An Israeli Defense Ministry delegation completed a deal last week to buy 17 F-35 fighter jets from the U.S. defense contractor Lockheed Martin for $1.9 billion – $1.5 billion for the aircraft themselves and the rest for ancillary equipment.
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It is a huge deal that will have an impact on Israel’s debt-to-GDP ratio, yet in spite of that the cabinet approved the deal in principle last November without any lengthy deliberations. But that had not been the case two years earlier when ministers wanted to keep further orders to a minimum on the assumption the price would fall over time.
Then-Defense Minister Moshe Ya'alon wanted to order 31 more aircraft to the 19 Israel had originally ordered, but he was opposed by Yuval Steinitz, who was the intelligence minister, and Yair Shamir, the agriculture minister and former fighter pilot and chairman of Israel Aerospace Industries.
They sought to limit the follow-on order to 14 and contended that the capabilities of the plane, which was still in development, would improve over time. In the meantime, Steinitz argued that the difference would be better spent on long-range surface-to-surface missiles.
In the end, Steinitz and Shamir had the day and decide on the remaining 17 later, including the option of buying more advanced F-15 and F-18 jets. So why did the cabinet last November quickly and quietly approve the next 17?
Timing is critical for price. For instance, if Israel was paying the same price per jet for the follow-on order of 17 that it paid for the first 33 aircraft it had ordered, the price would have been $1 billion more.
On the other hand, if it waited until 2020 for the follow-on order, it would save $200 million. That’s because Lockheed Martin has already informed the U.S. Air Force that the price is expected to fall to $80 million per jet from the $90 million price tag ministers approved last Novembers and a price of as high as $125 million for the original 33 plans. (In fact, Israel will pay more because of the special equipment installed on its F-35s.)
The argument over the capabilities of the F- 35, which has advanced stealth capabilities but carries less weaponry, is over and the Israeli Air Force is fully behind the jet. But the financial aspects of the deal Steinitz made remains correct.
In addition, at $28,455 per hour the F-35 is also a far more expensive plane to operate. It is 23% more costly than the F-15C and more than three times as expensive as the F-16C – and those are Lockheed Martin’s estimates. Others say the difference is much bigger.
The A version, which is what the 50 F-35s Israel is committed to buying are, is not only the most expensive version of the aircraft but the least sophisticated; version B will have the ability to take off and land on shorter runways and even vertically.
Source: 'They may have just said, 'There's money, let's do it'"
“The air force didn’t plant on buying 50 jets that take off from ordinary runways. The plan was to enter into service planes that can take off from short runways, although at this stage it didn’t plan to purchase any with vertical capabilities,” said one source involved in the purchasing decision, who asked not to be identified. “It could be they just went with the momentum – ‘there’s money, let’s do it.’”
The F-35 deal is also significant because it comes at a time when the terms of the U.S.-Israel defense relationship are undergoing change. At the end of 2016, the two countries signed a new 10-year aid agreement, which boosts annual aid to $3.8 billion from $3.1 billion.
At the same time, the Israel Defense Forces have undertaken the Gideon programs, which governs army spending for the years 2016-20 under an agreement reached between Ya’alon and Finance Minister Moshe Kahlon, which could make the army more prone to spending than before.
“The decision to spend money on the planes is significant,” said Brig. Gen. (res.) Shmuel Zucker, who was responsible for procurement at the Defense Ministry until seven months ago. “It’s true that its procurement is being done with American money, but as long as we are spending on one kind of hardware, the less we have for others. It’s not an insignificant amount.”
He said what interests him the most is the operation and maintenance costs. “I’ve asked myself how much independence to we have in this deal. It’s not just a question of what will be our situation if there’s a war, but there’s also the question of how companies in Israel can’t benefit from this deal to join in it to create work for more Israeli families.”
Everything was done through tenders conducted by Lockheed Martin and the Joint Strike Fighter, not by the Israeli Defense Ministry’s procurement division as such deals are usually done, explained Zucker.
“A small or medium-sized plant in Dimona or Yeruham can’t compete in a U.S. tender, so any contracts will only go to the biggest companies that always win them,” he said. “It’s a pity that a procurement as big as this, in which Israel is investing hundreds of millions of dollars, no one ensured that more work isn’t done by Israeli industry.”
Even if big Israeli defense contractors like Elbit Industries and Israel Aerospace Industries win contracts for items like helms or wings, the work will be done by Lockheed Martin in the U,.S. That will also mean that maintenance and upgrade will be done in the U.S.
In addition, the Americans have kept details about the F-35 in-house due to its complexity, and stealth capabilities and even certain maintenance can only be done there. “The F-35 isn’t an open book to us,” Zucker said. “The Israeli defense industries isn’t getting as much out of it as from other planes.”