Turning Presence Into Sales

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."

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.

China Developing Counterspace Weapons: DoD Deputy

WASHINGTON - China is developing counterspace weapons that could shoot down satellites or jam signals, a Pentagon official said Feb. 4 as the United States unveiled a 10-year strategy for security in space.
"The investment China is putting into counterspace capabilities is a matter of concern to us," Deputy Secretary of Defense for Space Policy Gregory Schulte told reporters as the defense and intelligence communities released their 10-year National Security Space Strategy (NSSS).

The NSSS marks a huge shift from past practice, outlining a 10-year path for the United States to take in space to ensure it becomes "more resilient" and can defend its assets in a dramatically more crowded, competitive and challenging environment, Schulte said.
A key reason for developing the new strategy was "concern about the number of counterspace capabilities that are being developed," said Schulte.
"China is at the forefront of the development of those capabilities," he said.
China in 2007 shot down one of its own weather satellites using a medium-range ground missile, sparking international concern not only about how China weaponizing space, but also about the debris from the satellite that is still floating around in space.
Beijing is also working on ways to jam satellite signals and is developing directed energy weapons, which emit energy towards a target without firing a projectile, Schulte said.
U.S. concerns over China's space activities have led Defense Secretary Robert Gates to seek to include space in the stability dialogue with the Chinese, Schulte said.

Japan Protests Russian DM Trip To Contested Islands

TOKYO - Japan filed a furious protest on Feb. 4 over the Russian defence minister's snap trip to a chain of disputed islands that have marred the two sides' relations since the end of World War II.
Russian Defense Minister Anatoly Serdyukov's tour of the Kuril Islands came just two months after President Dmitry Medvedev became the first Russian leader to visit a region that is still known as the Northern Territories in Japan.

Medvedev's unprecedented trip put a new chill in the two neighors' relations and was to have been the subject of delicate talks during Japanese Foreign Minister Seiji Maehara's Feb. 11 visit to Moscow.
But Maehara found himself officially addressing the subject Feb. 4 when he summoned Russian Ambassador Mikhail Bely for a meeting in which Japan expressed its "extreme" disappointment with the defense minister's trip.
"It is extremely regrettable," Japanese Prime Minister Naoto Kan said. "We have firmly conveyed our resolve on the matter through the foreign ministry."
Medvedev tried to defuse the dispute by telling a Russian Security Council meeting that the visit was not meant as a show of force.
"All of these visits relate to the same thing - we have to devote attention to the Kuril Islands' development," Medvedev said in televised remarks.
But he stressed once again that the islands "are Russian territories that must develop according to a very obvious scenario - just like all the other regions of Russia."
He said Russia remained open to diplomatic negotiations with Japan that could eventually result in the signature of a peace treaty formally ending World War II.
But Medvedev insisted that in the future his government must "devote more attention to this particular part of the Russian Federation."
Medvedev's Kurils visit started a chain of such trips that also included tours of the islands by First Deputy Prime Minster Igor Shuvalov and Regional Development Minister Viktor Basargin.
The decades-long impasse has prevented the two sides from developing full trade relations and produced few strategies over how they can overcome their differences.
The Japanese foreign minister seemed particularly critical of the Russian defense minister's tour.
"It happened when I'm trying to develop Japan-Russia relations, including the resolution of the territorial issue," Maehara said. "Such a visit is like pouring cold water on those efforts."
But like Medvedev, the Japanese prime minister also said his country was ready for more talks.
"We want to continue negotiations [with Russia] patiently by adhering to our basic policy to settle the territorial issue between Japan and Russia and conclude a peace treaty," Kan said.
The dispute surrounds the southernmost four islands, two of which Serdyukov visited. Television footage showed him greeting troops while news reports said that he also inspected a grocery store and a bakery.
The Russian defense minister said he came to ensure that the region's 18th machine gun and artillery division was fully equipped with the latest issue of weapons.
"I think that we will draw up plans for replacing weapons and military hardware in this division," news agencies quoted Serdyukov as saying.
"The appropriate decisions will be reached in the near future," the Russian defense minister said.

