U.S.-Israeli business ties remain strong

But violence has limited American start-up of new investments, partnerships

April 23, 2002|By Liz Steinberg | Liz Steinberg,SUN STAFF

The latest violence rocking Israel may be keeping American tourists at bay, but for most companies and other organizations operating in the two countries, business will go on.

While Americans are hesitant to start new Israeli partnerships or investments, those already formed are continuing, said Barry Bogage, executive director of the Maryland/Israel Development Center in Baltimore.

Twenty-seven Israeli companies have offices in Maryland, and many more partnerships, many of which are in technology fields, exist, said Bogage.

"If an Israeli company's up and running ... it's far less affected by what's happening in Israel," said Bogage. "I kind of did a little minisurvey of companies, and they all said their business has not been affected."

However, the method of conducting business has changed since the State Department issued its warnings against travel to Israel on Oct. 12, 2000.

U.S. employees of the Hunt Valley-based Pioneer UAV Inc., the product of a 1991 partnership between Israel Aircraft Industries Ltd. and Hunt Valley's AAI Corp., used to travel to Israel four or five times a year, said President Brad Brown. The Americans haven't been to Israel since the travel warnings.

"We're all under travel restrictions," Brown said.

Israelis - those living here and in Israel - are traveling more. "I have two Israeli citizens present in Hunt Valley, and they're allowed to go back and forth," Brown said.

The restrictions put Americans at a disadvantage. "We make a lot more phone calls," said Brown. "In business, it's important to meet your vendors and your clients face-to-face once in a while, and we've lost out on that."

When fear doesn't keep employees at home, insurance may, said Marvin Klemow, vice president of government affairs for Israel Aircraft Industries' subsidiary in New York.

Insurance is often a problem, Bogage said. Some insurance companies, such as Wallach & Co. Inc. of Middleburg, Va., charge a premium for war-related injuries to travelers that equals or exceeds the initial cost of the coverage.

Sales haven't been affected, said Klemow and Brown. Pioneer, which produces unmanned aircraft, has sales averaging $10 million to $20 million each year. While sales will total about $7 million for fiscal 2002, the company is expecting sales of more than $25 million in fiscal 2003, a figure they say has been indirectly boosted by the war in Afghanistan.

Israel Aircraft Industries, whose Israeli offices are at Ben Gurion Airport near the West Bank, independently had $1.35 billion in new U.S. orders in fiscal 2001, Klemow said.

Companies with full operations in both countries have less of a need for travel and are in a stronger position.

Travel restrictions are "not having an impact on us. We have a full-fledged business in the United States," said Anil Bhingra, vice president and chief operating officer of Medispec Ltd. USA, a Germantown-based subsidiary of a Tel Aviv-based company with the same name. Medispec in Israel manufactures medical equipment that dissolves kidney stones and sells it through its U.S. division.

The Food and Drug Administration restricts its agents from inspecting facilities in countries under State Department alerts, said spokesman Brad Stone. This didn't affect Medispec, which received FDA approval in 1997.

Although the country is preoccupied with violence, Israel isn't withdrawing promised funds, said Yonathan Zohar, director of the University of Maryland Biotechnology Institute's Center of Marine Biology. The institute's proposed research partnership with a Maryland company and three Israeli groups has secured $3 million from the Israeli government, contingent on a matching grant from U.S. sources.

But for Israeli companies seeking new partnerships, venture capital from the United States isn't there. "People don't even want to start down the road of talking with Israeli companies," said Bogage.

Standard & Poor's revised Israel's credit rating from stable to negative April 11, because of "growing fiscal and economic pressures ... and the tense security situation," London credit analysts Konrad Reuss and David T. Beers said in a report.

One venture capital firm told Bogage last summer, "Now's not the time to invest in Israel."

Travel restrictions also hold back potential investors.

"When somebody's going to invest, they want to kick the tires," Bogage said.

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