The Singapore air show remains one of the most important events on the calendar for Israel’s aerospace and defence industry. The island state has been a major customer of Israeli equipment since Israeli Defence Force (IDF) officers helped establish Singapore’s military after independence in 1965. The nations have many similarities – they are small, with populations under 10 million; young, coming into being as independent states within 17 years of each other; and they have the most developed economies in their region. Both countries are also surrounded by previously or potentially antagonistic neighbours, some of which harbour groups or individuals that pose a terrorist threat to their populations. While other Asia-Pacific countries – particularly India – have become increasingly important buyers of Israeli military products, the partnership with Singapore remains highly symbolic, and Israeli companies will have a major presence at Changi.
Over 20 years, high-tech Israel has become a leader in defence exports to Asia and beyond. This is despite the fact that many countries, including within Asia, remain out of bounds for political reasons. A clutch of innovative companies – ranging from national champions Israel Aerospace Industries (IAI), Elbit Systems and Rafael to dozens of start-ups and small and medium-sized enterprises – have been helped by a domestic customer that directly or indirectly provides research and development funding, and the ability to road-test products in real-life scenarios. However, it would be wrong to characterise Israel’s industry as feather-bedded by the country’s government and military. While IAI and Rafael are state-owned and benefit from substantial state contracts, the majority of the sector is not, and competition can be fierce among Israeli companies when it comes to winning procurement contracts at home and abroad.
The symbiotic relationship with the state can work both ways. “As used by the IDF” is a highly effective seal of approval when Israeli companies market their products overseas, and the government puts its heft behind export efforts. However, sensitivities over the leakage of know-how to Israel’s enemies mean that ministries restrict the export of many technologies, even to allies – much as the US administration does, of course, when it comes to its own intellectual property. The authors of a 2015 paper, The Aerospace Cluster in Israel: Take Off in the Startup Nation, identify excessive red tape as a blockage on the prospects for Israel’s industry. “The [Ministry of Defence] must streamline and improve the efficiency of its approval processes,” they urge. That said, the country’s aerospace and defence companies remain prolific exporters with typically three quarters of their revenues coming from overseas. For military reasons – let alone the benefits to employment and the wider economy – it is very much in Israel’s national interest to have a strong aerospace and defence export sector.
When it comes to Israel’s aerospace balance of trade, much depends on the success of IAI. It is Israel’s largest and oldest aerospace entity, its turnover of $3.6 billion in 2016 – almost four-fifths from exports – ranking it 32nd in the FlightGlobal Top 100. With a workforce of 14,000 and its roots in an era when newly independent Israel had to develop competencies to confront a series of military challenges to its existence, the company covers a vast range of activities, from space launchers and missiles to radar and electric warfare systems, aerostructures, unmanned air vehicles, military upgrades and passenger-to-freighter conversions. Most of these have evolved into export-oriented businesses. Although IAI has had a turbulent time of late, with industrial disputes and sliding into the red in 2016, it finished its last financial year with a record backlog of $11 billion. It added to that in April 2017 with Israel’s biggest-ever defence contract, a $1.6 billion deal to provide air and missile defence systems to the Indian army.
While state-controlled IAI’s portfolio is a strength, a series of chief executives have struggled with powerful unions and micro-managing politicians to adjust the size and scope of semi-autonomous individual business units to cope with peaks and troughs. In a bid to cut costs and develop new markets, particularly in the commercial sector, its traditional aviation activities – the Bedek maintenance, repair and overhaul and freighter conversions division; military and commercial aerostructures; and its Gulfsteam G280 manufacturing line that together make up just under a third of IAI’s revenues – are being merged into one group this year. The structure will bring it more in line with other global aerospace companies, says IAI.
“By taking all our capabilities under one roof and consolidating our suppliers, we believe that we can gain better opportunities,” adds the group’s incoming executive vice-president, Yosef Melamed. The restructure will also mean “coming out of existing unprofitable lines of business”, although IAI does not elaborate.
