Israel and Germany sign $3.5b Arrow 3 deal

Arrow 3 credit: Israel Ministry of Defense spokesperson
Arrow 3 credit: Israel Ministry of Defense spokesperson

In the biggest deal ever for Israel's defense industry, Germany is paying $600 million up front for the start of production.

Israel's Minister of Defense Yoav Gallant and his German counterpart Boris Pistorius today signed a document to initiate the sale of Israel Aerospace Industries Arrow 3 missile defense system to Germany. This $3.5 billion deal will be the biggest in the history of Israel's defense industries. Germany is paying $600 million up front, for the start of production of its Arrow 3 systems. The signing ceremony, which was also attended by Ministry of Defense director general Major Gen. (Res) Eyal Zamir, marked a major step in the agreement, but in practice, IAI already began moving forward on the process immediately after receiving US approval for the deal in mid-August.

The scale of the deal is unprecedented, but IAI is experienced in implementing big international operations with overseas sales making up 75% of its revenue. The company, which ended the first half of 2023, with a net profit of $165 million, up 28% from corresponding period of 2022, has already started contacting suppliers in Israel and around the world, with the aim of acquiring and equipping themselves with components from which they will build the Arrow 3 systems.

IAI is moving ahead quickly because it has committed to provide the first Arrow 3 system to Germany by 2025. These systems that are intended to defend all of Germany and countries around it against the Russian threat through an unspecified number of units, which will be supplied by 2030.

At the signing ceremony IAI president and CEO Boaz Levy said, "IAI is proud to sign this agreement with Germany and lead the Arrow project for protection from ballistic missile attacks, also in Europe. The Arrow weapons system is the first in the world to allow the interception of ballistic missiles, outside the atmosphere, to protect against strategic threats, whose capabilities have been proven over the years. The agreement signed today with Germany is an historic event and a significant milestone between the countries, through mutual guarantees and shared destiny.

"The 'Arrow' defense system is a central component in the multi-layered defense system of the State of Israel, which demonstrates the close cooperation between IAI, Israel's Ministry of Defense and the US Missile Defense Agency, and now also with the German Ministry of Defense.

Levy added, "This wonderful capability is made possible thanks to the innovation, the groundbreaking thinking and the many years of creativity of IAI's engineers in close cooperation with defense industry engineers in Israel, the HOMA Missile Defense Directorate in the Ministry of Defense and the US Missile Defense Agency. Thanks to the joint work on this significant project and thanks to the impressive cooperation with the Israeli Embassy in Berlin, IAI once again receives international recognition, and fulfills its goals of serving as a manufacturer for the protection of the world's citizens wherever they may be."

This deal is unusual not only for Israel, but also on a global dimension. For the sake of comparison, three months ago a deal was signed between Turkey and Saudi Arabia, in which Riyadh ordered Baykar drones from Ankara worth about $3 billion. However, it is not only Riyadh striving to strengthen its military. Europe is leading this global trend. Germany's defense budget for 2024 has risen to €52 billion - 2% of GDP as required from NATO allies.

Government-to-Government deal

One of the outstanding advantages of the sale of the Arrow 3 to Germany is that it is a Government-to-Government deal, allowing certain procurement regulations to be bypassed.

Another relevant aspect of the Arrow 3 deal is the cooperation between countries. The Arrow 3 system is developed jointly by the HOMA Missile Defense Directorate, which is responsible for development and production of Israel's multi-layered missile defense together with Israel's Ministry of Defense - Directorate of Defense Research & Development (IMOD DDR&D) (MAFAT) and the US Missile Defense Agency, led by IAI.

In the case of Germany, Berlin has insisted that it receive Arrow 3 systems identical to the systems operational in Israel. IAI's Mississippi-based subsidiary STARK will be very much involved in production. Beyond that, for the direct work with the Germans and coordination in the field of infrastructure and the local army, IAI has hired European country MBDA to serve as a contractor that will manage coordination with Berlin.

What is the Arrow 3?

The Arrow 3 system is the most advanced air defense system of its kind in the world for intercepting ballistic missiles in space, outside the atmosphere. The interceptor has a long-range icapability, at a high altitude above the atmosphere.

The principle of operation of Arrow 3 is based on direct physical damage to the target (hit to kill). IAI is the main contractor for the development of the weapon system, the missile interceptors and the radar detection system. Elbit Systems develops the command and control system, and IAI's Us subsidiary STARK Aerospace, is the main contractor in the US. Israeli government Tomer develops rocket propulsion systems and another government company Rafael is the main subcontractor for the development and production of the Arrow 3 interceptor.

Tomer has already started preparing for the deal, and has implemented a plan to expand infrastructure and dedicated production lines to support the project and increase production rates for the challenges of the defense system, as well as support for the German Arrow project.

Published by Globes, Israel business news - - on September 28, 2023.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2023.

Arrow 3 credit: Israel Ministry of Defense spokesperson
Arrow 3 credit: Israel Ministry of Defense spokesperson
Twitter Facebook Linkedin RSS Newsletters גלובס Israel Business Conference 2018