Defence Studies

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Israel’s defence industries – an overview

Uzi Rubin

To cite this article: Uzi Rubin (2017) Israel’s defence industries – an overview, Defence Studies,
17:3, 228-241, DOI: 10.1080/14702436.2017.1350823

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 Defence Studies, 2017
VOL. 17, NO. 3, 228–241
https://doi.org/10.1080/14702436.2017.1350823

Israel’s defence industries – an overview

Uzi Rubin
The Rubincon Consulting Firm, Gedera, Israel

ABSTRACT ARTICLE HISTORY

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Israel is currently one of the world’s leading exporters of defence Received 14 February 2017
goods and services. Its defence industries originated in the covert Accepted 1 July 2017
workshops of the Hagana and other resistance groups in the pre-
KEYWORDS
independence era of the 1930s, supplying the pre-state armed forces Israel; defence industry;
with light weapons. Mainly relying on imported weapons, the French security policy; export policy
arms embargo in 1967 came as a shock to Israel’s leadership and public,
causing a shift in policy towards self-sufficiency in major battlefield
platforms (combat aircraft, armoured vehicles and warships) through
indigenous research, development and fabrication. This policy of
self-sufficiency was later modified to apply only to such weapons or
systems that could not be obtained from abroad either for political
or technical reasons. It can be expected that Israel defence industries
now will focus more on sophisticated PGM’s and battlefield robotics,
whilst the Government will strive to fully privatize the remaining state
owned defence industries. How successful this will be remains to be
seen.

Introduction
Israel’s defence industries are one of the main pillars of Israel’s national security, whilst at the
same time comprising essential components of Israel’s high tech industry and a source of
export revenues. This paper offers an overview of the defence industries – their origins, evo-
lution and roles as security enhancers and economic players. To appreciate the scope of
Israel’s current defence industry – its size, policy and areas of specialization requires a historical
perspective. One cannot understand the present without comprehending the complex his-
tory of Israel’s various defence industries, both as part of the defence establishment, as well
as commercial and business ventures. Accordingly, this paper will describe the evolution and
consolidation of Israel’s defence industry through the four successive eras of its history:

(1) The pre-state era. The underground munition industries of the Jewish community
in British-Mandated Palestine.
(2) The formative era. From the establishment of Israel in 1948 to the Six-Day War in 1967.
(3) The “munitions independence” era. From the Six-Day War in 1967 to the termination
of the Lavi fighter aircraft programme in August 1987.
(4) The Current Era. 1987 to present time.

CONTACT Uzi Rubin [email protected]

© 2017 Informa UK Limited, trading as Taylor & Francis Group
 DEFENCE STUDIES  229

The purpose of this paper is to outline the evolution of Israel’s defence industry from an
afterthought into national security and economical mainstays. Hence, it is descriptive rather
than analytical or argumentative. The paper will concisely trace the evolvement of Israel’s
defence industry during each era, the basic rationale of its product lines, and its ownership
and business policy. It will complement this description with a short discussion of the Israeli
Government’s defence export legislation, regulation and disclosure policy. Finally, it will offer
a forecast for the future evolvement of Israel’s defence industry.
For reliability purposes, all the information used in this paper is traceable to officially
released information.

The pre state era: 1933–19481

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The growth of the Jewish community in the post-first World War British Mandate of Palestine,
stemming from the Balfour Declaration of 1917 and energized by the Zionist movement,
was accompanied by a growing conflict with the local Arab Palestinian community. To better
defend itself, the Jewish community established an underground armed militia, the “Hagana.”
Initially equipped with whatever the light weapons that could be illegally purchased locally
or smuggled from abroad, the Hagana was compelled by the growing level of intra-­community
violence to establish its own light weapon manufacturing facilities to complement its meager
armoury. Its first underground workshop, which was established in 1933, manufactured hand
grenades and explosives. This rapidly expanded into a covert factory system comprised of
seven industrial plants producing mortars, submachine guns and ammunition.
After the Second World War, the Jewish community’s increasing agitation for the end of
the British Mandate and the establishment of an independent state brought the Jewish
community into armed conflict with the British administration. This, and the growing per-
ception that independence would be forcefully resisted by the local Arab community and
neighbouring Arab states, increased the pace of the Hagana’s arms production and broad-
ened the portfolio of its nascent industrial plants to include the production of light and
medium mortars, land mines and even primitive torpedoes.
During the late 1930s, the complex political struggles within the Jewish community
caused a splinter group to leave the Hagana and establish its own underground armed
militia, the Irgun, which splintered further to create the Stern Organization. Both splinter
groups set up their own munitions workshops with the Irgun’s production capability becom-
ing almost as sophisticated as the Hagana’s factories by the eve of the 1948 war. However,
soon after the state of Israel was established, both the Irgun and the Stern Organization were
absorbed by the Hagana to create the Israel Defense Forces (IDF). The separatists’ arms fac-
tories were either closed down or absorbed by the Hagana factories.
In the pre-state era, the role of the incipient defence industries was to contribute to the
armed struggle, initially against the local Arab irregulars, later against the British adminis-
tration, and finally against the regular Arab armed force’s intervention in 1948. The end of
that war marked the end of the pre-state era.

