It's final: Israel Military Industries will be privatized, not merged with the Rafael armaments maker, now that a deal has been reached between the unions and the state.

The company's future was finally decided at a tripartite meeting between Finance Minister Yuval Steinitz, Defense Minister Ehud Barak and Histadrut Labor Federation Chairman Ofer Eini.

The terms of IMI's privatization have not yet been finalized. The three agreed to step up their negotiations in the hope of reaching an agreement on privatization within weeks.

Wednesday, Steinitz and Barak approved the appointment of Nitza Posner as chairwoman of IMI, after her candidacy won approval from the civil service vetting committee for high-ranking appointments. Posner has been on the IMI board for more than a year and is a senior partner at the law firm of Haim Zadok & Co, which specializes in commercial law, banking law and bankruptcy cases.

For 2010, IMI reported sales of NIS 1.9 billion, roughly unchanged from the year before. However, it racked up a net loss of NIS 164 million. IMI had made a gross profit of NIS 403 million, or about 21% of sales, well above the 11% of sales posted for 2009. The company narrowed its operating loss from NIS 142 million in 2009 to NIS 51 million in 2010.

Given that the company has no money with which to pay salaries, Doron Cohen, head of the Government Companies Authority, asked for and received Knesset Finance Committee approval yesterday for a NIS 90 million handout to IMI for July salaries and to pay for raw materials.

For two and a half years, the Defense Ministry has been shouldering the cost of salaries at the IMI, but it refuses to do so any more, hence its pressure to privatize the company.

Sources at IMI said yesterday that the company's financial distress isn't due to its routine operations. The problems stem from the 1990 decision that IMI should shoulder the cost of pensions for retired workers using its own resources, the company claims. Yet the state carries the cost of retirees from Rafael, they point out. IMI says the cost of the pension payouts is NIS 40 million a year.