In a move that seems liable to further strain ties with Turkey, the Israeli Ministry of Defence cancelled the planned sale of an intelligence system to Turkey.
The diplomatic crisis with Turkey intensified on Thursday after the Defense Ministry decided not to renew an export license for Elbit Systems and Israel Aerospace Industries (IAI) to sell advanced intelligence systems to the Turkish Air Force.
Defense officials said that Israel was working to improve ties with Turkey but that the Defense Ministry is “responsible for every product that receives an export license” and that it could not currently permit the delivery of the intelligence-gathering systems to Turkey.
“This has to do strictly with this system and should not impact the overall ties between the countries,” an official said.
Hmm. Good luck with that.
The $140 million deal, signed in 2009, was for the sale of the advanced infrared Lorop camera and associated equipment. The camera was developed by Elbit subsidiary El-Op and is installed in a pod which can be carried on combat aircraft. The systems were supposed to be delivered to Turkey in the coming months.
The Turks are likely to be furious at the cancellation at this late stage. Although the decision makes sense on the military and security level due to the serious degrading of diplomatic relations between Israel and Turkey in the last year, the cancellation of the sale might lead to severe economic and legal consequences for Elbit and IAI.
Both IAI and Elbit are in talks with Defense Ministry Dir.-Gen. Udi Shani about the expected economic implications and the possibility that they will be exposed to lawsuits by Turkey for reneging on the contract.
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“At the present time, there is not an estimate of the amount of the damages that may result from the non-renewal of the export authorizations. Such damages may have a material impact on the Company’s financial results.,” Elbit said.
Ynet were a little less diplomatic in their report:
Officials in Jerusalem have decided to cancel a $141 million defense deal with Turkey, saying they were concerned that Ankara could hand over cutting-edge intelligence equipment to third parties hostile to Israel.
I applaud the Defence Ministry for having the courage of its convictions in cancelling the deal, putting state security over and above pure economic gain. Let us hope the Foreign Ministry is on the right foot, prepared for the expected blow-back from Turkey.
Stay tuned…
Anne's Opinions 
It is probably safe to assume that the Israeli government will pick up the tab for any damages that these companies become liable for, following the delivery cancellation, so the companies’ bottom line should not be affected. But having produced these items, who can they sell them to instead?
Likely a “force majeure”-type provision in the contract to address exactly the situation of either party’s national government frustrating the performance of a party’s contractual obligations.
You are most likely right Earl, although it still leaves Elbit with all these intel systems going spare. I wonder if this cancellation will affect future Israeli deals. Will other countries be deterred from buying Israeli after this cancellation?
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