S
SnAkE_OnE
The United States and the LAVI
Lt Col James P. DeLoughry, USAF
IN FEBRUARY 1980 the Israeli government announced plans to develop a low-cost, low-technology, primarily ground-support aircraft--the Lavi--to replace its aging A-4 and Kfir inventory.1 Seven years later, the Lavi program was formally canceled as a result of divisive debate within Israel and heavy pressure from the United States government.
The history of the Lavi is noteworthy, not so much because it documents the cancellation of the most costly Israeli weapons program ever attempted, but because it reveals the heavy involvement of the United States in the aircraft's financing and development. Over $2 billion of US aid and the latest US technology went into the Lavi project.2 An examination of the history of the Lavi program, the background and extent of US involvement, and the effect on US interests suggests that US participation in the project was ill conceived and executed.
History of the Program
The 1973 Arab-Israeli war shattered the myth of Israeli military invincibility: the intelligence warning system failed, ground defenses were overrun, discipline and mobilization were major problems, almost 500 main battle tanks were destroyed, and the Israeli Air Force lost close to one-third of its frontline combat aircraft.3 Postwar analysis led to planning for an aircraft specifically designed to attack ground targets. The Kfir was an interim solution based on the French Mirage III, but as the seventies came to an end, Israel realized that it needed a new plane.4
The Lavi was to be produced in Israel. Home production would create needed jobs, encourage aerospace workers to stay in Israel, lead to high-technology offshoots and products for export, and lessen US political influence over Israel.5 Moshe Arens, former defense minister and a vice president of Israel Aircraft Industries (IAI), builder of the Lavi, pointed out another advantage of an Israeli-produced aircraft: It "would be . . . exclusive to Israel's inventory," unlike advanced US aircraft, which are found in other Middle Eastern air forces.6 Israel estimated that development costs would be $750 million and that each aircraft would cost $7 million to manufacture.7 In 1980 the Israeli government approved the Lavi program. The United States supported the project in principle and was willing to allow Israel to use its foreign military sales (FMS) credits to buy US components for the Lavi.8
In 1982, however, the concept of the Lavi as a replacement for the A-4 abruptly changed: "The aircraft was changed to a high performance fighter-bomber capable both of close support and of air defense and air superiority missions."9 According to Yitzhak Rabin, then the Israeli defense minister, the Israeli Air Force demanded the change, telling IAI, "If you want to develop this aircraft, make it better than what we have now."l0 Arens commented that "the original concept of an A-4 replacement was an unusual one and not very good.... It would have had to be canceled sooner because it would not have been a survivable aircraft."11 The Israeli government authorized prototype construction for the revised Lavi in 1982, with full-scale development starting in October of that year. Production goals specified at least 300 aircraft and 60 combat-capable trainers.12
On paper, the Lavi was becoming very similar to the F-16 and F-18. In reality, however, Israel possessed neither the technology nor the capital required for such a project. According to a 1983 General Accounting Office (GAO) study,
Israel will be significantly dependent on US technology and financing for major portions of the aircraft. Israel will also require US approval for the planned third country sales because of the US engine and the significant amount of US origin high technology used in the Lavi's airframe construction, avionics and planned weapons system.13
Examples of this technology include Pratt and Whitney PW1120 engines; graphite epoxy composite materials; electronic countermeasures (ECM) parts; radar-warning receivers and their logarithms; wide-angle, heads-up display; programmable signal-processor emulator; flight-control computer; single-crystal turbine technology; and computer and airframe system.14
By 1983 the estimated research and development (R&D) costs for the Lavi had increased to approximately $1.5 billion, and the cost per aircraft had jumped to $15.5 million.15 At this time, the US began a unique involvement with the Lavi program. Before the project was terminated, the US would set far-reaching precedents in the areas of FMS and technology transfer and would finance over 90 percent of the Lavi's development costs. In 1987, because of the massive outlay of US money on the Lavi, both the GAO and the Office of Management and Budget (OMB) were commissioned to study the program. GAO estimated the cost per aircraft at $17.8 million and OMB at $22.1 million.16
Pressure was mounting within both Israel and the US to cancel the program. In Israel, critics included members of the army and the air force who saw huge segments of the defense budget being eaten away by a plane that was years away from development (after seven years, only two prototypes had been produced) and millions of dollars over cost.17 US critics projected that by 1990 spiralling Lavi costs would consume nearly half of all military assistance funds to Israel. Even worse, the Lavi would compete against US aircraft in world markets.18
Finally, on 30 August 1987, the Israeli cabinet voted 12 to 11 (with one abstention) to cancel the Lavi program.19 The cancellation was devastating to the Israeli aerospace industry. According to Moshi Keret, president of IAI, most of the 4,000 IAI employees (including 1,500 engineers assigned to the Lavi program would have to be laid off.20 The cancellation was also a blow to the country's pride and prestige because development of the Lavi was the biggest project ever undertaken by Israel. Ironically, the Israeli military ordered additional F-16s to replace the Lavi--an idea originally proposed by US industry executives well before the Lavi program was under way.21
Although Israel lost a symbol of technological prowess, it gained access to the latest US aerospace technology, obtained sophisticated US aerospace industry computers-which have a variety of other uses-and gained irreplaceable experience in state-of-the-art aeronautical processes.22 Indeed, in 1988 Israel surprised the world with its first space launch. 23 More than likely, the technology and experience gained from the Lavi project, together with space technology acquired in joint Strategic Defense Initiative research with the US, provided Israel with the technological base for this achievement.
