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come Elbit Systems. Over the quite a few-competitors in addi-
first nine months of last year, the tion to Elbit.
Skeptics like analyst Miron
division's sales dropped from
$226 millionth $211 million and Katzap doubt Elbit will ulti-
net profits dwindled from $17 mately manage to strategically
capitalize on prospective pur-
million to $11.5 million.
The split-up has several aims. chases in the wake of Israel's
One is to enhance the focuses of state-owned defense companies'
Elbit's separate military, med- impending sell-offs. The more po-
ical and civilian technology units, tentially lucrative limbs of these
all of which are now public corn- companies, like electronic-sys-
panies in their own right, trad- tans producer Elta which is IArs
ed both in Tel Aviv and on New only profitable division, or
York's NASDAQ exchange. _ Rafael's highly prestigious but
If defense is only 30 percent of obviously sensitive research and
a big company's overall business, development departments, are
it's difficult to leverage that 30 likely to end up excluded from
percent through mergers and ac- the privatization process.
Outside its defense operations,
quisitions or any other ways of
cooperating with outside, de- Elbit's medical technology sec-
fense-related companies, says for seems the most promising,
Mr. Gill. "Once we have sepa- and last year it performed bet-
rated the defense business, it will ter than any other Elbit sector.
have all the flexibility of a stand- Revenues from Elscint climbed
alone business in acquiring new - 15 percent in the first half of
branches or carrying out merg- 1996 to $141 4 million, and the
ultrasound business moved into
ers in the same field," he says.
In particular, Elbit is waiting the black in the second quarter
for the wave of consolidation in last year. Elscint, notes Mr.
the Israeli arms industry, once Katzap, is still having trouble
parts of the Israel Aircraft In- finding the right synergy and
dustry (IAI) and Rafael are pri- cost efficiency after its 1994 ac-
quisition of U.S.-based ultra-
vatized.
IAI-related mergers and ac- sound systems developer
quisitions would tie in nicely Inframetrics Inc.
On the other hand, Elscint has
with Elbit's existing programs
for upgrading aircraft or other recently signed two important
weapon systems, which compete strategic agreements. One is
with IAI and are a large and with Germany's Siemens to
growing part of Elbit's defense jointly develop components for
medical imaging equipment
activities.
The idea, says Mr. Gill, is to (though the two will continue to
be able to present, single-hand- compete at the hardware level).
The other is with Holland's
edly, a complete package to the
customer. "We want to add to the Philips, which has agreed to
upgrade sophisticated Israeli ar- market and distribute for Elscint
mament components that are in the important Japanese mar-
very competitive, including ket.
Even after spinning off its
weaponry, command control and
communication systems, and profitable defense and medical
thus increase Elbit's standing activities, Elbit Ltd. was left with
assorted civilian activities, some
and competitiveness," he says.
Buying into IAI could also im- loss-making, others at the start
pact favorably on Elbit's fledg- of a promising path to prof-
ling activities in IAI's lucrative itability. As yet Elbit's commu-
unmanned airborne vehicle nication technologies sales stem
from non-strategic businesses,
(UAV) niche.
In 1993, Elbit acquired one- the television plant and Elbit Vi-
third of Silver Arrow, an Israeli sion Systems. -
The TV plant has recently laid
company jointly owned by Scitex
and the Federman Group, which off workers amid rumors of its
has reportedly developed a so- possible closure if a strategic
phisticated, lightweight, low-cost partner is not found soon. By
UAV with a Tadiran communi- contrast, key strategic partners
have been found for other activ-
cations system.
IAI, which controls 95 percent ities. One example is Elbit Vi-
of the world UAV market, had sion Systems (EVS).
This operation, which com-
been offered the project prior to
Elbit, but reportedly turned it pleted an initial public offering
down on the grounds that a sim- on the NASDAQ exchange last
ilar UAV, which it had developed July and is still 59 percent
at a cost of tens of millions of dol- owned by Elbit, develops and
manufactures I-Tex, a unique ar-
lars, was in its pipeline.
However, Elbit might have to tificial vision software which
wait a long time for these designs identifies and detects defects in
to materialize. For one thing, manufacturing and complex as-
IAI and other military industries sembly processes in the textile
are at the bottom end of Israeli and auto industries, and has po-
Prime Minister Binyamin Ne- tential food industry applica-
tanyahu's recently unveiled pri- tions.
It has an agreement in prin-
vatization program. Beyond that,
once they are put on the counter,
these goods will surely attract ELBIT page 70