NEPAL: ADVOCACY CONTINUES AS BOEING'S HOPES FADE

C O N F I D E N T I A L SECTION 01 OF 02 KATHMANDU 000840

SENSITIVE
SIPDIS

E.O. 12958: DECL: 09/09/2019
TAGS: EAIR ETRD PREL PTER NP
SUBJECT: NEPAL: ADVOCACY CONTINUES AS BOEING'S HOPES FADE

REF: A. KATHMANDU 529

B. KATHMANDU 431

C. KATHMANDU 202

Classified By: Charge d'Affaires a.i. Jeffrey A. Moon. Reason 1.4

Summary
--------------

1. (SBU) The Charge d'Affaires continues to advocate at the
highest levels of government for the state-run Nepal Airlines
Corporation (NAC) to conduct its decision-making process on
the purchase of new aircraft in a fair and transparent
manner, even as Boeing officials report that the NAC Board of
Directors has all but finalized a decision to award the
contact to Airbus. Boeing says its only hope for having the
decision reconsidered rests with the Supreme Court
reinstating the powers of the NAC's managing director, who
favors Boeing. The top court, however, recently ruled
against the managing director in his long-standing power
struggle with the NAC's executive chairman, a decision that
has not been appealed.

Charge Advocates for Fairness and Transparency
-------------- -

2. (SBU) During a September 4 meeting, the Charge urged
Prime Minister Madhav Kumar Nepal to ensure that the
Government of Nepal's (GON's) decision-making on the purchase
of two new aircraft by the NAC -- one narrow-body and one
wide-body -- be conducted in a fair and transparent manner.
The Charge made a similar appeal to NAC Executive Chairman
Sugat Ratna Kansakar at a reception a week earlier.

Boeing: Deal with Airbus 'Just about Done'
--------------

3. (C) The NAC Board of Directors has yet to announce a
decision on the aircraft purchase, which it has been mulling
since bidding closed on May 22. Suvendoo Ray, Boeing's
Director of International Sales, told the Charge during a
September 1 meeting that while no public announcement has
been made, the NAC has privately decided to accept the Airbus
proposal. Citing sources "at the very top of the government,
he said, "The deal is just about done." According to Ray,
the decision to go with Airbus is being pushed by NAC
Executive Chairman Kansakar, who was "hired for one thing:
make the Airbus deal."


4. (C) One of Boeing's few allies within the NAC is Managing
Director Kul Bahadur Limbu, a veteran pilot, according to
Ray. He said Limbu supports Boeing's argument that it would
be financially imprudent for the NAC to purchase a wide-body
aircraft for long-haul routes to Europe. (Note. An
independent analysis ordered by the NAC, also questioned the
purchase, noting the company's plans are "not sufficiently
clear in outlining the need to launch these routes and there
viability." End note.) Boeing's best hope, Ray said, is for
the Supreme Court to rule in favor of Limbu, allowing him to
regain the upper hand in his long-standing power struggle
with Kansakar and the NAC board.

NAC Power Struggle Not Likely to Favor Boeing
--------------

5. (U) Limbu's efforts to exert supreme authority at the NAC
have resulted in a mixed record in Supreme Court. Limbu was
appointed managing director of the NAC in January 2008, but
was sacked 11 months later by the new Maoist-led government,
which named Kansakar to oversee the state-run airline. Limbu
appealed his sacking to the Supreme Court, which in early
June reinstated him as managing director. On July 23, the
Cabinet of the newly formed, UML-led government appointed
Kansakar as executive chairman of the NAC, transferring all
of Limbu's responsibilities to him. Limbu asked the Supreme
Court to stay the Cabinet's decision until it heard his
appeal, which it did, allowing him to regain top executive
authority, at least temporarily. On Aug. 12, a Supreme Court
panel rejected Limbu's appeal and upheld the Cabinet's
authority to appoint Kansakar as executive chairman.


6. (U) The Supreme Court's decision made it clear that he
had to answer to Kansakar, but Limbu refuses to do so,
asserting that he still holds ultimate authority at the NAC.
The government directed Limbu to report to a new office at
the Ministry of Tourism and Civil Aviation, which oversees
the NAC, although he kept the title as NAC managing director.

KATHMANDU 00000840 002 OF 002


Limbu continues to claim top executive powers, but he has
not asked the Supreme Court to reconsider its decision that
undermines this claim.

Comment
--------------

7. (U) Since it is doubtful that the Supreme Court will be
asked again to weigh in on the NAC's internal power struggle,
much less rule in Limbu's favor, the NAC board will most
likely formalize its decision to purchase aircraft from
Airbus and forward it to the Cabinet. Final approval by the
Cabinet is not guaranteed, however. Before the Cabinet can
act, the purchase plan must be reviewed by the Constituent
Assembly's Public Accounts Committee (PAC),which has
recently demonstrated a strong commitment to bringing greater
transparency to government transactions. When the contracts
for operating resorts in Chitwan National Park expired in
July, the PAC demanded that the new contracts be awarded
through open bidding, even though the Forest Minister
supported the automatic renewal of existing licenses. The
Committee has also recently demanded the GON renegotiate the
agreement it signed with an Australian-based consortium for
the construction of the 750-megawatt West Seti
Hydroelectricity Project. PAC members argued that the
government will receive few returns for the many concessions
it made in the original agreement



MOON