US embassy cable - 05ALMATY4196

UNCLAS  ALMATY 004196 
 
SIPDIS 
 
 
SENSITIVE 
 
DEPT FOR EUR/CACEN, EB 
 
E.O. 12958:  N/A 
TAGS: EAIR, ECON, KZ, ECONOMIC 
SUBJECT: INTERNATIONAL AIR TRAVEL TO KAZAKHSTAN: A CHOICE 
BETWEEN ALMATY AND ASTANA 
 
REFTEL: A) `04 ALMATY 5035; B) ALMATY 3902 
 
1. (SBU) Summary:  There may be some clear skies ahead 
following the recent turbulent environment facing 
international carriers serving Kazakhstan.  For all intents 
and purposes, the GOK has abandoned its previous demand 
that all international air flights that now land in Almaty, 
instead, arrive in the new capital of Astana.  This would 
have resulted in all passengers to Almaty being forced to 
take connecting flights from Astana on the national carrier, 
Air Astana, which holds a virtual monopoly on domestic air 
service.  Rising opposition, not only from the diplomatic 
and international business communities, but also from local 
business and political leaders played an important role in 
weakening the GOK's resolve to carry through on this plan 
(Ref A.) End Summary. 
 
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GOK Backs Off From its "All Flights to Astana" Demand 
--------------------------------------------- --------- 
 
2. (SBU) Kazakhstan's Ministry of Transportation remains at 
the center of the highly charged negotiations over the 
transfer of international flights to Astana.  However, the 
GOK has backtracked from its demand to shift all flights to 
Astana by the end of September 2005, although it has 
succeeded in convincing Turkish Airways, while retaining 
most of its Almaty flights, to open twice-weekly routes to 
Astana.  Such Astana flights began in October.   Following 
the unveiling of its proposal to force all international 
carriers to serve only Astana, the GOK faced unprecedented 
criticism from both the international and domestic business 
communities. 
 
3. (SBU)  Moreover, unusual, public dissent from a number of 
political leaders, including criticism by well-connected 
Almaty Mayor Imangali Tasmagambetov, seems to have prompted 
the GOK to shelve this plan, at least for now. Nonetheless, 
tense negotiations between various European and Kazakhstani 
delegations continue, as European carriers attempt to iron- 
out long term marketing plans for the region.  As the GOK 
looks toward the near term future it has apparently decided 
that a pull back from its tough "Astana landing-take it or 
leave" position was in its best interest.  For the time 
being at least, international service into Kazakhstan will 
remain centered in Almaty. 
 
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We Will Build a New Airport and They Will Come 
--------------------------------------------- -- 
 
4. (SBU) Dramatic efforts  have gone into Astana's airport, 
as part of the GOK's plan for its new national capital.  A 
$300 million upgrade, financed by the Japanese Bank for 
International Cooperation, was used by the GOK to open a new 
international terminal in Astana  in December 2004.  Other 
improvements to the airport complex  include runway surface 
and lighting to conform to ICAO standards for all-weather 
operation.  The new, 22,000 square-meter, terminal is 
designed to handle a flow of 750-800 passengers per hour 
during peak periods and a total of 3 million passengers per 
year. 
 
5. (SBU) These extensive improvements were intended to 
prepare Astana airport to be the single port of entry for 
international flights to and from Kazakhstan.  Yet almost 
from its grand opening, Astana's airport has been plagued 
with continuing problems, and these long-touted projects 
soon fell behind schedule.  This and the inability of 
national carrier Air Astana to finance the acquisition of 
additional planes have helped put this plan on hold.  On 
November 17, ComOff met with Robert Young, the new manager 
of Astana's airport, to receive his views on issues facing 
this facility and to learn of upcoming developments.  As 
Young reported, his mandate is to turn a profit on this 
airport, which had just received hundreds of millions of 
dollars in upgrades.  Young underscored that his mission was 
predicated on the forcing of international flights into 
Astana, the expected increase in Air Astana connecting 
flights serving these captive passengers, and the hoped for 
growth in spending by these passengers transiting this 
airport.  However, as Young emphasized, the likelihood of 
 
 
this scenario being played out anytime soon appears to be 
dim. 
 
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Air Astana's Expansion Plans Meet with Strong "Headwinds" 
--------------------------------------------- ----------- 
 
6. (U) Many doubted that Air Astana would have been able to 
serve the captive market that would have been created had 
all international flights been transferred to Astana.  Last 
October, then Air Astana President, Lloyd Paxton, announced, 
at a meeting chaired by Kazakhstani Prime Minister Danial 
Akhmetov, the airline's plans to obtain seven additional 
Boeing 757s, virtually doubling the size of his airline 
overnight.  Paxton also promised that Air Astana would 
increase the number of flights between Astana and Almaty to 
up to eight per day.  However, due a shortage of available 
planes for leasing, Air Astana has had problems acquiring 
additional aircraft, and these ambitious expansion plans 
have been put on hold. 
 
