American Jewish businessman Ira Rennert is considering a bid with former Defense Minster Ehud Barak to buy state-owned Israel Military Industries, a source said Wednesday.

The bid, however, would face enormous obstacles because the government is determined to protect Israel's national security interests by severely limiting the role of foreign investors in the company.

"A foreign investor could not acquire control of IMI since the government wants to ensure that the company stays Israeli,” said a source involved in the privatization.

Israel plans to privatize the defense giant, which has a solid technology portfolio but has been saddled with losses due to overstaffing and high production costs. In recent weeks the government, management and unions have reached an agreement that paves the way for the long-planned sale.

IMI generates around NIS 1.9 billion in annual sales and has an order backlog of NIS 5.6 billion, but the company has posted losses for 14 straight years, as high as some NIS 250 million annually. Around 70% of IMI’s sales are exported to countries like Italy, France, Turkey, Kazakhstan, Vietnam, South Korea and several African nations.

According to the source close to the privatization, any foreign company seeking to buy IMI would need Israeli partners to meet the government’s strict restrictions. One expected condition would be to ensure that IMI's board retains an Israeli majority. Other expected suitors are defense electronics specialist Elbit Systems, Israeli arms mogul Samy Katsav and Israel Shipyards.

Rennert began his business career on Wall Street and is known for acquiring troubled companies via junk bonds. His estimated net worth is $5.5 billion; in 2009 he was 132nd on the Forbes list of world billionaires, tied with Israeli tycoon Sammy Ofer (now deceased) and his family. Rennert is a major philanthropist in the United States and Israel to both secular and religious Jewish causes.

This would not be Rennert's first foray into the defense industry. In 1992, he bought out of bankruptcy the American AM General, which produces the military Humvee and the civilian luxury Hummer. In 2004, Rennert sold a controlling stake of the company to fellow billionaire Ronald Perelman for $930 million after paying $133 million for the firm in 1992.

Hagai Amit contributed to this report.