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Cablegate: Gon Aviation Minister Restates Case That Virgin

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

230737Z Dec 04

UNCLAS SECTION 01 OF 03 ABUJA 002119

SIPDIS

PASS DOT FOR OIA, ALSO FAA

E.O. 12958: N/A
TAGS: EAIR EINV PREL NI
SUBJECT: GON AVIATION MINISTER RESTATES CASE THAT VIRGIN
NIGERIA AIRWAYS IS A NIGERIAN AIRLINE

REF: ABUJA 1670

Background. Following a September 27 meeting with the
Embassy's Economic Counselor, on October 14 GON Aviation
Minister Mallam Isa Yuguda presented a lengthy written
defense of why the USG should consider the proposed Virgin
Nigeria Airways a Nigerian airline. In his letter, Yuguda
pleaded that the airline not be affected by or involved in
the US-UK dispute over landing rights in the United Kingdom.
Yuguda restated his case to Embassy economic officers
informally on October 21. End background.

Summary. Yuguda's letter of October 14 (FMA/LU/2004/1/119)
was a reply to the Ambassador's interagency-cleared letter
of October 4 concerning the planned launch of Virgin Nigeria
Airways. In his reply, Yuguda asserted the following
points.

-- Nigeria's private sector (Nigerian institutional
investors and the Nigerian public) will hold 51 percent of
the airline's stock.

-- "Substantial ownership," or "majority ownership," as well
as "effective control" of the airline will remain "at all
times" with Nigeria or its nationals.

-- The status of Virgin Nigeria is "completely separate and
distinct" from the UK-based and -registered Virgin Atlantic
Airways.

-- "Nigerian Eagle Airlines PLC" is the name of the
registered company concerned and that Virgin Nigeria is
"simply a brand name"

-- Virgin Nigeria is not one and the same with Virgin
Atlantic. End summary.

The Aviation Minister's unedited reply to Ambassador letter
follows below.

Begin quote

[1.] I wish to acknowledge with thanks, the receipt of Your
Excellency's letter of October 4, 2004 in respect of the on-
going discussion between my Ministry and officials of the
United States Embassy on the proposed operation into the
United States of America by the newly established Nigerian
flag carrier Airline.

2. I am particularly pleased to have met with Mr. Joseph
Gregoire, the U.S. Embassy Counsellor for Economic Affairs
on Monday, September 27, 2004 in my office when I had the
opportunity to shed more light on the proposed arrangements
between Nigeria and the Virgin Atlantic Limited on the
establishment of an entirely Nigerian private sector
Airline.

3. It is indeed the desire of the Government of the Federal
Republic of Nigeria that this new Nigerian flag carrier,
will, ab initio operate on certain major routes (including,
New York, London, Johannesburg, Jeddah and Dubai) under the
existing Bilateral Air Services Agreements. These routes
have either been left unutilized for so long or are
presently being unilaterally exploited by foreign carriers
to the detriment of Nigeria.

4. Having painstakingly gone through the content of Your
Excellency's correspondence, I consider it most pertinent to
provide further clarifications on the matter as certain
representations alluded to in the correspondence are
unfortunately not reflective of the situation at hand.

5. Since the inception of this Administration, several
efforts have been made by the Government of the Federal
Republic of Nigeria to establish a world class Airline to
address the existing lopsidedness in our bilateral
operations with other countries and also to compete
favourably with other Airlines on some regional and
international routes. I was therefore mandated upon my
assumption of office, to ensure the establishment of a
private sector airline. Following a process of open and
competitive bidding in line with all international norms,
standards and rules of transparency, Virgin Atlantic Limited
(V.A.L) and Virgin Atlantic Airways (V.A.A) emerged as
Strategic Investor and Technical Partner respectively in the
proposed Nigerian Flag Carrier.

6. The proposed Airline, as designed, is to be entirely
owned and funded by the private sector devoid of any federal
Government's equity involvement. To this end, the Nigerian
private sector (comprising Nigerian institutional investors
and the Nigerian public) are to hold fifty-one (51%) per
cent equity in the Airline while the Strategic Investor and
Technical Partner (V.A.L and V.A.A), because of the
technical expertise and investable funds to be brought into
the Airline, are to hold only forty-nine (49%) per cent of
the Airline's equity. Indeed, contrary to the
representation in the letter under reference, 'substantial
ownership,' or 'majority ownership' as well as 'effective
control' of the Airline, will at all times remain with
Nigeria or its nationals under the envisaged arrangements.

7. Your Excellency, the Airline has been structured in such
a way as to conform with Nigeria's obligations under
existing Air Services Agreements. The issue of substantial
ownership and control by Nigeria and or its nationals was
therefore of topmost consideration in the design of the
Project. Nigeria is also not oblivious of the Conclusions
and Recommendations of the 5th World Air Transport
Conference (organized by the International Civil Aviation
Organization [ICAO] in Montreal, Canada in 2003) which
provided guidance to States on the need for the relaxation
of the traditional 'substantial ownership and control'
requirement in favour of the designating State having
regulatory autonomy over the Airline with the Airline having
its registered place of business in the State of
designation. It is to be recalled further in this
connection that a copy of the relevant Conclusions and
Recommendations of ICAO on the matter was made available to
the United States Embassy's representatives at a meeting
held with my Ministry's officials on 7th September 2004 to
further assist in the consideration of the matter. A copy
of the minutes of this meeting has also been forwarded to
the United States Embassy.

