Israel's Secret Success

Long before the October war exposed the vulnerability of Israel's vaunted defense machine, the state-owned, supersecret Israel Aircraft Industries Ltd., which builds and services planes for peace and war, was showing signs of strain. Its first two tries at building executive jets seemed to have flopped expensively, and its attempts to refurbish and resell old planes appeared to be sputtering. Shortly before the war, Moshe Dayan, then head of the Defense Ministry, tried to oust the company's boss, Al Schwimmer.

A plain-spoken former grease monkey and TWA flight engineer from Bridgeport, Conn., Schwimmer can barely speak Hebrew after 22 years in Israel. Many military men were troubled by the key role that a civilian with a U.S. passport was playing in their country's defense. Israel's Connecticut Yankee has survived, however, and not just because Dayan has been replaced by Shimon Peres, a Schwimmer champion for years. Pressed by mounting criticism and Dayan's maneuvering, Schwimmer decided just before the October war to reveal I.A.I.'s balance sheet for the first time--and the figures clearly showed smart management. Since 1968, export sales had risen to an estimated $43 million from only $6.5 million. Total sales are estimated at $310 million a year; profits are still kept secret.

Much more important for Schwimmer, I.A.I.'s planes and weapons performed well during the October war. The company's own fighter, the Barak (Hebrew for lightning), did especially well: of the 70 planes that saw combat, only three were lost. The plane carries a General Electric jet engine in an Israeli-built French Mirage III C, the plans for which were spirited out of France when Charles de Gaulle cut off deliveries to Israel after the Six-Day War in 1967. It is the first fighter ever manufactured in Israel, and a special feather in Schwimmer's hat. (Israel buys most of its planes from the U.S., but I.A.I, services them.)

I.A.I.'s image might have improved much sooner were it not for Schwimmer's predilection for secrecy (he is a prime potential target for Arab terrorists). During Israel's 1948 war for independence, he smuggled nine war-surplus C-46s and a Constellation out of the U.S. to Israel (on the pretext of starting a civilian line in Panama), then surrendered to the FBI and was fined $10,000 for violating the U.S. arms embargo to Palestine. The smuggling helped create the Israeli Air Force, in which Schwimmer served as its first chief engineer. After the war, he set up his own aircraft servicing business in Burbank, Calif., but David Ben-Gurion persuaded him to return to organize what eventually became I.A.I. Says Schwimmer: "Ben-Gurion did not know a screw driver from a slide rule, but he had a vision of what the state would need. It was apparent from the beginning that the security situation demanded that we produce our own arms." Since I.A.I.'s balance sheet became public, Schwimmer's specific achievements have more and more come to light.

Probably most profitable is the company's maintenance arm, Bedek, which last year had $35 million in sales and has servicing contracts with airlines in 16 countries, including some that do not even fly passengers to Israel because of the Arab boycott. Schwimmer in 1971 bought 13 old Boeing 707s from TWA for $500,000 each--virtually scrap prices--then overhauled, refitted and sold them at prices ranging from $1,500,000 to $2,500,000.

I.A.I.'s ten-passenger Westwind executive jet is also looking more like a winner than the loser many had supposed it to be. In 1967 the company bought the designs, tools and a U.S. certification for it for a bargain $1 million from North American Rockwell, which was ordered by trustbusters to sell off those assets after merging with North American Aviation. After I.A.I, redesigned the plane it crashed on test flights, and it was put on the market right after the 1970 U.S. recession dealt a serious blow to executive-jet sales. But last year I.A.I, sold 14 Westwinds for $1,180,000 each. Another executive jet, the Commodore, which is manufactured in the U.S. and sold by I.A.I., has been peddled to buyers including Bernie Cornfeld, the fallen mutual fund magnate, and Uganda's strongman Idi ("Big Paddy") Amin, who still owes $800,000 on his plane.

Jericho and Gabriel. Schwimmer's company makes many other products from cardiac resuscitators to electronic fences (including one going up on the Lebanese border) and guided missiles. Its medium-range Jericho missile is believed capable of delivering a nuclear warhead, and its Gabriel, which sank 13 ships in the October war and did much better than the Arabs' Soviet-built Styx missile, is the only short-range sea-to-sea missile made in the West. More than $60 million worth of the Gabriels have been sold to Singapore and some European countries. A new model, which doubles its range to 40 miles and flies only ten feet above the water, has reportedly been developed. I.A.I.'s stubby, twin-engined Arava STOL (short takeoff and landing) transport proved during the fighting to be a versatile cargo supplier and flying hospital, despite the initial skepticism of some Israeli generals. Now, export sales of the Arava are booming, especially to Latin-American countries.

Schwimmer would Like to sell I.A.I. stock to the public, but the Defense Ministry objects for security reasons. Thus I.A.I, will probably seek Limited partnerships with foreign manufacturers to make certain products jointly, as well as look to acquisitions of small companies, while concentrating on new products. On the drawing boards now: a newly designed Westwind, a crop duster and Israel's first helicopter.

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