VZCZCXRO6954
RR RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHNP RUEHPOD RUEHROV RUEHSK RUEHSL RUEHSR RUEHVK
RUEHYG
DE RUEHBW #0751/01 2080946
ZNR UUUUU ZZH
R 270948Z JUL 09
FM AMEMBASSY BELGRADE
TO RUEHC/SECSTATE WASHDC 0102
INFO EUROPEAN POLITICAL COLLECTIVE
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RHMFISS/HQ USEUCOM VAIHINGEN GE
RUEHBW/AMEMBASSY BELGRADE
RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK

UNCLAS SECTION 01 OF 03 BELGRADE 000751 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EAIR EINV SR
SUBJECT: SERBIA: CIVIL AVIATION REFORM NOT TAKING OFF 
 
REF: 08 BELGRADE 488; BELGRADE 697 
 
SUMMARY 
------- 
 
¶1. (SBU) The Serbian Government's inability to pass key civil 
aviation legislation continues to stall the progress of Serbia's 
aviation industry.  Without this legislation, the FAA Category 1 
rating necessary for direct flights to the United States is still out 
of reach.  Serbia's national carrier, Jat Airways, is undergoing 
restructuring in preparation for privatization, but remains deep in 
debt.  At the same time, the country's sole commercial airport, 
Belgrade's Nikola Tesla Airport has seen decreased traffic due to the 
economic crisis, but officials are optimistic that the situation will 
improve once Serbian citizens are allowed visa free travel to the EU. 
 END SUMMARY. 
 
FAA CATEGORY 1 RATING REMAINS OUT OF REACH 
------------------------------------------ 
 
¶2. (SBU) As one of the conditions for Serbia to receive a Category 1 
safety rating, a prerequisite for direct flights to the United 
States, the U.S. Federal Aviation Administration (FAA) recommended in 
2003 that the Serbian government create new aviation oversight 
legislation to give independent authority and power to the Serbian 
Civil Aviation Directorate (CAD).  The last civil aviation law, 
passed in 1998 when Serbia was still part of Yugoslavia, is now 
obsolete.  There have been four unsuccessful attempts to pass a new 
civil aviation law since FAA's 2003 recommendation, CAD Director 
General Nebojsa Starcevic told us on June 24.  Starcevic cited 
competing stakeholder interests as the main obstacle to the passage 
of the law, but said he hoped to see the new law passed by September. 
 Starcevic said he was disappointed that Serbia had not achieved 
Category 1 status from the FAA.  He stated that Yugoslavia had 
Category 1 status under Slobodan Milosevic, so it was frustrating 
that even with technical advancements Serbia was not able to reach 
Category 1.  Starcevic said Serbia would like to establish direct 
flights to the United States.  He said that with half a million Serbs 
living in Chicago alone, direct flights between Serbia and the United 
States would be economically beneficial for both countries. 
 
FIRST PRISTINA, NEXT BELGRADE 
----------------------------- 
 
¶3. (SBU) Touting the official government line on Serbia's territorial 
integrity over Kosovo, Starcevic said that with American charter 
airline Skenderbeg Air now flying direct from New York to Pristina, 
the Serbian government should be given reciprocity allowing Serbian 
carriers to fly direct to the United States.  He conceded that he was 
aware that the United States would not share this view, and that the 
GoS would not seriously pursue this. 
 
EU AND SERBIA AVIATION RELATIONS 
-------------------------------- 
 
¶4. (SBU) Serbia has made progress on its aviation relations with the 
EU.  In May 2009, Serbia ratified the European Common Aviation Area 
(ECAA) Agreement that it signed with the EU in 2006; however, the 
agreement will not go into effect until all EU countries have 
ratified it.  Starcevic hoped that the remaining five EU countries 
would ratify the agreement soon for quick implementation.  He 
estimated that Serbia had already implemented 90% of the procedures 
and regulations necessary for compliance with the ECAA agreement. 
This phase requires the ratifying country to open its skies and 
accept all incoming flight requests from all member countries. 
Starcevic said that Serbia was currently granting permission to 95% 
of flight requests into Serbia.  Once the agreement was ratified by 
all of the EU countries the updated aviation legislation would be one 
of the only remaining obstacles to Serbia's full implementation of 
the agreement, Starcevic said.  Although the CAD was eager to see the 
agreement implemented Jat Airways would likely suffer as a result of 
the increased competition facilitated by the agreement, Starcevic 
said. 
 
JAT AIRWAYS FOCUSES ON RESTRUCTURING 
------------------------------------- 
 
¶5. (SBU) The privatization of Serbian flag carrier, Jat, remains 
stalled.  The process was halted in September 2008 after no company 
purchased the bid documents and was postponed for two years to allow 
the company time for restructuring.  In accordance with the company's 
restructuring plan, Jat has been cutting costs, reducing the size of 
its workforce, updating its service and technology, and working to 
renew its fleet.  Jat Executive Director Veljko Basaric told us on 
 
BELGRADE 00000751  002 OF 003 
 
 
June 22 that in the last 18 months Jat had reduced costs by 
one-third.  Jat instituted several cost-cutting measures including 
cutting the number of offices abroad, moving offices from city 
centers to airports, and cutting its overall workforce from 1600 to 
1200 employees.  After the restructuring is complete, Basaric 
expected Jat would have only 900 employees.  Basaric anticipated that 
Jat's new contract with Jat Technics, which for the first time 
allowed for non-exclusivity, would save Jat an additional $8 million 
per year.  In the last year and half Jat also modernized its systems 
with the introduction of on-line booking, a call center and a ticket 
refund policy. 
 
