Identifier
Created
Classification
Origin
09ATHENS224
2009-02-20 09:50:00
UNCLASSIFIED
Embassy Athens
Cable title:  

OLYMPIC AIR PRIVATIZATION: 7TH TRY THE CHARM?

Tags:  ECON EINV ELAB EAIR GR 
pdf how-to read a cable
VZCZCXRO7711
PP RUEHPOD
DE RUEHTH #0224/01 0510950
ZNR UUUUU ZZH
P 200950Z FEB 09
FM AMEMBASSY ATHENS
TO RUEHC/SECSTATE WASHDC PRIORITY 3250
INFO RUCNMEU/EU INTEREST COLLECTIVE PRIORITY
UNCLAS SECTION 01 OF 02 ATHENS 000224 

SIPDIS

E.O. 12958: N/A
TAGS: ECON EINV ELAB EAIR GR
SUBJECT: OLYMPIC AIR PRIVATIZATION: 7TH TRY THE CHARM?

REF: 08ATHENS1434

SENSITIVE BUT UNCLASSIFIED, PLEASE HANDLE ACCORDINGLY

UNCLAS SECTION 01 OF 02 ATHENS 000224

SIPDIS

E.O. 12958: N/A
TAGS: ECON EINV ELAB EAIR GR
SUBJECT: OLYMPIC AIR PRIVATIZATION: 7TH TRY THE CHARM?

REF: 08ATHENS1434

SENSITIVE BUT UNCLASSIFIED, PLEASE HANDLE ACCORDINGLY


1. (U) SUMMARY: On February 5, the Greek press reported
that the sixth tender issued over the course of the past 15
years for the privatization of Olympic Airlines (OA) had
once again failed, due to lack of conforming bids. Finance
Minister Papathanassiou announced the development, together
with a plea for Greek business interests to purchase the
ailing airline. Shortly thereafter, the press quoted Marfin
Investment Group (MIG) Chairman Andreas Vgenopoulis
indicating MIG's interest in purchasing all three
sub-elements of the proposed successor to Olympic and
promising to be open to "re-nationalizing" the firm after a
few years. Immediately prior to this news hitting the press,
Athens ECON received a call from a US-based investor seeking
Post's attention to the tender and asking that we weigh in
with the GOG to ensure that the ongoing process was a
transparent one


2. (SBU) SUMMARY CONTINUED: To follow up on these
developments Econoff met February 9 with Michail
Kefalogiannis, the Senior Advisor to incoming Development
Minister Hatzigakis. Kefalogiannis is the project manager
for Olympic Airlines investment matters. Kefalogiannis
explained the process that had been agreed with the European
Commission for Olympic's privatization. Kefalogiannis
lamented the poor timing of the latest attempt given the
global financial crisis. But he said the GOG was committed
to follow through with the process, which he gave a
"fifty-fifty" chance of success this year. END SUMMARY.

The Structure
--------------


3. (SBU) Kefalogiannis reviewed the agreement with the EC
for the privatization of OA. As reftel indicated, the GOG
agreed to create three new operations out of OA -- air
operations, ground handling and the "technical base" -- which
would be purchased by a private company or companies. OA
itself would be liquidated and the remaining OA employees
would receive a "substantial" severance pay, as well as the
opportunity to be re-hired by OA's successor. According to
Kefalogiannis, the core assets of the new air company,
Pantheon, would consist of the Olympic name, the Olympic

rings logo, and key landing slots in seven hub airports
worldwide (including Frankfurt, Heathrow, JFK,
and...Bucharest?). So-called optional assets that would
remain within OA but be available to the eventual Pantheon
owner if desired, include any or all of the 18 remaining
airplanes owned by OA, most of which are turboprops used to
service the Greek islands. These optional assets were to be
considered separately from the core assets which were the
main focus of the flight operations portion of the recent
tender, but, he said, bidders could make separate offers for
the planes. In addition, the GOG will capitalize Pantheon in
the amount of 60 million euro, which the winning bidder can
agree to accept or not. (Comment: presumably accepting the
shares means accepting GOG ownership rights as well).

