VZCZCXRO6403
PP RUEHDBU RUEHIK RUEHYG
DE RUEHBUL #0883/01 0741352
ZNR UUUUU ZZH
P 151352Z MAR 07
FM AMEMBASSY KABUL
TO RUEHC/SECSTATE WASHDC PRIORITY 6869
INFO RUCNAFG/AFGHANISTAN COLLECTIVE
RUEKJCS/OSD WASHINGTON DC
RUEKJCS/JOINT STAFF WASHINGTON DC
RHMFISS/CDR USCENTCOM MACDILL AFB FL
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUEAIIA/CIA WASHINGTON DC
RHEFDIA/DIA WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RULSDMK/DEPT OF TRANSPORTATION WASHINGTON DC 0108
RHMCSUU/FAA NATIONAL HQ WASHINGTON DC

UNCLAS SECTION 01 OF 02 KABUL 000883 
 
SIPDIS 
 
SENSITIVE, SIPDIS 
 
DEPARTMENT FOR SCA/FO  SCA/A  EB/OTP  EB/TRA/AN  EB/CBA 
CENTCOM FOR CG CFC-A 
COMMERCE FOR ITA/BLOPP 
FAA FOR JHANCOCK AND RSMITH 
 
E.O. 12958: N/A 
TAGS: BEXP EINV EAIR ECON AF
SUBJECT: AFGHAN AIRLINE IN DEFAULT WITH BOEING 
 
Ref: 2006 Kabul 4890 
 
This message is sensitive but unclassified--not for Internet 
distribution. 
 
¶1. (SBU) SUMMARY: Boeing has asked for assistance with a $1.8 
million default by Ariana, Afghanistan's state airline, for lease 
payments on two Boeing 757s.  Subsequent meetings with senior GoA 
and Ariana officials have revealed that the airline has no money to 
pay, but the GoA is putting together an immediate $2 million 
bail-out for the airline to pay Boeing.  This transfer could solve 
the short-term problem, but it is unlikely to solve Ariana's more 
fundamental problems.  Boeing is also seeking new assurances that 
Ariana can handle its purchase of four new 737 aircraft in 2009/10. 
It appears that the GoA understands it cannot simply let the Boeing 
deal lapse into default.  END SUMMARY. 
 
¶2. (SBU) Boeing recently asked for Embassy assistance in collecting 
$1.8 million in past-due lease payments from the state-owned Ariana 
Afghan Airlines for two B-757 aircraft.  Boeing issued letters of 
default on the aircraft on March 6 and is concerned that it may have 
to ground the aircraft if Ariana does not pay by the end of March. 
EconCouns has met over the past several days with the Minister of 
Finance, the Deputy Minister of Transportation and Civil Aviation 
(the Minister was attending ICAO meeting in Montreal), and the 
President of Ariana to learn the reasons for Ariana's failure to pay 
and to stress the seriousness of the situation. 
 
¶3. (SBU) At these meetings, we have learned that Ariana currently 
does not have the means to pay this or a number of other debts. 
Altogether the company has some $14 million in immediate 
obligations(this sum includes not only the Boeing lease payments but 
over $3 million in operations charges to Eagle Aviation, which is 
operating the leased aircraft, and nearly $7 million in fuel bills.) 
 Ariana has asked the GoA for help, and Deputy Minister of 
Transportation and Civil Aviation Raz Mohammad Alami has raised the 
issue at recent Cabinet and Economic sub-cabinet meetings.  As a 
result of this request, a senior GoA team headed by Minister of 
Economy Mohammad Jalil Shams examined Ariana's books and proposed 
that the Cabinet consider a bailout.  Ariana and MoTCA hope for 
action on this proposal in time to forestall grounding of the 
aircraft.  Minister of Finance Ahadi stated that the Cabinet 
authorized $2 million for the bailout while investigating options 
for either putting Ariana on a better financial footing or 
liquidating it. 
 
¶4. (SBU) The IMF has expressed its approval of the $2 million 
bailout, though its support of further transfers to Ariana seems 
unlikely.  In January, the IMF and GOA agreed to some flexibility in 
the 1386 budget for unexpected security costs, but only if donors 
covered them.  Since the $2 million will be pulled from the 
Afghanistan Reconstruction Trust Fund, the Minister of Finance will 
also need to consult with donors before releasing the money to 
Ariana. 
 
¶5. (SBU) The lease deal has been intended as a temporary capacity 
solution until Ariana can take delivery of four new B-737 aircraft 
in 2009-10.  Defaulting on the lease agreement would cause Ariana to 
lose these B-737 production slots.  It looks increasingly doubtful 
that Ariana, in its current state, will be able to pay for these 
aircraft even if it can avoid losing the slots.  In any case, Boeing 
has demanded that Ariana provide "reasonable assurances" of the 
financial, organizational, and regulatory capacity to pay for and 
operate the 737s safely as a condition to retain the slots. 
 
¶6. (SBU) While the $2 million transfer from the state treasury may 
allow Ariana to take care of the immediate crisis with Boeing, it 
will still have significant other overdue debts.  This situation did 
not develop over night, and some drastic and fundamental changes 
will be needed to fix it.  According to its own accounting records, 
the airline lost around $20 million against $88 million in revenue 
in 1384 (March 2005 - March 2006) and had posted a net loss for two 
of the first three quarters of 1385.  The president of Ariana, Abdul 
Ahad Mansoori, indicated to us that the company had not observed 
proper accounting or other business practices until his tenure, 
which began in mid-2006.  As examples, Mansoori told us of as much 
as $37 million in longstanding arrears owed to Ariana by the GoA 
(mostly pre-reconstruction debts), a neglected service contract with 
 
KABUL 00000883  002 OF 002 
 
 
a British firm for parking and maintaining the two 757s, and 
out-of-control consulting contracts.  He told us it was uncertain 
whether Ariana can recover from decades of mismanagement and that 
support for Ariana within the Cabinet was shaky at best.  (From some 
quarters within the GoA and Ariana, the perspective on the Boeing 
deal is negative; it is said that Ariana has spent $7 million to 
lease aircraft that it has been unable to use for a year.)  We have 
heard both from Ariana and from other sources that there is some 
private-sector interest in acquiring Ariana, but it is not clear at 
this point how serious and how well qualified that interest is. 
 
¶7. (SBU) COMMENT: Whatever the longer-term prospects for Ariana, it 
appears that the GoA has heard our message that it must maintain its 
good name by not allowing the Boeing deal to lapse into default. 
The short-term bail-out seems almost certain, though by itself it 
would solve only the immediate problem.  Boeing appears to be asking 
more existential questions of Ariana and the GoA in order to 
ascertain whether the relationship has a viable future.  We view 
these questions as appropriate, given Ariana's problems and the very 
limited capacity of the GoA to correct them.  We are heartened to 
see that the GoA is asking the same questions as well.  In any case, 
Embassy will continue to work with Boeing and the GoA to ensure that 
the deal is not allowed simply to collapse.  End comment. 
 
NEUMANN