There are ominous converging trends in the defense world. New technologies, in particular cyberdevelopments and advanced electronics, are growing exponentially in cost. At the same time, military budgets are falling rapidly and will continue to do so. The survivors of the coming turmoil will be those who embrace the formula of faster, smaller, better and cheaper.

Molded in that model is Israel Aerospace Industries' (IAI) new chief, who has plans to boost spending on advanced cyber, stealth, radar, communications, air defense, unmanned aircraft and gallium nitride microchip technologies.

On the commercial side, the emphasis will be on exploring opportunities for producing longer-range executive jets.

Military officials in both Israel and the U.S. say there is an operational need for lower-cost, stealthy, unmanned aircraft designs—perhaps like Lockheed Martin's RQ-170—that can serve as a persistent, network node that uses easily interchangeable intelligence, surveillance and reconnaissance (ISR) payloads. These platforms are seen as filling a different role from the more expensive and stealthier X-47-like aircraft that would conduct the unmanned strike mission. However, the lower-cost, stealth designs will eventually carry weapons as well, these officials say.

Moreover, defense planners in both countries have accepted the fact that stealth is a perishable product with today's designs good for 5-10 years, while the airframes themselves will operate for 30-40 years; this will drive them to adopt advanced cyber and electronic warfare options to protect their aircraft as they mature.

“Those are delicate things, I cannot discuss them, but IAI through the years has done everything it can to keep the technological and operational edge,” says new IAI President and CEO Joseph Weiss. A mechanical engineer with an MBA degree, Weiss led a program to develop Dolphin submarines for the defense ministry and became general manager of all space-related activities for IAI's MBT space division in 2003.

“We will have to deal deeply with cyber-issues and with all aspects and types of low signatures,” says the 61-year-old Weiss. “I think IAI has to enlarge the percentage invested in its own R&D to keep its technological edge over competitors and to support the state of Israel. We have to improve the affordability of state-of-the-art technology to compete in international markets. And we have to increase our hold on the space domain.”

IAI revenues were $894 million in the first quarter of 2012. The company employs 16,000 people.

A key to IAI's plans is development of the next generation of gallium nitride microchips. GaN has been commonly used in light-emitting diodes. It offers special properties for improving electro-optic, high-power and high-frequency devices. It also is suitable for solar-cell arrays for satellites since they remain stable in high-radiation environments. GaN also operates at hotter temperatures and higher voltages than other transistors, so the devices make excellent power amplifiers at microwave frequencies.

Other IAI interests include advanced communications of all types and phased array radars.

“At the systems level, we will see how to position ourselves more strongly in the air defense field, with optical and radar seekers, and in electronic warfare,” says Weiss. “With potential partners, we will exchange views about future long-duration executive jet markets.”

Cybertechnologies are yet another area that IAI intends to target. Weiss points out that it is a new field that no one really understands yet. Moreover, the level of investment increases as the research becomes more sophisticated.

On the other hand, he notes, “you can't discuss any system without taking into account potential cybereffects. Inherently, cyber is a mandatory building block. To understand the nuts and bolts of cyber, we have a ways to go. At IAI, we have focus teams dealing with the technology.

“Trying to differentiate what is cyber and what is the rest of a system is becoming more and more problematic,” says Weiss. “In defining a system, what are the basic requirements and what are the cyber-requirements? Sometimes it is the very essence of the requirement, sometimes it is just the outer envelope. While doing practical things to our own systems, we are looking and mapping the areas of real interest to IAI and how much money to invest in that and what revenue can result from such activity.

“I'm coming to my new appointment in very foggy weather,” he says. “We can see the crisis in Europe, the depression in the U.S., and we are totally aware of the huge cut in U.S. and Israeli defense budgets. Even in the markets of the Far East—China and India—the growth is lower than expected. For a company whose business is 80% export, the environment is very tough, so we have to be aggressive and creative. We need ideas to solve the customers' problems with reasonable cost.”

Weiss's initial weeks in office will be spent crafting IAI's strategy with Chairman Dov Baharav. Despite slowing markets in the U.S. and Asia, the prospects for growth are good. Weiss will be working on a number of large contracts that were initiated in the last three years regarding UAVs, missiles and electronics systems.

