Between the "Kirya" and the Pentagon

A close and comprehensive cooperative alliance exists between IMOD and US DOD, but what implications will the change of government in the USA have on the US-Israeli cooperation?

Between the "Kirya" and the Pentagon

Photo: AP

The links between the USA and Israel have always been and still remain very strong. These links rely on a solid alliance that bonds the two countries together, an alliance based on common values and interests and on an ethical and cultural connection between the American public and the Israeli public. Naturally, all of this affects the defense cooperation between the two countries at all levels.

One primary element in this defense cooperation is the effort aimed at maintaining Israel's qualitative advantage over its neighbors in the Middle East. This is one of the most important points in the relations between the two countries. The expected delivery of the first F-35 stealth fighters to Israel later this year constitutes a primary tier of this principle, but beyond those aircraft, there are other systems and munitions that will enable IDF to execute any mission assigned to them. Maintaining a relative advantage over the other countries in the region compels Israel and the USA to invest substantial resources, to cooperate with regard to systems at the forefront of technology, to share substantial knowledge, some of which is highly sensitive and to deny this knowledge to other parties that are also interested in those cutting-edge systems.

As far as IDF are concerned, the cooperation with the Americans is maintained between all of the arms and with regard to all force build-up processes. In such activities as training, development, operational concepts and combat doctrines, joint training exercises and trainees sent to various command training courses in Israel and the USA. The highlight of this cooperation is the cooperative alliance in the fields of intelligence and technology. The technological cooperation is based primarily on the fact that IDF purchase their aircraft from the USA. Over the last few decades, the air arm of the State of Israel has relied entirely on US-made platforms such as the F-16 and F-15 fighters, C-130 transporters, Apache (and previously Cobra) attack helicopters and other platforms. A major part of the US Aid budget is used for the procurement of these platforms, even though this dollar procurement is followed by a substantial ILS 'tail', used primarily for purchasing Israeli-made C2 systems, payloads, munitions, EW systems and aircraft maintenance and training services. IDF use another part of the US Aid funds to purchase combat and logistic vehicles, simulators, munitions and other items.

Another element of the technological cooperation involves the field of active defense against short and long-range missiles and rockets, an activity led by the Homa Administration at MAFAT (IMOD's Weapon System & Technological Infrastructure Research & Development Administration) in Israel and by MDA in the USA. This cooperative alliance has its own unique characteristics. For many years, the Americans have invested substantial funds in the development of the Israeli-made Arrow-2 and Arrow-3 systems. Recently, they have also been investing in the David's Sling system. These more recent investments include joint development efforts with some system elements being developed by US companies. Additionally, over the last five years substantial amounts of money have been transferred for the purpose of procurement of Iron Dome systems. This aid is devoted exclusively to procurement and does not include a joint development element. The US Government demands that a substantial part of the budget be spent on US soil, so the Rafael Company was required to transfer substantial production-related knowledge to US companies. The breakthrough in the field of missile defense will take place when DOD decides to adopt one of the Israeli-made systems, possibly the interceptor missile of the David's Sling system, for their own defensive layouts, and then the investments in knowledge transfer and joint development will prove they were worth their while.

Another tier of the cooperation between the two countries is the industrial-business cooperation. The USA is a huge market with substantial opportunities on the one hand which still presents a very difficult entry challenge on the other hand. A profound understanding of the development and procurement processes is required here. The organizations are gigantic, the processes are time-consuming, complex and evolving over time. A product being developed for IDF should be adapted to the end DOD client and sometimes the product must be 'Americanized' by incorporating sub-systems manufactured by US companies. In many cases, a US company will be found at the front as the primary contractor of an Israeli product. Israeli industries have had a few success stories in the US market: Elbit Systems' pilot helmet for the F-35 fighter is one example, the technological array deployed along the US-Mexico border is another. The decision made by the US Army to test two Israeli active protection systems, Rafael's Trophy system for the Abrams tank and IMI's Iron Fist system for the Bradley AFV, is a certificate of merit for Israeli industry. Even smaller Israeli companies, like the Roboteam Company and the UVision Company, manage to conduct business in the US market.

One of the most prominent manifestations of the importance of the US market to the Israeli industries is the impressive Israeli presence at the AUSA Annual Meeting & Exposition every year. AUSA is the largest exhibition of its type in the USA. It takes place at the Walter E. Washington Convention Center in Washington DC and attracts the senior officials of the US government and military. Regrettably, this year the exhibition will coincide with the Jewish New Year holiday and many Israeli companies chose not to participate in this year's exhibition, hoping that this would not adversely affect their opportunities and future orders.

