VZCZCXRO0729
PP RUEHCI
DE RUEHKT #0431/01 1420707
ZNR UUUUU ZZH
P 220707Z MAY 09
FM AMEMBASSY KATHMANDU
TO RUEHC/SECSTATE WASHDC PRIORITY 0222
INFO RUEHBJ/AMEMBASSY BEIJING 6964
RUEHBS/AMEMBASSY BRUSSELS 0269
RUEHLM/AMEMBASSY COLOMBO 7286
RUEHKA/AMEMBASSY DHAKA 2608
RUEHIL/AMEMBASSY ISLAMABAD 5330
RUEHLO/AMEMBASSY LONDON 6469
RUEHMO/AMEMBASSY MOSCOW 0127
RUEHNE/AMEMBASSY NEW DELHI 3042
RUEHFR/AMEMBASSY PARIS 0167
RUEHCI/AMCONSUL KOLKATA 4606
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 02 KATHMANDU 000431 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EAIR ETRD PREL PTER NP
SUBJECT: BOEING COMPETING TO SELL TWO AIRCRAFT TO NEPAL 
AIRLINES 
 
REF: KATHMANDU 202 
 
Summary 
------- 
 
¶1.  (SBU) Boeing is competing with Airbus and three other 
companies to sell two large aircraft to state-owned Nepal 
Airlines Corporation (NAC).  The five companies submitted 
bids by the May 21 deadline set by NAC, which is seeking to 
purchase one wide-body and one narrow-body aircraft.  Three 
other companies, including Pratt and Whitney and a joint 
venture involving General Electric, submitted bids to provide 
engines for the aircraft.  All bids will be opened on May 22, 
but the NAC is not expected to award a contract until after 
its technical evaluation committee reviews all the proposals 
and makes a recommendation.  Because the current caretaker 
government is led by the United Communist Party of Nepal 
(Maoist), which is on the Treasury Department's list of 
Specially Designated Global Terrorists, a waiver from 
Treasury was required for U.S. companies to participate in 
the bidding process.  However, the formation of a new 
government will probably make the OFAC requirement moot. 
 
Boeing Competing with Airbus and Three Others 
--------------------------------------------- 
 
¶2.  (U) Boeing is competing with Airbus and three other 
companies to sell two large aircraft to state-owned Nepal 
Airlines Corporation.  In its request for proposals (RFP), 
NAC said the aircraft -- one wide-body and one narrow-body -- 
are essential for its plans to "establish the airline as a 
reliable national flag carrier with aggressive marketing." 
According to press reports, the NAC was caught by surprise by 
last-minute bids from Ilyoshin Finance Corporation of Russia, 
Commercial Aircraft Sales, Leasing and Consulting of the U.S. 
and Kathmandu-based Aero Express Aviation.  Because the NAC's 
call was only for manufacturers, the NAC spokesman has 
questioned whether the three bids "will be valid." 
Currently, the NAC operates two B757s, the only long-range 
aircraft in its seven-aircraft fleet.  Boeing has a 30-year 
relationship with the NAC, while Airbus has never sold 
aircraft to the national airline.  No other aircraft 
manufacturers submitted bids by the close-of-business 
deadline on May 21.  In addition to the two aircraft the NAC 
is committed to purchasing, bidders were allowed to submit 
proposals for the potential future sale of four other large 
aircraft -- two wide-body and two narrow-body -- as well as 
for leasing an aircraft to the NAC until the first plane is 
delivered.  The NAC expects to take delivery of the 
narrow-body plane in late 2009 and the wide-body plane in 
¶2010. 
 
Three Manufacturers Bid on Engine Sales 
--------------------------------------- 
 
¶3.  (U) Three manufacturers -- Pratt and Whitney, Rolls 
Royce, and CFM International, a joint venture of General 
Electric and the French company Snecma -- submitted separate 
bids to provide engines for the two aircraft.  The NAC's 
original RFP did not include an option for a separate 
supplier to provide engines.  An NAC official told Emboff 
recently that the RFP was amended to comply with 
international norms, which traditionally allow engine 
manufacturers to compete with aircraft manufacturers.  He 
said this gives NAC the option to buy entire aircraft from 
Boeing or Airbus or aircraft minus engines from one of those 
two companies and then purchase the engines from another 
manufacturer.  The decision is expected to be based largely 
on cost. 
 
Technical Evaluation Team to Make a Recommendation 
--------------------------------------------- ----- 
 
¶4.  (U)  After the bids for the aircraft and engines are 
opened on May 22, a specially created technical assistance 
team, comprising NAC technical staff and outside experts, 
will review all the bids.  NAC Deputy Managing Director 
Ganesh Thakur will head the committee.  NAC Managing Director 
Sugat Kansakar told Emboff May 21 that the review process is 
 
KATHMANDU 00000431  002 OF 002 
 
 
expected to take up to a month to complete.  Following the 
review, the NAC's Board of Directors will award a contract. 
Thakur has told the press, however, that evaluation of the 
bids will probably take between 10 to 14 days. 
 
Treasury Department Waiver Required for U.S. Bidders 
--------------------------------------------- ------- 
 
¶5.  (SBU)  The United Communist Party of Nepal (Maoist) leads 
Nepal's current government.  Because the Maoists are on the 
Department of Treasury's list of Specially Designated Global 
Terrorists and a Maoist serves as the present Minister of 
Tourism and Civil Aviation, U.S. firms submitting proposals 
were required to obtain waivers from Treasury's Office of 
Foreign Assets Control (OFAC).  Boeing obtained a waiver for 
its bid, but Post does not know whether Commercial Aircraft 
Sales, Leasing and Consulting, Pratt and Whitney or CFM 
International received approval from OFAC.  (Note:  The 
formation of a new government will probably make the OFAC 
requirement moot.)  Post had no contact with any of the U.S. 
companies, other than Boeing, and was not aware of any other 
U.S. interest prior to the bid deadline. 
 
Comment 
------- 
 
¶6.  (SBU)  Since the resignation of the Prime Minister on May 
4, Nepal's Maoist-led government has been serving in a 
caretaker capacity.  While the election of a new, non-Maoist 
Prime Minister could take place as soon as May 23, it will 
take a while to put all the new ministers in place.  Some 22 
parties, but not the Maoists, are expected to join or support 
the new coalition.  Legally speaking, the NAC Board of 
Directors does not have to wait for a new Civil Aviation 
Minister to be named before awarding a contract, but given 
the size and nature of the transaction, NAC will do so.  Now 
caretaker Maoist Finance Minister Bhattarai announced in the 
budget speech in September 2008 that his government would 
provide a sovereign guarantee for the purchase of two large 
aircraft.  NAC will want to see that guarantee reaffirmed by 
the new government.  NAC expects a narrow-body aircraft to 
cost about USD 60 million and a wide-body aircraft to cost 
between USD 125 and 150 million.  The Finance Minister has 
approved financing the aircraft purchases in large part 
through a loan from the government's Employees Provident 
Fund.  The new cabinet will want to review the financing 
arrangements and even, perhaps, the bid process itself, 
before it gives NAC the green light to proceed. 
POWELL