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Full text of "Indigenous advanced fighter aircraft in Israel : considerations for decision-making"

fc-l IS I . 



■ 

NAVAL I 
MONTERU, C 



NPS-56-81-020 



NAVAL POSTGRADUATE SCHOOL 

Monterey, California 




INDIGENOUS ADVANCED FIGHTER AIRCRAFT IN ISRAEL: 
CONSIDERATIONS FOR DEC! S TON-MAKING 

by 

Ran Goren 

December 1981 



Approved for public release; distribution unlimited 

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Naval Postgraduate School 

Monterey, California 93940 



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NAVAL POSTGRADUATE SCHOOL 
Monterey, California 
93940 



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Superintendent Acting Provost 



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4 TITLE Cand SuAt/rf.) 

Indigenous Advanced Fighter Aircraft 
In Israel: Considerations for Decision- 
Making 



5 TYPE OF REPORT ft »tmoO COVEREO 



Final Report 



ft. PERFORMING ORG. REPORT NUMBER 



7. AUTHOR'*) 

Ran Goren 



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• PERFORMING ORGANIZATION NAME AND AOOREIS 

Naval Postgraduate School 
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10. PROGRAM ELEMENT . RROjEC "ask 
AREA ft RORK UNIT NUMBERS 



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Naval Postgraduate School 
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12. REPORT DATE 

December 1981 



IS. NUMBER OF PAGES 



145 



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Unclassified 



ISA. 01CL ASSlFlCATlON/ OOWNGRAOlNG 
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K. DISTRIBUTION STATEMENT at thlt Raaorl] 

Approved for public release; distribution unlimited. 



IT DISTRIBUTION STATEMENT or ln» .ftarracf mtfrmd In Bloat 20. II dltloront from Kmporl) 



IS. SUPPLEMENTARY NOTES 



IS KEY WORDS . Cwiinu* on rovormo aid* II nmemoomrr «n4 Identify ay block nuana.ri 



Lavi, Israel's arms transfers, Indigenous arms industry, 
fighter aircraft, Third World arms industry, political 
influence, political independence, balance of payments, 
inflation, spin-off 



20 ABSTRACT (Contlnum an r*var«a tidm // nmcmmmmrf «< Idmmlltr »r »/»c* r w— mot) 

On February 19 80 Israel decided to develop and produce an 
indigenous advanced fighter aircraft (AFA) . This decision is 
under a continuing review through the acquisition life cycle. 
This report examines the decision against a bread background 
which includes insights into the Third World and European 
aircraft self-production patterns; the technological capability 
of the Israeli arms industry; Israel as arms supplier; Israel 



DO , IS"* 1473 

(Page 1) 



EDITION OP ' NOV AS IS OBSOLETE 
S/N 102-0 14- **0 I 



UNCLASSIFIED 



SECURITY CLASSIFICATION OF THIS PAOE rWhmn Dolm Mntfd) 



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f*cuwtv CL^ggtglCATtgM Q* Twit »*0»/-w«.„ n»i« j.,.^^ 



(20. ABSTRACT Continued) 

as a recipient of arms and security assistance. The report 
comprehensively analyzes the political and the economic 
aspects of the indigenous AFA decision. It concludes that 
political considerations should impact the decision only 
after considering the economic ones. The latter generally 
favor indigenous AFA. The major obstacle is the 
inflationary impact of the indigenous production, and that 
should be the determining ingredient in any further decision 



DD , ForrQ^ 1473 



s/fl J oTo2-ou-66oi fflaaasauEific 



INDIGENOUS ADVANCED FIGHTER AIRCRAFT IN ISRAEL, 
CONSIDERATIONS FOR DECISION-MAKING 



by 



Col. Ran Goren, Israeli AF 



Naval Postgraduate School 
Monterey, California 93940 



ABSTRACT 

On February 19 80 Israel decided to develop and produce 
an indigenous advanced fighter aircraft (AFA) . This decision 
is under a continuing review through the acquisition life 
cycle. This report examines the decision against a broad 
background which includes insights into the Third World and 
European aircraft self -production patterns; the technological 
capability of the Israeli arms industry; Israel as arms 
supplier; Israel as a recipient of arms and security assist- 
ance. The report comprehensively analyzes the political and 
the economic aspects of the indigenous AFA decision. It 
concludes that political considerations should impact the 
decision only after considering the economic ones. The 
latter generally favor indigenous AFA. The major obstacle 
is the inflationary impact of the indigenous production, and 
that should be the determining ingredient in any further 
decision. 



TABLE OF CONTENTS 

I. INTRODUCTION 1 

II. THE LAVI AIRCRAFT 3 

III. AFA PRODUCTION — A UNIQUE CASE 10 

IV. AFA PRODUCTION TRENDS IN THE THIRD 

WORLD AND EUROPE 18 

V. INDIGENOUS AFA AS PART OF THE IAF STRUCTURE 28 

VI. ISRAEL'S ARMS INDUSTRY AND ARMS TRANSFERS 39 

VII. ISRAEL AS AN ARMS RECIPIENT 57 

VIII. POLITICAL CONSIDERATIONS 62 

IX. ECONOMIC CONSIDERATIONS 36 

X. CONCLUSION 103 



APPENDIX A 
APPENDIX B 
APPENDIX C 



ARMS IMPORTS AND EXPORTS 107 

U.S. SECURITY ASSISTANCE TO ISRAEL 117 

DATA ABOUT DEFENSE EXPENDITURES AND 

DEBT PAYMENTS IN ISRAEL 125 



REFERENCES 130 

BIBLIOGRAPHY 143 

INITIAL DISTRIBUTION LIST 144 



I . INTRODUCTION 

On Friday, the 3 of February 198 0, there was a meeting in 
Office of the Israeli Minister of Defense Ezer Weizman. Among 
the participants were the Minister of Defense, his deputy, the 
General Chief of Staff of the Israeli Defense Forces (IDF) , the 
Chief of Staff of the Israeli Air Force (IAF) , and several more 
high level officials of the Israeli national security and defense 
industry establishment. After an eight hour discussion, a cru- 
cial decision had been made: to develop and produce in Israel 
a future advanced fighter aircraft, named "Lavi" (a lion) [1] . 

This was a concluding discussion after a long period of de- 
bates, prolonged over several years, and it was quite clear that 
the Minister of Defense decision would be approved by the Israeli 
government, as really happened several weeks later. 

Two years earlier, on the 2 of February 1978 the subcommittee 
of Security and Foreign Affairs recommended that Israel immediately 
commence the full scale development of the aircraft (at that time 
still called "Arie") and to view its development and production 
as a national effort, for which all resources required should be 
mobilized from the resources available to the State of Israel [2]. 



a 0nly after the "go ahead" decision was the name Lavi 
disclosed. Until then the name Arie (also a lion) had been 
used for the planned aircraft. Thus the name Arie appears 
frequently in the early literature. To avoid confusion, the 
name Lavi only will be used in this paper. In citations from 
pre-February 198 the name Lavi is substituted for the name 
Arie. 



The Subcommittee raised the arguments of arms self-reliance 
needed to meet possible long term embargoes; the political 
flexibility it might achieve; the economic, technological 
and social contributions; and more. 

But the attitudes in the Subcommittee were conflicting. 

One of the members said: 

I tend to reject the tremendous investment. The self 
production resolves by no means the political depen- 
dence, but lays on our economy heavy financial burdens, 
which may affect severely areas like education, health 
and welfare. I think that Israel's self development 
should concentrate on arms which we can't expect to 
receive from others, and I don't think aircrafts are 
in this category. 

This reflects the arguments that have taken place ever 
since the initiation of the Lavi program, and continue to 
be raised even now while the program is underway. 

This paper attempts to explore the question of making 
an advanced fighter aircraft (AFA) in Israel, compared to the 
alternative of buying (only) from foreign sources. The 
analysis is done on the grounds of a broader view of Israel 
as an arms supplier and recipient, and AFA production aspects 
in the Third World and in Europe. 



II. THE LAVI AIRCRAFT 

1 . General 

Although the paper deals with the general question of "make 
or buy" advanced fighter aircraft (AFA) in Israel, the Lavi 
case may be used as a good actual illustration for that issue 
under question. As a matter of fact, the general case of AFA in 
Israel and the particular case of the Lavi are almost identi- 
cal. Since the Lavi is going to be the only Israeli indigenous 
aircraft under development and production in the next decade 
or so, and since all the arguments in this paper are valid only 
for several years ahead (hopefully...), both cases may be 
considered identical. Thus, they will be discussed inter- 
changably in this context. As a consequence, the Lavi warrants 
a closer look. 

2 . Description 

The Lavi is defined as a single-engined single-seat strike 
fighter [3] . 

It is described as the "working horse" [4], or the "back 
bone" of the IAF for the late 1980' s and the 1990 ' s. It is not 
supposed to be the leading edge of the IAF ' s fighter aircraft 
force [5] . As an unsophisticated, though highly maneuverable 
aircraft, the Lavi is supposed to replace some 220 McDonnell 
Douglas Skyhawks and 160 Israeli produced Kfirs [6] (numbers 
are quoted from "Flight International," 1 March 1980). It is 
aimed to meet the "quantitative" need of the IAF, and therefore 
it is designed as a multirole aircraft with a clear emphasis 



on strike missions [7]. Thus, the Lavi will not replace the 
more sophisticated U.S. -made aircraft in the IAF ' s mix like the 
F-15, F-16 (and in the future, perhaps, the F-18). The need for 
these aircraft or their equivalent will remain for the next 
decade or more despite the Lavi production [8], The Lavi is 
scheduled to enter operational service in 1988. The Lavi will 
be developed and produced by the Israeli Aircraft Industry (IAI) , 
the large industrial conglomerate for aeronautical products. 
The technologies that are going to be used in the Lavi design are 
mainly existing ones, implemented in aircraft like the American 
F-15, F-16, the French Mirage 2000, the European coproduction 
Tornado and the Israeli Kfir [9] . This can explain its low R&D 
costs, estimated at $570 million [10] (compared to R&D cost of 
about $1 billion for the F-16) [11] . Another reason for the 
relatively low R&D cost of the Lavi is the fact that Israeli 
R&D labor hour cost is about one half of equivalent hour cost in 
the U.S. [12] . The flyaway unit cost of the Lavi was estimated 
as $6.5 million in 1978 dollars. In the next 8 years Israel 
will invest in the R&D and production of the "Lavi" $1 billion, 
as was announced by the Director General of the Defense Ministry 
on February 12, 1981 [13]. 

3 . The Lavi's Engine 

It is said that a jet aircraft design is tailored around its 
engine. The development of an advanced jet engine is considered t 
be more complicated and about twice as expensive as the de- 
velopment of the aircraft's total airframe [14]. Consequently, 
the decision about the Lavi's engine was as crucial as the 



decision about the aircraft concept as a whole. It had substan- 
tial technological, economic and political implications. 

The various publications about the engine choice may 
reflect the change in tendencies and concepts of the decision- 
makers through the engine source-selection process. Initially, 
there were talks about an Israeli developed engine. Pretty soon 
it had been recognized that this would be above the technological 
and economic capabilities of the Israeli industry. Then came 
the announcement by the Minister of Defense that the engine would 
be purchased in Europe, in order to reduce the Israeli depen- 
dence on the U.S., and Israel would insist on a guarantee of "no 
strings attached" to the engine purchase [15] . But then the 
designers faced another fact--there was no European engine com- 
patible for an AFA of the 1990' s. So there was no choice but 
to return to the few large American jet engine manufacturers, namely, 
Pratt and Whitney (P&W) and General Electric (GE) . 

For a year and more, the General Electric F-404 engine 
was mentioned as the selected one [16] . Moreover, a delegation 
of G.E. personnel arrived in Israel in October 1980 to negoti- 
ate the coproduction of the engine in Israel [17] . 

But in July 1981 a final decision had been announced: the 
engine of the Lavi selected would be the "Pratt and Whitney" 
F-1120, a reduced model of the existing engine F-100 (the latter is 
used in the F-15, F-16) [13] . Presumably the F-404 was found to be 
too small to provide, as a single engine, the power required for 
the Lavi. The decision-makers decided to take the risk of se- 
lecting an engine still in its development phase, instead of 



compromising and degrading the operational requirements of 
the aircraft. 

In any case, what is important to remember is that the 
future Israeli aircraft will use an American power plant. 
Although there is an American "green light" for the Israeli 
government to plan on the American engine, the exact condi- 
tions are unknown, especially with respect to the sale to a 
third country. 

4 . Coproduction Negotiations 

Throughout the Lavi decision process, several coproduction 
negotiations took place. 

The first case is the F-16 coproduction negotiations. 
According to ex-Prime-Minister Isaak Rabin [19] , as a result 
of the Israeli acceptance of the American proposal for the 
second Disengagement Agreement with Egypt in September 
1975, President Ford offered to Israel a purchase of 150 
to 250 F-16s. Israel demanded a high level of coproduction, 
and delayed the transaction. The United States did not accept 
the demand for coproduction since it already had a heavy commit- 
ment for coproduction with the European consortium ("The Sale 
of the Century," 348 F-16s to Belgium, Denmark, Netherlands 
and Norway) . The deal was not concluded until President Carter 



Newsweek of September 14, 1981 tells that among a variety 
of enticements the U.S. had offered to Israel in order to 
bolster its economy, it has already dropped its objection to 
overseas sales of Israel's Kfir jet, which is subject to 
American controls because it has a U.S. -built engine. 



took office. Then the F-16's to Israel were approved - only as a 
part of the well-known "Middle East Aircraft Package", and the num- 
ber was cut down to 75 [20]. Probably, if there was a coproduction 
agreement on the F-16s, the decision about the Lavi would have been 
different. 

Several years later two major American f irms--General Dy- 
namics and McDonnell-Douglas were requested by Israel to collab- 
orate in the development and the production of the Lavi. Each 
firm was asked to invest $250 million in the development and to 
provide know-how and installations. Both firms responded with 
a list of off-set demands like purchase of more F-16s, usage 
of P&W engine (which is used by the F-16) for the Lavi, or pur- 
chase of F-18, DC-10 and DC-9 made by McDonnell-Douglas [21] . 
In fact, none of the negotiations has been concluded. 

Another report tells about a proposal made by Northrop, 
which includes two conditions for coproducing the Lavi: 

a. The Lavi design would be based on the new model of 
the F-5. 

b. The Lavi will be powered by the same engine as the 
F-5. 

Northrop declared that by such coproduction Israel would save 
$300 million R&D costs, and about $0.5 million per unit produc- 
tion costs. In addition Israel would gain advanced know-how, 
and new export opportunities [22] . It was quite clear that 
Northrop proposed a sort of production under license of its al- 
most fully developed aircraft. The Israeli Aircraft Industry 
that looked for R&D challenges for its 2000 engineers could not 
accept the proposal. 



In this context can be also mentioned the negotiations with 
the two F-18 producers, McDonnell-Douglas (F-18A, which will 
be a flying aircraft in the US inventory) , and Northrop (F-18L, 
which is still on the drawing board) [23] . Both competitors 
suggested some share in production (especially generous with 
this respect was Northrop, which has been fighting for its 
market) . Today, after the Lavi decision has been made, it is 
clear that even if the future purchase of the F-18 from either 
firm will include some off-set agreement, most of the Israeli 
production resources will be devoted to the Lavi [24] . 

The last collaboration to be mentioned is associated with 
the Lavi ' s engine. The agreement with P&W, the F-1120 manufac- 
turer, includes technology transfer which will allow the 
Israeli factory Beit-Shemesh Engines to produce most of the 
components and assemble the engine. But P&W rejected a pro- 
posal for partnership in the Israeli firm [25], 

5 . Concluding Comments 

a. The coproduction negotiations reveal one basic fact: 
none of the American firms went too far towards the Israeli 
requests. Naturally, each of them was concerned with profit 
and as a result was reluctant to sign an agreement, and stated 
too binding conditions. Consequently, Israel decided to go 

it alone with the program, a decision with significant economic 
implications, as explained in Chapter IX. 

b. The Lavi has been introduced in this chapter without 
any further interpretation. But it should be emphasized that 
with the decision to go ahead and develop the aircraft, the 

8 



government has undertaken tremendously significant political, 
economic and social commitments. The magnitude of these 
commitments can be realized by examining the general case of 
advanced fighter aircraft (AFA) production, and by observing 
how it is handled in the Third World countries and in Europe. 
This is done in the next two chapters. 



III. AFA PRODUCTION — A UNIQUE CASE 

1. General 

Among the conventional arms developed, produced and trans- 
ferred worldwide, the AFA has a unique status. It is, perhaps, 
the most sophisticated and complex product of modern tech- 
nology which is produced in large scale. It exploits a variety 
of advanced technological innovations, as well as state-of-the- 
art design concepts. These facts have some significant impli- 
cations — economic and political, which will be anlayzed in the 
following sections. 

2 . Economic Uniqueness of AFA 
a. Initial Costs 

A tremendous investment is demanded by the creation of 
initial research and development capability [26] . But even 
an industry who has the substantial capability should invest 
very large amounts of money for developing a new type of air- 
craft. For example, the R&D costs of the F-16 were a little 
less than $1 billion [27]; the R&D cost of the Israeli Lavi 
are estimated at about $600 million [2 2] ; the R&D costs of the 
new European tactical fighter for the 1990' s — the TKF-90 — 
(collaboration of West Germany, France and Britain) are esti- 
mated at over $1.5 billion [29]. Even more impressive are the 
costs of developing a new advanced jet engine. These are esti- 
mated at about $2 billion [30]. 

The actual building of the production lines requires 
also a huge investment even where the basic facilities exist. 



10 



But they are much bigger where the production infrastructure 
should be established from scratch. Since the returns from 
the investments come several years later, one needs huge 
financial resources and a long run "economic breath" to 
embark on AFA development and production. 

b. Implications of High Initial Investments 

The high initial investment, or in other words — the high 
fixed costs — are shared by the units produced. The bigger the 
amount of units produced, the smaller the R&D cost per unit 
share. But in real life, in order to sell, one should estab- 
lish competitive prices, which do not necessarily cover the 
large fixed costs. Only above certain volume of sales, fixed 
costs are covered, and sales generate profits. In the AFA case 
the fixed costs are high, thus the break-even point (the quan- 
tity of units at which the contribution margin equals the fixed 
costs) is at relatively high amounts. These break-even amounts 
for AFA are estimated between 200 to 400 depending on the 
specific case. Several sources estimate the minimal amount 
of Lavi aircraft to be produced as 200 [31] , while others point 
to 300 as the correct number [32]. The Swedish estimated that 
300 aircraft should be produced domestically in order to be 
economically equal to the alternative of buying American 
aircraft [33] . 

In almost every case (excluding the U.S. and the Soviet Union), 
the internal market is too small to absorb such large amounts, 
which causes the industry to be extremely reliant on the export 
market for its existence, as is true even for the arms industries 

11 



of the major West European states [34]. "In order to survive, 
indigenous defense industries must export," writes Michael 
Moodie [35] , or as an Israeli Defense Ministry spokesman put 
it: "It is impossible for a small country to maintain an 
economically viable arms industry without exports" [36] . 

Another important feature of the cost-volume-profit charac- 
teristics of the AFA industry is the operating leverage effect. 
The operating leverage expresses the degree to which a firm 
uses fixed costs to generate profits. A high break-even point 
means high operating leverage. If the ratio is high and volume 
is highly variable, the risks and potential rewards are rela- 
tively large. In industries of this nature, and the AFA industry 
is certainly one of them, when volumes are beyond the break-even 
point, profits can be relatively large, but if volume is under 
the breakeven point, losses are relatively large as well [37]. 
This emphasizes again the need to exceed the break-even point 
of production, usually by producing for export. When the break- 
even point is exceeded, the AFA can be a very profitable commodit 

3. The Nature of the AFA Market 
a. General 

Each firm in the AFA production may be considered as a 
monopoly, while the market as a whole is regarded as an oligopoly 

AFA firms are monopolies because of the two main 
barriers to entry which are the sources of any monopoly power: 
Technical barriers to entry; 
Legal barriers to entry. 



12 



b. Technical Barriers to Entry 

AFA R&D and production represent an innovative technology, 
a special know-how of low-cost productive techniques, and conse- 
quently high quality of output. Technological capability is a 
function of a long term effort, accumulation of experience and 
huge R&D investments. Thus, not only is the financing a 
barrier to entry into the AFA industry, but the technologi- 
cal capability is a harder barrier to cross. 

This barrier is even higher while speaking about advanced 
engines. Innovations are achieved only by a "tier over tier" 
technique. For example, the manufacturer should strive all the 
time to increase the compression and the by-pass ratios; to 
increase the entrance temperature to the turbine; to improve 
the blades cooling; to achieve more efficient burning process; 
to develop better materials, etc. While airframe design is 
spread over many developers, who design separately the various 
components, the engine manufacturer must develop most of the 
components by himself. On these grounds it is understood that 
development of a new engine is a much more demanding effort 
than a development of a new aircraft [38] . There is no wonder 
that only three manufacturers are left in the western world 
for first-line advanced engines: the U.S.'s Pratt and Whitney 
and General Electric and the British Rolls-Royce. Even large 
and experienced firms like the French SNECMA have had diffi- 
culties which drove it to enter some sort of partnership with 
the American company, G.E. [39]. 

The "barrier of technology" can be by-passed partially 
by technology import, and sure enough, within the Third World, 

13 



the major arms exporters are those states which have concen- 
trated most heavily on the acquisition of military know-how 
[40]. On the other hand, engine development and production is 
so demanding that none of the Third World countries possess a 
completely indigenous capability for engine production [41] . 

Most engine production prcoesses are kept as industrial 
secrets, and they are almost impossible to copy from a com- 
plete product. As a result of the large fixed costs, the produc- 
tion of the AFA exhibits decreasing average and marginal costs 
over a wide range of output levels [42]. That means that the 
greater the output levels, the lower the costs. That is the 
essence of the "Economy of Scale" which is characteristic of 
the AFA industry. Only the large firms can compete in such 
circumstances . 

c. Legal Barriers to Entry 

Naturally, all AFA innovations are protected by patents 
which grant a monopoly position. Another legal barrier is the 
need for government license for coproduction or assembly under 
license between two or more countries. 

Another form of a legal barrier can be an exclusive 
franchise given by the government to a local producer in serving 
the domestic market. In fact such is the case in almost all 
countries which maintain AFA industries. 

d. The Oligopoly Nature of the AFA Market 

Although the individual AFA firm may be considered a 
monopoly since it maintains those barriers to entry, there are 
actually many firms spread over several countries, which implies 



14 



that the market is in fact an oligopoly. Several factors 
enable this oligopoly to exist: 

1) Product Differentiation. There are differences 
in types, capabilities, purposes and prices among AFA indus- 
tries. Smaller industries try to find the areas least covered 
by the major ones, to concentrate on them and by that to 
achieve a competitive level of production. 

2) Political Constraints. Political constraints that 
prevent a supplier from selling to a certain country, or 
prevent a country from buying from a certain supplier, may 
leave enough room for more than one supplier to exist. 

3) Domestic Markets Protection. Domestic arms mar- 
kets are often protected either by design or circumstance. 

4) "Uneconomic" Sale. Some potential Third World AFA 
exporters may find it justifiable to export AFA even when sales 
are not, in the narrow sense, profitable, in order to earn 
foreign hard currency, demonstrate a level of technological 
sophistication, gain access to another country's market or to 
defend a political interest. 

5) Third World Ideological Solidarity. This solidarity 
which is often no more than rejection of industrialized state 
dominance may create export opportunities in its own right [43], 

6) Pure Competition. In some cases industries of the 
Third World may compete with the developed industries on purely 
economic grounds. Usually they have lower labor costs (Israeli 
labor cost is about one-half of that of the U.S.) . In some 
Third World countries productivity tends to be high; they often 

15 



have access to cheap raw materials and sometimes cheap energy. 
They are in many cases free of environmental, health and safety 
regulations. They can leap-frog some of the earlier stages of 
technology, allowing the more developed states to underwrite 
the R&D costs, while learning from their mistakes [44] . (That 
is the case with the Lavi which is supposed to rely on the 
research works [that have been openly published] done through 
the development of the F-15, F-16, F-18, Tornado and Mirage 
2000 [45].) 

4. Political Uniqueness of AFA 

a. AFA as a Political Tool 

Several reasons caused the transfer of AFA to become 
an outstanding policy tool for gaining political leverage: 

1) Being a scarce commodity. 

2) The difficulties in entry to AFA industry and the 
monopolistic control on some components like jet engines. 

3) The great demand for AFA in the Third World. 

4) The need for follow-on support of spare parts and 
technical assistance during long years of the AFA life cycle. 

5) Its high prices which require a special financing 
program, spread over a long time. 

b. AFA as a Political Symbol 

The supersonic jet fighter has long been perceived by 
developing nations as representing both the substance and 
the image of a significant arms transfer program [46] . This 
perception assigns to the AFA a symbolic political meaning. 
Since aircraft transactions are hard to hide, the publicity 

16 



given to every AFA sale amplifies the symbolic value of this 
weapon system. 

5 . Concluding Comments 

The general characteristics of the AFA, which distinguish 
it from other arms produced and transferred worldwide, signi- 
ficantly affected the "make or buy" decision in the Israeli 
case. Some of the above mentioned characteristics play a role 
in favor of the "make" alternative; some raise doubts, and 
some clearly suggest the "buy" alternative. The specific 
considerations are examined in detail in the coming chapters, 
but not before observing the way some other arms producers 
cope with the challenge of AFA production. 



17 



IV. AFA PRODUCTION TENDS IN THE THIRD WORLD AND EUROPE 

1. General 

Observations on the general trends associated with AFA pro- 
duction may provide a broad perspective for the evaluation of 
the Israeli decision about domestically produced AFA. 

