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07KYIV2383, GOU RAISES THE STAKES AGAINST IATA, AND BACKS DOWN

September 14, 2007

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Reference ID Created Released Classification Origin
07KYIV2383 2007-09-14 11:28 2011-08-30 01:44 CONFIDENTIAL Embassy Kyiv

VZCZCXRO7799
PP RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHKV #2383/01 2571128
ZNY CCCCC ZZH
P 141128Z SEP 07
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC PRIORITY 3744
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHMO/AMEMBASSY MOSCOW 0244
RUEHMT/AMCONSUL MONTREAL 0003
RHEHNSC/NSC WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

C O N F I D E N T I A L SECTION 01 OF 03 KYIV 002383 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EUR/RUS PATTERSON, 
EEB BYERLY AND COLEMAN 
USDOC FOR 4321/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: DECL: 09/13/2017 
TAGS: EAIR ETRD KTIA PREL UP
SUBJECT: GOU RAISES THE STAKES AGAINST IATA, AND BACKS DOWN 
TEMPORARILY 
 
REF: A. KYIV 1974 
 
     B. MOSCOW 4526 
 
Classified By: Economic Counselor Douglas R. Kramer; reasons 1.4(b) and 
 (d) 
 
Summary 
------- 
 
1. (C) On August 30 the GOU suspended all cross border 
activities of the International Air Transport Association 
(IATA) in its latest move against the world airline 
industry's trade group.  In a subsequent meeting with the 
Ambassador, however, Minister of Economy Anatoly Kinakh 
agreed to stop implementation of the order until October 5. 
Foreign airlines and the EU also voiced their concern to the 
GOU leadership.  Meanwhile, IATA has agreed to address the 
concerns of the GOU, which claims that the ticket blanks IATA 
provides to local travel agents violate Ukrainian laws (ref 
A).  Airlines' ticket sales are not currently affected, but 
could become seriously disrupted if the GOU order should go 
into effect later.  Industry reps in Kyiv believe that the 
ticket issue is only a facade for the GOU's engagement on 
behalf of local business interests that want to target the 
large cash flows generated by IATA's state of the art 
ticketing and billing system.  Our contacts are unsure to 
what degree IATA's troubles in Kyiv might be related to the 
trade group's problems in Russia (ref b).  End summary. 
 
MinEcon Suspends IATA's Cross-Border Business 
--------------------------------------------- 
 
2. (SBU) The GOU has increased the stakes in its ongoing 
dispute (ref A) with the International Air Transport 
Association (IATA).   On August 30 the Ministry of Economy 
suspended all of IATA's cross-border economic activities, 
ostensibly because of what it felt was IATA's continued 
refusal to bring its paper tickets into compliance with 
Ukrainian law.  International air carriers, the EU and the 
Embassy all intervened on IATA's behalf.  During a September 
3 meeting with the Ambassador, Minister of Economy Anatoly 
Kinakh agreed to suspend implementation of the order until 
October 5.  For now, ticket agents in Ukraine continue to use 
IATA's ticket blanks, and IATA is free to conduct cross 
border transactions. 
 
3. (SBU) As reported in ref A, the GOU argues that, according 
to Ukrainian law, that IATA must register the ticket blanks 
with the Ministry of Finance for tax identification reasons. 
IATA provides the ticket blanks to travel agents throughout 
the country as part of its services to member airlines.  IATA 
has challenged the GOU view in court but lost on repeated 
occasions.   IATA finally decided to move forward with the 
registration after the Ministry of Economy issued its 
suspension order.  IATA country representative Sergey 
Martinyuk told us that he provided the Ministry of Finance 
with all the necessary documentation.  The ministry has asked 
for the input of the State Aviation Administration (SAA), 
which has said it will respond after meetings scheduled with 
IATA on September 27-28 in Kyiv.  Martinyuk interpreted this 
response as SAA stalling tactics, arguing the SAA had no 
intention of approving IATA's tickets as the October 5 
deadline approaches.  Martinyuk and Delta's representative in 
Ukraine Dan Fenech remain concerned that the SAA still might 
try to torpedo the registration, as it had repeatedly 
challenged IATA ever since IATA introduced its BSP system 
into Ukraine. 
 
