Israel has received US government approval for its biggest ever defense deal: the sale of the Arrow 3 missile defense system to Germany for $3.5 billion (about NIS 14 billion).
Arrow 3, developed and produced jointly by the Israel Missile Defense Organization (“Minhelet Homa”), part of the Defense Research and Development Directorate (“Maf’at”) in the Ministry of Defense, and the US Missile Defense Agency, with Israel Aerospace Industries (IAI) as the lead company, is the most advanced air defense system of its kind in the world, designed to intercept ballistic missiles in space, above the atmosphere.
Arrow 3 is based on direct physical engagement with the target (“hit to kill”). IAI is the main contractor for developing the Arrow system and its radar. Elbit Systems (TASE: ESLT; Nasdaq: ESLT) is the developer of the command and control system. Rafael Advanced Defense Systems and Tomer are the main sub-contractors for the interceptor missile and its propulsion system.
Stark Aerospace, owned by IAI, is the main contractor in the US.
Approval was required from the US in order to enable defense officials from Israel and Germany to sign a letter of commitment to get the deal going. The commitment of $600 million will enable work on the project to begin immediately. The details of the contract were agreed between the German Federal Ministry of Defense and Israel’s Ministry of Defense and were submitted for approval to the German government and the Bundestag. The full contract is expected to be signed by November 2023.
More manpower needed
The deal with Germany will mean hundreds more people employed on the Arrow 3 project, according to Moshe Fattal, head of the Israel Missile Defense Organization. He said that 50% of the components would be manufactured in the US.
“There is no doubt that this is a huge contract, and we have to gear up for it,” added IAI CEO Boaz Levy. “The first stage is procuring components. We are glad that the Bundestag approved $600 million for that. After that will start the integration process, with components from the US and Israel. New employees will come into the workforce. We’ll train them as we trained the existing Arrow workforce. IAI is receiving a NIS 14 billion contract that will bring further growth.”
Germany’s need
Two weeks ago, the US government approved the euro316 million sale to Finland of the David’s Sling system, developed by Rafael and Raytheon, and designed to intercept ballistic missiles, cruise missiles, aircraft and drones.
Like Finland, and even more than it, Germany seeks improved air defense against the Russian threat, for itself and for its neighbors. The commitment to Germany is that the first system will be delivered in 2025 and that the all the systems, meant to cover all of Germany, will be delivered by 2030.
Meanwhile work continues on development Arrow 4, intended to replace Arrow 2, which is a defense layer in Israel’s layered air defense array above Iron Dome and David’s Sling. The development program is approved and budgeted by the US and Israel.
Arrow 5 is under development at IAI, but no decision has been made about it by the Israeli or US governments. Arrow 5 is an upgraded version of Arrow 3.
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