Israeli drone maker Elbit under watchful eye of regulators pending bid to purchase Israel Military Industries

Israeli UAV Drone

At present, Elbit Systems (ESLT), an Israeli defense electronics company, is under scrutiny due to the apparent prospect that the firm may intend to acquisition Israel Military Industries Ltd., which has caught the attention of the Israel Antitrust Authority.

It’s a big deal for more than just the Israeli tech industry at large because it significantly impacts the availability of some of the most lucrative military defense contracts for which a large market currently competes. Israel Military Industries (IMI) is a public-sector giant in its own right, so for Elbit to acquisition IMI may pose too great a threat to competitors; more importantly, though, allegations that the government has been favoring Elbit for the sale add layers to an already convoluted market shift.

This close and very watchful eye on Elbit Systems stems from the approval of the Israel Ministry of Defense. They were brought in on information currently classified apropos of the gradual privatization of IMI. Accountant General Rony Hizkiyahu of the Finance Ministry, renewed privatization procedures for IMI following an elongated suspension of the process. The process has been on hold primarily as a result of an investigation into how the government was initially handling it.

Then-Comptroller Judge Joseph Shapira, who has since retired, led the aforesaid investigation with a concentration on the Ministry of Finance as well as the Ministry of Defense and the Government Companies Authority. Joseph Beinhorn, the defense audit division manager for the State Comptroller’s Office conducted the inquiry and also disseminated a report to the audit’s target parties a year in advance. The office still hasn’t released any conclusive reports on the issue, but the investigation was incited by complaints made to the Office of the State Comptroller. Various and sundry allegations pointed to there being a bias in Elbit’s favor for the sale of IMI.

Elbit Systems has proven to be the only firm to complete the IMI sale process in lieu of ten corporate entities in Israel—among them Invictus, the Israeli arm of American tech conglomerate Flextronics International Ltd., which is the third biggest original design manufacturer in the global electronics manufacturing services space. All ten had already gone to great lengths to express their interest in the IMI sale before they all strangely withdrew. This drew complaints about privatization improprieties, complaints filed at the State Comptroller’s Office.

Elbit Systems is taking moderate flack for ostensibly trying to capitalize on the bias shown toward the firm, reportedly citing synergy between its production and development and IMI’s business model.

Elbit Systems’ citing of their production of armaments being an ideal fit with IMI’s business model and purpose is hardly misunderstood; in fact, no one doubts that the two are as much a match made in heaven as any acquisition is likely to be. Elbit Systems is a global leader in the development of unmanned aerial vehicles (UAVs) and unmanned aircraft systems (UASes), and they recently made headlines with the production of the Hermes 45, a new, remarkably small UAS that operates at the tactical level is designed specifically flying more consecutive hours at a time.

Elbit’s Hermes 45 is part of a large taxonomy of UASes (unmanned aircraft system), and the similarities to other models in the Hermes family abound. It’s greatest selling point is the fact that it can stay in the air for over 24 hours, rivaling the kinds of endurance typically only seen in medium-altitude long-endurance (MALE) systems. That kind of endurance is somewhat revolutionary when applied to a tactical platform like Hermes 45, which is a small unit.

The tactical operation of an unmanned vehicle of that size with the capability of remaining active well into tomorrow is a design Elbit deemed best suited as an ISR asset for surveillance and reconnaissance. It’s deployed equipped with maritime radar, electro-optical/infrared sensors and SigInt (signals intelligence) systems. Much ado has been made about its projectile capabilities, though; it’s equipped with a short rail launcher. It uses a spot landing system to recover the projectile without the need for any landing infrastructure to accommodate its maneuvers. Pundits believe a parachute may be involved in the logistics of this and that the Hermes 45 might also be at-sea-recovery capable.

The Antitrust Authority’s primary focus in the current inquiry is with regard to the nature of the impact Elbit Systems’ acquisition of IMI will have on the defense market overall. Elbit Systems is already one of the leading defense technology contractors in the world, let alone the country, as evidenced by the state-of-the-art products like Hermes 45, which are clearly designed for advanced military tactics. It’s already a challenge for firms like Israel Aerospace Industries Ltd. or Rafael Advanced Defense Systems Ltd. to compete at that level across the board.

Elbit’s third-quarter figures evince as much with a revenue spike from $780.8 million to $800.7 million. Experts attribute this to the growth of the defense budgets in markets that deal with Elbit Systems, but even so, it’s at least equally attributable to the quality of the firm’s product. As great as that sounds, its competitors can handle that alone, competing on the basis of quality; however, the Antitrust Authority seeks to determine whether or not the acquisition of IMI would put the kybosh on market competition. Its effects extend beyond drones to the manufacture of pilot helmet displays and cybersecurity, the latter marking the largest defense spaces in Israeli technology.

Elbit Systems Chief Executive Bezhalel Machlis told Business Insider “We see ongoing increases in defense budgets, which we have been able to capitalize on in many of our target markets.” Whether or not Elbit’s competitors will still be able to capitalize on these trends after the Antitrust Authority inquiry remains to be seen.

About the Author:

Cedric Dent, Jr.

Freelance journalist, Cedric Dent, Jr., has written as a domestic and foreign policy correspondent for numerous publications, a speechwriter for municipal office incumbents, and a tech writer in multiple spaces from healthcare to IT.