IAI clinches $1 billion India arms deal

Jan. 10, 2012 at 3:02 PM   |   Comments

TEL AVIV, Israel, Jan. 10 (UPI) -- Israel Aerospace Industries has signed a four-year, $1.1 billion deal with India for aircraft, missiles, unmanned aerial vehicles and intelligence systems, a major boost for the Jewish state's high-tech defense sector in an increasingly export-driven global market.

Ironically, Chief Executive Officer Yitzhak Nissan, who negotiated the contract, has been sacked in an internal squabble with IAI Chairman Dov Baharav, appointed in June 2011 to head the state-owned flagship of the defense industry amid widespread speculation of plans to privatize it.

IAI announced to the Tel Aviv Stock Exchange Monday it had signed the $1.1 billion deal with "an Asian country." Without explanation, it neither named the country nor specified what military systems were involved.

But the Globes business daily identified the customer as India and said the systems included missiles, UAVs and intelligence technologies. Other sources said aircraft were also involved but gave no details.

In early 2006, IAI and the Indian Defense Research Development Organization signed a $480 million contract on missile development.

Globes quoted business sources as saying the deal was a major boost to IAI's orders backlog at a time when Israel's defense industry, a key revenue earner, was having to grapple with a big dip in the global market because of big cutbacks in defense spending.

"A deal of this size should not be taken for granted at a time when many countries are cutting their defense spending because of uncertainty in global markets," one source said.

"Nissan succeeded in reaching a mega-deal that will give IAI financial and job security for years."

Other Israeli defense companies sought to nab the contract with India, which has in recent years become a major buyer of Israeli weapons systems and other defense equipment.

IAI won a $1.1 billion deal with the Indian navy in 2009 to provide advanced Barak-8 tactical air-defense missile systems for its warships.

The same year, Rafael Advanced Defense Systems secured a $1 billion contract with New Delhi for 18 Spyder surface-to-air missile systems by 2012.

IAI sold the Indian air force three Phalcon early warning aircraft worth $1.1 billion in 2004.

All told, Israeli companies have sold India weapons and other military systems worth more than $10 billion over the last decade or so.

In 2007, the Jewish state replaced France as India's second-largest arms supplier after Russia.

In March 2011, the U.S. weekly Defense News reported India was preparing to sign a $1 billion order with Rafael for 8,356 Spike anti-tank missiles, along with 321 launchers and 15 training simulators.

There had been reports the Israeli Defense Ministry, which can veto defense sales to foreign customers, was uncomfortable with the technology transfer involved in the Spike contract.

That could explain why there has been no official confirmation that the deal ever went through.

All Israel's defense exports are coordinated and regulated through the ministry's Foreign Defense Assistance and Defense Export Organization, or SIBAT.

India has also expressed interest in Israel's Arrow-2 anti-ballistic missile system jointly manufactured by IAI and the Boeing Co. But the technology transfer involved could impede any sale since U.S. approval would be required.

China was once a promising emerging market for Israeli weapons and electronic systems, but it currently remains largely off-limits, mainly because of Israel's strategic ally, the United States.

Washington, which provides Israel with $3 billion a year in military aid, blocked the $1 billion sale of four Phalcon AWACS aircraft to China in 2000, citing U.S. components used in the planes' systems. Beijing was furious.

With a significant slowdown in the growth of high-tech exports to the United States and Europe, Israeli defense exporters are shifting their marketing focus to Asia.

In 2010, Israeli defense sales reached $9.6 billion, with the three largest defense-oriented companies alone employing 30,600 people.

"However," Oxford Analytica observed in a December analysis, "these industries are now facing a problem similar to the one they faced in the late 1970s and early 1980s, when they reacted quickly to the lessons learned during the 1973 war and the spate of airline hijackings.

"Systems invented at that time included UAVs and sophisticated airport security networks, but for a while it was hard to sell these products. Both systems have since been adopted by the security forces of many countries and form the core of Israeli defense exports."

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