One involves developing airport robotics—in particular, the Taxibot aircraft tug, a joint project with Airbus. A second with Spacecom Satellite Communications involves building the Amos-6 communications satellite and ground station. A third contract with Italy concerns a high-resolution reconnaissance satellite program and purchase of advanced jet trainers to replace the Israeli air force's flight-training fleet; two early warning aircraft and a reconnaissance satellite are also included in the contract. Dassault is involved in the fourth big initiative, which could result in IAI manufacturing the Heron TP unmanned aircraft for the French air force and other European customers.

In the meantime, IAI is in negotiations with Spacecom and anticipates the boost that development of Amos-6 will give to all of the company's space activities

“After a long two-and-a-half-year process we have won the contract to be the lead company and, in doing so, have introduced a lot of new cutting-edge technology,” says Weiss.

Amos-3 is still in orbit, Amos-4 will be lofted in 2013, and Amos-6 is planned for launch in the first quarter of 2015 with an anticipated life of at least 16 years.

“We are making a real technology leap with Amos-6,” he says. “We've doubled the [signal output] capacity from 4.5 kilowatts to 9 kilowatts. And we've almost doubled the number of transponders. We learned from [losing the contract to ISS Reshetnev for] Amos-5 to be creative and cost-effective in competing against the best companies in the satellite world. It's about a $200 million contract—which is a huge deal for IAI and the space industry in Israel. About 100 IAI employees, some of them new, will be working on the project.”

Some of the payload integration will be done at IAI, which is another technological leap for the company that positions it at the center of the commercial satellite business. The satellite to follow Amos-6 has no specific design yet.

In addition, Weiss says IAI will be enlarging its “indigenous capabilities” to enhance its competitive edge. “We intend the platform to compete in the international market. Its heritage is from Amos-4. It is one of the most sophisticated payloads that was ever built by IAI [and] it will be a good starting point.”

Business with Italy also looks promising, with agreements that Israel will buy 30 Alenia Aermacchi M-346 advanced trainer aircraft for roughly $1 billion. This acquisition would be offset by an Italian purchase of two IAI-built Gulfstream G550-based Conformal Airborne Early Warning (CAEW) aircraft, worth about $760 million, and an Ofeq high-resolution, electro-optical reconnaissance satellite priced at around $200 million. The Italian-operated satellite could be lofted as early as 2015.

The M-346s are to replace Israel's 1960s-vintage Fouga Magisters and older F-16A/Bs used in flight training. IAI and Elbit are to partner on the program as part of a deal with the Israeli defense ministry.

As for the CAEW aircraft, they are expected to have active electronic-warfare and intelligence-gathering capabilities based on IAI technology.

“We are defining the requirements,” says Weiss. “We expect the maintenance to be conducted in Israel. It could be that there will be interest in enhanced-capability aircraft in the future.”

Because the special-mission aircraft is built around a U.S. Gulfstream airframe, Israeli officials believe the design could be of interest to the U.S. as the Air Force replaces its much-larger C-135-based special-mission aircraft such as the E-3 AWACS and Joint Stars. Gen. Norton Schwartz, USAF chief of staff, says the service needs replacement aircraft the size of business jets and not the larger Boeing 737.

Dassault—the longtime manufacturer of France's high-performance fighters and strike aircraft—is negotiating with IAI to market the next-generation Heron TP to the French air force and European customers. The French are already operating IAI UAVs in Afghanistan, and France's military leaders are considering their UAV road map.

“We think Heron TP is one of the most capable unmanned aircraft in the world and that it can be certified to fly in France,” says Weiss. “The decision should come soon. Dassault is a leading aircraft manufacturer and very good partner. If you look strategically over the next 30 years, the role of manned aircraft will be declining and that of unmanned aircraft will be growing. So we think Dassault will be there because they are thinking strategically [about new markets].”

As for robotics, IAI's leaders believe it is an area that could be a more integrated and well-funded element of its product line. The Taxibot, which was shown at the Farnborough air show, is a semi-autonomous tractor for moving large aircraft quickly and efficiently around airfields. It is designed to improve safety and save aviation fuel as airliners wait in long queues before takeoff. Use of Taxibot also reduces wear and tear on aircraft landing gear.

“We're in the middle of testing,” says Weiss. “We're hoping this will be a bonanza for IAI and Airbus.”

Bankers Capital Transportation Leasing Group is planning to purchase dozens of narrowbody and widebody TaxiBot systems that will be operated in North America. A letter of intent regarding the $97 million deal was signed at Farnborough. It is the launch contract for providing TaxiBot services to airlines and airports. Delivery is planned for late 2013.