date:2006-10-02T03:32:00
source:Embassy Wellington
origin:06WELLINGTON773
destination:VZCZCXYZ0000 OO RUEHWEB DE RUEHWL #0773/01 2750332 ZNY
CCCCC ZZH O 020332Z OCT 06 FM AMEMBASSY WELLINGTON TO RUEHC/SECSTATE
WASHDC IMMEDIATE 3332 INFO RUEHBY/AMEMBASSY CANBERRA PRIORITY 4558
RHEHAAA/NATIONAL SECURITY COUNCIL WASHDC PRIORITY RUEKJCS/OSD
WASHINGTON DC PRIORITY RHHMUNA/CDR USPACOM HONOLULU HI PRIORITY
RHHJJAA/JICPAC HONOLULU HI PRIORITY

C O N F I D E N T I A L WELLINGTON 000773

SIPDIS

SIPDIS

STATE FOR P (FAGIN), PM/RSAT, EAP/FO, EAP/RSP, AND EAP/ANP
NSC FOR VICTOR CHA
SECDEF FOR OSD/ISA (JPOWERS)
PACOM FOR J01E/J2/J233/J5/SJFHQ

E.O. 12958: DECL: 09/28/2016
TAGS: PGOV, PREL, ECON, MOPS, NZ
SUBJECT: DELAY IN USG APPROVAL OF NEW ZEALAND'S A-4 PLANE SALE A
FISCAL AND POLITICAL HEADACHE FOR GNZ

REF: A. 9/21/06 RICCI/EMBASSY E-MAIL (NOTAL)
B. 8/29/06 RICCI/EMBASSY E-MAIL (NOTAL)
C. WELLINGTON 449

Classified By: Charge d'Affaires David J. Keegan,
for reasons 1.4(b) and (d)

1. (SBU) This message contains an action request at para
8.

2. (C) Summary: The New Zealand Defence Force is
evaluating how the further delay or cancellation of the
GNZ's proposed sale of its last air combat planes to a
private U.S. buyer could impact defense planning. NZDF
will probably be able to readjust its spending to make up
for the shortfall, or else may ask the Government for
additional funds. The political ramifications of the delay
could be more difficult for the Government: the opposition
National Party claims that Labour purposely presented the
sale as a done deal before the election in order to gain
votes. The Nat's linkage of the issue to Labour's campaign
could not come at a worse time for the Government, already
facing voter unrest over its clumsy handling of accusations
that the party knowingly misused taxpayer money on its
campaign. Embassy Wellington anticipates media interest in
this case, and would appreciate guidance soonest. End
Summary.

3. (C) Ref A reported that a September 21 meeting between PM
Assistant Secretary Hillen and New Zealand Ambassador Roy Ferguson on
September 21 identified two factors complicating New Zealand's
proposed sale of its A-4 Skyhawk attack aircraft to a U.S. private
company:

i) the proposed sale of U.S. combat aircraft to private hands in the
U.S. raises new U.S. policy concerns in the post 9/11 era. Comments
from the Departments of Homeland Security and Defense are still
pending before the State Department can make its decision, and
ii) there are several active investigations on the resale of
"non-demilitarized" property, some of which DoD may refer to the
Department of Justice for possible criminal proceedings.

----------------------------------------
Implications for NZDF: Show Me the Money
----------------------------------------

4. (C) The delay in the sale could negatively affect New
Zealand Defence Force (NZDF) planning. Last month (Ref b),
Vice Chief of the NZ Defence Force (NZDF) David Bamfield
told DoD that GNZ has included money from the sale as part
of NZDF's 2007 naval budget. At that time, NZDF Assistant
Chief for Development Brigadier Rhys Jones told the DATT
that NZDF's Long Term Development Plan (LTDP, see ref C) assumes the
money from the sale will be available for the Defense Force's general
use in future years. While it is not specifically tied to the Navy's
budget, Rhys Jones said the upgrades for the navy's ANZAC Frigates
are the most likely program to be affected if the sale does not go
through.

5. (C) On September 26, Deputy Secretary of Defense
Christopher Seed confirmed to the DATT that the NZDF Long
Term Development Plan (LTDP) includes money from the sale
of the eight A-4 Skyhawk fighters and eight Aeromacche
fighters as the source of funding for various LTDP and
other Defense programs. He also confirmed that although
the sales are not directly tied to navy programs, the ANZAC
frigate upgrades are most likely to be affected because of
NZDF's spending schedule.

6. (C) Seed said the Government would have to look at a
range of options to manage the shortfall of funds if the
sale does not go through. These could include a decision
to sell the eight Aeromacches separately since they do not
require U.S. approval, which would net an estimated NZD 75
million out of the estimated NZD 110 million expected for
the sale of all 16 planes. Another option would be to make
adjustments to the planned redevelopment of Ohakea Air
Base; to replace or make changes to the planned maintenance
and upgrades to New Zealand's only supply ship, HMNZS
Endeavour; or to request that the Government allocate more
money to the LTDP. Seed seemed confident that if the sale
is delayed NZDF could find ways to adjust its spending to

do everything planned under the LDTP, using the funds from
the sale once it goes through. He indicated that while the
GNZ has not yet calculated the costs or implications if
the sale is canceled, they are beginning to consider the
possibility.

--------------------------------------------- ----
Yet Another Potential Election Problem for Labour
--------------------------------------------- ----

7. (C) While the NZDF may be able to adjust its spending
if the A-4 sale is delayed or canceled, the Government will
likely have a harder time dealing with the political
ramifications. The deal to sell the Skyhawks and
Aermacchis was announced two weeks before the September
2005 general election. The opposition National Party has
recently asked Defense Minister Goff for a full explanation
of why the deal remains stuck a year later, and has pointed
out that the planes' continued maintenance is costing
taxpayers an estimated NZD 130,000 (USD 82,000) a month, on
top of the NZD 1.5 million (USD 945,000) already paid in
agents fees. National's Defense spokesman Murray McCully
has accused Mark Burton Minister for Defense at the time of
the announced sale, of "pre-election window dressing" for
having trumped up the sale without indicating it might be
difficult to get USG approval. In response, current
Defense Minister Phil Goff said the Government's
announcement of the sale noted that it was contingent on
State Department clearance, a process which the GNZ has
been unable to speed up. Goff also pointed out that because
of the limited market there are no other buyers on the
horizon.

--------------------------
Comment and Action Request
--------------------------

8. (C) While Kiwi voters do not normally focus on defense
issues, this case may prove an exception. National will use
the delayed or canceled sale to reinforce its contention
that the Government has not only misled the public but also
has once again exercised bad judgment on a defense matter.
The Labour Government has been criticized for poor defense
procurement decisions in recent years and its 2001 decision
to disband the combat air wing was strongly derided by
National and former defense officials at the time. In
addition, National's claim that the Government used the
sale as an election ploy ties into its broader effort to
attack Labour for its 2005 election tactics. Labour is
already flailing badly over its decision to defy the
findings of a soon-to-be- released Inspector General report
that says Labour illegally spent taxpayer money for its
campaign.

9. (C) Action Request: We understand that Washington
agencies are working on talking points that Mission New
Zealand can use to answer future media inquiries about this
case. Although the Parliamentary recess has pushed the
issue off the front pages for now, we anticipate we will
get questions so would appreciate receiving guidance
soonest.

Keegan