JISS - The Jerusalem Institute for Strategic Studies

The growth of Israel’s defense industries is a story of success inseparable from the history of the State of Israel and the entire Zionist project. Israel’s defense industries are a source of national pride – and rightfully so.


This is the fifth article in a special series of studies by JISS experts to mark Israel’s 70th anniversary. The series examines Israel’s diplomatic and defense achievements in grand strategic perspective.

 

Introduction

Israel’s defense industries, originating from underground workshops in the pre-state era, are today mainstays of Israel’s defense. Indeed, they are one of the main growth engines in Israel’s burgeoning economy and a source of billions of dollars in export revenues. Essentially they are one sector in Israel’s world renowned high tech industry, employing tens of thousands of skilled workers, including the top echelon of university graduates in a multitude of disciplines. Israel’s defense products are held in high regard worldwide, with “Iron Dome”, one of the more innovative creations, becoming a household word in the global media. In contrast to the low quality and poor reliability of Israeli-made defense products in the early years of its history, the label “Made in Israel” is nowadays a guarantee of superior technology and high quality.

The growth of Israel’s defense industries is a story of success inseparable from the history of the State of Israel and the entire Zionist project. Israel’s defense industries are a source of national pride – and rightfully so.

Of course, the defense industries have seen ups and downs along the way. Their history can be divided into four distinct eras:

  1. The pre-state era: The clandestine workshops of the Jewish community in British-mandated Palestine.
  2. The consolidation era: From the establishment of Israel in 1948 to the 1967 Six Day War.
  3. The self-sufficiency era: From the Six Day War to the termination of the “Lavi” indigenous fighter aircraft program in 1987.
  4. The present era: From 1987 until today.

This is a spellbinding story where need, the father of all inventions, was met by inventors who rose the challenge and made the impossible possible – and beyond. The telling of the full story would require many volumes. This article offers an abbreviated history, with apologies to any person or entity who has been regretfully omitted for the sake of brevity.

 

 

The Pre-State Era (1933-1948)

The increased tempo of Jewish immigration to Palestine following the Balfour Declaration of 1917 met by growing resistance of the local Arab population (The term “Palestinians” denoted at the time all residents of British Palestine, both Jews and  Arabs). Violent demonstrations against the Balfour Declaration and the Jewish immigration caused loss of Jewish lives and significant material damage. The Haganah self-defense organization was established to protect the Jewish community. It was initially equipped with light arms purchased locally or smuggled from abroad. The growing scale of the violence led Haganah to expand its ranks and enlarge its arms stockpiles. In 1933, Haganah established its first clandestine workshops that supplied it with explosives and hand grenades. The workshop system expanded rapidly to produce submachine guns, light mortars and ammunition.

An armed insurrection against the British Mandate administration broke out once WWII was over. It became clear to Jewish community authorities that once the British would leave, an armed intervention by the neighboring Arab states would be inevitable. In preparation to the looming war, the Haganah workshops were further expanded to produce mines, medium-range mortars and even rudimentary naval torpedoes. The political strife within the Jewish community between right- and left-wing parties – a bitter strife not free of violence – caused a split in the Haganah. In the late 1930’s some Haganah members established a competing organization named “The National Military Organization” (Hebrew acronym IZL, commonly pronounced “Etzel”). The Etzel suffered from a further split when some of its members established even a more radical organization, named “Israel Freedom Fighters” (Hebrew acronym LChI, commonly pronounced “Lechi”). Both organizations duly set up arms production plants of their own, which in time reached almost the same level of sophistication as the Haganah’s original plants. The Etzel production network was headed by the industrialist Moshe Rubin (the father of the author of this article) who organized a network of machine shops in southern Tel Aviv to produce copies of the British “Sten” submachine gun and “Miles” hand grenade. Once the State of Israel was established in May 1948, many of the Etzel and Lechi arms production plants were merged with the Haganah arms industry, while others were shut down.

