Israel's industry faces a period of unheralded change.
Douglas Barrie/TEL AVIV
Most countries with a population of 5 million would have neither the money nor the motivation to develop a national ballistic-missile-defence system, but then Israel is unlike most nations. It has developed the Israel Aircraft Industries (IAI) Arrow.
Despite the Middle East peace process, Israel remains on a quasi-war footing, willing to exploit its military capabilities to tackle what it considers to be legitimate security issues. Its geographical predicament - surrounded by Palestinian sympathisers and antagonists - coupled with the experience of the Holocaust, is the key factor behind its military and industrial thinking.
The relationship between Israel and its defence and aerospace industries is that of the classic "military industrial complex", with the armed forces, the state and the defence industrial base seamlessly fused together.
One peculiarity is the availability of billions of dollars of armaments under the auspices of the US Department of Defense's (DoD) Foreign Military Sales policy. While this has proved a windfall in terms of equipment for the Israeli Defence Forces, it has often turned out to be a poisoned chalice for the country's aerospace and defence industries - the availability of subsidised US military equipment often proving difficult to compete against. What Israeli industry has had to do is to develop equipment "better" than that on offer from the DoD. Its performance in combat, and on the export market suggests that it is eminently capable of producing such equipment.
The ability to develop and market advanced weapons, such as multi-mode radar and air-to-air and air-to-surface missiles, has also allowed Israel to pursue an independent export policy outside the umbrella of the USA. In the past, it has forged considerable links with states such as Chile, China and South Africa, all of which faced defence-equipment strictures from Western countries. In each of these cases, however, changing political circumstances are now opening up these states to the West. The impetus to maintain an independent defence industry was also driven by the memory of the French embargo on military equipment immediately before and during the Six-Day War of 1967.
The defence industry, with few exceptions, remains state-owned. Jacob Gadot, vice-president for strategic planning and special projects at Elbit, one of the few exceptions, ironically compares the industries of Russia and Israel in terms of their present predicament.
Both in the USA and, to a lesser extent, in Europe, the defence industry is restructuring in response to the changed strategic environment. The USA has seen a radical reshaping of its manufacturing base, with developments such as the emergence of Lockheed Martin.
For Gadot, Israel will also need to find a route to restructuring, beginning with moving much of its defence industry from the public into the private sector.
With the collapse of the superpower confrontation of the Cold War, the regional manifestation of the East-West confrontation in the Middle East has also dissipated. This has given Israel and the Arab states the latitude to establish peace agreements. This has also affected the aerospace and defence sectors, with lessened emphasis on the primacy of defence expenditure.
REPOSITIONING
The need for change is widely recognised. Moshe Kerret, president of IAI, is keenly aware that the Israeli defence industry needs to reposition itself in a changing environment. The problems lie in exactly how to do this.
IAI's, and indeed Israel's, bid to become a player in the new-build combat-aircraft arena ended with the cancellation of the indigenous Lavi programme. Since then, the Israeli air force has procured fighters from the USA in the shape of the Lockheed Martin F-16 and the McDonnell Douglas F-15. According to Israeli industry officials, in the run-up to the cancellation of the Lavi, General Dynamics lobbied furiously in favour of the F-16.
The USA's motives behind bringing the Lavi project to an end were complicated, a combination of appreciation that the programme might prove unaffordable; that its industry wanted to consolidate its own position; and that it wanted to "control" Israeli export policy. As far as the latter element is concerned, US policy may have backfired. China's Chengdu F-10 fighter programme is heavily reliant upon Lavi technology - having received considerable technical support from IAI. The leakage of advanced combat-aircraft technology from Israel to China has caused considerable consternation in Washington.
While the demise of the Lavi meant the end of Israel's aspirations to develop a fourth-generation fighter, it increased the emphasis on a core capability in combat-aircraft modification. The Israeli air force's F-16C/Ds are a far cry from those in service with the US Air Force, as will be its F-15Es. It is among the agencies which provide the avionics and weapons-integration skills that the problem facing Israel is most apparent.
The IAI Lahav division is responsible for combat-aircraft upgrades. Lahav competes directly with the privately owned Elbit in the export arena, leaving Israel unable to support a "national champion" - an approach being increasingly taken up by state organisations competing for a slice of the fiercely competitive export market. The thinking underpinning the national champion approach is that all of a country's governmental activities can swing behind a single manufacturer for a particular competition, rather than be dissipated because of internal competition.
The importance of exports to Israeli aerospace manufacturers can be gauged by the extent to which IAI and Elbit are dependent on foreign sales. IAI's 1994 sales totalled $1,447 million, with 76% from exports. Elbit, with sales of $758.5 million, saw 82% of these drawn from exports.
Both companies have scored notable successes in the combat-aircraft-upgrade marketplace. As far as upgrading Soviet fighters is concerned, Elbit is the prime contractor for the upgrade of the Romanian air force Mikoyan MiG-21 Fishbed, while IAI has also won upgrade contracts for this aircraft. In the latter case, the company is believed to be carrying out an upgrade programme for the Cambodian air force.
Both also compete head-on for Northrop F-5 upgrades. The Lahav division carried out an F-5E/F upgrade for the Chilean air force, while Elbit is the systems integrator on the Republic of Singapore air force's F-5 upgrade programme.
