(C) REQUEST FOR SECDEF ADVOCACY ON GE PROPULSION

C O N F I D E N T I A L SECTION 01 OF 02 PARIS 003485

SIPDIS

STATE FOR EB/CBA (MERMOUD)
STATE ALSO FOR EUR/WE
COMMERCE FOR 534 BIS, MAC/EUR, AND USFCS/ADVOCACY

E.O. 12958: DECL: 05/20/2015
TAGS: BEXP ETRD PREL FR
SUBJECT: (C) REQUEST FOR SECDEF ADVOCACY ON GE PROPULSION
OFFER FOR FRENCH-ITALIAN SHIP PROJECT

REF: PARIS 2902

Classified By: Charge Alex Wolff as confidential for reasons 1.5 (b) an
d (d).


1. (C) SUMMARY AND ACTION REQUEST: Embassy Paris believes
that Secretary Rice's and Secretary Gutierrez' advocacy
letters in support of General Electric's bid to provide gas
turbines to equip the join French-Italian Multi-Mission
Frigates (known as FREMM) were useful in signaling high-level
USG interest in this issue and perhaps in postponing the
decision for several weeks. However, given PM Blair's
intervention in support of a competing Rolls-Royce bid
(reftel),we believe an additional high-level USG
intervention is needed. Since this decision will proceed
through French Ministry of Defense channels, Charge requests
that agencies consider preparing an advocacy letter from
Secretary of Defense Rumsfeld to Minister of Defense

SIPDIS
Alliot-Marie. Embassy Rome may wish to advise whether a
similar letter to Secretary Rumsfeld's Italian counterpart
would be equally useful. End Summary and Action Request.


2. (C) Embassy's latest information indicates that the joint
French/Italian FREMM Steering Committee has decided to
postpone engine selection until just after the Paris Air Show
(June 13-19). Earlier information had indicated that a
decision would be made by May 17. We believe that this delay
may mean that the letters from Secretaries Rice and Gutierrez
were (at least partially) successful. We understand also
that the Steering Committee has asked both French and Italian
shipyards to review technical specifications for the engine
component. This is of concern to GE, as previously the
shipyards had indicated a desire to upgrade engine power
specifications above the specified power listed in the
overall technical specification. GE notes that their gas
turbines meet the original technical specifications and have
the added benefit of lower cost. GE would not compete as
favorably with Rolls Royce if engine power requirements are
increased, which we understand would not be consistent with
overall frigate desi
gn in any event.


3. (C) The anticipated value of the FREMM propulsion
contract alone is approximately $250 million. However, GE
reps have told Embassy officials that the long-term
partnership proposed by GE to DCN (Naval Construction
Directorate - the facility that will build these ships for
the French navy) that would result from the selection of GE
engines, could result in business in excess of a billion
dollars. The FREMM contract is important to the future of
GE's military gas turbine business. Without this contract,
we are told that GE's ability to continue to produce gas
turbines beyond 2006 is questionable, which could leave Rolls
Royce as the sole supplier in this market segment.


4. (SBU) We believe this transaction holds symbolic and
political significance in furthering the transatlantic
partnership. It also makes good business sense for the
French and Italians, both for their shipbuilding industry and
for the interoperability of their naval forces with the U.S.
Navy. GE systems have a long history of satisfactory
performance in both the U.S. and Italian fleets. Similarly,
GE has been a faithful partner for many years as an investor
in Italy and France and as a partner of French jet-engine
manufacturer, SNECMA.


5. (U) As we noted reftel, given the level of UK advocacy,
failure by the USG to advocate at a similar level may lead
French (and Italian) officials to conclude that the UK places
more importance on this decision than the USG. Given that
this decision will be taken through defense channels, we
believe that a letter from Secretary of Defense Rumsfeld to
his French (and perhaps his Italian) counterpart would be
extremely helpful. In our assessment, having contacted the
Finance Minister and the Foreign Minister while ignoring the
Minister of Defense may in fact complicate our efforts.


6. (SBU) ACTION REQUEST: Embassy requests that the
Department, in conjunction with Commerce, support this
request to DOD to ensure that USG interests in this tender
have been communicated directly to French Defense Minister
Alliot-Marie by Defense Secretary Rumsfeld.


WOLFF