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The government has offered a compromise to the Israel Aerospace Industries in the fight over control and privatization, and it seems negotiations are progressing.

The IAI has demanded the government grant it more freedom in terms of acquisitions and salaries. For its part, the Government Companies Authority has expressed willingness to consider this, but in exchange is demanding the IAI allow it to sell some of the government company's stock in a public offering, sources close to the negotiations said over the weekend.

The Finance Ministry believes the IAI can be privatized over the course of the next year, the sources said, via a public stock offering of up to 25% of IAI's shares, for $800 million to $1 billion - giving the company a valuation of up to $4 billion.

Government Companies Authority director Doron Cohen made the offer to IAI chairman Yair Shamir and CEO Itzhak Nissan.

Shamir, Nissan and the IAI workers' committee had previously approached the Finance Ministry, asking that it transfer control of the company from the Government Companies Authority to M.I. Holdings, a government company that holds the government-owned bank shares. The IAI thought this would increase its maneuvering space.

As a government company, the IAI needs government permission for every acquisition, which can sometimes take up to a year - and possibly torpedo the deal. In addition, the company is limited in terms of the salaries it can offer.

The Finance Ministry rejected the IAI's proposal out of hand, fearing it would indeed grant the company too much maneuvering space - and that if the company made bad decisions, the government would bear the costs. The ministry also suspected the arrangement would lead to outlandish salaries and cronyism.

The sides began negotiating following the ministry's rejection, which did not find favor with the IAI. Shamir told the government that the company has more space to grow, and the government would do well to wait before it starts selling off shares. It'll earn more that way, he explains.

However, finance officials are concerned that Shamir's arguments are actually motivated by workers' pressure.