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Cablegate: Philippine Airlines Buys Boeings

VZCZCXRO2288
OO RUEHCHI RUEHDT RUEHHM
DE RUEHML #4959 3460329
ZNR UUUUU ZZH
O 120329Z DEC 06
FM AMEMBASSY MANILA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4233
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC IMMEDIATE
RULSDMK/DEPT OF TRANSPORTATION WASHDC IMMEDIATE
RUCPDOC/USDOC WASHDC IMMEDIATE
RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS IMMEDIATE
RUEHBJ/AMEMBASSY BEIJING IMMEDIATE 5930
RUEHKO/AMEMBASSY TOKYO IMMEDIATE 2998

UNCLAS MANILA 004959

SIPDIS

Sensitive

STATE FOR EAP/MTS
STATE ALSO PASS EXIM - JRICHTER
TREASURY FOR OASIA
TRANSPORTATION FOR FAA
SINGAPORE AND TOKYO FOR FAA
COMMERCE FOR SBERLINGUETTE

SIPDIS

E.O. 12958: N/A
TAGS: EAIR ETRD BEXP RP
SUBJECT: PHILIPPINE AIRLINES BUYS BOEINGS

REF: A) MANILA 1580 B) MANILA 1135 C) 05 MANILA 5937
D) 05 MANILA 5276

SENSITIVE BUT UNCLASSIFIED - PROTECT ACCORDINGLY

1. (SBU) Summary. Philippine Airlines (PAL) announced on December
7 its purchase of two Boeing 777-ER aircraft, with the option to buy
two additional planes, and its lease of two more aircraft. The
planes will allow PAL to increase its flights to the United States,
including planned new destinations Seattle and San Diego. Boeing
Country Sales Manager Ray Lau gave substantial credit to the
Ambassador for advocating the sale. Boeing plans to make a generous
contribution to typhoon relief efforts. End Summary.

2. (U) PAL executives signed a firm contract with Boeing in late
October to purchase two wide body Boeing 777-ER aircraft with the
option to purchase two additional planes. PAL executives also
signed a Letter of Intent to lease two 777-ER aircraft from GE
Commercial Aviation Services. The value of each plane is about $250
million; the total estimated value of the deal is $1.5 billion. PAL
President Jaime Bautista expects delivery to begin in 2009. Boeing
and PAL executives shared this information with Embassy some weeks
ago, but requested that it not be reported until approval was
received from creditors.

3. (U) Bautista told econoff that the planes will accommodate PAL's
expansion plans to destinations outside the region, including the
US. He said PAL will likely expand its service to the United States
to include new routes to Seattle and San Diego. PAL must decide on
the optional planes by 2008, two years before their expected
delivery date in 2010. Bautista said the decision depends on demand
for these new markets but he expected the planes would be needed to
cover additional flights to the U.S. West Coast or possibly Europe.


4. (U) Bautista said PAL would finance the planes through US EXIM
Bank or commercial loans. PAL has recently seen a turnaround in its
profitability with its 2005 profits the highest in 10 years. PAL
posted a $3.5 million profit for the third quarter of 2006,
reversing a loss of $4.5 million in the same quarter last year. Net
profit increased by 12 percent in the first half of 2006, from $23
million in 2005 to $25.8 million. PAL struggled financially in the
1990s, posting six years of net loss, and filed a financial
rehabilitation plan in 1998.

5. (SBU) Boeing Country Sales Manager Ray Lau told econoff on
December 8 that PAL's contract is final and air-tight. The
negotiations stalled earlier in the year because PAL was seeking
reimbursement of the $100 million it forfeited to Boeing when the
company refused to take delivery of a contracted Boeing 747 ten
years ago (ref D). Lau said Boeing resolved the disagreement by
reimbursing PAL for a large portion of its deposit.

6. (U) Lau is very optimistic PAL will consummate the purchase of
the additional two Boeing planes. He said once the company begins
flying to more long-distance destinations, it will realize the
financial advantage of adding 777s to its fleet.

7. (SBU) Lau gave substantial credit for the sale of 777s to the
Ambassador. Post has persistently advocated for the sale of Boeing
planes, including in frequent meetings with PAL officers and has
regularly coordinated strategy with visiting Boeing representatives.


8. (SBU) Lau said he will join PAL President Jaime Bautista in
Legaspi City on December 9-10 to see the communities destroyed by
the recent typhoon. PAL is asking its employees, passengers, and
even suppliers to donate relief funds. Although Boeing's lawyers
discouraged Lau from contributing company funds directly to the
charitable foundations of the airline and its Chairman, Lau said
Boeing will give a generous contribution to the Philippine National
Red Cross.

KENNEY

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