US to deal Israel's defense industry a major blow

F-35 Photo: Lockheed Martin

In exchange for significantly higher military aid, Israel will have to forfeit the right to spend 26% of aid in Israel.

US National Security Advisor Susan Rice reported to Capitol Hill that President Barack Obama is willing to significantly increase the new US military aid package to Israel, contingent on Israel investing all aid funds in procurement from US defense industries. Israel will thus forfeit the ability, specified in current package conditions, to spend 26.4% of the aid on acquisitions from Israel's own defense industries. Accepting this condition will be a major blow to Israel's defense industries, as well as their dozens of subcontractors.

Senior sources, well-versed in Israel's defense industries told "Globes" that this demand follows an Obama administration capitulation to the demands of large US defense company lobbyists to revoke this privilege. At the same time, the Democratic administration is also apprehensive about the Trump campaign to bring home jobs from abroad.

"This is not the first time US defense giants have acted against what they term a US 'subsidizing' of Israeli competition," stated an Israeli source familiar with what he defines as a collision of the two allies' pure economic interests. "US defense industries have always objected to the term enabling Israel to spend more than 25% of US aid on procurement in Israel. They have been claiming for some time that this does only create jobs in Israel at the expense of the US, but also constitutes a 'double dipping', the receiving of double advantages."

According to this source, US companies claim that certain procurement deals between the Israeli Ministry of Defense and US companies contain reciprocal procurement clauses requiring the US company to acquire products or services from an Israeli company at a predefined sum, on top of the 26% allocated to procurement in Israel. For example, Israel's consent to procure Lockheed Martin F-35 stealth bombers included a substantial contract between Lockheed Martin and the Israel Aerospace Industries Ltd. (IAI) (TASE: ARSP.B1) for F-35 wing production.

The source rejects this claim. "The Americans are far from victims here. They are well aware that Israel's willingness to procure any system from a US manufacturer provides the product with a 'stamp of approval'. Many states importing arms believe that what is good for Israel must be good for them. This provides a benefit worth hundreds of millions of dollars to US industries, producing thousands of jobs in the US. But both the time and the tune are now different; we do not believe that the administration will waive this demand in the current political climate."

Another Israeli source claims that the White House apparently takes into account that even Israel's most loyal supporters will be hesitant about pressuring the White House to renew a clause allowing Israel to spend hundreds of millions of dollars on Israeli defense industries, certainly not when the creation of new jobs is on the agenda. "If you represent a county in Texas where Lockheed Martin products F-35s for Israel, you will not undermine its interests, certainly if it provided a generous contribution to your elections campaign," the source claims. "And Lockheed Martin has subcontractors all over the US."

Published by Globes [online], Israel business news - www.globes-online.com - on July 3, 2016

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

F-35 Photo: Lockheed Martin
F-35 Photo: Lockheed Martin
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