Defense Technology International - September 2007 - (Page 62) Q&A ON THE RECORD PUSHING THE ENVELOPE It’s no secret that Israel Aerospace Industries (IAI), formerly Israel Aircraft Industries, is looking for an international partner. The company was dropping hints around the time Yair Shamir took over as chairman two years ago. Since then, the hints have turned into overt broadcasts, and IAI’s leadership has been pressing to prove that the company is not just a good technology house with a new name and the same old economic Defense Technology International: Which are more important: New technologies or better business practices? Shamir: IAI’s success came from technology. People buy from us because in many areas we give them the closest thing to the edge of the envelope. We have to stay on the cutting edge, because if we lost that, we would be like all the others competing but with less to offer . . . and more subject to political advantages and disadvantages. On the other hand, we have to do things like raise money, run the company and convince customers that our products are the best. IAI’s board now [for the first time] comes from the private sector. We’re bringing in the same ways of managing as every other high-tech company. We will not rely on the Israeli government to support us. We’re going to increase investment in technology, only in a different way from the past. Management knows it will be judged on how it manages the company and the technology, plus how well it manages the money. In the past, financial issues were done in the headquarters, and managers’ goals and concerns were sales and products. Now there are company goals broken down at all levels and measured monthly. Every group and division has its own chief financial officer and we’ve replaced the bulk of the managers. The past was housekeeping; now it is all about balanced performance. How do you define balanced performance and how will you know when it’s achieved? Several things need to be balanced, starting with the structure of the company. We are about 65% defense to 35% commer62 struggles and state-owned burdens. Shamir sat down with DTI Contributing Editor B.C. Kessner last month in Tel Aviv to discuss defense technologies, global markets and the vision IAI hopes will tie them together for years to come, including a potential $2-billion air-defense deal with India to create a comprehensive sea and air shield for that country (see p. 8). Excerpts follow. velopment, and can you maintain R&D with all of this restructuring? R&D needs to increase. D, the development, is taking existing equipment and making it work, fit and adapt . . . and that is short-to-medium term. R, research, is for the long term, and the target needs to be at least 4% of revenue. Right now it is about 3.4%, or more than $100 million a year, which must go up. On top of that is about 20% [of revenues going toward] development, financed by the company, customers, new projects and the defense ministry. Combining the numbers for 2006 gives you about $600-650 million for R&D. That is how important it is, and the fact that we netted a $130-million profit last year was not in spite of the large R&D investment, but because of it. Which defense technologies and initiatives are going to make the biggest impact in the next five years? We are far ahead of many competitors in several areas. Unmanned systems stand out, including aerial vehicles (UAVs) and UGVs (unmanned ground vehicles). We have a lot of activities here and several new world-class systems . . . such as the Heron [tactical UAV] and the new [Heron TP—a turboprop medium-altitude long-endurance UAV] unveiled in Paris [at the June air show] that caused such a stir. Locally, we have combined forces with Elbit [Systems] on a venture to develop for the Israel Defense Forces the most capable UGVs in the world. One thing is certain, however: through UAVs and UGVs, the battlefield of the future will be changed. . . . It is changing already, and we are there in the front. We are also going to be investing a lot www.aviationweek.com/dti cial. Both are long-term activities, where deals can take two or more years to come together [followed by] a couple more [years] to get completed. Today, we are lucky that the commercial aviation market is in good shape. Our executive jets and passengercargo plane conversions are booming, and there is a big defense demand and orders are increasing. From the end of last year there is a firm $7.2-billion backlog, and the coming three years look promising. . . . Beyond that depends on the political and economic situation globally. The plan is to rebuild IAI on two almost equal legs, so that if defense goes down we can compensate on the commercial side. To strengthen commercial, we must make the same structural changes—replacing management and rebuilding infrastructure—as on the defense side. The size of defense operations needs to grow at the same time . . . and this requires acquisition or a big international partnership. The larger you are, the bigger the projects you can get. On the defense side, people need to have even more confidence in you. You are selling to countries . . . these deals are for more than just $5-7 million worth of equipment here and there—they are for systems and long-term relationships. One measure of balance is the standard “as long as the customer is happy and he trusts in your capability, you’re doing OK.” Another measure is growth. In 2004, we were a $2billion company. If you project first-quarter revenues for 2007 through the year, we will be around a $3-billion company. That’s three-year growth of $1 billion, something you can’t do with only existing customers. . . . There are more customers and they are happy. How important is research and de- DEFENSE TECHNOLOGY INTERNATIONAL SEPTEMBER 2007 http://www.aviationweek.com/dti
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