For Israel's defense industries, it's been a very bad year
SPECIAL TO WORLD TRIBUNE.COM
Thursday, August 31, 2000
TEL AVIV - U.S. pressure is only one reason Israel's defense industry is having a very bad year.
In the latest blow, an Israel Airfcraft Industries and Rafael consortium lost out on a $700 million
contract to France's Matra Bae for the development and production of an
advanced anti-ship missile for an unnamed Asian country.
The failure to win the Asian deal brings IAI's total losses over the
past year to $4 billion, Middle East Newsline reports.
The cancelled or frozen international defense contracts include last
month's cancellation of a $1 billion sale of four Phalcon spy planes to
China after heavy pressure from the United States.
Meanwhile, the United States and Israel are close to an agreement on
Israeli arms exports controls and technology transfers.
The agreement stipulates that Israel must consult with the U.S before
concluding any defense deals with Russia, India, China and Pakistan.
The U.S. originally stipulated 25 countries that Israel would not be
permitted to trade with without prior approval but Washington has modified
its demands.
Defense Ministry officials said the failure to win the contract was more
than just a monetary blow to state-owned IAI and Rafael. It was also a
strategic blow to Israel as the Asian contractor had offered to finance the
entire research and development of the system, Israel's daily Ha'aretz
reported Wednesday. Moreover, the Israel Defense Forces had planned to
procure the system and put it into service.
IAI and Rafael have previously cooperated to develop the Gabriel
anti-ship missile. In the current deal, IAI was designated as the prime
contractor with expected revenues of $450 million. Rafael was expected to
net $250 million.
Other canceled or frozen deals include a $1.5 billion contract for Turkey's attack helicopters in conjunction with
Russia's Kamov company, the Ofek spy satellite to Turkey and a $1 billion
sale of the AWACS aircraft to Australia.
Deputy Defense Minister Ephraim Sneh told Ha'aretz that he attributed
the loss of the deals to Russian President Vladimir Putin's efforts to
revive the defense industry, especially upgrades of military equipment.
During the 1990s Israeli defense industries won upgrade contracts for
Soviet made weapons platforms, including the M-21 and M-29 fighter aircraft.
Russia is now winning these upgrade contracts. Sneh said that Russia has
also warned countries wanting to upgrade MiGs that Russia will not authorize
Israeli upgrade deals without prior permission.
Recent mergers of the European and U.S. defense companies have also
captured some of Israel's former market.
By the end of the year, Israel's defense industrial exports will reach
$2.15 billion, practically the same as last year.
Israel continues to raise concerns over U.S. arm sales to Arab
countries, including the sale of 80 F-16 fighter jets to the United Arab
Emirates. But an agreement on arms exports controls between Israel and the
U.S. is unlikely to impose limitations on U.S. exports to countries that
don't recognize the State of Israel, Israeli sources said.
Washington is also demanding that Israel participate in a joint
technology committee with the U.S., intended to investigate complaints that
Israel illegally transferred U.S.-manufactured components to third
countries.
Israel recently bowed to U.S. pressure and cancelled a $250 million to
sell the Phalcon airborne early warning system to China. China has since
threatened to sue Israel for $500 million in damages and has forbidden
Israel to sell the aircraft, demanding that it be delivered to Beijing.
Meanwhile India is also interested in purchasing the Phalcon but
military officials in New Dehli have expressed concern over Israel's ability
to deliver on the deal.
The United States and Israel have reportedly reached an agrement that
the U.S. will compensate Israel Aircraft Industries for the cancellation of
the Phalcon sale but no details were available as to the extent of the
compensation. Senior defense ministry sources said that the compensation
would be included in a special strategic aid package to Israel, Ha'aretz
said Monday.
Defense Ministry Director-General Amos Yaron was scheduled to meet with
U.S. officials Wednesday to discuss the arms exports control agreement and
Israel's request for U.S. funding for a multi-million dollar project to
develop drones capable of attacking missile launchers and ground-to-ground
missiles.
On Monday, Israeli Prime Minister Ehud Barak made a one-day visit to
Ankara to try and improve Israel's chances of winning several Turkish
defense contracts.
Israel is currently bidding for contracts worth several hundred million
dollars, including the upgrade of 180 U.S.-manufactured MIAI Abrams main
battle tanks, unmanned aerial vehicles worth $300 million and anti-tank
missiles.
Turkey also wants to acquire the Arrow anti-ballistic missile system
which is a joint Israeli-U.S. project. Final approval for the transfer of
technology depends on the U.S.
Thursday, August 31, 2000
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