Israel Military Industries, Largest Private-sector Defense Manufacturer Revive Privatization Talks

Other private arms manufacturers worry that Israel would fail to get a fair price for the company and would harm local companies competing for contracts with the Israel Defense Forces

File photo: A helmet manufactured by Elbit.
File photo: A helmet manufactured by Elbit. Lockheed Martin

Talks to sell government-owned Israel Military Industries to Elbit System have been renewed in the last several days even as two other state-owned enterprises are expressing concerns that Elbit will have too much control over the country’s defense industry.

Industry sources and the Finance Ministry confirmed on Sunday that Elbit executives and treasury officials had begun talks about the price Elbit will pay for IMI even though the government has conducted no valuation of the company.

Elbit, Israel’s biggest private-sector defense manufacturer, emerged as the sole bidder in competitive bidding to buy IMI, which aroused criticism that the state would fail to get a fair price for the company and would harm local companies competing for contracts with the Israel Defense Forces.

“Everyone knows that the tender is sewn up,” said a defense ministry source who asked not to be identified. 

“The antitrust commissioner knows that the political echelon wants the deal done and it’s hard to imagine her halting the process. Also the state comptroller, who investigated whether there was anything improper in the tender process, gave a green light to continue. It doesn’t seem anything will stop it.”

Nevertheless, officials for state-owned Israel Aerospace Industries and Rafael have been conducting low-level meetings with the Antitrust Authority about ways to protect competition in the domestic defense market and their interests as companies that both compete and cooperate with IMI.

Officials at the two state-owned companies are concerned that they make the same kind of weapons as IMI, principally missiles, rockets and high-tech armoring system for land vehicles, while at the same time they source components, mainly engines, from IMI. 

Officials are concerned that once Elbit gains control of IMI it will be at the mercy of Elbit as to whether IMI continues supplying the components. In addition, they fear that the combined Elbit-IMI company will control some 80% of the market for land-army gear in Israel, putting them at a severe disadvantage in wining new contracts. 

Although some IMI technology has been moved out of the company into a new government enterprise called Tomer, its Slavin division remains inside IMI and will be acquired by Elbit. Defense industry sources said Rafael is weighing a proposal to the Antitrust Authority that would force IMI to divest certain units, mainly Givon and its drone operations. IAI may seek to gain control over the two divisions.

“It will require a new decision by the government and it’s possible Elbit will appeal to the High Court of Justice, unless the State Comptroller’s report, which hasn’t yet been officially published, shows there was something improper in the [tender] process to begin with,” said one source.

Talks have begun with sole bidder, Elbit Industries, about a price for the arms maker