- Elbit focus on anti-manpad systems help sales, CEO says
- Shares up 35% in 2015, beating U.S.-traded Israeli stocks
The spread of portable anti-aircraft missiles to militants and terrorists in ungoverned territories from Syria to Libya is helping Elbit Systems Ltd. increase sales of technology that can block the weapons.
The easy-to-use, lightweight surface-to-air missiles, or “manpads,” have become more accessible for terrorists across the Middle East and North Africa as central governments collapse to make way for groups like Islamic State. Because of this threat, technology that uses lasers to jam these missiles and shield low flying aircrafts including helicopters has become a focus for the Haifa, Israel-based defense company for 2015.
After the wars in Afghanistan and Iraq as well as the collapse of Libya and Syria, many manpads disappeared from government possession, finding their way to terrorist groups, according to Elbit’s Chief Executive Officer Bezhalel “Butzi” Machlis. The uncontrolled availability of the portable weapons constitute “a big threat” to civilian and military air transport, he said.
“There aren’t many technologies that can handle it, and we have it,” he said in an interview with Bloomberg News in Tel Aviv. Machlis, who called the anti-manpad systems a “growth engine” for the company, said he’s signed “lots of contracts” for the technology this year. He declined to give specific sales numbers.
Elbit, whose revenue is forecast to increase 4 percent to $3.1 billion in 2015 according to analysts surveyed by Bloomberg, has been able to expand amid flat U.S. military spending by honing in on niche products and services in high demand in emerging markets, such as upgrading aircraft systems and enhancing cyberwarfare capabilities.
Investors approve of the strategy, as evidenced by a 35 percent gain in the company’s New York-traded shares this year, compared with an 11 percent advance in a Bloomberg gauge of the most traded Israeli stocks in the U.S. The company’s Tel Aviv-traded shares advanced 3.2 percent to 314 shekels, or the equivalent of $82.06 at the close of trading. Elbit shares jumped 3.9 percent to $81.90 at 11:34 a.m. in New York.
“Unfortunately there’s a lot of continuing potential for arms sales and they’ve got quite a sophisticated system in air defense,” said Brian Friedman, who oversees a fund that buys Israeli stocks at Denver-based GHP Investment Advisors, which manages about $900 million. “It’s not a high-growth company but a growth company.”
Elbit, which competes against Lockheed Martin Corp., Northrop Grumman Corp. and BAE Systems Plc in this market, has sold its suite of anti-manpad systems to the Brazilian and Italian air forces, and equipped Blackhawk helicopters with the technology for Asian customers, according to the company. It announced a deal in November to equip Germany’s new Airbus A400 military transport aircraft with the system.
Global military spending on airborne infrared countermeasures totaled $504 million in 2014, according to consulting firm Frost & Sullivan. While that figure may dip in 2015 after the conclusion of a large project, the industry will grow in the long term because new programs will “inevitably continue to develop,” John Hernandez, an analyst with Frost & Sullivan in San Antonio, Texas, wrote in an e-mail.
The evolving nature of terrorism has also contributed to the proliferation of manpads, which follow an aircraft’s heat signature and can be launched from a tube that rests on the shoulder of the operator. The ability of one fighter to shoot down planes has become a top priority for militants as countries choose to wage air campaigns versus committing troops on the ground to combat extremists such as Islamic State.
“Insurgents have been attempting to use air defense assets against combat aircraft and unmanned aerial vehicles as a means of being seen to strike back,” said Ben Goodlad, the principal weapons analyst at London-based IHS Aerospace, Defense & Security. “For example, Islamic State took credit for shooting down a Jordanian Air Force fighter over Libya.”
“Fortunately examples of attempted airstrikes against civilian aircraft appear to be limited,” Goodlad added.
But that doesn’t mean the threat isn’t there. A year ago, Malaysian Airlines Flight MH17 crashed in eastern Ukraine. While that plane is believed to have been shot down by a weapon stronger than a manpad, it has become a cautionary tale for commercial airlines operating in conflict zones.
Most of Elbit’s systems today are being sold for military aircraft, yet it originally developed the technology more than a decade ago to protect Israel’s commercial airlines, Machlis said. The government tapped Elbit to develop the system after a 2002 attack in Mombasa, Kenya, where terrorists launched missiles that narrowly missed an Israeli airplane. Ten Kenyans and three Israelis died in a suicide attack on a nearby hotel at the same time.
The anti-manpad systems, known as directional infrared countermeasures, make up a small portion of Elbit’s revenue. The company doesn’t break out sales from the business, which is a part of its electro-optical systems division that brought in $265 million, or 9 percent, of revenue in 2014.
Elbit’s Machlis said there’s a lot of potential for the company, which has a $3.4 billion market capitalization, to expand its anti-manpad system sales. There’s opportunity within “commercial fleets, for VIP aircraft, for transport aircraft, as well as helicopters,” he said. “That’s certainly a growth engine for us.”