Even if Israel's legal system deals with the crimes allegedly committed in two huge defense deals – the purchase of missile ships and submarines from the German company ThyssenKrupp – it won’t be able to fix the economic and security harm that this affair has caused the state. The defense establishment now realizes that this affair, in which the prosecution announced plans to file indictments on Thursday, will be with it for many years to come.
Over the last three years, ever since the scandal broke, the defense establishment’s procurement of submarines has become a sensitive subject. Consequently, it is making almost no progress. The deal to buy a sixth submarine is currently frozen, and its ultimate fate remains unknown. The military is reserving the right to cancel the sub’s acquisition as a bargaining chip in the negotiations it expects to hold over the coming year with the Finance Ministry on a multiyear plan that will dictate its budget.
In addition to the deal to purchase this sub, Israel signed an agreement with ThyssenKrupp to examine the feasibility of buying additional subs – a seventh, eighth and ninth. But in light of the criminal investigation into the existing purchases, the chances that these additional subs will ever be bought are slim.
Thus in the case of the submarine deal, the main damage the affair has caused seems to be to security: It threatens to undermine future negotiations on military procurement.
Even if the defense establishment decides that the five subs Israel already has is enough, it will have to replace them in the second half of the next decade, since they will become obsolete and will need to be removed from service, one after the other. And it’s not yet clear how the scandal will influence Israel’s future procurement.
The agreement with ThyssenKrupp included provisions for what would happen if corruption were discovered on the German end; in that situation, the corporation would be able to cancel the existing deals. But it included no provisions on what would happen if corruption were discovered on the Israeli end.
The German company’s legal advisers are presumably working hard right now to translate the Israeli draft indictments. The company will then have to decide how this will influence its handling of future deals with Israel.
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The gunship deal, in contrast, also caused economic damage to Israel. Judging by the draft indictments published by State Prosecutor Shai Nitzan, it’s impossible to know whether these deals – which reaped fat bonuses for the people involved – were actually based solely on economic and security considerations.
The four ships purchased from ThyssenKrupp are supposed to defend Israel’s exclusive economic zone, and in April 2020, the first of them will arrive. But the fear is that Israel has spent huge sums of money on ships it doesn’t actually need.
The ships bought from Germany – for 430 million euros, and without a tender – have a displacement of 2,000 tons, almost double the original size of 1,200 tons that was under discussion when the process began. At that time, the idea was to sign a contract with a South Korean shipyard.
Moreover, starting in 2020, the navy will have to divert some 260 million shekels ($75 million) from its budget every year to operate the four ships it’s getting from ThyssenKrupp. That sum would have been tens of percent lower had smaller ships been purchased, and it’s likely to become a heavy burden on the Israeli Navy at a time of budget cuts.