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Cablegate: Indonesia Seeks Better Financing with Cape Town Treaty

VZCZCXRO4820
RR RUEHCHI RUEHCN RUEHDT RUEHHM
DE RUEHJA #1262/01 1790918
ZNR UUUUU ZZH
R 270918Z JUN 08
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC 9414
INFO RUEHZS/ASEAN COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHGP/AMEMBASSY SINGAPORE 6310
RUEHBK/AMEMBASSY BANGKOK 8472

UNCLAS SECTION 01 OF 02 JAKARTA 001262

SIPDIS
SENSITIVE

DEPT PASS EX-IM-RMORIN
DEPT FOR EAP/MTS, EB/A/TRA/DL AND EEB/IFD/ODF-DWILLIAMS

E.O. 12958: N/A
TAGS: EAIR ECON EFIN EINV ETRD PGOV ID

SUBJECT: INDONESIA SEEKS BETTER FINANCING WITH CAPE TOWN TREATY

REF: JAKARTA 00691

1. (U) This is an Action Cable. Please see paragraph 12.

2. (U) This message is Sensitive but Unclassified. Please protect
the business sensitive information in para 4.

3. (U) SUMMARY: Indonesian airline Lion Air has requested loan
guarantees from the U.S. Export-Import Bank (Ex-Im) for purchase of
Boeing airplanes. Ex-Im has said its decision hangs on the question
of whether the Cape Town Treaty (CTT) has been fully implemented in
Indonesia. In April 2007, the Government of Indonesia ratified by
presidential decree the CTT, an international treaty that attempts
to standardize the transactions of movable property, particularly
aircraft and aircraft engines. Although some Indonesian law firms
have said that CTT was fully implemented in Indonesia upon
ratification by presidential decree, others, including Ex-Im's local
counsel, have contested this point. The Indonesian Parliament would
like to enact CTT legislation and seeks additional input on
appropriate legal language. Meanwhile, the Ministry of
Transportation is drafting CTT operating rules. END SUMMARY.

Ex-Im May Give $1 Billion Loan Guarantee on Boeing Aircraft

4. (SBU) Lion Air has ordered 178 Boeing 737-900 Extended Range (ER)
airplanes, with purchase rights for an additional 50 737-900ERs. On
October 24, 2007, Ex-Im authorized a final commitment and
preliminary commitment totaling over $1 billion for 30 of these
aircraft subject to Congressional review and other conditions,
including CTT implementation in Indonesia.

Conflicting Views on CTT Implementation

5. (SBU) There are conflicting views on whether CTT is implemented
in Indonesia. Ex-Im says Indonesia further requires national
legislation and implementing regulations by the Ministry of
Transportation to fully implement CTT. Lion Air says CTT was fully
implemented at the time of ratification by presidential decree.
Without agreement on implementation of CTT in Indonesia, Ex-Im
officials cannot recommend to its board of directors the approval of
loan guarantees for Lion Air.

Indonesia Wants CTT Legislation and Operating Rules

6. (SBU) On April 16, Minister of Transportation Jusman Syafii
Djamal told Ambassador Hume that he supported efforts to enact CTT
legislation and that his Ministry was in the process of developing
operating rules. We briefed Parliament's Commission V (oversees
transportation issues) Chairman Akhmad Muqowam and Members
Enggartiasto Lukita and Taufik Kurniawan on CTT and submitted to
them a copy of draft CTT legislation suggested by Ex-Im. The
Parliament members promised to review the issue and said the timing
was ideal as they were preparing to revise the civil aviation law,
which they expected to pass in July or September 2008. Ministry of
Transportation Directorate General of Civil Aviation's (DGCA)
leading expert on CTT Edward Silooy and Deputy Director of Human
Resources and Foreign Cooperation Indriarti Tirza, told us that
subsequent to our meeting with Commission V, Parliament members
asked DGCA to draft CTT legislation for inclusion in the civil
aviation revised law. Silooy said some airlines, including flagship
carrier Garuda, had also expressed interest in CTT legislation.

7. On June 24, Ambassador Hume met with the Indonesian National Air
Carriers Association (INACA) secretary general and several members,
including airline executives of Garuda, Lion Air, Batavia Air,
Sriwijaya Air, Merpati and Global Transport Services. Ambassador
Hume discussed the potential financial benefits of CTT to the
airline industry. INACA Chairman, who is also President and Chief
Executive Officer of Garuda, Emirsyah Satar suggested INACA meet
with Parliament and Ministry of Transportation to voice industry
support for CTT legislation. In a meeting with Minister Djamal
later that day, Satar raised CTT and the Minister said he would
insert CTT in the civil aviation reform law. Ambassador Hume also
discussed CTT with Deputy Coordinating Minister for International
Economic Cooperation Mahendra Siregar, who expressed interest in
lower cost financing opportunities for Indonesian airlines.

Uncertainty about Legal Language

8. (SBU) Lion Air President Director Rusdi Kirana told us he had
discussed CTT legislation with his contacts at Parliament's
Commission V who asked which parts of CTT needed to be included in
the legislation. Kirana asked us to relay this request to Ex-Im.
Kirana expressed uncertainty as to DGCA's capacity to draft legal
language on CTT that would satisfy both Parliament and Ex-Im.

JAKARTA 00001262 002 OF 002

Operating Rules in Progress

9. (SBU) Silooy told us DGCA was developing operating rules in
consultation with a team of three leading civil aviation law firms,
including Lion Air's local counsel, and in parallel with national
legislation. He expects Minister Djamal to issue operating rules by
ministerial decree one to two months after Parliament passes the
civil aviation law revision.

GOI Official Requests CTT Expert Assistance
-------------------------------------------

10. (U) Silooy requested we fund the visit to Indonesia of Jeffrey
Wool, secretary and general counsel of Aviation Working Group, a
non-profit legal entity closely associated with CTT and comprising
major aviation manufacturers, leasing companies and financial
institutions. Silooy said Jeffrey Wool would be able to help
Indonesian airlines understand CTT and how they might benefit from
it.

11. (U) Post will continue to work closely with Ex-Im, Boeing,
Ministry of Transportation, Indonesian airlines and Parliament to
help Indonesia take full advantage of CTT. Ambassador Hume has
requested meetings with Parliament Commission V members and the
Minister of Transportation to discuss progress on CTT legislation
and operating rules.

Action Request

12. (U) Post urgently requests the hiring of local counsel to work
with the Ministry of Transportation and Parliament on CTT legal
language to meet Ex-Im's requirements.

HUME

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