Israeli Firm Working on Sensitive Project Signed MOU With Chinese State-owned Company Without Government's Knowledge

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The Israeli Air Force's Ovda base in southern Israel.
The Israeli Air Force's Ovda base in southern Israel.Credit: Ilan Assayag

An Israeli company involved with a civil aviation project signed a memorandum of understanding with a state-owned Chinese corporation for a sensitive project, without the Defense Ministry's knowledge, according to sources in the ministry.

The Defense Ministry contracted Israeli firm Airpark in 2019 to build a civilian aircraft manufacturing facility near the Israeli Air Force's Ovda base, in Israel's south. But the ministry claims it was unaware of the fact that Airpark later signed a memorandum of understanding with China's Comac, which is blacklisted by the United States.

Sources in the ministry said that the Prime Minister's Office and the National Security Council were also kept in the dark over the sensitive deal. In response to a query from Haaretz, the Defense Ministry said it would look into the matter.

The agreement signed between the Defense Ministry and Airpark in February 2019 lets the company, owned by AES Aviation, access to the air base, as well as assistance and services needed to set up the civilian facility. The new project is meant to provide a variety of services in global civil aviation, such as upgrading aircraft and storage.

Seven months later, in September 2019, AES Aviation signed a memorandum of understanding with Comac. According to the agreement, in exchange for extensive remuneration, the Chinese company will enjoy cooperation in the area of aviation as well as sharing information sharing and advancement of technological and innovative projects that Israeli firms can offer. The agreement includes cooperation with the Israel Air Force in operations and infrastructure, including civilian operation procedures, ground operations, training and emergency procedures.

Israeli Air Force's Ovda base, in Israel's south. Credit: Ilan Assayag

According to Airpark’s statement to the Israel Securities Authority, the memorandum of understanding with Comac was intended “to promote the shared goals of local and international aviation” and it is valid for five years from the date of signature. In March 2020, Israel Aerospace Industries became a partner in the project through its aviation branch. Israel Aerospace Industries even signed a memorandum of understanding with AES, by which the parties would work together to establish a joint company to operate Airpark.

Senior defense officials told Haaretz that they were surprised to hear of Comac’s involvement in the sensitive project. This is because any deal with security significance or associated with essential infrastructure in Israel must be reported to the Defense Ministry, as does any essential change in a contract that has been approved by the ministry – for example, bringing in a partner. According to sources who spoke with Haaretz, the Prime Minister’s Office and the National Security Council did not know of the Chinese corporation’s involvement, and claimed that the matter is under the purview of the Defense Ministry.

Chinese involvement, U.S. criticism

The signing of the agreement with Comac also comes against the background of growing criticism from senior U.S. officials who has warned against expanding Chinese influence in Israel. In January, Comac was included on the list of companies the United States has banned Americans from working with because of their ties to the Chinese army.

A security official familiar with the issue told Haaretz that although the building of the facility is a civilian project, essential and security-related infrastructure is planned to be built near an Israeli Air Force base, and project managers have permission to receive services and assistance from the Air Force. In other cases in which Chinese companies have been involved in civilian projects – like the expansion of the Haifa Port, the desalination plant in Palmahim and the light rail infrastructure in Tel Aviv – the companies were subject to a security check before their involvement in these projects was approved. No such check of Comac was carried out.

According to the official, apart from the security risk posed by Comac’s involvement, possible damage to Israel's ties with United States must also be considered. “Such a decision requires a security assessment. The fact that the National Security Council and the Air Force were not familiar with the matter indicates possible gaps in the updating and approval processes by the relevant bodies of the construction of a civilian facility near a military base."

File photo: Haifa Port.Credit: Rami Shllush

Chinese involvement in Israel has been sharply criticized in recent years by the United States, especially the Pentagon. The American security establishment is concerned that Chinese projects will open a door to technological surveillance of the U.S. Army deployed in the region, and Israel has been warned multiple times about collaboration with China. One of the main issues Israel has been cautioned about is the expansion of Haifa Port by a Chinese company. In closed-doors meetings, American officials said that the U.S. Sixth Fleet would cease anchoring at the port over espionage concerns.

A recent report published by JINSA, the Jewish Institute for the National Security of America, said that "As the United States seeks to minimize its footprint in the Middle East while reducing its economic dependence on China, Washington will need the assistance of its partners."

"Israel already plays a critical role in protecting U.S. interests in the Middle East and, through closer linkage with its innovation-driven economy, could help sustain U.S. global economic primacy. However, Chinese investments in Israel if left unaddressed, could undermine this strategic partnership and endanger Israel’s own economic dynamism and security." The report was authored by two retired admirals, John Bird and Jonathan Greenert.

To address American concerns, Israel's security cabinet decided last year to establish a special body to examine foreign investments in Israel. Although China did not appear by name in the document stating the decision, the move was meant to signal to the United States that Israel will be tightening supervision of Chinese investments in Israel.

A security official told Haaretz that this body was established precisely for this purpose. “It doesn’t have to be immediately decided that there is a security risk or damage to Israel's ties with the United States. But this case raises questions that should be examined.”

The Defense Ministry said in response that “This is a completely civilian project authorized by all the relevant bodies… It should be noted that the project has not yet been launched. The claims raised will be examined.”

Israel Aerospace Industries responded that it and Airpark “will be building a center for joint activity in the field of aviation at Ovda. The memorandum of understanding with Airpark is in negotiations ahead of a contract that will be signed when conditions are ripe. There will be no connection between the joint activities of Israel Aircraft Industries with Airpark at Ovda, if they come about, and other businesses of AES, Airpark’s parent company.”

The Prime Minister's Office and the IDF Spokesperson's Unit referred a Haaretz query on the issue to the Defense Ministry.

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