For years, Israel has talked about taking its state-owned defense giants public. Now, the government appears ready to act. Officials are preparing to sell stakes of up to 30% in Israel Aerospace Industries (IAI) and Rafael Advanced Defense Systems, a pair of transactions that could raise billions of shekels and mark the most significant privatization push in the country’s defense sector in decades.
Roi Kahlon, director of the Government Companies Authority, told Reuters in January 2026 that the government intends to list 25% to 30% of each company on the Tel Aviv Stock Exchange, with shares released in small tranches rather than a single large block. Kahlon indicated the process could begin as early as the second quarter of 2026.
The financial scale is hard to overstate. Bloomberg reported in late April 2026, citing people familiar with the matter, that IAI carries an estimated valuation of roughly 100 billion shekels (about $27 billion), while Rafael is valued at approximately 60 billion shekels. These figures are sourced from Bloomberg’s reporting and have not been confirmed by an independent audit or official government appraisal. A 30% stake in IAI alone would represent a transaction worth around 30 billion shekels, dwarfing most Israeli equity offerings in recent memory.
Why now, and why this matters
The timing is driven by fiscal pressure. Israel’s military spending has surged since the outbreak of conflict in Gaza in late 2023 and subsequent operations across multiple fronts. The government needs capital, and its two largest defense firms happen to be sitting on swelling order books in a global market where defense budgets are climbing to historic highs.
Both companies would be attractive to investors. IAI produces military and commercial aviation systems, satellites, and unmanned aerial vehicles. Rafael manufactures the Iron Dome missile defense system, one of the most battle-tested air defense platforms in the world. Owning equity in either firm would give shareholders direct exposure to companies whose products are in high demand from allied governments worldwide.
The phased approach, selling in tranches rather than all at once, reflects a deliberate balancing act. By capping initial sales at 30% and spacing out offerings, the government retains majority ownership and preserves its authority over sensitive weapons programs, missile defense technology, and classified export agreements. The tranche structure also avoids flooding the Tel Aviv Stock Exchange with too much supply at once, which could depress share prices during early trading.
A long road to this point
This is not the first time Israeli officials have floated the idea of privatizing IAI. Discussions about a potential IPO date back to at least 2019, when the government approved legislation to enable a public offering. Labor disputes, political instability, and shifting priorities repeatedly stalled the process. Rafael, which operates under even tighter security restrictions due to its role in producing classified weapons systems, was never previously considered a serious candidate for public markets.
That both companies are now on the table simultaneously signals a shift in political will. The combination of wartime fiscal demands and booming global defense spending has created a window that previous governments lacked.
Key questions still unanswered
Despite the momentum, several critical details remain unresolved. No regulatory approval for the IPOs has been publicly disclosed, and neither IAI nor Rafael has issued statements about post-privatization governance, board composition, or restrictions on foreign ownership.
One significant uncertainty involves how Rafael’s stake will actually be sold. Kahlon’s statements to Reuters described plans for both companies to list on the Tel Aviv Stock Exchange. Bloomberg’s reporting, however, suggests Rafael’s stake may instead be structured as a private placement to select investors, such as sovereign wealth funds or strategic defense-sector partners, rather than a public offering.
The distinction matters. A public listing involves detailed prospectus filings, regulatory scrutiny, and open price discovery. A private placement is negotiated behind closed doors with less disclosure. If Rafael’s sale proceeds privately, it could raise questions about whether the government is prioritizing speed and discretion over public accountability for a company that produces some of Israel’s most sensitive military technology.
Foreign ownership is another open question. Israel has historically maintained tight controls over defense technology transfers. Selling equity in companies that build the country’s most advanced weapons systems to overseas investors would introduce new regulatory and security considerations. Whether the government plans to cap foreign ownership, require security clearances for major shareholders, or impose other restrictions has not been addressed publicly.
How Israel’s approach compares to other defense privatizations
The timeline Kahlon described, beginning in the second quarter of 2026, has not been formally ratified by the Israeli cabinet or finance ministry through any publicly available resolution. No prospectus drafts or formal regulatory filings have surfaced. The entire framework rests on official and unofficial statements relayed through Reuters and Bloomberg, both credible sources, but the story remains in its early stages.
If the sales do move forward on schedule, they will test whether Israel can pull off something few countries have managed smoothly: opening ownership of top-tier, security-sensitive defense firms to private capital without compromising operational secrecy or strategic control. France navigated a version of this challenge with Thales and Naval Group; India has wrestled with it for years regarding Hindustan Aeronautics. Israel’s approach, particularly the tranche structure and the potential split between public and private sales, will be closely watched by governments and defense investors worldwide.
More from Morning Overview
*This article was researched with the help of AI, with human editors creating the final content.
