VZCZCXYZ0002
RR RUEHWEB

DE RUEHUM #0245/01 1150633
ZNR UUUUU ZZH
R 250633Z APR 07
FM AMEMBASSY ULAANBAATAR
TO RUEHC/SECSTATE WASHDC 1030
INFO RUEHBJ/AMEMBASSY BEIJING 5514
RUEHKO/AMEMBASSY TOKYO 2447
RUEHMO/AMEMBASSY MOSCOW 1743
RUEHUL/AMEMBASSY SEOUL 2714
RUEHRL/AMEMBASSY BERLIN 0073
RUEHGP/AMEMBASSY SINGAPORE 0324

UNCLAS ULAANBAATAR 000245 
 
SIPDIS 
 
SIPDIS 
 
STATE PASS TO AID/ANE 
EB/TRAN/AN 
EAP/CM 
FAA NATIONAL HQ WASHINGTON DC 
FAA WESTERN PACIFIC RGN HQ LOS ANGELES CA 
 
BEIJING PLEASE PASS TO FAA 
SINGAPORE PLEASE PASS TO FAA 
 
E.O. 12958: N/A 
TAGS: EAIR PGOV ECON MG
SUBJECT: Mongolia's Newest Domestic Private Airline: EZnis 
 
Ref: A) 04 Ulaanbaatar 602 B) 05 Ulaanbaatar 59 
 
¶1. Summary: Mongolia's second domestic private airline, EZnis 
Airways, was launched in December 2006, taking advantage of the 
vacuum created when the country's flag carrier MIAT sharply reduced 
domestic routes (reftel a).  Mongolian telecom/IT company Newcom has 
funneled substantial amounts of money and expertise into making the 
airline a success, and has hired a stable of foreign managers and 
trainers to ensure that international safety standards are 
maintained.  USTDA recently awarded EZnis a US$500,000 grant for 
technical assistance with its expansion plans.  Nevertheless, 
competition with Aero Mongolia, founded three years ago, for the 
country's estimated 160,000 annual travelers will be fierce.  Both 
private airlines are interested for bidding on the state run MIAT 
if, as expected, it is privatized; the prize would be MIAT's 
international routes. End Summary 
 
Flying is the EZ part 
--------------------- 
 
¶2. EZnis Airways (meaning "fly easy"; "nis" means "fly" in 
Mongolian) is 100% backed by the Mongolian telecom and IT leviathan 
Newcom Group, whose initial investment totaled over US$10 million, a 
very substantial amount in Mongolian terms.  The start up is the 
second privately run airline to emerge in the landlocked nation 
(Aero Mongolia, established in 2003, being the first).  Throughout 
the 1990s Mongolia's state run airline MIAT highly subsidized its 
domestic airfares, effectively blocking private airlines from 
entering the market.  With one decrepit Antanov-26, flag carrier 
MIAT now barely maintains a domestic schedule.  The decay in MIAT's 
flyable domestic fleet caused it to cut flights sharply three years 
ago; an extensive array of MIAT's unflyable planes is now parked off 
the tarmac at the Ulaanbaatar airport.  (Note: Because of the age of 
the AN-26, it is uninsurable, and U.S. Government employees are 
prohibited from flying on MIAT domestically; internationally, MIAT 
flies Boeing and Airbus planes and is fine.)  The vacuum because of 
MIAT's decline created the perfect conditions for start ups to enter 
the market, according to EZnis CEO R. Arvintsogt.  "Before EZnis' 
arrival, only one airline, Aero Mongolia, served the domestic 
market" Arvintsogt told Econoff during a recent meeting, "The sector 
was crying out for competition!" 
 
¶3. With growth in the mining industry expected to quicken over the 
next decade, and average incomes of Mongolians steadily on the rise, 
EZnis wanted to establish itself early in the game.  With the help 
of a recent USTDA grant award of US$500,000, the company will 
receive technical assistance in doing a feasibility study of its 
expansion plans. Over the next 1-3 years, the EZnis will work to 
build its operation and establish its brand name in Mongolia.  After 
three to seven years the airline plans to expand its operations to 
nearby international destinations in China, Korea, Japan and Russia. 
Major mining concerns such as Rio Tinto, Ivanhoe and BHP Billiton 
have already contracted EZnis for charter services to remote mining 
areas in the south Gobi desert signaling a vote of confidence in the 
new airline. 
 
Investing in Safety 
------------------- 
 
¶4. Newcom did its homework before plunging into the airline 
industry.  The company undertook a 12-month feasibility study before 
moving to purchase its two aircraft and have engaged aviation 
consulting firm Simat Helliesen & Eichner, Inc. (SH&E) to develop 
its business plan. Newcom has committed huge sums of its own funds 
to purchase planes outright and, at least for now, are paying 
foreign experts top dollar to train the staff and maintain the 
equipment.  Safety was of primary concern when Econoff visited their 
offices recently and a tour of their facilities reveals how 
meticulous they were about maintenance and training. 
 