2 . AFA Production in the Third World 

Since the end of World War II the number of countries pro- 
ducing arms in some form has risen dramatically, especially in 
what traditionally has been considered the Third World [47] . 
Today, more than 30 developing countries produce weapons of one 
kind or another. Between 1969 and 1978 the number of countries 
capable of manufacturing or assembling major military equipment 
has more than doubled — from 6 to 14. It is estimated that the 
value of arms and military equipment produced in the Third 
World has more than quintupled in ten years: from less than 
$1 billion in 1970 to over $5 billion in 1979 (this figure 
excludes China) . The value of arms exported by the Third World 
countries changed from $49 million in 1969 to $707 million in 
1978, while their percentage of global exports (although rela- 
tively small), rose from 0.51% in 1969 to 3.7% in 1978 a [4 8]. 
Among the exporting nations the more noticeable are Israel, 
Brazil, Argentina, South Africa, India, South Korea and Taiwan. 

But, in contrast to the dramatic picture drawn above, things 
are different where the AFA industry is concerned (the notion 



See Appendix A. 



18 



Advanced Fighter Aircraft is significant here since there is 
a clear distinction between AFA and any other aircraft pro- 
duction — transport, training—with respect to the issue under 
discussion) . Only five countries are currently producing jet 
aircraft from indigenous design or under license: Israel, with 
its Kfir C-l and C-2, based on the Mirage III airframe and the 
American G.E. J-79 engine; Taiwan has produced the American F-5 
since 1973; Brazil and South Africa both produce versions of 
Italy's Aermacchi MB 32 6 and South Africa has also secured 
licenses for the French Mirage III and F-l; India has produced 
several jet combat aircraft including a number of versions of 
the Soviet MIG-21 [49]. 

Most of the above mentioned countries are veterans in the 
area — 20-25 years. Although several countries (South Korea, 
Mexico, Indonesia, Argentina) have expressed interest or plan 
to develop capability for the production of jet aircraft, it 
is unlikely to see a great expansion of the exclusive club of 
the Third World AFA producers. 

As indicated by the previously mentioned list, none of the 
five countries producing jet aircraft has a purely indigenous 
designed or produced one. Looking into the future, although 
India's industry is well advanced by Third World standards, 
its search for a new deep-penetration aircraft will not 
result in developing a new aircraft indigenously. 
The best it can hope for is licensed production. (The Anglo- 
French Jaguar has been selected, because British Aerospace 
agreed to build a significant number of the planes in India [50].) 



19 



Another representative of the "club's" members, General Wu-Yeh, 
commander of Taiwan's Air Force, said: "It will be many years 
before we can build our own fighter, so we still need the sup- 
port and assistance from the U.S. We can wait, but I am not 
sure our enemy will..." [51]. 

With all this in mind, the Israeli decision about domesti- 
cally designing the Lavi can mark a large step forward toward 
the country's self-sufficiency in aircraft production. But 
even dealing with the most advanced aircraft industry in the 
Third World today [52], it still depends on American technology 
for the Lavi ' s power plant and, perhaps, in terms of some avionic 
advanced flight controls, or terrain following radar. Without 
them, the plane would be no match for fighters whose acquisition 
is being planned by other countries [53] . 

3 . AFA R&D and Production Trends in Europe 

Several trends of the European aircraft industry may apply 
to Israel: 

a. The Need to Export 

The domestic market is too small to acquire the amounts 
required to make the production profitable. As aircraft have 
become more capable, more sophisticated and more expensive, the 
quantitative demand of the local air forces dropped. For exam- 
ple, the French Air Force ordered in the late 1950 's 424 Mirage 
III fighters, but only 127 Mirage F-l, which appeared about 10 
years later, have been ordered [54]. 

Thus, the French aviation industry is highly dependent 
on arms sales. Dassault is especially attached to foreign 



20 



markets. In 1976 almost 70 percent of Dassault's total business 
receipts were derived from military export. Aerospatial, larger 
and more broadly based than Dassault, and SNECMA, the principle 
producer of aircraft engines must also rely heavily on military 
sales abroad [55] . 

b. The Economic Benefits 

In the previous section the need to export European AFA 
was presented as a vital means for the industry to survive, 
since domestic markets are not big enough. But AFA export, 
among other arms, is used to achieve a further goal — to con- 
tribute to the national economy. For example, it is argued that 
the economic, not strategic or foreign policy, considerations 
have become the major support for French arms transfers [56]. 
This leads to an aggressive commercial approach, mostly attri- 
buted to France, without too many restraints on whom it sells 
what. 

c. Collaborations 

The third trend in the European AFA industries is the 
tendency toward collaboration for development and production 
of AFA. Even the giant industries like the French Dassault- 
Breguet and Aerospatial, the British Aerospace, and the West 
German Messerschmitt-Boelkow search for collaboration. They 
need it to share the heavy burden of R&D and production costs, 
and to guarantee big enough markets , based on the cumulative 
demand of all states involved. 

Today Western European countries are cooperating in 
the production of fourteen aircraft, ten aircraft engines and 



21 



eight missile programs [57]. In a list of thirty-two orders 
for French major arms, sixteen are for joint production items. 
The most significant joint production of European AFAs are the 
Jaguar (France, U.K.); Alpha-jet (France, West Germany) MRCA 

(West Germany, Italy, U.K.), and the future European tactical 
fighter for the 1990 ' s — the TKF-90 (West Germany, France, U.K.) 

[58]. It is worth a notice that all these aircraft are driven 
by European -made engines. 

d. Types of European AFAs 

In their aircraft design concepts, the Europeans try 
not to compete with the superpowers at the highest end of the 
market, especially where export is concerned. On the other 
hand, in their collaboration aircraft, proposed mostly for self- 
consumption, the Europeans do pretend to reach the edge of tech- 
nology. But, in fact, there is always a lag of several years 
compared to the U.S. state-of-the-art. These aircraft, usually 
less cost-effective than the equivalent American ones, are diffi- 
cult to export. Therefore, the British, who gave up AFA export, 
try to sell the best at the lower end of the market, away from 
highly sophisticated items, and more manageable and cost- 
effective systems [59]. The French Dassault has prompted the 
Mirage 4000 program, as an aircraft exclusively aimed at foreign 
buyers [60]. Moreover, some argue that France's armed forces 
are forced to accept second-rate equipment since France does not 
have the resources to produce two lines of goods, and the lower 
quality arms sell better abroad [61]. 



22 



4 . AFA in Sweden — A Special Case 

There are several similarities between Israel and Sweden 
with respect to the question of "Make or Buy" AFA: Both are 
small countries (although Sweden's population is about twice 
as large as that of Israel — 8.3 million to 3.7 million in 1978, 
respectively [62]; both are technologically developed; both 
strive to achieve arms self-sufficiency; both have aircraft 
industries of about the same size (around 20,000 workers); both 
have not yet exported aircraft (though because of completely 
different reasons: Sweden because of self restraints and Israel 
because of "real life" difficulties, inspite of its efforts); 
both succeeded in producing good AFA in the past (e.g., Swedish 
SAAB Draken and Viggen , Israeli Kfir) . 

These two countries differ, of course, in their international 
status and circumstances, and in the threats posed on each of 
them. This is reflected in the military expenditures which are 
about 30 percent larger in Israel than in Sweden ($3914 million 
compared to $2932 million, respectively, for the year 1978). 
Since the Swedish GNP is more than five-fold times larger than 
the Israeli ($85,373 million and $16,123 million, respectively, 
for 1978) , it is clearly understood why in Sweden military 
expenditures are only 3.4% of the GNP, while in Israel they are 
24.3% (these figures are true for 1978) [63]. Both countries 
spend about the same percentage of GNP on education and health, 
and both are very sensitive to the social rights and securities 
of their workers. 



For additional comparative data, see Appendix A. 



23 



In the past, Sweden has produced its own aircraft. In order 
to prevent fluctuations in production it has geared the military 
procurement to the production cycle. In order to reap the 
other benefits of long production runs the Swedish Air Force 
has relied on multi-role combat aircraft, and has reduced the 
number of basic types in the aircraft inventory [64]. 

Yet, Sweden is dependent for almost 25% of its defense needs 
on foreign technologies, including an American engine for its 
Viggen aircraft [65] . Inspite of the above mentioned, Sweden 
is considered virtually self-sufficient in arms production. This 
emphasizes the fact that very few countries are completely 
self-reliant in arms, if self reliance is strictly defined to 
mean producing indigenously everything that is used by the armed 
forces [ 66] . 

The Viggen-3 7 is supposed to end its role as a first line 
fighter, sometime around 1985. In the years 1974-1975, a new 
fighter was first mentioned which is now named the B-3LA. From 
the beginning the B-3LA has been perceived as a "light strike 
aircraft", about one third of the Viggen weight. The responsi- 
bility for the design and the production of the new aircraft has 
been assigned to the four "giants" of the Swedish industry: 
SAAB is responsible for the airframe and final assembly, Volvo 
for the engine design a , M.L. Erikson for the avionics, and Bofors 



According to a later source, the Swedish reached the con- 
clusion that they were unable to develop the engine domestically, 
and as in the Viggen case, they had to import it. The alterna- 
tives they found compatible for the B-3LA were the P&W F-100 
(or the smaller version F-112) ) , the G.E. F-404 and the Rolls 
Royce ORB 199 . [1] 



24 



for the weapon delivery and gun systems. There was a lot of 
controversy around the new aircraft. Within the military 
community itself, the Air Force Commander argued that an armored 
assault heiicoper can do the job better, and for the price of 
one B-3LA, 10 helicopters can be built. Others preferred vari- 
ous types of missiles to substitute the new aircraft. But the 
main objections were political and economic: some argued that 
Sweden, as a small nation cannot compete in the global competi- 
tion for a new fighter, and it should purchase a finished or 
partially-finished aircraft from one of the superpowers. 

The political arguments in favor of the self-production were 
as follows: first, Sweden would have not been able to keep its 
political independence without preserving its indigenous arms 
industry. Second, only domestically-designed aircraft can 
really fit the specific Swedish operational requirements. 

But it seems that what has been most crucial in the decision 
was SAAB's statement that the actual meaning of a decision not 
to embark into the 3-3LA production is a death sentence for the 
Swedish aeronautical industry within eight years. That meant 
also immediate firing of 1000 skilled personnel as a first step 
to laying off the 2 0,000 workers in the industry. Under this 
"threat", the government decided to finance the first steps of 
the 3-3LA development [67]. 

Several similarities can be observed between the 3-3LA and 
the Lavi case: 

In both cases the decision has beer, taken to pursue in 
indigenous production despite many contrasting arguments. 



25 



The argument of political independence raised in both 
cases (although the underlying motives were very different 
between the two nations) . 

- In both cases the decision was to select relatively light, 
unsophisticated fighter types and to avoid competition 

with the big aircraft suppliers on the state-of-the-art aircraft, 

Both countries have been driven eventually to select 
American engines, despite their attempts to produce them 
domestically. 

The Swedish example may support the controversial Israeli deci- 
sion about the Lavi, but it raises several questions as well, 
as introduced in the concluding comments. 

5. Concluding Comments 

The general observations on the aircraft industry in 
the Third World and on the European leading producers, and the 
detailed look at the Swedish case, lead us to ask several ques- 
tions with respect to the Israeli "Make or Buy" decision: 

- Can Israel, a 4 million people nation, succeed in a task 
which multimillion-people nations of the Third World, like 
India or Brazil, haven't undertaken yet? 

- Can Israel afford a full indigenous development and produc- 
tion of AFA economically, and can it accomplish it technological. 

- Can Israel manage without collaboration of some sort, 
or should it recognize that this is a vital need for a small 
country's AFA production, as the bigger and richer European 
countries have recognized? 



26 



- Should Israel view its AFA export as a significant 
economic tool as the European countries do? 

- Is the domestic AFA production a real contribution to 
Israel's political independence as it is viewed in Sweden? 

- Can Israel build her Air Force mix on self-sufficient 
aircraft only? Could the Chief of Staff of the Israeli Air 
Force (IAF) view the next generation of aircraft in his 
arsenal as assault helicopters only, as his Swedish colleague 
did? 

- Are socio-economic considerations like maintaining 
employment, preserving skilled manpower, or maintaining the 
industrial base the main ingredients in the "Make or Buy" 
decision as they were in Sweden? 

These questions and more will be answered in the coming 
chapters . 



27 



V. INDIGENOUS AFA AS PART OF THE IAF FORCE STRUCTURE 

1. General 

An indigenously produced aircraft must be viewed as 
a part of the general force structure and that is the 
way it should be examined. A number of questions arise, 
such as : 

- Does its performance meet the requirements? 

- Are the amounts consumed domestically economically justi- 
fiable? 

- Does it really free the country from dependence on external 
suppliers? 

- And more . . . 

can be answered only while analyzing the place of the indigenous 
aircraft in the general framework of the force levels. 

A basic assumption is that for the next decade Israel will 
not be able to produce more than one type of aircraft at a time. 
Moreover, this aircraft is defined for the next ten years (at 
least) as a light, highly maneuverable fighter, proposed mainly 
for strike missions, namely — the Lavi. This aircraft is supposed 
to occupy the production lines up to the early 1990' s. 

As announced by the Minster of Defense, Ezer Weizman, the 
Lavi is not supposed to be the "tip of the spear" of the IAF. 
It is not the air superiority fighter. It is supposed to keep 
the quantitative factor of the IAF power, and to replace the 
getting-obsolete Skyhawks and Kfirs. It is a multirole air- 
craft but with obvious emphasis on air-to-ground missions [68]. 



28 



So that is what we have to keep in mind while analyzing its 
role in the general IAF framework. 

2 . Characteristics of the IAF Force Structure 

Israel, over the past ten years, has built and maintained 
one of the most sophisticated and modern military arsenals in 
the world [69]. Within the Israeli military arsenal the Air 
Force is the leader in technological advances, operational 
capabilities and costs. The security needs, opera- 
tional experience, a capability to define what is actually 
needed and a reliable and capable supplier have all combined 
to produce the high levels of operational efficiency and effec- 
tiveness of the IAF. 

The Israeli inventory includes types other than those which 
are most often sold to Third World countries. The real moderni- 
zation of the IAF was started in 1962 by the then-considered 
highly advanced Mirage-III fighter-bomber. In 1968 large 
deliveries began of several hundred McDonnell-Douglas A-4 Sky- 
hawks and F-4 Phantoms, to be replaced in turn by the new fighters 
for the 1980's — the McDonnell Douglas F-15 Eagle from 1977 and 
the General Dynamics F-16 from 1980 [70]. 

There are several unclassified estimates on the structure 
of the IAF — types and quantities [71], and it is left for the 
reader to decide which numbers to select. In a more general 
sense, we can observe that of these numbers, the so-called 
"high-low" mix consists of 40 F-15's (of which the last 15 are 
still to be delivered) , 75 F-16's (of which 53 have been de- 
livered up to the U.S. suspension on the 10 of June 1981, 



29 



and 14 more delivered when the suspension was lifted about two 
months later [72]) — on the "high" edge of the list; Phantoms 
and Kfirs at the center; Skyhawks and Mirages at the "low" end. 
It is very likely that this concept of "high-low" mix will re- 
main also in the future. 

3. Future Needs of the IAF 

Aviation Week and Space Technology describes the IAF ' s 
present and long term needs as including 600 modern tactical 
fighter aircraft. It continues, saying that Israel wants to 
replace its McDonnell Douglas A-4's and F-4's over the next 10 
years. Thus the total replacements are counted in excess of 
4 00 fighters [73] . Janes 1980 says that "approximately 150 
Kfir C-2 were believed to have been built by the spring of 
19 79, with production then continuing at an approximate rate of 
two or three per month," and in addition to "two squadrons of 
the IAF that were equipped with the initial Kfir-Cl version" [74] 

Having in mind the Minister of Defense's announcement that 
the Lavi should replace the Skyhawks and the Kfirs, we reach 
total replacements of over 400 again. If the Phantoms are 
added/ the number is much larger. 

Of course, it is naive to think that replacements are made 
on a one-for-one basis. Sure enough, the total mix is determined 
by a general assessment of the threat, and the "real life" 
possibilities and constraints, and not by any "replacement 
formula". It can be assumed that the IAF will try to fill some 
of the replacements by "high" end aircraft like additional F-15's 
F-16's or purchase of one of the F-18 models [75]. Not only the 



30 



qualitative balance suggests additional purchase of those Ameri- 
can advanced fighters. Since the Lavi are not supposed to enter 
service before 1988 [76] , there is a need for existing aircraft 
to fill the gap through the mid 1980' s. Candidates are almost 
exclusively the F-15 and the F-16 [77]. 

Nevertheless, from this "vague" quantitative analysis one 
conclusion can be drawn: the need for "center" and "low" air- 
craft, which is supposed to be met by the Lavi, is quantitatively 
large, possibly within the range of the numbers mentioned as a 
minimum for its economic justification, i.e., between 200 to 300 
aircraft (see Ch. Ill, Sec. 2). 

Another conclusion is that in order to keep its mix balanced, 
the IAF cannot give up the purchase of state-of-the-art, highly 
sophisticated aircraft, which are available only from external 
sources, namely, the U.S. 

4 . Will the Lavi Meet the Requirements? 

All the previous analysis was based on the assumption that 
the Lavi would really meet the actual operational requirements 
of the IAF. But this assumption is by no means straightforward. 
The doubts are mainly economic: 

- Will the vital funding flow through the whole R&D period, 
to assure meeting the performance and schedule requirements? 

- Will the Lavi suffer huge cost overruns as happened to 
many such projects in the modern world? [78] 

These economic problems will be discussed in more detail in 
Chapter IX. There are also some technological doubts: 



31 



- Does the Israeli industry have the required technologi- 
cal and industrial capabilities to develop and produce the 
AFA that would be compatible with the operational environment 
of the late 1980' s and early 1990 's? 

- Is it assured that the Lavi will not be obsolete for the 
IAF 1990' s requirements? 

Apparently, there is linkage between the answer to these 
questions and the project's financing amounts and schedule, but 
it also depends on know-how and experience usually accumulated 
through time, that perhaps can be shortened but not skipped; 
it depends also on facilities which take a long time to build, 
and more. 

While the economic questions are still argued in the Israeli 
public and government, a great confidence about the technologi- 
cal capabilities is reflected in the media and industry spokes- 
men. According to these publications, the IAI has engineers 
and technicians with a lot of experience and knowledge in design 
and development of aircraft. It masters modern technologies, 
spread all over the aeronautical spectrum (aerodynamics, meta- 
lurgy, propulsion, human engineering, electronics, etc.) [79]. 
This confidence is reflected in the general literature too, 
with statements like: 

-"Of those Third World countries which have reached an ad- 
vanced production capability ... Israel stands out as the most 
technologically advanced" [80]. Or, 

- "Today, Israel's aircraft industry is the most advanced 
in the Third World". 



32 






Of course, being the most advanced in the Third World does 
not mean automatically getting an admission ticket to the ex- 
clusive AFA manufacturers club. After all, the Third World is 
generally described as "comparatively disadvantageous in the 
endowment of virtually every factor to sustain an economically 
viable arms industry" [81], and thus lags behind the major arms 
producers, especially where state-of-the-art arms, like AFA, are 
concerned. But the Israeli confidence has several arguments 
to rely on: 

- The industrial base and technological experience of the 
IAI has already proved itself in the past with a list of highly 
sophisticated products, including an AFA--the Kfir. 

- Since the Lavi is not supposed to be an "elite" AFA, 
there is no need to make a pioneering work in exploring innova- 
tive areas. It can exploit technologies developed for the 
current generation aircraft. 

- The Israeli industry has already shown that while concen- 
trating on specific areas, it can achieve a level of sophisti- 
cation not matched even by the U.S. Israel's electronic indus- 
try is the case in point [82].' 

- The indigenous aircraft development enables a close touch 
between the decision-makers, the designers and the users. In 
such a way, a more suitable aircraft to the local needs can 

be achieved [83 ] . 

- This same idea has been put in other words by Moshe Arens , 
Chairman of the Knesset's Defense and Foreign Affairs Committee, 
who told a group of journalists: 



33 



We have the ability to define the new weapon systems, 
maybe, more so than anybody else, because we have 
had to fight many wars and as a result have picked up 
experience on the battlefield as it is today. [84] 

The last argument warrants a further discussion. No doubt, 
there are several examples where indigenous design and produc- 
tion allowed a developing country greater opportunity to match 
weapon specifications and operational requirements (e.g., The 
Indian new version of the Gnat, the Israeli Elta 2001 radar, or 
the Kfir avionics) . But in many other cases weapon systems 
produced by Third World States are no more, and sometimes less 
appropriate for their needs and environment, than weapon systems 
that can be bought off the shelf [85] . It should be remembered 
that the Third World is a most attractive export market. Thus, 
in many cases systems are now being designed for it by the manu- 
facturers (especially the Europeans) . Moreover, since in most 
cases systems are not bought from the shelf, but ordered in ad- 
vance to their production, modifications can be made according 
to the recipient requirements (if it pays the proper bill for 
that...). This opportunity is used widely by Israel. Modifica- 
tion can take place even after the system is delivered. Thus, 
at a minimum it can be said that in the Israeli case imported 
systems are not less suitable than the indigenous ones. 

Regarding the indigenous systems, a question asked gener- 
ally about the Third World indigenous arms production applies to 
Israel as well: Is the decision to initiate domestic production c 
a given system or to develop a specific branch of industry made 
after first defining defense needs and then getting the tech- 
nology to meet those needs? [86] Given the variety of incentives 



34 



for initiating a domestic defense production, even in Israel, 
it is not at all clear that military considerations always take 
first priority. For example, in an answer to a questionnaire, 
12 high level officers of the IAF involved in acquisition esti- 
mated that the socioeconomic considerations weighted more than 
50% in the decision about the Lavi indigenous production [87]. 

In such situations, political trade-offs and bargaining among 
concerned groups is substituted for the neat, orderly process 
defined in theory [88]. It is completely legitimate and appro- 
priate in a democracy such as Israel that the reasons why 
politicians may want a particular defense capability are pro- 
bably not the same as those of the generals. In turn, these 
are different than industrialists' motives. Reading "between 
the lines", we can observe some of the above mentioned charac- 
teristics with respect to the Lavi case. It is mentioned in 
some newspapers that the IAI invested 200 million Israeli pounds 
(in 1978) in the initial development of the Lavi before any 
formal decision had been taken. That had been done with informal 
approval of the Minister of Defense of that time, Shimon Peres 
[89], It can be assumed that in that phase, the IAI has based 
its design concept of the aircraft on its technological capa- 
bilities (and limitations) , export prospects and estimated mili- 
tary needs of the IAF. It was not mentioned when the IAF entered 
actively into the deisgn definition of the Lavi, but an answer 
to a question of the Chief of Staff of the IAF, Y.aj . Gen. 
David Ivri, reflected the attitude of the IAF at the time of the 
program initiation. General Ivri said that "the Lavi is not the 



35 



first priority of the IAF. In front of him stands those ad- 
vanced weapon systems that we don't have resources to indigenous- 
ly produce.... Although the Lavi may well integrate in the IAF 
inventory in the late 1980 's, the development costs should not be 
financed by funds proposed to other vital weapon systems" [90] . 
This attitude is compatible with the general tendency of the 
IAF, characterized by an independent approach, and a reluctance 
to bind its requirements to home-made systems. The Arava case 
is a good example. In spite of heavy pressures from the indus- 
try and the Office of the Minister of Defense, the IAF refrained 
from purchasing the Israeli-made Arava, which at that time was 
not perceived as meeting its needs. (This has changed since 
then [91].) 

Another report in the Israeli media says: "...facing severe 
shortcuts in the Defense budget, the General Chief of Staff, 
General Rafael Eitan, and other senior officers of the IDF 
(Israeli Defense Forces) Headquarters, demanded to cancel the 
Lavi project" [92]. 

These quotes reflect something less than enthusiasm towards 
the Lavi among the military establishment. Naturally, as those 
who are responsible for the actual fighting of Israel, they were wor- 
ried about .being forced to get something less than the optimal frc 
the military viewpoint, either by getting the Lavi as a less 
capable aircraft than expected, or by giving up better ones 
that could have been bought abroad. 

To conclude this point it should be emphasized that the 
major decision-maker on an indigenous aircraft is the Minister 



36 



of Defense, who is responsible for both the IAI (as a govern- 
ment owned industry) and the security needs of the nation. 
Thus, beyond contrasts of interests, the final decision is 
assumed to reflect some compromise without taking unreasonable 
risks. In addition, once a decision has been made, the IAF 
makes a maximum effort to achieve the best product possible. 

5 . Concluding Comments 

From this analysis based on unclassified data, it is 
concluded that there is a role for an indigenous AFA in the 
IAF, at the "center" and the "low" end of the "high-low" mix. 
Thus the Lavi, if meeting the specifications of cost- schedule 
and performance, can be properly integrated into the general 
force structure. Moreover, a quantitative analysis (although 
superficial) points out that the domestic needs may meet the 
amounts defined as a minimum for economic profitability. 

On the other hand, Israel, so different in her circumstances 
from Sweden and many other countries, can't maintain her vital 
military power without importing the most advanced aircraft 
in existence. Thus, the actual choice Israel faces is not just 
"make or buy". Rather, the actual alternatives are "make and 
buy vs. buy only". 

By the very decision of producing an indigenous AFA, Israel 
has undertaken a lot of risks, as in any multiyear, multi- 
million dollar weapon system development. It should be aware 
of not taking additional risks by attempting to satisfy too 
many interests. Israel can't afford to let factors like 



37 



prestige of producing an aircraft — although less capable and 
more costly than the imported alternatives — override its mili- 
tary considerations (as happened in several Third World states) 
[93]. Israel can't afford to design weapons on the basis of 
how well they will sell abroad, and then force its military 
to adopt them, as France does [94]. 

