Treasury to Aerospace: How Did You Overpay by a Billion Shekels?

There are multiple irregularities in Israel Aerospace Industries' salary distribution; the Finance Ministry is demanding that the irregular expenses be returned.

The Finance Ministry called in Israel Aerospace Industries executives for a hearing in January, and asked them to explain a reported NIS 1 billion in salary irregularities.

The Government Companies Authority is in the process of trying to privatize IAI.

Social Affairs Minister Haim Katz.
Emil Salman

If IAI doesn't return the irregular expenses, the Finance Ministry will freeze the privatization process, a senior Finance Ministry official was reported as saying yesterday. This raised ire at the Government Companies Authority. "Its untenable for one Finance Ministry official to stymie the efforts of another, someone needs to create order," said a source close to the authority.

The treasury's salary irregularities report lists NIS 400 million in irregularities over reimbursements for vehicle expenses at IAI. Of the company's 17,000 workers, 12,000 are reimbursed NIS 4,000 a month for vehicle costs - even though many of them come to work via a car service paid for by the company. It also mentions wage incentives of 14%, given to employees regardless of their actual performance.

There are also irregularities in the salaries of three senior executives, including legal advisor Yaacov Galazan and VP-Human Resources Aryeh Pinto. This is an issue that has been known for years. A senior executive said the company's management has not been able to get Pinto to retire, even though he is 72, and he and Galazan have been earning top salaries for years.

IAI is still preparing its official response, but says that all employees are paid in keeping with salary agreements that were approved by the government.

The Government Companies Authority plans to float 30% of IAI's stock in the first phase of the privatization process. Following the second phase, the government will be left with 49% of the company.

The plan would prevent any given capital market player from buying more than 5% of the company's shares. The aim of that is to prevent a hostile takeover by preventing anybody from building up significant stakes in the company.

The Defense Ministry has yet to approve the plan; meanwhile, the authority is discussing it with IAI's management.

A Government Companies Authority source said IAI employees had agreed to the privatization plan, but MK Haim Katz, who heads the company's labor union, and the IAI management denied this.

"Who talked about issuing stock? We're talking about issuing only bonds," said Katz. "We won't agree to issuing 30%, or even 1%. We want the Finance Ministry to permit the management to manage the company properly and to remove impediments to our work, such as the need to have investments approved and the oversight of exports. If it does away with these things, we'll advance another step and then we'll talk about a stock issue," he said.