7/2/2015 Amir Rapaport - israeldefense.com
On the eve of the year when IMI is to be sold, CEO Avi Felder speaks about the privatization project, a cooperative with Rafael and the lessons derived from Operation "Protective Edge": “Urban wars will continue”
At the outset of 2015, Avi Felder faces a series of unusual challenges: completing the structural revision within IMI, assimilating the lessons of Operation Protective Edge with regard to the Company’s product range, and above all – facilitating the privatization of IMI, after some elements possessing secret information on the manufacture of rocket engines have been separated from it, and a new company, "Tomer" has been established.
Felder is confident that the coming year will end with IMI, one of Israel’s longest running government companies, under a different ownership, either private or public.
“2015 will be a year at the end of which we should emerge as a privatized company under private, or more precisely non-government ownership,” says Felder.
Does the fact that the Knesset has been dissolved and elections will be held next March change the privatizing plans?
“The train has already left the station. The process will not stop because of the elections. The Government Companies Authority is in charge of this process. We assist it in order to comply with all of the terms. So far, the Company has complied with 100% of the plan prescribed for it. I assume this compliance will remain the same. Later on, the process will be more technical and not one that calls for decisions that could be influenced by the elections.”
Where are we in the process right now?
“In January 2015, an advertisement will be published, calling for companies that would like to participate in the purchase to submit their bids. Subsequently, the regulator should approve the companies included in the bidding and it is planned that by the end of March or in early April at the latest, those companies will receive a detailed RFP and submit their responses to it. By the end of the year, the process will be concluded. We are currently working on the establishment of information rooms, to be opened in late March, for the benefit of the bidders, so that they may use the information to make a decision regarding the tender without compromising details that may adversely affect our on-going competitive position vis-à-vis the companies that may eventually purchase us. At the same time, other processes are progressing as well. During that period, IMI will be split into ‘IMI Systems’ – which would accept all of the Company’s assets and activities, and the residual IMI, which will keep all those things that I refer to as the ‘sins of the past’ – contaminated soil, environmental issues and so forth. The State will assume responsibility for the employees’ pension debts. The split should take place around March. That’s the general direction.
“At the information rooms, the potential buyers will receive all of the information in the most transparent and clear manner that would still protect the Company, as in the end, only one buyer will be selected. In any case, according to the decision of the ministerial committee, IMI Systems will be privatized as a single ‘block’ – it will not be broken down, but sold with all of the production plants and subsidiaries.
“At the same time, we are still working on the establishment of ‘Tomer’ – on the basis of our ‘Givon’ plant (the Rocket Systems Division). Just before IMI is handed over to the buyer, ‘Tomer’ will be separated from it. At this time, we are cooperating with IMOD on the characterization of ‘Tomer’. This plant will deal with all aspects of rocket engines and propulsion, and would sell the engines to IMI just as it is currently done by Givon. It will be a government company – 100% owned by the State of Israel.”
Will the other knowledge centers be privatized?
“Yes. Only the Rocket Systems Division will still be owned by the State of Israel. All of the rest is for sale. We are also working intensively on the relocation of ‘IMI Systems’ to the Negev, which is to take place immediately following the privatization. By 2022 we would no longer be in Ramat HaSharon. To accomplish the relocation to the Negev within seven years – that is a challenge in itself. The relocation process will consist of several phases. Now we are working on the planning of the area we will transfer to. We are considering which activities should be located there. We intend to evaluate what IMI would look like in the coming years, and ensure that some space will be reserved for future development in the context of the relocation to the Negev.”
Will the buyer be required to relocate to the Negev? Will he not be able to change his mind about it?
“There is an agreement, and it will happen. The Government of Israel decided to privatize the Company. In April 2014, 12 contracts were signed between the Company and the trade union and the employees – and the Ministry of Finance and Ministry of Defense. These contracts specified everything that had been agreed – the retirement agreement, the agreement regarding the relocation to the Negev – all of these agreements are elements of the privatization process. Now, we take all of those framework agreements and break them down into details, and most importantly – we execute them!”
According to Felder, out of 3,700 IMI employees in early 2014, 700 have already agreed to retire by the end of the year. 500 additional employees will retire over the next few months, and 380 will transfer to ‘Tomer’ after the privatization. At the same time, 250 new employees have been recruited for all positions – from production workers to engineers and marketing managers.
At the bottom line, is the company offered for sale healthy and profitable?
What is your backlog of orders?
