The competition for the Israeli air force's next jet trainer is heating up, with the Defense Ministry narrowing the focus to Korea's T-50 Golden Eagle and Italy's Aermacchi M-346 Master.

Israel plans that the winning aircraft, which will replace its fleet of aging Vietnam-era Douglas A-4 Skyhawks, will be bought in a joint venture between two leading Israeli defense companies: state-run Israel Aerospace Industries, flagship of Israel's defense industry, and Elbit, which specializes in military electronic systems.

The Jerusalem Post reported this unusual arrangement was due to the Defense Ministry's "budgetary constraints."

The daily recently said closure of the trainer deal had been delayed because of financial problems, particularly the deal to buy 20 Lockheed Martin F-35 stealth fighter aircraft approved by Defense Minister Ehud Barak in August 2010.

IAI and Elbit will establish Tor Ltd., which will handle the purchase and maintenance of the training aircraft, and lease the aircraft to the air force.

Delegations from South Korea and Italy, including plane makers Korea Aerospace Industries and Alenia Aermacchi, recently visited Israel to discuss the proposed sale.

The Post quoted Israeli defense officials as saying IAI discussed with both companies the possibility of producing components for the aircraft in the Jewish state.

Elbit, the newspaper reported, is also having talks about integrating some of its equipment into the aircraft that's selected.

The Tor joint venture has emerged amid a shakeup in Israel's defense industry, with the government leaning toward a possible merger of IAI, Rafael and Israel Military Industries.

The initial order of 20-30 training jets will mark the first time in 40 years the Israeli air force will buy jet aircraft not manufactured in the United States, its main arms supplier.

With the contest between the supersonic T-50 and the transonic M346 moving into its final stages, there's been no official indication as to which jet, used for advanced training before pilots move on to supersonic combat aircraft like the Lockheed Martin F-16 and Boeing's F-15, is likely to win the contest.

But South Korea has a distinct edge. Israel and South Korea have been upgrading defense ties of late, in large part because North Korea is selling ballistic missiles and technological expertise to Iran.

Pyongyang also has aided Syria in building a nuclear reactor, which the Israeli air force destroyed in September 2007.

"Israel and South Korea share similar threats of rockets targeting major population centers," observed South Korean analyst Yong Kwon in Washington.

"It is precisely this threat that will draw Israel and South Korea closer to one another."

Seoul has lately shown interest in the Iron Dome missile defense system, designed and built by Rafael Advanced Defense Systems to counter short-range missiles.

In its combat debut in southern Israel in March it shot down eight out of nine Grad-type rockets fired by Palestinian militants in the Gaza Strip.

It may be that an Israeli purchase of the KIA T-50 will involve a deal with South Korea for the Iron Dome.

The Jerusalem Post noted "Israeli defense companies are seeking hundreds of millions of dollars in contracts in South Korea that could be endangered if the IAF chooses the M-346 over the T-50."

Maj. Gen. Udi Shani, director general of Israel's Defense Ministry, said May 9 five countries have expressed interest in acquiring Iron Dome, but he did not identify any of them.

The single-engine T-50 is considered to be one of the best training aircraft in the world and by all accounts offers the highest potential performance of the two as it can function as an "F-16 Lite."

A T-50 with light ground attack capabilities would be an added bonus for the Israelis.

However, the Defense Industry Daily observed recently the performance profile and ordnance-carrying capability of the M-346, similar to the Russian Yak-130, "in a pinch is probably the closest to the Skyhawk's."

The IAF decided in October 2008 to retire its 200-plus A-4s.

The venerable Skyhawks were first acquired in 1967 and saw combat in several Middle East wars.

The small jet's agility and versatility, along with its ability to take heavy damage in combat, made it a much-loved aircraft among Israeli air force pilots.