On the other hand, considerations other than military ones 
should guide the decision-makers as long as they benefit the 
state, without risking its security. In such cases, they must 
not necessarily be economically profitable. These considera- 
tions will be discussed in more detail in the coming chapters. 



38 



VI. ISRAEL'S ARMS INDUSTRY AND ARMS TRANSFERS 

1. General 

The question of "make or buy" AFA in Israel can be properly 
analyzed — politically and economically, only in the general con- 
text of Israel as arms producer, exporter and recipient. This 
chapter will deal with the first two. a 

2 . Overview 

In Israel's case, self-reliance in preserving national 
security has been emphasized since the birth of the state. This 
attitude stems in large part from the historic experience of 
the Jewish people and the nature of the threat the new state 
confronted at the time of its independence. The fact that the 
threat has not dissipated in more than thirty years has only 
intensified national sentiment for maintaining security through 
national means. Israeli's recognize that they are far from their 
goal of self-reliance, yet they are making every effort to come 
as close to that goal as possible [95]. 

Thus, the Israeli indigenous arms industry began as a 
result of purely security needs. At the time of its emergence, 
export intentions played only a minor role, if any. Even today, 
while export is a major factor in the Israeli arms industry, 
most of its products are domestically consumed. 

Today, Israel is acknowledged as a leader of the Third 
World producers and exporters [9 6] . While many developing nations 



a For additional data for this chapter, see Appendix A. 



39 



have some form of arms industry, only a few produce a wide 
range of weapon systems and defense-related equipment [9 7] . 
Israel is mentioned in the company of South Africa, China, India, 
Brazil and most European states, as being able to produce almost 
everything it needs [98]. Of the Third World countries that 
have reached an advanced production capability, Israel stands 
out as the most technologically advanced [99]. 

Israel's current indigenous defense manufacturing capability 
includes production of military and civil aircraft, air-to- 
surface and surface-to-surface antishipping missiles? air-to- 
air dogfight missiles; patrol boats; multimission combat vehicles; 
tanks; howitzers; mortars; grenades; guns; submachine guns; radar 
systems; communication and navigation systems; fire control sys- 
tems; computers and computerized communication systems; and a 
lot more... [100]. Specific systems include; the Arava-STCL mili- 
tary transport aircraft; the Kfir fighter; the Westwind-jet 
transport civilian and military aircraft; the Jericho surface- 
to-surface missile; the Shafrir air-to-air missile; the Gabriel 
ship-to-ship missile; the Reshef missile boat [101] ; and the 
Merkava tank. 

The development of the weapons industry has been 
evolutionary. A good example of that process is the de- 
velopment of the Israeli Aircraft Industry (IAI) — the biggest 
and the most prestigious industry among the Israeli arms manu- 
facturers. The IAI introduction, which is very significant to 
the essential issue of this paper, is presented in the following 
section. 



40 



3. The IAI — Development and Current Status 

The IAI is state owned, like most of the Israeli arms indus- 
tries [102]. Its establishment in 1953 was, perhaps, the most 
important event in the development of Third World indigenous arms 
industries in the 15 years following World War II [103] . 

During its development process it followed more or less the 
step-by-step process which is characteristic of most Third World 
state's domestic defense industrial development. Moodie describes 
this process as a seven step process [104]. According to 
Moodie the first step is the establishment of maintenance and 
overhaul facilities for the service and repair of imported 
arms. The IAI was established in 1953 to overhaul and service 
the aircraft of the Israeli Air Force with a charter for future 
production of aircraft, engines, spare parts components, ground 
equipment, electronics and other aeronautical equipment. The 
difficulty in obtaining spare parts for the IAF was a major 
factor in Israel's decision to develop an aircraft industry. 
This repair and overhaul infrastructure initially created — has 
been expanded today to the extent that the IAI now performs 
overhaul work on the aircraft of numerous foreign airlines [105]. 

Israel quickly proceeded through steps two and three of 
Moodie 's development model, namely, domestic fabrication and 
assembly of aircraft components produced under license. In the 
late 1950' s, the IAI began licensed production of the Slingsby 
sailplane for the IAF and flying clubs [106] . 

Looking ahead to step four, the Israeli's signed an agree- 
ment with the French Potez to manufacture the Fuga Magister jet 



41 



trainer in 1958. The first domestically produced Magister 
rolled off the production line in 1960. The IAI viewed the 
Magister program as a springboard to future aircraft production 
and immediately set about designing and substituting modifica- 
tions to the basic Magister design [107] . 

By introducing indigenously designed components, the IAI 
was gliding smoothly along through the fifth step (namely, com- 
ponents for weapon systems are designed locally and incorporated 
into existing systems) [10 8]. 

While the Magister program was underway, the IAI became 
involved with the design and development of an indigenous air- 
craft, the Arava. Well aware of the international market for 
civil aircraft, the IAI decided to try to carve a niche for 
itself with the development of a short-takeof f and landing (STOL) 
transport that would fill a gap in the commercial market [10 9]. 
This clearly put Israel into step six of the development pro- 
cess. As an indigenously designed aircraft, the Arava was pro- 
duced using only a few imported components of sophisticated 
technology (Pratt and Whitney PTGA-2 7 turboprop engines) . 

In the fighter business, it was the June War of 1967 
and the subsequent French arms embargo that pushed the IAI 
rapidly beyond limited capabilities [liol. Following the French 
embargo on the delivery of Dassault Mirage 5 fighters to Israel, 
the decision was taken to manufacture aircraft of a generally 
similar design to the Mirage. Since the IAI undertook responsi- 
bility for manufacturing spares for the Mirage III CJ fighter 
operated by the IAF, it was capable of putting into production 
a new aircraft named "Nesher". This comprised a locally built 



42 



airframe, similar to that of the Mirage III/5, fitted with an 
Atar 9C afterburning turbojet and Israeli electronic equipment. 
The ultimate outcome of this policy was the "Kfir" [111] . 

The Israeli designed "Kfir", is a much-modified airframe 
of the Mirage 5, with American G.E. J-79 engine [112]. The 
late model Kfir-C2, has almost nothing in common with its ances- 
tor, the French Mirage. It contains a different engine, signifi- 
cant airframe modifications, different internal systems (fuel, 
hydraulic, electric, etc.); completely different weapon delivery 
and navigation system; a different radar, and more. Almost all 
the components, excluding the engine, are Israeli designed and 
produced. 

Thus, the IAI reached step six, while the seventh one — of 
completely indigenous designed systems, incorporating no imported 
components, is still beyond reach, mainly attributed to the 
engine . 

As far as engines are concerned, Israel made large progress 
here too. Most of the activities on engines are concentrated 
in the IAI and Beit-Shemesh Engines. The engines department 
of the IAI was established 25 years ago as a repair and overhaul 
facility. Today it concentrates mainly on production of com- 
ponents and overhauls of large jet engines. It manufactures 
about 60% of the J-79 engine — the power-plant of the Kfir. 
It runs over 1000 engine overhauls for more than 30 organiza- 
tions worldwide, mainly commercial airlines. It takes care of 
the modern F-100 engine of the F-15 and the F-16. 

Beit Shemesh Engines was established in 1967 as a consequence 
of the French embargo. The Israeli government and the Jewish 



43 



President of the French Turbomecca firm, Josef Shidlovsky, in- 
vested equal shares to initiate the plant. The main product of 
the firm is the Marbore 6 engine, a relatively small jet engine 
that drives the Magister trainer. But Beit-Shemesh engines par- 
ticipates in the production of J-79 components, components for 
other Turbomecca engines, electric gas turbines, and more. 
About 30% of its products are for export [113] . 

After a long competition between these two engine manufac- 
turers, Beit-Shemesh Engines has been selected to be the chief 
contractor for producing the P&W F-1120 of the Lavi , under P&W 
license. As a consequence, the government purchased Shidlovski's 
shares of the company. The latter held 51% of the shares, and 
the government wanted to assure its control on the vital activity 
of the Lavi engine production [114] . 

Today, the IAI is the government's conglomerate that is 
responsible for the majority of the nation's arms production. 
From a small aircraft repair and overhaul business in 1953, it 
has grown to become Israel's biggest single industrial enter- 
prise, and it continues to grow [115] . The IAI employs more than 
22000 people in its facilities, and about 5000 more in its sub- 
sidiary plants [116] . The Engineering Division employs about 
2000 engineers, the largest single engineering group in Israel 
[117] . 

Although the IAI is a government organization, with govern- 
ment officials serving on its Board of Directors, the company 
has been a commercial success, with a solid record of consecu- 
tive years of profits and business growth [118]. The IAI exports 



44 



have grown dramatically in recent years. While the records show 
in 1974/75 only $37 million exports, which were 18% of the total 
IAI sales, the next year it grew to $55 million and 34%, respec- 
tively. In 1976/77 the exports were $111 million which were 
37% of total sales, and in 1977/78 $145 million or 45% of total 
sales [119]. Exports almost doubled in 1978/1979 with foreign 
sales of $260 million which are about 50% of the total sales 
[120]. This amount is about 35% of the $707 million value of 
arms transferred by the whole Third World in 1978! [121] 

From another source we learn that in the first 7 months of 
1981 the IAI exports reached $182 million (may be projected on 
the total of about $350 million for the whole year) which are 
80% larger than the same period a year earlier [122]. On June 
10, 1981, the IAI celebrated the delivery of its 500 th air- 
craft. This count includes 174 "Westwinds" [123], more 
than 80 "Arava's" and more than 150 "Kfirs" [124]. (The last 
one has not been exported yet, as will be discussed in more 
detail later in this chapter.) 

Other notable products of the IAI are the antiship missile 
Gabriel Mk.3 (third version); weapon delivery and navigation 
systems; surf ace radars, EL/M-2200 series; airborne communication; 
flight control systems; and the new-borne Scout mini-RPV [125]. 

4 . Israel as an Arms Supplier 
a. Overview 

The success story of the Israeli Aircraft Industry re- 
flects the more general success of the Israeli arms industry 
as a supplier worldwide. 



45 



We have already discussed the technological capability 
of the Israeli indigenous arms industry, the spectrum of its 
products, and how close it is to complete self-sufficiency. 
This industry, which was established as a consequence of deep 
concern for the self -security of the State of Israel, soon 
discovered, like many of the Third World defense industries, 
that in order to survive it must export [12 6] . Moreover, 
Israel recognized the potential economic contributions arms 
exports might offer to its economy. As a so-called "Pariah" 
state, Israel could expect from arms exports to gain some 
access and, perhaps, influence in the international community. 
(The economic and political motives will be discussed in 
more detail with respect to the Lavi case in Chapters VIII 
and IX.) 

Like other major arms exporters of the Third World, 
Israel has concentrated most heavily on the acquisition of 
military know-how [127] . By this approach it could create a 
solid base for future self-progress, and exploit the advan- 
tage of technology transfer; i.e., compared to hardware, it 
is much harder to control by the original supplier. 

Paradoxically, the unfortunate fate of Israel, 
namely a continuing state of hostility and frequent breakouts 
of major wars against its Arab neighbors, has been, perhaps, 
the greatest promoters of Israeli arms exports [128] . The 
Israeli weapons could be designed on the grounds of the actual 
war experience of the reputable IDF, Moreover, many of them 
could be described as "Combat proved", like the Gabriel 

46 



ship-to-ship missile that had an extremely good record during 
the 1973 October War, when it destroyed at least 13 Arab ships, 
or the Shafrir missile [129] with an outstanding operational 
ratio of 50% kills-to-launches . 

But the Israeli special security situation plays also 
as a burden on the Israeli export. On the one hand, by its 
indigenous arms indsutry Israel could keep some of the weapons 
classified, while the imported ones are almost completely dis- 
closed in the official and commercial publications of the suppli- 
ers. On the other hand, the will to keep some surprises for 
wartime has been a "stick in the wheels" of the export effort. 
Thus we can read that the "IAI is facing a tough battle with 
Israeli government security officials over its campaign to ex- 
port the Kfir. " The Israeli government is said to be pushing 
the IAI hard to earn foreign currency from Kfir exports, but 
refuses to allow major aircraft subsystems to be exported for 
security reasons [130]. 

At any rate, the last argument is not a critical one, 
and apparently, this is not the reason for the Kfir's export 
difficulties. To conclude this section it must be stated that 
in spits of the various difficulties, Israel is the chief arms 
supplier among the developing states [131]. 
b. The Rise of Israeli Arms Exports 

Israel's arms export program has been expanding dra- 
matically for more than a decade. This growth is reflected in 
the increasing sophistication of its equipment, the broadening 
range of its hardware, and the global nature of its sales effort. 



47 



Since 1968 when it logged military exports of about $10 million, 
Israel has boosted its worldwide sales to approximately $300 
million in 1976 a [132] . 

SIPRI places Israel as the largest Third World arms 
exporter with a total value of $447 million exported from 1970- 
1979 (only major systems, in constant 1975 dollars). This repre- 
sents 26% of total Third World exports over the referenced 
period. Israel's closest competitor is Brazil who exported 
$349 million which was 21% of the Third World's total [134]. 

While SIPRI claims that it expects Israeli arms exports 
to be approximately $1000 million per year by 1980 [13 5] , we 
have confirmation from the Israeli Deputy Minister of Defense 
who announced that "the military export for the year 1980/81 
is about $1.25 billion". He added that "this occurred as a 
result of agreements with new customer states which can be con- 
sidered as breakthroughs and reaching new horizons" [13 6]. On 
another occasion this same official, Mr. Mordehi Tzipori esti- 
mated the arms exports for the fiscal year 1981/1982 in the 
range of $2 billion [13 7]. 

To emphasize the significance of the arms exports to 
the Israeli economy we can bring out the following fact: between 
the years 1969-1978 the percentage arms export/total export for 
Israel grew from 0.7% in 1969 to 2.6% in 1978, with a high of 



SIPRI 's figures are more moderate for this period, partially 
because referring to major systems only, and using constant 
dollars. According to SIPRI Israel's total value of arms sup- 
plied in the time period 1970-1976 was 174 million, which is stil. 
the first among Third World suppliers [131] . 



48 



5.8% in 1976 [138]. This fact is outstanding when compared 
to a consistent average of 0.3% of the same ratio for the Third 
World, and declined from 2.6% in 1969 to 2.0% in 1978 for the 
developed countries [139]. 

A.L. Ross [140] claims that an indicator of progression 
of a developing country from dependence towards independence 
in arms production is the ratio of arms export/arms imports. 
Using the ACDA data [141], the following figures have been 
derived: 

Table 1. Israel's Ratio Arms Exports/Arms Imports 



1969 - 3% 1974 - 3 



1970 - 2% 1975 - 7% 

1971 - 0% 1976 - 14% 

1972 - 4% 1977 - 6% 

1973 - 8% 1978 - 11% 

The figures clearly represent a trend in favor of arms 
exports . 

c. The Markets for the Israeli Arms Exports 

Israel rarely confirms the details of its arms sales 
and is even hesitant to identify its clients [142]. The deli- 
cate political situation of Israel and sometimes of its clients, 
requires the transactions to be kept confidential. 

The main market for Israeli arms is Latin America [14 3]. 
Among the customers we can find Argentina, Chile, Guatemala, 
Honduras, Mexico, Ecuador, El-Salvador and Nicaragua. 



49 



In other parts of the world there are: South Africa, 
Kenya, Taiwan, Thailand, Malaysia, Iran, and Greece [144]. 
Similar to the European countries, the Israeli government is 
heavily involved in the promotion of Israeli arms sales. As 
announced by the Deputy Minister of Defense, the recent break- 
throughs into new foreign markets is attributed to initiatives 
of the new Foreign Affairs Minister, who directed the Israeli 
embassies around the globe to participate actively in the arms 
marketing effort [145]. 

Talking about the Israeli arms customers, the claim that 
Israel is inclined to sell arms to anyone can't be ignored, or 
as it was put in an Israeli newspaper, "to trade with states 
who stand at the margins of the nations' family" [14 6]. Accordin 
to Business Week , "Israel sells to customers that have a hard 
time buying arms elsewhere. Among them are such controversial 
governments as South Africa, Nicaragua, Chile and Argentina" 
[14 7]. These sales to countries who suppress human rights, is 
supplemented by SIPRI [14 8] data stating that in the period 
1970-1979, 35% of Israel's arms sales were to South Africa, 29% 
to Argentina, and 6% to El-Salvador. 

An attempt to view these trades (which have never been 
formally confirmed) as an unrestricted, brutally commercial 
effort, might be mistaken. More balanced conclusions can be 
drawn if viewing the situation of Israel as a so-called "pariah" 
state, who faces international isolation, who lives under per- 
manent threat to its very existence, and who should import all 
of its oil and other vital materials. With that in mind, the 



50 



arms trade relations with controversial countries can be 
identified by three categories: 

- Sales in an attempt to break the international political 
blockade around Israel. To this category can be related the 
sales to most of the Latin American countries. 

- Sales as a part of a general mutual assistance framework 
among international "pariah" states. To this category can be 
related the sales to South Africa and Taiwan (i.e., states with 
resources or technological advancements, who can really assist 
each other) . 

- Sales, grants or other assistance, in order to ease the 
direct threat to the security of Israel, mainly on the basis of 
common enemies. To this category can be related the assistance 
to the Kurds in Iraq in the 1960 's and early 1970 's; the arms 
sales to Ethiopia [149] (in order to secure the Israeli mari- 
time traffic in the Red Sea) ; the assistance to the Christians 
in Lebanon (who fight the PLO and the Syrians) , and even the 
recent "sensational" sale of some Phantom's tires and guns to 
the Khomeini regime in Iran (who have been fighting the 
Iraqi's) [150]. It should also be mentioned that in some of 
these countries, there are large Jewish communities of which Israel 
has undertaken indirect responsibility for their security. 

Thus, it is clearly observed that the motives for the 
controversial Israeli arms sales are mainly political and not 
merely commercial. As such they can be better understood, though 
not always agreed upon. 



51 



d. The Israeli Experience with the Kfir Export 

1) Overview . While the Israeli arms exports in general 
and the IAI exports specifically, are a real success story, 
this is not the case as far as the Israeli AFA is concerned. 

Naturally, dealing with AFA "make or buy" dilemma, 
the prospects of the AFA export have a primary significance. 

In fact, Israeli AFA exports are not a complete 
failure. Several sources mention a sale of 26 Nesher fighters 
to Argentina [151] . According to Jane ' s , the transcation oc- 
curred in 1978-1979. At this time the Kfir, which moved into 
production in 197 3 [152] , had been on the production lines for 
several years. That might indicate that the sold Neshers were 
used, probably obsolete from the IAF viewpoint. But none of 
the sources mention even one export transaction of the much 
more sophisticated and capable aircraft, the Kfir. 

2) Examples . Three examples may illustrate the kind 
of difficulties IAI has faced in its efforts to market the 
Kfir. 

a) The Ecuadorian Case . In February 1977 the Carte 
Administration blocked the sale to Ecuador of 24 Israeli Kfir 
fighters. The U.S.'s right to veto the sale derived from the 
Kfir's use of G.E.'s J-79 engine [153]. Washington did so 
on the grounds that it did not want to introduce advanced 
aircraft into Latin America. But there was some speculation 
in Israel that the United States was merely trying to eliminate 
competition in the region [154] . 



52 



In this case two points stand out: 

- The fact that Israel was not capable of maintaining a 
complete indigenous production of the AFA, enabled the sale 

to be blocked. This is mostly true as far as American hardware 
is concerned, since the U.S. is more restrictive in its condi- 
tions to third party sales. 

- Israel learned that competition with a major supplier, 
even a friendly one, might be tough. 

b) The Taiwan Case . The Carter Administration 
announced in early June 1978 that it would allow the sale of 
up to 60 Israeli Kfir jets to Taiwan. Taiwan, however , did 
not find the proposed deal very attractive and it rejected 
the offer on both military and industrial grounds. It argued 
that the plane represented only a marginal improvement over the 
F-5E which it was already producing under U.S. license. It also 
contended that switching to an Israeli manufactured plane would 
require it to adjust to a new series of specifications and 
spare parts. Instead, Taiwan indicated that it wanted to pro- 
cure American -made F-4 fighters. 

A completely different explanation of Taiwan's re- 
jection of the deal is found in an Israeli newspaper which quotes 
a high level Taiwanese AF officer, saying: "There are diffi- 
culties in the implementation of the deal. It can annoy some 
of the Arab oil supplying countries" [155]. 

The conclusions from this case are: 

- Israel's choice to produce an aircraft which is not at the 
end of the state-of-the-art spectrum might be an obstacle in its 



53 



sale to more developed countries, who find it inadequate to 
meet their needs. 

- Again, it is tough to compete with a major supplier, 
though very cooperative in this case, who can create arms 
transfer ties which are difficult to break. 

- The fear of Arab economic retaliation on any deal with 
Israel might deter many potential buyers of Israeli weapons. 
Even those who have arms sales relations with smaller arms, 
might avoid aircraft transactions because of its perception 
as a symbolic political act. 

c) The Austrian Case . In 1978, negotiations were 
disclosed between Israel and the Austrian government on the 
proposed sale of 24 Kfir aircraft. After long examination of 
the transaction, the Austrians gave up the deal, and turned 
to American and French alternatives. Finally, in the contest 
between the J-79 equipped F-16 version and the Mirage 50, 
the latter has been selected. The decision had been taken 
on the grounds of the French tempting offset agreement, the 
argument that it would better fit the neutral position of 
Austria, and a lot of high-level political arm-twisting 
[156] . 

Here again Israel's delicate political situation 
caused the failure of the deal. One cannot buy arms from 
Israel without being identified with the Israeli side in the 
on-going Middle Eastern conflict. That has been the reason 
why many of Israel's customers preferred discreteness, which 
is pretty hard to maintain where aircraft are concerned. 



54 



5 . Final Comments 

By most indicators, the Israeli arms industry is a great 
success. It is the most advanced technologically in the 
Third World, and it is the leading Third World's arms supplier 
as well. Israel does not lag far behind the large European 
arms suppliers. The Israeli arms industry and its exports con- 
tinue to grow at an impressive pace. The future of this 
industry is more promising than ever. 

But in contrast to this great success, the export efforts 
of an Israeli AFA, namely, the Kfir, have so far, failed. 
The question then becomes whether Israel should pursue its 
prestigious Lavi program or put the emphasis on products for 
export. If Israeli AFA exports succeed, they can reap more 
economic benefits than any other product [15 7] . 

On the other hand there are much more optimistic views 
like the one of the Deputy Minister of Defense, Mordehi Zipori, 
who spoke about an expected breakthrough of the Kfir sales, 
though refraining from detailing his reasons. He also men- 
tioned that the new Reagan Administration tends to be less 
restrictive with respect to Kfir's sale [158]. 

It seems that the political constraints on the Israeli 
AFA exports will continue unless a radical political change 
occurs in the Middle East. Such a change may be underway 
as a consequence of the peace treaty between Israel and 
Egypt. But who can really predict the situation eight-ten 
years from now, when the Lavi is due for export? 



55 



This chapter found that: 

- The export prospects of the Israeli arms industry in 
general are good. They imply a positive prospect for AFA 
exports as well. 

- The political future which affects AFA exports is vague, 
but not necessarily unfavorable. 

- The Lavi domestic needs are in the range of the invest- 
ment return. 

These findings lead us to conlcude that worries about Lavi 
export prospects should not be a major ingredient in the 
decision to proceed or not with the program. While any export 
level would be desirable, lack of exports should not cause 
program cancellation. Considerations other than exports 
should get a higher priority. These are discussed in Chap- 
ters VIII and IX. 



56 



VII . ISRAEL AS AN ARMS RECIPIENT 

1. General 

We have already found that the actual alternatives Israel 
faces with respect to AFA are not "make or buy", but rather 
"make and buy vs. buy only". That means that the "buy" factor 
exists in any case. In fact, the arms bought abroad are not 
the only commodity that flows to Israel to maintain its security. 
There are other forms of security assistance which Israel gets, 
mostly (or even only) from the U.S. 

In order to examine to what extent an indigenous AFA pro- 
duction might free Israel from external assistance, the magni- 
tudes and tendencies of this assistance should be explored. Such 
exploration is provided in this chapter. 

2 . General Tendencies in the Israeli Arms Imports 

Israel has been one of the largest arms importers in the 
world in the last decade. 3etween 1967 and 1976 it was 
one of the world's leading six recipients, in the 
company of South Vietnam, Iran, North Vietnam, Egypt, Turkey 
and South Korea, and more [159]. 

While in recent years the Middle East took the lead as an 
arms importing region (e.g., receiving 37% of the world's arms 
deliveries in 1978) [160], Israel has kept a high position 
within the ME. In 1978 Israel stood sixth in the world after 



l For additional data to this chapter, see Appendices A and B 



57 



Iran, Libya, Iraq, Ethiopia and Saudi Arabia. A year earlier 
it was second, behind only Iran [161] . Between the years of 
1970-1976 the Middle East percentage of the Third World total 
was 51%, while Israel's percentage within the ME was 17%, 
equal to Egypt and second only to Iran (30%) [162]. 

Since the 1967 war Israel has had almost a sole arms suppliej 
the U.S. Between 1966-1975 the relative position of the U.S. 
in the total Israeli arms imports amounted to 9 6%, while France 
was far behind with 2.7%, the U.K. with 0.6% and all the others 
about 1% [163]. This percentage remains in later years. 
The U.S. share in the Israeli arms imports for the period 1974- 
1978 is $4600 million out of a total of $4800 million (96%) 
[164]. 

As far as aerospace equipment is concerned the picture is 
even more extreme: of the Israeli purchases in Europe, only 
2% are for aerospace [165], which is about 0.0006 of its total 
arms imports . . . 