US Involvement
in the Lavi Program
US involvement with the Lavi began in 1980 when Israel requested that the two countries coproduce an engine for the new Israeli fighter. The US agreed but demurred on Israel's request to use FMS credits for the Lavi in Israel.24 The position of FMS credits in the overall picture of US aid to Israel is crucial to understanding the effect of the Lavi program on US interests.
American aid to Israel falls into two categories--recurring and nonrecurring. FMS credits are an example of recurring aid.25 According to the GAO, these credits to Israel serve two major purposes: to reaffirm US political support and to ensure the adequacy of Israel's security.26 The GAO made another point which became a major area of contention between Israel and segments of the US government: "DOD [Department of Defense] believes and we concur that FMS was intended for the purchase of goods and services in the United States to support U.S. firms.27
Had the Lavi remained a low-cost replacement for the A-4 and Kfir fleet, issues such as technology transfer and the appropriateness of FMS use would not have arisen. However, by 1982 the concept of the Lavi had changed considerably. Israel desperately needed the technology to produce the upgraded aircraft and the money to finance production. There was only one place to look for both technology and financing--the United States. Israel then began an all-out effort, using whatever means were necessary, to get what it needed.
The Technology Issue
At the time the Lavi program was terminated, US contractors were building approximately 40 percent of the aircraft's systems. According to Defense Minister Rabin, 730 US firms were either subcontractors or vendors on the program.28 The issue of technology transfer was a prime point of contention, and Israel initially found itself at odds with the US State Department and Department of Defense.29 To resolve this roadblock, Israel played on the personal relationship between Israeli minister of defense Arens and US secretary of state George P. Shultz.
According to an investigative report in the Washington Post, Pentagon officials had been instrumental in blocking several critical licenses for technology transfer.30 In 1983, though, Arens--former Israeli ambassador to the United States--became Israel's defense minister. Arens was one of the original champions of the Lavi and had made many friends during his tenure in Washington. According to the report. Marvin Klemow, Washington's representative for IAI, flew to Tel Aviv with Dan Halperin, the economics minister at the Israeli Embassy in Washington. Klemow recalled advising Arens to go over the heads of Defense Department officials: "Our strategy should be that the Pentagon doesn't exist. This is a political decision.... We should go to State and the White House."31 Halperin is reported to have urged Arens to call Secretary Shultz to "expedite three crucial licenses which the Pentagon was holding up." According to Halperin, "Arens made the call, and in a few days the first licenses were approved."32
In April 1983 the Reagan administration approved license requests for "phase I of the wing and tail design (composite construction), and released production technology licenses for the servo actuators and flight control computers."33 By 1984 phase I and phase II technology license requests were approved, and phase III requests were nearing approval.34
During the course of the Lavi's development, Israel was able to take advantage of US R&D on a variety of systems such as derivative engines, composite-materials technology, avionics, and ECM for the F-15, F-16, and F-18.35 In addition to the formal technology licenses and the plethora of US subcontractors and vendors, who also provided direct insights into the US aeronautical system, Israel pursued another source of technological information: scientific exchanges. "In March of 1984 the U.S. and Israel signed a Memorandum of Agreement concerning exchanges of scientists and engineers, and cooperation in research, development, procurement and logistics support for selected defense equipment."36 Here was yet another area where technology transfer was not only possible but encouraged. Whether or not Israel obtained data on aerospace technology pertinent to the Lavi program through scientific exchanges is unknown. However, the source was available and certainly could have been used to do an end run on any bureaucratic obstacle. The relative ease with which Israel obtained licenses for technology transfer indicates that barriers erected by the US bureaucracy were no match for a concerted Israeli effort. The best example of Israel's tactics, however, involved its pursuit of funds for the new plane.
Funding for the Lavi
The Arms Export Control Act of 1976, the vehicle for FMS funding, permits offshore procurement only if it will not adversely affect the United States. It also restricts funds for building foreign defense industries except in special cases, such as helping to rebuild European defense industries after World War II and making a one-time allowance for Israel to produce the Merkava tank.37
The Israelis had wanted to use FMS funds for R&D in Israel since 1979. However, successive US administrations had disapproved their requests, and there was little hope for approval in 1983.38 But Congress was a different story.
