IAI
With Israel's defence spending staying stable, Israel Aircraft Industries (IAI) is not relying on domestic largess to achieve its ambitions for growth. Commercial, non-defence, business accounted for 35% of revenues last year, beating the target set in 1993 when IAI began a painful restructuring.
That restructuring is now complete, and IAI last year recorded a profit for the first time in five years, reporting net income of $24.3 million on sales of $1.69 billion.
IAI president Moshe Keret expects a "much higher" profit in 1998, and estimates that sales will reach $1.85-1.9 billion this year. He is forecasting confidently that IAI will reach its goal early of $2 billion sales in a year, in 1999 instead of 2000. Commercial business is also contributing to the company's growth, as are exports, which reached a record $1.3 billion last year.
"In four years we have tripled sales of commercial products and services, from $200 million to $600 million," he says. "The trend will continue," Keret adds. IAI would like to "almost balance" its defence and commercial businesses, he says, aiming for non-defence sales of 40-45% of total revenues.
The move into the commercial arena was a key element of IAI's restructuring. The others included cutting the workforce from 18,000 in 1993 to 13,500 today, and refinancing the state-owned company's debts.
To give what Keret describes as a "sign of hope for the future", the Israeli Government also agreed to invest "a significant amount of money just dedicated to commercial programmes", he says.
These included Boeing 747 freighter conversions at IAI's Bedek division: development of the Galaxy business jet; and an expansion of the company's engine overhaul capability to include the CFM56. Now IAI is looking at other potential cargo conversions, and has proposed developing the Airtruck twin-turboprop freighter for FedEx.
Keret sees growth in the airline services market, and IAI is developing Bedek into "a full service provider". In the business jet market, Keret forecasts combined production of 25-30 Astras and Galaxys a year, to be marketed and supported by IAI's Galaxy Aerospace joint venture with the Pritzker group.
Another new commercial market for IAI is space, where the Israeli company hopes to participate in the satellite, launch vehicle and ground station arenas. "We are involved in both the space and ground segments of the business," says Keret, "and we hope there will be significant growth."
Defence will remain IAI's biggest business, however, with exports providing the growth. "The domestic market is stable. Growth will only be outside Israel, "Keret says.
Biggest exporter
The company is already Israel's biggest exporter, accounting for almost 10% of the country's industrial exports.
Keret sees a trend towards increasingly integrated and interwoven defence systems, both domestically and internationally, and cites examples such as command and control, intelligence and early warning systems. Ballistic missile defence represents another area of potential growth.
Although IAI cannot export the Arrow anti-tactical ballistic missile system, because it has been developed with US funding, IAI is hoping to apply its expertise to other systems, he says.
Unmanned air vehicles are another area in which IAI is a leader, and one in which Keret believes that there are "-many more applications than we have seen so far".
Upgrading combat aircraft accounts for about 10% of IAI business, but the biggest factor in boosting its order backlog to record levels came last year, with the signing of a deal to upgrade Turkish F-4s. IAI is now in final negotiations to upgrade Turkey's F-5s, but Keret says that it is a "-steady state market - big deals do not come every year".
The challenge IAI now faces, Keret says, is to increase its competitive edge and become "a consistently profitable, independent business". The firm must prepare for an ownership change, he says, as state ownership limits its ability to participate in strategic alliances with companies outside Israel. "I cannot indicate when or how, but there will definitely be a change," he says.
Shifting from state to private ownership within Israel, however, has so far proved extremely problematic. The defence ministry's arms development agency, Rafael, has long struggled with the idea of restructuring, but as yet little progress has been made.
Itzhak Gat, Rafael's president, readily admits that it is proving difficult to restructure the arms development agency, in the first place to a state held company and then, in all likelihood, to steer elements of it into the private sector. He is in no doubt, however, that this needs to be done.
"The world has changed. We've seen consolidation in the USA, and it's ongoing in Europe-It's not acceptable that we remain organised as we are today."
The first tentative step down this route will be to transfer Rafael staff from being directly employed by the state, to being employed by a state-held company.
Gat also raises the issue of consolidation within the Israeli defence aerospace sector, in pulling together a group with the corporate mass to continue to compete successfully on a global scale, while readily recognising the critical importance of exports to its continuing well being.
"We effectively have to export something like 50%of our capacity to continue to fund research and development at present levels," he says. Rafael, like IAI, has proved successful in the export arena with sales of its Python 3 short range air-to-air missile, and its Popeye stand-off missile.
Source: Flight International