The formative era 1948–1967

In its early days, Israel was faced with the immense task of nation-building. A flood of refugees
from Europe, the Middle East and North Africa poured into the state in the wake of the 1948
 230  U. RUBIN

war and required gainful employment. The statist policy of the then socialist government
was to establish government-owned industries optimized for job creation rather than profits.
The Hagana military industries were consolidated into a new entity, the Israel Military
Industry, which was seen as more of a job creating enterprise than a response to a clear
defence requirement.
At the same time, the early architects of Israel’s economy strove to enhance the country’s
technological capabilities in both the civilian and military industries. The first major step in
this direction was the establishment of Bedek Aviation in 1953, an aircraft maintenance,
repair and overhaul (MRO) facility designed to serve the Israel Air Force as well as commercial
air carriers (For the history of Israel Aerospace Industries see IAI and the Security of Israel
2016). The new venture was quite successful in creating thousands of jobs for new immi-
grants. And Bedek Aviation quickly broadened its product line to include the licence man-
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ufacture of a French jet trainer. Initially set-up as a department of the Israeli Ministry of
Defense, the rapidly expanding Bedek Aviation was re-formed in 1965 as a govern-
ment-owned commercial company and re-named Israel Aircraft Industries (IAI – today Israel
Aerospace Industries).
The ambitious new company set its sights on becoming a full-fledged system house in
aeronautical engineering. One of its main undertakings to achieve this goal was the design,
manufacturing and marketing of its own indigenous aircraft. Its first product was the light
transport aircraft (the “Arava”). It first flew in 1969, served in the Israel Air Force, and was
moderately successful as an export item. Another major step towards the status of a full
system house was the consolidation of its avionics repair shops, in 1967, into a modern
electronics and radar affiliated company dubbed Elta Systems.2 Typical of the period, Elta
was built in the newly established immigrant town of Ashdod to provide jobs for the local
workforce. This experiment turned out to be a successful commercial enterprise as well.
Today Elta is a leader in avionics warfare systems and radars of all kinds (airborne, naval and
terrestrial) whose products now serve in dozens of foreign armed forces.
Further progress towards technological ascendency was the transformation, in 1958, of
the obscure Ministry of Defense Department for Scientific Advancement into an independent
government authority, Rafael (Hebrew acronym for “Authority for Development of Weapon
Systems”).3 The new “Authority” focused on advanced missile design. Its first product – a
manually guided ground-to-ground missile – later evolved into the Gabriel, one of world’s
earliest anti-ship missiles, which defeated the Egyptian and Syrian navies in 1973 and was
a major Israeli export for a time. Rafael further broadened its portfolio by developing air-to-
air missiles. Today Rafael is a leader in the production of advanced weapon systems and has
gained wide renown for the performance of its short-range missile defence system – the
Iron Dome.
During this initial era, the IDF purchased its main weapon platforms from abroad, often
with great difficulty due to the Arab League’s objections to the arming of Israel. The fledgling
IDF was initially equipped with fighter aircraft from the Eastern bloc, salvaged British tanks,
and refurbished illegal immigrant ships. Its first jet fighters and major warships (WWII vintage
destroyers) came from Britain. The massive armament purchases by the neighbouring Arab
states (chiefly Egypt, Syria and Iraq) from the Soviet Union starting in late 1955 (SIPRI Arms
Transfers Database 2016) triggered an arms race in which Israel initially clearly lagged behind.
This changed in the later during that decade when France (with tacit US support) agreed to
become Israel’s primary weapons supplier. Germany also agreed to sell Israel a fleet of
 DEFENCE STUDIES  231

relatively modern US-made tanks. Other than modern air defence systems that were acquired
from the US in 1965 (SIPRI Arms Transfers Database 2016), the IDF became reliant on French-
made weapons, mainly fighter aircraft and light tanks. This reliance on foreign suppliers,
which in turn was predicated on the shifting interests of the Western powers in the Middle
East, was a source of concern among Israel’s leaders. Proposals to embark on self-­development
and the manufacture of jet fighters, warships and main combat tanks were made in the
mid-1960s by the Ministry of Defense. The IDF, however, preferred to rely on the purchase
of ready-made major weapons rather than wait for indigenous products without proven
performance. (For the internal debate within the Israel’s defence establishment on the pros
and cons of the armaments independence, see Greenberg 2002, pp. 175–194.)
The IDF’s attitude was dealt a crushing blow on the eve of the 1967 Six-Days War. At a
time when the IDF and the nation were striving to win what Israelis perceived to be a war
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for national survival, French President Charles De Gaulle proclaimed an arms embargo on
Israel, completely severing Israel’s access to advanced armaments. The ensuing shock com-
pelled Israel’s leadership to re-evaluate its former course and formulate a policy of “munitions
independence,” i.e. self-sufficiency in major weapon systems. This ushered in the next era in
the history of Israel’s defence industries.

