Yair Shamir Chairman of Israel Aerospace Industries

Yair Shamir

IAI was established in the early 1950s by the government with the main goal of creating jobs. Early on, our primary focus was the maintenance and support of civilian aviation with little significant military work. The turning point came in 1967 when the French imposed an embargo on Israel and cut off Israel's supply of sophisticated weapons and planes. At that point, the government made a strategic decision to become self-sufficient in terms of defence. As a result many companies were created, not just IAI.

The first thing we did was to create the first Israeli plane, which was based on the Mirage, and we carried on developing planes until 1987. Since then, we have developed everything that we needed and could not purchase. Today we develop radars of all kinds, Electronic Warfare systems, secure communications systems, strategic supplements such as satellites (we have launched three in the last few years). We have devolved the capability to launch a satellite and the ability to make our own satellites. We have developed Unmanned Airborne systems and defence systems, such as Anti-Aircraft missiles. Most of our products are defensive and not offensive. We also produce civilian aviation products such as executive jets and transform old passenger jets to cargo jets.

United World
What are your plans and strategies for encouraging growth in the civilian sector of your business?

Yair Shamir

When I started this job, the civilian sector of our business was small and losing money. Today it is very profitable and growing faster than our defensive sector. Our strategy is enlarging the scope and production of executive jets. We own a company in the US that is growing nicely and is also very profitable. They provide maintenance for Airbus and other companies. We are considering making some acquisitions in the American civilian aviation market and I aspire to do more business in Asia.

United World
The IAI is one of the most important suppliers of security systems both locally and elsewhere in the world. The military production totals approximately 65% of the production income, while the civil production is 35%. In one of your strategy for growth it is stated that the goal is to increase the scope of civil production to 50%. What is IAI's plan and strategy to achieve this goal, and how do you market the company as one whose line of business is not only defense-related?

Yair Shamir
Luckily we do n'ot have to invent the wheel, we just follow Boeing. Boeing makes both 767 and f-18s and they do it very successfullsuccessfuly so the model for doing it right already exists. Today we are split divided into into 6 divisions, one is engineering, but and the rest are all business, and all are profitable and worth at least $600 million. Each one is part of our $3 billion dollar umbrella and belongsing to the larger whole, which helps each individual part sell. The fact that we are in both sectors gives us more flexibility, I can transfer people from civilian to military and back and forth, and use technologies developed for military purposes in civilian products and vice versa. In this manner, our company can consistently stay efficient and relevant in terms of the market.

United World
You were appointed as Chairman in July 2005, and you came from the position as the of Chairman of El AL 2004-2005. From 1963 to 1988 you served in the Israel Air Force as a Pilot and Commander, and during this period (in 1974) you completed your bachelor's degree in Electronics Engineering, at the Technion, Israel Institute of Technology. You hold the military rank of Colonel (ret.). How did your background prepare you for the position as Chairman of IAI, and the success you have brought to the company?

Yair Shamir

Throughout my military service I was simultaneously a pilot and an engineer. At a certain period, I was commander of the testing unit of the air force and my last position was commander of all electronic systems in the army. After my discharge, I got involved in high-tech. Over the course of a few years I realised that I am good with technology but I do not know anything about marketing so I decided to learn by getting involved with the food industry. I took over the CEO position At Elite. Over the years I have undertaken dozens of ventures, such as Mercury Interactive (recently sold for $4.5 million) and I invested with Yossi Vardi in ICQ, among other things.

The fact that I was chairman of EL-AL during a very tough period made the process of taking the company from being government owned to launching an IPO and finally, selling control, a difficult and educating task. The previous management at IAI had no experience in business, they were technology people, and they believed in not taking risks and not making mistakes. There is a saying I like "Who he dares - Wwins" and my experience helped me follow that saying and manifest it.

United World
It is said that when you took over as the Chairman in 2005 of the largest Israeli governmental company IAI, you brought a new spirit into the company. Since 2005 the company's net profit raised from $2 mill in 2005 to $130 mill in 2006, and in the first nine months of 2007 net profit increased by 51 percent to $107 million compared to $71 million in the same period last year. Could you please explain your company's rapid net profit growth and success within these 3 years?

