Magazine article Washington Report on Middle East Affairs

Israeli Defense Contract Illustrates How U.S. Aid Harms American Industries

Magazine article Washington Report on Middle East Affairs

Israeli Defense Contract Illustrates How U.S. Aid Harms American Industries

Article excerpt

Israeli Defense Contract Illustrates How U.S. Aid Harms American Industries

Israeli and Turkish defense officials announced in August that they had concluded a long-awaited defense agreement for modernizing and upgrading Turkey's aging fleet of F-4E Phantom attack aircraft. The contract, with an estimated value of $650 million, has raised eyebrows not only in Ankara and Tel Aviv, but also in Washington, where more and more U.S. defense officials and private sector defense analysts are beginning publicly and privately to question continued aid to Israel.

At the center of the dispute is the way in which Israel was able to secure the contract. In a last-minute effort said to have involved the personal intervention of Israeli Prime Minister Binyamin Netanyahu, Israeli banks, with guaranteed financial backing from the Israeli government, offered Turkey $600 million in loan guarantees to help it make payments on the contract to Israel Aircraft Industries, the defense conglomerate based in Lod, Israel. These loan guarantees, which provide that the Israeli government will pay for the services if the government of Turkey fails to do so, are similar to the $10 billion in loan guarantees given to Israel by the United States beginning in 1992.

It is ironic that the government of Israel, which is the recipient of an enormous loan guarantee package ($2 billion per year for five years) and annual aid subsidy from the United States ($3.5 billion in Fiscal Year 1996), simultaneously is offering loan guarantees to enable its own military industry to bid successfully against U.S. defense companies. According to the U.S. Department of Commerce, at least one U.S. corporation also had bid for the modernization and upgrading contract. Nor is this an isolated incident. Israeli defense companies routinely bid against U.S. defense contractors for lucrative contracts, including several from America's armed forces, and many times the Israeli companies win. For example, Israel's Rafael and the American Lockheed Martin Corporation together bid successfully on a project to supply AGM-142 air-to-ground precision guided missiles to the U.S. Air Force. Israel Aircraft Industries d the U.S. firm McDonnell Douglas together obtained an estimated $425 million contract to upgrade U.S. Air Force T-38 trainer aircraft. In addition, Israel Aircraft Industries recently was awarded a contract to supply passenger troop seats for the U.S. Navy's CH-53D helicopters.

Another recent example of Israeli competition overseas with U.S. defense finns is a contract with the government of Poland to outfit its S- 1W Huzar attack helicopters with air-to-ground missiles. Competing for the contract was Rockwell international of Seal Beach, CA, maker of the Hellfire missile that demonstrated an accuracy rating approaching 90 percent during Operation Desert Storm, when some 4,000 were fired at Iraqi tanks and armored vehicles. The apparent winner for Poland's estimated $500 million contract is not Rockwell, however. It is a consortium of Elbit and Rafael, both Haifa-based Israeli defense companies. They offered an experimental short-range rocket called the NDT that exists only on paper, and despite substantial pressure on Poland from the United States, these two Israeli companies apparently have won the contract. …

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