News Analysis – March 2015

General News Summary

A Sweeping, Surprising Victory

Prime Minister Benjamin Netanyahu and his Likud party have won a sweeping, surprising victory in the March 17 elections. After running behind the principal challenger, the Zionist Camp slate led by Yitzhak (Bujie) Herzog of the Labor party and Tzipi Livni of Hatnua, for much of the campaign, when the votes were tallied up, Netanyahu’s Likud had won 30 seats in the Knesset, Israel’s unicameral parliament. Provisional results put Zionist Camp second with 24 and the Joint List of Arab parties third with 13. Yesh Atid of former finance minister Yair Lapid (11) was fourth, followed by the new Kulanu party of former communications minister Moshe Kahlon (10), the right wing Jewish Home (8), Shas (7), United Torah Judaism and former foreign minister Avigdor Lieberman’s Yisrael Beitenu (6 each) and the left-wing Meretz (5). Yahad, led by former minister Eli Yishai, did not pass the 3.25% qualifying threshold for Knesset representation.

President Reuven Rivlin has formally asked Netanyahu to form the next government and coalition negotiations have begun. Despite the convincing dimensions of the final tally, the process is likely to take several weeks, if not more. He’s going to find it impossible to satisfy the demands of three potential partners for senior posts: Bennett and Lieberman have each set their sights on either Foreign Affairs or Defense, Kahlon ran for Finance throughout the entire campaign. Granting all three’s wishes would leave his own Likud without a single senior post except the premiership; granting the wishes of one, or even two, of the smaller potential partners would infuriate those left out.

Kahlon in particular has reason to be cautious in his dealings with Netanyahu. He’s seen how the lack of support given Lapid as finance minister in his 2013 coalition and Netanyahu’s failure to provide the ambitious Yesh Atid leader the support necessary to succeed at Finance.

Even before the new government is formed, some conclusions can be drawn from the results.

1. Despite all predictions to the contrary, Netanyahu emerged from the elections much stronger than he was when he went in. The Likud, which had only 18 seats in the outgoing Knesset (of 31 won in 2014 by its then-joint ticket with former ally Lieberman’s Yisrael Beitenu) increased its seats by more than half.

2. Poll results can’t be trusted, at least not in Israel. The Herzog-Livni Zionist Camp ran even with the Likud in the polls – or held a slim but significant lead – for virtually all of the three-month campaign. Exit polls conducted by Israel’s three TV channels broadcast when voting stations closed showed the two candidates deadlocked. The surprise came several hours later with the actual vote count showing a 30-24 Likud margin.

3. Netanyahu’s tactics seemed desperate, but voters bought them. In the final weeks, Netanyahu made all kinds of charges – that his opponents would fold in the face of foreign pressure, that they would divide Jerusalem, that foreign governments were funding efforts to defeat him. Most observers called these charges wild and said that Netanyahu was frantic, fearing impending defeat. The voters apparently felt otherwise.

4. Israeli voters were not affected by the personal conduct of Netanyahu and his wife Sara. State Comptroller Joseph Shapira’s report about excessive spending at the Prime Minister’s Residence in Jerusalem and a possible police investigation of some of his charges, a lawsuit against the first couple by a former manager of the residence, reports of Mrs. Netanyahu’s alleged abusive behavior to staffers, overblown personal expenses including the illegal diversion of state funds to the private family home – most voters seem to have accepted Netanyahu’s claims of persecution, particularly by what he called the hostile media.

5. Netanyahu’s last-minute push did not draw significant numbers of votes from people intending to vote for the center-left group of parties, it merely shifted votes from voters who had abandoned the Likud. But the Bennett’s claim that the Jewish Home party had “sacrificed” Knesset seats is misleading – the last-minute switch voters came voluntarily.

6. The tactics employed to win votes will cause Netanyahu problems in the aftermath. His statement that droves of Arab voters were headed for the polls, in buses paid for with money from foreign governments, prompted many right-wing voters to support the Likud rather than a party with similar ideology. But it was a major slight to the more than 1 million Arab citizens of Israel, who in any case complain of discrimination and unequal treatment by government institutions. Indeed, Israeli Arabs are openly skeptical about the prime minister’s subsequent statement that he didn’t mean what he’d said, calling the retraction “an empty gesture.”

