Germany in talks with IAI for follow-on Arrow 3, Heron deals

Germany is negotiating on two strategic follow-up deals for Israel Aerospace Industries (IAI) systems, “Globes” has learned: the procurement of additional Arrow 3 interceptors; and extending the Heron TP drone agreement. The talks are taking place as Germany is expected to soon announce that the Arrow 3 air defense system it bought from IAI in 2023, has become operational.

IAI’s negotiations in Germany come in a period when Israeli defense companies are reporting huge sales such as Elbit Systems $2.3 billion deal to an unnamed customer announced earlier this week and the record $25 billion orders backlog in its third quarter financial results.

Meanwhile, IAI’s $3.5 billion Arrow 3 sale to Germany in 2023 remains, the biggest defense deal in Israeli history. However, in the shadow of the threat cast by Russia, Germany is concerned that it will not have a sufficient stockpile of Arrow 3 interceptors. The Arrow 3 interceptor, the most expensive in Israel’s multi-layered air defense system, is valued at about $2 million per unit.

The follow-up acquisition of interceptors after an unprecedented strategic deal is nothing new for IAI. In April 2017, India closed a then-record deal of $1.6 billion to purchase the Barak 8 system (MRSAM version). Just a month later, India procured the naval version of the Barak 8 interceptors for an additional $630 million.

Preparing for war

Unlike other procurements of air defense systems from Israel, such as Greece’s negotiations to purchase David’s Sling, Barak MX and Spyder, the German strategy with the Arrow 3 deal is regional air defense, extending beyond the country’s borders. This issue is especially vital, as the Russia-Ukraine war approaches its fourth year and the conflict shows signs of escalating and expanding.

Last week, the Polish army chief of staff General Wies?aw Kukula said that Russia is preparing for war with Poland. “(Russia) has begun the phase of preparing for war,” he claimed in an interview with Polskie Radio, the country’s public station. “They are building conditions around us that could lead to potential aggression on Polish territory.” The remarks were made shortly after Polish Prime Minister Donald Tusk described the blast on the railway line between Warsaw and Lublin as “an unprecedented act of sabotage.”

The future of the “Red Baron”

Another deal that Germany is negotiating with Israel is for drones. In January 2019, the “Red Baron” squadron began operating at the Tel Nof base, whose role is to train German drone operators to fly the Heron TP manufactured by IAI. The deal, worth about €900 million, included the lease of seven drones for nine years – five of them for operational purposes and two for training and education. In addition, the Germans paid €170 million for the use of the airport and airspace.

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The seventh year of the agreement is about to end, and the Germans are required to decide on the next step. A senior defense official told “Globes” that it is difficult to imagine a situation in which the Defense Ministry in Berlin would decide to discontinue using the Heron TP. This is a proven product, especially due to its extensive battlefield experience in Israel’s recent war, and the Germans have already invested heavily in bringing in operators and training them. Therefore, the clear likelihood is to continue to lease or to buy the drones.

In September “Bloomberg” reported that the Germans plan to procure three Heron drones for €1 billion. This deal has not yet been closed and, like other deals, will require the approval of the Bundestag, but it is expected that Germany will choose one large deal or a series of deals. The “Red Baron” program will not be closed, but at most will undergo a change.

The Gaza ceasefire that is currently holding allows the German government a more favorable environment for closing defense deals with Israel. This has also been reflected in the government’s decision to lift the partial arms embargo imposed on Israel by Chancellor Friedrich Merz on August 8 – an important step in both sales and procurements.

Data from the Stockholm International Peace Research Institute (SIPRI) shows that between 2020 and 2024, Germany ranked second as an arms suppliers to Israel (33%), after the US (66%). Israel’s Ministry of Defense International Defense Cooperation Directorate (SIBAT) data indicate a record of new export contracts in 2024 of $14.795 billion, up 11.7% from 2023 and a doubling in five years. At the same time, Europe’s share of defense exports to Israel jumped from 35% to 54%, while Asia Pacific fell from 48% to 23%.

In addition, data recently published in “Politico” revealed that Germany’s defense procurement plans for the 2026 budget include a whopping €377 billion (€437 billion), 30 times the total Israeli defense exports last year. This means that a slight expansion of defense exports to Germany is enough to generate significant potential revenue for Israeli defense industries.

Israel’s Ministry of Defense declined to comment on this report.

Published by Globes, Israel business news – en.globes.co.il – on November 20, 2025.

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