Not Just Subs: Italian Jets, the Libyan Government and the Israelis Who Profited From a $2.8b Deal

Some of those being investigated about Israel's purchase of subs from Germany have also been asked about a huge 2012 transaction involving jets in exchange for Israeli-made materiel

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The last of the training jets, M-346s, that Israel bought from Aermacchi (a subsidiary of Finmeccanica, which merged in 2016 with the technology group Leonardo) as part of a 2012 deal worth 10 billion shekels. Photo from June 2016.
The last of the M-346s training jets that Israel bought from Aermacchi as part of a 2012 deal worth 10 billion shekels.Credit: Israel Defense Ministry Procurement Department

In 2012, Israel agreed to buy 30 training jets from the Italian air force. The last plane was delivered a year ago. But in recent weeks the deal has resurfaced in the Israel Police's Lahav 433 fraud investigation unit, which is currently investigating alleged corruption in Israel’s acquisition of German submarines, as part of what is being called Case 3000. At least some of the people questioned about the subs have also been asked about events behind the scenes in the Italian deal.

Last January, when stepping down as accountant-general at the Finance Ministry, Michal Abadi-Boiangiu remarked that she had blocked the payment of commissions related to a huge arms transaction. She declined to elaborate but had been referring to the 2012 planes deal.

The training jets, M-346s, had been bought from Aermacchi (a subsidiary of Finmeccanica, which merged in 2016 with the technology group Leonardo). In total the deal was worth 10 billion shekels ($2.8 billion), including Israel's purchase of the planes from the Italians, and a reciprocal procurement arrangement.

The commission in question was apparently supposed to reach a former top Israel Defense Forces officer, for services as a mediator in the transaction.

When approached by TheMarker about the fee, the individual in question denied everything. For its part, the Defense Ministry commented that it “did not pay and was not asked to pay any commission on the deal.”

Yet the transaction raised eyebrows in 2012, too. When it was presented to the Knesset’s Finance Committee, its chairman, Moshe Gafni, snarled that the Defense Ministry and cabinet wanted the committee to blindly accept that they had made the best deal and approve it. “Why? Because the director general of the Defense Ministry called me and said that otherwise a crisis with Italy will ensue,” he said at the time.

Prime Minister Netanyahu, left, with then Defense Minister Barak in 2012, when the training jet deal was signed with Italy.

Gafni also complained about how the deal had been presented before his committee. “When it comes to transactions like this, I want the accountant general and director general of the Defense Ministry to show up, and for people to explain the financial process,” he said then. “With big money involved and we would have questions. Imagine that in two or three years something goes wrong and then they start investigating to see who approved it.”

Yet Gafni's committee gave the green light to finance the 6.4 billion-shekel purchase anyway.

The Israel Air Force called the Italian training aircraft “Lavi” – the name given to the Israeli-made fighter plane that never received approval for mass production in the 1980s.

Odd process

As part of the 2012 transaction, Italy agreed to buy $1 billion worth of military equipment from Israel. But the deal was plagued by a complex and unique financing process.

According to one person who was involved, because of Italy’s low credit rating, the Israeli Defense Ministry said it would guarantee the loan Italy took to carry out the mutual purchasing arrangements. Asked about it, the ministry stated that it had "accompanied" the entire pricing process and had made sure Italy was charged the lowest possible financing costs. It wouldn’t elaborate on what accompanying the process actually meant, but noted that it did not provide guarantees.

One person involved in the deal was the enigmatic British businessman Patrick Landau, whose name has been associated with international transactions, including some involving Iran. At the time of the Italian aircraft deal, Landau was representing Finmeccanica in Israel.

Another person involved was Yehu Ofer, Israel’s military attache in Rome, at the time. In 2013 IAF magazine reported that a lot of people had participated in “developing the deal,” but that Ofer had been involved in every stage of the transaction and had forged ties between the Italian and Israeli defense establishments.

Upon his subsequent discharge from the IDF, Ofer got a high-ranking job at the military company El-Op, a subsidiary of Elbit Systems. It was Elbit Systems that won the job of maintaining the Italian planes for more than $600 million, together with Israel Aerospace Industries, through a joint company called Thor.

Yehu Ofer’s wife, Orna Simhoni-Ofer, has been spokeswoman of the Defense Ministry since 2016, a job she received (in acting capacity, initially) when the family returned from Italy, following stints as spokeswoman for the mobile operator Cellcom and the Cal credit card company. The rub is that the Defense Ministry had put its tender for spokesperson on ice for over two years; a number of qualified candidates had sought the job. There were complaints at how the whole thing was handled.

The ministry says now that the process of hiring the spokesperson had been done according to proper procedures and that Simhoni-Ofer met all the criteria and had outshone seven other candidates.

“The transaction [in 2012] was led by the ministry, by means of its procurement administration, not by the military attache in Italy,” it said in a statement, adding that Ofer does not work for Thor and is not associated with it. After his discharge Ofer joined Elbit, the ministry added, and “he has had nothing to do with the planes deal, Italy or the Defense Ministry.”

Libya and Leonardo

At the time of the transaction, Libya was the registered owner of 2 percent of Leonardo, the parent company of the aircraft manufacturer, which is a publicly traded company; the maintenance was done by means of a body called the Libyan Investment Authority. Based on today’s values, the shares in question are today worth about a quarter-billion euros.

Israel knew about the Libyan holding, which apparently was not an obstacle.

The Defense Ministry says now that many complex considerations were involved in striking the deal to buy the jets from Aermacchi, and that it was "economically one of the best transactions ever made by Israel's defense establishment."

In exchange for 30 advanced training jets, Rome bought a satellite and two advanced-warning planes from Israel, at a cost of over $1 billion – more than the training planes cost – and helped to boost research and development on behalf of the IDF and military industries in Israel.

Finally, the ministry says, it regrets any attempt to smear the good name of those working in the service of Israel's defense industry.

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