And Netanyahu’s pre-election pledge that there would be no Palestinian state on his watch has exacerbated already difficult relations with President Barack Obama and the U.S. administration. Netanyahu tried to explain the statement away a few days later by saying that it was a reality issue and not policy since his commitment to two states for two peoples in a 2009 speech.

But the White House clearly wasn’t buying either explanation. Obama, already infuriated when the Israeli leader bypassed him in accepting a Republican invitation to address the U.S. Congress on Iran a few weeks earlier, said that the Israeli leader’s rhetoric “starts to erode” the meaning of democracy in Israel, and White House chief of staff Denis McDonough referred to the Palestinian state flip-flop by saying that the administration “cannot pretend that these statements were never made.” Obama could hardly make it clearer that he simply doesn’t believe much of what Netanyahu says and does.

The widening of the gap with Obama, which has been problematic at least since Netanyahu’s open support of Republican Mitt Romney in the 2012 U.S. election, raises questions about the level of U.S. support for Israel, though not the alliance itself. Israeli and American commentators say possible American responses include more cautious use of the American veto in defense of Israel at the U.N. Security Council and movement in the direction of anti-Israel sanctions, both moves which are certain to provoke furious response from Netanyahu’s Republican allies in the U.S. Congress.

It seems imperative on Netanyahu to try and improve relations with the U.S., Israel’s principal ally and supporter. Much depends, however, on the nature the next government. Coalition mathematics indicate that Netanyahu can opt for a comfortable-to-him right-wing alliance with his religious-nationalist “natural allies” plus swingman Kahlon. Or he can try to mollify the Americans, Europe and much of the world as well with the alternative, a coalition including either the centrist Yesh Atid and/or perhaps the center-left Zionist Camp too, as a stand-alone. In any case, the next few weeks stand to be very interesting.

Hamas Rockets War Crimes, Amnesty Says

Rockets fired from the Gaza Strip killed more Palestinian civilians in Gaza than civilians in Israel, Amnesty International said in a report released on March 23. In addition, the international human rights monitoring body classified attacks on Israel with unguided rockets as war crimes.

“Palestinian armed groups, including the armed wing of Hamas, repeatedly launched unlawful attacks during the conflict killing and injuring civilians,” said Philip Luther, director of Amnesty’s Middle East and North Africa Program. “In launching these attacks, they displayed a flagrant disregard for international humanitarian law and for the consequences of their violations on civilians in both Israel and the Gaza Strip.”

Amnesty said some of Israel’s actions in Gaza last summer amounted to war crimes. An estimated 1,585 Palestinian civilians, including more than 530 children, were killed in Gaza last summer. Luther called on both sides to cooperate with the United Nations Commission of Inquiry and the International Criminal Court to end “a cycle of violations in which civilians on both sides have paid a heavy price.”

Pact Not Renewed

The United States has not renewed guarantees of supplying oil to Israel in cases where Israel might be cut off from its regular commercial sources of oil because of war or closure of sea lanes. Globes business daily, quoting Washington sources, said the agreement expired in November 2014, and since then the Obama administration has done nothing to renew it. It is not clear whether the cut-off was a deliberate step by the administration, stemming from renewed friction between Netanyahu and the White House, or a matter of bureaucratic inertia in Washington.

‘Incomprehensibly Bad’

An Israeli official has labeled the emerging nuclear deal with Iran as “incomprehensibly bad,” according to a report in the Times of Israel online newspaper. Speaking in late March, the official expected that a framework deal would be signed soon and that an agreement would follow in June.  He contested the U.S. view that Tehran would not be left with enough fissile material to build a bomb within a year, was critical of negotiators’ apparent readiness to lift sanctions without requiring Iran to halt global terrorist activities and said that the Iranian regime would be able to continue working against American, Israeli and moderate Arab interests.

Saudi Foreign Minister Saud al-Faisal appeared to confirm much of the Israeli official’s argument.  Speaking after a joint Arab force attacked Iranian-backed Shi’ite Muslim rebels in Yemen, he said the agreement with Iran was a mistake because of what he called Tehran’s “second plan” – an effort to gain control of the Arab world and, ultimately, the holy places in Mecca.  Israeli and Saudi observers contend that this effort, which also includes support for the Bashar Assad regime in Syria and the Shi’ite Hizballah terror organization, is likely to continue whether or not nuclear agreement is reached.

