Ashot: Reliance Gear and the U.S. turnaround test
Reliance Gear still matters strategically inside Ashot's U.S. story, but 2025 exposed how unresolved its economics remain: sales fell, gross margin collapsed to 8.7%, and the parent still provides support. 2026 should determine whether Reliance becomes a real platform or remains a strategically important bridge with weak economics.
The U.S. question is no longer about presence
The broader Ashot debate has already moved beyond demand. The real question is whether the group can convert the order wave into output, margin, and cash. This follow-up isolates the U.S. arm, Reliance Gear, because that is where the gap between strategic story and actual economics is most visible.
The core point is straightforward: Reliance is still a real strategic asset, but it is not yet a proven economic platform. In 2025 it gave Ashot local U.S. presence, proximity to American customers, a base for cooperation, and a way to work through U.S. aid-funded spending. In that same year it also posted a sharp decline in sales and profitability, finished with almost no operating profit, and remained dependent on business support from the parent.
That is the heart of the issue. If Reliance were just another marginal subcontractor, the margin collapse would be annoying but not strategic. Instead, Ashot itself describes the U.S. as a territory in focus, presents Reliance as a strategic arm, and frames 2026 as a turnaround year built on a CEO change in the second half of 2025, workforce optimization, operational efficiency, and stronger marketing and sales. In other words, management has already admitted that the platform exists, but the economic model is still not working properly.
The sharper contradiction is in the way the story is framed. The investor presentation highlights 20% sales growth at Reliance between 2022 and 2025, from NIS 41 million to NIS 49 million including intercompany sales. That is true, but it is also the easier comparison. The annual report forces the harder one: total Reliance sales fell to NIS 48.5 million in 2025 from NIS 69.9 million in 2024, and gross profit dropped to NIS 4.2 million from NIS 16.3 million. Anyone holding on to the growth narrative alone is missing the economic reset.
What 2025 actually exposed
The deterioration at Reliance was not cosmetic. It showed up across almost every meaningful profit line. Total sales fell by 30.5%, external sales fell by 17.4%, gross profit fell by 73.9%, and operating profit almost disappeared.
| Metric | 2024 | 2025 | Change |
|---|---|---|---|
| Total sales | NIS 69.9m | NIS 48.5m | Down 30.5% |
| External sales | NIS 15.3m | NIS 12.6m | Down 17.4% |
| Intercompany sales | NIS 54.6m | NIS 35.9m | Down 34.2% |
| Gross profit | NIS 16.3m | NIS 4.2m | Down 73.9% |
| Gross margin | 23.3% | 8.7% | Down 14.6 percentage points |
| Operating profit | NIS 6.1m | NIS 0.3m | Down 95.4% |
That breakdown matters because it shows the problem was not only weakness with outside customers. The intercompany layer, the one that should have given Reliance a more stable base through the group, also weakened sharply. So 2025 does not read like a single soft year in a volatile market. It reads like a year in which the U.S. arm failed to maintain a reasonable level of activity and profitability even with internal support.
The backlog does not offer a clean offset either. At year-end 2025 Reliance's backlog stood at NIS 74.3 million, down from NIS 95.5 million at year-end 2024. Of that, NIS 56.5 million at the end of 2025 came from Ashot itself, versus NIS 79.6 million a year earlier. That means the non-parent portion of backlog did not collapse, but the business is still mostly anchored by group orders. This is an important nuance: Reliance is not without market relevance, but it is still not standing on sufficiently independent U.S. legs.
Management's emphasis on changing the sales mix, strengthening marketing and sales, and focusing on leading aerospace customers says more than it seems to say at first glance. If the mix needs to change, the existing mix is not generating enough profitability. If sales and marketing need to be strengthened, the local platform has not yet created enough commercial depth on its own. And if the CEO had to be replaced in mid-year, the issue is usually more than a temporary market wobble.
Why Ashot still needs Reliance
This is exactly where the tension sits. Reliance is economically weak, but Ashot cannot treat it as a peripheral activity that can simply be cut back. Strategically and operationally it is a small but leveraged asset. The presentation shows only 43 employees in the U.S. versus 478 in Israel, yet still frames Reliance as a growth engine into the American market, a local-customer access point, and a base for deeper aerospace penetration and cooperation with other Israeli companies.
