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Israeli Prime Minister Benjamin Netanyahu gestures as he speaks during the International Homeland Security Forum conference in Jerusalem, June 14, 2018. REUTERS/Ammar Awad

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JERUSALEM/BERLIN (Reuters) - Israeli Prime Minister Benjamin Netanyahu said on Thursday that a roughly one-billion-euro (£0.88 billion) drone deal with Germany would strengthen bilateral security relations and give a boost to Israel's defence industry.

Germany's parliament on Wednesday approved the plan to lease Israeli-built surveillance drones for nine years, a sort of stop-gap until a European drone is ready for use around 2025.

Agreement on the long-delayed contract also provides some positive news amid recent friction between the countries over their disagreement regarding world powers' 2015 nuclear deal with Iran and Israeli policies toward the Palestinians.

"It's a huge deal. It has implications first of all on our defence industry and the Israeli economy, but also the continued strengthening security ties between Germany and Israel," said Israeli Prime Minister Benjamin Netanayhu.

He thanked German Chancellor Angela Merkel for getting the deal approved in parliament.

Israeli defence contractors signed $9.2 billion in export deals in 2017, a 40 percent increase from the year before, but drones accounted for just 2 percent of that.

Germany will be receiving Heron TP drones, a high altitude, long-endurance vehicle with multiple-payload capabilities made by state-owned Israel Aerospace Industries (IAI) [ISRAI.UL].

The drone programme is in two parts – a 177 million euro contract between the German and Israeli governments, and a contract between the German military and Airbus valued at 718 million euros, according to German parliamentary sources.

Airbus said on Thursday it had signed the nine-year contract with the BAAINBw procurement arm of the German military, and it would take effect upon publication of the federal budget.

The deal calls for the military to pay an additional 100 million euros for the first drone deployment, and 210 million euros for a second deployment.

Airbus, which will manage all aspects of the agreement, including operational support and maintenance, in turn awarded a subcontract to IAI worth $600 million.

Armin Schmidt-Franke, vice president of the BAAINBw, said the more capable Heron TP drones would significantly improve Germany's surveillance capabilities and the ability to protect troops on the ground.

The drones will become operational after a two-year set-up phase, with German pilots to be trained in Israel, BAAINBw said.

A German parliamentary source said it would cost the German military about 250 million euros a year to operate the new drones, compared with around 70 million euros for the less capable Heron drones now in use in Afghanistan and Mali.

(Reporting by Ari Rabinovitch and Andrea Shalal; Editing by Mark Heinrich)

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Reuters