The Greek government, in cooperation with the EU-Commission, should make a derogation in respect of a specific asset of the Greek state which is wrongly led to a long-term lease scheme with a very low price and a correspondingly small expected benefit to the Greek state, in relation to its value and the prevailing macroeconomic conditions, causing its loss a terrible damage to the interests of the Greek state without reducing the unemployment and the public debt in the economy.
By Thanos S. Chonthrogiannis
The law of intellectual property is prohibited in any way unlawful use/appropriation of this article, with heavy civil and criminal penalties for the infringer.
The wrong type of investment
Particularly, I refer to the former irport of Hellinikon, which the Greek government (2012-2014), through an open competition, laid the foundations to sell it out (28/2/2014), while the Greek Government (2015-2019) completed “it’s killing” (8/6/2016).
The Greek government (2019-today), in the best of cases, aimed the new investor-buyer to pay a price of €500m for the concession and operation of the former airport of Hellinikon which has total surface area of about 6500000sqm. for a time, lease-horizon of 99 years, and then the investor will spend an amount of around €7b for the development and exploitation of the specific asset within a fifteen-years investment horizon.
In this case, the investment development of the site will include hotels, casinos, shopping malls, mild development with residential complexes which will then be sold etc. The revenues that the Greek state expects to receive as a price of this privatization will come from a stake in future gross earnings of investors.
Furthermore, the investor requires to connect directly the area of the new investment to the international airport of Athens “Eleutherius Venizelos”. The total cost of construction of these projects to be made by the Greek state will exceed the amount of €1.5b (Source of numbers/figures: according to the information which appeared in the total of the electronic and publishing press equally).
More details about the wrongly of this type of investment please read the analysis “For which reasons is wrong the current investment in the former airport Hellinicon in Greece“.
To proceed with this type of investment and the way it was presented, investors should deposit a lump sum of €8b in cash as a consideration for long-term leases (not in installments) and not €500m to the Greek state which the investors want to give initially, regardless of the amount of the investment (e.g. €7b) and the investment horizon (for example, fifteen years) that they will carry out.
Otherwise, the Greek justice should invalidate the exploitation agreement and the investors will have to return the asset to the Greek state. The reason of why a one-time deposit of €8b is required by investors so to use next this asset will be presented in the following paragraphs.
The right path of investment-Project
But what could be the maximum return from the use of the former airport of Hellinicon, with the best benefit to the Greek economy, without the sale/loss of this so important real estate from the Greek state property portfolio and without to cause any burden in the annual budget of the Greek central government, while maximizing the benefits for the human resources of Greece?
The real value of the former airport of Hellinicon is not located in its locality within the urban environment of the southern suburbs of the Athens capital. Location that irritates all constructors to appeal for building it up. The real value of the former airport of Hellinicon lies in its airfields.
The most difficult part in the construction of an airport is its runways, especially when they should be made based on the strict European standards. I will explain, in my opinion, the optimal way of capitalizing on this so important real estate of the Greek state with concrete steps:
1. The Greek government should primarily give the specific-currently investors the opportunity to offer direct funds to the Greek state, funds totaling €8bns, for the acquisition of the right to exploit it, and not €500m.
If they fail to do so, the contract will have to be canceled and investors will have to return the property to the Hellenic Republic. Then the Greek government will must co-decide with the EU-Commission and by extension with EU’s permission that they will withdraw the former airport of Hellinicon from the portfolio of real estate assets of the Hellenic Republic Asset Development Fund (H.R.A.D.F.).
2. Then the Greek government will seek from a group of European banks and always under the EU’s umbrella advisory the lending (or issuance of a bond) of an amount of €8b by putting a pledge (mortgage) in these banks/mechanisms the total area of the former airport of Hellenicon.
The repayment of the loan will last for fifty (50) years with a fixed annual interest rate of 1,5% (since 1,320% is the 10yr Greek bond yield, on 18/10/2019). The repayment of this loan will be made on an annual basis in equal and in equivalent installments (the annual installment with the loan’s top features is €183264437,24).
Could the price of the mortgage loan be more than €8b without ignoring the financial difficulties of the member country which make its negotiating position difficult? Of course, it could.
Because the area of the former airport of Hellenicon is 5249873sqm (in the above size is not including the area of St. Cosmas and the Olympic Sailing Center) and it is two and a half times the size of the Principality of Monaco (1950000sqm), with the Monaco Principality being valued close to €12b and in addition the former airport of Hellenicon is in a capital of EU which shows the highest number of days in sunshine per year than the other EU capitals.
