Prime Minister Benjamin Netanyahu said Israel must accelerate domestic weapons production as Europe tightens restrictions on arms exports during the Gaza war. But his call comes as Israel Aerospace Industries, the country’s largest defense contractor, is paralyzed by political infighting within his own government.
Netanyahu told a Finance Ministry conference Monday that Israel can no longer rely on European suppliers. “We may find ourselves in a situation where our defense industries are blocked,” he said. “We will need to develop weapons here. We will need to be Athens and super-Sparta.”
He also criticized Israel’s slow approval processes, saying defense projects cannot be delayed by bureaucratic and legal hurdles in wartime. “If we want to live, the law must serve life, not the other way around,” he said.
Even as Netanyahu calls for urgent action, IAI has been unable to function for months. A feud between Defense Minister Israel Katz and David Amsalem, the minister responsible for government companies, has prevented the appointment of a new board chair and blocked the addition of external directors. The deadlock, which began last November, has left the board unable to approve contracts or submit required financial reports.
The paralysis has already disrupted major defense deals, including the production of Arrow-3 interceptor missiles, crucial for Israel’s defense against ballistic threats from Iran and Yemen’s Houthis. Sensitive details about those negotiations have leaked, raising concerns within the defense establishment about security breaches.
In a rare move for a state-owned defense company, IAI recently petitioned the High Court of Justice against the Government Companies Authority and against both ministers, accusing them of extreme unreasonableness. The company warned that its ability to support the military, expand production and maintain export contracts is being undermined during wartime.
Financial regulators have also raised alarms. IAI failed to submit second-quarter 2025 reports, prompting the Securities Authority to threaten suspension of its stock trading — a step that could trigger bondholders to demand early repayment of 160 million shekels. Fines of up to 2 million shekels are also under consideration.
The stakes are high abroad as well. IAI is preparing to deliver Arrow-3 batteries to Germany, even as European countries scale back weapons deals with Israel. Spain has already canceled an agreement with defense contractor Elbit Systems. A senior defense official warned that Israel’s internal dysfunction risks damaging its credibility with key partners. “It is inconceivable that the State of Israel is destroying one of its strongest assets from within,” the official said.
At the same time, IAI has posted major achievements, including launching the Ofek-19 surveillance satellite and the Dror-1 communications satellite, and becoming the only company worldwide authorized to convert Boeing 777 passenger planes into cargo aircraft. These successes, defense officials warn, could be overshadowed by political gridlock at home.
Despite being fully briefed on the situation, Netanyahu has avoided intervening in the feud between Katz and Amsalem. Without his involvement, defense officials caution, the crisis at IAI will deepen, jeopardizing the very expansion of weapons production he has described as vital to Israel’s security.