Capitalism came early to Israel's strategic defense and weapons industry.  In the 1930s, entrepreneurs were delegated responsibility by national leaders for keeping arms and weapons flowing into the hands of Jewish freedom fighters.  Their companies designed, manufactured, and supplied the nascent citizen army with small arms, ammunition, and explosives.

This month, Israel allowed the sale of a publicly owned defense and weapons company to foreign nationals.  It comes on the heels of a rising trend of foreign nationals acquiring Israeli companies.  This sale is fraught with potentially ominous implications for the national economy and security.

The defense and weapons industry evolved into an intimately intertwined tenacious web of private, public, and state-owned companies in partnership with domestic security agencies, Knesset committees, and the foreign service.  Our military-industrial complex dominates the economy and influences public policy and budget choices.  It prospers from annual sales worth tens of billions of dollars in defense products and weapons systems for commercial, military, and homeland security to Israel and other nations.  The partnership has spurred innovation, keeping Israel ahead of the defense technology curve.  Weapon superiority clearly deters enemies from war and promotes peace, evidenced by the Abraham Accords.  But the industry has had more than its share of corruption scandals in a Gilded Age of greed, amorality, and corruption in Israel's politics and business.

On October 19, 2022, RADA Electronic Industries, headquartered in Netanya, approved an Agreement and Plan of Merger with privately held, American-based Leonardo DRS.  The latter was a subsidiary of Italy-headquartered Leonardo S.p.a.  The merger created an opportunity for DRS to become a public company assuming RADA's place on the NASDAQ exchange.  There is a dearth of information about control and business plans foretelling management's intentions for the Israeli employees and operations.  This is consequential if not an earth-shattering event for the business trajectory of Israel's security business.

None of the three governments publicly objected to the merger.  This is probably because Israel, Italy, and the U. S. are strategic allies.

Strategic Defense

The strategic principle of war and football is that the best offense is a good defense.  It seared into Israel's memory keepers from past lessons taught to the Jews.

Defending the Warsaw ghetto was heroic but futile.  The Polish Home Army sent two heavy machine guns, four light machine guns, 21 submachine guns, 30 rifles, 50 pistols, and 400 grenades to the 460,000 Warsaw Ghetto Jews.  The Allies boycotted the uprising.

The anti-Israel cabal in Britain refused to arm the Jews of Palestine.  President Truman's administration and the U.N. embargoed weapons shipments to the fledgling state.  Sanctions lasted in some form into the 1960s.  France put a weapons embargo on Israel in 1967, blaming Israel's pre-emptive attack.  President Johnson changed the relationship with Israel.  By 1968, the government signed deals with Israel to send Skyhawks, Hawk missiles, and Phantom jets and made loan guarantees to purchase them.

The turning point came in 1973.  The Yom Kippur War was the signature event that sparked the explosive growth of Israel's domestic defense and weapons industry.  Henry Kissinger and James Schlesinger were disseisors in the Nixon administration.  They self-enforced an arms embargo on Israel while the Soviets supplied and re-supplied Arab forces.  Never again, Israeli leaders swore, will the State be held hostage and without its own arms and weapons.  By 1988, JStor, an academic journal, reported Israel as "home to an impressive military-industrial sector which ranks in the top ten in total exports."

From Pauper to Piper

The defense and weapons industry is led by privately held companies like Israel Weapon Industries.  Its subsequent owner, the behemoth SK Group, and Israel Aerospace Industries complement state-owned Rafael Advanced Defense Systems and public companies Elbit Systems and RADA Electronic Industries.  Three are listed among the top 50 companies worldwide in defense and aerospace, according to Globes (August 2022).

In 1970, former Israeli military officers founded RADA Electronic Industries.  Theirs is a typical story in Israel about innovation and entrepreneurship.

RADA's products are combat-proven.  The company developed high-definition digital video, audio, and recording devices for training craft; fighter jets; drones; and land-based, tactical, multi-mission radars.  Radar products are compact.  They can secure them to lightweight platforms.  They can detect and track land vehicles like tanks hiding in deep forests, camouflaged seagoing vessels, and people on foot.  The products can be land-based or mounted to mobile vehicles and ships.

RADA is pioneering technology to protect militaries and civilians from high-speed and slow-moving drones.  It already installed its Ground Debriefing System on aircraft, transferring data for debriefing and flight performance improvements.

By the 2022's end, before the merger, management forecasted revenue to top $140 million.  This followed a  54-percent increase in 2021 revenue over 2020.  RADA's takeover is more symbolically significant than financially impactful on Israel.  Elbit systems sport a $7.65-billion market cap.  Leonardo S.p.a. has a $4-billion market cap.  DRS has a $2.9-billion market cap.  RADA brought a $493-million market cap to the merger.

Prosperity and Security

National survival depends on defense and weapons capabilities.  People have the will to survive.  Soldiers have the training, resourcefulness, and fortitude.  Without a plethora of superior arms and weapons, all else is but existential angst.  Selling off an innovative though minor player in the defense and weapons industry to foreign nationals raises my hackles about the future of the narrow domain and supply chain.  America did it in the 1940s.  At Willow Run, Ford went from manufacturing cars to building B-24 Liberator bomber airplanes every 63 minutes.  Techno-centric defensive weapons protect our civilian population, allow the military time to select targets that minimize enemy civilian deaths, and keep a lid on escalations.

Israel's balancing act for survival is tenuously bound by sensitive dependence on chaotic situations.  Military pre-eminence secures survival.  A healthy and innovative defense and weapons industry contributes to the nation's prosperity.

The trend of selling Israel's companies and their proprietary technologies is worrisome.  Haaretz (November 22, 2020) warned about the privatization of Israel Aerospace Industries in order to take it public, leaving the company susceptible to any foreign national.

Dr. Harold Goldmeier is a business consultant and co-manages a small investment firm.  He worked for U.S. governors and taught at Harvard and in Tel Aviv.

Image via Max Pixel.