Israel’s defense industry booms on foreign demand and war at home

The surge in weapons sales for Israel’s top three defense companies—among the world’s top 10 defense exporters—comes amid widespread arms embargoes on Israel, from even some of its allies. Other countries have suspended their acquisition of Israeli arms over the war in Gaza.

The success of Israel’s aerial-defense technology—such as the Iron Dome and the Arrow System, or its defensive systems for tanks—over more than 15 months of war has drawn in foreign buyers who have seen how its weaponry has been tested on the battlefield.

Slovakia’s Ministry of Defense last month signed a 560 million euro deal, equivalent to $579.1 million, to acquire Israel Aerospace Industries’s Barak MX Integrated Air Defense System. The ministry said it “is very important that the selling country is experienced in using the capability they offer us," in a statement to The Wall Street Journal. “There is no doubt about Israel’s rich experience in the field of air defense." It added that the system came at “a favorable price."

Israel’s top defense companies—Elbit Systems, Rafael Advanced Defense Systems and Israel Aerospace Industries—make up about 70% of the country’s foreign defense exports, according to Israel’s Defense Ministry. Representatives of those companies say they are on track to hit record sales for both the foreign and domestic markets.

Together, the three companies have seen an increase of more than 25% in their collective backlogs—or orders to be fulfilled in the future, a reflection of increased sales—to the equivalent of $63 billion in the first three-quarters of 2024 from the full-year prior. For all of 2023, the collective backlog grew by 23% from the year-prior, which was a record at the time.

A rise in global conflicts, such as the war in Ukraine, has pushed up demand for weapons, and tapped out major foreign suppliers in Europe and the U.S. who can’t produce them fast enough.

That means many countries are increasingly turning to Israel for much-needed defense supplies, said Pieter Wezeman, a senior researcher with Stockholm International Peace Research Institute, which tracks global arms sales.

“In many cases, the European states that may be critical about Israel are still very keen on acquiring Israeli arms," he said.

The biggest challenge now for Israel’s defense industry is going to be keeping up with growing foreign demand while continuing to supply its own military with much-needed weaponry during wartime.

Israeli manufacturers are already working at maximum capacity and must give priority to the country’s own needs before foreign clients.

Boaz Levy, the chief executive of Israel Aerospace Industries, said the company went on a recruiting spree at the start of the war and added an extra shift on production lines, which are sometimes working 24 hours, seven days a week to meet demand. This includes Saturday, traditionally a required day off due to the Jewish Sabbath.

“We needed to work much more than we used to because demand increased in Israel and all over the world," said Levy.

Israel will still need to recruit at least 6,000 more employees in the defense industry to meet the future demands, said Ron Tomer, president of the Manufacturers Association of Israel.

Tomer thinks those goals can be met, as many high-tech workers have started migrating to the defense industry. The migration is a result of a decline in foreign tech funding since the war began and a global slump in tech investments. The rise in sales for defense companies has also made their salaries more competitive, attracting new talent. Some civilian manufacturers are also pivoting into defense technology. For example, Tomer said, companies that once produced medical devices are now working on radars.

The global condemnation Israel has received over the war in Gaza and the decision by some allies to withhold weapons has led the country to focus on building up its domestic defense production capabilities.

On Tuesday, Israel’s Defense Ministry announced that it signed deals worth $275 million with domestic arms manufacturer Elbit to produce heavy bombs and build a new facility to manufacture raw materials needed for defense.

It is part of a growing recognition in Israel that the country needs to take an offensive military posture, as opposed to its pre-Oct. 7 strategy of seeking calm through deterrence. On Monday, an Israeli government commission, headed by a former Israeli national security adviser, recommended increasing military spending by an additional $30 billion over the next decade to prepare for Israel’s future security challenges.

Meeting deadlines will be crucial for Israel, say analysts, because its value proposition is that it can deliver systems more quickly than competitors.

Israel produces its air-defense systems faster because it isn’t selling the most complex systems, but those that can do the job well enough with the quickest turnaround time, Tom Karako, the director of the Missile Defense Project at the Center for Strategic and International Studies, a U.S. think tank.

“They are explicit about the fact they are focused on capacity, schedule, and good enough, just because of the many engagements that have been coming in for many years now," he said.

The market for Israel’s air-defense systems is set to expand as it will begin using a laser-powered system, called the Iron Beam, said Elad Kraus, head of research for Meitav Brokerage.

Laser air defense has become a type of holy grail for militaries due to the exorbitant price of regular air-defense interceptors, which range from hundreds of thousands to millions of dollars each. Laser systems are expected to cost around several dollars per interception.

The U.S. military deployed a laser air-defense system in the Middle East last year.

“Every country will want something like that," said Kraus. “If you have the need, that is the number one priority of a defense minister to buy it."

Write to Dov Lieber at dov.lieber@wsj.com