General News Summary
Netanyahu Leads
Former Prime Minister Benjamin Netanyahu and his Likud party are leading Israel's polls for the next election scheduled ahead of time for February 10. The elections were made necessary by the resignation of Prime Minister Ehud Olmert earlier this year, in the wake of endless investigations relating to alleged wrongdoings conducted during the years prior to his premiership. Until the elected prime minister forms a government, Olmert continues to serve as interim prime minister.
As Israel's multiple political parties go about the business of choosing their lists of candidates for the Knesset, the country's parliament, public opinion polls predict a strong showing for Netanyahu's Likud party, which now is favored to garner the largest number of mandates in the 120-member Knesset. Under the country's unique proportional electoral system, each voter casts a single ballot for one party. Seats in the Knesset are awarded to each party according to its percentage of the total vote. More significantly, the right-wing national bloc nominally headed by the Likud seems to hold a majority of about 64-56 compared to the center-left bloc headed by Kadima, the party formed by Ariel Sharon and led by Olmert till he was replaced, after his resignation, by Foreign Minister Tzipi Livni. Labor, the traditional leader of the center-left bloc and its leader, Defense Minister Ehud Barak, are trailing behind; if the elections were held in early December, polls place them between the third and the fifth largest party.
Netanyahu's path to the premiership, a post he held in 1996-99, was not paved with rose petals. The former prime minister's attempt to frame his Likud as a center-right party faced erosion from extremist elements inside his own party, notably the "Jewish Leadership" faction led by extreme rightist Moshe Feiglin. In the early-December Likud primaries, Feiglin – who in the past led a campaign of civil disobedience against the 1993 Oslo Accords with the Palestinian, served a jail term for sedition and won the 20th place on the Likud ticket. In the following days, Netanyahu, aware of the damage that the placement of Feiglin and his allies in prominent places on the Likud list will cause to his party's standing among moderate Israeli voters, changed the bi-laws and the rules of the party and relegated Feiglin to the uncertain place of No. 36.
It may be important to explain that Feiglin represents an extremist faction, primarily from among the Judea and Samaria settlers. A loophole in most Israel parties' covenants allows individuals to register to the party and demand and receive representation in its institutions, despite the lack of real voters for the party from the respective constituencies that those delegates allegedly represent. Namely, those delegates do not even bother to vote for the party that they are attempting to take over from within.
It was not clear whether the move would succeed or backfire against Netanyahu. On one hand, the attempt to exclude Feiglin might push voters with similar views into the arms of other, farther-right parties, eroding the size of the Likud faction in the upcoming Knesset and reducing Netanyahu's chances to form a successful government from the base of largest party. On the other, rival parties, from the center and left – including both Kadima under Livni and Labor under Barak – were likely to portray the strong showing of Feiglin in the Likud primary, whether he is on or off the ticket in the end, as a revelation of the party's true far-right character, again costing it precious votes. There has also been resistance to Feiglin and his moves inside the Likud. In 2004, Limor Livnat – a former education minister and Likud front-bencher – referred to Feiglin presence by saying that “criminals” were “trying to take over” the party.
Netanyahu has assembled an alleged all-star team, with names as Benny Begin, son of the late Likud founder Menachem Begin; former chief of staff Moshe (Boogie) Ya'alon; and moderate Dan Meridor, a scion of the party aristocracy that founded the Likud and Netanyahu's finance minister, who left the Likud in 1999 because of Netanyahu and returned this year. Netanyahu's list of stars included five additional celebs, but short of Begin and Ya'alon, all but Meridor who came in No. 17, were elected to the end of the list.
It might take some major event, on the scale of the late Egyptian president Anwar Sadat's visit to Jerusalem in 1977 or a major terror attack, to turn the electoral tide. Improbable as that sounds, in today's Israel such a possibility cannot be entirely discounted.
Obama & Israel
In pro-Israel circles, the election of Barack Hussein Obama as the 45th president of the United States was greeted with a mix of optimism, apprehension and caution.
