Israel will pay China $350 million compensation for the cancellation of the Phalcon early-warning aircraft deal. The compensation is 45% more than the $240 million deal.
China originally demanded $1.2 billion, on the grounds that in addition to the economic damage caused by the deal’s cancellation, there was military and operational damage. The cancellation came after China had already paid a $200 million advance to the Phalcon’s manufacturer, Elta Electronics Industries, a subsidiary of Israel Aircraft Industries (IAI).
Ministry of Defense director general Amos Yaron, who has been handling the compensation talks with the Chinese for several months, yesterday imposed a blackout on the their results. IAI’s management and the Prime Minister’s Bureau declined to comment.
Knesset Foreign Affairs and Defense Committee chairman MK David Magen (Center Party) told “Globes” that the Strategic Affairs subcommittee’s inquiry into the Phalcon affair would be concluded by the end of March.
“We are examining all aspects of the deal,” said Magen, “and investigating how the deal developed, whether the necessary permits were obtained and what were the reasons the US demanded the deal be cancelled. It is important to learn lessons.”
Magen added, “If the crisis is indeed over, then it will be a real gain. Israel’s relations with China are a mutual interest. China is a great power, and a conclusion to the affair will help reestablish military relations.”
The compromise will probably enable IAI to sell the Chinese Phalcon to another customer. The Phalcon is a Russian Ilyushin Il-76 platform with Elta radar systems. The plane is currently at the IAI installation at Ben Gurion Airport. China opposed delivering the plane to India, which recently demanded assurances from Israel against a possible cancellation of the emerging deal to buy the plane.
Published by Israel's Business Arena on 13 February 2002