L-3 Communications Integrated Systems (L-3/IS) has unexpectedly withdrawn from a joint venture with Israel Aircraft Industries Ltd. (IAI) subsidiary Elta Systems Group. The venture was set up to compete against Boeing (NYSE:BA) in a $1.2 billion South Korean tender for AWACS plans. Senior IAI sources confirmed the report to “Globes”.
“Defense News”, which first reported the story, said L-3/IS withdrew from the venture on the same day that the South Korean government published the specifications for delivery of the planes. Under the agreement with Elta, signed a year ago, L-3/IS was to supply the communications equipment for the planes, and integrate it with other systems.
L-3/IS specializes in the manufacture of military communications and electronic warfare systems. The announcement stunned Elta and IAI, as well as Israel’s defense contractors and the Ministry of Defense.
Opinion in Israel is divided over the reason for L-3/IS’s announcement. Some senior defense industry executives believe that Boeing pressured L-3 Communications (NYSE:LLL), L-3/IS’s parent company, to severe ties with Elta. Other defense industry sources and some MKs are convinced that the announcement is due to the Pentagon’s cool relations with Israel, following accusations that Israel was upgrading IAI Harpy unmanned aerial vehicles (UAVs) previously sold to China, without notifying Washington.
Senior defense industry executives told “Globes” that were convinced that L-3/IS withdrew from the venture was due to a low blow by Boeing, and was unrelated to the dispute between the Pentagon and Israel’s Ministry of Defense over Israeli arms sales to China. The sources said Boeing was a very powerful competitor, and viewed AWACS as its own private preserve. They said Boeing was prepared to fight tooth and claw to ensure a victory in the South Korean AWACS tender.
L-3 has extensive business relations with Boeing. Israeli sources believe that a hint by Boeing to L-3 that its subsidiary L-3/IS’s cooperation with Elta was liable to damage L-3’s relations with Boeing was enough for the latter to withdraw from the joint venture with Elta. It cannot be ruled out that Boeing also hinted to L-3 that the Pentagon’s chilly relations with Israel’s Ministry of Defense might also adversely affect L-3.
However, other Israeli defense industry sources, some of whom “Defense News” quoted, see the Pentagon’s fingerprints in L-3/IS’s announcement. They said Israeli defense companies continue to face problems in their relations with US defense companies, apparently at the instigation of the US Department of Defense.
L-3 spokesman Lance Martin declined to comment.
Whatever the case, Elta will probably not remain stuck in the mire for a long time. Sources inform ''Globes'' that other US companies are interested in the South Korean AWACS project, and that negotiations with one company were in the advanced stage. Elta will likely still face off against Boeing in the South Korean tender.
Despite the ostensible signs of an ongoing official chill toward Israel at the Pentagon, MKs, and officials at the Ministries of Defense and Industry, Trade and Labor told “Defense News” that Israel was instituting reforms in its laws and regulations covering arms exports, in accordance with an MOU signed with the US.
Published by Globes [online], Israel business news - www.globes.co.il - on September 14, 2005