Observers say that Obama's support for Israel – including his recent promise of a U.S. nuclear umbrella in the event of an Iranian attack, the record of vice president-elect Joe Biden, and the appointment of Rahm Emmanuel, a former Democratic Congressman who is the son of an Israeli emigrant to the U.S. as White House chief of staff, as positive signs. At the same time, there are those in Israel who doubt that the “common language” Benjamin Netanyahu has claimed to have with Obama will extend to unqualified support for Netanyahu's position on Palestinian issues.
Meanwhile, there were reports that Obama had short-listed four candidates to be his administration's special envoy to the Middle East – Dennis Ross, who held a similar post during Bill Clinton's administration, former secretary of state Colin Powell, and two former U.S. ambassadors to Israel, Dan Kurtzer and Martin Indyk. The new administration, according to these reports, would work on the assumption of linkage between all the problems the U.S. faces in the Middle East and further east, including the Israeli-Palestinian dispute, Iraq, Afghanistan-Pakistan-world terror linkage, and Iran's nuclear threat.
Proposals Unveiled
Disclosing what he said were Israel's proposals in the failed year-long Annapolis-track negotiations, chief Palestinian negotiator Ahmad Queria said that Israel proposed to annex 6.8 percent of the West Bank and take in 5,000 Palestinian refugees, but did not disclose a position on Jerusalem, a deal-breaking issue for both sides. Qureia appeared to be providing a record of the Israeli position ahead of leadership changes in Israel and the United States. Palestinian President Mahmoud Abbas also faces a leadership challenge from Hamas rivals, who claim his term ends early next year.
While there was no immediate official comment from the Prime Minister's Office in Jerusalem, aides to Prime Minister Olmert noted recent Olmert speeches saying that Israel would have to withdraw from much of the land it captured in the Six-Day War of 1967.
Anguish in India
A dispatch by Anshel Pfeffer, correspondent of the daily Ha'aretz to Mumbai during the late-November terror attack on the city, filed on December 2. One of the targets of the multi-pronged attack, in which 195 people were killed and hundreds of others wounded, was Nariman House, site of the Mumbai headquarters of Chabad, an Orthodox Jewish group which manages cultural centers for Jewish travelers in many parts of the world. In the third day of a siege, Indian troops stormed the building, to find that all six hostages – five Israelis and a woman from Mexico, had been killed. Two of the victims were the center's head, Rabbi Gavriel Holtzberg, and his wife Rivka. Their two-year-old son Moshe was rescued from the building early during the siege by his Indian nanny, who managed to sneak out of the building with the baby.
By Anshel Pfeffer/Mumbai
Col. Yossi Turjeman, the Israel Defense Attach? and head of the Ministry of Defense delegation in India, barely slept from that fateful Wednesday, Nov 26 night. He was the coordinator in the field between Israel and Indian security forces for the 60 hours of the battle at Nariman House, the Chabad-Lubavitch headquarters in Mumbai. Afterwards, he supervised the removal of the bodies, their identification and transport to Israel, a process which included complicated coordination and obtaining numerous permits from local authorities.
Only on December 2, when the bodies were in the air on an Israeli Air Force plane bound for Israel, was he available to speak about his experience during those difficult days.
“My work here was in assisting the Foreign Ministry team,” said Turjeman, describing his role. “It is not an ordinary mission of a military man, but of a diplomat. I offered myself to aid from my military experience, in the location and identification of victims.”
In connection with the operation, Turjeman did not advise the Indian security forces that broke into the Chabad House (in the Nariman House building), and in his view was not supposed to do so. “The Indian Army is the second or third largest in the world,” he said. “When you enter a military base here, after I had seen the streets of Mumbai, it is simply another world. We shouldn't belittle their capability, their determination and fighting ability.”
Col. Turjeman said, “I don't recall that we ever had an incident where there were eight different locations at one time in Tel Aviv, and we dealt with them simultaneously properly. I heard about a former senior Israeli commander who said that we would have handled the situation in a shorter time. That's not serious, and we have to maintain modesty.”
Turjeman said he was not upset that the Indians declined to pass on the military assistance offered by Israel. “We were not in a situation to come and suggest what to do. It's a strong and proud nation with immense capabilities, a regional power. People are simply confused by what they see on the streets of India.”