Yair Shamir
This is not the first company I have turned around, although this is the most dramatic turnaround I have done. We are still fully owned by the government. We always excelled in technology but the business skills here were less than adequate because of the relatively low salaries, which makes it difficult to attract experienced managers. I, personally, am doing it for free. I arrived and tried to place some business sense in the system and to change the way we think, address issues and do business. We made a huge change in management, 14 out of 17 top management people were replaced.
We implemented much efficiency process and sent a few hundred people into early retirement. As well, we eliminated products that were not profitable, and shut down factories that were not lucrative. We were fortunate that at that time both civilian and defence aviation were flourishing. You can make difficult decisions when you have money and a reliable cash flow. Another point that aided the growth in business was the implementation of better incentives to our sales agents. Our sales have grown by $1 billion, 85% of which is export.

United World
At the beginning of 2007, IAI launched its first public offering on the Tel Aviv stock exchange. It was issued debentures of 1 bill. NIS and the Israeli capital market expressed its esteem to you as the Chairman and Mr. Nissan's management efforts. This public issue gave the IAI the status as a public company, in which the majority of IAI activities are required to be transparent. To what extent was it important for IAI to go public and what effects will this have on the company's financial strategy for the future?

Yair Shamir
We compete with giants such as Boeing and Lockheed Martin. In order to compete with them, management needs to have extreme flexibility and that is not available as a government-owned company. I believe that in order to be competitive we must get rid of the governmental bureaucracy.

We can keep doing what we are doing today, but we could be doing much better. I will give you an example - ELBIT. They are a great company with great management. Their growth was chiefly from acquisitions, not from internal growth. We cannot lead our growth with acquisitions because of government ownership. If we buy overseas then that government becomes worried about security issues, and if we buy in Israel we get accused of nationalizing the economy, so we cannot exploit what has proven to be a great growth leader because we are government owned.

United World
In September 2007, your President and CEO Mr. Nissan, stated that "IAI's excellent financial picture is the result of an aggressive marketing strategy, implementation of a company-wide reorganization plan, improvement in the business culture, and strict control over project execution. This will increase our technological capabilities and lead to even further growth." What is IAI's aggressive marketing strategy, in this competitive market, and how do you see this strategy lead to even further growth for the company?

Yair Shamir
Our entrance into the space issue field was strategic because of the geopolitical situation. We should be able to get our own intelligence and have our own secure satellite communication. We have several spy satellites, some of which are used to sell information to countries who cannot afford their own infrastructure. We have launched a non-optic satellite based on radar. As far as markets go, if you look at the pie of our revenues, Israel makes up represents12-14%, where 40% comes from Asia and 30% comes from America (mainly land defense), the rest comes from Europe. In the USA, our chief product is the executive jet. We also do some subcontracting for Boeing and Lockheed Martin. We own a company in Mississippi called Stag technology. This signifies that all their management and the entire board is American and as a result, Stag contracts directly with the American army. Stag is proved to be a successful start-up and we will probably are likely to pursue similar ideasmodels.

United world
Unfortunately, the positive development and growth in Israel are not what you usually hear within the international media. Instead it is mostly about the conflict and governmental instability. What role does IAI play towards promoting and bringing a more positive awareness to Israel and the business opportunities in Israel within the international community?

Yair Shamir
Many of our customers send theire people here for training. These people become the best ambassadors we have because they realise that CNN is does not represent the whole picture of Israel. The conflict between the Israelis and the Palestinians has changed its mood along the years. For us it is always the same, but for the outside world it has been is changing. I think the US understood this better than Europe but today the fighting is about over religion. In the last 15 years all wars have been because of religionus wars.

United World
2008 will mark the 60th anniversary of the creation of Israel. This 60th anniversary constitutes a perfect opportunity for the country to proudly reassert its position as a vibrant, modern, and diverse nation. What does this anniversary mean for you and for IAI as a company that was established in 1953, and has been played an important role in the Israeli development and growth?

Yair Shamir
This country is a country of immigrants and the beauty of it is that there are so many kinds. It is quite wonderful. You can hear so many languages. In my point of view, we have reached success as a melting pot.

United World
As you are well aware, USA TODAY is the Number One newspaper in the United States, 70% of the readers are actually investors themselves. If you had the chance to send out a direct message to the readers of USA TODAY, what would you like to tell to them?

Yair Shamir
Visit Israel. Israel is a very small country and what you see is not what you get. There are so many layers of history, people, technology, and culture. There are more books printed here per capita then elsewhereanywhere else .

United World
Thank you for this interview.