This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 MANILA 005937 
 
SIPDIS 
 
Sensitive 
 
STATE FOR EAP/MTS 
TREASURY FOR OASIA 
TRANSPORTATION FOR FAA 
SINGAPORE AND TOKYO FOR FAA 
COMMERCE FOR BISBEE 
 
E.O. 12958: N/A 
TAGS: EAIR ETRD BEXP RP
SUBJECT: Boeing eyes Cape Town Treaty benefits for airplane 
deal 
 
Sensitive but Unclassified - Not for Internet - Protect 
Accordingly. 
 
REF: A) MANILA 5276 
     B) STATE 199212 
 
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Summary 
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¶1.   (SBU) Boeing Sales Representative Ray Lau updated 
emboffs on the status of his proposal to Philippine Airlines 
(PAL) and confided that he is making progress toward the 
sale of up to 12 wide body aircraft.  Lau said it would 
greatly benefit all Philippine airlines if the GRP ratified 
the Cape Town Treaty because U.S. EXIM Bank has agreed to 
extend preferential financing to treaty participants.  This 
would remove some financial impediments to the airplane deal 
and boost Boeing's attractiveness to PAL.  Embassy will 
encourage GRP ratification and continue to work with PAL 
executives on the purchase of Boeing planes.  End Summary. 
 
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One step closer? 
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¶2.  (SBU) Boeing rep Ray Lau told emboffs at a meeting 
December 20 that he was making good progress on an airplane 
purchase deal with Philippine Airlines (PAL).  He thought 
the timeline for a PAL purchase of wide body planes would be 
far shorter than the five years reported in a recent 
newspaper article.  Lau said PAL owner Lucio Tan no longer 
considered a two-engine plane like the Boeing 777 less safe 
than a four-engine plane (ref A).  Lau said the sticking 
points to finalizing the deal remain PAL's forfeited deposit 
of approximately $114 million from an aborted plane sale in 
1999 and Boeing's ability to deliver planes expeditiously. 
Lau admitted that if Tan does not commit soon, PAL might not 
receive the planes until 2010 or later because of Boeing's 
recent large commitments to other airlines, including Qantas 
and Cathay Pacific. 
 
¶3.  (SBU) One potential drain on Tan's finances could be his 
company's effort to take over the new terminal at Ninoy 
Aquino International Airport (NAIA).  His Asia's Emerging 
Dragon Corporation is suing in court to become the operator, 
at a potential cost of $300 million.  There is speculation 
Tan may be delaying any other purchases until a final 
decision is made on the operator for the unopened terminal. 
In a separate meeting with EconCouns, Tan admitted his hopes 
for taking over the new terminal with GE as an additional 
investor. 
 
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Treaty is a win-win situation 
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¶4.  (U) During his visit to Manila, Lau discussed the 
benefits of the Cape Town Treaty to the GRP, Philippine 
Airlines, aviation-related American companies, and banks 
that may finance aviation purchases.  The aviation-based 
treaty reduces the risk to asset-based financing and leasing 
transactions, which increases the availability of aviation 
credit.  The U.S. ratified the Cape Town Treaty in 2004, but 
Malaysia is so far the only country in Southeast Asia to 
ratify it.  The U.S. Export-Import Bank agreed to reduce its 
exposure fee by one-third on commercial aircraft for 
airlines in countries that sign, ratify, and implement the 
treaty, according to its website.  This would reduce 
airlines' financing costs for new aircraft.  Lau added that 
an EXIM guarantee would be "great for banks" such as 
Citibank and JP Morgan Chase Bank that may consider 
financing the purchase.  More attractive financing may lead 
to increased purchases or leases of American planes, which 
could also benefit engine manufacturers GE and Pratt- 
Whitney, leasing companies such as GE Commercial Aviation 
Services and International Lease Finance Corporation, and 
other aviation-related companies. 
 
¶5.  (SBU) Lau suggested that PAL's previous objections to 
GRP signing the treaty may have waned.  PAL may have 
previously balked at the treaty to prevent Cebu Pacific from 
taking advantage of the beneficial terms.  However, Cebu 
Pacific has already committed to buying Airbus and PAL is 
now considering its own wide body re-fleeting.  Lau added 
that senior PAL executives support the treaty signing at 
this point.  On a less sanguine note for Boeing's prospects, 
Lau noted that EXIM confiscated one of PAL's aircraft in San 
Francisco many years ago.  According to Lau, one senior 
executive told him that because of the embarrassment this 
caused PAL, he "would rather pay more than deal with EXIM 
Bank again."  However, Lau believes relations between EXIM 
Bank and PAL have warmed considerably, especially after the 
visit of EXIM Bank Transportation Division Vice-President 
Bob Morin to Manila in November to meet PAL Chief Financial 
Officer Andrew Huang. 
 
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Comment 
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¶6.  (U) Embassy continues to work with both the GRP and the 
private sector to encourage PAL's purchase of Boeing planes. 
Emboff delivered Cape Town Convention demarche to United 
Nations and International Organizations Directorate at the 
Department of Foreign Affairs recently, but has not yet 
received a response (ref B).  We will continue to encourage 
Philippine ratification of the Cape Town Convention to 
strengthen the US-RP civil aviation relationship and reduce 
barriers to aircraft financing.  This will not only make it 
easier for PAL to follow-through on its plans for fleet 
replacement but would encourage the expansion and 
modernization of all Philippine fleets. 
 
JONES