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Cablegate: Ukraine: Aviation Head Discusses Progress On Air

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

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