In an article for the Middle East Journal, Duncan Clarke and Alan Cohen noted that "the congressional process that resulted in American support for the Lavi was rushed and superficial. The substantive issues raised by the project were examined by the Defense and State Departments but were not weighed carefully (or at all) by Cangress."39 This indictment of Congress's role in the Lavi project comes up often in criticism of US funding of the Israeli fighter.40
Having been repeatedly blocked by the Pentagon in their quest to use FMS credits in Israel for the Lavi, Israeli officials in the fall of 1983 took their case directly to Congress. According to a Washington Post study of the Lavi, Rep Charles Wilson of Texas, a friend of Moshe Arens and a key member of the subcommittee responsible for appropriating foreign aid, advocated congressional funding of the Lavi.41 The chronology of events included a meeting between Representative Wilson, an Israeli business lobbyist, and a staff member of the Senate Appropriations Subcommittee controlling foreign aid. Reportedly, this meeting produced a plan for an amendment allowing a major exception to US policy so that FMS could be spent in Israel for the Lavi.42 Congressman Wilson acknowledged that he asked the American Israel Public Affairs Committee (AIPAC), the influential pro-Israel lobbying group in Washington, to draft the language for the amendments.43 AIPAC has repeatedly played a major role in shaping US policy regarding Israel and the Arab world. The extent of AIPAC's influence is such that it has on at least two occasions been directly involved in negotiations with the US State Department concerning foreign policy issues: the proposed sale of Stinger antiaircraft missiles to Jordan and the location of the US Embassy in Israel.44 The funding request, an amendment to the fiscal year 1984 Continuing Budget Resolution, asked for $150 million more than IAI required and committed US financing to the Lavi.45 Further, the amendment allowed Israel to spend $300 million of US FMS funds for the Lavi in the United States and $250 million in Israel.46
The amendment was introduced in November 1983, just prior to the Christmas recess,47 and involved lobbyists from all quarters. AIPAC mounted a major effort to get the legislation passed, sending written memoranda to every member of the House and Senate and calling upon key members of the appropriate committees.48 Pro-Arab lobbies worked the other side of the issue, as did representatives from US aerospace firms such as Northrop Corporation and General Electric, which objected to US funds being used to finance all aircraft that might compete with their own.49
However, four days after its introduction in the House (and with no committee hearings and little debate), the Lavi package was approved.50 According to Representative Wilson, the only controversary concerning the Lavi had to do with which congreeman would get credit for the amendment when it passed.51
Nevertheless, DOD and the State Department still vigorously opposed the Lavi, especially the related FMS issue. In fact, in early 1984 DOD was able to delay the release of funds by interpreting the amendment to mean that Israel's $250 million were for production rather than R&D.52 Again, heavy lobbying succeeded in affirming that the funding was indeed to be used for R&D.53 Thus, Israel cleared the final hurdle, opening the way for further funding with FMS monies (see table).
By 1987 rising costs, as evidenced by the GAO and OMB estimates, had put the Lavi program in serious trouble in Israel and the United States. Consequently, the US raised the procurement amount in Israel for fiscal year 1988 to $400 million to pay Lavi cancellation costs and to substitute the purchase of 75 to 100 F-16Cs over the next three to four years (see table). 54 Over the course of the Lavi project, the US government invested over $2 billion of taxpayers' money, established foreign policy precedents, and transferred sensitive technology. Feelings are still raw in many quarters of the US government over the way the Lavi issue was handled, and many people question whether the program was in the best interests of the United States.
Effect of the Lavi
Program on US Interests
Four consequences of the Lavi program (1982-87) suggest that this project did not serve the best interests of the United States. These include (1) transfer of advanced technology, (2) unprecedented use of FMS credits, (3) loss of American jobs, and (4) perpetuation of a pro-Israel bias.
