"Italy & Germany are Strategic Partners of Israel"

Brig. Gen. (res.) Shmuel Zucker, head of IMOD's Procurement & Production Administration, speaks in his first interview to Israel Defense about the massive arms deals of the Israeli defense establishment. Exclusive

From the rollout ceremony of Israel's 30th Lavi trainer jet in Italy (Photo: IMOD)

In 1969, an Egyptian artillery shell landed on the eastern bank of the Suez Canal, near Shmuel Zucker. The War of Attrition between Egypt and Israel was at its peak, and Zucker, then a young warfighter with the Shaqed Reconnaissance Battalion of IDF Southern Command was severely injured by shrapnel in his arm. His platoon commander was killed on the spot.

"During nights we would crawl out of the fortified locality and lay down on the earth dike facing the Canal, to ambush the Egyptian forces," Zucker recalled the incident 47 years later. "The shell that hit me landed in the courtyard of a nearby fortified locality. I was evacuated from the Sinai on board an IAF DC-3 Dakota transporter. My rehabilitation process took not less than six months, but I was determined to return to active duty."

Today, after a long career in the IDF and the defense establishment, Brig. Gen. (res.) Shmuel Zucker serves as Head of MANHAR – the Procurement & Production Administration of the Israel Ministry of Defense (IMOD), the organ in charge of billions of dollars' worth of transactions in Israel and worldwide (not including procurement from the USA, which is handled by IMOD's Mission to the USA, located in New York). In a first-ever exclusive interview to Israel Defense, Zucker uncovers the less familiar aspects of Israel's extensive defense procurement activity, speaks about the massive deals of the recent years and about other, future deals, but his story is picked up, before anything else, during his days with the Shaqed Reconnaissance Battalion.

"After the War of Attrition, the 'Shaqed' Battalion played an important role in the fight against the terrorists in the Gaza Strip, in the days when the late Arik Sharon was the general commanding IDF Southern Command," recounts Zucker. "We 'enforced the law' in the Strip when Meir Dagan was the commander of the smaller 'Rimon' Unit that eliminated terrorists. Years later, I served under Meir Dagan as a department head with the IDF GHQ Operations Division, and returned to the Gaza Strip as commander of the regional division in the mid-1990s, at the height of the period of Hamas terrorist attacks pursuant to the Oslo Agreement."

Among the other prominent positions he served in during his military career, Shmuel Zucker was the commander of the 13th Battalion of the Golani Infantry Brigade during Operation Litani in Southern Lebanon (1978) and later on the commander of the Galilee Formation – the IDF 91st Division, which is responsible for the entire length of the border with Lebanon. "At the bottom line, I served as a combat trooper or as commander in all of the 'hot' sectors of IDF in the last few decades," Zucker concludes. Before his discharge from military service, he served in a different position: IDF Military Attaché in Germany in the early years of the present millennium.

During his term as military attaché, Zucker established very close relations between IDF and the German military, which included delegations of German officers that came to Israel for advanced training seminars (despite the historic 'deposits' involved: Zucker's own parents had fled from Poland to the USSR during World War II, thereby surviving the Holocaust), and visits by German officials to the IDF's elite units. For his accomplishments, Zucker was awarded a special and rare decoration by the German Defense Minister.

"Only when I was standing on the parade ground, where I was awarded the decoration, in front of the entire German General Staff, did I understand how important this occasion really was, and I regretted not having invited even the Israeli ambassador to attend the ceremony," recounts Zucker with a smile. Years later, as head of MANHAR, he once again maintained close relations with Germany, this time in connection with procurement issues – but we'll get to that later on.

Head of MANHAR

Between his IDF service and his present position as head of IMOD's Procurement & Production Administration (a tenure he will conclude in February 2017), Zucker headed a somewhat secret defense project.

"While running a project as head of an independent jurisdiction unit within the Defense Ministry, I had a stroke. I was hospitalized at the Ikhilov Hospital in Tel-Aviv, lost my vision in one eye – which I later regained, and eventually went back to work," recounts Zucker. "Running such a complex project, based entirely on Israeli contractors who had been given a high security clearance, was a major challenge. To my delight, the project went ahead according to the planned timetable, and then I was offered the position of Head of MANHAR, and decided to accept that challenge, too.

