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Cablegate: Aer Lingus Ceo Presses for Bilateral Open Skies

VZCZCXRO7939
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHDL #1359/01 3281550
ZNR UUUUU ZZH
R 241550Z NOV 06
FM AMEMBASSY DUBLIN
TO RUEHC/SECSTATE WASHDC 7727
INFO RUCNMEM/EU MEMBER STATES
RUCPDOC/USDOC WASHDC
RUEHBS/USEU BRUSSELS

UNCLAS SECTION 01 OF 02 DUBLIN 001359

SIPDIS

SENSITIVE
SIPDIS

USDOC FOR ITA/MAC/MCLAUGHLIN
USDOC FOR ITA/ADVOCACY CENTER/NUGENT

E.O. 12958: N/A
TAGS: EAIR ECON ETRD PREL EI
SUBJECT: AER LINGUS CEO PRESSES FOR BILATERAL OPEN SKIES

REF: A. YOUNG-BYERLY E-MAIL OF NOVEMBER 20
B. DUBLIN 1189 AND PREVIOUS

1. (SBU) Summary: In a November 21 discussion with the
Ambassador, Aer Lingus CEO Dermot Mannion recommended
bilateral talks to establish U.S.-Ireland Open Skies, with a
view to providing Aer Lingus additional access to the U.S.
market. Mannion said that he and the Irish Government
doubted that the EU Transport Council would approve the draft
U.S.-EU air services agreement in December, and he suggested
implementing the U.S.-Ireland annex to the U.S.-EU agreement
as a stand-alone arrangement, inclusive of a transition
period leading to Open Skies. The Ambassador replied,
however, that the USG had no interest in pursuing bilateral
aviation talks with Ireland, as the U.S.-EU negotiations
remained the USG's preferred mechanism to deliver Open Skies
with EU Member States. Mannion reiterated the Irish
commitment to Open Skies, noting the inefficiencies foisted
on Aer Lingus by restrictions in the current U.S.-Irish
bilateral agreement. He also observed that Boeing remained
in the running to sell new long-haul aircraft to Aer Lingus,
and he expressed confidence that the carrier had repulsed
Ryanair's recent takeover bid, at least for the moment. End
summary.

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Mannion's Pitch for Bilateral Open Skies
----------------------------------------

2. (SBU) In a November 21 meeting with the Ambassador, Aer
Lingus CEO Dermot Mannion suggested implementing the
U.S.-Ireland annex to the draft U.S.-EU air services
agreement as a stand-alone arrangement. This approach, he
believed, would give Aer Lingus more access to the U.S.
market regardless of the status of the U.S.-EU negotiations.
(The existing U.S.-Ireland aviation agreement gives Irish
carriers access to four U.S. cities. The annex would, by
2008, phase in additional U.S. destinations for Irish
carriers, while phasing out the Shannon Stop requirement,
whereby U.S. and Irish carriers must provide a direct flight
to Shannon for every direct flight to Dublin.) Mannion noted
the Irish Government's expectation that the December 12 EU
Transport Council meeting would not approve the draft U.S.-EU
agreement without a U.S. Department of Transportation final
rule on foreign investment in U.S. carriers. He added that
Transport Minister Martin Cullen therefore would seek "a wink
and a nod" from EU Commission officials that they would not
block bilateral talks to establish Open Skies. (Per ref A,
Prime Minister Bertie Ahern cited the possibility of
enhancing the bilateral agreement in a November 16
statement.) Mannion was confident that the Commission would
provide this assurance, and he predicted that the Irish
Department of Transport would soon contact the Embassy on
bilateral possibilities.

3. (SBU) The Ambassador replied that the USG had no interest
in pursuing bilateral aviation talks with Ireland. He
highlighted the USG view that the U.S.-EU negotiations
remained the preferred mechanism to deliver Open Skies with
EU Member States. The Ambassador added that proposals for a
side deal with Ireland would be inconsistent with the U.S.-EU
effort, and he expressed regret that this view would not be
good news for Aer Lingus. "Extracting the Irish part of the
U.S.-EU negotiations could destabilize the whole," he
explained. He stressed, however, that Ireland could play a
supportive role in the USG's continuing push for a U.S.-EU
agreement.

4. (SBU) Mannion thanked the Ambassador for his comments,
noting that the Irish Government, particularly Prime Minister
Ahern, remained committed to Open Skies, notwithstanding
continued, though dimished opposition from the Shannon Lobby.
Mannion pointed out that Aer Lingus would maintain Shannon
service at current levels in an Open Skies situation,
including round-year service to New York, Boston, and
Chicago. He expected, however, that U.S. carriers would
reduce Shannon service with Open Skies, likely providing one
direct flight to Shannon for every four direct flights to
Dublin. (Under the terms of the U.S.-Ireland annex to the
draft U.S.-EU agreement, U.S. carriers would transition to
one flight to Shannon for every three flights to Dublin.)
Mannion added that Aer Lingus would seek USG permission for
new service to San Francisco, Washington Dulles, and Orlando
if a transition arrangement could be implemented under the
terms of the annex. He added that the Shannon Stop foisted
frustrating inefficiencies on Aer Lingus and was responsible
for the termination of the carrier's previous service to
Washington-Baltimore.

DUBLIN 00001359 002 OF 002

Boeing Still in the Running for Aer Lingus Planes
--------------------------------------------- ----

5. (SBU) Aer Lingus was preparing to send out a Request For
Purchase (RFP, or commercial tender) on November 22 to Boeing
and Airbus to fill the carrier's needs for new long-haul
aircraft, said Mannion. He observed that the time frame for
decisions on new aircraft was very short, as the euro 400
million generated in Aer Lingus' September stock flotation
"was burning a hole in his pocket." He also commented that
Boeing had helped its case with recent notification that 787s
could be delivered earlier than 2012, as originally
indicated. Mannion noted his familiarity with Boeing
representatives and aircraft during his tenure with Emirates.
He added that the final package of new aircraft would
include a mix of purchased and leased models.

Ryanair Defeated -- For Now
---------------------------

6. (SBU) Mannion observed that Aer Lingus had fended off
Ryanair's takeover bid for now, especially with the November
21 statement by Ryanair CEO Michael O'Leary that Ryanair
would not raise its bid price of euro 2.80 (compared to Aer
Lingus's IPO price of euro 2.20, per ref B). Mannion also
predicted that Aer Lingus employees, who together hold
roughly a 15 percent stake in the carrier, would vote
overwhelmingly on November 22 to reject the Ryanair bid.
Mannion said that competition between Aer Lingus and Ryanair
was good for Irish travelers, and he described his challenge
as retaining shareholder confidence by raising Aer Lingus'
stock price above the euro 2.80 threshold set by Ryanair. He
noted that he would not be surprised to see a renewed
takeover bid from Ryanair in 2007, or at least an onslaught
of new Ryanair service with which Aer Lingus would have to
compete.
FOLEY

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