STATUS OF GREEK F-16 BUY

C O N F I D E N T I A L SECTION 01 OF 02 ATHENS 002982

SIPDIS

DSCA FOR ARTHUR HOTOP

E.O. 12958: DECL: 11/20/2015
TAGS: EAIR GR
SUBJECT: STATUS OF GREEK F-16 BUY


Classified By: Ambassador Charlie Ries for Reasons 1.4 (B,D)


1. (C) Negotiations on the GoG purchase of 30 F-16 aircraft,
with an option for a further 10, are moving forward. This
will complete the process formalized by the July 19 purchase
decision of the Greek Government's Council for Foreign
Affairs and Defense (KYSEA). The responsible Air Force
office leading the negotiations, SAF/IA, expects to deliver a
final Letter of Offer and Acceptance to the GoG November 28.
The final, total price of the full 40-plane purchase will be
approximately $2,672,000,000 with a fly-away price for the
aircraft of $44.6 million (assuming a 40-plane purchase) or
$45.9 (assuming a 30-plane purchase). Once the LOA is
delivered, the Greek Government must sign and provide an
initial payment in the amount of approximately $70 million
within 30 calendar days in order to avoid Lockheed-Martin
production line gap charges of up to $114 million.

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Ministry of Finance: A Fly in the Ointment???
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2. (C) According to all indications, Minister of Defense
Spiliotopoulos is eager to sign the LOA as soon as possible.
His staff informed Post's Office of Defense Cooperation (ODC)
last week that the Minister was ready to sign immediately
upon LOA delivery. The big question surrounding the deal is
elsewhere, in the role and position of the Ministry of
Finance. Our Defense Ministry contacts are clearly acting on
the assumption that Finance either has no say in the matter,
that the key players in Finance actually agree with the
purchase arrangements, or that if they do not agree, they can
be easily rolled.


3. (C) Perhaps Defense knows something we do not. But it
appears to us the Finance Ministry is acting in a manner
consistent with intense opposition to the purchase. It sent
only low-level budget staff members to most bilateral
meetings on financing the buy, and it was only through a
great deal of pressure that Finance agreed to send any staff
whatsoever to the November 8 meeting on finance issues with
USG and Lockheed-Martin staff, who had flown in from the U.S.
for the discussion.


4. (C) Furthermore, the Ministry has refused to engage
substantively or react to the extensive financial information
the USG and Lockheed have provided to date. Instead, Finance
staff have continued asking for more data. We still do not
have an indication as to what financing options the GoG is
planning to utilize for the purchase, including a Standby
Letter of Credit to cover termination liability and/or a
"deferred payment" plan developed by Lockheed.


5. (C) Such reluctance would be understandable. As a result
of the accounting shenanigans of the previous Greek
government, Greece's budget has come under formal EU
monitoring procedures. The Karamanlis Government committed
itself to a huge reduction of the budget deficit from 6.6% of
GDP in 2004 to less than 3% in 2006. While it is attempting
to achieve this through a number of means, including
securitizing debt and reducing tax evasion, it must also
reduce expenditures. In fact, PM Karamanlis' economic policy
speech at the Thessaloniki Trade Fair mentioned just one
specific expenditure reduction: in the defense budget. One
last point: Minister of Finance and National Economy
Alogoskoufis is a powerful actor whose views are taken
seriously by the Prime Minister. Logic would dictate that
his views on a multi-billion dollar purchase would be taken
seriously in the PM's circle.

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The Press Angle
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6. (C) The purchase has also come under withering media
fire, which the GoG has only partially been able to counter
effectively. Minister of Defense Spiliotopoulos'
presentation in Parliament on November 18 in support the F-16
purchase, for instance, was largely drowned out by negative
reactions in the pro-PASOK media. An extreme but indicative
comment in Ependitis (pro-PASOK, centrist economic weekly)
says that Greece is always buying weapons "from its enemy,
the United States", whose interests it says clash with those
of Greece. Greeks should "remember the unbearable pressure
for the Annan Plan, the recognition of Macedonia, the Balkan
destabilization with Bosnia, etc." says the author. "It's
supposed, however, that these planes, which cost more than
their weight in gold, are being bought in order for us to arm
ourselves, not to help the American economy or to appease
whatever president is in power." Ethnos (pro-PASOK,
left-of-center daily),under the headline "Costs of F-16 take
flight with bilateral agreement," focuses on the purchase of
the planes being done outside the standard competitive
process.

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Comment
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7. (C) Although it remains to be seen whether Finance wants
to, or even can, impede the F-16 deal, Post is working the
Ministry, providing as much data as possible as quickly as
possible. With the green eyeshade types, we also don't miss
an opportunity to point out that a Eurofighter alternative
would be much more expensive. We are furthermore responding
to unfair criticism in the media of the purchase, whenever
appropriate. Although this deal may well be a sure thing,
we're not taking it for granted.
RIESstatus of