"When I arrived at the Procurement & Production Administration," continues Zucker, "I asked the people of the Administration to point out similar procurement agencies, so that I may be able to learn from them. They told me there was no equivalent. MANHAR is a unique organization that has no equal. I nevertheless tried to find something similar, so I was referred to Israel Aerospace Industries (IAI) and went on to observe how they ran their massive procurement activity. I went back to the office, and asked the computer specialists at IMOD to design a system that would enable me to know, through the computer, what is happening with the primary procurement processes at any given moment, as I was able to find out what was happening at any given moment along the northern border as commander of the IDF 91st Division. Today, using that system, I can log in with the resolution of any individual procurement division and monitor any order that is being run irregularly.

"Generally, it is important to understand that procurement is a complex activity, but it is not taught anywhere. Where can you take a course in procurement? Where can you specialize in procurement? Who has a university degree in procurement? There is no such thing. Consequently, you have to teach this activity to the people joining the organization from the ground up. You have to cause the organization to operate according to specific rules and procedures, with regard to the ethical and moral aspects as well as with regard to other aspects. You cannot just get up in the morning and become a procurement specialist. You need training.

"The procurement functionary gains enormous power vis-à-vis the industries, which in many cases are reluctant to complain. I encourage the industries to complain, over any platform, if they have a good reason to do so. I am not just saying it as lip service – I truly mean it. The industries are my sensor, because they are fighting for their lives."

So what, in fact, is the Procurement & Production Administration?

"The Procurement & Production Administration is the organ through which IMOD spends 9 to 10 billion ILS every year on new procurement. In 2014 we spent as much as 14 billion ILS, owing to the special expenditure associated with Operation Protective Edge and the privatization of IMI.

"Generally, we are dealing with amounts on the order of 35-40 billion ILS, including projects that run for years. Every single Sheqel that comes into MANHAR goes out to the industry. I cannot divert the budget to anything other than the industry. Everything is converted into purchase orders. The budget belongs to the IDF, which submit a requirement and technical specifications. Many households in Israel live off that budget. I find myself serving as a mouthpiece for the Israeli industries, fighting like a lion, insisting that the procurement be carried out using ILS in Israel, rather than using US Aid dollars, which can only be spent in the USA."

A new defense aid agreement has been signed with the USA recently that would gradually eliminate the option of converting about one quarter of the annual aid budget to ILS, to be used for purchasing in Israel. To what extent will this change harm the Israeli industries?

"The amount we can convert to ILS with the Americans' consent is US$ 800 million per year, and it will no longer be available within a few years. Factually, a substantial amount of money will no longer go to the Israeli industries. It will not happen tomorrow morning, it will take five to six years, but it is significant. It might have an adverse effect on peripheral areas, places like Shtula, Sderot, Yerucham and Arad – I visit those places and am deeply concerned about those settlements, which are particularly dependent upon the defense budget, but the only thing I can give them is attention and sympathy. When the CEO of Elbit Systems had a part of ElOp's production line transferred to the ElSec Company located in Sderot, near the Gaza Strip, it was an important economic event for them. Now we are doing our best, almost forcefully, to issue purchase orders to Elbit so that they may be produced over there."

In other words, your considerations regarding the defense procurement are social as well, not just economic?

"My consideration is economic first and foremost, based on the assumption that I must deliver the quality IDF demand at the best price.

"If we have to pay a lot of money so as to keep a plant from closing down, then we will definitely not do it, but I present these issues at every opportunity, I raise the implications of Israeli industries closing down. In fact, I consider how much of our money can be given to Israeli industries within the limits of economic reason. IMOD is the only government organ that assigns a priority, by law, to companies in peripheral areas and along the lines of confrontation, at a rate of 15% of the price. I have no qualms about it, but by doing so we are losing money consciously."

Do you also consider retaining production lines of strategic importance? For example, the case of the small arms ammunition plant, or the artillery shell plant. Having these plants closed down will eliminate the IDF's sources of supply, leading to total dependence on foreign sources in emergencies.

"As much as I regret it, the issue of the strategic industries and vital production lines is not a high-priority issue, as at the present time the defense budget lacks ILS funding compared to US Aid dollars, so the tendency is to issue purchase orders to the USA. In order to maintain a strategic industry and vital production lines you have to spend money. You have to prevent the engineer from quitting his job, to supply raw materials for a time of need and so forth. In the present situation, we do not have the money required in order to retain the vital production lines.

