VZCZCXRO2862
PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHVI #1104/01 1201303
ZNR UUUUU ZZH
P 301303Z APR 07 ZDK
FM AMEMBASSY VIENNA
TO RUEHC/SECSTATE WASHDC PRIORITY 7138
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE

UNCLAS SECTION 01 OF 02 VIENNA 001104 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EUR/AGS (SAINT ANDRE), EUR/PRA, ISN/MTR, ISN/CATR 
 
E.O. 12958: N/A 
TAGS: PREL PARM ECON ETTC AU
SUBJECT: AUSTRIA'S STEYR-MANNLICHER WEAPONS COMPANY -- NEW 
OWNERSHIP, NEW POLICIES 
 
REF: 06 VIENNA 3028 AND PREVIOUS 
 
VIENNA 00001104  001.2 OF 002 
 
 
¶1.  (SBU)  SUMMARY. EconPolCouns and EconPolOffs visited the 
new CEO and owner of Steyr-Mannlicher, Franz Holzschuh, on 
April 26.  We conveyed Post's desire to continue cooperation 
and keep an open dialog with the firm.  We also stressed our 
ongoing concerns about the firm's sale of assault weapons to 
Iran and Iranian attempts to supply arms to insurgents. 
Holzschuh said the sale to Iran was "Fuehrlinger's decision." 
 He explained that he already has made changes in company 
policy to increase end-use controls over the firm's military 
sales.  Steyr-Mannlicher is concentrating on marketing its 
new hunting rifle and its improved pistol.  Holzschuh 
reiterated his desire to cooperate fully with the U.S.  He 
specifically said that he would trace serial numbers, if we 
needed him to do so.  END SUMMARY. 
¶2.  (SBU) On April 26, EconPolCouns and EconPolOffs visited 
Franz Holzschuh, the new owner and CEO of Steyr-Mannlicher, 
at his headquarters in Kleinraming, Upper Austria. 
(Kleinraming is in a bucolic dale near the town of Steyr, 
where the massive Steyr Works remain as a monument to 
post-war industrialization.)  Holzschuh's lawyer, Michael 
Prager, was also present.  Holzschuh said he and two Austrian 
friends purchased the company in January 2007.  Holzschuh 
explained that the purchase made business sense because 
Steyr-Mannlicher is internationally known for its high 
quality and technical know-how.  Another factor in the 
purchase, he added, was that the company has not had any 
legal cases pending against it for over 100 years.  There was 
also a more emotional reason for his interest, Holzschuh 
admitted.  There had been Russian interest in buying the 
firm, and Holzschuh wanted to help keep the venerable company 
in Austrian hands.  He and his two business partners are 
Austrian, he said. 
 
--------------------------- 
Fuehrlinger at Death's Door 
--------------------------- 
 
¶3.  (SBU) Former owner Wolfgang Fuehrlinger had begun looking 
for a buyer in July 2006, Holzschuh said.  It is unclear 
whether Fuehrlinger knew then that he had stomach cancer, or 
whether he was simply following through on his repeated 
threats to sell the company to "anyone" in order to turn a 
profit.  Formally, Fuehrlinger remains an advisor to 
Steyr-Mannlicher.  However, as Holzschuh told us, 
Fuehrlinger's health has declined rapidly, and he now weighs 
just 50 kilos (110 pounds).  Prager even referred to 
Fuehrlinger at one point as "dead," before correcting himself 
by quickly adding "almost." 
 
------------------------ 
Arms "A Different World" 
------------------------ 
 
¶4.  (SBU) Holzschuh is an avid hunter, but he has no previous 
experience in the arms industry.  He has been an investment 
consultant, specializing in the strategic development of 
companies.  Most notably, he recently brought Starbucks 
coffee houses to Austria, Germany and Switzerland.  (He 
shocked the local Vienna scene by situating a Starbucks 
across the street from the famous Sacher Hotel coffee house.) 
 However, he described the arms industry as "a completely 
different world."  One of Holzschuh's first acts as CEO was 
to represent Steyr-Mannlicher at the IDEX 2007 arms show in 
February.  He related with bemusement his realization that 
the slick display tables were facades for curtained back 
rooms, where one could see only back-lit shadows and heavy 
cigarette smoke wafting over the dividers as "all the real 
business got done." 
 
