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### Viewing cable 08REYKJAVIK127, CLOSING OUT THE ICELAND AIR DEFENSE SYSTEM TRANSFER

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
08REYKJAVIK127 | 2008-07-01 12:12 | 2011-01-13 05:05 | CONFIDENTIAL | Embassy Reykjavik

`

    VZCZCXYZ0000
    OO RUEHWEB

    DE RUEHRK #0127/01 1831251
    ZNY CCCCC ZZH
    O 011251Z JUL 08
    FM AMEMBASSY REYKJAVIK
    TO RUEHC/SECSTATE WASHDC IMMEDIATE 3714
    INFO RUEKJCS/SECDEF WASHDC IMMEDIATE
    RUEAHQA/HQ USAF WASHINGTON DC IMMEDIATE
    RHMFISS/HQ USEUCOM VAIHINGEN GE IMMEDIATE 0074
    RHMFISS/HQ USAFE RAMSTEIN AB GE IMMEDIATE
    RUEHNY/AMEMBASSY OSLO IMMEDIATE 0315
    RUEHNO/US MISSION NATO BRUSSELS IMMEDIATE
    RUEHZG/NATO EU COLLECTIVE

` `

    C O N F I D E N T I A L REYKJAVIK 000127

    SIPDIS

    DEPT FOR EUR A/S FRIED, A/PDAS GARBER, EUR/NB, EUR/RPM, PM/RSAT
    OSD-P FOR DASD FATA, T. HARVEY, A. WINTERNITZ
    HQ USAF FOR SAF/IA
    USEUCOM FOR J-5
    OSLO FOR ODC, DATT

    FROM AMBASSADOR VAN VOORST

    E.O. 12958: DECL: 06/30/2018
    TAGS: MASS PREL MARR NATO PGOV IC
    SUBJECT: CLOSING OUT THE ICELAND AIR DEFENSE SYSTEM TRANSFER

    Refs: A) 07 Reykjavik 99
      B) Memorandum from USD Edelman to Secretary of the Air Force, 08
    May 2007
      C) 07 Reykjavik 192
      D) 07 Reykjavik 322
      E) State 63686

    Classified By: Amb. Carol van Voorst for reasons 1.4 (b) and (d).

    ¶1.  (C) Summary:  Twenty-one months after the closure of U.S. Naval
    Air Station Keflavik, one major issue remains unresolved:  the
    ultimate disposition of the residual parts and equipment associated
    with the Iceland Air Defense System (IADS).  The Government of
    Iceland has made the IADS radar system its key contribution to the
    defense of their country and NATO, and desperately wants to complete
    this transfer as soon as possible.  Although the U.S. Air Force has
    put together a significant effort to develop a Foreign Military Sales
    (FMS) case to allow the transfer, Iceland is still waiting to receive
    an authoritative Letter of Offer and Acceptance (LOA).  Post greatly
    appreciates all efforts but is concerned that any further delay in
    providing an LOA will materially undermine our bilateral defense
    relationship.  We look forward to the promulgation of a final LOA no
    later than July 31.  End Summary.

    Background
    ----------

    ¶2.  (SBU) The NATO-owned Iceland Air Defense System (IADS) is
    composed of four radar sites at Iceland's geographic "corners" linked
    to a control and reporting center and integrated software support
    facility at the former U.S. Naval Air Station Keflavik (NASKEF) site.
     The final disposition of U.S.-owned IADS equipment (primarily
    "supply point items" or spare parts) was left unresolved during the
    2006 NASKEF closure negotiations, though a date of August 16, 2007
    was set for the handover of the system to the Government of Iceland.
    These items, a large number of which are unique to the IADS system
    and cannot be used elsewhere, are essential to the continued
    operation of the radars.

    ¶3.  (C) Discussions regarding the sale or lease of this equipment
    through a Foreign Military Sales (FMS) case took place throughout
    2007 (Refs A and C).  At both working levels and at the Under
    Secretary level, the Government of Iceland made it clear that IADS
    transfer is of key importance and that an operational and reliable
    system is Iceland's single largest contribution to its own defense
    and its biggest contribution to NATO.