The products of the pre-state arms industry were used in Jewish-Arab conflicts within British-mandated Palestine and subsequently they equipped the newly established Israel Defense Forces (IDF) with weapon for repelling the invading Arab armies during the 1948 War of Independence. The end of that war in 1949 marked the close of the pre-state era in the history of Israel’s defense industries.

The Consolidation Era (1948-1967)

The immediate challenge for the newly established State of Israel was nation-building, specifically the integration and absorption of the incoming flood of Jewish refugees from Europe and the Middle East. This required urgent solutions for housing and jobs. The Israeli governments of the time were largely socialist with statist economic policies, and they responded to the challenge with a state-financed industrialization program that optimized job creation rather than profitability. As part of this policy, the arms production plants inherited from the pre-state era were consolidated into a centralized organization named “Israel Military Industries” (IMI). This new entity was set up as a department within the Ministry of Defense (MoD). While configured more for job creation than for profitability, IMI rapidly expanded its portfolio and soon evolved from copy production to design and manufacturing of original defense products. The first of IMI’s indigenous products eventually became world renowned. This was the Uzi submachine gun that quickly became an export hit and was used by armed forces in numerous countries as well as by global security organizations. Limited production continues today of advanced derivatives of the Uzi.

The Jewish community in the US provided Israel with vital assistance in funds and arms during the 1948 War of Independence. One of the prominent persons who contributed to Israel’s defense at the time was Al Schwimmer, a flight mechanic by education. Schwimmer organized the smuggling into Israel of WW II vintage transport aircraft and bombers. Back from his Israeli adventures, Schwimmer established an aircraft overhaul workshop in Florida. David Ben-Gurion, Israel’s founder and first Prime Minister, dreamed among other things of establishing an aviation industry in the newly created country. To this end, he enticed Schwimmer to move his workshop to Israel. The Israel-based enterprise was established adjacent to what later became Ben-Gurion International Airport and was renamed “Bedek”, specializing in  maintenance, repair and overhaul (MRO) of civil and military aircraft, thereby creating jobs for the surrounding immigrants communities. Bedek Aviation was successful on both counts. It mastered the business of aircraft MRO while at the same time providing gainful employment to thousands of men and women from the nearby immigrant towns. Like IMI, Bedek under Schwimmer aspired to move forward from aircraft services to aircraft production. To this end, he obtained a license from a French aircraft manufacturer to produce a light military jet trainer, the Fouga Magister. The first aircraft from the Israeli production line (renamed “Tsukit”) was delivered to the Israel Air Force in 1960. The Tsukit served in the IAF for almost 50 years, mainly as a trainer but also as a light ground attack aircraft during the 1967 Six Day War. The last “Tsukit” was retired from IAF service in 2010.

Bedek Aviation operated initially as a government department, but in 1963 it was re-organized as a government-owned, limited liability company (LLC) and renamed “Israel Aircraft Industries” (IAI, now Israel Aerospace Industries). While wholly owned by the government, IAI operated from the start as a business, with profitability as its main goal. Its founder Al Schwimmer became its first CEO. The new company promptly embarked upon its first indigenous aircraft program, the Arava twin engine light transport, which flew for the first time in 1969. Arava was acquired and operated by the Israel Air Force and achieved a modest export success, serving in several foreign air forces until the mid-1980s.

Schwimmer’s vision was to transform IAI into a full-scale aerospace systems company, designing and manufacturing its own brands of aerospace related systems. An early step in this direction was the consolidation of the disparate electrical and electronics overhaul workshops in IAI into a new subsidiary named “IAI Electronics” (Hebrew acronym “Elta”) tasked to develop, produce and sell its own aerospace related electronic systems. This too was done with an eye for job creation. The new division was re located from its original premises at Ben-Gurion airport to the newly established town of Ashdod – which was at the time not much more than a village populated by newly-arrived immigrants. This venture turned out to be one of IAI’s most profitable business moves. In time, Elta became a world leader in military and civilian radar systems, both ground-based and airborne. It products, which include the Green Pine early warning and fire control radar for Israel’s Arrow anti-missile defense systems, are globally renowned and widely exported.

