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.