Despite downturn, chief executive Moshe Keret vows to stay at the forefront of UAV and freighter conversion markets

Israel Aircraft Industries (IAI) celebrates its 50th anniversary this year, but like other aerospace companies, it is feeling the pinch of the global economic downturn. Despite this, president and chief executive Moshe Keret is intent on the company achieving double-digit growth for the next 10 years.

That target is set against expansion in 1995-2000 of around 10% a year, says Keret, but recent times have been harder, with only "very minimal growth" in 2001-3. He acknowledges that business was slowing before the 11 September terrorist attacks, with the global economy weakening. "I am fighting to keep positive growth. In the years to come, if the [growth] rate stagnates, you have to grow even faster [to meet the targets] and that's very tough."

Keret says IAI has performed much in-depth work, analysis and a strategic outlook of all markets. He asks: "What market is still growing? Maybe defence by and large is shrinking, but there are areas that are growing. It is the same in non-defence." He acknowledges that the commercial market is in "deep trouble", but believes that "even then some segments are better than others".

IAI has identified its growth strategies for the next 10 years, says Keret, singling out, in defence, unmanned systems, including unmanned combat air vehicles. "We've been in the [unmanned systems] market for 25 years," he says. "We think we are the leading company and are resolved to stay so." Malat, IAI's unmanned air vehicles division, has a raft of tactical and strategic platforms.

Another growth area is intelligence systems, says Keret, because there is a continual need for such capability in war and peace. "It's growing all the time…there is continuous consumption and demand."

Passenger-to-freight conversions of used airliners will be a commercial business mainstay, says Keret. "Generally, commercial aerospace is at a very low point, but it will start to grow as we have seen the cycles in this market every eight to 10 years. In any case, in normal times we saw growth of cargo and freight as being higher than passenger [traffic]."

With the commercial aircraft market depressed, it is possible to acquire "relatively good [passenger] aircraft at a good price", and these can be converted for today's market or later when the market is growing and aircraft prices may be higher. Today, IAI's Bedek division - the company's oldest element - is converting ex-British Airways Boeing 757s for DHL. A number of airframes can be seen awaiting conversion at Bedek's facility at Tel Aviv airport.

IAI has conversions for most Boeing airliners and is working on a 747-400 programme. It does not have an Airbus programme, "but I wouldn't rule it out - there's no reason not to [do Airbus conversions], as long as we have a customer for it", says Keret.

There are other markets that by continuing to show growth, "dispute the general market and therefore are the base for our growth now and in the future", he says.

IAI knows about the stark realities of the commercial aircraft market. In the mid-to-late 1990s, it was developing the Airtruck feeder freighter, and secured FedEx Express as its first customer. The intention was to make Airtruck a "hub-and-spoke feeder aircraft", says Keret, and in the late 1990s a significant market for the twin turboprop was promised by the boom in internet and on-line shopping and its related need for overnight shipping.

But Keret says the availability of passenger aircraft for freight conversion lowers demand for such an aircraft. "This is why it is difficult at this time to justify the launch of such a programme. But there is no other programme launched - so the option is still open to us."

Airtruck would need to be inexpensive to buy, operate and produce and to achieve that would require "very advanced production and assembly", says Keret. But manufacturing processes are improving all the time, he says, so "maybe" IAI could return to the programme in a few years' time.

In the past, IAI has designed and built commercial and military aircraft. It continues to build the Gulfstream 100 and 200 (previously the Astra and Galaxy) business jets for the US company. But could there be another IAI-designed business jet? "To be realistic, I don't see future designs," says Keret. "There are too few new programmes, too few new aircraft designed."

All the company's growth is internal, says Keret. One drawback to its government-owned status is that IAI tends to restrict its holdings in other companies to a minority "as you don't want them to become government holdings". This means that their sales do not appear on IAI's balance sheet.

Israel's finance minister Binyamin Netanyahu has included IAI is on a list of possible privatisations. The company says this is still under discussion within government and it has not been asked to prepare for such a step.

Keret predicts that IAI will come through the financial downturn. "We started to reorganise around three years ago as we were expecting a financial crisis," he says. "You don't need to be a genius to know that the cycle ends."

Source: Flight International