AIR BAGAN CRASH RAISES SAFETY QUESTIONS

C O N F I D E N T I A L SECTION 01 OF 03 RANGOON 000167

SIPDIS

SIPDIS

STATE FOR EAP/MLS, INR/EAP, EEB/TRA
PACOM FOR FPA
MONTREAL FOR ICAO REPRESENTATIVE
TREASURY FOR OASIA, OFAC

E.O. 12958: DECL: 03/04/2018
TAGS: ECON PREL PGOV EAIR BM
SUBJECT: AIR BAGAN CRASH RAISES SAFETY QUESTIONS

REF: A. RANGOON 022

B. 07 RANGOON 1102

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Classified By: Economic Officer Samantha A. Carl-Yoder for Reasons 1.4
(b and d)


1. (C) Summary. Air Bagan, one of regime crony Tay Za's
companies included on the targeted U.S. sanctions list,
continues to grapple with technical and safety issues as its
planes experience more difficulties, including a crash in
Putao, Northern Kachin State, on February 19. Twenty
passengers were injured but there were no fatalities.
Despite Air Bagan's statement that the plane crashed due to
pilot error, aviation insiders told us that one of the
plane's engines had failed, causing the crash and subsequent
splitting of the fuselage. In the past three months, Air
Bagan has grounded two of its planes for technical reasons.
Aviation officials complain that Air Bagan does not file
security and maintenance reports with the Directorate General
of Civil Aviation, nor are civil aviation authorities allowed
to inspect Air Bagan planes. Air Bagan pilots no longer
attend simulator training in Singapore, which further
jeopardizes passenger safety. Despite technical and
financial problems, Air Bagan plans to resume international
flights to Singapore in the next few months, using a new A320
it recently purchased from Jordan. End Summary.

Crash Landing
--------------


2. (C) On February 19, an Air Bagan-operated ATR-42 plane
crash-landed in Putao, Northern Kachin State, during a
routine take-off. Twenty of the sixty passengers on board
suffered minor injuries and there were no fatalities. There
were no Americans on board. Air Bagan Managing Director Soe
Win, who declined to meet with us despite repeated requests
because he was "too busy" with the investigation, told us
that the news reports about the accident were grossly
exaggerated. He told us repeatedly on February 20 that the
plane did not crash, but merely "slipped" off the runway due
to pilot error. He also stated that the plane sustained
minor damage and Air Bagan mechanics could fix the plane in
Putao rather than transporting it back to Rangoon.


3. (C) In the aftermath of the crash, several aviation
contacts told us that Air Bagan's blase explanation of the
crash downplayed the truth. Brett Meltzer, owner of Balloons
over Bagan and the Malikha Lodge in Putao, told us that the
plane crashed almost immediately after take-off due to engine
failure, not pilot error. Passengers on board the plane told
Meltzer that the left engine died, causing the plane to crash
onto the wet, marshy area north of the runway and fall
approximately 20 meters into a ravine. The plane sustained
major damage: the fuselage broke in half and one of the wings
fell off the plane. Air Bagan CEO Tay Za and his staff of
fifty flew to Putao to survey the crash site. Tay Za told
Meltzer and his staff that Air Bagan would write off the
plane, as it was irreparable.


3. (C) Burmese Government aviation officials told Meltzer
that it was "lucky" that no one was killed in the crash. Air
Bagan and the Ministry of Transportation continue to
investigate the cause of the crash and have made no official
declarations about the incident. According to aviation
officials, Air Bagan has yet to file an accident report with
or submit safety documentation to the Directorate General of
Civil Aviation.


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Is Air Bagan Safe?
--------------


4. (C) Since the crash, airline industry insiders have
questioned Air Bagan's safety record, noting that Air Bagan
has had several near-crashes in the past few months. Simon
Kennaworthy, one of Air Bagan's training pilots (who recently
quit his job and departed Burma),told us that in January,
Air Bagan pilots made an emergency landing in Mandalay
because of technical difficulties. According to the training
pilot, the plane did not have enough fuel to fly to its
original destination of Bagan, only a 20-minute flight from
Mandalay. Another Air Bagan plane made an emergency landing
on March 2, returning to the Rangoon Airport twenty minutes
after take-off because one of its engines "sputtered out,"
Air Bagan consultant U Zaw Win told us. Myanmar Airways
International General Manager Aung Gyi (PROTECT) told us that
because of sanctions, Air Bagan pilots can no longer attend
flight simulator training in Singapore. Instead, the company
trains its pilots on planes used for public transport, which
is illegal under Burmese law.


5. (C) According to Meltzer, the Directorate General of
Civil Aviation has strict orders not to inspect Air Bagan
planes, something aviation officials greatly resent. Air
Bagan also does not submit proper safety, security, and
maintenance records to the Civil Aviation Authority. William
Halligan (PROTECT),a former aviation underwriter for MSF
Pritchard in London (a subsidiary of Lloyds of London, which
insures Air Bagan) told Meltzer that Lloyds of London is
unhappy with Air Bagan's lack of documentation and safety
manuals. Due to the plane crash in Putao, Lloyds of London
plans to increase Air Bagan's insurance rate by 50 percent,
Meltzer told us.

Up, Up and Away?
--------------


6. (C) Despite Air Bagan's safety issues, the airline
continues to fly and plans to expand its international routes
in 2008. The airline, which operates eight planes (two
A310s, two ATR-72s, two ATR-42s, and two Fokker 100s - see
Ref B),has grounded two ATRs for technical problems in the
past month. Due to a lack of available planes, Air Bagan has
cancelled many flights, shifting planes to cover more
profitable routes, and combining flights so that one plane
stops at multiple locations during a flight. Air Bagan has
lost an estimated 25 percent of its business since the Putao
crash, although official figures are unavailable.


7. (C) Regardless of Air Bagan's recent problems with
domestic flights and lack of financial solvency (Ref A),the
company plans to expand its international operations in the
coming months. Just last week, the company bought a new jet,
an A320, from an airline in Jordan for an undisclosed amount,
Aung Gyi told us. Once the plane arrives in Rangoon, Air
Bagan plans to use it to resume its flights to Singapore.
The airline is also planning to sell its two A310s, or at
least lease them to another airline, Aung Gyi noted. Tay Za
has met with several potential clients in the past two
months, although no one has expressed real interest in buying
or leasing the planes because the plane's operating costs are
too high, he explained.

Comment
--------------


8. (C) Air Bagan continues to fly, not because it is a

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stellar airline with a great record, but because Tay Za
injects his own capital into the company and the Burmese
regime affords it certain protections and exemptions from
aviation regulations. Air Bagan's continued operations,
despite its high debt, lack of maintenance, and questionable
safety record, is a clear example of the symbiotic
relationship between the Than Shwe regime and the cronies.
However, as Air Bagan's questionable safety records becomes
better known, it will lose business. Singapore aviation
authorities are not likely to be so accommodating to Air
Bagan. As Burma's tourist season comes to an end, those
living in Burma will be taking the biggest risk, as they have
few options for traveling around this large country.

VILLAROSA