Israel Aircraft Industries (IAI) is anticipating a $500 million damages suit from China following the cancellation of its Phalcon airborne early warning (AEW) system deal with Beijing in the face of US hostility to the technology transfer involved.

China has already paid $240 million for the first Phalcon system, almost its total price, and has invested in the necessary infrastructure.

IAI sources say the Israeli Government should cover the damages, although talks on the issue will begin only after China files a claim. Washington may also be asked to contribute.

With the cancellation of Phalcon and US pressure to avoid similar deals, IAI forecasts are for "a very hard time" ahead, according to one company source.

Source: Flight International