But €8b is a reasonable amount, given the economic conditions, which does not make the amount of borrowing excessive. It will be a success for the Greek government and the EU-Commission to obtain a mortgage loan amounting to €8b and could achieve this if and only if the reasons and purposes of the investment are understood and as they will be explained in detail in the following paragraphs.
Photo by the website of the Naval Group, www.naval-group.com
3. Before any agreement (signatures) of the above loan is made, the Greek government under the supervision and guidance of EU will must have proceeded to other types of agreements regarding the use and exploitation of the property.
Particularly, it should choose the long-term lease of the former airport of Hellenicon, with a long-term lease to have period (duration) equivalent to the repayment period (duration) of the mortgage loan, while they should address to a group of investors like a group of large European airlines and not only.
The former airport of Hellinicon should be leased for a long time and for its only use to be the international European center of repair for all types of civil aviation aircraft which will include all kinds of internationally planned aircraft repairs.
It will not be leased for use as a passenger airport or as a cargo transport airport. It will be an airport of any type of civil aircraft repairs (not an aircraft cemetery). The weather conditions prevailing at its former airport of Hellinicon are the best for an airport across the European continent.
The aircrafts that will make the specific use of the airport will not follow the frequent schedules of commercial transportation airports to cause a huge noise pollution problem in the surrounding airport-populated areas.
Greece is a member of the Eurozone and EU and needs, especially in its today economic situation, to produce high value-added products and services and in general it needs the creation of a heavy industry of high technology. The Greek government together with the EU Commission should put this request at the top level of the EU while requesting its help.
The EU should decide and announce this investment event at the highest level and designate the former airport of Hellinicon as the international European center for all types of civil aircraft repairs.
Only in this way will major European airlines and not only them be persuaded to move on to this endeavor. Any infrastructure and facilities at the former airport of Hellinicon that will have to be rebuilt or maintained will be financed solely by the National Strategic Reference Framework (N.S.R.F.) funds of which are attributable to Greece for the period (2014-2020).
4. The Greek state, in addition to avoiding a loss of property for (99) years from the Greek state Property Portfolio, will benefit in many ways by the following ways:
a) More than three thousand (3,000) direct full-time jobs (plus 10,000 indirect full-time jobs) will be created, with most of these jobs being university-level for Greek engineers and mechanics and not only.
b) The Polytechnics of Greece, in cooperation with the administration of the international European center of all types of repairs for civil aircraft at the former airport of Hellinicon, will create scholarships and will steadily absorb their graduates’ in practical and future work.
c) The unemployment among young people, particularly graduates, will begin to decline as the airlines that will participate in this venture as investors will rely on cheap workforce of higher education, a very important and advantageous parameter for the positive outcome of an investment decision.
d) Additionally, the airlines will benefit from the fact that the Greek engineers are, if not the best, among the best in the world. This is evidenced by the fact that Olympic Airways for decades was one of the safest in the world.
e) Engineers and senior administrative staff from European airlines and not only, will move permanently to Athens with their families by increasing demand in real estate and focusing on areas near the former airport of Hellinicon. It should not be forgotten that the areas around the former airport of Hellinicon were developed and widened after 1952 (the year of establishment of the former airport Hellinicon), due to the increasing demand for services to airport employees.
f) The state revenues which will originated from the direct and indirect taxes on such an investment will be steadily filled for decades the State funds while adding certain social security contributions to the current social security funds.
g) The creation of an international European center of all types of civil aircraft repairs next to Athens International Airport “Eleutherius Venizelos” will force all airlines of the world to reposition Athens once and for all on their international routes. This will have major benefits for the country’s heavy tourism industry, thus helping to further increase of the Greek GDP. The location is ideal and is located between three continents. Investors will certainly attract airlines from Europe, the Middle East and Africa for their services. Additionally, from all over the globe. This parameter increases the attractiveness of the investment.
h) The use of National Strategic Reference Framework (N.S.R.F.) funds for the reconstruction and maintenance of existing infrastructure at the former airport of Hellinicon will make it more attractive to invest in the prospective investors.
i) Small innovative high-tech companies and not only, will appear in the Greek territory to claim a sub-project for the construction and maintenance of aircraft electronic systems, further reducing unemployment for young graduates.
j) The cash flow that will result from this investment will continuously improve the current account balance of Greece.
k) The Greek state will be able to use differently the areas of Saint Cosmas (426011sqm) and the former Olympic Sailing Center (529792sqm) for the benefit of the residents of the surrounding areas as a counterpart to the use of the property. In addition, a green/forest area can be created in specific areas of the property and attributed to the inhabitants of the surrounding areas.
l) The way this investment will be funded and explained below will not burden the general’s government public debt and the central government budget at all during the whole repayment of the loan (fifty-50 years).
m) Investing in this size with the participation of large European airlines (investors) and not only, will once again strengthen Greece’s position in the Eurozone, while eliminating any doubts about its continued existence in it from the international capital markets (political benefits).
