Turkish deal loss unlikely to affect IAI outlook [pg. 17]

Israel Aircraft Industries earnings were not expected to be affected by the reported decision of the Turkish Defense Ministry not carry out a $500 million defense upgrade through the company in protest of the war in Lebanon, sources close to the company said Wednesday. "IAI had not factored the contract into its working plan as it had not signed anything regarding the deal," the source said. "Secondly, the company knew that the Turks were looking at the possibility of buying new F-16s from US suppliers rather than carrying out an upgrade to the F-4s IAI previously supplied." IAI had carried out a $1 billion contract supplying F-4s to the Turkish Defense Ministry in 1997 and has been working to win the follow on project for the last two years. Earlier this week, Kuwaiti newspaper Al Qabas reported that the Turkish Government pulled the project because of Israeli Defense Force's treatment of Lebanese civilians during its military campaign there during the last month. The Turkish Embassy in Tel Aviv dismissed the reports saying that no contract had been signed to cancel with IAI and that it was viewing developments in Lebanon with concern along with the international community. The report came as IAI said its second-quarter profits grew five-fold. The company reported sales growth of 31 percent to $713m. for the three months ended June 30, compared to $546m. in the parallel period last year. Second quarter net income rose 500% to $51m., from $8m. in 2005 and the company's backlog of orders were at $7b. by the end of June, up 26% from $5.6b. a year earlier. "The second quarter of 2006 was most successful for IAI," said Yair Shamir, chairman of IAI. "The company's wide plan to reduce expenses, increase efficiency and other improvement processes has resulted in higher profitability (both gross and operating profit) and backlog." Since the appointment of Itzhak Nissan as chief executive officer at the beginning of the year, the company has embarked on program to reduce costs and spur growth. Meanwhile, IAI said its operations have not been affected by the conflict in Lebanon. "Activity at IAI has been business as usual and we continue to fulfill all our commitments for our customers," said Doron Suslik, vice president for communications at IAI. He added that approximately 80% of IAI sales are in exports with the remainder going to the local market, mainly to the Israel Ministry of Defense, and that, therefore, its products were being used by the Israeli defense force, the air force and navy in the ongoing operation. The privately held company is planning a bond offering on the Tel Aviv Stock Exchange in mid-2007, where it expects to raise between NIS 150m. to NIS 250m., which it will use to invest in its facilities in Israel, Suslik said.