POLAND: THE IRAQI AIR FORCE MEETS WITH BUMAR, BOTH

S E C R E T SECTION 01 OF 03 WARSAW 004075

SIPDIS

DEPT FOR EUR/NCE DKOSTELANCIK AND MSESSUMS
DEPT ALSO FOR NEA/I
USEUCOM FOR ECJ-4 FOR MAJ PATRICK HUGHES, ECJ-5 FOR MAJ
BRIAN BRUCKBAUER

E.O. 12958: DECL: 12/16/2015
TAGS: EAID ECON MARR PGOV PREL IZ PL
SUBJECT: POLAND: THE IRAQI AIR FORCE MEETS WITH BUMAR, BOTH
SIDES AGREE TO CANCEL HELICOPTER DEAL

REF: A. WARSAW 03517


B. WARSAW 3728

Classified By: Acting Economic Counselor David Birdsey, reasons 1.5 b a
nd d

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Summary
--------------


1. (S) On 14 December 2005 Econoff and ODC Warsaw personnel
met with Iraqi Air Force generals and then observed a meeting
hosted by Bumar and attended by five Iraqi Air Force
generals. The participants discussed, sometimes heatedly,
the 36 helicopters covered in Bumar's multifacted contract to
deliver goods to the Iraqi military. The Iraqi side argued
that the original contract was signed illegally by men now
wanted for crimes in Iraq. Bumar countered by stating that
the contract had valid Iraqi MOD stamps and signatures on it,
and is a legally binding document. After hammering this
point for over an hour, Bumar stated that the 24 used MI-17
(of which, it said, seven are ready for delivery) and the two
new Sokol (Falcon) helicopters could be sold to other parties
and the sales proceeds channeled into new helicopters or
equipment. The Iraqi side embraced this idea and tentatively
agreed to keep the eight of 10 "new" MI-17 helicopters (the
two rejected Mi-17 are actually slightly used. Bumar
representatives and the Iraqi delegation travelled to Russia
on 15 December 2005 to inspect the existing 8 new MI-17
helicopters awaiting delivery to Iraq. No financial details
were settled. End Summary.

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Background
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2. (S) Bumar is indirectly under contract to supply the
Iraqi military with a wide array of military items. Among
these are 36 helicopters, 10 of which are new MI-17s
(Soviet),two new Sokols (Polish),and 24 used MI-17s. The
contractual relationship is as follows: Spark (Russian
supplier) to Bumar to Al-Ain Al-Jaria (The Flowing Eye, a
Baghdad based intermediary) to the Iraqi MOD. The Iraqi
delegation, led by Air Force General Kamal Abdul Sattar
Barzanjy, stated during a pre-meeting breakfast with Emboffs
and Multi-National Security Transition Command-Iraq (MNSTCI)
contractor that they had no idea why The Flowing Eye was ever
involved in the contracting process, and resented the fact
that their Air Force had to work through two intermediate
entities. General Kamal reminisced about buying military
hardware directly from the Chinese, the Soviets, and the
French, and the fact that this contract was not a direct
supplier to end-user arrangement was clearly a sore point for
him. Kamal stated that the 24 used MI-17 were produced
between 1978 and 1982, and that the normal lifespan of this
model is 20 years, making these units obsolete. Bumar
countered that the Polish military in Iraq uses MI-17s that
over 35 years old. Embassy ODC staff later commented that
both sides' points could be correct, depending on how
carefully the MI-17s had been maintained. Kamal then asked
rhetorically why the Russians had decommissioned the
helicopters, and also lamented the fact that the MI-17s in
question are civilian aircraft. The goal of this visit, they
confirmed, was to alter the terms of the present contract,
and to jettison the 24 used MI-17s from the deal.

