In recent weeks, ahead of a general structural reorganization at Israel Aerospace Industries Ltd. (IAI) (TASE: ARSP.B1), chairperson Harel Locker has been leading the thorough consideration of a plan centered around consolidation of the company's civilian business.
As part of the plan, which has reached the stage of advanced discussions, before being brought to the IAI board of directors for approval, the activities of the Bedek Aviation Group, civilian aircraft, and engineering divisions will be consolidated and conducted under a joint staff. The measure is designed to improve operating efficiency. The divisions will be consolidated into a new group at the company, which will operate mainly in civil aviation.
An estimated 5,000 of IAI's 15,000 workers are employed in the three division. Sources inform "Globes" that IAI's management regard the emerging plan as an opportunity for streamlining and cutting expenses, as well as a focusing of business and adapting the company's activity to the needs of the market, while leveraging its relative advantages. This is designed to improve IAI's competitiveness against other aerospace companies.
The original plan to consolidate these divisions was formed a long time ago, when Rafi Maor was chairperson. Since then, however, IAI's management has had difficulty in carrying it out, among other things because of the charged relations between management and the workers' committee.
Bedek Aviation Group repairs aircraft and engines, and converts passenger airplanes into a cargo configuration. The division is also leading a number of military projects, the most important of which is the conversion of airliners to a configuration of planes used for airborne refueling of warplanes.
The civilian aircraft division develops and manufactures civilian planes, mainly executive jets marked throughout the world through US company Gulfstream. It also provides subcontracting services for major manufacturers, including Boeing, in a program for producing components for the 787 Dreamliner.
The engineering division, which will be consolidated with the other two divisions, does research and development on unmanned aircraft, as well as many other systems produced by the company.
Over the past decade, the profit margins of IAI's civilian activity have declined, among other things due to weaker demand for executive aircraft. This decline began during the 2008 global economic crisis. In view of the company's dire financial straits in recent years, it reached agreement with its workers' committee, headed by Ehud Nof, over a year ago on a recovery program that provided for retirement of 830 IAI workers. This plan was designed to enable the company to save nearly NIS 2 billion in the coming years.
It is still not clear whether IAI is also planning layoffs in the framework of its consolidation plan as a result of redundancy of functions and positions. Sources familiar with IAI's activity say that most of the emphasis in personnel will be put on moving employees to different jobs and divisions.
Sources in IAI said, "It is impermissible for such a dramatic plan not to be coordinated between management and the workers' committee." They noted that discussions were taking place between Locker and Nof. IAI CEO Joseph Weiss recently told "Globes," "It's no secret that the company's civilian business, whose business performance is dubious, requires attention, and that will be the first area we'll look at - but that is not the only area. We're considering consolidation of staff at plants in order to prevent duplication of functions."
IAI's $11.1 billion order backlog for 2017 is believed to be the largest in the company's history. IAI has decided to outsource all of its logistics activity, and has contracted with Globus Packing & International Forwarding for the purpose. As part of this process, the external company will manage all of IAI's logistics centers, and build a new one.
IAI said in response, "The company has been considering for some time various processes aimed at focusing its business activity and adapting it to changes in the international markets. No decision has yet been taken on the matter."
Published by Globes [online], Israel Business News - www.globes-online.com - on November 29, 2017
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