Sources inform “Globes” that Israel Aircraft Industries' (IAI) profit from the Phalcon deal with India will be low. The defense establishment hopes for a gross profit of 10% at the most.
On Friday in New Delhi, Israel and India signed an agreement in principle for the sale of three Phalcon AWACS to the Indian Air Force for an estimated $1.25 billion. A commercial agreement has not yet been signed.
Friday's agreement was made possible by a compromise on several outstanding issues between Israel, India, and Russia. The prolonged negotiations prevented the agreement being signed during Prime Minister Ariel Sharon's visit to India last month, as Israel had originally planned.
Russia is involved in the deal because the Phalcon systems built by IAI-Elta Electronics Industries are installed on an Ilyushin Il-76 cargo plane platform.
SIBAT director-general Gen. (Ret.) Yosi Ben-Hanan signed the agreement with Indian Defense Secretary Ajay Prasad and Rosoboron Export executive Denisov Alexander of Russia.
Although this is the largest defense export deal in Israeli history, its profit will be modest. Previous IAI deals also generated low profits, partly due to the fierce competition against other Israeli companies such as Elbit Systems (Nasdaq: ESLT; TASE:ESLT), but mostly in order to avoid hidden unemployment at IAI.
IAI will not use the Il-76 planes that was intended to be the AWACS platform in the planned sale to China. That deal was cancelled under US pressure, forcing Israel to pay China a $350 million cancellation fine.
The US administration does not object to the Phalcon deal with India, and has even expressed lukewarm support for it, after recognizing that India is an ally in the war against Islamic terrorism.
IAI is the leader among the Israeli defense contractors that have successfully penetrated the Indian market, supplying unmanned aerial vehicles (UAVs), electronic warfare systems, missiles, munitions, and other equipment. Israel has become the second-largest arms exporter to India, after Russia, with $1.2-1.5 billion in exports in 2001.
India is also interested in procuring IAI's Arrow anti-ballistic missile system, but the US administration has not yet approved the sale, concerned that it could reignite India's arms race with Pakistan. Both countries are nuclear armed.
Pakistan has been highly critical of the Phalcon deal. On Saturday, Pakistan Foreign Minister Khursheed Mehmood Kasuri accused India of triggering an arms race in South Asia, adding, "Pakistan will take all possible measures to counter the threat posed by the advanced weapons acquired by India. A balance of power is essential for peace."
The Phalcon will able to detect Pakistani aircraft deep within its territory. India has already bought the Green Pine radar system, part of the Arrow system, that detects ballistic missile launches.
Published by Globes [online] - www.globes.co.il - on October 12, 2003