Joseph Ackerman is president and CEO of Elbit Systems (Israel Sun Ltd)
After leading Elbit Systems from a local avionics upgrade firm to a global aerospace and defense enterprise with subsidiaries or joint ventures in nearly 20 countries, Joseph “Yossi” Ackerman retires April 1.
During his 17-year administration, Elbit’s annual sales grew by an order of magnitude, from $286 million in 1996 to exactly $2.86 billion, according to 2012 year-end financial figures released March 13.
Through a merger-and-acquisition doctrine where “one plus one must equal more than two,” Elbit now claims some 90 percent of Israel’s nonstate-owned defense sector. It also prides itself on the rapid growth of its “second domestic market,” where Fort Worth, Texas-based Elbit USA turns over an annual $1 billion and employs some 1,800 in 14 U.S. locations.
After 31 years with the company, Ackerman plans to devote his time to farming, family, philanthropy and study. But he’ll remain engaged through his new role as vice chairman of Elbit’s board.
Q. What’s it like to be leaving the only employer you’ve ever known?
A. Interestingly, I’ve never had to prepare a résumé. I finished in the military and was a farmer until age 32, when I came to Elbit. And it was one of those fortunate coincidences that every time my respective bosses left, I moved in to replace them. So I suppose I feel more obligated than most to do the type of meticulous planning that will ensure a successful departure and a smooth transition.
Q. You’ve been grooming Elbit Land Systems executive Betzalel “Butzi” Machlis, your hand-picked successor, for some time, yes?
A. We’ve been joined at the hip for four months now. We prepared together a budget and a strategy, and lately he’s been running management meetings. Butzi has a deep understanding of technology, the operational environment and a broad managerial perspective. All of us — from our chairman, Mickey Federmann, on down — have full confidence that he’ll bring Elbit a very good year in 2013 and the years to come.
Q. Looking back, was there a single contract or event that you credit for Elbit’s transformation into a top-tier defense electronics firm?
A. The turning point was our purchase of the Electronic Manufacturing Center [EMC] from General Dynamics. We were the first in Israel and among the first international companies in the world to understand the importance of having an industrial presence in the United States. We understood we couldn’t just produce there; we had to become an American firm, with all the rights and privileges that entailed.
Q. When was that?
A. We signed the deal with Gordon England on Feb. 15, 1993, the same day [General Dynamics’ Fort Worth Division] was sold to Lockheed. We started with less than $30 million, added engineering, our own technology, marketing and eventually changed the name to Elbit Systems of America.
Today we do more than $1 billion in annual work on Bradleys, Apaches, Black Hawks, F-35, F-16s, F-15s, V-22, [multiple-launch rocket systems], laser, thermal, you name it. We’re connected to all the big primes.
A few years ago, an American colleague told me people no longer ask, “Who is Elbit?” They ask, “Did we call Elbit?” That’s the transformation.
Q. Is that the template you’re using in Brazil and other target markets?
A. Pretty much. We’re fulfilling expectations, supplying jobs, providing technology and demonstrating we’re there for the long haul. When we came to Brazil 15 years ago, no one was there. Our acquisition of Aeroelectronica [AEL] was based on our experience in Fort Worth. We invested heavily until the business started to bear fruit. But now, we are the largest multidomestic firm in a very vibrant market with total sales of hundreds of millions of dollars.
Q. Since the 2000 acquisition of Elop and subsequent strategic buys, your portfolio has expanded to include C4ISR, ground systems, training and simulation, and cyber. What’s your rule for rationalizing the various sectors?
A. We want to be among the world’s top three in every sector we enter and every niche technology we choose to develop. If we’re not there after a reasonable amount of time, we’ll either drop the effort or do something drastic to get us in the top tier. If you’re not in the top three, you’re just a commodity.
Q. How long is a reasonable period of time?
A. Usually, things take about five years to prove themselves.
Q. Many here viewed your recent foray into radars as costly and redundant, given that IAI’s [Israel Aerospace Industry’s] Elta is Israel’s principle radar provider.