The Defense Aid MOU

The Memorandum of Understanding (MOU) about to be signed pertains primarily to the defense aid the USA will provide to Israel over the next 10 years beginning in 2018. The main points of the agreement are fairly clear, even before it has been signed: about US$ 3.8 billion per year over a period of 10 years. This amount includes the direct aid (which has thus far amounted to US$ 3.1 billion per year) as well as the separate aid for the missile defense program. The total amount of the agreement reflects an increase of about US$ 300-500 million per year compared to the current situation – a definite accomplishment, although compared to the initial demand/request (which was somewhat detached from reality) of US$ 50 billion over a decade, this seems like a concession. The more substantial clause of this agreement involves a reduction of the share that may be converted from US$ to ILS. Today, IMOD spends ILS in Israel to the effect of about US$ 800 million per year out of the total aid amount, along with fuel purchases in the USA in the amount of about US$ 400 per year. The new agreement will eliminate the option of converting Dollars to ILS and the entire aid budget should be used on US soil, opposite US companies. Jacob Nagel, who has been serving as the acting head of Israel's National Security Council in the past year and as the person in charge of the negotiations with the US Government on behalf of the Israeli Prime Minister, has done an amazing job by succeeding, firstly, in having the amount increased and mainly in retaining the option of converting US$ 800 million per year into ILS for the first six years of the agreement, so that the option will only be eliminated as of 2024. This will enable the Israeli defense industries to prepare for the new situation or alternately to hope that another US administration will revoke this evil decree eventually.

IMOD's budget is about 60 billion ILS per year. US$ 3.8 billion account for about one quarter of the defense budget. If you take only the build-up budgets, then the US Aid will account for more than 60% of the IDF's build-up budget. This is a highly significant element in the IDF's build-up activity, so an additional expense of more than one billion US dollars each year on US soil will be a severe blow to the Israeli defense industries. Comprehensive preparations are therefore required by all of the defense industries, over a short period of 6 years. Companies will acquire and expand their production capabilities in the USA in order to supply systems, arms and ammunition to IDF. With regard to almost every project, IDF will demand that the industries implement the IDF's dollar share in the USA. In addition to production lines, raw materials will, quite naturally, be purchased in the USA even if superior and cheaper materials are available in Israel or in some other country. However, this "evil decree" may also be regarded as an opportunity. The transfer of knowledge and production lines necessitate highly advanced cooperative alliances with US industries. This extensive exposure to the Israeli products should be utilized in order to tap the gigantic US market and through it reach additional markets worldwide. Manufacturing in the USA will make the product American, thereby making it easier to market and sell to the US military. For example, let's take IMI's winning of the project to develop and manufacture a precision-guided, GPS-based 120mm mortar bomb with a range of 16 km for the US Marine Corps. This project is led by the Raytheon Corporation with whom IMI has a cooperative alliance that includes the manufacture of parts in the USA and the inclusion of the bomb in Raytheon's product portfolio. This win of the Marine Corps' tender will hopefully lead IMI to win the more substantial tender of the US Army where the product is a bomb that is identical/very similar to the one used by IDF. In this case, joint production lines and 'cross fertilization' between them should definitely be considered. Every IDF product we manage to sell to the US military could lead to joint production lines and to optimal utilization of the US Dollar.

There is no doubt that IDF and the State of Israel need the US Aid both now and within the foreseeable future. The main question is whether this aid benefits the State of Israel in the long run, or whether the generous gift embodies a latent fee that outweighs the benefit, a fee in the form of the transfer of substantial, priceless knowledge to US industries, an on-going damage to Israeli industries (mainly the small and medium enterprises) and possibly even a violation of Israel's independence in making political decisions.

From an American point of view, the US Aid is a genius tactic. It constitutes an investment by the US Government in US defense industries, a way to subsidize jobs at the places where those subsidies are needed the most. In the USA, defense manufacturing is carried out primarily in places where jobs are desperately needed. In addition to the numerous jobs, the added gain is the substantial knowledge that flows from Israel to the USA, the technological prioritizing of the best minds in Israel, the fact that the funds are invested in truly important ventures, et al.