When the IDF was created in 1948 it established a technological unit called “The Scientific Corps.” In 1958 the Corps was disbanded and its personnel transferred to a new MoD department named “The Weapons Development Authority” (known today by its Hebrew acronym, Rafael). The new organization was tasked to develop missiles, at the time considered as cutting edge technology distinct from the more conservative technologies of manned aircraft. One of Rafael’s first designs was a short range cruise missile called “Luz”, which eventually morphed into one of the world’s first sea-skimming anti-ship missiles, known as the “Gabriel.” Israel’s first-generation missile boats acquired from France were equipped with this missile, and they played a decisive role in defeating Egypt’s and Syria’s navies during the sea battles of the 1973 Yom Kippur war, thereby winning naval superiority in the eastern Mediterranean and securing Israel’s sea lanes during that war.

Rafael was restructured in 2002 as a government-owned LLC and renamed “Rafael Advanced Weapon Systems Ltd.” Over the years, Rafael supplied the Israel Air Force with world-class air-to-air missiles. In 2007 it embarked on its now world-famous “Iron Dome” short range missile defense system, whose performance has mesmerized global audiences. Today, Iron Dome is what the Uzi once was – a byword for Israel’s technological prowess.

While Israel’s defense industries were maturing, the IDF persisted in acquiring its major weapons systems – combat aircraft, tanks and artillery systems – from abroad, experiencing daunting obstacles along the way due to the fierce opposition of Arab states to arms sales to the Jewish state. The first generation of Israel’s fighter aircraft, hailing as it was from eastern Block countries, were quickly replaced by surplus British and American WWII-era machines often bought from junk yards. Likewise, Israel’s armored corps had to be satisfied with refurbishment of junked British tanks while Israel’s navy used rebuilt illegal immigrants ships and surplus torpedo boats purchased from European navies. This situation changed following the 1960 Waldorf Astoria meeting between Ben-Gurion and West Germany’s first Prime Minister Conrad Adenauer. Germany agreed to provide Israel with more modern American-made tanks as well as with German designed and produced submarines and torpedo boats. At the same time, France – with the silent blessing of the US – agreed to become the main supplier of modern arms to Israel, providing Israel with access to the best products of the French arms industries, including the latest models of fighter jets and transport aircraft. The flow of modern armaments from France and Germany helped Israel to keep up its defensive capabilities in spite of the growing arms race against the hostile Arab states, mainly Egypt and Syria, triggered in 1955 by a giant arms deal between Egypt and the Soviet Union, the latter eventually becoming an eager supplier of modern arms to numerous hostile states in the region.

Israel’s growing reliance on imported weapons caused some concern among its leadership. Already in the early 1960s some senior officials in the MoD promoted the idea of establishing indigenous capability of developing  and manufacturing modern combat aircraft, tanks and warships to reduce this reliance. The IDF turned down these ideas on account of the long time that would be required to achieve self sufficiency at a time when the quickening tempo of the arms race required frequent modernization of major weapon arsenals at short notice.

The policy of reliance on imports suffered a major reverse at the eve of the 1967 Six Day War. While mobilizing for what was seen by Israelis as a war for survival, France’s than President Charles de Gaulle slapped an arms embargo on Israel, thereby severing the IDF’s supply lines of sorely needed arms. The shock from this embargo initiated a process of reassessment. After victory was achieved – not the least on account of the modern German and French armaments supplied before the war – Israel’s defense establishment adapted a new policy of “Munitions Independence” that called for self-reliance in providing the IDF with modern, first line weapon systems in all three dimensions of warfare – land, sea and air. The new policy ushered in the next phase in the history of Israel’s defense industries.

