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Cablegate: Romania: Three Boeing 737-800s Join Tarom's Fleet

VZCZCXRO2008
PP RUEHAG RUEHAST RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN
RUEHLZ RUEHNP RUEHPOD RUEHROV RUEHSK RUEHSR RUEHVK RUEHYG
DE RUEHBM #0963 3441539
ZNR UUUUU ZZH
P 091539Z DEC 08
FM AMEMBASSY BUCHAREST
TO RUEHC/SECSTATE WASHDC PRIORITY 9010
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RULSDMK/DEPT OF TRANSPORTATION WASHINGTON DC PRIORITY

UNCLAS BUCHAREST 000963

STATE FOR EUR/CE ASCHIEBE, EEB/TRA

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: EAIR ECON BEXP PREL PGOV RO
SUBJECT: ROMANIA: THREE BOEING 737-800S JOIN TAROM'S FLEET

REF: Bucharest 608 and previous

Sensitive but Unclassified, not for Internet distribution.

1. (U) Post EconOffs and Commercial Attache attended a December 4th
ceremony at Bucharest Otopeni Airport to mark the arrival of the
newest addition to the fleet of state-owned airline Tarom. Minister
of Transportation Ludovic Orban, State Secretary Antonel Tanase,
Tarom CEO Gheorghe Birla, Boeing Sales Director Monte Frazier,
members of Tarom's Board of Directors, and media representatives
were all on hand to welcome the "Brasov," a recently-built Boeing
737-800. Arriving as part of a two-plane lease agreement that Tarom
concluded with the Royal Bank of Scotland (RBS), the "Brasov" will
be put to work immediately on some of Tarom's most profitable
routes, such as Bucharest-Madrid and Bucharest-Tel Aviv.

2. (SBU) According to Boeing Sales Director Monte Frazier, Tarom
took advantage of a downturn in the aircraft leasing market to
acquire two nearly new 737-800s on favorable terms after the
original lessee, Air Berlin, released the aircraft for financial
reasons. These two planes are part of a three-aircraft replacement
plan under which Tarom will also take delivery of an additional
brand new 737-800 in January 2009 on an operating lease with the
asset management firm Babcock and Brown. Two of the 737s will
replace aging Airbus 310s, while the third will replace a 737 which
was damaged beyond repair in a runway mishap in December 2007.

3. (SBU) Despite the current economic downturn, Tarom appears to be
in good shape. Its balance sheet is one of the healthiest in
southeastern Europe, with passenger traffic up 8.4 percent for the
10 months through October over the same period last year. Earlier
this year Tarom joined the Delta/Air France-led Sky Alliance, and
recently tied Icelandair for first place among European carriers for
on-time departures between April and October. In replacing two
Airbus jets with Boeing models, Tarom is moving closer to having an
all-Boeing fleet; these latest additions are just the beginning of a
significant push to acquire new aircraft. Boeing will have to
remain aggressive if it expects to sell Tarom the six aircraft it
believes the company needs to acquire over the next three years. In
addition to expanding the fleet size, Tarom's four 17-year-old
Boeing 737-300s are nearing the end of their planned 20-year service
life. The company also urgently needs to replace four Airbus 318s,
which due to their weight, more limited range, and high fuel
consumption are very uneconomical to operate. Still, based on
Tarom's updated fleet composition of eleven 737s and four Airbus
318s, Boeing is feeling more bullish about their chances of coming
out a winner when Tarom does decide to purchase new aircraft.

4. (SBU) Comment. As a state-owned carrier, Tarom's aircraft
acquisitions are as much political decisions as they are commercial
(reftel). It seems that Tarom was able to fly under the political
radar by opting to lease, rather than purchase, three new 737s this
time around. However, when it comes time to actually buy new
aircraft, Tarom will be under considerable political pressure to
look favorably on an Airbus offer. From a strictly economic point
of view, Tarom will save greatly on maintenance and operating costs
by consolidating around the 737 as the single medium range aircraft
model in the fleet. (Tarom also operates several ATR-42s and is
buying new ATR-72s for domestic and short-haul trips.) However,
Tarom's management has repeatedly indicated that going to an
all-Boeing fleet would be unpopular within parts of the Romanian
Government, even if it makes perfect business sense for the company.
This makes post's continued engagement crucial. Both at the Dec. 4
ceremony, as well as in private meetings, Tarom CEO Birla has made
it clear that the Embassy's engagement has been an important source
of support for him in ensuring that he is able to make his
acquisition decisions based on business needs rather than politics.
That being said, it is likely that the next round of replacement and
expansion will engender the kind of heated political debate that was
absent this time around. End Comment.

GUTHRIE-CORN

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