VZCZCXRO9782
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHFR #1270/01 0891003
ZNR UUUUU ZZH
R 301003Z MAR 07
FM AMEMBASSY PARIS
TO RUEHC/SECSTATE WASHDC 6109
INFO RUCNMEM/EU MEMBER STATES
RUEHBS/USEU BRUSSELS 1975

UNCLAS SECTION 01 OF 04 PARIS 001270 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
FOR EUR/WE, EB/TRA, H 
H PLEASE PASS TO CODEL OBERSTAR 
USEU FOR MORENSKI 
 
E.O. 12958: N/A 
TAGS: ECON EAIR ETRD PREL FR
SUBJECT: FRANCE: SCENESETTER FOR CODEL OBERSTAR VISIT APRIL 
2-6 
 
REF: SECSTATE 39316 
 
------- 
Summary 
------- 
 
¶1. (SBU) We would like to extend a warm welcome to Codel 
Oberstar for your April 3 - 6 visit to France.  During your stay 
here you will have meetings with senior French officials, 
including Transportation Minister Dominique Perben, Minister 
Delegate for Trade Christine Lagarde, and Director General of 
Civil Aviation Didier Lallement.  We have also arranged meetings 
with Airbus CEO Louis Gallois, and Air France-KLM CEO 
Jean-Cyrill Spinetta.  You will have the opportunity to tour 
Airbus and Fedex facilities.  Fedex Express CEO David Bronczek 
will brief you on Fedex plans to develop intermodal freight 
operations at Charles de Gaulle airport.  Ambassador Stapleton 
and Fedex will offer receptions in honor of the delegation, and 
we understand that the Franco-American Friendship group in the 
French Parliament is planning a dinner in your honor as well. 
 
------------------- 
Political Landscape 
------------------- 
 
¶2. (SBU) You arrive as France's political class turns towards 
the two rounds of presidential elections, the first of which 
occurs on April 22.  Right-of-center candidate Nicolas Sarkozy 
has held a steady -- but far from insurmountable -- lead in the 
polls over Socialist rival Segolene Royal and centrist candidate 
Francois Bayrou.  It now seems less likely than before that 
Bayrou will surpass Royal for second place in the first round, 
although he would have a real chance of winning if he made it to 
the second round.  Far right candidate Jean-Marie Le Pen also 
can't be counted out completely from making it to the second 
round, as he did five years ago, but his chances look slim, and 
he would almost certainly lose the run-off.  Domestic issues 
have dominated the campaign.  While Sarkozy has a reputation as 
pro-American and an economic reformer, and Royal trots out the 
occasional anti-American fillip to solidify her left wing, the 
reality is such that we should not expect a radical 
post-election shift in French foreign policy regardless of who 
(among the frontrunners) wins.  Cooperation on a range of 
issues, from the fight against terrorism to development, is 
strong.  We continue to have differences on Iraq, but the French 
have engaged politically in the Iraq Compact process and we have 
come far from the 2003 nadir. 
 
-------------- 
Transportation 
-------------- 
 
¶3. (U)  Dominique Perben has been Minister of Transportation 
since June 2005, after serving the three previous years as 
Minister of Justice.  A native of Lyon, he developed a political 
base in the Lyon region as mayor of Chalon-sur-Saone, Deputy in 
the national assembly, and member of the regional government. 
As transportation minister he has emphasized strengthening 
public safety through reducing fatalities from automobile 
accidents and improving oversight of aviation safety.  France 
continues to project strong investment in transportation 
infrastructure (+15% in 2007), including expansion of France's 
impressive high-speed rail network.  The latest line linking 
Paris to Strasbourg in Eastern France was put into service in 
February. 
 
¶4. (U) Key parts of transportation infrastructure have been 
reorganized through partial privatization or by the central 
government ceding pieces to regional or local governments.  The 
French national railways (SNCF) was separated as an operating 
company from the underlying infrastructure (such as tracks and 
bridges) in 1997, in a bid to increase competition, particularly 
for freight services. State holdings in toll-roads were 
privatized in 2006, and Aeroports de Paris was partially 
privatized in 2006.  Some local airports and ports will be ceded 
to local governments, just as a large chuck of secondary 
roadways passed from national to regional control in 2006. 
Labor unions and localities have questioned this policy, raising 
concerns that the French state is abandoning its historical 
commitment to providing transportation as a public service. 
 
