Israel Aircraft Industries Ltd. History

Company Perspectives:

Israel Aircraft Industries is globally recognized as a leader in developing military and commercial aerospace technology. This distinction is the result of nearly a half-century of designing, engineering and manufacturing, for customers throughout the world. From a relatively small operation to become an industry leader, a company must be versatile and highly motivated, innovative and competitive. IAI was built around these qualities, and has improved upon them with its years of acquired experience. The Company's ambition is to continue to initiate and achieve technological breakthroughs that characterize the best in the industry.

Key Dates:

1953:

Israel's Ministry of Defense forms Bedek Aviation Company to maintain Air Force planes.

1959:

IAI begins manufacturing its own aircraft.

1968:

IAI begins building Nesher fighter; Westwind business jet line is acquired.

1976:

Exports account for 50 percent of sales.

1987:

Lavi fighter program is canceled.

1999:

Annual revenues reach $2 billion.

2001:

Galaxy business jets are marketed by Gulfstream.

2004:

India awards IAI colossal $1 billion contract for AWACS planes.

2005:

New G-150 business jet is unveiled.

Company History:

Israel Aircraft Industries Ltd. (IAI) is a state-owned aerospace manufacturer. IAI has accounted for about 9 percent of Israel's exports and is the country's largest employer. The company's strengths include overhauling and converting jet fighters and large commercial transports, and manufacturing UAVs (unmanned aerial vehicles).

Origins

Israel has had armed conflicts with its neighbors dating back to the country's founding in 1948. The development of a domestic defense industry would become even more of a priority after France embargoed arms sales to the country after the Six Day War in 1967.

In 1953, the Ministry of Defense formed Bedek Aviation Company to maintain Israel Defense Forces (IDF) aircraft. Based at Lod Airport, the enterprise originally had 70 employees. American expatriate Al Schwimmer was the company's founder and first president.

Bedek began manufacturing aircraft six years later. The first, a V-tailed twinjet trainer of French design, was the Fouga-Magister or Snunit ("swallow"). The Arava STOL (short take-off and landing) transport aircraft followed as the first aircraft to be designed and built by IAI. It first flew in 1969 after three years of development.

Fighters and Business Jets for the 1970s and 1980s

In response to the French embargo, IAI began developing its own fighter aircraft, a derivative of the Mirage 5 called the Nesher ("eagle"), in 1968. In the same year, IAI acquired Rockwell's Jet Commander series of business aircraft. Renamed the Commodore Jet, this became the basis for the Westwind line. IAI also developed the Gabriel anti-ship missile in the mid-1960s. In the late 1960s, the Elta electronics unit developed an inexpensive aircraft radar which would become a successful export item.

The Nesher entered service in 1971, in time for the Yom Kippur War. It was followed by the Kfir ("lion cub"), which was delivered in 1975.

According to the history on IAI's web site, the number of employees had grown from 4,000 in 1968 to 14,000 in 1970. IAI was already conducting extensive overhauls on dozens of different aircraft types. Since it worked on engines as well as airframes and interiors, IAI could provide more comprehensive refurbishments than even the aircraft manufacturers themselves, noted a New York Times profile in 1973. In 1972, the company had bought 13 Boeing 707 airliners from TWA to refurbish and resell.

During the 1970s, IAI developed relationships with companies in the United States, which replaced France as Israel's main foreign arms supplier. Exports grew to account for 50 percent of sales in 1976. IAI accompanied its success in the military market with the Westwind business jet. Civilian products accounted for just 10 percent of sales at the beginning of the 1980s.

IAI created another line of business jets, called the Astra, by stretching the fuselage and designing a new swept wing. IAI began manufacturing the mid-sized, long range Astra business jet in 1986. It was originally marketed in the United States, the world's largest executive jet market, by a distributor and after 1988 by an IAI subsidiary, Astra Jet.

The Bedek maintenance unit had 4,000 employees in the mid-1980s and overhauled a huge range of aircraft, from propeller-driven trainers to airliners. In 1984, IAI formed a joint venture with rival Tadiran to market both companies' remotely piloted vehicles (RPVs).

Former air force commander General Mordechai Hod became IAI's head in 1986. Hod had directed the 1967 air strikes that destroyed neighboring air forces in the Six Day War.

