Defense M&A to continue as development costs rise, Israeli defense veteran says

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PARIS – The chief financial officer of Israel’s biggest defense firm says the mega-merger between U.S. giants Raytheon and United Technologies is part of a trend that looks set to continue.

Earlier this month, United Technologies and Raytheon announced they had agreed a huge tie-up, bringing together an aerospace company with a government defense contractor.

Speaking at the Paris Air Show Tuesday, Elbit Systems Chief Financial Officer Joseph Gaspar, said defense is both expensive and a “structured, regulated business” meaning it was almost a necessity to be big to succeed.

“A jet fighter today is sold for about $100 million. To develop it, it takes about 100 times more. Now who has that amount of money?”

Gaspar noted that M&A among firms in the sector began to pick up pace in the 1980s and looks set to continue.

The industry veteran said the bigger slice of technology development has moved away from government defense contracts and into the commercial world where private innovation would also spur an ongoing increase in mergers and acquisitions.

Elbit Systems has annual sales of around $4.5 billion a year, less than a tenth of the much bigger U.S. defense giants.

It sells much of its technology to those bigger firms to help build software and hardware solutions. Gaspar’s firm provided laser technology to Raytheon and works with United Technologies to provide fighter pilot helmets for in flying jets such as the F-35 and F-16.

There has been some concern that with the creation of “Raytheon Technologies” such firms will have one less buyer in the market.

Gaspar said that on balance, he expected the union between Raytheon and United Technologies to benefit Elbit as both U.S. firm consider the Israeli company as a reliable supplier rather than a rival.

“In my view, they are happy with what we do. They will talk to each other, exchange views and maybe some opportunities will come up.”

The CFO conceded that he expected requests from the new defense giant for cost savings, but this was not unusual or unexpected.

Elbit Systems was created in the 1960s as a French embargo on selling defense equipment to Israel led to the country looking to develop its own technology.

It started out by developing computer platforms for jet fighters but in the year 2000, diversified and grew with the purchase of El-op, an electro-optics firm that specialized in laser system technology.

In 2018, Elbit Systems bought the privately-owned U.S. company Universal Avionics Systems Corporation and earlier this year, bought the night vision business of Harris Corporation for $350 million.