Cablegate: Ukraine: Gou Says Iata Ticket Stock Illegal-Threatens Shut


DE RUEHKV #1974/01 2221339
R 101339Z AUG 07




E.O 12958: N/A

REFS: A) 06 STATE 106322

B) 06 KYIV 02788

Sensitive, but Unclassified. Not for Internet Distribution. Please
handle accordingly.

1. (SBU) Summary. In a meeting with representatives from Ukraine's
State Aviation Authority (SAA), Economic officers verified the SAA
had indeed found the International Air Transport Association's
(IATA) ticket stock to be invalid under Ukrainian law. As a result,
the SAA ordered IATA to refrain from releasing any more ticket stock
to airlines and travel agencies. In addition, the SAA informed post
that IATA was currently under investigation by Ukrainian law
enforcement agencies for violations of Ukrainian law. The SAA noted
that the most severe sanction possible could be the revocation of
IATA's license to operate in Ukraine. EconCouns reminded the SAA of
the negative international fallout of actually closing IATA down in
Ukraine. The SAA was willing to meet with high ranking IATA
officials in the nearest future to discuss the ticket stock issue
and possible sanctions against IATA. End Summary.

2. (U) On August 7, Econ Counselor, EconOff, and Delta Airline's
Country Director Dan Fenech met with Deputy Chairman of the SAA
Dmytro Babeichuk and Head of the SAA's Air Services and Licensing
Department Sergiy Korshuk to discuss the SAA's recent banning of the
IATA's ticket stock, known as the Automated Ticket/Board Pass
version 2 (ATB2), and overall concerns the SAA has with IATA's
Billing and Settlement Program (BSP).

An Old Dispute Coming to a Boil

3. (SBU) In May 2005, IATA was informed by the SAA that BSP did not
meet Ukrainian standards, and that the SAA was devising its own
settlement system to replace it. IATA representative in Ukraine
Sergei Martinyuk told us that IATA began the pilot period for the
BSP and implementation of the ATB2 ticket stock in September 2005,
hoping it could convince the SAA that both the BSP and ATB2 were
beneficial to Ukraine. By December 2005, IATA reported it had
completed the pilot study and began full implementation of the
BSP/ATB2 program in May 2006. However, the SAA continued to resist
BSP. The local Air France representative told post this spring that
the SAA's chief problem with BSP was that IATA had held an open
tender for the banking contractor to service BSP. In that tender,
Citibank had prevailed over a Ukrainian bank, which had proposed
charging unusually high fees for transactions. EcounCouns met with
the SAA in July 2006 (ref b) and was assured that any issues with
the ATB2 would not affect international carriers, such as Delta,
which had bilateral agreements with Ukraine. In March 2007, post
learned from airline representatives that some travel agencies had
complained of harassment from the State Tax Authority (STA) related
to the use of the ATB2 ticket stock, which the STA and SAA had
reportedly deemed illegal in Ukraine.

Ticket Stock Problem

4. (SBU) Notwithstanding ref B assurances a little over a year ago,
SAA's Korshuk told us on August 7, that the ATB2 simply did not meet
Ukrainian legal requirements, and airlines and travel agencies were
no longer allowed to use the ATB2. (Note: It took the Embassy over
two months of requests to get a meeting with Babeichuk and Korshuk
and the SAA was adamant that no local IATA representative be present
at the meeting. End Note.) Korshuk made it clear that airline
tickets must be officially accountable documents, meaning they be
must controlled, contain a serial number, and be registered with the
Ministry of Finance. Korshuk explained that the SAA required ticket
stock to be officially accountable documents in order to ensure
contracted rights of passengers with carriers. The Ministry of
Finance, Korshuk noted, separately required ticket stock to be
officially accountable documents for tax audit purposes. Since IATA
has been ordered to stop importing ATB2s to Ukraine, individual
airlines must now import their own ticket stock and register it with
the Ministries of Finance and Justice, or airlines could purchase
officially accountable ticket stock provided by a local company that
reportedly costs $0.43 per ticket. In addition, Korshuk claimed
that IATA began its pilot in September 2006, and the SAA informed
IATA headquarters in Geneva and the local IATA representative that
the ATB2 was illegal in January 2007. (Note: Korshuk's timeline
contradicted information provided by IATA and airline officials and
information the Embassy received from the SAA in July 2006. End

Threat to Close IATA Office

5. (SBU) According to IATA officials in Ukraine, in order to protect
its rights, IATA initiated court proceedings against the SAA in
April 2006, but IATA's initial complaint and subsequent appeal were

rejected by Kyiv courts. In October 2006, IATA took its case to the
Ukrainian Supreme Court, which to date has not decided to hear the
case. IATA's Martinyuk added that since the Prosecutor's Office had
ordered IATA to register its ticket stock with the Ministry of
Finance in February 2006, IATA also filed a complaint with a Kyiv
court against the Prosecutor's Office, which was rejected, and a
subsequent appeal was also denied. IATA's complaint against the
Prosecutor's Office has rested in the Supreme Court since April
2007, and the Supreme Court has not yet decided to hear this case.
Korshuk confirmed that IATA is currently under investigation by
Ukrainian law enforcement agencies and this case could lead to the
withdrawal of IATA's operations license. Econ Counselor warned
Babeichuk and Korshuk that any move to close IATA in Ukraine would
likely be viewed negatively in a number of capitals. Delta
Airlines' Dan Fenech offered to facilitate a meeting with high level
IATA officials and the SAA in order to resolve the ATB2 issue.
Babeichuk stated they were amenable to a meeting with high level
officials from IATA, arguing that the local IATA representative did
not seem to have decision making authority.


6. (SBU) Econ Counselor inquired whether e-tickets qualified as
official accountable documents under Ukrainian law (95% of Delta's
transactions in Ukraine are now e-tickets). Korshuk stated that the
SAA agreed to allow e-tickets under its regulations, but noted that
the Ministry of Finance law on officially accountable documents
required a control blank to accompany the e-ticket. Korshuk noted
that a local company currently sells the control blanks to airlines
and travel agencies for a fee and would do so until a new tax code
e-commerce provision comes into effect in the near future that would
authorize the information to be retained in an electronic format.
(Note: The new tax code will not be considered by Parliament until
a new parliament is formed after the September 30 elections.)

7. (SBU) Comment. The SAA appears to be enforcing the ticket stock
regulation in an arbitrary manner and was frankly less than candid
with us on a number of points. We strongly suspect the underlying
motive for their actions may well be access to rents and revenue
flows created by the need for Ukrainian produced documents to
replace the ATB2 and to accompany e-tickets. In addition,
personalities appear to be playing a role -- the SAA's overt dislike
for IATA's local representative has most likely exacerbated the
problem and stymied a timely resolution of concerns. Repercussions
of the stalemate are potentially serious, since it would be
difficult for Western airlines to operate in Ukraine without the
BSP, which covers both paper and electronic tickets. Finally, the
arbitrariness of the SAA on the ticket stock issue does not give us
confidence regarding their assurances that e-tickets do not pose a
problem. Post intends to continue liaising closely with industry to
ensure that the GOU's meddling does not impede their operations.
End Comment.

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