This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SECTION 01 OF 02 MANILA 005937
SIPDIS
Sensitive
STATE FOR EAP/MTS
TREASURY FOR OASIA
TRANSPORTATION FOR FAA
SINGAPORE AND TOKYO FOR FAA
COMMERCE FOR BISBEE
E.O. 12958: N/A
TAGS: EAIR ETRD BEXP RP
SUBJECT: Boeing eyes Cape Town Treaty benefits for airplane
deal
Sensitive but Unclassified - Not for Internet - Protect
Accordingly.
REF: A) MANILA 5276
B) STATE 199212
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Summary
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1. (SBU) Boeing Sales Representative Ray Lau updated
emboffs on the status of his proposal to Philippine Airlines
(PAL) and confided that he is making progress toward the
sale of up to 12 wide body aircraft. Lau said it would
greatly benefit all Philippine airlines if the GRP ratified
the Cape Town Treaty because U.S. EXIM Bank has agreed to
extend preferential financing to treaty participants. This
would remove some financial impediments to the airplane deal
and boost Boeing's attractiveness to PAL. Embassy will
encourage GRP ratification and continue to work with PAL
executives on the purchase of Boeing planes. End Summary.
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One step closer?
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2. (SBU) Boeing rep Ray Lau told emboffs at a meeting
December 20 that he was making good progress on an airplane
purchase deal with Philippine Airlines (PAL). He thought
the timeline for a PAL purchase of wide body planes would be
far shorter than the five years reported in a recent
newspaper article. Lau said PAL owner Lucio Tan no longer
considered a two-engine plane like the Boeing 777 less safe
than a four-engine plane (ref A). Lau said the sticking
points to finalizing the deal remain PAL's forfeited deposit
of approximately $114 million from an aborted plane sale in
1999 and Boeing's ability to deliver planes expeditiously.
Lau admitted that if Tan does not commit soon, PAL might not
receive the planes until 2010 or later because of Boeing's
recent large commitments to other airlines, including Qantas
and Cathay Pacific.
3. (SBU) One potential drain on Tan's finances could be his
company's effort to take over the new terminal at Ninoy
Aquino International Airport (NAIA). His Asia's Emerging
Dragon Corporation is suing in court to become the operator,
at a potential cost of $300 million. There is speculation
Tan may be delaying any other purchases until a final
decision is made on the operator for the unopened terminal.
In a separate meeting with EconCouns, Tan admitted his hopes
for taking over the new terminal with GE as an additional
investor.
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Treaty is a win-win situation
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4. (U) During his visit to Manila, Lau discussed the
benefits of the Cape Town Treaty to the GRP, Philippine
Airlines, aviation-related American companies, and banks
that may finance aviation purchases. The aviation-based
treaty reduces the risk to asset-based financing and leasing
transactions, which increases the availability of aviation
credit. The U.S. ratified the Cape Town Treaty in 2004, but
Malaysia is so far the only country in Southeast Asia to
ratify it. The U.S. Export-Import Bank agreed to reduce its
exposure fee by one-third on commercial aircraft for
airlines in countries that sign, ratify, and implement the
treaty, according to its website. This would reduce
airlines' financing costs for new aircraft. Lau added that
an EXIM guarantee would be "great for banks" such as
Citibank and JP Morgan Chase Bank that may consider
financing the purchase. More attractive financing may lead
to increased purchases or leases of American planes, which
could also benefit engine manufacturers GE and Pratt-
Whitney, leasing companies such as GE Commercial Aviation
Services and International Lease Finance Corporation, and
other aviation-related companies.
5. (SBU) Lau suggested that PAL's previous objections to
GRP signing the treaty may have waned. PAL may have
previously balked at the treaty to prevent Cebu Pacific from
taking advantage of the beneficial terms. However, Cebu
Pacific has already committed to buying Airbus and PAL is
now considering its own wide body re-fleeting. Lau added
that senior PAL executives support the treaty signing at
this point. On a less sanguine note for Boeing's prospects,
Lau noted that EXIM confiscated one of PAL's aircraft in San
Francisco many years ago. According to Lau, one senior
executive told him that because of the embarrassment this
caused PAL, he "would rather pay more than deal with EXIM
Bank again." However, Lau believes relations between EXIM
Bank and PAL have warmed considerably, especially after the
visit of EXIM Bank Transportation Division Vice-President
Bob Morin to Manila in November to meet PAL Chief Financial
Officer Andrew Huang.
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Comment
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6. (U) Embassy continues to work with both the GRP and the
private sector to encourage PAL's purchase of Boeing planes.
Emboff delivered Cape Town Convention demarche to United
Nations and International Organizations Directorate at the
Department of Foreign Affairs recently, but has not yet
received a response (ref B). We will continue to encourage
Philippine ratification of the Cape Town Convention to
strengthen the US-RP civil aviation relationship and reduce
barriers to aircraft financing. This will not only make it
easier for PAL to follow-through on its plans for fleet
replacement but would encourage the expansion and
modernization of all Philippine fleets.
JONES