The bottom line is that Pakistan cannot afford the $2 billion required to complete this F-16 program.

189129 1/28/2009 8:29:00 AM 09ISLAMABAD177 Embassy Islamabad SECRET VZCZCXRO6640PP RUEHLH RUEHPWDE RUEHIL #0177/01 0280829ZNY SSSSS ZZHP 280829Z JAN 09FM AMEMBASSY ISLAMABADTO RUEHC/SECSTATE WASHDC PRIORITY 1180INFO RUEHBUL/AMEMBASSY KABUL PRIORITY 9695RUEHNE/AMEMBASSY NEW DELHI PRIORITY 4329RUEHKP/AMCONSUL KARACHI PRIORITY 0935RUEHLH/AMCONSUL LAHORE PRIORITY 6648RUEHPW/AMCONSUL PESHAWAR PRIORITY 5534RUEKJCS/SECDEF WASHINGTON DC PRIORITYRUEKJCS/JOINT STAFF WASHINGTON DC PRIORITYRHWSMRC/USCINCCENT MACDILL AFB FL PRIORITYRUMICEA/USCENTCOM INTEL CEN MACDILL AFB FL PRIORITYRUEAIIA/CIA WASHDC PRIORITY S E C R E T SECTION 01 OF 04 ISLAMABAD 000177 SIPDIS

E.O. 12958: DECL: 01/11/2019 TAGS: PGOV, PREL, PTER, MARR, PK

SUBJECT: THE WAY FORWARD FOR PAKISTAN'S F-16 PROGRAM

Classified By: Anne W. Patterson for reasons 1.4 (b) (d)

1. (C) Summary: Embassy requests that a small interagency team of decision makers visit Islamabad to chart a financial and technical way forward on the F-16 program. Ambassador confirmed January 28 with Finance Minister Tareen that the GOP would make the pending overdue payment on the purchase of new aircraft "soon," but he asked for extra time to make the next two payments. The bottom line is that Pakistan cannot afford the $2 billion required to complete this F-16 program. At the same time, nothing is more important to good military-military (and overall U.S.-Pakistani) relations than avoiding a blow-up over the F-16 case.

2. (C) What is broadly referred to as the "F-16 case" is really three individual cases: (1) a Foreign Military Sales (FMS) program purchase of 18 new aircraft, to be paid for entirely with Pakistani funds; (2) Renovation (Mid-Life Upgrade) on 35 of Pakistan,s fleet of 46 older F-16s, which include aircraft acquired through the Excess Defense Articles (EDA) program, to be paid partially with FMF funding; and, (3) a $641 million munitions case, to be purchased using Pakistani national funds. The Pakistanis also will have to pay $80 million to install the upgrade kits in Turkey and approximately $25 million to build and defend a separate F-16 base because of USG concerns about potential technology transfer to China.

3. (C) Contrary to the assumptions of many in Congress, the U.S. originally was paying less than ten percent in FMF to support the MLU program only; the rest of this program was being paid out of Pakistani national funds. As the Pakistani economy weakened, we have received increasing Pakistani requests for U.S. financial support, but we do not now have enough FMF to meet these requests. Debate is underway in Washington about how to restructure the program, but we have not formally consulted with the Pakistanis. Nor have we agreed on an inter-agency position on options, some of which will affect USG forces and other allies because of blended production lines.

4. (C) If the U.S. should decide to pay for the new F-16s or increase U.S.-funded FMF support for the upgraded aircraft, we can call the tune. Embassy cannot see how we can make such decisions absent a reprogramming or virtually guaranteed congressional support on out-year funds. If we expect the Pakistanis to pay, we need to sit down with them and go over the costs and implications of upgrading their old planes, buying new ones, or some combination of both. We also need USG decisions on pending technology transfer issues. End summary.

Background

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5. (C) Following a history that includes three wars and numerous military engagements with New Delhi, the Pakistan military's doctrine and tactics primarily have been designed for a territorial war with India. To counteract India's overwhelming superiority, Pakistan developed both its aviation and strategic/nuclear programs. Initially, the F-16 program was viewed only in the Indian context. The escalation of Indo-Pak tensions following the Mumbai attacks demonstrated to the Pakistanis that the threat from India still exists. The Pakistani F-16 program, however, will be no match for India's proposed purchase of F-18 or equivalent aircraft.

