The state-owned arms manufacturer, RUAG, has defended its activities with Israel, saying they do not break laws on the export of war material.
The company's operations in the Middle East have come under media scrutiny amid the escalating conflict between Israel and the Palestinians.
"RUAG does not export material to Israel but is involved in existing contracts between the Swiss government and Israel," RUAG chief executive Toni Wicki told swissinfo. "We are participating in production of material with Israel which is bought by the Swiss government."
He added that the material included reconnaissance drones, ammunition and communication equipment.
Wicki said that part of an upgrade programme of Swiss howitzers could be sold to the United Arab Emirates and there were negotiations taking place with other countries in the Middle East to sell additional material owned by the Swiss Army.
"This is war material and we are strictly following Swiss policy that is laid down in the export legislation. This says that Switzerland is not allowed to export war material into a conflict area where a war is taking place," he commented.
Asked by swissinfo whether the company's activities violated Swiss neutrality, he said: "The question of Swiss neutrality has to be answered by the government because these are all contracts issued by the Swiss government."
Owned by the Swiss government, RUAG was established from the former armaments plants of the confederation and has since 1999 been a private stock corporation.
The firm has been increasingly looking outside Switzerland to try to compensate for the loss of business with the Swiss army.
Wicki told swissinfo that despite being owned 100 per cent by the state, the company received no preferential treatment when it comes to new defence procurements.
"We have to go into competition whenever the Swiss government wants tenders so we are up against third-party companies," he said.
To underline the point, RUAG pointed out in its annual report published on Tuesday, that its share of the Swiss government's SFr980 million ($591.8 million) defence-spending programme in 2001 amounted to SFr52 million, or just 5.3 per cent of the total.
Where RUAG maintains a monopoly is in the area of maintenance. "We are engaged in the maintenance and support of the existing army material... There we have a very preferential position but the finance control body of the government makes sure we do not run up too expensive costs," Wicki said.
"The mandate is that we have to safeguard the technologies needed to maintain and to upgrade the material which is used in the Swiss army. This includes aircraft, tanks, communication equipment and ammunition."
There has been a "particularly drastic drop" in orders in the large-calibre ammunition sector, which has prompted RUAG to transfer ammunition production from Altdorf in canton Uri, to Thun in canton Bern.
If the trend worsens, job cuts will have to be considered, Wicki said.
The loss of traditional business in the defence technology sector can be partly compensated for by growth in third-party business, which is creating new and technologically more demanding jobs. The strategy is to grow in four distinct areas.
"They are aircraft maintenance and aircraft and space structures, small calibre ammunition, land simulation and secure communication. We are strongly expanding the base of technology both for third parties and for safeguarding technology for the Swiss forces," Wicki explained.
by Robert Brookes