The deeper reason sits elsewhere: U.S. aid-funded spending. Ashot states explicitly that its ability to use U.S. aid-related dollars through manufacturing activity in the U.S. is one of its relative advantages versus competitors. As more of that spending has to remain in the U.S., the strategic value of Reliance rises. Ashot also says that if Reliance were to stop operating, it would have to work through other qualified American suppliers, increasing dependence on parties outside its full control, with all the implications for know-how, quality control, and execution.
So Reliance is not just another site. It is a strategic bridge between Ashot's Israeli industrial base and the need to stay relevant inside American procurement and aerospace realities. That explains why the company keeps investing in it, and why the presentation continues to speak in the language of a U.S. platform even after a weak year.
But the bridge still does not carry itself economically. In the note on the investment in Reliance, Ashot writes that recent years showed improvement, including a move to gross and operating profitability and positive operating cash flow, yet as of December 31, 2025 there were still doubts regarding Reliance's ability to continue operating without business support from the parent. That is strong language. It does not describe a subsidiary with a temporary rough quarter. It describes an operation that still has not earned the label of real operating independence.
Alongside that, the company says it had extended about NIS 12.4 million of parent loans to Reliance at year-end, dollar-linked, priced at 3-month SOFR plus 1.7%, with no defined maturity date. That loan does not make Reliance a balance-sheet threat to Ashot, but it does sharpen the right conclusion: this is a strategic arm that has not yet become a self-sustaining value engine.
| Frame | What the evidence says today |
|---|---|
| Drag | Yes, in 2025 economics and in the ongoing dependence on parent support |
| Bridge | Yes, because it preserves U.S. presence, customer access, and the ability to work through aid-funded spending |
| Platform | Not yet, because the economic and commercial proof is still missing |
2026 is a proof year
Reliance's 2026 plan is not generic, and that matters because it also tells us what management thinks is broken. Replacing the CEO in the second half of 2025 points to a management or execution problem. Workforce optimization and operational efficiency point to a productivity or cost-structure problem. Stronger marketing and sales, together with a sales-mix shift toward leading aerospace customers, point to a demand-quality problem, not just a demand-volume problem.
In other words, Ashot is saying that the turnaround has to come from three fronts at once: leadership, cost structure, and commercial mix. This is not cosmetic cleanup. It is an attempt to turn an operation with a strong strategic narrative into one with economics that actually justify that narrative.
What has to happen for the market to start treating Reliance as a platform rather than a perpetual work-in-progress?
| Checkpoint | Why it matters |
|---|---|
| Gross margin has to move out of single digits | Without that, the U.S. platform story remains mostly narrative |
| Direct sales to external customers need to carry more weight | That is the test of whether Reliance is building its own market position |
| Operating profit has to become meaningful again | A strategic arm with no earnings power remains mostly an added layer of complexity |
| Dependence on parent support has to ease | Otherwise Ashot is still carrying a strategic asset, not an independent U.S. business |
There is another risk that is easy to underweight. Ashot notes that the current U.S. aid agreement ends in 2028 and there is no certainty about renewal or scale. That means the Reliance strategy cannot rely only on working through aid-funded spending. If the U.S. arm does not deepen direct commercial sales, especially in aerospace, part of its strategic value will remain tied to an external variable the company does not control.
Bottom line
Reliance Gear is not a black-and-white story. It is not a failure that should be written off, but it is also not a U.S. platform that has proven itself. As of the end of 2025 it looks more like a strategic bridge with unresolved economics.
That is exactly what makes 2026 so important. Ashot has good reasons to keep and improve Reliance: local U.S. presence, customer proximity, the ability to work through aid-funded spending, and open doors in aerospace. But after 2025, that story can no longer rest on strategic importance alone. It has to show profitability, a better mix, and a real reduction in dependence on the parent.
In its current state, Reliance is more strategic bridge than economic platform. If the 2026 plan works, Ashot gets a U.S. arm with value far above its size. If it does not, the group is left with an asset that is important to own, but hard to defend economically.
Disclosure: Deep TASE analyses are general informational, research, and commentary content only. They do not constitute investment advice, investment marketing, a recommendation, or an offer to buy, sell, or hold any security, and are not tailored to any reader's personal circumstances.
The author, site owner, or related parties may hold, buy, sell, or otherwise trade securities or financial instruments related to the companies discussed, before or after publication, without prior notice and without any obligation to update the analysis. Publication of an analysis should not be read as a statement that any position does or does not exist.
The analysis may contain errors, omissions, or information that changes after publication. Readers should review official filings and primary sources before making decisions.