Defense Industry Braces for Big Losses in U.S. Deal

Reported changes in the terms of the pending 10-year U.S. military aid package has the Israeli defense industry bracing for major losses, according to U.S. Defense News on Monday.

Although the planned $38 billion deal represents a raise over the soon-to-expire $30 billion agreement, the new deal will “rescind Israel’s ability to convert a significant portion of U.S. grant dollars into shekels for local research, development and procurement,” the report said.

In the current 10-year package, Israel is permitted to spend up to 26.3 percent in manufacturing defense aid through domestic companies, an option worth an estimated $1.2 billion annually to the defense industry.

Israel Aerospace Industries president and CEO Joseph Weiss acknowledged that the new package makes a “dramatic change.” “I don’t want to say catastrophic or fatalistic, but the only reason I’m not saying that is because there is continuous dialogue between the two governments. Bottom line is a cut in this 26 percent, which is turned into Israeli shekels, is a big, big issue for the Israeli industry. It might lead to layoffs and all kinds of implications that I cannot even foresee right now.”

Nevertheless, there are indications that Israel will accept the terms of the new deal with its limitations. Minister of Finance Moshe Kahlon, has described the U.S. offer as “positive and fair,” and has “told the prime minister and defense minister” to “adopt the offer and put an end to this saga.”