The Israeli Defense Ministry is expected to announce which aircraft it has chosen "within a few weeks," the Haaretz daily reported.
If the contract for 25-30 supersonic trainers does go to Italy's Alenia Aermacchi, as indicated by Haaretz, it will mean the Israelis are turning their backs on a package deal worth $5 billion in defense deals offered by Seoul.
Indeed, the outcome of the convoluted bargaining involved in the contract has long hinged on what one senior Israeli defense official described as "the level of industrial cooperation" offered by the South Korean and Italian governments.
Until Monday, it had looked like state-run Korean Aerospace Industries' T-50 was the front-runner for the trainer contract. On Jan. 5, Udi Shani, director general of the Israeli Defense Ministry, flew to Seoul for what looked like the final round in the contest.
A week earlier, he'd been in Italy for bargaining sessions with Alenia Aermacchi.
Israeli air force sources said KAI's T-50 and Aermacchi's M346 were pretty much evenly matched when it came to operational capabilities. But it had been clear for some time that the deciding factor would be who offered the best deals to sweeten the pot for Israel's defense industry in a global market increasingly driven by export orders as military spending in the United States and Europe shrinks.
The Italians have offered deals with state-owned Israel Aerospace Industries, flagship of Israel's defense sector, worth $ 1 billion. In December, Seoul upped the ante by dangling potential deals worth $5 billion.
The contest has taken bizarre twists, so it might be premature to consider that the Italians will win the contract.
At one point, it looked like the T-50 was out in front. But then the South Koreans complained Israel had initialed a preliminary agreement with Italy, which if it went ahead was expected to be part of what Haaretz termed "a wide-ranging trade deal" between the countries.
Amos Harel, one of Israel's leading defense writers, reported in Haaretz that seven months ago Shani had indeed signed a preliminary deal with his Italian counterpart.
"The document, which was formulated according to demands submitted by Israel, expanded the deal beyond its original framework," Harel observed.
Italy reportedly pledged if Israel signed with Alenia Aermacchi, "the two sides would sign additional deals worth more than $1 billion."
These would include joint development of satellite projects, probably involving IAI, and the sale of unmanned aerial vehicles, an Israeli specialty, to Italy.
The Jerusalem Post recently reported that Rome was discussing a possible barter deal under which Italy would get two AWACs aircraft from IAI in exchange for the M-346 deal.
But KAI came up with a long-term package potentially worth $5 billion to persuade the Israelis to go for the T-50.
"KAI alone has offered Israel more than $1 billion in industrial cooperation if its aircraft is chosen," the Post reported. "The remaining deals are expected from the South Korean government."
Enes Park, KAI's executive vice president for marketing, said the planemaker was having talks with IAI, flagship of Israel's defense sector, and Haifa's Elbit Systems, one of the world's largest defense electronics manufacturers, about joint ventures that could involve lucrative deals for Israeli companies.
Italy had been seen as the front-runner because of Israeli Prime Minister Binyamin Netanyahu's close relations with Prime Minister Silvio Berlusconi. But Berlusconi's resignation in November, hastened by a slew of political scandals, was thought to have undermined the Italian position.
Italian hopes took another hit Nov. 19 when an M-346 crashed into the Persian Gulf soon after taking off from Dubai, the United Arab Emirates, where it had flown in a prestigious air show.
The two-man crew ejected safely. The cause of the accident hasn't been announced.
Seoul has indicated that if Israel buys the Italian trainer, all military procurement deals between the Jewish state and South Korea would be scrapped, Israel's media says. In recent years, Seoul has purchased Israeli defense products worth an average of $280 million annually.