The era of munitions independence: 1967–1987

The shock of the French Embargo of 1967 revived the Ministry of Defense’s (MOD) aspiration
for self-sufficiency in main weapon platforms; it also softened the IDF’s preference for ready-
made weapons from abroad. Israel, during this period, embarked on the indigenous design
and manufacturing of combat aircraft, main battle tanks and warships.
Israel’s navy was in the middle of re-equipping itself with an all missile fleet based on
French-made patrol boats still in construction at the time of the embargo. The boats were
smuggled out of Cherbourg shipyards and inducted into Israel’s Navy under the class name
Saar-3 (Rabinovich 1988) The balance of the planned fleet of Saar 3 boats was manufactured
in the Israel Shipyards, a government-owned company established in 1955 as a naval MRO
similar in concept to Bedek Aviation (Company History at a Glance 2016.). Like Bedek, Israel
Shipyards quickly expanded into other related lines of business. Once it was tasked to build
the Saar-3 boats, it matured into a ship design facility, providing the Israeli Navy with larger
and more advanced boats of the Saar-4 and Saar- 4.5 classes, as well as small fast patrol boats
of the “Zivit” class that were also supplied to foreign customers.
The land battles of the 1967 and 1973 wars were fought with refurbished and upgraded
US and British tanks. Israel pinned its hope for a modern main battle tank (MBT) on the UK
with whose armed forces it cooperated in designing the “Chieftain” MBT. The UK, however,
refused to sell the jointly designed tank because of the strong protest from its Arab weapon
buyers. As a result, Israel designed and manufactured its own MBT, the “Merkava” (“Chariot”)
which first rolled out in 1974 and entered the service of the Israel Army in 1979 (A Brief
History of the Merkava Tank 2006.) Whilst this tank’s main subassemblies are manufactured
by dozens of Israeli contractors, it is distinguished by being assembled by the IDF’s own tank
shops – an anomalous situation which drew criticism from Israel’s Government Comptroller.4
Repeated efforts to transfer the “Merkava” production line to one of the existing defence
industries failed to date, due to the institutional objections of the IDF. Even so, the basic
 232  U. RUBIN

Merkava design evolved in time to the current Merkava Mk. 4, considered by some experts
to be the best MBT of its generation.
It was in the air, though, where the policy of munitions independence was given its
severest test and where it suffered a major reversal. As described above, IAI was already
producing light jet aircraft and advancing the design of turbo prop transports well before
the 1967 French arms embargo. At the time of that embargo, Israel had on order from
France about 50 ground attack versions of the Mirage fighter, the Mirage 5. With the French
embargo in place, however, Israel decided to manufacture those fighters in IAI. Either with
the mute cooperation of the French aircraft manufacturer or by covert means (or by both)
Israel managed to acquire the detailed plans of the aircraft which was duly manufactured
locally on a specially built production line. The Israeli made Mirage 5’s, named the “Nesher”
(“Eagle”) by the IAF, acquitted themselves well in the war of 1973 and were later exported
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to several overseas customers, most notably to Argentina where they fought against the
RAF in the Falkland War (Huertas and Briasco 1987, p. 29). With a maturing cadre of expe-
rienced aircraft engineers and a fighter aircraft production line in place, IAI now proceeded
to its next objective: a major upgrading of the basic French design of the Mirage 3, but
with more powerful US made engine and significantly improved aerodynamics. This neces-
sitated a major redesign of structures and systems resulting in what was in effect a new,
indigenous combat aircraft. The new fighter dubbed “Kfir” (“Young Lion”) closed an acute
gap in Israel’s fighter fleet. The avenue to advanced French fighters was now blocked by
the French Government’s embargo, and the new generation of US fighter aircraft was not
yet available for sale to Israel. The “Kfir” with its superior performance to the Mirage filled
this gap in Israel’s inventory. It was accepted by the IAF and entered its service in 1975.
“Kfir” like its predecessor the “Nesher” proved its mettle in the air battles of the era, and
achieved some success in the international arms market. “Kfir” fighters are currently still in
service with several air forces in the world and are being used by the US Navy for air combat
training.
Buoyed by the success of the “Kfir” the IAI proceeded to its next fighter project, the “Lavi”
(“Lion”). By the end of the 1970s Israel was already receiving the excellent US – made F16
fighter aircraft, but the Israeli munitions independence policy was still in force, and the IDF
was still smarting from the 1967 embargo. Originally, the “Lavi” was planned as a light attack
aircraft to complement the F16, but soon the specifications were changed and the “Lavi”
design became even more ambitious than the US fighter. This caused concern in the US
administration, which did not appreciate a competitor in the fighter aircraft market.
Accordingly, the American administration did its best to undermine the “Lavi” by tempting
Israel’s leadership with offers for the local production of the F16 and financial assistance in
modernizing Israel’s navy (with US-made corvettes and German-made submarines) whilst
at the same time refusing to underwrite the cost of the “Lavi”programme. The “Lavi” made
its first flight in 1986, but by August 1987 Israel’s government, bowing to strong US pressure,
decided to abandon the programme (Zakheim 1996).5 By doing so, Israel’s arms industry
bowed out of the fighter aircraft business and the policy of munitions independence was
largely abandoned (Although the “Merkava” MBT programme was continued.) This caused
a crisis in IAI which had to shed about 30% of its work force and its local suppliers. Israel
Shipyards too went into a decline which eventually led to its sale and privatization.
 DEFENCE STUDIES  233

