Rada On The Rise?
After years of struggling, Israeli aviation company
may be ready to start soaring.
NEIL COHEN SPECIAL TO THE JEWISH NEWS
0
ne of the older Israeli com-
panies traded on Wall
Street (founded in 1970, it
has been run by Haim Nis-
senson since 1976), Rada has
promised much. It has worked
hard to cultivate the press and
the investment community, but
it has never really delivered the
goods.
One brokerage house believes
this may be about to change.
Josephthal Lyon & Ross, the
New York brokerage firm which
recently opened a Tel Aviv office,
reckons that, after years in the
doldrums, Rada's sales are going
to grow at an annual clip of 25
percent while earnings grow even
faster.
In 1993, Rada earned
$161,000, or three cents a share,
after a loss of $2.9 million in 1992.
In the first nine months of 1994,
the company earned $145,000.
Josephthal bases its forecast
(and its view that Rada's stock,
currently trading at $3.50, is
worth $5.00), on its optimism
over the potential of two of Rada's
newer products — the CATs com-
mercial aviation test system and
the ACE Autonomous Combat-
maneuvers Evaluation system.
The CATS system performs
automatic testing and diagnostic
procedures on the electronic and
electrical units in both commer-
cial and military aircraft.
These units, or "boxes," have
to be tested on a regular basis as
well as in the event of malfunc-
tion. Current manual testing by
mechanics can be time-consum-
ing and expensive because most
boxes perform dozens of func-
tions.
Alternatively, the boxes can be
shipped to airline maintenance
facilities for testing. Because on-
site diagnosis is often less than
completely precise, a number of
boxes usually need to be removed
for testing.
This requires the airlines to
hold large and expensive inven-
tories of spare parts — ground-
ing an aircraft is enormously
expensive.
While a number of the manu-
facturers of the electronic units
have developed their own testing
devices, the CATS is evidently
the only general purpose tester.
Rada has developed 84 differ-
ent software programs that test
the different electronic compo-
nents. Users buy the hardware,
costing $500,000, and choose the
software appropriate to their
needs. Each program is sold for
$30-40,000.
Josephthal estimates that, at
the end of 1994, Rada had back-
logs for CATS systems worth $3.2
million and that the company
was well placed to sell $5.5 mil-
lion worth of the systems in 1995.
Rada's Autonomous Combat-
maneuvers Evaluation system
(ACE) is a solution to combat
flight-training debriefing.
It uses a GPS (Global Posi-
tioning System) receiver to sup-
ply accurate aircraft movements
and patterns flown during the in-
flight exercises.
Once the training mission is
complete, pilots from all the air-
craft involved deposit their re-
spective recordings in a
ground-based system which com-
bines and synchronizes the gath-
ered flight data.
The pilots can then recreate
the exercise on computer and
video monitors and analyze their
actions.
The alternative to ACE, which
is relatively simple to install, is
the more traditional Air Combat
Maneuvers Instrumentation sys-
Rada has promised
much, but it hasn't
delivered the goods.
an order backlog for ACE systems
of $2.6 million and Josephthal es-
timates that sales in 1995 can
grow to as much as $10.5 million.
In addition to these more ex-
citing products, Rada is in a num-
ber of lower margin businesses.
Israeli subsidiary Vectronics
is a representative and distrib-
utor of electronic components for
military, industrial and com-
mercial use.
Adar, based in Holland, trades
military and commercial aircraft
parts, while Miami-based Kell-
strom also deals in commercial
aircraft parts.
Kelistrom buys, refurbishes
and sells jet engines and other
avionics spare parts, sometimes
breaking up the engines and sell-
ing them piecemeal.
The market for refurbished air-
craft parts has been growing due
to airlines' increasing inclination
to buy used rather than new
parts in an effort to cut costs.
But the Kelistrom story is the
latest Rada enigma.
Rada bought Kelistrom in
June 1993 for $200,000 worth of
Rada stock and performance re-
lated payments of up to $1.6
million.
Its plans for Kelistrom were
made clear in its 1993 annual re-
port, which said "in the first
months of 1994, sales and prof-
itability have grown and we have
decided to relocate Kellstrom to
a new facility in Ft. Lauderdale
that is being built to our specifi-
cations. The Kellstrom ac-
quisition has enhanced the
commercial side of our business."