The “Munitions Independence” Era

The French arms embargo on the eve of the Six Day War shocked the IDF into rethinking its traditional policy of exclusive reliance on imported munitions. Consequently new policy was promulgated according to which Israel henceforth produce its own major weapon systems. The first success of the new policy was achieved in the realm of naval warfare, a success that was in itself a direct result from the French arms embargo. During the Six Day War, the entire Israel’s navy surface fleet consisted of a few WWII vintage British escort destroyers. The Navy was desperately seeking more capable warships to counter the steadily growing threat from the rapidly  modernizing navies of Egypt and Syria that were being equipped with modern Soviet destroyers, missile boats and submarines. West Germany’s promise to provide Israel with modern torpedo boats came to naught due to political pressure from the Arab League. To compensate for abrogating an already existing contract between Israel’s MoD and German shipyards, the West German government agreed to finance the construction of similar vessels in the French naval shipyards of Cherbourg. The Israeli Navy saw this as an opportunity to catapult itself into modernity, using West German financing for transiting from the age of guns to the age of guided missiles. The design of what was originally planned to be torpedo boats was upgraded into that of ultra-modern (for the time) missile boats, the missiles themselves being designed and manufactured in IAI. Guidance of those missiles was to be provided by the first generation of Israeli designed naval radars produced by Elta. Israel’s Navy planned to buy a flotilla of 12 boats but the French embargo threatened to cut the shipments of the finished vessels. By a mix of enticements and diplomacy, the production of the first batch of six missile boats did not stop, the finished boats being smuggled out of France by a fictitious sale to a Norwegian oil company. The rest of the flotilla was manufactured in Israel itself by the newly established Israel shipyards in Haifa. This was the flotilla of “Gabriel” armed missile boats that won sea control in the 1973 Yom Kippur war, as related above.

The next success of the munitions independence policy was in the realm of land warfare, and it too was a consequence of an arms embargo, this time from Britain. The decades preceding the Six Day War saw fruitful cooperation develop between the IDF and the British Army. The IDF was interested in a modern replacement to its rapidly aging, British made “Centurion” main battle tanks (MBT), themselves purchased from Britain’s junk yards and refurbished by Israel’s tank workshops. The British Army’s Armored Corps was engaged at the time in the development of a modern MBT, named “Chieftain” and was anxious to incorporate the lessons from the tank battles during Israel’s 1956 Sinai campaign into the new design. The understanding between the two armies was that in return for sharing its hard won battle experience, Israel will be allowed to purchase the new British tank. Nevertheless, once the development phase was over, the UK government banned its sale to Israel, thereby blocking the IDF’s only source of modern  tanks. In response, Major General Yisrael Tal, Israel’s leading tank general, initiated a development program of an indigenous MBT. The new tank, called “Merkava” (“Chariot”) was first unveiled in 1974 and became operational in 1979. Its latest version, the Merkava Mark 4, forms today the backbone of Israel’s armored divisions and is considered to be one of the best main battle tanks in the world.