IAI chief executive Joseph Weiss – who in another big change for IAI will retire later this year after six years in charge – believes that with an airline market that is expanding fast, IAI can lift its commercial revenues from $1.1 billion to $1.5 billion within five years. “After many years of debate about civil aviation, we are finally re-strategising in this market,” he says. One of the areas in which IAI hopes to bolster its presence is with Airbus. Bedek will begin the process this quarter of obtaining supplemental type certification (STC) for an A321 passenger to freighter (P2F) programme, with the first aircraft delivered in two years’ time. As Melamed notes: “The size of this aircraft makes it a perfect replacement for the conversion of Boeing 757s, which are very hard to get in the market.” While the price of used A321s is still high, “we believe that by the time we get the STC, the price will be lower”, he adds. At the same time, the new aviation group is in advanced negotiations with Airbus to manufacture composite aerostructures using robotic systems.
Both the Bedek and aerostructures businesses have been heavily skewed towards Boeing. IAI assembles composite floor beams for the 787-9 and -10, as well as the wing leading edge on the current 777 family and in-development 777X. On the conversions side, 737s and 767s make up the bulk of its projects. It specialises in maintaining Boeing components and CFM International CFM56 engines, although a partnership deal with International Aero Engines will see it increase V2500 throughput from five units in 2017 to 20 this year. Bedek supplied 22 P2F conversions last year – a record, says Melamed. These comprised 18 767s, two 747s and two 737s. The business runs six 767 lines across its 15 hangars – “something I’m very proud of”, notes Melamed – and last year delivered its first 767-300s with winglets to DHL and Cargo Aircraft Management on behalf of Amazon’s airline Prime Air. Bedek was the first conversion house to hold a 737-700 P2F STC, and will this year hand over the first 737-800 conversion to lessor Spectre Air Capital.
IAI’s Lahav division – which will also be merged into the new aviation group – has traditionally specialised in upgrades to and structural manufacturing for military aircraft. Among its long-term sole-supplier contracts is the conformal fuel tank for the Boeing F-15. And, after 40 years of building wings for the Lockheed Martin F-16, IAI is one of three companies – along with Lockheed itself and Italy’s Leonardo – manufacturing wings for the F-35. Israel is a customer for the Joint Strike Fighter and took delivery of its first examples in late 2016. The composite structures are “at the edge of wing technology” and follow a $100 million investment in the line in 2014, notes Benjamin Cohen, vice-president and general manager of Lahav. IAI has now built more than 40 pairs of wings from an initial commitment for 811 shipsets, and is working at a rate of 3.3 per month. Although Israel turned down the chance to be a full F-35 partner in the early days of the programme, IAI is hopeful of securing further work, including production of the fighter’s main wing box.
Upgrades are also a focus for IAI. While the company has not developed its own manned military aircraft since the ill-fated Lavi fighter in the 1980s, it has carried out some 2,500 modifications, mainly on fighters and helicopters, says Cohen. Over the past seven years, it has delivered 22 former-Israeli air force Kfirs – a modified Dassault Mirage – to Colombia, upgrading the avionics on a type that last flew in 1994 to “transform a third-generation airframe into a 4.5-generation fighter” capable of taking part in US-led Red Flag exercises, he maintains. IAI has also supplied Kfirs to Ecuador and Sri Lanka, although negotiations with Argentina have stalled. Because of the diminishing stockpile of ex-Israeli Kfirs, IAI has moved onto another phased-out Israeli air force type, the F-16A/B, offering a similar “Block 30” upgrade. “Lots of countries are looking for fourth-generation aircraft,” says Cohen. “We believe we can take an 8,000h airframe to 11,800h, so another 15 to 20 years of service.” IAI has also developed life-extension programmes for a number of widely used helicopter types, and will be talking to potential customers during the show. The first programme being offered is an upgrade of the Sikorsky UH-60 Black Hawk.
Lahav is also helping IAI’s push into the commercial market, although one of its efforts long predates the latest business reorganisation. The division has an innovation centre, explains Cohen, and “nine years ago they came to me with the Taxibot”. The pilot-controlled aircraft tow tractor is approved to tow A320-family jets and last year US regulators green-lighted the device for the 737 too. While Cohen is still confident of Lufthansa resuming trials on its A320s at Frankfurt, after the German flag-carrier carried out a similar exercise on its 737s, he believes the product may “have come too early – the world is not ready yet”. The Taxibot reduces aircraft noise during taxi, solving one of the biggest environmental headaches for airports, but “the infrastructure also has to be in place”, he says. However, it is an example of how IAI likes to regard itself as a company that is constantly looking for the next idea. “We want our people to think outside the box,” says Cohen.
Additional reporting by Arie Egozi
Source: Flight International