"Look at what we're doing," says Israel Aerospace Industries Ltd. (IAI) (TASE: ARSP.B1) CEO Joseph Weiss says, pointing to a Boeing 767 that was once a passenger airliner in the service of a foreign company. The plane has been completely disassembled and reassembled in order to turn it into a cargo plane. Weiss stops beneath a huge wing and tarries near an enormous engine stripped naked by a trained technical team. There are innumerable pipes, wires, and blades tangled up with each other and exposed to the eyes of the world - like the complicated story of IAI itself. "See what's being done here, the scale of it. If there's anything that frustrates me, it's the enormous gap between what we're doing and what I eventually see in the newspapers. The image gap is an atomic screw-up that frustrates me anew every day," Weiss complains.
Weiss is now completing his fifth year as CEO of Israel's largest government defense company. In other circumstances, he could have boasted of his accomplishments. A complicated recovery plan that includes retirement of 830 of IAI's 15,000 workers will soon be completed. IAI has an unprecedented $11.4 billion orders backlog, including colossal deals with the Indian government. The Arrow 3 missile developed by IAI's engineers has been declared operational, and is now part of the Israel air force's air defense system, ready to intercept any ballistic threat to Israel, and to do it as far away from here and as high in outer space as possible.
Weiss, however, is no child. 66 years old and religiously observant, he realizes that the bad must be accepted together with the good, and has had to recite this mantra too many times this year. It started with the explosion of the Amos 6 communications satellite developed and manufactured by IAI for Spacecom Satellite Communications Ltd. (TASE:SCC). The explosion took place during the preparations for its launch at Cape Canaveral, Florida, followed by the nerve wracking drama when the Ofek 11 failed to function in its first hours in outer space ("There are no insurance policies in this business; you can't send a technician into outer space to make the necessary repairs," he comments, "but this story has a happy ending - eventually, everything worked well"). Then came a wave of arrests of IAI employees and an investigation into "suspicions of deeply rooted corruption" at IAI. The investigation, entitled Case 630, is still ongoing. A Pandora's box of conflicts of interest was opened. For dessert, the workers' committee is threatening a general strike at the company for the first time since the Lavi project was canceled in the 1980s.
"Globes": This must be frustrating.
Weiss: "How could it be anything else? And it's not as if I didn't know what I was getting into. It's an entire universe on an unimaginable scale. It's challenging, wonderful, and innovative. No day is like the one before it. It's unbelievable. Without us, the Israeli economy, security, and society would be different. I'm saying this as an Israeli citizen, father, grandfather, former senior IDF officer, and the son of a Holocaust survivor. IAI is an important element in Israel's power. The company has received over 20 Israel defense prizes. If a case of embezzlement takes place at another company, they'll arrest three or four employees, and it won't make the papers. Here, you headline the story, 'Deeply Rooted Corruption'."
"Deeply rooted corruption" is how the police describe the grave suspicions being investigated in the company that you are managing.
"Let it go. I've got no complaints against anybody, but it's unbearable for people to celebrate so loudly when something is found at IAI. It's frustrating. I haven't yet developed an algorithm that can make it possible to put the matter aside in the proper proportions, and I'm not taking it lightly or ignoring it."
"This matter" is a police investigation in which dozens of employees were detained or arrested for questioning, including the chairman of the workers' committee, a board member, and the son of a senior government minister.
"In the end, it's nothing bigger than a wart. It shouldn't have happened. Now that it has, it should be treated, lanced, and disinfected, so that we can continue walking upright in good health. I obviously can't close my eyes and say it doesn't exist. It's with us all the time."
"No one is free of errors"
In what Weiss refers to as a "wart," the earth shook at IAI, and not from the noise produced by airplane engines leaving the company's metal workshops. Case 630, which the Israel Police Lahav 433 fraud unit is investigating, has really taken off. Police cars are invading the defense company's premises. Those arrested in the affair include Brigadier General (res.) Amal Assad, a member of IAI's board of directors, who is suspected of promoting forbidden cooperation between IAI and a Druze company, and members of the IAI workers' committee. Workers' committee chairman Ehud Nof and member Yair Katz, son of Minister of Labor, Welfare, and Social Services and former IAI workers' committee chairman Haim Katz, were arrested and questioned extensively. The suspicions attributed to the workers' committee members include, among other things, extortion by threat in an attempt to terrorize company employees into registering as Likud Party members. Haim Katz, who over the years has made IAI his political power base, was later required to provide explanations in the framework of the ongoing investigation.
Were you surprised? People have been talking for years about what is going on here.
"I was very surprised. Yes, you hear things said for years, gossip, talk about various behavioral DNA characteristics, but it was general talk. There was nothing about a specific name, plant, or division. When we got specific information from an anonymous letter sent to management concerning one of the workers' committee members, we referred the matter to the board of directors' audit committee, and the worker was suspended - a measure never before taken in the history of IAI. He is still under suspension.
