SAUDI PROPOSED OPEN SKIES AGREEMENT

C O N F I D E N T I A L SECTION 01 OF 02 JEDDAH 000444

SIPDIS

DEPT FOR NEA/ARP (HARRIS),EEB/TRA/AN (FINSTON)

E.O. 12958: DECL: 11/19/2019
TAGS: CVIS EAIR ECON KTIA PREL SA
SUBJECT: SAUDI PROPOSED OPEN SKIES AGREEMENT

REF: A. 09JEDDAH414

B. 09JEDDAH178

C. 09JEDDAH146

JEDDAH 00000444 001.2 OF 002


Classified By: Consul General Martin R. Quinn for reasons 1.4 (b) and (
d)


1. (U) This is an action request. Please see paragraph 11.


2. (C) Summary: On November 16, Captain Mohammad Ali Jamjoom,
Vice President Safety and Economic Regulation at the Saudi
General Authority of Civil Aviation (GACA),presented
EconCounselor and PolEconOff with further revisions to the
Department's Model Open Skies Agreement text reflecting
concerns from Saudi Arabian Airlines. The key change
requested (again) is the deletion from the agreement of the
right to operate from points behind. If the revisions
proposed by Saudi Arabia are not acceptable to the United
States, Jamjoom suggested we might be able to put the points
in an annex and gradually phase in the provisions
automatically. If the revised text meets US requirements,
Jamjoom stated that an Open Skies agreement can be signed
without delay. The proposed language has been received by
ConGen Jeddah and forwarded via electronic mail. Jamjoom
stressed that the Saudis -- particularly the civil aviation
community -- are eager to conclude an Open Skies Agreement
with the United States. He also requested immediate US
approval of the codeshare agreement Saudia Airlines has
negotiated with a US carrier. End summary.


3. (SBU) The remaining critical point in concluding an Open
Skies agreement with Saudi Arabia concerns the language in
section II which refers to "points behind." The Saudis
continue to wish to delete from the agreement the right to
operate from points behind. Saudia Airlines regards this
right as tantamount to Sixth Freedom rights and is concerned
about marketing competition. Jamjoom noted that while Saudi
Arabia has Open Skies agreements with some regional
countries, the Open Skies agreement with the United States
would be Saudi Arabia's biggest agreement. Operators (i.e.,
Saudi Arabian Airlines) are very concerned about how the
agreement will affect business. Although they see
opportunity to expand service on their most profitable routes
-- to the United States -- they also are worried about the
potential competition from large US operators.


4. (C) Jamjoom concluded by noting that in the event the
proposed changes are not acceptable to the United States, it
might be possible to include some additional language in
Annex II that might use the same staged approach,
automatically removing restrictions over several years.


U.S. routes a goldmine but eastern and domestic routes
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unprofitable
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5. (C) Saudi Arabia's desire for an Open Skies agreement
seems motivated by a desire to increase profitable flights to
the United States, which are now limited in frequency under
the 1993 agreement. Domestic routes are "breaking the back
of operators," despite gradual attempts to "liberate prices"
and decrease the number of PSOs so that operators can operate
according to strategic plans. Because airplanes are the only
transportation available to some parts of Saudi Arabia, the
government mandates frequent flights and caps prices.


6. (C) Operators are barely recovering costs on routes east
from Saudi Arabia, Jamjoom continued; because of high
competition, prices are at rock bottom. Saudi operators are
much more interested in the western option, with the route to
the United States "the most tempting." Up to September 11
those routes "were a goldmine" -- so profitable that Saudi
Arabian Airlines bought five 747s just to serve that route.
Travel to the United States is increasing with the easing of
visa restrictions and improvements in the immigration
process. When the visa issue is "solved" -- including
re-establishment of full visa operations at ConGen Jeddah --
Jamjoom expects large numbers of Saudis will travel to the
United States because it is relatively inexpensive -- even
compared to regional countries -- and has much more variety.
The money route is to the United States, Jamjoom concluded.


The future: more services, bigger airports, simpler
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regulations
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JEDDAH 00000444 002.2 OF 002




7. (C) Asked how Saudi carriers see the future, Jamjoom
replied that the cargo sector hasn't been explored to the
full potential of the market. Although Saudi Arabia has
space to create huge cargo areas, there have been few
attempts to establish bases. The new cargo service spun off
from Saudi Arabian Airlines needs time to get established
(i.e., GACA will look to shelter it from international
competition). Over the long-term, Jamjoom believes that the
aviation sector needs to grow, both for cargo and passengers,
because the number of operators is below that needed for a
country of the size and with the population of Saudi Arabia.
Jamjoom commented that there is a sufficiently large customer
base to support and expanded sector, although facilities need
to be expanded. Most Saudi airports are undergoing
renovations, he added, citing the Medina airport as an
example of a Saudi airport that is too small for the existing
passenger traffic. Saudi Arabia plans to open several
regional airports (e.g., Abha and Tabouk) for international
service as part of the SAG's effort to develop tourism,
including religious tourism.


8. (C) GACA is about to sign a contract with a US-based
company to simplify and streamline its regulations, most of
which are based on FAA rules and regulations. Although the
US now has the best system in aviation, the multiple layers
of regulations were built incrementally to incorporate the
viewpoints of all stakeholders in the huge American aviation
network. Jamjoom said that Saudi Arabia's aviation sector is
much simpler, and the contractor will look to distill the
most relevant parts of the existing regulations to make it
more applicable to the Saudi case, and easier for carriers to
comply. GACA is automating operations specifications so that
carriers can do this online. GACA is also working with other
Arab civil aviation bodies attempting to unify processes, for
example moving toward single certification of flight schools
and maintenance organizations. Arab civil aviation
authorities need more authority so that decisions are removed
from political pressure, said Jamjoom, noting it is
politically sensitive to certify or deny certification.


Immediate codeshare approval requested by Saudis
-------------- ---


9. (SBU) Jamjoom emphasized that Saudi Arabia wants to
proceed immediately with the codeshare agreement between
Saudi Arabian Airlines and a US carrier. (He believed it was
American Airlines; the Director General of Saudia said he was
negotiating with Delta Airlines.) The airline has filed for
codesharing, and Saudi Arabia is hoping for favorable
results.


10. (SBU) Comment: Jamjoom repeatedly stressed the SAG's
interest in concluding this agreement as quickly as possible.
We believe GACA and Saudi Arabian Airlines are genuinely
interested in capitalizing on the opportunity of greater
Saudi traffic to the United States. He was also very aware
of the positive political signal that concluding an Open
Skies agreement would send about the strength of our
bilateral relations. While we believe Saudia is seriously
concerned about competition from US carriers, we also
believe, based on Jamjoom,s presentation of the language,
that GACA wants to find a way to agree on the text.


11. (SBU) ACTION REQUEST: Post requests EEB/TRA/AN respond
indicating whether Saudi Arabia's proposed changes are
acceptable, negotiable, or non-negotiable.
QUINN