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Wednesday, July 13, 2011     INTELLIGENCE BRIEFING

Declining defense budgets in West blamed for decrease in Israeli defense exports

TEL AVIV — Israel's defense industry faces a decline in exports, a report said.


A report by Israel's credit rating agency Midroog asserted that the nation's defense industry faces decreasing sales and exports. Midroog said Israel's defense industry could be hurt by declining defense budgets in the European Union and United States.

"Global trends are creating significant challenges for Israeli companies," Midroog said in a report.

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The report said Israel's defense industry has been exporting 70 percent of its products, Middle East Newsline reported. Midroog said the three leading defense contractors — Israel Aerospace Industries, Elbit Systems and Rafael Advanced Defense Systems — have built up a combined orders backlog of $16 billion by the end of 2010. At the end of 2009, the orders backlog reached $14.5 billion.

"From 2012-2013 an increase in the orders faces tougher challenges," the report said. "The moderate growth in the American and European defense budgets will serve as a challenge for companies in the [Israeli] industry."

The report said 2010 marked an Israeli defense export record. Defense exports were said to have reached $7.2 billion in an industry that employs more than 100,000 people.

Midroog, however, said NATO members could quickly drop Israeli equipment such as unmanned aerial vehicles and armor when the Western alliance withdraws from Afghanistan and Iraq. At the same time, the report warned, the United States was encouraging its defense companies to explore new markets, particularly India, deemed Israel's leading client.

The report suggested that Israel's military would become an increasing focus for local defense contractors amid the decline in the export market. Midroog said the Israeli government was committed to increase procurement of weapons and defense services.

"In Israel, the growing trend in defense budgets is expected to continue," the report said.

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