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