The Economy

Growth Slows

Revised Central Bureau of Statistics figures published in early March indicate that the Israeli economy GDP rose 2.8% in 2014, compared with 3.2% in 2013 and 3.0% in 2012. Business product (output in economic sectors, excluding public services) was up 2.7% in 2014, following rises of 3.4% in 2013 and 2.9% in 2012. Per capita GDP rose 0.8% in 2014, after rising 1.3% in 2013 and 1.1% in 2012. Seasonally adjusted figures for quarterly growth show 6.8% growth in the fourth quarter, compared with the previous figure of 7.2%, 0.2% in the third quarter during Operation Protective Edge, 1.7% in the second quarter and 3.0% in the first quarter.

Analysts attribute the exceptional fourth quarter 7.2% growth to a number of factors: pent-up demand in the wake of last summer’s Operation Protective Edge, tax policy changes that accelerated automobile purchases by businesses and private individuals and lowering of the basic interest rate by the Bank of Israel.

More Deflation

Israel’s Consumer Price Index fell 0.7% in February, following January’s drop of 0.9%, the Central Bureau of Statistics reported on March 15. Inflation is down 1.6% since the start of 2015 and 1.5% for the 12 months from March 2014 to February 2015.

Notable price falls in February were in household electrical appliances (9.9%), fuel and oil for vehicles (3.2%), Internet and telecom services (2.7%), overseas travel (1.9%), and footwear (3.1%). Fresh fruit prices (4.2%) and rent (0.2%) increased.
The Bank of Israel last month cut its main interest rate, the one charged borrowing banks, by 15 points to a historic low of 0.1%. Experts now wonder if the central bank will follow the European example of negative interest rates.

Cost of Conflict

Last summer’s Operation Protective Edge in Gaza cost Israel about NIS 3.5B (over $900M) in lost Gross Domestic Product, according to the just-published annual report for 2014 of the Bank of Israel. Most of the loss came in reduced tourism and non-durable consumption, which the central bank called “unusually formidable.” The loss amounted to about 0.3% of annual GDP.

Salary Levels Fall

Salary levels in Israel’s private sector are lower than the levels 14 years ago, according to a report by Yoel Naveh, the Finance Ministry’s chief economist. In an analysis of Central Bureau of Statistics, Naveh said that in most areas the average wage is lower in real terms than it was 13 years ago.

PA Cancels Gas Contract

The Palestinian Authority’s Palestine Power Generation Co. (PPGC) has canceled a $1.2B, 20-year contract to purchase gas from Israel’s offshore Leviathan field. Delek Drilling and Avner Oil, the Israeli partners in Leviathan, attributed the cancellation to delays in Israel Antitrust Authority authorization for development of the field. In late February, Antitrust Commissioner David Gilo put off for two months a decision on whether the companies constituted a monopoly.

Meanwhile, Israeli government revenues from natural gas set a record high of $180M in 2014, up 39% from 2013, according to the Ministry of National Infrastructure, Energy and Water. The bulk of the revenues ($106M) came from the Tamar offshore natural gas field. Delek and its American Partner, Noble Oil of Texas, have filed suit against the state for collecting excess royalties on gas pumped from their fields.

Twin City Pact

Ashkelon, on Israel’s southern coast, has signed a twin cities agreement with Vadordara, India. The pact was signed during the visit of an Ashkelon municipal delegation to Vadordara earlier this year, and a previous visit by the Indian city’s Mayor Bharat Shah to Israel. Ties between the Vadordara area and Israel date back to 2006, when current Indian Prime Minister Narendra Modi was chief minister of Gujarat state.

Red-Dead Pipeline

Jordan and Israel have agreed to go ahead with a World Bank-sponsored project to build a desalination plant in the Gulf of Aqaba and a pipeline linking the Red Sea with the Dead Sea. According to Reuters, water from the desalination plant in Aqaba on the Red Sea will be shared with Israelis and Palestinians. The brine byproduct of desalination will be sent north in a 180 km. pipeline to the Dead Sea. The project will cost around $900M and will take nearly three years to complete. Jordanian officials said the two projects were crucial to providing a source of fresh water to the kingdom, which faces a severe water deficit, and reviving the shrinking Dead Sea.