------------------------------- 
Iran:  "Fuehrlinger's Decision" 
------------------------------- 
 
¶5.  (SBU) We explained that Post has had multiple 
interactions -- negative ones -- with Steyr-Mannlicher over 
the past three years on the issue of sales to countries of 
concern.  We expressed Post's desire to maintain an open 
dialog with the firm's new management.  We stressed that the 
U.S. remains concerned about the repercussions of the sale of 
HS .50 sniper rifles to Iran.  Specifically, we said, 
whatever the Iranians claimed on their end-user certificates, 
we do not believe that Iran bought the arms strictly for law 
enforcement purposes.  Citing press reports that Iranian arms 
had appeared in Afghanistan, we said this sort of connection 
was just what we had feared.  The fact that we could not 
confirm the presence of Austrian-made weapons did not 
alleviate our concerns.  Holzschuh said the sale to Iran was 
 
VIENNA 00001104  002.3 OF 002 
 
 
"Fuehrlinger's decision," and, by implication, not soemthing 
he would have done.  He stressed that he had sent a "clear 
message to the company" that it would tighten up its sales of 
military and law enforcement items.  Among other things, he 
said the company would henceforth conduct its military and 
law enforcement sales directly with government entities, 
cutting dealers out of the process. 
 
--------------------------------------------- ----- 
Purchase Includes U.S. but Not Malaysian Subsidary 
--------------------------------------------- ----- 
 
¶6.  (SBU) Holzschuh said his purchase included 
Steyr-Mannlicher's U.S. subsidiary, Steyr Arms.  This is a 
distributorship located in Cumming, Georgia, that currently 
employs eight to nine people.  At present, Steyr Arms only 
imports Austrian weapons for resale, and has no production 
capacity.  (Note:  Per reftels, Fuehrlinger had told us that 
he had been planning to create a production facility in the 
U.S. if he had been successful in selling the AUG A3 assault 
rifle to the U.S. military.  End note.)  We asked how the 
business activities of the U.S. subsidiary would take shape 
after U.S. sanctions end in December 2007, but Holzschuh said 
that would depend on the success of the company's new 
products.  Holzschuh said he and his partners did not 
purchase the company's Malaysian subsidiary, a production 
facility that Fuehrlinger had established (as Fuehrlinger 
himself told us) in order to avoid Austrian and EU 
restrictions on arms exports.  According to Holzschuh, 
Fuehrlinger said the Malaysian subsidiary was shut down and 
its licenses were revoked.  Holzschuh said he understood that 
litigation is still pending against the Malaysian subsidiary, 
but he had no details, since he has no responsibility for 
that part of Fuehrlinger's former activities. 
 
-------------------------------------------- 
The Future:  High End, High Quality Products 
-------------------------------------------- 
 
¶7.  (U) Holzschuh discussed his vision for the firm.  The 
company continues to put equal emphasis on its hunting, 
sporting, and law enforcement weapons divisions.  However, it 
is focussing on improving the quality of its new and existing 
products and delvering premium products to the market. 
Holzschuh aid new Steyr products must be innovative and must 
involve at least two or three new patents.  The latest 
product is the Mannlicher "Luxus" hunting rifle, which 
entered the market in July 2006.  He showed us the rifle, 
which features a changeable barrel to permit an easy change 
of caliber.  The rifle also includes changeable side plates, 
encouraging repeated investment in hand-tooled artwork that 
costs as much as three times the rifle's base price of 2100 
Euros.  The company has received over 1000 orders for the new 
rifle, Holzschuh said.  The success of the rifle is mainly 
responsible for the expansion of the workforce at 
Steyr-Mannlicher from 100 to 120 employees, Holzschuh said. 
 
¶8.  (U) Steyr-Mannlicher is also hoping to penetrate the law 
enforcement market with the M-A1 pistol, which appeared three 
years ago.  Holzschuh claimed it was the best pistol in the 
world.  Holzschuh said the Finnish police had requested a 
service weapon that would remain absolutely safe in the 
holster, but that would be immediately useable even by 
inexperienced officers if necessary.  The M-A1 therefore 
incorporates a safety release inside the trigger guard, along 
with a safety incorporated into the dual-action trigger of 
the sort that comes on handguns such as the Glock. 
 
------- 
Comment 
------- 
 
¶8.  (SBU)  Holzschuh was clearly eager to distance himself 
and the company from Fuehrlinger's risky business practices. 
He did not speak negatively of Fuehrlinger -- he credited his 
predecessor with turning a failing, post-privatization 
behemoth into a modern, competitive enterprise.  However, he 
obviously did not agree with "Fuehrlinger's decision" to sell 
sniper rifles to Iran.  Holzschuh appears to be implementing 
many new company polices that would decrease the possibility 
of diversion of Steyr military weapons, most obviously by 
eliminating dealers from sales of such weapons.  Holzschuh 
was adamant about his intention to cooperate fully with the 
U.S., especially if the need to check a serial number were to 
arise.  In such a case, Holzschuh promised, the USG would get 
an immediate answer -- "just call," he said.  Post intends to 
remain in frequent contact with Holzschuh and his firm. 
Kilner