IAI, Rafael withhold gov’t dividend to cover Defense Ministry debt

The Ministry of Defense debts to Israeli defense manufacturers recently exceeded the NIS 10 billion threshold and in response, “Globes” has learned, government owned Israel Aerospace Industries (IAI) and Rafael Advanced Defense Systems have halted dividend payments to the state. This is not an official decision that has been taken by the companies’ boards but an ad hoc decision in response to the growing debt.

Ministry of Defense sources claim that the debt is a result of the gap between the defense budget framework and the operational framework and the tasks assigned to the military. “Ultimately, maintaining 3 security buffer zones and readiness for Iran costs money,” the sources informed “Globes.”

Of the total debts, Rafael is the largest creditor with a debt of about NIS 7 billion, followed by IAI, which is owed about NIS 5 billion. Elbit Systems, which is not a government company, is owed about NIS 1.5 billion.

Profits have reached new records

Elbit CEO Bezhalel Machlis recently told “Globes” that the Ministry of Defense has a debt to the company and said that he “hopes it will be resolved.” In any case, the debt to government companies is higher, and “Globes” understands the atmosphere in internal discussions is much less conciliatory.

Moreover, Rafael and IAI announced a dividend to the state for 2024, these funds have not yet been transferred. Rafael was supposed to transfer NIS 263 million to the state, and IAI is talking about $242 million, while since the announcement, the shekel-dollar exchange rate has plummeted.

On 2025, the issue of dividend distribution remains open. In 2025, the profitability of these companies hit new records. Rafael’s revenue was almost NIS 22 billion, with less than 50% of orders for overseas. The company’s order backlog climbed to about NIS 74 billion, while net profit was NIS 1.35 billion, up 40% from 2024.

In its 2025 financial report, Rafael wrote it must pay 50% of the company’s annual net profit as a dividend to the state, subject to various offsets. So even at a conservative estimate, the dividend is worth hundreds of millions of shekels.

As part of Rafael’s financial report for the first quarter of 2026, the company said it had decided to distribute a dividend to the state worth NIS 588 billion for 2025, but noted this amount, as well as the amount from 2024, has not yet been paid. “Globes” has learned that at the board of directors meeting, it was decided to pay while offsetting the state’s debt, which is much larger than the dividend payment. Last week, Rafael’s CEO Yoav Turgeman told “Globes,” “The State of Israel has incurred a very large debt to the companies. For us, it is particularly large, the debt is at an all-time high.”

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IAI has also been achieving record business success. In 2025 revenue was NIS 7.4 billion and net profit was a record $712 million, up 45% from 2024. The order backlog exceeded $30 billion. Here too, Ministry of Defense debt runs to hundreds of millions of shekels. Some insist the reason for not distributing the dividend is the plan for an IPO with money in its coffers, but this still does not explain foot-dragging in transferring the 2024 dividend.

In addition to withholding the dividend, IAI and Rafael are negotiating with the government about financing the credit costs that they are forced to incur to bridge the gap until the debts are settled.

Friction between the defense and finance ministries

Behind this struggle is a conflict between the defense and finance ministries on the defense budget, with gaps reaching NIS 45 billion between the approved budget of NIS 143 billion and the funds needed by the Ministry of Defense due to the military escalation this year, mobilization of reserves and the IDF’s deepening incursion into Lebanon. The budget approved in the midst of the war with Iran did not include maintaining the security zone in Lebanon and intensive operations there.

The background to the delay in paying the debt to the companies is the gap in the state budget approved for the Ministry of Defense. The Ministry of Finance regularly criticizes the Ministry of Defense for issuing purchase orders beyond the approved budget and only then is a larger budget spending required that breaks through the defense budget framework.

Ministry of Finance Budget Commissioner Maharan Frozenfar addressed this at the Eli Hurvitz conference this week. He said defense spending should be limited within the framework of a multi-year plan and referred to the extensive call up of reservists. He said, “What is happening today is very bad. Calling up people for hundreds of days a year cannot be sustained for a long time. The costs are enormous, and control does not exist. It is a complete lack of control, and this is a central plank in therspending, and its consequences for the economy are severe.”

“There was no discussion on the subject”

IAI said, “The company continues to produce for the Ministry of Defense and the State of Israel as much as is necessary, with the understanding that these debts will be paid as soon as possible. There was no discussion on the subject of the dividend or others, and certainly not in direct connection with the debt.”

Although IAI denies that it did not transfer the dividend as agreed with the government, industry sources say that the reason is the state’s huge debts to the defense company.

The Government Companies Authority said, “The Companies Authority is working to distribute an annual dividend from government companies to the state treasury in accordance with the provisions of the law.”

No response has been forthcoming from Rafael, Elbit Systems, and the Ministry of Defense.

Published by Globes, Israel business news – en.globes.co.il – on June 4, 2026.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2026.