Jordan Fence?

Israeli security officials have reportedly recommended building a security fence on part of the country’s eastern border with Jordan, the only country on whose frontier it does not have a security fence. According to a report by the Agence France Press (AFP), an army spokeswoman said that “security officials” had suggested a fence be built at Timna, about 20 km. north of the Red Sea resort city of Eilat, where construction has already started on a new airport for Eilat.

More Palestinian Workers

The number of West Bank Palestinian workers in Israel has doubled in the past four years according to a Bank of Israel report. The 92,000 Palestinian workers, employed both legally and illegal, usually have replaced foreign “guest workers.”

According to the Central bank, Palestinians working in Israel get few if any benefits and are paid less than their Israeli counterparts. Those entering Israel with a permit pay “significant” fees to Palestinian and Israeli labor contractors for a permit. Nevertheless, wages are considerably higher than in the West Bank, and average of NIS 187 ($47) a day, compared with NIS 87, if they’re lucky enough to get a job in the unemployment-plagued West Bank.

Income Figures

Israel ranks 32nd in the world in per capita Gross Domestic Product, according to International Monetary Fund figures. In 2014, Israel’s per capita GDP was $33,300, compared to $24,100 in 2005. That ranks the country just above Spain and just below Italy, New Zealand and South Korea.

Unemployment Dips

Unemployment fell from 5.6% in January to 5.3% in February, according to the Central Bureau of Statistics.

Finance & Investment

Frantic Pace

Foreign buyers are snapping up Israeli companies at what may be a record pace, already threatening to break through the $3.4B mark set in 2014. According to a survey by Calcalist, the economic supplement of Yediot Aharonot, Israeli companies were snapped up for more than $1.2B in the first six weeks of 2015 alone. Among the reasons for the spurt, in addition, of course, to Israel’s deserved reputation for innovation, is the high level of U.S. taxes.

Cisco’s Stake

Cisco Systems, which has been involved in Israel since the early 1990s, over the years has paid about $1.5B for 10 Israeli start-ups. According to a report in Haaretz, the U.S.-based networking equipment giant has about 1,800 employees in its Israeli R&D center. It’s a major partner, with the Israel Electric Corp., in development of a super-fast fiber-optic network, and in addition to its acquisitions has invested in over 20 other Israeli companies. These include Team8, a cyber-security lab set up by a former commander of IDF Intelligence’s 8200 tech unit, and Wilocity, acquired by Qualcomm last year for about $400M.

Brazilian Buy

Tel Aviv-based Gazit-Globe continues to acquire properties in Brazil. Latest acquisition of the real estate firm controlled by businessmen Haim Katzman and Dori Segal is Mais Shopping in Sao Paulo (13,000 sw.m, 238 stores), for a reported price of around $75M. Gazit-Globe owns and/or operates over 500 properties in 20 countries.

Netafim Financing

Netafim, the developer and world leader in drip irrigation systems, has signed a five-year, $500M bank financing arrangement with a syndicate led by Israel’s Bank Hapoalim. Netafim plans to use the $150M long-term loan and $350M in revolving shorter lines of credit to expand marketing activities.

Netafim is owned by Kibbutz Hatzerim near Beersheba, which established the company in 1965 and still holds 33% of it, and European private equity fund Permira, 61% at $850M company value. The firm operates in 110 countries and has 16 production facilities worldwide.

Mergers & Acquisitions

Microsoft-N-trig

Microsoft has acquired N-trig, a provider of pens and clips for touch screens, for a reported $200M. The Israeli company, based in Kfar Saba in the high-tech belt northeast of Tel Aviv, already is providing pens for the Surface tablets of Microsoft, which previously owned about 6% of the company. Sony, Lenovo, Fujitsu and Hewlett Packard use N-trig technology in smartphones and tablets. Founded in 1999, N-trig previously raised more than $150M. In addition to its Israeli headquarters, it has hubs in North America, Japan, Taiwan and China.

