Israel Aerospace, Airbus Ink $600m German Drone Deal

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Visitors stand in front of an Heron TP drone at the ILA Air Show in Berlin, Germany, April 25, 2018.
Visitors stand in front of an Heron TP drone at the ILA Air Show in Berlin, Germany, April 25, 2018.Credit: \ AXEL SCHMIDT/ REUTERS

Israel Aerospace Industries said Thursday it had signed a $600 million deal with Airbus Group to lease Heron TP drones to Germany’s Defense Ministry.

Airbus is to handle manage all aspects of the agreement, including operational support and maintenance, and in turn is awarding the subcontract to provide the drones to IAI.

The agreement is the first drone export agreement for IAI of this model drone, which the state-owned Israeli company has been manufacturing since 2010. The proposed deal has been on the negotiating table for many years and encountered a number of hurdles.

The deal ran into resistance last year within Germany’s coalition government because the drones could be armed in the future. The German military currently uses a different model of Heron drone that cannot be armed. The leasing program is intended as a temporary solution until a European drone is ready for use around 2025.

The way was paved for the agreement after the most recent parliamentary election in Germany, which ultimately resulted in a coalition government for which the approval of the drone purchase was a provision in the coalition agreement.

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IAI’s Heron TP is a high-altitude, long endurance drone with multiple-payload capabilities. The 895 million euro ($1 billion) drone program is in two parts, a 177 million euro contract between the German and Israeli governments, and a contract between the German military and Airbus valued at 718 million euros, according to German parliamentary sources.

Prime Minister Benjamin Netanyahu said Thursday that the drone deal with Germany would strengthen bilateral security relations and give a boost to Israel’s defense industry. Germany’s parliament Wednesday approved the plan to lease Israeli-built surveillance drones for nine years, a sort of stop-gap until a European drone is ready for use around 2025.

Agreement on the long-delayed contract also provides some positive news amid recent friction between the countries over their disagreement regarding world powers’ 2015 nuclear deal with Iran and Israeli policies toward the Palestinians.

“It’s a huge deal. It has implications first of all on our defense industry and the Israeli economy, but also the continued strengthening security ties between Germany and Israel,” said Netanayhu. He thanked German Chancellor Angela Merkel for getting the deal approved in parliament.

At one point, IAI also had to deal with efforts by its major competitor in the large drone sector, the American company General Atomics, which went to court to block the deal, but lost.

“It’s a significant agreement that will come into effect in another month,” IAI CEO Joseph Weiss told TheMarker Thursday.

“This is a deal that is based on our longtime ties with the German air force, which since 2010 has deployed our Heron 1 drone in Afghanistan and for the past two years has also been deploying it in Mali, to their satisfaction.”

A German parliamentary source said it would cost the German military about 250 million euros a year to operate the new drones, compared with around 70 million euros for the less capable Heron drones now in use in Afghanistan and Mali

Asked why the agreement was structured as a lease rather than a sale, Weiss replied: “The lease is the model that the Germans chose, so that at the end of 10 years of use of the equipment, it will return to us. Nonetheless, with such equipment that works intensively, it returns when its value is low.”

Israeli defense contractors signed $9.2 billion in export deals in 2017, a 40% increase from the year before, but drones accounted for just 2% of that.

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