April 23, 2018

CHANGE: Israeli Firms Scramble As Trump Administration Restricts Military Aid.

In the past, when the US provided Israeli with grants under the Foreign Military Funds program, Israel could convert 25 percent of the aid from dollars into shekels to buy Israeli products and support local R&D. But under the new 10-year FMF agreement signed in 2017, that percentage will gradually drop over time to zero.

Under the new agreement signed in September 2016, the US will pay Israel $34 billion over the decade from 2019 to 2028 — but eventually all FMF funds will have to be used for the purchase of US-made systems.

Retired Maj. Gen. Gadi Shamni, executive Vice President of land systems at Israeli Aerospace Industries (IAI), headed the special commission that was formed to prepare the needed changes. In an interview with Breaking Defense, he said that the Israeli defense forces will get approximately 5 billion Israeli shekels (about $1.4 billion) less each year when agreement is fully implemented.

“That may cause small companies to collapse or get into big problems,” Shamni said. “We will need to transfer some of the production to the U.S and that can be done with our American subsidiaries. But the real solution is in the hands of the Israeli government, which will have to increase the defense budget. Without that, I’m afraid , companies will get into problems but the greater risk is that less will be put into R&D. If that happens, in some years we will lose our technological edge.”

Israeli defense R&D is world class, and 25% of their FMF funds isn’t a rounding error in our budget — so I have to wonder if this is the right place to pinch pennies.

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