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Viewing cable 05KABUL5033, REHABILITATING STATE-RUN ARIANA AIRLINES

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Reference ID Created Released Classification Origin
05KABUL5033 2005-12-13 10:26 2011-08-24 01:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Kabul
This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SECTION 01 OF 04 KABUL 005033 
 
SIPDIS 
 
SENSITIVE 
 
DEPARTMENT FOR SA/FO, SA/A, EB/OTP, EB/CBA 
NSC FOR AHARRIMAN, AMEND 
CENTCOM FOR CG CFC-A 
TREASURY FOR PARAMESWARAN 
COMMERCE FOR AADLER 
TRANSPORTATION FOR DMODESITT 
FAA FOR JHANCOCK AND TMARZIN 
 
E.O. 12958: N/A 
TAGS: EAID EAIR ECON AF
SUBJECT: REHABILITATING STATE-RUN ARIANA AIRLINES 
 
REF: A) KABUL 4701 
     B) KABUL 4327 
 
------- 
Summary 
------- 
 
1.  (SBU) The President of state-owned flag carrier Ariana, 
Nadir Atash, has ambitious plans to revamp the airline by 
upgrading its personnel, aircraft, systems and maintenance. 
Today Atash confronts a large and largely ineffective 
workforce, massive corruption and persistent nepotism.  Even 
with significant Ministry of Transport protection against 
private sector competitors, Ariana is a long way from being 
able to operate at international service and safety 
standards.  Afghanistan's best hope for a viable civil 
aviation sector lies with new private sector airlines.  End 
summary. 
 
 
-------------- 
Atash's Ariana 
-------------- 
 
2. (SBU) In a discussion with Econoffs, Ariana President 
Nadir Atash laid out his vision for the future of 
Afghanistan's flag carrier.  He credited Minister of 
Transportation Qasimi with beginning the process of reform 
at Ariana and noted that the Minister had recruited him in 
June 2005 and given him a mandate to continue and expand 
this effort.  Atash readily admitted that corruption, 
nepotism and ineptitude are rampant in the Ariana, a company 
that had not produced a profit/loss statement in over 15 
years.  He expects to have an audited Ariana account 
statement completed for Afghan FY 045/05 (the fiscal year 
ending March 21, 2005) by March 2006, followed by an FY 
05/06 statement two to three months later. 
 
3. (SBU) Atash outlined an ambitious plan for turning Ariana 
into a competitive airline.  He highlighted the need for the 
right tools for success:  "better personnel, aircraft, 
systems and maintenance."  He stressed the need to stem what 
he called "funding leakage," noting that often expected 
revenues do not arrive from remote ticketing offices in 
Ariana's coffers.  While Atash went into detail on each of 
his four tools for success, he did not outline a clear plan 
for dealing with pervasive corruption. 
 
-------------------------------- 
Building Ariana's Human Capacity 
-------------------------------- 
 
4.  (SBU) Ariana was originally set up in the 1960s as a 
joint venture between the GoA and PanAm.  After PanAm 
withdrew in the 1970s, Ariana became a wholly state-owned 
enterprise.  The company is presented by the Ministry of 
Transportation, as a private sector entity, albeit one with 
the GoA as its principal shareholder.  As such, its 
employees are not considered to be government civil servants 
and so Ariana is not required to submit formal "rightsizing" 
plans to the GoA civil service reform initiative.  Atash 
noted that "This [the airline industry] is a service 
industry," and lamented that concepts such as "after sales 
service" were virtually unknown to his staff.  Atash proudly 
explained his new campaign to hire staff proficient in 
English and computer skills.  To date, Ariana has hired 340 
new employees via an English and computer proficiency test. 
He added that he has recruited new "ladies" for cabin 
service because "men don't know how to serve."  Still, Atash 
has no plans to reduce the existing 1700 person staff.  In 
fact, he plans to pay many of them to stay home rather than 
coming to work (Ref A).  He believes that the USD 1.2 
million cost of this program is worth it to prevent the 
strikes and violent demonstrations that layoffs would cause. 
5.  (SBU) Atash counts 120 Ariana pilots, including flight 
engineers.  Of these, less than 20 are fully certified. 
Ariana is retraining many of these pilots.  Eight of the 
best will train to fly new long range planes that Ariana 
plans to lease, but poorly coordinated changes in leasing 
plans mean that these pilots have been on hold waiting to 
train until the type of craft they will fly is confirmed. 
 
------------------- 
Upgrading the Fleet 
------------------- 
 
6.  (SBU) Ariana's current fleet includes three Boeing 727s, 
three A300 B4s and one Antonov 24.  (Note: One of the A300 
B4s has been grounded for years and will likely never fly 
again.  The Antonov has been ordered grounded by the 
Ministry of Transport, but Ariana continues to use it for 
domestic flights.  End note.)  Ariana recently signed a deal 
to lease two 757s from Boeing beginning in December.  This 
deal with Boeing will allow Ariana to purchase four 737-700 
aircraft from Boeing beginning in 2009.  Ariana is also 
currently leasing two A310s. Thus, by the end of 2006, 
Ariana hopes to have five long range aircraft: the two 
Boeing 757s, the two A310s and one other plane to be 
determined.  (Note:  As noted Ref A, Atash views these 
leases as economically viable with a 75 percent passenger 
load.  However, Ariana has yet to perform any economic 
feasibility studies on future routes, so this number is 
entirely Atash's creation.  Ariana's Lufthansa Consulting 
advisors recommend basing new route feasibility studies on a 
more conservative 65 percent occupancy rate, though they 
suggested that even that would be optimistic initially.  End 
note.)  Still, according to the Embassy FAA expert, even 
though the A310s have been delivered and the 757s will 
arrive shortly, it will be months before Ariana will have 
the pilots, maintenance contracts and landing slots to put 
these planes in the air. 
 
