US embassy cable - 05ATHENS2114

UNCLAS ATHENS 002114 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EAIR, ECON, GR, OLYAIR 
SUBJECT: GOG SIGNS MOU WITH OLYMPIC INVESTORS FOR SALE OF 
OLYMPIC AIRLINES 
 
REF: A. ATHENS 1372 
     B. ATHENS 1903 
     C. 03 ATHENS 2997 
 
1.  (SBU)  Summary: U.S. based Olympic Investors has 
confirmed that it has signed an MOU for the purchase of 
Olympic Airlines from the Greek Government.  The MOU is good 
for 60 days, during which time the GOG must obtain consent 
for the sale from the European Commission, as well as 
convince the EC not to hold Olympic Airlines responsible for 
the repayment of 194 million euros received as improper 
support from the GoG from 1998 to 2000.  Failure in either of 
these goals will kill the deal, and likely spell the end of 
Olympic Airlines.  End Summary. 
 
2.  (SBU)  U.S. based Olympic Investors has confirmed that it 
has signed an MOU with the GoG for the purchase of ailing 
state-owned Olympic Airlines, perhaps signaling the end of a 
seven year process of failed privatization efforts by the 
GoG.  Kostas Alexakis, head of the Baltimore-based Olympic 
Investors, confirmed that the MOU was valid for the next 60 
days, during which time the GoG will need to receive the 
EU,s consent for the sale, as well as confirmation that 
Olympic Airlines will not be liable for repayment of 194 
million euros in illegal subsidies, upheld in a  recent 
European Court of Justice decision (reftel A). 
 
3.  (SBU)  According to Alexakis, the GOG has agreed to 
approach the EC within the next ten to fifteen days to 
discuss the sale and the repayment of the improper subsidies. 
 The repayment is a deal-killer, as the amount of the 
repayment exceeds the total value of Olympic Airlines, and 
Alexakis was emphatic that no deal would be possible in the 
event the repayment obligation was placed on Olympic 
Airlines.  The GoG has maintained throughout the 
privatization bidding process that the EU will not enforce 
any judgment which would kill the privatization effort, 
although there may have been some efforts to persuade the EC 
to do just that (reftel B). 
 
4.  (SBU)  Although the final price to be paid by Olympic 
Investors for the airline's assets is not known, press 
reports place it between 100 and 120 million euros.  Some 
local papers misreported that Olympic Investors was also 
purchasing Olympic Airways Ground Services, a ailing, nearly 
insolvent firm that the GoG has also repeatedly failed to 
privatize.  When Olympic Airlines was split from Olympic 
Airways in 2002, in order to increase the attractiveness of 
the airline assets, Olympic Airways Ground Services inherited 
the debt, unprofitable operations, and excess staff of the 
old integrated Olympic Airways (reftel C).  Alexakis 
(sensibly) denied any interest in Olympic Airways, but did 
confirm that as part of the deal, Olympic Airlines would 
continue to utilize Olympic Airways Ground Services through 
the end of 2006. 
 
5.  (SBU)  Comment:  This is the GoG,s fifth and presumably 
final effort to privatize Olympic Airlines.  Minister of 
Finance Alogoskoufis has repeatedly warned that if this 
effort fails, the GoG will liquidate the company.  It now 
remains for the GoG to successfully sell the privatization to 
the EC.  Olympic Investors does have a business plan based on 
using Baltimore-Washington International Airport as its main 
transatlantic gateway, where it would interline and jointly 
market with Southwest Airlines.  The GoG will fight hard to 
obtain this deal, both for political and financial reasons; 
not only would New Democracy get credit for achieving what 
its predecessor PASOK could not, but ND might also be able to 
avoid the pain of liquidation. Olympic Investors has agreed 
to avoid wholesale lay-offs of the approximately 1500 
employees of Olympic Airlines, using early retirement 
packages and other redundancy bonuses to thin staff instead. 
End Comment. 
RIES