US embassy cable - 05ABUDHABI3966

C O N F I D E N T I A L SECTION 01 OF 02 ABU DHABI 003966 
 
SIPDIS 
 
STATE PASS FEDERAL AVIATION ADMINISTRATION 
 
E.O. 12958: DECL: 09/19/2015 
TAGS: EAIR, ETRD, PREL, PINR, TC 
SUBJECT: ABU DHABI CIVIL AVIATION: RAISING THE PROFILE 
 
Classified By: (U) Classified by Ambassador Michele J. Sison, reasons 1 
.4 (b) and (d) 
 
1.  (C) Summary:  Abu Dhabi is raising its profile in the 
civil aviation arena, building a new government-sponsored 
airline and renovating the airport to accommodate significant 
growth, as it begins investing money to raise Abu Dhabi's 
international profile.  Although Abu Dhabi is the capital 
city of the UAE and controls the UAE's oil wealth, Dubai 
Emirate in recent years has focused on building its aviation, 
financial, and tourism industries.  Since Sheikh Zayed died 
in November 2004, the new Abu Dhabi leadership has refocused 
on enhancing Abu Dhabi's status as a destination city.  By 
concentrating on a new airline and airport (which will 
largely compete with similar projects in Dubai Emirate and 
nearby Qatar), Abu Dhabi Emirate is beginning the long-term 
political and financial investment necessary to enhance Abu 
Dhabi's status.  UAEG officials eagerly await the planned 
opening of the FAA's Middle East regional office in fall 
2005.  End Summary. 
 
Political Prestige of Civil Aviation 
------------------------------------- 
2. (C) Abu Dhabi views investment in civil aviation as a 
primary part of enhancing the tourism infrastructure within 
Abu Dhabi Emirate.  Abu Dhabi's key objectives in 
establishing a viable civil aviation industry are to increase 
Abu Dhabi's international profile and to increase passenger 
and cargo movement through Abu Dhabi -- and to compete with 
Dubai Emirate's strong civil aviation sector.  Dubai has been 
involved in aviation for more than 20 years through 
government-funded Emirates Airlines and is currently involved 
in a major renovation project of Dubai International Airport 
(for increased passenger capacity) and Jebel Ali Airport 
(primarily for cargo growth). 
 
3. (C) Abu Dhabi Crown Prince Mohammed bin Zayed Al Nahyan is 
personally involved in decisions in aviation, particularly in 
making airplane purchases and identifying key leaders for Abu 
Dhabi's airline and airport growth.  The primary player in 
Abu Dhabi's civil aviation sector is Sheikh Ahmed bin Saif Al 
Nahyan, a member of Abu Dhabi's ruling family.  Sheikh Ahmed 
bin Saif is chairman of the board of Etihad Airways, chairman 
of the Gulf Air Maintenance Company (GAMCO), and chairman of 
Abu Dhabi's Department of Civil Aviation.  He was also CEO of 
Gulf Air from 1994 to 2000 (when Abu Dhabi Emirate held a 25 
percent share in the airline), although he was criticized for 
his activities during that period.  Sheikh Ahmed's multiple 
key roles in the civil aviation sector have led to some 
complaints of conflict of interest, and include criticism 
that he has allowed a maintenance company (GAMCO) to make 
decisions for the airline, slowing its growth.  Although 
Sheikh Ahmed remains a key decision maker for Etihad Airways, 
Abu Dhabi's leadership has made significant changes in an 
attempt to allow Etihad to become a more financially-viable 
operation and to allow free market growth of Abu Dhabi's 
aviation sector.  (Bio Note: Sheikh Ahmed is also a pilot and 
holds a Ph.D.). 
 
Etihad Airways 
--------------- 
4. (C) Abu Dhabi Emirate established Etihad Airways in 
November 2003 as a state-sponsored carrier.  Since inception, 
the airline has been running at a significant loss due to 
organizational and management difficulties.  In recent 
months, the Abu Dhabi leadership appointed Austrian Robert 
Strodel as CEO and has given him broad authorities to make 
changes in the internal and external organization of the 
airline.  Strodel, who has 30 plus years of airline 
experience (primarily with Lufthansa), has started by 
restructuring Etihad, replacing many section heads (although 
some of these changes were subsequently vetoed by Etihad's 
board of directors), and most significantly, breaking 
Etihad's contract with GAMCO.  Until Strodel's appointment as 
CEO, Sheikh Ahmed bin Saif Al-Nahyan had ensured the 
continuing, if non-profitable, relationship with GAMCO.  The 
difficulty in separating Etihad and GAMCO (the two companies 
are currently renegotiating a contract) illustrates the 
political level investments in Etihad, but the freedom 
Strodel has been given demonstrates that Abu Dhabi Emirate is 
serious about making Etihad a financially-feasible airline, 
rather than just a government showpiece. 
 
