Greece is to postpone its buy of up to 90 Eurofighter Typhoon fighters as it struggles to fund the 2004 Olympic Games, among other financial demands.
Greece became the first Eurofighter export customer in 1998 with an order for 60 aircraft and 30 options valued at Dr1.7 trillion ($4.5 billion). Deliveries had been due to start in 2005.
The decision followed a Greek Government policy committee meeting last week during which funding policy for the next three years was set. Social programmes, development and the Olympics were given higher priority than defence spending.
Greek prime minister Costas Simitis says: "We have decided to postpone some of the arms programme, such as a fourth-generation fighter, until after 2004."
The announcement comes at the eleventh hour; the government had been expected to sign the deal by early next week. Negotiations concluded last year, and Eurofighter and the Greek Government initialled a contract in February.
Eurofighter says it has been informed of the decision, accepts the Greek Government's position and will continue to "stay engaged with the customer".
The Greek Government has reportedly stressed that the deal has not been scrapped. Delaying the programme three years could, however, present an opportunity to rebid the competition.
Local industry has already benefited from industrial offset programmes linked to the Eurofighter deal while Hellenic Aerospace Industries was to have a final assembly line. Workshare was increased during the negotiations by 10% to 30%.
Greece is known to have been offered a favourable deal, with the deposit reduced from 70% to 50% of the contract value, and paid by installments up to 2003.