Looming Defense Cuts in Israel Could Crimp Exports
By CHRIS CZIBORR
magic
The regional security outlook for Israel never has been better. But that’s not necessarily a good thing for Orange County defense and technology ex-porters.
With the overthrow of Saddam Hussein in Iraq and after years of heavy defense spending, Israel now has a decisive military edge in the Middle East, observers say. Sure, Israel still is surrounded by enemies. But none it couldn’t easily defeat
That’s led to calls to scale back Israeli defense spending and steer money to strained educational and social programs. Last month, Israel’s military submitted a long-term plan that greatly would reduce the country’s standing army.
Less spending on weapons and defense electronics and software could take a toll on OC exports to Israel, which run about $100 million yearly. Other sectors of Israel’s economy, mired in a prolonged recession, aren’t likely to pick up the slack.
“Israel probably will undergo defense budget reductions,those usually take place in a number of different ways,” said Stu Thomson, Seal Beach-based vice president international business for Boeing Co.’s Integrated Defense Systems. “You reduce the number of people, planes, boats, tanks, things like that.”
Boeing and its acquired companies have been doing business with Israel ever since the country’s founding more than 50 years ago. In 1938, the U.S. government sent the fledgling state of Israel some surplus Boeing B-17 bombers.
In recent years, Chicago-based Boeing has supplied F-15 fighter jets and Apache attack helicopters to Israel. The company also has sold Joint Direct Attack Munition bombs to Israel.
In February, Boeing inked a pact with Israel Aircraft Industries Ltd. to jointly produce the new Arrow missile interceptor, which is designed to shoot down incoming missiles.
Thomson said Boeing has had talks with Israeli officials about its bid to provide a common network where all armed forces computers can share live data. The company has a prototype command center at its Anaheim facility.
Boeing’s hope: Even as Israel pares troops and tanks, it still will be interested in the latest battlefield technology.
“As Israel begins defense reductions they also will start looking at more modern and integrated ways to do business,” Thomson said. “Israel has been engaged in the war on terrorism a whole lot longer than the U.S. has,there are some very fine technologies and processes over there that the U.S. can learn from.”
A slowdown in Israeli defense spending could be felt in OC’s other big exports to the country: electronics and software.
“The defense arena has slowed down and is making things tougher,” said Chris Trobridge, a professional services consultant for Swedish software maker Telelogic AB, which has its U.S. base in Irvine.
“Lots of software companies there use our products,” Trobridge said. “Israel is a small percentage of our business. But it’s important to be there. Israel is one of the countries that really is at the leading edge. Israel is one of the places where we can get our software used and get it picked up by quality people.”
Telelogic, which makes software used to develop and test other software, counts Israel’s Tadiran Communications Ltd. as a customer. Tadiran makes missile communications systems and electronics.
The company is seeing some signs of life in Israel’s tech sector, Trobridge said.
“Tech companies are relaxing their budgets and doing more hiring,” he said.
On a global scale, more U.S. and global military buying could offset any cutback in Israeli defense spending, according to Trobridge. About 40% of Telelogic’s business is with governments or defense contractors.
Officials at Israel’s Magic Software Enterprises Ltd., which has its U.S. base in Irvine, say the Israeli market has yet to gather steam.
“The Israeli market hasn’t picked up yet because of the general recession that’s still taking hold of the country and the bombings that are taking place so often,” said David Leichner, vice president worldwide for Magic.
Magic sells software used by other companies to come up with their own e-commerce, sales management and other programs. The company has about 160 workers at its headquarters and research and development center in Or-Yehuda near Tel Aviv (photo). Magic counts about 650 workers in all, including about 45 in OC. About 95% of the company’s business is outside Israel.
Leichner said being based in Israel has some geographic advantages to go with the obvious disadvantages.
“It’s a good base between the different areas we do business with,Europe, the U.S. and Asia-Pacific,” Leichner said. “It’s a good central location for all those areas.”
