US embassy cable - 05ATHENS1372

UNCLAS SECTION 01 OF 02 ATHENS 001372 
 
SIPDIS 
 
STATE FOR EB/TRA, EUR/ERA, EUR/SE 
 
E.O. 12958: N/A 
TAGS: EAIR, ECON, GR, OLYAIR 
SUBJECT: EUROPEAN COURT RULES AGAINST OLYMPIC AIRLINES ON 
ILLEGAL STATE AID 
 
 
SENSITIVE BUT UNCLASSIFIED -- PLEASE HANDLE ACCORDINGLY 
 
1.  (SBU) SUMMARY:  The May 12 decision of the European Court 
of Justice (ECJ) confirming the European Commission's 
position that the GoG's payment of 194 million euros to 
Olympic Airlines (OA) was an illegal subsidy does not appear 
to have altered the GoG's plan to sell the ailing national 
carrier.  According to OA's management, the Commission and 
the GoG must now negotiate the details of how and when OA 
will return the 194 millions euros.  One option is for the 
proceeds of the sale of certain elements of Olympic Airways 
(technical services and ground handling) to be used to repay 
the illegal subsidy.  Within the next few weeks, the GoG will 
ask for the Commission's approval to continue the ongoing 
tenders for the sale of OA.  According to OA officials, the 
ECJ's decision has made the need for the sale of Olympic 
Airlines that much more urgent.  END SUMMARY. 
 
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ECJ'S DECISION 
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2.  (U) On May 12 the European Court of Justice (ECJ) 
confirmed the European Commission's position that the GoG 
payment of 194 million euros to Olympic Airlines (OA) between 
1998 and 2000 was an illegal subsidy.  As a result, the ECJ 
has ordered OA to return this amount to the state's treasury. 
 The ECJ, however, did not set a specific timetable for the 
repayment and did not impose any additional fines (although 
the GoG must cover court costs). 
 
3.  (SBU) According to OA's Managing Director, Leonardos 
Vlamis, the ECJ decision was much better than expected.  Now 
the Commission and the GoG must negotiate the details of how 
and when OA will return the 194 million euros.  One option is 
for the proceeds of the sale of certain elements of Olympic 
Airways (technical services and ground handling) to be used 
to repay the illegal subsidy.  Within the next few weeks, the 
GoG will ask for the Commission's approval to continue the 
ongoing tenders for the sale of OA's flying operations, 
technical services, and ground handling.  If the Commission 
grants approval, then the tenders will continue as scheduled. 
 According to OA officials, the real impact of the court 
decision is that it increased the need and urgency for the 
sale of the airline.  If privatization efforts fail once 
again, OA will have no choice but to liquidate some of its 
assets to recover the funds. 
 
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PRIVATIZATION EFFORTS CONTINUE 
------------------------------ 
 
4.  (U) The GoG is in the midst of its second attempt to sell 
Olympic Airlines following its 2003 restructuring and 
separation from Olympic Airways (and the fifth if one 
includes the GoG's attempts to sell the predecessor Olympic 
Airways).  However, this new, slimmer, and ostensibly more 
efficient airline continues to have losses even after its 
separation from Olympic Airways -- 23 million euros in 2003 
and reportedly much more in 2004 (official figures not yet 
available).  Currently OA employs about 1,850 people and has 
a fleet of 36 airplanes of which 14 are Boeing 737-300s and 
-400s. 
 
5.  (U) On February 25 the Inter-ministerial Committee on 
Privatization (including the Ministers of Economy, 
Transportation, and Employment) approved a short-list of five 
bidders.  The five bidders (the Greek private carrier Aegean 
Airlines, German budget carrier DBA, Britannia Aviation 
International Services, Greek-American Chrysler Aviation, and 
another Greek-American consortium) submitted binding offers 
for the purchase of OA last month.  This tender process, 
however, was briefly suspended pending the ECJ's decision. 
 
6.  (SBU) COMMENT: Our contacts in the Transport Ministry and 
at Olympic Airlines are optimistic that the ECJ decision will 
not alter the GoG's plans to sell OA.  They admit, however, 
that the decision may add an additional burden to the ongoing 
privatization.  It is particularly interesting that the ECJ 
acknowledged the transfer of assets from the old Olympic 
Airways to the new Olympic Airlines has made it virtually 
impossible to recover the entirety of the funds.  While the 
ECJ meant this to be a criticism of the GoG's handling of 
this case, the practical effect may have been to strengthen 
the GoG's hand vis-a-vis the EC.  The EC has always demanded 
that Olympic Airlines, as the flight operations company, bear 
the burden of repayment.  The GoG is sure to raise the ECJ's 
point in order to shift the repayment burden to Olympic 
Airways, a company with considerably dimmer sale prospects. 
END COMMENT. 
Kaiser