"Israeli firm keeps airports safe"

Friday, June 18, 2004

Israeli firm keeps airports safe
ISRAEL - THE JERUSALEM POST


On a very foggy day in October 2001, a Scandinavian Airlines plane was
just taking off from the Linate airport in Milan when a small German
business jet taxied onto the runway. The SAS plane collided with the
much smaller jet, became airborne for a few seconds, and then crashed
into a building used for baggage handling. One hundred and eighteen
people were killed, making it Italy's worst airport disaster.

Three years on, Transtech Control, an Israeli company that specializes
in airfield control systems, has developed a technology that could
prevent such an accident from occurring again.

Transtech's Intelligent Airport solution (A-SMGCS), which took four
years to develop, is designed to prevent collisions between planes on
the ground, and to handle traffic problems at airports. These are two of
the most pressing concerns for airports today. Delays alone cost the US
economy an estimated $10 billion per year. Transtech employs a range of
technologies, including the distributed millimeter-wave radar used in
missile technology, advanced algorithms, and optical identification
sensors to provide full coverage of blind spots and other critical
areas. The system not only detects the movement of planes, but can also
identify the aircraft, setting off an alarm if a plane strays from its
designated path.

As a result, air traffic controllers and airport operators get a full
picture of every movement taking place on an airfield, whatever the
visibility.

The technology, introduced to the market last February, is based on an
open architecture with a modular design intended to interface with
existing airport systems. It can be introduced to an airport module by
module, enabling the facility to tackle critical spots first, and then
introduce the system to other areas as more financing becomes available.

"Safety and delay issues are very pressing," says Simcha Ohrenstein,
Transtech's president and CEO. "There's a bottleneck on the ground;
every single movement needs the approval of air traffic control, even
just to switch an engine on. Today the air traffic controller has to
rely first and foremost on his eyes and ears. When there is fog, the
policy is see and be seen."

WHEN TRANSTECH CONTROL was founded by Ohrenstein and Shlomo Gazit (the
company's CTO) in 1986, most people told them that a small Israeli
company had no chance to break into the extremely conservative US
airport control market. Even today, the industry is dominated by just a
few giants. Ohrenstein and Gazit ignored their critics, however, and
today - 15 years on - Transtech's control systems can be found in 120
airports across the world, including Beijing and JFK, San Francisco,
Denver and LA.

"It's really a big breakthrough to have a company from Israel
controlling so many airports," says Ohrenstein, 53. "We've become a
world leader in this niche."

Transtech's edge is that it came into the market at the right time with
the right product - an Airfield Lighting Control System (DCMS). Until
that point, airports relied on electro-mechanical systems to control
lighting at night or in bad weather. If lights failed, it was often the
pilot who would notify the control tower. Air traffic controllers would
then call out maintenance.

Transtech's was the first computerized system to hit the market. It
offers a comprehensive solution for airfield lighting control, fixing
problems before controllers even realize something is amiss. The DCMS
system increases reliability, and eases maintenance. A stand-alone
subsystem ensures continuous operation of airfield lighting, even if the
main system fails.

Aside from technology, however, the key that unlocked the door to the
exclusive US airport club was a collaboration agreement the year the
company was founded with Crouse-Hinds, a division of the $5 billion
Cooper Industries. Crouse-Hinds is North America's leading supplier of
visual navigation aids and airport lighting systems.

"They provided the air field lighting and we provided the control," says
Ohrenstein. Even now, Ohrenstein admits that it seems crazy that a giant
like Cooper would take a risk on a brand new company, but he
acknowledges that it was Cooper's support that turned Transtech into a
leader in its field.

"Cooper's VP of marketing had the vision to see that this was going to
be the future," says Ohrenstein.

Transtech began life with just $400,000 from angel investors, and a
further $400,000 from the Office of the Chief Scientist. Until now, the
company has raised $20m. Today, Formula Vision Technologies owns 64
percent of the company. Israel Discount Bank and VC company, First
Israel Mezzanine Investors, own a further 20%, and the rest is in the
hands of the founders and directors.