¶5. (SBU) The Minister can be expected to be positive toward the 
U.S./EU Open Skies agreement initialed by EU transportation 
ministers last week, and has supported it in public and in 
private.  He also may wish to thank the delegation for the warm 
welcome given to the A-380 in the U.S., including by airports 
 
PARIS 00001270  002 OF 004 
 
 
that invested considerable sums in order to be able to receive 
it.  He could voice concerns about potential U.S. legislation 
mandating 100% inspection of air cargo and/or maritime 
containers.  He may wish to respond to U.S. opposition to the 
mandatory inclusion of aviation emissions from international 
flights in the EU's draft legislation on the Emissions Trading 
Scheme (ETS), an issue we believe should be dealt with in a 
manner consistent with international law by ICAO.  We think that 
he will be happy to share with the Committee France's experience 
with high-speed rail and rail financing, as well as examples of 
how it has used Public Private Partnerships to finance new 
infrastructure such as the world's tallest suspension bridge in 
Millau, France. 
 
----- 
Trade 
----- 
 
¶6. (SBU) Deputy Minister for Trade Christine Lagarde has offered 
to host a breakfast meeting for the Codel.  Lagarde has close 
ties to the U.S.  Prior to entering government, she was Chairman 
of Baker and McKenzie's Global Executive Committee in Chicago. 
A specialist on anti-trust and labor law, Lagarde has been in 
her position since June of 2005, and has particular 
responsibility for developing French exports and representing 
French interests in the World Trade Organization, including the 
Doha round of trade negotiations, and the U.S.-EU aircraft 
subsidies dispute.  She is also responsible for encouraging 
inward investment to France.  Her Ministry is broadly supportive 
of U.S. objectives to lessen regulation and expand trade but 
this is a difficult "sell" to the rest of the French government. 
 In particular, differences over agricultural policy, both at 
the European level with respect to WTO Doha Development Agenda 
objectives, as well at the national level regarding agricultural 
biotech approvals, continue to dominate our trade relations with 
France. 
 
---- 
DGAC 
---- 
 
¶7. (U) Didier Lallement, former chief of staff to Transportation 
Minister Dominique Perben was named as the new head of the 
French civil aviation authority (DGAC) in late-February, 
replacing the long-serving former director Michel Wachenheim.  A 
career civil-servant, he has no prior background in civil 
aviation.  One area for possible discussion is the current 
organization and financing of civil aviation in France, which 
has undergone considerable change in recent years.  In the past 
year the DGAC has extended its fee-for-service model from 
certification and oversight to new areas such as pilot 
licensing, as the French government as a whole has moved to 
implement a performance based budget and financing system 
(LOLF).  Moreover, the DGAC also receives revenues from the 
charges levied by Eurocontrol for air traffic control services, 
based on a formula based on weight and distance. A Civil 
Aviation tax levied by operators on passengers covers 
administrative, safety and security and public service 
obligations. 
 
¶8. (SBU) DGAC will probably want to discuss U.S.-French recent 
cooperation on aviation security, which they see as much 
improved.  A significant number of Air France flight diversions 
due to suspected No-Fly name matches troubled our relations in 
previous years, but none have occurred since September 2005, 
greatly improving the atmosphere for discussing aviation 
security.  After several years of opposition, the French now 
permit Air France to work directly with TSA on implementation of 
all U.S. security requirements.  The roll-out of new regulations 
on liquid explosives last summer on very short notice was seen 
by all sides as a success story.  DGAC may raise long-standing 
concerns about what it sees as the need for greater 
harmonization and mutual recognition of U.S. and EU regulations 
on aviation security, potential U.S. requirements for 100% 
screening of air cargo, or its views on a new agreement on 
furnishing of Passenger Name Record (PNR) data to the U.S., 
which we will soon begin negotiating with the EU.  DGAC is also 
concerned about other issues such as U.S. rulemaking about 
handicapped access on international flights. 
 
