In the past few years, there has been a notable surge in global interest, orders, and sales within the Israeli defense industry. These have mainly been driven by changes in the European security landscape rather than conflicts in the Middle East. Israel’s three primary players, Rafael, Elbit Systems and Israel Aerospace Industries (IAI), say they have witnessed significant growth as European countries are increasingly looking to invest in reliable weapons and technologies to adapt to the evolving security environment.
Definitely, the arms race in Europe has been amplified by the war between Russia and Ukraine
“Definitely, the arms race in Europe has been amplified by the war between Russia and Ukraine,” a representative of one of the companies told The Media Line on condition of anonymity.
You are going to see the defense industry globally grow, and Israel will benefit from that
Seth Frantzman, author of Drone Wars: Pioneers, Killing Machines, Artificial Intelligence, and the Battle for the Future, confirmed this sentiment. “Everyone understands the future in this century is going to be a lot more war, and I think most countries are arming themselves two or three decades after the end of the Cold War. You are going to see the defense industry globally grow, and Israel will benefit from that,” he said.
The ongoing conflict between Israel and Hamas is expected to fuel further growth in the local defense industry, Frantzman added.
Although Israel is only the size of New Jersey, its unique security challenges have driven substantial investment in its defense industry. Over the past 75 years, this investment has transformed Israel into a critical player in the global arms market, supplying advanced weapons and defense systems that protect nations and people worldwide.
So, it was a shock when the French government last month announced it would bar Israeli firms from participating in the June 17-21 defense exhibition Eurosatory 2024, citing the Israeli government’s conduct in Gaza. However, a spokesperson for Rafael told The Media Line that while the exhibition is important, it is only one exhibition, and he does not expect the move to have a ripple effect.
“We respected the decision, and we are not fighting it and not trying to circumvent it,” the spokesperson said. A representative from one of the other companies suggested the move may have been commercially driven rather than political.
Instead, Israeli companies were just at the ILA Berlin Air Show from June 5 to June 9, where German Chancellor Olaf Scholz met them to discuss weapons collaboration.
Israel Aerospace Industries officials meet with German Chancellor Olaf Scholz at the ILA Berlin Air Show in June 2024. (Israel Aerospace Industries)
Frantzman noted that while buying Israeli weapons may become more controversial in some places until the war is over, Israel’s use of these weapons against Hamas and Hezbollah demonstrates their effectiveness, likely increasing global interest in them.
This is a temporary controversy. … none of that is going to change—especially when we are talking about Israeli systems that are defensive in nature.
“This is a temporary controversy,” Frantzman said. “We are talking about billions of dollars in existing [weapons] partnerships, and none of that is going to change—especially when we are talking about Israeli systems that are defensive in nature. There is nothing controversial about defensive systems.”
For example, Iran launched over 300 missiles and drones at Israel in April, and Israeli air defense systems effectively protected the country. As a result, interest in these defense systems surged, according to the companies.
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“When IAI-developed systems proved capable of providing a good operational response to protect the country’s skies against extra-atmospheric ballistic missiles, we were able to restore a sense of personal security to Israel’s population and subsequently received many expressions of interest from countries around the world,” said IAI Chairman of the Board Amir Peretz in a release.
The company’s CEO Boaz Levy also highlighted the “increase as in demand all over the world for our systems” following the “impressive performance of IAI’s systems in the face of unprecedented threats, attacks from Iran and its proxies.”
Improving, adjusting, adapting
Since October 7, more Israeli weapons have been tested and refined in real-world combat situations—only some of which can be discussed.
Elbit Systems, Israel’s largest defense technology company, told The Media Line that it has been working intensively since the start of the war to support the IDF’s needs.
Elbit provides the “Zik” (Hermes 450) and “Kochav” (Hermes 900) UAV squadrons, which make up about 85% of the IDF’s drones. The company also provides the C4I “Tzayad” system, which coordinates ground and air forces. The use of this system led to this conflict being termed the world’s first digital war.
Additionally, Elbit provides the Arrow missile command and control system, an intelligence system for UAV management, and various systems for the “Namer” heavy armored personnel carrier.
