JOINT STRIKE FIGHTER: STRENGTHENING THE THIRD LEG

C O N F I D E N T I A L SECTION 01 OF 02 ROME 001239 SIPDIS E.O. 12958: DECL: 03/07/2012 TAGS: PREL PGOV MASS EIND ETRD PGOV MASS EIND ETRD IT ITPREL AVIATION SUBJECT: JOINT STRIKE FIGHTER: STRENGTHENING THE THIRD LEG CLASSIFIED BY: CDA POPE FOR REASON 1.5 (B) AND (D) SUMMARY -------------- ¶1. (C) VARIOUS PLAYERS IN THE DECISION FOR ITALY TO BECOME A PARTNER IN THE JOINT STRIKE FIGHTER HAVE PREVENTED U.S. INDUSTRY FROM BUILDING THE TRI-PARTITE COALITION NECESSARY TO SIGN ON TO JSF. WHILE WE HAVE BEEN TOLD REPEATEDLY THAT SIGNING JSF IS A 'DONE DEAL', WE BELIEVE THAT ONLY TWO OF THE THREE LEGS HAVE BEEN BUILT. CONFIDENTIAL PAGE 02 ROME 01239 01 OF 02 120314Z THE MILITARY HAS MADE JSF ITS CHOICE; THE POLITICAL INDICATORS ARE THAT ITALY WILL JOIN. WHAT HAS BEEN LACKING IS A WIDE UNDERSTANDING OF THE INDUSTRIAL BENEFITS. THE AMBASSADOR'S CALL ON MINISTER OF PRODUCTIVE ACTIVITIES MARZANO WENT A LONG WAY TO CORRECT THAT DEFICIENCY. HIS PRESENTATION GALVANIZED THE MINISTER INTO SEEKING A DETAILED BRIEFING OF THE INDUSTRIAL MERITS FOR HIS 'TECHNICAL STAFF' AND MAY HAVE PRECIPITATED THE DECISION TO REQUEST AN INTER-MINISTERIAL MEETING TO DISCUSS THE JSF. THE TECHNICAL BRIEFING OCCURRED THE NEXT DAY AND SHOWED HOW DEEPLY INGRAINED IS THE SOCIAL WELFARE NEED TO HAVE GUARANTEED JOBS AND WORK SHARE. ¶2. (C) WE UNDERSTAND THAT TO SELL THE JSF IN THE PARLIAMENT WE NEED TO HELP THE GOVERNMENT ADDRESS THESE ISSUES. OUR NEXT STEPS TO BUILD CONSENSUS ARE, AT AN APPROPRIATE TIME, TO ENCOURAGE LOCKHEED TO (1) CALL DIRECTLY ON THE MINISTRY OF PRODUCTIVE ACTIVITIES TECHNICAL STAFF TO DISCUSS THE INDUSTRIAL COMPONENT, AND TO (2) URGE ALL THE ITALIAN SUB-PRIMES TO EXPLAIN TO THEIR PARLIAMENTARY REPRESENTATIVES WHAT CONTRACTS MIGHT BE POSSIBLE (OR IN THOSE CASES OF SIGNED LETTERS OF INTENT TO BE MORE EXPLICIT) AND SEEK THEIR SUPPORT FOR JSF. ALSO, AT THE RIGHT TIME, THE EMBASSY MAY NEED TO BECOME INVOLVED IN PRESENTING THE JSF CASE TO THE PARLIAMENT, NOT JUST TO THE GOVERNMENT. WE MAY ALSO SEEK TO COUNTERACT THE OFF-SET, GUARANTEE MIND-SET OF SOME ITALIANS BY SHOWING GRAPHICALLY A STEP-WISE PROGRESSION OF ITALIAN PAYMENTS BALANCED WITH INDUSTRIAL RETURNS TO INDIVIDUAL ITALIAN FIRMS. END SUMMARY. CONFIDENTIAL PAGE 03 ROME 01239 01 OF 02 120314Z BACKGROUND -------------- ¶3. (U) TUESDAY, MARCH 5, THE AMBASSADOR PAID A COURTESY CALL ON MINISTER FOR PRODUCTIVE ACTIVITIES, ANTONIO MARZANO. ALSO PRESENT WERE DCM POPE, ECMIN DEAN, AND MPA DIPLOMATIC ADVISOR GABRIELE CHECCHIA. THE MEETING PRINCIPALLY ADDRESSED TWO TOPICS: MARZANO'S RECENT VISIT TO IRAN AND OUR ADVOCACY FOR THE JOINT STRIKE FIGHTER. IRAN IS COVERED SEPTEL. PUSH FOR JSF -------------- ¶4. (SBU) THE AMBASSADOR OPENED THE JOINT STRIKE FIGHTER DISCUSSION BY LAYING OUT THE NATURE OF THE NEW BUSINESS RELATIONSHIP THAT LOCKHEED IS SEEKING: NOT OFFSETS, NOT GUARANTEES, BUT A PARTNERSHIP BASED ON COMPETITIVE, HIGH-TECH PARTICIPANTS. HE STRESSED THAT THE