During the fighting, he said that he “prayed all the time that there will be a miracle, that someone would be found alive. But it was clear that the result would be harsh and difficult. From the moment that the Indians decided that they would not negotiate with the terrorists, it was no longer a possible hostage situation but one of combat in an urban area, and that extremely different. It is clear that in such a situation, the chance of getting people out alive is very small. And afterwards, it became clear that they were killed at the start of the incident.”
Turjeman is fulsome in his praise of the Indians in dealing with Israeli requests for rapid transfer of the bodies to Israel, without conducting post-mortem examination [to which members of the Orthodox community did object]. “They cooperated with us greatly. That can be understood only after you live in India and understand a little bit how much they deviated and changed and cut corners for us. They did amazing things, against their usual practices, something that is very difficult for them to do.”
On the security relationship between Israel and the world's largest democracy and the largest Muslim population, military attach? Turjeman said that “everything is continuing as usual. There is no change. We have to learn from the Indians, how they draw conclusions from this event. That is why there are inter-army relations, to learn from the situations others find themselves in and to avoid them for yourself.”
The Economy
Supporting the Economy
Israel's Treasury said in late November that it was setting aside NIS11B (about $2.8B) to support the financial sector during the current world economic crisis, including NIS6B in guarantees to the banking sector in order to facilitate the raising of credit. The Treasury also plans to set up investment funds to refinance corporate bonds and aid Israeli companies hard-pressed to meet bond payments due to the global recession.
The moves came after the government had approved a NIS21.7B ($5.6B) plan to stimulate the economy by increasing investment in infrastructure projects, and to provide a safety net for battered pension plans.
In early November Prof. Zvi Eckstein, deputy governor of the Bank of Israel, told an economic conference that “The global financial crisis, the worst since 1930, finds the Israeli economy in its best ever shape since independence in 1948….Our ability to deal with the crisis is largely thanks to the keeping to the budget framework through sound fiscal policy, and price stability, which is achieved through monetary policy, as well as a balance between imports and exports."
Grim Predictions
Israel's economy is expected to increasingly feel the effects of the global economic slowdown, most economic authorities agree. Merrill Lynch, for example, expects private consumption to weaken as consumer confidence erodes and unemployment rises. Telecommunications, food and other retail, all sectors which depend on local demand, are seen as likely to feel the pinch most.
Merrill Lynch sees new car sales falling to 155,000 from 180,000, and sees a tough QIV in the sector, as the economic slowdown and higher unemployment hit demand. Tax cuts in January 2009 will delay new car sales until then, and the introduction of a new Mazda 3 model late in the second quarter of 2009, which can push off sales of the popular car until then. Merrill also expects declining QIV demand for commercial and residential real estate. Residential sale prices were down 5% in November, compared with November of 2007, and commercial rental prices down 4%.
Not everyone was deeply pessimistic. “The turnaround in the crisis will occur in 2009,” Yitzhak Tshuva, owner of the Delek Group whose holdings include a large Israeli fuel company and extensive North American real estate, told an early-December business conference in Tel Aviv. “People will prefer to invest instead of putting the money in the bank and seeing a negative return because of the steep interest rate cuts in the West.”
Export Soft Drops
Israel’s exports of goods (excluding diamonds) softly declined by an annualized 3.4%. Imports of goods rose by an annualized 2.8% in August-October 2008, according to a Central Bureau of Statistics report in mid-November. The export drop was the first in five years, though in the interim there have been slowdowns in the rate of export growth. The trade deficit is expected to reach $17B in 2008, up 70% from the $10.2B in 2007.
At about the same time, the Bank of Israel announced that its composite State of the Economy Index fell by 0.4% in October, after declining 0.3% in September. The consecutive declines point to the slowdown in the economy, partly due to a decline in exports.
The declines followed slow performance over the spring and summer. Exports of goods rose by an annualized 23.2% in June-August. That figure almost matched the 27.9% export rise in the preceding three months. The CBS said that both rises were far above expectations, as was industrial production for the summer period, up 6.1%.
Nevertheless, Record Tourism
According to interim Ministry of Tourism figures, 3 million tourists visited Israel in 2008, fully 10% more than the record 2.7 million in 2000, the year of the late Pope John Paul II's historic visit to the Holy Land. Estimated income from foreign incoming tourism, the ministry says, will reach NIS15B (about $3.8B at current exchange rates), and NIS10B from domestic tourism; the combined 25B figure for direct income represents a 9% increase from 2007. (Including indirect income for the economy, the ministry says tourism accounts for about NIS 40B).
