Procurement: The Billion Dollar Barter

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July 24, 2012: Earlier this year the Israeli Air Force decided to buy 30 Italian M-346 advanced jet trainers. Before the Israeli government signed off on the deal it negotiated a barter arrangement whereby Israel will pay for the M-346s with Israeli weapons and military equipment. Since Israel is paying $993 million for the M-346s, the Italian armed forces now has to buy an equal value of Israeli stuff to complete the transaction. Since Israel is one of the top ten arms exporters on the planet, Italy should have no problem finding needed stuff to buy. Italian defense firms are not happy with this deal. While the barter arrangement may cost Italian firms some sales, Israeli firms make a lot of high-tech military gear that is not produced in Italy. American and other European firms are likely to lose more sales from this deal.

Another factor was that Italy has had a hard time getting M-346 sales going. Before the Israeli sale only 27 had been sold (Italy bought 15 and Singapore 12). Several other nations are negotiating purchase deals and the Israeli purchase may encourage these buyers to move.

Until recently Israel planned to replace its current jet trainers (elderly A-4 light bombers) with its older F-16s. Israel has been under a lot of pressure to scrap the remaining A-4s but that could be done only after a new trainer was found. The A-4s are not expected to last beyond 2015. Israel bought over 200 A-4s in the 1960s and 70s and lost 53 to ground fire and missiles during the 1973 war. Later, most were sold or retired. The remaining 22 are used for pilot training. But some of these have crashed, as the A-4 isn't a great trainer aircraft given their age and high maintenance cost. Israel eventually realized that older F-16s would not be much better as trainers.

The M-346 is a 9.5 ton, twin engine, two-seat aircraft. Top speed is 1,000 kilometers an hour. Max range with two drop tanks is 2,500 kilometers. The aircraft can also carry three tons of weapons including bombs, missiles, and a cannon pod. The M-346 is an excellent dual use aircraft, as a trainer and fighter-bomber. The M-346 began production four years ago. Development began in the 1990s, as a joint venture with Russia. But the two projects split in 2000, with the Russians continuing to develop theirs as the Yak-130.

 


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