VZCZCXRO8996
RR RUEHGH RUEHLMC RUEHVK
DE RUEHUM #0081/01 0460040
ZNR UUUUU ZZH
R 150040Z FEB 08
FM AMEMBASSY ULAANBAATAR
TO RUEHC/SECSTATE WASHDC 1911
INFO RHMFIUU/FAA NATIONAL HQ WASHINGTON DC
RUEHBJ/AMEMBASSY BEIJING 6000
RUEHKO/AMEMBASSY TOKYO 2887
RUEHMO/AMEMBASSY MOSCOW 2106
RUEHRO/AMEMBASSY ROME 0048
RUEHUL/AMEMBASSY SEOUL 3191
RUEHRL/AMEMBASSY BERLIN 0110
RUEHOT/AMEMBASSY OTTAWA 0586
RUEHGP/AMEMBASSY SINGAPORE 0396
RUEHSH/AMCONSUL SHENYANG 0467
RUEHGH/AMCONSUL SHANGHAI 0082
RUEHVK/AMCONSUL VLADIVOSTOK 0233
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHMFISS/DEPT OF HOMELAND SECURITY WASHINGTON DC
RULSDMK/DEPT OF TRANSPORTATION WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEKJCS/SECDEF WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC
RUEAZCA/FAA WESTERN PACIFIC RGN LOS ANGELES CA 0021

UNCLAS SECTION 01 OF 02 ULAANBAATAR 000081 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE PASS EXIMBANK AND OPIC 
STATE PASS TO AID/ANE, EB/TRAN/AN AND EAP/CM 
TOKYO, BEIJING AND SINGAPORE FOR FAA REP 
 
E.O. 12958: N/A 
TAGS: EAIR PGOV ECON MG
SUBJECT: ROK, CHINA EYE EXPANDED AIR LINKS WITH MONGOLIA 
 
Reftel  A: 07 ULAANBAATAR 257 
  B: 05 ULAANBAATAR 081 
  C: 07 ULAANBAATAR 297 
 
SENSITIVE BUT UNCLASSIFIED - NOT FOR INTERNET DISTRIBUTION. 
 
¶1. (SBU) SUMMARY: During a February 13 courtesy call on the 
Ambassador, the new CEO of Mongolia-based EZnis Airways revealed 
that the South Korean Government and China's Civil Aviation 
Authority have made informal inquires to the Mongolian Government 
regarding the possible expansion of air services agreements with 
Mongolia.  Glenn Pickard noted that although current bilateral 
agreements allow for one carrier from each country to fly to the 
other, the ROK and China are interested in expanding the agreements 
to include two air carriers from each country.  So far, the 
Mongolian Government has been latently hostile to the idea, viewing 
increased competition as a threat to its national carrier, MIAT.  If 
the air service agreements were expanded and EZnis were to be 
awarded these valuable international routes, it would need to expand 
its short-range fleet to include jet aircraft, generating a possible 
business opportunity for Boeing.  Pickard also revealed that EZnis' 
key domestic rival, Aero Mongolia, is experiencing financial and 
insurance difficulties.  END SUMMARY. 
 
¶2. (SBU) The Ambassador met on February 13 with Glenn Pickard, the 
new CEO of EZnis Airways (reftel A) and B.Enkhbat, the company's 
Commercial VP.  Pickard revealed that there has been informal 
interest expressed by the South Korean Government, and separately by 
China's CAA, to liberalize air traffic between Mongolia and the two 
countries.  In place of the current bilateral agreements, which 
allow for just one carrier from each country to fly to the other, an 
expanded agreement would permit two carriers from each country to 
make the same trip.  If such a change is made, Korean Air and 
Asiana, for instance, could fly between Ulaanbaatar and Seoul, and 
in return MIAT and (most likely) EZnis could fly the same route. 
 
Increasing Demand, Limited Seats 
-------------------------------- 
 
¶3. (SBU) While not exactly an Open Skies Agreement, this 
liberalization could benefit both sides by increasing competition 
and passenger loads between Mongolia and Korea.  Enkhbat noted that 
some 30,000 Koreans fly to Mongolia every year, and that demand is 
growing.  Enkhbat indicated that Asiana Airlines is chomping at the 
bit to launch service to Mongolia.  The limited number of seats and 
the relatively high demand has allowed KAL to charge excessive 
prices for this route, and it has become a big money-maker for that 
airline.  Profit margins would remain large, he said, even with the 
introduction of two new airlines servicing the route. 
 
GOM Suspicious of Liberalization 
-------------------------------- 
 
¶4. (SBU) EZnis, for its part, fears that the GOM will try to block 
or stall any such expansion agreement, in a misplaced attempt to 
protect MIAT from increased competition.  Pickard noted that the 
General Director of Mongolia's Civil Aviation Authority, S. 
Batmunkh, said as much when they recently discussed the subject. 
Transport Minister Rash has apparently expressed similar sentiments. 
 (Note: This protectionist stance has characterized the GOM's 
unwillingness to join any open skies agreement. End Note.) 
Unsurprisingly, plans to privatize MIAT, which have gone nowhere for 
five years, have slipped once again as June 2008 parliamentary 
elections approach and the GOM fears that increased competition 
could hurt MIAT's sale price.  EZnis has already positioned itself 
as MIAT's most likely buyer once it becomes privatized.  However, 
MCAA DG Batmunkh recently told Econoff that the GOM expects to 
retain at least 40% of the airline after privatization. 
 
 
ULAANBAATA 00000081  002 OF 002 
 
 
¶5. (SBU) Pickard said that over the coming six to seven months he 
envisions EZnis struggling with the GOM and MIAT to convince them 
that this agreement would be win-win-win, and that new agreements 
could be tailored (for instance, with limited landing slots) to 
address GOM concerns.  EZnis hoped that the USG would convey this 
message to our contacts within the GOM, or at least continue with 
our traditional advocacy of open skies.  Pickard admitted that, even 
without GOM opposition, negotiating such an agreement might take a 
year or more. 
 
Opportunities for Boeing? 
------------------------- 
 
¶6. (SBU) If EZnis were to start flying to Seoul or Beijing, it would 
need to expand its current fleet of three Saab 340B propeller 
aircraft to include larger jet aircraft.  This could produce new 
business opportunities for Boeing.  Pickard noted EZnis' interest in 
obtaining one or more 737-800's.  (Note: Econoff provided contact 
information for Boeing's Asia Pacific Sales Manager after the 
meeting.  End Note.) 
 
¶7. (SBU) Then, offering their thoughts on EZnis' domestic 
competition, Pickard and Enkhbat said MIAT's one domestic aircraft, 
an Antonov 26, would reach its flight-hour limit by late spring, and 
that MIAT lacks the US$400,000 needed for necessary overhauls to 
keep it flying for another 18 months or so. (Note: In 2005, safety 
concerns prompted the Embassy to prohibit USG personnel from flying 
MIAT domestically; reftel B.) 
 
Aero Mongolia Difficulties 
-------------------------- 
 
¶8. (SBU) Another Mongolian airline, Aero Mongolia, recently had its 
suspension lifted by MCAA (reftel C) and one of its aircraft is 
operating.  The leasers of a second aircraft originally held up 
delivery from Germany (where it underwent a C-check) because the 
company had not paid its bills.  Aero Mongolia finally came up with 
the money and the plane was only recently released for service. 
Pickard said, without providing details, that Aero Mongolia has been 
blacklisted by Lloyds of London for payment and safety violations, 
and that it is now insured by a Russian company.  We plan to follow 
up with Aero Mongolia later this week. 
 
Minton