For further insight into the Israeli arms imports, let's 
examine the percentage of arms imports out of total imports. 
In the Israeli case there is an increasing trend — from 9.5% in 
1969 to 12.8% in 1978, with peaks in 1974, 1976 and 1977 (17.9%, 
17.6% and 19%, respectively). These figures are more meaningful 
when compared to the general trends in the world. Not only 
are the percentages much smaller, but there is a decreasing 
trend in both the developing countries (from 6.8% in 1969 to 
5.0% in 1978) and the developed countries (from 0.9% in 1969 to 
0.4% in 1978) [166] . 



58 



The total U.S. security assistance to Israel in recent 
years shows a relative stability (excluding a peak in 1979 to 
finance the consequences of the Camp David Accord) [167] , des- 
pite the indigenous arms industry's growth in the same period. 
It seems as if the increase in self-produced arms in the IDF 
arsenal, and the hard currency earnings of the domestic indus- 
try, could hardly keep pace with the arms race in the Middle 
East, so the American assistance, although decreasing percentage- 
wise, should be kept stable in absolute terms. Therefore, it is 
assumed that Israel will continue to rely on U.S. assistance 
for at least the next five years [16 8]. Also, for the fore- 
seeable future, the U.S. will continue to be the exclusive 
foreign arms source for Israel [169] . Being so predominant, the 
U.S. security assistance to Israel warrants a closer look. 

3. The American Security Assistance to Israel 
a. FMS and Commercial Arms Sales to Israel 

Total FMS agreements between the U.S. and Israel between 
19 55-1979 have amounted to over $9 billion, which is about 9% 
of the worldwide U.S. FMS for this period. It is next only to 
Saudi Arabia with 32%, and Iran with 15%, and exceeds any Euro- 
pean country. A similar picture is revealed in FMS deliveries. 
Here Israel counts for 12% of the U.S. worldwide total--and 
again next to oil-rich Iran (20%) and Saudi Arabia (18%). 
While peaks are observed in the agreements pattern — in 1974 (re- 
building the forces after the 19 73 war) and 1978 (Camp David 
Accord) , the deliveries pattern is relatively stable throughout 
the vears . 



59 



The magnitude of U.S. security assistance to Israel 
is reflected even more in the FMS Financing Program. Very 
different from Iran and Saudi Arabia who pay cash, Israel 
needs credits and grants to pay for the huge amounts of arms 
it purchases. So here Israel has held, for the years 1955-1979, 
about 56% of the total program. Out of the $11 billions 
Israel received in these years, almost $4 billion of the pay- 
ments were waived. In recent years, annual credits of about 
$1 billion, of which a half are waived, are kept to assist 
Israel in purchasing its arms from the U.S. (with an outstand- 
ing amount of $3.2 billion for FY 1979, which includes also 
the financing of the withdrawal from Sinai, as required by 
the Camp David Accord) . 

In the commercial sales for the period 1971-1979, Israel 
also kept its place at the top, with $935 million which are 
11% of the U.S. total — more than any other country [170]. 
b. Economic Support Fund 

The Economic Support Fund, whose purpose is to strengther 
the strategic status of Israel by easing its economic pressures, 
is another tier in the U.S. assistance to Israel. In the 
three previous years, annual amounts of $785 million has 
been given, of which two-thirds ($525 million) were grants and 
the rest were loans [171] . 

4 . Final Comments 

As illustrated by the various figures in this chapter, the 
Israeli need for American assistance is very heavy. It totals 
about $2 billion per year, of which about $1 billion is in fact 
a grant. To emphasize the meaning of this assistance to the 

60 






Israeli security, it is acknowledged that the assistance pro- 
gram counts for about 55% of the total Israeli Defense budget 
[172]. Of course, the credits and loans are paid precisely, 
but that puts another burden on the Israeli economy. For exam- 
ple, projected 10 years ahead, Israel pays for FMS financing 
only, annual amounts starting at $512 million, up to more than 
$644 million [173] . 

The need for large assistance, as well as the need for arms 
flow from the U.S. to Israel will presumably continue for the 
next decade. The obvious conclusion is that an effort 
should be made by Israel to decrease its needs for security 
assistance and arms supply from the U.S. But, on the other 
hand, the present needs are so essential that no single 
act, even indigenous production of AFA, will completely free 
Israel from this basic dependence. 

As a consequence, several questions arise: 

- What dimensions and what nature of dependence does the 
present relationship between Israel and the U.S. actually create? 

- Is there a chance for Israel to become completely 
politically independent? 

- To what extent do the indigenous arms productions, and 
especially AFA, offer more political freedom to Israel, within 
the existing framework? 

- How does economic relief contribute to political independence? 

- What are the political benefits of an Israeli AFA production 
besides the bilateral relations between Israel and the U.S.? 
Chapter VIII will attempt to answer these questions and more. 



61 



VIII. POLITICAL CONSIDERATIONS 

1. General 

After acknowledging the Israeli needs for AFA; the capa- 
bilities and limitations of its indigenous production; the ex- 
port prospects; and the special relations of supplier-recipient 
between U.S. and Israel, we can move to the political analysis 
of the issue under question. It is a little artificial to di- 
vide political and economic considerations since they are heavily 
linked. A healthier economy might require less assistance, and 
therefore, reduce political dependence. The division has been 
done for analytical purposes, but the above mentioned linkage 
should be kept in mind. As before, the analysis is done on the 
grounds of a broader view on motives for indigenous arms indus- 
try and questions of political dependence-independence, politi- 
cal influence, and the like. 

2 . Political Motives for Indigenous Arras Production 

The first and foremost motive for indigenous arms production 
in the Third World has been the desire to eliminate, or at 
least greatly reduce, dependence on industrial countries for 
arms deemed vital for national security. Indigenous defense 
production is an expression of self reliance, and thus, it is a 
means of reducing a state's vulnerability to military and 
political pressures during times of crisis [174] . This senti- 
ment was clearly articulated by an Israeli official in 1977: 
when asked what Israel needs to sustain itself in a crisis, he 
noted, "...arms, food and energy. . .we have to be independent 

62 



in the sphere of defense production to as great a degree as 
possible" [175]. His attitude was echoed by the Brazilian AF 
iMinister in December 19 77, saying, "The time has come to free 
ourselves from the United States and the countries of Europe. 
It is a condition of security that each nation manufactures its 
own armaments" [176]. The difference in the way both spokes- 
men put the same idea while the Israeli use the most essential 
terms associated with the very survival, expresses the perception 
of such independence in Israel. As an internationally isolated 
state, with an immediate and potentially overwhelming threat, and 
with only a single outside arms source, Israel has engendered strong 
self-reliance sentiments, not only within the leadership, but 
in the population as a whole [177] . Other political incentives 
for indigenous arms industry can be summarized as acquiring 
domestic regional and international prestige [178], In this 
context prestige is by no means insignificant. It is synonymous 
with an expression of national sovereignty; it suggests 
national self-confidence, and validates international 
"great power status" [179]. These motives, especially the domestic, 
have much to do with the Israeli nation. In general, the sup- 
plier's political benefits of arms transfers are perceived as 
a means to express symbolic gestures of friendship, to gain 
and exercise influence, and to be used as a leverage for obtain- 
ing some specific political goals by supply or denial of arms 
covered by precisely tied agreements [180]. There are also 
direct military benefits like support for allies and friends. 
Some of the suppliers benefits, such as influence and leverage, are 
reciprocally perceived by the recipient. Influence, which is 

63 



perceived favorably by the supplier, is perceived by the 
recipient as dependence -. - How these elements are implemented 
in Israel, as both a recipient and a supplier, will be 
examined later in this chapter. 

3. The Meaning of Political Influence 

In general, being dependent on an arms supplier means poli- 
tical influence of the supplier over the recipient. This has 
been recognized by both superpowers, the U.S. and the Soviet 
Union, who view arms transfers as a major tool for implementing 
their foreign policy objectives. Examples of general influ- 
ence would be U.S. military sales to NATO, Iran, Saudi Arabia 
and Israel, and the Soviet Union to Warsaw Pact countries and 
Cuba [181]. For the purposes of this chapter, the influence 
of one country over the policy of another through the supply of 
arms will be defined as the ability to change or sustain the 
policies, goals or behavior of the recipient country [182 ] • 
It is likely that on any significant policy issue there will 
be an element of conflict between arms suppliers and recipients, 
Thus, in this context, the exercise of influence will typically 
involve resolving conflict between two states in ways that are 
consistent with the preferences of the supplier [±83 ] . This 
influence can be generally broken down into two categories: 

a. Specific influence tied to specific circumstances. 

b. General influence concerning the recipient's long- 
term political behavior [184]. 

Cahn developed a table which counts the factors that determine 
the level of influence of a supplier over a recipient, and the 



64 



factors which determine the recipient level of not being influ- 
enced by the supplier or even to influence him in reverse (see 
Table 2). Some of these factors are supported by several authors 
Kemp [ 185 J is consistent with factors 1 and 2, saying that 
the supplier will maximize leverage when it is the sole source 
for arms. Thus, over time the U.S. probably has greater lever- 
age over Israel, South Korea and Taiwan than over Iran, or 
Saudi Arabia which has money to buy on the open market. Quandt 
[186] agrees to factor 7, saying that arms recipients are more 
vulnerable to influence attempts in the midst of crisis that 
pose serious threats to their security, than in more normal 
times. More generally, decisions concerning war and peace are 
most likely to be influenced by an arms supplier. Quandt' s 
proofs are taken also from the Israeli-U.S. relationships. Being 
strict with her influence factors, Cahn reaches the inevitable 
conclusion that Israel is the most susceptible to supplier 
influence attempts. Israel has had no alternate supply source 
since 1967; it is unable to pay for all its arms purchases and 
is dependent on the U.S. for critical components of indigenously 
produced weapons. In addition, Israel faces a real threat 
to its national survival and does not possess oil or other 
scarce high-demand resources in appreciable quantities [187] . 
In fact, this implicit conclusion is not necessarily completely 
true. As many authors write, there are limits to influence 
in general, and in the Israeli-U.S. case — in particular. 
Some of these limits are discussed in the following section. 



65 



Table 2. Influence Derived from Arms Transactions 



Supplier's influence is 
maximized when the recipient 

1. has no alternate sources 
of supply 



Recipient's influence 
is maximized when the recipie 

1. has multiple sources of 
supply especially cross- 
bloc 



2. cannot pay for the arms 2. 

3. is a "pariah" state within 3. 
the international community 



4. has no indigenous weapons- 4. 
production capability 

5. does not occupy a strategic 5. 
geographic position 

6. has a small storage capacity 6. 
for spare parts 

7. perceives a real threat to 7. 
its national survival 



has the ability to pay 

has the multiple diplom- 
matic and cultural rela- 
tions within the inter- 
national community 

has an indigenous weapons 
production capability 

occupies a strategic 
geographic position 

has ample storage capacit 
for spare parts 

does not perceive a real 
threat to its national 
survival 



8. does not possess scarce 
unsubstitutable raw 
materials 



8. possesses scarce un- 
substitutable raw 
materials 



9. requires supplier personnel 9. 
for weapons maintenance and 
training 

10. perceives that receiving 10. 
arms from supplier is 
particularly prestigious 

11. has such a strong ideological 11. 
orientation that switching 
suppliers is precluded 



has sufficient technicall 
trained indigenous 
personnel 

perceives that the seller 
prestige is "on the line" 



is ideologically unhinder 
in switching suppliers 



66 



3. The Influence of the U.S. Over Israel Through Arms Supply 
a. Limits of U.S. Leverage Over Israel 

In general, several writers think that there can be a 
tendency to exaggerate the supplier political controls or 
influence over the recipient [188]. SIPRI [189] put it in 
other words saying that there is no causal relationship between 
suppliers of arms and the creation of political goodwill at the 
receiving end. The first and foremost limit for influence is 
the essential fact that any soveriegn country, even a small 
and dependent one, when its vital security interest is at stake, 
would take what it perceives as the required measures, even in 
a conflict with the supplier's wishes [190]. Recipient nations 
have a clear threshold of national interests which they will 
not sacrifice in favor of the supplier nation [191]. Countries 
will pay a heavy price to avoid letting the arms supply relations 
influence their foreign policy [192]. In such a case the recipi- 
ent may be willing to risk loss of arms support in the short run 
[193], There are many examples of the above assumption from 
the Third World in general, and particularly from the Israeli 
experience. Several examples may illustrate: 

- Even after the initial embargo against Israel in 1967 
and the impounding of 50 Mirage 5's by France, Israel launched 
an attack against Beirut Airport in 19 68, using French Super- 
Frelon helicopters. 

- Israeli use of American made cluster bombs in the strikes 
against Palestinian guerrila sites in 1978 in contravention of 
restrictive accords with the U.S. [194]. (In general, Israeli 



67 



attacks on P.L.O. strongholds have often been subject to con- 
troversies with the U.S. through the recent years.) 

- Israel ceased its fire in the 197 3 October War only two 
days after October 22, the date on which it had agreed with 
the U.S. On the 2 3 and the 24 of October, Israeli troops 
continued to advance on the town of Suez, and virtually cut 
off the Third Army in Sinai [195]. 

- Israel attacked on the 7 of June 1981 the Iraqi nuclear 
reactor in Baghdad, inspite of expected American protest. 
(This expected protest has been verified by the suspension 
for two months of F-16's and F-15's.) [19 6] Apparently, 
the above mentioned examples by no means suggest that there is 
no American influence on the Israeli policy in spite of the huge 
security assistance described in Chapter VII. The opposite is 
true. The question is — in what cases is this influence most 
effective? 

Wheelock [197] emphasizes the distinction between coer- 
cion and inducement. Coercion involves the denial of ongoing 
or future aid, while inducement depends upon the promise to 
increase aid. Both are means for obtaining leverage which is 
defined as "manipulation of the arms transfer relationship in 
order to coerce or induce a recipient-state to conform its 
policy or actions to the desires of the supplier-state". Whee- 
lock analyzes a series of Israelis-U.S . cases in the 1970's, in- 
cluding Rogers Peace Plan (1970) , the October War (1973) , the 
first and the second Egyptian-Israeli Disengagement Accords 
(January 1974, September 1975, respectively), and the Syrian-Isra< 






68 



Disengagement Accord (May 1974). Wheelock's conclusion is 
clear: Constraints imposed by policy objectives and diplomatic 
strategy limit the degree of coercion that the American policy- 
makers may exercise. On the other hand, American inducements 
have proven more successful in affecting Israeli policy change. 
In other words, only arms transfer increases, and long-term 
American commitments to the security of Israel have achieved 
the U.S. policy goals and influence with respect to Israel. 
Quandt [198], analyzing some of these 19 70's cases, arrives at 
the conclusion that the combination of first withholding arms 
then agreeing to provide them in increased amounts in return for 
a change of policy, could provide at least short-term results 
in the U.S . -Israeli relationship framework. Again, the induce- 
ment is an integral part of the preferred policy. Constraints 
on coercion stem from both the American and the Israeli sides. 
A policy of coercion might endanger the U.S. policy objectives: 
first, it has not induced reciprocity from the Soviet Union. 
On the contrary, it has possibly encouraged Soviet mischief [199]. 
Second, it may jeopardize the credibility of the U.S. security 
commitment to its friend and allies [200]. (in fact, increasingly, 
countries are questioning American reliability and credibility. 
Their perception of the U.S. as less willing and less able to 
come to their defense is a major factor in their self-reliance 
policy [201].) Another set of constraints on coercion policy 
towards Israel is the countervailing influence which Israel ex- 
erts in the United States through the Jewish community, and 
sympathetic members of Congress [202]. From the Israeli side, 
coercion may harden the resistance of the government, and bring 



69 



about a national consensus in viewing a situation as an 
attempt to violate vital and basically inflexible 
interests. To conclude this point — use of arms transfers 
to assist U.S. policy toward Israel has worked when the aid 
helped Israel to do what it wanted or found to be in its own 
interest. Efforts to use delays or denials on security assis- 
tance to soften tough Israeli negotiating positions have either 
had limited success or have had eventually to be coupled with 
massive aid commitments [203] . 

b. The June 10 1981 Aircraft Delivery Suspension 

The June 10 1981 aircraft delivery suspension may shed 
some light on the effectiveness of coercion within the U.S.- 
Israeli relationships framework. On June 7, 1981 several Israeli 
warplanes attacked and destroyed the Iraqi nuclear reactor in 
Baghdad. This raid was executed by U.S. -made F-16's and F-15's. 
Three days later President Reagan, through Secretary of State 
Haig, informed Congress that "a substantial violation of the 
19 52 agreement barring use of American supplied arms for any 
but defensive purposes may have occurred." Mr. Haig said that 
a review of this entire matter would be conducted and the re- 
sults reported later. Pending completion of that review, four 
F-16 jet planes that were due to be delivered on June 10 were 
held up [204]. When the review had provided conclusions 
satisfactory to the U.S., and the F-16's again were being deliver 
Israel bombed, on July 17, PLO headquarters in the midst of 
Beirut, killing some 300 people, many of them civilians. Presi- 
dent Reagan, participating in the Industrial Countries Conven- 
tion in Ottawa, Canada, decided to expand the suspension. The 

70 



suspension later encompassed 10 more F-16's. On the 24 of 
July a cease-fire had been achieved between Israel and the PLO, 
with the U.S. intermediating between the belligerents. After 
the cease fire, on August 10, the White House announced that 
the ban also would apply to two F-15 fighters. On August 17, 
the United States lifted its two months suspension on the de- 
livery of the 16 sophisticated warplanes . Talking to the National 
Security Council, Secretary of State Haig said that "the cease 
fire is a very positive new element in the region", but he re- 
frained from stating whether Israel had or had not violated the 
agreement with the U.S. [205] This case emphasizes several 
issues: 

- Israel had acted twice — the raid in Baghdad and the raid 
in Beirut — in clear conflict with U.S. policy, since it per- 
ceived these acts as vital to its self-defense. 

- The Beirut raid occurred in the midst of an ongoing 
embargo, which emphasizes the Israeli policy hardening effect. 

- The suspension caused angry reaction in Israel and the 
U.S., mostly on the point of violating a signed FMS agreement 

[206] . 

- The New York Times [207] editorial that wrote "there was 
never much doubt that Israel would get its 16 new warplanes from 
the United States, no matter how great American distress over 
its attacks on the Iraqi reactor and Lebanese civilians", re- 
flected the confidence in the deliveries resumption both in 

the U.S. and Israel [208]. Such confidence apparently weakened 
the effect of the suspension. 



71 



- United States refrained from ruling about the 19 52 agree- 
ment violation because ruling "pro" would mean backing the 
Israeli raids, while ruling "con" would have meant cutting off 
any further government-to-government military sales and 
financing to Israel. This points out that the suspension was 
in fact against the essential long-term American interest. 

- The Reagan administration may demonstrate the cease fire 
was an outcome of the suspension, but one can assume it would 
have been achieved anyway since it was in the Israeli interest: 
Under heavy shelling on the northern settlements, and a recog- 
nition that conditions were still premature for an invasion of 
Lebanon as the only means to completely stop this shelling, 
Israel seemed to be seeking this cease fire. 

c. Susceptibility to Influence in Crisis 

The previously described suspension case is taken from 
a relatively calm period. But there is no doubt that things 
are different in a crisis situation. The October 1973 example 
is a good one to realize that even a country with relatively 
developed arms industry, like Israel, could not be completely 
self-reliant in wartime. This is at least true in the Middle 
East where wars are extremely intensive, highly sophisticated 
and with a large attrition rate. The need for aid is amplified 
by the involvement of the superpowers on both sides. Israel 
cannot rely on itself only, while the other side is supplied by 
the Soviet Union. That explains why Israeli leaders were shocked 
by the delays and reluctance that colored the support the U.S. 
gave Israel in the first days of the 197 3 war [209]. 



72 



The 197 3 October war reveals two facets to U.S. influ- 
ence over Israel. Some examples suggest increased influence: 
Israel's Prime Minister Golda Meir disapproved a preemptive 
attack on the 6 of October morning, with the argument that 
initiating the fire by Israel may endanger the American aid that 
Israel would need later in the War that was known for sure to break 
out in the same day's afternoon. Another example was Israel's 
agreement to cease its fire on the 24 of October with a con- 
siderable reluctance, since the decision was made to stop short 
of full military victory. When asked subsequently why Israel 
had accepted, Defense Minister Dayan stated "We had no choice", 
and Chief of Staff Elazar agreed that "we were compelled to 
agree". Apparently Kissinger and Nixon had evoked the issue of 
arms supplies, and, as Dayan was later to state, the shells 
Israel was firing in the afternoon had only arrived that morning 
from the U.S. In those circumstances, a refusal to comply with 
the U.S. demand was almost unthinkable [210]. On the other 
hand, there are opposite examples: A cease fire was agreed 
after negotiations between Kissinger and the Soviet leadership 
and was to go into effect on October 22. Stopping briefly in 
Israel on his return from Moscow, Kissinger felt that the Israeli 
leadership had agreed with the desirability of ending the fight- 
ing. The following day, October 23, stating that they were re- 
sponding to violations of the cease fire by the Egyptian Third 
Army, Israeli troops continued to advance on the town of Suez, 
and by October 24 they had virtually cut off the Third Army in 
the Sinai [211]. Beyond the question of whether there were 



73 



violations of the cease fire or not, it was clear that Israel 
took the freedom to complete the Third Army cut off which was 
vital to it for the post war negotiations. 

The main limitation on the U.S. coercion policy in a 
crisis stems from the fact that it faces a major choice: whethe 
it was ready to see its ally lose a war or not. The outcomes 
of such a loss are so severe for the strategic interests of the 
U.S. that it must overlook many controversies in order to 
prevent such a loss. Thus, Nixon had to change his policy of 
unilaterally holding off the aid to Israel, in an attempt to 
force a cease fire. Facing the massive Soviet airlift to 
Syria (Oct. 10) and Egypt (Oct. 11), Nixon ordered the rapid 
arms deliveries to Israel [212] . 

d. The Distinction Between Short-run and Long-run Influence 

The previous examples bring about an implicit conclusion 
Israel vitally needs the aid of the U.S. for both the annual, 
reasonable levels of the security assistance program, and in a 
crisis. This can be achieved as long as the U.S. perceives its 
interest in keeping Israel strong and secure. President Carter 
expressed this commitment with the words: "We will remain 
faithful to our treaty obligations and will honor our histori- 
cal responsibilities to assure the security of the state of 
Israel" [213]. The commitment of the U.S. to Israeli security 
cannot be based only on the "historical responsibilities" be- 
tween the two countries, and the support of the American Jews. 
Israel cannot afford long run divergence from the common inter- 
ests with the U.S. Therefore the state of the relations with 
the U.S. is a significant ingredient for every Israeli decision- 
maker. It was clearly put by Ex-Prime Minister Rabin in an 

74 



interview to an Israeli newspaper: "What is our alternative 
besides leaning on the friendship of the U.S ... .U.S. -Israeli 
understanding is a crucial condition for Israel's security 
strengthening, and its political maneuvering freedom" [214] . No 
wonder that in order to secure the U.S. long run commitment, 
Israel wished to have a formal treaty with the U.S., including 
offers of base rights, as stated by Prime Minister Begin in a 
speech in the Knesset (Israeli Parliament) [215] . "I express 
hereby our wish for a formal defense treaty, but I am not going 
to raise the issue formally to the U.S. because I don't like 
to be refused." Thus, in the long run a great deal of U.S. 
influence is underlying the Israeli policy. This influence 
involves what Quandt [217] calls "anticipated reaction", in 
which the arms recipient anticipating an influence attempt on 
the part of its supplier, decides to preempt by altering its 
behavior to conform to its expectations of the supplier's 
preferences. Each party feels that "something is happening" 
that would not occur without the provision of arms. 



a ln fact, the issue has been raised in some way during Begin' s 
visit to the U.S. in mid September 1981. As a result of the 
Reagan-Begin talks, a new "strategic partnership" was 
announced. As announced by Secretary of State Alexander M. 
Haig Jr., "the strategic relationship, the strategic partner- 
ship, the alliance, if you will...", is to protect the Middle 
East from a common threat to the region — the Soviet threat. 
The practical steps will be combined military exercises, 
American military stockpiles in Israel, and strengthening the 
ongoing strategic dialogue [ 216] . This is still short of a 
formal defense treaty which the U.S., from its own perspecitve 
does not want to have with Israel. But it is one more step 
in tightening the relationship between the two countries. 



