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Elbit Warns: "SAM" is Not Your Friend

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When French forces intervened in the Malian civil war last week, one of the very first casualties suffered was a French helicopter pilot, whose helo was shot down  by rebels. According to news reports, the Al-Qaeda-linked rebels are armed with sophisticated weapons  stolen from Libyan arms depots.

Three thousand miles away from Mali, in Syria, reports  have been circulating for months about resistance fighters, many of whom are similarly linked to al-Qaeda, obtaining smuggled shipments of "MANPADS" -- the technical designation for a man-portable, air-defense system, such as the American Stinger or the Russian Strela.

Why do we mention this? Because it may not be long before worries about terrorists gaining access to MANPADs, and pointing them at civilian airliners, resurface.

Lessons from history
If you recall, the last time a panic about this issue emerged was in 2002, when terrorists armed with Strela-2 surface-to-air missiles (SAMs) fired them at an Israeli passenger liner taking off from the airport at Mombasa, Kenya. That set off a sort of anti-arms race among defense contractors in the U.S.

In 2006, Raytheon (NYSE: RTN  ) announced its "Vigilant Eagle" anti-missile system, which promised to ring high-traffic airports with area defense systems to shoot down SAMs targeting airplanes at their most vulnerable point. Two years later, Northrop Grumman (NYSE: NOC  ) announced the development of a plane-mounted missile-jamming system labeled "Guardian," which was in experimental usage aboard FedEx (NYSE: FDX  ) planes.

Fast forward to present day, and a third defense contractor -- coincidentally, from Israel itself -- has developed a new system just in time to meet the emerging threats from Syria and Mali.

According to the manufacturer , Elbit Systems' (NASDAQ: ESLT  ) Commercial Multi-Spectral Infrared Countermeasure system (C-MUSIC) uses "cutting edge" laser beams to blind incoming SAMs. Like Northrop's Guardian, C-MUSIC is mounted upon the plane itself -- one unit per plane. The system just completed flight testing aboard a Boeing 707 aircraft. Already, Brazil  has ordered the system to protect its KC-390 tanker fleet. And the Israeli government has chosen to outfit all three of its civilian airlines with C-MUSIC -- the first time in history an entire national air fleet has carried "a complete protection solution for commercial aviation."

What's it mean to you?
For investors, the system's rapid adoption is a propitious sign. Even better news is its potential value to Elbit. At an estimated unit cost of $3 million, each incremental C-MUSIC sold has the potential to add 0.1% to Eslit's annual revenue.

For a brand new product, introduced just six years ago, that's not half bad.

Israel is a hotbed of innovation these days. Read about another Israeli company we like quite a lot -- for completely different reasons -- in our premium report on SodaStream. We'll explain the opportunities, as well as the risks in the company. Plus, the report comes with a year's worth of updates, so just click here to get started.


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