7. (SBU) Lloyd Paxton also had a vision of turning Astana 
into a global air and financial hub, a Dubai on the steppes 
of Central Asia, and obtaining Boeing's new, long range 787s 
was to be the cornerstone of this dream.  Paxton's plan was 
for Astana to become a central air hub, served by B787s 
flying in from around the world.  While in Astana, these 
visitors would spend time shopping, and partaking of 
Astana's attractions.  It appears that BAE management 
apparently has a different vision, and Paxton has recently 
departed from his position with Air Astana in Kazakhstan. 
 
8. (SBU) During a September 29th meeting between the ComOff 
and Air Astana's VP for Commercial, Ibrahim Canliel, Air 
Astana described its long term expansion plans, which are 
predicated on leasing additional Boeing 757s and 737s to 
augment its existing fleet.  Canliel outlined less ambitious 
plans to increase air service between the oilfield cities of 
Western Kazakhstan and Europe as well as adding an 
additional flight to Turkey.  These proposals make economic 
sense and would most likely be profitable routes for the 
company.  When specifically asked by the ComOff whether his 
company was considering leasing Airbuses, Canliel didn't 
categorically rule that out, although he insisted his 
preference was to continue with Boeings, which constitute 
the bulk of Air Astana's fleet.  A final decision on the 
number and type of aircraft to be added is expected by the 
end of the year. 
 
----------------------------- 
Turbulent Air Talks Continue 
----------------------------- 
 
9. (SBU) Important Star Alliance partner, Lufthansa, remains 
frustrated by the tough operating environment it faces in 
Kazakhstan.  In late July, the GOK met with a German 
delegation, but reached no agreement that would lead to 
additional Lufthansa flights in Astana.  In an early October 
meeting with ComOff, Lufthansa Kazakhstan Country Manager 
Dirk Grossman reported on contentious negotiations between 
Germany and Kazakhstan.  Grossman added that Lufthansa 
offered two weekly flights to Astana beginning in the autumn 
of 2005.  But, it also has requested a return to daily 
(i.e., seven weekly) flights that Lufthansa once had between 
Frankfurt and Kazakhstan.  On this request, the GOK has 
refused to budge, instead demanding an Air-Astana-Lufthansa 
code-sharing arrangement, and starting in the summer of 
2006, a 50-50 formula calling for every flight to Almaty to 
be matched by an Astana flight. 
 
10. (SBU) The Germans have categorically rejected these 
demands, believing the last condition (the 50-50 rule) would 
call into question the continued economic viability of air 
service to Kazakhstan.  More is at issue in Germany's case, 
as Air Astana competes with Lufthansa on routes to Germany; 
and some small charter companies from both countries operate 
flights to and from Germany in the summer months. 
 
11. (SBU) Tense negotiations between various European and 
Kazakhstani delegations continue, as European carriers 
attempt to iron-out long term marketing plans for the 
region, and the final act in this drama has most likely yet 
 
 
to be played out.  The British have interests on both sides 
of the issue, since British Aerospace Engineering (BAE) is 
the 49% owner of Air Astana and manages both the airline and 
the Astana airport.  Nonetheless, the British have out in 
front often leading the European Commission approach to 
negotiations, which proved particularly challenging for the 
Kazakhstanis.  At the same the possibility of the Dutch 
cutting a separate deal with the GOK (the Dutch airline, 
KLM, has maintenance and flight arrangements with Air 
Astana) was forestalled since they preserved their cover by 
acceding to an EC-wide agreement on negotiating stance vis-- 
vis Kazakhstan. 
 
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Yet, Other Airlines May Soon be Adding Flights 
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12. (SBU) During the Ambassador's meetings with the 
Minister of Transport, Askar Mamin (Ref B), the Minister 
also said that Air France and KLM had expressed interest in 
providing service to and from Atyrau.  In reply the 
Ambassador underscored the importance of letting market 
forces play themselves out in determining which flights 
would best work.  At the same time, Air Austria is exploring 
the possibility of reentering the Kazakhstani market (it 
pulled out of Kazakhstan in 2000, citing a weak market as 
the reason).  Austria's Vienna-based ambassador to 
Kazakhstan and the GOK recently announced that Air Austria 
will offer service to Kazakhstan starting next year. 
Reportedly Arabian Airlines may also soon be offering 
service between Astana and the UAE. 
 
 
13. (SBU) Comment.  Unexpectedly fierce Kazakhstani public 
and private sector criticism, buttressed by sustained 
pressure from the foreign community, seem to have convinced 
the GOK to step back from the brink of trying to force all 
international flights to land in Astana.  The inability of 
Air Astana to obtain additional planes to implement this 
ambitious plan may have sealed the fate of what was an anti- 
market forces proposal.  For all of these reasons, the GOK 
now seems to have adopted a far more flexible position on 
this issue.  End Comment. 
 
14.  (U) Minimize for Dushanbe considered. 
 
 
ORDWAY 
 
 
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