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

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