TAIWAN AVIATION INDUSTRY HAS MUTED REACTION TO

1. (SBU) Summary. The response in Taiwan to the agreement on
passenger and cargo flights signed on April 26 in Nanjing
(Reftel) has been mainly positive. Most industry
representatives applaud the increase in the number of flights
and more destinations. Some, however, question why only
certain flights were designated as "regular" flights while
others continue to be charter flights. The absence of Fifth
Freedom Rights from the Nanjing April 25-26 agenda is seen by
some here as evidence that the Ma administration's
cross-Strait economic policy is not bringing as much benefit
to the island's economy as it can. End Summary



2. (SBU) On April 26 in Nanjing, the chairman of Taiwan's
Straits Exchange Foundation (SEF), P.K. Chiang, and his PRC
counterpart, Association for Relations Across the Taiwan
Strait (ARATS) Chairman Chen Yunlin, signed an agreement on
cross-Strait passenger and cargo flights. The agreement
increased the number of passenger flights from 108 to 270 per
week - 135 from each side of the Strait - and added six
additional destinations in the PRC. The agreement increased
the number of cargo flights from 7 to 28 per week; 14 from
each side, 7 each to Shanghai and Guangzhou. In addition,
flights to and from Taipei's Taoyuan airport and Kaohsiung
airport are designated "regular" flights, while those to and
from Taiwan's other airports are still considered charter
flights. Airlines can operate regular flights to and from
all destinations in China.



3. (C) The reaction from Taiwan industry has tended to
emphasize the positive aspect of more frequent flights. For
example, Taipei Airlines Association (TAA) Secretary General
Bruce Wang told us the agreements met expectations because
the increase in the number of flights was a need both sides
recognized. China Airlines (CAL) Senior Vice President Jenny
Lee said the increase is acceptable to the carriers, although
they would have liked the number to be even larger.
Similarly, Eva Airways (EVA) Vice President Danny Ho told us
that, while EVA welcomes the increase, the airlines would
ultimately like to see an open skies agreement between Taiwan
and China. According to Ho, when market forces are allowed
to determine the number of flights each airline will operate,
and to which destinations, then carriers will earn the
maximum possible revenue.



4. (C) The private sector response recognizes that the
SEF-ARATS talks on passenger and cargo flights have reached a
phase where technical issues may limit the extent to which
cross-Strait service can expand. For example, Taiwan
contacts tell us the lack of increase in the number of
flights to Beijing and Shanghai is at the request of China,
which claims that it does not want to overtax the air-traffic
control system at these airports. Another example is the
limitation of regular flights to only Taoyuan and Kaohsiung
airports. TAA's Wang explained that flights to and from
downtown Taipei's Songshan airport will continue to be
designated as charter - not regular - fights because Songshan
does not have the capability to handle large cargo
freighters. Larger airplanes will fly between Taiwan's
Taoyuan and Kaohsiung airports and the PRC's Shanghai and
Guangzhou airports and will be designated regular flights.
CAL's Lee said that more rigorous customs screening
procedures at Guangzhou airport is delaying cargo shipments,
with the result that Taiwan's airlines will seek to operate
more cargo flights to Shanghai.



5. (C) Taiwan's airlines have acknowledged additional
benefits resulting from the talks. In particular, the
agreement signed by Chiang and Chen in Nanjing authorizes
Taiwan airlines to establish representative offices in the
PRC. CAL's Lee told us this will make it much easier for
airlines to transfer funds across the Strait, and should
facilitate ticket sales in the PRC. EVA's Ho said the

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expansion of direct flights to additional cities in China
will allow more Mainland tourists to come to Taiwan, an
assertion echoed by other observers of Taiwan's economy.
TAA's Wang was more skeptical, saying that although adding
flights to these second tier Mainland cities is "better than
nothing," he does not expect Taiwan carriers to add flights
to any of those points until travel agencies have realistic
estimates of likely demand.



6. (C) Although the Ma administration has characterized the
SEF-ARATS flight agreement as a boon to Taiwan (Reftel),
there has been criticism that the agreement does not benefit
Taiwan as much as it does the PRC. Specifically, the
opposition DPP and other critics assert that Taiwan would
benefit most from Fifth Freedom Rights, and claim the Ma
administration should have exerted more effort to get China
to at least discuss the issue at the SEF-ARATS talks.
Industry representatives, though, tend to take a less
political line in assessing the issue. TAA's Wang told us
that although Fifth Freedom Rights were not included in this
round of discussions, he understands it can take years to
reach agreements between economies covering the full range of
civil aviation rights. CAL's Lee told us the airlines
understand the issue is politically sensitive. She noted
that public statements by officials on both sides appear
inconsistent. According to Lee, the director of Taiwan's
Civil Aeronautics Administration has stated that discussion
of Fifth Freedoms would continue, whereas an official of the
Civil Aviation Authority of China has said the complexity of
the issue requires further study before discussions can
resume. Lee said Taiwan's airlines do not expect to be
allowed to operate onward flight from cities in the PRC to
destinations in Europe or North America in the foreseeable
future, but she added they will nonetheless continue to urge
the issue be included in cross-Strait negotiations. (Note:
In the past, U.S. airlines operating in Taiwan have said they
do not anticipate operating onward flights from PRC
destinations and thus do not see Fifth Freedom Rights as
significant for their operations in Asia. End Note.)



7. (C) Comment. Critics of the Ma administration have seized
on the Fifth Freedom issue and various other aspects of the
recent agreement on passenger and cargo flights as evidence
that the SEF-ARATS talks and related agreements have
benefited the PRC more than Taiwan. The generally more
positive response from industry sources, however, suggests
that the agreement is a positive step that will boost the
island's economic growth. End Comment.
YOUNG