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TEL AVIV — Israel has asked Washington to preserve cut-rate costs and generous terms of a proposed package of up to six V-22 tilt-rotor aircraft pending an ongoing reassessment of procurement priorities driven by last summer's Gaza war.

Proposed prices, delivery schedules and deferred payment allowances guaranteed in a Pentagon-crafted letter of offer and acceptance (LOA) expired Dec. 10.

Israel didn't sign the LOA, but now wants to freeze its terms, which reduced the estimated $1.3 billion package by nearly half, expedited deliveries and allowed deferred payment through low-interest commercial loans essentially secured by the promise of future-year military aid.

In interviews here, officials said they appreciated the extraordinarily generous US offer and the personal support of Defense Secretary Chuck Hagel and senior US Navy and Marine Corps leaders.

Many also acknowledged what one termed the "chutzpah" of reneging on a deal that former Israeli Defense Minister Ehud Barak and Moshe Ya'alon — Hagel's current counterpart — insisted was essential for safeguarding Israel's qualitative military edge (QME).

"Two successive Israeli defense ministers lobbied hard to label this a critical part of QME," a general in the Israel Defense Forces (IDF) reserves said of legislation obligating the Pentagon to provide "necessary means" for preserving Israel's advantage over any likely combination of regional adversaries.

"They took our long-arm needs much more seriously than we did," the officer said of the Bell Boeing tilt-rotors that Israel aimed to use for special operations and extended-range missions.

"The chutzpah of this episode harms our credibility in Washington."

As of Jan. 2, the Pentagon had not responded to the Defense Ministry's written request to keep terms of the LOA on ice pending the post-war reassessment of investment priorities.

Long Arm Vs. Ground Maneuvering

The proposed V-22 package is not the only program to be shelved, stretched or staggered due to the ongoing reassessment, which defense and industry sources note is is being conducted under conditions of budgetary limbo at home and rapidly escalating regional threats.

In late November, Israel decided to reduce the number of F-35s to be included in a US government-administered follow-on contract with Lockheed Martin from 33 to 14 aircraft.

Government and industry sources have characterized the downscaled order as a half-step that buys Israel more time to budget for future follow-on purchases and prepares to absorb the first tranche of 19 aircraft ordered under a 2010 contract.

Deliveries of the first 19 aircraft from Israel's first contract are scheduled to begin in late 2016 and continue through the end of 2019. By then, government and industry sources here say, Israel hopes to conclude follow-on deals for 50 of the 75 aircraft authorized for sale by the US Congress.

"They didn't scale back the program; they just staggered the orders to avoid the expense of having all those aircraft under the same, immediate follow-on contract," said a senior executive of a major Israeli aerospace firm partnered with Lockheed Martin on F-35-related subassembly.

In parallel, Israel's Defense Ministry is also working with General Dynamics Land Systems (GDLS), its Sterling Heights, Michigan-based partner on the Namer heavy troop carrier, to stretch orders without renegotiating terms — and risking penalty fees — on a 2011 contract.

Sources here say Israel still plans an inventory of more than 500 Namer heavy carriers. Several hundred of those vehicles will come from GDLS-produced assembly kits that Israel wants to acquire at a slower pace than the 60 per year rate specified in its 2011 contract.

With no government-approved budget for 2015, the Israeli Defense Ministry is operating essentially month-by-month according to 2014-approved funding levels of some 51 billion shekels (US $13 billion), which includes US aid.

Compounding obstacles to long-term planning, sources here say, is a near continuous need to revise threat assessments due to a region convulsing from insurgencies, blurred borders and the steady rise of radical Islam.

"We're struggling with a cardinal dilemma: Do we fortify our long-arm [with more F-35s and V-22s] or invest in more heavy troop carriers and active defenses needed for the next round in Gaza or Lebanon," a government official here said.

"We need both and we need them now," he added.

Defense officials said the issue is unlikely to be resolved until the new government to be established after elections here March 17 approves a budget for 2015 and spending guidelines for future years.

Email: bopallrome@defensenews.com.

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