TEL AVIV - Patience, persistence and an expanded market presence in Brazil are generating new business for Israel's Elbit Systems, which barreled into the new year with two important orders from the Brazilian Army and Air Force and two fresh local acquisitions.
On Jan. 6, the Haifa-based company announced that its subsidiary, Aeroeletrônica Ltda. (AEL), snagged a 440 million Brazilian real ($263.1 million) contract to supply automated 30mm turrets for the Army's Guarani armored troop carrier project. The multiyear contract followed a 2009 award to Elbit for a limited number of the unmanned weapon stations.
Company executives are aiming for similar success with the Brazilian Air Force, which on Jan. 19 selected Elbit's Hermes 450 unmanned aerial vehicle for a program likely to form the backbone of the service's nascent unmanned aerial force. Like the 2009 Army award, the UAV award to AEL starts out with a limited number of systems, with no material impact on Elbit's bottom line.
Nevertheless, Elbit CEO Joseph Ackerman hailed the Jan. 19 award as a milestone in AEL's longtime cooperation with the Brazilian Air Force and an incentive for future collaboration.
"This open tender was the first of its kind, and their choice of our Hermes 450 is extremely significant … It's small in the beginning, but the long-term potential is tremendous," Ackerman said in a late January interview.
He added, "Brazil is a huge aerospace power of strategic and economic importance, and we made the decision long ago to cultivate our long-term commitment there."
In the mid-1990s - nearly a decade before Israel's other top-tier defense companies turned their sights on Brazil - Elbit was cultivating ties there, winning bids and investing for the long term through partnerships, particularly with Brazilian aerospace giant Embraer.
Its first order, for avionics displays for Brazil's AMX fighter jet, paved the way for a major upgrade contract for the Air Force's F-5 fighters and an $80 million avionics order for Embraer's Super Tucano, a turboprop combat and trainer plane.
By 2002, Elbit's Brazilian portfolio included more than $300 million in multiyear orders and the control of AEL, its first wholly owned local subsidiary.
Last month, Elbit announced it had acquired two more local companies, both providers of defense electronic systems and services for the Brazilian military and other regional customers.
According to a Dec. 30 announcement, Elbit acquired its latest two holdings - Ares Aeroespecial e Defesa S.A. (Ares) and Periscopio Equipamentos Optronicos S.A. (Periscopio) - following a series of transactions totaling tens of millions of Brazilian reals.
Executives here said the 2001 buy of AEL and the two recent acquisitions in Brazil embody a corporate strategy of acquiring established local firms to maximize opportunities in key markets.
"We decided 15 years ago that Brazil was becoming a very important country in the world, and that Elbit would commit the long-term investment needed to become its strategic partner," Ackerman said.
The Elbit chief declined to say how much the company invested in its cultivation of the Brazilian market but noted that Elbit is satisfied with the accumulated benefit to its balance sheet.
Ackerman estimated Bra-zilian sales over 15 years at "several hundreds of millions of dollars," with spending on defense, homeland security and other relevant sectors projected for significant growth in the years to come.
"In retrospect, it was a long process," he said. "There were years when we didn't see anything. But to those with patience, good faith and good will come the fruits of success."
Brazil last month joined nearly a dozen Latin American nations in recognizing a free and independent Palestinian state, and has opposed a U.S.-led drive for tougher sanctions on Iran for its uranium enrichment program.
"The fact that they recognized a future Palestinian state is all the more reason to strengthen Israel's existing and very good ties with Brazil," Ackerman said. "It is not a zero-sum game."
Ella Freid, an equity analyst with Israel's Bank Leumi, said investors hold very favorable views of Brazil and are not concerned that it will become the target of isolation and sanctions.
In addition to an expected rise in defense spending stimulated by a growing eco-nomy, Brazil's hosting of soccer's World Cup in 2014 and Olympic Games in 2016 should translate into major orders in homeland security, border control and paramilitary sectors, Freid said.
As for Elbit's recent acquisitions in Brazil, Freid said they appear to be less product-oriented and more market-oriented, which will allow Elbit to expand its presence elsewhere in South America.
"These specific companies are not as transparent as we would like, but generally, it seems that Elbit made very clever and strategic acquisitions that will allow it to diversify its activities among multiple sectors in the region," she said.
Elbit has not released year-end financial figures for 2010. Despite lower defense spending trends and global economic hardship last year, Ackerman said he expects organic growth, as well as more mergers and acquisitions to yield increased sales in the years to come.
In recent months, Elbit finalized acquisitions in Israel of Soltam Systems, Saymar and ITL, and has increased corporatewide sales through the integration of previously acquired Israeli firms.
"When we look at what's happening in the world, we can't escape the fact that most governments, with Brazil and certain Asian countries as notable exceptions, are becoming more cautious with defense spending," Ackerman said.
"But while we're seeing lower budgets for platforms, spending on defense electronics is not dropping," he said. "As a leading provider of electro-optics and C4I systems, we're trying to see how to take advantage of this trend."
According to the company's published data, Elbit's 2009 year-end backlog stood at $5 billion on sales of $2.8 billion, up from $2.6 billion in 2008. It reported a 2009 net profit of $215 million.
