For Israeli arms makers, Gaza war is a cash cow
Factories worked around the clock turning out munitions as the army tested their newest systems against a real enemy. Now, they are expecting their battle-tested products will win them new customers.
Far from the fighting in the Gaza Strip and the rocket attacks that have pummeled Israel from south to the Sharon, some 300 employees of Israel Military Industries in Nazareth haven’t left their assembly lines for a minute in the past four weeks. They have been working in shifts, 24 hours a day, to ensure a regular supply of 5.56 mm bullets to Israel Defense Forces soldiers. Others have been hard at work turning out highly sophisticated Kalanit and Hatzav tank shells for the Artillery Corps. The shells, which are fired above the heads of militants armed with anti-tank weapons, exploding in midair above them and releasing shrapnel, were both used on a massive scale for the first time in Operation Protective Edge.
For some years now the state-owned IMI has had an image problem, in part due to it enormous debts and management’s cozy ties with the union locals and the political establishment. Next to the two other big government-owned defense companies, Rafael Advanced Defense Systems and Israel Aerospace Industries, until recently IMI looked decided dowdy, low-tech and crony-ridden. Three months ago the state signed a recovery accord with IMI, which offered a generous severance package of 1.3 million shekels ($370,000) to any employee who took voluntary early retirement. Early next year the government plans to hold a tender to privatize the company, and by early 2016 IMI should be in private hands.
Image aside, for several years IMI has very quietly been developing more sophisticated products than bullets, rifles or hand grenades. For example, its new, super-smart MPR-500 multipurpose rigid bomb, which is designed to penetrate reinforced concrete structures and other difficult targets, was first used operationally in Protective Edge. Today, back orders for the bomb total 5.6 billion shekels.
IMI has built the foundations for a more successful business, and in a market where violence erupts every few years a new round of violence erupts, a dependable customer with the IDF and a classroom to test its equipment.
“IMI cooperates with the IDF and the defense establishment in adapting quick solutions for changing needs,” says UMI chairman Maj. Gen. (res.) Udi Adam. “The defense industry is in a perpetual learning mode together with the IDF and the Defense Ministry to examine the weapons systems that were introduced for initial operational use in Operation Protective Edge, as well as weapons systems that have been in operational use for a long time.”
One unit of IMI has already been privatized. Israel Weapon Industries, which makes the Tavor assault rifle that is used today by most of the infantry, is owned by Samy Katsav and is considered one of the world’s six leading light-weapons manufactures. The SK Group comprises several companies that supply the IDF.
Israel Shipyards, for example, makes missile boats and the Shaldag patrol boat for the Israeli military, while Meprolight manufactures sights for sniper rifles and night-vision equipment. As is the case for all companies in the group, Meprolight’s most important customer is the IDF, even if 90% of the company’s sales are to foreign countries,.
“After every campaign of the kind that is now taking place in Gaza, we see an increase in the number of customers from abroad,” says Meprolight CEO Eli Gold, adding, “Of course, we marketing abroad aggressively, but IDF operations definitely affect marketing activity.”
Protective Edge’s marketing edge
“Battle-tested” is the best marketing slogan for defense industries the world over, so for Israeli military manufactures Operation Protective Edge has yielded a major competitive edge.
“For the defense industries this campaign is like drinking a very strong energy drink — it simply gives them tremendous forward momentum,” says Barbara Opall-Rome, Israel bureau chief for the U.S. magazine Defense News. “Combat is like the highest seal of approval when it comes to the international markets. What has proven itself in battle is much easier to sell. Immediately after the operation, and perhaps even during, all kinds of delegations arrive here from countries that appreciate Israel’s technological capabilities and are interested in testing the new products.”
That was also the opinion of veteran military correspondent Amir Rapaport, editor of Israel Defense, which covers the local defense industry. “From a business point of view, the operation was an outstanding thing for the defense industries,” he says. “There are two main reasons for that. First, the cloud of budget cuts and project cancellations has been lifted. I believe that after the operation, Israel’s defense budget will be increased and projects that were frozen will be revived. Second, during the weeks of the war, new products were introduced for the army’s use. The war is an opportunity to cut red tape. Weapons systems that have long been under development suddenly became operational during the course of the fighting.
Operation Protective Edge saw many weapons systems and other technology that had been under development since the time of the Second Lebanon War in 2006 enter the field of battle, for instance a unique communications system designed to link air, sea and ground forces to the same infrastructure. “It’s very difficult to defeat an enemy like Hamas, which is a guerrilla organization, but in terms of technology the victory is quite clear,” says Rapaport.
“The operation has a potential to promote defense exports, mainly systems that have proven themselves,” says Maj. Gen. (res.) Danny Yatom, who now deals in defense equipment and other business. “The industry will also benefits as the [Israeli] defense establishment rebuilds inventories. Also, in this war we saw that the army has new needs, especially in regards to tunnels. In my opinion, there will now be an accelerated process of development for that. There’s a financial incentive both for the developers and the manufacturers.”
Yatom contends that the course of Operation Protective Edge shows that future weapons systems must be designed to combat guerrilla organizations rather than conventional armies. One example of the likely change is increased demand for thermal-imaging night-vision equipment, rather than the Starlight technology, based on available light, that is currently more common in the IDF. “Thermal-imaging night-vision equipment is not affected by glow of bombs and by urban lighting, so it makes identification easier,” he explains.
Gold confirms that the army is already thinking about this issue. “During the war the IDF took an interest in this subject,” he says. “But still it’s hard to estimate how things will turn out, because the IDF has yet to formulate a view on the matter. The product itself is not new, and we’ve already sold it to various armies worldwide.”
On the other hand, not everyone thinks that a successful campaign means an increase in defense exports. Maj. Gen. (res.) Isaac Ben Yisrael, a former director of the Defense Ministry’s Research and Development Directorate, cautions that the success in Israel of a certain military system does not necessarily carry over to foreign sales.
“Iron Dome, for example, is one of the main developments in this war,” he says, “but there’s no demand for it in the world, because other countries don’t face a similar threat. Besides, after the war most of the money channeled into the defense budget will be used for restocking inventories, so that the money that would normally be directed toward developing combat systems will decrease.”
He says that despite the criticism being heard about the size of the defense budget, Israel has no choice but to increase the army’s R&D spending. That should be done by channeling profits from the government defense industries into the IDF’s R&D units, he says, rather than handing them over to the Finance Ministry, which funnels this money into the general state budget.
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