6. (C) However, the Pakistani military now faces a growing extremist militancy on its western border with Afghanistan, and it is using F-16s in that fight. F-16s are not the ideal tool for counter-insurgency operations, but they are all the Pakistanis have or are likely to acquire near term to conduct air operations. Their current F-16 capability is limited, however, and does not allow for night combat, precision bombing, or coordinated Close Air Support. The U.S. is responding to Pakistan Air Force (PAF) requests for increased Close Air Support training and is working to increase intelligence sharing to help Pakistan better target militants in the border areas. When complete, the ongoing F-16 program would provide Pakistan with night operations and improved targeting capability.

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7. (C) When Pressler Amendment sanctions were imposed in 1990 after Pakistan's nuclear tests, the U.S. could not legally deliver 28 F-16 aircraft that Pakistan had purchased with national money. However, Pakistan was required to pay for storage of the purchased F-16s in Arizona. Even though the U.S. resolved this issue in 1998, it left a legacy of distrust that continues even today. After 9/11, the U.S. dropped sanctions and renewed the bilateral relationship; the U.S. agreed in 2006 to a $3.5 billion arms transfer package that included a revival of the F-16 program. At the time, Pakistan was enjoying seven percent economic growth under a military government where defense acquisitions did not face public scrutiny. Today, Pakistan has a civilian government that in 2008 was forced to sign a $6.7 billion IMF Standby Agreement to stave off economic collapse.

8. (C) Walking away from this symbol of renewed post-9/11 cooperation would cause enormous political consequences. It also would make it more difficult for the government to continue cooperation on counter-insurgency operations along the Pak-Afghan border. In the past six months, we have made tremendous progress on improving U.S./ISAF-Pakistan military coordination and cooperation. These advances are helping to reduce U.S. casualties in Afghanistan and will become more important if we increase troop levels in Afghanistan.

Case Specifics

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9. (C) There are three related cases in the current program:

--New Aircraft. In 2006, the GOP signed a five year contract to purchase 18 new Block 52 aircraft. The first delivery is scheduled for 2010. As of September 2008, Pakistan had paid $388 million in national funds, leaving a balance due of $1.04 billion. The GOP is over 30 days behind schedule on its December 2008 payment; its September payment was made almost three months late and only after Pakistan received the first tranche of its IMF Standby Agreement payment. The next payments due are: $113M in December 2008 (now overdue), $99.5M in March 2009, and $301M in June 2009.

Finance Minister Tareen confirmed to Ambassador January 28 that Pakistan would make the overdue December payment "soon," but he asked for three-four months grace period on the next two payments, so that they could be included in the GOP's next budget cycle, which begins in June 2009. Both Tareen and Defense Minister Mukhtar have admitted they are not sure if Pakistan can continue to pay. Post firmly believes that the GOP cannot afford to continue to make these payments, and we do not expect this situation to change. The GOP is also reportedly behind in payments to China, Sweden and other countries for JF-17s, Erieye Airborne Early Warning And Control(AEW&C) radar and other aircraft/programs.

--Excess Defense Articles Aircraft and Mid-Life Upgrade. In 2005, the U.S. agreed to give Pakistan 14 used U.S. older type F-16s, adding to the Pakistani fleet of 32 aircraft, and it now has received all of these aircraft. All 46 older F-16s need an upgrade to bring them up to the avionics capability level of the new F-16s. The current upgrade case is for 35 of these older F-16s. In 2006, Secretary Rice notified the Congress that, due to technology transfer concerns, the U.S. required that installation of the upgrade kits must be performed outside of Pakistan; there is still debate about when that decision was conveyed to Pakistan. Pakistan has now contracted with TAI in Turkey to perform this estimated $80 million installation, which is tentatively scheduled to begin in 2012.

The U.S. agreed to assist the upgrade through U.S.-funded FMF. To date, we have provided $334 million in three installments, the first ($108 million), which supplied all the funding needed through March 2008. When Pakistan failed to meet its June 2008 payment, the U.S. Air Force issued a stop-work order on the upgrade kit production line in August 2008. The Congress then approved $116 million for the June and September 2008 payments, and $110 million for the December 2008 and March 2009 payments. Pending is a congressional notification to use $142 million in FMF to cover the June and September 2009 upgrade program payments. If approved, this would leave an outstanding balance of $398 million for the upgrade kits.

