AN AFGHAN PRIVATE SECTOR AIRLINE WORKING TO EXPAND

UNCLAS SECTION 01 OF 02 KABUL 002667 SENSITIVE SIPDIS DEPT FOR SCA/FO, SCA/RA, EEB/TRA AND SCA/A DEPT PASS AID/ANE DOT PASS FAA FOR RAY SMITH E.O. 12958 N/A TAGS: EAIR PREL EAID EINV PGOV NATO AF SUBJECT: AN AFGHAN PRIVATE SECTOR AIRLINE WORKING TO EXPAND REF: A) 08 Kabul 1500 B) 08 Kabul 496 SENSITIVE BUT UNCLASSIFIED. CONTAINS PROPRIETARY INFORMATION ¶1. (SBU) SUMMARY: Safi Airways, one of three private Afghan-owned carriers, reports it is close to profitability but faces burdensome governmental oversight and unfair competition, particularly from state-owned Ariana Airlines. Safi is banking its future growth on full International Air Transport Association (IATA) membership, expansion into Europe and the Middle East, and the benefits of an international airline alliance. Safi's CEO identified easier access to financing and better management at Kabul International Airport as critical for the airline's continued growth and expansion. END SUMMARY. Expanding into Europe and the Middle East -------------- ¶2. (SBU) While noting the challenges, Safi Airways CEO Tilmann Gabriel (protect) was upbeat in his Aug. 30 meeting with Coordinating Director for Development and Economy Affairs Wayne to outline Safi's operations and prospects. Safi is the only Afghanistan-based airline that complies with International Civil Aviation Organization (ICAO) safety standards, as well as the only Afghan carrier allowed into European airspace with its own planes and security screening. It will submit to an IATA Operational Safety Audit later this year in hopes of achieving full IATA membership, allowing it to join an international air alliance. Safi's all-Boeing fleet is run and flown by a mainly expatriate management staff, and Afghans comprise 180 of its 250 employees. ¶3. (SBU) The airline currently flies internationally from Kabul to Dubai, Frankfurt, Kuwait, Abu Dhabi, and Sharjah and operates domestic flights to Herat, Kandahar and Mazar-i-Sharif. Gabriel said the company plans to open routes to Moscow, New Delhi, Islamabad, London, Beijing, and Jeddah in the coming year. Its current fleet of three older Boeings will be supplemented with a newer Boeing 767 and a Boeing 737 leased from the International Lease Finance Corporation. The lease for the 767 has been signed and that for the 737 is expected by the end of the calendar year. Gabriel said his goal is to acquire a fleet of 10 to 12 planes in the next five years. While Expanding its Afghan Base -------------- �00A;¶4. (SBU) Sixty percent of Safi's 500,000 annual passengers are expatriates, while 40 percent are Afghans. Gabriel said the number of Afghans using the airline is growing, despite a slowdown in Afghanistan-bound traffic before and during the August 20 election. Ticket sales have grown 7 percent per week since April 1. ¶5. (SBU) Safi has bid on a contract for USAID's air service, which would use ATR jets and Dash-8 turboprops to expand its domestic service. Gabriel said a successful bid on the contract would help the airline grow domestically and connect internal flights to international routes. He also hopes to start a separate cargo service. Battling GIRoA Protection of National Airline Ariana -------------- -------------- ¶6. (SBU) Similar to other private airline managers (ref B),Gabriel complained Ariana receives unfair support from the GIRoA, including the Hajj passenger prepayments that Ariana used to lease two Airbuses. Gabriel disparaged Ariana's monopoly on ground handling services at Kabul International Airport (KIA) and reported Safi purchased $500,000 worth of ground handling equipment from Lufthansa on the "ok" from the Transportation Ministry but subsequently was prohibited from using it as the Minister reversed the decision. Ambassador Wayne noted ICAO is working to hire an independent ground handling contractor for the airport, which Gabriel said would be an acceptable solution. ¶7. (SBU) According to Gabriel, Kabul Airport management is a negative for operating carriers. He said the airport director tries to "have a say in what airlines do" creating a "potential for favors." Landing fees at KIA are much higher than Dubai and Frankfurt, but the airport provides few services. Challenges in Financing Growth and Expansion -------------- KABUL 00002667 002 OF 002 ¶8. (SBU) Gabriel also said the GIRoA is considering capping the number of passengers each airline can transport, possibly to limit Safi's growth and protect its national airline Ariana, which is still the largest carrier by passenger volume. Additionally, he said the Ministry of Interior has forbidden Safi from charging more for tickets purchased at the last minute, which it considers cheating customers. Gabriel also told EconOff he feels targeted for taking on the state-owned airline. ¶9. (SBU) Safi has yet to make a profit, but, according to Gabriel, is on track to break even in the second half of this year. It looses $1.5 million per month on the Kabul-Dubai route, due to overcapacity on the route and a price war with Pamir Airways. Gabriel alleged that Kabul Bank is unfairly subsidizing Pamir with "shady financing" from Dubai, which the airline is using to attract price-sensitive customers with below-market prices. (He said the rumor is that Pamir carries cash back and forth from Dubai and receives special payments for this service. We will alert relevant agencies to explore this report.) While the Safi Group has invested $40 million in the airline, Gabriel is seeking financing from the International Finance Corporation and the Export-Import Bank, as well as the Overseas Private Investment Corporation and several U.S. banks. He said both IFC and ExIm Bank are interested in shareholdership. Gabriel said Safi has hired a U.S. firm to search for potential investors and said he would welcome the management restructuring that would entail. EIKENBERRY