into making the
airline a success, and has hired a stable of foreign managers and
trainers to ensure that international safety standards are
maintained. USTDA recently awarded EZnis a US$500,000 grant for
technical assistance with its expansion plans. Nevertheless,
competition with Aero Mongolia, founded three years ago, for the
country's estimated 160,000 annual travelers will be fierce. Both
private airlines are interested for bidding on the state run MIAT
if, as expected, it is privatized; the prize would be MIAT's
international routes. End Summary

Flying is the EZ part
--------------


2. EZnis Airways (meaning "fly easy"; "nis" means "fly" in
Mongolian) is 100% backed by the Mongolian telecom and IT leviathan
Newcom Group, whose initial investment totaled over US$10 million, a
very substantial amount in Mongolian terms. The start up is the
second privately run airline to emerge in the landlocked nation
(Aero Mongolia, established in 2003, being the first). Throughout
the 1990s Mongolia's state run airline MIAT highly subsidized its
domestic airfares, effectively blocking private airlines from
entering the market. With one decrepit Antanov-26, flag carrier
MIAT now barely maintains a domestic schedule. The decay in MIAT's
flyable domestic fleet caused it to cut flights sharply three years
ago; an extensive array of MIAT's unflyable (and mostly gutted)
planes is now parked, potemkinesque, off the tarmac at the
Ulaanbaatar airport. (Note: Because of the age of the AN-26, it is
uninsurable, and U.S. Government employees are prohibited from
flying on MIAT domestically; internationally, MIAT flies Boeing and
Airbus planes and is fine.) The vacuum because of MIAT's decline
created the perfect conditions for start ups to enter the market,

according to EZnis CEO R. Arvintsogt. "Before EZnis' arrival, only
one airline, Aero Mongolia, served the domestic market" Arvintsogt
told Econoff during a recent meeting, "The sector was crying out for
competition!"


3. With growth in the mining industry expected to quicken over the
next decade, and average incomes of Mongolians steadily on the rise,
EZnis wanted to establish itself early in the game. With the help
of a recent USTDA grant award of US$500,000, the company will
receive technical assistance in doing a feasibility study of its
expansion plans. Over the next 1-3 years, the EZnis will work to
build its operation and establish its brand name in Mongolia. After
three to seven years the airline plans to expand its operations to
nearby international destinations in China, Korea, Japan and Russia.
Major mining concerns such as Rio Tinto, Ivanhoe and BHP Billiton
have already contracted EZnis for charter services to remote mining
areas in the south Gobi desert signaling a vote of confidence in the
new airline.

Investing in Safety
--------------


4. Newcom did its homework before plunging into the airline
industry. The company undertook a 12-month feasibility study before
moving to purchase its two aircraft and have engaged aviation
consulting firm Simat Helliesen & Eichner, Inc. (SH&E) to develop
its business plan. Newcom has committed huge sums of its own funds
to purchase planes outright and, at least for now, are paying
foreign experts top dollar to train the staff and maintain the
equipment. Safety was of primary concern when Econoff visited their
offices recently and a tour of their facilities reveals how
meticulous they were about maintenance and training.


ULAANBAATA 00000257 002 OF 003



5. EZnis' fleet currently consists of two aircraft, both Swedish
built SAAB 340Bs (two engine turboprops, 34-seater) which were
purchased directly from American Eagle Airlines in early 2006.
EZnis plans to invest in two additional aircraft by summer 2007.
Before export to Mongolia in February 2006, the FAA issued a
Certificate of Airworthiness for both aircraft that is valid until
February 2008. The airframes of both planes also underwent a full
blown "C" check around the same time, and the next C check will take
place after 4000 flight hours (sometime next year).


6. Both aircraft were manufactured in 1991-92 and so are about 15
years old, half way to their recommended life span of 30 years
according to EZnis. The airline employs a team of 14 mechanics,
including Saab experts from Australia and Sweden. The expat
mechanics are working on a six-month contract basis which will
likely be renewed for at least another six months. If they are
following in the steps of their competitor Aero Mongolia, then they
will likely let the expats go once they feel their local staff has
been sufficiently trained. When asked by Econoff about the
challenges of maintaining aircraft in Mongolia's harsh weather
conditions, the Swedish mechanic chuckled and said it wasn't
anything they haven't already experienced in Sweden.


7. Foreign expertise is also found in other departments of the
company. The Quality Assurance Director, whose job it is to make
sure EZnis meets ICAO standards, is Japanese as are two instructor
pilots and one engineer. One of the airline's pilots is an
American.


8. The company provided us with information on a long list of
technical support providers including Saab Aerotech AB for spare
parts, GE Aviation for engine support etc, as well as big names
behind its training regimen; Boeing for crew resource management,
Quantas for emergency training, Saab AB, GE Aviation and Hamilton on
maintenance.


9. EZnis houses their aircraft in the airport's one hangar at night
(paying a hefty fee for the privilege). Aero Mongolia's Fokker 50
and Fokker 100, on the other hand, are too big to fit easily into
the hanger with the other aircraft and are forced to spend the night
on the tarmac in below freezing temps -- a fact which reportedly
caused at least one mechanical problem this past winter.


10. EZnis is insured through AON Aviation Brokers in London, one of
the industries largest insurance providers, and Mongol Daatgal is
acting as local fronting firm. Each aircraft is insured for USD 200
million (third party liability).


11. For now, the airline serves four destinations; Murun,
Bayankhongor, Choibalsan, Dalanzadgad, mainly because these airports
feature paved runways. EZnis was recently granted permission by
Mongolia's Civil Aviation Authority (MCAA) to start flying to
airports with unpaved runways and will start flights to five
additional destinations in the very near future.

Is Big Sky Country Big Enough For Both of Us?
--------------


12. The estimated size of the domestic airline market in Mongolia is
approximately 160,000 passenger-seats per year. This is down from
800,000 passenger-seats per year -- about half the country's
population at the time -- in the communist heydays of the 1970s and
80s, when heavily subsidized fares made air travel the best
alternative to crisscrossing Mongolia's expansive and mostly
road-less terrain. EZnis feels the market is big enough to
accommodate both airlines, but in a recent interview with Econoff,
the president and CEO of Aero Mongolia expressed unhappiness with
competition in the sector saying two airlines were too much for a
country of only 2.8 million people. Better, he said, that the
government divide up the routes to prevent the two airlines from
competing head-to-head to the same destinations.

ULAANBAATA 00000257 003 OF 003




13. The rigors of daily head-to-head competition aside, both
companies are looking to land a bigger prize: MIAT. The state-run
airline, which recently has focused its energies on the
international market, is expected to be privatized at some point,
probably after parliamentary elections in mid 2008. Moves to
privatize MIAT this year were blocked by the Cabinet. Executives at
both airlines told Econoff that they hoped to "participate" in the
privatization of MIAT, with Aero Mongolian execs going so far as
state that Newcom created EZnis solely to better position itself as
a buyer when MIAT is finally up for sale. Acquiring MIAT would give
the new owners access to valuable international routes and landing
rights at international airports like Beijing, Seoul, Berlin, Tokyo
and Moscow. Other than that, both airline execs agree, the airline
isn't worth much; a name that only the savviest international
travelers would recognize, and perhaps MIAT's aging facilities at
Ulaanbaatar's airport.

Goldbeck