ERITREAN AVIATION: GOVERNMENT SQUEEZING THE

UNCLAS SECTION 01 OF 03 ASMARA 000379

SENSITIVE
SIPDIS

DEPARTMENT FOR AF/E, AF/EPS, EEB/TRA/AN
LONDON AND PARIS FOR AFRICA WATCHERS
DS/IP/AF
PASS TO DEPARTMENT OF TRANSPORTATION

C O R R E C T E D C O P Y added sensitive caption

E.O. 12958: N/A
TAGS: EAIR ATRN ASEC CASC EFIN ECON ER
SUBJECT: ERITREAN AVIATION: GOVERNMENT SQUEEZING THE
AIRLINES

REF: ASMARA 345

ASMARA 00000379 001.4 OF 003



1. (SBU) SUMMARY: The four international airlines serving
Asmara are discouraged by the Eritrean government's (GSE)
refusal to allow them to convert $20 million worth of local
currency and its repeated attempts to gouge them for hard
currency. The GSE, through its wholly owned Eritrean
Airlines, has raised airport handling fees to nearly
quadruple the rate for comparable airports in Africa. The
GSE also will not allow the airlines to purchase fuel in
Asmara, lowering their carrying capacity and thus their
profitability. If the GSE continues the pressure on the
international airlines, they may eventually pull out, leaving
few safe and dependable options for travel to Eritrea. The
two domestic airlines are not profitable and rely on charters
to stay in business. END SUMMARY.

AIRLINES AND AIRPORTS
--------------


2. (SBU) Five airlines currently offer commercial service to
Asmara International Airport (ASM). No commercial service is
available by any carrier to any other airport in Eritrea.
Lufthansa, which is post's supplier of medevac, evacuation,
repatriation, pouch, and courier services, flies from
Frankfurt via Jeddah three days per week. EgyptAir flies
four days per week to Cairo between June and October, three
days per week all other months. Yemenia flies twice a week
to Sanaa. Sudan Airways resumed flights to Asmara in May
2009 with direct flights twice a week to Khartoum via Kasala,
Sudan. Nasair, a private Eritrean carrier that started in
November 2006, offers six flights per week to Dubai, Jeddah,
Khartoum, Cairo, and Nairobi. Eritrean Airlines no longer
runs commercial flights though it has resumed charter
flights.


3. (SBU) Although Massawa sports a new state-of-the-art
international airport, it is not yet open for commercial
operations. Local industry insiders state that this is
largely due to the lack of business in the Massawa Free Zone.
In June 2008, twelve chartered EgyptAir flights brought
1,200 Eritrean deportees back from Egypt and landed at
Massawa, most likely to avoid attention. Nasair opened its
operations November 2006 in Massawa, but has temporarily
moved headquarters back to Asmara until Massawa opens for
commercial operations. There have been reports the GSE may
try to make Massawa Eritrea's primary international airport,
perhaps as soon as 2012.

Eritrean Airlines: It's All About Hard Currency
-------------- --


4. (SBU) Eritrean Airlines opened for business in 1998, "not
for profit but because we wanted to have a way in and out of
the country," according to its Chairman of the Board. Now
$11 million in debt, the airline is attempting to restore
profitability by leasing its sole aircraft, a 767 purchased
from Qantas for $3 million, for charter flights to Sudan and
Saudia Arabia. The airline's chairman states that the
airline hopes to lease another plane, a 737 or an A-320, to
resume commercial operations, possibly to Karachi or Lahore
(through Dubai),Rome or Milan (through Cairo),and Nairobi
(through Khartoum). Eritrean Airlines has a monopoly on
handling operations at ASM (reftel). In a blatant, and at
least partially successful, attempt to soak the international
carriers for hard currency, Eritrean Airlines raised handling
rates to now quadruple the industry average in Africa. All
airlines but Lufthansa have agreed to pay the 25% increase in
fees.


ASMARA 00000379 002.4 OF 003



5. An embassy contact who is well-connected to the travel
industry told us that Eritrean Airlines is interested in
establishing a code-share with Kenya Air to use landing
rights it still has in Milan, Rome, and Frankfurt. Kenya Air
flights would stop in Asmara en route to those cities. The
key questions would be if Kenya Air would have to accept fare
payment in nakfa-- and wind up in the same position as other
international airlines, and whether the deal would be
politically palatable to the GSE, given Kenya's AU and IGAD
votes in favor of sanctions on Eritrea.

The Upstart Nasair
--------------


6. (SBU) Nasair, is named for its Eritrean owner Nasriddin
Ibrahim, who is resident in Dubai. Educated in the United
States, Nasriddin began his career there as an aircraft
broker. Nasair has the most convenient service to Nairobi
(through Khartoum),flying a 737-200 aircraft holding 108
passengers. The airline's break-even point is 45 passengers
per flight, but usually has about 50. It also operates
profitable charter flights from West Africa to Saudi Arabia
for Muslim pilgrims. Its marketing targets ex-pat Eritreans
living and working in the Gulf States.