A. Radars do, indeed, require enormous investment. But we selected a very limited niche sector of tactical detection radars for land applications, which will complement other areas of our portfolio. We just introduced this last year, so we’re clearly not yet among the top three. But I believe we’ll get there, and enjoy the synergy it brings to our systems-of-systems approach. But I must emphasize, we don’t want to be “me, too.” That’s not our concept.
Q. Today, Elbit is known worldwide for its UAVs, another sector long monopolized by state-owned IAI. Wasn’t that a case of “me, too”?
A. It’s true that 20 to 30 years ago, IAI had the monopoly on UAVs. But we took a strategic decision to enter into this field. When we informed the authorities here we wanted to compete, nobody took us seriously. But we acquired a small company called Silver Arrow, which we purchased together with Elop. We studied what the Israel Defense Forces was doing. It took a few years, but eventually we came up with a compelling proposal — the Hermes 450 — which today forms the backbone of the unmanned inventory in Israel, Britain and other countries.
Q. You also elbowed into the larger class of UAVs with the self-funded Hermes 900? A high-risk gamble, in retrospect?
A. After the amazing success of Hermes 450, we started to work on the next generation. No one wanted to go with us, but we decided there was no time to wait for a customer. It was extraordinary in the world of UAVs to go ahead and do it on our own. We built only one prototype and flew it all the time. Obviously, we were scared to death that something would happen to it. But once we earned customer confidence, we were able to reap rewards for our risk.
Q. What’s next? Do you plan to go for even bigger vehicles like the U.S. Avenger or IAI’s Heron TP?
A. The minute you mention those other systems, it means you’re looking backwards. That’s the opposite of our thought process. We’re now thinking what the future needs will be, and that will dictate our direction. But it certainly won’t be in the direction of the names you cited.
Q. Elbit’s joint venture with IAI on unmanned ground vehicles [UGVs]: Should it get axed if it fails to meet your five-year, top-three rule?
A. First of all, it’s not yet five years. Secondly, we already are among the world’s top three; it’s just that there’s no world yet out there. I think we were ahead of the market by about a decade. There’s a lot of interest, but no firm operational requirements.
Q. Why not?
A. Armies around the world still don’t understand what to do with this capability. And to be fair, it’s much easier to operate an unmanned vehicle in the air than on the ground. So we decided to give it another two or three years of breathing room to see what develops. Meanwhile, we’re continuing to demonstrate these UGVs and explain their added value. You can see them operating along the border with Gaza.
Q. Despite being the undisputed driver of Israeli defense industry consolidation and tremendous personal effort, you never managed to crack the code for privatizing the state-owned sector. Disappointed?
A. I won’t deny that I was among the leaders in the Israeli defense industry pushing for an end to the bloat, redundancies and counterproductive competition of our industry. For many long years, I’ve met with ministers, government authorities and my colleagues on this issue. There’s no disagreement; we all believe the local defense industry must undergo some type of rationalization. Yet it hasn’t happened.
A. Politics, perhaps. But where I could influence things, consolidation happened with great success. All the companies we acquired recognized that if they had to go it alone, they wouldn’t have survived. It’s too small here — no critical mass. And the fact that we became the largest defense firm in Israel and proved that a company that is not government-owned can be entrusted with the most sensitive, advanced defense technologies hopefully will pave the path to what we all agree must be done in the future.
Q. Israel lost a valuable market in Turkey over policies vis-a-vis the Palestinians, yet its industry thrives on capabilities proven in perpetual conflicts with its neighbors. From a purely business perspective, what’s preferable: war or peace?
A. Obviously, for our children, we want peace. But also for our industry, peace is preferable. In wartime, many nations want to disassociate from us. When war is raging here, there’s no business. But a promising atmosphere for peace is propitious for expanding cooperation and forging new ties. But what shall I tell you, we’re here in Israel. It’s a tough neighborhood.
2012 financial results:
Sales: $2.86 billion
Year-end backlog: $5.7 billion
Gross profit: $815.9 million
Key business sectors: Airborne, land, C4ISR, electro-optics
Key markets, in order of 2012 sales: North America, Asia-Pacific, Europe, Israel, Latin America
Source: Defense News research