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August 10, 2007

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Reference ID Created Released Classification Origin
07KYIV1974 2007-08-10 13:39 2011-08-30 01:44 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Kyiv


DE RUEHKV #1974/01 2221339
R 101339Z AUG 07

E.O  12958: N/A 
REFS: A) 06 STATE 106322 
  B) 06 KYIV 02788 
Sensitive, but Unclassified.  Not for Internet Distribution.  Please 
handle accordingly. 
1. (SBU) Summary.  In a meeting with representatives from Ukraine's 
State Aviation Authority (SAA), Economic officers verified the SAA 
had indeed found the International Air Transport Association's 
(IATA) ticket stock to be invalid under Ukrainian law.  As a result, 
the SAA ordered IATA to refrain from releasing any more ticket stock 
to airlines and travel agencies.  In addition, the SAA informed post 
that IATA was currently under investigation by Ukrainian law 
enforcement agencies for violations of Ukrainian law.  The SAA noted 
that the most severe sanction possible could be the revocation of 
IATA's license to operate in Ukraine.  EconCouns reminded the SAA of 
the negative international fallout of actually closing IATA down in 
Ukraine.  The SAA was willing to meet with high ranking IATA 
officials in the nearest future to discuss the ticket stock issue 
and possible sanctions against IATA.  End Summary. 
2. (U) On August 7, Econ Counselor, EconOff, and Delta Airline's 
Country Director Dan Fenech met with Deputy Chairman of the SAA 
Dmytro Babeichuk and Head of the SAA's Air Services and Licensing 
Department Sergiy Korshuk to discuss the SAA's recent banning of the 
IATA's ticket stock, known as the Automated Ticket/Board Pass 
version 2 (ATB2), and overall concerns the SAA has with IATA's 
Billing and Settlement Program (BSP). 
An Old Dispute Coming to a Boil 
3. (SBU) In May 2005, IATA was informed by the SAA that BSP did not 
meet Ukrainian standards, and that the SAA was devising its own 
settlement system to replace it.  IATA representative in Ukraine 
Sergei Martinyuk told us that IATA began the pilot period for the 
BSP and implementation of the ATB2 ticket stock in September 2005, 
hoping it could convince the SAA that both the BSP and ATB2 were 
beneficial to Ukraine.  By December 2005, IATA reported it had 
completed the pilot study and began full implementation of the 
BSP/ATB2 program in May 2006.  However, the SAA continued to resist 
BSP.  The local Air France representative told post this spring that 
the SAA's chief problem with BSP was that IATA had held an open 
tender for the banking contractor to service BSP.  In that tender, 
Citibank had prevailed over a Ukrainian bank, which had proposed 
charging unusually high fees for transactions.  EcounCouns met with 
the SAA in July 2006 (ref b) and was assured that any issues with 
the ATB2 would not affect international carriers, such as Delta, 
which had bilateral agreements with Ukraine.  In March 2007, post 
learned from airline representatives that some travel agencies had 
complained of harassment from the State Tax Authority (STA) related 
to the use of the ATB2 ticket stock, which the STA and SAA had 
reportedly deemed illegal in Ukraine. 
Ticket Stock Problem 
4. (SBU)  Notwithstanding ref B assurances a little over a year ago, 
SAA's Korshuk told us on August 7, that the ATB2 simply did not meet 
Ukrainian legal requirements, and airlines and travel agencies were 
no longer allowed to use the ATB2.  (Note: It took the Embassy over 
two months of requests to get a meeting with Babeichuk and Korshuk 
and the SAA was adamant that no local IATA representative be present 
at the meeting.  End Note.)  Korshuk made it clear that airline 
tickets must be officially accountable documents, meaning they be 
must controlled, contain a serial number, and be registered with the 
Ministry of Finance.  Korshuk explained that the SAA required ticket 
stock to be officially accountable documents in order to ensure 
contracted rights of passengers with carriers.  The Ministry of 
Finance, Korshuk noted, separately required ticket stock to be 
officially accountable documents for tax audit purposes.  Since IATA 
has been ordered to stop importing ATB2s to Ukraine, individual 
airlines must now import their own ticket stock and register it with 
the Ministries of Finance and Justice, or airlines could purchase 
officially accountable ticket stock provided by a local company that 
reportedly costs $0.43 per ticket.  In addition, Korshuk claimed 
that IATA began its pilot in September 2006, and the SAA informed 
IATA headquarters in Geneva and the local IATA representative that 
the ATB2 was illegal in January 2007. (Note:  Korshuk's timeline 
contradicted information provided by IATA and airline officials and 
information the Embassy received from the SAA in July 2006.  End 
Threat to Close IATA Office 
5. (SBU) According to IATA officials in Ukraine, in order to protect 
its rights, IATA initiated court proceedings against the SAA in 
April 2006, but IATA's initial complaint and subsequent appeal were 
rejected by Kyiv courts.  In October 2006, IATA took its case to the 
Ukrainian Supreme Court, which to date has not decided to hear the 
case.  IATA's Martinyuk added that since the Prosecutor's Office had 
ered IATA to register its ticket stock with the Ministry of 
Finance in February 2006, IATA also filed a complaint with a Kyiv 
court against the Prosecutor's Office, which was rejected, and a 
subsequent appeal was also denied.  IATA's complaint against the 
Prosecutor's Office has rested in the Supreme Court since April 
2007, and the Supreme Court has not yet decided to hear this case. 
Korshuk confirmed that IATA is currently under investigation by 
Ukrainian law enforcement agencies and this case could lead to the 
withdrawal of IATA's operations license.  Econ Counselor warned 
Babeichuk and Korshuk that any move to close IATA in Ukraine would 
likely be viewed negatively in a number of capitals.  Delta 
Airlines' Dan Fenech offered to facilitate a meeting with high level 
IATA officials and the SAA in order to resolve the ATB2 issue. 
Babeichuk stated they were amenable to a meeting with high level 
officials from IATA, arguing that the local IATA representative did 
not seem to have decision making authority. 
6. (SBU) Econ Counselor inquired whether e-tickets qualified as 
official accountable documents under Ukrainian law (95% of Delta's 
transactions in Ukraine are now e-tickets).  Korshuk stated that the 
SAA agreed to allow e-tickets under its regulations, but noted that 
the Ministry of Finance law on officially accountable documents 
required a control blank to accompany the e-ticket.  Korshuk noted 
that a local company currently sells the control blanks to airlines 
and travel agencies for a fee and would do so until a new tax code 
e-commerce provision comes into effect in the near future that would 
authorize the information to be retained in an electronic format. 
(Note:  The new tax code will not be considered by Parliament until 
a new parliament is formed after the September 30 elections.) 
7. (SBU) Comment.  The SAA appears to be enforcing the ticket stock 
regulation in an arbitrary manner and was frankly less than candid 
with us on a number of points.  We strongly suspect the underlying 
motive for their actions may well be access to rents and revenue 
flows created by the need for Ukrainian produced documents to 
replace the ATB2 and to accompany e-tickets.  In addition, 
personalities appear to be playing a role -- the SAA's overt dislike 
for IATA's local representative has most likely exacerbated the 
problem and stymied a timely resolution of concerns.  Repercussions 
of the stalemate are potentially serious, since it would be 
difficult for Western airlines to operate in Ukraine without the 
BSP, which covers both paper and electronic tickets.  Finally, the 
arbitrariness of the SAA on the ticket stock issue does not give us 
confidence regarding their assurances that e-tickets do not pose a 
problem.  Post intends to continue liaising closely with industry to 
ensure that the GOU's meddling does not impede their operations. 
End Comment. 


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