Israel built the rivalry between Israel Aerospace Industries (IAI) and Rafael Advanced Defense Systems to produce superiority. It should not discount its own assets for a foreign buyer. Shay Gal, formerly Senior Adviser to Israel’s Minister of Economy and Industry and later Vice President for External Relations at IAI and Chief of Staff to its Chairman, where he helped advance the company’s proposed IPO, sets the ownership doctrine: compete relentlessly in development, testing and domestic procurement; activate a narrow Export Collision mechanism when overlapping bids destroy state value; protect minority shareholders; and codify the framework before the first share is sold. Competition remains the default. Cannibalisation does not.
The rivalry between IAI and Rafael produces alternatives, breakthroughs and technological superiority. When they compete for the same requirement abroad, that advantage becomes leverage against their common shareholder: the State of Israel.
The buyer gets two Israeli bidders with substitutable solutions and extracts concessions on price, financing, local production, technology transfer, maintenance, spare parts, warranties, offsets and payment terms. One company can win while Israel loses.
This is economic autoimmunity: rivalry that produces superiority at home erodes the value of two state assets abroad for the buyer’s benefit.
The answer is not a merger. It is a boundary.
Israel needs two centres of expertise, two engineering answers and the competitive pressure that prevents technological stagnation. For a country whose security depends on indigenous capability, technological duplication is insurance. In development, testing and domestic procurement, IAI and Rafael should compete fully. The boundary is crossed when competition stops increasing Israel’s odds of winning and starts increasing the buyer’s bargaining power.
Finland shows the problem clearly.
In 2020, its armed forces invited five companies to compete for a new high altitude ground based air defence capability. By 2022, the final round had narrowed to two Israeli systems: IAI’s BARAK MX and Rafael’s David’s Sling. Finland selected David’s Sling in 2023 in a procurement worth approximately €316 million.
Rafael won the prime contract. Yet IAI did not disappear from the winning architecture: its ELTA division supplies the sensors. The case is instructive precisely because rivalry and workshare proved compatible.
The public record does not show how much the direct contest affected pricing. What it does show is the structural problem: a foreign government reached the final stage with two alternatives supplied by companies owned by the same foreign state and could compare one Israeli state asset directly against another.
Slovakia provides a second illustration. Its assessment considered Rafael’s SPYDER alongside IAI’s BARAK MX among the medium range options. The process ultimately selected BARAK MX, and in 2024 Israel and Slovakia concluded a Government to Government agreement worth approximately €560 million for IAI’s system. The first battery was delivered in 2026.
There is nothing improper in either buyer’s conduct. They behaved exactly as rational customers should.
The buyers are doing their job. Israel is not doing its job as owner.
It still has no permanent rule for deciding when competition between two assets it owns serves the state and when it merely subsidises the customer.
Israel has recognised the problem for years. In 2009, the Ministry of Defense established the Harari Committee to examine competition in defence exports. In 2016, Ministry Director General Udi Adam warned against what he called “destructive competition”, saying it was also hurting industry profitability. In July 2026, Ministry Director General Amir Baram circulated a voluntary ethical code. The Ministry has since publicly invoked its code of ethics. Such a code can, at most, curb misconduct; it cannot prevent competition itself from destroying value.
The failure already exists. The IPO does not create it; it closes the window for correction. What the state can settle now as sole owner will, after listing, collide with minority rights, cost more money and leave less freedom of action.
Israel is advancing partial privatisations of both companies while retaining state control, with IAI expected to move first and Rafael preparing for a later listing.
Once IAI is listed, and even more once Rafael follows, ownership no longer overlaps. An investor who buys IAI shares does not thereby acquire Rafael shares. If the state then tells IAI not to pursue a contract because the national portfolio is better served by Rafael leading it, that investor can fairly ask why an opportunity was removed from the company he owns to benefit another company.
The same tension reaches the boardroom. IAI’s board owes its duties to IAI; Rafael’s board owes its duties to Rafael. Only the state sees the combined value. After separate listings, what is now a failure by one owner becomes a rational incentive for two corporations, each judged on its own revenue, order backlog, profitability and valuation rather than the state’s aggregate outcome.
Israel therefore needs a narrow Export Collision mechanism, triggered when IAI and Rafael approach the same foreign customer, for the same operational requirement, with materially substitutable solutions.
Competition remains the default. Intervention begins only when the value created by two Israeli bids falls below the value their rivalry transfers to the customer.
The Government Companies Authority (GCA), acting for the state as shareholder, together with the Ministry of Defense, Ministry of Finance and the Israel Competition Authority (ICA), within the Ministry of Economy and Industry, should weigh the value created by two bids against the value their rivalry transfers to the buyer. The ICA’s involvement is also the institutional safeguard against coordination hardening into permanent market allocation.
If a joint Israeli offer preserves more value, one company can lead and the other supply. Workshare can remain in both through subsystems, integration, maintenance, licensing, support or other participation.
Only near complete overlap combined with clear value destruction should justify a single Israeli bid.
