US embassy cable - 05ATHENS2982

C O N F I D E N T I A L SECTION 01 OF 02 ATHENS 002982 
 
SIPDIS 
 
DSCA FOR ARTHUR HOTOP 
 
E.O. 12958: DECL: 11/20/2015 
TAGS: EAIR, GR 
SUBJECT: STATUS OF GREEK F-16 BUY 
 
 
Classified By: Ambassador Charlie Ries for Reasons 1.4 (B,D) 
 
1. (C) Negotiations on the GoG purchase of 30 F-16 aircraft, 
with an option for a further 10, are moving forward.  This 
will complete the process formalized by the July 19 purchase 
decision of the Greek Government's Council for Foreign 
Affairs and Defense (KYSEA).  The responsible Air Force 
office leading the negotiations, SAF/IA, expects to deliver a 
final Letter of Offer and Acceptance to the GoG November 28. 
The final, total price of the full 40-plane purchase will be 
approximately $2,672,000,000 with a fly-away price for the 
aircraft of $44.6 million (assuming a 40-plane purchase) or 
$45.9 (assuming a 30-plane purchase).  Once the LOA is 
delivered, the Greek Government must sign and provide an 
initial payment in the amount of approximately $70 million 
within 30 calendar days in order to avoid Lockheed-Martin 
production line gap charges of up to $114 million. 
 
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Ministry of Finance: A Fly in the Ointment??? 
--------------------------------------------- 
 
2.  (C) According to all indications, Minister of Defense 
Spiliotopoulos is eager to sign the LOA as soon as possible. 
His staff informed Post's Office of Defense Cooperation (ODC) 
last week that the Minister was ready to sign immediately 
upon LOA delivery.  The big question surrounding the deal is 
elsewhere, in the role and position of the Ministry of 
Finance.  Our Defense Ministry contacts are clearly acting on 
the assumption that Finance either has no say in the matter, 
that the key players in Finance actually agree with the 
purchase arrangements, or that if they do not agree, they can 
be easily rolled. 
 
3.  (C) Perhaps Defense knows something we do not.  But it 
appears to us the Finance Ministry is acting in a manner 
consistent with intense opposition to the purchase.  It sent 
only low-level budget staff members to most bilateral 
meetings on financing the buy, and it was only through a 
great deal of pressure that Finance agreed to send any staff 
whatsoever to the November 8 meeting on finance issues with 
USG and Lockheed-Martin staff, who had flown in from the U.S. 
for the discussion. 
 
4.  (C) Furthermore, the Ministry has refused to engage 
substantively or react to the extensive financial information 
the USG and Lockheed have provided to date.  Instead, Finance 
staff have continued asking for more data.  We still do not 
have an indication as to what financing options the GoG is 
planning to utilize for the purchase, including a Standby 
Letter of Credit to cover termination liability and/or a 
"deferred payment" plan developed by Lockheed. 
 
5.  (C) Such reluctance would be understandable.  As a result 
of the accounting shenanigans of the previous Greek 
government, Greece's budget has come under formal EU 
monitoring procedures.  The Karamanlis Government committed 
itself to a huge reduction of the budget deficit from 6.6% of 
GDP in 2004 to less than 3% in 2006.  While it is attempting 
to achieve this through a number of means, including 
securitizing debt and reducing tax evasion, it must also 
reduce expenditures.  In fact, PM Karamanlis' economic policy 
speech at the Thessaloniki Trade Fair mentioned just one 
specific expenditure reduction: in the defense budget.  One 
last point: Minister of Finance and National Economy 
Alogoskoufis is a powerful actor whose views are taken 
seriously by the Prime Minister.  Logic would dictate that 
his views on a multi-billion dollar purchase would be taken 
seriously in the PM's circle. 
 
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The Press Angle 
--------------- 
 
6.  (C)  The purchase has also come under withering media 
fire, which the GoG has only partially been able to counter 
effectively.  Minister of Defense Spiliotopoulos' 
presentation in Parliament on November 18 in support the F-16 
purchase, for instance, was largely drowned out by negative 
reactions in the pro-PASOK media.  An extreme but indicative 
comment in Ependitis (pro-PASOK, centrist economic weekly) 
says that Greece is always buying weapons "from its enemy, 
the United States", whose interests it says clash with those 
of Greece.  Greeks should "remember the unbearable pressure 
for the Annan Plan, the recognition of Macedonia, the Balkan 
destabilization with Bosnia, etc." says the author.  "It's 
supposed, however, that these planes, which cost more than 
their weight in gold, are being bought in order for us to arm 
ourselves, not to help the American economy or to appease 
whatever president is in power."  Ethnos (pro-PASOK, 
left-of-center daily), under the headline "Costs of F-16 take 
flight with bilateral agreement," focuses on the purchase of 
the planes being done outside the standard competitive 
process. 
 
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Comment 
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7.  (C)  Although it remains to be seen whether Finance wants 
to, or even can, impede the F-16 deal, Post is working the 
Ministry, providing as much data as possible as quickly as 
possible.  With the green eyeshade types, we also don't miss 
an opportunity to point out that a Eurofighter alternative 
would be much more expensive.  We are furthermore responding 
to unfair criticism in the media of the purchase, whenever 
appropriate.  Although this deal may well be a sure thing, 
we're not taking it for granted. 
RIESstatus of