In Tense Times, Israeli Arms Biz Booms
In an era of geopolitical tensions, worldwide defense budgets last year reached a staggering new threshold of $1.1 trillion—nearly half of that from the U.S. Lining up for its share of the business is Israel, the world’s fourth-largest arms supplier after the U.S, Russia, and France. Military exports from the small Mideast nation rose 20% last year, to $4.2 billion, and Israeli arms suppliers signed a record $5 billion in new contracts in 2006.
Israel’s defense industry is benefiting from demand for its unmanned aerial vehicles (UAVs) and sophisticated electronic warfare equipment of the sort used in the ongoing Palestinian conflict and during last summer’s war in Lebanon. “We’re looking for defense exports to grow by a 20% annual clip at least through 2010,” predicts Joshua Yeres, defense analyst at Giza Singer Even, an investment and consulting firm in Ramat Gan, near Tel Aviv. India Overtakes U.S. as Top Customer
The arms industry gets about two-thirds of its business abroad, with sales to the Israel Defense Forces (IDF) accounting for the remainder. Some 90% of all export sales are accounted for by just four giants: publicly traded Elbit Systems (http://www.businessweek.com/ticker/) and three state-owned companies, http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?capId=1828859 (IAI), http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?capId=3649661, and http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?capId=3160848 (IMI).
The government doesn’t reveal sales by country, but other sources suggest some intriguing trends. For decades, Israel’s top arms customer was the U.S. But earlier this year, the Indian government released figures showing that in 2006 it bought $1.5 billion in weapons from Israel. That made New Delhi Israel’s largest customer for the year, ahead of the No. 2 U.S.
Among the deals: In November India is scheduled to take delivery of the first of three AWACS-type aerial reconnaissance planes, called Phalcons, that it ordered from IAI in a $1.1 billion deal. India has also purchased a Barak antimissile defense system, UAVs, and Israel’s Green Pine missile-detection and tracking radar. Backing Off on Chinese Deals
Other major buyers of Israeli weapons and arms include Turkey, Singapore, Spain, Romania, and Poland. But sales to China, once a major customer, have been a source of tension between Jerusalem and Washington. In 2000 Israel was forced to cancel a lucrative sale of Airborne Warning and Control System (AWACS) planes because of Pentagon objections and had to pay $350 million in damages to Beijing for terminating the deal.
More recently, Israel reshuffled senior Defense Ministry officials and agreed to tighten arms export regulations after the Pentagon complained about maintenance work on UAVs that Israel sold the Chinese a decade earlier. Sales to China have now resumed, though at lower levels than in the past. Precise figures aren’t available.
Demand elsewhere has more than offset the decline of the Chinese market. “We’re witnessing an unprecedented rise in demand for advanced military electronics, and Israel is a recognized leader in this field,” says http://investing.businessweek.com/businessweek/research/stocks/people/person.asp?personId=645741&symbol=ESLT, chief executive officer of Elbit, the country’s largest private sector defense company. That has paid off handsomely for Elbit. In 2005 the company won a landmark 700 million ($1.4 billion) joint-venture deal with http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?capId=23479 to supply Britain with its Hermes UAV.
