Elbit Systems is to buy state-owned Israel Military Industries (IMI), in a move which will make it the largest defence and aerospace company in Israel.

Following a lengthy review process, all the necessary regulatory bodies have given their approval for the step, with some of IMI's programmes which are considered to be "critical defence assets" to remain under government control.

The deal will dramatically increase Elbit's dominance in the supply of weapons systems to Israel's defence forces. This had prompted objections from stated-owned Israel Aerospace Industries (IAI) and Rafael.

"For years Elbit and IAI have been competing, in some cases in a wild form of competition that hurt both companies," one Israeli industry source comments. "With the proposed purchase of IMI, this competition may erupt again, as it will give Elbit access to some potential markets that are now almost fully in the hands of IAI."

One immediate potential clash is connected to a decision taken by Israeli defence minister Avigdor Lieberman to form a special ground forces unit to be equipped with surface-to-surface missiles with ranges of up to 400km (216nm). This procurement alone has a potential value of more than $1 billion, and pits IAI's Lora long-range artillery system against IMI's shorter-range Extra missile.

Rafael is also concerned about the proposed deal. "With the leverage Elbit has in the local and international markets, we may have a big problem," the company says.

Defence ministry sources say the acquisition will strengthen Israel's capability to compete in the international aerospace and defence markets. "In recent years, this market has been characterised by new players that offer a huge variety of systems. A consolidation of two leading Israeli defence companies is a must," one source states.

It is expected that the sale process will reach a point within the next few weeks where it can be approved by the Israeli government.

Source: FlightGlobal.com