Transfer of Advanced Technology
According to a 1983 GAO report, "Israel more than any other country has been provided with a higher level of military technologies having export potential."55 On more than one occasion, this technology transfer occurred over the objections of DOD and US aerospace firms and placed Israel in a more advanced technological position than even the closest US allies, such as Great Britain and West Germany.56
A 1983 study of the Israeli defense industry raises another point about sharing technology with Israel:
A number of U.S. companies have expressed concerns that doing business with an Israeli company would probably result in all of the U.S. company's ideas and designs being appropriated without proper compensation. The U.S. company could expect to find itself competing with its own technology and designs in the international marketplace.57
Although this sentiment may be too generalized, it represented the feelings of some US industry officials, based on prior experience with the basic Sidewinder and AIM-AL air intercept missiles.58
Despite assurances to the contrary, Israel probably would have exported the Lavi because of the small domestic market and the immense national stake in advanced-technology exports as a means of financial recovery. The Washington Post report on the Lavi revealed the existence of an IAI marketing document of the early 1980s that outlined plans to sell the aircraft to third world countries.59 Further, Moshe Keret, the head of IAI, stated in 1987 that IAI had no specific customers in mind but that by the mid-1990s the Lavi "would be able to speak for itself in export competitions. [At that time,] it might be possible to sell a stripped version of the aircraft in the export market."60 While there is no firm evidence indicating that Israel has offered the Lavi or its technology to other nations, some open source reports suggest that the People's Republic of China has purchased a sophisticated Lavi radar system and is seeking Lavi avionics.61
Use of FMS Credits
Both GAO and DOD believed that the primary purpose of the FMS program was to support US firms by buying US goods and services.62 Thus, the fact that Israel was able to finance 90 percent of the Lavi's R&D--much of it in Israel--with FMS credits from the United States was a sore point with many US government officials and aircraft manufacturers.63 Northrop, for example, built the F-20 Tigershark without benefit of government funds, exporting the fighter to third world markets where it would have to compete with the Lavi. In all, $1.5 billion of Lavi financing went directly to Israel to support its industry and economy--money that could have been spent in the United States.64
In 1983 the GAO noted that, because of the Lavi precedent, the US might be hard pressed to refuse similar treatment to other countries:
We take no position on the level or terms assistance to Israel, but believe the precedents being set by the liberalized method in implementing the program could be a problem if other recipient countries ask for similar concessions.65
Indeed, the US now extends several unique aspects of Lavi funding to other countries: (1) cash-flow financing for multiyear purchases (now used in Egypt and Turkey), (2) FMS loan-repayment waiver (now given to Sudan and Egypt), and (3) FMS offsets and FMS drawdowns (requested by other countries).66
Loss of American jobs
One can argue that, because of coproduction and subcontracting with Israel, the Lavi program created far fewer jobs in the US than it should have. For example, statistics for the year 1985 show that the US authorized $400 million of FMS for the Lavi, but only $150 million of that was spent in the United States. That $150 million produced between 3,780 and 4,659 American jobs. However, 10,080 to 12,424 jobs would have been created had all $400 million been spent in the United States.67
Furthermore, on 17 November 1986 Northrop terminated its F-20 Tigershark program after receiving no financial support from the US government.68Although Northrop canceled the program for a variety of reasons, including lack of sales to the US Air Force, $1.2 billion of private investment and 2,000 American jobs were lost, nevertheless.69
Northrop's experience is a grim example of what can happen when the US government supports a foreign competitor rather than a US company acting in good faith and with reasonable expectations of profitability. Congressman Mervyn M. Dymally of California, the representative from Northrop's home district, raised a similar point during congressional hearings in 1984 on the Middle East aid package. He was told that much of the money used to build the Lavi would be spent in the US.70 As we have seen, however, that sum represents only a portion of the money and jobs that US firms could have enjoyed had FMS funding been used as intended by DOD and GAO.
Perpetuation of a Pro-Israel Bias
There is a strong perception in the Arab world and in some quarters of the US government, specifically the Department of State and DOD, that US Middle East policy is skewed towards Israel at the expense of US interests in the rest of the region. This perception is the result of decades of special treatment for Israel, and the Lavi program served to reinforce that view. After all, by supporting the Lavi, the United States financed the expansion of the Israeli arms industry despite the fact that Israel again had invaded Lebanon, laid siege to Beirut, and used US-supplied weapons in an offensive role. Further, a special commission had cited senior Israeli military personnel, including the defense minister, for failing to anticipate and prevent the massacre of Palestinians at the Sabra and Shatilla refugee camps in Beirut.71 What other signal could the Arab world receive than that the United States did not consider those events serious enough to halt cooperation with Israel?
On several occasions, the United States has been unfairly accused of complicity in military actions undertaken by Israel, such as the raid on the Iraqi nuclear reactor in 1981, the invasion of Lebanon in 1982, and the attack on Palestine Liberation Organization (PLO) headquarters in Tunis in 1985. AIPAC has even used these accusations to encourage closer cooperation between the two countries, arguing that they should reap the advantages of a closer relationship since everyone assumes that they are cooperating anyway.72 In the case of the Lavi, though, the cooperation was explicit and acknowledged.
Last, by supplying such massive aid for the Lavi, the US was in effect freeing Israeli money for the war in Lebanon--a conflict that provoked widespread disapproval in the Arab world and flew in the face of US policy in the Middle East. Thus, US declarations about its evenhandedness and its desire for peace in the region did not ring true to moderate Arab states.
Conclusion
The United States made a serious error when it became directly involved in the Lavi project with Israel. The resultant loss of US technology, money, and jobs, as well as the ill will generated among other Middle Eastern allies, is testimony to an ill-conceived, hastily executed policy. Further, the pattern of behind-the-scenes maneuvering that typified the project is eye-opening and indicative of the overwhelming support enjoyed by Israel in Congress, the influence of Congress on foreign policy, and the ease with which bureaucratic roadblocks can be overcome by a skillful, determined effort.
The Lavi story is not a happy one for any of the participants, and its termination--while justified on both financial and political grounds--left bitter feelings in many quarters. The Lavi represented a dream for Israel and galvanized tremendous support and enthusiasm. Completely redesigning the aircraft in 1982 proved to be a fatal flaw, leading to major cost overruns and drawing the United States into the role of major partner, banker, and provider of technology. The Lavi project was not in the best interests of the United States, and we should have recognized that fact in 1983.
