Russia's invasion of Ukraine has shaken Europe and had a dramatic effect on military procurement. Germany alone has increased defense expenditure by 33% or 2% of GDP, representing €1 billion in extra orders annually.
German Chancellor Olaf Scholz has already announced that Germany will buy combat drones. These weapons have already proven their worth in Azerbaijan's victory over Armenia in the second Nagorno Karabakh war and in the civil war in Yemen. Germany currently leases five Heron drones from Israel Aerospace Industries, although they are not armed with guided missiles.
Berlin is not alone. Most NATO members will begin speeding up their procurement of weapons systems, whether they are Eastern European nations feeling directly threatened by Russia, or western countries seeking to rebuild a deterrence against the Russian army.
Growing demand for drones and loitering munitions
Germany is not the only country deploying Israel's Heron unmanned aerial vehicles (UAVs). The US, Turkey and Greece are also equipped with them as well as Morocco, Singapore and India. On the basis of its platform Turkey manufactures its Bayraktar UAV, which is being used by Ukraine in its war with Russia.
Bayraktar demonstrates the intensity of international competition in this field. Sources familiar with the weapons systems market anticipate brisk orders for a range of advanced systems but for the most part it will be for drones and loitering munitions. Attack drones like the Heron will be preferred but loitering munitions demonstrated their success for Azerbaijan. IAI's Harop is one of the most popular loitering munitions systems. There is also major demand for air defense systems. Ukraine has asked Jerusalem time and again for missile defense systems but Israel refused out of fear of antagonizing the Russians.
Israel's defense industry companies generally and IAI in particular expect a wave of demand for their products. As part of preparations for rising demand, the companies have readied presentations for buyers and have produced a range of options adapted to most demands. The preparations have been undertaken in coordination with the Israeli Ministry of Defense regulator to comply with sensitives of sales to various countries. Restrictions aren't only political but also touch on security issues and mainly the concern that unique advanced systems could fall into the hands of enemy armies.
Marketing of Israeli defense systems will be conducted pro-actively by contacting the military of countries and offering systems at exhibitions and events. Expectations are that sales could rise by several hundred million dollars annually.
Boeing International president Sir Michael Arthur, who was in Israel recently to bid farewell to Boeing Israel president David Ivri, who is stepping down, told "Globes," "The sense of threat being felt by European countries and Asian countries like Japan and South Korea will bring about an increase in demand for defense products, mainly those with advanced technology."
IAI hopes to take advantage of increased orders to raise the valuation of its planned privatization and IPO, although many bureaucratic obstacles are delaying that development.
Another aspect of Russia's invasion is an attempt to hire employees among the Jews immigrating to Israel and perhaps even the refugees. In Ukraine, Israeli tech companies employed 20,000 programmers, engineers and other workers, many of whom have escaped and reached Israel. The Ministry of Aliyah and Integration, which handles the immigrants and the Ministry of the Interior, which handles the refugees have already received requests from companies looking to locate tech professionals.
Published by Globes, Israel business news - en.globes.co.il - on March 10, 2022.
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