Ministry of Defense Director General tries to curb wild competition between arms companies

The historic deal with Greece reflects the enormous demand for Israeli-made systems — a demand that sometimes leads to head-to-head competition, under tough conditions, between two local companies.

There are quite a few examples of significant business struggles in the field, including Finland's air defense tender, in which Rafael and Israel Aerospace Industries (IAI) competed directly. The winner at the end of the process in 2023 was Rafael, which sold the David's Sling system to the Finns for approximately 317 million euros.

Ministry of Defense Director General Maj. Gen. (res.) Amir Baram has decided to bring order to the growing internal competition between the companies. According to data from SIBAT (the International Defense Cooperation Directorate), out of a record figure of 19.2 billion dollars in defense exports last year, about 10 billion dollars came from G2G (government-to-government) deals. The remaining 9.2 billion dollars resulted from the companies' business activities, without the ministry's involvement. For comparison, until 2020, total defense exports stood at 9.3 billion dollars.

Due to the strengthening trend, Globes has learned that Baram recently passed an ethical code to the defense companies intended to regulate the rules of competition between them. "We recognize that business competition is a vital growth engine," it is written in the ethical code that reached Globes, "but we commit that it will always take place under principles of fairness, professional integrity, and national responsibility."

Baram's initiative is influenced by a process in the Israeli defense industries, in which as the sums grow, so does the business competition between the companies — to the point of negative remarks about one another in foreign countries.

Furthermore, the competition and lack of personal sympathy between IAI Chairman Boaz Levy and Rafael CEO Yoav Turgeman are known in the industry, rooted in their shared past in the IAI management — when Levy was the company's CEO and Turgeman was the CEO of the subsidiary Elta. "Both are professionals, it is hard to understand the personal hostility between them," says a senior defense official who has worked with both for many years to Globes.

What is required from the industry

An issue that is highly emphasized in the ethical code is the sanctity of secrets and intellectual property. "We will act with supreme responsibility to preserve state secrets and the IDF's technological advantage. At the same time, we will strictly respect the intellectual property and trade secrets of competitors. Insider information will not be used for unfair business promotion," it is written in the document. The industries are also required to be fair and avoid defamation actions.

In addition, industrial companies and startups are required to ensure reliability in presentations of technological maturity. "Marketing capabilities that have not yet matured as 'operationally ready' may harm national credibility before clients in the world," it is written in the ethical code.

This is not the first time that the Ministry of Defense has tried to regulate fair competition rules in the sector. In 2010, they tried to take a similar step, after the then-Director General Udi Shani was forced to fly to Colombia to prevent the Ministry of Defense from canceling a contract with Elbit — this followed a series of articles in the local media that criticized the way the company allegedly won the tender. A ministry investigation found that behind the anonymous letters and briefings stood, apparently, IAI, which lost the tender.