Yet it was in the realm of air warfare that the munitions independence policy met its most intractable challenge that eventually brought the demise of the policy itself. As mentioned above, IAI which at inception was merely and MRO workshop, evolved quite early into a fully-fledged aircraft producer, initially of licensed-produced foreign designs and later of its own designs. The debut of its engineering teams was the development of an indigenously-designed “Arava” light short take-off-and-landing transporter. Subsequently they enhanced their capability by designing a modern executive jet, the “Westwind 1124” which was successfully marketed abroad.  In parallel, IAI’s engineers gained experience in upgrading military jets. Israel’s ground attack jet of the time, the French “Super Mystere B2” was significantly limited by its relatively underpowered and unreliable jet engine. IAI’s engineers replaced it with a more powerful and reliable US made jet engine that provided a significant performance enhancement. Buoyed by this success, IAI engineers embarked on a more ambitious project: the replacement of the French jet engine in the top Israeli fighter aircraft of the time, the “Mirage 3” with the powerful, American made jet engine of the top US fighter of the time, the “Phantom”. The performance of the resulting hybrid aircraft proved vastly superior to the original French one. This encouraged IAI to launch a full scale program of developing a local version of the Mirage 3 fighter powered by the “Phantom” engine. The major redesigns required produced what was in fact a new, Israeli made fighter aircraft that was given the name “Kfir”. The new fighter was fully manufactured in Israel, including its jet engine and its advanced, Elta-made avionics systems. It was introduced into IAF service in 1974 as a very effective stopgap between the previous generations of French fighters and the new generations of US first line combat aircraft eventually supplied to Israel. The “Kfir” formed the backbone of Israel’s air power at the time and was exported to several foreign air forces, where some are still operational at the time of writing. In 2017, for example, Colombia’s fleet of “Kfir” fighters was upgraded by IAI to the level of Europe’s contemporary fighters. The upgraded “Kfirs” are slated to remain in service of that country for many more years.

At the time of De Gaulle’s imposed embargo on arms shipment to Israel, an  order for a batch of “Mirage 5” fighters was already placed with their manufacturer, Avions Marcel D’assault. The embargo forbade the supply of the those aircraft from France to Israel. As compensation, both D’assault and its jet engine supplier agreed to license Israel for producing the aircraft in IAI. To this end, IAI enlarged its aircraft production plants and established a production line for the French designed but Israeli made fighters, which was dubbed “Nesher” by the IAF. The 61 “Nesher” fighters the rolled of Israel’s production line, together with the pre embargo “Mirage 3” fighters bore the brunt of the 1973 Yom Kippur war, decisively defeating the air forces of Egypt and Syria. After being replaced by more modern jets, the “Nesher” fighters saw successful service in foreign air forces. In all, IAI produced more than 270 modern fighter aircraft – a significant achievement, but unfortunately a forgotten one.

The accumulating gains of the munitions independence policy catalyzed its most ambitious enterprise, the “Lavi” indigenous fighter aircraft program.  With the completion of the “Kfir” project, IAI embarked upon the design of its next combat aircraft. The original specifications were modest enough: A small ground attack jet tasked to complement the fleet of American supplied air superiority fighters. With time, the design became more ambitious, and the IAF changed its specification to a larger multi role fighter on par with the most advanced fighter aircraft of the time. This increased the projected costs of the development and production program to nearly unsustainable level, which in turn raised concerns within the IDF high command about possible budgetary impacts on the acquisitions of other weapon systems. The program funding came from the US financial support to Israel’s military acquisitions. At that time, the US Department of Defense (DoD) was concerned about looming competition from non US aerospace industries in the international fighter aircraft market, including the potential competition from the Israel. To reduce this risk, the DoD strived to suppress the potential competition, including that of the “Lavi”. Since the “Lavi” allocations were mandated by the Congress which was strongly pro Israeli, the DoD elected not to oppose it but rather to convince the Government of Israel (GoI) to abandon the project. Dov Zakheim, a senior DoD official was tasked to do the convincing. Zakheim, a capable analyst and negotiator, presented the GoI with cost projections for the “Lavi” series production that predicted the un-sustainability of the project by Israel’s economy. At that time – the early 1980’s – Israel’s economy suffered a deep crisis, entailing low growth, galloping inflation and a banking crisis. Reforming the economy required steep budget cuts, mainly in Defense. Thus, Zakheim’s alarming cost projections were received by the IDF and the GoI with deep concern. At the time, most of the “Lavi” development was completed, and the first prototype made its maiden flight in late 1986. Still, the GoI decided in summer 1987 to cancel the entire project.