“We are entering the coming year with a backlog of orders of about eight billion NIS. As far as I can remember, this is a record for the Company. It gives us solid working prospects for the next four years. Beyond that backlog, we are taking into account an internal growth of something like 10% a year. The Company will be profitable in 2016.”
Does the backlog include Givon?
“Yes, but not in considerable numbers – around 200-300 million NIS, as over there they have many things that come in over the year and are executed promptly. The backlog also includes our subsidiary ‘Ashot Ashkelon Industries’, which has a backlog of orders of 900 million NIS. ‘Ashot’ is a profitable company with 15% holdings on the Tel-Aviv Stock Exchange, and it will remain profitable.”
What is the ratio between foreign and domestic business?
“About 40% of IMI’s sales are to IMOD and 60% to overseas clients.”
Investments & Structural Change
Avi Felder says that apart from the preparations for the tender, IMI is undergoing some major changes: “We are investing in the purchasing of machines for the production floors in all of the Company’s plants, and have launched a three-year plan for upgrading the Company’s IT system. We have not made any investments in infrastructure for many years, owing to the budget restrictions we were under.
“Another major change is the completion of the establishment of the business administrations within the Company. In 2014 we initiated the establishment of business administrations for infantry, armored forces, engineering, artillery, air and HLS. The function of these administrations is to deal with project management, system engineering and marketing, and be client-driven. In my view, the administrations are the locomotives of the Company. In 2015, these locomotives will pull out and start off.”
How long will "IMI Systems" remain independent?
“I do not know. I assume that a wise and reasonable buyer will continue to operate ‘IMI Systems’ as a business entity and lead it to new horizons. Even under the new ownership, the Company will operate under government regulation, as it operates today.
“There is no difference in the regulative work, regardless of whether it is a private or a government company, small or large.”
In the event that the buyer turns out to be Elbit Systems, will IMI be merged into the group?
“Elop remained Elop even under Elbit’s ownership, and Elisra also remained a separate company. I cannot step into the buyer’s shoes, whoever he may be, he is committed to a certain period of time when ‘IMI Systems’ will continue to be a company. In any case, I do not foresee any dramatic changes initially. In such a process, when a buyer enters a company, he will first of all familiarize himself with it.
“IMI, in particular, is like an aircraft carrier. It is not a small company. The buyer will have to study all of its obscurities, familiarize himself with its engine. Subsequently, he will have to determine whether he can create a synergy with other activities. In my opinion, this stage will take a reasonable amount of time.”
Regardless of the Privatization, has your product range changed over the last five-year period?
“Yes. I think that the similarity between our products today and the range of products we had five years ago is only in the names of the activities, but not in the products. In the field of infantry, for example, we have introduced over the last few years the MPRS system for firing rifle grenades with a high degree of precision, a high-accuracy mortar shell and a new hand grenade with improved safety devices. In the armored forces field, we introduced the 120mm APAM-MP-T M329 tank cartridge, 105mm APAM-MP-T M117/1 tank cartridge and 120mm HE-MP-T M339 tank cartridge. The latter cartridge was used operationally for the first time during Operation Protective Edge, and proved to be a fantastic success.
“Another activity which has developed significantly is artillery rockets. In that field, too, we have introduced a range of completely new products. We now have rockets to ranges of 40 to 250 kilometers, with a CEP of a few meters.”
You surprised everyone with your Predator Hawk guided artillery rocket to a range of 250 km, which you unveiled at the KADEX exhibition in Kazakhstan last summer
“As far as I am concerned, it was no surprise. Anyone who is familiar with our capabilities only asks us ‘when will you introduce the next rocket’.”
What can you say about the sales of the Extra rocket to a range of 150 km?
“This rocket has already been sold to several countries around the world, having passed several perfect trials. This is one example of the change the Company underwent. This deal was signed and delivered very quickly. We fully accomplished our objectives and our clients were satisfied, and even more importantly – satisfied clients come back. In this context, the Predator Hawk is an example of a satisfied client who came back.
“It is important to understand further that we are not just talking about the rocket itself, but rather about a layout of rockets. We sell a complete battalion or brigade, fully equipped from head to toe – the rockets for the launchers, the command centers, the ammunition, the meteorology, the UAV as well as a training and instruction package. The nice thing about the clients who purchased such layouts is that they currently use the rockets without us, in their training exercises.
“In the air category, we introduced the MPR-500 bomb, which was also used operationally for the first time during Operation Protective Edge. As far as we know, it was also tremendously successful.”
What are the sales of this bomb like, apart from sales to the IDF?