Lt Col James P. DeLoughry, USAF
IN FEBRUARY 1980 the Israeli government announced plans to develop a low-cost, low-technology, primarily ground-support aircraft--the Lavi--to replace its aging A-4 and Kfir inventory.1 Seven years later, the Lavi program was formally canceled as a result of divisive debate within Israel and heavy pressure from the United States government.
The history of the Lavi is noteworthy, not so much because it documents the cancellation of the most costly Israeli weapons program ever attempted, but because it reveals the heavy involvement of the United States in the aircraft's financing and development. Over $2 billion of US aid and the latest US technology went into the Lavi project.2 An examination of the history of the Lavi program, the background and extent of US involvement, and the effect on US interests suggests that US participation in the project was ill conceived and executed.
History of the Program
The 1973 Arab-Israeli war shattered the myth of Israeli military invincibility: the intelligence warning system failed, ground defenses were overrun, discipline and mobilization were major problems, almost 500 main battle tanks were destroyed, and the Israeli Air Force lost close to one-third of its frontline combat aircraft.3 Postwar analysis led to planning for an aircraft specifically designed to attack ground targets. The Kfir was an interim solution based on the French Mirage III, but as the seventies came to an end, Israel realized that it needed a new plane.4
The Lavi was to be produced in Israel. Home production would create needed jobs, encourage aerospace workers to stay in Israel, lead to high-technology offshoots and products for export, and lessen US political influence over Israel.5 Moshe Arens, former defense minister and a vice president of Israel Aircraft Industries (IAI), builder of the Lavi, pointed out another advantage of an Israeli-produced aircraft: It "would be . . . exclusive to Israel's inventory," unlike advanced US aircraft, which are found in other Middle Eastern air forces.6 Israel estimated that development costs would be $750 million and that each aircraft would cost $7 million to manufacture.7 In 1980 the Israeli government approved the Lavi program. The United States supported the project in principle and was willing to allow Israel to use its foreign military sales (FMS) credits to buy US components for the Lavi.8
In 1982, however, the concept of the Lavi as a replacement for the A-4 abruptly changed: "The aircraft was changed to a high performance fighter-bomber capable both of close support and of air defense and air superiority missions."9 According to Yitzhak Rabin, then the Israeli defense minister, the Israeli Air Force demanded the change, telling IAI, "If you want to develop this aircraft, make it better than what we have now."l0 Arens commented that "the original concept of an A-4 replacement was an unusual one and not very good.... It would have had to be canceled sooner because it would not have been a survivable aircraft."11 The Israeli government authorized prototype construction for the revised Lavi in 1982, with full-scale development starting in October of that year. Production goals specified at least 300 aircraft and 60 combat-capable trainers.12
On paper, the Lavi was becoming very similar to the F-16 and F-18. In reality, however, Israel possessed neither the technology nor the capital required for such a project. According to a 1983 General Accounting Office (GAO) study,
Israel will be significantly dependent on US technology and financing for major portions of the aircraft. Israel will also require US approval for the planned third country sales because of the US engine and the significant amount of US origin high technology used in the Lavi's airframe construction, avionics and planned weapons system.13
Examples of this technology include Pratt and Whitney PW1120 engines; graphite epoxy composite materials; electronic countermeasures (ECM) parts; radar-warning receivers and their logarithms; wide-angle, heads-up display; programmable signal-processor emulator; flight-control computer; single-crystal turbine technology; and computer and airframe system.14
By 1983 the estimated research and development (R&D) costs for the Lavi had increased to approximately $1.5 billion, and the cost per aircraft had jumped to $15.5 million.15 At this time, the US began a unique involvement with the Lavi program. Before the project was terminated, the US would set far-reaching precedents in the areas of FMS and technology transfer and would finance over 90 percent of the Lavi's development costs. In 1987, because of the massive outlay of US money on the Lavi, both the GAO and the Office of Management and Budget (OMB) were commissioned to study the program. GAO estimated the cost per aircraft at $17.8 million and OMB at $22.1 million.16
Pressure was mounting within both Israel and the US to cancel the program. In Israel, critics included members of the army and the air force who saw huge segments of the defense budget being eaten away by a plane that was years away from development (after seven years, only two prototypes had been produced) and millions of dollars over cost.17 US critics projected that by 1990 spiralling Lavi costs would consume nearly half of all military assistance funds to Israel. Even worse, the Lavi would compete against US aircraft in world markets.18
Finally, on 30 August 1987, the Israeli cabinet voted 12 to 11 (with one abstention) to cancel the Lavi program.19 The cancellation was devastating to the Israeli aerospace industry. According to Moshi Keret, president of IAI, most of the 4,000 IAI employees (including 1,500 engineers assigned to the Lavi program would have to be laid off.20 The cancellation was also a blow to the country's pride and prestige because development of the Lavi was the biggest project ever undertaken by Israel. Ironically, the Israeli military ordered additional F-16s to replace the Lavi--an idea originally proposed by US industry executives well before the Lavi program was under way.21
Although Israel lost a symbol of technological prowess, it gained access to the latest US aerospace technology, obtained sophisticated US aerospace industry computers-which have a variety of other uses-and gained irreplaceable experience in state-of-the-art aeronautical processes.22 Indeed, in 1988 Israel surprised the world with its first space launch. 23 More than likely, the technology and experience gained from the Lavi project, together with space technology acquired in joint Strategic Defense Initiative research with the US, provided Israel with the technological base for this achievement.
