Israel Military Industries Ltd. (IMI) is deeply worried about the future of the Merkava Mark IV tank, which is wholly manufactured in Israel under the auspices of the Ministry of Defense's Tank Development Administration. The ministry has halted orders for components from scores of companies.
"Globes" has spoken with several manufacturers in the past few days. They report that orders worth hundreds of millions of shekels have been on hold since October 2011. They added that they have received no clear answers from the IDF or the Ministry of Defense when or whether the orders would resume.
"The answer we get from the Defense Ministry is that the program has been budgeted for 2012. This is a NIS 1.1 billion a year program. If there's no budget, scores of factories in the periphery will close and at least 1,500-2,000 people will lose their jobs," a top manufacturer told "Globes".
The future of the Merkava has been a topic of discussion in Israel's metals industry for months. The Merkava is a national project that the Ministry of Defense touts as a means for achieving a thriving industry in the periphery, because 200 enterprises directly and indirectly contribute to it.
According to the Manufacturers Association of Israel, these enterprises employ 10,000 persons. The Ministry of Defense's Rehabilitation and Maintenance Center at Tel Hashomer, outside Tel Aviv, assembles the Merkava. The center produces the tanks, which are sent to IDF armored brigades. The Merkava Mark IV, now under production, is one of the best tanks in the world.
Worries about the Merkava surfaced late last year, during the deliberations of the Trajtenberg Committee for Socioeconomic Change and the fight between the Ministry of Defense and the Ministry of Finance over defense budget cuts.
The Ministry of Defense has deliberately kept its policy about future production of the Merkava ambiguous, and senior officials carefully say that all options are on the table.
"In practice, for four months, Israeli manufacturers have received no orders for Merkava components. Big companies produce goods for other customers and can survive under these circumstances. The problem is with small enterprises, which employ a few score of people, and for whom Defense Ministry orders are their lifeline. They've already begun laying off employees. Companies that have filled orders placed before October have thinned their workforce. The Defense Ministry is now considering cancelling previous orders, amounting to hundreds of millions of shekels," said a well-informed source.
Earlier this week, Tank Development Administration director Brig.-Gen. Yaron Livnat briefed Manufacturers Association president Zvi Oren and metals companies executives. The executives left the meeting ashen-faced. "We got the impression that the project won't be financed in 2012, even though the IDF Land Command and General Staff have told the Defense Ministry that the project is critical for Israel's security needs," said a steel industry executive.
The executive added, "When we call Minister of Defense Ehud Barak or ministry director general Udi Shani, we don’t get clear answers. The ministry appears to be holding its cards close to its chest. There is too much fog and too many 'no decision has been made yet' comments for company executives who have to manage operations and make work plans for the coming year."
Oren told "Globes", "There has never been such an existential threat to the Merkava program. It's really serious, and it's a fact that no orders have been placed for a good many months. Moreover, the Defense Ministry has asked factories that are still working for a statement setting out the effect of a halt in operations. The situation is bad, worrying, and pressing. If the program is terminated, it won't be possible to start it up again for ears. The know-how, infrastructures, and personnel will be lost forever."
Imco Industries Ltd. (TASE: IMCO) chairman Avraham Bar David says that the drop in work at the company, which makes electrical systems for the Merkava, has been strongly felt. "When the orders stopped in October, we were sure that they'd resume in January, and that everything would be all right. But January is over and there are still no orders. I will personally have to fire 100 employees, I'll close my factory in Nahariya, which employs 30 people, and I'll fire 70 people at my Nesher plant. We were explicitly told at a briefing that the program is winding down. It's terrible."
Ministry of Defense sources told "Globes" today that no decision on the future of the Merkava had been taken. A source said, "We have been warning for a long time that cutting the defense budget would hurt the Israeli economy and the periphery. We're making a supreme effort for our decisions not to hurt Israeli industries, but the government decided that the defense budget and the Ministry of Defense must act in accordance with its decisions."
The source said, "The Ministry of Defense is currently dealing with a complicated budget reality: an immediate NIS 4 billion shortfall, a future cut of NIS 3 billion a year from 2013, and a total multiyear budget cut of NIS 15 billion. The budget distress requires painful decisions, including a temporary halt in orders until the picture clears. As part of this, the defense establishment is also examining the future of projects, including the Merkava tank.
"I emphasize that that the review of the issue has not been completed, and that no decisions have been made. When it is over, the findings and their significance will be submitted to the prime minister. The Defense Ministry is in continuous contact with the defense industries, and it is trying to minimize the damage liable to be caused to them, their employees, and communities in the periphery."
Published by Globes [online], Israel business news - www.globes-online.com - on February 1, 2012
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