The current era – 1987 to the present

The termination of the “Lavi” programme was strongly supported by the then Minister of
Defense, Yitzhak Rabin. Rabin objected not only to the “Lavi” programme, but to the entire
policy of munitions independence. Whilst being on the whole very supportive of Israel’s
defence industry, Rabin rejected the notion of self-reliance in major platforms. He correctly
saw that the advertised self-reliance was illusory: All three major programmes of the muni-
tions independence doctrine – the fighter aircraft, the tank and the missile boats – were
critically dependent on the supply of US or European engines and other key components,
and thus susceptible to future arms embargoes. Instead, Rabin formulated a policy of
“focused self- reliance” which tasked the Israel defence industries to develop only such “force
multiplier” systems that are uniquely tailored for the IDF and thus do not yet exist elsewhere,
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or such systems that are denied to Israel due to political impediments. As for major weapon
platforms, Rabin preferred to purchase them from abroad, mainly from the US. (Why he
allowed the “Merkava” MBT programme to proceed remains a mystery. Perhaps he was reluc-
tant to quarrel with General Israel Tal, the father of the “Merkava”). Otherwise he saw the
defence industries as business ventures, promoting their privatization and encouraging
them to generate export revenues.6
And indeed, Israel’s defence industries found their hands full with providing the IDF with
weapons tailored to its unique requirements. The heavy losses of Israeli combat aircraft in
1973 by Soviet-made ground-based air defences (GBAD) forced it to seek innovative tech-
nologies and tactics to defeat these defences. The solution combined UAV’s with air-launched
Precision Guided Munitions (PGM). Both families of weapons hardly existed at the time.
Air-to-Ground PGMs were first used in the Vietnam War and were still cumbersome and very
expensive at the time. UAV’s simply didn’t exist. To satisfy the IDF’s requirements, Rafael
developed a series of free-fall and rocket propelled air-launched PGMs which later also
became lucrative export items. Indigenous UAV systems were developed by IAI (and subse-
quently by a new defence contractor, Elbit Systems (on which more later). The combination
of real-time reconnaissance from UAV’s and pinpoint precision attacks by airborne stand-off
weapons was first employed during the 1982 Lebanon war with spectacular results, elimi-
nating Syria’s GBAD systems with no losses to the Israel Air Force. This success enshrined
UAV’s into the IAF’s order of battle creating a whole new industry and generating large export
revenues.7
We have already mentioned Elbit Systems as the recent addition to the roster of the Israel’s
defence industries. The company originated from a partnership between the Ministry of
Defense and a private contractor in 1966. Later on the company was fully privatized and
expanded its product line to include high tech medical systems. In 1996, the parent company
was divided into two separate companies, one dealing with civilian technologies and the
other – Elbit Systems– specializing in defence products. Through the selective purchase of
smaller defence contractors, Elbit System’s portfolio includes today (among other items)
UAV’s, airborne avionics systems, automotive systems and light artillery. Its UAV’s, like those
of IAI, are serving today in many foreign air forces worldwide. Its innovative computerized
Pilot Helmet is being used in the latest US combat aircraft, the F 35 Lightening II.8
Denied access to foreign intelligence data and facing a growing threat to its airborne
reconnaissance capabilities, Israel developed a modest but capable space surveillance capa-
bility of its own, orbiting its first IAI made satellite by an IAI made Launch Vehicle in 1988.
 234  U. RUBIN

