VZCZCXRO0451
RR RUEHBW RUEHIK RUEHPW RUEHYG
DE RUEHBUL #1056/01 1200944
ZNR UUUUU ZZH
R 290944Z APR 08
FM AMEMBASSY KABUL
TO RUEHC/SECSTATE WASHDC 3722
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC 0628
RUCNAFG/AFGHANISTAN COLLECTIVE
RUEAIIA/CIA WASHINGTON DC
RHMCSUU/FAA NATIONAL HQ WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 02 KABUL 001056 
 
SIPDIS 
 
DEPT FOR SCA/FO, SCA/RA, AND SCA/A 
DEPT PASS AID/ANE 
DEPT PASS USTR FOR GERBER AND KLEIN 
DEPT PASS OPIC FOR ZAHNISER 
DEPT PASS TDA FOR STEIN AND GREENIP 
TREASURY FOR LMCDONALD, ABAUKOL, BDAHL, AND MNUGENT 
COMMERCE FOR DEES, CHOPPIN, AND FONOVICH 
 
SIPDIS 
 
E.O. 12958 N/A 
TAGS: EAIR PGOV AF
SUBJECT: Safi Aviation's Future in Afghanistan Uncertain 
 
¶1. (SBU) Econoff met April 24 with Rami Alhmad, Dubai-based managing 
director of privately held Safi Group and Safi Afghan Airways. 
Alhmad fretted that Safi's business prospects were perilous but 
possibly salvageable with a full reorganization.  He said that Safi 
is currently losing USD 12,000-15,000 daily for three reasons: 1) 
use of a cost-inefficient long-haul aircraft (Boeing 767-200) on the 
Dubai-to-Kabul short-haul route; 2) competition; and 3) what Alhmad 
characterized as "the hostile business environment within 
Afghanistan." Alhmad said that since its inception last year, Safi 
Airways has been "a status symbol" for the Afghan based Safi-group. 
The group wanted the best possible service to/from Kabul and had 
"plunged into the market uneducated" with a long-range wide-body 
Boeing 767 to offer service from Kabul to Dubai and London. 
Unfortunately, Safi entered the market before it received European 
Union approval for its U.K. routing, which is not forthcoming -- at 
least in the foreseeable future -- because of the lack of security 
and safety oversight capacity of the Afghan Ministry of 
Transportation and Civil Aviation (MoTCA).  This left Safi with only 
the Dubai-Kabul route, on which it must compete both with 
state-owned and subsidized Ariana Afghan Airlines and with KamAir, 
the established private-market leader.  Alhmad noted that if Ariana 
went away, Safi would have a better chance of flying at capacity on 
its single route, and filling service gaps left by the other two 
private-sector airlines. 
 
¶2. (SBU) The Safi Group, concerned about the performance of its 
airline, used a corporate "headhunting" service to hire Alhmad, who 
has a mandate to restructure the company.  Alhmad said that after a 
thorough examination of Safi's books, he advised Mr. Safi to 
temporarily stop operations for three to six months while he 
undertook the reorganization.  Mr. Safi, however, had refused and 
said that the group would underwrite the airline's debt for "a few 
more months" to determine if reorganization was possible.  Alhmad 
stated that the reorganization was underway, with Safi arranging to 
purchase two "more appropriate" Boeing 737-400 aircraft from Air 
China; Safi was also looking at two additional Boeing 767-200 
aircraft from a U.S. broker.  Key to its plans had been intense 
negotiations in Kuwait that would allow Kabul-Frankfurt and 
Kabul-Paris flights, with a stop in Kuwait for a full security 
screening.  Alhmad said Safi was nearing agreement with the Kuwaiti 
authorities and would begin the flights in the next few months if 
they secured the aircraft.  The final aircraft deals were contingent 
on financing, and Safi was in negotiation with IFC and Pakistan Bank 
(Kabul) for an immediate cash injection.  Alhmad was also 
negotiating with the Indian government to authorize Kabul to Delhi, 
Mumbai, and Kolkata flights. 
 
¶3. (SBU) The other part of the reorganization involved firing most 
existing expatriate staff, which Alhmad alleged Mr. Safi had hired 
with little examination of their qualifications.  Alhmad said the 
firings had caused some further staff to resign, but assured that he 
was interviewing a new and more qualified staff from Russia, South 
Africa, and the U.S.  He was also re-interviewing cabin staff and if 
possible, would hire and train Afghan nationals to supplement 
existing cabin crew. 
 
¶4. (SBU) Alhmad said the business environment in Kabul complicated 
any plans, and was another reason the group had decided to "hub" out 
of Kuwait.  Safi spent considerable sums on providing its own ground 
handling and private security at Kabul with the Afghan government 
unable to provide most services.  Alhmad frankly admitted that he 
had never been to Afghanistan and was unaware of many problems at 
Kabul Airport, but would shortly be taking his first trip to Kabul 
to look at the situation.  He said he planned to leave most dealings 
with the Afghan government to Mr. Safi and "his connections." 
Econoff scheduled a second meeting with the Safi Group in 
Afghanistan in early May to further discuss restructurng plans. 
 
¶5. (SBU) Comment:  Safi Airways' stuation is perilous because of a 
series of bad business decisions and because of the business climate 
in Afghanistan.  It is quite likely that Safi will soon withdraw 
from the market.  Its new business model depends on adding 
passengers in Kuwait, and it maintains a Kabul route principally as 
the Safi Group's contribution to Afghan development.  Alhmad seems 
successful, but his expertise is in Dubai real estate and he knows 
very little about the Afghan civil aviation market.  The other two 
private Afghan air carriers also face considerable difficulty. 
KamAir and Pamir Airways allege they are losing money because of 
undercutting by state-wned and subsidized (insolvent) Ariana, and 
because of high government fees that do not provide them necessary 
ground services.  KamAir remains marginally profitable only because 
 
KABUL 00001056  002 OF 002 
 
 
it continues to evade full payment of its taxes in Afghanistan. 
Pamir has not been as successful at tax evasion, and has had its 
bank account docked for back taxes.  We suspect Safi manages to 
avoid many taxes because of its connections; like KamAir, it is also 
bankrolled by a successful business group with deep pockets.  End 
comment. 
 
WOOD