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Cablegate: Thy Privatization: On Track...For Now

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 ANKARA 001913

SIPDIS


SENSITIVE


STATE FOR E, EB, EB/IFD/OMA/TRA, EUR/SE,
ROME FOR FAA, PARIS FOR TSA,
TREASURY FOR OASIA - MILLS AND LEICHTER
STATE PASS USTR - NOVELLI AND BIRDSEY


E.O. 12958: N/A
TAGS: ASEC EAIR ECON EFIN PREL TU
SUBJECT: THY PRIVATIZATION: ON TRACK...FOR NOW

REF: ANKARA 1203


1. (SBU) SUMMARY: Turkish Airlines (THY - Turk Hava
Yollari) is scheduled for tender in the third quarter 2003,
and the GOT official heading THY privatization said that
plans are on schedule. THY has managed, largely through
timely sales of old planes, to remain profitable in bad times
generally for the airline industry. However, THY officials
have commented to us privately that, following a profitable
2002, sales are expected to drop in 2003. They add that a
successful privatization this year will be difficult. END
SUMMARY.


Plans on Schedule
-----------------


2. (SBU) Ali Guner Tekin, the Privatization Administration
(PA) official in charge of the THY sale, told us March 7 that
the lead-up to war was hurting THY's revenue stream and may
cause problems for the scheduled privatization process. "If
it is a long war, it will affect this privatization
strongly," Tekin said. He feels, however, that the Iraq
conflict will likely be short and cause minimal, if any,
delays.


3. (SBU) In the next few months, Tekin plans to hire a
consultant to assess the current investor climate, set up a
value assessment committee, and establish a tender commission
(chaired by THY's Vice President). The tender commission
will be responsible for advertising the technical
specifications of THY aircraft and aircraft parts. In the
third quarter of 2003, the PA will give a public offering for
15-25 percent of the company followed by a block sale of a
minimum 51 percent, and another public offering for the
remainder of the company. Tekin hopes to finalize the sale
by early 2004. Press sources estimate THY's value in 2001
was USD $2-3 billion.


4. (SBU) Bidders will have to meet a number of requirements:
no more than 40 percent of THY can be foreign owned; a
majority of the company's capital assets must be held in
Turkey; and a majority of its board must be Turkish. PA is
trying to find interested investors in Turkey as well as in
Turkish expat communities in Europe. The articles dictate
that the GOT hold at least one share - the "golden share" -
reserving the GOT the right to block any future merger
decisions taken by the new THY management. Speaking of all
the conditions that need to be met, Tekin said the right
bidder will not necessarily be the highest bidder. "We're
looking for a suitable candidate for our daughter," he said.
"It doesn't have to be rich but it sure needs to be decent."
.
THY Remains Profitable in a Struggling Industry
--------------------------------------------- --


5. (SBU) Taken into the privatization portfolio in August
1990, THY has undergone two previous iterations of
privatization efforts gone awry. In 1991, privatization was
halted when war with Iraq broke out and, in early 2001, plans
were again delayed due to the GOT financial crisis.
Following that crisis, the GOT loosened price and regulatory
controls on THY flights, allowing it to reduce or eliminate
unprofitable flight routes, lay off 1,500 workers, sell
excess aircraft, and pare down in-flight meals. In addition,
THY was fortunate to receive $20 million from the Government
of Iran for the sale of several Airbuses one week prior to
September 11, 2001.


6. (SBU) This increased autonomy and revenue helped THY
manage the post 9/11 storm that hit the aviation industry.
In 2002, a year in which many airlines struggled and two
European flag carriers went bankrupt, THY had it's most
profitable year since 1996 ($107 million in profits). In
2001, THY sales were $1.4 billion; in only the first nine
months of 2002, sales were $1.2 billion. (Because THY is the
largest foreign currency earner in the Turkish economy, it's
revenues are an important mechanism in protecting the Turkish
lira from depreciation.)


Threat of War Hurting Sales
---------------------------
7. (SBU) Head of Marketing for Turkish Airlines Guliz Ozturk
told us in late February that THY expected a significant
decrease in international and domestic operations in the
event of a war in Iraq (reftel). Ozturk said THY has already
cut back on its flights to the Far East, and she anticipated
a significant drop in bookings on THY's European flights. In
addition, Ozturk said THY was also concerned about its
domestic operations to eastern and southeastern Turkey,
noting that it would be difficult, if not impossible, to keep
aircraft and crews in these cities once an operation began.
8. (SBU) COMMENT: In light of these difficulties, one THY
executive was doubtful that the airline could be successfully
privatized this year. Although Tekin appears to be genuinely
committed to completing the sale of THY by early 2004, he may
be overly optimistic on the timing.
PEARSON

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