Mutual recriminations are affecting completion of the Heron unmanned aerial vehicle (UAV) deal between Israel and Turkey. The first two Herons, built by Israel Aerospace Industries Ltd. (IAI) (TASE: ARSP.B1) and Elbit Systems Ltd. (Nasdaq: ESLT; TASE: ESLT), were delivered to Turkey this week, after the companies settled some bitter disputes with Turkey's Undersecretariat for Defense Industries. Eight more Herons are due for delivery shortly, but the Turks are now settling accounts with Israel, accusing IAI and Elbit Systems of delays and causing other difficulties. Israeli sources blame Ankara for the problems.
According to "Defense News", the problematic deal has poisoned future collaboration between Israel and Turkey's defense industries.
Military analysts in Turkey said that the Heron deal angered Undersecretariat for Defense Industries officials and Turkish Army officers. The analysts doubt that they will agree to sign any new large contracts with Israeli suppliers.
Undersecretariat for Defense Industries director Murad Bayar told "Defense News", "We are expecting their deliveries in the weeks ahead. And this closes the deal from our point of view." He added, however, that despite the delayed handshake between the parties, the deal left a bad taste in the mouth, and that Turkey had learned the lesson.
For its part, Israel is reviewing its business strategy with Turkey. Israel claims that political tensions with Turkey, Turkey's demands to increase work to be delivered to Turkish companies, and Turkey's tendency to frequently change the technical specifications have affected the feasibility calculations of arms deals with it.
A Ministry of Defense official told "Defense News" that Israel's defense sales to Turkey have fallen from $1 billion a year in the early 1990s to $100 million in each of the past three years.
"Defense News" says that this is not the first time that Turkey has complained about its procurement agreements with Israel. When the two countries had a strategic partnership in the mid-1990s, Turkey found it difficult to obtain military equipment from the US and Europe, who frequently imposed political restrictions on arms sales to the country. Ankara therefore turned to Israel, which became the largest supplier to the Turkish military.
However, several large deals with Israeli companies, including upgrades of Air Force jets and army tanks, resulted in complaints by Turkey about expensive solutions to problems that emerged during the work, and about delayed deliveries. Turkey is also finding it much easier to procure arms from Western sources.
At the same time, many sources in Israel doubt the wisdom of collaborating with Turkey on advanced technologies, when Ankara is improving its relations with Iran and Syria.
An Israeli source told "Globes", "There are many voices in the defense establishment, not in the defense industries, asking loudly whether it is still possible to consider Turkey as a strategic ally of Israel."
Published by Globes [online], Israel business news - www.globes-online.com - on February 24, 2010
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