US developing plan for Iraqi airline
Restoring service under new carrier focus of proposal
By Stephen J. Glain and Ross Kerber, Globe Staff, 2/14/2004
WASHINGTON -- US officials in Iraq are developing a plan to restart Iraq's aviation sector that calls for a new national airline to replace the existing carrier, restore US-Iraq passenger service by April, and put together an international funding package led in part by Washington.
The US plan was developed by New York-based SH
&E International Air Transport Consultancy and unveiled in a presentation at a meeting of investors in December. It recommends Iraq's new airline be part of a regional group of carriers that could include Royal Jordanian, Lebanon's Middle East Airlines, and Syrian Air, and identifies Atlanta-based Delta Air Lines Inc. as a possible international partner. "The future is bright, and you're all invited to participate," Graham Henderson, director of SH
&E's Washington office, told investors and aviation specialists at the Middle East Aviation Finance Conference in Dubai, according to a PowerPoint copy of the slide show.
Privatization has been a sensitive issue in postwar Iraq, which under former dictator Saddam Hussein was a command economy bloated with inefficient and overemployed state-owned enterprises. Initial attempts by coalition officials to aggressively sell public companies was resisted by some Iraqi ministries fearful that such a plan would worsen the country's debilitating jobless rate.
Henderson spoke alongside Frank Willis, who at the time was advising Iraq's transportation ministry as an official with the Coalition Provisional Authority, or CPA, the US-led administration in postwar Iraq. Willis said he anticipated the liquidation of Iraqi Airways, the nation's air carrier, in favor of a new airline. Iraqi Airways has been effectively grounded since Hussein's invasion of Kuwait in 1990 and the United Nations embargo that followed. The airline has been saddled with lawsuits filed by Kuwait in the value of some $1.5 billion, Willis said, which all but precludes the possibility of jump-starting the airline.
&E study suggested any new Iraqi Airline should procure its fleet from a single manufacturer. Iraqi Airways' fleet was either scattered to neighboring countries on the eve of the 1991 Gulf War or destroyed during Operation Iraqi Freedom. Its last order for new aircraft, logged prior to the invasion of Kuwait, was for five Airbus jets. Airbus kept the order -- its first from Iraq's flag carrier -- on its books, presumably as leverage against the day the airline was able to shop for new aircraft. Airbus is owned by EADS, a European consortium controlled by aerospace giants from Germany and France, which opposed the US war on Iraq and have been blocked from participating in major reconstruction deals. David Venz, a spokesman for Airbus Industrie of North America Inc., in Virginia, said the company hasn't been told of any plans for a new airline.
Mark Baughman, a Boeing spokesman, said he was aware the company has had preliminary negotiations for sales to Iraq's postwar aviation sector, but he did not know at what level the discussions were being held. Most aviation analysts say the new Iraqi carrier would probably lease, rather than buy, its fleet given the industry's slowdown and the large supply of used aircraft on the market. Richard L. Aboulafia, an aviation industry consultant at Teal Group Corp. in Virginia, estimated it would cost several hundred million dollars for a new airline to get started with used planes and up to $6 billion to match Iraqi Airways' pre-1990 peak.
Willis, who has since left the CPA and could not be reached for comment, said the outlook for Iraq's air industry was bright, despite the country's precarious security situation. He said Iraq's transport ministry and Interim Governing Council had already authorized a code-share deal between Delta and Royal Jordanian to provide air-mail service to Iraq and is targeting April 1 for direct flights from Baghdad to Detroit.
Donor agencies, such as the United States Agency for International Development and the World Bank, will help finance Iraq's new aviation sector, according to the presentation. A World Bank official said yesterday the bank has not been asked, officially or otherwise, by US or Iraqi authorities for help, "but if we're asked specifically to work on something like this, we'd be happy to get involved." The presentation also cited "excellent investment opportunities in the noncore airline-related activities" in Iraq's aviation industry. Bechtel Inc., which the US government hired to manage postwar Iraqi reconstruction, is already heavily involved in rebuilding Iraq's air-transport infrastructure.
It is unclear how much influence Iraq's transport officials have had on the coalition's plans for the country's aviation industry. Webster O'Brien, an SH
&E spokesman, said Henderson's study was done largely in-house, using public data relating to Middle East air traffic. A press release issued by SH
&E in December said the revival of Iraq's aviation sector was clouded by the "evolving" relationship between the CPA and Iraq's Civil Aviation Authority.