Friday, March 18, 2016

An Aerospace Firm - And a Window into a Different World

Israel Aerospace Industries (IAI) announced a plan this past week to launch a new push to enter additional civilian aerospace markets:

This is not the first time that IAI has sought to rebalance its civil versus military work portfolio. What makes this particular announcement so unusual is the context:
Attempts to lay-off around 1,500 workers have so far failed because of strong union and political opposition, leaving the company seeking another solution to alleviate its poor financial performance.

In other words, with a work force of just over 16,000 employees - a far cry from its heyday in the mid-1980s when IAI employed over 22,000 - IAI is still struggling to stand on its own merits financially. This is in no small measure due to its role as a government-owned corporation, and its relative weakness vis-a-vis the demands of its labor unions.

IAI has identified a number of civilian aircraft programs that it is targeting to expand its portfolio, including a light business jet, and bids to attract additional subcontract work from Boeing and other major manufacturers.

The reality, however, is that aerospace is and always has been an intensely competitive industry. The drive to continuously develop new technologies to maintain a market advantage is relentless. This is very different from other major manufacturing industries - most of which rely less on technology development and more on repackaging existing technologies in new ways. Major aerospace development efforts require enormous financial investment, and the risk of missed milestones, even for a successful product, can challenge the financial well being of even the most successful companies - as Canada's Bombardier has most recently demonstrated. The fact that IAI is therefore struggling to reap the financial rewards of this industry should therefore come as no surprise. But IAI is not just another aerospace firm. For Israel, it represents an investment in Israel's defense capabilities, and the ability to develop new and innovative means to provide Israel's armed forces with an advantage on the battlefield.

In this context therefore, it should be expected that IAI has and will continue to struggle. Regardless of changes in the world around it, IAI remains an Israeli national defense asset that also moonlights as a civil aerospace firm as a supplement to its primary responsibility.

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