DocuSign-ARX

Transaction management specialist DocuSign of San Francisco has acquired Israel’s Algorithmic Research Ltd. (ARX) for an estimated $30M. The acquisition of the Petah Tikva-based ARX brings together ARX’s CoSign digital signature technology with DocuSign’s Digital Transaction Management (DTM) platform, to empower customers to transact business with full trust and confidence anywhere in the world.

Paypal-CyActive

In the first exit of a company from Israel’s new Beersheba High-Tech Park, online payment giant PayPal has acquired CyActive for $60M. Founders of the Israeli firm, whose technology is designed to assess possible fraud threats, are Liran Tancman and Shlomo Boutnari, both graduates of the IDF’s defense intelligence technology system. PayPal’s Israeli operations already include a center for detecting financial fraud in the Electra Tower in Tel Aviv, the innovation center of eBay, PayPal’s parent, on Rothschild Boulevard in Tel Aviv, and a development center near Netanya.

Nova-ReVera

Nova Measuring Instruments, based in Rehovot south of Tel Aviv, has purchased ReVera, a Santa Clara, California specialist in optical technology used in the manufacture of advanced semiconductors. Purchase price is $46.5M. Nova provides optical metrology solutions for advanced process control used in semiconductor manufacturing. ReVera is a leading provider of metrology solutions for advanced semiconductor manufacturing. ReVera’s products focus on process control of composition and film thickness for complex, multi-layer film stacks in the most critical process steps.

Nielsen-eXelate

Nielsen, the global media ratings company, has purchased eXelate, an Israeli big data company that has developed a data search-and-analysis platform for digital advertising companies, for an estimated $200M in cash. Founded in Israel in 2007, eXelate has headquarters in New York and offices in London and Paris and a R&D center in Rosh Ha’ayin, northeast of Tel Aviv.

Infosys-Panaya

Infosys, the Indian information technology giant, has purchased Israel’s Panaya for $200M. Based in Ra’anana northeast of Tel Aviv, Panaya provides automation technology for management of large-scale enterprise software. Infosys will make Panaya its Israel development center.

Temenos-Multifonds

Temenos, a Swiss banking-software company, announced the purchase of Multifonds, a Luxembourg-based company founded and managed by a team of Israelis, for Euro 235M ($261.5M). Founded in 1995 and controlled by the private-equity firm Summit Partners, Multifonds develops and sells software that enables investment-fund managers to perform key accounting functions, service investors and keep shareholder records.

Nephromor-Fresenius

Nephromor, a chain of private dialysis centers in Israel, is expected to be sold to Fresenius of Germany. Estimated purchase price is NIS 350M ($85-$90M). Teva Pharmaceutical Industries is the largest Nephromor shareholder with about half of the dialysis firm’s equity. Clalit Health Services, the largest Israeli HMO, is another shareholder.

Science & High Technology

Winning Smile

Stratasys, a world leader in 3-D printing based in Rehovot, south of Tel Aviv, has unveiled a new printer that provides models for digital dentistry. The Object 260 Dental Selection printer will produce realistic dental models with a true-to-life look for use by dental and orthodontic labs.

Gilat Contract

Israel’s Gilat Satellite Networks has won a $286M contract in Peru to set up telecommunications networks in rural areas. Gilat says that the contract with Fitel (Fondo de Inversion en Telecomunicaciones/Telecommunications Investment Fund) is the largest contract it has ever won. Fitel’s regional initiative represents the complementary phase of the Peruvian National Fiber Backbone project, aimed to connect rural villages to broadband services. The Gilat contracts are on a BOT (build, operate and transfer) basis.

Weight Pill

Tulip Medical, based in Herzliya Pituah, has reported a successful preliminary trial of its weight-loss pill which inflates in the stomach and expands like a balloon to give a satiated feeling. Though a 4% weight loss was observed in the trial on 16 people, the test was only for safety since there was no control group involved. According to Globes, a dietary program will be coordinated with administration of the bill in upcoming trials. The pill was developed to improve on implantation of a balloon in the stomach in a semi-surgical procedure which has not been approved in the United States. GelSys, another Israeli company, is working on a similar solution – “pearls” that expand in the stomach.

