VZCZCXRO5071
OO RUEHDBU RUEHPW RUEHSL
DE RUEHBUL #2964/01 2691233
ZNR UUUUU ZZH
O 261233Z SEP 09
FM AMEMBASSY KABUL
TO RUEHC/SECSTATE WASHDC IMMEDIATE 1677
INFO RUCNAFG/AFGHANISTAN COLLECTIVE
RUEHAD/AMEMBASSY ABU DHABI 1993

UNCLAS SECTION 01 OF 02 KABUL 002964 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EEB/TRA, S/SRAP, SCA/RA, SCA/A, 
DEPT PASS TO FAA: RAY SMITH 
 
E.O. 12958 N/A 
TAGS: EAIR EFIN PREL AF
SUBJECT: KamAir Moves Forward on Safety But Warns of Bankruptcy 
 
REF: A) 08 Kabul 496 
 B) 09 Kabul 2667 
 
¶1. (SBU) Summary: Afghanistan's third largest private air carrier, 
KamAir, has improved its safety procedures, but continues to lose 
money.  The company's president has long complained of unfair Afghan 
Government support for state-owned Ariana Airlines, and believes 
another rival sets artificially low prices with support from a bank 
with questionable lending practices (a similar conclusion reached by 
Safi Airline executives).  A tax dispute with the Afghan Government 
also contributes to KamAir's financial woes.  The airline now loses 
between $300,000 and $500,000 per month and its president warned of 
impending bankruptcy.  End Summary. 
 
"We Have Two Enemies: The Afghan Government and Kabul Bank." 
--------------------------------- 
 
¶2. (SBU) KamAir President Zamarai Kamgar told econoff September 16 
Afghan Government support for Ariana and Kabul Bank's extensive 
financial support of rival Pamir Air is pushing KamAir to the brink 
of collapse.  According to Kamgar, Pamir Air, owned by Kabul bank, 
has regular onboard cash raffles on its Kabul - Dubai flight.  Its 
prices on this competitive route are consistently lower than rivals. 
 Kamgar alleged Kabul Bank is using its deposit base to subsidize 
Pamir Air without its depositors' knowledge in an attempt to drive 
rivals out of business.  (Comment: other airlines have alleged Kabul 
Bank illegally supports Pamir Air (Ref B).  Emboffs have discussed 
concerns about Kabul Bank's lending practices and unprofitable 
business ventures with Ministry of Finance and Central Bank 
officials.  The International Monetary Fund has expressed similar 
concerns.  End comment.) 
 
¶3. (SBU) Government support for state-owned Ariana Airlines further 
erodes KamAir's earnings, Kamgar said.  An agreement between 
Afghanistan and India exempts state-owned airlines from taxes, 
forcing KamAir to include taxes in ticket costs and to lose 
passengers.  He also protested Ariana's monopoly on ground handling 
services at Kabul International Airport.  KamAir and Safi Airlines 
purchased their own ground handling equipment but are forbidden to 
use it.  (Comment: Airport ground handling services will soon be 
privatized, but a single contractor will conduct all ground handling 
services.  KamAir did not bid on the contract.  End comment.) 
 
¶4. (SBU) Combined with increased competition from Ariana and private 
airlines like Pamir Air, Kamgar said KamAir is in financial trouble 
and only remains operational due to subsidies from owner Kam Group's 
other businesses.  He could not say how long the airline can 
continue to operate at a loss. 
 
Tax Troubles 
------------ 
 
¶5. (SBU) Ministry of Finance officials said KamAir has not paid 
taxes for the last two Afghan fiscal years.  The Ministry cancelled 
the installment payment plan for KamAir's back taxes in September 
and initiated enforcement proceedings.  Kamgar said the Afghan 
Government has attempted to levy a 10 percent tax on each passenger, 
which is illegal and has been referred to President Karzai for 
resolution.  He says KamAir will pay the tax when the rate is 
reduced to 2 percent, which is what Ariana pays as a state-owned 
airline.  He added he is waiting for the Ministry of Public Works to 
pay a $200,000 road paving bill to another Kam Group company, which 
he will use to pay KamAir's back taxes. 
 
Safety Certification Improves 
----------------------------- 
 
¶6. (SBU) After failing a Ministry of Transport safety audit 
conducted by International Civil Aviation Organization (ICAO) 
contracted inspectors early in 2009, the airline improved its 
practices and was certified in compliance with Afghan and 
international standards by the Ministry of Transport on September 
16, Kamgar said.  He introduced American Frank Nelson as KamAir's 
new Director of Operations.  Nelson noted he is exploring a 
potential International Air Transportation Association (IATA) audit, 
which would enable KamAir to join an airline alliance. 
 
New Routes 
---------- 
 
¶7. (SBU) Kamgar said he is not considering eliminating the 
unprofitable Kabul - Dubai route at this time.  The airline will add 
service to Al Ain in the United Arab Emirates soon, and is applying 
for landing slots at Amsterdam-Schiphol and London (although Kamgar 
could not specify which London airport).  The airline will also 
expand its domestic routes, which should be profitable due to the 
danger of road travel, Kamgar said.  Ninety percent of the airline's 
passengers are foreign. 
 
KABUL 00002964  002 OF 002 
 
 
 
¶8. (SBU) Comment:  Kamgar blamed his competitors rather than his own 
management decisions for KamAir's predicament.  For example, he 
appeared unknowledgeable about which KamAir routes generate more 
revenue than others.  His fixation on his competitors' alleged 
misdeeds may well obscure a real problem, namely, KamAir's unpopular 
routes and high operating costs.  Compounding management problems, 
his new Director of Operations (with whom he does not share a common 
language) seemed unaware of the airline's financial problems.  End 
comment. 
 
EIKENBERRY