Elbit Systems, the Israeli defence electronics manufacturer, made a show of its 2008 financial results presentation, holding a press conference in a big hall in the Tel Aviv stock exchange set up to demonstrate its capabilities through a movie combined with live actors dressed as soldiers equipped with Elbit products.
But Israel's largest private defence company could be excused a bit of bravado. On growth alone, its performance is impressive, with revenue up by one-third to nearly $2.64 billion, while net income soared more than 2.5 times to $204.2 million, from $76.6 million in 2007.
What seems to be driving this growth, however, is a winning strategy. Elbit defines itself as a "multi-domestic" company and chief executive Joseph Ackerman points out that while Israel is not its biggest market, it is the most important, and provides the leverage that Elbit needs to expand internationally. As Ackerman puts it, the result of Elbit's close working relationships as a developer and supplier of systems for the Israeli air, ground and sea forces is that "each dollar we sell to the Israeli defence forces generates $4 in sales to foreign customers".
DIGITAL SOLDIER
Elbit Systems is mostly known for its line of pilot-cueing helmets that are integrated in many combat aircraft, including the Lockheed Martin F-35, for its unmanned air vehicles and for its "digital soldier" systems. But through its Elop division, the company is also developing some of the most advanced electro-optical payloads for ground, air, sea and space.
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The USA is Elbit's largest market, but the company's products are not exported to the clients there. Instead, they are manufactured by local companies that are fully owned by Elbit, which recognised years ago that to improve foreign sales it needed to manufacture in its target markets. Indeed, with subsidiaries in Asia, Europe, Latin America and the USA, the Israeli company almost does not have to export.
Looking forward, Ackerman forecasts that, despite the global financial crisis, 2009 "will be at least as good as 2008" and he expects to finish 2009 with an order backlog even greater than the $5 billion at which Elbit closed 2008. And, he adds, foreign acquisitions are likely, as the company continues to press for ever-easier access to export customers.
This optimism is founded on Elbit's expectation that countries are likely to switch their weapons procurement strategies away from replacement platforms in favour of greater investment in upgrading them, which is one of Elbit's strengths, including on fixed- and rotary-wing aircraft and tanks.
"We invest 8.6% of our turnover in R&D and that allows us to reach the market with fully operational systems before our competitors," says Ackerman, who adds that platforms that will be taken out of Iraq are just one example of a potential market for upgrades.
As for marketing, Elbit points out that its product range includes a wide array of combat-proven systems, many of which were used by Israel in the recent "Cast Lead" operation in the Gaza strip. Some of those systems are highly classified and cannot be sold to foreign customers, but others are available for purchase.
US SALES
One-third of Elbit's sales are in the US market. After a decade of constant growth, expectations are for a US defence budget freeze or, at best, a small increase. Elbit is involved in the F-35 programme through its American subsidiary VSI, in which Rockwell Collins has a 50% stake. Ackerman believes that because the programme is multinational, the effect of the economic crisis will be limited.
Ackerman is also encouraged by the US Department of Defense's declaration that it will increase spending on sophisticated, force-multiplying systems even if overall spending remains stable. These sophisticated systems include unmanned aircraft and a variety of command, control, communications, computers, intelligence, surveillance and reconnaissance (C4ISR) systems - all growth engines for Elbit.
Source: Flight International
