VZCZCXRO7711
PP RUEHPOD
DE RUEHTH #0224/01 0510950
ZNR UUUUU ZZH
P 200950Z FEB 09
FM AMEMBASSY ATHENS
TO RUEHC/SECSTATE WASHDC PRIORITY 3250
INFO RUCNMEU/EU INTEREST COLLECTIVE PRIORITY

UNCLAS SECTION 01 OF 02 ATHENS 000224 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EINV ELAB EAIR GR
SUBJECT: OLYMPIC AIR PRIVATIZATION: 7TH TRY THE CHARM? 
 
REF: 08ATHENS1434 
 
SENSITIVE BUT UNCLASSIFIED, PLEASE HANDLE ACCORDINGLY 
 
¶1.  (U)  SUMMARY:  On February 5, the Greek press reported 
that the sixth tender issued over the course of the past 15 
years for the privatization of  Olympic Airlines (OA) had 
once again failed, due to lack of  conforming bids.  Finance 
Minister Papathanassiou announced the development, together 
with a plea for Greek business interests to purchase the 
ailing airline.  Shortly thereafter, the press quoted Marfin 
Investment Group (MIG) Chairman Andreas Vgenopoulis 
indicating MIG's interest in purchasing all three 
sub-elements of the proposed successor to Olympic and 
promising to be open to "re-nationalizing" the firm after a 
few years.  Immediately prior to this news hitting the press, 
Athens ECON received a call from a US-based investor seeking 
Post's attention to the tender and asking that we weigh in 
with the GOG to ensure that the ongoing process was a 
transparent one 
 
¶2.  (SBU) SUMMARY CONTINUED:  To follow up on these 
developments Econoff met February 9 with Michail 
Kefalogiannis, the Senior Advisor to incoming Development 
Minister Hatzigakis.  Kefalogiannis is the project manager 
for Olympic Airlines investment matters.  Kefalogiannis 
explained the process that had been agreed with the European 
Commission for Olympic's privatization.  Kefalogiannis 
lamented the poor timing of the latest attempt given the 
global financial crisis.  But he said the GOG was committed 
to follow through with the process, which he gave a 
"fifty-fifty" chance of success this year.  END SUMMARY. 
 
The Structure 
------------- 
 
¶3.  (SBU) Kefalogiannis reviewed the agreement with the EC 
for the privatization of OA.  As reftel indicated, the GOG 
agreed to create three new operations out of OA -- air 
operations, ground handling and the "technical base" -- which 
would be purchased by a private company or companies.   OA 
itself would be liquidated and the remaining OA employees 
would receive a "substantial" severance pay, as well as the 
opportunity to be re-hired by OA's successor.   According to 
Kefalogiannis, the core assets of the new air company, 
Pantheon, would consist of the Olympic name, the Olympic 
rings logo, and key landing slots in seven hub airports 
worldwide (including Frankfurt, Heathrow, JFK, 
and...Bucharest?).  So-called optional assets that would 
remain within OA but be available to the eventual Pantheon 
owner if desired, include any or all of the 18 remaining 
airplanes owned by OA, most of which are turboprops used to 
service the Greek islands.  These optional assets were to be 
considered separately from the core assets which were the 
main focus of the flight operations portion of the recent 
tender, but, he said, bidders could make separate offers for 
the planes.  In addition, the GOG will capitalize Pantheon in 
the amount of 60 million euro, which the winning bidder can 
agree to accept or not. (Comment: presumably accepting the 
shares means accepting GOG ownership rights as well). 
 
The Process 
----------- 
 
¶4.  (SBU) According to Kefalogiannis, the GOG had agreed with 
the EC on a process that would to the maximum extent possible 
protect the OA privatization from actual or even apparent 
political influence.  Accordingly, representatives of the EC 
were "present throughout."  The GOG provided the EC with a 
list of firms to act as international advisors to the 
privatization tender.  The lineup eventually chosen by the EC 
included London-based Lazard Freres in the lead, with a group 
of private banks including Greek-based Alfabank, Emboriki 
Bank, and the National Bank of Greece, as well as several 
international law firms.  Auditing was done by Price 
Waterhouse Corp. and the valuation of OA assets was 
undertaken by Grant Thorton, LLC, a US-based consulting firm. 
 Kefalogiannis said that Grant Thorton presented its 
valuation to the advisors "without the Greek government in 
the room."   The valuation for the three separate components 
was:  45.7 million euro (MEURO) for the flight operations, 
44.9 meuro for the ground handling, and 17 meuro for the 
technical core.  Kefalogiannis noted that the highest bid for 
the air operations was only 24.5 meuro. 
 
¶5. (SBU) As for the bids, they too were presented at first 
only to the advisory group, in London, on January 30.  The 
advisors worked through the weekend to analyze the bids and 
prepare a report for the GOG.  On February 4, the GOG's 
Inter-ministerial Privatization Committee met to review the 
bidding and determined, according to Kefalogiannis based on 
the report from the advisors, that none of the bids were 
compliant with the tender.  None of the bids reached the 
 
ATHENS 00000224  002 OF 002 
 
 
valuation levels, and certain of them were also judged 
non-compliant on technical grounds (e.g. one did not focus on 
the core assets of the OA flight operations; some did not 
have proof of funding). 
 
Next Steps 
---------- 
 
¶6.  (SBU) Kefalogiannis said that the GOG now hopes to enter 
a process of direct negotiations with interested investors, 
which, he said, was envisaged in the Greek privatization law, 
as well as in European Community regulations.  The GOG will 
present the case for direct negotiations to the EC later this 
week and will refrain from discussing directly with 
interested investors until it has an agreement with the EC 
that this is the way to proceed. 
 
¶7.  (SBU) On February 5, as the GOG announced the failure of 
the tender it called for Greek investors to step up to the 
plate.  Almost immediately, Marfin Investment Group (MIG) 
Chairman Andreas Vgenopoulis indicated MIG's interest in 
purchasing all three sub-elements of the proposed successor 
to Olympic and investing up to 250 meuro in it over the next 
two years.  Somewhat bafflingly, the press reported that he 
also promised to be "open to re-nationalizing" the firm after 
a few years.  Asked how he interprets MIG's reported 
statements, Kefalogiannis said that MIG is interested in 
making money, and he saw the statement on re-nationalization 
as a form of insurance against a hostile re-nationalization 
in the event that left-leaning opposition party PASOK gains 
power.  He said that the GOG hopes to speak with MIG next 
week, together with the advisory group, if the EC agrees on 
direct negotiations.  Asked whether any of the failed bidders 
would have similar access, Kefalogiannis replied that the GOG 
would welcome such interest ) all they had to do was express 
it. 
 
¶8.  (SBU) COMMENT:  It comes as no great surprise that the 
GOG failed to privatized Olympic on its sixth try at a 
tender.  This is a political hot potato that no government 
wants to handle, particularly in today's dire economic 
situation (and given the ruling party's one-seat majority in 
the parliament), as Kefalogiannis alluded. Notwithstanding 
the apparently assiduous attempts to make this a transparent 
deal, the never-too-reliable Greek press's reporting on the 
story leaves the impression of backroom deals being made. 
For example, Kefalogiannis told us that the Inter-Ministerial 
Privatization Committee would meet Feb. 11 to discuss next 
steps, in consultation with the EC.  Yet the GOG announced to 
the press Feb. 11 that it is entering into direct 
negotiations with MIG immediately.  Given the stiff economic 
and political headwinds, we share Kefalogiannis' assessment 
that this effort has at best a 50-50 shot at success this 
year. 
 
SPECKHARD