When Defense Minister Avigdor Lieberman arrived at a giant Israel Aerospace Industries hangar Monday morning, there was a large delegation of Defense Ministry and IAI officials there to greet him and show him the Heron TP drone that is the subject of a giant contract with Germany that was approved last week.
Yair Katz, the head of the IAI workers committee, was on hand, too, and made sure to stay close to Lieberman and to be included in every photograph — until IAI Chairman Harel Locker asked him to step aside.
Asked by TheMarker whether he supports buying a communications satellite from state-owned IAI, the defense minister replied: “The question isn’t whether I support buying the satellite from IAI or not. The decision to purchase is a professional one. We need to see in detail the satellite being offered and its price and compare offers. ... There’s no room for protectionism.”
As much as anyone, the answer was directed as much to Katz, who was standing nearby. Lieberman then added, “Right now it looks like we will buy a blue-and-white satellite A to Z, and not just for the sake of IAI.”
Satellites became a political issue after Spacecom in March opted to buy its next satellite, dubbed the Amos 8, from the American company Space Systems Loral, instead of its traditional supplier, IAI. A private company, its satellites are used by the Defense Ministry as well as a host of businesses in Israel and overseas.
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Faced with the loss of the contract, IAI said it would build and operate its own satellite and asked the government to back it. The security cabinet is due to weigh in on the satellite issue Sunday.
The debate ostensibly pits economic considerations against national security, but in fact the Israeli satellite Lieberman talked about falls short by both standards.
Lieberman hinted in his remarks Monday that a decision to go with IAI is in any case based on national security considerations. It’s hard to know what those are since by definition they are secret, but an industry source dismissed them as an “instance of national security being cited with no justification.”
In fact, there are good national security reasons to stick with Spacecom. A dedicated satellite used solely by the Defense Ministry makes a more tempting target for terror groups than one shared with a variety of customers, such as Deutsche Telekom.
Moreover, IAI will be operating a single satellite while Spacecom operates multiple ones, so that the Defense Ministry has a backup in case of technical or other failures.
For IAI, the satellite business is nonstarter. Already 15 years ago, a consulting firm recommended that IAI get out of the satellite business because it made no business sense.
When Spacecom took bids from IAI and Loral there was no competition at all: The U.S. company said it would build the Amos 8 for $112 million and deliver it in two years, while IAI said it would cost $200 million and take three years to complete.
As it is, IAI is under pressure to improve profitability and efficiency; a satellite contract will simply make it more difficult for other divisions of the other company to succeed. The satellite unit, which employs just 50 people, enjoys the protection of the Defense Ministry, but other parts of IAI face the full brunt of competition from U.S. and European rivals for international contracts.
In all events, when the Amos 8 contract is completed, what will happen to the satellite unit? To keep it going, it needs to win an order once every three or four years, which means building more satellites than the Defense Ministry can use.
What’s really at the heart of the decision is neither business nor security, but politics — in particular the powerful role the IAI workers committee plays in the Likud party primaries.
Katz signaled as much in an interview with Channel 10 News last month.
“I laud all of those who are helping us keep to keep satellite production in Israel. Among other things, it’s due to our ability to reach government decision makers. If they disappoint us, they can assume they won’t have the trust of the workers in the Likud primaries.”
If that isn’t enough, IAI retains the services of Policy, one of the most effective lobbying firms in Israel. Policy is headed by Boris Krasny, who is close to Lieberman. Indeed, even if IAI executives take credit for it, it’s almost certain that Krasny is the one who dreamed up the term “national satellite” as a label for the IAI product.