Israeli Arms Firms Switch to Plowshares

Budget cuts at home and shrinking markets abroad under the effects of the Cold War thaw are forcing arms makers in Israel to convert to civilian production to avert an unparalleled business crisis.

Swords-to-plowshares, tanks-to-toys planning among Israeli defense industries mirrors a process under way in the United States, where major contractors are diversifying and cutting back labor forces in response to reduced military spending.

In Israel, the success of the adjustment will go a long way to setting the pace for the country’s economic growth in this decade. State and privately owned arms industries in Israel account for one-quarter of the country’s industrial output. Exports average about $1 billion a year to customers that include the United States, Canada and Western European nations, as well as Third World clients as far-flung as Singapore and Guatemala.

Because exports help bankroll the country’s domestic industry, a slowdown in that sector could also affect Israel’s relative self-sufficiency in arms.

“You have to follow the market,” said Phil Herman, a spokesman for Israel Aircraft Industries, the country’s largest military contractor. “With the decrease in defense budgets, the military-industrial complex will be looking for other missions to accomplish.”

In its battle against chronic inflation, the government has shaved military spending during the past several years, and there are calls for deeper cuts. Michael Bruno, governor of the Bank of Israel, recently called for cuts of at least $150 million a year from the defense budget.

His call, which set off a storm of debate, was based in part on reports that Syria, considered Israel’s most aggressive adversary, is reducing its defense spending. The Soviet Union is reported to have told Syria that Moscow would no longer bankroll Syria’s effort to reach arms equality with Israel.

Israel’s defense ministry is resisting cutbacks, arguing that the nation can ill afford the risk of reduced levels of equipment and manpower.

“There are still many people in the defense establishment who believe that even if peace is some day achieved, Israel’s security situation will still be regarded with the utmost gravity, and Israel will have to maintain its vigilance,” a ministry official told Israeli reporters.

Defense officials note that the struggle to put down the Arab uprising in the occupied Gaza Strip and West Bank has also cut into outlays for equipment designed for the defense of Israel’s borders. Last year, the army spent about $200 million on everything from bullets to new jails to battle the intifada, as the Arab revolt is known. The expenditures were only partially made up for with extra money from the treasury.

“The intifada has definitely cut into acquisition of new equipment,” said Shalom Eitan, a spokesman for Tadiran, the third-largest private industrial firm.

Most Israeli defense firms have the advantage of already producing consumer goods. Tadiran, for instance, makes a variety of appliances, including refrigerators and microwave ovens.

“At least, Israeli companies won’t be starting from scratch,” commented Zeev Eytan, a researcher at the Jaffee Center for Strategic Studies, a defense think tank.

But the end of the Cold War is compelling changes at a faster pace than expected.

“No one knew that the Berlin Wall would fall so fast. Our plan, which had been to move into civilian fields, is going to go faster than anticipated,” Tadiran’s Eitan predicted.

Tadiran began to sense the shifting mood during the final years of the Reagan Administration when arms agreements showed the way to reduced superpower tensions, Eitan said. The winding down of the war in Afghanistan and the Iran-Iraq conflict were further signposts on the road to a new era.

Within Israel, budget cuts began to take hold three years ago, and Tadiran began a difficult process of cutting its work force to 10,000 from 14,500. Its current balance of military and civilian production, mainly in communications, is 50-50. The company plans to move toward a 70%-30% mix in favor of civilian sales, Eitan said.

Israel Aircraft is also beginning to market goods originally designed for the military for civilian use.

“The only difference between military and civilian uses, in many cases, is that the military product goes boom,” spokesman Herman quipped.

For example, a pilotless airplane that was built for military reconnaissance is now being advertised for use in televised monitoring of forest fires, oil spills and even drug dealers carrying contraband across remote frontiers.

An exception to the trend at Israel Aircraft is its continuing effort to develop a fighter jet. The company suffered a grave setback two years ago when its Lavi fighter was canceled after it became clear that the Israeli government could not afford to pay for development and that Washington, Israel’s biggest aid giver, was not interested in footing the bill. The company laid off about 6,000 of its 22,000 workers and lost tens of millions of dollars.

The new jet under study at Israel Aircraft is a more economical model. Company officials deny that it is meant to make up for the Lavi cancellation.

“We are in the airplane business, and so we must look ahead. If we find a customer for it, good,” Herman said.

A cheaper fighter jet would seem ready-made for the regional conflicts that still flourish outside the fading superpower rivalry.

“We can see just in the example of Panama that small conflicts and low-intensity warfare are still around,” Herman said.

The United States is Israel’s biggest customer for military goods, with sales estimated at $150 million, according to the Jaffee Center for Strategic Studies. Among other top customers are Spain, which buys tank guns, tank fire control systems and range finders; Chile (tanks and air-to-air missiles); Brazil (surface-to-surface missiles); Colombia (transport planes and there are reports of combat planes on order); Ecuador (air-to-air missiles, combat planes) and South Africa (patrol boats, refueling aircraft, surface-to-surface missiles and rifles).

Small customers are Haiti (Uzi submachine guns) and Zaire (small arms), and Israel’s government has reportedly embarked on efforts to expand sales to Third World countries engaged in hostilities. Defense Minister Yitzhak Rabin recently hinted that sales to Iran, which is recovering from its costly war with Iraq, are under consideration. But Muslim Iran considers purchases from the Jewish state taboo.

Press reports indicate that Israel’s recently renewed diplomatic ties with Ethiopia include supplies of arms to that country, which is trying to put down a tenacious revolt by separatists.