The largest number of foreign visitors,- arrived from the United States and Canada (625,000, up 10%), followed by Russia (370,000, more than double the 2007 figures), France (270,000) and Britain (200,000).
And Unemployment Surprisingly Low
Despite reports of impending mass dismissals due to the world economic crisis, official Israeli unemployment remained low during the third quarter, according to reports from the Central Bureau of Statistics. The CBS said that unemployment for the third quarter stood at only 5.9%, down from 6% in the second quarter. The number of employed people for QIII was 2.783 million, up 2.9% from the parallel period in 2007.
Less Poverty
For the first time in two decades, the annual Poverty Report of Israel's National Insurance Institute, the rough equivalent of U.S. Social Security, showed a decline in the number of children living in poverty, 34.2% in 2007, the year covered by the report, compared to 35.8% in 2006 and in the national poverty rate, 19.9% in '07, compared to an even 20% in '06. The proportion of families with four or more children fell to 56.5% from 60% in 06, but the working poor amounted to 60% of all poverty cases, unchanged from '06.
Mergers & Acquisitions
Johnson & Johnson-Omrix for $438M
Health care giant Johnson & Johnson has purchased Omrix Biopharmaceuticals, a developer, manufacturer and marketer of protein-based biosurgery and passive immunotherapy products, for $438M. Omrix is expected to operate as a stand-alone entity reporting through ETHICON, Inc., a Johnson & Johnson company and leading provider of suture, mesh, hemostats and other products for a wide range of surgical procedures. Omrix, which has offices in Tel Hashomer east of Tel Aviv, in New York, Mexico City and Brussels, was founded in 1994 by CEO and President Robert Taub. Its shares were issued on NASDAQ in New York in 2006, at a company valuation of $143M. Johnson & Johnson employs about 120,000 people in 250 companies and subsidiaries around the world.
At the same time as it recommended the four companies, Barron's warned potential investors to “beware big-drug stocks and managed-care companies.”
Orbotech-Photon Dynamics for $290M
Orbotech Ltd., a maker of optical production and inspection solutions for the electronics industry based in Yavne, south of Tel Aviv, and with offices in North America, Asia and Europe, completed the acquisition of Photon Dynamics in early October, for an aggregate purchase price in shares and cash of $290M. Photon Dynamics, based in San Jose, California, is a leading provider of test and repair systems for the liquid crystal (LCD) flat panel display industry. Photon also sold Salvador Imaging, its wholly owned subsidiary, to undisclosed investors for a similarly undisclosed purchase price. According to a November report in Globes, Orbotech plans to lay off 150 employees due to the business downturn.
CA-Eurekify
CA of Islandia, New York, a leading provider of information technology management software, has acquired Eurekify of Ra'anana, in the tech belt northeast of Tel Aviv, for a reported $30M. Eurekify develops identity management and data security systems for large enterprises.
Stats-SportVu
Stats, a joint enterprise of Rupert Murdoch's News Corp. and the Associated Press, has purchased Israeli start-up SportVu for a reported $15-$18M. SportVu's base technology compiles data on the positioning of players and the ball on the field and turns it into possible scenarios for continuing play in real time. But the company is better known for the hologram-type technology used by CNN during the U.S. election, to appear to have “beamed” (ala “Star Trek”) guests and its own reporters into the studio from remote locations.
The technology of Tel Aviv-based SportVu enables broadcast of graphic representations of play diagramming, 3-D simulations, player-view visuals and side-by-side comparisons during the course of a sports match, and includes revenue generating sponsorship and advertising options at the same time.
Finance & Investment
Record Earning at ICL for $846M for Q3
Israel Chemicals, controlled by the Israel Corp. and managed by Akiva Moses, recorded record profits of $846M in the third quarter of 2008. The figure exceeded the previous record of $704M, set in the second quarter of 2008, and was five times the figure for the parallel quarter in 2007. Sales for QIII/08 were $2.2B, more than double the figure for QIII/07.
