UZBEKISTAN: MAJOR DEALS FOR GM AND BOEING

UNCLAS TASHKENT 001277 SIPDIS DEPT FOR SCA/CEN USDOT FOR STREET AND HATLEY USDOC FOR 3004/CS/ADVOCACY/BLOOM E.O. 12958: N/A TAGS: EAIR ECON ETRD PGOV PREL UZ SUBJECT: UZBEKISTAN: MAJOR DEALS FOR GM AND BOEING REF: A. TASHKENT 659 ¶B. TASHKENT 803 ¶1. (SBU) SUMMARY: Last week saw the signing of two major deals between U.S. corporations and counterparts in Uzbekistan. On October 27 General Motors (GM) informed us privately that it had agreed with the Uzbek Government on building a new engine and transmission plant near Tashkent. Almost simultaneously, Boeing announced it had completed a deal to sell four Boeing 767s to Uzbekistan Airways. Taken together, these two announcements are the best news this year for U.S. business in Uzbekistan. In the words of GM Vice President Mike Arcamone, "This is big." END SUMMARY GM SIGNS MAJOR ENGINE PLANT DEAL -------------- ¶2. (SBU) General Motors (GM) Powertrain Vice President John Buttermore and GM Powertrain Europe Vice President John Arcamone met with the Ambassador on October 27 to inform us that GM had signed a joint venture that day for construction of a greenfield plant which will produce engines and transmissions in Uzbekistan. The GM representatives met with President Karimov the same day, and expect the formal launch to take place in early December. ¶3. (SBU) As reported previously (ref B),the new plant will dwarf GM's assembly operations in Asaka that began earlier this year. (NOTE: The assembly plant in Asaka was built in the mid-1990s by the Korean Daewoo Corporation. Daewoo was acquired by GM in 2005. END NOTE) The plant will be located 20 miles from Tashkent and will employ up to 22 U.S. citizens and 1300 Uzbeks. (NOTE: Currently only two GM AmCits live and work in Uzbekistan. END NOTE) The engine plant will supply both the Asaka facility and other GM plants outside Uzbekistan, primarily Russia, and will produce 150,000 engines per year. ¶4. (SBU) The Uzbeks will build a new electrical substation to power the plant as well as extend a railway line to the plant. They will also guarantee the water supply. GM expects the plant to open in the first half of 2011. ¶5. (SBU) GM will hold 52 percent ownership in the new plant. In contrast, GM currently owns only 25 percent of the stock in its Asaka assembly plant joint venture with Uzavtosanoat. Nevertheless, 52 percent ownership is less than the 75 percent ownership GM had hoped for when its representatives first spoke with us in July (ref B). GM indicated that the GOU helped significantly with financing for this joint venture. BOEING COMPLETES SALES AGREEMENT -------------- ¶6. (SBU) Boeing also announced last week that it has finally signed a deal with Uzbekistan Airlines for the sale of four Boeing 767s to make up for a two-year delay in the delivery of two 787 Dreamliners, originally scheduled for 2014. Negotiations had been in progress since spring (ref A) and were completed in mid-September. At that time Boeing Sales Manager Serdar Gurz told us he expected the contract would be signed as soon as presidential authorization was received, but weeks dragged by without a signed agreement. Last week's signing came immediately on the heels of a letter from State SCA DAS George Krol to Deputy Prime Minister Azimov. Delivery of the 767s will take place in 2012. ¶7. (SBU) In September Gurz told us Boeing had been taken by surprise by Uzbek insistence on negotiating a separate memorandum of understanding (MOU) for Boeing assistance to the Tashkent Aviation Factory (TAPOiCh). Describing TAPOiCh as a "dead institution" with a "Soviet mentality," he said Boeing does not want to become involved at any level deeper than training. Boeing went through two MOU drafts before the Uzbek side, including DPM Rustam Azimov, was satisfied that it was getting something and Boeing was satisfied it was not committing too much. In particular, Boeing did not want to be drawn into a joint venture. Agreeing on this MOU was a difficult process, and Gurz told us that at one point, to his amazement, the Uzbeks asked him why he didn't agree to Uzbek demands and then, simply, not follow through. He took this as an indication that having an agreed-upon MOU was more important to the Uzbeks than its implementation. This could be a sign that the Uzbeks are looking to Boeing as a counterweight to Russian attempts to absorb TAPOiCh. COMMENT -------------- ¶8. (SBU) These two nearly simultaneous signings by GM and Boeing are the most important positive development this year for American companies doing business in Uzbekistan. They are also another sign of improving U.S.-Uzbek relations, since both deals required presidential approval. As GM Vice President Arcamone told us, "This is big." NORLAND