COUNTRY TEAM ASSESSMENT OF INCREMENT 10 OF EGYPT'S

S E C R E T CAIRO 000482 SIPDIS SIPDIS FOR NEA/ELA, NEA/RA, PM/RSAT E.O. 12958: DECL: 02/21/2017 TAGS: PREL MARR MASS MCAP EG SUBJECT: COUNTRY TEAM ASSESSMENT OF INCREMENT 10 OF EGYPT'S M1A1 TANK PROGRAM Classified By: DCM Stuart Jones for reasons 1.4(b) and (d). ¶1. (U) Description: Egypt has requested the acquisition of an additional 125 co-produced M1A1 tanks (Letter of Request 06/MC/019). This tenth increment of M1A1 tanks will raise Egypt's total M1A1 tank inventory to 1005. ¶2. (U) Justification for the M1A1 increment: Upgrading its tank fleet with the M1A1 tank is a central component of the Egyptian Armed Forces' modernization plan. Egypt began modernizing its tank fleet in the early 1990s with the aim of equipping its Army exclusively with US tanks (M1A1 & M60A1/A3) by 2015. Egypt's 13-division army is equipped with a conglomeration of US tanks and over a thousand Soviet-made T-55s and T-62s. Egypt plans to replace these Soviet-made tanks with 1100 M1A1s. It now possesses 755 co-produced M1A1s and recently began co-production of an additional 125 tanks (Increment 9). Increment 10 will take Egypt to within 95 tanks of its 1100 M1A1 goal. ¶3. (C) Egypt's military forces are designed to execute defensive war-fighting concepts aimed at deterring its neighbors from aggressive actions. Although Egypt assesses the prospect of war against Israel as low, it views Israel as a source of regional instability. By modernizing its tank fleet Egypt believes that it can better deter aggressive military action. ¶4. (C) Impact on Egypt's force structure: The M1A1 tank modernization program reinforces but does not alter Egypt's military force structure. Egypt maintains four Armored Divisions, eight Mechanized Divisions, one Light Division and five Separate Armored Brigades. Egypt has already fielded the M1A1 to two of its Armored Divisions (220 tanks each) and to two of its separate brigades (94 each). Increment 10, coupled with tanks from Increment 9, will allow Egypt to modernize another M1A1 division of 220 tanks. ¶5. (C) M1A1 contribution to US and Egyptian security goals: Increment 10 will strengthen the US-Egyptian mil-to-mil relationship at a time when we rely heavily on Egyptian cooperation for Suez transits and overflight rights that are critical to Operations Iraqi Freedom and Enduring Freedom. It will also demonstrate USG commitment to remain Egypt's primary military partner and may discourage Egypt from pursuing stronger military ties with Russia or China. ¶6. (S/NF) Increment 10 is consistent with DOD's Security Cooperation Guidance as it enhances the territorial security of regional states. It also supports three of CENTCOM's Security Cooperation objectives for Egypt: (1) strengthening regional stability, (2) enabling allies and partners, and (3) protecting US and partner interests. It also supports two of CENTCOM's Security Cooperation Desired Effects (SCDE) for Egypt: -- SCDE 3.2. "Support the defense modernization and transformation of allies or partners to reduce their vulnerability to external aggression and coercion". -- SCDE 4.2 "Help reform the defense establishment of selected countries...improve their capacity to operate independently or in coalition with US forces...improve a country's ability to manage its defense resources". ¶7. (C) In addition to supporting security cooperation goals, Increment 10 will sustain key segments of the US defense industrial base as all of the major subassemblies on the tank are manufactured in the US. Engines, transmissions, turrets, fire control systems, and other tank components for the Egyptian co-produced M1A1s are all manufactured in the US. The US Army relies heavily on the manufacturers of these subassemblies for its own M1 program needs and is concerned that some of these manufacturers may drop production lines if Increment 10 production does not move forward. The Army's Tank and Automotive Command (TACOM) is especially concerned that transmission manufacturer Allison may stop manufacturing M1A1 transmissions if Increment 10 is not approved. Allison, the sole producer of M1A1 transmissions, requires 85,000 production man-hours to maintain its transmission line's profitability. Without Increment 10, Allison may have insufficient demand to keep its transmission line open. Such a closure would negatively impact the US Army's tank reconstitution/upgrade program. ¶8. (SBU) Increment 10 will benefit the US economy by generating approximately 11,118 man-years of US employment. (Note: This estimate relies on the INFORUM model positing that each USD 1 billion in income generates 10,279 man-years of employment for firms associated with the manufacture of the tank kits. It also incorporates an estimate of indirect employment generated in communities as a consequence of spending by defense workers. A conservative multiplier of 0.75 was used to estimate the indirect employment effect. End note.) Increment 10's overall US economic impact may exceed USD 1.31 billion. (Note: This estimate measures the direct income that commercial firms and government organizations receive from the production and delivery of the tank. It also combines the indirect economic impact derived from the expenditures of the employees of these firms. A conservative income multiplier of 0.96 was used to estimate indirect income. End note.) The sale of Increment 10 tank kits will also generate an estimated USD 35.3 million in tax revenues for the USG. ¶9. (S) Justification for the type and quantity: Egypt is currently on track to achieve its tank modernization goals by ¶2015. It has produced 755 tanks to date and has funding approved for another 125 (Increment 9). These tanks will bring Egypt's total M1A1 tank strength to 880. Alongside its 755 M1A1s; Egypt maintains 1200x M60A3s, 1100x M60A1s, 500x Soviet T-62s, and 560x T-55s. By replacing its older T-55s and T-62s with the M1A1, the Egyptian Army will lower maintenance, training, and operating costs of its tank fleet. ¶10. (C) Combatant Commander's concurrence: CENTCOM will provide Combatant Commander's assessment separately. ¶11. (S) Anticipated reactions of neighboring nations: Increment 10 should not affect the regional balance of power, nor should it cause negative reactions from any of Egypt's neighbors. It will not impact Israel's qualitative military edge. ¶12. (S) Assessment of the nation's ability to account for, safeguard, operate, maintain, and support the articles: Egypt is able to protect sensitive, classified military technology over an extended period, including over 14 years of experience with the M1A1 tank program. Egypt signed a General Security of Information Agreement with the US and, as a customer, has purchased and protected the sensitive technology of other US weapons systems. ¶13. (C) Training requirement; reaction to presence of US trainers: The existing seven-person M1 Technical Assistance Field Team (TAFT) will continue to provide fielding support for Increment 10. The Egyptian military leadership is assessing a US proposal to increase the size of the TAFT to nine people. We do not expect any adverse reaction to the TAFT's presence. ¶14. (U) Source of financing and the economic impact: Egypt plans to finance Increment 10 with Foreign Military Financing and will spread payments for it over a five-year period beginning in this fiscal year. Egypt has USD 29 million of FY07 FMF fenced for the first of the five payments for this acquisition. The co-production of the M1A1s employs roughly 2,200 Egyptians. Continued employment, as well as technical training for these highly skilled workers is important given Egypt's estimated unemployment rate of 15-25 percent. ¶15. (U) Human rights considerations: None. ¶16. (U) Plan for end-use monitoring and compliance verification: No enhanced requirements apply. ¶17. (C) Country Team Recommendation: The country team recommends USG approval for Increment 10. RICCIARDONE