US expert advocates nuclear energy deal for Pakistan

“Obama should offer Islamabad a much more expansive US-Pakistani relationship if it helps win this war.” — File Photo

WASHINGTON: The Obama Administration should offer Pakistan a civilian nuclear energy deal as well as a trade program under a “much more expansive” US relationship with the key regional country as part of efforts to win more Pakistani cooperation toward a successful outcome of the Afghan conflict, a prominent American expert argued Tuesday.
In a policy brief, Michael E. O’Hanlon, who is director of research for the Foreign Policy program at the Brookings Institution, endorses the Obama Administration’s policy to build a relationship of trust with Pakistan but underlines that bold new measures are needed to get greater and sustained Pakistani cooperation in the anti-terror fight along the Afghan border.
“Two major incentives would have particular appeal to Pakistan. One is a civilian nuclear energy deal like that being provided to India, with full safeguards on associated reactors,” says Dr O’Hanlon, who has also authored a book on Afghanistan.
He advocates that “Pakistan’s progress on export controls in the wake of the A.Q. Khan debacle has been good enough so far to allow a provisional approval of such a deal if other things fall into place as well, including Islamabad’s compliance with any future fissile production cutoff treaty.”
On the importance of US striking a free trade accord, the expert says struggling economically; Pakistan needs such a shot in the arm.
“A trade deal could arguably do even more than aid at this point,” he observes.
However, O’ Hanlon stipulates, that Pakistan should be given these deals if the US comes out successful in Afghanistan as he claims that the Afghan militants use Pakistani tribal regions to sustain insurgency and need to be tackled strongly by Pakistan.
The expert suggests if Afghanistan turns around in a year or two, the deals can be set in motion and implemented over a longer period.
Favoring the current US policy toward Pakistan, O’ Hanlon notes in the policy brief, that “part of the right policy is to keep doing more of what the Obama administration has been doing with Pakistan -building trust, as with last fall’s strategic dialogue in Washington; increasing aid incrementally, as with the new five-year, $2 billion aid package announced during that dialogue; encouraging Pakistan-India dialogue (which would help persuade Islamabad it could safely move more military forces from its eastern border to its western regions) and coordinating militarily across the Afghanistan-Pakistan border region. But President Barack Obama needs to think bigger.”
The clarification that the US-led ISAF mission will continue until 2014, and indeed beyond, at the November Lisbon summit was a step in the right direction but more is needed.
“Obama should offer Islamabad a much more expansive US-Pakistani relationship if it helps win this war.”
Entitled “Improving Afghan War Strategy,” the policy brief also emphasizes promoting Afghan political organizations built around ideas and platforms, not individuals and ethnicities, in a change from longstanding American policy that could improve the quality of governance in the country.
The brief also proposes taking pressure off the bilateral US-Afghan relationship on the issue of anticorruption, largely by creation of an international advisory board consisting of prominent individuals from key developing countries like Indonesia and Tanzania that have had considerable success improving their own nations’ governance in recent times.

Proposal for cyber war rules of engagement

The world needs cyber war "Rules of Engagement" to cope with potentially devastating cyber weapons, Russian and US experts will tell world leaders at a security conference on Friday.

The cyber proposal, seen exclusively by Newsnight, comes from the influential EastWest Institute in New York.
It describes "rendering the Geneva and Hague conventions in cyberspace".
Cyber security is on the agenda at the annual Munich Security Conference for the first time this year.
Those attending the conference include UK Prime Minister David Cameron, German Chancellor Angela Merkel, US Secretary of State Hillary Clinton and Russian Foreign Minister Sergei Lavrov.

LEARN MORE Watch Susan Watts' full report on Thursday 3 February 2011 at 10.30pm on BBC Two, and then afterwards on the BBC iPlayer and Newsnight website.

The logic behind the move is that in the intermingled world of cyberspace, we may need to protect zones that run facilities such as hospitals or schools.
The draft document also calls for a fresh definition of "nation state", with new "territories" and players in cyberspace beyond government - such as multinationals, NGOs and citizens.
The proposal also says that ambiguity about what constitutes cyber conflict is delaying international policy to deal with it, and that perhaps the idea of "peace" or "war" is too simple in the internet age when the world could find itself in a third, "other than war", mode.
Pinpointing attackers
The US-Russian team point out that discriminating between military and civilian targets is more difficult in cyberspace, and may require protected, marked, domain names.

