Taking Stock / Flying High at the IAI

Moshe Keret is a good manager.

How do we know that? We read it in the papers. The newspaper archives are stuffed with clippings about the fabulous success of the Israel Aviation Industries, which he has been leading for 20 years.

Keret has tremendous power under his fingertips. The IAI turns over billions of shekels a year, and employs thousands of people. Hordes of civil servants and businessmen compete for his favors. Jobs at the IAI are coveted, and attaining the status of approved supplier or adviser to the government company is considered highly desirable.

Each month, we read about some new IAI project worth hundreds of millions of dollars involving jets, unmanned airborne vehicles, advanced warfare systems. And, of course, the reports are liberally peppered with intriguing code words, because it's all hush-hush, top secret, deadly serious. It's military, isn't it, best left in the shadows.

The junta of generals

But what do we really know about the IAI's financial performance? Not a lot.

How much money did the IAI get from the state to finance its pension plans over the years? How much money does it get from the defense budget? How well does it perform compared with peer defense-sector companies?

In general, how are its financials?

We don't know, because once anything involves the sacred cows of security and the Israel Defense Forces, a shroud of secrecy gets pulled down over the details. The junta of generals and ex-generals who are supposed to supervise the military industries and defense budgets release crumbs of information, no more.

Repeated petitions by Haaretz to receive the full, audited financial statements of IAI, trivial information that every other government company provides, were refused.

How much is Elisra really worth?

If the IAI had been publicly traded, Keret's life would be very different. Then he'd have to face the tests of the marketplace, and we'd know if he really was as good a manager as the company presents.

From time to time, though, Keret does face the market, on which occasions his veneer of master-businessman cracks a bit. Remember that bizarre episode in which IAI bought a 30 percent stake in Elisra two and a half years ago?

Eyebrows shot up throughout the defense industry. Instead of promoting production of Israel's defense industries, the government was lending a hand to a partial nationalization. It let a government company buy one third of a privately-held one. Treasury officials were appalled and tried to stop the deal, in vain. Over their dead bodies, they said.

Just as well that's just an idiom, because what Keret wants, he usually gets, if not from the treasury, then from the Defense Ministry, and if not from the Defense Ministry, then from the Prime Minister's Office. In the Elisra case, a special ministerial committee and, flouting the official treasury opinion, it okayed the transaction.

That episode came to mind when Tadiran Communications' chief executive Hezi Hermoni announced yesterday that he wouldn't pay a penny more than $150 million for Elisra in the great merger being forged between Tadiran, Elbit Systems and Elisra.

One can understand why Hermoni refuses to contemplate a company value greater than $150 million for Elisra. Unlike the country's other major defense companies, Elisra has been floundering for years, and until recently, couldn't overcome operating losses.

Tough questions

If the IAI had been listed on the Tel Aviv Stock Exchange, Keret would have faced some tough questions two and a half years ago. He'd have had to explain a whole series of baffling figures. For instance:

l Two and a half years ago, he bought 30 percent of Elisra for $100 million of IAI's money, meaning, the government's money. The deal priced Elisra at $330 million.

l Today Elisra has been appraised in the range of $150 million to $170 million. Its value seems to have halved in the space of two and a half years.

l For the last two years, the capital market has been booming. Elbit Systems stock almost doubled, and Tadiran's all but tripled.

But Keret is the manager of a giant government defense company, and is in the top ranks of the defense sector. Billions pass through his hands, and he owes no explanations to anybody. Maybe to the defense minister, okay, and to the prime minister, for whom the IAI is just another latifunda - a position of power from which to dispense jobs for the boys.