US embassy cable - 04AMMAN351

C O N F I D E N T I A L SECTION 01 OF 02 AMMAN 000351 
 
SIPDIS 
 
SENSITIVE 
 
EXIM FOR A. FOLEY 
USDOC 4520/ITA/MAC/ONE/PTHANOS 
DEPARTMENT FOR EB FOR WAYNE/MERMOUD 
 
E.O. 12958: DECL: 01/13/2014 
TAGS: EAIR, BEXP, JO 
SUBJECT: EXIM AND EB/CBA ADVOCATE FOR BOEING WITH RJ 
 
REF: A. AMMAN 7647 
 
     B. AMMAN 5205 
 
Classified By: Ambassador Edward W. Gnehm for reasons 1.5 (b) and (d) 
 
1. (SBU) SUMMARY: In a meeting with representatives from 
Ex-Im Bank and the State Department, Royal Jordanian Airlines 
(RJ) CEO Majali stated that he is willing to allow a Boeing 
team to review RJ's estimates of the costs associated with a 
potential Boeing purchase so that they can form their own 
estimate of the likely overall cost differential for RJ if it 
replaces Airbus A320s with Boeing 737s.  He complained, 
however, about Boeing unresponsiveness and about CPA 
foot-dragging in the creation of a new Iraqi flag carrier 
with RJ participation.  END SUMMARY. 
 
2. (SBU) The Ambassador, U.S. Export-Import Bank First Vice 
President April Foley, and DOS Special Representative for 
Business Affairs J. Frank Mermoud met January 12, 2003 with 
RJ CEO Samer Majali to discuss the sale of Boeing aircraft to 
RJ.  Referring to the letters sent by PM Fayez to NEA A/S 
Burns that gave a figure of JD 50 million ($70 million) as 
the differential that RJ would have to pay were it to replace 
its old aircraft with new Boeings instead of Airbus, the 
Ambassador noted that more than a year earlier, Majali 
estimated the differential as $25 million.  Majali said that 
the smaller figure had covered only direct costs of 
retraining A320 pilots for the 737 and of replacing RJ's 
stock of A320 spare parts with 737 spares.  The larger figure 
included indirect costs, such as foregone benefits associated 
with the compatibility between A320s and RJ's A340s, which 
would continue to constitute RJ's long-range fleet. 
 
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RJ: BOEING CAN REVIEW COST ESTIMATES 
------------------------------------ 
 
3. (SBU) Noting our belief that even the $25 million was 
overstated, the group conveyed to Majali its belief that the 
RJ premium figure does not take into account a variety of 
factors which favor Boeing aircraft.  These include (1) the 
greater cost efficiencies offered by 737 aircraft vs. A320 
aircraft, (2) the willingness of Ex-Im Bank to match or beat 
any financing deal put together by any other export credit 
agency, and (3) a commitment that if Jordan were to ratify 
the Cape Town Convention on Aircraft Financing, Ex-Im bank 
would reduce exposure fees by a third.  Majali said RJ had 
not factored in the latter possibility because it was out of 
the control of RJ, Boeing, or Ex-Im Bank.  However, he had 
offered from the beginning to allow both Airbus and Boeing to 
examine the financial data and assumptions underlying RJ's 
net present value estimates regarding the purchase of each 
type of airplane.  He said that this offer remained and that 
RJ was ready to provide to Boeing the financial data and 
assumptions used in forming RJ's NPV estimate of Boeing 
aircraft, so that Boeing could re-run the numbers and come up 
with a counterestimate of the changeover costs. 
 
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RJ'S COMPLAINTS 
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4. (SBU) Majali talked at length about his preference for 
Boeing equipment and services and his worry that maintaining 
only Airbus as a provider might cause Airbus to become less 
responsive to RJ needs.  He complained, however, that Boeing 
had been unresponsive to RJ feelers in the past, stressing 
especially a lack of availability of 777s after September 11, 
2001, which had caused RJ to make a five-year lease of A340s 
rather than to buy or lease Boeing equipment.  (Note: By 
2005, RJ will be looking to either buy these leased A340s or 
replace them.)  According to Majali, lack of Boeing 
availability is also a factor in the current purchase 
decision, as the 737s Boeing is offering would not be ready 
for another 1 1/2 years.  This is problematic not only 
because it would mean that the current leases on all of the 
A320s would have to be renewed, but also because the RJ fleet 
- with an average age of 14 years, one of the oldest in the 
region - is badly in need of rapid replacement. 
 
5. (SBU) Majali also complained that despite RJ's best 
efforts, he had been unable to secure a long-term commitment 
from the CPA to partner with a new Iraqi carrier, which he 
said would otherwise have given him a strong incentive to buy 
Boeing (Reftels A and B).  Earlier indications that RJ would 
be a partner in a carrier that would be given a two-year 
exclusivity period had been superseded by proposed deals with 
fourth-rate carriers flying unsafe airplanes.  The group 
pointed out that for CPA to decide on such a high-profile 
issue without full Iraqi agreement would be perceived as an 
assault on Iraqi sovereignty, and closed by reiterating the 
importance to the Administration of a Boeing sale to RJ. 
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NEED TO MOVE FAST 
----------------- 
 
6.  (C)  Comment:  We have had several indications over the 
past days that those in the Jordanian government who support 
Boeing have been energized.  For example, in a separate 
meeting with Foley and Mermoud, Finance Minister Abu Hammour 
hinted that the GOJ might be able to cover part of the 
transition cost, if the USG or Boeing were also able to help 
close the gap.  Especially if the tide is turning, it is 
important that Boeing move quickly to reengage with RJ.  In 
addition, it could be very useful for senior USG officials, 
particularly at the White House, to reiterate to Prince 
Faisal (the King's brother and air force commander, who has a 
royal oversight role for aviation) during his visit next week 
the message he and his colleagues have been getting from the 
Ambassador, EXIM, and others on the Administration's strong 
interest in seeing Boeing make this sale. 
GNEHM