The cancellation of the “Lavi” practically terminated the policy of munitions independence. While the “Merkava” indigenous tank program was not cancelled (perhaps because then-Minister of Defense Yitzhak Rabin was wary of altercations with its proponent, General Tal), but in the realm of naval warfare Israel returned to its former policy of foreign acquisition, resulting in the decline of Israel Shipyard which was eventually sold off. IAI also suffered from a severe loss of business and had to lay off almost one third of its work force, generating a crisis among its own suppliers. The demise of the munitions independence policy signaled the end of Israel’s defense industries reliance on the internal arms market. Their future now lay in exporting their products to the international defense markets. This required structural changes both in Government and industries. IMI was suffering at that time from declining sales due to the stiff competition from foreign ammunition manufacturers as well as the lack of sophisticated defense products that could win new business. The crisis that followed from termination of the munitions independence policy forced the GoI to end its status as a government department and re institute it as a government owned company on the same lines as IAI, shedding in the process almost one half of its work force. The structural change did not go smoothly, and IMI continued to suffer from recurring financial crisis. This in turn compelled the GoI to downscale IMI even further and to sell the remains to the private sector, another protracted and crisis ridden process which seems to be on the verge of completion at the time of writing. The MoD too had to adapt to the new situation by beefing up and consolidating its export supporting departments. In time, the resultant growth in defense export precipitated a clash with the US Government over policies and oversight. This resulted in new Israeli legislation – the Defense Export Act – and the establishment of the Defense Export Control Agency within the MoD, to license and police the defense export business.

The Present Era (1987-today)

Yitzhak Rabin objections to the “Lavi” were not specific to that particular program, but to the entire policy of munitions independence. Rabin saw it as self deception, since developing a major weapons system in Israel did not actually diminish the reliance on foreign acquisition. All three kinds of major weapons produced and manufactured within Israel – whether ships, tanks or aircraft – required the acquisition of raw materials, components and major subsystems such as diesel and jet engines from abroad. Embargoing their supply would be as effective as embargoing the finished products. Rabin was very supportive of the defense industries, but not as competitors to freely available first line weapons systems of foreign sources, but rather as suppliers of special purpose systems to the IDF. Accordingly, Rabin terminated the munitions independence policy, replacing it with what can be characterized as “targeted” independence policy. The new policy called for acquisition from abroad of whatever could be acquired from abroad, while at the same time tasking Israel’s defense industries to provide the IDF whatever could not be acquired from abroad due to political constraints or because the unavailability of such items because they don’t yet exist. This new policy (somewhat jokingly called “The Boutique Policy” by one of the top officials of the MoD) proved out to be very effective, and catapulted Israel’s defense industries into the front ranks of the international arms producers, while transforming them at the same time into engines of the country’s economic growth.

One of the best examples of the effectiveness of this new policy was the IAF’s success in suppressing the powerful Soviet air defense systems supplied to Egypt and Syria, systems that caused heavy losses of aircraft and aircrew during the October 1973 Yom Kippur war. Previous to that war, during the protracted attrition campaigns along the Suez Canal and the Jordan Valley, Israel’s Military Intelligence Command experienced severe limitation on its humint supplied tactical intelligence. One of its officers, who happened to be a model airplane enthusiast, improvised a rudimentary low-observables, airborne reconnaissance system from an amateur kit of a radio-controlled model airplane and a commercial camera. The success of this improvisation led to the development of the first Israeli UAV (and in fact the first UAV of its kind in the world), the “Mastiff”. The development was led by Tadiran, a company that specialized hitherto in commercial electrical products. Concurrently, the deployment of a range of modern, Soviet-made air defense systems by Egypt and Syria compelled the IAF too to seek unmanned reconnaissance aircraft. It purchased American jet drones (of the types used in Vietnam), but they proved expensive and not too satisfactory in the Middle Eastern environment. At the same time, IAI who had initially spurned the idea of “toy aircraft” woke up to the market potential of affordable UAV’s and developed one of its own, the “Scout” system that featured more advanced capabilities than the “Mastiff.” Needless to say, no comparable system was available at the time anywhere in the world. On a separate tack, Rafael perfected a series of air-launched Precision Guided Munitions (PGM) with pinpoint accuracy. This combination of remote sensing by UAV and stand-off striking by PGM proved the key for “cracking” Soviet air defenses. On the third day of the 1982 Lebanon War, the IAF launched its long and meticulously prepared Operation “Cricket Mole 19” which wiped out the entire Syrian air defense array with no losses to Israel. This impressive success (still studied in military academies around the world) had a commercial dimension, as it raised worldwide awareness of Israel’s weapon systems and generated a booming export business that in turn generated profits to Israel’s defense industries and income to Israel’s treasury.

