Israeli Firm's Stock Hammered as Probe Launched Into Kamikaze Drone Scandal

Aeronautics' stock tumbled 17% after Defense Ministry halted exports if its kamikaze drones to Azerbaijan following alleged live demo on Armenian army outpost

A sketch of the Orbiter 1k drone as shown on Aeronautics Defense Systems' website
Screen capture from aeronautics-sys.com

Shares of Aeronautics were pounded on Tuesday, and began Wednesday trading in the red, after the Israeli Defense Ministry froze some of the company's licenses, blocking it from exporting drones to Azerbaijan, one of its major clients. The regulator's move followed a complaint that Aeronautics representatives demonstrated the use of a kamikaze drone in front of Azerbaijani officers, by attacking a manned position of the Armenian army.

On Tuesday, Aeronautics shares fell 17% on the Tel Aviv Stock Exchange on relatively heavy turnover of 13 million shekels, after the company disclosed the Defense Ministry's prohibition, and released its financial statement for the second quarter of 2017, revealing a net $5 million loss.

On Monday night Aeronautics informed the stock market that the Defense Ministry had frozen the marketing and export licenses of its Orbiter 1K to “an important customer of the company in a foreign country.”

Aeronautics stressed in its messages to investors that the Defense Ministry frown relates to exports of just one specific drone to one specific client, and does not constrain its other business with that client, or drone exports to other buyers. The company added that it is in talks with the Defense Ministry.

Armoured vehicle in central Yerevan, Armenia, 2008
David Mdzinarishvili, Reuters

The company didn’t say which country was involved, but Azerbaijan has been its biggest customer for years. Its backlog of drone orders to the unnamed country amounts to $20 million over this year and next.

The company may not export the drone to the banned country, presumably Azerbaijan, or demonstrate its use, or form any ties involving the drone with representatives of the client army.

In its announcement, the company referred investors to its pre-offering prospectus, in which it notes that it has exactly two substantial customers, one responsible for 20% of its revenues in 2016 and one for 13%.

Aeronautics went public on the TASE in June, through a placement to existing shareholders rather than a public sale of shares. It was the biggest offering on the TASE this year, pricing the company at more than a billion shekels. However, the trouncing its stock took this week lowered its market cap to around 850 million shekels.