Obama, Clinton & Trump

The US defense budget for 2016 was approved on schedule for the first time in several years and the work plans are progressing accordingly. The budget for 2017 is very similar to the 2016 budget, and is currently being approved. It reflects the policy of the Obama administration: reducing the military OrBat to an absolute minimum (in Afghanistan to less than 10,000 troopers), substantial savings in overseas operations and maintaining the build-up and R&D budget. The budget for 2017 is US$ 524 billion plus about US$ 59 billion for operations outside the USA. President Barack Obama is about to conclude his eight-year tenure at the White House. At the outset of his term in office, the US defense budget was US$ 690 billion and at the end of his term the budget is US$ 583 billion. This is the last budget before the forthcoming presidential elections. If Hillary Clinton wins the elections, the trends of the last few years will be maintained – such trends as continued cuts in overseas expenditure down to US$ 50 billion per year and maintaining the basic budget at about US$ 520 billion and even less. If Donald Trump becomes President, this will develop high expectations regarding a possible increase of the defense budget back toward US$ 600 billion per year, although experience has shown that campaign slogans are one thing and budget constraints are quite another. One should bear in mind the fact that even after the most substantial cut in the US defense budget during the Obama administration, the present budget still equals the combined total defense budgets of the 12 countries rated just after the USA, so the USA is still the world's leading, largest and most influential defense market.

Two noteworthy drives are currently taking place within US DOD. Mr. Robert O. Work, the deputy of US Defense Secretary Ashton Carter, is leading a strategic drive intended to promote investments in new developments that would position the USA at the forefront of technology with a substantial edge over such countries as Russia and China. This plan was conceived in view of the realization that the gap that had existed about a decade ago has shrunk considerably pursuant to the ever-increasing investments by the aforementioned countries in technology and procurement while the US military was busy fighting wars around the world and neglected the field of future developments. This plan is being promoted under the title "The Third Offset" – a bit presumptuous, if you consider the fact that the first offset involved the development of a nuclear capability and the second offset, following the Vietnam War, involved the development of land capabilities (the Abrams tank), naval and aerial capabilities (e.g. new aircraft). In the context of this program, the Americans intend to substantially invest in three primary directions: autonomous systems; low-cost, GPS-independent precision-guided munitions and cyber technologies (defensive and offensive).

The other noteworthy drive is the attempt to streamline the time-consuming, costly and complex procurement processes, under the title BBP (Better Buy Power) 3.0, following years of unsuccessful attempts.

During the term in office of President Barack Obama, the defense cooperation between Israel and the USA has flourished and is currently at a peak. This cooperation was reflected in three primary efforts, or fields of activity: one – maintaining Israel's qualitative advantage. Two – intelligence cooperation: during the present administration, working relations have been strengthened, cooperation has intensified and the trust between the IDF Intelligence Directorate and the numerous US intelligence agencies has improved. The third activity pertains to the IDF build-up effort. This involves mainly money – and a lot of it. The bulk of the added budget during the Obama administration was allocated to the procurement of Iron Dome batteries and interceptors, but even after Operation Cast Lead and Operation Protective Edge, the US administration loosened the purse strings and transferred funds for procurement and restocking. It may be stated that during the eight years of President Obama's tenure, the budgetary defense aid was the most substantial compared to previous administrations. The forthcoming approval of the agreement currently being consolidated for the next ten years will secure and even increase the annual amount of money made available to the State of Israel, despite the cold relations between the national leaders and the diplomatic stalemate opposite the Palestinians.

Will the Obama period be remembered as a good period for the State of Israel? At the strategic level, the USA is conceived around the world as weak. Weakness enables unfavorable processes to take place in our region. Also at the strategic level, the Obama administration signed the nuclear agreement with Iran – an agreement that is not favorable to Israel. But one step down from the strategic level, the defense cooperation and all of the tiers thereof is are full bloom.

The presidential elections are just around the corner and next January, a new president will step into the White House. Hillary Clinton, despite being regarded as Obama's conceptual successor, is a very different person. She will be a stronger and more determined president. America will be conceived as a stronger world power – both with regard to its image and in reality. She will be more assertive vis-à-vis Israel and attempt to enforce diplomatic solutions in her diplomatic way. The friction between Netanyahu and his government and a US administration led by Hillary Clinton might intensify. In an extreme situation, the defense aid and cooperation could be used by Hillary Clinton as leverage.

Donald Trump, on the other hand, is a riddle. Although he attempts to convey full support for Israel along with a message of national fortitude, no one can really anticipate how Trump will conduct himself if he enters the White House. A republican administration is expected to be more sympathetic to Israel. In the last two decades, a phenomenon that swept the USA was the ever-growing support for Israel among the republican public, which far exceeded the support for Israel among democrats. When it comes to elected public officials, Israel receives an almost wall-to-wall favorable treatment from both parties. 

 

Col. (res.) Itzik Elimelech, CEO of IMI USA and formerly a department head at MAFAT, IMOD