US embassy cable - 04PANAMA906

UNCLAS SECTION 01 OF 03 PANAMA 000906 
 
SIPDIS 
 
 
STATE FOR WHA A/S NORIEGA AND EB A/S WAYNE 
FAA FOR ADMINISTRATOR BLAKEY 
STATE PLEASE PASS USTR - JWOLFE 
COMMERCE FOR USDOC4332/ITA/MAC/WH/OLAC/MGAISFORD 
 
 
E.O. 12958: N/A 
TAGS: EAIR, ECON, ETRD, BEXP, CASC, PM, ECONOMIC AFFAIRS 
SUBJECT: USG SUCCESS STORY: PANAMA REGAINS CATEGORY 1 FOR 
AIR SAFETY OVERSIGHT 
 
 
REF: SECSTATE 82097 
 
 
 1.  Summary: The Federal Aviation Administration (FAA) 
downgraded Panama in 2001 for not complying with 
international air safety standards.  Over the past 18 months, 
the Embassy has worked to focus the GoP's highest levels on 
making needed changes to its aviation authority to regain the 
status.  The GoP signed a technical agreement with the FAA 
last year to strengthen its oversight efforts.  Based on the 
successful implementation of that agreement, the FAA reviewed 
Panama's entire oversight program on April 14 and found it to 
be once again in compliance.  The economic benefits to both 
the United States and Panama are significant: local airline 
Copa may now exercise an option to purchase as much as $354 
million of aircraft from Seattle-based Boeing.  Continental 
Airlines, which owns 49% of Copa, will also profit from 
increased codesharing opportunities.  This success is a prime 
example of USG teamwork to strengthen safety of the traveling 
public, with significant benefits to U.S. companies.  End 
Summary. 
 
 
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Panama's Air Safety Program Starts out Dismal 
--------------------------------------------- 
 
 
2.  In April 2001, the FAA determined that Panama was not 
complying with minimum international standards for air 
safety, and downgraded Panama to Category 2 under the 
International Aviation Safety Assessment (IASA) program, 
freezing Panamanian carriers' routes and frequencies to the 
United States and banning U.S. carriers form codesharing with 
Panamanian ones.  The GoP's aviation laws and regulations 
were seriously out of date; the AAC had poor infrastructure 
and its personnel lacked proper training; inspector guidance 
and records of airline certification, of surveillance, and of 
corrective actions were inadequate and disorganized.  In 
essence, the AAC was deficient in all aspects of airline 
safety oversight, and local airlines simply ignored the 
Authority. 
 
 
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Ambassador and Embassy Bring Political Pressure to Bear 
--------------------------------------------- ---------- 
 
 
3.  Immediately after arriving at Post in December 2002, the 
Ambassador and Econoffs pressed Panamanian President Moscoso 
and Ministers of Economy and Finance (MEF), Commerce (MICI), 
and Government and Justice (MOGJ), plus the Comptroller 
General to provide the political and financial support 
necessary for Panama,s Civil Aviation Authority (AAC) to 
better its infrastructure, human resources, and oversight 
generally.  The Ambassador emphasized the importance of 
keeping the flying public safe through appropriate oversight, 
and pointed to the clear economic benefits that would result 
by maintaining high levels of safety.  She added the air 
safety oversight issue to the list of investment disputes 
before the Embassy-GoP Ad Hoc Investment Committee that she 
chairs with the Minister of Commerce, which ensured that the 
issue received recurring and intensive review in succeeding 
months. 
 
 
4.  She also urged members of the board of directors of Copa 
Airlines (Panama's leading airline) to change the carrier's 
culture of unwillingness to comply with AAC directives, 
pointing out that the long-term profits from increased 
traffic to the United States would far outweigh the 
short-term costs of implementing changes that the AAC might 
demand--no matter how frivolous the airline felt those 
demands to be.  In addition, the Embassy,s economic section 
maintained almost daily contact with key working level 
contacts in the GoP and COPA to ensure constant focus on the 
issue, and also communicated regularly with the FAA. 
 
 
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FAA Technical Assistance Agreement Signed 
----------------------------------------- 
 
 
5.  Converting political will into finite action takes more 
than the power of fiat, however.  Recognizing the FAA as the 
clear experts, the GoP formally requested a technical 
assistance program with the FAA in May 2003.  Through careful 
coordination at FAA Headquarters' Flight Standards Division 
and Office of International Aviation, the FAA Southern Region 
division and the associated Miami International Field Office 
(IFO), and the Eastern Region Flight Standards Division 
Technical Branch, the FAA provided a comprehensive technical 
assistance package for one week per month for six months in 
specific areas where the AAC was especially deficient.  In 
December 2003, the FAA and AAC agreed to extend the 
assistance program through June 2004. 
 
