Leadership changes loom at key Israeli defense contractors
That Israeli politics are cutthroat is rarely in doubt. But maybe it was time for a reminder that its defense industrial politics are no different.
Although sales are soaring, two of Israel's leading defense industries are undergoing unsettling personnel changes:(IAI) CEO for the last six years, Itzhak Nissan, is being forced to retire; and Aeronautics Defense Systems CEO and founder Avi Leumi departed his position Feb. 1.
Last month, Nissan announced the signing of IAI's largest contract ever—a $1.6 billion deal with an undisclosed Asian customer—and just two days later he had to report that he will vacate the CEO job when his mandate expires in October, after almost seven years in office. The contract covers the sale of unmanned aerial systems, missiles and a Green Pine missile-defense radar.
Nissan has grown the company's sales dramatically and put IAI's backlog at more than $10 billion. Despite that, and on the heels of the big contract signing, he was unable to get the mandate extension he was hoping for. Nissan will soon be 67; his predecessor, Moshe Keret, served until he was 72.
IAI's new chairman, Dov Baharav, has not concealed his dissatisfaction with Nissan nor his doubts about Nissan's capability to lead the company through the privatization it is expected to undergo in coming years and prepare it for the foreseeable decline in global defense expenditures, industry officials say.
As a state-owned company, IAI will undertake a public search for candidates to replace the retiring CEO. Baharav has expressed his wish to hire someone with business experience, although Defense Minister Ehud Barak will likely push for a veteran defense official.
Israel's defense ministry recently dragged the country into a diplomatic embarrassment by ordering the suspension of a $320 million Aeronautics Defense Systems contract to sell Dominator XP unmanned aircraft to the United Arab Emirates. The ministry argued that Aeronautics, based 20 mi. south of Tel Aviv, did not receive the required export license from the defense export regulation authority and ordered it not to act on the contract, which had been signed.
Without overt diplomatic relations, Israel and the UAE have had a long-standing relationship of commerce and diplomatic coordination, including defense sales. The ties deteriorated, though, after Israel's Mossad intelligence service was alleged to have killed a senior Palestinian official in Dubai in 2009. Since then, several Israeli agencies have been working hard to restore relations with the UAE, including through the sale of advanced defense technology. Those agencies fear the defense ministry's refusal to grant the export permit could jeopardize the delicate relationship with the UAE, and they are urging the government to allow the Aeronautics deal to go through.
The government has a different perspective. Defense ministry officials say the deal could undermine their appeals to the U.S. administration to block the sale of advanced weapons to Persian Gulf states to preserve Israel's qualitative military edge in the region. Aeronautics' Dominator XP is a 4,400-lb., medium-altitude, long-endurance (MALE) UAV based on the Diamond DA42 Twin Star manned aircraft.
It is uncertain whether the departure of Aeronautics CEO Leumi, who has been leading the company since it was established 14 years ago, is directly linked to the flare-up over the UAE deal.
Under Leumi, the small UAV manufacturer grew into a company with 750 employees and estimated annual revenues of $150 million. Aeronautics announced the appointment of Shahar Kravitz as CEO, while Leumi has become president. Industry executives say Leumi asked to stop managing the operational side of Aeronautics and focus on business development. Yet those executives admit that Leumi had deepening disagreements with one of the company's leading shareholders.
Aeronautics recently acquired 50% of the electro-optic manufacturer Controp, with Rafael Defense Systems acquiring the other half, a move that has drained Aeronautics' cash reserves. Controp was bought at a market value of 300 million shekels ($81 million), a price many observers believe was too high.