Identifier
Created
Classification
Origin
09KATHMANDU431
2009-05-22 07:07:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Kathmandu
Cable title:  

BOEING COMPETING TO SELL TWO AIRCRAFT TO NEPAL

Tags:  EAIR ETRD PREL PTER NP 
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VZCZCXRO0729
PP RUEHCI
DE RUEHKT #0431/01 1420707
ZNR UUUUU ZZH
P 220707Z MAY 09
FM AMEMBASSY KATHMANDU
TO RUEHC/SECSTATE WASHDC PRIORITY 0222
INFO RUEHBJ/AMEMBASSY BEIJING 6964
RUEHBS/AMEMBASSY BRUSSELS 0269
RUEHLM/AMEMBASSY COLOMBO 7286
RUEHKA/AMEMBASSY DHAKA 2608
RUEHIL/AMEMBASSY ISLAMABAD 5330
RUEHLO/AMEMBASSY LONDON 6469
RUEHMO/AMEMBASSY MOSCOW 0127
RUEHNE/AMEMBASSY NEW DELHI 3042
RUEHFR/AMEMBASSY PARIS 0167
RUEHCI/AMCONSUL KOLKATA 4606
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
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
-------

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