The seven-year interval before Israel loses its defense procurement options with domestic companies according to the new Memorandum of Understanding governing U.S. military aid to Israel may enable the major companies to adapt to the new situation, but smaller ones risk going under, Globes said Monday.
Dozens of small defense companies that rely on procurement financed by U.S. military aid will be forced to close down and thousands of workers will be laid off, industry sources are warning.
“This clause is a catastrophe for small and medium-sized Israel defense companies,” a senior industry source said. “Spending in shekels from the defense budget on procurement of weapons and systems from the local industry is already low, and procurement from small defense companies is made possible to a large extent by conversion into shekels of aid money in dollars.”
The big firms — Israel Aerospace Industries , Rafael Advanced Defense Systems, Elbit Systems, and Israel Military Industries — will likely weather the blow, making up for losses through exports. “For the small companies, most of which do not export, it is a death blow,” the source predicted.
“Seventy to 80 small enterprises around Israel are liable to close down,” said Manufacturers Association of Israel Merkava tank industries forum chairman Avraham Bar David. The forum represents 212 small and medium-sized companies.
“Enterprises producing small components as subcontractors of the large companies will be the first to suffer. Once Israeli procurement is done in the U.S., these companies will either switch to other fields or close down. Not only will the country lose many jobs, it will also lose priceless know-how accumulated here over many years. A few years after these companies close down and the state needs new development, it is liable to find itself in a hopeless plight. If the state wants to retain this know-how and enable it to continue developing the most up-to-date and best products for its defense needs, it will have to find alternative sources for the billions of shekels that will not be available because of this agreement.”
Another source in the defense industry told Globes that “the solution to the currently emerging threat to the small and medium-sized defense industries is for the Ministry of Finance to increase the Ministry of Defense’s shekel budget. That will enable the IDF and the Ministry of Defense to continue procurement and maintain these industries.”