Currently Israel is periodically replenishing its small constellation of Low Earth Orbit optical
and radar reconnaissance satellites (see Eilam 2011, pp. 219–237.)
Since the 1973 Yom Kippur War, Israel has faced a threat from rockets and missiles. This
threat grew more acute in the 1980s due to the large increase in WMD missile arsenals in Syria
and Iraq. During the 1990s, Iran added to this threat by fielding long range Shahab missiles
specifically designed to hit Israel. In response, Israel teamed up with the US in developing
several types of missile defence systems, initially against long-range missiles from Iran and
Syria, and later against shorter range rockets from Lebanon and Gaza (see Rubin 2001). Both
IAI and RAFAEL participate in this ongoing effort, with the latter focusing on the defence against
the shorter range threats. RAFAEL’s latest product, the Iron Dome rocket defence system, gained
world renown due to its remarkable success against rocket attacks from Gaza in 2012 and 2014.
Israel’s missile defence programmes are in aggregate the largest defence industrial programme
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since the “Lavi.” They are currently ongoing at a rapid rate of development and production.
A corollary to missile defence is point defence of high value targets such as armoured
fighting vehicles against anti-tank weapons. The losses to Israel’s armour in the 2006 Lebanon
War prompted the industrial development of active defence technology for vehicles. Rivalry
between RAFAEL and Israel Military Industries (IMI) resulted in the design and production
of two different systems: RAFAEL’s “Trophy” and IMI’s “Iron Fist.”“Trophy” performed satisfac-
torily in Gaza and is now installed in a growing proportion of Israel’s armour. According to
media reports, “Iron Fist” is to be installed in the next generation of Israel’s armoured per-
sonnel carriers (APV).
As in much of Israel’s history, the exigencies of the battlefield have dictated the direction
of its defence industrial progression. Some of the expertise needed for missile defence was
gained by Israel’s defence industries in the field of ship defence. Whilst Israel pioneered the
field of anti-ship missiles, it was also the first country to lose a warship to an anti-ship missile
when the Israeli destroyer “Eilat” was sunk by the Soviet-made “Styx” missiles in 1967. This
compelled Israel to develop a ship defence missile system, the “Barak 1” which is designed
to destroy sea skimming anti-ship missiles. The “Barak 1” is currently in service in the Israeli
Navy as well as in several foreign navies.
Another significant specialization in the Israel defence industry is the conversion and
upgrading of combat and commercial platforms. This was originally driven by Israel’s inability
to acquire first class weapons due to political constraints. To overcome this, Israel’s nascent
defence industries converted and modernized obsolete aircraft and armoured vehicles. The
experience gained by such conversion and modernization projects served as a springboard
for contemporary upgrade programmes both for local use by the IDF and for the export
markets. Some disclosed examples are the current generation of the Israel Air Force airborne
early warning systems based on commercial Gulfstream G550 business jets (ELW-2085 –
CAEW 2017), refuelling jets based on Boeing airliners (Katz 2011), the A-50Ehl airborne early
warning system, based on Ilyushin 76 military transports, sold to India as well as moderni-
zation kits for the US made M 60 tanks sold to Turkey (SIPRI Arms Transfers Database 2016).
Joining forces with foreign partners for the development of defence products needed by
their respective armed forces is an important business practice of Israel’s defence industries.
The programmes are specified to satisfy the operational requirements of both partners, are
jointly funded and the workload is shared between the engineering and production teams
of both countries. The best example of such a joint programme is the Barak 8 ship defence
system, developed by India and Israel. The Barak 8 has recently completed its acceptance
 DEFENCE STUDIES  235

test and is now being supplied to both the Israel and Indian Navies (Note: Barak 8 is an
entirely new system, unrelated to Barak 1, except by name) (see India Israels Barak 8 SAM
Development Project(s) 2016)
Terror is a weapon that has been used against Israel’s population almost constantly since
its establishment in 1948. It has prompted significant homeland security measures and
anti-terrorist R&D programmes not only in the core Israeli defence industries but also in
numerous start-ups that have been established by former IDF members. As a result, a broad
spectrum of innovative technologies and products has been supplied to Israel’s police and
Special Forces, as well as to friendly nations.

The present: Israel defence business at a glance

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At the time of writing, the major product lines of Israel’s defence industries include, among
others (Corporate Overview 2016, Homepage – IAI 2016, Homepage – IMI 2016, Homepage
– Rafael 2016)

• Land Warfare: Main Battle Tanks, armoured personnel carriers, vehicle passive and active
defence systems, mobile artillery and mortar systems, infantry weapons (assault rifles
and squad LMG), minefield clearance systems, ammunition of all relevant calibres, pin-
point precision surface-launched short-range missiles (both ballistic and non-line-of-
sight [NLOS]).
• Surface to air weapons: Ground- and ship-based missile defence systems, ground- and
ship-based air defence systems.
• Air Warfare: Air-to-air missiles (both IR and radar), air-to-ground precision-guided muni-
tions, ground-launched GBAD suppression systems.
• Naval Warfare: fast patrol boats, unmanned sea vehicles, ship protections systems
against ant-ship missiles.
• ISR (Intelligence surveillance and reconnaissance): Air surveillance systems (Medium
Altitude Long Endurance [MALE] UAV’s and modified executive jets), space based sur-
veillance systems (satellites and space launch vehicles [SLV’s], and ground-based radar
surveillance systems.
• Homeland security: anti-terrorist close-quarter surveillance and combat systems.

