TEL AVIV, Israel ― Israel’s space industry has found itself the subject of controversy, as allegations about political deal-making and a state bailout at the taxpayers’ expense clash with a government citing national security as justification for its decisions.

State-owned Israel Aerospace Industries in late March lost out to an American firm on a contract to build the AMOS-8 communication satellite for the private company Spacecom. The satellite operator’s decision to go with the cheaper American competitor stoked fears that it could spell doom for Israel’s domestic satellite production, as Spacecom is the only customer for IAI’s satellite department, which also builds the Ofek line of spy satellites.

Following Spacecom’s decision to go with the Palo Alto-based Space Systems/Loral LLC, the Ministry of Science, Technology and Space released a statement in April saying the government had informed Spacecom it “stands by its original position in favor of a ‘blue and white’ [Israel-made] satellite.”

The statement quoted a parliamentary report that ruled that preserving Israel’s independent satellite production capability is vital “in times of emergency” to ensure Israel “maintains the independent ability to use satellites to collect and transmit information by way of Israeli communication satellites.”

Spacecom refused to comment on questions about the AMOS-8 sent earlier this week, and a representative from the Defense Ministry referred all questions to the Ministry of Science, Technology and Space, calling the matter “a government decision.”

IAI’s bid for the AMOS-8 was for more than $200 million, nearly double the $112 million contract Spacecom signed with Space Systems/Loral LLC. In addition, the satellite has an expected launch date of February 2021, while the IAI satellite should take at least four years to build.

Israeli politicians have argued that preserving Israel’s satellite construction capabilities is a matter of national security for a country that prizes confidentiality and maintaining a qualitative edge over its enemy states in the region. But there have also been allegations of backroom political dealings influencing the decision to have IAI build the satellite.

‘Far-reaching repercussions’

In February, police recommended bribery, fraud, breach of trust and extortion indictment against Labor and Social Services Minister Haim Katz. The case alleged that he intervened in internal IAI matters involving the workers union, in exchange for favors from IAI employees.

The head of IAI’s employee union is his son, Yair Katz.

In early April, Israel Police was leaning toward closing an investigation against Haim related to alleged corruption at IAI.

Earlier this month, an article in Israel’s TheMarker appeared to link the decision to have IAI build the satellite to internal Israeli politics, in particular within the Likud party.

Middle row, second from the left is Minister of Social Affairs Haim Katz, posing with other members of the 34th government of Israel for a group photo at the presidential compound in Jerusalem on May 19, 2015. (Gali Tibbon/AFP via Getty Images)
Middle row, second from the left is Minister of Social Affairs Haim Katz, posing with other members of the 34th government of Israel for a group photo at the presidential compound in Jerusalem on May 19, 2015. (Gali Tibbon/AFP via Getty Images)

The article quoted Yair, who told Israel’s Channel 10 news days earlier that the manufacturing of the satellite in Israel will be partly “as a result of our ability to reach the decision-makers of the country. If they were to disappoint us ― it’s safe to assume that those same decision-makers would not receive the trust of [IAI] employees in the Likud primaries.”

A day after the report, Mossi Raz, a parliamentarian from the left wing Meretz party sent a letter to Israeli Attorney General Avichai Mandelblit calling on him to open an investigation into the ministry’s decision to have the IAI build a new state-operated communication satellite.

The letter said the decision “has very far-reaching repercussions for the national budget,” and that Yair’s statement appeared to indicate that internal politics played some role in the decision to purchase the satellite.

Contacted by Defense News, the ministry dismissed any connection to internal Israeli politics and said the government has been working since December 2016 to promote the development and manufacture of a communication satellite that would be owned by the state and operated by IAI.

“The recommendations made by the space committee under the leadership of Peretz Vazan, the director general of the Science and Space Ministry to build a communications satellite in Israel, were based solely on professional discussions with officials in all the different branches of the space profession in Israel and due to strategic considerations, which would be optimal for the national and security needs of the state of Israel,” the ministry spokeswoman told Defense News.

The spokeswoman added that it is necessary for Israel to maintain its ability and know-how in the construction of communication satellites.

A longtime former official with IAI, who spoke on condition of anonymity, said that because Spacecom is a private company with shareholders to whom it must answer, “the management can’t allow itself to pay $100 million more [for the satellite] simply because IAI is putting pressure on the government to subsidize the communications satellite program.”

The official said that IAI’s production is more expensive because of its higher manpower costs and because the company doesn’t produce satellites at the same scale as major American manufacturers, which can build dozens of satellites a year, while IAI takes a few years to build a single satellite.

“The problem is: How do you, on the one hand, preserve IAI’s [satellite] program without forcing or dictating to Spacecom that they must buy the next satellite from IAI?” the official said.

The official asserted that security considerations drove the emphasis on keeping satellite production domestic ― not any sort of political backdoor dealing with the workers’ union; namely, the desire by Israel to maintain complete confidentiality about the science and capabilities of its satellite platforms.

Over the years, Israel has deployed a number of highly sophisticated, classified defense systems that were jointly built with the U.S. or bought outright from American firms, such as the Lockheed Martin F-35 fighter jet and the Raytheon-Rafael Advanced Defense Systems David’s Sling missile defense platform.

Why does Israel need the AMOS?

The AMOS series satellites are communication satellites that provide fixed and mobile service for broadcasters across Europe, Africa, the Middle East, and Asia. The first satellite in the AMOS series ― AMOS-1 ― was launched in 1996 and is still in service.

The decision to build the AMOS-8 follows the loss of the AMOS-6 satellite, which in September 2016 was destroyed in a fire on the launch pad ahead of a planned launch by SpaceX. The fire was a major blow for Spacecom, which lost a $95 million contract with Facebook to use the satellite’s broadband capacity.

After the loss of AMOS-6, Spacecom replaced it in February 2017 by way of renting a satellite that was already in service. Built by AsiaSat, the satellite was renamed AMOS-7 by Spacecom.

Opher Doron, vice president and general manager of IAI’s Space Division, said Monday that the decision to have IAI build a new satellite “is not about the government saving IAI, that’s totally not it. It’s the government making a clear decision that it wants to keep national capabilities in geo-communication satellites and acting accordingly.”

He added that in order to preserve this satellite construction capability, “you have to keep the industrial base [in Israel] and build the satellites.”

Doron said that losing the bid did not jeopardize the Space Division, in that “as long as the government is building a communications satellite with us, Spacecom can go where they went.”

He also said the deal to build a new government satellite with IAI had nothing to do with politics or pressure from the workers’ union.

In a March 26 news release, Space Systems/Loral LLC said satellite it will build “will deliver state-of-the-art broadcast, broadband and data services from Spacecom’s 4 [degrees] west ‘hot spot’ to Europe, Africa and the Middle East.”

Space Systems/Loral LLC said the satellite is expected to be in service for at least 15 years.

On Monday, Spacecom announced that it had signed a $55 million contract with an unnamed, non-Israeli customer to purchase satellite capacity on the AMOS-17 satellite as well as “other collaborations.” The satellite is being built by Boeing Satellite Systems International to replace the AMOS-5 and has a launch date scheduled for the second quarter of 2019.

Under the contract signed with Space Systems/Loral LLC on March 25, Spacecom has up to 60 days to make the down payment on the AMOS-8 contract. Otherwise, the deal will be canceled, which could mean that IAI would be hired to construct it instead.

“It’s not over by a long shot,” Doron said Monday.