The Consequences of the Order 
----------------------------- 
 
4. (SBU) The Ministry of Economy order only pertained to 
IATA's cross-border transactions, and not to its domestic 
activities.  It would have prevented IATA from transferring 
goods, services or funds across Ukraine's borders, and from 
using its ticket blanks with its accredited travel agents, 
because, in the view of the Ministry of Economy, these blanks 
were not registered and hence not legally in the country. 
Most importantly in the view of member airlines in Kyiv, the 
order would not have affected IATA's Billing and Settlement 
Plan (BSP), which domestic and foreign airlines use to sell 
 
KYIV 00002383  002 OF 003 
 
 
electronic and paper tickets and collect the proceeds through 
travel agents.   The order would also not have affected the 
activities of airlines, which would have remained free to 
transfer funds across Ukraine's borders. 
 
5. (SBU) Several airlines had told us that they already made 
preparations had IATA been unable to use its ticket blanks in 
Ukraine.   Most airlines had their own ticket blanks in stock 
that they would have distributed to travel agents.  This 
procedure would have greatly complicated airlines' business, 
however, as they would have needed to collect the proceeds 
from the ticket sales dire
ctly from agents.  The BSP system, 
in contrast, prints a ticket for agents using IATA blanks and 
automatically collects proceeds from agents for direct 
transfer to the airlines.  The GOU order, had it been 
implemented, would have most likely accelerated the 
industry's move towards electronic ticketing, which already 
accounts for the bulk of airlines' business in Ukraine 
(Delta, for example, sells 95 percent of its tickets in 
electronic form) and which IATA members will all use 
exclusively beginning in May 2008.   As reported in ref A, 
however, electronic tickets could also encounter trouble with 
GOU authorities. 
 
6. (SBU) The legal status of their own ticket blanks remains 
a serious concern for airlines.  Although the GOU has 
targeted IATA's ticket blanks, it has not yet called into 
question those used by foreign airlines, none of which have 
been registered with the Ministry of Finance.  According to 
Delta's Fenech, authorities at the Ministries of Finance and 
Economy and the SAA told airlines that Ukrainian law made a 
distinction between legal documents issued by a company 
selling a service, such as an airline, and those documents 
issued by third parties, such as IATA, on behalf of such 
companies.   During a September 7 meeting with airline reps, 
however, a Ministry of Finance official said that airline 
ticket blanks might also be illegal, Fenech said. 
 
Why is the GOU Harassing IATA? 
------------------------------ 
 
7. (C) None of our contacts say they know for sure why the 
SAA is troubling IAA, but all assume that it is doing so on 
behalf of Ukrainian business interests that ultimately hope 
to target the significant cash flows generated by the BSP 
system.  BSP services 24 airlines and 246 sales agents in 
Ukraine and generates 75,000 tickets monthly.  KLM/Air France 
rep Arvin Alagh told us that several players familiar with 
the industry were hoping to develop an alternative system to 
BSP.  These persons, which included former officials of the 
airline reservation system Galileo and of one of Ukraine's 
air traffic control agencies, had likely bribed the SAA to 
take action against IATA, Alagh said.  Others speculated that 
the SAA might also be acting on behalf of a Ukrainian 
printing company, or companies, that would benefit if IATA 
were forced to purchase ticket blanks printed locally that 
purportedly already conformed to Ukrainian law. 
 
IATA's Problems in Ukraine and Russia 
------------------------------------- 
 
8. (C) Our contacts are also unsure how IATA's problems in 
Ukraine might be related to those it is facing in Russia, as 
reported ref B.  Unlike in Russia, where IATA's BSP system is 
competing head to head with the Transport Clearing House 
(TCH) system, IATA did not tread on any local clearing 
system's market turf when it introduced BSP in 2006.  Before 
BSP, foreign airlines used their own ticket blanks and 
collected proceeds directly from travel agents.  Ukrainian 
International Airlines and Aerosvit at that time both used a 
small, highly manual and paper-driven settlement system 
linked to the SAA.  Both Ukrainian airlines now employ BSP, 
but still use the old system in parallel, IATA's Martinyuk 
told us. Aeroflot, which we understand dropped out of BSP in 
Russia, continues to use the system in Ukraine, he added. 
Martinyuk doubted whether the proprietors of the old system 
could actually hope that they could compete with IATA. 
 
9. (C) Given the parallel timing of IATA's problems in both 
countries, however, our contacts do believe that there could 
be some sort of linkage.  In both Russia and Ukraine, 
 
KYIV 00002383  003 OF 003 
 
 
authorities are targeting what they claim are the 
incompatibilities of IATA's ticket blanks with national law. 
Fenech observed that while the players in Ukraine may have 
their own goals, they could be using tactics that TCH in 
Russia may be observing, and supporting, for eventual use in 
Russia's bigger market. 
Taylor

Wikileaks

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