The Debrief: Israeli Defense Industry Coping With Conflict Pressures So Far

TEL AVIV—Of the more than 300,000 military reservists mobilized on Oct. 7 last year by Israel, about 2,000 came from Israel Aerospace Industries (IAI).

With the global arms market peaking and demand from the Israel Defense Forces expected to surge, state-owned IAI lost 13% of its workforce in a single stroke.

The sudden workforce losses and the immediate needs of the IDF—two common issues faced by all Israeli aerospace and defense industry companies since the war started last year—risked paralyzing operations at a critical moment. So far, however, the industry appears to have coped with the challenges.

“I think we managed it well,” Shay Gal, IAI vice president of external relations, told a group of reporters on Sept. 18. “We just recruited more people and those who were still working here had to work more hours, like two shifts a day.”

State-owned Rafael dealt with a similar workforce gap after Oct. 7 by fast-tracking employee training, launching round-the-clock production shifts and collaborating with suppliers, a Rafael spokesman said.

Coping with reservist call-ups is a unique burden for the Israeli defense sector. Israel’s military strategy relies on a relatively small standing army, which can be supplemented by a large pool of reservists during emergencies. Israel’s defense industry has capitalized on the policy, hiring thousands of reservists to also inform investment and engineering decisions about new products.

Historically, reservist call-ups tend to last only weeks or a few months during intense and brief conflicts with Arab states, Palestinian groups or Iranian proxies. But the industry now faces one of the longest mobilization periods in Israeli history. Military operations against Hamas in the Gaza Strip have largely culminated, but remain active. Meanwhile, violence is escalating on the northern border with Hezbollah forces in Lebanon, with no immediate prospect of resolution.

Despite the workforce pressures, Israel’s top defense contractors—Elbit Systems, IAI and Rafael—are keeping up with higher demand, reporting record revenues and profits. The financial results have impressed ratings agencies. On the same day in July, S&P reaffirmed ratings for Rafael and IAI, praising their operational performance and forecasting improved financial positions.

In August, Rafael executives also reaffirmed that the Iron Beam system will be ready to deploy in 2025 as scheduled. The update on the directed energy-based air defense system suggests new product development also remains on pace, as the Israeli defense industry works on meeting demand from internal and external customers. Rafael’s research and development portfolio also includes the Sky Sonic hypersonic missile interceptor and the Sky Sting air-to-air missile. Indeed, surging revenues have increased capital available for internal investments.

“These programs remain on track, supported by Rafael’s record-setting financial performance. The company has adopted a dual-focus strategy, ensuring that urgent operational needs do not impede long-term innovation which ultimately serves as the foundation of the company,” the Rafael spokesman told Aviation Week.

The industry still faces challenges as the war continues. A backlash in some places to Israel’s military operations has included protests and boycotts against Israeli defense companies. At the last minute, a French court overturned a ban on Israeli companies from Eurosatory in June. The government of Chile banned Israeli companies from participating in the FIDAE air show in May. The Brazilian government deferred orders for Rafael Spike anti-tank missiles in March.

But foreign demand remains high for Israeli military technology. In the past year, IAI has picked up a $1.2 billion order for air defense systems from an undisclosed customer and a $3.5 billion deal with Germany for Arrow 3 interceptors. Meanwhile, Rafael has won an order for David’s Sling from Finland and for Spike missiles from Poland, Greece and Australia. Argentina is reportedly also considering an order of Spike missiles.