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
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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.
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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.

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BACKGROUND
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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
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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

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CONFIDENTIAL PTQ3350

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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
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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.

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COMMENT
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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.
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--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

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2002ROME01239 - Classification: CONFIDENTIAL