VZCZCXRO2740
PP RUEHDBU
DE RUEHYE #0666/01 1321305
ZNY CCCCC ZZH
P 121305Z MAY 06
FM AMEMBASSY YEREVAN
TO RUEHC/SECSTATE WASHDC PRIORITY 3151
INFO RUCNCIS/CIS COLLECTIVE
RUEHAK/AMEMBASSY ANKARA 1037
RUEHBS/AMEMBASSY BRUSSELS 0048
RUEHUP/AMEMBASSY BUDAPEST 0048
RUEHFR/AMEMBASSY PARIS 0338
RUEHRH/AMEMBASSY RIYADH 0007
RUCPDOC/DEPT OF COMMERCE WASHDC

C O N F I D E N T I A L SECTION 01 OF 02 YEREVAN 000666 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR EUR/CARC, EUR/ACE 
 
E.O. 12958: DECL: 05/12/2016 
TAGS: ECON EAIR EAID PREL RS BE AM
SUBJECT: ARMENIA'S ECONOMY INSULATED FROM PLANE CRASH, 
OLIGARCH AIRLINE OWNER MAY NOT BE SO LUCKY 
 
REF: A) YEREVAN 623 B) 05 YEREVAN 1986 
 
Classified By: DCM A.F. Godfrey for reasons 1.4 (b,d). 
 
Summary 
------- 
 
¶1. (C) On May 3, an Armavia flight to Sochi crashed into the 
Black Sea, killing all 113 aboard.  Two days later, a fire in 
a Brussels maintenance hangar destroyed another Armavia 
aircraft as well as a second plane owned by another Armenian 
company.  Investigations into both the crash and the fire are 
ongoing.  It appears that the economic impact of the two 
events will be relatively limited; passenger service is 
largely restored and arrangements are being made to lease 
replacement aircraft.  The fate of Mikhail Baghdasarov, the 
oligarch owner of Armavia (and other companies) is less 
certain.  If blame for the crash can be laid at his doorstep, 
even his close relationship with Defense Minister Sargsian 
will probably not protect him.  End Summary. 
 
¶2. (C) Despite the relatively low loss of life for such an 
event, the May 3 crash of an Armavia Airbus A-320 (ref a) was 
treated as a national calamity.  Two days of national 
mourning were declared and events are still being cancelled 
nearly two weeks later.  The cause of the accident is still 
not known.  Russian Transport Minister Igor Livitin told the 
press that weather was the most likely cause.  We understand 
that a French-owned bathysphere began the search for the 
ill-fated aircraft's "black boxes" on May 11.  Ongoing storms 
have hampered the investigation into the causes of the crash 
and efforts to retrieve the black boxes located 450 meters 
below the surface of the Black Sea. 
 
¶3. (C) Executive Director of Armenia International Airports 
(AIA) Juan Pablo Gechijyan (protect) told us that for an 
aircraft of this type, blaming the crash on poor weather just 
does not make sense.  He said -- with perfect hindsight -- 
that Armavia's "safety curve" suggested that such an event 
was likely.  Armavia had three separate incidents in the past 
months, including one serious mishap on landing in Moscow. 
He said that blame, if there is any to be spread around, 
should go to Armavia's owner Mikhail Baghdasarov. 
Baghdasarov, a local oligarch, became the only shareholder of 
the company in June 2005, when his company, Mika Armenia 
Trading LLC purchased the remaining 70 percent of the shares 
from Siberia Airlines.  Oddly enough, Armavia leased the 
aircraft from the British Government, which became the owner 
when SibAir defaulted on its loans guaranteed by HMG. 
 
¶4. (C) Gechijyan said that Baghdasarov was having serious 
cash flow problems and was in arrears to the airport in 
excess of USD 1 million for landing fees and other charges. 
Gechijyan speculated that Baghdasarov's pattern of delaying 
payments for fuel deliveries (ref b) was probably repeated 
with managing training for pilots as well as paying wages and 
for routine maintenance.  This poor management style could 
have led to a confluence of various factors in a "perfect 
storm" to bring about the tragic crash.  Armavia Press 
Secretary Jasmine Vilyan told us, however, that the plane was 
 
SIPDIS 
well maintained and had undergone capital maintenance by 
Lufthansa in Budapest.  The Civil Aviation Authority 
confirmed this information. 
 
-------------------------- 
INSURANCE INDEMNITY LIKELY 
-------------------------- 
 
¶5. (SBU) Armavia Airlines carried insurance for the flight 
with Armenian Grand Insurance Company, which reinsured its 
risks with 14 London-based reinsurance companies.  The 
reinsurance companies appointed Airclaims and Beaumont and 
Son to determine appropriate levels of compensation in this 
case.  The GOAM has also provided AMD 1.5 million (USD 3,300) 
to the relatives of passengers and crew for funeral expenses 
and has opened a special account for private donations 
(currently valued at USD 100,000) to support families of 
crash victims. 
 
----------------------- 
HANGAR FIRE IN BRUSSELS 
----------------------- 
 
 
YEREVAN 00000666  002 OF 002 
 
 
¶6. (C) On May 5, just two days after the Sochi crash, a 
hangar fire in Brussels which destroyed four planes including 
an Armavia A-320 and an Armenian International Airlines plane 
leased to Air Arab.  According to the Armenian Embassy in 
Belgium, the fire was caused by a short circuit which ignited 
an alcohol-based cleaning fluid being used on one of the 
plane's wings.  A local insurance expert, however, disputed 
this and said that Belgian investigators are seeking evidence 
of arson. 
 
------------------------------------- 
ARMAVIA WILL LEASE THREE NEW AIRBUSES 
------------------------------------- 
 
¶7. (SBU) Armavia announced on May 6 that it plans to lease 
three new Airbus planes.  The first one, an Airbus A-319, is 
scheduled to arrive in Armenia by May 15.  The arrival date 
for the two other planes, Airbus A-320s, has not yet been 
set.  Armavia currently has one Airbus A-320, two A-319s, an 
Il-86, a Yak-42 and a Yak-40. 
 
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COMMENT 
------- 
 
¶8. (C) The long-term economic impact of these events on the 
Armenian economy is likely to be limited.  The economic 
impact on Armavia's owner, Baghdasarov, may be far more 
serious.  Baghdasarov's economic empire has suffered from a 
poor cash flow for a number of months (ref B).  Baghdasarov's 
long-time association with Defense Minister Sargsian might 
not be enough to keep him out of trouble this time. 
EVANS