A row has broken out between Israel Aircraft Industries Ltd. (IAI) CEO Itzhak Nissan and Dr. Shimon Shimon Eckhaus, CEO of ImageSat International , which sells civilian satellite photography services. The row broke out over the talks Eckhaus has been holding with the Ministry of Defense with a view to transferring all military satellite imaging activity to ImageSat. The defense satellite Ofek 7 is due for launch in 2007-2008, and the company is proposing that it carry out the launch.
Eckhaus claimed in meetings with officials at the Ministry of Defense that, with a large cut in defense budgets in the offing, ImageSat’s Eros family of high resolution satellites can guarantee the supply of all Israeli intelligence requirements at a lower costs and a tighter timetable. IAI management is opposed to Eckhaus’s initiative and claims that the implementation of such a plan would ruin the company’s space technology infrastructure.
Aware of the pressure that the Ministry of Defense is under from the Ministry of Finance, Eckhaus claims that the planned budget cuts could result in the Ofek 7 launch being postponed further to 2009. He also claims that the Ministry of Defense will be able to meet the timetable by working through ImageSat, and that the Iranian nuclear program has made the timing of the Ofek 7 launch extremely important.
ImageSat was founded in 1997. The company is a subsidiary of IAI, which has 42% share, with Elbit Systems (Nasdaq: ESLT; TASE: ESLT) and El-Op Electro-optics Industries jointly owning a 12.4% share, and US investment fund Pegasus Capital, which represents US and Israeli investors, controlling the remaining share. ImageSat currently operates two civilian imaging satellites, Eros A, which was launched in 2000 and has been in operation since then, and Eros B, launched two months ago.
Both satellites were made by IAI, and constitute a part of Israel’s Ofek satellite surveillance network. Satellite imagery is used primarily for national security, military and internal security purposes, but it also has civilian uses such agricultural control and planning. The Ministry of Defense in Israel presently receives intelligence services from three Israeli imaging satellites: the two Eros satellites and the military satellite, Ofek 5, launched four years ago.
Eckhaus's approach to the Ministry of Defense comes amid the crisis that has engulfed the Israeli satellite industry. 10 months ago, the launch of Ofek 6 failed due to technological problems in the Shavit satellite launcher, which is also manufactured by IAI. Such a failure has strategic repercussions, in additional to the technological ones, which may not yet have been resolved. The new Ofek 6 was meant to have improved Israel’s ballistic missile attack warning system.
On the other hand, the civilian satellite field has also been experiencing difficulties. The report of the State Comptroller published in September 2005, revealed that ImageSat’s marketing plans did not materialize. It noted that as the report went to press, ImageSat owed its parent $37 million. Sources inform ''Globes'' that ImageSat has still not managed to pay off its debts, which have since increased to $45 million. Eckhaus, a former IAI deputy CEO, and the official who managed its marketing activities, was appointed ImageSat CEO a year ago, shortly before the publication of the State Comptroller’s report.
The company has tried unsuccessfully to raise capital on the New York Stock Exchange, but has met with refusal because it is a loss-making business. However, it subsequently managed to raise $34 million from institutional investors in a bond issue. Sources who know both Nissan and Eckhaus say that one of the reasons for the feud between the two men is their earlier intense rivalry for the position of IAI CEO, following the retirement of Moshe Keret.
IAI management has taken a grave view of Eckhaus’s initiative. Sources close to CEO Nissan, say it is unacceptable for the CEO of a subsidiary to openly defy its owners. “We cannot have this becoming a Frankenstein,” said Nissan at a internal meeting yesterday.
Ministry of Defense spokesperson Rachel Niedak-Ashkenazi said in response, “In conjunction with Israel’s military space program, the Ministry has purchased satellite imagery on behalf of the IDF from various sources and companies across the world, among them ImageSat, which operates the Eros satellite network. The Ministry of Defense continually reviews the options for future cooperation on optical satellite development but has not yet taken decisions in this regard. The Ministry does not intend to rely on a commercial company as the sole supplier of satellite imaging, but rather, to continue to focus on the core development of the military’s space program.”
Published by Globes [online], Israel business news - www.globes.co.il - on July 6, 2006
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