"We established work procedures, issued notices to workers, and changed the rules. Now we have to make sure that the change we are aiming at is actually carried out. Workers must be able to complain when necessary, and should not encounter problems when they want to make a comment. This situation should be maintained. The message is that we will show no tolerance for unacceptable acts at any level, and that management will take action to uproot such behavior, as is proper for a high-tech company like IAI."
"No deal - period"
Weiss may belittle this "wart," but the upheaval at IAI that began that spring morning has not subsided to this day. Employees at all levels are making their way in and out of the Lahav 433 unit's offices, and Weiss had no chance of avoiding a confrontation with his company's workers' committee - one of the strongest workers' committees in Israel. No CEO who desires tranquility at his company will be eager to take it on.
The response that Weiss prepared for the chairman of the workers' committee and five more of its members arrested on suspicion of involvement in the corruption affair was immediate suspension from their jobs. They sat at home for many months and received half of their salaries, until their boredom reached the dimensions of a Boeing airliner. They responded with a labor dispute and threats of a strike at all the company's sites, alleging that IAI's management was taking advantage of an opportunity to weaken organized labor.
The plot took another turn two weeks ago. With no substantial change in the state of the investigation and the status of the workers' committee members in the affair under investigation, Weiss canceled their suspension in exchange for cancelation of the labor dispute.
It sounds like quite a deal.
"It's no deal - absolutely not. There was a dilemma at the end of the initial suspension period about whether or not to extend the suspension. It's necessary to proceed very carefully in such matter, because people's livelihoods and families and the company's image are involved. I consulted as much as I could, and decided in August to extend the suspension again until the beginning of October."
Was this investigation an opportunity to get rid of many questionable norms?
"I agree. This was a heavy and traumatic event, but also an opportunity. Our owners, the regulators, and overseas customers see that there are some problems, together with our innumerable advanced technologies and achievements, and are getting the message that matters are being addressed. We're dealing with the subject, while looking straight at the mirror and giving compliments and rebukes when needed - to ourselves, the workers, and anyone else involved in the process. It will probably end when the police investigation ends. In my opinion, in the end, this investigation will make a substantial contribution to improving our organizational culture."
"We won't keep losing production lines"
Other tensions resulted from the controversial recovery plan led by Weiss, after the losses accumulated by IAI in recent years, especially in its civilian business, forced the company's management to embark on a plan for retirement of 830 employees, including 730 tenured employees. Weiss calls the measure a "growth plan" aimed at saving NIS 2 billion in three years. "When we revealed it, I saw the skepticism, especially from reporters. You didn't believe that IAI could do it. In the bottom line, this plan is almost behind us, although there were difficulties and friction."
Was it hard to get the workers' committee to accept this?
"I had to take unilateral measures in order to move this forward. Hundreds of workers demonstrated against me beneath my window. Dozens of workers circulated in the halls four meters away from my office. There was unpleasant tension. In the end, they realized that there was someone in charge who thinks about business and was determined to make a change."
And the workers gave in, but what is management giving for the recovery plan?
"We let quite a few jobs go - 18 senior officeholders, plant managers, and VPs whose jobs were terminated. We started difficult processes, the necessity of which has been discussed for many years, and which affect the company's bread and butter, but there was no choice - it was necessary."
The money-losing business, for example?
"That's one example. It's no secret that the civilian sector, whose business performance is a problem, requires attention, and that will be the first area we'll look at. We'll decide what to do, how to do it, and according to what timetable. But that isn't the only area. We're considering consolidation of plant's headquarters in order to eliminate redundancy of functions. Consolidation of plants in this way is also a possibility. We'll make a final decision in the next month or two, and start implementing it in 2018."
Will production lines on which you're losing money be closed down?
"We won't retain money-losing lines of business in the long term. Our strategy, which was recently revised, also has a clear motto - IAI will operate in the civilian sector only if it makes a proper profit there."
US not giving a visa
One of the odd stories about IAI in the past two years , about which more is concealed than revealed, is the ban on Weiss entering the US, although he previously lived in California when he was a senior officer in the Israel navy and led classified projects, and raised his seven children there. This restriction is peculiar, and the particulars of it are intriguing, especially given the fact that the US is a key target market for IAI, which has two subsidiaries there. Former IAI chairman Rafi Maor made essential trips to the US in Weiss's place. In the past year, however, IAI has had no chairman, after Minister of Defense Avigdor Liberman's stubborn effort to appoint Yair Shamir, his associate, to the post failed. Only now is former Prime Minister's Office director general Harel Locker being appointed chairman of IAI.
Why won't the US let you enter?
"I don't know. Even now, I can't enter the US, and I have never been given an explanation for it - neither I nor other relevant parties."
Doesn't this interfere with your management and promoting the company's business?
"No. I meet with whomever I need to, when I need to, and where I need to. We talk on the phone and meet them at exhibitions around the world. It doesn't bother me at all in regular management."
Where does it bother you?
"It's simply amounts to a personal insult. After having been in the US hundreds of times, and even living and raising my children there, I think that I at least deserve an explanation. Someone should tell me what's going on here, but I respect the US administration."
