Last week Israel's Ministry of Defense signed a deal with Boeing to procure 25 F-15IA fighter jets for $5.2 billion. The Ministry of Defense said it would be paid for out of US military aid, and the agreement includes an option to buy an additional 25 of the jets.
Since the start of the war, Israel's Ministry of Defense has signed deals worth $40 billion. So last week's agreement raises certain questions. First and foremost will US military aid to Israel stretch to the latest deal and to what extent will Israeli companies be involved in the Boeing fighter jet project. The Ministry of Defense declined to comment when asked by "Globes."
The US currently provides Israel with $3.8 billion in military aid - $3.3 billion for procurement and $500 million for joint air defense ventures. There are also other grants that the US transfers to Israel each year. According to the "Costs of the War" report published by Brown University's Watson Institute for International and Public Affairs, during the first year of the war, the US provided Israel with $17.9 billion in military aid, although it is unclear whether this in part of the annual military aid or other grants that have been approved or might be approved in the future.
According to the Ministry of Defense, delivery of the F-15IA fighter jets will not begin until 2031 at a rate of 4-6 aircraft per year, with deliveries continuing until 2035.in the most optimistic scenario. Therefore, the issue of payment also raises question marks as to the nature of the deal itself, mainly because it is a very large investment, which exceeds the total annual aid that the US gives to Israel by $1.4 billion. On the other hand, it is possible that the payment will be made in several installments.
"Israel is an exceptional country in that US defense aid allows it to agree long-term contracts over time and according to milestones," says Brig. Gen. (res) Moti Besser, who served as financial advisor to the Chief of Staff and head of the Ministry of Defense's budget division in 1997-2000. "Other countries must pay for defense products, and only then have them supplied. Israel has a different model that has been built over years, and allows for funding to be deployed over a long period of time and to take into account existing and future sources."
Besser explains that once a year, the Ministry of Defense budget division surveys commitments, among other things because the Americans allow deals to spread over 7-9 years. He explains, "When you do a deal for $5.2 billion and spread it over the years that does not does not lock up the aid that has accumulated, but rather it is part of a multi-year flow that makes it possible to make additional procurements.
What will be the price for future F-15IA procurements?
The agreement between Israel and Boeing includes an option to purchase an additional squadron. The amount behind the clause was not published, but it stems from US Secretary of State Anthony Blinken's decision on August 13 to approve a possible sale for a total of about $18 billion. The amount did not only include the possible sale of 50 aircraft, but a long list of other arms.
"In such agreements, the size of the deal has an advantage. In the industry, as soon as you place a larger order - the price per unit is lower," explains Besser, who was involved in the deal to purchase the F-16I, which entered service in 2004. "In that deal, we procured 100 planes, and as part of the discount, they provided us with several additional units." In the case of the F15IA, like any fighter plane, there is no "list price". However, a perspective can be obtained from parallel deals and models.
The price of Boeing's advanced F-15EX Eagle II, for example, which made its maiden flight about three years ago, is about $90-97 million dollars per unit - this is what the spokeswoman for the US Air Force confirmed to the "Breaking Defense" website in October last year. This is a relatively high amount, when for the sake of comparison the price of an F-35 aircraft operated by the Israeli Air Force is about $80 million dollars.
Will Israeli companies participate in the project?
One of the tools for expanding geopolitical influence through the defense industries is the integration of foreign companies into existing projects. "The new F15IA aircraft will be equipped with the most advanced weapons systems, including a combination of groundbreaking Israeli systems, alongside upgrades that will allow for longer flight ranges, increased payload capacity and improved performance," the Ministry of Defense said. However, it is not certain that those groundbreaking Israeli systems will make up a significant proportion of the final product.
"In the submarine deal, Germany built the body and Israel built the combat suite," Besser points out. "Such processes are carried out in joint production or Israeli production only, when systems are implemented that provide an advantage. Israel's models are called I, because the model is not from the production line - it is unique."
What about future memorandums of understanding (MoUs)
The current memorandum of understanding (MoU) is the third MoU between Israel and the US. The model began when Prime Minister Benjamin Netanyahu signed the first MoU with former President Bill Clinton in 1998, for a total of $26.7 billion in aid between 1999 and 2008. Past experience shows that the countries sign a new MoU several years, before it comes into force.
Therefore, expect an intriguing period of negotiations that will probably spill over into the term of President-elect Donald Trump. On the one hand, Trump has stated and carried out moves in the past that were perceived as positive towards Israel, but on the other hand, he is an unexpected figure who prioritizes the needs of the US economy. It could be that Netanyahu and Trump will sign an MoU for an unprecedented amount for 2029-2038.
Published by Globes, Israel business news - en.globes.co.il - on November 12, 2024.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2024.