US Involvement
in the Lavi Program
US involvement with the Lavi began in 1980 when Israel requested that the two countries coproduce an engine for the new Israeli fighter. The US agreed but demurred on Israel's request to use FMS credits for the Lavi in Israel.24 The position of FMS credits in the overall picture of US aid to Israel is crucial to understanding the effect of the Lavi program on US interests.
American aid to Israel falls into two categories--recurring and nonrecurring. FMS credits are an example of recurring aid.25 According to the GAO, these credits to Israel serve two major purposes: to reaffirm US political support and to ensure the adequacy of Israel's security.26 The GAO made another point which became a major area of contention between Israel and segments of the US government: "DOD [Department of Defense] believes and we concur that FMS was intended for the purchase of goods and services in the United States to support U.S. firms.27
Had the Lavi remained a low-cost replacement for the A-4 and Kfir fleet, issues such as technology transfer and the appropriateness of FMS use would not have arisen. However, by 1982 the concept of the Lavi had changed considerably. Israel desperately needed the technology to produce the upgraded aircraft and the money to finance production. There was only one place to look for both technology and financing--the United States. Israel then began an all-out effort, using whatever means were necessary, to get what it needed.
The Technology Issue
At the time the Lavi program was terminated, US contractors were building approximately 40 percent of the aircraft's systems. According to Defense Minister Rabin, 730 US firms were either subcontractors or vendors on the program.28 The issue of technology transfer was a prime point of contention, and Israel initially found itself at odds with the US State Department and Department of Defense.29 To resolve this roadblock, Israel played on the personal relationship between Israeli minister of defense Arens and US secretary of state George P. Shultz.
According to an investigative report in the Washington Post, Pentagon officials had been instrumental in blocking several critical licenses for technology transfer.30 In 1983, though, Arens--former Israeli ambassador to the United States--became Israel's defense minister. Arens was one of the original champions of the Lavi and had made many friends during his tenure in Washington. According to the report. Marvin Klemow, Washington's representative for IAI, flew to Tel Aviv with Dan Halperin, the economics minister at the Israeli Embassy in Washington. Klemow recalled advising Arens to go over the heads of Defense Department officials: "Our strategy should be that the Pentagon doesn't exist. This is a political decision.... We should go to State and the White House."31 Halperin is reported to have urged Arens to call Secretary Shultz to "expedite three crucial licenses which the Pentagon was holding up." According to Halperin, "Arens made the call, and in a few days the first licenses were approved."32
In April 1983 the Reagan administration approved license requests for "phase I of the wing and tail design (composite construction), and released production technology licenses for the servo actuators and flight control computers."33 By 1984 phase I and phase II technology license requests were approved, and phase III requests were nearing approval.34
During the course of the Lavi's development, Israel was able to take advantage of US R&D on a variety of systems such as derivative engines, composite-materials technology, avionics, and ECM for the F-15, F-16, and F-18.35 In addition to the formal technology licenses and the plethora of US subcontractors and vendors, who also provided direct insights into the US aeronautical system, Israel pursued another source of technological information: scientific exchanges. "In March of 1984 the U.S. and Israel signed a Memorandum of Agreement concerning exchanges of scientists and engineers, and cooperation in research, development, procurement and logistics support for selected defense equipment."36 Here was yet another area where technology transfer was not only possible but encouraged. Whether or not Israel obtained data on aerospace technology pertinent to the Lavi program through scientific exchanges is unknown. However, the source was available and certainly could have been used to do an end run on any bureaucratic obstacle. The relative ease with which Israel obtained licenses for technology transfer indicates that barriers erected by the US bureaucracy were no match for a concerted Israeli effort. The best example of Israel's tactics, however, involved its pursuit of funds for the new plane.
Funding for the Lavi
The Arms Export Control Act of 1976, the vehicle for FMS funding, permits offshore procurement only if it will not adversely affect the United States. It also restricts funds for building foreign defense industries except in special cases, such as helping to rebuild European defense industries after World War II and making a one-time allowance for Israel to produce the Merkava tank.37
The Israelis had wanted to use FMS funds for R&D in Israel since 1979. However, successive US administrations had disapproved their requests, and there was little hope for approval in 1983.38 But Congress was a different story.