U.S. IS ASKING ITS CLOSEST ALLIES TO PARTICIPATE IN THIS NEW TECHNOLOGY AND IN THIS NEW RELATIONSHIP WHICH SHARES PROPORTIONALLY DEVELOPMENT COSTS AND COMMERCIAL RETURNS. HE REVIEWED THE TECHNICAL CAPABILITIES OF THE JSF AS A LETHAL, HIGHLY STEALTHY FIGHTER, AS A VERTICAL LANDING FIGHTER, AND AS A SHORT TAKE-OFF AIRCRAFT, SUITABLE FOR CARRIERS. ¶5. (C) THE AMBASSADOR THEN COVERED THE PARTICIPATION OF OTHER COUNTRIES, AND THE U.S. INVESTMENT OF MORE THAN 25 BILLION DOLLARS IN THE DEVELOPMENT OF TECHNOLOGY, POINTING OUT THE PROJECTED RETURN OF 9-12 BILLION DOLLARS FOR CONFIDENTIAL PAGE 04 ROME 01239 01 OF 02 120314Z ITALY'S ONE BILLION DOLLAR INVESTMENT. THE AMBASSADOR STRESSED SEVERAL TIMES THE NEW COMPETITIVE NATURE OF THE PARTNERSHIP, AND HOW IT WOULD KEEP COSTS IN CHECK. WE ALSO POINTED OUT THAT HAVING A CENTRAL COORDINATOR, SUCH AS ALENIA, FOR THE ITALIAN CONTRACTORS WOULD DRIVE UP THE COST, AND THAT LOCKHEED, PRATT AND WITTNEY AND GE ARE COMMITTED TO WORKING DIRECTLY WITH THE SUB-PRIMES. WE LAID OUT THE SPECIFIC FIRMS AND THE ANTICIPATED VOLUME OF CONTRACTS THAT THEY COULD WIN. THE MINISTER WAS UNAWARE OF THE EXTENSIVE POSSIBILITIES FOR ITALIAN CONTRACTORS. VIS--VIS THE EUROFIGHTER -------------- ¶6. (C) WE RECOGNIZED, UP FRONT, THAT THE COMPETITION IS NOT BETWEEN THE EUROFIGHTER AND THE JSF, BUT RATHER THAT THE MOD CONSIDERS THEM COMPLEMENTARY. MARZANO WAS QUICK TO UNDERSTAND THE NEED TO REMOVE THE ALENIA INTERMEDIARY AND THE SECONDARY IMPACT THAT WOULD HAVE ON PUTTING A COMPETITIVE LID ON EUROFIGHTER COSTS. IN ADDITION TO SHOWING THE GRAPHICS OF CONTRACT POTENTIAL, WE MADE THE CASE THAT THE JSF WILL HAVE MORE EU PARTICIPANTS THAN THE CONFIDENTIAL CONFIDENTIAL PTQ3350 PAGE 01 ROME 01239 02 OF 02 120314Z ACTION EUR-00 INFO LOG-00 CIAE-00 DODE-00 SRPP-00 EB-00 VC-00 H-01 TEDE-00 INR-00 L-00 AC-01 NSAE-00 NSCE-00 OMB-01 PA-00 PM-00 PRS-00 ACE-00 P-00 SP-00 SS-00 STR-00 TRSE-00 T-00 USIE-00 PMB-00 DRL-02 G-00 SAS-00 /005W -------------- 72DEC8 120315Z /30 R 110729Z MAR 02 FM AMEMBASSY ROME TO SECSTATE WASHDC 2667 SECDEF WASHDC//USD(ATL)// C O N F I D E N T I A L SECTION 02 OF 02 ROME 001239 SIPDIS E.O. 12958: DECL: 03/07/2012 TAGS: PREL PGOV MASS EIND ETRD PGOV MASS EIND ETRD IT ITPREL AVIATION SUBJECT: JOINT STRIKE FIGHTER: STRENGTHENING THE THIRD LEG EUROFIGHTER. TECHNICAL BRIEF -------------- ¶7. (C) WE DID A FOLLOW-UP BRIEF WITH THE 'TECHNICAL STAFF', WHICH WAS DIRECTOR GENERAL VISCONTI AND DR. CUZZONI, THE MOST KNOWLEDGEABLE OFFICIAL ON THE JSF IN THE MPA. WE DELIVERED THE SAME POINTS, WITH MORE DETAILS, BUT CONFRONTED THREE SPECIFIC INTER-RELATED PROBLEMS. ONE, THE MOST INTENSE, WAS THE NEED TO SHOW A GUARANTEED RETURN TO CONFIDENTIAL PAGE 02 ROME 01239 02 OF 02 120314Z ITALY, SPECIFICALLY IN WORK SHARE. PROMISES FROM THE PRIME CONTRACTORS DID NOT/NOT REASSURE THEM IN THE SLIGHTEST. WE SAID THAT SO FAR EIGHT LETTERS OF INTENT HAD BEEN SIGNED AND THAT WITHOUT THE GOVERNMENT TO GOVERNMENT AGREEMENT, CONTRACTS COULD NOT BE