The likelihood of the South Korean government awarding Israel a $1.2 billion military contract is increasing, according to statements made to Haaretz by a senior official in South Korea's Foreign Ministry.
If the deal goes through, Israel Aircraft Industries and its Elta subsidiary would provide four airborne early warning and control aircraft to South Korea in one of IAI's largest contracts ever, similar in scope to its sale of three early warning aircraft to India.
South Korea's Defense Acquisition Program Administration (DAPA) announced yesterday that both IAI and Boeing had passed the Korean Air Force's test and evaluation stage.
The final decision is expected in a month, pending the approval of Defense Minister Yoon Kwang-ung and President Roh Moo-hyun, although it could be postponed until September.
According to the Korean Foreign Ministry source, the extension until April of the original December 2005 tender deadline, which was granted in order to enable IAI to obtain the necessary permits, points to his government's preference for IAI's Gulfstream aircraft.
The Israeli company's bid was about $300 million to $500 million below that of Boeing, even after the American company agreed to cut its price by some $700 million.
The Israeli bid is for four Gulfstream 550 aircraft manufactured by General Dynamics and configured with Elta's Phalcon radar system plus communication components made by the U.S.-based DRS Technologies.
The fact that about 50 percent of the contract will go to U.S. companies is another factor tipping the scales in IAI's favor.
The competition between IAI and Boeing began in 2004. Boeing applied heavy pressure on Seoul, through the American embassy and a local company, but the Korean government has thus far withstood the pressure.
Korea has been trying to diversify its military sourcing away from the U.S., and that, together with the fact that IAI's offer was 20 percent cheaper and that its systems are better than those of its American rival, has sweetened the pot.
Additionally, the IAI system has a more limited range, and South Korea wants to avoid acquiring long-distance surveillance systems, as that could anger China. It needs the warning systems only vis-a-vis North Korea.
Until recently, IAI was keeping a low profile on the tender, but as the finish line approaches, the company is drawing more attention to the deal: It has beefed up its offices in Seoul and hired a local public relations company.
One of IAI's two representatives in South Korea yesterday held a briefing for the country's defense correspondents at which he demonstrated the Israeli system's capabilities.
In the last stage of the tender process, a closed meeting will be held in which representatives of both finalists present their lowest offer to DAPA officials.
A few months ago, the head of DAPA said that IAI has the best chance of winning the contract.
