Arrow maker IAI's record $35 billion backlog comes with an increasingly urgent cash problem
The defense company's business is expanding across Israel, Asia, North America and Europe, but delayed payments from the Israeli Ministry of Defense have transformed a surge in orders into a cash-flow challenge.
Alongside record levels of business activity, Israel Aerospace Industries (IAI) is facing growing pressure on its cash flow as the Ministry of Defense's debt to the company rises above NIS 5 billion ($1.7B). In the second quarter, IAI reported negative cash flow of $795 million (NIS 2.38 billion), compared with positive cash flow of $170 million (NIS 510 million) in the same quarter last year.
The Ministry of Defense has struggled to pay its debts to IAI, as well as to Rafael and Elbit Systems, amid ongoing budget disputes with the Ministry of Finance. The total debt owed by the Ministry of Defense to Israel's three major defense companies is estimated at NIS 15.5 billion ($5.2B).
"This situation weighs heavily on us, but on the other hand, the Ministry of Defense is the most reliable customer of Israel Aerospace Industries, and we have no doubt that it will pay its debt, since the state does not deny it," IAI Chairman Boaz Levy told Calcalist. "We are dealing with the issue with the Ministry of Defense and especially with the Ministry of Finance, as these debts are a consequence of the dispute over the size of the defense budget."
The cash-flow strain comes as IAI reaches new highs in orders and sales. The company ended the second quarter with a record order backlog of $35 billion, up $6 billion since the beginning of the year.
Sales rose 35% to $2.18 billion compared with the same quarter last year, driven by growth across all of the company's divisions. Net profit increased by almost 47% to NIS 229 million.
A significant share of IAI's second-quarter revenue came from Israel, reflecting the continuing war in the Middle East and the company's central role in supplying weapons systems to the IDF, including Arrow interceptor missiles and unmanned aerial vehicles.
Revenue from the Israeli market reached $724 million, accounting for 35% of IAI's total sales during the quarter. Last week, the company successfully completed a major test of the Arrow system in cooperation with the defense establishment and the IDF, testing improvements to the system's performance.
Asia accounted for another $680 million in revenue, while North America generated $260 million and European countries contributed $470 million, as governments across the continent increase defense spending amid the war between Russia and Ukraine.
IAI said the second quarter and first half of 2026 were the most profitable periods in the company's history. The strong results come as the company has accelerated preparations for a potential initial public offering in recent months.
According to Levy, "the company's IPO is closer than ever and will allow for investment in building infrastructure and production lines and will contribute to strengthening security and the economy so that every citizen can be part of its success."
The report is the first financial statement signed by IAI's designated CEO, Guy Barlev, who was appointed to the position in recent weeks and is expected to become the company's permanent CEO once the appointment procedures are completed.
Barlev previously headed IAI's Missile and Space Systems division. He replaces Levy as CEO, with Levy moving to the position of chairman.
"IAI has increased its investments in the field of research and development of advanced technologies in order to provide a response to the current and future operational needs of the defense system in all arenas," Barlev said.
