VZCZCXRO7614
RR RUEHCHI RUEHCN RUEHDT RUEHHM
DE RUEHHI #0029/01 0090945
ZNR UUUUU ZZH
R 090945Z JAN 08
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC 6978
INFO RUEHHM/AMCONSUL HO CHI MINH 4136
RUEHZS/ASEAN REGIONAL FORUM COLLECTIVE
RUEHGP/AMEMBASSY SINGAPORE 2470

UNCLAS SECTION 01 OF 02 HANOI 000029 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/MLS AND EEB/TRA 
USTR FOR DBISBEE 
USDOC FOR 4430/MAC/ASIA/OPB/VLC/HPPHO 
SINGAPORE FOR FAA MARY WALSH 
 
E.O. 12958: N/A 
TAGS: EAIR ECON EIND EINV ETRD BEXP VM
SUBJECT: VIETNAM AIRLINES WILL EQUITISE PARTLY IN 2009 
 
REF: HANOI 1974 
 
HANOI 00000029  001.2 OF 002 
 
 
¶1. (SBU) Summary:  Vietnam Airlines' (VNA) new CEO Pham Ngoc Minh 
told the Ambassador that VNA will partly equitise in 2009 and 
revealed VNA's ambitious plan to become one of the preeminent air 
carriers in Southeast Asia.  The Ambassador thanked Minh for 
Vietnam's recent purchase of Boeing aircraft and asked Minh to 
consider equipping the new jets with GE Aviation's GEnx jet engine. 
The Ambassador urged Minh to push Vietnam's Civil Aviation 
Administration to procure funding for the final two phases of an 
aviation safety upgrade project that would allow the carrier to 
begin direct service to the United States.  Minh asked the 
Ambassador to press the GVN's Ministry of Transport to ratify the 
Cape Town Convention, a risk mitigation treaty that would reduce the 
cost of aircraft financing for Vietnam's air carriers.  He also 
asked the Ambassador to help smooth the way for Vietnamese pilots 
and mechanics to obtain visas and enroll in aviation training 
schools in the United States.  End Summary. 
 
¶2. (SBU) The Ambassador met with newly appointed CEO of Vietnam 
Airlines Pham Ngoc Minh on January 7 to promote Boeing aircraft and 
advocate for GE Aviation's GEnx jet engine.  Minh takes over as CEO 
from Nguyen Sy Hung, who remains the airlines' chair.  Minh 
previously served as VNA's influential vice-president and is also 
the chair of the newly formed Vietnam Aircraft Leasing Company 
(VALC), and is one of the architects in its formation. 
 
VIETNAM AIRLINES TO EQUITISE 
---------------------------- 
 
¶3. (SBU) Minh told the Ambassador that the state-owned airline would 
partly equitise in 2009.  He said VNA would issue a request for 
proposal (RFP) in 2008 to hire a financial consultant and would 
issue an IPO or choose a strategic partner early in 2009.  Minh said 
it was "too soon to say" which path the carrier would choose, but 
noted that the right investor could help VNA realize its ambitious 
plan to become one of the preeminent air carriers in Southeast Asia 
along with Singapore Airlines and Thai Airways.  Minh noted that the 
United States is home to many of the world's top financial 
consulting firms and mentioned Morgan Stanley, Citi, JP Morgan, and 
Merrill Lynch as possible selections.  Minh told the Ambassador that 
VNA had receipts of $1.4 billion and carried 8 million passengers in 
¶2007. 
 
THANKS FOR BUYING BOEING 
------------------------ 
 
¶4. (SBU) On November 16, 2007, Boeing and VNA signed an agreement to 
purchase an additional four 787-8 "Dreamliner" aircraft.  VALC 
purchased 8 more, which it will lease to VNA (Reftel).  VNA has now 
procured twenty-one 787s (sixteen purchased and 5 leased) and has 
ten Boeing 777 aircraft (5 owned and 6 leased).  Anticipating larger 
tourist and business traffic to Vietnam, VNA has said it will need 
at least twenty-eight 787s by 2020.  The Ambassador thanked Minh for 
the purchase and said he hoped the airline and Boeing would have a 
long and productive relationship. 
 