Table 1 provides a summary of Israel’s defence industries’ sales in 2014. Table 2 lists the
total value of new export contracts signed each year since 2010.
The Israel Ministry of Defense registry of defence contractors lists approximately 1000
defence contractors, of which 680 have export licences. It is estimated that the total number
of employees in defence-related businesses is about 150,000 (Sadeh 2014)

US military aid and its effects

Israel has been a recipient of sizable US military aid since the conclusion of the Peace Accord
with Egypt in 1979. This aid is given mainly as funds usable only in the US for the purchase
of US made weapons and military supplies,9 and does not provide for technology coopera-
tion or transfers. All sales to Israel are governed by US legislation, particularly the Defence
Export Act, which includes controls and restrictions on US weapons transfers to foreign
governments.
 236  U. RUBIN

Table 1. Israel’s defence industry sales in 2014.

Company No. of employees Sales (Deliveries, $bn)
IAI 16,500 3.83
RAFAEL 6000 1.96
ELBIT SYSTEMS 10,000 2.96
IMI 3500 0.44
Total 36,000 9.19
Notes: This comprises the four main system houses, but excludes smaller defence contractors and high tech start-ups that
sell their own products locally and abroad, with an estimated business volume of about 0.3–0.5 B$ and a total of 500–
1000 employees. The total number of employees in the four main system houses constitutes about 1% of Israel’s work
force, but generates about 3% of the GDP and about 11% of the export earnings. (Bank of Israel – Data & Statistics 2017)
https://www.boi.org.il/en/DataAndStatistics/Pages/Default.aspx
Sources: Elbit Systems Reports Fourth Quarter and Full Year 2014 Results (2015), IAI Publishes its Financial Statements for
2014 (2015), Rafael Finished 2014 with Record Orders Totalling $3b (2015) and Management Presentation – IMI Company
Overview (2016.).
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Table 2. Total value of new export contracts signed since 2010.

Year Sales (New Contracts, $bn)
2010 5.7
2011 5.6
2012 6.5
2013 7.3
2014 5.6
2015 5.7
Notes: It is estimated that this represent about 70–80% of the total volume of new orders Israel ranks between the 5th and
7th largest arms exporters worldwide.
Sources: Ben-David (2013) and Cohen (2015).

On the whole, the US military aid tends to constrict Israel’s military industries, since it
offers the Israel Defense Forces competitive armaments at no cost to the defence budget.
The demise of the Lavi programme was a case in point where the US-made F-16 fighters had
been preferred to an in indigenous one on a cost basis. Another adverse side effect (from
the Israeli industry’s perspective) is the migration of some industrial capacity to the US in
order to draw on US aid. Thus, subsidiaries of Israel’s major arm makers are manufacturing
Israeli designed systems and components in the US allowing the Israeli military to buy them
with US aid dollars.
There have been a few important exceptions, the most notable one in the field of missile
defence where the US – out of regional security considerations – provided Israel with con-
vertible funds that could be used to partially finance its own indigenous programmes (the
rest of the financing has been coming from Israel’s own defence budget).

Ownership and structure10

As noted above, all major defence industries in Israel started as government ventures, and
(except in the case of Elbit), started their existence as departments in the Israel Ministry of
Defense (IMOD). Economic and management realities compelled the MOD to divest itself
of them, since the capability of any regulatory bureaucracy to run industrial enterprises
efficiently and profitably are generally severely limited. However, this divestment process
took some time and was done piecemeal.
 DEFENCE STUDIES  237

