The Spanish Ministry of Defense has announced intentions to withdraw from significant arms contracts with Israeli companies, a move that could have profound consequences for the domestic defense sector.

Specifically, the ministry is looking to cancel an order for 1,680 Spike LR2 anti-tank missiles and to eliminate Israeli technology from the SILAM rocket launcher program, a venture valued over €700 million.

These projects represent two of the four largest defense agreements involving Israeli technology secured by the Spanish army.

In addition to the missile and rocket launcher contracts, the ministry has also halted plans for strategic communication equipment from Aicox, a program worth €350 million which heavily relied on Israeli technology.

Aicox and its partner, Telefónica, are now proposing to increase the percentage of production in Spain to revive the initiative, which aligns with the government’s industrial strategy aimed at reaching 2% of GDP in defense spending this year.

The cancellation of the Spike and SILAM programs is expected to significantly impact several Spanish companies.

While PAP TECNOS, a subsidiary of Israeli defense firm Rafael, was the awarded contractor for the Spike missiles, the associated contract of €287 million was intended to be executed in collaboration with other firms, including FMG (Fábrica de Municiones de Granada), Tecnobit, Escribano, and Rheinmetall Expal.

These companies are now facing adverse effects from the government's policy shift, as they are also responsible for the SILAM project.

The potential alternatives to replace the Spike missiles primarily involve options from the United States, a country with which Spain's diplomatic relations have recently been strained.

The Javelin missile, manufactured by Lockheed Martin, stands out as a frequently used alternative in Spain.

Lockheed Martin has recently formed a partnership with Rheinmetall to produce missiles in Europe.

Alternatively, an agreement could be reached for the Akeron missiles produced by MBDA, a company stemming from the merger of missile businesses from Airbus, BAE Systems, and Leonardo.

An even more paradoxical alternative is the Eurosikpe, a European variant of the Spike missile, manufactured by Rheinmetall in Germany, which the Spanish government is looking to cancel.

A similar scenario exists for the SILAM program, which features options such as the HIMARS launchers, known for their impact in the Ukrainian war, though these systems are also produced in the United States.

Currently, the Ministry of Defense states it is exploring "technological alternatives" to identify a new platform for the Spanish army.

The situation is marked by contradictions, as the award document for the SILAM contract described Escribano and Rheinmetall as "the only companies technically capable of developing the project from a technical perspective." Until recently, the technology was deemed "irreplaceable." Consequently, any modifications to the contracts may result in extended timelines for companies that are on track to be major job creators in Córdoba, a significant area for socialist interests in Spain.

As of now, one program involving Israeli technology remains unaffected: the laser designator pods for 45 Eurofighter jets, awarded at the end of 2023, amidst the ongoing conflict in Gaza.

The deal, valued at over €200 million, was contracted to Rafael and is crucial for enhancing the combat effectiveness of fighter aircraft through precise targeting of laser-guided munitions.

The company has a strong technological foothold in this area and has previously collaborated with the Spanish Air Force on related orders.

However, the overall political nature of these decisions leaves the sector with uncertainty about the future of these contracts.

Any cancellation could exacerbate delays in the urgent modernization of the armed forces and lead to potential compensations for the companies involved in the abandoned programs.