A Tale of Two Planes

By Donald Neff

"Lavi" means "lion" in Hebrew, but the only way Israel's much-ballyhooed warplane earned its name in its short lifespan was by eating up the lion's share of America's military aid to Israel. The question in Israel's late-August decision to kill the expensive project was not why it finally delivered the coup de grace, but why it took so long. The answer is that the Lavi cost Israel hardly any of its own money. Almost all the funds squandered on the wildly over-budget, behind-schedule plane came from America.

The United States contributed to the Lavi $1.75 billion (of which $1.5 billion has already been spent) in taxpayer money and considerable amounts of advanced aero-technology as well. More than 50 percent of the plane's technology was in reality American, and more than 90 percent of its costs had been borne by the American taxpayer.

Israel Consistently Underestimated Lavi's Cost

Although early Israeli projections said each plane would cost only around $7 million, later ratcheted up to $15 million, the actual cost could well have been double or triple that amount. This compares to $12 million for the top-of-the-line US fighter, the F-16, to which the Lavi was usually compared.

Throughout the project, Israel was less than candid about the Lavi's budget overruns. For instance, a Pentagon-led study last year concluded that the Lavi would actually cost $22 million per unit, 52 percent higher than Israel's updated estimate of $15 million—and not including research and development expenses. When Israel challenged the Pentagon figure, the General Accounting Office stepped in to mediate. It determined that the likely cost would be about $18 million, also not including research and development. Under both studies, R&D would add $5 million to the cost per plane.

But, as a July study by the Israeli state controller revealed, the R&D figure per craft was far too low because it was arrived at on the basis of a total production of 300 planes. That is the production figure Israel had used since first announcing the project in 1981, and it was the figure assumed in the GAO's study.

Israel's state controller, Yaacov Maltz, however, revealed that as early as the beginning of 1985 Israel's defense establishment had quietly decided it would build only 210 planes in order to reduce the project's expenses. Lavi supporters did not inform the United States of this significant decision.

The cost would have been affected even more if Israel had adopted a desperate last minute scheme advocated by some of the Lavi's zealous supporters to go ahead with the project on the basis of only 100 planes. At that rate, the actual cost per plane for research and development alone would have been more than $15 million, sending the cost per plane soaring well past the $30 million mark.

In his report, Maltz left little doubt that he considered the project an out-of-control disaster. It was unrealistically over budget and as much as four years behind schedule.

How did Uncle Sam get involved in this fiasco? It began when Israel officially decided in the early 1980s to produce its own fighter to prove, among other things, just how much more advanced technologically it is than the Arabs. Originally, Israel estimated research and development would cost only $750 million. With these figures, Israel tried to lure a European or American aerospace company into being a partner in the project for a $300 million investment. It found no takers. By then it was already realized that R&D alone would cost at least $1.5 billion, double the original estimate.

Despite these figures, in the early 1980s Israel Aircraft Industries issued a marketing brochure entitled "Lavi: The Affordable Fighter." The brochure projected Israeli sales of as many as 407 of the jets to such countries as Argentina, Chile, South Africa, and Taiwan. That, of course, was on the early assumption that the plane would cost only $7 million—not $30 million.

Lavi Cost Americans Jobs

But there was a hard reality: Israel had neither the economic nor the technological base to produce the Lavi on its own. Nonetheless, Israel proceeded on the all-too-true assumption that if it couldn't get business partners it would get the help it needed from its many friends in the US Congress. Its first move in this extraordinary quest was to seek the advanced technology it would need from US industry. This was hotly opposed by the State and Defense departments and some segments of the American defense industry, particularly the Northrop Corporation.

The reason for Northrop's spirited opposition was that it had been refused government financing for its own F-20 project with its own funds, which equaled a $450 million investment by the late winter of 1983. In strong letters to Secretary of State George Shultz and Defense Secretary Caspar Weinberger, Tom Jones, chairman of the board of Northrop, complained it was "ironic" that the administration was considering providing support for a foreign plane when it had denied such support for an American plane.

Jones noted that Northrop had accepted without conditions a 1980 presidential directive that established there was a need for a new fighter plane—even though the directive had stipulated "the US Government will not provide funding for development of the aircraft, and aircraft companies will assume all financial and market risks." When it came to power, the Reagan administration had endorsed this directive.

Jones wrote that Northrop had followed the directive by investing its own money to develop the F-20 Tigershark for the world market as an example of capitalism at work. But, he added, "The development of a Lavi fighter program, supported by US technology and US funds, clearly changes the market risks we were asked to take." Jones concluded by urging both secretaries to "personally involve yourselves in this decision."

Rather than become involved, Shultz bucked the letter to William Schneider Jr., the under secretary of state for security assistance, science, and technology. Schneider wrote Jones a kiss-off note saying the Northrop leader could be "assured that your views will be carefully considered at senior levels of the US Government." Jones also received a similar note from Weinberger.

Meanwhile, Israel and its Washington lobby, AIPAC, the American Israel Public Affairs Committee, waged an energetic campaign to win the administration's support for the Lavi. The first payoff came on April 17, 1983, when the Reagan administration agreed to allow Israel to buy US-made components to build the Lavi. This meant Israel could depend on American engines, wings, tails, and flight controls to build a plane that, if it ever went into production, would compete directly with the US aerospace industry and specifically with the Tigershark.

Jones again wrote protest letters to Shultz and Weinberger but to no avail. The administration was totally in the Israeli government's pocket. Meanwhile, the Israelis and their supporters were hard at work to expand their access into the US Treasury itself. The big break in Israel's campaign apparently came when Texas Democratic Representative Charles Wilson, a member of the House Appropriations Committee's Foreign Operations subcommittee, visited Israel in April 1983 and met with an old friend, Defense Minister Moshe Arens, former ambassador to Washington and, as a former aerospace engineer, one of the Lavi's major backers.