------ 
Airbus 
------ 
 
¶9.  (U) Airbus has fallen on hard times lately, as it struggles 
to overcome a cost disadvantage compared to Boeing due to the 
 
PARIS 00001270  003 OF 004 
 
 
unfavorable Euro/Dollar exchange rate, production problems that 
have caused costly delays in what was to have been its flagship 
extra-wide body A-380, and design modifications to meet 
customers' needs that have delayed the launch of the new medium 
range A-350 (a competitor to Boeing's 787).  Nonetheless, 
Airbus' order book remains strong.  Louis Gallois who took the 
helm as Chairman of Airbus in 2006, is also co-chair of mother 
company European Aeronautic Defense Space company (EADS), and is 
widely admired for the business and political acumen he 
demonstrated in reforming the French National Railway system. 
EADS announced 2006 financial results dominated by losses due to 
A-380 delays despite record numbers of aircraft delivered (434). 
 It projected that losses would continue in 2007 as it worked 
through A-380 problems, incurred charges due to the recently 
Power-8 restructuring program announced in February, and 
increased spending to meet growing R&D and A-350 launch 
expenses.  Power-8 included a 10,000 workforce reduction (4,300 
in France), the sale of five industrial sites (two in France), 
and a plan to outsource 50 percent of production, up from 30 
percent now.  Reaction from French labor groups and politicians 
was swift, with workers in several sites staging strikes and 
questioning how layoffs could be justified when Airbus' order 
book was full. 
 
¶10. (SBU) In statements to the media in the past month, Louis 
Gallois has sought to calm an atmosphere agitated by the French 
presidential campaign, as politicians rivaled each other in 
proposals for the state to come to Airbus' rescue.  Gallois has 
defended the restructuring and downplayed Airbus' immediate 
needs for cash, refusing to rule out an increase in capital but 
noting that this was not an "urgent" need.  The eventual success 
or failure of "Power 8" could have implications for Airbus' 
future needs for financing, and future decisions about how much 
launch aid the company might seek from European governments for 
the A-350, an issue which has been discreetly pushed to the 
future so as not to complicate the U.S./E.U. aircraft subsidy 
trade dispute currently before the WTO.  Any change in the 
company's capital structure would complicate the Franco-German 
pact which balances the two countries' public and private 
shareholders'participation in the company and its governance, 
and which has generally been seen as one source of Airbus' 
current problems.  Gallois is widely perceived to be trying to 
put the company on a sounder business footing and to steer clear 
of excessive political interference.  But it is unclear to what 
extent he can avoid the political and national interests that 
have dominated the management of EADS since it was created in 
¶1999. 
 
---------- 
Air France 
---------- 
 
¶11. (U) After a distinguished career in public administration, 
Jean-Cyrill Spinetta became CEO of Air France in 1997, taking 
the company through a successful merger with Dutch airline KLM 
in 2004.  It was a founding member of the Sky Team Alliance, 
which now numbers 10 airlines, including U.S. carriers Delta, 
Continental and Northwest.  The new company has maintained its 
dual identity, and has been impressively profitable in difficult 
economic circumstances since the merger.  Air France retains a 
close relationship with the French Government (which still owns 
18.7% of its shares). Its fleet is primarily Airbus, though it 
is also a major customer for Boeing, and particularly for its 
777 aircraft.  It recently announced strong financial results 
for the first three quarters of 2006, continuing to see good 
growth in overall revenues, profits, and cash flow. 
 
¶12. (SBU) Air France strongly supported the U.S./EU Open Skies 
agreement, and could be particularly interested in discussing 
its impact on Air France's business and commercial strategy, 
particularly its hub at Charles de Gaulle airport and its desire 
to further develop the commercial possibilities of its alliance 
with U.S. SkyTeam partners.  Given its history of costly flight 
diversions based on No-Fly name matches, Spinetta may mention 
Air France's interest in improved harmonization of requirements 
and technological standards for aviation security between the 
U.S. and EU.  As a partner with Fedex and the French government 
in seeking to develop the intermodal freight capacity of Charles 
de Gaulle Airport, its views on this subject may also be of 
interest to the delegation. 
 
----- 
Fedex 
----- 
 
¶13. (U) Fedex chose Charles de Gaulle airport (CDG) to be its 
 
PARIS 00001270  004 OF 004 
 
 
European hub in 1999.  The investments it has made in tandem 
with the CDG airport have made it the largest cargo platform in 
Europe.  Fedex Express CEO David Bronczek is expected to brief 
you on the company's plans to expand its intermodal freight 
operations there.  Fedex currently has the capacity of 
processing up to 30,000 packages and 30,000 documents an hour, 
and it expects its business at CDG will continue to grow.  Noise 
restrictions on nighttime operations at Charles de Gaulle are a 
source of concern for Fedex given its long-term plans for 
expansion at the hub.  This is one reason it has partnered with 
the airport, other logistics companies, and the French 
government to develop freight interconnections with the 
high-speed train line that passes close by, which would provide 
alternative ways to service major economic regions to the North 
and East, freeing up airfreight capacity for additional growth. 
 
STAPLETON