US embassy cable - 05TAIPEI4249

C O N F I D E N T I A L SECTION 01 OF 02 TAIPEI 004249 
 
SIPDIS 
 
DEPT PASS AIT/W, USTR 
DEPT FOR EAP/TC 
COMMERCE FOR ITA/MAC/ASIA/MBMORGAN CABLE BOX 4431 
USTR FOR WINTER AND WINELAND 
 
E.O. 12958: DECL: 10/19/2015 
TAGS: EAIR, ETRD, TW 
SUBJECT: CAL PASSES AGAIN ON BOEING LAUNCH CUSTOMER DEAL 
 
REF: TAIPEI 2311 
 
Classified By: AIT Director Douglas H. Paal, Reason 1.4 d 
 
Summary 
------- 
 
1. (C) China Airlines has deferred decision on Boeing's 
offer to sell it up to 24 of its new 747 Advanced model 
under special terms as a launch customer.  Boeing's Taiwan 
representative blamed lack of focus among the members of 
the Board of Directors and lack of support from the board's 
Chairman.  The latest developments are changing Boeing's 
perception of the relative levels of support for Boeing 
purchases from CAL's Chairman and President.  CAL will 
reconsider such a purchase early next year, but it may not 
be able to get special terms as a launch customer.  End 
summary. 
 
Positive Recommendation 
----------------------- 
 
2. (C) Boeing Commercial Airplane Group Chief Taiwan 
Representative Paul Fang told AIT/T that Taiwan's China 
Airlines (CAL) has again deferred decision on the 
opportunity to be a launch customer for the new Boeing 747 
Advanced.  Fang had previously explained that Boeing's 
proposal involved the purchase of as many as 24 aircraft at 
a special rate.  He also emphasized the publicity and 
prestige associated with being a launch customer. 
 
3. (C) On October 18, Fang reported that CAL's Board of 
Directors formally considered Boeing's proposal in a 
meeting three or four weeks ago.  According to Fang, who 
was unwilling to identify his source for information about 
the meeting, CAL's Corporate Planning Division made a 
positive presentation based on a thorough study of the 
proposal.  The presentation ended with the recommendation 
that the board approve a plan to sign a memorandum of 
understanding with Boeing agreeing to proceed with the 
deal.  Fang, his Boeing colleagues, and their contacts at 
CAL felt confident the board would approve the 
recommendation. 
 
Board of Directors Lacks Focus 
------------------------------ 
 
4. (C) However, Fang said the board was unable to reach a 
consensus on the issue.  He complained that the atmosphere 
was not conducive to making a decision because the board 
lacks understanding and focus.  According to Fang, many of 
the board members lack experience or even interest in the 
aviation industry.  He said that when the time came for the 
board to make a decision, one member suggested waiting to 
take a look at the airline's entire financial picture.  At 
that moment, the board members looked to Chairman Chiang 
Yao-chung for direction.  In Fang's account, the Chairman 
did not say anything, and his reaction was interpreted as 
an indication that he did not support the proposal. 
 
Changing Perceptions of CAL Allies 
---------------------------------- 
 
5. (C) These events have led Boeing to reconsider their 
assessment of which senior CAL executives most support 
of Boeing aircraft purchases.  Previously, Fang and his 
colleagues had considered Chiang, with his engineering 
background, to be a useful ally at CAL.  On the other hand, 
they viewed CAL President Philip Wei as an obstacle.  Wei 
has previously opposed Boeing sales in favor of Airbus and 
has criticized Boeing products to AIT.  However, the 
positive recommendation from the Corporate Planning 
Division must have been approved by Wei.  Fang is not sure 
of the depth of Wei's support for this proposal, but the 
board would have assumed that Wei endorsed it.  Chiang's 
support is even more critical than previously because it 
appears that he is exercising increasing control of CAL's 
operations at Wei's expense.  Recent personnel changes at 
the Vice President level (reftel) reflect this change in 
CAL's power structure. 
 
Next Steps 
---------- 
 
6. (C) Because the board was unable to reach a definitive 
decision at the last board meeting, Fang said that the 
Corporate Planning Division will make another presentation 
around the Lunar New Year (January 28, 2005).  CAL contacts 
have informed AIT/T that Chiang is currently out of the 
country, so any prompt action on this deal is out of the 
question.  Boeing has informed CAL that the launch customer 
deal may not be available if there is further delay, which 
would mean significantly higher prices.  In addition, 
Boeing will not continue to hold production slots for CAL. 
Fang said that Boeing is nearing a 747 Advanced launch 
customer deal with Singapore Airlines that would eliminate 
the need to keep the offer open for CAL. 
PAAL