Cablegate: Ukraine: Saa Tells Iata Ticket Stock Ok, But

VZCZCXRO7879
PP RUEHDBU RUEHIK RUEHLN RUEHPOD RUEHVK RUEHYG
DE RUEHKV #2676/01 2970922
ZNR UUUUU ZZH
P 240922Z OCT 07
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC PRIORITY 4175
INFO RUCNCIS/CIS COLLECTIVE PRIORITY
RUEHZG/NATO EU COLLECTIVE PRIORITY
RUEHMO/AMEMBASSY MOSCOW PRIORITY 0264
RUEHMT/AMCONSUL MONTREAL PRIORITY 0008

UNCLAS SECTION 01 OF 02 KYIV 002676

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EUR/RUS PATTERSON
EEB BYERLY AND COLEMAN
USDOC FOR 4231/ITA/MAC/EUR/RISA BROUGHER AND BEADLE
USDOC FOR 3004/CS/ADVOCACY/BLOOM
USICAO MONTREAL FOR LAURA FAUX-GABLE
NSC FOR WARLICK AND MCKIBBEN

E.O. 12958: N/A
TAGS: EAIR ETRD KTIA PREL UP
SUBJECT: UKRAINE: SAA TELLS IATA TICKET STOCK OK, BUT
BRINGS UP NEW ISSUES

REF: A. KYIV 2542

B. KYIV 2383
C. KYIV 1974
D. KYIV 2788
E. STATE 10632

1. (SBU) Summary. On October 19 in Kyiv, State Aviation
Administration (SAA) officials confirmed to visiting
International Air Transport Association (IATA) officials that
the dispute surrounding IATA's paper tickets (ref D) had been
solved, and that sanctions against IATA had been lifted.
However, the SAA said it still had outstanding issues with
IATA's electronic tickets, and objected to IATA's recent
resolution to switch to the Euro from the US dollar for
airline ticket fares. IATA agreed to the SAA suggestion to
refer the e-ticket issue to a working group, and agreed to
give Ukraine more time to address the commercial implications
of switching from the Dollar to the Euro. Admitting that its
decision to challenge the paper ticket issue may have ruffled
feathers at the SAA, IATA is now deliberately taking a
cooperative approach to test whether the Ukrainian civair
regulator's concerns are genuine, and not just a front for
Ukrainian interests in acquiring part of the lucrative and
growing market now serviced by IATA. End summary.

2. (SBU) On October 19, EconOff attended a special meeting
between SAA and IATA officials and airline representatives.
IATA sent its Senior VP for Industry Distribution and
Financial Services Tom Murphy, its Regional Rep for Russia
and CIS countries Dymtry Shamraev, and its Rep in Ukraine
Sergei Martinyuk. Deputy Chairman Dmytro Babeichuk and Head
of Air Services and Licensing Sergiy Korshuk represented the
SAA. Representatives from Ukrainian International, AeroSvit,
Delta Airlines, and KLM/Air France were also in attendance.
IATA's Tom Murphy took a reconciliatory approach and
apologized if IATA had given the impression that it did not
want to follow Ukrainian law (Note: IATA had opted to pursue
the ticket stock issue in Ukrainian courts, only finally
registering the ticket stock when sanctions had been imposed.
To date, IATA officials still believe the registration is
unwarranted. End note).

3. (SBU) The SAA's Babeichuk expressed gratitude for IATA's
apology and reminded IATA that all businesses operating in
Ukraine, either foreign or domestic, must abide by Ukrainian
law. Babeichuk also told IATA that all subsequent batches of
ticket stock would need to follow the same registration
process that IATA had recently completed. IATA's country
manager in Ukraine Sergei Martinyuk promised that this would
be done before IATA imported any batch of ticket stock to
Ukraine. The SAA's Head of Air Services and Licensing Sergiy
Korshuk stated that the SAA did not have any vendetta against
IATA; the SAA simply wanted IATA to comply with Ukrainian
law. IATA's Murphy agreed, and both parties expressed their
gratitude that the infamous ticket stock issue had finally
been resolved.

Ticket Stock Issue Resolved, But Not E-tickets
--------------------------------------------- -

4. (SBU) Next, the SAA's Babeichuk regretted that the SAA was
still concerned about the future of e-tickets, noting that in
the opinion of the SAA, e-tickets by themselves did not meet
the standard of an official accountable document laid out in
current Ukrainian law. Babeichuk suggested that an e-ticket
working group be formed consisting of IATA, SAA, and airline
representatives as soon as possible to arrive at a quick
solution to the e-ticket issue. (Note: In ref C, the SAA
contended that e-tickets will need an accompanying tax
document, which according to Korshuk, can be purchased from a
local Ukrainian printer for approximately $0.43 each. IATA
processed approximately 330,000 e-tickets in Ukraine last
year, which would have equaled roughly $141,900 in income for
this local company last year. End note). The SAA said that
a working group would be the best forum to determine the
steps needed to make e-tickets legal documents for official
Ukrainian accounting purposes. IATA officials agreed,
understanding that the working group would lead to a solution
whereby e-tickets, as they exist now, would get appropriate
legal status being accompanied by an additional document.

KYIV 00002676 002 OF 002

Euro or Dollar? That is the Question
------------------------------------

5. (SBU) IATA's Tom Murphy next addressed the IATA's recent
decision to switch its main currency for airline ticket fares
from Dollar to Euro beginning November 1. Murphy told the
SAA that the decision was made unanimously at an IATA
conference in July. He noted no representatives from either
Aerosvit or Ukrainian International Airlines (UIA) were at
the conference to voice their concerns or veto the
resolution. Murphy noted that either of the Ukrainian
airlines could have vetoed the move.

6. (SBU) The SAA explained that UIA had expressed its
concerns with the resolution (albeit not at the July IATA
conference), and the SAA had agreed with UIA's concerns. The
hryvnia was pegged to the dollar, and not the Euro, the SAA
pointed out. Ticket prices quoted in hryvnia remained stable
as a result. On the other hand, ticket prices in hryvnia
would oscillate in tandem with changes in the hryvnia/Euro
exchange rate if IATA switched to the European currency. UIA
and the SAA feared that such a practice could prove
economically damaging to Ukrainian carriers. Murphy was
unable to convince either the SAA or the UIA representative
that the switch made economic sense in the long run. The SAA
decided to send a letter of their disapproval of the
resolution that same day, which would result in the immediate
postponement of the resolution which was supposed to take
effect on November 1. Both the SAA and IATA agreed that the
resolution would be temporarily suspended in Ukraine,
allowing Ukrainian airlines more time to prepare for
implementation. The KLM/Air France representative then asked
the SAA when the implementation of the Euro could happen, and
the SAA replied that it could not set a concrete date, but it
was hopeful that implementation would occur before summer
2008.

7. (SBU) Comment. IATA and the foreign airlines, including
Delta, are happy with the results of the meeting and
expressed thanks to the Embassy for its support. We hope
that they are not celebrating too soon: the controversy
surrounding IATA's paper tickets may be resolved, but the SAA
wasted no time in bringing up new concerns. IATA, which
admits that its decision to contest the paper ticket
registration issue may have ruffled feathers at SAA, has now
decided to adopt a cooperative approach to test the
willingness of the SAA to work cooperatively, and has agreed
to discuss the e-ticket issue in a working group. In doing
so, however, IATA points out that it has not had to face such
issues in the more than 140 other countries where its members
do business. The SAA's approach to electronic ticketing and
the currency issue will show whether its concerns are truly
substantive, or whether it is troubling IATA on behalf of
other interests (ref D), as some in the industry fear. End
comment.
Taylor

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