Courtesy photo Joseph Weiss, IAI's President and CEO (Ziv Koren/IAI)
2012 sales: $3.3 billion
2012 year-end backlog: $9.7 billion
2012 net profit: $78 million
R&D investment: 4.6 percent of sales, plus an additional 20 percent in nonrecurring engineering charged to foreign development partners.
Source: Defense News research
Joseph “Yossi” Weiss swept into the top job at Israel’s largest aerospace and defense company a year ago July 1 on the tailwind of his successful fight to reclaim a critical communications satellite (ComSat) deal lost in a previous competition to Russian industry. The Amos-6 satellite win was a lifesaver for IAI’s languishing ComSat sector and reflected Weiss’ determination — as former head of the company’s Systems, Missiles and Space (SMS) Group — to slash costs, enhance performance and sweeten the services, terms and conditions needed to secure strategically significant business.
In his first weeks in the front office, Weiss inked nearly $1 billion in contracts with Italy for a spy satellite and early warning and control planes. That deal, part of a larger reciprocal Israeli-Italian trade package, reflected his parallel determination to harness capabilities from multiple divisions in a holistic, corporate response to customer needs. With a record backlog exceeding $10 billion, a revamped investment strategy and a younger, more innovative workforce, Weiss is optimistic the state-owned company will sustain growth and profitability despite ongoing economic uncertainty.
Q. After decades of privatization talks, the Israeli Treasury announced recently its intent to sell at least 20 percent of IAI. How are you planning for the prescribed initial public offering?
A. There was a top-level declaration, but specific steps toward privatization haven’t yet begun. IAI welcomes any steps that will increase growth and improve managerial flexibility, and I believe that any form of privatization will benefit IAI and its employees. Meanwhile, we’ve raised significant funds at very attractive rates through multiple bond issues, and our institutional investors are demonstrating high confidence in the streamlining and efficiency measures we continue to implement on the road toward privatization.
Q. Do you plan to ramp down or even phase out IAI’s commercial portfolio, given the added profitability in defense and the protracted slump in commercial aviation?
A. No doubt our defense portfolio generates higher returns and now constitutes about 65 percent of our business base. But we believe the commercial part of IAI significantly benefits our defense business, particularly in the area of unmanned aerial vehicles and special mission aircraft.
We are defining ourselves as one company. IAI is a center of knowledge for aeronautical development and applied engineering projects, with the capacity to shift people from commercial, military and space sectors according to need.
Q. Which defense-related sectors are slated for increased investment?
A. IAI Ahead, our investment roadmap for the coming decade and beyond, calls for increased support for SMS group and Elta, each of which generated more than $1 billion in sales last year. Our anti-air and precision attack missile business is slated for increased research and development funds, as are our activities in ground, air and seaborne optical and electronic sensors.
Finally, our UAV business is on its way to becoming a growth engine for the company, and we plan to augment investment to preserve and enhance our competitive edge.
Q. Are Israeli defense spending cuts putting added pressure on IAI to expand export sales?
A. We’re increasingly focused on the export market, which today accounts for nearly 80 percent of our business activities. But despite the fact that Israel accounts for only 20 percent of our business and will diminish even more in the coming years, it remains by far our most important market. When our customers and partners know that our capabilities and operational concepts are combat-proven by the Israel Defense Forces or are being developed for our forces, it gives us a clear advantage.
Q. What are your top target markets?
A. Asia continues to be a lead market for IAI activities, and we are solidifying our position in Latin America, particularly Brazil. We are about to sign a $300 million contract with the Brazilian Air Force for our multimission refueling aircraft, similar to the tankers now operational in Colombia. We believe this high-performing, low-cost alternative from our commercial Bedek Division is an ideal solution for other countries in the region.
Q. And Europe? Do you expect additional deals in the magnitude of the $1 billion in contracts clinched with Italy last year?
A. I think it’s just the beginning. Once you establish personal and professional relationships and confidence among the teams, I believe other avenues will open up in Italy and elsewhere in Europe.
Q. How are you advancing your Heron TP bid against the US MQ-9 Reaper in high-stakes UAV competitions in France and Germany?
A. We are determined to do whatever we can to secure these strategic programs. In France, we have offered the immediate supply of several Heron-1s, equipped with satcom, in support of their urgent operational needs as we continue to promote the operational and economic advantages of our Heron TP.
We understand that these are complex programs that will be determined by a number of aspects. But at the end of the day, we believe that IAI’s heritage over decades of UAV operations, our quality and the full range of customer support services we’re offering will sway things our way. The fact that both countries have already engaged Heron-1 in Afghanistan and that Heron TP — which we designed according to more rigid commercial aviation standards — will be easier to certify will also be relevant factors in the ultimate decisions. Our offer for the Heron TP is based on cooperation with local industries, and our willingness to transfer technology and allow workshare participation will be another factor.
Q. IAI has two subsidiaries in the United States: Stark Aviation in Mississippi and Elta North America in Maryland. Do you forecast near-term expansion in the American market?
A. We are certainly positioning ourselves for eventual growth in the United States. But until we understand the full effects of sequestration and until economic conditions there stabilize, I must be cautious in forecasting our goals in this important market.
Q. Yet IAI is slated for up to $2.5 billion in work related to the F-35 Joint Strike Fighter (JSF) program. That’s a good start, no?
A. Actually, IAI has benefited over more than a decade from its partnership with Lockheed Martin to provide components for the F-16 worldwide. About two months ago, we came to an agreement with them to build about 800 wing sets for the JSF over a period of years. We already are investing in a production line to be ready for this big order, which could reach $2.5 billion if all options are exercised. The actual first contract should be signed shortly, and we are committed to delivering first sets by the beginning of 2015.
Q. There’s been a lot of talk of technical problems and delays in the long-range and medium-range surface-to-air missile program for a foreign customer. Can you comment?
A. We’re intimately engaged with our partners on this very extensive program, worth billions of dollars. Many of the issues have been described as much more problematic than they are. Yes, there have been delays. But I can assure you, we are overcoming all of the usual challenges involved in such a complex program. Testing continues, and the contract is moving forward to provide the ship- and ground-based air defense capabilities that meet their requirements.
Q. Since Israel’s earliest days, IAI-Elta has been the nation’s sole radar development house. Can you realistically expect to preserve this monopoly now that Elbit and Rada are venturing into niche areas of the tactical radar market?
A. We are taking very seriously the fact that other Israeli companies are starting to invest in small radars. But even in this niche area, in order to be a real player, it’s not just a matter of declaring. You have to invest heavily over a period of years to accrue the experience and heritage that customers demand. Today, just in Israel, Elta radars are deployed in all domains, from space to the Trophy system protecting our tanks to the air defense operators of Iron Dome.
So I think there’s a long way to go for a real competitor to emerge in Israel. That said, we’re not complacent. We’re doing our best to lower our prices and not give anyone a reason to seek unproven alternatives.
Q. Any progress in IAI-Boeing plans to export the joint US-Israel Arrow missile defense system?
A. Boeing will be the prime contractor for overseas sales of Arrow-2, with responsibility for securing all requisite US marketing and export licenses. Obviously, IAI will support them to the best of our abilities.
Meanwhile, this remarkable partnership of our industries and our two governments is striding forward on the upper-tier Arrow-3. We have a work-share agreement with Boeing to support plans set at the government level. We had a very successful flyout test recently, and we’re all looking forward to our first intercept test next year.
By Barbara Opall-Rome in Tel Aviv.