Expensive aircraft development programs such as the Lavi struggled and a number of employees were laid off in the mid-1980s. Some IAI businesses were thriving, though, noted the Financial Times, particularly the Elta electronic warfare unit and the Bedek MRO (maintenance, repair and overhaul) division. Elta was then specializing in high-tech intelligence tools, and its sales had grown from $70 million in 1981 to about $182 million a year. Clients included Hughes and Westinghouse of the United States. Another division, Ramta, was doing a brisk business supplying armored vehicles and missile boats to third world countries. Israel exported $950 million worth of military goods in 1986, according to the Financial Times, and IAI accounted for two-thirds of the total. IAI was the largest company in Israel.

Lavi Canceled 1987

IAI's biggest setback was the government's cancellation (by one vote in Parliament) of the Lavi program in August 1987. IAI had invested $1.6 million in the Lavi, producing two prototypes (much of the funding was from U.S. military aid credits). The Lavi ("young lion") was designed to handle multiple missions, with strengths in the ground attack role. It first flew in 1986.

Moshe Keret, who became IAI's CEO in 1985 (he had first joined the company in 1959 as a mechanical engineer), told the Jerusalem Post that due to the increasing costs of developing aircraft, Israel had little hope of producing its own fighter in the foreseeable future. However, the Lavi project was credited with developing a number of advanced technologies that IAI was able to market.

By the end of the 1980s, IAI was established as a world leader in upgrading aircraft. Planes such as the Vietnam-era McDonnell Douglas Phantom II were modernized with advanced avionics and weaponry to keep them from obsolescence. The Lahav Division carried out this work.

IAI's annual sales were about $1 billion at the time. The enterprise employed more than 22,000 people, but this was cut by 5,500 in 1988 as the company lost $21 million. IAI posted a profit of $11.8 million on sales of $1.28 billion in 1989. The company had four divisions--Aircraft, Aviation, Electronics, and Technologies--and 17 factories.

Shifting Markets in the 1990s

Sales were $1.42 billion in 1990; exports were worth $1.1 billion. IAI was selling about a dozen Astra jets a year. In 1990, the Astra SP was unveiled; it featured advanced avionics and aerodynamics as well as a new interior (which was installed at the Fort Worth, Texas facility). The more powerful Astra SPX was developed a few years later. Another big civil aviation program was conversion of Boeing 747s to freighters by the Bedek Aviation division. IAI was working on a variety of aerospace projects in the 1990s, including the AMOS communications satellite and Ofeq observation satellite and Barak naval defense missile systems.

Global military spending fell dramatically as the Soviet Cold War threat dissolved. IAI posted losses from 1992 to 1996, finally breaking the slump with net income of $24.3 million on sales of $1.7 billion in 1997. The staff was reduced to 13,500 employees as part of the recovery program.

The Galaxy, a business jet with an intercontinental range, made its first flight in December 1997 and entered service in 2000. In 1999, IAI signed an agreement to have Gulfstream of the U.S. market the Astra SPX and the Galaxy under the designations G-100 and G-200.

IAI's revenues were $2 billion in 1999. The group had 14,600 employees. While annual sales had risen 7 percent, net profits of $70 million were up 71 percent from the previous year. According to the Jerusalem Post, IAI accounted for 9 percent of Israel's exports.

Domestically, IAI provided the IDF with the Arrow Weapon System, the first operational system able to destroy tactical ballistic missiles. It was built by IAI's MLM Division. Two of IAI's divisions, MBT and Malat, were producing UAVs.

Exports Booming After 2000

Keret told the Jerusalem Post he favored an eventual privatization of the company as a way to bolster its financial structure. However, the company was holding its own. Revenues rose 9 percent to $2.2 billion in 2000; exports accounted for more than three-quarters of sales. Net profit was up 26 percent to $84 million.

In May 2001, General Dynamics--Gulfstream's corporate parent--bought IAI's Galaxy Aerospace Co. L.P. unit for $330 million plus a potential performance-based bonus of up to $315 million. IAI had launched Galaxy in 1997 in a joint venture with the Hyatt Corporation to keep the Galaxy executive jet program alive. Galaxy Aerospace was based in Fort Worth, Texas, and had 3,000 employees. It had recently won a

IAI's Bedek Aviation unit did a brisk business in converting passenger airlines into freighters due to growth in the air cargo industry. Bedek had sales of $500 million in 2003, according to Globes. An IAI source stated that the company had done 40 of the 60 Boeing 747 conversions completed since 1998.