Tulip’s pill is intended as a prescription treatment for people with body mass indexes of between 25 and 35.

Teva Successes

Two proprietary drugs of Teva Pharmaceutical Industries, Israel’s world-class drug developer and manufacturer, have successfully passed advanced clinical trials. The Lancet Respiratory Medicine Journal reported that Reslizumab had reduced the frequency of attacks in patients with moderate to severe cases of asthma by 50-59% in a Phase 3 trial. In a separate development, Teva’s drug prototype TEV 48125, which is injected once a week, reduced the severity of headache of 172 migraine patients participating in a Phase 2b trial.

Joint Labs

A number of new joint Italian-Israeli laboratories have been set up in Israel by research institutes from the two countries. They include a neurology-brain science lab in Tel Aviv, a solar lab in the Negev, a health sciences lab at Ben-Gurion University in Beersheba, and a physics-magnetism lab at the Weizmann Institute in Rehovot. Support for the projects comes from the governments of both countries.

Aerospace & Defense

Defense Burden

Israel still spends more on arms and defense relative to the size of its economy than any of the world’s 11 largest economies, according to a study conducted by researchers at the Israeli Institute for National Security Studies. The study noted that the relative share of defense has been declining since the 1970s, increasing only slightly in 2014 due to Operation Protective Edge.

In 2013, Israel spent $16B on defense, equaling 5.6% of GDP or $2,037 per person. Only the United States approached those figures, spending 3.8% of GDP on its military. France spent 2.2%, Turkey 2.3% and Japan 1%.

More F-35S

Israel has signed a contract to purchase an additional 14 F-35 aircraft from the United States, at $110M each. The deal brings the number of the fighters Israel will receive, to 33; Israel bought 19 F-35s in 2010.

The first two planes of the 33 are due to arrive in Israel by the end of 2016. Israel is interested in purchasing additional F-35 to establish two squadrons of 25 planes each.

According to a Defense Ministry statement, the total F-35 deal so far amounts to $2.8B, including simulators, training and maintenance. Israeli equipment, including wings from Israel Aerospace Industries and helmets made by Elbit Systems, will be incorporated into the new planes.

IDF Manpower Plan

The Israel Defense Forces has proposed a plan that would lower the age of battalion commander appointment from the current 34-35 to 32 as part of a plan to streamline the army and make it younger. The plan, which has been approved by outgoing Defense Minister Moshe (Bogie) Ya’alon but still needs the ok of the next government, also visualizes earlier retirement for most regular army officers.

IMI Privatization

The Government Companies Authority has published ads calling for bids for government-owned defense contractor IMI-Israel Military Industries. Under terms of the plan, foreign companies and investors will be permitted to own up to 90%, as stockholders, of an Israeli firm bidding on IMI. IMI will be privatized as a single unit except for one body, details of which are classified, slated to remain state property. IMI is due to complete a move to a site in the Negev by 2020, surrender land it currently occupies in the center of the country. Potential purchasers are required to post guarantees of NIS 6B ($1.5B).

Big Parts Order

Factories in northern and southern Israel are the main recipients of increased orders from the Defense Ministry, which has doubled procurement of parts for Merkava tanks and Namer armored personnel carriers in the aftermath of last summer’s Operation Protective Edge. Plants in Kiryat Shmona on the northern border, Migdal Ha’emek in the north and Mitzpe Ramon in the south have already received orders amounting to tens of millions of shekels.

Among them are Urdan Metal and Castings, which equips tanks and APCs, Simat Industries, maker of crew seats and floors for tanks, Bluvshtein Metal Works and Tamor SMR, which produces fuel systems and maintenance for the Merkava. Parts for the two made-in-Israel armored vehicles are produced in about 200 Israeli factories, most of which are located in outlying areas. The Defense Ministry says that Israeli firms make 92% of all parts used in the Merkava.

Bases Out, Houses In

The Israel Lands Administration in early March approved an agreement under which the Israel Defense Forces is due to move bases currently in the center of the country to the south. Beginning in 2016, 7,400 dunams (1,850 acres) of real estate in high-demand areas, including the Sde Dov airport in Tel Aviv, will be available for residential construction. Sale price of the property is anticipated at about NIS 30B ($7.5B), some of which will be used to offset the estimated NIS 18B cost of the multiple moves.

