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Defense electronics company Elbit Systems issued an acute profit warning on Sunday, saying it expects a $60 million to $65 million drop in 2011 fourth-quarter net profit after it lost a contract with a foreign customer. It didn't say what customer, but it has to be Turkey.

In December, Elbit Systems announced that the Israeli government, for political reasons, did not renew its authorization to complete a $90 million contract awarded several years ago.

The contract was for imaging and surveillance equipment made by its subsidiary, Elop.

At the time, the company said it was negotiating with the Defense Ministry regarding "arrangements with respect to claims of the company as a result of cessation of the program."

The earnings warning is because of inventory writeoffs in the wake of the project's collapse.

The Defense Ministry, which also would not state who the customer was, said in December that as a policy, it does not elaborate how or why it makes its defense export-policy decisions.

Deteriorating ties

Ties between once-close allies Israel and Turkey have deteriorated in recent years and reached a crisis point in May 2010 over Israel's killing of nine Turks aboard a ship trying to breach its naval blockade of the Gaza Strip.

Defense Minister Ehud Barak said in a leaked speech in 2010 that Ankara's newly appointed intelligence chief was a "friend of Iran" who might betray Israel's secrets.

Asked about the decision not to renew Elbit's authorization, an Israeli security official said "relations with the country in question are extremely important ...

"Decisions on this particular matter were directly related to the specific system itself and not the general relations between the countries," the official added.

For the last quarter of 2010, Elbit Systems reported net profit of $43.7 million.