75 



On the other hand, the limits on coercion, and the 
Israeli confidence in the long term commitment of the U.S. to 
its security needs, leaves a lot of room for short term politi- 
cal freedom. Thus, in the existing relations framework one 
can easily come to the conclusion as put by the New York Times 
editorial [210J, that "embargoes may buy. time but little else." 
(This has not been perceived so by the Reagan Administration in 
the F-16 deliveries suspension, unless we assume that it is 
supposed to be a temporary suspension from the beginning, aimed 
mostly to satisfy the U.S.'s Arab friends, and not so much to 
punish or influence Israel.) What is the effect of the indig- 
enous arms industry, and especially the AFA production, on the 
short and long run political independence of Israel? That will 
be explored in the next section. 

e. The Contributions of the Israeli AFA to the Political 
Independence of Israel 

The Yom Kippur War experience indicates that in crisis 

situations, indigenous industries may not be able to keep up 

with defense needs [219 ] . It is estimated that the 18 day "Yom 

Kippur" War in 1973 cost Israel $7,510 million. Virtually all 

losses of war material have been replaced from U.S. stockpiles 

and assembly lines [220 ] . The emergency assistance during the 

war totaled $2,183 million [221], and FMS agreements in the 

following year reached $2,455 million. Even if we take into 

consideration that as a result of the 19 73 war, military 

stockpiles have been increased significantly, and the indigenous 

arms industry has developed as described before, there is still 

a need for massive American aid in case of all-out war. At 



76 



least if the other side is supplied during that war would this 
be true. This brings us to a more general conclusion that, in 
the modern world, a country that is located in a strategic 
region and is in a state of war or threat of war, cannot stand 
alone without being "sponsored" by one of the superpowers. More- 
over, a superpower cannot stay indifferent to such a country if 
its adversaries are supported by the opponent superpower. 
Therefore, neither a highly developed domestic arms industry 
nor AFA production can free Israel from its substantial need 
for U.S. assistance. This can be changed, if ever, only by a 
major politico-strategic change in the region, namely, progress 
toward resolution of the Israeli-Arab conflict. On the other 
hand, indigenous arms industries may increase the short run 
political freedom, which exists to a degree anyway. Short of a 
crisis — indigenous arms industries may enhance the political 
flexibility by compensating delays and embargoes [ 222j t The 
latter have only a long run effect, but in the existing circum- 
stances they don't stay in effect for very long. The economic 
contribution of an indigenous arms industry may provide some sta- 
bility to the security assistance flow. From another aspect, indi- 
genous production of AFA or, say, cluster bombs, may resolve 
controversies about the usage of American equipment, and Israel 
would be able to maintain such understanding as it reached with 
the U.S. as a resolution of the Iraqi reactor raid controversy 
[ 223. (Though/ it is doubtful if Israeli AFA is capable of 
such operations as the raid in Baghdad. Presumably Israel will 
keep the freedom to use any equipment it possesses, for vital 
purposes that cannot be executed otherwise.) 

77 



Paradoxically, because Israel cannot be completely self- 
reliant in the foreseeable future, it has a considerable degree 
of freedom to select those arms types it prefers to develop 
and produce domestically. Since it cannot produce everything, 
it can choose those arms that will enable it greater short run 
political benefits, and are technologically and economically 
preferred. Is the new Israeli AFA, the Lavi, a preferred 
commodity in that sense? AFA indigenous production, as the 
most sophisticated product of the conventional arms industry 
reflects, perhaps more than any other system, the statement 
that "Instead of creating independence, indigenous production 
creates a new set of dependencies" [224] . The form of depen- 
dence has shifted from arms transfers to technology for pro- 
ducing arms transfers [225] . This is also true with respect 
to the Lavi, especially concerning its engine. Actually, many 
in Israel argue that the Lavi decision is not the right answer 
to the dependence problem. The IAF Chief of Staff, Ma j . 
General Ivri concludes comments about the Lavi with a question, 
"Would the 'Lavi', without an indigenous engine, really give 
the resolution we are interested in?" [226] . Among the opponent 
to the Lavi production in the Security and Foreign Affairs Com- 
mittee was also ex-IDF Chief of Staff, General Bar-Lev, who 
argued that the investment is too high. It is doubtful if the 
aircraft would be exported, and the dependence would remain 
because of the components that would eventually be imported 
[227] . A similar tune is heard from some of the commentators 
in the Israeli press [228] . 



78 



To strengthen these arguments comes the fact that not 
only is technology import required, but the Lavi develop- 
ment depends to a great extent on American financing [229] . 
But even those who argue that the dependence remains would agree 
that the self-made AFA provides much greater short run political 
flexibility than finished imported systems. Technology trans- 
fers are harder to control and safeguard [230]. Even in cases 
of imported components the control is necessarily looser. Al- 
though the Kfir export could be blocked because of being equipped 
with American engines, the U.S. has never defined Israel's usage 
of Kfirs in PLO site attacks as "inappropriate use of U.S.- 
made equipment", as it did with respect to fully U.S. -made 
aircraft. 

The lead time until delay or embargo starts to take 
effect is much longer dealing with components to self-production 
than in the case of completely imported products. It is easier 
to bypass components' embargo by indirect supply routes, as 
has been proved by Israel during the 19 67 French embargo. 
And once you have the know-how, it is yours forever. Thus, 
within the framework of the long term and crisis time dependence, 
the Lavi would contribute to the short run, day-to-day politi- 
cal flexibility of Israel. Thi; is true despite American tech- 
nology, components and financing provisions for its development 
and production. In the examination of whether there are other 
weapon systems whose contribution to political flexibility would 
be greater, several considerations should be taken into account 
besides the level of technological independence in their production: 



79 



- What is their operational impact in current operations 
and in all-out war, compared to an AFA? 

- What are their relative political benefits besides the 
dependence questions? 

- What are the socio-economic impacts of their production, 
and of giving up the AFA production? 

It seems that the economic question is the most crucial one, 
as explained in Chapter IX. 

5. International and Internal Impacts of Indigenous Israeli 
AFA Production 

a. Overview 

Besides the major issue of dependence, associated mostly 
with the Israel-U.S. relationship, the indigenous AFA produc- 
tion has several other significant impacts on the foreign and 
domestic Israeli policy. This section addresses these impacts. 

b. Political Benefits of Israel as a Supplier 

It is generally accepted that Third World countries do 
not search for political influence in their arms transfers. 
Even the major European arms exporters do not. The predominant 
motive for both categories is the economic benefit. As far as 
Israel is concerned, some argue that Israel's indigenous arms 
industry viability, like many others, depends upon exports. 
Therefore, Israel must sell to all who are willing to buy, in- 
cluding such outcasts in the international community as South 
Africa and Chile [231]. As explained in detail in Chapter VI, 
there are strong political motives behind the Israeli arms trans- 
fers. These motives can be divided into three categories: 



80 



- Sales in attempts to break international isolation (South 
America, Southeast Asia and African countries) . 

- Sales as a part of mutual assistance between relatively 
developed "pariah" states (South Africa, Taiwan) . 

- Assistance to countries or movements who share a common 
enemy with Israel (Lebanese Christians, Kurds in Iraq, and even, 
perhaps, the current Iranian regime). 

No doubt that AFA exports to the first two category countries 
may benefit the political interests of Israel. The symbolic 
perception of an AFA transfer amplifies these benefits. On 
the other hand the special nature of the AFA may be an obstacle 
to its export. 

From another viewpoint these sales may jeopardize the 
delicate Israeli international position. In the eyes of those 
countries who are not aware (or prefer not to be aware) of 
Israel's special situation, Israel is perceived after all as 
having no political or moral restrictions in its arms sales. 
This can detract from Israeli moral arguments against 
European arms sales to some Arab countries. In any case the 
potential political benefits of the AFA exports suggest that it 
be produced, although by no means play a major role in the 
overall considerations. 

c. The Prestige and "Overall Power" Factors 

Several authors count the prestige acquired by means 
of indigenous arms industry as one of the motives for its de- 
velopment [232]. An effective arms industry reflects a wide 
range of resources, human and otherwise, that a state can 



81 



marshal, and it demonstrates a degree of self-reliance that 
other nations cannot achieve. Arms industries may suggest a 
"great power status" for the country, at least in its regional 
context. It is hard to assess to what extend the Israeli 
indigenous arms production capability contributes to its over- 
all perception in the eyes of its neighbors. If it does con- 
tribute, AFA production is a significant factor in this contri- 
bution. But we can assume that in the Israeli-Arab context 
the most prestigious factor is the total military power and the 
combat capability of Israel, in which the indigenous arms indus- 
try is not the major component. 

d. The Domestic Socio-Political Factor 

Perhaps more significant than external prestige is 
the domestic socio-political effect of the Israeli AFA. Gold- 
stein [2 33] writes that "the national arms industry may be little 
more than a psychological support; nonetheless, it is strongly 
associated with sovereignty and national strength". And truly, 
in Israel, perhaps more than anywhere else, the national morale 
and strength are crucial ingredients in standing under pres- 
sures, in war and peace as well. The perception of the strength 
and confidence counts more than the objective facts. According 
to Moodie [234] while the degree of dependence on arms imports 
remain quite strong in objective terms, in regard to perceptions 
the state may feel greater flexibility, and in international 
politics it is the perception that determines behavior. That 
is the case with Israel too. The striving for self-reliance 
is more than just pretension of leadership. The historic 



82 



experience of the Jewish people, together with an immediate and 
potentially overwhelming threat at the time of independence 
and today, has engendered strong "go-it-alone" sentiments, not 
only in the leadership, but in the population as a whole [235]. 
Thus, an indigenous arms industry, especially with a prestigious, 
highly sophisticated product such as AFA, may contribute a lot 
to the internal immunity of the Israeli people. In many cases 
indigenous arms are disclosed, usually on special occasions like 
the Day of Independence and get a lot of publicity in the com- 
munication media. In the June 1981 election campaign, politi- 
cians of the ruling Likud Party cited the progress in arms pro- 
duction and exports as one of the greatest successes of the 
government. They even complained that they had to refrain from 
disclosing more, and by that, missing one of their strongest 
electoral attractions [236]. This does not suggest that the 
government's prestige is a major ingredient in the decision 
of the Lavi, since it is not compatible with Israel being a 
progressive democracy. Rather, it emphasizes the significance 
the Israeli public attributes to the issue. 

In the media some argue that a "national project" like 
a development and production program for AFA, would contribute 
to better allocation of income, close social gaps, and affect 
the quality and self-image of the Israeli society as a whole. 
It would contribute to the public welfare more than direct 
allocation of resources to welfare [237]. But, of course, 
there are also some who fear from potential social effects of 
such a grandiose project. Those argue that because of the bud- 
getary burden the project imposes, there would not be sufficient 

83 



funds for lodging, health, education and welfare. Others 
mention the moral aspect of being "the merchants of death", 
or being identified with repressive regimes. Others warn 
against the danger of creating an industrial-military complex, 
which dictates decisions according to its interests which are 
not necessarily identical to those of the society in which it 
is acting [ 2 39 J . Again, the Israeli democracy is too deeply 
rooted to reach such extreme levels, but even within a democracy, 
there can be an aggressive struggle of interests. In general, 
most of the sociological aspects are in favor of indigenous AFA 
production. Those who oppose such production are mostly in- 
direct issues concerning the export policy or the economic 
ramifications. The latter are discussed in the next chapter. 

6. Concluding Comments 

The ideals of self-reliance and the striving for political 
independence have always been substantial motives in Israeli 
policy. But in the current and future circumstances it is un- 
likely that Israel can afford to give up or reduce substantially 
the American security assistance. Indigenous arms industries 
cannot change the basic situation, and thus Israeli policy- 
makers should be aware of maintaining the long run commitment 
of the U.S. to Israel. 

On the other hand, the degree of U.S. influence over Israel, 
or Israel's political dependence on the U.S., are reduced by 
American limits of leverage, and by the so-called "reverse 
leverage" of Israel over the U.S. Within the long run commitment 



84 



arms flow is more or less assured, though not immune to tem- 
porary delays and embargoes. In such cases, indigenous arms 
industries, including AFA production, may contribute signifi- 
cantly to short run political flexibility. In that sense, even 
systems based on imported technology or components may help. 
The recognition that the need for U.S. arms is a durable 
one, paradoxically enables Israel to select the weapon systems 
it prefers to develop and produce. The criteria for preference 
are mostly economic and technological. This is not to say that 
political considerations have nothing to do with the selection. 
On the contrary, factors such as contribution to the political 
independence, overall prestige, domestic morale and confidence, 
and bridging to other nations, play a significant role in the 
decision. But the economic considerations and especially the 
domestic ones, are more crucial in this case. These considera- 
tions are discussed in the next chapter. 



35 



IX. ECONOMIC CONSIDERATIONS 

1. General 

Economic benefits are major motives for maintaining indigen- 
ous industry not only in Israel, but in worldwide arms pro- 
ducing countries. Several economic incentives play a role in 
the drive to maintain indigenous arms industries: 

- Improving the balance of payments by substituting arms 
imports for domestic production, and as a further step — by 
exporting arms. 

- The positive impact on employment. 

- The contribution to the domestic industrialization. 

- The spin-off effect on civilian products, technology and 
sales [240] . 

But there are economic problems as well, associated with 
domestic arms production: 

- Indigenous production frequently turns out to be more 
expensive than originally estimated and is sometimes even more 
expensive than buying the complete weapon abroad [241] . 

- Shortage of economic resources. 

- Negative effect on an ill economy by contributing to 
inflationary process. 

- High risks in devoting tremendous resources into develop- 
ments with unknown results, and into production with unstable 
markets. These benefits and risks are discussed below. 



For supplementary data to this chapter, see Appendix C 



86 



2 . Balance of Payments 
a. Overview 

As mentioned before, indigenous arms industries, includ- 
ing the AFA production, may contribute to the balance of pay- 
ments in two ways: 

- Creating foreign-exchange savings by substituting domes- 
tic production for imports [242], 

- Earning hard-currency through arms exports and by that, 
offsetting balance-of-payment deficits [243]. 

In the Israeli realm, the balance of payments deficit 
is one of the severe illnesses of the economy. This deficit 
can be mainly attributed to the high defense expenditures, 
half of them in foreign exchange, and the lack of natural re- 
sources in the face of increasing world oil prices. 

But there are some candles in the general darkness. The 
surplus of imports over exports for FY 198 0/81 was predicted 
as $3.3 billion, compared to $2.8 billion in FY 1979/80. In 
fact, the deficit decreased to $2.3 billion, $1 billion less 
than estimated. For the first time in Israel's history, 72% 
of the imports of goods and services, including military imports, 
were covered by exports. This is compared to only 50% in the 
mid 1970's [244]. No doubt that this achievement is- attri- 
buted mainly to the $1.25 billion military exports in that 
same year. 

The above facts verify Day's [24 5] words, saying that 
the Israeli leaders see the export of weapon systems "as a quick 
and profitable way to translate the nation's war experience 
into economic advantage." 

87 



b. The Effect of Indigenous AFA Production on the Israeli 
Balance of Payments 

The first subject for examination is the saving of 
foreign exchange by substituting domestic production for imports 

On the face of it, it looks pretty obvious: by acquir- 
ing over 150 "Kfirs" or 200 "Lavis" from its own industry, 
Israel can save the expenditure of several billions of dollars 
which might have been spent for buying American aircraft in- 
stead. But don't forget that large portions of the Israeli pay- 
ments to the U.S. are waived. Would Israel keep getting the 
same amount of grants (or waived payments) if it reduces its 
purchases from the U.S.? The rest of the financing program is 
given as credits and loans. Is Israel ready for a change in 
these conditions which are economically favorable? 

In fact, American dollars, which are proposed for buy- 
ing American arms only, are much more easily available than 
the Israeli "Shekels" needed to be invested in the indigenous 
AFA development or purchase. Moreover, inquiry of the FMS 
agreements and deliveries tables [246] does not indicate any 
decrease in dollars spent on arms purchases in the years of 
the great growth of the domestic arms industry and especially 
while large numbers of the Kfirs are acquired. 

The answers to these questions are by no means 
straightforward. Starting with the last one, it can be stated 
that the contribution of the indigenous industry to foreign ex- 
change savings is_ significant. It is indicated by the fact 
that in spite of the inflationary devaluation of the dollar; 
in spite of the arms race in the Middle East; in spite of the 
extreme growth in arms prices — the nominal assistance dollar 

88 



amounts remained about the same in recent years. Without indi- 
genous industries, dollar expenditures would increase signifi- 
cantly, or the IDF would be less equipped. The waived payments 
are a matter of policy. Israel should argue that the increas- 
ing needs require keeping this policy in spite of the growing 
self-sufficiency, which can hardly keep up with the arms race. 
By itself, Israel should prepare for the worst case of changing 
the financing policy with or without connection to the self- 
sufficiency issue. This, for sure, favors the domestic pro- 
duction of AFA. 

The credit financing, although convenient and, in fact, 
even vital in the short run, has severe implications in the 
long run. In the Israeli 1981 budget proposal, 30% of the total 
expenditures are debt payments. This percentage had an increas- 
ing trend through the 1970 's, although slightly decreased from 
1980 to 1981. Debt payments in foreign currency for FY 1981/82 
amounts to nearly $2 billion, about twice as the total FMS 
agreements projected to this year. About $540 million of that 
huge debt are attributed to the FMS Financing Program annual 
payment [247] . 

The above figures emphasize what a heavy debt burden 
lies on the Israeli economy. While some economists argue that 
there is nothing wrong with a government's debt to its own citi- 
zens, this is not the case when foreign debt is concerned. Here 
the economic consequences are accompanied by political ones. 
Cahn [248] argues that transactions such as credit sales, which 
stretch over several years, provide multiple leverage points. 



89 



Thus, in the Israeli circumstances, decreasing or even stag- 
nating the national foreign debt is a crucial task. AFA domes- 
tic production can save large dollar expenditures, as a result 
of being an extremely expensive commodity. 

The second subject to examine is the export contribution 
to the balance of payments. In terms of balance of payments 
only, exports always contribute positively. But the question 
of export profitability should be asked in a broader sense: 
is it economically profitable, i.e., cover costs and even earn 
some profit? In other words, does the competition require such 
a low price that it is not justifiable to export any more? 

According to Goldstein [249] some potential Third World 
arms exporters may find it economically justifiable to export 
arms even when sales are not, in a narrow sense, profitable. 
In such cases exports are made in order to earn foreign hard 
currency; demonstrate a level of technological sophistication; 
gain access to another country's market for these or other pro- 
ducts, or to gain a political benefit. 

All the above arguments may apply to the Israeli AFA 
case as well. On the other hand, in its hard-pressed economic 
situation, Israel should strive to be profitable in the narrow 
sense also. In this respect Israel has some advantages which 
results in a competitive low price for its AFA in the inter- 
national market: 

- Israel has low labor costs: cost of labor in development 
in Israel is about half of the equivalent American hourly rate 
[250] . Cost of production or maintenance labor is about two- 
thirds of the equivalent labor in the U.S. or Europe [251]. 

90 



- Israel can exploit to the maximum the technology trans- 
fer opportunities: it can leap-frog some of the earlier stages 
of technology, allowing the more advanced states in technology 
to underwrite the R&D costs, while learning from their achieve- 
ment and mistakes [252]. Thus, the Lavi R&D costs are esti- 
mated as one-half to one-third of its contemporaries in the 
U.S. and Europe. 

- The large amounts consumed domestically (even in European 
terms) enable Israel lower export unit prices. (This effect, 
of course, is a two-way street between exports and domestic 
consumption. ) 

The prospect of the new Israeli AFA exports has already 
been discussed in Chapter VI. In short, they are very vague 
and wander somewhere between the great boom of the general 
arms exports and the flop (so far) of the Kfir export attempts. 
As explained in Chapter V, the domestic consumption of the Lavi 
is likely to be large enough to justify the indigenous produc- 
tion anyway. (This is, of course, under the assumption that the 
expected costs would not overrun or be out of control.) Thus, 
exports in this case may be considered as a bonus rather than as 
a condition for the industry to survive. As a consequence, the 
first contribution to balance of payments, i.e., foreign cur- 
rency savings , is supposed to be thoroughly accomplished by 
the AFA indigenous production. The second contribution of 
earning hard currency by exports is still unknown, but if it 
occurs, it can be accepted favorably as a significant bonus. 



91 



3 . The Inflationary Effect of the AFA Production 

a. Overview 

Perhaps the worst illness of the Israeli economy in 
recent years has been inflation. It has reached peaks of three 
digit figures such as 12 0%-130% at an annual rate. The near 
term goal of the current government is to reduce inflation below 
the 100% annual rate. The main reasons for such a tremendous 
rate are: 

- High defense expenditures. 

- The rise in the world's oil prices. 

- Wrong allocation of the labor force between the productive 
sector and the public services, and low productivity of labor. 

- Fast economic growth rate (although significantly reduced 
in recent years) . 

One can also argue about the extent to which various gov- 
ernment decisions have accelerated or diminished the rate of infl 
In any case fit is clear that a major step to counter inflation 
is to reduce the real activities in the state budget [253] . 

b. The Defense Expenditures in Israel 

As mentioned before, the defense budget as a major 
government expenditure, is one of the main reasons for inflation. 
In the 1981 budget, it counts for 31% of the total budget [254]. 



This percentage has been stable in the late 1970 's and early 
1980's, after a high of 49% in 1973 (the war year) [255]. As 
such, Israel in 1978 was in fifth place in the world in the 
ranking order of military expenditures as a percentage of the 
central government total expenditures [256]. 






92 



The military expenditures as a percentage of the total 
Israeli GNP stabilized in recent years at around 25% [257] , com- 
pared to 5.4%, 5.3% and 5.5% for the world totals, developed and 
developing countries, respectively [258]. 

The effect of the defense budgets components is not 
uniform. As previously mentioned, about half of the defense 
budget is the American Security Assistance Program. This money 
is spent for the most part in the U.S., for U.S. goods purchases. 
Only 1/8 of it is not bound to specific purchases in the U.S. 
Thus, the U.S. security aid does not increase the Israeli money 
supply, and does not affect inflation significantly. 

What does affect inflation is the part of the defense 
budget which is aimed at local spending. This part counts for 
about 13%-14% of the GNP [259] , which is still more than two- 
fold of the world's average percentage. No wonder this 
part of the defense budget has been targeted for cuts involving 
hard debates between the treasury and the defense establishment. 
The debate even caused the retirement of the Minister of Defense, 
Ezer Weizman as a protest, after a large chopping of the 
defense budget. 

This lengthy description is to emphasize in what environ- 
ment the Lavi decision has been taken, since its funding comes 
mostly from the local spending part of the defense budget, 
c. The Inflation Consideration in the Lavi Decision 

It is now clear that a flow of about SI billion through 
the next 8 years [260] for the Lavi development with returns 
only starting, hopefully, in 1988, may result in several out- 
comes, alternatively or simultaneously: 

93 



- Severe cuts in any other expenditures in the "Shekels" 
defense budget, in order to finance Lavi development. As a 
consequence, vital security needs can be severely hurt. 

- Insufficient financing of the Lavi development and by 
that causing, presumably, delays or even inadequate design 
results. 

- Increasing the budget by "printing" money or otherwise, 
and by that inflaming the hyperinflation. 

With this background one can understand the demands of 
some senior military officers to cancel the project [261], or 
from the industry side to mobilize funding through collaborations 
or exchange of the U.S. aid into Israeli "shekels". 

Buying American-made aircraft only, apparently frees 
Israel from the painful selection between the above-mentioned 
all-bad alternatives. 

Thus, the budgeting problem and the inflationary effect 
represent the most acute problems for the Israeli AFA . 

4 . Technological and Industrial Base Implications and the 
Spin-off Effect 

a. Overview 

Arms industries in the Third World countries are often 
viewed as leading the way in a country's effort to further its 
industrialization [262 ] . In fact, even in the developed coun- 
tries, the arms industries and their derivatives (e.g., space 
research) lead the technological advance and the innovative 
research. Arms industries not only contribute to the techno- 
logical know-how of a country, but they require and thus maintain 
a wide industrial base. 



94 



Arms industries in many cases contribute to the general 

commercial industry of a country by the spin-off effect. The 

technology innovated for arms is used in commercial products. 

Military sales may promote sales in the commerical arena [263] . 

All these phenomena strongly exist in the Israeli realm, and 

serve as a driving motive for indigenous arms industry in 

general, and AFA production in particular. 

b. AFA Effect on Technological Advance and Industrial 
Base in Israel 

Several commentators in the Israeli press emphasize the 
tremendous contribution of the aeronautical industry to the 
Israeli general technological capability [264] . It has already 
been mentioned that the IAI with its 22,000 workers is the largest 
single plant in Israel. Its 2000 engineers are the largest de- 
sign group in the country. No further illustrations are needed 
to understand what portion of the Israeli industrial infrastruc- 
ture IAI and its subsidiaries take. 

AFA development and production in Israel will give a 
great push to the technological advance and the industrial base 
of the country. Substitution of AFA production by less demand- 
ing arms (e.g., small and medium range missiles, electronics, 
etc.) would not provide the same scale, and thus, from this 
respect would be less effective. Coproduction or any other way 
of collaboration with large American firms might occupy the pro- 
duction lines, but leave the domestic design force with much 
fewer challenges (since, naturally, most of the design would 
be done in the sponsoring company) . 



95 



c. AFA Production's Spin-off Effect 

The spin-off effects work both in the technological 
and sales areas. 

The technological spin-off is very straightforward within 
the aeronautical industry itself, where it is a two-way street 
between the military and the civilian products. In 197 6 
Mr. Shimon Peres, at that time the Minister of Defense, said that 
the investments in the civilian models of the Arava and the 
Westwind had helped in production of the Kfir [265] . But it 
also worked in the reverse way. 

With respect to the sales' spin-off, Lorbar [266] says 
that the reputation of the Kfir (though not yet exported) and 
the sales of the Gabriel missile, assisted the sale of Israeli- 
made electronic medicine devices (area in which Israel is one 
of the world leaders) . 

Thus, this aspect clearly favors the domestic production 
of the Israeli AFA. 

5 . Labor Force and Employment Implications 
a. Overview 

According to Cahn [2 67] , the conventional arms industry 
employs between 1 to 1.5 percent of the working population in 
the major West European arms-supplying countries. In Israel, 
this percentage is much higher. According to one source, the 
production of the new Israeli AFA would create a situation in 
which every tenth worker in the industry would be connected 
directly or indirectly with the aerospace industry [268] . Even 
today, the 22,000 workers of the IAI and the additional 5000 



96 






in its subsidiaries, count for a large portion of the industrial 
labor force in Israel. 

