State Comptroller Slams Israel Aerospace Industries' Problematic Ties With Workers' Union

In a critical new report, the watchdog says 'The company operated in many cases according to the requirements of the workers committee, at times to the point of paralysis of supervisory agencies'

A Super Heron HF drone, manufactured by Israel Aerospace Industries Ltd. (IAI), stands on display on the opening day of the 51st International Paris Air Show in Paris, France, on Monday, June 15, 2015
Bloomberg

The State Comptroller’s Office took state-owned Israel Aerospace Industries and its union to task for what it called problematic financial and managerial relations and demanded the parties take action to fix them.

“The company operated in many cases according to the requirements of the workers committee, at times to the point of paralysis of supervisory agencies,” the watchdog said in a report.

The highly critical report, covering 2013-16, comes less than three weeks after Benjamin Netanyahu, in his role as defense minister, gave approval to float 25% to 30% of IAI shares on the Tel Aviv Stock Exchange.

It also spelled embarrassment for Haim Katz. The labor and social services minister headed the IAI union local for 22 years, until May 2015. His son, Yair Katz, has headed the local since April.

The comptroller’s report focused on two union bodies at IAI: Agudat Ha’ovdim, which was run by Haim Katz and served as the financial arm of the union, and Shaal, a business that sells electronics and other consumer goods.

Agudat Ha’ovdim had been receiving 15 million shekels ($4 million) a year from IAI to operate the union local and fund welfare and cultural activities.

However, Agudat Ha’ovdim wasn’t required to report on how the money was spent or who it employed at what cost. IAI booked the cost incorrectly to make it appear as a tax-deductible expense.

Moreover, from 2006 to 2018, when Agudat Ha’ovdim got a combined 180 million shekels, it was allowed to roll over any unused funds to the following year, thus putting no effective cap on its budget. Over time it accumulated cash reserves amounting to 83 million shekels in 2016, on which it made no public disclosures.

Until 2016 there was never any written agreement about this annual grant. When it was signed in August of that year, it only put into writing the problematic practices that had previously existed, the comptroller said.

Shaal operates out of buildings owned by IAI and provided to Agudat Ha’ovdim. Despite the fact that Shaal is a business — and sells to the wider public, in violation of its charter, as well as to IAI workers — it pays no rent or other compensation to IAI, the comptroller’s report noted.

A written agreement detailing relations between IAI and Shaal was signed in January 2016, but like the one with Agudat Ha’ovdim, it simply puts into writing past practices.

IAI management treated workers’ committee members with kid gloves. Of 46 committee members, 25 were given company cars even if their jobs didn’t entitle them to one. Half the members were allocated overtime of 30 to 50 hours a month, boosting their salaries by tens of thousands of shekels a month.

Management was unable or unwilling to enforce disciplinary measures against committee members. In one case, noted in the comptroller’s report, 35 employees and workers' committee leaders disrupted a meeting of the IAI board, blowing horns and threatening individual directors.

Despite the serious infraction, management accepted an apology as the only punishment.

In response to the report, IAI said that it dealt with past problem and that management and the union were working to institute changes. The statement was echoed by the workers committee.

Haim Katz defended his tenure as head of the union local. “Some of the comptroller’s comments have already been dealt with and some of them arise from misunderstanding on the part of the State Comptroller’s Office regarding the world of labor relations,” he said.