AUSTR LISER DISCUSSES BOEING AND FLEET EXPANSION WITH AIR

UNCLAS DAR ES SALAAM 000003 SIPDIS SENSITIVE, SIPDIS DEPT AF/E FOR JLIDDLE, AF/EPS FOR ABREITER PASS USTR FOR FLISER, WJACKSON AND COMMERCE/ITA FOR BERKUL NAIROBI FCS FOR JSULLIVAN ADDIS FOR AU MISSION E.O. 12958: N/A TAGS: ETRD EFIN EAID ECON PREL TZ SUBJECT: AUSTR LISER DISCUSSES BOEING AND FLEET EXPANSION WITH AIR TANZANIA BOARD REF: 07 DAR ES SALAAM 1074 Summary -------------- ¶1. (U) AUSTR Florie Liser learned from David Mattaka, Chief Executive Officer of Air Tanzania Company (ATC,) and three ATC Board Directors in a November 13 meeting in Arusha that the Board had recommended to the Government of Tanzania (GOT) to acquire Airbus A-320s (narrow body planes) to expand its aging fleet on regional routes. For longer routes to Europe and Asia, ATC may lease Boeing 767-200's in the short-term and purchase new A-330s in 2012. Mattaka told AUSTR Liser that the ATC Board had preferred the Airbus company's delivery dates for new aircraft and its credit incentives. Dr. Juma Ngasongwa, GOT Minister of Planning and Economy, who had arranged the meeting on instructions from President Kikwete, emphasized that the GOT felt an "urgency" to get its national airlines back on track, thus preferred earlier delivery dates. Mattaka said the leasing agreements ATC will pursue in the short term are separate from the purchase package. End summary. Serious Concerns About Transparent Acquisition Process -------------- -------------- ¶2. (SBU) AUSTR Liser said USTR's primary goal in sub-Saharan Africa is to expand trade with the U.S. and that efficient transport is an important part of this goal. In terms of ATC's impending purchase of new aircraft, Ms. Liser noted that the USG is most interested in a transparent process in which Boeing has the same opportunities as its competitor (Airbus) to make a case for its products and services. She noted, however, that while Boeing Company had been eager to offer a competitive equipment and incentive package to meet ATC's requirements, it appeared that Boeing's efforts to engage fully since providing its package to ATC had resulted in no response from Air Tanzania. Liser said she learned that the GOT Minister of Infrastructure indicated to the press in early September that a decision had been made at a time when Boeing thought the playing field was still open. In addition, an advertisement in a regional business journal showed Air Tanzania's new logo on an Airbus plane (reftel). AUSTR Liser noted that Ambassador Green and Embassy staff had met with GOT officials at all levels to stress the importance of a fair and transparent acquisition process, but since ATC never put out an international tender or Request for Proposal (RFP),the accepted way to let vendors know an airlines' requirements, serious concerns about fairness and transparency had arisen. ¶3. (SBU) AUSTR Liser stressed that a non-transparent process could have "severe effects" on Tanzania's investment climate, adding that she had been concerned enough to raise this issue in her November 12 meeting with President Jakaya Kikwete. Liser understood from President Kikwete that a decision might have already been made by ATC to select Airbus for regional transport routes. For longer routes, e.g. to China and India, the President had indicated that Air Tanzania was tending toward Boeing aircraft, but "that decision was still in process." ATC Said Search Began in March 2007 -------------- ¶4. (U) Mattaka outlined Air Tanzania's decision-making process since March 2007. In lieu of putting out an international tender, ATC had invited three aircraft companies to make presentations and offers based on key requirements, including routes, load factors, etc.: Boeing, Airbus and Embraer of Brazil; only Boeing and Airbus responded. According to Mattaka, "Our request was for three narrow body planes and two wide body planes, as one package." On March 25, 2007, Robert Faye of Boeing met with Mattaka and ATC staff to describe types of Boeing aircraft available and make an initial recommendation; Faye promised to bring a commercial proposal with incentives within two weeks. On March 29, Airbus gave its presentation to ATC, including a complete commercial offer and credit incentives. Mattaka said that two weeks elapsed and ATC received nothing from Boeing. In May 2007, Faye came with a commercial offer, but no credit proposals. Mattaka said that it was not until August 10 that ATC received Boeing's full package. ¶5. (SBU) Minister of Planning Ngasongwa assured Liser that both companies were given equal opportunities to present and explain their offers. AUSTR Liser said Boeing had indicated to USTR that they made a full presentation in June. Mattaka confirmed Rob Faye had met him and his ATC staff in June to ask about progress and kept in close e-mail contact, but claimed Faye did not bring a full offer that included credit incentives until August. Minister Ngasongwa added the ATC Board did not begin deliberations on a decision until complete proposals, including credit incentives, were in from both companies. ¶6. (U) The ATC Board then analyzed and compared the Boeing and Airbus proposals. While the cost difference of the two companies' aircraft was not significant (about USD 500,000),the delivery dates were: Airbus promised 2012 delivery vs. Boeing in 2014. Another significant difference the ATC Board noted was the credit memo incentives. According to Mattaka, Boeing's incentives were fewer and linked to a full purchase agreement. Thus no credits could be used during the period that ATC might need to lease planes. To use the credit lines Boeing offered, an initial deposit had to be made first. On the other hand, Airbus credit memos would immediately be available, even during any leasing period. Mattaka added that Boeing had also asked ATC to present a balance sheet, and wanted a guarantee for all transactions from the Government of