The Israel Air Force and the Ministry of Defense are planning to procure 4-6 new planes for airborne refueling from US company Boeing without asking Israel Aerospace Industries Ltd. (IAI) (TASE: ARSP.B1) or Airbus for a price bid or asking them to take part in a tender. These are the only three companies in the world that manufacture an air refueling aircraft or convert passenger and cargo planes to a refueling configuration.
The air force's refueling missions are currently based on outdated Boeing passenger 707s manufactured over 50 years ago and converted to refueling configuration. These planes, called Ram by the air force, receive regular maintenance from IAI.
The IDF has been preparing for years for a huge deal to procure new planes for airborne refueling missions, but the process has been repeatedly postponed, primarily due to more urgent procurement programs. The Ministry of Defense is now saying that there is no avoiding a procurement deal because of the very advanced age of the existing refueling aircraft and the possible expansion in the volume of the air force's refueling missions, with an emphasis on remote theaters, such as Iran.
Israel is casting eyes at Boeings new KC-46 airborne refueling aircraft, which are in use by the US air force. Sources in the sector say that these planes cost $250-300 million. An Airbus 330 converted for aerial refueling missions costs $200-250 million, while an IAI refueling aircraft based on the Boeing 767 and converted from passenger or cargo configurations costs $100-130 million, half the price of the new plane to be sold to Israel by Boeing.
Double the price from local industry
If Israel decides to procure four new refueling aircraft from Boeing, it will cost $1.2 billion. Buying four such refueling planes based on Boeing 767s and converted to refueling configuration will cost "only" $600 million. The KC-46 is also based on the Boeing 767. Following conversion by IAI to refueling configuration, the pilots in the cockpit, both in the refueling planes and the planes being refueled, should not encounter any particular gaps in performance or capabilities of these systems. Both the KC-46s and IAI-converted Boeing 767s are very powerful and can also be used for other purposes.
Defense sources have found it difficult in recent days to conceal their alarm about the emerging deal between the Ministry of Defense and Boeing without a tender proceeding or transparency and without consideration of the long-term effect on IAI. Conversion of planes is done at IAI's Bedek Aviation Group's facilities and hundreds of its employees are involved. Defense sources warned that giving preference for a new and very expensive like that of Boeing over an "as good as new" and cheaper aircraft from IAI would deal the Israeli company a severe blow. "It is not just the money and the livelihood of many hundreds of employees," a local industry source said. "Procurement of planes from IAI by the Israeli air force has great global marketing significance, because the IDF is regarded as an advanced, very professional, and esteemed army. If it procures a system, it validates it and gives it something like a quality standard, followed by additional deals that are usually larger."
Israel, through IAI, became one of the world's three manufacturers of refueling aircraft out of necessity, not choice. Five decades ago, when the IDF, under threat from Arab armies, sought to procure aircraft that could refuel warplanes, thereby significantly extending the latter's operational range, the US objected. Israel, faced with a dilemma, decided that it must not be dependent on others in this matter. IAI was enlisted for the task and asked to meet this urgent operational need.
State-owned IAI proved equal to the task. The company obtained outdated 707s and brought them to its plants near Ben Gurion Airport. The result was Ram aircraft for the air force and a foothold in a very special global market for IAI.
No tender necessary in defense
Since then, IAI has sold passenger and cargo aircraft converted to refueling configuration currently used by several air forces around the world. Another huge deal in this sector is still waiting - an estimated $400 million deal signed in 2013. Under this deal, IAI will convert at least three Boeing 767s to refueling configuration for use by the Brazilian air force. This deal has been waiting for a long time, however, mostly because of the economic crisis in that country. IAI is still waiting for someone in Brazil to come up with the money to enable the deal to go through.
This is not the first time that the Ministry of Defense has been asked to explain a huge defense deal decided in smoke-filled rooms without the transparency mandated by the use of public funds and decisions of great significance lasting for decades. These decisions are made by the defense establishment without outside involvement - even from the Knesset Foreign Affairs and Defense and its secret subcommittees and the National Security Council. The Ministry of Defense's procurement processes have been criticized for contracts with single suppliers exempt from regular tenders that could enhance competition and reduce prices.
IAI said in response, "IAI has supplied the air force with the refueling aircraft that are now in use and has been maintaining them for decades. To the best of our knowledge, there is complete satisfaction with these planes. The company is very capable of providing a complete solution to the air force at a competitive price and will be glad to obtain orders for doing so."
Published by Globes [online], Israel business news - www.globes-online.com - on July 31, 2018
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