US embassy cable - 04LAGOS1194

UNCLAS LAGOS 001194 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EAIR, ECON, NI 
SUBJECT: GON SEEKS ALTERNATIVES TO SAA FOR NIGERIA EAGLE 
AIRLINES 
 
 
1. (U) Summary: The GON is considering new expressions of 
interest from European carriers (Virgin Atlantic, Air 
France/KLM and Lufthansa) to become the technical partner to 
the proposed Nigerian Eagle Airlines (NEA). The GON's 
introduction of new conditions for a reciprocal agreement 
mandating that Nigerians be allowed to buy 10 percent equity 
in South African Airways (SAA) has stalled the talks with 
SAA, previously designated tentative technical partner to 
the NEA. Executives involved in the talks say Virgin 
Atlantic is likely to be chosen if SAA remains 
uncompromising.  End summary. 
 
2. (U) The anticipated take-off of NEA, previously scheduled 
for second quarter of 2004, is now stalled because of a 
breakdown in talks between the GON and SAA.  This was 
brought about by a recent GON demand that a reciprocal 
agreement permit Nigerians to buy 10 percent equity in SAA 
if it should ever be privatised.  This precondition to the 
signing of a memorandum of understanding (MOU) reflects 
earlier criticism, particularly by civil society, that the 
GON had moved too quickly to select SAA as the tentative 
technical partner of the new flag carrier. 
 
3. (U) Aviation Minister Isa Yuguda announced the GON's 
decision to look for alternatives to SAA as technical 
partner several days ago. Alternative airlines being 
considered include European carriers Virgin Atlantic, Air 
France/KLM and Lufthansa, which he said had submitted bids 
for the joint venture. According to Bismarck Rewane, the 
Managing Director of Financial Derivatives Company (FDC) 
Limited, the project's financial advisors, Virgin Atlantic 
seems to be the GON's preferred bidder. 
 
4. (U) Though SAA officials have reportedly denied a glitch 
to the signing of an MOU and have asserted that negotiations 
are progressing, Yuguda has merely stated that SAA can 
resubmit a bid to be NEA's technical partner. He added that 
SAA's willingness or refusal to meet the GON's demand for a 
reciprocal agreement remains a major determinant of SAA's 
future success or failure to obtain the contract if any. 
 
5. (U) Comment: As the selection process suggests, the 
choice of a technical partner may be more political than 
economic, given the GON's historical ties to Europe. If 
selected, Virgin Atlantic would run two daily flights on the 
lucrative Lagos-London route, along with other regional and 
intercontinental routes, reserved for the flag carrier. 
While Rewane believes that the bid is still open, he fears 
that the difficulty of his firm's getting together a group 
of core investors will be compounded by the probability that 
the GON will yet introduce new conditions during its 
negotiations with other prospective investors, as it did 
with SAA. End comment. 
 
HINSON-JONES