    ¶4.  (SBU) In an 8 May 2007 memorandum, Under Secretary of Defense for
    Policy Edelman requested that USAF inventory U.S.-owned equipment
    vital to continued IADS operation, and develop options for its
    transfer to Iceland "minimiz[ing] the cost of such transfers to both
    Iceland and the Air Force" (Ref B).  Despite serious efforts by OSD,
    USAF International Affairs, USAF Europe, EUCOM, and others, USAF was
    not able to present an FMS case to Iceland for consideration until
    October 2007.  The price requested was approximately $5.8 million.
    Meanwhile, a contractual arrangement has allowed Iceland necessary
    access to these items despite the fact that the August 2007 IADS
    transfer date has passed.

    Repricing
    ---------

    ¶5.  (SBU) Iceland's Ministry for Foreign Affairs (MFA) raised
    concerns in November 2007 that not all items in the case were
    actually U.S.-owned and that the price for some items appeared to be
    excessive given their age and condition.  These concerns generated a
    reevaluation of the ownership of all the items as well as a review of
    whether the price for this materiel was statutorily allowable.
    Initial indications to the Government of Iceland were that some items
    were in fact NATO-owned and that the price of the FMS case would most
    likely decrease as a result.  Nevertheless, upon completion of the
    review, DOD informed the Icelandic Embassy in Washington in February
    2008 that the price of the FMS case had increased by approximately $2
    million to $7.9 million, pending final preparation of a new LOA.
    (Note: The entire 2008 defense budget for Iceland is approximately
    $20 million.  End note.)

    ¶6.  (SBU) Though our Icelandic counterparts have been gravely
    disappointed at the lack of progress in this matter, they have been
    patient, noting that they would likely agree to purchase at least
    some portion of the items in the FMS case.  However, through the
    spring and summer, the Icelandic Government has become increasingly
    anxious, and representatives have raised the issue at almost every
    opportunity (ref E).

    ¶7.  (C) On 9 June, the Icelandic Embassy in Washington was informed
    that the revised LOA would be delayed again due to concerns over
    proper pricing.  Post understands there is some possibility that this
    new review may actually result in a price reduction.  MFA reps have
    informed us that an LOA, whatever the terms, is long overdue.  The
    lack of a formal offer undermines their ability to appraise the offer
    and make necessary decisions.  Additionally, the MFA has asked
    whether they should regard the delays and revisions as a
    demonstration of the level of the USG's commitment to the broader
    defense relationship.

    Comment:  The Need for Conclusion
    ---------------------------------

    ¶8.  (SBU) From the Prime Minister and Foreign Minister down, every
    level of the Icelandic Government has made it clear that IADS is the
    linchpin of Iceland's security policy.  Iceland sees IADS as its
    major contribution to facilitate the security operations of greatest
    visible importance; i.e., NATO air policing.  Although positive about
    the U.S.-Iceland defense and security relationship overall, the MFA
    and new Iceland Defense Agency nonetheless are frustrated with the
    dragged-out IADS FMS process.

    ¶9.  (C) The longer this process takes, the more we add credence to
    the perception that we do not take this NATO Ally's concerns
    seriously.  The considerable efforts of all of us at EUCOM, OSD,
    USAF, State, here in Reykjavik, and elsewhere to build a new defense
    relationship after the closure of NASKEF are at risk.  An impression
    of shabby treatment is taking hold -- an impression that we cannot
    allow to remain if we wish Iceland to contribute to NATO in the North
    Atlantic neighborhood, Afghanistan, and elsewhere.

    ¶10.  (SBU) I look forward to the promulgation of the revised LOA and
    am hopeful that this matter can be wrapped up by no later than 31
    July 2008.  Embassy Reykjavik stands ready to assist in any way
    possible.

    VAN VOORST

`