Israeli Defense Firms Expand European Operations Amid Political Tensions
Despite increasing diplomatic pressure from European nations, including bans on trade with settlements, Israeli defense industries are significantly expanding their presence across Europe. This expansion includes establishing local production facilities, infrastructure, and developing joint capabilities with major European defense corporations.
Elbit Systems has a fully operational subsidiary in Germany, Elbit Germany, managing development, production, and maintenance, with offices in Koblenz and Berlin. The company is also considering building an additional local factory, supported by local political backing. Rafael has acquired a Volkswagen plant in Osnabrück, Germany, to produce components for the Iron Dome missile defense system. This follows a deal to sell the SPYDER air defense system to Romania for approximately 2 billion euros, a country where Elbit already has production infrastructure.
The Israeli Ministry of Defense recently signed the "Achilles Shield" deal with Greece, valued at 3.1 billion euros, which includes the integration of Greek companies worth around 700 million euros. There is also consideration for establishing Israeli factories and potentially management headquarters in Cyprus. These moves are part of a broader strategy to integrate into European production chains, as exemplified by Rafael's joint ventures like EuroSpike with Germany's Rheinmetall and Diehl, and EuroTrophy with KNDS and GDELS.
Key drivers for this trend include rising European defense budgets and increasing demands for localization. Israeli companies establish local subsidiaries that provide jobs and pay taxes, circumventing sanctions. This expansion offers diplomatic benefits by necessitating stable relations with Israel for technology transfer, economic advantages through increased sales and faster supply, and security benefits, allowing Israel to potentially purchase Israeli-made products manufactured in Europe during wartime.
Germany has become a major consumer of Israeli defense exports, ranking second after India, largely due to deals like the Arrow 3 missile defense system. The global trend towards localization, seen in policies like "America First" and "Make in India," further incentivizes European production. The EU's SAFE program, which finances defense deals contingent on a significant portion being sourced from EU countries or Ukraine, also supports this integration. While the origin of the technology remains Israeli, manufacturing in Europe facilitates sales and meets local content requirements.