In Israel, more than in many other countries, 
the creation and the expansion of the aerospace industries 
has not been driven by the need to provide employment. For more 
than a decade Israel had enjoyed full employment. But once 
the industry had been developed, and jobs had been created, it 
achieved its own momentum. Such a huge labor force employed in 
this industry is not flexible enough to be transferred to other 
sectors. And no government can ignore its responsibility to 
provide projects to keep this labor force working. This is even 
more so when the industry is government-owned as in Israel and 
in most European states. 

b. Employment and Social Rights 

In the Israeli social environment, workers are highly 
secured against dismissal, by formal rights and by the general 
power of the trade unions. It is also a primary commitment of 
the government to prevent unemployment. Consequently, Lorbar 
[269] argues that what happened in the U.S. between 1968-1972 
in the aerospace industry cannot take place in the Israeli 
reality. According to Lorbar, as a result of an ebb in the 
U.S. aerospace industry, 90,000 workers were fired. As a 
ramification of this huge firing, a total number of 220,000 
employees lost their jobs in that period. These firings saved 
the firms about $7.5 billion. Such a thing (of course on a 
relative scale) is very unlikely to happen in Israel. 

The Indian example is more compatible with the Israeli 
environment. When HAL terminates a particular program, workers 

97 



are shifted to other projects rather than laid off, despite the 
uneconomical nature of the practice. According to Air Marshal 
S.J. Dasture [270], HAL Chairman, "You have to be pretty des- 
perate to lay off workers in a public sector organization". 

In fact, the labor force considerations have been the 
crucial ingredient in the Swedish government's decision to go 
ahead with the B-3LA program [271] . 

Not to undertake the Lavi project would mean wide dis- 
missal, or what is more likely, keeping over-capacity workers 
on smaller projects. In the latter case, the labor costs, which 
are 60%-80% of a modern weapon system R&D costs, would be in- 
curred anyway, and the relief to the sagging defense budget 
would not be as significant as expected [272] . 

c. The Effect of AFA's Decision on Skilled Manpower 

By its nature, AFA development and production involves 
relatively high concentrations of skilled manpower — engineers, 
technicians and management personnel. Such skilled labor, 
temporarily released, may be lost forever [273]. Moreover, the 
IAI expressed its fear of "brain flight", i.e., engineers emi- 
grating to other countries — something which is perceived very 
severely in the Israeli environment. 

In this repsect, coproduction is not enough. As stated 
by an Israeli key military planner [274] , "We have a very solid 
offset production -wise on the F-15 — but not for engineers. The 
interests of the Israeli aerospace industry are not only eco- 
nomics. Our industry has good engineers who need challenges 
in development and research". No doubt that indigenous AFA 



98 



can provide R&D challenges on a higher level and larger scale 
than any other project. 

6 . Some Economic "Awkward Problems" 

a. General 

Several "awkward problems" with respect to the indigen- 
ous AFA are raised in the general literature, which apply to 
the Israeli case. They are presented in the following paragraphs. 

b. "All the Eggs in One Basket" 

Some authors warn about the risk in allocating such a 
large portion of the national resources — budgets, manpower, in- 
dustrial base — to one single industry [2 75] . They found some 
parallel characteristics in that sense between Israel and Wash- 
ington State in the U.S. In Washington, with a population of 
3.5 million (a little less than Israel as a whole), 50,000 
people work in the Boeing Corporation. The feeling in that 
state is that the fate of the state highly depends on the status of 
Boeing. But, the "only" difference is that behind Washington State 
still stands the federal government of the most powerful country 
in the world to compensate downturns in the aerospace indus- 
try. This is not the case with Israel (although one can joke 
that the same federal government stands behind Israel too...). 

A sudden cut in IAI production may cause a collapse of 
the whole Israeli economy. These authors emphasize the great 
fluctuations of the arms market because of rapid innovations in 
technology; economic tides and ebbs; political changes and the 
tendency of governments to procure such weapons as aircraft 
from particular firms in a short two-or-three year period, every 



99 



ten years or so [276 ] . The Israeli market is especially sensi- 
tive to such fluctuations because of its limited selection of 
potential customers. 

No doubt that these fears are real and are of great 
concern to the decision-makers. On the other hand, in the 
aerospace industry, as explained in Chapter III, if the risks 
are high, so are the opportunities. 

The "insurance" against market fluctuations in the 
Israeli case is the large domestic consumption, which is unfor- 
tunately, determined by the circumstances, 
c. The Burden on the Economy 

Another claim against indigenous arms industries is 
that those industries place burdens on their countries ' econo- 
mies and result in the diversion of scarce resources from badly- 
needed economic and social development [277] . The question 
accompanying this claim is usually, "what could have been the 
shape of the national economy if all these resources would have 
been invested in commercial products and services, rather than 
in the arms industry?" As an example , usually raised is the 
Japanese example — how a nation freed from high defense burdens 
(as a result of World War II) could use its resources to develop 
tremendously successful industries. Moreover, to contradict the 
assumption that arms exports bring about a spin-off effect of 
increasing commercial sales to the same customers, the Japanese 
example is brought up again. Since the fourfold oil price 
increase in 197 3, Japan's total exports showed the largest in- 
crease — 82%, compared to increases of 51% to 61% for the other 



100 



leading Western nations. Yet for the same period, Japan's 
negligible arms exports actually declined from $17 million in 
1973 to $8 million in 1976. A similar picture is seen in 
examining the West German exports to OPEC countries (although 
in that case arms sales increased too, but at a much slower pace) 
[278] . In return, one can argue that Japan and West Germany are 
special phenomena in the industrial world. Also, the above 
example does not suggest that the spin-off effect does not work 
for those who do supply arms. 

In any case, for the Israeli case the answer is clear. 
Here, arms are not just an easy way to make economic profits, but an 
essential need. Resources should be allocated to arms purchases 
anyway. There are authors who think that "in developing coun- 
tries, U.S. arms aid and purchases could have harmful economic 
consequences" [279], since it saps the limited financial resources 
of the recipient that could be better spent furthering the eco- 
nomic development of that society [280]. Thus, both alternatives 
facing Israel absorb large resources and may harm its economy. 
Buying outside is more convenient in the short run, but creates 
long run debt burdens. Producing domestially squeezes the 
short run resources, but is promising in the long run. There 
is no third alternative in the Israeli circumstances, thus, the 
Japanese example just is not valid for Israel. 

7 . Concluding Comments 

Indigenous production of AFA in Israel has been found 
favorable for the economy from most aspects: 



101 



- It contributes to favorable balance-of-payments by 
saving foreign currency spendings, and potentially, by earning 
such currency through exports. 

- It expands and advances the technological base and 
industrial infrastructure of the country. 

- It has positive spin-off effects on commercial products, 
technology and sales. 

- It provides employment, keeps in existence the largest 
industry Israel possesses, and prevents "brain flight" and loss 
of skilled manpower. 

- The large domestic market is insurance against the world 
market fluctuations. 

The paramount obstacle to the project is the Israeli hyper- 
inflation. The project may inflame the inflation or, in ex- 
change, not obtain adequate funds and, thus, lag or even 
fail (or be canceled) . 

It is this problem the Israeli policy-makers have to cope 
with in order to proceed with the Lavi program, or in any 






future similar program, at least in the next decade. Actually, 
that is what the current "debate on the Lavi" is all about, and 
presumably that will be the case in the coming years. 



The author of this paper feels that it is beyond his scope, 
capabilities and data available to suggest concrete suggestions 
on how to cope with the above problem. He views his task as 
enabling the reader to focus on the acute issues. 



102 



X. CONCLUSION 

The past performance and the current capabilities of the 
IAI provide solid proof of its ability to cope with the 
challenge of development and production of advanced fighter 
aircraft (AFA) . From the industry viewpoint, it has been 
rational to define its future aircraft as relatively unsophis- 
ticated, not pretending to be state-of-the art. Moreover, 
such a type of aircraft will be needed in large amounts in 
the IAF by the 1990' s. 

But the Israeli AFA does not free the IAF from acquiring 
American advanced fighters in the foreseeable future. This 
fact is only one component in the long term dependence of 
Israel on the U.S., stemming from the Middle East conflict. 
This dependence, or one can say — relationship — is implemented 
in terms of political support, financial assistance, arms 
supply, and aid in crisis time. The degree of that long term 
dependence can be changed by two major developments: 

- Calming the Mid-East conflict. 

- Securing the American commitment by more formal alliance. 
The indigenous arms industry/ including an AFA production, 

does not much affect Israel's long term dependence. On the 
other hand, Israel has a great extent of short run political free- 
dom, enabled by U.S. limits of leverage, and the reverse leverage 
of Israel over the U.S. The short run independence can be 
significantly strengthened by the indigenous arms production. 



103 



But since Israel is still far from being completely self-suf- 
ficient, it is not bound in its selection of what weapons to deve 
and produce. From the Israeli-U.S. relationship angle, the 
AFA does not necessarily have the greatest impact on the short 
run independence, since it still requires American engines, and 
since other aircraft should be purchased from the U.S., anyway. 
Thus, although indigenous AFA does contribute to the Israeli 
political flexibility, it is not necessarily the preferred pro- 
duct to concentrate on as a result of this aspect. That conclu- 
sion slightly weakens the political motive of the indigenous 
AFA, although the political motive for indigenous arms industry 
as a whole is as strong and solid as ever. 

The above analysis shifts the weight in the decision-making 
to the economic area. In the economic area almost all factors 
are in favor of the domestic production of the AFA: 

- It contributes favorably to the balance of payments, even 
without being exported. 

- It expands and enhances the technological base and the 
industrial infrastructure. 

- It has positive spin-off effect on commercial industry. 

- It provides employment, and maintains a concentration of 
skilled labor. 

The major weakness of the indigenous AFA is its inflationary 
effect. An effort should be made to cope with this weakness. 
Even an increase in short run political dependence by using U.S. 
aid funds for the project, or collaboration with U.S. firms are 
desirable. It is justified to undertake short term liabilities 



104 









• 



in order to acquire long term assets. The employment of the 
workers as well as the deployment facilities in the already 
existing aeronautical industry is a crucial consideration. 
Exports are not a matter of survivability in the indigenous 
AFA case. 

This paper analyzed a variety of areas and factors affect- 
ing the decision. All of them should be considered, but by no 
means with equal weight for the decision. An attempt to rank 
factors may lead to the following "rough" conclusions: 

- The technical capability has the lowest impact on the 
decision. Since the Israeli industry is safely above the re- 
quired minimum capability for such a project, it does not matter 
so much how this capability is related to the major world's 
aircraft producers. 

- The political aspects are less important than people tend 
to think since the AFA does not change significantly the exist- 
ing long run dependence, and short-run political freedom exists 
anyway. It may contribute to the short run flexibility, but 
other indigenous arms instead (while all aircraft are imported) 
may do as well. The prestige effect — external and internal — 
have relatively minor impact on the decision. 

- The greatest weight is attributed to the economic cate- 
gory. Balance of payments, inflation and employment are the 
most important with respect to the subject under discussion. 
The critical issue is the inflation or in exchange--the funds 
availale to the program. Being under the threshold in this 
area may cause the whole program to fail. 



105 



So this is the area to be emphasized in any decision-making 
about an Israeli AFA in the next decade. Issues like political 
independence, export opportunities or difficulties, and others 
which are used to support or contradict the indigenous AFA, 
may get less weight than they are actually given, though 
they should not be ignored. 

The bottom line is: Israel should undertake the demanding 
commitment of indigenous AFA, unless it views no way to pro- 
vide the adequate funds through the development phase. The assum] 
tion is that this question has been assessed thoroughly before th< 
decision about the Lavi has been made. But it will continue to 
be the crucial one at any future milestone, or in a decision 
about another Israeli AFA initiation some 5, 8 or 10 years ahead. 

One final comment: From a practical viewpoint, one can 
argue that this paper attempts to analyze considerations for 
a decision, while the decision has been already made. Accord- 
ing to this approach the circumstances underlying the analysis 
are good only for this case.'-s timeframe, so it can be used in a 
best case as a posterior assessment of the decision. But in 
fact, a major acquisition decision is not of a "one shot" type. 
Through the many years of the acquisition cycle, on milestones 
and between them, there are several iterations of the decision. 
In addition, within the acquisition cycle of one aircraft, the 
new one starts to roll on. That can happen — and not too late 
to make this analysis completely obsolete. Thus, beyond the 
"academic" interpretation of the past decision, which is impor- 
tant for its own right, this paper might have, perhaps, some 
practical applications for future decisions as well. 

106 



APPENDIX A 
Arms Imports and Exports 

1. World Arms Imports, 1978 (by region) 108 

2. World Arms Imports (Developed, Developing 

Countries) ■ 108 

3. Leading Countries in Arms Imports 109 

4. Value of Arms Exports: 1969-1978 109 

5. Military Expenditures, GNP , Central Govern- 
ment Expenditure, etc. 110 

6. Armed Forces, Population, Physicians, etc. 112 

7. Value of Arms Transfers and Total Imports 

and Exports, etc. 114 



Comment: The tables consist of sample countries 
only. For complete details, see the 
source. 

Source: ACDA, World Military Expenditures and 
Arms Transfers [47] 



107 



World Arms Imports, 1978 
Shares by Regions 

LATIN AMERICA, 5% 
SOUTH ASIA 3% 



MIDDLE 
EAST 37% 



j 



AFRICA 25% 




m 



NATO 9% 



WARSAW 
PACT 10% 



lifTncMh OTHER EUROPE** gf 



PACIFIC 8% 



SBI 
22 


World Arms Imports 

LLIONS (constant '77) 






























/ 












df\/fi nppn 














20 


















19 3 




"19.2 




18 


1 


DEVELOPING 


176. 




-174- 




1U 




15* 




















16 


'. •» . 

t 

', 
* • _^% 


14 7 






1"3 14fl 


I* 






- — — 














t -i 

■ >. 
-'A 




12 

in 


lit 

■ 


12 9 


9 5 




-9 4- - 


8 








a.u 








10.3 


= 


10.2 




mi 






6.9^ 


6 

4 
2 



6.3 


6.4 


— | 




1969 




1970 




1971 




1972 




1973 




1974 




1975 




1976 




1977 




1978 


CI 
CX 


1978 
JRREI 
DLLAf 


^T 
IS 



108 



Table A. Value of Arms Exports: 1969-1978 

(In millions of constant 1977 dollars) 





Total Global 


Deve 


oping World 




Arms Exports 


Arms ExDorts* 


1969 


9519 




276 


1970 


9036 




370 


1971 


9362 




404 


1972 


14680 




1256 


1973 


17625 




427 


1974 


14334 




378 


1975 


14029 




701 


1976 


17352 




952 


1977 


19300 




750 


1978 


19177 




837 



%of 
Global Exports 



2.9% 


4.1% 


4.3% 


8.6% 


2.4% 


2.6% 


5.0% 


5.5% 


3.9% 


4.4% 



Developing World 


% of 


Arms Exports exc. 


PRC 


Global Exports 


49 




.51% 


62 




.69% 


37 




40% 


57 




.39% 


120 




.68% 


208 




1.5% 


501 




3.6% 


804 




46% 


640 




3.3% 


707 




3.7% 



Total: 



144414 



6351 



4.4% 



3185 



2.2 0/ < 



'Including the People s Republic of China 

Sources US Arms Control and Disarmament Agency. World Military Expenditures ind Arms Transfers 1969-1978 



Leading Countries in Arms Imports, 1978 



$ BILLIONS (currant) 







1 

m ■ 



fej mi 

r . - _• V* 

'■'■ '■■■ &?'■ 










IRAN 



LIBYA 



IRAQ ETHIOPIA SAUDI. 
ARABIA 



ISRAEL SYRIA 



SOVIET ALGERIA REPUBLIC 
UNION OP KOREA 



• 



■j. 



109 



TABLE I. Military Expenditures. GNP, Central Government Expenditures, Public Health Expenditures, 
and Public Education Expenditures, 1969-1978. By Region, Organization, and Country 





Mill 


AflV 


GHOSS NATION*!. 

OQOOUCT 

GNP1 

B-Mrondo'tafS- 1 


1 ENTflAl 

L.OVF «NMFNT 

T XP£NDlT|iRfS 

(T.Et 


PUBl IC 

H£ AL TM 
E^Pf Nn'Tl)«FS 


PUBt IC 

eni'CAri'iN 
ExPFNOiTu»( S 


• 
MH_f ■ 


■ 

Mil! > 
iE 


H 


E 






VILEXI 
Q'liion dollars* 


,NP 


GNP 


.'IP 


M E • 


YfAft 


C u"*nt 


Constat 
•977 


_ I Conjiaol 

1 


8.ii, 


"inCi>"S»a"t '-J' T -loliars 





WORLD TOTALS 








































1969 


236 





383 


4 


3537 


5746 


1 145 


4 


120 


6 


275 


5 


6 


7 


33 


5 


2 


1 


4 


8 


103 


1970 


247 


5 


382 


3 


39 12 


6043 


1208 


5 


139 





293 





6 


3 


31 


6 


2 


3 


4 


8 


1 13 


197 1 


259 


8 


38 1 


8 


4293 


6310 


1288 





154 


3 


315 


2 


6 


1 


29 


6 


2 


4 


5 





123 


1972 


278 


7 


393 


4 


4704 


664 1 


1364 


2 


167 


6 


323 





5 


9 


28 


8 


2 


5 


4 


9 


124 


1973 


301 


2 


402 


1 


5314 


7095 


1428 


3 


177 


3 


350 


9 


5 


7 


28 


2 


2 


5 


4 


9 


131 


1974 


339 


5 


4 14 


2 


595 1 


7259 


1468 


2 


191 


5 


359 


5 


5 


7 


28 


2 


2 


6 


5 





133 


1975 


383 





426 


5 


6599 


7348 


1708 





21 1 


6 


38 1 


8 


5 


8 


25 





2 


9 


5 


2 


139 


1976 


4 1 1 


5 


435 


4 


7284 


7707 


1785 


2 


224 


7 


408 


7 


5 


6 


24 


4 


2 


9 


5 


3 


145 


1977 


439 


1 


439 


1 


8010 


8010 


1863 


4 


237 





427 





5 


5 


23 


6 


3 





5 


3 


151 


1978 


479 


9 


446 


7 


8967 


8348 


199 1 





253 


5 


44 1 


1 


5 


4 


22 


4 


3 





5 


3 


155 


OFVELOPED 










































1969 


197 


3 


320 


4 


2892 


4698 


940 


5 


108 


3 


24 1 


1 


6 


8 


34 


1 


2 


3 


5 


1 


109 


1970 


202 


2 


312 


4 


3172 


4900 


985 


7 


125 


7 


255 





6 


4 


31 


7 


2 


6 


5 


2 


121 


197 1 


209 


8 


308 


4 


3464 


5091 


1033 


3 


139 


7 


272 


7 


6 


1 


29 


8 


2 


7 


5 


4 


133 


1972 


224 





316 


2 


3783 


5340 


1083 


1 


151 


6 


275 


7 


5 


9 


29 


2 


2 


8 


5 


2 


135 


1973 


238 


5 


318 


5 


4248 


5672 


1 1 19 


6 


159 


9 


300 


9 


5 


6 


28 


4 


2 


8 


5 


3 


144 


1974 


268 


2 


327 


2 


47 17 


5754 


1 130 


6 


173 


9 


309 


6 


5 


7 


28 


9 


3 





5 


4 


147 


1975 


295 


4 


328 


9 


5172 


5759 


1308 


9 


192 


4 


323 


5 


5 


7 


25 


1 


3 


3 


5 


6 


156 


1976 


314 





332 


2 


57 12 


6043 


1365 


2 


204 


6 


346 


9 


5 


5 


24 


3 


3 


4 


5 


7 


166 


1977 


339 


3 


339 


3 


6256 


6256 


1425 


6 


216 


1 


362 


7 


5 


4 


23 


8 


3 


5 


5 


8 


170 


1978 


370 


3 


344 


7 


697 1 


6490 


1528 


7 


231 





374 


2 


5 


3 


22 


5 


3 


6 


5 


8 


175 


DEVELOPING 










































1969 


38 


8 


63 





645 


1048 


205 





12 


3 


34 


5 


6 





30 


7 


1 


2 


3 


3 


74 


1970 


45 


2 


69 


9 


740 


1 143 


222 


7 


13 


3 


38 





6 


1 


31 


4 


1 


2 


3 


3 


73 


1971 


50 





73 


4 


829 


1219 


254 


7 


14 


5 


42 


5 


6 





28 


8 


1 


2 


3 


5 


77 


1972 


54 


7 


77 


2 


921 


1301 


281 


1 


16 





47 


3 


5 


9 


27 


5 


1 


2 


3 


6 


82 


1973 


62 


6 


83 


6 


1066 


1423 


308 


7 


17 


5 


50 





5 


9 


27 


1 


1 


2 


3 


5 


80 


1974 


71 


3 


87 





1233 


1505 


337 


6 


17 


6 


49 


9 


5 


8 


25 


8 


1 


2 


3 


3 


77 


1975 


87 


6 


97 


6 


1427 


1589 


399 


1 


19 


2 


58 


3 


6 


1 


24 


5 


1 


2 


3 


7 


79 


1976 


97 


6 


103 


2 


1572 


1663 


420 





20 


1 


61 


8 


6 


2 


24 


6 


1 


2 


3 


7 


79 


1977 


99 


8 


99 


8 


1754 


1754 


437 


9 


2 1 





64 


3 


5 


7 


22 


8 


1 


2 


3 


7 


85 


1978 


109 


6 


102 





1996 


1858 


462 


2 


22 


5 


67 





5 


5 


22 


1 


1 


2 


3 


6 


87 






110 



TABLE I. Military Expenditures, GIMP. Central Government Expenditures Public Health Exoenditures 

and Public Education Expenditures. 1969-1978, By Reg.on. Own^ntcZXfiwUnu* 



Mil l! AMY 

f if* NMiimi • 

Mil ( ■ 



Mill. on U\"U'$* 



- " c :■:;?' 



GNPi 



L 



1 196 


194 3 


5883 


1663 


2569 


6620 


1752 


2575 


7707 


1721 


2430 


9026 


3768 


5032 


9918 


3287 


4010 


1 1535 


4 111 


4577 


12973 


4424 


4681 


13521 


4312 


4312 


1434 1 


39 14 


3643 


16123 



( NTHil 

iOVI UNMl M 

i <Pf NdilKHf , 

Cat I 



e 

',(■ Al IH 
I >t>( NDH Ml '. 



