Israeli defense companies could lose $10 billion in business due to a new US military aid package that will phase out the country’s ability to spend a quarter of the funds on its own businesses.
The US has signed an agreement to provide $38 billion military assistance to Israel for a span of 10 years starting 2019 through 2028. This memorandum of understanding constitutes the single largest pledge of bilateral military assistance in US history.
According to the agreement, Israeli defense firms will lose out upto $10 billion that could be spent on indigenous development of drones, missiles, tanks and other equipment as the precise terms of phase-out are unclear. Smaller Israeli companies will face more challenges to sustain.
Key among those is the gradual phasing out of a clause allowing Israel to spend 26.3 percent of the funds on its own defence sector, which competes actively with US firms such as Boeing, Lockheed Martin, General Dynamics and Raytheon.
"It's quite a problem," one Israeli defence industry official was quoted as saying by Reuters Tuesday. "The bigger companies and most advanced ones with the best technology and capabilities will be able to survive, but the smaller you are, the bigger the problem is."
Netanyahu's office declined to comment on the domestic consequences of the aid deal but has said the agreement "will greatly strengthen the security of Israel".
Israel has about 700 defence-related firms, most of them with only 50 to 150 employees. They mainly act as subcontractors to Israel's four largest defence companies - Elbit Systems, Israel Aerospace Industries, Israel Military Industries and Rafael Advanced Defence Systems.
Israel's defence exports totalled US$5.7 billion in 2015, about 14 percent of all exports and a major driver of the economy.