Finance Minister Zakhilwal Interested in Improving Ariana

UNCLAS KABUL 003447

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C O R R E C T E D C O P Y (ADDING CAPTION)

E.O.12958: N/A
TAGS: EAIR EAID ETRD PGOV BEXP AF
SUBJECT: Finance Minister Zakhilwal Interested in Improving Ariana
Air Operations

REF: KABUL 3346


1. (U) Summary: Afghan Minister of Finance Zakhilwal and
Coordinating Director for Development and Economic Assistance
(CDDEA) Wayne reviewed the USAID-financed assessment's of
state-owned Ariana Airlines October 21. The assessment notes
improvements in human resource management and quality control are
key to positioning Ariana for partial or full privatization. The
Minister requested assistance in improving Ariana's profitability of
the airline, specifically in financial management, outsourcing some
services and marketing. The Asian Development Bank (ADB) will
likely provide this support in the short term. In a separate
discussion with Ambassador Wayne, Safi Airlines owner Abdul Rahim
Safi disputed the Minister's claims that Ariana does not receive
preferential treatment from the Afghan government. Safi also again
requested U.S. Embassy support for EXIM financing for a Boeing
purchase. End summary.


2. (SBU) Minister of Finance Zakhilwal met CDDEA Ambassador E.
Anthony Wayne October 21 to discuss the USAID-financed
financial/operational assessment of Ariana Airlines. The
assessment's primary findings center on the need to address weak
management and planning capacity (ref). The assessment identified
the need for an increased focus on (1) safety and maintenance; (2)
the severe lack of technical staff; and (3) the limited integration
between safety, management, and financial systems.


3. (SBU) As next steps forward, the study recommends Ariana produce
a business plan which outlines a strategic focus - international,
domestic, and cargo services - and reviews business growth,
profitability, occupancy, fleet management, safety and maintenance.
The study also argues that the airline needs to define a fleet
replacement policy, staffing and training requirements, and
outsourcing strategies while adopting comprehensive integrated
information management systems.


4. (SBU) Delving into the assessment, Zakhilwal stated it is
unlikely the government will withdraw from managing the airline in
the near future. The Finance Minister suggested pursuing near-term
actions to improve operations in key areas of financial management,
outsourcing certain services and marketing. He also suggested
strengthening service standards by ensuring a plan is in place and
competent people are assigned to implement it.


5. (SBU) Responding to Ambassador Wayne's question whether Ariana
benefits from preferential regulations and policies, the Minister
said the airline is treated equally and is current on parking and
landing fees. Zakhilwal indicated all Afghan airlines pay fewer
taxes than they owe. He also said the Government's decision to give
Ariana a sole-source award to transport pilgrims on the Hajj (21% of
Ariana's income) was based on political considerations and because
efforts to award the sensitive service on the basis of competitive
bidding in the past had failed. [Note: in 2002 a group of pilgrims
angry over their canceled flight to Mecca, killed the Transportation
Minister and dumped his body out the back of a plane onto the Kabul
Airport tarmac. End Note.]


6. (SBU) In a separate conversation on October 22, Ambassador Wayne
spoke with the head of Safi Airlines, Abdul Rahim Safi. Safi
disagreed with the Finance Minister's assessments and said he has
repeatedly protested to the government that, in addition to enjoying
a monopoly on ground services, Ariana receives a break on taxes and
landing fees. Safi said he believes Finance Minister Zakhilwal has
decided to ignore these pleas in favor of Ariana (and cited the use
of Ariana for the Hajj as another example of preferential
treatment). Safi noted he has also protested directly to President
Karzai without result. The airline owner said his family has put
over $40 million into Safi Airways and is willing to continue to
invest, but needs a level playing field. Safi added he has talked
to EXIM Bank about financing for new Boeing aircraft, but he has not
been operating long enough to meet the EXIM requirement of four
years of balance sheets. He asked for U.S. Embassy help in engaging
EXIM to find a way to obtain a loan or guarantees.


7. (SBU) Comment: The Asian Development Bank is likely to provide
assistance to address some of the Minister's immediate concerns on
improving profitability. USAID will also consider providing support
for the improvement of Arian's financial management, if the Afghan
government demonstrates the political will and leadership to proceed
with a concrete privatization plan for Ariana. End Comment.

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