"Retaining Israeli (industrial) capabilities is highly important. During Operation Protective Edge, for example, Israeli companies and industries went out of their way to assist the defense establishment practically around the clock. I held a suppliers' conference after the war, awarded certificates of appreciation and thanked the industries for the amazing job they had done. This can only be accomplished with Israeli industries."

When you consider an Israeli mega-project like the Merkava tank project, which costs a lot of ILS, don't you get the urge to say: "Let's close down the project, purchase tanks from US Army surplus, thereby freeing a substantial amount of ILS within the budget"?

"The Merkava project supports something like 200 industries, large and small, at the cutting edge of technology. If we stop this project, many of these industries will be closed down. These industries make a substantial contribution to defense exports and to the advancement of technology, even regardless of the Merkava."

A part of the production of the Merkava APC, the Namer, was transferred to the USA a few years ago in order to utilize the US Aid funds, and the sky did not fall down: the Israeli industry has not collapsed as a result.

"The larger industries can make the conversion and relocate to the USA, so their sky has not fallen, but the smaller industries cannot do that. However, the Namer project still provides a lot of work to Israeli industries, as the systems for the APC are made over here. It is mainly the steel elements that are being manufactured in the USA."

Air & Space Deals

Brig. Gen. (res.) Shmuel Zucker has served as Head of MANHAR for the past six years. One of the largest procurement deals he led involved the acquisition of 30 Alenia Aermacchi M-346 Master trainer jets, IAF designation 'Lavi', from the Leonardo Corporation of Italy. That deal involved fierce competition with a South Korean manufacturer in cooperation with Lockheed Martin of the USA.

"Generally, IAF likes to cooperate with MANHAR, excluding their giant deals with US suppliers, which are handled through IMOD's Mission over there," says Zucker.

Are you involved in the acquisition of the new aircraft for the Prime Minister?

"Yes. In thie case we are working for the Prime Minister's Office as their procurement organ. The competition was fairly complex. We had a problem getting the demanding organ (the Prime Minister's Office) to understand exactly what they wanted – what type of aircraft, what equipment to be fitted to the aircraft, which configuration, which protective rmeasures.

"We were also involved in the acquisition of firefighting aircraft a few years ago, and now a process is under way to hand over the responsibility for this activity from IAF to IMOD to the Ministry of Public Security, in line with the recommendation of the National Security Council."

According to Zucker, the trainer jet deal was one of the most complex transactions in IMOD's history. "There are 105 different 'kits' of this aircraft. We worked on the costs day and night, and that included financing from the banks and interest rates, and eventually ended up with six contracts simultaneously, including significant offset purchasing by Italy from Israel (which includes an airborne surveillance system and a joint space project with IAI).

What is the total scope of all of these deals?

"Around 3 billion US dollars on both sides, possibly even more. The trainer aircraft were delivered on time – the last one arrived earlier this year. We did have some ups and downs along the way. In one of the crisis situations, I met with the CEO of the Leonardo Corporation and voiced quite a few concerns and complaints, but eventually we came out of that meeting as good friends.

"Leonardo (formerly Finmeccanica) is a giant corporation. We regard Italy as a strategic partner of Israel. The desire for a strong connection is mutual.

"The Italians are interested in selling the 'Macchi' as a trainer aircraft to the USAF as well, and the fact that the Israeli Air Force, regarded as one of the best in the world, has purchased this aircraft and is very pleased with it, can affect the American considerations in this matter. IAF pilots already train with the 'Lavi' in preparation for the fifth-generation fighter aircraft, and are very pleased with the display system, controls, pilot ergonomics, dual engines and the aircraft in general."

Massive Naval Deals

Not just in the air: Zucker's tenure has been characterized by giant deals that are also changing the face of the IDF Navy, which currently complements its submarine fleet to six vessels and may purchase additional submarines from Germany (refer to our news section, page 80). Additionally, the deal designated "Economic Waters" has been initiated. It consists of the purchasing, from Germany once again, of four giant surface vessels having a displacement of 2,000 tons each, for the purpose of defending Israel's territorial waters where, during the last decade, gas deposits of strategic importance have been found.

What is the scope of the "Economic Waters" project?

"There is no price tag yet, but it will amount to billions of ILS. It is also a highly complex transaction. Initially, the Navy had pointed out to one specific shipbuilding industry that is capable of manufacturing the vessels they wanted – in South Korea. At some point we realized that there were other shipyards in Korea, and along the way we also received proposals from such places as India and Spain. During the process, the German shipyards that build our submarines also became relevant.

