In any event, with the amount of US aid Israel gets, I'm not comfortable with them using their US-subsidized position to undercut US companies
You have it in reverse.
Far from proping up the Israeli arms industry, US aid has weakened it. Most subsidies are spent on American equipment. Hence the IDF uses uses the M-16, not the Galil or its new gun.
For ELTA, Rafael, and IAI to survive, they must export quipment, since Israel is too small of a market.
Istael should sell weapons to friendly nations. I much preffer South Korea getting the Phalcon than, say, China.