Aerospace Claims State Killing Company With Love

Israel Aerospace Industries yesterday applied to change its status as a government company: Instead of being under the responsibility of the Government Companies Authority, as it is now, IAI wants to have MI Holdings assume responsibility for it - an unprecedented move for a state-owned corporation.

All government companies are administratively subject to the Government Companies Authority, which supervises their corporate conduct. It can demand that companies change their strategy, organization and business. Moreover, the authority is responsible for vetting and approving all senior appointments at government companies. Other restrictions that apply to state-owned firms include caps on executive pay, which is not the case in the private sector.

Government companies are also subject to scrutiny by the state comptroller.

In contrast, MI Holdings, which is itself a government company, is responsible for nothing beyond holding the state's stakes in the banks. The state nationalized several banks in the early 1980s, following the collapse of their shares. Today, it remains in possession of a controlling interest in Bank Leumi and a noncontrolling interest in Israel Discount Bank. ("MI" stands for "Medinat Israel," or State of Israel.)

MI Holdings handles the privatization of bank shares owned by the state. But that's where it ends. It has no power to supervise or audit the companies under its purview. It has no say in the companies' business, appointments or wages. MI Holdings may own the controlling interest in Bank Leumi, but the bank operates independently.

In a letter to the finance and defense ministries, IAI president and CEO Itzhak Nissan argued that being subject to the Government Companies Authority confines IAI's business activity and hampers its growth.

A question of Zionism, too

Nissan has complained in the past that IAI has been unable to pursue major acquisitions, or set up complex joint ventures, because steps of that kind require government permission, and the bureaucratic process takes so long that the business opportunities evaporate. Among other things, the company needs permission from multiple levels of finance and defense ministry officials, including the directors-general and the ministers, and finally from the cabinet as well.

The letter has the support of the workers. That means it also has the support of Knesset member Haim Katz (Likud), who happens to be secretary-general of the IAI trade union. Katz opposes the company's privatization and agrees with Nissan that transferring responsibility for the company to MI Holdings would give it more freedom to do business properly.

Katz argues that being under MI Holdings rather than the Government Companies Authority would enable IAI to pay wage levels that could compete with the private sector. That in turn would enable the company to improve its competitive position in the global arena, the union chief says.

"Some national assets, like IAI, shouldn't be privatized," Katz said yesterday. "It's not only a question of money, but of Zionism. The Government Companies Authority doesn't have the capacity to manage the company. If it passes to [the auspices of] MI Holdings, it wouldn't be for the sake of privatization, like in the case of the banks. They should let management improve the company and not get in its way. IAI can't expand. When it suggests a project and the paper-pushers mull things over until the project falls through, there's no living to be made. The company's situation would be better under MI Holdings, which doesn't interfere."

Realistically, sources conversant with the issue think the proposal stands zero chance of approval, for several reasons. One major one is that it would create a precedent of a government company divorcing itself from the state's supervision.

IAI refused to comment for this report. The Finance Ministry confirmed that it received the letter but refused to comment on its content. The Defense Ministry said it knew nothing about it.