OLD BUT STILL FLYING 
-------------------- 
 
¶6. (SBU) Jat's 18-year old fleet is in desperate need of overhaul. 
Basaric said that the company would be "dead" if it did not renew its 
fleet in the next two years.  Jat reopened negotiations with Airbus 
about a decade old dispute regarding Jat's acquisition of Airbus 
planes.  They now expect to have the first of the new planes 
delivered next year.  Basaric said that the deal with Airbus did not 
exclude the possibility of a deal with Boeing. 
 
JAT IN DEBT 
----------- 
 
¶7. (SBU) Although Jat's exact indebtedness is uncertain, in April 
2008 Jat's former CEO, Sasa Vlaisavljevic, confirmed in an interview 
with "Blic" daily that Jat was about $324 million in debt.  In 2008, 
Jat's total losses reached $112 million Jat's new CEO Srdjan 
Radovanovic told Blic daily, on July 12.  Basaric said that the 
Infrastructure Ministry was negotiating the debt and that it was not 
a factor in the privatization process, but that the government was 
satisfied with the company's restructuring. 
 
DELAYS IN DEPARTMENT OF PERMISSIONS AND TRAFFIC RIGHTS 
--------------------------------------------- --------- 
 
¶8. (SBU) Basaric said that while their overall cooperation with the 
Serbian CAD was very positive, they were dissatisfied with their 
collaboration with the CAD's Department of Permissions and Traffic 
Rights.  According to Basaric, the CAD was not negotiating 
permissions for flights in a timely manner.  As a result, two recent 
problems occurred with charter flights to Turkey and Croatia.  Jat 
scheduled charter flights to Turkey in May 2009, but shortly after 
Turkey's Civil Aviation Directorate granted permissions, they were 
revoked.  Consequently, Jat had to cancel the flights until 
permissions were granted again several weeks later.  In June 2009, 
Jat announced that it would offer direct flights between Belgrade and 
Dubrovnik, Croatia twice a week throughout the summer.  According to 
local media, Jat discontinued selling tickets on July 3 because it 
only received permission for two flights.  Serbia and Croatia, who do 
not have a permanent air traffic agreement, entered into a limited 
temporary agreement on July 14, opening the door to future talks.  In 
that agreement Croatia offered temporary permissions for future Jat 
flights to Dubrovnik; however, Jat already discontinued all flights 
to Dubrovnik for the remainder of the season. 
 
AIRPORT ANTICIPATES INCREASE IN PASSENGERS 
------------------------------------------- 
 
¶9. (SBU) While air traffic had decreased, Belgrade's Nikola Tesla 
International Airport remains profitable, Airport Interim Director 
General told us on July 8.  The airport made $21 million in profit in 
2008 and expected a profit of $28 million in 2009 according to 
Radosvljevic.  Overall air traffic into the airport had decreased by 
about 10%, with 2.65 million passengers coming through the airport in 
2008, down to a projected 2.4 million passengers for 2009. 
Radosvljevic said that the decreased traffic was a result of the 
financial crisis and a recent 30% decrease in air traffic between 
Serbia and Montenegro.  He expected significant increases in the 
number of passengers going through the airport after the introduction 
of the Schengen Visa in Serbia (REF B).  Radosvljevic projected 
approximately 4 million passengers would pass through the airport in 
¶2011.  According to Radosvljevic, the airport was prepared for this 
increase and had the capacity to handle 5.5 million passengers per 
year. 
 
¶10. (SBU) Currently 22 airlines fly into the Nikola Tesla Airport and 
several other regional airlines are interested.  In September 2008 
the airport received a Category 3B rating, which allows airplanes to 
land at the airport with a runway visibility range (RVR) of 75 meters 
and to take off with an RVR between 125 and 150 meters.  Radosvljevic 
said this was the best rating of any airport in the region. 
 
BELGRADE 00000751  003 OF 003 
 
 
COMMENT 
------- 
 
¶11. (SBU) Although Serbian aviation authorities say they would like 
to establish direct flights between Serbia and the United States 
there is little movement to make this happen.  Fulfilling FAA 
guidelines for Category 1 status is not Serbia's top priority, since 
the GoS is focused on its relations with the EU.  As recently seen, 
this at times can also come at the detriment of improving air links 
with regional neighbors, such as Croatia and Turkey.  Jat, with its 
enormous debt and inadequate fleet, remains unattractive for 
privatization despite the restructuring.  The airport has been hit by 
the financial crisis, but is betting heavily on increased passenger 
traffic as a result of the possible introduction of Schengen visas 
for Serbians in 2010. End Comment. 
BRUSH