SIGNED. WE BELIEVE THAT WITHOUT PRESSURE FROM ALENIA ON THE ITALIAN SUB-PRIMES TO WITHHOLD SIGNING LOIS THERE MIGHT BE EVEN MORE. WE DID POINT OUT THAT SINCE ITALY IS PAYING ITS SHARE OVER TEN YEARS, CONTRACTS COMING IN SHOULD BALANCE EXPENSES, BUT THAT NO ONE WAS GOING TO PROVIDE 'GUARANTEES'. IN THE OUT YEARS OF COURSE THERE WOULD BE REAL RETURN TO ITALY ON INVESTMENT. ¶8. (C) THE SECOND PROBLEM WAS THE COST, WHICH RELATED TO THE THIRD PROBLEM: VISCONTI AND CUZZONI STATED THAT THE GOVERNMENT SIMPLY COULD NOT SELL CONTRACTOR PROMISES IN THE PARLIAMENT. THE PROBLEM, FROM THE DOMESTIC POLITICIAN'S POINT OF VIEW, IS THAT THE OUTLAYS FOR DEVELOPMENT YIELD RETURNS ONLY FOR THEIR LOCAL CONSTITUENCIES MANY YEARS OUT, LONG AFTER THEY WILL BE ABLE TO TAKE CREDIT FOR A WISE INVESTMENT. VISCONTI AND CUZZONI FELT FAILURE TO GAIN SUPPORT FOR THE JSF IN PARLIAMENT DURING THE ANNUAL BUDGET DEBATE WOULD WEAKEN THE GOVERNMENT. VISCONTI WAS PARTICULARLY CLEAR THAT ONE HUNDRED MILLION A YEAR FOR JSF FOR 10 YEARS ABSORBS ALL THE DISCRETIONARY INCOME THAT ITALY HAS TO INVEST IN OTHER AREAS OF THE ECONOMY. THIS GOVERNMENT, AS ANY SOCIAL WELFARE STATE IN EUROPE, IS CONCERNED WITH WORK SHARE AND UNEMPLOYMENT AND THE GOVERNMENT HAS TO BE ABLE TO ANSWER THE INEVITABLE QUESTIONS. CONFIDENTIAL PAGE 03 ROME 01239 02 OF 02 120314Z COMMENT -------------- ¶9. (C) AT THE BEGINNING OF THE PRESENTATION, MARZANO TURNED TO CHECCHIA AND ASKED WHAT JSF WAS. LATER, NEAR THE END, HE ASKED IF THE MINISTER OF DEFENSE KNEW WHAT WE WERE TELLING HIM. WE ASSURED HIM THAT MOD WAS NOT ONLY FULLY BRIEFED, BUT THAT JSF WAS STRONGLY DESIRED BY MOD. ¶10. (C) OUR DISCUSSION WITH MARZANO ON JSF REVEALED JUST HOW TIGHTLY ALENIA AND THE MINISTRY OF DEFENSE HAS BEEN HOLDING INFORMATION, DESPITE REPEATED ASSURANCES THAT THIS WOULD BE AN INTER-MINISTERIAL PROCESS. WE FIND THIS TO BE COUNTERPRODUCTIVE SINCE EVENTUALLY THIS WILL BECOME A POLITICAL ISSUE: THE GOVERNMENT WILL HAVE TO SELL JSF TO THE PARLIAMENT AS A BUDGET LINE ITEM. IN LOOKING AT HOW WE COULD IMPROVE THE PROSPECTS FOR LIMITED COLLATERAL DAMAGE TO THE PROGRAM AND TO THE GOVERNMENT, WE ARE SUGGESTING THAT --LOCKHEED COULD CALL DIRECTLY ON THE MINISTRY OF PRODUCTIVE ACTIVITIES TO DISCUSS THE INDUSTRIAL COMPONENT. --LOCKHEED COULD ENCOURAGE ALL THE ITALIAN SUB-PRIMES TO TALK TO THEIR PARLIAMENTARY REPRESENTATIVES AND EXPLAIN WHAT CONTRACTS MIGHT BE POSSIBLE (OR IN THOSE CASES OF LETTERS OF INTENT TO BE MORE EXPLICIT). --THE EMBASSY MAY NEED TO TAKE AN ACTIVE ROLE LATER IN PRESENTING THE JSF CASE TO THE PARLIAMENT, NOT JUST TO THE GOVERNMENT. CONFIDENTIAL PAGE 04 ROME 01239 02 OF 02 120314Z --WE MIGHT SEEK TO COUNTERACT THE OFF-SET, GUARANTEE MIND-SET OF THE ITALIANS BY SHOWING GRAPHICALLY A STEP-WISE PROGRESSION OF ITALIAN PAYMENTS BALANCED WITH RETURNS TO INDIVIDUAL FIRMS, NOT JUST FOR THE 10 PERIOD IN WHICH ITALY IS PAYING ITS ONE BILLION BUT IN OUT YEAR RETURNS. POPE CONFIDENTIAL > 2002ROME01239 - Classification: CONFIDENTIAL