Defense industry faces drop in exports
US withdrawal from Iraq, Afghanistan and financial crisis lead to cutbacks in Western countries' defense expenditures. Now Israeli defense industries relying on Eastern Europe, East Asia and South America
But the United States is expected to pull out from Iraq by the end of 2011 and from Afghanistan by the end of 2014.
At the same time, the financial crisis in Europe is worsening, and the economic woes in Greece – an important customer of the defense industries – are threatening to affect other countries as well.
The defense budget of the US, the Israeli defense industry's most important customer, is also facing cutbacks.
"Global trends are creating significant challenges for Israeli companies," says a special report issued by credit rating agency Midroog, which looked into the situation of Israel's defense industries, which designate 70% of their products for exports.
"The moderated growth in the American and European defense budgets will serve as a challenge for companies in the industries, warns the report obtained by Yedioth Ahronoth's economic supplement "Mamon".
According to Midroog's estimates, the accumulated orders of the large defense companies – Elbit Systems, Rafael Advanced Defense Systems and Israel Aerospace Industries – totaled some $16 billion at the end of 2010, compared to some $14.5 billion at the end of 2009, but "from 2012-2013 an increase in the orders faces tougher challenges."
In 2010, the world's defense expenditures totaled some $1.6 trillion – a 1.3% growth compared to 2009, and the lowest since 2001.
The budget cuts are expected to lead the US Department of Defense to allow companies like Lockheed Martin, Boeing and Northrop Grumman to operate in markets which they have been banned from until now, such as India.
Efforts shifted to new markets
The defense industries are aware of the grim future. SIBAT, the Defense Ministry's export division, has shifted its export efforts in the past year to new markets such as South America and East Asia.
Each company has defined areas in which it has a market advantage in order to overcome the tough period.
Luba Drori, Rafael's marketing manager, expresses cautious optimism. "The market in Eastern Europe will wake up, East Asia is growing and so is South America. Brazil is a rising power.
"I can't tell you for certain that we'll continue to grow in the same pace, but we're in a field which always produces tensions and new customers," he says.
Midroog has some good news too: "In Israel, the growing trend in defense budgets is expected to continue."
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