The most straightforward divestment case was that of IAI. IAI originated from a US aircraft
overhaul business owned by Al Shwimmer, an American entrepreneur who helped supply
the newborn Israel Air Force with transport aircraft during the 1948 war. Schwimmer trans-
planted his US business to Israel under the name of Bedek (Hebrew for “Overhaul”) Aviation.
With his American business background, Schwimmer lost no time in separating his business
from its original bureaucratic affiliation with the Israeli Government and incorporated it as
a wholly government-owned LLC, complete with a board of directors and corporate man-
agement (in which Schwimmer served as the CEO for 24 years). IAI is still a government-owned
LLC today.
The divestment of two other organizations – IMI and Rafael – has been more convoluted
and is still not completed. IMI is the successor entity to the pre-state clandestine armament
industry. In the early 1950s, the disparate underground workshops were consolidated into
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a unified industrial entity that operated as a government arsenal. In 1990, IMI was trans-
formed into a government-owned LLC. The transformation exacerbated the financial prob-
lems of the new company and was accompanied by massive layoffs. In 2005, the Government
of Israel (GOI) decided to privatize IMI, a process which encountered significant difficulties
and which has not yet been completed. To prepare it for sale, IMI has been split into two
separate entities of which one – the core rocket division – will remain fully govern-
ment-owned, and the other which comprises all the rest of the company will be sold to
private investors. It is currently expected that the privatized segment of IMI will be purchased
by Elbit Systems.
Rafael originated from the Scientific Corps, organized in 1948 as part of the Israel Defense
Forces and staffed with civilian scientists. In effect, it was an Army arsenal. In 1952, the arsenal
was transferred to the control of the MOD and became its R&D division. A further change
occurred in 1958 when the organization was separated from the MOD to become the Weapon
Development Authority (Hebrew acronym RAFAEL). The growth in business volume and
sophistication required a further reorganization into a fully government-owned LLC in 2002.
The lessons from the less than successful reorganization of IMI were implemented, and in
the case of Rafael Ltd (the name was retained) the transition from authority to company was
successful, allowing the company to expand and enhance its portfolio with cutting edge
systems and technologies.
We have already described above the origins of Elbit System, a privately owned company
which has grown to become the second largest defence contractor in Israel. From its humble
origins as a small contractor it grew into what is in Israeli terms a giant corporation by
­judicious selections of its core business, expanding into new areas in military technologies
and through a series of acquisitions of smaller defence contractors – among them Silver
Wings (UAVs), El Op (military electro optical systems), SOLTAM (artillery), Elisra (military
­electronics) and Tadiran Systems (command and control). Its shares are traded in the Tel Aviv
and New York stock markets and it is currently the most profitable Israeli defence
contractor.
Israel’s defence export handbook lists more than 200 contractors, but most defence
exports come from a small number of them. Still, several of the smaller contractors have
grown into nearly first rank exporters. For example, Plasan Ltd, a Kibbutz-owned company
specializing in vehicle armour, had sold nearly $2B worth of armoured vehicles to the US
Army. Another example is Aeronautics Defense Systems Ltd, a company specializing in UAVs,
which has reached an annual sales volume of more than a hundred million dollars.
 238  U. RUBIN

Human resources
Whilst the history of Israel defence industry has had its ups and downs as described above,
the companies that compose it are today both a mainstay of Israel’s defence and a major
source of export revenues. On the whole, this industry is vigorous and profitable. Becoming
one of the world’s leading defence exporters is a remarkable achievement for the industry
of one of the smallest countries in the world. Few would argue that the historical evolution
of Israel’s defence industries is a success story.
This success comes first and foremost from the quality and culture of its human resources.
Israel has compulsive military service, where the more technically oriented services are
breeding grounds for technologically sophisticated young people who are the driving force
behind Israel’s high tech industry. Israel’s defence industries, focused as they are on advanced
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technologies, are essentially part of this high-tech industrial complex, which benefits from
this outflow of talent from the armed forces (Becker 2014) The second important factor
determining this success is cultural: Israelis in general tend to be contentions, individualistic,
disobedient yet resourceful. This results in a culture of “creative chaos” which is conducive
to innovative, out of the box thinking both in business and in technology (Mitzner 2015)

Government legislation and defence export controls11

Israel defence exports are regulated by the Israel Defense Export Act (IDEA), December 2007.
The IDEA endows the Israel Ministry of Defense full power to control defence export licencing,
in consultation with the Israel Ministry of Foreign Affairs. To that effect, the MOD established
the Defense Export Control Agency (DECA), whose head is authorized, together with the
IMOD director general, to issue or deny specific licences. DECA’s stated objectives are first,
to realize the policy and advance the interests of the State of Israel in preventing proliferation
of defence technologies, information and goods, and second, to offer the defence exporter
efficient licensing and training services.
The two tier licensing process involves first, a licence to negotiate and second, a licence
to sell. The DECA is authorized to fine transgressors by up to 1 million Israeli Shekels (about
$260,000) for a single transgression, with no recourse for appeal.
Since 1992, Israel has adhered to the Missile Technology Control Regime. It joined the
Wassenaar Arrangement in 2005. Whilst licensing the export of dual use items for defence
purposes is the responsibility of the MOD, licencing dual use items that are destined for
non-defence purposes is the responsibility of Israel’s Ministry of Commerce and Industry.
Israel’s defence export policy is coordinated with the US, and in general, it refrains from
exporting defence items to countries which are proscribed by the US. Defence export to
China is subject to US consent by a specific 2005 agreement (Kumaraswamy 2006.) Since
then there have been no reports of any Israel defence exports to China.
As a rule, detailed information on specific defence export deals remain classified and is
rarely disclosed. Legislative oversight is exercised by the Defense and Foreign Relations
Committee of the Knesset (Parliament) behind closed doors. This secrecy is mandated by
Israel’s complex relations with many defence customers, and by their need to keep their
military relations with Israel in low profile. Israel however publishes generic information on
the volume of its defence exports, and provides general breakdown into customers’ conti-
nents. Often some partial information is released, such as the identity of the exporter and
 DEFENCE STUDIES  239

the value of the transaction. A few select export deals are made more fully public, apparently
from political consideration. Such as, for example, is the partnership with India in developing
the Barak 8 ship defence system as well as some of the programmes mentioned above.

