ECUADORIAN AIRLINE AEROGAL CONTINUES EXPANSION

id: 182088 date: 12/9/2008 21:53 refid: 08GUAYAQUIL296 origin: Consulate Guayaquil classification: CONFIDENTIAL destination: header: R 092153Z DEC 08 FM AMCONSUL GUAYAQUIL TO SECSTATE WASHDC 9641 INFO AMEMBASSY QUITO AMEMBASSY CARACAS AMEMBASSY LA PAZ AMEMBASSY LIMA AMEMBASSY BOGOTA AMEMBASSY PANAMA AMEMBASSY SANTIAGO -------------- header ends -------------- C O N F I D E N T I A L GUAYAQUIL 000296 E.O. 12958: DECL: 12/08/2018 TAGS: CO EC PA PGOV PREL SUBJECT: ECUADORIAN AIRLINE AEROGAL CONTINUES EXPANSION WITH FLIGHTS TO U.S. Classified By: Consul General Douglas Griffiths for reasons 1.4 (b) and (d) ¶1. (C) Summary. Ecuador's fast-growing privately-held airline, Aerogal, began direct flights to Miami on December ¶7. In little over a decade, Aerogal has leapfrogged other domestic carriers to become Ecuador's second largest carrier. However, the Government of Ecuador has taken aim at Aerogal's aging fleet of Boeing 727's and 737's, decreeing that all airlines must update their fleets to more fuel efficient aircraft if they want to continue to benefit from the generous fuel subsidies. Aerogal is also fighting the request of LAN Chile's Ecuadorian subsidiary to operate domestic flights in Ecuador. Aerogal's next round of expansion will be driven by its alliance with the Columbian industrial group Sinergy, a major investor in Avianca Airlines. End summary. ¶2. (C) Established in 1986, Aerogal operates regularly scheduled passenger and cargo flights within Ecuador, between the mainland and the Galapagos Islands, and between Ecuador to Colombia. With a strong balance sheet, Aerogal has aggressive expansion plans, including Miami, New York, Peru and Panama. The company began service to Miami with much fanfare in December 2007, but quickly had to suspend operations when it encountered difficulties leasing airplanes for the flights. Aerogal, moves more than 500 million passengers each year and is based in Quito, with its hub in Guayaquil's international airport. Gabriela Sommerfield, a native of Guayaquil, is its executive president and her father, Patricio Sommerfield, is its largest shareholder. Aerogal has become the second largest domestic carrier in Ecuador, behind TAME, a carrier owned by the Ecuadorian Air Force. TAME's revenues reached 77.6 million dollars in 2007, vice Aerogal's revenue of 44.5 million dollars. Sommerfield told us that Aerogal is forging an alliance with Sinergy, a Colombian-based company with interests in Avianca Airlines. As part of the alliance, Aerogal might jettison its traditional partnership with Boeing and renew its fleet with Airbus planes. TAME has recently renovated its fleet with Embraer aircraft. ¶3. (C) Aerogal's profitability has been driven by government fuel subsidies for an aging fleet that it has assembled on the cheap. However, in October, the GOE ruled that airlines that fail to replace their aircraft with more fuel efficient aircraft by April 2009 would lose 20% of the fuel subsidy. In explaining the decree to thepublic, President Correa said that, "A company like Aerogal consumes the same amount of fuel with a fleet that is worth 12 million than Tame that has a greater fleet of 180 million." Under Secretary of Air Transport and Airports, Guillermo Bernal, stated that Aerogal must modernize eight airplanes in its fleet: six of them Boeing 737s that began operation between 1979 and 1984 and two Boeing 727s from 1979 and 1982. Sommerfield told us recently that the National Financial Corporation (CFN) was offering very intresting terms to renew the fleets. While negotiations were still on-going, Sommerfield said that the CFN was offering 5 percent interest over 20 years with a two-year grace period. ¶4. (C) Sommerfield is also currently the president of the airline business grouping, the Asociacion de Empresas Nacionales de Aviacion (ADENA). In this role she has spearheaded opposition to LAN Chile's request to allow its local subsidiary to operate domestic flights in Ecuador. On November 25, Sommerfield again asked Ecuadorian Civil Aviation authorities to carefully review LAN's plans to enter the Ecuadorian market, "We do not oppose competition, we welcome competitors(but we are concerned about (LAN's) predatory practices, that is to say, the objective of destroying national business, which has happened in Peruvian and Argentinean markets." In private discussions with us, she insisted that LAN Chile has systematically destroyed domestic airlines in other markets. She also asserted that LAN's business practices included inappropriate contacts with civil aviation authorities. ¶5. (SBU) Bio Note: Gabriela Sommerfield is one of the most prominent and most admired business women in Ecuador. She also has strong ties to the United States. Her father and brother live in Miami, and she has two sisters in Atlanta. In December Sommerfield will marry Alfonso Gomez Lugo, the son of Columbia's ex-Attorney General Gomez Mendez and Liberal pre-candidate for president. Sommerfield recently met Gomez Lugo, when he represented Sinergy in meetings to discuss possible mergers with Aerogal. Sommerfield told us that she would commute between Bogota, Quito and Guayaquil. End note. GRIFFITHS =======================CABLE ENDS============================