Worthless Nakfa, the Bane of the Airlines
--------------


7. (SBU) Most passengers originating in Asmara pay for their
tickets in Eritrean nakfa, but the international carriers
have few nakfa expenses. As a result, the big three
(Lufthansa, EgyptAir, and Yemenia) together have an
ever-increasing pile of nakfa, now worth nearly $20 million,
that they have been unable to repatriate. Lufthansa and
Yemenia both state that they would not be surprised if their
corporate offices pulled the plug on operations in Asmara at
any moment. EgyptAir dismisses this thought, though its
country manager claims its share of the nakfa pile is $7
million. Should any international airline close up shop,
they would likely be unable to repatriate their nakfa
holdings. An Eritrean government official recently told one
airline manager that it might be possible to repatriate
earnings in hard currency once Bisha gold mine comes on line
in 2011.

More Frustrations
--------------


8. (SBU) The Eritrean government's (GSE) treatment of
international carriers ranges from neglect to coersion and
bullying. Earlier this year, Lufthansa's country manager got
into a dispute with the GSE over enforcement of Lufthansa's
safety regulations. Ultimately the GSE refused to renew the
manager's work permit and tried to dictate who her
replacement would be. The GSE also tried to force Lufthansa
to provide passenger service between Jeddah and Asmara
(currently no passengers may embark in Jeddah inbound to
Asmara nor disembark there from Asmara). Lufthansa
successfully resisted the pressure over concerns that more
Eritreans would try to use the stop to claim asylum. Also,
the GSE held up airport access for EgyptAir's new airport
manager for months. Yemenia has had no response to its
long-standing request to increase its flights from twice per
week to daily. Nasair has historically received pressure
from the GSE not to compete on the same routes as Eritrean
Airlines, but the issue is currently moot. Should Eritrean
Airlines re-open commercial routes, Nasair's marketing
manager has stated it would agree to different routes.


9. (SBU) Eritrean Airlines also short-changes the

ASMARA 00000379 003.4 OF 003


international carriers by reserving the small amount of fuel
available in Asmara for its own and Nasair's use. The
unavailability of fuel means international carriers cannot
fly full loads in or out of Asmara, since they cannot refuel
here. As a result, EgyptAir usually flies with 40 empty
seats per flight. Yemenia flies a larger aircraft than it
would prefer to in order to handle distance or weight
emergencies. Post periodically does not receive its pouch on
Lufthansa because weight is limited on its flight. Airlines
already struggling to make a profit on their Asmara flights
cannot fill their aircraft even when demand is high.

Asmara: Is it Safe to Fly Here?
--------------


10. (SBU) Lufthansa is widely reputed to be the safest
airline serving Asmara. It brings its own mechanic on every
flight and does not subcontract maintenance to Eritrean
Airlines. It performs its own weight and balance
calculations for every flight leaving ASM, unlike all the
other carriers. Nasair lies at the other end of the safety
spectrum. Its aircraft are leased "wet" (with flight crew)
from Max Avia, a Kyrgyz Republic-based company that is
blacklisted by the European Union due to poor oversight by
the Kyrgyz civil aviation authority. Although EgyptAir is a
new member of the Star Alliance, it currently faces similar
blacklisting by the EU if it does not address serious
concerns noted by the EU regarding airworthiness,
maintenance, operations, and safety of cargo on board. The
Air Transport and Intelligence news published a report in
July 2009 stating that in 75 inspections of EgyptAir since
January 2009, 240 safety incidents were noted, including 69
deemed serious. Many ex-pat residents of Asmara enjoy flying
EgyptAir, as it is cheaper than Lufthansa and not as strict
in applying baggage weight standards. EgyptAir's country
manager claims its maintenance facility is the best in the
Middle East, and that that 40 European airlines subcontract
their maintenance to them in Cairo. In June, Yemenia
experienced its first catastrophic crash of an A310 off the
coast of the Comoros Islands, which killed 152 of 153
onboard. Sudan Airways flies a 30-passenger Fokker 50 twin
engine aircraft to Asmara and is locally reputed to be
unsafe. The airline is planning to acquire an A320 to carry
up to 140 passengers per flight into ASM. The country
manager says its pilots train and maintain their
qualifications overseas in London, Riyadh, and Doha.


11. (SBU) COMMENT. The inhospitable business climate may
soon leave fewer safe and dependable options for travel to
Eritrea. The situation is not likely to improve in the near
future, as economic conditions continue to deteriorate
throughout the country. The GSE will continue to find
creative ways to generate hard currency as it does now
through airport handling fees. International carriers are
caught in a difficult situation: if they pull out, they
cannot repatriate earnings in hard currency. If they stay,
they will continue to struggle to maintain profitability.
McMULLEN