Future trends
Given Israel’s political-military history, it stands to reason that it’s defence industries will shift
further away from major weapon platforms, focusing more on battlefield robotics and pre-
cision guided munitions in the future. These are widely considered to be “force multipliers”
in land, sea, air and anti-terror warfare – the demand for which will increase both interna-
tionally and domestically.
From a business perspective, both the government as well as the major defence industries,
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mainly IAI and Rafael, are striving for privatization and perhaps more consolidation. This
however seems a difficult if not impossible prospect, at least in the foreseeable future, on
two counts. First, the highly unionized work force is adverse to privatization with its dimin-
ished job security and almost inevitable loss of jobs. Second, the large size of these compa-
nies now might make them unaffordable to local buyers. Selling them to outside investors,
however, is highly problematic due to Israel’s vital national security considerations. It is more
likely that both IAI and Rafael will continue to be fully owned by the government at least for
the next decade or two.

Notes
1. The origins and early history of Israel’s defence industry is taken from Evron (1980).
2. For a brief history of Elta Systems see “Jobs at Elta Systsems: IAI,” n.d. https://ww.dialog.co.il/
tools/hitech-companies-in-Israel/working-for-elta; For a brief description of the current
structure of the company see,”Elta,” Wikipedia, https://en.wikipedia.org/wiki/Elta.
3. For a detailed history of Rafael, see Munia Mardor “Rafael – in the tracks of R&D for Israel’s
security” Israel Ministry of Defence Publishing House, 1981 (in Hebrew).
4. Producing the tank at the IDF shops was criticized as overly expensive. It was also argued that
it makes the tank less attractive as an export item due to its military provenance (Egozi 2003)
https://www.ynet.co.il/articles/0,7340,L-2829919,00.html.
5. Zakheim’s book tells the story of US pressure to cancel the Lavi.
6. Rabin’s view on the role of Israel’s defence industries as described here is based on Rabin’s
statements during various meetings attended by the present author during the late 1980s,
and on the present author’s interview with Brig. General (Res.) Hagai Regev, Rabin’s ADC (aide-
de-camp) from 1984 to 1989. Also see Inbar (1999, pp. 111–112).
7. The destruction of the Syrian GBAD system (Operation Mole Cricket 19) took place in 9 June
1982, see Uri Milstein (2016).
8.  For a concise and fairly accurate history of Elbit Systems, see “Elbit Systems” in Wikipedia,
https://en.wikipedia.org/wiki/Elbit_Systems.
9. Israel has had the ability to convert 26.3% of annual Foreign Military Financing grants from
dollars to shekels for defence production and purchases in Israel. However, according to the
terms of the 2019–2028 Memorandum of Understanding (MOU) between Israel and the US,
(signed September 14, 2016) Israel’s ability to spend FMF funds on military equipment produced
in Israel will gradually be phased out between FY2024 and FY2018 (Sharp 2016, p. 6).
10. For later history of Israel's defence industry as well as many useful insights about its evolution
see Lifshitz (2011).
11. Information concerning Israel Defence Export Act and DECA is from the DECA website (About
DECA 2016) https://www.exportctrl.mod.gov.il/ExportCtrl/ENGLISH/About+DECA/.
 240  U. RUBIN

Disclosure statement
No potential conflict of interest was reported by the author.

Notes on contributor
Uzi Rubin founded and was the first Director of the Israel Missile Defense Organization in the Israel
Ministry of Defense (MOD). Between 1999 and 2001, he was the senior director for Proliferation and
Technology in the Israel National Security Council. Uzi Rubin retired from Israel’s MOD at the end of 2002
and since then has been heading his own defence consultancy firm, Rubincon Ltd. providing consulting
services in military technology to the Israel Ministry of Defense and Israel’s leading defence contractors.
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Suggested further reading

For further reading about the history and politics of Israel’s defence industrial development, see:
Hoyt, T.D., 2006. Military industry and regional defence policy: India, Iraq, and Israel. New York: Routledge.
Katz, Y. and Bohbot, A., 2017. The weapon wizards: how Israel became a high-tech military superpower.
New York: St. Martin’s Press.
Klieman, A.S. and Pedatzur, R., and 1992. Rearming Israel: defense procurement through the, 1990s.
Jerusalem: Jerusalem Post Westview.
Peres, S., 1971. David’s sling. New York: Random House.
Reiser, S., 1989. The Israeli arms industry: foreign policy, arms transfers, and military doctrine of a small
state. 1st ed. New York: Holmes & Meier Pub.

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