IDF Appointments

Defense Minister Moshe (Bogie) Ya’alon has accepted Chief of Staff Gadi Eizenkott’s suggestion for the appointment of Col. Ariella Ben-Avraham to the post of Chief Military Censor. Ben-Avraham, who was born in France and immigrated to Israel at the age of four, has served in the Israel Navy and the Army Spokesman’s Office. She replaces Gen. Simma Vaknin Gil.

Eizenkott also named Maj.-Gen. Tal Russo, former head of the Southern Command, to head the IDF’s Depth Command.

India Rules

Changes in Indian law will require Israeli defense contractors to move production lines to the Subcontinent, according to a report in Haaretz. David Kenan, deputy chairman of the Israel-India Chamber of Commerce said the change is to take effect in August 2019. Major Israeli contractors, including Rafael Advanced Defense Systems, Israel Aerospace Industries and Elbit Systems, have already established joint ventures with Indian companies as a means of dealing with previous laws requiring reciprocal purchases. In February, Rafael and India’s Kalyani Group agreed to establish a joint venture to produce advanced tank and APC active-defense systems, missiles and remote-controlled weapons positions. Kalyani will own 51% of the new company, Rafael 49%. India accounts for $2.5B in defense exports, out of a total of $7.5B annually.

During a February visit to India, Defense Minister Moshe (Bogie) Ya’alon met with Indian Prime Minister Narendra Modi and Defense Minister Manohar Parrikar and inaugurated the Israeli pavilion at the biennial AeroIndia Defense and Aerospace Exhibition.

India and Israel are jointly developing long-range surface-to-air missiles and medium-range SAM missiles. They have also jointly marketed the Dhruv advanced light helicopter (ALH), and India plans to acquire Phalcon AWACS aircraft and aerostat radars worth over $1.5B. Though Ya’alon’s was the first official visit to India by a sitting Israeli defense minister, at least seven high-ranking military officials from each side have visited the other country for consultations and to enhance mutual understanding. Indian Chief of Army Staff General Bikram Singh was the latest to visit in March 2014.

Elbit Backlog Up

The orders backlog of Elbit Systems, the private Israeli defense contractor, rose to $6.27B at the end of 2014, up from $5.82B at the end of the previous year. Elbit’s annual revenues increased slightly to $2.958B, from $2.925B in 2013.

Marines Order

The U.S. Marine Corps has awarded the U.S. subsidiary of Israel’s Elbit Systems of America with a $73.4M contract for its Common Laser Range Finder Integrated Capability system. The system enables imaging, range-finding and navigation by soldiers in concealed positions. The contract is valid until 2020.

Pensioners Help

Defense establishment pensioners played a key role in correcting a problem that caused Israel’s Arrow 2 missile-defense system to malfunction in a recent test, according to a report in the Israel Today free daily newspaper. In a test of the Arrow 2 in September 2014, the Arrow rocket fired failed to intercept, or to explode close enough to destroy its target. The team established to investigate the problem, which included retirees, took several months to isolate what had gone wrong. Only in December, according to the Defense Ministry, was the problem corrected.

Yediot Aharonot said that at first the Defense Ministry did not know what had happened to the Arrow 2 interceptor rocket until a Russian report that it had fallen into the sea some 300 km west of the Israeli coast. Investigators later concluded that the interceptor had passed close to a rocket fired at its target, but not scored a hit.

Super Sub

According to foreign press reports quoted by the i-HLS (Israeli homeland security website), Israel’s Dolphin 216 submarine, currently under construction by ThyssenKrupp in Germany, is “almost a nuclear submarine.” i-HLS has also published some details about the Dolphin 216, which it calls Israel’s primary second-strike capacity.

i-HLS, which says its information comes from foreign sources, reports that the vessel is 89 meters long, has a range without refueling of 19,300 km., can stay away from base for up to 80 days, is equipped with six 53 mm torpedo tubes and another four launchers. Quoting Jane’s Defence and the Federation of American Scientists, i-HLS says the Dolphin 216 can launch cruise missiles, including Popeye Turbo missiles developed by Rafael Advanced Defense Systems.

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