5. (C) Etihad still faces a number of serious challenges, 
however.  It has major ambitions -- purchasing 54 aircraft to 
replace the current leased fleet (orders have been given for 
29 already including 5 Boeing 777s and 4 Airbus E380s) to fly 
to 70 destinations (currently they fly to 20) within the next 
four years.  In order to succeed in this ambitious plan, 
Etihad will need to restructure the company, purchase spare 
parts and make maintenance arrangements for the mix of Boeing 
and Airbus planes -- all within a short timeframe.  Despite 
Etihad's past financial difficulties, Abu Dhabi Emirate is 
solidly behind promoting the airline.  The Emirate will 
formally announce its withdrawal from Gulf Air this week; Abu 
Dhabi has held a 1/3 share with Bahrain and Oman (Note: Qatar 
similarly pulled out in 2002 to focus on Qatar Airways).  By 
pulling out of Gulf Air, Abu Dhabi both eliminates 
competition and cuts costs(Gulf Air will likely reduce the 
number of flights through Abu Dhabi).  Gulf Air has been 
operating in the red for several years while undergoing major 
strategic and operational changes, but still faces challenges 
of an outdated fleet that will need to be revamped in the 
near future.  In the region, there are now four major 
airlines: Etihad, Gulf Air, Emirates Air (based in Dubai) and 
Qatar Airways.  It is likely that some of these airlines will 
either need to "downsize" or "rightsize" in the near future 
with the rising regional competition.  Abu Dhabi's withdrawal 
from Gulf Air may indicate the first casualty.  Abu Dhabi 
Emirate is investing the resources -- both financial and 
human - to ensure the same does not happen to Etihad in its 
nascent stage. 
Abu Dhabi Airport Expansion 
---------------------------- 
6. (C) Abu Dhabi International Airport is currently 
undergoing major expansion to raise capacity to 20-25 million 
passengers a year by 2009 (equaling Dubai's expansion plans). 
 The project includes adding a new runway (large enough to 
accommodate Etihad's planned E380s), new passenger and cargo 
terminals, and outbuilding support for the increased 
passenger load.  Supporting this expanded airport is the 
federal Civil Aviation Authority's new air traffic control 
center, scheduled to open in 2006 with the capacity to handle 
the increased air traffic over Abu Dhabi and Dubai Emirates. 
 
7. (C) The airport expansion project still faces significant 
obstacles to providing a successful base for an expanded 
civil aviation sector.  Although tourist infrastructure 
development plans are being considered for Abu Dhabi, 
including reports to increase hotel space by more than 2,000 
rooms, the majority of these hotels will be located in 
central Abu Dhabi rather than in the rather bleak area 
surrounding the airport (approximately 40 km outside of 
town).  In order to support the increased passenger load - 
and particularly considering the possible overnight stays 
required for some connection flights between Europe and Asia 
- sufficient infrastructure will need to be constructed near 
the airport to support the planned passenger load. 
Additionally, the Civil Aviation Authority (CAA) is facing 
severe human resource shortages, particularly among air 
traffic controllers.  While there are enough personnel to 
maintain current staffing levels, limitations in training 
facilities have made growth difficult.  The UAE will need to 
address these infrastructure and personnel concerns, to match 
their already committed financial resources, in order to 
achieve success in the airport growth. 
 
Comment 
-------- 
8. (C) Abu Dhabi Emirate has demonstrated that it is 
financially committed to ensuring the success of the civil 
aviation sector.  However, there are still significant 
challenges in infrastructure development and human resources 
facing both the airport expansion plan and Etihad Airways. 
In order to achieve the long-term success of the civil 
aviation and tourism infrastructure goals, the Abu Dhabi 
leadership needs to ensure that key aviation leaders have the 
freedom to make the required economic decisions that will 
ensure financially-feasible aviation operations. 
SISON