Defense Ministry wants only Israeli-made artillery

Athos howitzer Photo: Elbit Systems

Elbit Systems is competing against a partnership of IAI, IMI, and German manufacturers for the IDF's latest artillery procurement.

Concern about a weapons embargo or restrictions on Israel in a future war are among the reasons why the Ministry of Defense has decided to procure Israeli-made self-propelled artillery for the IDF.

It is believed that Ministry of Defense director general Maj. Gen. (res.) Udi Adam will make a decison in the coming weeks about the procedure for procurement of the new artillery. The first stage will consist of dozens of the new guns at an estimated cost of $800 million. A source involved in the matter said that procurement of the new artillery would eventually total over $1.5 billion over 15-20 years.

Elbit Systems Ltd. (Nasdaq: ESLT; TASE: ESLT) is offering the Ministry of Defense a self-propelled cannon made by its Soltam Systems subsidiary, while Israel Aerospace Industries Ltd. (IAI) (TASE: ARSP.B1), Israel Military Industries Ltd. (IMI), and German companies KMW and Rheinmetall have joined forces for this program, and are trying to persuade the Ministry of Defense to procure the artillery they are offering, which they say has proven capabilities.

The Israeli and foreign companies in this consortium have felt ill at ease in recent months, feeling that the Ministry of Defense is likely to select Elbit Systems, controlled by Michael (Mickey) Federmann, as a sole supplier of the new mobile artillery.

The Ministry of Defense Administration for the Development of Weapons and Technological Infrastructure is conducting the entire procedure under a veil of secrecy. Elbit's Systems' competitors are afraid that its artillery will be preferred, based on statements by senior Administration for the Development of Weapons and Technological Infrastructure sources that in addition to meeting the IDF's operational requirements, the IDF's next artillery system will have to be Israeli-made, so that the IDF will be completely independent in using it at time of war.

A senior Ministry of Defense source involved in planning the procurement of the future mobile artillery made it clear in a closed forum that the demand that the system be 100% Israeli-made is due to the need for future revisions of the system to adapt it to the army's operational requirements, and to intellectual property aspects. Production of the cannon in Israel can also avoid possible restrictions on its use in various battle theaters, including the types of shells that can be used. According to this source, the need for a completely Israeli-made system, which became clear as a result of the lessons from Operation Protective Edge in the summer of 2014, is an "important requirement."

In view of this requirement, some of the Israeli defense industries are increasingly concerned that the Ministry of Defense will prefer to declare Elbit Systems the sole supplier in the program, without publishing a tender soliciting bids from other companies in Israel and overseas. Elbit Systems is promising that production of the artillery will take place at the Soltam plant in Yokneam, which has extensive and unique experience with artillery.

The artillery being offered by Elbit Systems, based on a system that the company has already sold to six foreign armies, including the Indian army, is called ATMOS. Defense sources said that this system has already fired hundreds of thousands of shells in India. The version being offered to the IDF, however, which includes adjustments that meet the specifications set by the Ministry of Defense, has yet to fire a single shell.

This fact is being cited by some of the parties interested in the artillery plan, who are complaining that the Ministry of Defense is likely to prefer an untried and not-yet built artillery system to one that is already shooting and has proven capabilities, such as that being offered by German company KMW in the framework of its partnership with IAI, IMI, and Rheinmetall.

The Ministry of Defense has already sent people to inspect the Germany artillery system, called AGM. Ministry of Defense and IDF representatives previously visited KMW's facilities in Germany, and attended a demonstration of the proposed cannon's capabilities.

Sources inform "Globes" that in the framework of the companies' effort to promote the sale of the German cannon to Israel, IAI offered to conduct another demonstration, this time in Israel, and in cooperation with the authorities in Germany, authorized bringing the artillery system to Israel for this purpose. The Administration for the Development of Weapons and Technological Infrastructure turned this offer down, saying that there was no need for it, because it was already aware of the artillery's capabilities.

Other sources involved in the long process of the artillery deal say that the allegations about Elbit Systems' product being unready should be taken with a grain of salt. They explain that the new system will begin a series of trial firings this May in which all of the system's elements without exception will be included. These sources stated that even under an unfavorable scenario of gaps between the proposed cannon's capabilities and the requirements set by the IDF, it will take no more than 18 months to provide a high-quality, reliable, long-range, and precise product.

In any case, the two bids being brought to the Ministry of Defense involve 155-mm guns with a firing rate of six shells a minute and a 40-kilometer range. They will gradually replace some of the US M-109 artillery pieces that the IDF has been using for decades.

In the past, senior Elbit Systems executives asserted that their company's acquisition of Soltam in 2010 gave the company unique artillery production capabilities, enabling it to produce an Israeli-made gun with all of its parts made in Israel, thereby guaranteeing hundreds of new jobs in northern Israel.

IAI, IMI, and their two foreign partners are offering to assemble KMW's artillery unit in Israel, while components related to the system will be procured in the US with US military aid. The assembly site proposed by the group is IAI's RAMTA plant in Beer Sheva, which makes aircraft and ships, and will generate hundreds of jobs in southern Israel.

Sources close to the consortium led by IAI solve the dilemma by promising to procure components relating to the artillery system in advance as inventory for use in case of need. "Whether the gun is made by Elbit Systems or assembled by IAI, a large proportion of the components will be bought overseas. The Merkava tank is made in Israel, but its engine is made in both Germany and the US. In general, most of the weapons systems used by the IDF are not made in Israel," a source familiar with the details says.

In the coming days, Ministry of Defense Production and Procurement Directorate head Brigadier-General (res.) Shmuel Zucker is due to finish a six-year term in his position. He told "Globes" yesterday that he had pointed out that Israel was subject to threats of a wartime weapons embargo. "Even when relations are good and there is absolute sympathy between countries, we mustn't forget that at times of conflict, there are different situations that expose us to an embargo. We have already had such cases, some of them public knowledge and some unacknowledged, in which heads of state blocked shipments," he told "Globes" early this week.

The Administration for the Development of Weapons and Technological Infrastructure will recommend

According to Ministry of Defense figures, 40% of its deals are with a sole supplier, and all the rest are in competitive procedures, such as a tender. Concerning agreements by the Ministry of Defense with companies receiving the status of sole suppliers at the expense of competition that can lead to lower prices, "TheMarker" once quoted Zucker as saying, "I'm in favor of competition, but it's not so simple: there is usually some tension between me and the IDF group asking for the weapon system, which is used to working with a specific concern."

The Ministry of Defense did not answer questions from "Globes" about the procedure taking place in the Administration for the Development of Weapons and Technological Infrastructure in preparation for the decision about the structure of the procurement program for the IDF's future self-propelled artillery system. The Ministry of Defense said that the Administration for the Development of Weapons and Technological Infrastructure would submit its recommendations to the director general, who would consider the matter.

Meanwhile, a former Ministry of Defense official told "Globes," "In this case, it is right to hold an open tender procedure. Production in Israel because of concern about a future embargo? If someone imposes a weapons embargo against us, self-propelled artillery will be the least of our problems."

Published by Globes [online], Israel Business News - www.globes-online.com - on January 31, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

Athos howitzer Photo: Elbit Systems
Athos howitzer Photo: Elbit Systems
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