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Viewing cable 06HANOI3092, Vietnam Airlines Gets Serious About Flights to USA

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Reference ID Created Released Classification Origin
06HANOI3092 2006-12-29 09:18 2011-08-25 00:00 UNCLASSIFIED Embassy Hanoi
VZCZCXRO6360
RR RUEHHM
DE RUEHHI #3092/01 3630918
ZNR UUUUU ZZH
R 290918Z DEC 06
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC 4225
INFO RUEHHM/AMCONSUL HO CHI MINH 2301
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RULSDMK/DEPT OF TRANSPORTATION WASHINGTON DC
UNCLAS SECTION 01 OF 02 HANOI 003092 
 
SIPDIS 
 
SINGAPORE FOR FAA 
BANGKOK FOR TSA 
AMCONSUL MONTREAL 
ASEAN MEMBER COLLECTIVE 
 
STATE FOR EAP/MLS AND EB/TRA 
COMMERCE FOR 4431/MAC/AP/OPB/VLC/HPPHO 
TREASURY FOR OASIA 
TSA BANKOK FOR SHARON WALLOOPILAI 
 
SIPDIS 
FAA SINGAPORE FOR GRAHAM AND NESBITT 
 
SENSITIVE BUT UNCLASSIFIED 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EAIR ECON ETRD EIND EINV VM
SUBJECT: Vietnam Airlines Gets Serious About Flights to USA 
 
SENSITIVE - DO NOT POST ON INTERNET 
 
REF: HANOI 1195 
 
1. (SBU) Summary: Anticipating a surge in U.S. business and tourist 
travelers to Vietnam, Vietnam Airlines (VNA) intends to begin 
flights to the United States in early 2008.  It will submit a plan 
for the operation to the Prime Minister in the beginning of January, 
Vietnam Airlines officials told Econoff.  VNA officials visited the 
United States in November to discuss the route with U.S. airport 
officials.  Though the route will lose a projected USD 30 to 40 
million per year for several years, the plan aims to position the 
airline to take advantage of the country's improving international 
image and business climate and increased tourist traffic.  VNA plans 
to spend USD 3 billion by 2020 to boost its fleet of owned and 
leased aircraft from the current 38 to 100 airplanes.  An upcoming 
TDA project may help VNA's plans by helping the Civil Aviation 
Authority of Vietnam (CAAV) reach the International Civil Aviation 
Organization (ICAO) safety standards, as required by the U.S. 
Federal Aviation Administration (FAA).   End summary. 
 
2. (SBU) Anticipating larger tourist and business traffic to 
Vietnam, Vietnam Airlines intends to begin flights to the United 
States in the first half of 2008 and will submit a plan for the 
operation to the Prime Minister in the beginning of January, Vietnam 
Airlines officials told Econoff.  The route is allowed under the 
terms of the United States-Vietnam Air Transport Agreement but the 
state-owned air carrier has not taken advantage of it because of its 
lack of air safety certification from the FAA.  A new U.S. Trade 
Development Agency project expected to begin in early 2007, however, 
will boost CAAV's air safety standards and allow flights to start by 
that time if no delays occur, CAAV officials stated. 
 
3. (SBU) The decision on the route follows a visit in November by 
VNA officials to the United States to discuss the route with airport 
officials.  The airline has chosen Los Angeles International Airport 
(LAX) as its preferred destination, with flights running five times 
per week from Ho Chi Minh City and re-fuelling in Anchorage, Alaska, 
said Nguyen Manh Quan, General Manager of Routes in VNA's Marketing 
Planning Division.  No flight slots are currently available at LAX, 
he said, but VNA is now negotiating to obtain a midnight flight slot 
at the LAX terminal operated by American Airlines (AA).  The airline 
aims to sign a code-sharing agreement for these flights, enhancing a 
code-share agreement VNA already has for VNA-operated flights from 
Ho Chi Minh and Hanoi to Paris, Frankfurt, Tokyo and Osaka.  Beyond 
those destinations, VNA and AA have a code-sharing agreement for 
AA-operated flights to Dallas/Ft. Worth and five U.S. cities beyond. 
 Nguyen said that VNA had been considering flights to San Francisco, 
but the destination is not a hub for AA. 
 
4. (SBU) The plan is part of a VNA strategy to take advantage of an 
expected boom in Vietnam tourism, trade and investment stemming from 
the country's improving international image and business climate in 
the wake of WTO entry.  "There is incredible potential for Vietnam 
to do better" in tourism, said John Koldowski, the Managing Director 
Strategic Intelligence Center of the Pacific Asia Travel Association 
at a December meeting of the Vietnam Business Forum.  The Vietnam 
National Administration of Tourism has stated in press reports that 
it expects the number of U.S. travelers to Vietnam to double in 
2007, up from 352,000 for the first 11 months of 2006.  For its 
part, Vietnam Airlines expects its own passenger turnover to 
increase by roughly 15 percent each year for the foreseeable future, 
though it carried only 7.5 million passengers in 2006, up 10 percent 
over 2005.  The number was lower than expected because the APEC 
Summit caused a shortage of hotel rooms, particularly in October and 
November, Nguyen explained. 
 
5. (SBU) The route is also part of VNA's development agenda 
requiring the airline to spend $3 billion by 2020 to boost its fleet 
of owned and leased aircraft from the current 38 to 59 by 2010 and 
100 by 2020.  That latter number would put VNA roughly on par with 
other regional carriers such as Thai Airways, which currently 
operates 91.  There are no purchase plans linked to the new route, 
as VNA would likely use a leased Boeing 777-200 for the U.S. flight, 
Nguyen said.  VNA has, however, received the approval from Prime 
Minister Dzung this fall to purchase 10 Boeing 787-9s or 787-10s, 
though at the same time he gave VNA the approval to consider rival 
Airbus A350s.  Boeing officials in Vietnam note that Airbus is 
 
HANOI 00003092  002 OF 002 
 
 
reportedly competing fiercely by offering to slash prices.  These 
aircraft would be used primarily for domestic routes.  Boeing was 
close to receiving the purchase order for the planes prior to the 
APEC summit.  According to the suspicions of industry experts, 
however, at least one of the reasons the deal was not concluded was 
GVN consternation over the U.S. Congress's failure to pass Permanent 
Normal Trade Relations for Vietnam.  Boeing is still in negotiations 
on the deal. 
 
6. (SBU) Nguyen noted the route will not make money at first.  In 
fact, VNA projects it will lose initially between USD 30 million and 
USD 40 million a year and will become profitable only after five 
years of operation.  The airline wants the flights, however, because 
of the long-term potential.  The route will boost VNA's regional 
stature by attracting customers throughout Southeast Asia who need 
to fly to the United States, Nguyen said.  The airline is also 
interested in the route "for prestige," he said.  Vietnam's 
political leaders want to use the airline to enhance Vietnam's 
international image, and earlier this year Prime Minister Nguyen Tan 
Dzung urged the airline to speed up the U.S. route plan, he 
asserted.  VNA earned roughly USD 32 million on ticket sales of USD 
890 million in 2005. 
 
7. (SBU) As reported in reftel, VNA cannot begin the flights until 
the Federal Aviation Administration certifies that the safety 
standards employed by the Civil Aviation Authority of Vietnam (CAAV) 
reach the International Civil Aviation Organization (ICAO) 
standards.  CAAV stated that the project to meet these safety 
standards will likely commence early in 2007 and take 12 months to 
accomplish. 
 
ALOISI