Sep 202014
Reference ID Created Released Classification Origin
2005-11-08 09:31
2011-08-30 01:44
Embassy Manila

This record is a partial extract of the original cable. The full text of the original cable is not available.




E.O. 12958: N/A
SUBJECT: Philippine Airlines Eyes Boeing Purchase

Sensitive but Unclassified – Not for Internet – Protect


¶1. (SBU) Philippine Airlines (PAL) plans to re-fleet to
remain competitive and fulfill expansion plans. PAL is
now considering the purchase of up to twelve wide-body
Boeing 777s. The sticking point appears to be a $114
million deposit on aircraft that PAL forfeited when it
canceled a Boeing purchase contract in the late 1990s.
In addition to the importance for the US-RP trade
relationship, the transaction now under consideration
could result in a more fuel-efficient fleet, as compared
to Airbus. Thus a Boeing purchase fits with APEC strategy
for energy security and sustainability. Para 7 contains
suggested talking points for use with senior GRP
officials at APEC. End summary.

Boeing planes fit PAL’s expansion plans

¶2. (U) Econ counselor and econoffs met separately with
Boeing’s Director for Asia Pacific Sales Ray Lau and
Philippine Airlines (PAL) CEO Jaime Bautista to discuss a
potential sale of up to twelve Boeing 777 aircraft to
PAL. Bautista explained that PAL needed to re-fleet to
remain competitive and fulfill its expansion plans. PAL
began flights to Beijing this month and is considering
flights from Cebu to Los Angeles and other US routes.
PAL also views Japan and Korea as key expansion markets.
PAL recently leased nine narrow-body Airbus A320 planes
but is still considering the purchase of wide-body Boeing
777 planes.

¶3. (U) Lau said that Boeing 777 twinjet planes are more
expensive than their Airbus counterparts (A340-600s) but
would save PAL money in the long run. Each plane costs
approximately $200 million. According to Boeing
publications, the 777s are fuel-efficient, consuming 20%
less fuel per seat than the A340-600. This is
particularly important given the recent dramatic increase
in oil prices. The planes are 18% lighter than the A340-
600 and therefore landing fees and maintenance costs are
less. They are larger and therefore provide more
passenger and cargo space. Lau suggested that PAL is
“missing out” on the cargo business and could benefit
from the larger cargo space.

¶4. (SBU) PAL executives have a favorable view of Boeing
777s. In a private discussion with us, they explained
that perhaps the only person left to convince was owner
Lucio Tan. Bautista and Joseph Chua, Tan’s son-in-law,
said that Tan questioned the safety of a two-engine, as
opposed to a four-engine plane, for trans-Pacific
crossings. (Note: Tan’s concern appears to be an
interesting diversion. The two-engine planes, of course,
meet ICAO and FAA safety requirements. We have heard
from a variety of sources, including PAL executives, that
PAL forfeited a $114 million deposit when it backed out
of a previous Boeing purchase. Tan reportedly still
hopes to recover the lost deposit and Bautista insisted
that PAL should be reimbursed. Lau, on the other hand,
is trying to find a way to save face for both parties.
End note.)

——————————————— —
Significance for RP economy and US-RP relations
——————————————— —

¶5. (SBU) Both Boeing and PAL reps agreed that the
purchase from Boeing could strengthen the RP-US
relationship while an Airbus purchase would do less to
improve RP-EU relations since PAL does not fly to Europe.
By contrast, PAL was influential in the US-RP air
transportation agreement, has access to unlimited flight
frequencies to the US, enjoys multiple flights weekly to
five major US cities, and plans to expand its US routes.
¶6. (U) The Boeing sale would help improve PAL’s
competitiveness and would be consistent with GRP energy
conservation policies. The Philippines is one of the
most energy-dependent countries in Southeast Asia and
spent approximately $44 billion on oil imports in 2004.
As oil prices remain high, investing in fuel-efficient
planes is one way to help mitigate the burden and support
ASEAN and APEC goals of regional energy security and
sustainability. APEC Energy Ministers recently pointed
out that sustainable economic development depends on
implementing a range of supply and demand-side measures
to address oil shocks, including promoting energy
efficiency. With the high price of oil, International
Air Transport Association (IATA) estimates that fuel
costs will make up about 25% of total airline costs in
¶2005. These costs normally range between 14-16% and
newer aircraft could reduce these costs to 10% of total
costs, according to a global market forecast by Airbus.
IATA also estimates that every $1 increase in oil prices
costs the aviation industry an additional $1 billion.

——————————————— ———–
Talking Points for Use with Senior GRP Officials at APEC
——————————————— ———–

¶7. (U) Boeing has formally submitted a request for USG
advocacy through the Advocacy Center. Embassy suggests
the following talking points for the US delegation to use
during the APEC meetings in Korea this month in their
discussions with President Arroyo and senior GRP
officials. The purchase of Boeing planes by PAL could
further US-RP civil aviation and trade relations as well
as President Arroyo’s energy conservation efforts. The
APEC meetings provide an opportunity to expand trade and
build goodwill into our relations with the Philippines’
major international carrier – Philippine Airlines (PAL) –
as it considers purchase of new passenger aircraft. PAL
now flies to five US cities for a total of 28 PAL flights
per week. PAL does not fly to Europe.

Talking Points:

— From our discussions with senior PAL executives, we
understand that many at PAL have very favorable views of
Boeing’s engineering, quality, and safety. Through our
embassy, PAL has also expressed interest in adding
another entry point into the US. It is natural that we
try to foster this civair relationship.

— As APEC members, we seek ways to improve energy
conservation where it is practical. According to Boeing,
fuel efficiency is a critical feature of its planes,
particularly with jet fuel prices currently over $60 per
barrel. Boeing 777 long-range planes are 20% more fuel
efficient per seat than the comparable Airbus model,
according to Boeing data. On a typical trans-Pacific
flight, the savings would be substantial.

— In addition to its trade and commercial value, a
Boeing purchase would be a very positive signal for
President Arroyo’s energy conservation efforts as well as
a tangible commitment to APEC’s sustainable energy

— We urge you to approach the leadership at PAL and
explain the mutual advantages of a Boeing purchase.
PAL’s overall orientation is toward the United States,
not Europe. A decision to purchase Boeing would
strengthen our trade as well as our civil aviation
relationship. It would be emblematic of our strong
bilateral ties.


¶8. (SBU) Emboffs are working closely with Boeing and PAL
to encourage the sale. Raising the profile of the sale
at APEC would likely help it along. Boeing sales manager
Lau will be returning to Manila in mid-November and
making intermittent visits over the coming months to
continue talks with PAL. Bautista told us that PAL would
probably make a decision before the end of the year.




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