 
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FAA's Successful Efforts Result in Formal Consultations 
--------------------------------------------- ---------- 
 
 
6.  From March 23-26, an FAA legal team reviewed Panama's new 
and improved civil aviation law (passed in 2003) and 
regulations (refined as a direct result of the technical 
assistance program), and found both to be in compliance with 
international standards.  During the March 29-April 2 
technical visit under the terms of the agreement, FAA 
inspectors witnessed the AAC certification of Copa and also 
closed out all remaining action items.  During March 29-31, 
senior officials from the Miami IFO conducted a management 
review of the AAC and determined that a formal IASA review of 
Panama,s air safety program would be appropriate. 
 
 
7.  On April 14, the USG via the Embassy requested formal 
bilateral consultations in accordance with Article 6 of the 
1997 Air Transport Agreement between the USG and GoP.  Senior 
officials from FAA's Southern Region and from FAA HQ 
conducted an IASA program review of the AAC.  Based on the 
clear technical standards laid out in the IASA program, the 
team determined that Panama was ahead of the game in many 
areas of flight safety, and had implemented innovative 
systems that were far ahead of neighboring countries.  All 
major concerns noted in the April 2001 downgrade notice had 
been addressed, and in many cases, Panama's standards far 
exceeded minimum requirements.  On this basis, the FAA 
advised the AAC of its decision to return Panama to Category 
1 status. 
 
 
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Follow Up and Next Steps 
------------------------ 
 
 
8.  During the consultations, the FAA and AAC agreed to 
extend the technical assistance agreement through January 
2005 to ensure that the AAC does not backslide from its 
success, and also to provide technical continuity in the 
period following Panama's May 2 general elections that may 
have some effect on the AAC,s political leadership after the 
new government assumes office on September 1.  The continued 
agreement will also help address the very minor areas for 
improvement observed during the last review, such as ensuring 
operations inspectors increased their attention to detail; 
that the inspectors received some additional training on how 
to write simpler enforcement reports, to strengthen guidance 
and refine "On-the-Job" training for inspectors, to implement 
a system to apply constant changes in international law 
directly to the AAC's regulations, and to raise fines for 
noncompliance to higher levels. 
 
 
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Economic Impacts of Panama's Category 1 
--------------------------------------- 
 
 
9.  Though strictly a technical issue, the economic impacts 
of Panama's return to Category 1 cannot be overlooked.  Copa 
officials have told the Embassy that as a result of Panama's 
designation that they intend to begin daily flights to New 
York-JFK on June 17, and also plan to add two more daily 
frequencies (for a total of four) to its lucrative Miami 
route soon.  U.S. carriers also will benefit.  Continental 
Airlines, which also owns 49% of Copa, will begin codesharing 
on Copa flights soonest (Copa estimates that the codeshare 
will bring $12 million in immediate revenue to Continental 
with the potential for much higher returns soon after), and 
Delta and Northwest also intend to codeshare with Copa later 
this year.  Copa and Continental also announced on April 19 
that they intend to acquire a controlling interest in 
Colombian airline Avianca.  Colombian cities such as 
Barranquilla, Cartagena, Cali, Medellin, and Bogota provide 
important feeder traffic to Copa and Continental on 
continuing flights to the United States, and Copa is looking 
to increase the frequencies it flies on each of these 
Colombian routes. 
 
 
10.  In order to service these new routes and frequencies, 
Copa is expected to exercise a contract option with Boeing 
for four 737-700's and two 737-800's. Boeing, whose sole 
current commercial customer in Latin America is Copa, 
estimates the deal to be worth $354 million. 
 
 
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Comment: A Win for the United States and Panama 
--------------------------------------------- -- 
 
 
11.  Panama's return to Category 1 is a win for both Panama 
and the United States.  Though implementing international 
safety standards the ultimately the decision of the GoP, it 
was truly a USG team effort that effectively focused the GoP 
on achieving and maintaining these standards to protect the 
traveling public.  The FAA's professionalism and adherence to 
strict technical guidelines and the Embassy's constant work 
at the political level achieved the right result. These 
actions will reap substantial economic benefits not only in 
Panama, but also for U.S. businesses like Boeing and 
Continental.  This is a successful and significant example of 
USG efforts for U.S. business promotion. 
WATT