Serbia and Israel’s Elbit Systems are about to move from buying and selling military equipment to building it together. A jointly owned drone factory in Serbia is scheduled to be inaugurated between September 15 and September 20, with Elbit holding a controlling 51% stake and Serbia’s state-owned defense company Jugoimport SDPR owning the remaining 49%.
Serbian President Aleksandar Vučić announced the opening timetable Saturday, putting a specific date on a project that had been discussed publicly for months. The plant is located in the Šimanovci industrial zone, roughly 30 kilometers west of Belgrade.
The ownership structure makes this more than an Elbit factory placed overseas. Serbia is an equity partner in the operation, while the Israeli defense company retains majority control.
The factory is the physical piece of a much larger commercial relationship. Elbit signed a five-year, $1.63 billion contract to equip the Serbian military — a deal first disclosed last year only as an agreement with an unnamed European country before Serbia was identified as the buyer.
For Serbia, the deal brings Israeli drone technology onto Serbian soil. For Elbit, it creates a majority-owned European manufacturing foothold tied to one of its biggest customers.
The plant is expected to produce two categories of unmanned aircraft. One is a short-range strike drone. The other is a longer-range aircraft capable of operating at altitudes of roughly six kilometers, which Serbian officials have said will exceed the capabilities of the country’s existing Pegaz drone.
Engineers from Serbian aircraft manufacturer UTVA, part of the SDPR group, are expected to participate in the program.
That helps explain why Belgrade wanted a partnership rather than simply another weapons purchase. Serbia is seeking manufacturing knowledge and technical capabilities it does not currently possess. Producing the aircraft locally alongside an established Israeli defense manufacturer can transfer skills into Serbia’s domestic defense industry in a way that importing completed drones cannot.
What Elbit Is Supplying Beyond the Drones
The broader five-year contract stretches well beyond unmanned aircraft.
It covers precision long-range rocket artillery and a range of unmanned aerial systems for intelligence gathering and attack, including smaller systems operated by individual soldiers. Elbit is also supplying intelligence, surveillance, target acquisition and reconnaissance capabilities, electro-optical and night-vision equipment, upgrades for military vehicles and protection systems, and battlefield communications and digitization technology.
That last category is increasingly important in modern warfare. Rather than treating drones, artillery, sensors and command posts as separate pieces of equipment, battlefield networks allow information gathered by one system to be transmitted quickly to another — shortening the time between identifying a target and responding.
By value, the Serbian agreement sits among the larger international contracts awarded to an Israeli defense company.
Israel Aerospace Industries’ $3.5 billion Arrow 3 agreement with Germany remains substantially larger, while major Israeli weapons agreements with India have also reached well into the billion-dollar range.
Serbia’s $1.63 billion Elbit contract places a relatively small European country among the significant buyers of Israeli military technology.
Why the Timing Matters for Investors
Elbit trades on Nasdaq and the Tel Aviv Stock Exchange under the ticker ESLT, and the Serbian announcement comes just ahead of the company’s second-quarter earnings report.
Elbit reported $2.19 billion in first-quarter revenue and had a $30.2 billion order backlog as of March 31, giving the company years of contracted work across multiple defense markets.
The Serbian plant adds a different kind of exposure.
A traditional weapons export produces revenue as equipment is delivered. A majority stake in a foreign manufacturing operation potentially gives Elbit an ongoing position inside the customer country’s defense-industrial base.
The company has been adding major orders elsewhere as well, including contracts involving tank modernization and U.S. military night-vision equipment.
For shareholders, the Serbian venture therefore changes more than the size of Elbit’s order book. A 51% stake gives the Israeli company control of a local production operation and establishes a manufacturing presence that could outlast the original weapons contract.
Europe Keeps Buying Israeli
Serbia is part of a broader European push toward Israeli defense technology as governments increase military spending and seek systems that can be deployed relatively quickly.
Greece has moved toward a multibillion-euro Israeli air-defense program involving systems from Rafael and Israel Aerospace Industries, while Romania has also selected Israeli air-defense technology.
Russia’s invasion of Ukraine and the resulting European rearmament drive have put pressure on governments to rebuild ammunition inventories, air defenses, drones and other military capabilities faster than many domestic manufacturers can expand production.
Israeli defense companies have benefited because they already manufacture many of the systems European militaries are seeking.
The Serbian partnership takes that relationship one step further: instead of Israel manufacturing the equipment at home and shipping it to Europe, an Israeli defense company will own the majority of a production facility operating inside Serbia.
The venture has drawn political scrutiny since investigative reporting by BIRN and Haaretz disclosed the Elbit partnership in April, before the companies publicly confirmed many of its details.
Vučić defended the arrangement, saying Serbia does not possess Israel’s drone-manufacturing capabilities and wants to develop them through cooperation.
The criticism has not stopped the project.
The factory is now scheduled to open in Serbia next month.
JBizNews Desk | Belgrade
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