The mechanism does not allocate markets, prohibit parallel development or coordinate prices.
Competition remains. Cannibalisation is managed.
Italy shows that the choice is not simply merger or uncontrolled rivalry.
Fincantieri and Leonardo are separate publicly traded industrial groups under significant Italian state influence. In the naval sector they created Orizzonte Sistemi Navali, owned 51 per cent by Fincantieri and 49 per cent by Leonardo. Fincantieri serves as prime contractor and the single customer interface; Leonardo leads the combat systems side. The framework was explicitly designed to strengthen Italian competitiveness abroad, maximise Italian industrial content and preserve returns for the national industrial base.
The model preserves corporate independence while managing the point at which separate capabilities meet the customer.
IAI and Rafael overlap more deeply and sometimes offer genuinely substitutable products, so Israel needs a more flexible mechanism. The principle holds: a state does not need to merge companies to prevent them from cannibalising one another in export markets.
France provides a warning from the opposite direction. Airbus Defence & Space and Thales Alenia Space had jointly supplied Morocco’s Mohammed VI reconnaissance satellites. A decade later, Airbus and Thales competed separately for their successor and both lost to an Israeli bid. IAI subsequently emerged as the supplier in a deal reported at approximately $1 billion to replace the two Airbus and Thales satellites.
The deterioration in French Moroccan relations weighed heavily, so the loss cannot be reduced to industrial rivalry alone. But the structure matters: two strategic French holdings approached the same foreign requirement separately while their Israeli competitor arrived as one bidder.
The lesson is not that every overlap demands consolidation. It is that every overlap deserves an ownership test before the customer performs one on the seller’s behalf.
Shay Gal beside a Leopard 2A8 fitted with EuroTrophy at Eurosatory in Paris. One of Europe’s most advanced main battle tanks integrates Rafael’s TROPHY active protection system and IAI-ELTA’s WindGuard radar. A European platform, two Israeli state-owned companies, one protection architecture: competition, workshare and value preserved in the same system. (Photo: Courtesy of Shay Gal)
That boundary needs explicit authority.
Israel’s Defense Export Control Law gives the Ministry of Defense broad powers over defence marketing and export licensing. The law regulates whether and how defence marketing and exports may proceed. It does not create a mechanism for resolving an economic collision between two state owned exporters.
Neither an expansive interpretation of the existing powers of the Defense Export Controls Agency (DECA) nor ad hoc intervention is enough. The mechanism should be anchored in the privatisation resolutions, corporate articles and prospectuses, alongside a narrow statutory amendment allowing the state, for as long as it controls both companies, to manage an Export Collision without managing the companies themselves.
The ICA belongs inside the mechanism to keep intervention narrow, reviewable and incapable of hardening into market allocation.
The rule must also be built into the offering and disclosed before the first share is sold, so the market prices the state’s retained authority. But that authority cannot be exercised at minority shareholders’ expense.
If the state prevents one company from pursuing a contract to preserve value in the other, it cannot finance its portfolio policy from the pockets of the minority shareholders in the company that stands down.
The first remedy is to retain value in that company through workshare, subsystems, maintenance, integration, intellectual property licensing or another form of participation. Where that is impossible, a pre agreed economic balancing mechanism should apply.
The state may manage its assets. It may not transfer value from the minority shareholders of one asset to the minority shareholders of another.
IAI should list first; Rafael should follow. They require the same ownership rules, not the same offering template. The precise stake, timing and structure can differ because the companies are different; state control, Export Collision rules and minority protection cannot.
For now, the parent companies belong in Tel Aviv. A domestic listing does not eliminate the minority shareholder problem, but it keeps the new ownership regime inside one Israeli legal and regulatory system.
Nasdaq adds another layer of securities law and disclosure, corporate governance and litigation risk. A state majority does not remove it. A decision to withdraw IAI or Rafael from a bid, redirect workshare or require a joint offer could itself acquire consequences for disclosure, directors and investors in the United States.
Israel would retain the authority to act. It would simply make every use of that authority legally and financially more expensive.
For now, Nasdaq should remain available to US subsidiaries, civilian businesses and units separated from the sovereign core.
The IPO is the deadline. The cannibalisation problem requires treatment even without it.
Rivalry should remain where it creates capability and stop where it exports value.
The state does not need to decide which company wins. It needs to stop being the loser.
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Related by the same author:
“The ‘Bayraktar Trap’: Cheap Airpower Or Costly Dependence,” EurAsian Times, September 20, 2025.
“The KAAN ‘Trap’: Permission, Not Power,” EurAsian Times, November 24, 2025.
“What Washington Gives — and What It Takes in Return,” Israel Defense, February 1, 2026.
“How China Became the Real End-User of U.S. F-16 Tech — Not by Theft, But Institutionalized Access,” EurAsian Times, June 6, 2026.
“Nasdaq Can Value IAI and Rafael. It Must Not Price Israel’s Freedom of Action,” The Times of Israel, July 20, 2026.