Published On 10/6/2026
Hundreds of small and medium-sized defense companies in Israel are facing increasing financial pressures as a result of the slowdown in government orders, despite an unprecedented boom witnessed by major military industrial companies that are benefiting from the rise in global demand for weapons, according to a report published on Wednesday by the Israeli newspaper Calcalist.
While Israel Aerospace Industries, Rafael, and Elbit Systems have a cumulative order book of nearly $90 billion, smaller companies and subcontractors are complaining about the suspension of tenders and the postponement of orders issued by the Israeli Ministry of Defense, amid a worsening funding crisis within the security establishment.
Calcalist reported that the Ministry of Defense’s debts owed to major defense companies amounted to about 15.5 billion shekels (about 5.2 billion dollars), at a time when disputes are escalating with the Ministry of Finance over increasing the defense budget.
The newspaper indicated that during the year 2025, the three largest companies accounted for about 90% of total Israeli arms exports, which reached a record level of $19.2 billion, while small companies depend to a greater extent on local orders.
Adults flourish and children falter
Calcalist quoted an industrialist who works in producing components for air defense systems as saying, “The number of tenders published by Defense Ministry units for local industries has decreased sharply in recent months.”
He added, “The whole celebration of the great prosperity experienced by the defense industries begins and ends with the three largest companies,” noting that the smaller companies suffer from “the erosion of the dollar, the high cost of wages, and the decline in profitability.”
A company specializing in the production of light weapons also reported a slowdown in issuing tenders to supply weapons to the Israeli army, despite the continued need for this equipment.
An executive director of a small company said that these companies are “double damaged,” explaining that the Ministry of Defense does not request new equipment from them, while large companies in turn reduce the volume of work assigned to subcontractors.
The cost of war puts pressure on the budget
The Israeli security establishment linked the decline in orders to the increasing pressure on the military budget. According to Calcalist, the Ministry of Defense is allocating most of the available funds to cover urgent operational needs and fund “day-to-day continuity,” including rehabilitating the wounded, compensating families, and maintaining the readiness of reserve forces deployed in Lebanon, Syria, and Gaza.
The newspaper revealed that the cost of just 17 hours of military confrontation between Israel and Iran at the weekend amounted to about 500 million shekels (about 168 million dollars), which included the use of “Haetz 3” interceptor missiles against 22 ballistic missiles, in addition to aviation fuel and ammunition used in counterattacks.
She added that this number is in addition to a daily cost ranging between 100 and 130 million shekels (between 33.6 and 43.7 million dollars) for military operations on various fronts.
On the other hand, the Ministry of Finance refuses to respond to the security establishment’s demands for an additional increase in the defense budget, accusing it of “wastefulness” and mismanagement, according to what Calcalist reported.
The newspaper had revealed that the Ministry of Defense and the Israeli army requested that the defense budget for 2026 be raised to 188 billion shekels ($63.2 billion), compared to a current budget of 144 billion shekels ($48.4 billion), after an exceptional increase of 32 billion shekels ($10.7 billion).
Calcalist quoted a senior security official as saying: “The situation is difficult,” adding, “We are in a state of financial emergency, and the amounts we spend are constantly rising.”
War priorities re-arrange spending
In light of these pressures, the Ministry of Defense gives priority to projects directly related to war, especially systems dedicated to countering the threat of drones.
The newspaper quoted a security official as saying that the ministry has allocated about two billion shekels (about $672 million) to find urgent operational solutions to this file, although technical efforts have not yet resulted in “an effective solution capable of eliminating this deadly nightmare,” as he described it.
According to data from the Israeli Ministry of Defense, the ministry’s total purchases inside Israel since the outbreak of the war on October 7 amounted to about 260 billion shekels (about 87 billion dollars), equivalent to four times the average annual spending before the war.
Of this amount, more than 100 billion shekels (about 33.6 billion dollars) were allocated to purchases from small and medium-sized companies, while a special team appointed by the Director General of the Ministry of Defense continues to review military procurement mechanisms, and will submit its recommendations on improving spending efficiency by next September, at a time when defense expenditures are approaching unprecedented levels.
