US embassy cable - 05BANGKOK2010

C O N F I D E N T I A L SECTION 01 OF 02 BANGKOK 002010 
 
SIPDIS 
 
DEPARTMENT FOR EAP/BCLTV AND EAP 
DEFENSE FOR OSD/ISA (STERN AND POWERS). PLEASE PASS TO 
DSCA/AP (NMORGAN) 
PACOM FOR FPA HUSO 
 
E.O. 12958: DECL: 03/17/2015 
TAGS: MASS, MARR, PREL, PGOV, TH, POL/MIL 
SUBJECT: LOCKHEED MARTIN PROMISES COUNTERTRADE TO THAILAND 
AS PART OF F-16 DEAL 
 
REF: 04 BANGKOK 7550 
 
Classified By: Political Counselor Robert J. Clarke.  Reasons 1.4 (a). 
 
 Summary. 
 
1.  (C)  In a March 17 meeting with Defense Minister Gen. 
Thamarak Isarangura Na Ayutthaya, Lockheed Martin Director 
for Industrial Cooperation Richard Jannarone made it clear 
that Lockheed Martin is willing to offer a "100 percent" 
countertrade deal if the RTG selects F-16 as the fighter 
aircraft to replace the aging F-5s in its fleet.  Lockheed 
made the offer in response to similar promises made by SAAB 
to support their pitch to sell Gripen fighters and by Sukhoi 
to support their efforts to sell SU-30 aircraft to Thailand. 
Thai law now requires that all procurement of foreign goods 
by state agencies valued at more than approximately 8 million 
USD be balanced by countertrade transactions equal to at 
least 50 percent of the value of the purchased goods.  Good 
news for Lockheed Martin's bid was Thamarak's expressed 
concern that MOD wants a fighter that has a proven logistics 
support chain.  Nonetheless, post is concerned over continued 
indications from other Thai contacts that, irrespective of 
the operational performance advantage F-16 holds over Gripen 
and SU-30, the RTG will make its final decision based solely 
on the countertrade deal cobbled together.  Swedish and 
Russian sales reps are allegedly offering offsets and 
countertrade at more than 100 percent.  Thai Government 
officials interested in F-16 winning the fighter contract 
have suggested to us that senior U.S. officials weighing in 
in support of Lockheed Martin would be useful to counter 
recent statements of support the King of Sweden and President 
Putin have made in support of their country's planes.  END 
SUMMARY. 
 
LOCKHEED WILL OFFER 100 PERCENT COUNTERTRADE AND/OR OFFSETS 
 
2.  (SBU)  Although the Royal Thai Government has not 
officially requested RFPs nor clearly outlined mission 
requirements, for a year RTG officials have expressed their 
intention to purchase 18 multi-role fighters to replace aging 
F-5s in the RTAF fleet.  Although Thailand now has 59 F-16s 
in its inventory, press stories for the past several months 
have reported on Thai pilots traveling to Sweden to examine 
SAAB FAS-39 Gripens or to Russia to look at SU-30's.  Embassy 
officials, including the Ambassador in a meeting with Prime 
Minister Thaksin, have emphasized that F-16 is a more capable 
aircraft, at a better price, easier to maintain, and more 
likely to help Thailand's future efforts to procure the Joint 
Strike Fighter when it becomes available for export in years 
to come.  Thai officials have responded by pointing out that 
Thai law now requires any large-scale purchase of foreign 
goods by the RTG to include a countertrade deal equal to at 
least half the price of the purchased goods.  Press reports 
in the lead up to last month's national elections noted the 
RTG's efforts to craft a deal with a fighter manufacturer 
that would help Thailand sell approximately 80,000 tons of 
frozen chickens stockpiled in Thai poultry processing company 
freezers in the wake of the avian flu crisis.  Embassy 
contacts said that until Lockheed Martin offered a proposal 
to sell F-16s that included countertrade, the RTG could not 
seriously consider its offer.  Contacts also suggested that 
an offer that included an agreement to buy Thai chicken would 
be especially welcome. 
 
3.  (SBU)  In response to this information, on March 17, 
Lockheed Martin's senior countertrade expert, Richard 
Jannarone, met with Thai Defense Minister Gen Thamarak to 
clearly spell out Lockheed Martin's willingness to offer a 
comprehensive package of countertrade and/or industrial 
offsets.  Jannarone explained that Lockheed Martin has more 
experience in countertrade than any other defense 
manufacturer, having completed programs in 27 countries 
valued at over 22 billion USD.  Lockheed Martin is willing to 
offer a "100 percent countertrade package" for a long list of 
Thai goods, including agricultural products, and/or an 
industrial cooperation plan that could upgrade existing Thai 
maintenance facilities for C-130 cargo planes, F-16 engines 
or F-16 radars, among others.  Jannarone emphasized his 
company's willingness to put together a package that would 
allow Thailand to purchase the most capable plane under 
consideration in a manner that meets the concerns of the 
Prime Minister's office. 
THAMARAK SEEMS RECEPTIVE 
4.  (SBU)  Thamarak explained that he had only reassumed the 
role of Defense Minister a week earlier but noted his defense 
procurement plan would have each of the Thai services clearly 
outline their new equipment needs and request list with a 
focus on a reliable logistics train after purchase, training 
follow-up and technology transfer.  While quick to emphasize 
that other agencies within the RTG would have to vet any 
proposal on fiscal and other policy grounds, Thamarak twice 
pointed out F-16's comparative advantage from a logistics 
standpoint.  He noted that since Thailand already owns 
F-16's, it would be easier to train mechanics and perform 
maintenance on new model F-16s.  He indicated that he would 
forward Lockheed Martin's proposal to include countertrade to 
the other agencies concerned. 
 
COMMENT:  POLITICAL PRESSURE FROM WASHINGTON SOUGHT 
 
5.  (C)  While we were encouraged by Thamarak's favorable 
opinion of F-16, our collective sense is that Lockheed Martin 
is playing catch-up in the fighter competition.  The Swedes 
and the Russians have worked aggressively and have made it 
clear for several months that they are willing to explore 
buying Thai chicken as part of a fighter deal.  If the 
decision to purchase were left up to the military, F-16 would 
win easily.  It is more capable and easier for the RTAF to 
maintain than the other aircraft. However, officials in the 
Commerce Ministry and PM's office seem convinced that all 
three fighters are fungible and that Thailand should 
therefore focus on the best business deal.  As of March 18, 
we were unable to arrange a meeting for Lockheed Martin with 
the new Commerce Minister, Thanong Bidaya due to his only 
having been appointed on March 11.  We intend to follow up 
with Thanong quickly because his Ministry seems to have the 
most influence over the PM's perception of the countertrade 
issue. Several RTAF contacts have mentioned to JUSMAGTHAI and 
Lockheed Martin officials that both Sweden and Russia have 
applied high-level political pressure in support of their 
planes.  Both the King of Sweden and President Putin have 
raised the fighter purchase with PM Thaksin.  Fans of F-16 
within the RTAF have suggested that phone calls from senior 
U.S. officials to key Thai decision makers could go a long 
way towards helping Lockheed Martin win the figher 
competition. 
BOYCE