Strange, then, that last month,
just 18 months after buying Kell-
strom, Rada agreed to sell it.
The decision is especially curi-
ous given that sales from Rada's
commerce and trade divisions,
which included Kellstrom, had
grown strongly in 1992 and 1993,
and had made a decent profit in
1993, while sales in the industry
sector were in decline and lost
money in both 1992 and 1993.
In 1994, Kelistrom had sales
of close to $8 million and an op-
erating profit of $1.75 million.
Rada seems to have done very
nicely out of its acquisition and
sale of Kellstrom, given that the
sale price is $9 million, which will
tern (ACMI), a land-based system
which uses radar to track and
record flight patterns from the
aircraft.
According to Josephthal, the
ACMI system is inferior because
aircraft are geographically con-
fined to the area within the radar
towers. It also has difficulty de-
tecting and recording low-flying
exercises, so the system cannot
be used in mountainous areas.
The ACMI also is immobile —
the squadron has to come to the
system — and it costs $25-60 mil-
lion. The ACE system is much
more mobile and, at about
$85,000 per plane, much cheaper.
At the end of 1994, Rada had RADA PAGE 59
ISRAEL DIGrE,Sir
Specially compiled by The Jerusalem Post
— $1 EQUALS 2.8630 NIS (shekels) - Close Price 3/7/95 —
This Is No Mickey Mouse Deal
The Shamrock Group, a U.S.
investment firm controlled by
age market value since the
start of the year.
the Disney family, has signed
an agreement in principle to
buy Hevrat Ha'ovdim's 22,51
percent share in Israel's Koor
Industries for $252 million, the
group announced.
The price is about 20 percent
higher than the shares' aver-
Shamrock president Stanley
Gold said the group will con-
sider purchasing additional
shares in Koor in the future. He
also said the Shamrock Group
is negotiating with other U.S.
investors who would be brought
into the transaction.
Anonymous Partner Gets $3 Million
Clal Electronics will invest $9
million in a U.S.-based manu-
facturer/developer of advanced
semiconductors. The Israeli
company did not reveal the
name of its American part-
ner.
Clal will invest $4.5 million
over the next two years in the
Israeli subsidiary of the U.S.
firm in return for 51 percent of
outstanding capital share.
The subsidiary was estab-
lished in Israel following the
transfer of know-how by the
parent company.
Clal also will purchase 10
percent of the parent compa-
ny's shares from current share-
holders for an additional $4.5
million.
Following the purchase, the
parent company will own 49
percent of its Israeli subsidiary.
The agreement will be com-
pleted after the parent firm is
registered on NASDAQ. A
share issue is planned for May.
Don't Leave Israel Without It
Israel's Bank Hapoalim will es-
tablish a subsidiary to issue
the subsidiary,
Bank Hapoalim will be re-
American Express cards in the sponsible for marketing and
country later this year.
supporting the card in Israel.
Under the terms of an inde- It will take care of billing and
pendent operator agreement, payment systems, accounting,
card members will be able to customer service, credit and
use the card at establishments fraud control, and charge au-
in Israel and worldwide.
thorizations.
Joseph Dauber, joint man-
American Express has two
aging director of Hapoalim, will fully-owned travel service of-
be appointed chairman of fices in Tel Aviv and Jerusa-
Hapoalim American Express, lem.
Teva's Profits Going Up
Israeli pharmaceutical firm $51.47 million, while revenues
Teva announced an increase in increased to $587.7 million
fourth-quarter net profits to from $501.97 million.
$19 million from $16.2 million
Exports accounted for 61.6
during the same period last percent of Teva's sales last year,
year. Revenues rose to $160.6 of which 47.8 percent were to
million from $131.3 million.
North America, 9 percent to
For the year, Teva's net prof- Europe and 5.8 percent to the
its rose to $71.64 million from rest of the world.
Kibbutz Exports Soar 17 Percent
Kibbutz industries exports
grew 17 percent last year while
sales in Israel increased 7.5 per-
cent despite their difficult fi-
nancing conditions, the Kibbutz
Industries Association chair-
man said.