BUREAUCRATIC LAYERS
Elbit also competes head-on with the Elta and Malat divisions of IAI. Elbit has acquired a 50% stake Silver Arrow - a specialist in unmanned air vehicles - an area which has traditionally been dominated by IAI's Malat.
The Elbit approach potentially provides a template for the rest of the industry, which remains (for the moment) state-owned. Missiles, electro-optics and electronic-warfare house Rafael has not even reached the stage of being a Government-owned company, remaining part of the Israeli defence ministry.
Unshackled by the bureaucratic layers which encumber much of the rest of the defence sector, senior Elbit management is looking at radical restructuring options. Gadot explains: "We are looking at 'demerging' the defence sector, to make it more attractive." The group's largest element is its health division.
Elbit's strategy, says Gadot, is aimed at finding partnerships and joint ventures for its defence division. Effectively this is a "bottom-up" approach to restructuring the Israeli defence-manufacturing sector. Gadot recognises, as does senior management within IAI, that there also needs to be a governmental will to provide top-down guidance.
The general consensus among senior aerospace industry management is that this will take time, and will also be dependent upon external factors potentially affecting the next Israeli Government.
As one senior IAI official explains, while moving toward a privatised company may be high on the internal agenda, the Government faces other issues, not least that of Lebanon and Syria, which will certainly take precedence.
Moves to turn Rafael into a state-owned company, for instance, met with vehement opposition from the workforce. As a consequence, the move has been shelved. The Government would be unlikely to court major industrial unrest with the state's single largest manufacturer - IAI has a workforce of 13,000 people.
Gadot recognises that restructuring the industry will be a "difficult struggle". He views "establishing partnerships along with resource sharing" as an initial step toward this. In the wake of the Silver Arrow acquisition, Gadot says that Elbit is "...looking at how to join forces with IAI... we're looking very hard at how to create a joint venture".
Elbit's horizons, however, are not limited to being intimately involved in the rationalisation of the Israeli aerospace sector. It is actively pursuing establishing international ties. The most recent of these was the setting up of a joint venture with US helmet-mounted-display specialist Kaiser. Elbit brings its Dash helmet family to the table, with the tie-up intended to address the USA's Joint Helmet Mounted Cueing System requirement.
IAI's radar house, Elta, is also looking to build bridges within the international environment. It has teamed with GEC-Marconi to offer the EL/M 2022A(V)3UK radar for the Royal Air Force's Replacement Maritime-Patrol Aircraft programme. It views this as a first step in establishing a series of collaborations with the UK company.
Despite the hurdles in the way of change, moves are under way. Israel Military Industries (IMI), which produces the Tactical Air Launched Decoy (TALD), Delilah decoy and Star-1 stand-off anti-radiation missile, was (until 1990) part of the Ministry of Defence. It was then established as a Government-owned corporation and renamed TAAS. Since then, it has reverted to the IMI name.
The changes, however, are not cosmetic. From a staff of 11,000 in 1990, numbers have tumbled to 4,400. Shalom Bar-OR, IMI marketing director, says that the move to a Government-owned company "...required a change in philosophy...previously the sole goal was the security of Israel". Profit, he admits, has also now become an issue.
"NOT SO EASY"
Alongside a growing awareness of financial performance, the then-named TAAS also looked to diversify into the civil market. The much-vaunted "swords into ploughshares" approach, admits Bar-OR is "...not so easy as it may look. To move into any market you need a product." Like many other defence manufacturers which flirted with the civil sector, the company ultimately decided "on a core business focus". Some 50% of IMI's turnover, some $500 million a year, is through its heavy munitions group. The rest is garnered from its Technologies, Systems and Weapons and Armoured Fighting Vehicles groups.
IMI is now expecting a low-rate initial production order from the US Navy for the Improved TALD (ITALD) in May 1996. ITALD offers an improved flight profile, and IMI hopes that the Israeli air force will procure the decoy, in addition to the USN.
Taking the TALD/ITALD/Delilah decoys as a starting point, IMI is now looking to develop a family of stand-off weapons, using the Delilah as the basic air vehicle. The first of these is the Delilah Anti-Radiation missile, or Star-1. Using the basic Delilah air vehicle as the basis for a stand-off missile family adds a further name to Israeli missile manufacturers. At a time when other missile manufacturers are consolidating, the emergence of another Israeli missile design house is likely to be less than welcome to Rafael and IAI's MBT division, which also produces guided weaponry.
If there was ever a glaring case for rationalisation it is with Israel's missile manufacturers. A country with a population the size of Norway or Scotland should not be attempting to support three missile-design houses, a view recognised by senior industry officials.
One radical option which has been floated is to hive off missile design and production from Rafael as a company, initially Government-held, and to build a "national champion" around this. This would take in the missile elements of IMI, and could eventually join up with IAI's MBT division.
Rafael's present position as effectively part of the MoD, while providing security, also shackles it. A case in point is the Python 4 infra-red-guided air-to-air dogfight missile, where the design house has not been able to go public with the weapon, and has only recently been able to start marketing it to selected customers. The Israeli air force considers that the missile offers such an edge over the regional opposition that it is unwilling to sanction Rafael discussing the weapon with export markets. A move toward the private sector would ease some of these strictures, which many view as overly protective.
There is little doubt that the Israeli defence aerospace industry has in its portfolio a raft of products capable of competing, and winning, on the world stage. It would benefit considerably, however, from putting its own house in order, a view which is widely reflected within the industry itself.
Source: Flight International
