"We were interested in IMI because of its strengths. For example, their portfolio in the rocket system" category," says Udi Vered, EVP & GM of Elbit Systems' new Land Division, which includes IMI, in a special interview with IsraelDefense. Vered became responsible for the management of IMI after the splitting of Elbit Systems' Land & C4I Division. "Combining the capabilities of Elbit and IMI will enable us to sell a complete rocket setup to a country, including the surveillance, C3 and target spotting elements."
Vered's primary objective is to set IMI, which has not presented profits for almost thirty years, at the profitability percentages of Elbit Systems. "There are no magic tricks here," says Vered, and presents his plan, which consists of three primary axes – improving the business connection with the suppliers, placing the emphasis on exports to overseas clients and investing in R&D. "We infused about 300 million ILS for deferred payments to suppliers," says Vered. "It is not philanthropy, but a part of a business move toward reducing costs. When you do not pay your suppliers for a long period of time, their losses and credit costs will eventually roll back to you and to the end client.
"As a result, we are at a better position for the suppliers and for us, and in the long run they are also willing to improve their prices compared to previous orders. The money saved will be used, among other things, for investment in automation and acquisition of new machinery that would improve the efficiency of the Company's manufacturing processes.
"The ability to be more effective in our manufacturing processes, without compromising the quality of IMI's products, will enable us to be more competitive worldwide. Elbit Systems has operated in 72 countries around the world. Suffice it if we could offer each country the rockets, along with a C3 element that may also support their mortars, artillery guns and infantrymen. We can offer our clients a significant operational added value. We will take the unique technological infrastructure of IMI and leverage it with complementary capabilities from Elbit Systems' Land Division and from the group as a whole.
"In order to retain the existing advantage of the rocket category in the world market, we will infuse tens of millions of ILS back into R&D. An increase in exports will also enable us to reduce the cost of the rockets and would contribute to improved competitiveness as the same production lines will sell to more clients. In order to succeed in today's international market, you must offer a significant added value through your products and systems, compared to local capabilities and the capabilities of competitors, and at a lower price. Owing to our close working relations with the IDF, we become aware of operational problems before other industries in the world get wind of them, and that gives us an advantage."
Adapting Products to the World Market
A common C3 element capable of supporting the rocket setup, the mortars, the artillery guns and the infantry is possible owing to the development of the TZAYAD (Digital Land Army) system for the IDF. TZAYAD is a C3 system for the ground arm, developed by Elbit Systems over the last few years according to an open architecture. "When we undertook Project TZAYAD, we already had the artillery C3 setup and the C3 system for tanks. Those were vertical systems for specific content worlds. At the time, Bezhalel (Butzi) Machlis, President of the Elbit Group, as the former GM of the Land Division, made the decision to develop the TZAYAD system according to an open architecture.
"We developed the same systems twice," explains Vered. "We developed a software infrastructure over which dedicated applications would run for such content worlds as artillery, armored forces, mortars, logistics, and more. Another improvement we made since then was the transition to an open architecture, which enables the IDF to introduce software upgrades and additional interfaces on their own."
A decision by the Israeli Government in 2014 prescribed that rockets for the IDF will be acquired exclusively from IMI until the year 2024. Vered explains that it is the right decision for the State of Israel, as far as the aspect of independence weapon system manufacturing is concerned. "Obviously, I am not objective," says Vered as "full disclosure" of sorts regarding the question of exclusive acquisition of rockets for the IDF from IMI. "For example, during Operation Protective Edge, IMI introduced the MPR-500 bomb operationally for the first time. The MPR-5000 is a high-precision air-to-ground bomb that minimizes collateral damage. Pursuant to the success and operational accuracy, we believe that the IDF will continue to use that bomb, which had been developed in response to a specific operational need and at a low mission price. In all of Israel's wars and fighting rounds, some of the production lines operated around the clock, and we are proud of the Company's unique contribution to Israel's national security.
"In the rocket setup category, IMI is definitely a world leader and alternatives of a similar quality are almost nonexistent in the world market. Alternately, they are significantly more expensive than the current price the IDF pays. Accordingly, I am optimistic regarding the export potential of these rockets."
A New Missile & Rocket Corps?
In response to the question of what should be done so that the IDF can establish a Missile and Rocket Corps, Vered explained that in order to accomplish that, sufficient funding will be required. "In order to provide the IDF with a sufficient amount of rockets, a financial investment will be required," explains Vered. "Apparently, in the end, a compromise will be reached between the desirable and the available and the proper working point will be found. We are making efforts to link up with American sub-contractors in order to enable the manufacturing of unclassified parts of the rockets through US Aid dollars, for the purpose of making it easier for the IDF to acquire the amounts required operationally. We do that while endeavoring to streamline our operations in Israel. Controlling the value chain will also help reduce the cost of the rockets. A success in the attempts to reduce the price will enable the IDF to reach the critical mass with regard to the amount of rockets required."
