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Cablegate: An Afghan Private Sector Airline Working to Expand

VZCZCXRO6720
OO RUEHDBU RUEHIK RUEHPOD RUEHPW RUEHSL RUEHYG
DE RUEHBUL #2667/01 2450943
ZNR UUUUU ZZH
O 020943Z SEP 09
FM AMEMBASSY KABUL
TO RUEHC/SECSTATE WASHDC IMMEDIATE 1295
INFO RULSDMK/DEPT OF TRANSPORTATION WASHINGTON DC 0145
RUCNAFG/AFGHANISTAN COLLECTIVE
RUEHZG/NATO EU COLLECTIVE
RHMCSUU/FAA NATIONAL HQ WASHINGTON DC
RUEHNO/USMISSION USNATO 3857

UNCLAS SECTION 01 OF 02 KABUL 002667

SENSITIVE
SIPDIS

DEPT FOR SCA/FO, SCA/RA, EEB/TRA AND SCA/A
DEPT PASS AID/ANE
DOT PASS FAA FOR RAY SMITH

E.O. 12958 N/A
TAGS: EAIR PREL EAID EINV PGOV NATO AF
SUBJECT: AN AFGHAN PRIVATE SECTOR AIRLINE WORKING TO EXPAND

REF: A) 08 Kabul 1500
B) 08 Kabul 496

SENSITIVE BUT UNCLASSIFIED. CONTAINS PROPRIETARY INFORMATION

1. (SBU) SUMMARY: Safi Airways, one of three private Afghan-owned
carriers, reports it is close to profitability but faces burdensome
governmental oversight and unfair competition, particularly from
state-owned Ariana Airlines. Safi is banking its future growth on
full International Air Transport Association (IATA) membership,
expansion into Europe and the Middle East, and the benefits of an
international airline alliance. Safi's CEO identified easier access
to financing and better management at Kabul International Airport as
critical for the airline's continued growth and expansion. END
SUMMARY.

Expanding into Europe and the Middle East
-----------------------------------------

2. (SBU) While noting the challenges, Safi Airways CEO Tilmann
Gabriel (protect) was upbeat in his Aug. 30 meeting with
Coordinating Director for Development and Economy Affairs Wayne to
outline Safi's operations and prospects. Safi is the only
Afghanistan-based airline that complies with International Civil
Aviation Organization (ICAO) safety standards, as well as the only
Afghan carrier allowed into European airspace with its own planes
and security screening. It will submit to an IATA Operational
Safety Audit later this year in hopes of achieving full IATA
membership, allowing it to join an international air alliance.
Safi's all-Boeing fleet is run and flown by a mainly expatriate
management staff, and Afghans comprise 180 of its 250 employees.

3. (SBU) The airline currently flies internationally from Kabul to
Dubai, Frankfurt, Kuwait, Abu Dhabi, and Sharjah and operates
domestic flights to Herat, Kandahar and Mazar-i-Sharif. Gabriel
said the company plans to open routes to Moscow, New Delhi,
Islamabad, London, Beijing, and Jeddah in the coming year. Its
current fleet of three older Boeings will be supplemented with a
newer Boeing 767 and a Boeing 737 leased from the International
Lease Finance Corporation. The lease for the 767 has been signed
and that for the 737 is expected by the end of the calendar year.
Gabriel said his goal is to acquire a fleet of 10 to 12 planes in
the next five years.

While Expanding its Afghan Base
-------------------------------

4. (SBU) Sixty percent of Safi's 500,000 annual passengers are
expatriates, while 40 percent are Afghans. Gabriel said the number
of Afghans using the airline is growing, despite a slowdown in
Afghanistan-bound traffic before and during the August 20 election.
Ticket sales have grown 7 percent per week since April 1.

5. (SBU) Safi has bid on a contract for USAID's air service, which
would use ATR jets and Dash-8 turboprops to expand its domestic
service. Gabriel said a successful bid on the contract would help
the airline grow domestically and connect internal flights to
international routes. He also hopes to start a separate cargo
service.

Battling GIRoA Protection of National Airline Ariana
--------------------------------------------- -------

6. (SBU) Similar to other private airline managers (ref B), Gabriel
complained Ariana receives unfair support from the GIRoA, including
the Hajj passenger prepayments that Ariana used to lease two
Airbuses. Gabriel disparaged Ariana's monopoly on ground handling
services at Kabul International Airport (KIA) and reported Safi
purchased $500,000 worth of ground handling equipment from Lufthansa
on the "ok" from the Transportation Ministry but subsequently was
prohibited from using it as the Minister reversed the decision.
Ambassador Wayne noted ICAO is working to hire an independent ground
handling contractor for the airport, which Gabriel said would be an
acceptable solution.

7. (SBU) According to Gabriel, Kabul Airport management is a
negative for operating carriers. He said the airport director tries
to "have a say in what airlines do" creating a "potential for
favors." Landing fees at KIA are much higher than Dubai and
Frankfurt, but the airport provides few services.

Challenges in Financing Growth and Expansion
--------------------------------------------


KABUL 00002667 002 OF 002


8. (SBU) Gabriel also said the GIRoA is considering capping the
number of passengers each airline can transport, possibly to limit
Safi's growth and protect its national airline Ariana, which is
still the largest carrier by passenger volume. Additionally, he
said the Ministry of Interior has forbidden Safi from charging more
for tickets purchased at the last minute, which it considers
cheating customers. Gabriel also told EconOff he feels targeted for
taking on the state-owned airline.

9. (SBU) Safi has yet to make a profit, but, according to Gabriel,
is on track to break even in the second half of this year. It
looses $1.5 million per month on the Kabul-Dubai route, due to
overcapacity on the route and a price war with Pamir Airways.
Gabriel alleged that Kabul Bank is unfairly subsidizing Pamir with
"shady financing" from Dubai, which the airline is using to attract
price-sensitive customers with below-market prices. (He said the
rumor is that Pamir carries cash back and forth from Dubai and
receives special payments for this service. We will alert relevant
agencies to explore this report.) While the Safi Group has invested
$40 million in the airline, Gabriel is seeking financing from the
International Finance Corporation and the Export-Import Bank, as
well as the Overseas Private Investment Corporation and several U.S.
banks. He said both IFC and ExIm Bank are interested in
shareholdership. Gabriel said Safi has hired a U.S. firm to search
for potential investors and said he would welcome the management
restructuring that would entail.

EIKENBERRY

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