As Profits Plunge, Israel Aerospace and Union Near Pact to Lay Off 800

Agreement in principle comes as state-owned company faces a loss in 2016.

Ora Coren
Ora Coren
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An Israel Aerospace Industries (IAI) Heron (Machatz-1) drone is pictured at the Singapore Airshow, February 14, 2012.
An Israel Aerospace Industries (IAI) Heron (Machatz-1) drone is pictured at the Singapore Airshow, February 14, 2012.Credit: Reuters
Ora Coren
Ora Coren

Israel Aerospace Industries and trade unions representing workers of the state-owned company have reached an agreement in principle on the dismissal of up to 800 employees and other cost-cutting measures.

News of the pact came as IAI, whose products range from drones and executive jets to satellite systems, said yesterday it posted a wafer-thin profit of $9 million last year on a 3% decline in sales to $3.7 billion. Its backlog of orders shrank to $8.5 billion, from $9.1 billion a year earlier.

“We need to act decisively to improve our competitiveness to meet changing market conditions,” said IAI chairman Rafi Maor. “At the same time we’re exploring new strategic areas and preparing for a public offering of a minority stake in IAI during 2017, which will enable us to develop the company.”

Unless IAI makes big cost savings, management expects the company the sink into the red this year.

Under the agreement, each laid-off employee will receive 1 million shekels ($260,000) in severance pay, some of which the government is expected to fund according to the company and the unions.

No timetable has been set for the layoffs, which will focus on employees who are no longer needed by the company. To get more value out of the remaining employees, a joint management-union committee is to decide on shifting them within IAI.

A person in the IAI union said the talks were conducted in a spirit of cooperation. “We value the company, it’s the source of our livelihood and we’re proud of it. We decided to take a responsible approach and take a role in the company’s recovery and ensure a better future for it by making mutual concessions,” said the person, who asked not to be identified.

In negotiations that began several months ago as IAI’s troubles became apparent, management had sought to dismiss as 1,200 employees. As part of an broader recovery program to refocus the company from its loss-making civilian business to defense and end duplication.

The pact with union doesn’t call for any wage reductions, but employees will not get a three-year wage increase the Histadrut labor federation has won for public-sector employees. However, IAI employees will accrue pension benefits based on the increase that had been due them under the agreement.

In addition, employees will give up two vacation days a year, one for the May Day holiday and the other from accumulated work hours. They also agreed that employer’s contributions to their advanced training fund (keren hishtalmut) would be reduced.

Unions had demanded, as part of the cutbacks, that half of the company’s vice presidents and their immediate subordinates be dismissed, but management insisted that cost-cutting at the management level would be done through the company’s overall efficiency plan now being put together.

In any case, management said it would not slash top ranks by half. Top executives have already taken a 4% pay cut and have not received bonuses for two years

The agreement also calls for IAI to step up marketing efforts in Israel and abroad.

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