Israel's defense industry is readying for lost funding and the consequent layoffs entailed in the new US aid package, "US Defense News" reports. While the planned new $38 billion, 10-year US military aid package is considerably higher than the $30 billion in the previous 10-year package, which expires next year, the new package will "rescind Israel’s ability to convert a significant portion of US grant dollars into shekels for local research, development and procurement," writes the magazine's Israel correspondent Barbara Opall-Rome.
The magazine adds, "While Israel still hopes to prevail upon the White House to bump its top line closer to $40 billion over 10 years, government and industry sources hold little hope of US President Barack Obama's administration wavering on Buy America demands."
In the current 10 year package, Israel is permitted to spend up to 26.3% in manufacturing defense aid through domestic companies. Furthermore, the Obama administration has let Israel spend a further $400 million annually for fuel purchases. Consequently one US source told Defense News, "Those dispensations in recent years have amounted to some $1.2 billion out of the $3.1 billion Israel receives annually being spent in Israel rather than in America."
The source added, “While Israel values the predictability of this arrangement, it is not the best use of finite US assistance dollars. Between OSP and fuel purchases, Israel is using approximately $1.2 billion annually - or 38.7% of its total FMF account - to directly support its domestic budget rather than to build on its arsenal of advanced US equipment."
Israel Aerospace Industries Ltd. (IAI) (TASE: ARSP.B1) president and CEO Joseph Weiss told "Defense News" that the new aid package makes a "dramatic change. “I don’t want to say catastrophic or fatalistic, but the only reason I’m not saying that is because there is continuous dialogue between the two governments. Bottom line is a cut in this 26 percent, which is turned into Israeli shekels, is a big, big issue for the Israeli industry. It might lead to layoffs and all kinds of implications that I cannot even foresee right now.”
"Defense News" adds that Israel's Minister of Finance Moshe Kahlon has described Obama’s offer as “positive and fair," and has "told the prime minister and defense minister" to "adopt the offer and put an end to this saga."
Published by Globes [online], Israel business news - www.globes-online.com - on July 18, 2016
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