Turbulence Ahead for Mongolia's Airline Sector?

UNCLAS SECTION 01 OF 02 ULAANBAATAR 000297 SIPDIS SENSITIVE 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: Turbulence Ahead for Mongolia's Airline Sector? ULAANBAATA 00000297 001.2 OF 002 SENSITIVE BUT UNCLASSIFIED - NOT FOR INTERNET DISTRIBUTION Ref: A) Ulaanbaatar 245 B) 05 Ulaanbaatar 59 ¶1. (U) This is an action cable. See action requested in of the FAA in para 12. ¶2. (SBU) SUMMARY. The General Director of Mongolia's Civil Aviation Authority (MCAA) dismissed reports that Aero Mongolia is suffering serious financial difficulties, despite a series of safety related incidents and swirling rumors of impending bankruptcy. The official praised the country's newest domestic airline, EZnis as a model company. He complained to Econoff recently that the U.S. Embassy's continuing ban on the use of MIAT's domestic service by U.S. government personnel has damaged the company's reputation and revealed that MIAT would soon purchase two or more ATRs to replace its aging Antonov-26 in hopes of reinserting itself into the domestic air market. MCAA reps also asked for assistance in developing a closer working relationship with the FAA and in locating training opportunities for MCAA staff in the U.S. END SUMMARY ¶3. (SBU) Econoff met with the MCAA General Director Batmunkh on May 22 to discuss the general health of Mongolia's aviation sector and ask about recent reports that one of the country's two private domestic airlines, Aero Mongolia (AM),could be facing bankruptcy. The airline has suffered a series of safety-related mechanical incidents recently and it continues to be dogged by rumors of wobbly finances. MCAA's Director of Foreign Relations, J. Tsolmon, and Aviation Economist D. Bayasgalan also attended the meeting. ¶4. (SBU) Post recently learned from a source (albeit a competitor) that three of AM's four aircraft had been grounded for safety or financial reasons. One plane was undergoing its (longer than expected) annual "C" check in Germany, a second plane was grounded by MCAA for improper maintenance, and a third had had its wheels locked after the company failed to make monthly payments on its lease. If true, AM would have only one aircraft at its disposal during the height of the June to August tourist season, constricting revenue inflows and putting the company's ability to remain financially airborne at risk. It is hard to see how the company could keep revenues at sustainable levels, the source surmised. ¶5. (SBU) Batmunkh assured Econoff that AM was alive and well and it was meeting all international safety standards. "You can take my word on it," he said. As for its finances, as far as he knew, AM had experienced past problems but now he felt that the airline's flight frequency was appropriate to keep it afloat. He confirmed that the MCAA had grounded one of AM's aircraft because it had not gone for its C check at the required time. Apparently, AM was pushing the outside of the envelope by keeping one plane flying past its expiration date while another was unavailable as it was undergoing a C check. Once the first plane returned from its C check, which he expected would happen in short order, the grounded plane could then be sent off to Germany for its annual check and would then be back on line. ¶6. (SBU) Because MCAA focuses on safety issues, Batmunkh demurred on speaking to AM's failure to make timely lease payments on another of its aircraft. ¶7. (SBU) Turning to MIAT, Mongolia's state-owned airline, Batmunkh announced that the airline was looking to effectively re-enter the domestic market with the purchase of two or more European built, twin-turboprop short-haul ATRs. (Note: American Eagle Airlines currently has a fleet of 39 such aircraft.) Although he seemed to lack details about MIAT's plans, he felt that the national carrier would move forward with the purchase soon. ULAANBAATA 00000297 002.2 OF 002 ¶8. (SBU) COMMENT: Batmunkh hyped MIAT's efforts to reenter the domestic market by saying, "We want there to be competition, we do not want there to be only one domestic airline," leaving the impression that, despite his cheerleading for Aero Mongolia, he did not hold out strong hope for the airline's long term survival. END COMMENT. ¶9. (U) Batmunkh praised Mongolia's newest airline, EZnis (ref A), saying it had excellent financial backing, excellent management and was performing well in its first few months in service. As a recent start-up, he believed the airline was likely losing money. Nevertheless, he was impressed with the company's emphasis on safety and opined that EZnis' current fleet of two Saab 340Bs purchased from American Eagle last year represented the perfect kind of aircraft for Mongolia. ¶10. (SBU) D. Bayasgalan asked whether the U.S. Embassy-imposed ban on U.S. government personnel flying MIAT domestically (ref B) might soon be lifted, saying the move had damaged MIAT's the reputation. (Note: U.S. Government employees are prohibited from flying on MIAT domestically; internationally, MIAT flies Boeing and Airbus planes and is fine.) Econoff responded that questions surrounding the age-out status, maintenance records and "uninsurability" of MIAT's one remaining aircraft for domestic flights, an aging Russian-built military specifications Antonov-26, had led to the decision two years ago and that, since nothing had changed in the interim, the decision was not likely to be overturned. (Note: Although MIAT admits the Antonov is nearing the end of its useful life-span, it insists the actual logged flight hours of the plane are relatively low, that maintenance is top-notch, and that insurance is proper and up to date. Nevertheless, MIAT has been unable to present documentary proof of these claims to Embassy staff when asked.) ¶11. (U) Finally, Batmunkh asked Econoff for assistance in establishing contacts with appropriate U.S. counterparts who could assist MCAA with capacity building. He also stressed the need for more MCAA staff, particularly air-traffic controllers, to attend training in the U.S. so they could acquire the right English language skills. He asked for help in finding good schools for aviation industry employees as well as assistance with visas. Sending staff to Singapore for training, he said, was not meeting MCAA's needs. ¶12. (U) ACTION: Request FAA review MCAA's requests and consider a visit sometime soon to help flesh out these needs and possible areas for training and technical cooperation. Goldbeck