ARMAVIA OWNER OUTLINES PLANS FOR U.S. FLIGHTS

C O N F I D E N T I A L SECTION 01 OF 02 YEREVAN 000063 SIPDIS E.O. 12958: DECL: 02/01/2020 TAGS: EAIR ECON ETRD AM SUBJECT: ARMAVIA OWNER OUTLINES PLANS FOR U.S. FLIGHTS Classified By: AMBASSADOR MARIE L. YOVANOVITCH. REASONS 1.4 (B,D) SUMMARY -------------- ¶1. (C) During their meeting on January 21, Armavia Airlines owner Mikhail Baghdassarov told Ambassador that the company has reached agreement to purchase a Boeing 767 as a first step toward establishing its long-awaited service to the U.S. Despite the toll the economic crisis has taken on the worldwide airline industry, Baghdassarov indicated that Armavia has been profitable and was adding new routes. Armavia recently suspended its Yerevan-Tbilisi service in a dispute over high airport taxes in Tbilisi (though that was resolved not long after the meeting). Armavia's U.S. service is unlikely to begin before summer 2011. End Summary. PLANNING FOR U.S. SERVICE -------------- ¶2. (C) In a wide-ranging discussion on January 21 devoted largely to political issues (septel),Armavia Airlines owner Mikhail Baghdassarov told Ambassador that Armavia has reached an agreement to purchase a used Boeing 767 from the UAE royal family for use on a long-anticipated route from Yerevan to New York or Los Angeles. Armavia personnel were in Dubai on the day of the meeting to inspect the aircraft, but Baghdassarov said the deal is essentially complete. The price, quality and terms and conditions were significantly better than what Armavia had received from Airbus, with which it had negotiated over leasing an A330The only downside of this transaction is that Armavia will need to train crew and pilots on Boeing aircraft; up to now the fleet has consisted entirely of Airbus. (Comment: Baghdassarov sometimes appears to run ahead of the situation. Notwithstanding his statements to the Ambassador, Armavia's press representative told EconFSN on February 4 that negotiations to purchase the 767 were not yet finalized and that Armavia was still considering leasing the Airbus A330. End Note). ¶3. (C) Purchase of the 767 is the first step in Armavia's planned introduction of service to the U.S. He was not clear about the ultimate route, or whether it would make another stop in Europe prior to landing in New York or Los Angeles. In the past, Armavia's preference was to operate directly between Yerevan and Los Angeles, or perhaps direct flights from both New York and Los Angeles to Yerevan. (Note: In November, Navasard Kachatryan,Armavia's former commercial director, who is now director of Baghdassarov's ISG Insurance and remains familiar with Armavia's operations, told Econoff that Armavia was hoping to purchase a Boeing 777-200 capable of flying directly from Yerevan to Los Angeles; we are not aware if the 767 Armavia now plans to purchase has sufficient range for that route. End Note). ¶4. (C) While Baghdassarov did not specify a timetable for initiating service to the U.S., on several occasions in recent months, and again in a press conference on February 3, he stated that U.S. service would commence in 2010. However, given the lead time required for purchasing an aircraft, clearing all USG certification processes, marketing and putting the route into reservations systems, it is unlikely that service could begin before summer 2011 (Note: Khachatryan told Econoff in November that summer 2011 was the earliest likely date for launch of flights to the U.S.. End Note). NEW LEGISLATION REQUIRED? -------------- ¶5. (C) In addition to meeting various USG certification requirements for the aircraft and Yerevan's Zvartnots Airport, Baghdassarov claimed that the GOAM will need to revise existing legislation. He complained that the GOAM appears to feel no particular urgency to make those changes. (Note: Baghdassarov was vague about what type of change is required. We are not aware of any required legislative amendment; nor was the Director of Armenia's General Department of Civil Aviation (GDCA). End Note). SERVICE TO GEORGIA SUSPENDED -------------- ¶6. (C) Earlier this month, Armavia suspended its twice-daily Yerevan-Tbilisi service that was introduced in March 2009. While many assumed that the suspension was due to a decline in traffic--due either to seasonal factors or to a restoration of direct Tbilisi-Moscow service--Baghdassarov claimed the primary factor was high airport tariffs in Tbilisi (which on February 3 he asserted contributed to a $3 million loss on the route in 2009). He told Ambassador that YEREVAN 00000063 002 OF 002 he was negotiating with airport officials to lower them, and on February 3 announced that airport authorities had agreed to reduce the taxes. Service is set to resume before the end of February. ARMAVIA WEATHERS RECESSION WELL -------------- ¶7. (C) While the global economic crisis has caused serious trouble for many airlines and forced them to cut back service, Armavia has expanded routes, gained passengers and, Baghssarov claims, is turning a profit. While it suspended the Yerevan-Tbilisi route, in recent months it has added such destinations as Berlin, Zurich, Rome and Kharkov (Ukraine). In an interview with The Armenian Reporter in late November, he also said Armavia is looking to expand to South America, India and China, and on February 3 announced plans to extend service to Barcelona, Warsaw and perhaps Canada. Armavia generally avoids routes served by western carriers, leaving it the lone carrier, with correspondingly higher airfares. YOVANOVITCH