The growing defense market and the burgeoning business opportunities created another industrial defense giant in Israel. Elbit was originally established in the 1960’s as a partnership between the MoD and a private entrepreneur. Some years later the MoD walked out of the partnership, and the now fully privatized firm turned to the medical equipment market. Fast growth compelled the firm to split up into two separate companies, one that continued to specialize in commercial high tech products, and the other – renamed Elbit Systems – specialized in military products. Enjoying the flexibility of a private firm, Elbit expanded rapidly by a policy of merger and acquisition of numerous smaller independent defense contractors. Today Elbit develops and produces advanced UAV’s, electronic warfare systems, vehicular systems and light artillery. Elbit’s UAVs fly in numerous armed forces around the world. Its flagship product is the sophisticated gun sight helmet exclusively used worldwide in all US-made F-35 fifth generation combat aircraft. At present, Elbit is concluding its acquisition of IMI. This will add precision ground to ground missiles to its existing portfolio of military products.

The need for visual intelligence from deep within the hostile countries, as well as the growing risk to deep penetration sorties using manned reconnaissance aircraft, compelled Israel to establish its own military space program. Israel’s first indigenous satellite was orbited in 1988 from the Palmachim coastal test range by an IAIdeveloped and -produced Satellite Launch Vehicle. Israel’s space program is modest in its size but quite advanced technologically. Today, Israel maintains a small constellation of reconnaissance satellites carrying both optical and radar sensors. Its images sometimes cause a stir in the world’s media. The latest example was in 2015, when the first news of Russian deployment in Syria came from overhead images by an Israeli satellite.

Missiles and rockets became viable threats as early as the 1960’s, when the than ruler of Egypt, Gamal Abdul Nasser, invited German rocket scientists to develop ballistic missiles in Egypt with sufficient range to cover the entire territory of Israel. The year 1968 saw the first rocket attack by Palestinian armed factions on Israeli border villages along the Jordanian and Lebanese frontiers. During the 1991Gulf War, Tel Aviv was attacked by about 40 ballistic missiles from Iraq. Later on, during the 1990’s, the newly established Islamic Republic of Iran embarked upon the development of ballistic missiles with sufficient range to hit any point in Israel. In response, Israel and the US joined forces to develop missile and rocket defense systems tailored for Israel’s specific needs. IAI specializes in defense systems against the longer range missiles, while Rafael focused on defense against shorter range missiles and rockets. Rafael’s rocket defense system “Iron Dome” achieved world fame thanks to its spectacular success in protecting Israel’s major cities against rocket attacks during the 2014 Gaza War (Operation Protective Edge). “Iron Dome” is perceived today like the “Uzi” in its time – an expression of Israel’s ingenuity in the speedy implementation of innovative, sophisticated responses to security challenges.

The heavy tank losses during the 2006 Lebanon War compelled Israel’s defense industries to pioneer the perfection of active defense against anti-tank weapons. Rafael’s “Windbreaker” vehicle protection system, installed on the Merkava Mark 4 tanks of the Israeli armored corps practically gave them immunity during operation Protective Edge. IMI’s comparable “Iron Fist” system has been adapted by the armored forces of several foreign armies.

