•Back In The Black
or
lAnticipating a profitable
1998, IAI President
Moshe Keret faces the
challenges of company
restructuring.
STEVE RODAN
Special to The Jewish News
I
srael Aircraft Industries (IAI), the
nation's largest defense contrac-
tor, stands at a crossroad.
After several losing years in
the early 1990s, IAI has proved that it
can sell its products virtually anywhere.
Now the state-owned giant must prove
it can be profitable.
As far as company President Moshe
Keret is concerned, there is no doubt
that IAI is well on its way into the
black
"Based on the backlog of
orders and other data, 1998
will definitely be prof-
itable," he says, taking out a
sheet of paper to illustrate
his point. He draws two
lines. In 1992-93, IAI sales
were running ahead of its
acklog of orders. That, he
says, reflected a bleak
future.
Today, IAI's backlog is
ahead of its sales — way ahead. The
company expects to sell $1.6 billion in
1997 and register orders of $2 billion.
The latter figure will set a company
record. Profitability for IAI represents
hard-won battle for Keret. Perhaps
more than anybody else today, the 63-
year-old technocrat embodies IAI, a
company he has worked for since
.1955. After the 1967 war, Keret head-
ed the company's combat-aircraft
assembly division. In 1974, he became
vice-president of the Kfir jet-fighter
program. His performance won him
both the Defense and Kaplan awards.
■ The bad years came soon after Keret
was appointed president of IAI in
1985. In August 1987, the government
suspended the Lavi fighter-jet program.
The decision rocked the military-indus-
Okrial complex that had geared up for
manufacturing the combat plane.
Suddenly, thousands of engineers and
technicians became redundant, and
many assembly lines were abandoned.
le The result was years of reorganiza-
tion. IAI reduced its workforce from
22,000 to 16,500. It turned away from
the Israel Defense Force and looked for
export markets.
Today, those markets are varied.
Southeast Asia is strong. China is
ordering the Phalcon early-warning air-
borne system from IAI's Elta
Electronics Industries subsidiary in a
deal that could reach $1 billion. Korea
is buying the Harpy unmanned air
vehicle and is discussing joint produc-
tion of the Barak anti-ship missile.
IAI has made inroads in Europe as
well, but Western Europe has always
been a difficult market with a protec-
tionist bent.
"This effort to create a relationship •
with Europe is not only based on sales,
but on the creation of alliances with
European companies to create opportu-
nities to work together in Europe or
together for third parties," Keret says.
Then there is the U.S., where JAI
has several projects going on — includ-
ing the upgrade of the T-
38 combat trainer with
McDonnell Douglas. "The
U.S. is also a very impor-
tant market for IAI," he
says. "It has always been."
Now for the hard part.
Keret's challenge will be
maintaining labor calm in
the face of the company's
powerful union. The
union opposes IAI efforts
to restructure the govern-
ment company. Such a move requires
government approval, but company
executives are already trying. The
leader of the effort is IAI Chairman
Avigdor Ben-Gal, who is openly lob-
bying for the government to privatize
the defense contractor. He has orga-
nized meetings with chairmen of other
companies interested in buying a piece
of IAI.
Keret has taken smaller steps. He
has been negotiating for the establish-
ment of several joint ventures with
companies both in Israel and abroad
that would reduce inefficiency and
competition. One of the efforts is a
joint marketing company with Elbit
Systems Ltd., Haifa, for unmanned air
vehicles.
The union, however, has so far
stopped the efforts. In June, IAI work-
ers held two days of violent demonstra-
tions calling for Ben-Gal's ouster for
talking to Lockheed Martin about the
prospect of investing in JAI.
Keret is careful not to upset the
unions, but he is adamant that the
company must restructure if it wants to
survive. ❑
A defense
giant has
more
demand.
Steve Rodan writes for the Jerusalem
Post.
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