5. Also, the Greek state, the EU and the selected investors will co-finance the creation of an International European Research and Development Center (R&D) of Aeronautical and Mechanical of Civil Aviation with the participation of European Polytechnics and Universities and not only.
The headquarters of the Center for Aeronautics and Mechanical of Civil Aviation will of course be located at the former airport of Hellinicon. In turn, the Greek state will buy a European fighter aircraft and finance the construction of a factory for its future production in Greece.
This European fighter aircraft will be selected for purchase by the Hellenic Air Force with an open competition and will be its main fighter aircraft for the next decades (how will be financed this project by the Greek state, I will show it in later paragraphs).
The choice to build a fighter aircraft is preferable to the choice of civil aircraft with aim to meet the needs of the country, but also because in the second case it would operate competitively with other eurozone and EU members equally which already have civil aircraft manufacturing factories in their countries.
The Hellenic Aerospace Industry (H.A.I.) already cooperates with a large foreign group in the co-production of shaft parts of a transport aircraft, as well as in the assembling of sub-assemblies of combat aircraft of the Hellenic Air Force.
The H.A.I., in cooperation with the selected fighter aircraft company, will be responsible to produce the European fighter aircraft (5th-6th generations) in Greece, operating independently of the company’s existing productions. Such a decision will gauge the company’s turnover in the future by creating thousands of new full-time jobs in its production plants.
Moreover, the annual size of armaments expenditure will be further reduced to the central government budget, as the future acquisition of 100% production aircraft in Greece, solely for the needs of Greece, will be a more advantageous solution due to the low Labor costs and not only.
The H.A.I.’s financial position will be greatly improved and if the Greek state decides either to sell it or to give a majority shareholding together with its management to a strategic investor, the financial benefits will be maximized compared to today.
The choice of the location of the new European fighter aircraft manufacturing factories should be outside of Athens, in another city of Greece, to make the most benefits of the local economies of the periphery of the country.
6. Greece, as a member country of EU and the euro zone, is entitled and needs to participate in the research, design, improvement and production of high-tech services and products of the EU.
However, I believe that, given the economic conditions prevailing today, it is a unique opportunity for the country and with the help of the EU to enter this high-value technology sector by creating the basis for a future competitive high-tech industry, giving work for decades to thousands of Greek and European citizens. The Greek economy must not and cannot rely only on agricultural production and tourism, as Greek governments want to present over time.
7. The EU could construct at the specific point of the former Greek airport a state-of-the-art and powerful terrestrial radar that monitors the entire eastern Mediterranean area from the Black Sea to Syria and Iraq.
We must not forget that until the beginning of the decade of 1980 in this area it functioned a military base of the United States. This modern radar will be the first basis for electronic monitoring of the common European defence and always within the framework of NATO, which will be operated mainly by European military with the base commander being a Greek officer.
Photo by Capt. Jason Smith
https://en.wikipedia.org/wiki/Public_domain
The funding of the investment
The handling of the financial situation resulting from the above proposed use of the former airport of Hellinicon should be done in close cooperation and always under the supervision of EU- Commission.
Below I will show how the Greek government will not charge with the interest rates and the interest repayments of €8b collateral loan, i.e. the annual cash outflows of mortgage repayment funds will not burden the central government’s annual state budget and the general’s government debt.
- Mortgage loan (m.l.) with a capital of €8b and a repayment term of fifty (50) years with a fixed annual interest rate of 1,5%. The annual equivalent repayment installments, with the top features of the loan, are worth €183264437,24. These figures are used as an ideal example to understand the methodology without implying that it cannot be borrowed with other data-elements.
- The long-term lease (l.l.) of the former airport of Hellenicon should be on an annual payment basis and with a long-term lease equivalent to the duration of the mortgage loan, i.e. fifty (50) years. In addition, the long-term lease should yield an annual price equivalent to the annual repayment installment of the mortgage loan, i.e. (m.s.=l.l.=€183264437,24).
The annual payment of the long-term lease should be made on the same date or better on an earlier date from the date when the annual installment of the mortgage loan is paid. In other words,
-Duration of the Long-term lease = Duration of the Collateral loan
-Payment frequency of the long-term lease = Repayment frequency of the Collateral loan
-Payment date of the long-term lease ≤ Repayment-deposit date of the Collateral loan
-Annual value of the lease installment =Annual value of the loan repayment installment
The reader must understand that due to the publicity of the project and the internationalization of the former airport of Hellinicon utilization in this way, the details of the agreements cannot be concealed.
