US likely to reschedule Israeli weapons payments

Defense News: Israel has allocated most US military aid until 2009, and wishes to defer loan payments.

The Defense Security Cooperation Agency (DSCA), an agency of the US Department of Defense, is considering ways of rescheduling Israels payments for US-made weapons systems in order to prevent a potential Israeli financial crunch in 2009, the Defense News weekly reports.

Defense News says that Israel asked the US for help in this matter. According to the weekly, the looming budget crunch is liable to severely affect Israels ability to buy new weapons systems from US manufacturers in the coming years.

Israel pays US arms suppliers with the annual military aid that it receives from the US. US regulations for financing cash flow allow Israel to base its financing for multi-year procurement on the military aid that it is expected to receive in the future.

Now, however, Israel is asking for further financial relief an additional future rescheduling of expected payments. Most future aid has already been allocated to current weapons deals for which contracts have already been signed.

Israeli and US sources told Defense News that most US military aid to Israel, both current aid and aid up to 2009 or 2010, has already been earmarked for buying 102 F-16Is for $4.2 billion.

In addition to the major proportion of the annual US aid package used to buy airplanes, Israel has taken a $1 billion balloon loan (with one large payment) from a private bank through aerospace manufacturer Lockheed-Martin (NYSE: LMT).

The $500 million balance of this loan falls due in late 2009. Furthermore, the Israeli Ministry of Defenses annual bill for jet fuel purchased with US aid money has more than doubled in recent years, from $70 million to $150 million.

In the absence of US consent to further rescheduling of payments, Israel will have to repay the balloon loan and pay hundreds of millions of dollars for jet fuel with the small proportion of aid that has not yet been allocated for aircraft purchases. Israel hoped to use this money to buy other armaments.

Come what may, we must pay all our debts. We would like, however, to arrange an easier payment schedule with the US administration and Lockheed-Martin, a Ministry of Defense official told Defense News.

Israels request to reschedule its payments to US defense industries in an effort to cope with the expected crunch in 2009 was discussed in talks held in Israel last week by DSCA director Lieutenant General Jeffrey B. Kohler. A US decision about Israels request is expected early this summer.

Published by Globes [online] - www.globes.co.il - on January 18, 2006

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