PROMOTING THE GEnx 
------------------ 
 
¶5. (SBU) GE Aviation (a U.S. company) is currently in a competition 
with Rolls Royce (owned by BMW) to supply jet engines to VNA's 
Boeing 787s.  GE produces the GEnx, its new fuel-efficient composite 
engine, while Rolls Royce offers the Trent 1000 for the Boeing 787 
and the Trent XWB for the Airbus A350.  The Ambassador advocated the 
merits of the GEnx, citing the engine's lower fuel burn and 
increased reliability.  In response, Minh emphasized that the engine 
procurement process would be "fair and transparent," a clear 
reference to the 2004 corruption scandal that shook the airline. 
Under former CEO Nguyen Xuan Hien, VNA officials allegedly 
disregarded a GVN directive instructing the airline to equip VNA's 
four 777 airplanes with long-range GE90 jet engines.  Instead, VNA 
chose a cheaper, medium-range Pratt & Whitney engine, which made the 
jets unsuitable for many of the airlines' intended international 
routes.  Minh told the Ambassador that the airline is now evaluating 
the GE and Rolls Royce bids and hopes to issue a decision by early 
April.  He said the chairs of VNA and VALC would study the proposals 
and make a formal recommendation to the Prime Minister.  In 
addition, Minh said he hoped that Vietnam would be a destination for 
a jet engine or spare parts maintenance or production facility.  He 
stressed that Prime Minister Dung is particularly keen on this idea, 
calling it "critical" if Vietnam is to procure the GEnx engine. 
(Note: The Chair of VNA, Nguyen Sy Hung, also made a point about 
wanting to establish aviation maintenance facilities in Vietnam in a 
recent meeting with the Ambassador.  End note.)  The Ambassador also 
 
HANOI 00000029  002.2 OF 002 
 
 
discussed GE Money and GE Energy's current and future investment 
plans in Vietnam. 
 
DELAYED FLIGHT 
-------------- 
 
¶6. (SBU) On August 6, VNA filed an application with the U.S. 
Department of Transportation for a foreign air carrier permit.  The 
filing states that VNA intends to begin commercial service to the 
United States (HCMC-Osaka-Los Angeles) starting on October 28, 2008. 
 First, however, the Civil Aviation Administration of Vietnam (CAAV) 
must upgrade its safety oversight capability to meet International 
Civil Aviation Organization (ICAO) standards.  CAAV has completed 
the first phase of a $1.4 million project funded by the U.S. Trade 
and Development Agency (TDA) to raise its safety standards to 
Category 1, which would allow Vietnamese air carriers to fly to the 
United States. 
 
¶7. (SBU) TDA has asked CAAV to contribute a nominal $50,000 sum 
toward the cost of the remaining two phases.  While CAAV has 
acknowledged the request, it has yet to allocate the money.  As a 
result, the project is now significantly behind schedule, possibly 
delaying VNA's inaugural flight to the United States by six months 
or more.  Moreover, VNA will likely need to pick up passengers in 
Osaka to ensure profitability on the route, which means the GVN will 
need to negotiate "fifth freedom" passenger rights with Japan.  The 
Ambassador urged Minh to press CAAV to procure the funding, saying 
the Embassy would work with Vietnam and the USTDA to facilitate 
timely completion of the project. 
 
CAPE TOWN CONVENTION 
-------------------- 
 
¶8. (SBU) Minh asked the Ambassador to press Vietnam's Ministry of 
Transport (MOT) and other relevant GVN ministries to ratify the Cape 
Town Convention, a risk mitigation agreement that would reduce 
financing costs on future aircraft deliveries to Vietnam's air 
carriers.  Minh expressed frustration over the Vietnamese 
Government's inaction on the treaty, complaining that VNA and VALC 
had to pay $24 million in 787 aircraft deposits as a result.  (Note: 
 According to Embassy contacts, the treaty does not require 
ratification by Vietnam's National Assembly.  Rather, President 
Nguyen Minh Triet will authorize the agreement once it reaches his 
desk from the MOT. End note.) 
 
New airport 
----------- 
 
¶9. (SBU) Minh informed the Ambassador that the GVN would build a 
second international airport in southern Vietnam to supplant Ho Chi 
Minh City's congested Ton Son Nhat International Airport.  He 
estimated that the new Long Thanh International Airport, 40 
kilometers northeast of Ho Chi Minh City, would open in 5-8 years. 
Finally, Minh asked the Ambassador to help smooth the way for 
Vietnamese pilots and mechanics to obtain visas and enroll in 
aviation training schools in the United States. 
 
Follow-up 
--------- 
 
¶10. (SBU) Embassy is seeking an appointment for the Ambassador to 
meet with Minister of Transport Ho Nghia Dung in order to discuss 
unresolved transportation issues, including the CAAV-TDA safety 
upgrade, the Cape Town Convention, and negotiation of a U.S.-Vietnam 
Open Skies Treaty. 
 
MICHALAK