Almost 60 years of defending itself against hostile neighbours has given Israel one of the world's most advanced aerospace and defence industries. But until now, the sector has been inward-looking, relying on the nation's military budget and key overseas customers or partners.
Israel Aerospace Industries plans to change that. The country's biggest aerospace concern wants to set up overseas operations to meet capacity shortfalls, get closer to customers, and win shares on airliner programmes.
"Our aim is to establish infrastructure and become global," says chairman Yair Shamir, who since his appointment two years ago has overseen a management clearout and financial transformation at the state-owned firm. Net profits in his first full year were $130 million on revenues of $2.8 billion, compared with $2 million profit in 2005
USA and Europe
"We've reached a level where resources are constrained and the next step is to establish legs in the USA and Europe," he says. "These would be our subsidiaries, which would leverage technology that we have already in Israel, but there would be Chinese walls to allow foreign governments to buy from them."
Takeovers are more likely than building businesses from scratch. The model would be to "pump money and technology" into acquisitions, "and let them run themselves with local citizens".
If it goes to plan, the overseas expansion could increase the size of the business by one-third within three years. IAI's acquisition war-chest has been boosted by $250 million raised in a public offering of bonds last month.
IAI comprises five strands: spaceflight and missiles electronic warfare systems aerostructures maintenance, repair and overhaul and unmanned air vehicles. In many areas it is a world leader, including freighter conversions, mainly on Boeing 767 and 747 airliners, and UAVs - its latest offering is the TP version of its Heron medium-altitude, long-endurance aircraft. It has a "great partnership" with Gulfstream, for which it builds the G150 and G200, derived from its original Astra and Galaxy business jets. Strong demand has seen the lines double output in three years.
Strengthening the civil side of IAI's activities is a prime objective for Shamir and the management team headed by Itzhak Nissan, who took over as chief executive last year. Defence - made up of products developed for the Israeli armed forces - represents 65% of turnover. "Our objective would be to have two strong legs," says Shamir. The company is keen to win a place on future aircraft programmes as a risk-sharing partner: it is a subcontractor to Alenia and Vought on the Boeing 787. IAI is also in early talks with potential partners in India - one of its biggest defence customers - to build a 60- to 80-seat aircraft in the country.
key territories
China and Latin America are other key territories for new businesses. "We are unlimited in what we can do in the civil arena in China and it is a great place," says Shamir. South America also offers low labour costs combined with a skilled workforce.
Shamir and Nissan have kept a low profile since their appointments - their priority was sorting out the lack of profitability by trimming costs and focusing on what Nissan calls "mega projects" - those with serious market potential. These include airliner conversions, MRO, business jet development and manufacturing, UAVs, intelligence systems and air defence systems. Shamir's impression of the company when he arrived was that it had "great technology but poor finances", not helped by having a board of mostly political appointees.
As well as funding expansion overseas, IAI plans to use the $250 million to build hangars for the conversion of 747-400s, and to bid for parts of Israel Military Industries, being put up for sale as part of a privatisation process.
Privatisation is also the likely next step for IAI. Although the government is reticent about a timetable, Shamir and Nissan have finally made the business a viable buy.
Source: Flight International
