Record results for IAI, but its biggest client isn't paying for the Arrow

Israel Aerospace Industries (IAI) is recording an all-time high in its order backlog and net profit. The backlog of the manufacturer of the Arrow, Heron drones, and Ofek satellites stood at $35 billion at the end of the second quarter of 2026, a surge of more than 35% within a year. Net profit in the quarter jumped by 47% to $229 million, and sales rose by 35% to $2.189 billion.

At the same time, however, an unusual negative cash flow of $795 million stands out negatively in IAI's report, compared with a positive cash flow of $170 million in the corresponding quarter last year. The problem: Its biggest client, the Defense Ministry, is not paying it because of the dispute with the Treasury over the defense budget and its financial sources. IAI refuses to disclose the size of the debt, but the negative cash flow of NIS 2.4 billion hints at its accelerated growth. The company has cash reserves of $4 billion.

All of the company's divisions presented growth in sales and profit, including the aviation division. Some 67% of sales in the quarter were for export, an increase of about 40%, while the ratio between local and international sales was maintained despite the large increase in sales to the Defense Ministry due to the war.

"The business results demonstrate that the company is doing everything required to ensure the qualitative edge of the State of Israel and its allies in all arenas, both in defense and offense," said Guy Bar-Lev, acting CEO of IAI. "The financial data reflect growing confidence in Israeli technology and the company's close activity with the Israeli defense establishment and our partners around the world. In light of the security reality, we have increased investment in research and development of advanced technologies that provide a response to current operational needs and will also constitute a response to future threats."

"It was a successful quarter, where beyond the business results we received three more Israel Defense Prizes, conducted a successful test in the Arrow, and there is a surge in activity across all divisions," says IAI Chairman Boaz Levy.

Precisely against the backdrop of the results, the delay in the company's IPO stands out. When will it happen?

"IAI will go public, and it will go public in Israel. The Government Companies Authority and the Securities Authority are with us, and the Defense Ministry is doing what is necessary to protect everything that is required. The government decision was made and the privatization will happen. It could be at the end of the year and it could be later, but the government decision was made and will be implemented."

Perhaps when you are a publicly traded company your biggest client won't be able not to pay.

"The Defense Ministry is currently not paying, and its debts are growing. We have no doubt that it will pay, but this situation places a growing burden on us that becomes more delicate as time passes and the debt grows. The country is not in a trivial situation, and we support it with all our ability. Our cash reserves are limited. The time will come when we will have to take a loan if we are not paid. Someone will have to fund this loan, so it is better that they pay."

You conducted an important test on the Arrow. What are the implications for IAI?

"We expanded the capabilities of the Arrow, which anyone who uses it will need."

Greece recently approved an as-yet unsigned $4 billion deal to purchase air defense systems from IAI and Rafael. Are there more huge deals like this in the pipeline?

"Beyond selling to another country, there is an alliance being forged here between two countries, which these same systems will defend. We continue to supply Germany, and I have no doubt there will be more orders from there. There are other countries interested in the Arrow, but here, besides Defense Ministry approval, there is also a need for US government approval. Everywhere I go, they ask me about the Arrow following its performance in the war."

American company Ondas continues to recruit senior officials in Israel, acquire Israeli defense-tech companies, and begin winning Defense Ministry contracts. How does this affect IAI?

"We live in a competitive world. We compete in tenders, sometimes win and sometimes do not. We operate in a given situation. Those who need to must always remember that in a country like Israel, defense industries must be preserved and their stability ensured over the years. Industries that on October 7 knew how to give support even to systems whose production ended long ago. I hope the Finance and Defense ministries are aware of this."

Defense Minister Israel Katz presented a very advanced and expensive vision for expanding the IDF's space capabilities, including activities that even the US does not have.

"The defense minister marked the issue as one of the defense establishment's biggest growth engines. IAI is the home of space for the State of Israel, a field that is growing globally as well following what was done from space in the wars in Iran and Ukraine. We have several space projects in approval processes in Israel and abroad. There is a growing need in these fields for observation, communication, and space warfare. We know how to launch satellites, build them, and control them throughout their entire lifespan. We will be able to enter any domain in space."