US embassy cable - 05ATHENS2470

UNCLAS ATHENS 002470 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EAIR, ECON, GR, OLYAIR 
SUBJECT: GREEK GOVERNMENT UNDECIDED ON FUTURE OF OLYMPIC 
AIRLINES FOLLOWING EUROPEAN COMMISSION'S DECISION ON ILLEGAL 
STATE AID 
 
REF: (A) ATHENS 2114; (B) ATHENS 1372 
 
SUMMARY 
------- 
1. (U) A European Commission decision ordering Olympic 
Airlines to pay back some 500 million euros in illegal state 
aid, although widely expected by industry observers, appears 
to have taken the Greek government by surprise.  The 
decision, which came in the midst of a final Greek 
government effort to sell the struggling airline, has set 
the Greek government moving in three directions: to appeal 
the decision to the European Court, to determine the 
intentions of potential investors, and to manage the 
domestic political fall-out.  An inter-ministerial committee 
chaired by the Prime Minister will convene on September 20 
to work out next-steps on the ailing air carrier.  End 
Summary. 
 
2. (U) Despite early warnings, the GoG appeared unprepared 
for the European Commission's decision to require Olympic 
Airlines to return nearly 500 million euros in illegal state 
aid obtained from 2002 to present; as well as reaffirming 
that the GoG must recover an earlier 160 million euros in 
illegal subsidies from the period 1998 to 2002. 
 
3. (U) This EC decision comes after a European Court ruled 
in May that GoG transfers of 160 million euros from 1998 to 
2002 comprised an illegal subsidy.  The new EC decision adds 
an additional 500 million euro in repayment based on state- 
aid for leasing aircraft, failure to pay tax and social 
security liabilities, and other indirect assistance OA has 
received.  The EC decision also clearly states that the 2003 
split of Olympic Airways and Airlines does not affect the 
repayment of the subsidies, and specifies that Olympic 
Airlines (the flight operations unit) is the inheritor of 
the obligation. 
 
4. (U) Following the announcement of the Commission's 
decision, the government started a marathon of inter- 
ministerial meetings to culminate in a meeting chaired by 
the Prime Minister on September 20 to decide on further 
action.  Government Ministers have tried to ease the 
reaction of the airline's employees on one hand, and to 
determine the intentions of potential buyers on the other. 
The Commission's decision, which came in the midst of a last 
Greek government effort to sell the struggling airline, 
calls into question the viability of privatization deal the 
GoG had struck with Olympic Investors. (ref A) 
 
5. (U) Nevertheless, the GoG has announced that it will push 
ahead with attempts to sell the airline, even if this 
requires beginning negotiations anew. According to Transport 
Minister Liapis, the government will exhaust all options 
available to keep Olympic Airlines alive, including 
appealing against the Commission's decision in the ECJ. 
Also, PM Karamanlis has announced that no Olympic employees 
will lose their jobs as a result of the EC decision. 
 
6. (SBU) Comment:  It is clear that the GoG was caught 
unprepared by the EC ruling, and had no contingency plan in 
place. Although Minister of Finance Alogoskoufis had earlier 
told Embassy that the EC would do nothing to "jeopardize" 
Olympic's privatization, this does not appear to have been 
the case.  Embassy has been in contact with Olympic 
Investors Group, which maintains that all is not lost on the 
deal, and is sending representatives to Greece later this 
week to explore options with us.  End comment. 
 
RIES