In an article for the Middle East Journal, Duncan Clarke and Alan Cohen noted that "the congressional process that resulted in American support for the Lavi was rushed and superficial. The substantive issues raised by the project were examined by the Defense and State Departments but were not weighed carefully (or at all) by Cangress."39 This indictment of Congress's role in the Lavi project comes up often in criticism of US funding of the Israeli fighter.40
Having been repeatedly blocked by the Pentagon in their quest to use FMS credits in Israel for the Lavi, Israeli officials in the fall of 1983 took their case directly to Congress. According to a Washington Post study of the Lavi, Rep Charles Wilson of Texas, a friend of Moshe Arens and a key member of the subcommittee responsible for appropriating foreign aid, advocated congressional funding of the Lavi.41 The chronology of events included a meeting between Representative Wilson, an Israeli business lobbyist, and a staff member of the Senate Appropriations Subcommittee controlling foreign aid. Reportedly, this meeting produced a plan for an amendment allowing a major exception to US policy so that FMS could be spent in Israel for the Lavi.42 Congressman Wilson acknowledged that he asked the American Israel Public Affairs Committee (AIPAC), the influential pro-Israel lobbying group in Washington, to draft the language for the amendments.43 AIPAC has repeatedly played a major role in shaping US policy regarding Israel and the Arab world. The extent of AIPAC's influence is such that it has on at least two occasions been directly involved in negotiations with the US State Department concerning foreign policy issues: the proposed sale of Stinger antiaircraft missiles to Jordan and the location of the US Embassy in Israel.44 The funding request, an amendment to the fiscal year 1984 Continuing Budget Resolution, asked for $150 million more than IAI required and committed US financing to the Lavi.45 Further, the amendment allowed Israel to spend $300 million of US FMS funds for the Lavi in the United States and $250 million in Israel.46
The amendment was introduced in November 1983, just prior to the Christmas recess,47 and involved lobbyists from all quarters. AIPAC mounted a major effort to get the legislation passed, sending written memoranda to every member of the House and Senate and calling upon key members of the appropriate committees.48 Pro-Arab lobbies worked the other side of the issue, as did representatives from US aerospace firms such as Northrop Corporation and General Electric, which objected to US funds being used to finance all aircraft that might compete with their own.49
However, four days after its introduction in the House (and with no committee hearings and little debate), the Lavi package was approved.50 According to Representative Wilson, the only controversary concerning the Lavi had to do with which congreeman would get credit for the amendment when it passed.51
Nevertheless, DOD and the State Department still vigorously opposed the Lavi, especially the related FMS issue. In fact, in early 1984 DOD was able to delay the release of funds by interpreting the amendment to mean that Israel's $250 million were for production rather than R&D.52 Again, heavy lobbying succeeded in affirming that the funding was indeed to be used for R&D.53 Thus, Israel cleared the final hurdle, opening the way for further funding with FMS monies (see table).
By 1987 rising costs, as evidenced by the GAO and OMB estimates, had put the Lavi program in serious trouble in Israel and the United States. Consequently, the US raised the procurement amount in Israel for fiscal year 1988 to $400 million to pay Lavi cancellation costs and to substitute the purchase of 75 to 100 F-16Cs over the next three to four years (see table). 54 Over the course of the Lavi project, the US government invested over $2 billion of taxpayers' money, established foreign policy precedents, and transferred sensitive technology. Feelings are still raw in many quarters of the US government over the way the Lavi issue was handled, and many people question whether the program was in the best interests of the United States.
Effect of the Lavi
Program on US Interests
Four consequences of the Lavi program (1982-87) suggest that this project did not serve the best interests of the United States. These include (1) transfer of advanced technology, (2) unprecedented use of FMS credits, (3) loss of American jobs, and (4) perpetuation of a pro-Israel bias.
