VZCZCXYZ0021
RR RUEHWEB

DE RUEHKV #1108/01 1581342
ZNR UUUUU ZZH
R 061342Z JUN 08
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC 5773
INFO RUCNCIS/CIS COLLECTIVE
RUEHZG/NATO EU COLLECTIVE
RUEHMO/AMEMBASSY MOSCOW 0341
RUEANHA/FAA WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMFIUU/TSA HQ WASHINGTON DC

UNCLAS KYIV 001108 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EEB/TRA/AN - TROBL, 
EEB/TRA 
MOSCOW FOR BSTAURSETH 
 
E.O. 12958: N/A 
TAGS: EAIR ECON ETRD PREL PTER UP
SUBJECT: UKRAINE: AVIATION HEAD DISCUSSES PROGRESS ON AIR 
CODE AND OTHER ISSUES 
 
REF: 07 KYIV 2676 
 
Treat as Sensitive But Unclassified. Not for Internet. 
 
¶1. (SBU) Summary.  Ukrainian State Aviation (SAA) officials 
discussed progress on outstanding issues including an 
upcoming International Civil Air Organization (ICAO) safety 
assessment scheduled for June 17.  The SAA hopes that a 
positive ICAO assessment will fast-track it for an FAA safety 
reassessment and an eventual return to a Category 1 safety 
rating (CAT 1), since Ukraine was downgraded to FAA Category 
2 status (CAT 2) in 2004.  As a crucial requirement for 
returning to CAT 1, the SAA recently completed its 
long-awaited Civil Air Code and is hopeful the Parliament 
will pass the Air Code this summer. However, the 
International Air Transport Association (IATA) and U.S. air 
carrier Delta have expressed concerns with at least one 
section of the Air Code related to payment systems.  The 
FAA's regional representative plans to visit Kyiv for regular 
meetings in July to ascertain how much progress the SAA has 
made in preparing for a future reassessment, and to stress 
that a positive ICAO assessment does not necessarily 
guarantee a successful FAA reassessment and return to CAT 1. 
The SAA also noted it approved low-cost airline Wizz Air's 
application to operate domestic flights, signaling a dramatic 
change in SAA policy, while providing Ukrainian air 
passengers with a low-cost option for the first time.  End 
summary. 
 
CAT 1 or CAT 2? That is the Question 
------------------------------------ 
 
¶2. (SBU) On May 29, Deputy EconCouns and EconOff met with 
Ukrainian Deputy Minister of Transport and Head of the State 
Aviation Administration (SAA) Oleksandr Davydov, who stated 
the SAA was busy preparing for an ICAO safety assessment to 
begin on June 17.  Davydov touted a successful ICAO 
assessment as a necessary precursor to requesting an FAA 
reassessment, and he asked Post to encourage the FAA to 
return to Ukraine for a reassessment as early as July. 
EconOff noted to Davydov that the FAA has its procedures for 
granting reassessment requests, adding that post would pass 
on the SAA's interest in to the FAA's regional representative 
in Moscow.  (Note: In 2004 the GOU received a CAT 2 safety 
rating, and as a result cannot expand the number of Ukrainian 
flights or airlines allowed to fly to the U.S until it 
returns to CAT 1 status.  End note.) 
 
¶3. (SBU) The SAA has been under pressure from Ukrainian 
airline AeroSvit to make the necessary safety adjustments and 
return to CAT 1 status as soon as possible.  In August 2007, 
AeroSvit purchased seven Boeing 737s with an option to 
purchase seven more, hoping it would be able to add more 
planes and routes to the U.S., but to date; AeroSvit's plans 
to expand its U.S. market have been stymied by Ukraine's CAT 
2 rating.  Econoff reiterated advice given by the FAA's 
regional representative during a visit to Kyiv in July 2007, 
that the SAA fully meet the specific areas of improvement 
identified in 2004 before requesting a reassessment.  He also 
reiterated that since the ICAO and FAA assessment criteria 
were not identical, the SAA should not assume that a positive 
ICAO assessment equals a successful FAA reassessment. (Note: 
the areas of improvement identified in 2004 included: primary 
aviation legislation (Civil Air Code), specific operating 
regulations, restructuring of the SAA organization, technical 
guidance, qualified technical personnel, licensing and 
certification, continued safety vigilance, and the legal 
enforcement of safety violations.  End note.) The FAA's 
regional representative plans to meet with SAA officials in 
July to discuss the SAA's procedures for requesting an 
eventual FAA reassessment once the SAA has completed the 
specific areas of improvement previously agreed upon. 
 
