Angry Israeli defense contractors see Boeing behind Phalcon disaster

TEL AVIV — Let's call him Avi.

The head of a medium-sized Israeli defense contractor, Avi acknowledges mixed feelings to the news that Israel cancelled the sale of the Phalcon airborne early-warning system to China. One one hand, the cancellation freed up contracts with the United States his company has been bidding for.

On the other hand, Avi is certain the cancellation will have long-term effects.

Avi and other leading defense executives dismiss Washington's assertions that the Phalcon could endanger U.S. troops in the Taiwan straits. As they see it, U.S. defense contractors — particularly Boeing — have launched a full court press to stop Israeli firms from winning military projects in Asia.

For Boeing, the focus is to stop the Phalcon and preserve the U.S. company's share of the airborne early-warning market in Asia. Defense industry sources said Japan, Singapore and South Korea have expressed interest in the Phalcon, which is cheaper than Boeing's airborne warning and control aircraft. [AWAC].

The Boeing E-3 Sentry AWACS directed thousands of allied aircraft during the 1991 Gulf War and in last year's NATO offensive against Yugoslavia. Boeing has succeeded in selling the system to Saudi Arabia and NATO.

"We are talking about a very powerful lobby by Boeing in Congress," said Avraham Bar-David, president of Tamuz International Consulting. "Boeing simply doesn't want us to sell to Asia."

Defense executives said that, if anything, Washington's success in cancelling the Phalcon deal has led to more pressure on Israel and its traditional clients. Turkey is now under great pressure to cancel an M-60 upgrade contract awarded to Israel Military Industries as well as a satellite contract awarded to Israel Aircraft Industries. IAI's Elta Electronic Industries Ltd. is maker of the Phalcon reported net profit at $1.4 million for the first six months of 2000, an increase of 123 percent over the same period last year.

Another target by Boeing and other leading U.S. contractors will be other projects being sought by Israel in China. In some of these projects, Israeli contractors have teamed up with their Russian counterpart.

These include plans to upgrade China's MiG fleet and the F-10 fighter project. The General Accounting Office, Congress's watchdog, said in a 1998 report that Israel was then developing the F-10 by providing technology from the aborted Lavi fighter-jet project.

The Federation of American Scientists, a prominent Washington-based group, said the F-10 radar and fire-control system is the IAI ELM-2021 system. The system can simultaneously track six air targets and lock onto the four most threatening targets for destruction.

But industry sources and Israeli officials said Boeing needn't worry. They said the F-10 will not likely be manufactured because it is based on 1980s technology. They add that at this point Beijing is not interested in additional weapons deals with Israel.

"The Chinese have been burned badly and they are angry," an official said. "Right now, nobody from our side is talking to them."

At the same time, Israeli defense industry sources said they expect China to sue Israel for at least $500 million for breach of contract. IAI executives said they have not received any claims from Beijing in connection with the cancellation of the Phalcon deal.

The industry sources said Boeing and other U.S. contractors will urge Congress to press Israel to disclose other arms deals with China. Again, the sources said, Washington will claim national security concerns.

Mark Mandeles, a leading Washington defense consultant, said the U.S. pressure on Israel will continue as long as the Jewish state continues to receive massive amounts of military aid. He said Congress will follow the agenda of the U.S. defense industries if tension continues with such countries as China and India.

"The ability of the contractors to dictate policy is high," Mandeles, of the J de Bloch Group, said. They have lots of contacts in Congress."

Ilan Berman, a Washington strategist who completed a study on Israeli-U.S. strategic relations for the Jewish Institute for National Security Affairs, goes further. He sees the Phalcon cancellation as being a watershed in U.S.-Israeli strategic relations.

As Berman sees it, if Congress could pressure Israel to cancel the Phalcon deal, it will try the same tactics in the future.

"In the long run, Israel's capitulation on the Phalcon sale is bound to adversely affect strategic ties," Berman said. "This is an important indicator of how dependent Israel has become on American strategic offsets for peace and other peace process incentives over the past several years. Given this dependence, Congress may get the message that it can intensify efforts to curtail future Israeli foreign military sales. This kind of active, interventionist agenda is likely to inflict lasting damage on the U.S.-Israel strategic relationship by reducing Israel's military capabilities and isolating it from other countries with which it has military contacts."