CHINESE-MADE PLANES HEADED TO THE CARIBBEAN

C O N F I D E N T I A L BRIDGETOWN 000675

SIPDIS

E.O. 12958: DECL: 10/15/2029
TAGS: ECON ETRD EAIR PREL CN XL
SUBJECT: CHINESE-MADE PLANES HEADED TO THE CARIBBEAN

Classified By: Charge d,Affaires, a.i. D. Brent Hardt Reasons 1.4 (b/d)
.

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Summary
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1. (C) The Governments of Barbados and Antigua, two of the
three majority shareholders in the monopoly regional air
carrier LIAT (Leeward Islands Air Transport),have expressed
strong interest in replacing the aging fleet of turboprops
with Chinese-made planes. China's Ambassador in Antigua
confirmed that the Chinese are very interested in expanding
into the civilian aircraft market and hope to use the
Caribbean as a springboard to larger markets in North and
South America. St. Vincent, the third largest shareholder in
LIAT, is not convinced that planes from China make the most
commercial sense. End Summary.

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China looking to expand into the Civilian Aircraft Market
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2. (C) Antigua and Barbuda FinMin Harold Lovell told us in
private meetings on September 23, 2009 that, after years of
seeking to upgrade the fleet of Canadian manufactured Dash-8
turboprop airplanes, two of the three countries that own
regional air services monopoly LIAT are strongly considering
a deal with the Chinese to replace the fleet with Chinese
planes. Barbados and Antigua, both of whom have taken great
pains over the past two years to improve and expand their
economic relationship with China, have decided that
Chinese-made Xian Aircraft Industry ltd MA60 turboprops,
which are very similar to the Canadian-made Dash-8's
currently in service, and the concomitant concessionary
financing terms, are likely the best way to upgrade the
regional carrier. Recent articles in the Barbadian and
Antiguan media highlighted discussions by their respective
Prime Ministers outlining the structure of the deal, which is
purported to include a recapitalization of the flagging
airline as well as low interest trade facilitation loans to
finance the planes. In one such article, Barbados PM
Thompson expressed interest in sourcing Chinese military
technology in addition to the civilian aircraft.


3. (C) According FBO2000 CEO Ms. Mikedo Mickael -- FBO2000 is
the contract operator of the VIP terminal at the VC Bird
International Airport -- going with a new manufacturer will
necessitate the replacement of the entire fleet over the
medium term due to the different maintenance and operator
training schedules caused by operating two different types of
planes. The increased costs associated with running two
different types of planes in such a small fleet would likely
prove prohibitive over the long term. FinMin Lovell agreed
that it would likely be necessary to replace the entire fleet
in the medium term if they went with a new manufacturer
because of the cost associated with carrying two different
types of aircraft.


4. (C) Chinese Ambassador to Antigua and Barbuda Chen Ligang
told us that his government is keenly interested in expanding
beyond traditional markets and industries, and noted that the
Eastern Caribbean is a great showcase for China's "quality
products." In order to continue to grow and expand, he said,
China must move up the value chain to higher-end, more
complex products like airplanes and automobiles. However, he
lamented, it is very difficult to sell these products to
traditional markets like the U.S. and Europe due to
competition, so we are looking to expand into smaller, less
competitive markets first. Chen said China had already made
deals to sell planes to Bolivia and in Africa, but LIAT would
allow China to show the quality and safety of its planes to
American and European tourists.

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St. Vincent Not Sold on the Idea
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5. (SBU) Following a meeting of LIAT shareholders on
October 10, St. Vincent PM Gonsalves reaffirmed that the
Chinese government is interested in selling planes to the
region's airline. (Note: The governments of Antigua,
Barbados and St. Vincent are the majority share holders of
LIAT. End note.) Gonsalves also noted that Barbados PM
Thompson is scheduled to visit China soon, where more
information concerning the Chinese offer will likely come
out. In a statement following the meeting, though, Gonsalves
explained that, in his opinion, LIAT is only in need of
upgrading the three smallest and most outdated versions of
its Dash-8 fleet of 18. This could be accomplished, he said,
by going with Bombardier, the manufacturer of the existing
fleet, and would only require US$54 million.

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Comment
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6. (SBU) The Chinese are very active in the Eastern
Caribbean and have completed many high-profile projects in
both Antigua and Barbados, along with several rounds of
high-level visits in both directions. There has long been
talk of increasing trade and investment ties, both of which
would be addressed through a deal to replace LIAT's fleet of
18 planes with MA60's made in China. This appears to be a
win for both sides and the first tangible payoff in the
region for China's continued largess. The one issue the deal
is facing is St. Vincent's recognition of Taiwan, which may
help to explain Gonsalves' limited support for the planned
"upgrade." It is unlikely that St. Vincent would scuttle the
deal simply because of their recognition of Taiwan. That
said, however, they are not beholden to the PRC for loans and
large construction projects so they are understandably less
enthusiastic about using a fleet of brand new, largely
untested planes for the carrier that they all fly on. If
nothing else, being the lone holdout and ally of Taiwan
strengthens Gonsalves' ability to leverage his support
against future assistance from the PRC for his own pet
projects.
HARDT