Projections for future sales of fertilizers, ICL's main product, were not, however, very rosy. Consumption is expected to decline, due to the world economic crisis and the tightening of credit.
Teva Touted
Teva Pharmaceuticals, based in Petah Tikva near Tel Aviv and Jerusalem, is one of four health-care stocks recommended by the prestigious Barron's financial weekly as “likely to outperform in the coming year, even if the global economy remains depressed. The others are Baxter International, C.R. Bard and Express Scripts. Barron's said that “Teva is well fortified, and insulated from the politics of health care, however that might unfold. Generic drugs will remain important. Also, as of September, 30, the company's cash balance was $2.8B, giving it plenty of flexibility and liquidity. And Teva isn't only a play on generics. Its branded drugs include Copaxone, which treats multiple sclerosis and whose global third-quarter sales were $562M, up 28% year over year.”
Moscow Investment $100M
The city of Moscow will invest $100M through a subsidiary to build a luxury resort hotel in Ein Bokek, on the southern shores of the Dead Sea. The Moscow municipality will subsidize flights and accommodation packages at the resort for city residents. Moscow is considered one of the three richest cities in the world, with an annual municipal budget of about $50B. Construction on the 240-room hotel, with two indoor swimming pools and a helipad, is due to begin early in 2009, and is part of a drive which is expected to increase the number of Russian tourists to Israel to 400,000.
High Technology
Teva Marches On
Teva, Israel's world leader in generic pharmaceuticals, and Japanese drug firm Kowa have formed a joint venture. Teva-Kowa Pharma, which is due to begin operations early in 2009, producing and marketing a wide range of generic pharmaceuticals for the Japanese market. Teva CEO Shlomo Yanai noted that Japan is the world's second largest market for generic drugs. The two firms expect sales of the joint venture to reach $1B in Japan by 2015.
Fill It Up!
Better Place, the company that plans to turn Israeli into the prototype for the mass operation of electric cars, in early December unveiled the prototype of its recharging station for electric cars in the parking lot of a shopping center north of Tel Aviv. The station has two sockets for the simultaneous recharging of two cars.
Better Place, launched by former SAP software house head Shai Agassi and Idan Ofer of the Israel Corp., plans to deploy 400 recharging stations across Israel in parking lots, workplaces, and residences as part of a six-month pilot program. The pilot will also include the prototype electric car, based on the Nissan Rouge SUV. Better Place currently only has the import franchise for the electric-powered version Renault's Megane sedan.
Aerospace & Defense
F-35 OK
The U.S. government in early October announced its approval for the sale to Israel of 25 F-35 Joint Strike Fighter aircraft built by Lockheed Martin and an option for 50 more in coming years – a deal valued at up to $15.2B. The Pentagon's Defense Security Cooperation Agency (DSCA), which oversees major arms sales, said the deal is vital to U.S. security interests as well as to Israel.
Israel is perceived to buy an initial 25 F-35s in the Conventional Take-Off and Landing (CTOL) configuration, with an option to buy an additional 50 35 CTOL or Short Take-Off and Vertical Landing (STOVL) aircraft. All aircraft would be equipped with either Pratt and Whitney F-135 engines or F-136 engines being developed by General Electric Co. and Britain's Rolls-Royce. Lockheed Martin spokesman Tom Jurkowsky said: "As the first potential foreign military sale of the F-35, this would be an important first step in expanding interest in the Joint Strike Fighter beyond the U.S. government and eight international F-35 partner nations."
Israel's final decision in terms of willingness to enter into the deal, has not been made yet due to the plane's price of $200M per unit, which includes Israeli oriented avionics.
Verification System
Pilots of three foreign airlines flying into Israel were due to begin using Code Positive, a pilot-identification system aimed at preventing the use of commercial airliners in terror attacks, according to a late September report in Ha'aretz. The paper said that pilots of Delta, Air Canada and Ethiopian Airlines were due to be given smart cards containing the special codes after the Jewish High Holidays ended in October. Israel will eventually require all international airlines to use the system, which Transport Minister Shaul Mofaz says will prevent the need to deny landing rights to suspicious flights or scramble fighter aircraft to intercept flights where identification data is lacking. The system was developed by Israel's Elbit Systems, and tested on 500 flights before it was adopted.