""81" - 

' "" »"ON 
.... ,., ."H ,1 



M..i...n . ... ,i .,..) . ' ' i.,.. „ , 



• 






9558 


4631 


182 




494 


20 


3 


42 





1 9 


5 


2 


)4 


10226 


5393 


203 




563 


25 


1 


47 


a 


2 


5 


5 


:i 


1 1327 


61 18 


21 1 




676 


22 


7 


42 


i 


1 9 


6 





14 


12741 


674 t 


262 




762 


19 


1 


36 





2 1 


6 





i 2 


13243 


9577 


408 




887 


38 


O 


52 


5 


3 1 


6 


7 


25 


14072 


9267 


506 




964 


28 


5 


43 


3 


3.6 


6 


9 


,6 


14445 


10572 


527 




985 


31 


7 


43 


3 


3 6 


a 


8 


33 


14 307 


I 14 18 


51 1 


g 


938C 


32 


7 


4 1 





3 6 


6 


6 


1 i 


14341 


12381 


670 


o 


1213c 


30 


1 


34 


B 


4 7 


8 


5 


43 


15010 


11 128 


NA 




NA 


24 


3 


32 


7 


NA 


NA 


NA 



7391 
7832 
8316 
8874 
9687 

374 10803 

375 12209 

376 13362 

377 14965 

378 16587 



12008 
12099 
12222 
12526 
12935 

13179 
13594 
14 138 
14965 

15442 



169674 
188652 
20908 1 
230109 
255967 

289538 
317928 
350279 
382138 
422852 



275633 
291409 
307295 
3248 12 
341773 

353216 
353993 
37062 1 
382138 
393655 



61319 
61548 
64305 
65648 
68131 

75906 
82375 
80403 
83093 
84873 



NA 
NA 
NA 
1055 1 
NA 



12820 
14215 
15413 
16042 
18445 



NA 1706 1 d 

19681 19580 

20445 2 1395 

NA 22011 

NA NA 



4.4 19.6 

4.2 19. 7 

4 19.0 

3.9 19.1 

3 3 19.0 



3. 7 
3.8 
3 8 
3 9 
3.9 



17 4 
16 5 
17.6 
18.0 
18. 2 



NA 
NA 

NA 
3.2 

NA 

NA 
5.6 
5 5 

NA 

NA 



4 .7 
4 9 
5.0 
4 .9 
5.4 

4 8 

5. 5 

5 8 
5.8 

NA 



STATES 
81443 
77854 
74862 
77639 
78358 



132303 
120260 
1 10028 
109592 
104625 



938800 

985800 

1067 700 

1 175400 

13 1 1200 



1525066 
1522749 
1569244 
1659145 
1750745 



2997 17 
303684 
310703 
327481 
329933 



f 
39799 

42169 
46149 
49404 
5 1806 



k 

96656 

99786 

104058 

106008 

1 15630 



8 7 
7.9 
7 
6 6 
6 



44 

39 

35 
33 
31 



2 6 
2 8 

2 9 
3.0 

3 



6 3 

6 6 

6 6 

6 4 

6 6 



103 
1 18 
136 

14 1 
160 



1974 85906 104799 14 19800 1732054 276435 

1975 90948 101265 1537000 1711355 363092 

1976 91013 96298 17094OO 1808670 386831 

1977 100928 100928 1896 100 1896 10O 4019OO 

1978 108357 100875 2117700 1971480 419673 



56848 111379 

62018 112123 

65918 117128 

69300 120700 

72707 119162 



6 1 37 9 

5 9 27 9 

5 3 24 9 

5 3 25. 1 

5 1 24 



3 3 
3 6 
3 6 
3 7 
3. 7 



6 4 

6 6 

6 5 

6 J 

6 



160 
172 
190 
188 
190 



1536 


2496 


1681 


2597 


1798 


2642 


1909 


2695 


202 1 


2699 


2247 


274 1 


2424 


2699 


2532 


2680 


2668 


2668 


2932 


2730 


227 


370 


282 


436 


249 


367 


280 


396 


536 


716 


499 


609 


924 


1029 


965 


1022 


1047 


1047 


1 176 


1095 



42132 
46675 
489 1 1 
51763 
5662 1 

64482 
7 1 120 
75638 
77760 
85373 



2247 
24 17 
2779 
3225 
3478 

45 13 
5585 
631 1 
67 17 
7503 



68443 
72098 
7 1887 
73067 
75602 

78663 
79188 
80030 
77760 
79478 



365 1 
3734 
4085 
4553 

4644 

5506 
62 19 
6678 
6717 
6985 



20398 
21 139 
22303 
NA 
18793 

21699 
23185 
25007 
25716 
281 19 



1009 
1 160 
1260 
1334 
16 12 

2019 
3036 
3164 
3284 
3076 



3005 
3390 
3790 
3996 
4020 



5513 
5553 
5735 
5791 
5827 



3 6 12 2 

3 6 12 3 

3 7 118 

3 7 NA 

3 6 14 4 



4449 5837 3 5 12 6 

4780 5859 3 4 116 

4962 6198 3 3 10 7 

46 10 5 656 1 3 4 10 4 

4960 g 6840C 3 4 9 7 



'J A 
NA 

23 
18 

i 1 

13 
25 

34 
29 
NA 



d 
144 

149 

155 

165 

175 



10 1 

1 1 7 

9 

8 7 

15 4 



J 6 

29 
29 

4 J 



180 Ml 30 2 

255 16 6 33 9 

405 15 3 32 3 

209C 15 6 319 

NA 15 7 35 6 



4 4 

4 7 

5 3 

5 5 

5 3 

5 7 

6 
6 2 

5 9 

6 2 



MA 
NA 

6 
4 
2 

2 
O 4 
5 
O 4 
NA 



8 1 

7 7 

a o 

7 9 

7 7 

7 4 

7 4 

7 7 

8 4 
8 6 



4 

4 

3 a 

3 6 

3 8 

3 3 

4 1 

6 1 

3 1 

NA 



111 



TABLE II. Armed Forces, Population, Physicians, and Teachers, 1969-1978, 
By Region, Organization, and Country 



armed 
FORCES 



Thousand 



TACHERS' 



PHYSICIANS 



AHMED 

FORCES 

PFR 

TOO 

PEOPLE 



T FACHERS 

PER 

•000 

PEOPLE 



PHYSICIANS 
PER 

•ooo 

PEOPLE 



ARMED 
FORCES 



PHYSICIANS 

ARMED 
FORCES 



CJNP 

PER 

CAP'TA 



<tT7 

Constant 

rjonafs 



MILE- 
PER 

CAP'TA 



37' 

Constant 

mnats 



WORLD TOTALS 




































1969 


3552 


6 


24830 


22284 


2400 


8 


7 





6 


.3 





7 


89 


7 


9 


.7 


1617 


107 


1970 


3625 


9 


24916 


23452 


2500 


9 


6 


9 


6 


.5 





7 


94 


. 1 


10 


.0 


1666 


105 


1971 


3697 


7 


2544 1 


24340 


2636 


2 


6 


9 


6 


.6 





7 


95 


.7 


10 


4 


1706 


103 


1972 


3845 


5 


25697 


25499 


2718 


1 


6 


7 


6 


6 





7 


99 


2 


10 


6 


1726 


102 


1973 


392 1 


7 


26077 


26386 


2820 


a 


6 


5 


6 


7 





7 


101 


2 


10 


.8 


1809 


102 


1974 


3999 


6 


27287 


27320 


2964 


9 


6 


8 


6 


8 





7 


100 


1 


10 


.9 


1815 


103 


1975 


4089 


7 


26447 


28489 


3022 


5 


6 


5 


7 








7 


107 


7 


1 1 


4 


1796 


104 


1976 


4169 


5 


26297 


29136 


3263 


3 


6 


3 


7 








8 


1 10 


a 


12 


4 


1848 


104 


1977 


4247 


6 


26259 


29709 


3388 





6 


2 


7 








a 


113 


1 


12 


9 


1885 


103 


1973 


4314 


9 


26639 


29898 


3471 


6 


6 


2 


6 


9 





8 


1 12 


2 


13 





1934 


103 


OEVELOPED 






































1969 


988 


6 


1 1830 


1 1391 


1598 


5 


12 





1 1 


5 


1 


6 


96 


3 


13 


5 


4752 


324 


1970 


997 


1 


1 1565 


1 1668 


1649 


9 


1 1 


6 


1 1 


7 


1 


7 


100 


9 


14 


3 


49 14 


313 


1971 


1006 


4 


1 1332 


1 1927 


1753 


5 


1 1 


3 


1 1 


9 


1 


7 


105 


3 


15 


5 


5059 


306 


1972 


1015 





1 1033 


12 160 


1791 


1 


10 


9 


12 





1 


3 


1 10 


2 


16 


2 


526 1 


31 1 


1973 


1024 


2 


1 1003 


12491 


1848 


5 


10 


7 


12 


2 


1 


a 


1 13 


5 


16 


8 


5538 


31 1 


1974 


1032 


6 


10987 


12740 


1974 


2 


10 


6 


12 


3 


1 


9 


1 16 





18 





5573 


316 


1975 


104 1 





10983 


1304 1 


1999 


6 


10 


6 


12 


5 


1 


9 


1 18 


7 


18 


2 


5532 


315 


1976 


1048 


4 


10731 


13426 


2172 


1 


10 


2 


12 


a 


2 


1 


125 


1 


20 


2 


5764 


316 


1977 


1055 


8 


10633 


13947 


2246 


3 


10 


1 


13 


2 


2 


1 


131 


2 


21 


1 


5925 


32 1 


1978 


1063 





10755 


14448 


2275 


8 


10 


1 


13 


6 


2 


1 


134 


3 


21 


2 


6 105 


324 


OEVELOPING 






































1969 


2564 





13000 


10892 


802 


3 


5 


1 


4 


2 





3 


83 


8 


6 


2 


108 


24 


1970 


2628 


3 


13351 


1 1784 


35 1 





5 


1 


4 


5 





3 


88 


3 


6 


4 


435 


26 


1971 


2691 


3 


14 109 


12412 


882 


7 


5 


2 


4 


6 





3 


88 





6 


3 


453 


27 


1972 


2830 


5 


14664 


13338 


927 





5 


2 


4 


7 





3 


91 





6 


3 


■159 


27 


1973 


2897 


5 


15074 


13894 


972 


3 


5 


2 


4 


8 





3 


92 


2 


6 


4 


49 1 


28 


1974 


2967 





16300 


14571 


990 


7 


5 


5 


4 


9 





3 


89 


4 


6 


1 


507 


29 


1975 


3048 


7 


15464 


15448 


1022 


9 


5 


1 


5 


1 





3 


99 


9 


6 


6 


521 


32 


1976 


3121 


1 


15566 


15710 


1091 


2 


5 





5 








3 


100 


9 


7 





533 


33 


1977 


3191 


8 


15626 


15761 


1 141 


7 


4 


9 


4 


9 





4 


100 


9 


7 


3 


549 


31 


1978 


3251 


9 


15884 


15449 


1 195 


8 


4 


9 


4 


3 





4 


97 


3 


7 


5 


571 


31 



112 



TABLE II. Armed Forces, Population, Physicians, and Teachers, 1969-1978 
By Region, Organization, and Country • continued 





1 

PEOPLE 

I 


ABMEO 
FORCES 


TEACntBS* 


■ 

physicians 


■ 1 

ARMED 
'ORCES 

PEB 

'000 
PEOPLE 


fEACMEBS 

PEB 

•TOO 

PEOPLE 


OH.SlClANS 

PEB 

'000 

PEOPLE 


T~ 

1 'EA..MEP.S 

fOBCES 


P«»S'C ASS 
fOBCES 


v.p 

PEB 

.APiTA 


-• 


»EAB 


Million 


T"Ou»A"d 


Triousano 


r^ouseno 








' 




•»7? 
Ittanl 

30"A'f 


• 

' * 
* • 


RAEL 

1969 
1970 
197 1 
1972 
1973 


2 9 

3 
3 1 
3 2 
3 3 


100 
105 
130 
130 
130 


g 

43 
46 
47 
51 
58 


f 

6 9 

7 3 

7 7 

8 5 

9 1 


34 5 

35 
4 1 9 
40 6 
39 4 


14 8 

15 3 

15 2 
15 9 

17 6 


2 4 
2 4 
2 5 
2 7 
2 8 


43 

43 8 

36 2 
39 2 

44 6 


6 9 

7 

5 9 

6 5 

7 


3296 
3408 
3654 
398 1 
4013 


670 
856 
830 
759 
1525 


1974 
1975 
1976 
1977 
1978 


3 4 
3 5 
3 5 
3.6 
3 7 


160 
190 
190 
165 
165 


49 

54 
57 
59 
NA 

8,1 


NA 
NA 
NA 
2 
NA 


47 1 
54 3 
54 3 

45 8 

44 6 


14 4 
15.4 
16 3 
16 4 
NA 


NA 
NA 
NA 
6 
NA 


30 6 
28 4 
30 
35 8 

NA 


NA 
NA 

NA 

1 2 
NA 


4 138 
4 127 

4087 
3983 
4056 


1 179 
1308 
1337 
1 197 
984 


EDEN 












1969 


8 


75 


80 


lO. 4 


9 4 


10 


1 3 


106 7 


13 9 


8555 


3 


1970 


8 


75 


86 


1 1 


9 4 


10 8 


1 4 


114 7 


14 7 


9012 


3 


1971 


8 1 


75 


91 


113 


9 3 


1 1 2 


1 4 


1213 


15 1 


8875 


j 


1972 


8 1 


75 


92 


1 1 9 


9 3 


1 1 4 


1 5 


122 7 


15 9 


9020 


2 


1973 


8 1 


75 


96 


12 6 


9 3 


1 1 9 


I 6 


128 


16.8 


9333 


* 


1974 


8 2 


75 


98 


13. 3 


9 1 


12 


1 6 


130.7 


17 7 


9593 


- 


1975 


8 2 


75 


88 


14 1 


9 1 


10 7 


1 7 


117 3 


18 8 


9657 


- 


1976 


8 2 


66 


94 


14 7 


8 


1 1 5 


1 8 


142. 4 


22 3 


9759 




1977 


8 3 


68 


NA 


NA 


8 3 


NA 


NA 


NA 


NA 


9368 


- 


1978 


8 3 


68 


NA 


NA 


8 3 


NA 


NA 


NA 


NA 


9575 


~ 


ANCE 






8 


















1969 


50.4 


570 


476 


65 6 


113 


9 4 


1 3 


S3 5 


11.5 


5468 


23 


1970 


50.8 


570 


499 


68 


1 1 2 


9 8 


1 3 


87 5 


1 1 9 


5736 


23 


1971 


51 3 


565 


520 


71 


1 1 


10 1 


1 . 4 


92 


12 6 


5990 


23 


1972 


51 7 


560 


535 


74.6 


10 8 


lO 3 


1 4 


95 5 


13 3 


6282 


24 


1973 


52 2 


560 


559 


73.6 


10 7 


10.7 


1 4 


99.8 


13 1 


6547 


24 


1974 


52 5 


580 


598 


77 1 


1 1 


1 1 4 


1 5 


103 1 


13 3 


6727 


25 


1975 


52 7 


575 


596 


77 9 


10.9 


1 1 3 


1 .5 


103 7 


13 5 


6717 


25 


1976 


52.9 


585 


603 


NA 


1 1 1 


11.4 


NA 


103. 1 


NA 


7006 


26 


1977 


53 1 


502 


682 


86. 3 


9 5 


12 8 


1 6 


135 8 


17 2 


7 196 


28 


1978 


53. 3 


502 


NA 


NA 


9 4 


NA 


NA 


NA 


NA 


7385 


28 


[TED STATES 






















1969 


203 


3460 


2809 303 


17 


13 8 


1 5 


81 2 


8 a 


7512 


651 


1970 


205 


3070 


2914 3112 


15 


14 2 


1 5 


94 9 


10 1 


7428 


586 


197 1 


207 


2720 


2892 318 7 


13 1 


14 


1 5 


106 3 


1 1 7 


7580 


531 


1972 


209 


2320 


2932 333.3 


1 1 1 


14 


1 6 


126.4 


14 4 


7938 


524 


1973 


210 


2250 


2997 338 


10 7 


14 3 


1 6 


133 2 


15 


8336 


498 


1974 


2 12 


2170 


3047 35 1 


10 2 


1 4 4 


1 7 


140. 4 


16 2 


8170 


494 


1975 


214 


2 130 


3 133 366 


10 


14 6 


1 7 


147 1 


17 2 


7997 


473 


1976 


215 


2 100 


3140 379 


9 8 


14 6 


1 8 


149 5 


18 


84 12 


J47 


1977 


217 


2 100 


3280 393 


9 7 


15 1 


1 8 


156 2 


18 7 


8737 


465 


1978 


2 19 
6 1 


2286 


3260 376 


10 4 


14 9 


1 7 


142 6 


16 4 
2 


9002 
598 


460 


IA 

1969 


75 


g 

40 


1 5 


12 3 


6 6 


2 


53 3 




1970 


6 3 


75 


J 1 


1 6 


119 


6 5 


3 


54 7 


2 1 


592 




197 1 


6 5 


1 10 


J6 


1 7 


16 9 


7 1 


3 


4 1 8 


1 5 


628 




1972 


6 7 


1 15 


?2 


1 9 


17 2 


7 a 


O 3 


45 2 


1 7 


S79 




1973 


6 9 


1 15 


55 


2 4 


16 7 


8 


3 


47 8 


2 1 


673 


' 


1974 


7 2 


130 


59 


2 . 7 


18 1 


8. 2 


4 


45 4 


2 1 


764 




1975 


7 4 


230 


64 


2 4 


31 1 


8 6 


3 


27 8 


1 


840 


1 


1976 


7 7 


230 


72 


NA 


29 9 


9 4 


NA 


31 3 


NA 


867 


1 


1977 


7 9 


225 


JG 


3 1 


28 5 


9 6 


4 


33.8 


1 4 


850 


' 


1978 


8 2 


225 


NA 


NA 


27 4 


NA 


NA 


NA 


NA 


85 1 


i 



113 



TABLE III. Value of Arm* Transfers and Total Imports and Exports, 1969-1978 
By Region, Organization, and Country 





4 AMS IMPORTS 

Mftt<oo iio"»-i 


*RMS€XPORTS 


total IMPOOTS 


TOTAL EXPORTS 
BMHon doNM 


ARMS 

IMPORTS 


»RMS 

EXPORTS 




Million oottft 


3»l''On OOI'««« 


'0T4L 
MPOR'S 


~OT»L 
EXPOR'S 


(TEAM 


cu-^. co r,v? m 


Cu*»»«t 


.»T7 C "" W 


Conntni 

•»T7 




'• 



WORLD TOTALS 




















1969 


5860 


9519 


5860 


9519 


279 


453 


270 


4 39 


2 1 


2 2 


1970 


5850 


9036 


5850 


9036 


321 


496 


310 


479 


1 8 


1 9 


1971 


6370 


9362 


6370 


9362 


357 


525 


346 


508 


1 8 


1 8 


1972 


10400 


14680 


1040O 


14680 


422 


596 


412 


581 


2 4 


2 6 


1973 


13200 


17624 


1320O 


17625 


581 


776 


570 


762 


2 3 


2 3 


1974 


1 1750 


14334 


11750 


14334 


838 


1023 


827 


1010 


1 4 


1 4 


1975 


12600 


14029 


12600 


14029 


890 


991 


869 


968 


1 4 


1 .5 


1976 


16400 


17352 


16400 


17352 


1002 


1060 


985 


1042 


1 6 


1 7 


1977 


19300 


19300 


19300 


19300 


1 144 


1 144 


1 121 


1 121 


1 7 


1 7 


1978 


2060O 


19177 


2060O 


19177 


1330 


1239 


1302 


1212 


1 5 


1 6 


DEVELOPED 






















1969 


2000 


3249 


5690 


9243 


222 


360 


218 


354 


9 


2 6 


1970 


1730 


2672 


56 10 


8665 


256 


395 


25 1 


387 


7 


2 2 


1971 


1670 


2454 


6095 


8958 


284 


418 


280 


41 1 


0.6 


2 2 


1972 


3 100 


4375 


9510 


13423 


338 


477 


332 


469 


9 


2 9 


1973 


3420 


4566 


12880 


17 197 


462 


618 


453 


604 


7 


2 8 


1974 


3380 


4123 


1 1440 


13956 


647 


790 


598 


730 


5 


1 9 


1975 


35 10 


3908 


1 1970 


13327 


666 


742 


646 


719 


0. 5 


1 9 


1976 


4 170 


44 12 


15500 


16400 


761 


805 


715 


756 


5 


2 2 


1977 


4 1 15 


4 115 


18550 


18550 


860 


860 


815 


815 


OS 


2 3 


1978 


3910 


3640 


19700 


18339 


999 


930 


972 


904 


0.4 


2 


DEVELOPING 






















1969 


3860 


6270 


170 


276 


57 


93 


52 


84 


6 8 


3 


1970 


4 120 


6364 


240 


370 


65 


100 


59 


91 


6 4 


4 


1971 


4 700 


6907 


275 


404 


73 


107 


65 


96 


6 4 


4 


1972 


7300 


10304 


890 


1256 


84 


1 19 


79 


1 1 1 


8 6 


1 2 


1973 


9780 


13058 


320 


427 


1 18 


158 


1 17 


157 


8 2 


3 


1974 


8370 


10210 


310 


378 


190 


232 


229 


280 


4 . 4 


1 


1975 


9090 


10121 


630 


701 


223 


249 


223 


248 


4 


3 


1976 


12230 


12940 


900 


952 


240 


254 


270 


285 


5 1 


3 


1977 


15185 


15185 


750 


750 


284 


284 


306 


306 


5 3 


2 


1978 


16690 


15537 


900 


837 


331 


308 


330 


307 


5 


3 



114 



TABLE III. Value of Arms Transfers and Total Imports and Exports, 1969-1978, 
By Region, Organization, and Country • continued 



»«MSf *PO«TS 




Mill. on (1ni*«r9 



E Constant 



T 



•oi«i ,MPOar<i 



•»i ( ipopts 









mpob'S 


EIPOB' r > 








■OT»t 

MP'jOTS 


*' ' At 

f .1- ms 


on <ioit*f\ 




M'llinn .In *>* 


, 




mv*ni 


1 


r ....... ' * n ' 

.it'*ni ... 





ISRAEL 



1969 
1970 
1971 
1972 
1973 



160 
230 
260 
270 
230 



259 
355 
382 
38 1 
307 



5 

5 



10 

20 



8 

7 



14 

26 



1670 
2090 
2390 
2480 
4240 



2712 
3228 
3512 
3500 
566 1 



729 

779 

958 

1 150 

1449 



1 184 
1203 
1408 
1623 
1934 



9 5 
1 1 
10 8 
10 8 

5 4 



7 
6 

0.9 
1 4 



1974 
1975 
1976 
1977 
1978 



975 

750 

1000 

1 100 

950 



1 189 

835 

1058 

1 100 

884 



30 
50 

140 
60 

lOO 



36 
55 
148 
60 
93 



5440 
60O0 
5667 
5787 
7403 



6636 
6680 
5996 
5787 
6891 



182S 
1940 
2420 
3084 
392 1 



2226 
2 160 
2560 
3084 
3650 



17 9 
12 5 
17 6 
19 
12 8 



1 6 

2 6 
5 8 

1 9 

2 6 



SWEDEN 



1969 
1970 
197 1 
1972 
1973 

1974 
1975 
1976 
1977 
1978 



10 
10 
5 
20 
20 

20 
20 
30 
40 
30 



16 
15 
7 
28 
26 

24 
22 
31 
40 
27 




10 
50 
50 
lO 

70 
90 
40 
50 
100 




(5 
73 
70 
13 

as 

10O 

42 
SO 
93 



5910 
7010 
7080 
81 10 
109OO 

16700 
17500 
19628 
20140 
20535 



9600 
10828 
10405 
1 1447 
14553 

20372 
19485 
20767 
20140 
191 17 



5700 
6800 
7480 
8770 
12200 

1590O 
17384 
18435 
19082 
2 1806 



9259 
10503 
10993 
12379 
16289 

19396 
19356 
19505 
19082 

203OO 



1 

1 



2 

1 

1 

1 

1 

1 

1 




1 
0.7 
6 
1 

O 4 
5 
O 2 
03 
O 5 



FRANCE 



1969 
1970 
1971 
1972 
1973 

1974 
1975 
1976 
1977 
1978 



20 
lO 
10 
20 
20 

20 
30 

50 
50 
40 



32 


220 


357 


17400 


28266 


15200 


24692 





1 


1 


J 


15 


200 


308 


19100 


29503 


18100 


27958 


U 





1 


l 


1 4 


150 


220 


2 1300 


31305 


208OO 


30570 











1 


28 


725 


1023 


27000 


381 12 


26500 


37406 





(J 


2 


1 


26 


850 


1 134 


37700 


50337 


36700 


49002 


u 





2 


J 


:4 


700 


853 


52900 


64534 


4630O 


56482 








1 


5 


3 J 


700 


779 


54000 


60125 


53100 


59123 


u 


J 


' 


3 


52 


1000 


1058 


64400 


68 139 


57200 


6052 1 


u 


u 


1 


1 


50 


1300 


1300 


70497 


70497 


64997 


64997 





■J 


2 





37 


1350 


1256 


81795 


76147 


79378 


73897 


u 


u 


1 


i 



115 



TABLE III. Value of Arms Transfers and Total Imports and Exports. 1969-1978, 
By Region, Organization, and Country • continued 





■ . . . 

ARMS IMPORTS 


, . ■ ■ , 

AAMSf IPORTS 


'OTAl 


imports 


TOTAL EIPOPTS 


^— — . — — i 

»»MS 


»«MS 




















MPOfl'S 


E'POP'S 




















T T»l 


'QT»t 




















IMPORTS 


E«PO«TS 




Million dollars 


«■.■■■<- rloHS'S 


Million G0"«'» 


M.M.on 4oH«ri 






TEAK 


Current 


Zonstani 

"*77 


r.u«»eoi 


Constant 

1 "'• . 


Cu''»nl 


Constant 


r u"mnt 


I CO"*tani 
| .,7-7 




UNITED STATES 






















1969 


220 


357 


3500 


5685 


38300 


62217 


38000 


61730 


5 


9. 2 


1970 


190 


293 


3100 


4788 


42400 


65494 


43200 


66730 


4 


7.2 


1971 


150 


220 


3400 


4997 


48300 


70988 


4410O 


64815 


3 


7. 7 


1972 


160 


225 


4100 


5787 


58900 


83140 


49800 


70295 


2 


8 2 


1973 


170 


226 


4 900 


6542 


7360O 


98272 


7 1300 


95201 


2 


6 9 


1974 


120 


146 


4500 


5489 108000 


131752 


98SOO 


120163 


1 


4.6 


1975 


140 


155 


4700 


5233 103000 


114684 108OOO 


120251 


1 


4 .4 


1976 


1 10 


116 


5900 


6242 130OO0 


137549 114992 


121670 





5. 1 


1977 


120 


120 


6900 


6900 157560 


157560 121212 


121212 





5.7 


1978 


120 


1 1 1 


6700 


6237 183137 


170492 143659 


133739 





4.7 


BRAZIL 

1969 


50 


81 








2270 


3687 


2310 


3752 


2 2 





1970 


20 


30 








2850 


4402 


2740 


4232 


0.7 


0.0 


197 1 


50 


73 








3700 


5438 


2900 


4262 


1 3 


0.0 


1972 


60 


84 





O 


4780 


6747 


3990 


5632 


1 2 





1973 


120 


160 








7000 


9346 


6200 


8278 


1 . 7 





1974 


60 


73 








14200 


17323 


7950 


9698 


4 





1975 


100 


1 1 1 


30 


33 


13592 


15133 


8670 


9653 


7 


3 


1976 


180 


190 


80 


84 


13726 


14523 


10128 


107 16 


1 3 


8 


1977 


140 


140 


20 


20 


13257 


13257 


12 120 


12 120 


1 


0. 2 


1978 


160 


148 


90 


83 


15054 


14014 


12651 


1 1777 


1 .0 


0. 7 


SYRIA 






















1969 


50 


81 








370 


601 


207 


336 


13 5 


00 


1970 


60 


92 








361 


557 


203 


313 


16 6 


0.0 


1971 


1 10 


161 








439 


645 


207 


304 


25.0 


0.0 


1972 


280 


395 








540 


762 


298 


420 


518 


00 


1973 


1300 


1735 








613 


818 


351 


468 


212 .0 


0.0 


1974 


825 


1006 








1230 


1500 


784 


956 


67 


0.0 


1975 


380 


423 


5 


5 


1690 


1881 


930 


1035 


22 4 


05 


1976 


525 


555 








2360 


2497 


1065 


1 126 


22.2 


O.O 


1977 


775 


775 








2658 


2658 


1063 


1063 


29 1 


0.0 


1978 


825 


768 








2451 


2281 


1053 


980 


33 6 


0.0 



116 



APPENDIX B 

U.S. Security Assistance to Israel 
(all tables are partial) 



1. Near East & South Asia — Security Assistance 

Program Summary 118 

2. Israel Data Concentration for 1979-80-81 119 

3. Foreign Military Sales Agreements 120 

4. Foreign Military Sales Deliveries 121 

5. FMS Financing Program 123 

6. Licensed Commercial Exports 124 

Sources: 

1. FMS and Military Assistance Facts [165] 

2. Security Assistance Programs [165] 



117 



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124 



APPENDIX C 

Data About Defense Expenditures and Debt 
Payments in Israel 



1. Government Expenditures as Percentage of 

the State Budget ■ 126 

2. Government Expenditures as Percentage of GNP 12 8 

3. Functional Sorting of the Government 

Expenditures 129 

4. The Development of Debt Payments 129 



Source: The Israeli State Budget Proposal for 
FY 1981 [170] 



125 



main di^oti by jnxxinn rnnnsnn 

1970-1981 (JlTHia^p) D*3W 

The Development of Expenditures for Debt Payments in 
the Years 1970-1981 




i a -> j v 



Total debt payments as % of budget 2-»x?imv \-z main D7>»n a"no 

n ii » " " " sources nmponn 

External debt payments as % D*jn->»Bn mnno my fa " vm nn^o oi>iwi 
of exports] Internal debt nitnubn nojDnna - d'js 

payments as % of national income 12 6 



U2 



nnxD ^d^dh nron ^b nxnnn 
i974-i98i n^wa rspnntt 



Government Expenditures as Percentage of the State 

Budget in the Years 1974-1981 




75 



76 



77 



78 



79 



30 



81 a~> iv 

Years 



ise jinvi 

payment and credit subsidiz'tfflyN t103>01 m2in mbvn 
=fer payments mivn imbvn 

stments and capital expenditures 
lian consumption 

1 97 



jm rnKyim mvpvn 



nnxD 'Vd^dh jnron 'aV nxsinn 

1974-1981 &2W2 r^nntt 

Government Expenditures as Percentage of the GNP 

in the FYs 1974-1981 



% 

50 



40 



30 



20 - 



10 




/ 



74 



75 



76 



— T' 
77 



7? 



i 
79 



SO 51 D»| 

Years 



J1DV2 

mivn ~>mbvn 



defense 
debt payment and credit subsidizing 
transfer payments 

investments and capital expenditures 
civilian consumption 

128 



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129 



References 



1. Sniff, Zeev, "The Aircraft: These Were the Considerations", 
Ha'are tz (Israeli daily newspaper) (2 March, 1980) . 

2. Margalit, Dan, "The Security and Foreign Affairs Committee 
Recommends to Produce Fighter Aircraft with Investment of 
$440 Million", Haaretz , (2 Feb. 1978) . 