How strongly should a state respond to an attack when you do not know who did it, where they did it from or what the intention was? In conventional military terms these questions are easier to answer - not so in the cyber world British government sources

They say cyber weapons have attributes not previously seen with traditional weapons, nor considered during the development of the current Laws of War: "Cyber weapons can deliver, in the blink of an eye, wild viral behaviours that are easily reproduced and transferred, while lacking target discrimination."
Well-placed British government sources say they do not see a need for new international "treaties" for cyberspace, but do concede that there are areas that need discussion, especially on attribution.
The nature of cyber space, with its ease of anonymity and use of proxies, makes the attribution of any attack very difficult. This raises the question of proportionality:
"How strongly should a state respond to an attack when you do not know who did it, where they did it from or what the intention was? In conventional military terms these questions are easier to answer - not so in the cyber world," these sources pointed out to Newsnight.
John Bumgarner, research director for security technology at the US Cyber Consequences Unit, spoke to Newsnight about the kind of threats which exist:
"There's things out there that right now that exist that the general public really doesn't know about - stealthy type technologies that can be embedded into systems that can run that you'll never see. Those things already exist."
He said that capabilities which currently exist include turning off power grids, disrupting water supplies and manufacturing systems.
Business agenda
Others, however, say that talk of all out cyber "war" is hype, though useful to defence companies looking for new ways to make money.

About 80% of UK critical national infrastructure is privately run

Nevertheless, there are almost daily reports now of cyber incidents, most recently that Stock Exchanges in Britain and the US were seeking help from the security services after discovering they were victims of attempted cyber attacks.
"There's quite a lot in it, but they're also extensively hyped," according to Professor Peter Sommer of the London School of Economics, who wrote a recent Organisation for Economic Co-operation and Development (OECD) report on cyber security.
"In terms of the involvement of the big military companies, you have to realise that they are finding it extremely difficult to sell big, heavy equipment of the sort they are used to because the type of wars that we're involved in tend to be against insurgents.
"And so they are desperately looking for new product areas - and the obvious product area, they think, is cyber warfare - I'm not so sure about that."
And yet, "utterly dependent" is how one well-placed government source describes our relationship with cyberspace.
The message is blunt. Ensuring security in cyberspace is vital to our national security, our well being and our prosperity: "Without it we can't have the economy we aspire to."
And if that is not enough, the UK government also believes it is vital to maintaining our values as a democracy.
Real-time attack data
The government is therefore embarking on an ambitious project to forge what it calls a new "dialogue" between the state and commercial companies, for mutual benefit.

GCHQ is working on the development of an attack early-warning system

After all, some 80% of our critical national infrastructure is owned and run by the private sector, and that is before you take account of the tangle of undersea fibre-optic cables that carry over 90% of our internet traffic, with all the physical vulnerabilities to terrorist attack that implies.
At the new Cyber Security Operations Centre at GCHQ, the UK's electronic intelligence agency in Cheltenham, the eventual aim is for real-time, open exchange of data from companies about how and when they are suffering attacks on their IT systems from cyberspace.
This should give the government early-warning of cyber attacks that could bring down critical national infrastructure. In return, the commercial sector can expect expertise on-tap.
This builds on existing trusted relationships with energy and water companies, but will extend to other sectors, such as food distribution, finance and transport.
The idea was mooted by Iain Lobban, director of GCHQ, in a rare speech at the International Institute for Strategic Studies (ISS) last October.
A substantial chunk of the £650m allocated to cyber security in the subsequent Strategic Defence and Security Review is now heading in that direction.

Pakistan military bombs Afghanistan

Pakistani forces have bombarded residential areas and police checkpoints in eastern Afghanistan one day after Afghan and Pakistani troops exchanged fire across border, a top Afghan official says.

Major General Aminullah Amarkhel, commander of first zone of border force in eastern Afghanistan, said Pakistani jets targeted the areas in Gushte district in Nangarhar province on Thursday, a Press TV correspondent reported.

Pakistani troops also attacked residential areas and government buildings in the area, damaging two police checkpoints in the Thursday attack, according to the report.

The aerial and ground assaults have left no casualties, General Amarkhel went on to say.

The Afghan official condemned the attacks and warned that Afghan forces would respond to them if repeated.

On Wednesday, one Pakistani soldier was killed and three others were left injured after Afghan and Pakistani troops exchanged fire across the border.

The two sides blame each other for provoking the shootout in North Waziristan's Ghulam Khan District.

Afghan and Pakistani border troops have previously exchanged fire.

The incident was the most serious cross-border clash since May 2007, when clashes between Afghan and Pakistani troops left three civilians and a police officer dead.

Afghan and Western officials say Taliban militants hiding in Pakistan's border areas are behind the attacks inside Afghanistan.