POLISH HELICOPTERS YET AGAIN

C O N F I D E N T I A L WARSAW 001521

SIPDIS


STATE FOR EUR/NCE TARA ERATH AND MICHAEL SESSUMS

E.O. 12958: DECL: 03/16/2015
TAGS: PREL MASS MCAP PARM ECON IZ PL
SUBJECT: POLISH HELICOPTERS YET AGAIN

REF: BAGHDAD 01072

Classified By: Charge Cameron Munter. Reasons: 1.5 (a),(b),and (d).


1. (C) Summary. The Polish state-owned holding company,
Bumar, continues to work with the Iraqi Ministry of Defense
on helicopter contracts. Bumar understands that the
contracts were amended at the insistence of U.S. military
advisors, who Bumar believes were pressured to do so by
American and British helicopter manufacturers. Bumar
confirmed that funds for the canceled contracts are being
reprogrammed. However, the company views the amending of the
helicopter contracts as a net loss, as it believes it would
have won contracts for additional military supplies in any
case. While Bumar will profit from the remaining contracts
for 34 Russian-built MI-17 and 2 Polish-built Sokol
helicopters, the Polish manufacturer of the Sokol W-3
helicopter, PZL Swidnik, will lose money and is upset with
the cut of the 18 Sokol helicopters. End summary.


2. (C) On March 15, Aleksander Jadko, the deputy director at
Bumar overseeing the helicopter deal with Iraq, confirmed
Iraq requested the cancellation of the contract for the 18
Polish-built Sokol helicopters, which his Iraqi contacts told
him was done at the request of U.S. advisors. Jadko suspects
that the reason for the cancellation is that American and
British helicopter manufacturers were pressuring the U.S.
military to force the Iraqi MOD to cancel the deal for Polish
helicopters. Jadko confirmed that Bumar was reprogramming
the money to other contracts. He said that some of the money
already received for the Sokol is being shifted to pay for
the MI-17 contracts and that the rest of the money will go to
procure other equipment for the Iraqi MOD. Jadko emphasized,
however, that he views this reprogramming of the money as a
net loss to the company because "Bumar would have sold the
other equipment to Iraq anyway." He understands that the
Iraqi military is very pleased with equipment provided by
Bumar and that additional orders had already been discussed.


4. (C) Jadko commented on the remaining contracts for the 34
Russian-built MI-17 helicopters, saying that he has heard
unsubstantiated rumors from Baghdad that there is some
pressure to cancel these as well. According to Jadko, one of
the contracts calls for 24 used MI-17s. Bumar's partner in
Russia has procured these, and Russian companies are
currently overhauling them. Jadko expects to be prepared to
deliver the first twelve overhauled aircraft in June and the
final 12 in October. Bumar signed another contract with Iraq
for ten new MI-17 helicopters, which are being produced and
outfitted by two Russian companies. Jadko said that the
helicopters are immediately available and that Bumar will
most likely deliver them in the coming months. Jadko
emphatically stressed that Bumar would not cancel or amend
these contracts as the company already has sunk costs that
could not be recovered.


5. (C) Jadko said that from Bumar's perspective, it doesn't
matter if it sells Russian-built or Polish-built helicopters.
Bumar is able to make a profit regardless of the country of
origin, and Jadko offered his opinion that the MI-17s are
superior aircraft. However, the directors of the Sokol
helicopter manufacturer, PZL Swidnik, are extremely upset by
the cancellation of the contract for 18 Sokol helicopters and
have written protests to various levels of the Polish
government, including to the PM. A Swidnik director related
that the company has already spent money on the production of
Iraq's 20 Sokol helicopters and will end up with a loss if it
only delivers two of them. The state-owned company is
prepared to drop Bumar and negotiate directly with the
Iraqis. Jadko believes that it is only a matter of time
before the issue hits the Polish press.


6. (C) Comment. Post appreciates Baghdad's details
concerning the changes to the helicopter deal (reftel). We
would appreciate any further background behind the contract
cancellations, which could be useful in countering Bumar's
impression that contracts were canceled at the insistence of
U.S. advisors. We believe this misconception, possibly
conveyed to Bumar by its Iraqi MOD contacts, has led the
company to extrapolate that U.S. and British helicopter
manufacturers were ultimately behind the decision to cancel
most of the Polish-built helicopters while retaining the
Russian-manufactured aircraft. So far, this issue has not
become public. Protests by Swidnik or Bumar, however, could

change that quickly, particularly as Poland heads into a
general election. End comment.
Munter


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2005WARSAW01521 - Classification: CONFIDENTIAL