3. Jane's All the World's Aircraft 1980-81 (Jane's, London, 
New York, Sydney, 1980), p. 110. 

4. "The Lavi Will Exchange the Skyhawk and the Kfir" , Ba ' avir 
(May 1980) , p. 8. 

5. Shiff (note 1 supra) . 

6. Sivan, Meir, "The Rationale Behind the Israeli Fighter", 
Sh' hakim , No. 66 (Dece. 1980) . 

7. "The Lessons Under Their Light the Lavi is Designed", 
Baia'af (March 1980), p. 12. 

8. Shiff (note 1 supra) . 

9. Ba'avir (note 4 supra). 

10. Elitzur, Yuval, "The Arie Will Not Take Off in the 1980 's", 
Ma ' ariv (21 April 1978) . 

11. Sivan (note 6 supra) . 

12. Ibid . 

13. Ma'aian, Josef, General Director of the Ministry of Defense, 
quoted in "$1 Billion Will be Invested in the Lavi in the 
Next 8 Years", Ma 'ariv , (13 Feb. 1981). 

14. Borovik, Yehuda, "The Jet Engines Industry in Israel", 
Baia'af (May 1979) , p. 15. 

15. Moodie, Michael, "Sovereignty, Security and Arms", The 
Washington Papers , Vol. VII, No. 67 (Sage Publication, 
Beverly Hills, 1979), p. 33. 

16. "Israelis Pick F-40 4 For New Fighter", Aviation Week & Space 
Technology (10 March 1980), p. 12. 

17. Shiff, Zeev, "G.E. Delegation Arrives to Discuss the Pro- 
duction of the Lavi's New Engine", Ha'arezt (13 Oct. 1980). 



130 



18 

19 



Egozi, Arie, "The Government Will Purchase All Shares in 
Beit-Shemesh Engines", Yediot Aharonot (15 July 1981). 

Rabin, Isaak, Ex-Israeli Prime Minister in an interview 
Ma'ariv (14 Aug. 1981) . 



20. Ibid . 

21. Erez, Ya'akov, "Two American Companies State their Conditions 
for the Lavi's Coproduction", Ma'ariv (18 Nov. 1980). 

22. Shiff, ze'ev, "Northrop Proposes Coproduction of the Lavi" , 
Ha'aretz (27 Nov. 1980) . 

23. "Middle East Market Picture to Clarify After Israel Defines 
New Figher Needs", Aviation Week & Spac e Technology (11 
June 1979), p. 314. ' 

24. Shiff (note 1 supra). 

25. Erez, Ya'akov, "P&W Refused Partnership in Beit Shemesh 
Engines", Ma'ariv (25 Aug. 1981) . 

26. Moodie (note 15 supra), p. 44. 

27. Sivan (note 6 supra). 

28. Day, Bonner, H., "Israel's Quest for Military Independence", 
NATO's Fifteen Nations (Dec. 1978-Jan. 1979), p. 55. 

29. Kozicharow, Eugene, "Europeans Agree on New Fighter", 
Aviation Week & Space Technology (7 April 1980), p. 14. 

30. Hadad, Amos, "The Battle on the Lavi's Engine", Ha'aretz 
(12 Jan. 1981) . 

31. Sivan (note 6 supra). Day (note 27 supra), p. 55. 

32. Eliztur (note 10 supra) . 

33. Shiff (note 1 supra) . 

34. Kemp, Geoffrey, Miller, Steven, "The Arms Transfer Phenomenon", 
Pierre, A., ed., Arms Transfers and American Policy (New 

York University Press, New York, 1979), pp. 31-32. 

35. Moodie (note 15 supra) , p. 62. 

36. Moodie, Michael, "Defense Industries in the Third World: 
Problems and Promises", Neuman and Harkavy, eds . , Arms 
Transfers in the Modern World (Praeger, New York, 1980) , 
p. 307. 

37. Shillinglaw, Gordon, Managerial Cost Accounting , (Richard 
D. Irwin, Inc., Homewood Illinois, 1977), pp. 105-107. 



131 



38. Borovik (note 14 supra), p. 15. 

39. Ibid. 

4 . SIPRI, World Armament and Disarmament: SIPRI Yearbook 1978 , 
(Crane, Russuk & Company, Inc. New York, 1978), p. 228. 

41. Moodie (note 15 supra) , p. 16. 

42. Nicholson, Walter, Microeconomic Theory (The Dryden Press, 
Hinsdale, Illinois, 1977), pp. 345-364. 

43. Goldstein, Donald J., "Third World Arms Industries: Their 
Own Slings and Swords", (Unpublished paper, has been reviewed 
by the CIA) , p. 12. 

44. Ibid . , p. 13. 

45. Baia'af (note 7 supra), p. 13. 

46. Mayer, Laural A., "U.S. Arms Transfers Data Source and 
Dilemmas", International Studies Notes , Vol. 7, Iss. 2 
(Univ. of Nebraska, Lincoln, Summer 1980), p. 6. 

47. Moodie (note 15 supra), p. 7. 

48. ACDA, World Military Expenditures and Arms Transfers , 19 69- 
1978 (U.S. Arms Control and Disarmament Agency, pub. 108, 
Dec. 1980) , pp. 19-21. 

49. Moodie (note 15 supra), pp. 14-16. 

50. Moodie (note 36 supra) , p. 301. 

51. Aviation Week & Space Technology (29 May 19 78), p. 16. 

52. Moodie (note 36 supra), p. 295. 

53. Ibid . , p. 301. 

54. SIPRI, The Arms Trade with the Third World (Humanities 
Press, New York, 1971), p. 29. 

55. Kolodziej , E., "France and the Arms Trade", International 
Affairs (1980), p. 65. 

56 . Ibid . , p . 61 . 

57. ACDA (note 48 supra), p. 18. 

58. Kozicharow (note 29 supra), p. 14. 

59. Freedman, Lawrence, "Britain and the Arms Trade", Inter - 
national Affairs, Vol. 54, No. 1 (July 1978), p. 386. 



132 



60. Kolodziej (note 55 supra), p. 65. 

61. Cannizzo, Cindy, "Trends in Twentieth Century Arms Trans- 
fers", Cannizzo, C, ed., The Gun Merchants (Pergamon Press, 
New York, 1980) , p. 6. 

62. ACDA (note 43 supra), pp. 95, 110. 

63. Ibid . , pp. 53, 68. 

64. SIPRI (note 54 supra), p. 30. 

65. Moodie (note 15 supra) , p. 33. 

66. Ibid . , pp. 33-34. 

67. Zehavi, Eliahu, "The Arie and the B-3LA", Ha'aretz (23 Feb. 
1978) . 

68. Baia'af (note 7 supra), p. 12. 

69. DMS, Foreign Military Markets (DMS Inc., Greenwich, CT, 
1978), Israel Summary, p. 1. 

70. SIPRI (note 40 supra), p. 242. 

71. The International Institute for Strategic Studies, The 
Military Balance 1980-1981 (London, 1980) , p. 43. 

- DMS (note 69 supra) , Israel Force Structure, p. 1. 

72. Guterman, Razi, "The Dogfight in Washington on the $1 
Billion Deal", Ma ' ariv (14 Aug. 1981) . 

- "Reagan Lifts F-16 Delivery Suspension", Aviation Week 
& Space Technology (24 Aug. 1981) . 

73. Aviation Week (note 23 supra), p. 314. 

74. Jane ' s (note 3 supra), p. 110. 

75. Aviation Week (note 23 supra), p. 314. 

76. Ba 'avir (note 4 supra) , p. 8. 

77. Shiff (note 1 supra). 

78. Baia 'af (note 7 supra), p. 12. 

79. "The Aircraft Will Leave Behind the Phantom and the Kfir", 
IAI Quarterly (15 Feb. 1978) . 

- Baia'af (note 7 supra) , p. 12. 

80. SIPRI (note 40 supra) , p. 228. 

81. Goldstein (note 43 supra), p. 8. 



133 



82. Moodie (note 36 supra), p. 302. 

83. Lorbar, A., "Whether to Develop or Purchase Modern Weapon 
Systems", Ma'arachot, The IDF Review , No. 266, (Oct. 1978), 
pp. 48-49. 

84. Day (note supra 28), p. 54. 

85. Moodie (note 36 supra), p. 304. 

86. Moodie (note 15 supra), p. 40. 

87. Goren, Ran, "Multi-Attribute Utility Theory to Assist Top- 
Level Acquisition Decision -Making" , A Master's Thesis (to 
be published) . 

88. Moodie (note 15 supra), p. 40. 

89. Yelin-Mor, Nathan, "The Arie (lion) Roared — Who Would Not 
Fear", Haa ' retz (8 Feb. 19 78) . 

- Elitzur (note 10 supra) . 

- IAI (note 7 8 supra) . 

90. General Ivri, IAF Chief of Staff as quoted in Ha' aretz 
(14 July 1978) . 

91. Elitzur, Yuval, "The Step-By-Step Decision -Making Method 
in the IAI", Ma ' ariv (2 7 May 19 77) . 

92. Erez, Ya'akov, "F-18 Over the Horizon", Ma 'ariv , (13 Feb. 
1981) . 

93. Moodie (note 15 supra), p. 41. 

94. Ibid . , p. 39. 

95. Ibid ., p. 25. 

96. Goldstein (note 43 supra) , p. 19. 

97. Moodie (note 15 supra) , p. 21. 

98. Cannizzo (note 61 supra) , p. 8. 

99. SIPRI (note 40 supra), p. 228. 

100. DMS (note 69 supra), Israel Summary, p. 10. 

101. Goldstein (note 43 supra), p. 19. 

102. DMS (note 69 supra), Israel Summary, p. 12. 

103. Moodie (note 15 supra) , p. 11. 

104. Moodie (note 36 supra), p. 299. 



134 



105. SIPRI (note 54 supra), p. 771. 

106. Ibid . 

107. Ibid . , p. 773. 

108. Moodie (note 36 supra), p. 299. 

109. SIPRI (note 54 supra), p. 775. 

110. Moodie (note 15 supra), p. 46. 

111. Jane's, All the World's Aircraft 1977-1978 (Jane's, London, 
New York, Sidney, 1977), p. 100. 

112. Jane's 1980-1981 (note 3 supra), p. 110. 

113. Borovik (note 14 supra), pp. 15-20. 

114. Egozi (note 18 supra) . 

115. Day (note 28 supra), p. 53. 

116. Jane's 1980-1981 (note 3 supra), p. 110. 

117. Aviation Week (note 23 supra), pp. 314, 317. 

118. Day (note 28 supra), p. 53. 

119. Elitzur, Yuval, "The Arie — The Fighter of the 1990' s", 
Ma'ariv (27 Apr. 1978) . 

120. Arkin, Dan, from Ma 'ariv archives (1978). 

121. ACDA (note 48 supra) , p. 21. 

122. "The Israeli Exports of Aircraft and Components In the 
First 7 Months of the Year Reached $182 Million", Jerusalem 
Post (16 Aug. 1981) . 

123. Arkin, Dan, "Aircraft No. 500 Produced by the IAI Has Been 
Sold to American Millionaire", Ma'ariv (11 May 1981). 

124. Jane's 1980-1981 (note 3 supra), pp. 110-114. 

125. Aviation Week (note 23 supra), p. 317. 

126. Moodie (note 15 supra) , p. 62. 

127. Ibid . 

128. Arkin (note 120 supra). 



135 



129. Kraar, L. , "Israel's Own Military-Industrial Complex", 
Fortune (13 March 1978), p. 73. 

- Lock, P., Wulf, H., Register of Arms Production in 
Developing Countries (Hamburg: Study Group on Armament 
and Underdevelopment, 197 7) . 

130. DMS (note 69 supra), Israel Summary, p. 10. 

131. Cannizzo (note 61 supra), p. 15. 

132. DMS (note 69 supra), Israel Summary, p. 8. 

133. SIPRI (note 40 supra), p. 229. 

134. SIPRI, World Armament and Disarmament: SIPRI Yearbook 
1980 (Humanities Press, New YOrk, 1980), p. 86. 

135. Ibid . , p. 85. 

136. Zipori, Mordehy, Dep. Minister of Defense, quoted in 
Ma'ariv (11 Nov. 1980) . 

137. Zipori, Mordehy, Dep. Minister of Defense, in interview to 
Ma'ariv (3 April 1981) . 

138. ACDA (note 48 supra), p. 137. 

139. Ibid . , p. 117. 

140. Ross, A.L., "Conventional Arms Production in Developing 
Countries: An Overview" (Unpublished paper, Cornell Univ., 
1980) , p. 13. 

141. ACDA (note 48 supra), p. 137. 

142. Moodie (note 15 supra), p. 66. 

143. Segev, Shmuel, "Jerusalem Request to Establish the U.S.- 
Israeli Group for Weapon Exports Approvals", Ma 'ariv (14 
March 1977) . 

144. SIPRI (note 40 supra), pp. 258-279. 

145. Zipori (note 136 supra) . 

146. Yelin-Mor (note 89 supra). 

14 7. "Israel: Peace With Egypt, But a Boon in Arms Sales", 
Business Week (2 April 1979), p. 40. 

148. SIPRI (note 134 supra), p. 86. 

149. Kraar (note 129 supra). 



136 



150. Salinger, Pierre, Report on the ABC Nightline TV Program 
(20 Aug. 1981) . 

151. Jane's 1980-1981 (note 3 supra), p. 110. 
-Segev (note 14 3 supra) . 

152. Ibid . (Jane's only). 

153. DMS (note 69 supra), Israel Summary, p. 9. 

154. Moodie (note 36 supra), p. 307. 

155. Arkin (note 120 supra). 

156. Griffiths, David R. , "Complex Factors Spur Mirage Choice", 
Aviation Week & Space Technology (20 July 1981), pp. 86-87. 

157. Elitzur (note 119 supra). 

158. Zipori (note 137 supra) . 

159. Mihalka, Michael, "Supplier-Client Patterns in Arms Trans- 
fers: The Developing Countries, 1967-76", Neuman and 
Harkavy, eds . , Arms Transfers in the Modern World (Praeger, 
New York, 1980) , p. 53. 

160. ACDA (note 48 supra), p. 7. 

161. Ibid . , p. 17. 

162. SIPRI (note 40 supra), p. 232. 

163. DMS (note 69 supra), p. 6. 

164. ACDA (note 48 supra), p. 160. 

165. Aviation Week (note 23 supra), p. 315. 

166. ACDA (note 48 supra), pp. 117, 137. 

167. FMS and Military Assistance Facts (Department of Defense, 
Security Assistance Agency, Dec. 1979). 

- Security Assistance Programs (Congressional Presentation, 
FY 1981) , p. 99. 

168. DMS (note 69 supra), Israel Summary, p. 2. 

169. SIPRI (note 40 supra), p. 234. 

170. FMS and Mil. Asst. Facts (note 157 supra). 

171. Sec. Asst. Pgms. (note 167 supra), p. 119. 

172. The State Budget — Proposal for FY 1981 (Presentation to 
the Knesset , Feb. 1981), p. 37. 



137 



173. Sec. Asst. Pgms (note 167 supra), p. 118. 

174. Moodie (note 36 supra), p. 298. 

175. Ibid . 

176. Washington Post (18 Dec. 1977) , p. 1. 

177. Moodie (note 36 supra) , p. 298. 

178. Goldstein (note 43 supra), p. 4. 

179. Moodie (note 15 supra), pp. 24-25. 

180. Kemp (note 34 supra), p. 46. 

181. Ibid . , p. 47. 

182. Lewis, William, H. , "Political Influence: The Diminished 
Capacity", Neuman and Harkavy, eds . , Arms Transfers in the 
Modern World (Praeger, New York, 1980), p. 186. 

183. Quandt, Willaim, B. , "Influence Through Arms Supply: The 
U.S. Experience in the Middle East", Ra'anan., Pfaltzgraff 
and Kemp, eds., Arms Transfers to the Third World (Westview 
Press, Boulder Col., 1978), p. 47. 

184. Kemp (note 34 supra), p. 47. 

185. Ibid . , p. 50. 

186. Quandt (note 183 supra), p. 129. 

187. Cahn H. Ann, "United States Arms to the Middle East 1967- 
76: A Critical Examination", Cannizzo, C. ed. , The Gun 
Merchants (Pergamon Press, New York, 1980), p. 110. 

188. Kolodziej, Edward A., "Arms Transfers and International 
Politics: The Interdependece of Independence", Neuman 
and Harkavy, eds., Arms Transfers in the Modern World 
(Praeger, New York, 1980), p. 11. 

- Kemp (note 34 supra), p. 48. 

189. SIPRI (note 40 supra), p. 252. 

190. Cahn (note 187 supra), p. 113. 

191. Lewis (note 182 supra), p. 186. 

192. Freedman (note 59 supra), p. 378. 

193. Kolodziej (note 188 supra), p. 11. 

194. Ibid. 



138 



195. Quandt (note 133 supra), p. 126. 

19 6. Gwertzman, Bernard, "The War Jets: To Begin With Kid 
Gloves, The New York Times (19 Aug. 1981), p. A22. 

19 7. Wheelock, Thomas, R. , "Arms for Israel: The Limit of 

Leverage", International Security (Fall 1978) , pp. 123-137. 

193. Quandt (note 183 supra), pp. 123-127. 

199. Wheelock (note 197 supra), p. 125. 

200. Ibid . , p. 127. 

201. Moodie (note 15 supra), p. 78. 

202. Cahn (note 187 supra) , p. 108. 

20 3. Farley, P., Kaplan, S., Lewis, W. , Arms Across the Sea 

(The Brookings Institute, Washington, D.C., 1978), p. 40. 

204. Gwertzman (note 196 supra). 

205. Ibid . 

- Aviation Week (note 72 supra) , p. 17. 

- Guterman (note 72 supra) . 

206. Ben-Gad, Isaak, "The Dangerous Precedent", Ma ' ariv (6 Aug. 
1981) . 

207. "Releasing Plans Is No Mideast Policy", The New York Times , 
editorial (19 Aug. 1981), p. A22. 

208. Zak, Moshe, "After the Fighter Will Takeoff", Ma' ariv (14 
Aug. 1981) . 

209. Day (note 28 supra), p. 53. 

210. Quandt (note 183 supra), p. 126. 

211. Ibid . 

212. Ibid . , p. 125. 

213. DMS (note 69 supra), Israel Summary, p. 9. 

214. Rabin (note 19 surra). 

215. Begin, Menahem, Israel's Prime Minister, as reported in 

Ma 'ariv (5 Aug. 1981) . 

216. The Western Edition of the CBS Evening News (10 Sep. 1981) . 

- Monterey Peninsula Herald (Daily, 10 Sep. 1981) . 

217. Quandt (note 183 supra), p. 122. 



139 



218. The New York Times (note 207 supra). 

219. Moodie (note 15 supra), p. 38. 

220. DMS (note 69 supra), Israel Summary, p. 2. 

221. Wheelock (note 197 supra), p. 126. 

222. Moodie (note 15 supra), p. 38. 

223. "Understanding With the U.S.: Israel Will Not Operate 
American Warplanes For Strike Missions", Ma 'ariv (16 Aug. 
1981) . 

224. Cahn, A.H., Kruzel, J. J. , "Arms Trade in the 198 0's", 
Controlling Future Arms Trade (McGraw Hill Book Co. , New 
York, 1977), p. 78. 

225. Moodie (note 36 supra), pp. 300-301. 

226. General Ivri (note 90 supra). 

227. "The Defense Ministry Has No Connection to the Lavi Planning" 
Ha'aretz (8 Feb. 1978) . 

228. Elitzur (note 91 supra) . 

229. Shiff (note 1 supra). 

- Segev (note 143 supra) . 

- Aviation Week (note 16 supra) , p. 12. 

230. Moodie (note 15 supra), p. 75. 
2 31. Kemp (note 34 supra) , p. 81. 

232. Moodie (note 15 supra), p. 25. 

- Goldstein (note 4 3 supra), p. 4. 

2 33. Ibid . , p. 3 . 

234. Moodie (note 15 supra), p. 84. 

235. Moodie (note 36 supra), p. 298. 

236. Zipori (note 137 supra). 

237. "The Arie and the Welfare Policy", Ha'aretz (15 Feb. 1978). 

238. Yelin-Mor (note 89 supra). 

239. Cohen, Shlomo, "Between the Lavi and the Shekel", Ha 'aretz 
(10 March 1980) . 



140 



240. Kemp (note 34 supra), pp. 59-65. 

- Moodie (note 15 supra) , pp. 28-29. 

241. Cahn and Kruzel (note 224 supra), pp. 77-78. 

242. Moodie (note 36 supra), p. 299. 

243. Kemp (note 34 supra), p. 59. 

244. The State Budget (note 172 supra), p. 29. 

245. Day (note 28 supra), p. 53. 

246. FMS (note 167 supra) . 

247. The State Budget (note 172 supra), pp. 34, 143, 199. 

- Sec. Asst. Pgms. (note 167 supra), pp. 118, 119. 

248. Cahn (note 187 supra), p. 115. 

249. Goldstein (note 43 supra), p. 11. 

250. Sivan (note 6 supra). 

251. Arkin (note 120 supra). 

252. Goldstein (note 4 3 supra), p. 13. 

253. The State Budget (note 172 supra) , p. 27. 

254. Ibid . , p. 13. 

255. Ibid , p. 60. 

256. ACDA (note 48 supra), p. 4. 

257. The State Budget (note 172 supra), p. 51. 

258. ACDA (note 43 supra), p. 33. 

259. The State Budget (note 172 supra), p. 58. 

260. Ma'aian (note 13 supra). 

261. Erez (note 92 supra). 

262. Moodie (note 15 supra), pp. 28-29. 

263. Kemp (note 34 supra), p. 63. 

264. Nisim, Eliahu, "The Arie— A Vital Aircraft", Ma'ariv (28 
Feb. 1980) . 

- Elitzur (note 119 supra) . 

- IAI (note 79 supra) . 



141 



265. "Commercial Aircraft Developmen Helped the Kfir Design", 
Ma'ariv (6 Aug. 19 76) . 

266. Lorbar (note 83 supra). 

267. Cahn, Ann Hessing, "The Economics of Arms Transfers", 
Neuman and Harkavy, eds . , Arms Transfers in the Modern World 
(Praeger, New York 1980), p. 179. 

268. Elitzur (note 91 supra). 

269. Lorbar (note 83 supra). 

270. Moodie (note 15 supra), p. 43. 

271. Zehavi (note 67 supra). 

272. Lorbar (note 83 supra). 

273. SIPRI (note 54 supra), p. 29. 

- Nisim (note 264 supra) . 

274. Aviation Week (note 23 supra), p. 314. 

275. Elitzur (note 119 supra). 

- Elitzur (note 91 supra) . 

276. SIPRI (note 54 supra), p. 29. 

277. ACDA (note 48 supra), p. 21. 

278. Cahn (note 267 supra) , p. 176. 

279. Farley (note 203 supra), p. 37. 

280. Kemp (note 34 supra), p. 84. 



142 



Bibliography 

Cahn, Ann H. , The Gun Merchants (Pergamon Press, New York, 
1980) . 

Farley, P., S. Kaplan and W. Lewis, Arms Across The Sea 
(The Brookings Institute, Washington, D.C., 1978). 

Moodie, Michael, "Sovereignty, Security and Arms", The 

Washington Papers , Vol. VII, No. 67 (Sage Publication, 
Beverly Hills, 1979). 

Neuman, Stephanie G., and Robert E. Harkavy (eds.), Arms 

Transfers in the Modern World (Praeger, New York, 1980) . 

SIPRI, The Arms Trade With the Third World , (Humanities Press, 
New York, 1971) . 



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