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Friday, June 16, 2006

IAI favored for lucrative defense contract

ISN SECURITY WATCH (Friday, 16 June 2006: 14.01 CET) – Israel Aircraft Industries (IAI) looks increasingly likely to win a US$1.2 billion defense contract to supply the South Korean military with early warning and control aircraft, Ha'aretz reports.

The Israeli defense company's bid for the lucrative contract is increasingly favored over Boeing's offer, according to a senior official in the South Korean Foreign Ministry spoken to by the Israeli daily.

If it goes through, the deal would be amongst the largest ever secured by IAI.

South Korea's Defense Acquisition Program Administration (DAPA) announced on Thursday that both Boeing and IAI had passed the Korean Air Force's test and evaluation stage.

It is expected that the favored contract will be selected in a month, although a decision could be postponed until December.

South Korean Defense Minister Yoon Kwang-ung and President Roh Moo-hyun must approve the deal.

The ministry source told Ha'aretz that the extension of the deadline for the submission of proposals from December 2005 to April 2006 was granted to allow IAI to obtain the required permits. This indicates that the South Korean government prefers the Israeli company's Gulfstream aircraft, the source said.

Ha'aretz reports that the IAI deal is US$300 million to US$500 million lower than the Boeing bid, despite the US aeronautical giant cutting the price of its offer by US$700 million.

More than 50 per cent of contract work under the IAI deal will be carried out by US companies, further bolstering the bid's chances, according to Ha'aretz.

IAI is offering four Gulfstream 550 aircraft fabricated by General Dynamics and configured with IAI subsidiary Elta's Phalcon early warning and radar system. Communication components are being sourced from US-based DRS Technologies.

Phalcon systems have been sold to the Indian and Chilean militaries but an attempt to sell the system to China in 2000 was blocked by heavy US pressure.

Boeing has allegedly brought significant pressure to bear on the South Korean government, through the US embassy in Seoul, to favor its bid, without apparent success.

IAI has reinforced its Seoul office and hired a local public relations company as it looks to cement the deal, Ha'aretz reports.

South Korea is believed to favor the IAI offer because it is seeking to diversify its military supply base through the selection of non-US defense systems. The lower range of the Israeli early warning system is also less likely to raise tensions with China while providing sufficient coverage to counter threats from North Korean.

(By ISN Security Watch staff, Ha'aretz, Wikipedia)
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