Israel Aerospace loses out on two major UAV deals

Heron UAV
Heron UAV

US company General Atomics beat IAI in contracts to supply UAVs to Australia for $1 billion and Belgium for $230 million.

Israel Aerospace Industries Ltd. (IAI) (TASE: ARSP.B1) lost two huge deals worth an aggregate $1.2 billion in one week for selling unmanned aerial vehicles (UAVs) to Australia and Belgium. In both countries, IAI lost to US company General Atomics, which will sell its MQ-9 Reaper UAV to them.

IAI tried to sell its flagship Heron TP, which it has undertaken to supply to Germany in a €1 billion deal signed last summer. "The decisions made in Australia and Belgium are unpleasant for IAI, to say the least. Besides the large amounts of money in these deals, which IAI always needs, it is a foothold for future deals in the same countries, because a country that buys UAVs from a certain company will probably later buy more services, extensions, upgrades, or completely other products from it with an interface with the UAV systems," a defense source told "Globes."

The size of the new UAV procurement was assessed by defense sources as over $1 billion by the Australian air force and $230 million by Belgium. The contract, which are for at least 10 years, include accompanying services. "Winning these deals was not never taken for granted by IAI," a source involved in the matter told "Globes." "IAI went into these proceedings in both countries as an underdog, especially in Australia, where the authorities prefer General Atomics and didn't want to hold a competitive proceeding at all. IAI battled in this matter just to put a price bid on the table that could compete with that of General Atomics."

Defense sources said late last week that despite IAI's efforts, in every proceeding held in recent years, the Australian Ministry of Defense preferred UAVs offered by the US manufacturer, while rejecting IAI's request for holding a competitive proceeding.

Up until two years ago, IAI leased Heron UAVs to Australia, which operated them, among other things in its share of the fighting in Afghanistan.

"Not an ideal situation for IAI"

A few days after it was learned that IAI has lost its chances for a deal in Australia, the Belgian army also decided to buy its future IAVs from General Atomics. It is believed that Belgium will buy four UAVs and their accompanying operating systems for $230 million. "These two countries are very important for IAI from the standpoint of the market, and no one takes their value lightly," a defense source told "Globes." "The fact that General Atomics is consolidating itself in both countries is not an ideal situation with IAI, which wants a larger presence with its UAVs in these markets."

In the past decade, IAI came up against General Atomics in UAV procurement tenders published all over the world. General Atomics has expanded its participation in UAV tenders in recent years. The defense market attributes this to easing of export restrictions by the US administration late in the term of former US President Barack Obama.

The US administration allowed General Atomics to export the strategic UAVs that it develops and manufactures, such as Predator and Reaper. General Atomics' greater participation in these tenders makes it difficult for IAI, which produces UAVs on the same scale, to compete. An Israeli defense source said that in contrast to IAI, in many cases General Atomics gets support from the US administration in tenders around the world, which improves its chances of winning.

Before IAI won the UAV deal in Germany last summer, General Atomics tried to torpedo it, preventing it from being signed for a long time by petitioning against it to the Supreme Court. The deal with Germany went through after the courts allowed the German Ministry of Defense to sign it.

Last month, IAI won two very large deals in India: one a $777 million deal for the supply of defense systems for Indian navy warships and the other a $550 million deal to upgrade short-range anti-aircraft defenses.

IAI did not comment today on the recent decisions by Australia and Belgium.

Published by Globes, Israel business news - - on November 18, 2018

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