Israel Aircraft Industries Ltd. subsidiary Elta has passed the highest hurdle in its battle with Boeing (NYSE:BA) for the contract to supply four airborne early warning and control systems (AWACS) to the South Korean Air Force.
Elta achieved the breakthrough after it hired the services of former US Attorney General John Ashcroft who lobbied the Bush administration on its behalf. The administration gave its approval last week to the Israeli company to export to South Korea key components of the Phalcon advanced radar system, which Elta developed with the technological cooperation of the US. The Phalcon system is the key component in the AWACS aircraft that Elta is offering Seoul. Boeing voiced strong objections to granting of a permit to Elta, but failed to convince the authorities.
Six years ago, the US blocked the sale by Israel of four Phalcon-based AWACS aircraft to China. The US ban caused a rift in relations between Beijing and Jerusalem, undermined the credibility of the Israeli defense industries and left a scar on the relationship between the Ministry of Defense and the Pentagon in Washington.
According to sources in Washington and Tel Aviv, the granting of a US permit to sell the Phalcon to South Korea increased substantially Elta’s chances of beating Boeing and leading one of the biggest ever arms deal ever signed in Israel. Boeing has asked Seoul for less than $1.5 billion for four B-737 airborne early warning and control (AEW&C), a decrease of $800,000 from its proposal last year. Elta has quoted a price of $1.1 billion for four Gulfstream G-550 aircraft which will be fitted with the radar system.
"The Korean Times” commentators have suggested that Elta won the tender. The newspaper quoted “reports” that claimed the Israeli company was likely to win the contract, since the South Korean government had announced publicly that it would choose the lowest priced bid, provided that the system offered met its operational requirements. The final decision is expected in May.
Partnering Elta, which will supply the radar system, and Gulfstream, which is supplying the aircraft (which is jointly manufactured by Gulftstream and IAI), is New Jersey company DRS Technologies (NYSE: DRS), a specialist in electronic warfare system development and integration.
Elta and DRS earned the export license for such sensitive items as data links for automatic data exchange with other aircraft, the Satcom satellite ground stations and the Identification Friend or Foe (IFF) interrogator systems.
Elta’s Korean agent Hang Jong-kook, told Yonhap News Agency, “IAI Elta and DRS will submit all the needed documents, including the license to the Korean authorities in about a week.”
Sources said that Elta would not have had a chance of obtaining the permit without the lobbying by Ashcroft, in light of the fact that Boeing, one of the strongest companies in the US business world could find itself losing one of the largest ever global tenders in the electronic equipment market because of the permit granted to Elta.
In February Seoul awarded El-Op a contract worth $80 million for the supply of electronic intelligence systems to the South Korean Air Force.
IAI declined to comment on the report.
Published by Globes [online], Israel business news - www.globes.co.il - on March 19, 2006
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