Exclusive: Israel's David's Sling will not win Polish missile tender - official

JERUSALEM/WASHINGTON Wed May 14, 2014 8:27pm EDT

JERUSALEM/WASHINGTON (Reuters) - Israel is poised to lose out on a deal valued at up to $13 billion to build a missile defense shield for Poland, an Israeli defense official said on Wednesday, citing lobbying by Washington on behalf of rival U.S. systems.

As compensation, the manufacturer of the Israeli David's Sling missile defense system may get a role in a future U.S.-led arms sale to Warsaw, the official, who has been briefed on the competition, told Reuters on condition of anonymity.

"The Americans will be happy, the Poles will be happy, and there'll be something left over for us," he said.

U.S. officials say they are supporting a U.S. solution. But they denied favoring one of the two U.S. entrants over the other in the tender, which Poland accelerated in response to Ukraine-Russia tensions.

U.S. executives said tensions with Moscow had heightened Poland's interest in strengthening its ties with the United States, which made it likely one of the U.S. bids would prevail.

The Israeli disclosure came as U.S. Defense Secretary Chuck Hagel visited the Jewish state to discuss an alliance undergirded by extensive U.S. aid for Israeli defense projects.

David's Sling is still at least a year away from rollout at Israel's state-owned Rafael Advanced Defense Systems. It is designed to shoot down heavy rockets and cruise missiles using interceptor missiles produced by U.S. company Raytheon Co.

The involvement of U.S. technologies gives Washington an effective veto over export of the system, which the Israeli defense official said had been quietly wielded in this case.

"There has been pressure," he said, without elaborating. "We cannot sell everything we want to."

David's Sling has two U.S. competitors for the Polish deal - the MEADS consortium led by Lockheed Martin Corp, and the Patriot system, whose prime contractor is Raytheon. A fourth contender is France's Thales in a consortium with European group MBDA and the Polish state defense group.

Asked whether Israel was resigned to losing out given the U.S. lobbying he had described, the defense official said: "Yes." But he said Israel was unlikely to withdraw the David's Sling bid.

Responding to the Israeli account, a U.S. defense official said he knew of no pressure on Israel to back off the tender. But the U.S. official, who also spoke on condition of anonymity, said Washington preferred NATO member Poland to "buy American".

UKRAINE FALLOUT

Losing out on the Polish deal might spare Israel unwelcome scrutiny from Russia, with which it has built up relations in recent years. Israel broke ranks with Western allies by not condemning Moscow over its intervention in eastern Ukraine, something U.S. executives said had not escaped notice in Warsaw.

France's decision to proceed with the sale of assault ships to Russia had also caused consternation in Poland, they said.

Poland said it wants to decide by year's end which system to buy, and plans to deploy it by 2022. Experts say the program could be worth $13 billion to the winning bidder over time.

Marty Coyne, a Lockheed business development director, said on Tuesday the Ukraine crisis could prompt Poland to pick a single winning bidder by June or July.

However, Poland's Defense Ministry said on Wednesday it was still at the "analytical-conceptual phase" of the tender and that "the public procurement to choose the anti-missile shield and air-defense system has not yet been initiated".

A U.S. State Department official said David's Sling offered a more limited capability than either of the U.S. systems. Raytheon declined comment, saying only that it remained fully engaged in the competition.

Coyne said the U.S. government had been "incredibly balanced and fair" and had "gone out of its way to make clear that it's up to the Polish government to choose the system they want".

At the same time, Coyne said, the U.S. government had supported the MEADS bid by giving Lockheed permission to offer producing its baseline PAC-3 missiles in Poland, and to help Polish industry set up production of its own long-range missile.

Rafael declined all comment.

The Israeli arms company has won U.S. plaudits and additional funds for its Iron Dome short-range rocket interceptor, which has successfully operated on the borders with Gaza and Lebanon.

But while David's Sling has, according to both Israeli and U.S. analysts, done well in field tests, its development scheduled has been stymied by Israeli defense budget shortfalls.

(Additional reporting by Karolina Slowikowska in Warsaw; Writing by Dan Williams; Editing by Mohammad Zargham)