"We were already preparing to issue an international tender, but owing to the good relations between Prime Minister Benjamin Netanyahu and German Chancellor Angela Merkel, who decided to fund one third of the cost as a grant (about € 130 million worth of grant per vessel), we relinquished the international tender and opted for the Germany shipyards.

"Originally, we had wanted to close a government-to-government deal with South Korea in the context of which the Koreans should have purchased the Iron Dome system, but we never reached that stage. The Koreans keep their government and industries strictly apart, unlike the deal with Germany and what we had with Italy, where the government was also very helpful."

Have you succeeded in implementing German offset purchasing in Israel in the context of the naval vessel and submarine deals?

"The Israel Foreign Investment & Industrial Cooperation Authority headed by Mrs. Ziva Eiger is the organ responsible for offset purchasing. I provide the project with all the backing it needs as it concerns Israeli industries. First of all, we are committed to including an offset purchasing annex in every contract. Many German companies are making offset purchases in Israel, but the shipyard itself has thus far failed to meet their obligations, and we are pressuring them to do so."

Compared to the two major deals with Italy and Germany, what can you tell us about your connections with two other European giants – France and the UK?

"Our current anchors at MANHAR are Germany and Italy. They are our primary partners, and our connections with them are really good."

The Technological Tender in the South

At the same time as the giant deals overseas, last September MANHAR has issued a major technological tender in the context of the preparations for relocating the primary IDF bases of the C4I and Intelligence Directorates from the central region to the Beersheba area in the south. Giant international corporations are currently preparing to compete for this tender through several coalitions with Israeli industries.

What is the actual scope of this tender? It took many years to issue, and it is not yet clear to everyone what its scope really is.

"We succeeded in having the tender coordinated by MANHAR as previously, the entire process of the relocation to the south had been run by a special administration within IMOD.

"Some of the delays had to do with the fact that the former head of the IDF C4I Directorate, Maj. Gen. Uzi Moscowitz, was of the opinion that all of the project elements should be contracted out to foreign companies. As a result of considerable efforts, I managed to convince him that there is no reason why it should not be done in Israel, with backup provided by American companies acting as sub-contractors. In this context, an American company that has a subsidiary in Israel is regarded as Israeli for all intents and purposes. Consequently, the tender for the primary C4I contractor, which is worth hundreds of millions of ILS over a period of several years must be executed by an Israeli company.

"The primary C4I contractor will have to execute what the Lotem Unit of the IDF C4I Directorate had designed. He will act as the executing contractor. In the context of this project, DRP systems would have to be relocated to various places and streamlined. The secondary projects are known as 'Five Nines,' 'The C4I Campus' and 'The Intelligence Campus' and within this context we are also considering the cloud computing service for IDF, which is a project in itself that we have not reached yet. The same conventional features should fit into the cloud, they should depart from the conventional and fit into the cloud. It is a part of a new content world. In other words, we will provide the primary C4I contractor with technical specifications and he would have to deliver the project to the IDF C4I Directorate. He will have to position the servers, make the energy calculations, know who communicates with whom, link all of the elements of the various industries together, be they components by Sisco or Juniper, and know how to transfer them to new locations in the south."

So in fact, what you are purchasing is the management? The manpower?

"I am purchasing the manpower that should provide the technology for the C4I. The primary contractor should hire sub-contractors who would work for him."

How long will the relocation to the south take?

"My estimate is between 8 and 10 years. In 3-4 years, the C4I Campus will be ready, and then, after a few more years, the Intelligence Campus will be ready as well.

"The actual tender involving the construction of the C4I Campus is run by the Relocation to the South Administration. After we disseminated the tender for the primary C4I contractor a while ago, various companies have formed alliances, coalitions. They can present clarification questions, they could have thousands of questions.

"We will route the answers through our legal counsel, so as to provide answers to everyone, without discriminating, so that no one might think that I am lenient with one company and strict with another. After everyone has understood everything, bids will be submitted and then we would select the winner. In my estimate, it will not happen before May of next year.

What about the tender regarding the primary cloud computing service for the IDF's information systems, which everyone has been talking about for years? Why is it being delayed?

"This matter is still being deliberated by IDF. Without technical specifications and a budget, IMOD cannot hit the road." 

 

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