FEBRUARY 10 2012 23:13h

Seoul's final bid to win $1B Israeli deal

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TEL AVIV, Israel, Feb. 10 (UPI) -- Seoul has made a last-ditch attempt to secure for Korea Aerospace Industries a $1 billion contract to supply the Israeli air force with advanced training aircraft after a fiercely fought contest with Italy's Alenia Aermacchi.

The Jerusalem Post reports that South Korean President Lee Myung-bak sent a letter to Israeli President Shimon Peres praising the defense cooperation between the two countries "and referred to the trainer competition as an example of how to strengthen those ties."

The daily said it's believed to be the first time that South Korea's political leadership has brought up the trainer contract with Israel's leaders, underlining just how much is riding on the deal.

At one point in late 2011, it had looked like the Italians were the front-runners after Prime Minister Silvio Berlusconi was reported to have lobbied Israeli Prime Minister Binyamin Netanyahu. But Italian hopes took a knock when Berlusconi was forced to quit office in November because of a slew of political scandals.

State-owned KAI, flagship of the Republic of Korea's aerospace sector, is offering its T-50 Golden Eagle jet, while Alenia Aermacchi is pushing its M-346 Master.

Both South Korea and Italy have been dangling lucrative military contracts for Israel's defense industry in an effort to secure the contract for 25-30 advanced trainers.

The Israeli air force wants 25-30 new aircraft to replace its aging fleet of Vietnam-era Douglas A-4 Skyhawks that are being used to train pilots to fly supersonic combat aircraft.

The Post said the Korean proposal is believed to cover $1.5 billion in defense contracts for Israel if the T-50 Golden Eagle is selected.

Israeli Defense Ministry officials said this week that the final decision was expected to be announced by the end of February after the ministry's procurement department submits its recommendation to Director General Udi Shani. He will then consult with Defense Minister Ehud Barak.

The trainer contract could be the last big-ticket deal for Israel's armed forces for a while because Netanyahu's right-wing government has making major cutbacks in the defense budget to focus on social programs following nationwide protests in 2011.

South Korea sweetened the pot in January by suggesting it would buy the Iron Dome counter-rocket system built by Rafael Advanced Defense Systems along with "a significant quantity" of Israeli-made weapon systems if Israel purchased the T-50.

"Korea is spending $30 billion a year on defense and we have to upgrade our capabilities considering the changes around us," South Korean Ambassador Ilsoo Kim told The Jerusalem Post.

Seoul is also keen to acquire surveillance satellites, upgrades for its combat aircraft, new unmanned aerial vehicles -- an Israeli specialty -- anti-tank missiles, new command-and-control systems and aid in developing an indigenous fighter.

Enes Park, KAI's executive vice-president for marketing, has said the planemaker was having talks with Israel Aerospace Industries, flagship of Israel's defense sector, and Haifa's Elbit Systems, one of the world's largest defense electronics manufacturers, about joint ventures that could involve lucrative deals for Israeli companies.

Seoul upped the ante on the contract after the Israeli air force recommended in early January the air force buy the M-346.

However, there's a strong lobby within Israel's defense sector that favors the South Korean jet. Some companies that would benefit from South Korean contracts have been pressing the Defense Ministry to select the T-50.

Seoul has complained for months that Israel was unfairly favoring Alenia Aermacchi by initialing a preliminary agreement with Italy, which would involve what Israel's Haaretz daily termed "a wide-ranging trade deal" between the two countries.

Italy reportedly pledged that if Israel signed with Alenia Aermacchi, "the two sides would sign additional deals worth more than $1 billion." These would include joint development of satellite projects, probably involving IAI, and the sale of UAVs to Italy.

The Jerusalem Post recently reported that Rome was discussing a possible barter deal under which Italy would get two AWACs aircraft from state-run IAI in exchange for the M-346 deal.