Along with the sales to the IDF, Vered says that he would like to significantly increase the rocket export element. "The IDF is our strategic partner and we are currently developing the rockets according to its specifications. When the development process has been completed, our work plan also includes the development of export versions. In some cases, manufacturing or assembly of certain parts in a foreign country may become possible – but not with regard to proprietary parts. That is our IP," explains Vered.
Vered said further that planning also includes the exportation of kits for upgrading old rockets, for countries that do not wish to replace their existing rocket arsenals. "Every rocket may be divided into four primary sections: propulsion, avionics and flight computer, warhead, and guidance/homing head. When you upgrade a rocket, you can change the propulsion section, the guidance head, the warhead or all of those sections. Elbit-IMI is the warhead powerhouse of the State of Israel. The cumulative knowledge we have here is a definite advantage in this field, worldwide," adds Vered.
Competition against New Global Players
One of the challenges facing Vered involves players from Asia (mainly China) who are entering the rocket field. Just recently, in an Asian country, Elbit Systems faced fierce competition from a Chinese firm that sells cheaper rockets and also offers loans for purchasing them. "This is how the game is played today in some places," explains Vered. "There are Chinese rockets, South African rockets and other rockets. It takes place in Asia and Africa. Our ace in the hole, opposite their low price, is quality. For this we must invest in R&D and in human capital.
"After a period of two and a half months in this company, I can say that I was pleasantly surprised. There are excellent development centers and an employee union that maintains the human fabric and identifies with the Company's goals. Everyone understands that the losses must be stopped. Unless we stabilize, we will not be able to invest in R&D. One of the areas we have to improve has to do with how the Company is perceived by the younger generation of engineers. IMI is engaged in cutting-edge development projects and we must make this fact accessible to young engineers. A part of this process has led us to leave the engineering organ in Ramat HaSharon (IMI's previous HQ). At the same time, we are trying to improve the working environment by investing in new machinery for the manufacturing plants. We have also opened the existing catering contract in order to improve the quality of the food, for the benefit of the employees.
"With regard to the R&D aspect, we try to invest in in-house development only with an accompanying client, with the emphasis on the IDF. This makes the development process purposeful. For example, we handle the development of the robotics and new artillery gun for the IDF in cooperation with IMOD's Directorate for Defense R&D (DDR&D) and with the IDF Ground Arm HQ. We also invest in a new generation of the Romach (AccuLAR-122) rocket with DDR&D and the IDF Ground Arm HQ. Many of our developers are reservist commanders of IDF combat units who use their own equipment. This is a huge advantage.
"The tens of millions we intend to invest in R&D every year will come from export-oriented expansion. Admittedly, the DDR&D invests in development, but mainly for germinating preliminary technologies. For every complete development process that eventually yields an operational system, you need personnel resources and a budget. Until today, this was a problem for IMI. We will not be able to compete against Chinese or other competitors over price, but our rocket technology is superior and we must retain that superiority. Meanwhile, our competitors our closing the gaps and that compels us to be two steps ahead of them at all times."
"Aspiring to Lead the Armored Vehicle Protection Market"
It is apparent from our conversation with Vered that the primary asset he imports into IMI is a business focus. For example, Vered forwarded the cyber solution IMI developed for protecting SCADA networks to Haim Delmar, Head of Elbit Systems' C4I & Cyber Division. "IMI needs a business focus to reach its profitability goals," explains Vered. "We need to find a business focus for the public company Ashot Ashkelon Industries as well. It is a manufacturing plant with excellent capabilities that currently relies mainly on the local market. We have to transfer new products to Ashot and increase their export share."
Vered knows what he is talking about. Elbit Systems currently has, along with IMI, a tapestry of elements that can position it at the forefront of the global armored vehicle protection market. Passive, reactive and active protection systems, Ashot's transmission systems, Elbit Systems' C3 systems, smart mortars, weapon stations and munitions. "I want to be one of the world's top three in each one of our core activities. This is the approach I have been trained to follow at Elbit," explains Vered.
What do you expect from the Ministry of Defense?
"I hope they help us develop the unique excellence centers that exist within IMI. The situation that had existed prior to Operation Protective Edge, when they had not ordered ammunition for years, is illogical and does not enable a manufacturing plant to prepare and invest in production infrastructures and in knowledge centers that are vital to the state. Additionally, I hope we manage, along with IMOD, to find the right balance that would enable us to sell more capabilities to overseas clients. Support for the excellence centers and for exports will result in direct increase in R&D that we would invest for the benefit of developing state-of-the-art systems for the IDF. This is how the process of developing and maintaining the technological superiority of the IDF works in reality."