Israel has many defense companies, large and small, as well as companies with activity tangential to the defense industry. The industry employs tens of thousands of people. Some of the companies are located in areas near the Gaza Strip border or under intense rocket fire, and they continue to operate despite the fighting.
Elbit Systems, for example, has sites in Sderot and in Beersheva; Israel Aerospace Industries (IAI) also operates in Beersheva among other places; and Ashot Ashkelon (which Elbit sold to private equity fund FIMI two years ago), is, as its name implies, located in Ashkelon. There are also many defense companies located in the north of the country; if hostilities on the northern border escalate, they will be liable to be affected.
In recent years, Israel’s defense companies, especially the big three - Elbit, IAI, and Rafael - have experienced a boom in their businesses. Industry sources say that this is the best period it has ever had, and the companies report growth in their orders backlogs. Among other things, this is because of the war in Ukraine, which has led European and NATO countries to expand their defense budgets.
In the first half of 2023, IAI’s revenue grew by 7.7% in comparison with the first half of 2022, to over $2.5 billion, while Elbit Systems’ revenue growth was 7.2%, to over $2.8 billion.
How is the war affecting these companies? "Unfortunately, Israel is the biggest ‘beta’ market there is for defense technology and know-how," says a senior defense industry source. "We have the most real test ground in the world; we have been under attack for 75 years, and we have no choice but to be strong. There are therefore countless excellent defense companies, and also companies that derive from the defense industry, such as in the high-tech industry."
Most of the defense industry is located in the periphery of the country, including in areas that have been hit in the current round of fighting and suffer from air-raid sirens. "I have to say that the guys there are lions," the source says. He mentions a specific factory in the south where work carries on as usual, despite the difficulties and the constant sirens. "I was extremely impressed by the strength of their spirit," he says.
Some of the workers have been drafted into the IDF reserves, but the source says that the companies know how to deal with this. Some workers live in places that have been attacked. "It’s very tough; each has a wife, children, some story. And they come to work as normal because that’s part of their responsibility," the source says.
"The world is becoming polarized"
What will be the effect of the war on demand for the products of the defense companies? A spokesperson for Rafael, whose best-known development is the Iron Dome rocket defense system, said, "Rafael is completely harnessed to the war effort, with all its energy, and round the clock, to supply the IDF and the other security forces with the required systems and capabilities."
Regarding demand, the industry source says that there are Israeli defense companies that manufacture specific components (for a tank, a helicopter, or other defense need) that very few other companies in the world produce as well. He estimates that global demand will not decline, since the world is becoming more polarized, and demand doe defense products is growing because of the war between Russia and Ukraine, among other things. "When the fog of war lifts, demand will grow. People will understand the power and capabilities of the State of Israel," he says.
Published by Globes, Israel business news - en.globes.co.il - on October 15, 2023.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2023.