It was 20 years ago this week on April 16, 2001 that Sderot took its first hit from a Kassam rocket. It took exactly 10 years for Israel to develop the Iron Dome interception missile, which downed its first rocket fired from Gaza over the skies of Ashkelon in April 2011. Since then Iron Dome has gone a long way towards neutralizing the threat of the rockets and the short-range missile defense system has also become a successful export item.
Israel Aerospace Industries Ltd. (IAI) (TASE: ARSP.B1) ELTA unit head of air defense projects Col. (res.) Rima Matzvich said that eight systems have been sold over the past year, "in the radar configuration of Iron Dome" for the air defense of the Czech Republic. Contracts have also been signed with Slovakia and Hungary.
Matzvich said, "The three countries have sought multi-purpose MMR radar for aerial and artillery use and have been attracted by a fully multi-purpose system which is battle proven. It is a genuine all-in-one radar with a broad perspective and an ability to cope with all threats, whether from an unmanned aerial vehicle, drone, and artillery from all ranges. It covers everything."
Iron Dome helped IAI to a record year of $4.2 billion in terms of revenue in 2020.
Israel's defense industries to a large extent gave birth to the country's high-tech sector. One milestone event was the cessation of the project to develop the Lavi fighter jet in 1986, which released thousands of talented and experienced engineers onto the market and into jobs in Israel's emerging tech ecosystem.
IAI is also increasing the amount it invests in R&D. In 2020 it invested $1.036 billion in R&D, up 13% from $909 million in 2019. Only $196 million came from IAI's own budget with the rest from customers ordering products that needed to be adapted to their unique needs.
Iron Dome is the fruit of collaboration between various Israeli defense companies led by Rafael Advanced Defense Systems Ltd.. Exports of Iron Dome's radar system, which was developed by IAI Elta began seven years ago. The number of MMR units, the brain of Israel's air defense systems, which have been sold since then has totaled 150, including Iron Dome.
At an average price of NIS 27 million per system, total sales have brought in NIS 4 billion. IAI explains that the system has no fixed price because no one system is similar to another as each system is adapted to the needs of each customer.
Initial marketing was not easy, partly because Iron Dome was never developed with exports in mind. "The system was built for Israel's needs and to protect its citizens," recalls Brig. Gen. (res.) Pinhas Buchris who was Ministry of Defense director general when the project was first approved.
Sources close to the subject say that despite its Israel-oriented origins, they were still certain that Iron Dome would sell like hot cakes. But it turned out that there was no demand. To some extent that has been remedied by adapting the system, which is modular, to each separate customer. Another challenge, the source explains, was that IAI Elta was in fact, "Selling sensors because Iron Done's radar is a complex and large strategic system."
Information regarding sales of full batteries of iron Dome, including the interception missiles, is classified. So far there have only been reports of two full batteries to the US Army for about $400 million.
Former Deputy head of the National Security Council Prof. Brig. Gen. (res) Jacob Nagel told "Globes," that the sales potential to the US Army could amount to 30 or even 40 systems and that even the US Marines were among those interested. He described the radar as fantastic and said that Elta is making a lot of money from it. Prof. Nagel praised the radar's size, "not too big and not too small" and said that it is suitable for a wide range of uses from mortar shells and rockets and can even be fitted on ships.
On the potential of future sales, Buchris, who is currently managing partner of the State of Mind Ventures (SOMV) venture capital fund, said, "In our region there are those who are interested in receiving the systems to protect themselves, and as it is a defensive system, we can sell it to countries with whom we have relations, so they can face enemy countries."
Buchris expressed hope that the experience of cooperation between the defense industries that led to Iron Dome will be a model that can be replicated. "Credit must go to the defense industries that combined their efforts to put together the system in a crazy short amount of time. From the moment that we approved the budget, they were amazing in sticking to timetables. They worked 24/7 in an effort that had not previously been seen."
Cooperation with startups
Until the last decade, when the scale of investments in R&D by the tech giants jumped, development of the most advanced and breakthrough technologies was led to a great extent by defense industries, backed by government budgets. If in the early 1960s, 70% of R&D expenditure in the US was by the state, and the rest by the private sector, today those percentages have been reversed, with the vast majority of R&D expenditure from the private sector.
As technologies improve, and private companies invest capital in their development, a reverse trend has developed with defense companies (as well as the IDF itself) adopting commercial technologies or defense technologies developed by startups. IAI says, "We are investing, among other things, in R&D for future defense systems for the State of Israel, in cooperation and investments in blue and white startups."
Elta CTO Israel Lupa told "Globes," "We have learned not to be closed but rather to be accessible to technology that comes from startups. Elta alone already has more than 10 startups and IAI has more than 20."
IAI is currently setting up a company to commercialize technologies with an investment of about $200 million. The company will operate as a joint investment fund for IAI and strategic investors. Through this cooperation, companies will be set up for each technology product that is being commercialized.
Big deals between governments
While deepening its involvement in commercial interfaces of the industry, the government is becoming more deeply involved in defense exports. Radar deals with Central Europe are an example of deals between governments. According to the 2019 report of the International Defense Cooperation Directorate of the Israel Ministry of Defense (SIBAT), defense exports amount to 70%-80% of overall defense sector production. The biggest category is radars and electronic warfare systems (17%), followed by missiles, rockets and air defense systems (15%), manned aircraft and avionics (13%), observation and optronics (12%), weapon stations and launchers (10%), drone systems and UAVs (8%), and intelligence, information and cyber systems (7%).
About half of the components for the Iron Dome systems are manufactured in the US as well as parts for the David's Sling medium range missile defense system and the Arrow 3 long-range missile defense system. The missiles for Iron Dome are manufactured in the US in collaboration between Rafael and Raytheon. Elta itself has a US subsidiary based in Baltimore, which manufactures some of the modules for Iron Dome's radar.
Lupa says, "In this way we also help the US economy while sending the message to the Americans that you give us money and we give you back jobs in the US. When I'm invited there, I try to bring members of Congress to the factory where they see Americans who are proud to be manufacturing on behalf of Israel."
Israel Ministry of Defense MAFAT Missile Defense Organization head Moshe Patel said, "From the start, the US Army said that they had radar and were actually interested in other parts of Iron Dome's system, like the launchers and interceptors."
The fact that in contrast to David's Sling and the Arrow, which were developed in collaboration with the Americans, Iron Dome is an Israeli development allows the defense industries more flexibility in sales to overseas customers, because it doesn't need US approval.
Patel stresses, "These systems not only serve to warn against steep trajectory and short-range shooting but also threats like UAVs, cruise missiles, and in effect any target in the air. It also has demand not only as a weapons system but also in detection, alert, and transferring information to control systems."
The investment in upgrading the system is never enough, says Patel, who recounts that to date Iron Dome is responsible for 2,400 interceptions. He adds that Israel is readying for, "Trials that challenge the system in a more complex way than today's reality - more sophisticated threats that can enter the arena, in terms of the payload, the complexity and the accuracy."
Published by Globes, Israel business news - en.globes.co.il - on April 14, 2021
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