US embassy cable - 05ATHENS2628

C O N F I D E N T I A L ATHENS 002628 
 
SIPDIS 
 
BRUSSELS FOR FAA EDWARDS 
 
E.O. 12958: DECL: 10/04/2015 
TAGS: EAIR, GR, OLYAIR 
SUBJECT: ALOGOSKOUFIS ON OLYMPIC AIR: STILL SEEKING EU 
CLARIFICATIONS BEFORE FINAL DECISION 
 
 
Classified By: Ambassador Charles Ries for Reasons 1.4 (b,d) 
 
1. (C) During a meeting to discuss general economic reform 
topics (reftel), Greek Finance Minister Alogoskoufis apprised 
Ambassador of the status of GoG efforts to privatize Olympic 
Airlines.  At this point in time, the Minister said, the GoG 
is seeking to clarify the EC's "Delphic utterance" that 
Olympic owed the Greek state upwards of 500 million Euros in 
illegal state aid from 2002-2005 (note: on top of the 160 
million Euros Olympic Airlines owes from improper subsidies 
from 1998-2002).  Alogoskoufis noted that the previous Greek 
government had divided Olympic into two parts: Olympic 
Airlines, which took over flight operations and Olympic 
Airways, which took all ground, baggage and catering 
services. Alogoskoufis claimed that if the fine applied 
purely to the "old" Olympic Airways, the state would remain 
in a position to move forward with its current privatization 
plan for the "new" Olympic Airlines. 
 
2.  (C) Alogoskoufis noted, however, that if both entities 
were on the hook to pay the State, the GOG would have to 
proceed to "Plan B".  According to talks the GoG were 
currently holding with Lazard brothers, the State would most 
probably liquidate the Olympic assets and close down the 
airline.  Under the best-case scenario, the State would then 
find a private operator willing to take a majority share in a 
new Greek flag airline as well as assume its management.  The 
Minister emphasized that Aegean Air would not be allowed to 
participate in the new venture.  (Comment:  Left unsaid by 
Alogoskoufis is that the GoG would likely accord the new 
airline with some lucrative extra EU routes.)  He also noted 
that the State would most likely be on the hook, for 
political reasons, to hire those Olympic employees let go 
under the reorganization and unable to find other work. 
 
3.  (C)  Comment:  Despite extensive warnings, the GoG was 
nonetheless not ready for the ECs ruling on illegal 
subsidization of Olympic Airlines and is now fighting for 
time.  Our contacts at mid-levels of the Hellenic Civil 
Aviation Authority, Ministry of Transportation, and Ministry 
of Finance have all told us that the GoG is scrambling with 
the help of Lazard Freres to come up with a new plan. 
Although Alogoskoufis may have termed the EC ruling as 
"Delphic," the English language version seems clear: Olympic 
Airlines is deemed to be the successor to Olympic Airways and 
therefore responsible for the repayment of the subsidies.  It 
may be that Olympic Airways also is made liable for 
repayment, but since the total assets of both companies is 
not believed to total more than 225 million Euro, it hardly 
matters. 
 
4.  (C)  What is still unclear is the status of Olympic 
Investors/York Capital's bid to purchase Olympic Airlines. 
All parties to the MOU for the purchase were granted the 
right to back out of the deal in the event of an adverse EC 
ruling, and it appears that this may be the GoG's intent. 
Although Embassy was in contact with Costas Alexakis, the 
representative of Olympic Investors, in the days immediately 
after the EC announcement (during which he intimated that the 
GoG was now his "enemy"), nothing has been heard from him 
recently.  At a recent party, Olympic Airlines President 
Papageorgiou was dismissive of Olympic Investors, telling 
Ambassador that "York Capital are the only real investors." 
Although nothing official has been announced, Alogoskoufis' 
silence on the status of the Olympic Investors MOU would lend 
credence to the idea that their deal is in fact, dead.  End 
Comment.