Last year set a record for the volume of Israel’s military and security exports, which surged by 30 percent over the prior year, according to the Defense Ministry’s International Defense Cooperation Directorate. Israeli defense industries reported new contracts worth a cumulative $11.3 billion in 2021 – up from $8.6 billion in 2020.
This year is not yet over, but it appears to be on track to chalk up particularly high sales volumes and a long list of enormous defense deals – and that’s even though the Defense Ministry’s Exports Control Agency has only approved a relatively low number of transactions compared to prior years, according to data obtained by Haaretz. Through September, the agency reported approving just under 4,000 sales contracts – compared to 6,000 in 2020 and 5,400 last year.
There were two main reasons for the sales volume uptick: the Abraham Accords, which paved the way for new diplomatic relations with countries in the Arab world a little over two years ago, and the war in Ukraine. The normalization agreements that Israel signed with the United Arab Emirates, Bahrain and Morocco have massively boosted exports to countries in the region, and last year, which, as noted, was a record one for military exports, already saw Persian Gulf countries account for roughly 7 percent of such sales.
In recent months, it has been disclosed that Israel has sold advanced Barak and Spyder air defense systems to the UAE, which is threatened by Iranian drones and missiles. And this year Morocco also signed a contract of its own for Barak interceptor systems.
The growing threat from Iranian drones, including on the battlefields of Ukraine, and the wide-scale aerial attacks by Russia there have have also highlighted the successes of Israeli air defense systems in dealing with similar threats, and boosted the European interest in purchasing those systems. Currently a huge deal to sell Arrow 3 interceptor missiles to Germany is on the table.
“There’s an understanding today that the air defense issue is very central – and it’s comprised of a number of layers – defense against missiles and airplanes as well as against [large and small] drones,” Boaz Levy, the CEO of Israel Aerospace Industries, told Haaretz. “If at one time Israel was being attacked by missiles and the world looked on from the sidelines, today there are more countries that suddenly understand in greater depth what it is to be under a missile attack.”
Speaking with Haaretz over the weekend, as IAI released their quarterly financial reports, Levy said "it's been a really good year for IAI... We've seen increased sales, totalling $3.6 billion for the first 9 months, which means we'll total almost $5 billion for 2022. That's a fantastic achievement".
“The field of air defense will continue to be one of greater importance in light of the changes in threats from the air around the world,” said Dr. Liran Antebi, a senior researcher at the Institute for National Security Studies at Tel Aviv University, “in part because of the growing expansion of simple, cheap and available means such as suicide drones and small drones, alongside the classic threats.”
Iran manufactures attack drones in large quantities, and they can be launched in barrages from Iraq and Yemen at targets in the Gulf – at oil facilities, airports and ships. They are very cheap, about $20,000 per unit, and they can cause considerable damage. That could be seen at Aramco facilities in Saudi Arabia and in the enormous damage that the Russians have inflicted in Ukraine since they began using Iranian drones there in October.
On Wednesday of this week, another drone attack was reported off the coast of Oman against an oil tanker that is partially owned by Israeli businessman Idan Ofer. In an attack in August 2021 in the Gulf of Oman against the oil tanker Mercer Street, two crew members were killed.
“The Abraham Accords have a lot of potential. Countries in our region have begun cooperating with Israel, and it’s a win-win situation for all sides,” Levy of Israel Aerospace said in a telephone conversation from Bahrain. “This is the first time that we have officially come here to the aviation fair in Bahrain – with an Israeli pavilion, under the Israeli flag, under the banner of Israel Aerospace Industries.”
A few months ago, Defense Minister Benny Gantz revealed that in the two years since the Abraham Accords, Israel has signed defense export agreements worth $3 billion with countries in the region, an enormous jump for a market that had been considerably off-limits to Israel. Last month, satellite photos revealed that the UAE has deployed a Barak missile battery to defend against Iranian ballistic missiles, cruise missiles and drones. Nevertheless, in the absence of an official announcement by Israel or by the UAE or IAI, it’s still not yet clear which version of the Barak system or how many batteries are involved. The monetary value of the sale also remains unknown.
