Strategic Assessment

The current financial troubles of Israel Military Industries (IMI) and the record arms sales to India turned the spotlight once again on Israel's biggest industrial sector, the defense industry. The past decade brought many changes to the domestic defense companies, including mergers and sweeping adjustments to work and management practices. Their improved output and state-of-the-art capabilities helped place Israel among the top five arms exporters. The Israeli government, preoccupied with other burning issues, has displayed a hands-off approach and steered away from attempts to intervene in the direction and structure of the industry, which includes the three state-owned companies of Israel Aircraft Industries (IAI), IMI, and Rafael. A seemingly benign posture, it fails to take note of far-reaching changes in industrial defense policies, both in Western Europe and the US. Furthermore, deep cuts in the defense budget for 2005 suggest that the industries will have to find alternative revenue streams, as new orders from the Israel Defense Forces (IDF) are likely to fall sharply in coming years.