US embassy cable - 05ATHENS656

UNCLAS SECTION 01 OF 02 ATHENS 000656 
 
SIPDIS 
 
STATE ALSO FOR EB/TRA, OES/SAT, EUR/ERA AND 
EUR/SE 
 
FAA FOR DANIEL AND MOORE 
 
MONTREAL FOR USICAO 
 
BRUSSELS FOR FAA/KURT EDWARDS 
 
E.O. 12958: N/A 
TAGS: EAIR, ECON, GR, OLYAIR 
SUBJECT: SPECULATION RAMPANT AS OLYMPIC AIRLINES GOES ON THE 
AUCTION BLOCK ONCE AGAIN 
 
 
SENSITIVE BUT UNCLASSIFIED -- HANDLE ACCORDINGLY 
 
SUMMARY 
------- 
1. (SBU) After four previously failed efforts to sell 
Olympic Airlines (and its predecessor Olympic Airways), the 
Greek Government is making a new and probably final effort 
to sell the ailing national flag carrier.  Rival Aegean 
Airlines is considered by some to be the front runner as 
final bids are due by the end of March, although Aegean 
owners themselves have indicated a certain ambivalence on 
the subject.  Visions of Olympic Airlines' future after a 
sale vary according to the interlocutor, but most seem to 
agree that its staff will have to be slashed and its routes 
significantly restricted in order to keep it alive. 
Whatever its fate, Greek ministers and officials have 
stressed repeatedly that this tender is the real deal, and 
that Olympic's privatization must be accomplished by April 
to avoid EU injunctions as well as to show the government's 
willingness to proceed with other privatizations waiting in 
the wings. END SUMMARY. 
 
BACKGROUND 
---------- 
2. (SBU) After several efforts to first rescue and then to 
privatize ailing Olympic Airlines, the government is making 
a final attempt to sell flight operations, ground handling 
and technical services of the Greek flag carrier.  This is 
the second attempt to sell Olympic Airlines after its 
restructuring and separation from Olympic Airways in 2003, 
and the fifth attempt to sell the airline overall.  The new 
Olympic Airlines continues to operate at a loss however, 
losing 23 million euros in 2003 and reportedly an amount 
equal to a third of its total revenue in 2004. 
 
3. (SBU) On February 25, a short list of five bidders was 
approved by the Inter-ministerial Committee of Privatization 
(which includes the Ministers of Economy, Transportation and 
Employment).  The five bidders will be asked to submit 
binding offers by the end of March.  According to our 
information, this list includes Aegean Airlines (a Greek 
private sector carrier), German budget carrier DBA, 
Britannia Aviation International Services, Greek-American 
Chrysler Aviation and another Greek-American investor 
consortium.  Olympic Airlines employs about 1,850 people and 
has a fleet of 36 airplanes of which 14 are Boeing 737-300s 
and -400s.  The book value of the company is 115 million 
euros, but this is considered an optimistic price by 
industry analysts. 
 
AEGEAN IN THE PICTURE 
--------------------- 
4. (SBU) Ambassador has had discussions on separate 
occasions with two of the primary owners of Aegean Airlines 
about the Olympic tender. The bottom line for Aegean is not 
whether it wins the tender, but rather that Olympic Airlines 
lose its privileged state-supported position. Aegean 
believes that with a one-third reduction of staff and the 
trimming of unprofitable routes Olympic could operate 
successfully.  However, the real issue for Aegean is that it 
is competing with a company that has been given millions of 
euros in subsidies, benefited from a corporate split that 
sent most its debt to its sister company, and is exempt from 
paying into the very expensive state-operated pension system 
(IKA).  Aegean also aspires to serve non-EU routes, the 
bilateral rights for which at present are all allocated to 
Olympic. 
 
OTHERS SPECULATE 
---------------- 
5. (SBU) Akrivos Tsolakis, currently Chairman of the Air 
Accident Investigation and Aviation Safety Board and former 
Olympic pilot, told us Aegean's bid is the most serious.  He 
thought that Aegean would use Olympic's fleet and flight 
schedules to cover European destinations, but would cut 
transatlantic routes.  On the other hand, Stephanos 
Costopoulos, AmCham President and former Director of Delta 
Airline's Athens office, told ECON Counselor that if Aegean 
won the bid it would keep Olympic's access to Europe and the 
U.S., and slash domestic routes. 
 
6. (SBU) A Greek official at the Ministry of Transportation 
stressed that the Olympic problem has to be resolved before 
April because of a European Court of Justice (ECJ) action 
pending against the Greek airline for receiving illegal 
government aid of about 200 million euros a few years ago. 
In his opinion, international investment company Lazard's 
selection as lead sale advisor for the tender was 
encouraging due to Lazard's experience and familiarity with 
the market. 
 
COMMENT 
------- 
7. (U) According to reports from Brussels, the Commission 
continues to follow Olympic's privatization closely.  In 
January the EU Advocate General recommended that the GoG be 
ordered to reclaim from Olympic Airways some 200 million 
euros in illegal subsidies given during the late 1990s. 
This action is complicated by the Olympic Airways/Airlines 
split, although neither company has liquid assets to cover 
the repayment.  Greece claims the funding amounted to only 
46 million dollars. 
 
8. (SBU) Greek Minister of Transportation Liapis told us 
that he has an agreement with the EU Transport Commissioner 
that, if Olympic is privatized by April, the EU will not 
take action on the subsidies that would jeopardize the 
company's future.  Whether this is true or not remains to be 
seen.  The fact that this is a serious political issue for 
the current government cannot be disputed.  The New 
Democracy government, now celebrating its first year in 
power, is under increasing pressure to show its commitment 
to privatization.  The Olympic Airlines sale has highlighted 
the problems faced by a Greek government that seeks to trim 
unprofitable state-owned enterprises, while coping with 
social unrest from a labor force long accustomed to lifetime 
employment, early retirements, and generous pensions.  Other 
sectors in line for privatization are telecommunication, 
energy, and maritime ports, and all eyes are on the Olympic 
sale as an indication of how the government intends to see 
privatization through.  Although New Democracy inherited the 
Olympic problem, how it chooses to resolve it might be the 
government's economic legacy.  END COMMENT. 
 
Ries