GOG SIGNS MOU WITH OLYMPIC INVESTORS FOR SALE OF

UNCLAS ATHENS 002114

SIPDIS

E.O. 12958: N/A
TAGS: EAIR ECON GR OLYAIR
SUBJECT: GOG SIGNS MOU WITH OLYMPIC INVESTORS FOR SALE OF
OLYMPIC AIRLINES

REF: A. ATHENS 1372

B. ATHENS 1903

C. 03 ATHENS 2997


1. (SBU) Summary: U.S. based Olympic Investors has
confirmed that it has signed an MOU for the purchase of
Olympic Airlines from the Greek Government. The MOU is good
for 60 days, during which time the GOG must obtain consent
for the sale from the European Commission, as well as
convince the EC not to hold Olympic Airlines responsible for
the repayment of 194 million euros received as improper
support from the GoG from 1998 to 2000. Failure in either of
these goals will kill the deal, and likely spell the end of
Olympic Airlines. End Summary.


2. (SBU) U.S. based Olympic Investors has confirmed that it
has signed an MOU with the GoG for the purchase of ailing
state-owned Olympic Airlines, perhaps signaling the end of a
seven year process of failed privatization efforts by the
GoG. Kostas Alexakis, head of the Baltimore-based Olympic
Investors, confirmed that the MOU was valid for the next 60
days, during which time the GoG will need to receive the
EU,s consent for the sale, as well as confirmation that
Olympic Airlines will not be liable for repayment of 194
million euros in illegal subsidies, upheld in a recent
European Court of Justice decision (reftel A).


3. (SBU) According to Alexakis, the GOG has agreed to
approach the EC within the next ten to fifteen days to
discuss the sale and the repayment of the improper subsidies.
The repayment is a deal-killer, as the amount of the
repayment exceeds the total value of Olympic Airlines, and
Alexakis was emphatic that no deal would be possible in the
event the repayment obligation was placed on Olympic
Airlines. The GoG has maintained throughout the
privatization bidding process that the EU will not enforce
any judgment which would kill the privatization effort,
although there may have been some efforts to persuade the EC
to do just that (reftel B).


4. (SBU) Although the final price to be paid by Olympic
Investors for the airline's assets is not known, press
reports place it between 100 and 120 million euros. Some
local papers misreported that Olympic Investors was also
purchasing Olympic Airways Ground Services, a ailing, nearly
insolvent firm that the GoG has also repeatedly failed to
privatize. When Olympic Airlines was split from Olympic
Airways in 2002, in order to increase the attractiveness of
the airline assets, Olympic Airways Ground Services inherited
the debt, unprofitable operations, and excess staff of the
old integrated Olympic Airways (reftel C). Alexakis
(sensibly) denied any interest in Olympic Airways, but did
confirm that as part of the deal, Olympic Airlines would
continue to utilize Olympic Airways Ground Services through
the end of 2006.


5. (SBU) Comment: This is the GoG,s fifth and presumably
final effort to privatize Olympic Airlines. Minister of
Finance Alogoskoufis has repeatedly warned that if this
effort fails, the GoG will liquidate the company. It now
remains for the GoG to successfully sell the privatization to
the EC. Olympic Investors does have a business plan based on
using Baltimore-Washington International Airport as its main
transatlantic gateway, where it would interline and jointly
market with Southwest Airlines. The GoG will fight hard to
obtain this deal, both for political and financial reasons;
not only would New Democracy get credit for achieving what
its predecessor PASOK could not, but ND might also be able to
avoid the pain of liquidation. Olympic Investors has agreed
to avoid wholesale lay-offs of the approximately 1500
employees of Olympic Airlines, using early retirement
packages and other redundancy bonuses to thin staff instead.
End Comment.
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