Rafael and IAI supply the parts required for the Iron Dome, which has been critical over the past nine months of the current war and for the past 13 years. Rafael supplies the missile firing unit, and IAI supplies the battlefield radar. They also make David’s Sling medium- and long-range air and missile defense system.
Rafael’s Trophy APS is integrated into the IDF’s tanks and the Namer. The company also provides the SPIKE family of precision-guided electro-optical missiles.
IAI is responsible for the Arrow-2 and Arrow-3 systems, which intercept ballistic missiles outside the Earth’s atmosphere. The company also supplies many of the IDF’s unmanned aerial vehicles (UAVs).
Some weapons were used for the first time in the current war, such as Elbit’s Iron Sting mortar.
The IDF deployed IAI’s D9 robotic bulldozers, known as “Panda,” for the first time last month. The Panda handles complex engineering tasks autonomously. Each 50-ton Panda can move independently and perform various ground operations, such as land and construction excavation, clearing paths in rugged terrain, removing obstacles, creating dirt barriers, setting up tank firing positions, and demolishing buildings.
Having an unmanned driving compartment greatly reduces the risk to soldiers in these combat situations, explained Shay Gal, IAI’s vice president of external relations.
Shay Gal, Israel Aerospace Industries vice president of external relations. (Israel Aerospace Industries)
In April, the Israeli Navy successfully used Rafael’s C-Dome for the first time to intercept a suspicious, hostile target that threatened Israeli assets and strategic sites in southern Israel. The C-Dome, a naval version of the Iron Dome, is installed on the Israeli Navy’s Sa’ar 6 corvettes.
“What can be discussed about the company’s portfolio is the tip of the iceberg,” a Rafael spokesperson told The Media Line. “There is much more beneath the surface than above it, and to ensure they [the systems] are not vulnerable or that the forces using the systems are not vulnerable, we cannot address these specifically.”
He explained that the systems he referred to are not necessarily offensive; they could also be defensive or serve other purposes. In addition, he said that the company was regularly learning lessons from the field and improving, adjusting, and adapting its systems to the requirements of its customers. In Israel, the chief priority is the Israeli military.
Rafael’s C-Dome, used for the first time during the Gaza war. (Rafael)
Defense industry profits surge
As the war continues, these defense companies are capitalizing on increasing demand, resulting in a profit surge.
According to the recently published earnings release for the first quarter of 2024, Elbit’s revenues in the first quarter of 2024 were $1.554 million compared to $1.394 million in the first quarter of 2023. The release showed that the IDF’s orders from Elbit constituted nearly 30% of the total orders for the quarter, and the company said that, overall, demand from the Defense Ministry and the IDF has been rising since October 7.
“Aerospace revenues were similar to the revenues in the first quarter of 2023,” the company explained. “C4I and Cyber revenues increased by 12% in the first quarter of 2024, compared to the first quarter of 2023, mainly due to radio systems sales in Israel. ISTAR and EW revenues increased by 17% mainly due to Electronic Warfare and Electro-Optic systems sales in Israel. Land revenues increased by 26% due to the increase in ammunition and munition sales in Israel. Elbit Systems of America revenues were similar to the revenues in the first quarter of 2023.”
Meanwhile, according to IAI’s financial statements released at the end of last month, the company’s net income soared by 48% in the first quarter of 2024, reaching $135 million compared to $91 million in the same quarter the previous year. This made it the most advantageous quarter in the company’s history.
“We can see growth in every parameter,” IAI’s Gal said.
Rafael’s latest financial results, released at the end of March, showcased a strong performance throughout 2023, especially in the fourth quarter following the onset of the war. According to the company, there was a 21% increase in its 2023 sales volume compared to the year before—14.043 million shekels ($3,770.7 million) compared to 11.586 million shekels ($3.111 million)—and an 85% increase in its volume of orders. The company had a net profit of 588 million shekels ($158 million) last year.
So, what’s next?
“The defense industry has done everything possible to secure Israel’s supply line and make sure Israel has enough munitions” to fight this war, Frantzman said. “The Israel defense industry is already extremely large; this war will cause it to grow.”