BOEING COMPETING TO SELL TWO AIRCRAFT TO NEPAL

UNCLAS SECTION 01 OF 02 KATHMANDU 000431 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: EAIR ETRD PREL PTER NP SUBJECT: BOEING COMPETING TO SELL TWO AIRCRAFT TO NEPAL AIRLINES REF: KATHMANDU 202 Summary -------------- ¶1. (SBU) Boeing is competing with Airbus and three other companies to sell two large aircraft to state-owned Nepal Airlines Corporation (NAC). The five companies submitted bids by the May 21 deadline set by NAC, which is seeking to purchase one wide-body and one narrow-body aircraft. Three other companies, including Pratt and Whitney and a joint venture involving General Electric, submitted bids to provide engines for the aircraft. All bids will be opened on May 22, but the NAC is not expected to award a contract until after its technical evaluation committee reviews all the proposals and makes a recommendation. Because the current caretaker government is led by the United Communist Party of Nepal (Maoist),which is on the Treasury Department's list of Specially Designated Global Terrorists, a waiver from Treasury was required for U.S. companies to participate in the bidding process. However, the formation of a new government will probably make the OFAC requirement moot. Boeing Competing with Airbus and Three Others -------------- ¶2. (U) Boeing is competing with Airbus and three other companies to sell two large aircraft to state-owned Nepal Airlines Corporation. In its request for proposals (RFP), NAC said the aircraft -- one wide-body and one narrow-body -- are essential for its plans to "establish the airline as a reliable national flag carrier with aggressive marketing." According to press reports, the NAC was caught by surprise by last-minute bids from Ilyoshin Finance Corporation of Russia, Commercial Aircraft Sales, Leasing and Consulting of the U.S. and Kathmandu-based Aero Express Aviation. Because the NAC's call was only for manufacturers, the NAC spokesman has questioned whether the three bids "will be valid." Currently, the NAC operates two B757s, the only long-range aircraft in its seven-aircraft fleet. Boeing has a 30-year relationship with the NAC, while Airbus has never sold aircraft to the national airline. No other aircraft manufacturers submitted bids by the close-of-business deadline on May 21. In addition to the two aircraft the NAC is committed to purchasing, bidders were allowed to submit proposals for the potential future sale of four other large aircraft -- two wide-body and two narrow-body -- as well as for leasing an aircraft to the NAC until the first plane is delivered. The NAC expects to take delivery of the narrow-body plane in late 2009 and the wide-body plane in ¶2010. Three Manufacturers Bid on Engine Sales -------------- ¶3. (U) Three manufacturers -- Pratt and Whitney, Rolls Royce, and CFM International, a joint venture of General Electric and the French company Snecma -- submitted separate bids to provide engines for the two aircraft. The NAC's original RFP did not include an option for a separate supplier to provide engines. An NAC official told Emboff recently that the RFP was amended to comply with international norms, which traditionally allow engine manufacturers to compete with aircraft manufacturers. He said this gives NAC the option to buy entire aircraft from Boeing or Airbus or aircraft minus engines from one of those two companies and then purchase the engines from another manufacturer. The decision is expected to be based largely on cost. Technical Evaluation Team to Make a Recommendation -------------- -------------- ¶4. (U) After the bids for the aircraft and engines are opened on May 22, a specially created technical assistance team, comprising NAC technical staff and outside experts, will review all the bids. NAC Deputy Managing Director Ganesh Thakur will head the committee. NAC Managing Director Sugat Kansakar told Emboff May 21 that the review process is KATHMANDU 00000431 002 OF 002 expected to take up to a month to complete. Following the review, the NAC's Board of Directors will award a contract. Thakur has told the press, however, that evaluation of the bids will probably take between 10 to 14 days. Treasury Department Waiver Required for U.S. Bidders -------------- -------------- ¶5. (SBU) The United Communist Party of Nepal (Maoist) leads Nepal's current government. Because the Maoists are on the Department of Treasury's list of Specially Designated Global Terrorists and a Maoist serves as the present Minister of Tourism and Civil Aviation, U.S. firms submitting proposals were required to obtain waivers from Treasury's Office of Foreign Assets Control (OFAC). Boeing obtained a waiver for its bid, but Post does not know whether Commercial Aircraft Sales, Leasing and Consulting, Pratt and Whitney or CFM International received approval from OFAC. (Note: The formation of a new government will probably make the OFAC requirement moot.) Post had no contact with any of the U.S. companies, other than Boeing, and was not aware of any other U.S. interest prior to the bid deadline. Comment -------------- ¶6. (SBU) Since the resignation of the Prime Minister on May 4, Nepal's Maoist-led government has been serving in a caretaker capacity. While the election of a new, non-Maoist Prime Minister could take place as soon as May 23, it will take a while to put all the new ministers in place. Some 22 parties, but not the Maoists, are expected to join or support the new coalition. Legally speaking, the NAC Board of Directors does not have to wait for a new Civil Aviation Minister to be named before awarding a contract, but given the size and nature of the transaction, NAC will do so. Now caretaker Maoist Finance Minister Bhattarai announced in the budget speech in September 2008 that his government would provide a sovereign guarantee for the purchase of two large aircraft. NAC will want to see that guarantee reaffirmed by the new government. NAC expects a narrow-body aircraft to cost about USD 60 million and a wide-body aircraft to cost between USD 125 and 150 million. The Finance Minister has approved financing the aircraft purchases in large part through a loan from the government's Employees Provident Fund. The new cabinet will want to review the financing arrangements and even, perhaps, the bid process itself, before it gives NAC the green light to proceed. POWELL