VZCZCXRO1444
RR RUEHDBU RUEHIK RUEHPW RUEHYG
DE RUEHBUL #1935/01 1621237
ZNR UUUUU ZZH
R 111237Z JUN 07
FM AMEMBASSY KABUL
TO RUEHC/SECSTATE WASHDC 8647
INFO RUCNAFG/AFGHANISTAN COLLECTIVE
RUEKJCS/OSD WASHINGTON DC
RUEKJCS/JOINT STAFF WASHINGTON DC
RHMFISS/CDR USCENTCOM MACDILL AFB FL
RHCUAAA/USCINCTRANS SCOTT AFB IL
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 0114
RHMCSUU/FAA NATIONAL HQ WASHINGTON DC

UNCLAS SECTION 01 OF 02 KABUL 001935 
 
SIPDIS 
 
SENSITIVE, SIPDIS 
 
STATE FOR SCA/FO SCA/A 
STATE FOR EB/OTP EB/TRA/AN EB/CBA EB/IFD/OMA 
STATE PASS USAID/ANE 
STATE PASS OPIC:DZAHNISER 
CENTCOM FOR CG CFC-A 
COMMERCE FOR ITA/ACHAMS-EDDINE AND DFONOVICH 
FAA FOR JHANCOCK AND RSMITH 
 
E.O. 12958: N/A 
TAGS: EAIR EFIN ECON EAID AF
SUBJECT: AFGHANISTAN: PULL THE PLUG ON ARIANA AIRLINES 
 
Ref: A. Kabul 1090 
 
¶B. Kabul 1914 
 
This message is sensitive but unclassified--not for Internet 
distribution. 
 
 
SUMMARY 
------- 
 
¶1. (SBU) The IMF's recent mission report urging the GoA not to 
rescue Ariana Afghan Airlines has kept the ongoing discussion about 
what to do with Ariana before the GOA and the international 
community.  While the top level of the GoA agrees with the JCMB V 
decision to seek Ariana's privatization, there is no such consensus 
further down in the government.  The popular GoA rationalization 
that the market needs Ariana has become untenable: the market is 
increasingly well served by new Afghan airlines--two are operating 
now, with another two in the wings--and also by international 
airlines.  Boeing has recently clawed back a $2.5 million purchase 
deposit to pay off Ariana's $2 million lease arrears, which clears 
the way for us to support wholeheartedly the IMF message that the 
GoA should not take on the failing airline's liabilities.  END 
SUMMARY. 
 
 
IMF MESSAGE: DON'T BAIL OUT ARIANA 
---------------------------------- 
 
¶2. (SBU) The IMF's May 10 mission report urging non-intervention in 
Ariana has sparked further discussion is Kabul--and further 
agonizing--over the fate of the troubled airline.  The report notes 
that, "Given Ariana's acute financial weaknesses and the lack of a 
comprehensive restructuring plan, the mission urges the government 
not to use its scarce resources to support it."  The report goes 
further, urging that the GoA not assume obligations for Ariana, 
guarantee its debts, or pressure banks to provide loans or 
guarantees. 
 
¶3. (SBU) This unusually clear guidance, combined with the recent 
decision at JCMB V to add privatization of Ariana to the list of 
infrastructure benchmarks, has kept the question of what is to be 
done with the airline before GOA policymakers and the international 
community (ref A).  While there may be consensus on this in the 
forum of the JCMB, it is hardly a decided question at the 
operational level (ref B).  (NOTE: The new president of Ariana 
reportedly refused the President's senior economic advisor's demand 
that Ariana prepare a privatization plan.  We have not yet heard 
how--or whether--this impasse has been resolved.  End note.)  Some 
within GoA have expressed concern that the privatization or 
liquidation of the state airline will leave Afghanistan under-served 
for public passenger air service.  Of all the arguments against 
privatization, this is perhaps the least tenable. 
 
 
GOING TO KABUL?  YOU'VE GOT OPTIONS 
----------------------------------- 
 
¶4. (SBU) Kam Air, the first viable post-Taliban private airline, 
recently announced plans to begin a second daily flight between 
Kabul and Dubai.  The company now provides regular international 
service to Almaty, Delhi, Istanbul, and Mashhad (Iran), and it is 
the main domestic competitor for Ariana, with service between Kabul, 
Herat, and Mazar-i-Sharif.  We have recently heard that Kam Air is 
shopping for more aircraft, including longer-range B-767s to augment 
its mixed owned and leased fleet of B-737 and B-727 aircraft. 
 
¶5. (U) Pamir Airways, which had earlier operated a small-scale 
international service out of Kabul, has recently started daily 
service to Dubai and plans expansion to other regional destinations. 
 Pamir's Dubai pricing ($315 r/t Kabul to Dubai) significantly 
undercuts Kam Air's $400 fare.  The United National Humanitarian Air 
Service (UNHAS) has recently reduced its fares from $800 return to 
$600, possibly in response to this downward pressure from the new 
 
KABUL 00001935  002 OF 002 
 
 
entrants.  Like Kam Air, Pamir bases its aircraft in Dubai and 
operates under ICAO-compliant safety oversight regimes. 
 
¶6. (U) At least two other Afghan companies plan to start flying out 
of Kabul soon.  Safi Airlines hopes to start regional service in the 
next few months, and the Alokozay company has similar plans and is 
reportedly now shopping for aircraft.  Both Safi and Alokozay have 
already gone through the initial steps of registering their 
airlines. 
 
¶7. (U) In addition to the local start-ups, several international 
airlines also serve the Afghan market.  Azerbaijan Airlines has 
resumed service to Kabul in the past few months; Indian Airlines and 
Pakistan International Airlines fly into Kabul regularly. 
 
 
COMMENT: IMF IS RIGHT: DON'T SAVE ARIANA 
---------------------------------------- 
 
¶8. (SBU) This lively competitive scene leaves little room to think 
that Afghans would be left short of air service if Ariana were to 
dramatically reduce or close down its service.  The GoA is therefore 
in a good position to make a decision on the money-losing airline, 
and the IMF's clear position on the issue should counter the 
temptation of further subsidies.  As reported in reftel, until 
recently Ariana owed Boeing nearly $2 million in arrears on a 
defaulted lease.  Boeing has since clawed back a $2.5 million 
deposit on the future purchase of four B-737s.  While Boeing is 
still balancing the overall account, we understand that Ariana is 
not likely to have any sizable arrears.  This clears any 
reservations the USG might otherwise have had about emphasizing the 
IMF's message. 
 
WOOD