According to the "Yediot Ahronot" daily, Israeli defense sources assess that China is preparing a huge claim for damages against Israel for cancellation of the sale of Phalcon early warning aircraft for the Chinese Air Force. It is estimated that the amount of the claim is liable to reach up to $500 million.
Israel Aircraft Industries' (IAI) legal counsel commented that IAI has not yet received any request from China for compensation for cancellation of the deal.
This assessment is based on the fact that the Chinese government has already paid Israel $250 million on account of the deal. Israeli sources estimate that the Chinese will add to this sum the costs of preparing infrastructure for receiving the aircraft, ground stations, hangars, equipment for testing the various systems, etc.
Defense sources say that the Chinese have not yet submitted any claim, but that they are incensed, and that there are signs that they are preparing such a claim. The sources said that it is unclear whether the claim will be filed against IAI, which signed the agreement with China, or against the Israeli government. "In any event, it is expected that the State will have to pay the amount, since Prime Minister Barak made the decision to cancel the deal," the sources said.
Published by Israel's Business Arena on August 6, 2000