¶5. EZnis' fleet currently consists of two aircraft, both Swedish 
built SAAB 340Bs (two engine turboprops, 34-seater) which were 
purchased directly from American Eagle Airlines in early 2006. 
EZnis plans to invest in two additional aircraft by summer 2007. 
Before export to Mongolia in February 2006, the FAA issued a 
Certificate of Airworthiness for both aircraft that is valid until 
February 2008.  The airframes of both planes also underwent a full 
blown "C" check around the same time, and the next C check will take 
 
 
place after 4000 flight hours (sometime next year). 
 
¶6. Both aircraft were manufactured in 1991-92 and so are about 15 
years old, half way to their recommended life span of 30 years 
according to EZnis.  The airline employs a team of 14 mechanics, 
including Saab experts from Australia and Sweden.  The expat 
mechanics are working on a six-month contract basis which will 
likely be renewed for at least another six months.  If they are 
following in the steps of their competitor Aero Mongolia, then they 
will likely let the expats go once they feel their local staff has 
been sufficiently trained.  When asked by Econoff about the 
challenges of maintaining aircraft in Mongolia's harsh weather 
conditions, the Swedish mechanic chuckled and said it wasn't 
anything they haven't already experienced in Sweden. 
 
¶7. Foreign expertise is also found in other departments of the 
company.  The Quality Assurance Director, whose job it is to make 
sure EZnis meets ICAO standards, is Japanese as are two instructor 
pilots and one engineer. One of the airline's pilots is an 
American. 
 
¶8. The company provided us with information on a long list of 
technical support providers including Saab Aerotech AB for spare 
parts, GE Aviation for engine support etc, as well as big names 
behind its training regimen; Boeing for crew resource management, 
Quantas for emergency training, Saab AB, GE Aviation and Hamilton on 
maintenance. 
 
¶9. EZnis houses their aircraft in the airport's one hangar at night 
(paying a hefty fee for the privilege).  Aero Mongolia's Fokker 50 
and Fokker 100, on the other hand, are too big to fit easily into 
the hanger with the other aircraft and are forced to spend the night 
on the tarmac -- a fact which reportedly caused at least one 
mechanical problem this past winter. 
 
¶10. EZnis is insured through AON Aviation Brokers in London, one of 
the industries largest insurance providers, and Mongol Daatgal is 
acting as local fronting firm.  Each aircraft is insured for USD 200 
million (third party liability). 
 
¶11. For now, the airline serves four destinations; Murun, 
Bayankhongor, Choibalsan, Dalanzadgad, mainly because these airports 
feature paved runways.  EZnis was recently granted permission by 
Mongolia's Civil Aviation Authority (MCAA) to start flying to 
airports with unpaved runways and will start flights to five 
additional destinations in the very near future. 
 
Is Big Sky Country Big Enough For Both of Us? 
--------------------------------------------- 
 
¶12. The estimated size of the domestic airline market in Mongolia is 
approximately 160,000 passenger-seats per year.  This is down from 
800,000 passenger-seats per year -- about half the country's 
population at the time -- in the communist heydays of the 1970s and 
80s, when heavily subsidized fares made air travel the best 
alternative to crisscrossing Mongolia's expansive and mostly 
road-less terrain.  EZnis feels the market is big enough to 
accommodate both airlines, but in a recent interview with Econoff, 
the president and CEO of Aero Mongolia expressed unhappiness with 
competition in the sector saying two airlines were too much for a 
country of only 2.5 million people.  Better, he said, that the 
government divide up the routes to prevent the two airlines from 
competing head-to-head to the same destinations. 
 
¶13. Both companies have their eyes on a bigger prize: MIAT.  The 
state-run airline, which recently has focused its energies on the 
international market, is expected to be privatized at some point, 
probably after parliamentary elections in mid 2008.  Moves to 
privatize MIAT this year were blocked by the Cabinet.  Executives at 
both airlines told Econoff that they hoped to "participate" in the 
privatization of MIAT, with Aero Mongolian execs going so far as 
state that Newcom created EZnis solely to better position itself as 
a buyer when MIAT is finally up for sale.  Acquiring MIAT would give 
the new owners access to valuable international routes and landing 
rights at international airports like Beijing, Seoul, Berlin, Tokyo 
and Moscow.  Other than that, both airline execs agree, the airline 
isn't worth much; a name that only the savviest international 
travelers would recognize, and perhaps MIAT's aging facilities at 
 
Ulaanbaatar's airport. 
 
Goldbeck