New Air Code and the Bootlegged Version 
--------------------------------------- 
 
¶4. (SBU) When the FAA downgraded Ukraine to CAT 2 in 2004, 
the FAA recommended that the Ukrainian government first 
develop and pass a Civil Air Code that incorporated 
international best-practice safety standards.  Nearly five 
years later, the SAA completed an Air Code which received 
 
Cabinet of Ministers (CabMin) approval on June 4.  The Air 
Code now needs to be approved during three readings in the 
Parliament and signed by the President before it becomes law. 
 Previous to CabMin approval, the SAA provided copies of its 
draft Air Code to Post and airline operators in Ukraine. 
 
¶5. (SBU) Shortly after the SAA posted a copy of its draft Air 
Code on its website, we heard concerns from International Air 
Transport Association (IATA) and Delta airline 
representatives that a bootlegged draft existed containing an 
article, that if authentic, could give the SAA authority to 
regulate IATA's billing and settlement plan (BSP) (Note: IATA 
has faced strong opposition in Ukraine by SAA officials who 
opposed IATA's BSP, culminating in an August 2007 government 
order to suspend IATA's operations in Ukraine. Also see 
reftel.  End note.) 
 
¶6. (SBU) Deputy EconCouns asked SAA officials if there was 
indeed language in the Air Code that would require SAA 
certification of settlement systems like IATA's.  SAA Head 
Davydov told us that the language was only for technical 
systems and outdated software and equipment, but did not 
apply to settlement systems, but then Deputy Head Dmytro 
Babeichuk admitted that such language did exist, but 
contended that those companies that had concerns with this 
language were trying to protect their own interests, so the 
USG and Delta need not be worried over such language. 
Davydov then asked Deputy EconCouns to write a letter 
expressing any concerns the USG or Delta Airlines might have 
with the Air Code, emphasizing that the SAA was very 
interested in these suggestions, especially since the Air 
Code has not yet been passed and there is still time to make 
changes. (Comment:  Post is following up with Delta and IATA 
on putting together a draft.) 
 
Gee WIZZ! Low-Cost Airlines in Ukraine? 
--------------------------------------- 
 
¶7. (SBU) Deputy Minister and SAA Head Davydov said he 
considered the SAA's recent approval of Hungarian-registered, 
low-cost airline Wizz Air's application to operate in Ukraine 
as a personal triumph.  Davydov added that although Wizz Air 
was the first to receive SAA approval to operate in Ukraine, 
several more low-cost airlines had plans to expand to 
Ukraine. (Note: since this meeting, the SAA announced 
approval of German low-cost carrier Germanwing's application 
to operate in Ukraine with flights from Kyiv to Berlin and 
Kyiv to Cologne.  End note.)  Davydov explained that market 
research indicated a large demand for low-cost airlines in 
Ukraine, defying the SAA's previous position that low-cost 
airlines would force Ukrainian-owned airlines into 
bankruptcy. 
 
¶8. (SBU) Wizz Air announced domestic flights from Kyiv's 
Boryspil airport to Lviv, Kharkiv, Simferopol, and Odesa for 
less than the cost of a train ticket.  Since April 25, Wizz 
air has sold 3,000 tickets for these domestic flights and has 
plans to begin international flights to London Luton, 
Dusseldorf, and Milan Bergamo in September.  Some Ukrainian 
observers remain skeptical of Wizz Air's promise to keep 
prices low in the face of rising fuel prices.  Wizz Air 
officials, however, contested such views based on Wizz Air's 
business philosophy and ability to cut costs without 
recouping losses via increased ticket prices. 
 
¶9. (SBU) Comment.  The SAA's current chief seems intent in 
implementing change as soon as possible, and his ability to 
grant low-cost airlines access to the Ukrainian market seems 
to indicate his willingness to reform the aviation sector. 
The SAA's completion of the Civil Air Code is also laudable, 
but it has taken extremely long.  In addition, given 
Babeichuk's confirmation of language concerning settlement 
systems, it is impossible to assume that the Air Code is 
without problems.  While post would like to see Ukraine 
emerge from Cat 2 status, we have continued to stress that 
the SAA needs to have all of its ducks in a row before 
requesting another FAA assessment.  End comment. 
TAYLOR