IAI Delivers Its Strongest Financial Year on Record

Israel Aerospace Industries (IAI), Israel's largest state-owned defense company, closed 2025 with the strongest financial results in its history. Revenue reached $7.384 billion, a 20.8% increase over the $6.112 billion recorded in 2024, and a 38.6% jump from the $5.327 billion reported in 2023. Net income surged to $712 million (9.6% margin), up 44.4% from $493 million the prior year. EBITDA climbed to $1.082 billion, representing a 14.7% margin versus 13.0% in 2024.

Revenue by Segment

The growth was broad-based across all four operating divisions. The Missiles & Space Systems division (known internally as MTHC) was the dominant growth engine, generating $3.475 billion in external revenue — a 31% year-over-year increase from $2.652 billion. Within this division, the missiles and weapon systems unit alone contributed $2.26 billion, accounting for 31% of consolidated revenue. Elta (Military Electronics) posted $1.792 billion in external revenue, up from $1.479 billion. The Aviation division reached $1.441 billion, and Military Aircraft came in at $675 million.

Profitability Improvements

The most striking feature of the 2025 results is the operating leverage. Operating profit jumped 50.8% to $751 million, pushing the operating margin to 10.2% from 8.1%. Gross margin improved to 19.4% from 18.7%. At the segment level, Missiles & Space led with a 12% operating margin, Elta reached 10%, Military Aircraft held steady at 8%, while Aviation remained the lowest-margin division at 4%, reflecting the intense competition in civilian aerospace markets. Operating costs grew at a slower pace than revenue, confirming that IAI is scaling efficiently.

Balance Sheet Strength

Total assets grew 15.6% to $12.014 billion. Equity increased 28% to $2.394 billion, bringing the equity-to-assets ratio to 19.9%, up from 18.0%. The current ratio improved to 1.08 from 1.03, and the quick ratio rose to 0.96 from 0.90. Distributable retained earnings stood at approximately $1.358 billion, and the board declared a $242 million dividend for 2024 profits.

Order Backlog — The Forward Indicator

IAI's total order backlog reached $28.750 billion, equivalent to roughly 3.9 years of revenue. In the Missiles & Space division alone, the backlog stood at $15.593 billion at year-end, rising to $19.205 billion near the report date. Approximately $6.718 billion is expected to be recognized as revenue in 2026, providing strong near-term visibility. The backlog surge reflects sustained global demand for air defense systems, precision munitions, and loitering weapons — product categories where IAI holds a leading competitive position.

Key Risks

Currency exposure is a material concern. The shekel appreciated 12.6% against the dollar in 2025, compressing margins since most revenue is dollar-denominated while a significant share of labor costs is shekel-based. The company also relies heavily on Israel's Ministry of Defense, which accounted for 37% of Missiles & Space revenue. The U.S. security aid agreement is set to expire in 2028, and any disruption could affect procurement budgets. Supply chain disruptions tied to the Russia-Ukraine war, the "Swords of Iron" conflict, and Red Sea shipping route attacks continue to pose delivery risks.

Outlook

IAI enters 2026 from a position of exceptional strength. The combination of double-digit revenue growth, expanding margins, a record backlog, and a strengthening balance sheet paints a picture of a company benefiting from rising global defense spending while managing its operational scale-up effectively. European defense budget increases — driven in part by pressure to reach 5% of GDP in NATO spending — represent a significant growth opportunity, with European sales in the Missiles & Space division already jumping 62% to $826 million. The planned IPO remains uncertain in timing and scope, but the financial fundamentals make a compelling case.