Israel’s two giant state-run defense companies may go public, but there are hurdles

JERUSALEM — After years of backroom deliberations, two state-owned Israeli defense giants may soon pull the trigger on going public in a bid to capitalize on the surging global demand for defense stocks.

But challenges remain, including how the Israeli government, which currently owns both firms — Rafael and Israel Aerospace Industries — would handle concerns over state secrets and union interests, as well as what the terms of an initial public offering would look like.

“The defense market is booming all over the world and especially in Israel. If you want to go for an IPO with Rafael and IAI, this is the time,” said Yaacov Ayish, senior vice president for Israeli affairs at the Jewish Institute for National Security of America (JINSA) and an IDF general in the reserves. “IAI is very into it in the last two years. In terms of being ready, they are more ready than Rafael. The opportunity is the same with both of them.”

The possibility of an IPO, which experts say has been privately mulled for some time, was floated publicly in March 2025, when IAI CEO Boaz Levy expressed to journalists his desire to see the company go public. Flush with a $25 billion order backlog and record sales, Levy said that in prior deliberations, the Israeli state had considered an IPO that would sell off a large chunk of the government stake in the company. 

“We are waiting for the process to be initiated,” Levy said at the time. “It’s essential for Israel and the company. … I believe it will happen.”

A year later, in May, Levy was named chairman of IAI and recent reporting in Israeli and international media indicates both his company and Rafael could move forward with an IPO in a matter of months. Whether this will take place on the Israeli Tel Aviv Stock Exchange — or also on a US exchange, such as Nasdaq — remains to be seen. But going public may not be an easy move for either company, according to Avi Hasson, the former chief scientist of Israel and founding chairman of the Israel Innovation Authority. 

“Both are state-owned and that creates complexities,” cautioned Hasson, who previously served as CEO of Startup Nation Central. “How do you reconcile the demands for transparency and sensitives in terms of who are your customers and deals, and also issues such as unions. This can impact performance and recruiting talent. This is something you’d need to solve.”

Breaking Defense reached out to Rafael and IAI for comment on this story and also sent queries to former defense ministers, defense industry executives and other experts. Most declined to comment for this story, including representatives from both firms, reflecting the sensitivity and uncertainties involved. 

Why now?

Public offerings for Rafael and IAI have been considered for decades, Byron Callan, an analyst with Capital Alpha Partners, told Breaking Defense. Those discussions appear to be coming to a head for a variety of reasons.  

“The Israeli government needs the money and global investors have been willing to buy defense IPOs,” Callan said. “The CSG [Czechoslovak Group] offering in Europe and the [now postponed] KNDS one are examples, but so too are a slew of smaller ones in the U.S., including York Space Systems, Hawkeye 360 and Aevex.”

Analysts and experts consulted by Breaking Defense say the current market presents an opportunity for the Israeli government to raise billions of dollars while improving the companies’ efficiency and access to capital.

The Israeli government could stand to receive an estimated $53 billion or more, according to reports on the potential deals under consideration. The overall amount depends on how much of the companies the government is willing to give up.

With Israel’s record defense budget of $45 billion in 2026 also straining the deficit, there is much to be gained by raking in billions. And with Israel’s defense exports at an all-time high of around $19 billion in 2025, IAI and Rafael want to capitalize and the government may be finally willing to let go of an ownership stake of 30-40 percent of the defense giants. 

What challenges remain?

Hurdles remain for the two government defense giants. Going public raises questions about how Israel would safeguard state secrets and other classified information at the two companies, which make systems such as Iron Dome. 

“How do you, on one hand, protect those secrets — such as space and missile defense — and many other exotic and exquisite technologies, such as navigation,” Ayish said. “This is a challenge.” 

Israel grappled with the question back in 2018, when another government-owned firm, Israel Military Industries (IMI), was sold to Elbit Systems. To retain control over highly sensitive technology, IMI’s missile and rocket propulsion arm, known as Tomer, was spun off and remains in government hands. 

“They succeeded in protecting technologies and made a small separate company,” Ayish said. It is not clear if either Rafael or IAI have divisions within the companies that could be spun-off, similar to Tomer. 

IAI’s strong union is another issue experts mentioned. 

“In IAI they have the union. The head of the union is very powerful, including within the Likud [party]. …With 15,000 workers who have a strong impact. If you are considering it now, before elections in October, it can be a significant factor,” Ayish noted. 

The debate over whether to go public or not reflects broader questions about how Israel should make its defense industrial base more efficient while preserving government control over strategic national assets. 

“Over the past two decades, some production was shifted abroad on the assumption that global supply chains would remain reliable,” Hasson noted. “Recent conflicts have demonstrated the risks of that approach, leading Israel to rebuild domestic manufacturing capacity in several critical areas.”

What are the prospects?

Many of those interviewed agree that the public offerings could happen in the next year, with IAI having the strongest case to move forward, as IAI already has tradable bonds. 

Hasson sees opportunities for both companies, each of which have strong R&D arms and battle-proven technology. “IAI is more diversified. Rafael is more of a best-of-breed category leader in certain portfolios,” he said. 

In March 2025, when IAI held its briefing with journalists and explained why it wanted to go for an IPO, the company’s CFO, Eran Anchikovsky, said, “We have seen big jumps in revenue. I think we have untapped potential and an IPO would help us go from jumps to giant leaps.”

Among the open questions are where the companies are taken public and how large of a stake the Israeli government sells off.

Globes, an Israeli financial newspaper, reported on June 21 that the recent news of an IPO came amid reports that an Israeli delegation was expected to visit New York in July “to investigate the possibility of the flotation of defense companies on Nasdaq.” 

The Israeli news outlet Calcalist predicted in April that “the state is seeking to float approximately 30% of IAI on the Tel Aviv Stock Exchange at a valuation of 80-100 billion shekels. A parallel offering of rival defense company Rafael is also under consideration, though it is expected to take place outside the exchange.” 

However, reports also indicated that the Government Companies Authority, which acts as Israel’s shareholder representative in state-owned enterprises, is at loggerheads with the Ministry of Finance over the potential IPO. The Israel Securities Authority will also have a say about what disclosures the companies would need to make if they go public.

Hasson said a regulatory balance will need to be struck in any IPO. 

“The issue of sovereignty and technology, it’s not Israel specific, a lot of countries realized this when it comes to critical technology such as AI and raw materials and semiconductors,” Hasson said. “But there was a wake-up call with the Russia-Ukraine war and it became clear you can no longer rely on a global distributed supply chain framework.” 

He noted that Israel has sought to boost its defense industrial base in recent years, a response to the multi-front war that erupted after Oct. 7, 2023, and the need to be self-sufficient. 

“The government may see an IPO strengthening the companies, not weakening,” Hasson said. “But not jeopardizing core business or confidentiality, that is an inherent [issue of concern].”

Ayish said the companies could also become more efficient with an IPO. 

“The experience of government managing companies is not usually good,” he said, adding that the benefit in efficiency will depend on how large of a stake the government sells off. If Israel only sells a 30 percent stake, then “it will be managed by the Israeli Ministry of Defense and the Treasury and still be a government company and the experience with that is not very good.”

Aaron Mehta contributed reporting from Washington, DC.