The innovative product line for the coming years that Israel Aerospace Industries Ltd. (IAI) (TASE: ARSP.B1) is planning is just part of the comprehensive strategy that CEO Itzhak Nissan is leading to turn the government defense company into a relevant player in the major leagues of the world's arms companies.
The plan's first fruits are due within three years; in addition to next-generation unmanned aerial vehicles (UAVs), command and control systems, missiles, and combat systems needed by any army seeking to win a war, IAI will expand its products portfolio with the goal of providing clearer responses to its private-sector rival, Elbit Systems Ltd. (Nasdaq: ESLT; TASE: ESLT).
"We will go strongly and clearly into the land warfare segment, where we previously had almost no presence, certainly not on the scale we're planning. Although it's too late to rival the digital land army control system of Elbit, we're heading in the direction of very advanced communications systems for land forces, systems that will be breakthrough systems by any measure. There is a great deal of thinking about advanced missile systems for land forces, innovative and revolutionary robotics, and other super-systems," an IAI source close to the subject told "Globes".
After positioning itself as a leading global exporter of UAVs and satellite and missile systems, ground forces is not the only area in which IAI is setting its sights. Company teams are in close contact with foreign companies for the development and production of innovative wind energy turbines, which will ensure big money.
"There are feverish talks with foreign partners, and we're putting in a lot of human capital. This is a new field for a company like IAI, but we're not afraid of the challenge, and we're working hard on developing the most advanced turbines that can generate the maximum energy from wind. These turbines can be deployed at sea or on the coast, and their power output will be very high. We ill bring to this industry a great deal of innovation, and within three years, we'll probably be able to make deals," the source said.
Advanced wind turbines will be just one item in a complete basket of products that IAI plans to offer the civilian environmental market. This basket, which just recently secured a specialized development place at IAI, also includes the Taxibot, a high-powered electric vehicle for the safe and accurate towing of passenger jets at airports in order to save expensive jet fuel and greatly reduce noise.
Nissan declines to discuss directly development plans, that are currently being reviewed backwards and forwards in internal company discussions. "We are examining the basic feasibility of products, and there are teams thinking about a lot of things. It would be premature for me to comment on most of them. However, we are known for attack, defense, and decision systems. We are determined to keep it that way," Nissan told "Globes".
Trouble at the top
In addition to marking new target markets with high profit potential, IAI plans Nissan's response to the prolonged crisis at one of the company's flagship divisions, the Commercial Aircraft Division, which builds executive jets but which is an albatross around the neck of the entire company.
In the financial report for the first quarter of 2011, published last week, IAI left no room for doubt. The nose dive in orders for executive jets, which began with the outbreak of the global economic crisis, is continuing, and is costing IAI money. The market is saturated, prices are plummeting, and IAI has a problem because it has an entire division that is only partly working. On the eve of the crisis, IAI sold over 70 executive jets a year, but current sales are just 15-20 jets in its partnership with Gulfstream. The numbers indicate just one thing - trouble.
"We're currently focused on the production of two executive jets, the G-150 and the newer model, the G-250, while we wait for the global economy to recover and emerge from the crisis. We're still far from the conditions in 2006, when this industry's sales peaked. It is hard to launch new products in a market in such dire conditions. When the crisis began, we had orders that were cancelled one after another," says Nissan.
IAI is also getting no relief from a Commercial Aircraft Division project to develop subsystems for the next-generation Boeing airliner, the 787 Dreamliner. The Boeing 787 is supposed to be revolutionary, bordering on the futuristic, built entirely of composite materials that will slash its weight. This fact has far-reaching consequences, including substantially lower fuel consumption compared with other jetliners, and smaller, more efficient and quieter engines.
"This is the general plan of the plane, which has been delayed at Boeing several years. All the project's subcontractors feel it, including us," says Nissan.
Privatization necessary
The troubles in the executive jets do not make Nissan lose his equanimity. He believes that the Commercial Aircraft Division's problems are solvable, and that IAI's pockets are deep enough to absorb them, at least for now. Looking forward, he sees conditions developing that will enable the privatization of the company, and he talks about a "deep willingness" by all the parties involved.
"What needs to be done now is to start the negotiations," he says. He believes that only privatization will release IAI from the restrictions that hinder its attempts to operate in the playing field of the global arms giants and to be a key player on it. When the problems are solved, Nissan has a vision of thriving foreign subsidiaries that can raise the capital needed to develop new breakthrough products.
Nissan declines to comment on the stormy pending departure of IAI chairman Yair Shamir, and he is careful with his words. "I am working on what I started when I came to IAI over 30 years ago - doing and developing," Nissan says in response to questions on the subject.
Published by Globes [online], Israel business news - www.globes-online.com - on June 6, 2011
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