IAI's revenues were $2.2 billion in 2000 and about $2.1 billion in 2001 and 2002. The company had about 14,500 employees. In 2002, IAI invested $99 million in a 30 percent share of Koor Industries subsidiary Elisra, which specialized in defense electronics.

IAI landed a huge $1.1 billion contract from India in March 2004. The deal called for the Elta unit to install three Phalcon AWACS planes, using radars modified from the Lavi project on Russian-made Ilyushin Il-76 transports. IAI had previously sold a shipment of Phalcons to China, but undid the deal under pressure from the United States.

The company was back in the aircraft design business. IAI was teaming with Aviation Technologies Group (ATG) of the United States to develop a low cost light jet called the Javelin for the civil and military markets. In 2005, IAI introduced its first new business jet since 1987, the six-to-eight-passenger G-150.

Principal Divisions: Military Aircraft Group; Systems Missiles & Space Group; Elta Systems LTD; Bedek Aviation Group; Commercial Aircraft Group.

Principal Operating Units: Commercial Aircraft; MRO and Conversion; Military Aircraft Upgrade; Unmanned Air Vehicles; ISR Systems; Space Systems; Theater Defense; Naval Attack and Defense Systems; Ground Systems; Homeland Defense.

Principal Competitors: Elbit Systems Ltd.; BAE SYSTEMS; The Boeing Company; Dassault Aviation; Raytheon Company.

Further Reading:

• "After the Lavi," ICEN, November 9, 1990, p. 22.
• Blackburn, Nicky, and Arieh O'Sullivan, "The Sky Is the Limit," Jerusalem Post, Econ. Sec., May 23, 1999, p. 10.
• Carnegy, Hugh, "Waging a War on Cut-Backs--The Defence Industry Is Combating the Fall in Military Spending," Financial Times (London), Survey, April 17, 1990, p. 31.
• Egozi, Arie, "Survival Strategy," Flight International, November 30, 1994, p. 21.
• ------, "The Uncertain Arrow," Flight International, September 18, 1991, p. 27.
• "Enduring Value," Flight International, September 30, 1998, p. 70.
• Faber, Harold, "Big Israeli Aircraft Plant Is a Supermarket of Planes," New York Times, January 7, 1973, p. 64.
• Frisch, Felix, "IAI Signs Phalcon Deal with India; The Supply Contract Is the Largest Ever for Israel's Defense Industries," Israel's Business Arena, March 7, 2004.
• ------, "Moshe Keret to Continue As IAI CEO," Israel Business Arena, February 15, 2004.
• "General Dynamics Acquires IAI's Galaxy Aerospace," Ha'aretz (Tel Aviv), May 2, 2001.
• Goldman, Marvin G., El Al: Star in the Sky, Miami: World Transport Press, 1990.
• "Israeli High-Tech 50 Years Review," http://www.infochina.co.il/israeltech/news/review.htm.
• Kestine, Hesh, "A $640 Hammer Is a Bargain," Forbes, June 30, 1986, pp. 46+.
• Krivine, David, "Striving for Excellence," Jerusalem Post, Econ. Sec., May 3, 1991.
• Lennon, David, "Export Sales Pick Up As Industry Adapts," Financial Times (London), Sec. III, Survey, Aerospace, Israel, August 28, 1984, p. XVIII.
• Marom, Dror, "IAI First to Convert Boeing 747-400s to Carry Cargo," Globes--Israel's Business Arena, September 23, 2003.
• Muscal, Tal, "Government to Float 20%-30% of Israel Aircraft Industries on TASE," Jerusalem Post, Econ. Sec., August 11, 2003, p. 16.
• Osborne, Graeme, "IAI Sees Strength in Consolidation," Flight International, December 31, 2002, p. 18.
• O'Sullivan, Arieh, "IAI Unveils Newest Business Jet," Jerusalem Post, January 18, 2005, p. 18.
• "Waiting for Change," Flight International, December 7, 2004, p. 34.
• Whitley, Andrew, "Painful Change Towards Exports," Financial Times (London), Survey, June 1, 1987, p. 21.
• ------, "Worries of a Fragile Industry," Financial Times (London), Survey, June 9, 1987, p. XIII.

Source: International Directory of Company Histories, Vol.69. St. James Press, 2005.