Israel’s Space Industry Roiled By Scandal After Spacecom Decision to Buy SSL Satellite

The decision by the board of Israeli satellite communications company Spacecom to buy its AMOS-8 satellite from US satellite manufacturer Space Systems Loral (SSL) over Israel Aerospace Industries (IAI) has unleashed political controversy in Israel and revealed a potential corruption scandal within Israeli Prime Minister Benjamin Netanyahu’s cabinet.

Under the contract signed with Space Systems/Loral LLC on 25 March 2018, Spacecom had up to 60 days to make the down payment on the AMOS-8 contract; otherwise, the deal would be canceled. At the time of publication it is not known whether this down payment was received within that timeframe.

When the state-owned IAI lost out to SSL on the contract to build the AMOS-8 communications satellite, Spacecom’s choice of the cheaper American competitor raised concern over the future of domestic satellite production in Israel, since Spacecom is the only private customer for IAI’s satellite department, which also builds the Ofek reconnaissance satellites for the Israeli government.

Following Spacecom’s decision, the Ministry of Science, Technology, and Space released a statement saying that the government had notified Spacecom that it was still in favour of an Israeli-made satellite. The statement also quoted a parliamentary report which explained its position 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.”

IAI’s bid for the AMOS-8 was almost double the U.S.$112 million contract Spacecom signed with SSL. In addition, the SSL satellite has an expected launch date of February 2021, while the IAI satellite was projected to take at least four years to build.

Spacecom refused to comment on questions about the AMOS-8 sent earlier this week, and a representative from the Ministry of Defence referred all questions to the Ministry of Science, Technology, and Space, calling the matter “a government decision,” according to a story in Defense News. While Israeli politicians have argued for preserving Israel’s satellite construction capabilities as a matter of national security, Defense News also reports that there have been allegations of backroom political dealings influencing the decision to have IAI build the satellite.

In February, police recommended bribery, fraud, breach of trust, and extortion indictments against Labor and Social Services Minister Haim Katz. The case alleged that he intervened in internal IAI matters involving the workers union, headed by his son, in exchange for favours from IAI employees. The allegations have been detailed in the Israeli press as well as in Defense News.

Following these reports, Mossi Raz, a parliamentarian from the left wing Meretz party sent a letter to Israel’s Attorney General, asking him to open an investigation into the ministry’s decision to have IAI build this new communication satellite.

The Ministry of Science, Technology, and Space dismissed any connection to internal Israeli politics and said the government has been working 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,” a ministry spokeswoman said.

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.

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 26 March 2018 news release, SSL said that the 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.”

SSL also said that the satellite is expected to be in service for at least 15 years.

On Monday, 21 May 2018, 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.

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