More Interceptors, Lower Costs: Why Defense Firms Are Eyeing IPOs
The inclusion of rocket engine manufacturer Tomer in IPO discussions alongside Rafael and IAI reflects the urgent pressure on defense industries to expand production capacity to meet the demands of prolonged warfare.
The joining of rocket engine manufacturer Tomer to the IPO discourse, alongside the two more veteran companies, Rafael and Israel Aerospace Industries (IAI), expresses the pressure on the defense industries to rapidly expand production capacity through capital raising and adaptation to the reality of prolonged wars, which increase the demand for munitions.
Most of Tomer's activity is classified, as it is the engine manufacturer for the Arrow 3 and Barak MX air defense missiles of IAI, and the engines for the precise artillery rockets of Elbit Systems. Beyond these, it also produces the engines for IAI's Shavit missiles, used for launching its Ofek series of spy satellites. It has been operating for about a decade as a fully state-owned company, after being separated from the Military Industries (TAAS) during its 2018 privatization.
Transition to Mass Production
The change in attitude toward Tomer's IPO began to take shape over the last year against the backdrop of a new era of wars of attrition. Prolonged and grueling conflicts require a strong supply stream of munitions, forcing arms manufacturers to shift from producing advanced, high-cost 'boutique' systems to a model based on capacity expansion and high supply rates.
In a conversation with Calcalist, a senior official in the defense industries stated:
"If in the past we focused on producing high-tech and very precise products, even at a high price, today we must move to mass production at lower costs. Missile propulsion systems have become a highly demanded product, and the answer to this situation is a significant increase in production lines."
Since October 7, Tomer has doubled its number of employees from 500 to 1,000 and expanded its serial production lines. Its factories are currently overloaded due to large-scale global arms deals, including IAI's export of Arrow 3 missiles to Germany and Elbit's sales of artillery rockets to European armies.
The 'Kapuza' Approach
The inventory of interceptors is a critical issue given the Iranian threat. Following the events of last April, US stocks of Patriot PAC-3, THAAD, and SM-3 missiles were significantly depleted. An Arrow 3 missile is estimated to cost $3–4 million, while an SM-3 can cost double the price of a THAAD.
Brig. Gen. (res.) Ran Kochav, former commander of the Air Defense Array, suggests the answer lies in the "Kapuza" approach—an acronym for small, simple, cheap, and mass-produced.
The road to Tomer's IPO remains arduous. IAI is currently the closest to the stock exchange, with a government decision already in place. Rafael, however, must wait, and both the Ministry of Defense and the Ministry of Finance remain skeptical of the proposed outlines for issuing shares outside the traditional stock market.
It is clear that even with a tripled defense budget, the state cannot solely finance the acceleration of production. The Ministry of Defense must now redefine its red lines, recognizing that in this new era, traditional resistance to exposing defense firms to capital markets must give way to the urgent need for industrial efficiency.