Tanzania. "Boeing thought we were not creditworthy and wanted a balance sheet; Airbus did not ask for balance sheets," he said. Decision Made in August -------------- ¶7. (SBU) AUSTR Liser inquired if indeed ATC was planning to lease planes in the short term to begin upgrading the fleet by 2008. Mattaka confirmed that leasing possibilities were discussed with both companies and ATC had contacted at least one Boeing and one Airbus lessor before July 2007. However, both opportunities were lost because ATC was waiting for Boeing's proposal. On August 17, the ATC Board made a recommendation to the GOT to select the Airbus package to purchase both narrow body and wide body planes. To address its interim needs, in September ATC had located a company ready to lease Airbus A320s and arrived at an agreement. In response to Liser's query whether ATC was open to handling a mixed fleet, Mattaka replied that for wide body planes on the longer routes, the possibility was still being considered, stating: "In the long run, we could well have a mixed fleet of A330s and the Dreamliner (Boeing 787)." Price Not the Only Consideration -------------- ¶8. (U) Liser asked since ATC had never previously flown Airbus craft, how much did the ATC Board factor in the additional costs and time to bring Airbus into its fleet including servicing, maintenance, training, and interoperability with regional airlines with large Boeing fleets. She emphasized that interoperability within the region is preferable for each country's airlines: "Many regional airlines have ordered from Boeing," Liser noted. "Once these companies receive their new aircraft, their fleets will have nearly all Boeing craft." ¶9. (SBU) Mattaka explained among the attractive incentives from Airbus were training for pilots, engineers, and mechanics. He also claimed interoperability and maintenance issues were not major concerns for ATC. " Minor maintenance could be done in Dar es Salaam with our own Airbus-trained engineers, and major scheduled servicing could be in Dubai or South Africa," he suggested. He also noted that South African Airways has a mixed fleet. ¶10. (U) Mattaka added that Airbus had mentioned the possibility of Dar es Salaam becoming a maintenance hub for Airbus. Liser countered that an airliner maintenance facility is a major capital investment and questioned whether Airbus would ultimately keep its word. Mattaka said at the Kilimanjaro International Airport, the GOT constructed a large maintenance hangar during the era of the previous East African Community which is still government-owned. The hangar is still operational, though under-utilized; presently internal GOT discussions are ongoing whether to restart the twelve workshops in that facility. Mattaka stated that ATC has yet to discuss use of this hangar with Airbus, but could explore the possibility "when the time comes." ¶11. (U) Minister of Planning Ngasongwa stressed that Air Tanzania intends to continue discussions with Boeing: "We certainly do not want to appear we are not transparent." AUSTR Liser reiterated if that was the GOT goal, then an RFP is an internationally accepted way to make a large acquisition such as the expansion of an airline fleet. "If an RFP or similar process is not followed, it will not be clear if all bidders are being given the same access and the same chances," she stressed. Mattaka countered while ATC did not advertise per se, the company had put out a commercial proposal for routes, expected time frames, etc. The ATC Board's recommendation had been made based on the full package, including credit incentives. ¶12. (SBU) ATC Board Members Dr. Richard Kasungu and Ms. Carol Lemki stressed to AUSTR Liser that throughout the decision process the ATC Board had carefully adhered to the guidelines in Tanzania's domestic Procurement Act. They also assured Liser that the fact that Boeing's full proposal came in later than Airbus offer had no effect on the ATC Board members' final recommendation. MCC Must Have Clear Procurement Procedures -------------- ¶13. (SBU) AUSTR Liser cautioned that in the Millennium Challenge Corporation (MCC) Compact process, the GOT needs to ensure that bids are not solicited verbally. She was adamant that "in the new Africa, with more modern and excellent leadership, there must be a clear track record; an RFP allows for that." Liser reminded Mattaka and the Board members that Boeing has had a productive and long-standing relationship with Air Tanzania, and the company could not help but be disappointed at these developments. She strongly suggested that maintaining a dialogue and continuing the relationship with Boeing is essential, particularly since aircraft delivery dates or other circumstances can change. Comment -------------- ¶14. (SBU) President Kikwete had directed the Minister of Planning, Dr. Ngasongwa, and CEO Chair David Mattaka to answer all of AUSTR Liser's questions and concerns about the ATC process to acquire 5 to 6 new planes to expand the Air Tanzania fleet. While the meeting clearly was to prove "transparency," and many facts and timetables were checked and rechecked in detail, the Embassy retains a troubling concern that ATC and the GOT may have made the decision to go with Airbus even before the process began in March 2007. Since the Minister of Infrastructure's September 2007 press leaks and the ad with the Air Tanzania logo on an Airbus, rumors have persisted that Chinese assistance programs to Tanzania could be tied to certain business deals that benefit China, including possibly a behind-the-scenes-agreement that Air Tanzania's new planes be ordered from the co-production facility that Airbus is now building in China. In meetings with senior GOT officials, post will continue to echo AUSTR Liser's strong admonition that the lack of full transparency in any major acquisition by the GOT can have a severe detrimental effect on Tanzania's investment climate. End comment. GREEN