On Jan. 6, the Haifa-based company announced that its subsidiary, Aeroeletrônica Ltda. (AEL), snagged a 440 million Brazilian real ($263.1 million) contract to supply automated 30mm turrets for the Army's Guarani armored troop carrier project. The multiyear contract followed a 2009 award to Elbit for a limited number of the unmanned weapon stations.
Company executives are aiming for similar success with the Brazilian Air Force, which on Jan. 19 selected Elbit's Hermes 450 unmanned aerial vehicle for a program likely to form the backbone of the service's nascent unmanned aerial force. Like the 2009 Army award, the UAV award to AEL starts out with a limited number of systems, with no material impact on Elbit's bottom line.
Nevertheless, Elbit CEO Joseph Ackerman hailed the Jan. 19 award as a milestone in AEL's longtime cooperation with the Brazilian Air Force and an incentive for future collaboration.
"This open tender was the first of its kind, and their choice of our Hermes 450 is extremely significant … It's small in the beginning, but the long-term potential is tremendous," Ackerman said in a late January interview.
He added, "Brazil is a huge aerospace power of strategic and economic importance, and we made the decision long ago to cultivate our long-term commitment there."
In the mid-1990s - nearly a decade before Israel's other top-tier defense companies turned their sights on Brazil - Elbit was cultivating ties there, winning bids and investing for the long term through partnerships, particularly with Brazilian aerospace giant Embraer.
Its first order, for avionics displays for Brazil's AMX fighter jet, paved the way for a major upgrade contract for the Air Force's F-5 fighters and an $80 million avionics order for Embraer's Super Tucano, a turboprop combat and trainer plane.
By 2002, Elbit's Brazilian portfolio included more than $300 million in multiyear orders and the control of AEL, its first wholly owned local subsidiary.
Last month, Elbit announced it had acquired two more local companies, both providers of defense electronic systems and services for the Brazilian military and other regional customers.
According to a Dec. 30 announcement, Elbit acquired its latest two holdings - Ares Aeroespecial e Defesa S.A. (Ares) and Periscopio Equipamentos Optronicos S.A. (Periscopio) - following a series of transactions totaling tens of millions of Brazilian reals.
Executives here said the 2001 buy of AEL and the two recent acquisitions in Brazil embody a corporate strategy of acquiring established local firms to maximize opportunities in key markets.
"We decided 15 years ago that Brazil was becoming a very important country in the world, and that Elbit would commit the long-term investment needed to become its strategic partner," Ackerman said.
The Elbit chief declined to say how much the company invested in its cultivation of the Brazilian market but noted that Elbit is satisfied with the accumulated benefit to its balance sheet.
Ackerman estimated Bra-zilian sales over 15 years at "several hundreds of millions of dollars," with spending on defense, homeland security and other relevant sectors projected for significant growth in the years to come.
"In retrospect, it was a long process," he said. "There were years when we didn't see anything. But to those with patience, good faith and good will come the fruits of success."
No 'Zero-Sum Game'
Ackerman adamantly rejected concerns raised by some that Brazil's socialist government may move toward the aggressive anti-Western policies of Venezuelan President Hugo Chavez.Brazil last month joined nearly a dozen Latin American nations in recognizing a free and independent Palestinian state, and has opposed a U.S.-led drive for tougher sanctions on Iran for its uranium enrichment program.
"The fact that they recognized a future Palestinian state is all the more reason to strengthen Israel's existing and very good ties with Brazil," Ackerman said. "It is not a zero-sum game."
Ella Freid, an equity analyst with Israel's Bank Leumi, said investors hold very favorable views of Brazil and are not concerned that it will become the target of isolation and sanctions.
In addition to an expected rise in defense spending stimulated by a growing eco-nomy, Brazil's hosting of soccer's World Cup in 2014 and Olympic Games in 2016 should translate into major orders in homeland security, border control and paramilitary sectors, Freid said.
As for Elbit's recent acquisitions in Brazil, Freid said they appear to be less product-oriented and more market-oriented, which will allow Elbit to expand its presence elsewhere in South America.
"These specific companies are not as transparent as we would like, but generally, it seems that Elbit made very clever and strategic acquisitions that will allow it to diversify its activities among multiple sectors in the region," she said.
Elbit has not released year-end financial figures for 2010. Despite lower defense spending trends and global economic hardship last year, Ackerman said he expects organic growth, as well as more mergers and acquisitions to yield increased sales in the years to come.
In recent months, Elbit finalized acquisitions in Israel of Soltam Systems, Saymar and ITL, and has increased corporatewide sales through the integration of previously acquired Israeli firms.
"When we look at what's happening in the world, we can't escape the fact that most governments, with Brazil and certain Asian countries as notable exceptions, are becoming more cautious with defense spending," Ackerman said.
"But while we're seeing lower budgets for platforms, spending on defense electronics is not dropping," he said. "As a leading provider of electro-optics and C4I systems, we're trying to see how to take advantage of this trend."
According to the company's published data, Elbit's 2009 year-end backlog stood at $5 billion on sales of $2.8 billion, up from $2.6 billion in 2008. It reported a 2009 net profit of $215 million.
