VZCZCXRO7633
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHVI #0395/01 0780719
ZNR UUUUU ZZH
R 180719Z MAR 08
FM AMEMBASSY VIENNA
TO RUEHC/SECSTATE WASHDC 9799
INFO RULSDMK/DEPT OF TRANSPORTATION WASHDC
RHMCSUU/FAA NATIONAL HQ WASHINGTON DC
RUCNMEM/EU MEMBER STATES
RUEHBS/USEU BRUSSELS
RUEHFT/AMCONSUL FRANKFURT 8276

UNCLAS SECTION 01 OF 02 VIENNA 000395 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EB/TRA AND EUR/AGS 
PARIS ALSO FOR FAA (LLIU) 
USEU ALSO FOR FAA (PFELDMAN) 
FRANKFURT FOR TSA (ABROWN) 
 
E.O. 12958: N/A 
TAGS: EAIR AU
SUBJECT:  SAUDI INVESTOR OBTAINS 20% SHARE IN AUSTRIAN AIRLINES 
 
Summary 
------- 
 
¶1.  Saudi investor Sheik Mohamed Bin Issa Al Jaber, who obtained 
Austrian citizenship in 2007, will obtain a 20% share in Austria's 
national carrier, Austrian Airlines (AUA).  The Euro 150 million 
($225 million) equity increase will help AUA purchase new aircraft 
and expand its Middle East network.  In exchange for effectively 
placing half of his shares under the control of the GoA and for 
agreeing to sell his shares to the GoA in the case of a 
privatization, the GoA will guarantee a Euro 7.10 price per share, 
should Al Jaber ever sell.  For 2007, AUA registered a net profit of 
Euro 3.3 million ($5.1 million) and earnings before tax and interest 
(EBIT) of Euro 25.6 million ($39.6 million), the first positive EBIT 
in four years.  Al Jaber's investment helps boost AUA's stance as an 
independent carrier in the short-term, but many industry analysts 
believe AUA will eventually need a strategic partner.  End Summary. 
 
 
AUA Takes Saudi Investor on Board 
--------------------------------- 
 
¶2.  On March 10, OIAG, the Austrian Government's holding agency, 
approved a Euro 150 million investment by Sheik Mohamed Bin Issa Al 
Jaber in Austrian Airlines (AUA).  Al Jaber is a member of the Saudi 
royal family and, since 2007, an Austrian citizen.  He is the 
founder and CEO of MBI International, a group of companies with a 
net asset value of $6.6 billion operating in Europe, the Middle East 
and the United States (see http://www.mbialjaber.com/).  Al Jaber 
already holds investments in three five-star hotels in Vienna and a 
local tourism school. 
 
¶3.  AUA will carry through a Euro 150 million ($225 million) equity 
increase, which will allow Al Jaber to obtain a 20% share in AUA. 
Al Jaber will pay Euro 7.10 per share, above the current price of 
Euro 5.75.  AUA's new shareholder structure will likely be as 
follows:  Al Jaber 20%, AUA 2%, private investors 38%, and 40% with 
a group of syndicated shareholders (OIAG, Austrian banks and 
insurance companies) under the OIAG's lead.  AUA reportedly will use 
the fresh capital to purchase three new aircraft and to expand its 
network in the Middle East, where AUA faces stiff competition from 
Emirate Airlines. 
 
¶4.  To obtain his 20% share, Al Jaber agreed to place approximately 
half of his AUA shares under the control of the syndicated Austrian 
shareholders to ensure AUA's status as a national carrier.  In the 
event of any privatization, Al Jaber must sell his AUA shares to the 
OIAG.  However, Al Jaber may participate in any privatization 
process.  In exchange for these measures, the OIAG agreed to protect 
Al Jaber against any downside price risk.  Al Jaber is ensured a 
minimum sale price of Euro 7.10, should he decide to sell his AUA 
shares (any sale to a third party requires OIAG approval).  AUA 
shares last reached Euro 7.10 on November 5, 2007.  The current 
price is around Euro 5.75. 
 
 
AUA Back in Black in 2007 
------------------------- 
 
¶5.  On March 12, AUA announced a net profit of Euro 3.3 million 
($5.1 million) compared with a 2006 loss of Euro 129.9 ($200 
million).  Underlying earnings - earnings before interest and tax 
(EBIT) - were Euro 25.6 million ($39.6 million) in 2007, the first 
time in four years that EBIT had been positive.  Net debt also 
declined to Euro 983 million ($1.5 billion).  AUA attributed the 
improvement in 2007 to an overhaul of its long-distance business 
model and strong performance in its short and medium-length routes. 
 
 
 
Comment 
------- 
 
¶6.  Despite the good news on 2007 profits, airline analysts continue 
to question whether AUA, which has encountered severe financial 
turbulence over the past years, can survive in the long run without 
a strategic partnership.  The Al Jaber investment, reportedly made 
possible by GoA lobbying and pressure, may well offer only an 
interim solution for those promoting AUA as an independent carrier 
without a strategic partner.  Of note, the OIAG, for the first time 
in recent memory, highlighted the possibility of privatizing AUA. 
AUA's board must still approve the Al Jaber deal and private 
investors may challenge OIAG's seemingly preferential treatment for 
 
VIENNA 00000395  002 OF 002 
 
 
Al Jaber. 
 
KILNER