Don't tell me it's not frustrating.
"It's frustrating at the personal level. After all, I'm going there to promote the US economy, while tightening cooperation between the two countries, and even to facilitate the transfer of Israeli information in order to provide a response to US operational needs, and in the margins to leverage the fantastic relations between the two countries. With all due respect, I'm the CEO of the largest defense company in Israel. I'm at the top of the pyramid, and there's something wrong about my not being allowed to enter the US, to put it mildly. I still hope that I'll get an announcement in the mail that my entry into the US has been approved, and then I'll consider whether or not to travel there."
With one event after another, you have been alone for a year, without the company having a chairperson.
"Calling it a tough year is an understatement. We operated without a chairperson, while a company like IAI needs a full-time chairperson. These circumstances did not make it easy to manage the exceptional events that happened here, both in the business and non-business aspects. All's well that ends well, though. Two weeks ago, Harel Locker became chairman. He's bringing a new and refreshing spirit into the company, and I'm confident that after having managed the Prime Minister's Office with a high hand, he'll bring us his rich experience in getting things done and his good connections, which will be very good for the company, both in Israel and overseas. I wish him success from all my heart."
"A $5 billion target"
As is always the case with IAI, there is a celebration for every scandal. After long years of development, the Ministry of Defense and the air force air defense system have put IAI's Arrow 3 missile into operation, in cooperation with US company Boeing. The Arrow 3 is designed to defend against advanced missiles and destroy nuclear missiles outside the earth's atmosphere, far away from Israel.
Will there be an Arrow 4?
"There will be an Arrow 4. As far as I'm concerned, as both an Israeli citizen and IAI CEO, not developing an Arrow 4 is not an option. It's not as if there will be a contract or a budget tomorrow morning, but from my understanding of the regional picture and the development of the threats, the missile will definitely be developed."
What will the Arrow 4 do that the Arrow 3 does not?
"It will be good for the Jewish people. We're at the stages of forming ideas and analyzing various scenarios that could constitute some kind of threat in the future. The threats to Israel are not waning, and it's necessary to prepare."
Another defensive missiles system, the Barak 8, became a cash cow for IAI over the past year, following a string of huge deals with the Indian defense establishment with an aggregate total of $2.6 billion. The deal is the largest in IAI's history and the history of Israel, and is already reflected in IAI's results for the first half of the year. "This isn't the end of it," Weiss declares. "All the deals in India are just for the systems. We'll talk about the missiles themselves at some point. There will be more deals around the Barak 8, and according to the recent reports, we're the most profitable government company, with agreements for over $4 billion.
"I predict that we'll finish 2017 with a handsome profit," Weiss says proudly. "I set a target of $5 billion in agreements. Right now, we're in negotiations with various parties for Barak 8 systems that could bring very nice additional orders. We're at the crest of a very aggressive business campaign to leverage this success."
Never a dull moment
"That's really how it is - not a single second of boredom. The work hours aren't enough. There's a lot of tension and excitement. It's an enormous challenge. It takes a lot of mental and physical endurance to absorb and digest this entire load. Still, the job of CEO at IAI is a job I wish with all my heart upon all the people I love."
"Traumatic is putting it lightly"
One of the traumatic events experienced by IAI in recent years was the explosion of the Amos 6 communications satellite when it was being prepared for launching in Florida in September 2016 on a rocket made by the SpaceX company, owned by entrepreneur Elon Musk. Two days before the scheduled launch, a routine procedure of the launching company went awry, ending in the explosion of the rocket and the destruction of the satellite, which was to have been used by Spacecom, controlled by Shaul Elovitch. Facebook was to have used the satellite to connect parts of Africa to the Internet.
Weiss got the news in his office near Ben Gurion Airport. "Trauma is putting it lightly," he says, remembering the dramatic moments. "I once managed the company's space enterprise, and I'm familiar with the tension and adrenaline before the launching button is pressed. Suddenly, right in front of your eyes, your world is destroyed. In addition to being a matter of hundreds of millions of dollars, this satellite was my pet project. I personally persuaded all the decision makers in the country to invest in it, so that Israel would have a foothold in communications satellites. It was really my personal baby, and the house fell down right in front of my eyes. As soon as I realized that it was our satellite, I knew that we were in a tough spot - in the hot seat. Other than getting a heart attack, there's not much to do at such a time. We had never had such a traumatic event before."
How did you get through it?
"It's a deep pain. You have to strengthen people. We gathered the necessary people together. The reporters were quicker off the mark than we were, and were already standing at the company gates. At that stage, I said that we have to leverage the trauma to push Israel's space program ahead. We're losing our technological advantage and our place in the global ranking in the sector."
A committee was appointed, and stated that the communications satellite industry should be supported with tens of millions of shekels a year.
"Meanwhile, everyone's standing around in the penalty area, and no one has been able to score a goal. Time is money."
Published by Globes [online], Israel Business News - www.globes-online.com - on October 17, 2017
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