Ministries and Unions Reach Framework for Privatizing Israel Military Industries

About one-third of the workforce will be laid off under the plan,which is expected to be sent to cabinet and Knesset for approval in the coming months.

Ora Coren
Ora Coren
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Ora Coren
Ora Coren

After years of discussions, the finance and defense ministries, together with unions and management, have finally reached a framework for privatizing Israel Military Industries.

The state-owned company, which developed the Uzi submachine gun but has struggled to stay afloat as a business over the past decade, will be put up for sale in the next several months. IMI's board of directors is expected to meet next week to approve the plan before it goes to the ministerial privatization committee.

The plan comes after several weeks of accelerated negotiations between IMI management, headed by CEO Avi Felder, unions and government officials to reach a series of agreements needed to go ahead with the sale of the company.

The centerpiece of the plan is to privatize IMI as a single company relieved of its debt. The new company will include IMI's Ashot Ashkelon subsidiary, a maker of aerospace components that is profitable and traded on the Tel Aviv Stock Exchange.

However, the privatized IMI will not include the company's Givon division, which specializes in rocket propulsion technology and is coveted by rivals in the defense industry. Givon will move to the Defense Ministry due to its sensitivity.

In addition, IMI will take steps to cut costs, the most important of which will be moving most of its production facilities to the Negev region by the year 2020. Government has wanted to move IMI to the Negev since the 1970s, but the move was resisted by the unions until now.

A special unit will be established in the Defense Ministry to monitor the privatization process and ensure that national security interests are preserved. Among other things, it will ensure the continuation of certain armaments production lines.

The government will forgive the company debts of between NIS 2.2 billion and NIS 2.5 billion, in return for gaining title to land in the Ramat Hasharon area, where the company is now based. IMI estimates the land will be worth as much as NIS 20 billion, once it has been decontaminated.

Sources said the timetable for selling the company will be finalized this month, with approval by the cabinet and Knesset slated for October. The actual tender for selling IMI will likely take place in several months.

Under an agreement reach with labor unions after a year of talks, some 950 IMI employees – about one-third of the company's payroll – will be laid off during the first year of the restructuring process. The restructuring aims to align the size of the workforce with IMI's strategic business plan, in turn based on a basket of new products and technologies.

Organizationally, it will mean merging IMI business divisions along customer, rather than product, lines, a move aimed at enabling the company to compete better in the global defense market.

IMI has a portfolio of advanced technology in fire-and-control systems and defense, but is overstaffed to the tune of hundreds of employees, has a massive deficit and years of accumulated losses. The government has been keeping IMI afloat by injecting tens of millions of shekels into the company every moth to pay salaries and other costs.

The company has never had a "going concern" warning put on it, but only because the board has not signed off on its financial statements for more than a decade, according to government sources. Efforts by the State Comptroller to examine the company's finances have been blocked by IMI.

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