Up, up and away

Two years after taking the helm of IAI, Yair Shamir has stopped the financial bleeding.

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June 25, 2007 21:11
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The Paris Air Show closed its doors on Sunday and while Israeli companies signed deals worth hundreds of millions of dollars, one of the items that grabbed the public's attention and has continued to interest countries around the world is the Heron 2, Israel Aerospace Industries' most recent unmanned aerial vehicle (UAV). The Heron 2 is the latest military platform unveiled by IAI, one of Israel's leading defense companies, particularly in the aviation field. It is the largest Israeli UAV with a 26-meter-long wingspan, the same length as a Boeing 737, and can fly at altitudes of up to 45,000 feet while carrying weapons and high-resolution reconnaissance cameras. Its predecessor, Heron 1, is currently in service with the Israeli and Indian Air Forces. With Heron 2's public release, IAI has retained its edge in UAV development, competing with Israeli companies like Elbit and American corporations like Boeing Co. and Lockheed Martin. Part of IAI's success in recent years has to do with the July 2005 appointment of Yair Shamir as chairman of the board of directors. Shamir is a general partner of the Catalyst II private equity fund, a former chairman of El Al Israel Airlines and son of former prime minister Yitzhak Shamir. But while IAI has always appeared to be a successful company on the outside - it leads the world in UAV development and earlier this month successfully launched the Ofek 7 satellite - financially the company had been failing. In 2003, IAI pocketed $15 million in profits, in 2004 $20m. and in 2005 a mere $2m. Shamir's primary task was to increase the company's profits. His first decision was to change the management. Out of its 19 members, 13 were replaced. The board - traditionally a forum of political appointees - also underwent changes, and today out of its nine members five are women. The results were almost instantaneous: In 2006, profits jumped to $154m. Expectations are that 2007 will reach close to $200m. In his first interview since taking up his post two years ago, Shamir lays out his vision for the company and explains why the changes in management have helped it become profitable. "THE MESSAGE over the years was industrial quiet," Shamir, a former IAF colonel explains. "We were asked not to make noise about profits or losses and for years the board was ordered to work with minimum risk." But when contemplating taking over the company, Shamir says he immediately discovered the unleashed potential within IAI. Back in 2005, when Shamir was offered the position of chairman of the board in 2005 by then-defense minister Shaul Mofaz, Shamir said he studied the company and found that it had great resources but poor management. "I saw great technology but poor finances," he recalled. "I was mostly impressed by the people and I had a sense that the job was doable and that IAI was at the time at only a small percentage of what it really could be." Under Shamir's leadership, in 2006 the company crossed the $4 billion mark in signed contracts for the first time. Some of the significant deals included a $450m. contract with the Indian Defense Ministry for the supply of an advanced version of the Barak naval missile defense system as well as a $230m. with the Indian Air Force for the supply of UAVs. One of Shamir's goals in the company has been to create transparency. Under the previous management, he says, transparency was unattainable since they were under orders from the Defense and Finance ministries to keep a low profile and "not make noise." To obtain transparency, Shamir initiated and spearheaded IAI's successful Initial Public Offering (IPO) last month in which the company raised $250m. It was the first time that IAI - a government-owned company - sold bonds on the Tel Aviv Stock Exchange. "There is the bonus of getting an additional $250m.," Shamir admits. "But it also creates transparency and this demands discipline and rules in the company and among the management." The way he sees it, however, IAI is not just a profit machine but its first and foremost role is to provide the State of Israel with "defense independence." "IAI is needed to serve as the sole source of core technology that Israel needs for its defense," he explained, adding that the economic factor - IAI supports 30,000 to 40,000 households - was just as important. WITH THE COMPANY on a profitable track, Shamir is now looking to continue to expand IAI into different and new global markets. More than 80 percent of its sales are abroad. He would also like to change the breakup of the company from 65% civil and 35% defense to 50-50. "This way," he says, "we can cover losses if one of the two doesn't do well." Shamir is also looking for new bases of operations around the world. In a meeting with Florida Governor Charlie Crist earlier this month, Shamir expressed interested in investing significant sums in partnerships with Florida, either with local defense contractors or civilian enterprises. IAI has also set its eyes on the European market and in order to sell defense products there it needs to buy up a local European-based company - possibly in France or Romania - that can be used to manufacture IAI products and as the company's base of operations. "The idea is to take the company that may have its own products, then plug in our technology and create local products that will sell," he explains. He also almost dares the United States to begin vying for tenders in India, which last year was Israel's number one customer with sales reaching $1.5 billion. The US has recently lifted an embargo on defense sales to India, opening the doors for mega-companies like Boeing and Lockheed. IAI has also set its eyes on the Turkish market and recently competed in a satellite tender. Ankara has also expressed interest in buying the Arrow missile defense system which is jointly developed by IAI and Boeing. "Competition is good for business," Shamir says. "I care only for Israel's independence and the competition will force us to create better products."

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