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The board of Israel Military Industries informed its 2,900 employees that it would not be paying out salaries yesterday because of its cash flow crisis. By law, employees are due their monthly pay by the 10th of the following month but, and not for the first time, the cash-strapped defense firm said it could not meet its obligations and that it could not say when the pay would be forthcoming.

State-owned IMI has also yet to pay out pensions to 1,200 former employees that were due on August 1.

"If workers' pay at Israel Military Industries and pensions to retired staffers are not paid today, the workers will launch a fierce campaign, with the full and legitimate backing of the Histadrut," Tzachi Tabacman of the labor federation said yesterday.

IMI management said that the company was waiting for government cash that the treasury had approved in principle, but had conditioned on the company's adoption of steps such as laying off 500 workers and cutting the wages of the rest by 8 percent. The workers have not accepted this recovery plan, and the board urged staffers to meet and negotiate about the plan.

Yesterday, at an emergency meeting of company employees, Yitzhak Yehuda, head of the IMI workers' committee, called on management to resign, "if you are incapable of raising the funds needed to pay wages and pensions."

The staffers proposed an alternative recovery plan for the company, under which IMI would merge with another state-owned defense firm, either Israel Aircraft Industries or Rafael - the Israel Armament Development Authority. Staffers would then be encouraged to take early retirement or voluntary redundancy under "attractive" compensation packages.

The workers have rejected the government's plans to privatize the company, including the partial sales that have already been completed, saying that "privatizing IMI is as dangerous as privatizing the IDF." The company has sold off its Magan plant in Ramat Hasharon and its aircraft plant in Tirat Carmel.