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"Papers Can Be Changed..."
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3. (S) A back and forth exchange constituted much of the
meeting between Bumar and the Iraqis, with Gen Kamal
stressing the uselessness of the 24 used MI-17s to the Iraqi
Air Force, stating that the original contract was signed by
wanted men, and contrasting the ephemeral nature of paper,
but the permanence of friendships ("We will always talk as
friends"). Bumar focused on the existence of the contract,
its legality, and the fact that it had been written according
to Iraqi supplied specifications. To stress this point,
Bumar President Roman Baczynski waved and distributed copies
of the contract's signature page. When the Iraqis asked to
see the specifications for the helicopters, Baczynski replied
that he could not show them this addendum to the contract, as
it was priveleged information between Bumar and The Flowing
Eye - Gen Kamal would have to secure permission from the
latter before Bumar would disclose the specification
information. Baczynski also reminded Kamal that they had
talked about the helicopters before, a statement that did not
jibe with Kamal's earlier assertion that the Air Force had
never been consulted on the deal. Emboffs can neither
confirm nor deny either statement.
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...And Will Be
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4. (S) At a certain point in the discussion, Baczynski made
an offer: Bumar will sell the 24 used MI-17s, return the
money to The Flowing Eye, and each side could start over on
this portion of the contract. The same offer was later made
concerning the two new Sokol helicopters. The Iraqis jumped
at the chance. Baczynski insisted on a signed and stamped
letter from the Iraqi MOD asking for nullification of this
part of the contract. Kamal stated he had signing authority
and the letters would be drafted at the Embassy of Iraq,
Warsaw. Talks then moved to the 10 new MI-17s. Kamal said
the Iraqis would accept these, but only with the addition of
underside armor plating, machine gun mounts, defense systems,
and perhaps machine guns (this last point was not clear
during the meeting). Baczynski said this could be done, but
that it would cost additional money. He also requested
official documentation supporting Kamal's decision. The
Iraqi Air Force's rejection of the 24 used and two new Sokol
helicopters, pending official Iraqi MOD documents, and
barring any unforeseen change of heart, appears now to be a
fait accompli. The money that is recovered from the
cancellation will be committed to the modifications on the
new MI-17s described above, and also toward the purchase of
additional new MI-17s.


5. (S) The discussions continued for an additional four
hours, with much bickering about whether or not to travel to
Russia (the delegation did make the trip December 15). Bumar
also allegedly tried to pressure the Iraqis into signing
documents on the MI-17 modifications, but Gen Kamal declined.
In short, the entire Bumar-Iraqi Air Force group travelled
to Russia to inspect the 10 MI-17 without any additional
documentation being prepared or signed.

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More Questions
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6. (S) There are still two looming questions that prevent
post from considering these developments as a step forward.
First, no concrete statements, nevermind documents, emerged
on the issue of penalties. Bumar stated that there will
certainly be monetary penalties connected to the cancellation
of the Sokols, that Bumar simply could not sustain a loss on
them. However, no potential amounts were discussed. The
picture was even less clear concerning the used MI-17s.
Baczynski said he would need to discuss this and refer to the
full-length contract, though at one point a zero penalty was
discussed. In any case, no firm dollar amounts were
discussed for any potential penalties.

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The Damage Done
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7. (S) The GOP remains concerned about the lingering damage
to Bumar, and by association, to the GOP's own reputation. A
member of the Iraqi delegation noted that the helicopter
"scandal" and Poland have become synonymous in the Iraqi
media and among the general public. He doubted that Bumar,
or any other Polish company, would find success on future
defense contracts (something mentioned to Econoff at a
previous visit to the Embassy of Iraq in Warsaw). This
reputational damage is in no uncertain terms linked to Ziad
Cattan, integrally involved in the original Bumar contract,
whereabouts currently unknown, but rumored to be hiding in
Poland. Though the Iraqi delegation never mentioned Cattan
by name at Bumar, they clearly referenced him several times,
and seemed to equate the Bumar contract with him to a large
extent.


8. (S) Comment: The fact that Bumar's Baczynski was
willing and able to switch negotiating tracks so quickly
during the negotiations to offer the Iraqis a way to jettison
the unwanted helicopters leads Embassy to believe that Bumar
has gamed this scenario out and determined that there are
potentially greater profits in allowing the Iraqi side to
alter the contract. Post will continue to follow
developments on the contract cancellation, and would
appreciate reporting from Baghdad on the Iraqi's perceptions
of the negotiations and steps forward.
HILLAS