“We have had a few sales transactions as well as distribution agreements with some major corporations in the global market – these cooperative alliances apply to manufacturing as well as to sales. For obvious reasons, I cannot name the corporations with whom we entered those agreements.”
What about the continued manufacturing of "loitering weapons", after you developed the Delilah in the last decade?
“It is not our field. We have had no presence in the world of loitering weapons after the Delilah.”
Where do you stand in the field of active defense?
“We are currently engaged in a dialog with Rafael with the intention establishing a cooperative alliance on the issue of active defense. IMOD convened both Rafael and us recently, and at this time both companies are cooperating with the aim of developing the best system for IDF.”
According to Felder, the intention is to combine between Rafael’s Trophy system and IMI’s Iron Fist system, so that the interceptor will be made by IMI, the radar will be made by IAI (as in the Trophy system) and Rafael will serve as the primary contractor and integrator of the project. “We are currently working on the agreement between the companies,” said Felder. “The ownership structure for the project has not been finalized yet, but the general direction is a partnership.”
A partnership with 40% for Rafael, 30% for IAI and 30% for IMI?
“That is the general direction.”
Technologically, can a combination of the Iron Fist and Trophy systems really work?
“The engineers of these companies can do anything. All you have to do is just provide them with a suitable working environment.”
Will the system be available for the future Namer (Merkava) APCs?
“That is for IDF to decide.”
Will it be relevant to export sales as well?
“Provided we receive export permits.”
Generally, in your view, has the transition to the manufacture of precision munitions proved itself?
“Without a doubt, Operation Protective Edge proved to IMI that our development directions were correct. The entire subject of precision guided munitions suitable for urban warfare, on which we have been focusing all these years, has proven itself. The emphasis has been on inexpensive precision munitions that clients can afford. Every two years we prepare a strategic plan for five years ahead. After Operation Protective Edge we set up a team to check whether we are on the right track or need to make adjustments. We came to a sweeping conclusion that the trends were correct. Naturally, some adjustments were required, but no substantial changes.”
What about the fields of cyber and HLS?
“These are new activities which we entered recently. HLS had already existed (within IMI), on the basis of the IMI Academy for Advanced Security & Anti-Terror Training. The Academy provides an excellent basis for soaring and reaching better places. Thus far, the Company has not dealt with it very intensively, but the establishment of the HLS administration is a clear indication of the fact that we want to go in that direction, and take advantage of suitable products that we already have and of the Company’s marketing and integration capabilities.
“We established the cyber element for two reasons: firstly, to defend our products. Obviously, you cannot sell anything today without cyber defense. Secondly, we expanded our cyber defense activity on the basis of a more comprehensive perspective.”
Did you identify a business potential in this field?
And what about the more traditional fields of activity? Upgrades for armored still a business potential there?
“There is business in all of those fields. In the field of armored vehicle upgrades we are currently engaged in several projects around the world. In small arms ammunition, our sales to the IDF provide the primary basis for us, but we also sell to retail chains in the USA. In the USA we are regarded as manufacturers of premium ammunition. Our ammunition has excellent reputation. This market is twice as large as the military market, and is very stable.” Felder noted that IMI will once again participate in the SHOT Show, to be held in Las Vegas in January 2015.”
Regarding the new infantry vehicle, Combat Guard, developed by IMI, Felder said: “We developed one vehicle prototype that we showcased at the exhibition in Paris, and received a very serious response. We regard infantry mobilization as one of the legs the Company stands on. We are also involved in the Namer APC, the Body Guard and another off-road vehicle designated Wildcat. The advantage of these off-road vehicles is that they can operate on any terrain, under any conditions. For these vehicles, we also developed weapon systems that can promptly engage any threat based on identification data provided by the active defense system.”
In your view, has the era of wars between regular military forces ended?
“I always say – the unexpected is the only expected element in wars. I assume the military is being prepared so as to provide a solution to any potential scenario, and we attempt to be present at any niche that may prove attractive to the client. The primary characteristic of the battlefield today is the fact that it is constantly changing.”
What trends do you see evolving in the global defense market in the coming year?
“We regularly analyze the global trends. You see the defense budget in the USA, which once was at the highest level and is now being maintained at a certain level. The budgets in Europe have decreased drastically, with the exception of Russia – where the budget has increased by approximately 50%. China has also increased its budget by 50%. The budgets have moved eastward. The increase in the Russian and Chinese budgets has led to a boost in defense expenditure in the entire region. The drop in oil prices has also had a profound influence on the market.
“Generally, Israeli industry and the entire defense industry of Israel are at the technological top. We must retain that by investing in R&D, which yields a very high added value.”