------- 
Systems 
------- 
 
7.  (SBU) Atash believes that modern internal accounting and 
management systems are essential to transform Ariana into an 
effective, efficient and competitive carrier.  He plans to 
purchase new accounting, reservation and ticketing software 
suites that will require a computer and English literate 
staff.  Atash is particularly interested in acquiring the 
Saber reservation and ticketing system to allow more 
flexible pricing of tickets and increased customer service. 
However, Ariana does not have its own generators, relies on 
the GoA for its power supply and,  like the Ministry of 
Transportation and much of the rest of Kabul, is frequently 
without power needed to run these systems. 
 
----------- 
Maintenance 
----------- 
 
8.  (SBU) While Atash emphasized the importance of strong in- 
house maintenance, he admits that Ariana is still struggling 
in this regard.  Under PanAm's tutelage, Ariana's engineers 
used to perform maintenance in line with international 
standards.  Many of those engineers still work for Ariana, 
but they have not had updated training since the 1979 Soviet 
invasion.  Currently, Ariana can perform only the most basic 
maintenance operations in-house and maintains few paper 
records of aircraft maintenance regardless of where it was 
performed. 
 
---------------- 
Domestic Service 
---------------- 
 
9. (SBU) Atash admitted that Ariana does a poor job with 
domestic service.  He noted that domestic service used to be 
provided by a stand-alone state-owned enterprise Bakhtar 
that was later folded into Ariana.  Atash favors splitting 
domestic service off from Ariana to allow Ariana to focus on 
what he views as its core mission, international flights. 
 
------------------------- 
Competitive Disadvantage? 
------------------------- 
 
10.  (SBU) Atash argues that Ariana is at a competitive 
disadvantage versus other international carriers and insists 
that Indian Airlines' recent expansion of its Delhi-Kabul 
service to thrice weekly has hurt Ariana's revenue (Ref B). 
Chief among Atash's concerns are ISAF-imposed operating 
restrictions that limit civil aviation to landing and taking 
off at Kabul International Airport between sunrise and 
sunset.  (Note:  As all civil air service into and out of 
Kabul faces the same restrictions, it is hard to see how 
this limits Ariana's competitiveness.  Additionally, ISAF 
will allow flights to operate between 5:00am and 11:00pm 
local time during the Hajj.  The Ministry of Transportation 
will request that these operating hours remain in effect 
after Hajj as well. End Note).  Atash also notes that Ariana 
is exposed to currency risk because of GoA requirements that 
it sell tickets in Afghanis even though most of its expenses 
are in US dollars.  Further, the poor condition of Kabul's 
airport and terminal limit secondary revenue opportunities 
from restaurant and vender leases.  Also, Ariana has neither 
a cargo terminal nor its own fuel farm.  (Note: Embassy's 
FAA expert observed that the Ministry of Transport would 
allow Ariana to make any reasonable terminal improvements 
provided that Ariana pays for them. Similarly, there are no 
restrictions against Ariana building its own fuel farm. End 
note). 
 
11.  (SBU) Finally, as Afghan-licensed planes cannot fly 
into European airports (because Afghanistan is not a 
Category 1 country according to IATA ratings), Ariana wet- 
leases a number of planes to operate its European routes. 
Each of these contracts requires adherence to the licensing 
standards of each aircraft's country of registration. 
Managing these different sets of requirements takes 
considerable management resources.  (Note: While Atash 
complains about managing multiple wet-leases, he has 
consistently balked at making the kind of reforms necessary 
to raise Afghanistan's IATA ratings, such as true 
maintenance oversight.  End note.) 
 
-------- 
Bio Info 
-------- 
 
12  (SBU) At the request of the Minister of Transportation, 
American citizen Nadir Atash recently returned to 
Afghanistan from the U.S. where he ran a chain of Jiffy Lube 
franchises.  Though Atash professes to be a staunch 
proponent of the development a free markets in Afghanistan, 
he is close to the Minister of Transportation and admits 
that he has prevailed upon the Minister to protect Ariana by 
restricting the access of potential competitors - both start- 
up domestic carriers and established foreign carriers - to 
the Afghan civil aviation market. 
 
 
------- 
Comment 
------- 
 
13.  (SBU) While all carriers flying into Afghanistan face 
significant challenges, Ariana carries considerable baggage 
from its history as a state-owned enterprise.  New private 
sector players such as Kam Air who do not carry the aging 
fleet, the scores of workers with little or no recent 
training, and the outdated facilities that Ariana does are 
in a better position to operate consistent with 
international standards.  Thus far, the Ministry of 
Transportation's reaction to this situation has been to 
curtail the activities of private sector carriers (see Ref B 
for Ministry of Transport limitations on Kam Air's 
international routes) and to offer protection to Ariana. 
Without such protection, Ariana may indeed fail.  But in the 
medium term, private air carriers appear better positioned 
that Ariana to fill Afghanistan's civil aviation service gap 
with higher quality and safer air service. 
NEUMANN