The Process
--------------


4. (SBU) According to Kefalogiannis, the GOG had agreed with
the EC on a process that would to the maximum extent possible
protect the OA privatization from actual or even apparent
political influence. Accordingly, representatives of the EC
were "present throughout." The GOG provided the EC with a
list of firms to act as international advisors to the
privatization tender. The lineup eventually chosen by the EC
included London-based Lazard Freres in the lead, with a group
of private banks including Greek-based Alfabank, Emboriki
Bank, and the National Bank of Greece, as well as several
international law firms. Auditing was done by Price
Waterhouse Corp. and the valuation of OA assets was
undertaken by Grant Thorton, LLC, a US-based consulting firm.
Kefalogiannis said that Grant Thorton presented its
valuation to the advisors "without the Greek government in
the room." The valuation for the three separate components
was: 45.7 million euro (MEURO) for the flight operations,
44.9 meuro for the ground handling, and 17 meuro for the
technical core. Kefalogiannis noted that the highest bid for
the air operations was only 24.5 meuro.


5. (SBU) As for the bids, they too were presented at first
only to the advisory group, in London, on January 30. The
advisors worked through the weekend to analyze the bids and
prepare a report for the GOG. On February 4, the GOG's
Inter-ministerial Privatization Committee met to review the
bidding and determined, according to Kefalogiannis based on
the report from the advisors, that none of the bids were
compliant with the tender. None of the bids reached the

ATHENS 00000224 002 OF 002


valuation levels, and certain of them were also judged
non-compliant on technical grounds (e.g. one did not focus on
the core assets of the OA flight operations; some did not
have proof of funding).

Next Steps
--------------


6. (SBU) Kefalogiannis said that the GOG now hopes to enter
a process of direct negotiations with interested investors,
which, he said, was envisaged in the Greek privatization law,
as well as in European Community regulations. The GOG will
present the case for direct negotiations to the EC later this
week and will refrain from discussing directly with
interested investors until it has an agreement with the EC
that this is the way to proceed.


7. (SBU) On February 5, as the GOG announced the failure of
the tender it called for Greek investors to step up to the
plate. Almost immediately, Marfin Investment Group (MIG)
Chairman Andreas Vgenopoulis indicated MIG's interest in
purchasing all three sub-elements of the proposed successor
to Olympic and investing up to 250 meuro in it over the next
two years. Somewhat bafflingly, the press reported that he
also promised to be "open to re-nationalizing" the firm after
a few years. Asked how he interprets MIG's reported
statements, Kefalogiannis said that MIG is interested in
making money, and he saw the statement on re-nationalization
as a form of insurance against a hostile re-nationalization
in the event that left-leaning opposition party PASOK gains
power. He said that the GOG hopes to speak with MIG next
week, together with the advisory group, if the EC agrees on
direct negotiations. Asked whether any of the failed bidders
would have similar access, Kefalogiannis replied that the GOG
would welcome such interest ) all they had to do was express
it.


8. (SBU) COMMENT: It comes as no great surprise that the
GOG failed to privatized Olympic on its sixth try at a
tender. This is a political hot potato that no government
wants to handle, particularly in today's dire economic
situation (and given the ruling party's one-seat majority in
the parliament),as Kefalogiannis alluded. Notwithstanding
the apparently assiduous attempts to make this a transparent
deal, the never-too-reliable Greek press's reporting on the
story leaves the impression of backroom deals being made.
For example, Kefalogiannis told us that the Inter-Ministerial
Privatization Committee would meet Feb. 11 to discuss next
steps, in consultation with the EC. Yet the GOG announced to
the press Feb. 11 that it is entering into direct
negotiations with MIG immediately. Given the stiff economic
and political headwinds, we share Kefalogiannis' assessment
that this effort has at best a 50-50 shot at success this
year.

SPECKHARD