VZCZCXRO2054
PP RUEHDBU RUEHIK RUEHYG
DE RUEHBUL #1994/01 1231009
ZNR UUUUU ZZH
P 031009Z MAY 06
FM AMEMBASSY KABUL
TO RUEHC/SECSTATE WASHDC PRIORITY 9983
INFO RUCNAFG/AFGHANISTAN COLLECTIVE PRIORITY
RUEKJCS/OSD WASHDC PRIORITY
RUEKJCS/JOINT STAFF WASHDC PRIORITY
RHMFISS/CDR USCENTCOM MACDILL AFB FL PRIORITY
RHEHAAA/NSC WASHDC PRIORITY
RUEAIIA/CIA WASHDC PRIORITY
RHEFDIA/DIA WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RULSDMK/DEPT OF TRANSPORTATION WASHDC PRIORITY 0067
RUEANHA/FAA WASHDC PRIORITY
RUEHAD/AMEMBASSY ABU DHABI 1556
RUEHDE/AMCONSUL DUBAI 4398

UNCLAS SECTION 01 OF 02 KABUL 001994 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPARTMENT FOR SCA/FO, SCA/A, EB/OTP, EB/CBA 
NSC FOR AHARRIMAN, AMEND 
CENTCOM FOR CG CFC-A 
TREASURY FOR PARAMESWARAN 
COMMERCE FOR AADLER AND ITA FOR BLOPP 
TRANSPORTATION FOR DMODESITT 
FAA FOR JHANCOCK AND TMARZIN 
 
E.O. 12958: N/A 
TAGS: EAID EAIR ECON AF
SUBJECT: PRIVATIZING ARIANA? 
 
REF: A) 05 KABUL 4701 
 
     B) 05 KABUL 5033 
     C) KABUL 0359 
     D) KABUL 1719 
     E) KABUL 1791 
     F) KABUL 1798 
 
KABUL 00001994  001.2 OF 002 
 
 
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Summary 
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¶1.  (SBU) Dr. Atash, President of Ariana, plans to breakup 
Ariana into smaller, more focused companies ahead of a 
gradual, partial privatization.  He is aggressively trying 
to push this plan through the Afghan Government over the 
next month.  Atash will likely leave as soon as the plan is 
approved, possibly to head up one of the new spin-off 
companies.  Post believes that even a refocused Ariana with 
an influx of private capital will have problems surviving 
without substantial GoA intervention.  In our view, Ariana's 
demise would ultimately allow for a safer, more competitive 
civil aviation sector in Afghanistan.  End summary. 
 
--------------------- 
Privatizing in Pieces 
--------------------- 
 
¶2.  (SBU) In a meeting with EconCouns and Econoff, President 
of Ariana Dr. Nadir Atash laid out his plans to first 
corporatize, then privatize Ariana.  His vision is to break 
Ariana into six or seven smaller companies, each focusing on 
a specific aspect of Ariana's current operations.  Ariana 
would retain the international air services while domestic 
flights, cargo flights, cargo handling, catering, fuel and 
ground services would become separate companies.  According 
to Atash, private investors would bring capital and know-how 
to these new smaller companies.  Ariana would keep an 
interest (non-controlling) in each, and would sell 75 
percent of its own shares over five years (beginning around 
March 2007), with the GoA retaining a 25 percent stake. 
Atash will propose this business plan to the Economic 
Council of Ministers in Ariana's next strategic plan in 
early May. 
 
¶3.  (SBU) Implementing Atash's strategy will require changes 
to Ariana's bylaws to allow Ariana to form subsidiary 
companies and to permit selling its shares to non-government 
entities.  On Saturday, April 22, Atash took the first step 
by presenting amended bylaws to Ariana's Board Members for 
approval.  The Ministers of Transport, Commerce and Finance 
as well as the directors of two major government-owned banks 
sit on Ariana's Board of Directors.  Minister of Transport 
Qasimi and Minister of Commerce Arsala (both soon to be 
replaced) attended, but a junior representative from the 
Ministry of Finance sat in for Minister Ahady (in DC for the 
World Bank/IMF meetings at the time).  [Note: Previous 
Ariana board meetings have also been held when Minister 
Ahady has been out of the country, creating considerable 
tension between the Ministry of Transport (including Ariana) 
and the Ministry of Finance.  End note.]  Another 
significant change in the bylaws would clearly delineate 
Ariana's status as a government-owned corporation separate 
from the Ministry of Transport.  The Board approved the 
bylaws which now go to the Cabinet, then the President for 
approval.  Atash was unclear on whether the Parliament would 
also have to approve the changes.  He hopes to obtain final 
approval within the next two months. 
 
------------------------- 
Co-opting the Competition 
------------------------- 
 
KABUL 00001994  002.2 OF 002 
 
 
 
¶4.  (SBU) Atash noted that other Afghan investors are trying 
to start airlines, "even prior Ariana employees that want to 
see Ariana fail."  [Note: Post believes this is a reference 
to the head of Pamir Aviation who previously served as 
President of Ariana.  Pamir has so far been unable to renew 
its air operating certificate (AOC), largely because of 
resistance from Ariana.  Another former employee of Ariana 
is working with the Safi family to start up Safi Aviation; 
however, as in the case of Pamir, Safi Aviation has also not 
been able to obtain an AOC from the GoA.  End note.]  Atash 
hopes that by providing the opportunity for such investors 
to buy into Ariana, they will opt not to start rival 
airlines. 
 
¶5.  (SBU) In questions directed to rejected Minister of 
Transport-designate Gul Hussein Ahmadi, Afghan Members of 
Parliament expressed keen interest in the future of Ariana. 
While there was no clear consensus, some Members questioned 
whether a privatized Ariana would survive. 
 
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Comment 
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¶6.  (SBU) As noted in reftels, Atash does not plan to remain 
with Ariana for much longer.  Post believes he will try to 
steer the bylaw changes and strategic plan through the 
government quickly and then resign.  (Note: It is unclear 
whether or not a brand new Transport Minister would agree to 
let this plan happen, and if so, how rapidly.  End note.) 
Atash expressed interest in investing in one of the proposed 
Ariana affiliates and in serving on the Board of Ariana. 
Post views the potential privatization as a positive 
development, but does not see a line of willing investors. 
In any case, the recent UAE suspension and problems with its 
Boeing deal (see reftels) may cause even a privatized Ariana 
to fail.  Post believes that this will be in the medium to 
long term interest of the civil aviation sector as it will 
be easier to start a safe, reliable airline from scratch 
than to bring Ariana back up to code.  Post expects 
substantial Afghan government intervention if Ariana's 
situation continues to deteriorate.  End comment. 
NEUMANN