After Wilson's meeting with Arens, the Texas Democrat returned to Washington and drafted an amendment to the pending foreign aid bill allowing Israel to spend $550 million of its $2.61 billion in total aid for fiscal 1984 for the Lavi. The terms were extraordinary. Israel would spend $300 million of the Lavi money in the United States and would be allowed to use an additional $250 million in Israel itself. This allowance cost American workers an estimated 8,000 jobs, according to a study by the Congressional Research Service.

Not One Congressional Hearing on the Lavi

Although allowing Israel to spend US aid money in Israel rather than in the US violated the buy-American provisions of the Mutual Defense Security Act, there was not one committee hearing devoted to the amendment nor was there any substantial discussion of it in Congress. Observed Wilson: "When the Israeli lobby got working on it, when it became quite clear that it was a big priority for them, resistance suddenly melted."

Northrop, Arab-American groups, and others mounted a campaign in the fall of 1983 to defeat the amendment on the House floor. Another group of lobbyists also appeared, however. These were representatives of Grumman Corporation and other aerospace companies that had been promised major Lavi subcontracts. More than 120 US subcontractors were given rides on the Lavi gravy train. With such support, the bill with Wilson's amendment sailed through Congress.

For fiscal 1985 Congress again awarded Israel $2.61 billion in aid, but with a significant difference: All of it was in the form of non-repayable grants. Congress ear-marked $400 million for the Lavi, and Israel was given the right to spend $250 million of that amount in Israel and only $150 million in the United States.

Thus, over two fiscal years, Congress had donated $950 million to the Lavi—while Northrop was still spending its own funds on the F-20. "This is amazing," a lobbyist told the Wall Street Journal. "Almost $1 billion for a new weapons system and not even one hearing on it. If the Pentagon tried to do that, they'd be laughed off Capitol Hill."

By now, Israeli expectations were soaring as far out of sight as was the Lavi's budget. Defense Minister Arens was so optimistic that he even foresaw the possibility that not only would America provide the technology and the funds to develop and produce the Lavi, but that eventually Israel might even sell back Lavis to the Pentagon.

Congress Oblivious to State and Defense Department Concerns

Over the continuing objections of the State and Defense departments, Congress went on shoveling huge amounts of funds into the project. Israel was awarded $3.6 billion in military and economic aid for fiscal 1986 and $3 billion for fiscal 1987. From those totals, each year Israel was allowed to spend $400 million for the Lavi; $250 million of it in Israel itself. Thus, through fiscal 1987, in a three-year period, Congress had voted $1.75 billion for the Lavi.

By 1986, however, it was obvious the project was hopelessly over budget and consuming an increasing share of Israel's American military aid. When US officials pointed this out to Israel, according to a report by the US General Accounting Office, "Israeli officials expressed the hope that by the early 1990s, US budgetary constraints will have run their course and that additional funding will be available from the US government to ensure successful completion of the Lavi program."

The Pentagon became so concerned by this cynical indifference to the American taxpayer that it established a group to study alternatives to the Lavi. Last January, Rabbi Dov S. Zakheim, then deputy undersecretary of defense for planning and resources, paid a three-day visit to Israel to plead with it to stop squandering its American aid on the Lavi. He was armed with a stunning number of attractive alternatives. The two proposals that most attracted the Israelis were an offer of 300 F-16s, which would allow Israel to provide the plane's engine (originally supplied by a transfer of US technology) and make the final assembly in Israel. Also, Israel was offered the opportunity to provide the avionics for future US F-16s, a lucrative contract. Either option would be half as costly as the Lavi and would provide jobs for thousands of Israelis.

Some Israelis seemed inclined to reject the Pentagon offers, however, in favor of continued end runs to Congress. Yediot Aharonoth, Israel's largest daily newspaper, suggested that if the pentagon did not drop its opposition, then Israel should make "another appeal to those parties that overcame this opposition in the past."

In July, Defense Minister Yitzhak Rabin traveled to Washington to demand still more assurances that if Israel dropped the Lavi then the United States would continue to provide Israel with its present level of military aid. Additionally, he wanted "offset" arrangements with American suppliers to purchase up to $150 million in Israeli products and, most astonishingly, he wanted Israel to have the right to continue to spend $300 million of its annual US aid in Israel. This, of course, would mean the loss of more jobs for Americans.

After the Lavi was dropped, Shultz officially informed Israeli Finance Minister Moshe Nissim that Israel would be well rewarded, even better in some respects than Rabin had sought. Shultz said America would agree that Israel could use $450 million of its military aid to pay termination charges of contracts, approve continuation of Israel's "offset" practices in which US companies must buy up to $150 million of Israeli products in return for receiving Israeli contracts—which are paid by American aid—and allow as much as $400 million in US aid to be spent annually in Israel.

Northrop has not been so lucky. It failed to find any buyers for its F-20. The US Air Force instead informed Northrop it had decided to modify F-16s for the job rather than buy the F-20 because of "the reduced funding environments the air force faces." The next month Northrop announced that it was halting all investments in the plane and was concluding F-20 contracts with its subcontractors and suppliers. Total cost to Northrop and its stockholders: $1.2 billion. Needless to say, there has been no effort in Congress to reimburse Northrop in the manner Israel will be compensated.

Donald Neff is the Washington, DC-based author of Warriors at Suez and Warriors for Jerusalem. His third book, Warriors Against Israel, will be published by Amana Books in February 1988.