Missile Deployment
An early-warning missile system was deployed in Israel's Negev desert by the U.S. Army's European Command in late September, according to a report in the authoritative Defense News. The system, together with a 120-member maintenance and support team, was deployed at the Nevatim airbase. An identical system has been operating in Japan for two years, guiding against the possible launch of North Korean missiles. Agreement to provide Israel with the system, which uses data from American satellites and would provide Israel with added minutes of advance warning in the case of a missile launch, was finalized during the July visit to Washington of Defense Minister Ehud Barak and Chief of Staff Lt. Gen. Gabi Ashkenazi.
Refitting Contract
Israel Aerospace Industries will refit 14 Boeing 747-200 aircraft into cargo configurations for Cargo Aircraft Management, a subsidiary of the U.S.-based Air Transport Group (ATG). Work on the aircraft is valued at about $100M, and is due to begin in March 2009 in two production lines at IAI's Ben-Gurion Airport facilities.
Self-Destruction Clusters
The Israeli Defense Forces will be equipped with self-destruction Shabtai M-85 cluster bombs developed and produced by IMI – Israel Military Industries, as a result of casualties to civilians after the Second Lebanon War, according to a report in the authoritative Ha'aretz. The move comes after the United States asked Israel, which had used cluster munitions of U.S. manufacture in populated areas in violation of an agreement with Washington, for clarifications. The M-85 Shabtai is designed to minimize casualties. And, according to Ha'aretz, it is the only form of cluster munitions authorized for use by NATO forces.
Tadiran-Elbit Sales
Tadiran Telecommunications, a subsidiary of Elbit Systems, has reported sales of advanced telecommunications equipment to unnamed militaries in South America, Asia and Europe. Total value of the sales is almost $100M. The Tadiran CNR 9000 family includes digital ultra high-frequency radio has voice and data encryption capability and defenses against electronic warfare systems, while Tadiran HF 6000 has special long-range capabilities.
Moroccan Upgrades
Government-owned Israel Aerospace Industries will provide upgrade systems for F-16 warplanes of the Moroccan, Polish and Romanian armies, according to a report in Calcalist, the economic supplement of the popular Yediot Aharonot. According to the paper, IAI will be a subcontractor in F-16 contracts between the three countries and F-16 manufacturer Lockheed-Martin. Total value of the Lockheed Martin contracts, including a reported 50 jets to Morocco, is estimated at $6B. IAI will fit the F-16s with tail and wing stabilizers, detachable fuel tanks and navigation systems. Over the last four years, according to Calcalist, IAI has worked with Lockheed-Martin and provided upgrade systems to about 4,000 aircraft.
IMI Deals
Despite the atmosphere of a business slowdown, Israel Military Industries says it has signed about $250M worth of new contracts in the last few months of 2008. Although it declined to name its several customers, IMI did disclose that the contracts involved upgrades in armored personnel carriers, rocket systems, and ammunition for artillery and anti-aircraft systems.
Elbit's $187M Brazilian Contract
Israel's Elbit Systems has won a $187M contract to supply Embraer of Brazil with avionics and mission systems for the Brazilian manufacturer's AMX aircraft. Elbit’s wholly-owned Brazilian subsidiary Aeroeletronica S.A. (AEL) in Porto Alegre, Brazil will supply the central battle mission computer, display systems, ammunition management system additional systems for the AMX. Another Elbit’ subsidiary, Elisra Electronic Systems of Israel, will supply electronic warfare systems as a major subcontractor to AEL. The initial development and prototype phase for the AMX upgrade is valued at about $67M; if approval is given at the end of this phase, the entire contract is scheduled to be completed through 2014.
European Customer
Elisra Electronics Systems will supply airborne intelligence systems to the air force of an unnamed European country, in a deal valued at $60M. The systems, to be delivered over the next two years, will be installed on a number of platforms. Elisra designs and builds electronic warfare systems for the Israel Defense Forces and a number of foreign militaries. The sale boosts the Elbit order backlog, which in the third quarter of 2008 fell from a high of $5.05B to “only” $4.87B, and triggered a drop in Elbit's share price in the wake of fears of a decline in military orders due to the world economic decline.
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