For this reason, the EU and the Greek government should in advance inform their fellow-conversers, creditors and investors that their purpose is not the profit nor the deficit from the annual inflows and outflows resulting from these double agreements.
In fact, with the above description of the financial way of using this property, with these double agreements we have a cash-flow matching for the duration of both the loan and the long-term lease.
With this financial strategy, the government budget of the Greek central government is not burdened on a yearly basis with the repayment of the mortgage loan throughout the loan repayment agreement (50 years).
- If the EU and the Greek government agree with prospective investors and creditors to exploit the former airport of Hellinicon in this way, then it can then come to an agreement so that investors deposit the annual equivalent of the long-term lease directly to banks or to financing mechanisms at the pre-agreed date and for repayment of the mortgage loan. Both the creditors and investors will know this venture in advance, so to be able to help and being helped.
The more airlines are from EU and more generally from all over the world, who will participate as investors in the leasing of their former airport of Hellinicon for the purpose and use described above, the smaller will be the annual amount with which each airline will contribute-it participates in the repayment of its annual repayment installment of the long-term lease.
For example, if all airlines participating as investors in the lease of the former airport of Hellinicon with the above use are in number, for example, twenty (20), then the annual leasehold will be €9,1m for each of them, if the participating companies are e.g. thirty-six (36), then the annual leasehold interest in the property will be €5m for each of them (for the sake of understanding the example, I assume an equivalent investment contribution to the investment scheme for all the participant investors respectively). It constitutes EU’s top priority to request participation in the group of investors for the lease, if not all, of at least most European airlines and not only.
- Receiving a €8bn capital from the Greek state due to the mortgage loan.
The funding of the modernization of the Greek Armed Forces
Given that with the installments of the support programs will have paid off the past due debts both of the hospitals and social security funds to pharmaceutical companies and pharmacies, then from the €8 billion of the mortgage loan we can have the following allocation,
- €2,5b will be used to initially finance the purchase of a certain number of aircraft by the selected European fighter (5th-6th generation) directly from the selected company (i.e. a number of 36 fighter aircraft with price €71m each aircraft) and then the Greek state will finance the construction of factory facilities for the 100% future production of the European fighter aircraft on a Greek ground and for specific aircraft numbers and for its own needs (more about the full way of financing on an annual basis by the Greek state I will refer to a later paragraph).
- €4b will be used by the Greek state in order to buy 4 European high-tech Frigates (i.e. Belh@rra) for the Greek navy.
- €1b will be used by the Greek state to buy long-range and high precision weapons against flying, terrestrial and surface targets equally, sensors and modern systems of command and control.
- €0,5b will be used by the Greek state to modernize existing weapon systems of the Greek Armed Forces.
The financing method for the creation of a state-of-of the art high-tech industry from the Greek State
Financing the construction of the plant and mainly the financing of the future production of the selected European fighter aircraft (5th-6th generation) in Greece, will take place over a decade. In addition to the initial direct purchase of a certain number of aircraft by the selected company, the manufacturer must allow the future production of the aircraft in Greece for the needs of Greece alone.
The facilities will include all the necessary and up-to-date technological infrastructures for the successful production of the fighter with the high levels of the selected company, including the creation of a Research and Development Center for Aeronautics Development (R&D) aiming at integrating with research programs the Polytechnics of EU and not only.
Funding the purchase of the first number of selected fighter aircraft from the base of the chosen producer company and the financing of setting up the factory for the future production of the European fighter aircraft on the Greek ground will come from the following resources:
- €0,5b of the €8b of the mortgage loan of the former airport of Hellenicon
- €400m annually for ten consecutive years, will be given to produce the European fighter in Greece and will be financed solely by the Public Investment Program (PIP) of the central government’s annual budget.
Closing this section, regarding the optimal way of exploiting an extraordinary element of the real estate of the Greek State (formerly airport of Hellinicon) that I presented in this analysis and without having to burden with one euro the state budget of the central and general government equally, while the Greek government receives a total of €8bns which will direct this amount next in the European defense industry, the reader can understand the magnitude of the terrible loss suffered the Greek state with the proposed particular privatization scheme which initially took place in this particular way (28/2/2014) and was almost completed on (8/6/2016) and always under the good cooperation of the Greek governments (2012-2019), the administration of the Hellenic Republic Asset Development Fund (H.R.A.D.F.) and the successful investors.