Israel was the first country ever to lose a warship to an anti-ship missile, when the Israeli Navy destroyer “Eilat” was sunk by a Soviet made “Styx” missile in October 1967. The need for anti-missile missiles for ship protection had been foreseen even prior to that event. Nevertheless, the loss of INS Eilat accelerated  the development of one of the world’s first  active ship defense system, the “Barak 1” which today protects  Israel’s navy vessels as well as the warships of several other navies. One of Israel’s strategies to enhance defense exports is through joint programs. Rafael’s next ship defense system is a good example of this strategy. The new system, dubbed “Barak 8” which is slated to replace the “Barak 1” has been jointly developed with India. The system’s specifications reflect the operational needs of both navies. The Barak 8 has been recently declared operational, and it is presently in the stage of being installed on Israel’s and India’s naval vessels.

Terror has been a constant threat in Israel ever since its birth in 1948. It is also a threat shared by many other countries. The defense industries are responding to this challenge on an ongoing basis by providing imaginative and sophisticated solutions that are highly sought-after in the homeland defense market. In all, Israel’s defense industries are currently supplying the IDF with cutting edge, world level military equipment that includes MBTs, armored troop carriers, advanced UAVs, air to air missiles, ground to ground precision missiles, patrol boats, naval defense systems, reconnaissance satellites and more.

When first established 70 years ago, Israel’s defense industries were a financial liability to the national economy. Today, in contrast, they are financially profitable. In 2016, every single company (including the still-ailing IMI) posted after-tax profits. Their aggregate sales for that year reached $9 billion, growing to $11.5 billion in 2017, of which three-quarters stemmed from exports. This demonstrates the robust contribution of the defense industries to the national economy. Moreover, their singular contribution to Israel’s security is coming at a minimal cost to the taxpayer, requiring no diversion of funds from other economical and social goals.

Future Prospects

In view of the remarkable success of Rabin’s “targeted” munitions independence policy, it is reasonable to expect that Israel’s defense industries will continue to avoid investments in acquirable major weapons systems and continue its “boutique”-style specializations, responding to the rapidly changing requirements of future wars. It stands to reason that they will focus on  unmanned and remotely operated force multipliers in the air, on the sea, below the sea, on land and below it as well as on anti-terror and homeland defense innovations. The rapidly-accelerating pace of battlefield robotization will call for more autonomous fighting systems in all six domains of future war. Israel’s defense industries, constituting in essence one sector of Israel’s high tech industry, are well placed to satisfy such future needs. With the exponential growth of and reliance on digital technology, Saber is now a worldwide threat which already being responded to by Israel’s high tech industry including its defense sector. The sale of Israeli Saber products – both commercial and military – is currently growing at an accelerated pace.

The immediate business challenge that Israel’s defense industries are facing comes from the new defense aid agreement concluded during President Obama’s tenure. While in all previous agreements Israel was allowed to convert a portion of defense aid dollars to Israeli currency for buying from Israeli suppliers, the new agreement stipulate cession of all such conversions in five years time, after which all the defense aid dollars must be spent in the US. This will entail a serious loss of business, and the defense industries are developing strategies how to deal with the new situation, partly by acquiring US manufacturers to ensure continued sales of their Israeli-designed products.

From business perspective, the future of Israel’s defense industries lies in privatization. This would permit the currently government-owned industries the same business flexibility enjoyed today by the lone privately-owned defense giant, Elbit Systems. Privatization of government enterprises in the Western world tend to be politically contentious, due to ensuing loss of jobs and the stubborn resistance of powerful labor unions. Still, it is difficult to see how Israel’s defense industries could maintain a competitive edge in the future defense markets without privatization, painful as this might be. The protracted and rocky process of IMI’s privatization serves as a good example of both the problems of privatization, as well as its promise.

 


photo: Tal Inbar [Attribution], via Wikimedia Commons

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