The Ministry of Defense owes IAI billions — and has pushed it into negative cash flow

Alongside new records in business activity, Israel Aerospace Industries (IAI) is dealing with increasing pressure on its cash flow. The main reason for this is the swelling debt of the Ministry of Defense to the defense manufacturer, the scope of which amounts to more than 5 billion shekels.

In the second quarter, IAI moved to a negative cash flow of 795 million dollars (2.38 billion shekels), compared to a positive cash flow of 170 million dollars (510 million shekels) in the second quarter of 2025. The Ministry of Defense is struggling to pay its debt to IAI, as well as to Rafael and Elbit Systems, due to the ongoing budgetary disputes between it and the Ministry of Finance. According to estimates, the total debt of the Ministry of Defense to the defense industries amounts to 15.5 billion shekels.

"This event is weighing on us heavily, but on the other hand, the Ministry of Defense is the safest client of Israel Aerospace Industries and we have no doubt that it will pay its debt, as the state does not deny it. We are managing the issue with the Ministry of Defense and primarily with the Ministry of Finance, because these debts are a result of the dispute over the size of the defense budget," said IAI Chairman Boaz Levy in a conversation with Calcalist.

Alongside the damage to cash flow, IAI finished the second quarter with an order backlog of 35 billion dollars — a record for the company and an increase of 6 billion dollars since the beginning of the year. The company's sales rose by 35% to 2.18 billion dollars compared to the same quarter last year, following the expansion of activity in all company divisions. The company also reported an increase of almost 47% in net profit, which reached 229 million shekels.

Also in the second quarter, a significant portion of IAI's revenues came from the Israeli market, against the backdrop of the ongoing war in the Middle East and its central role in supplying combat systems to the IDF, including Arrow interceptor missiles and UAVs. Revenues from the Israeli market amounted to 724 million dollars. Last week, the company successfully completed a significant test of the Arrow system in cooperation with the defense establishment and the IDF, during which improvements in its performance were tested. The Israeli market accounted for 35% of IAI's sales in the second quarter.

Revenues from deals in Asia amounted to 680 million dollars, revenues from North America were 260 million dollars, and revenues from sales to countries in Europe were 470 million dollars, against the backdrop of the arms race on the continent and the war between Russia and Ukraine. At IAI, they say that the second quarter and the first half of 2026 were the most profitable in the company's history. This is while the state has accelerated in recent months the steps towards preparing it for an IPO.

According to Chairman Levy, "The company's IPO is closer than ever and will allow for investment in building infrastructure and production lines and will contribute to strengthening security and the economy so that every citizen can be part of its success."

This is the first financial report signed by the designated CEO of IAI, Guy Bar-Lev, who was appointed to the position in recent weeks and upon completion of his appointment procedures will be its permanent CEO. Until recently, Bar-Lev managed the missile and space systems division of IAI, and in his role as CEO, he replaces Levy, who was appointed to the position of Chairman. According to Bar-Lev, "IAI has increased its investments in the field of research and development of advanced technologies in order to provide a response to the current and future operational needs of the defense establishment in all arenas."