With grateful thanks to Al-Qaida and the Taliban

As Western armies grapple with the changing nature of warfare against terrorists, business is booming for Israeli lighweight armored vehicle makers.

Anyone who visits the huge Automotive Industries Ltd. factory in Nazareth in the near future is in for a surprise. Only in April, the factory faced one of the severest crises in its history, when its management sent about half the workers on a compulsory vacation, and announced that it would dismiss them unless new orders were received from the Ministry of Defense.

But in recent weeks, the factory has been working at full capacity, and has even recruited workers in order to meet orders for armored Storm (Sufa) 3 jeeps. The order in question, for hundreds of vehicles worth tens of millions of dollars, didn't come from the Ministry of Defense, which has still not made a decision on the matter, but from an anonymous customer in Asia.

This bonanza is just one example of the tidal wave of demand for armored military vehicles and vehicle protection solutions flooding Israeli companies in the sector. According to industry estimates, in the past year alone, local companies and their overseas units have taken orders worth $700-900 million, and demand keeps flowing.

The credit for the global demand must be given to Al-Qaida, the Taliban, and their offshoots, which continue to operate vigorously and take a heavy toll of the security forces in Afghanistan, Iraq, and other places, with weaponry that is fast becoming more sophisticated.

In the face of this threat, many regular armies and police forces in the West find themselves without an adequate response. Of course, armies have tanks and heavy armor, but these vehicles are too cumbersome, and too expensive, for routine operations. The forces' everyday mainstay continues to be light all-terrain and patrol vehicles, performing logistical and troop carrying tasks.

These are now a favorite target of terrorists and guerilla fighters, in what is called asymmetrical warfare, that is, warfare between two sides with different types of forces, different fighting tactics, and very different readiness to take losses.

It has taken Western armed forces a long time to internalize the shift away from traditional military doctrine and to adapt to the fact that the so-called weaker side no longer uses stones and Kalashnikov rifles, but high-tech monsters such as the portable RPG-29 anti-tank rocker launcher, the latest generation of the old RPG-7 that was designed to penetrate the previous generation of armor on the battlefield.

Decision making in armed forces is slow, but in the past year, huge procurement budgets have started to be allocated, and armored vehicles have become hot items.

Israel's wealthiest kibbutz

The US Army is the largest and most important customer for Israeli companies in the industry. Jeeps, Hummers, and combat vehicles, with Israeli-developed protection suites, have proved themselves for years on the battlefields of Afghanistan and Iraq, and have contributed a great deal to Israel's reputation in this area. Now, however, demand by the US military is unprecedented, as are the amounts of money involved.

Only last week, for example, Plasan SASA of Kibbutz Sasa, which makes armor, received another order for 1,700 protection kits for US Army vehicles, as part of a collaboration agreement with truck and heavy equipment maker Oshkosh. The order is estimated to be worth $1.05 billion, and Plasan's share is estimated at several hundred million dollars. This is a follow-on to a previous order worth $1.06 billion for 2,244 vehicles announced at the beginning of June. Plasan's share of that contract was also in the hundreds of millions of dollars.

The vehicles for which Plasan provides protection are mine resistant, ambush protected all-terrain vehicles (M-ATV). They are a kind of truck with advanced all-terrain capabilities, that can transport an entire company of soldiers with its equipment in rough terrain. The two contracts have very tough delivery terms: a production rate of nearly 1,000 units a month, in order to meet a delivery completion date of February 2010.

Plasan, incidentally, does not focus solely on the US military. It is also developing activity in the UK, which includes a contract worth millions of dollars for protection for RAF Chinook helicopters.

Most of Plasan's production takes place these days at a factory it bought in Connecticut, but it can be presumed that the Israeli economy will also benefit handsomely, directly or indirectly. It will be no surprise to discover that Kibbutz Sasa has displaced Kibbutz Gaash as Israel's wealthiest kibbutz.

Another Israeli company profiting nicely from the boom in the industry is Arotech (Nasdaq: ARTX). The Arotech group has been active for years in the development and production of lightweight protected vehicles, through its MDT armor division. Its best-known product is the "David" ultra-light armored personnel carrier based on the Landrover Defender, which in the past few years has borne, with credit, the main burden of routine security patrols in the West Bank. In the past two months, Arotech has reported to the stock exchange that it has won new vehicle orders amounting to $12 million, and that its orders backlog stands at $42 million.

Arotech's Indian unit Concord Safety Systems, a joint venture with local firms, is currently arousing great interest. The Indian government recently underwent a formative experience in the terrorist attack on the Taj Hotel in Mumbai, and it is now rushing through a tender for procurement of armored patrol vehicles and protection kits for existing vehicles.

Arotech will bid in this tender with its new C8 vehicle, a jeep with new generation armor that can carry six soldiers, again based on the Landrover. The vehicle is already undergoing trials in the Indian Army's Northern Command. If it wins the tender, Arotech's activity in this area will take a leap forward.

Another company, well known to Tel Aviv Stock Exchange investors, is Hatehof, which in recent years has undergone a transformation from a failing civilian product company to a serious player in armored vehicles, with the aid of technology from Rafael, its development partner.

Over the past few months, Hatehof has announced contracts worth NIS 320 million. It doesn't disclose customers' names, but the Turkish press has reported that the Turkish Army has selected the Navigator model of BMC, Hatehof's Turkish partner, as its MRAP vehicle, preferring it over several local products.

Rafael, incidentally, is also doing nicely in its own armor business. Only recently, for example, a German unit of Rafael, Dynamit Nobel Defence, held a press event at which it presented a protection suite against armor piercing missiles for European-made wheeled military vehicles, called CLARA (Composite Lightweight Adaptable Reactive Armour). The company reported orders worth €50 million last year, and an orders backlog of €200 million. It aspires to double the backlog in the foreseeable future.

At the same event, the company presented a new generation of portable missile launchers, with high armorpiercing capability. Clearly, one side of the business promotes the other.

Published by Globes [online], Israel business news - www.globes.co.il - on August 19, 2009

© Copyright of Globes Publisher Itonut (1983) Ltd. 2009

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