Next month, the Herzliya-based firm expects to close a private placement
worth between $20-25m., at a company value of $25m. The round is being
led by Giza Venture Capital, and will include a top US venture capital
company and a VC from Europe.

"We want to build shareholders on each continent," says Ohrenstein.
Formula will also invest a further $5m. in the company, and expects to
record a capital gain of NIS 15 million from the financing round and
dilution of its stake.

TRANSTECH, WHICH presently employs 80 people, plans to use the money
raised to increase sales and marketing efforts for the Intelligent
Airport solution, and invest the rest in R&D. The company spends about
$3.5m. in R&D every year. Sales and marketing are vital at this stage.
Transtech must set up test installations to show off the Intelligent
Airport solution, and these will need financing for quite a long period.

"In this market, you need a lot of money," Ohrenstein admits.

In 2004, the company expects to see sales of at least $13m. - it already
has an orders backlog of more than this. In 2005, revenues are expected
to leap to $30m. as sales of the new Intelligent Airport system begin.
By 2006, revenues are set to leap to $70m., and the target for 2007 is
$100m.

Ohrenstein believes profitability will come in 2005, but points out that
if the company cuts R&D spending it could be profitable this year. There
is also talk of a possible public offering in 2006.

Certainly, Transtech's new solution shows a great deal of potential.
Already the company has signed a contract with Madrid Airport to cover
the aircraft parking area. It also has a pilot installation at
Ben-Gurion, and has signed an MOU with Luton Airport in England.

In October last year, the company signed a collaboration agreement with
$31.8 billion US defense company, Lockheed Martin, which has been in the
field of airport control for 40 years. Under the terms of the agreement,
the companies will team up to pursue new business opportunities related
to surface traffic management at airports.

Don Antonucci, the president of Lockheed Martin transportation and
security solutions, said: "A key constraint to increasing airspace
capacity and having more flights is an airport's ability to move
aircraft in and out of the facility. Airport operators need technology
solutions that will help them manage airport surface traffic safely and
efficiently while preventing security intrusions by unauthorized
vehicles or personnel."

LAST MONTH, the Lockheed Martin agreement bore its first fruit when
Transtech signed an MOU with the US Federal Aviation Authority (FAA),
which plans to test the Intelligence Airport system in a small US
airport. If the six-month pilot is successful, Transtech's technology
could be installed in 300 airports across the country. The tests are
likely to be tough. The FAA has chosen to test the system at an airport
with extremely harsh weather conditions.

"If the test goes well, this will be a very big breakthrough," says
Ohrenstein. "The US airports market is the same size as the rest of the
world put together."

In the field of control systems, Transtech's main rivals include Siemens
and Honeywell. These are giants, and Ohrenstein admits that though
Transtech has the largest number of installations around the world,
competition is getting tougher.

"We are still alive and fighting for the number one position," says
Ohrenstein.

In the new field of airport surveillance management, Transtech faces
competitors such as Raytheon, Lockheed Martin, Northrop Grumman and
Thales in Europe. Ohrenstein claims, however, that many of the rival
products depend on traditional surveillance systems, or on ground radar
that is often inaccurate and leaves blind spots.

Competition will get fiercer, but the market promises to be huge. The
International Air Transport Association predicts that air traffic will
increase in the coming years, and since safety and delays are two of the
prime problems, airports will be actively looking for solutions.
Transtech estimates that the market will be worth $10 billion in the
next seven to 10 years.

"We want to take the largest possible slice of this market," says
Ohrenstein. "Our strategy is to have unique technology and solutions. We
already have a working technology, and even Raytheon has come to talk to
us about it."

Ohrenstein knows, however, that technology is not enough, hence the
agreement with Lockheed Martin in the US, and with Indra, a $2 billion
company in Spain. Transtech is also negotiating with $636m. company,
Arinc, one of the six largest firms providing airport solutions in the
US.

Ohrenstein believes that the company's new product is the most promising
of all the technologies it has worked on to date.

"The product is in another league. At the end of the day, this brings us
nearer to being a player with all the big guys," he says.


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