Israel halts defense system sale to Turkey

Elbit Systems and IAI have been instructed to cancel their $140 million contract with the Turkish Air Force.

Relations between Israel and Turkey have deteriorated further. The Ministry of Defense has ordered Israel Aerospace Industries (IAI) and Elbit Systems Ltd. (Nasdaq: ESLT; TASE: ESLT) to cancel a contract with the Turkish Air Force for the supply of airborne intelligence gathering systems. The contract was signed jointly with Elbit unit El-Op and IAI unit Elta in late 2009.

Elbit Systems refused to comment today. Defense sources familiar with the matter said that the Ministry of Defense had given the grounds of the instruction to the two companies as "diplomatic considerations". The companies were told that the export licenses necessary for continued performance of the contract will not be renewed.

In the past few days, the companies approached Ministry of Defense director-general Udi Shani and demanded compensation for the damage they will be caused by the decision not to renew the export licenses. Sources informed "Globes" today that Shani is in talks with the representatives of IAI and Elbit Systems, attempting to reach an arrangement that will satisfy those involved. Such an arrangement has not yet been accieved, and both companies fear substantial damage to their financial results.

Elbit's share of the agreement with the Turks is $87 million and IAI's $54 million. The systems were to have been supplied to the Turkish Air Force over four years. Defense sources said that the systems in question were among the most advanced of their kind.

Before the crisis in Israeli-Turkish relations erupted, there was close military cooperation between the two countries and substantial arms sales. Among other deals, IAI sold the Turks UAVS, Elbit Systems sold electronic systems, and IMI had a large project to upgrade Turkish tanks.

A defense source commented, "Relations between the two countries are important and Israel has done a great deal to improve them. All the same, Israel has responsibility for every defense product that obtains an export license, and the decisions on this matter relate one specific system, and not to Israeli-Turkish relations in general."

The Ministry of Defense said today in response, "In general, the Ministry of Defense is not wont to detail the considerations and the information that form the basis of defense exports policy decisions. The Ministry of Defense assesses the situation constantly with all the relevant parties, and decisions are arrived at in a professional manner, and in accordance with diplomatic and political considerations."

Published by Globes [online], Israel business news - - on December 22, 2011

© Copyright of Globes Publisher Itonut (1983) Ltd. 2011

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