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Although the GOP assured Congress in a letter, dated October 13, 2008, that it would pay for the rest of the program using national funds, Air Chief Marshall Tanvir wrote to DOD DepSec England in December 2008 and to Defense Security Cooperation Agency Director Wieringa in January 2009 reiterating his concern about financing the program and asking for additional assistance. The Pakistan Air Force (PAF) wish list for future FMF indicates they will request additional support for the program in 2010 and beyond.

--Munitions Case. This is a $641 million FMS case which includes purchases of 500 Advanced Medium-Range Air-to-Air Missiles (AMRAAMS), 750 Mark 84 bombs and 500 bomb tail kits, among other items. The AMRAAMS are not counter-insurgency related but the GOP insists on acquiring the beyond visual range capacity this technology allows. The balance of payment on the weapons/munitions package is $360 million to be paid for entirely by Pakistan.

10. (S) Still pending is approval/implementation on three technology transfer issues.

--Digital Radio Frequency Memory capability. Pakistan awaits final National Defense Policy Committee (NDPC) approval to equip Pakistani F-16s with a high technology jamming capacity against air-to-air missiles. Approval has been pending since September 2006.

--Upgrade Installation. Pending is approval for Pakistani technicians to participate in the MLU kit installation at TAI in Turkey. There has been some debate about whether this restriction was specifically cited in the security notes appended to the Letter of Offer and Acceptance or whether this was based on an oral discussion with congressional staffers.

--Base Restrictions. Both the new and MLU F-16s are subject to Pakistan's compliance with security restrictions that demand a separate base and 24/7 U.S. security coverage at a cost of more than $25 million. A National Defense Policy Committee (NDPC) site survey, conducted in 2006, rejected Mushaf Air base, where Pakistan's F-16s, French Mirages, Russian MIG 21s and French Alouette Search and Rescue helicopters are currently housed, as unacceptable because of the prohibition co-mingling F-16 operations with other aircraft. There have been other USG concerns about illegal technology transfer relating to Pakistan's co-production program with the JF-17 Chinese fighter aircraft. While finding the Shahbaz Air Base a suitable location, the NDPC noted that none of the physical security requirements were in place at the time of the inspection. Despite PAF promises that security upgrades will be in place by 2009, Post does not believe that Shahbaz will be ready in time for the proposed 2010 delivery of new F-16s.

RECOMMENDATIONS

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11. (C) Embassy requests that a small interagency team of decision makers visit Islamabad to chart a financial and technical way forward on the F-16 program. We understand that Washington is debating the merits of Pakistan's options--whether to continue with the new buy, proceed with the MLU aircraft, or propose a combination of both--and that there are consequences to changing the new buy for the U.S. and other allies. Obviously, if we agree to fund any or all of the balance due on the new buy or the MLU aircraft, we can set the terms. Embassy does not see how we can make such a commitment without a reprogramming or an iron-clad commitment from the Congress. But if we expect to Pakistanis to pay, we need to consult with them on the costs and implications of upgrading the MLU aircraft, buying new planes or a combination of both.

12. (C) After the 2005 earthquake, the GOP cut back on its acquisition of F-16s, so there is precedent for altering the program due to economic concerns. Privately, some GOP civilian and military leaders recognize the program needs to change, but they currently are focused on impractical ideas like delaying payments without altering delivery schedules. Some USG agencies appear to have begun informal negotiations with the Pakistanis, a matter of some concern to Post given

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the historical miscommunication that has plagued this program.

13. (C) Given the broad range of options being discussed in Washington, post does not yet have a final recommendation on the way forward. Absent a large influx of new FMF dollars to restructure the program, however, we believe the MLU aircraft will provide Pakistan with COIN capability in the most economical way. The new aircraft are scheduled to be delivered sooner (2010), but little has been done to prepare the Shahbaz Air Base to receive them, so we doubt the new planes can be delivered on schedule. We would propose that Pakistan be placed further back in the production line for new aircraft if possible, thus allowing the line to continue to meet USG and other allies' needs.

PATTERSON