8. In expatiating further on the issue of 'effective
control' of the Airline, it is pertinent to mention here
that it is the desire of the Nigerian Government, the
Nigerian investors as well as the Strategic
Investor/Technical Partner that the Airline should be
effectively managed and controlled by Nigerians. Amongst
the many assurances given by V.A.L. and VAA on this issue
include the undertaking that the Airline will employ about
twenty thousand Nigerians and the key management team will
be employed locally amongst competent Nigerians.

9. In addition to the foregoing, a Memorandum of Mutual
Undertakings (MEMU), recently executed between the
Government of Nigeria and the Strategic Investor and
Technical Partner on 28th September 2004 which inter alia,
set the legal framework for the commencement of operations
of the Airline contains certain major representations on the
employment of Nigerians in key management position to allay
the type of concerns being expressed by the United States.
Aside from having this provision entrenched in the MEMU
(with attendant legal consequences in the event of breach),
the Nigerian Government intends to closely monitor this
undertaking to ensure full compliance.

10. The United States has also indicated its objection to
the proposed utilization by the Airline of aircraft and crew
under a wet-lease arrangement. Your Excellency, it is known
to all and sundry in the airline business that the use of
aircraft on wet lease cannot be economically viable for
airline operations generally. The idea of the use of wet
leased aircraft is to enable the Airline commence operations
as early as possible while arrangements are on-going to
procure aircraft for the Airline and prompt deployment of
the Airline's crew after requisite training. The intention
is that the use of wet leased Aircraft will be kept at a
minimal period (for an initial six months to start with) at
the early stage of the Airline's operations.

11. Prior to addressing the issue of UK/US existing air
services relationship, it is necessary to clarify the status
of Virgin Nigeria which is completely separate and distinct
from the U.K. based and registered Virgin Atlantic Airways.
'Virgin Nigeria', contrary to the widely held belief is not
the name of the registered Company for the Airlines. In
January 7, 2004, Nigeria registered a special purpose
vehicle company, with the registered name of 'Nigerian Eagle
Airlines Plc' with RC No. 501975 for the purpose of running
this private sector flag carrier. The shareholders of this
Company have so far not opted for a change of its name.
'Virgin-Nigeria' is accordingly not the registered name of
the Company but the proposed brand name for the Airline.
This brand name (which is still subject to ratification by
all the shareholders of the company when finally in place)
is to enable the Airline leverage on the highly successful
and world reknown [sic] Virgin brand name.

12. Your Excellency, I wish to use this medium to also
express my deep concern about the attempts being made by the
United States to link Virgin Nigeria, (which as explained
above is simply a brand name) with the U.K. registered
Virgin Atlantic Limited. Of equal concern is the inference
by the United States that Virgin Nigeria is one and the same
with Virgin Atlantic Airways of the U.K. thereby connecting
the duly registered Nigerian Company with the U.K./U.S
deadlocked bilateral air services relationship resulting
from the U.K. restrictive market and anti-competition
posture.

13. In relation to the above, I am of the considered opinion
that the United States should kindly consider this matter
most dispassionately devoid of any sentiment and not
unjustly visit the problems being encountered with the
United Kingdom on Nigeria. This is particularly so having
regard to the strenuous but modest efforts being made by
Nigeria to establish a viable world class flag carrier. At
the end of the day, the flag carrier being set up by Nigeria
is intended to accord with conditions set by the United
States for Airlines flying to and from the United States. I
am accordingly most confident that the matter at hand will
be favourably resolved. Your Excellency's opening statement
in the correspondence under reference that "the Government
of the United States is interested in improving air links
with Africa and would welcome direct air service between the
United States and Nigeria by a new Nigerian Airline" is also
indeed most reassuring.

14. On the basis of the above explanations and
clarifications, I would like to crave Your Excellency's
understanding and cooperation, in enlightening further the
Government of the United States, its relevant authorities
and agencies on the true position of the matter with a view
to removing difficulties and obstacles as well as paving the
way for the prompt acceptance of the designation of the
Nigerian flag carrier. This indeed would go a long way in
assisting Nigeria to harness the gains of the Open Skies
Agreement signed with the U.S. in August 2000. Nigeria on
its own part is committed to the faithful implementation of
the Nigeria Open Skies Agreement and has been positively
embracing the U.S. requests emanating from this Agreement in
the true spirit of the cordial relationship that exists
between our two Governments.

15. Finally, I wish to extend my profound appreciation to
Your Excellency on the interest shown in this matter
trusting that Your Excellency will positively intervene in
this matter and ensure its early resolution.

16. Please be assured of my highest esteem always.

[signed]
Mallam Isa Yuguda
Minister of Aviation

End quote.

Comment. Acting Economic Counselor and an Economic Officer
met with Yuguda informally the evening of October 21. During
their discussion, Yuguda was insistent, and apparently
sincere, in his belief that Virgin Nigeria Airways would be
Nigerian owned, operated, and directed. Yuguda reiterated
points from his October 14 reply concerning the "Nigerian
content" of the proposed airline, and added that shares in
the airline will be sold to the public in an initial public
offering in Nigeria. Yuguda restated his insistence that
Virgin Nigeria Airways should not be permitted to become
involved in the current US-UK aviation dispute. End
comment.

FUREY

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