US embassy cable - 05SANAA3032

C O N F I D E N T I A L SECTION 01 OF 02 SANAA 003032 
 
SIPDIS 
 
USDOC - PASS TO ADVOCACY CENTER/CHRISTOPHER JAMES. HELSINKI 
- PASS TO FCS/ROBERT PEASLEE. RIYADH - PASS TO FCS/NANCY 
CHARLES-PARKER. DUBAI - PASS TO FCS. USDOC - PASS TO 
ITA/TYLER HOFFMAN. STATE - PASS TO USTR/JASON BUNTIN. 
 
E.O. 12958: DECL: 10/18/2015 
TAGS: EAIR, ECON, KTDB, YM, ECON/COM 
SUBJECT: BOEING VS. AIRBUS: YEMENIA ATTRACTS SUITORS FOR 
10-PLANE DEAL 
 
Classified By: Ambassador Thomas C. Krajeski for reason 1.4s (b) and (d 
). 
 
1. (C) Summary: Ambassador Krajeski met with Captain 
Abdulhamid AlQadi, Chairman and CEO of Yemenia Airlines, the 
national airline of Yemen, on October 16 to discuss a 
10-plane purchase they are planning.  Both Airbus and Boeing 
have demonstrated significant outreach to Yemenia management 
for the deal.  Airbus seeks to pressure Yemenia to make a 
decision at the next Board of Directors meeting on October 
19.  Boeing requested commercial advocacy assistance from the 
U.S. Department of Commerce Advocacy Center and the Embassy. 
Boeing and the Ambassador recommended to AlQadi an unhurried 
and well-examined decision.  This deal, worth at least $1 
billion in U.S. export content, could bring upwards of $1.35 
billion to the United States if a separately negotiated 
engine deal is made with the American engine manufacturer, 
General Electric.  End Summary. 
 
---------------- 
AIRBUS DIPLOMACY 
---------------- 
 
2. (C) According to AlQadi, the French, German, and British 
ambassadors have begun a lobbying campaign with President 
Saleh's office in the last two weeks.  In light of upcoming 
trips by President Saleh to meet French President Jacques 
Chirac as well as President Bush, Ambassador told AlQadi that 
he anticipated the possibility of difficult conversation with 
or pressure from Chirac on this matter.  (Background: 
President Saleh involves himself in virtually all high-stakes 
tenders and deals.)  He counseled AlQadi to recommend that 
Yemenia experts decide the matter without involving higher 
officials so as to remove the threat of undue influence from 
Saleh. 
 
------------------------- 
OPAQUE YEMENIA MANAGEMENT 
------------------------- 
 
3. (C) This summer, Yemen's Central Organization for Control 
and Audit (COCA) released a report indicating opaque and 
unhealthy financial and accounting practices by Yemenia 
Airlines.  For example, they noted the extensive practice of 
free or discounted fares given to important government 
officials and poor financial accounting which did not reveal 
the real states of finances for the national airline. 
Yemenia is half-owned by the Yemeni government with the other 
half owned by either an unnamed Saudi investor or the Saudi 
government.  While the Saudi businessman appears to have 
significant decision-making power, his name and background 
are still unknown.  Boeing representative Ehab Shihaby 
reported that during his negotiations, Yemenia said that a 
$60 million infusion will be coming from the Saudi government 
later this year.  Nonetheless, due to the non-transparent 
financial accounting practices, it is difficult for Post to 
determine how profitable Yemenia operations are and if they 
will be able to enter into this financial transaction. 
 
--------------------------- 
OLD WOUNDS: AN UNSOUND DEAL 
--------------------------- 
 
4. (C) Hanging over Yemenia's head, is a fiscally imprudent 
deal they signed several years ago with Airbus to pay half a 
million dollars each for the lease of two planes.  At current 
market value, the lease would only pay a fraction of this 
amount.  In effect, Yemenia is paying more for older planes 
than their present market value.  Boeing claimed that Airbus 
refused to renegotiate the terms of the older deal with 
Yemenia management.  After repeated attempts to obtain a 
renegotiated deal, Yemenia decided to halt monthly payments 
to Airbus.  According to Boeing, Airbus will not take this 
potential customer of new planes to court.  Yemenia hopes to 
use the prospect of a new purchase to force a renegotiation 
of the previous two-plane lease.  For these reasons, Shihaby 
fears that Yemenia is only using the threat of a potential 
deal with Boeing to obtain a better deal from Airbus. 
 
-------------------------- 
DOES BOEING HAVE A CHANCE? 
-------------------------- 
 
5. (C) In the meantime, Airbus is pressuring Yemenia to 
commit to a deal at the next Yemenia Board of Directors 
meeting on October 19.  AlQadi insists that if Boeing offers 
an attractive deal in Jeddah on October 18, he will delay the 
decision so that Saleh can avoid awkward conversations with 
either Chirac or President Bush.  If not, he says he will 
perhaps press the Board, which he heads, to make a decision 
on October 19. 
 
6. (SBU) As events evolve, Post will update Department and 
Commerce on developments on this case. 
Krajeski