Another deal that was revealed this year was the sale to the Emirates of a Spyder air defense system by Rafael Advanced Defense Systems. The Spyder system is capable of intercepting airplanes, helicopters, cruise missiles and drones within a range of up to 100 kilometers (62 miles). The Spyder’s design relies on a vehicle-launched system equipped with Python air-to-air missiles that lock onto their targets using radar and Derby radar-seeking missile. In this case too, additional details of the deal have yet to be revealed, including the precise system model, the number of batteries involved and the deal’s price tag. But for comparison purposes, when the Czech Republic bought four Spyder batteries last year, the sale was worth $630 million.
In February, a short time after Gantz visited the Moroccan capital, Rabat, IAI reported that it would supply a Barak MX air defense system to the Moroccans that is a combination of a number of Barak missile models – in a transaction worth about $600 million.
Another huge transaction took on much greater urgency due to the Russian invasion of Ukraine. Germany, followed by 13 other NATO members along with Finland, which is not a NATO member, joined the European Sky Shield initiative, which aims to create a joint aerial defense cover. As part of the Sky Shield initiative, Germany has made the decision to equip itself with the Arrow 3 system. It was initially reported that the sale would be valued at $2 billion, but after the other countries joined in, the anticipated price tag is around $3 billion.
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If the deal is signed, it would not only be the deal of the year, but the Israeli defense sector’s largest export contract ever. The signing still requires approval by the United States, which has the right to veto any such transaction because the Pentagon provided funding for the development and procurement of the system.
It doesn’t appear that the Biden administration plans on standing in the way. But according to Kan Reshet Bet public radio, the Americans are demanding that at least half of the interceptor missiles sold be manufactured at American facilities.
The Arrow 3, which provides Israel with its highest altitude aerial defense, was developed as a response to the threat posed by long-range ballistic missiles, with the aim of intercepting them outside the atmosphere.
Another flourishing defense export branch in recent years has been drones. “Drones, with all their various accompaniments such as armaments, are still one of the main segments of Israel’s defense exports,” Antebi noted.
That’s despite growing competition from countries such as Turkey and China that have entered the market in the past decade. Elbit Systems announced this week that it has signed an agreement to supply Hermes 900 model drones (known as Kochav in the Israel Air Force) to an “international customer” for $70 million. The drones can spend over 30 hours in the air.
This particular model will be used to gather visual and electronic intelligence. The Hermes 900 is also capable of carrying armaments inside the hold of the aircraft and to carry bombs or missiles such as Rafael’s Spike missile on its wings. Until July of this year, Israel’s military censor had banned any mention of the use that Israel has made for several decades of armed drones.
In September, Elbit announced that it had signed another agreement worth $120 million to sell the Hermes 900 to the Thai navy – for intelligence, coastal surveillance and search and rescue missions.
IAI has also signed a huge drone export deal this year, the Calcalist business newspaper reported in September. The identity of the foreign country was not revealed, nor was the drone model to be supplied – but the value of the transaction was reportedly around $600 million.
Another major sale by IAI concerned spy planes. In July, the Israeli aerospace firm announced that it had signed a contract worth $230 million “to supply special mission airplanes to a European country that is a member of NATO.” It declined to identify the customer or to disclose what was included in the package. A Haaretz investigation revealed, however, that it involved the sale of two Nachshon early warning aircraft to the Italian air force.
The sale complements the previous sale of two intelligence-gathering planes in the prior decade and the sale in 2020 of two spy planes and logistics for a ground intelligence station for the intelligence plane system, as well as maintenance. That deal was worth $350 million.
Another aerial intelligence system contract was signed this year between Elbit and an unnamed country in Asia worth $215 million. The company did not provide further information about the type of system, but it could be Air Keeper – an integrated system that can be installed on planes and helicopters and which combines capabilities to gather signal intelligence, radar and cellular information – and electronic warfare capability for jamming enemy systems.
Another matter that has been prominent in battlefield reporting in Ukraine is the importance of precision-guided weapons, mainly due to relative shortages that the Russian military has been facing. This field has also generated a number of major sales this year for Israel’s defense industries.
In June, Elbit Systems announced a $220 million deal to supply Lizard targeting systems to an unnamed Asian country. Lizard is Elbit’s answer to systems such as the American JDAM, which turns unguided bombs into precision-guided “smart” munitions by adding fins and homing systems. In the first generations of the system, the homing was based on laser guidance, but now GPS and inertial navigation systems, which use motion sensors, can be added to the package.