Transfer of Advanced Technology
According to a 1983 GAO report, "Israel more than any other country has been provided with a higher level of military technologies having export potential."55 On more than one occasion, this technology transfer occurred over the objections of DOD and US aerospace firms and placed Israel in a more advanced technological position than even the closest US allies, such as Great Britain and West Germany.56
A 1983 study of the Israeli defense industry raises another point about sharing technology with Israel:
A number of U.S. companies have expressed concerns that doing business with an Israeli company would probably result in all of the U.S. company's ideas and designs being appropriated without proper compensation. The U.S. company could expect to find itself competing with its own technology and designs in the international marketplace.57
Although this sentiment may be too generalized, it represented the feelings of some US industry officials, based on prior experience with the basic Sidewinder and AIM-AL air intercept missiles.58
Despite assurances to the contrary, Israel probably would have exported the Lavi because of the small domestic market and the immense national stake in advanced-technology exports as a means of financial recovery. The Washington Post report on the Lavi revealed the existence of an IAI marketing document of the early 1980s that outlined plans to sell the aircraft to third world countries.59 Further, Moshe Keret, the head of IAI, stated in 1987 that IAI had no specific customers in mind but that by the mid-1990s the Lavi "would be able to speak for itself in export competitions. [At that time,] it might be possible to sell a stripped version of the aircraft in the export market."60 While there is no firm evidence indicating that Israel has offered the Lavi or its technology to other nations, some open source reports suggest that the People's Republic of China has purchased a sophisticated Lavi radar system and is seeking Lavi avionics.61
Use of FMS Credits
Both GAO and DOD believed that the primary purpose of the FMS program was to support US firms by buying US goods and services.62 Thus, the fact that Israel was able to finance 90 percent of the Lavi's R&D--much of it in Israel--with FMS credits from the United States was a sore point with many US government officials and aircraft manufacturers.63 Northrop, for example, built the F-20 Tigershark without benefit of government funds, exporting the fighter to third world markets where it would have to compete with the Lavi. In all, $1.5 billion of Lavi financing went directly to Israel to support its industry and economy--money that could have been spent in the United States.64
In 1983 the GAO noted that, because of the Lavi precedent, the US might be hard pressed to refuse similar treatment to other countries:
We take no position on the level or terms assistance to Israel, but believe the precedents being set by the liberalized method in implementing the program could be a problem if other recipient countries ask for similar concessions.65
Indeed, the US now extends several unique aspects of Lavi funding to other countries: (1) cash-flow financing for multiyear purchases (now used in Egypt and Turkey), (2) FMS loan-repayment waiver (now given to Sudan and Egypt), and (3) FMS offsets and FMS drawdowns (requested by other countries).66
Loss of American jobs
One can argue that, because of coproduction and subcontracting with Israel, the Lavi program created far fewer jobs in the US than it should have. For example, statistics for the year 1985 show that the US authorized $400 million of FMS for the Lavi, but only $150 million of that was spent in the United States. That $150 million produced between 3,780 and 4,659 American jobs. However, 10,080 to 12,424 jobs would have been created had all $400 million been spent in the United States.67
Furthermore, on 17 November 1986 Northrop terminated its F-20 Tigershark program after receiving no financial support from the US government.68Although Northrop canceled the program for a variety of reasons, including lack of sales to the US Air Force, $1.2 billion of private investment and 2,000 American jobs were lost, nevertheless.69
Northrop's experience is a grim example of what can happen when the US government supports a foreign competitor rather than a US company acting in good faith and with reasonable expectations of profitability. Congressman Mervyn M. Dymally of California, the representative from Northrop's home district, raised a similar point during congressional hearings in 1984 on the Middle East aid package. He was told that much of the money used to build the Lavi would be spent in the US.70 As we have seen, however, that sum represents only a portion of the money and jobs that US firms could have enjoyed had FMS funding been used as intended by DOD and GAO.
Perpetuation of a Pro-Israel Bias
There is a strong perception in the Arab world and in some quarters of the US government, specifically the Department of State and DOD, that US Middle East policy is skewed towards Israel at the expense of US interests in the rest of the region. This perception is the result of decades of special treatment for Israel, and the Lavi program served to reinforce that view. After all, by supporting the Lavi, the United States financed the expansion of the Israeli arms industry despite the fact that Israel again had invaded Lebanon, laid siege to Beirut, and used US-supplied weapons in an offensive role. Further, a special commission had cited senior Israeli military personnel, including the defense minister, for failing to anticipate and prevent the massacre of Palestinians at the Sabra and Shatilla refugee camps in Beirut.71 What other signal could the Arab world receive than that the United States did not consider those events serious enough to halt cooperation with Israel?
On several occasions, the United States has been unfairly accused of complicity in military actions undertaken by Israel, such as the raid on the Iraqi nuclear reactor in 1981, the invasion of Lebanon in 1982, and the attack on Palestine Liberation Organization (PLO) headquarters in Tunis in 1985. AIPAC has even used these accusations to encourage closer cooperation between the two countries, arguing that they should reap the advantages of a closer relationship since everyone assumes that they are cooperating anyway.72 In the case of the Lavi, though, the cooperation was explicit and acknowledged.
Last, by supplying such massive aid for the Lavi, the US was in effect freeing Israeli money for the war in Lebanon--a conflict that provoked widespread disapproval in the Arab world and flew in the face of US policy in the Middle East. Thus, US declarations about its evenhandedness and its desire for peace in the region did not ring true to moderate Arab states.
Conclusion
The United States made a serious error when it became directly involved in the Lavi project with Israel. The resultant loss of US technology, money, and jobs, as well as the ill will generated among other Middle Eastern allies, is testimony to an ill-conceived, hastily executed policy. Further, the pattern of behind-the-scenes maneuvering that typified the project is eye-opening and indicative of the overwhelming support enjoyed by Israel in Congress, the influence of Congress on foreign policy, and the ease with which bureaucratic roadblocks can be overcome by a skillful, determined effort.
The Lavi story is not a happy one for any of the participants, and its termination--while justified on both financial and political grounds--left bitter feelings in many quarters. The Lavi represented a dream for Israel and galvanized tremendous support and enthusiasm. Completely redesigning the aircraft in 1982 proved to be a fatal flaw, leading to major cost overruns and drawing the United States into the role of major partner, banker, and provider of technology. The Lavi project was not in the best interests of the United States, and we should have recognized that fact in 1983.
