Israel's defense industry could lose US aid

Obama, Netanyahu and Iron Dome

US President Barack Obama is demanding that Israel use US aid solely for purchasing weapons and systems from US arms companies.

Israeli defense industries are anxious about US President Barack Obama's demand that Israel use US aid solely for purchasing weapons and systems from US arms companies. Military aid totals $3.1 billion, and Israeli defense companies fear that the US administration's demand will decrease their sales and divert Ministry of Defense orders to companies in the US.

If Israel accepts the US demand, it will change the current situation in which a quarter of US aid is used to buy weapons systems from Israeli companies. Discussions have been taking place in recent months between Jerusalem and Washington about increasing US aid to $4 billion in the framework of compensating Israel for the nuclear agreement between the US, the West, and Iran. Israel is demanding $10 billion in additional US aid spread over a decade in order to enable it to procure types of weapons that will guarantee its qualitative advantage in the Middle East, given Iran's military buildup and procurement of advanced weapons by other armies in the region.

"Agreement by Israel to the US administration's plan will deal a critical blow to the Israeli defense industries, reflected in the loss of thousands of jobs in Israel to the US," Manufacturers Association of Israel president Shraga Brosh warned today. "Israel's defense exports last year totaled $5.7 billion, amounting to 13% of industrial exports. If the state accepts the US president's demand, instead of Israeli industry continuing to grow and stand in the forefront of global technology, dozens of production lines and entire plants will be closed down, thousands of employees will be laid off, and the state will lose its security independence. Instead of this money making it possible to finance new weapons and encourage the development of new Israeli technologies, Israel will have to rely on foreign countries, which may or may not supply it with essential weapons systems, such as Iron Dome and David's Sling."

The Ministry of Defense and the Prime Minister's Office today chose not to comment on the US administration's demands, which were raised in negotiations between the countries over expanding US defense aid. A source at one of the major defense companies said, "If such a restriction is eventually put in force, it will be strongly felt in the Israeli defense industries."

At the same time, several major Israeli defense companies, including Elbit Systems Ltd. (Nasdaq: ESLT; TASE: ESLT), do business in the US through a subsidiary registered there. Of $3.1 billion in sales in 2015, Elbit Systems' US subsidiary had $838 million in sales. Defense sources said that in the case of an Israeli company having a subsidiary in the US, it was possible that the Ministry of Defense could procure a product developed by the Israeli company through its US subsidiary.

Published by Globes [online], Israel business news - www.globes-online.com - on May 4, 2016

© Copyright of Globes Publisher Itonut (1983) Ltd. 2016

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Obama, Netanyahu and Iron Dome
Obama, Netanyahu and Iron Dome
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