The war in Ukraine has dramatically altered the sentiment in the German parliament regarding the arming of drones that the German army has leased from IAI. In 2016, Germany signed a deal worth about $1 billion for five Heron-TP (Eitan) drones. The Heron-TP is about as large as a manned fighter plane and is capable of carrying very heavy cameras and intelligence sensors.
Since the Israel Defense Forces put them into service, the drones have provided surveillance and intelligence gathering capabilities over a large area – on a strategic level and at distances of hundreds of kilometers from Israel’s borders, and even over countries such as Iran.
After a period of years during which the German Bundestag blocked the arming of the drones leased from Israel, this year approval was given for a transaction worth about $170 million to arm the drones with missiles manufactured by Israel’s Rafael Advanced Defense Systems. It’s not clear which missiles are involved, but they might be the Spike NLOS model, which according to Rafael is compatible with the Heron-TP and capable of hitting targets from a distance of 50 kilometers.
Intelligence and network systems
In July of this year, Elbit reported that it entered an agreement worth $660 million to supply intelligence systems to a European country. The deal will be spread out over four years, in addition to 10 years of maintenance services. No information was provided regarding the nature of the systems or the identity of the customer.
A month earlier, Elbit reported that it has another contract valued at $500 million to supply communication and control infrastructure to an Asian country. It includes providing a number of integrated communications systems among various military branches, as well as aerial command and control applications.
In what appears to be the deal of the year in the maritime sector, a Elbit’s Sparton subsidiary, which is based in De Leon Springs, Florida, won a deal to supply submarine-detecting sonar buoys to the U.S. Navy. The deal is worth about $5 billion, but it will be split among Sparton and two other American companies with which it won the bid: Undersea Sensor Systems and Lockheed Martin.
Pictures from Ukraine of long convoys of Russian tanks with their turrets blown off have proven the importance of defensive systems for the umpteenth time. In July, the Pentagon issued a $280 million contract to General Dynamics to equip America’s new main battle tank with Rafael’s Trophy systems, which provide an active defense by intercepting anti-tank missiles.
Another lesson learned from the war in Ukraine is the need to modernize tank systems, such as advanced systems that, among other things, can permit tanks to hit targets at night and under difficult lighting conditions. And in August, Elbit announced a contract to upgrade tank electronic systems for an “international customer,” worth some $240 million.
Blue and white, and all the colors of the rainbow
In addition to all this, it’s apparent that many of the largest deals require close relations with companies based in foreign countries. For example, in India – which has declared a “Make in India” policy to bring manufacturing back to the country – Elbit and IAI have signed a number of cooperation agreements with the Indian companies Hindustan Aeronautics and Bharat Electronics to locally produce technology, drones and defenses against drones. And in March, Elbit won a contract for $130 million to build a production line for artillery ammunition in an unnamed Asian country.
In 2018, Elbit and the Indian Adani Group (which is one of the purchasers of the Haifa port) built a drone manufacturing facility in India, and this year Adani began deploying defense systems against drones at 10 airports that it manages. The systems were produced by a firm called Adani Elbit Advanced Systems India.
This year in Europe, Rafael established a company – EuroTrophy – to help it market its Trophy system designed to provide a defense against anti-tank weapons. In September, the Israeli company acquired the British firm Pearson Engineering, which is involved in Britain’s next main battle tank project, the Challenger 3, among other things.
This year was a difficult one for the Israeli cyber-arms industry. Last year it was responsible for just 4 percent of total defense exports, but until recently, the sector was considered a strategic asset for Israel. A long list of troubles relating to abuse of spyware and the Biden administration’s decision to place two Israeli firms, the NSO Group and Candiru, on its black list have transformed the industry into a burden in the defense establishment’s view.
Industry officials have claimed that in response to American anger, Israel’s Defense Ministry has turned its back on the industry and pared back the list of countries where they are allowed to sell offensive cyber tools, making it very difficult for new sales agreements to be signed.
As a result, a number of small and medium-sized offensive cybertechnology firms have shut down, and NSO has laid off a large number of employees. The beneficiaries of the contraction of the Israeli offensive cybertechnology sector are their competitors from Europe and China, as well as Israeli-owned companies, such as Tal Dilian’s Intellexa – which has circumvented the Defense Ministry’s oversight by operating out of Cyprus and Greece.