US embassy cable - 05TAIPEI2311

C O N F I D E N T I A L SECTION 01 OF 02 TAIPEI 002311 
 
SIPDIS 
 
DEPT FOR EAP/TC 
DEPT PLEASE PASS AIT/W 
 
E.O. 12958: DECL: 05/24/2015 
TAGS: EAIR, ETRD, TW 
SUBJECT: BOEING ASKS CHINA AIRLINES TO LAUNCH 747 ADVANCED 
 
Classified By: AIT Director Douglas H. Paal, Reason 1.4 d 
 
1. (C) Summary: Boeing executives are optimistic that China 
Airlines will accept its invitation to be a launch customer 
for the new 747 Advanced model.  The proposed package would 
include CAL's purchase of as many as 24 747 aircraft and 
the Boeing purchase of much of CAL's Airbus fleet.  Recent 
personnel changes at CAL reflect the consolidation of 
Chairman Chiang Yao-chung's control of the airline and 
could be advantageous for Boeing.  End summary. 
 
Boeing's Proposal 
----------------- 
 
2. (C) On May 16, Boeing Commercial Airplane Group Asia 
Pacific Sales Director Scott Grimsby, Taiwan Chief 
Representative Paul Fang and Senior Advisor Joe Sutter 
briefed AIT Director on Boeing's recent discussions with 
China Airlines (CAL) on aircraft sales.  Grimsby, Sutter, 
and Vice President for Product Development Dan Mooney, who 
was unable to attend the AIT meeting, came to Taiwan to 
brief CAL on the advantages of Boeing's new 747 Advanced 
model aircraft and invite the airline to be one of the 
launch customers for this model.  Grimsby said that the 
package Boeing has proposed would have CAL buy 12 of the 
new 747 Advanced planes plus 12 of the older model.  CAL 
would retire some of its old 747-400s and expand its 747 
cargo fleet.  (Note: CAL already has the world's largest 
747 cargo fleet.  End note.)  As part of the deal, Boeing 
will buy China Airlines' seven Airbus A340-300s.  Boeing 
has asked CAL to respond quickly to the proposal, 
requesting a preliminary commitment by the end of May in 
order to announce the sale at the Paris Air Show on June 
10.  Fang told AIT/T that Boeing has also invited Korean 
Air and Hong Kong's Cathay Pacific to be launch customers 
as well as a European cargo airline that Fang declined to 
name. 
 
Boeing Executives Optimistic 
---------------------------- 
 
3. (C) Grimsby and Fang were initially very optimistic 
about Boeing's prospects with China Airlines.  Their 
meetings with Chairman Chiang Yao-chung and President 
Philip Wei went well with CAL's participants paying close 
attention and asking questions that reflected serious 
interest.  Subsequent to Boeing's May 16 meetings with CAL, 
the carrier's corporate planning staff made a presentation 
May 20 to Chairman Chiang and President Wei on CAL's fleet 
expansion plans.  Fang later told AIT/T that Boeing had 
been in daily contact with CAL leading up to the May 20 
presentation and that Boeing analysts had given CAL's 
corporate planning staff an unusual amount of input to help 
them prepare for the presentation.  He said that the 
initial readout he had from participants in the May 20 
presentation indicated that Boeing had done a good job 
making its case.  However, Fang observed that CAL 
executives were not offering any other clues to indicate 
what CAL's decision would be. 
 
4. (C) Fang later acknowledged that CAL might not be able 
to make a decision quickly enough to meet Boeing's 
timeline.  He commented that CAL is a fairly conservative 
airline and does not move quickly.  However, he pointed out 
that the special terms offered launch customers are quite 
advantageous, and added that Boeing might be willing to 
reduce the number of old model airplanes in the launch 
customer package.  He explained that although launch 
customers are usually expected to buy some of the last 
planes of the old model, Boeing now feels it may have 
enough other buyers willing to buy all of the old models. 
As a result, he is still optimistic that CAL and Boeing 
will be able to make a deal. 
 
CAL Executive Shuffle - More Good News for Boeing 
--------------------------------------------- ---- 
 
5. (C) On May 16, Fang also reported that senior executive 
personnel changes were coming at CAL that would consolidate 
Chairman Chiang's control of the airline at the expense of 
Wei's influence.  He said that one senior vice president 
would retire soon because of his age and that this would 
lead to a string of senior personnel changes.  Confirming 
Fang's predictions, Taiwan press reported May 18 that the 
retirement of two vice presidents - in charge of 
maintenance engineering and ground services - had been 
approved.  One was replaced by an advisor in the Chairman's 
office, who had worked with Chiang when he was at Taipei 
City's Department of Rapid Transit Systems.  In addition, 
Chang Liang-shih, CAL's Vice President of Administration, 
has also submitted his retirement request.  According to 
Fang, Chang's replacement could become the heir apparent to 
President Wei.  Fang described Wei's current position as 
tenuous and speculated that his replacement could mark the 
Chen administration's final step in securing management 
control of CAL.  Boeing sees these personnel changes as 
advantageous to Boeing in its competition with Airbus for 
aircraft sales.  Wei was primarily responsible for a 2002 
decision to buy Airbus planes.  Boeing sees Chiang as more 
receptive to Boeing's arguments that its aircraft are a 
better value than Airbus planes on technical merits. 
PAAL