Dr. Harold Goldmeier is a business consultant and co-manages a small investment firm. He worked for US governors and taught at Harvard and in Tel Aviv.
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, influences public policy,
and budget choices, and affects hasbara. 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, 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
2 heavy machine guns, 4 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 preemptive 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 sea-going
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. They already installed their Ground
Debriefing System on aircraft transferring data for debriefing and flight
performance improvements.
By the 2022 year’s end, before the merger, management forecasted revenue to
top $140 million. This followed a 54% 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. For more information, see my articles about
the companies on Seeking Alpha.
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 the 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. Israel with Iron Dome. Techno-centric defensive
weapons protect our civilian population, allows 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 preeminence 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.
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