Israel Aerospace mulls closing Beersheva plant

Super Dvora Photo: IAI

IAI's Ramta division in Beersheva produces military vessels and components used in executive jets.

As part of the restructuring by Israel Aerospace Industries Ltd.'s (IAI) (TASE: ARSP.B1) management, measures to cut back on the company's activity are continuing. Sources inform "Globes" that IAI is now considering closing down activity in its Ramta division in Beersheva, where it produces warships and components used in IAI's executive jets.

For many years, IAI's main activity in Ramta was the manufacturing of warships for the Israeli navy and the navies of other countries, such as Gambia, Sri Lanka, India, and Portugal.

The plant produces many models of military vessels, including the Dabur and Dvora patrol boats. In the past decade, IAI developed a new model patrol boat for the navy, the Super Dvora, designed to meet the navy's operational needs in the framework of the expansion of its patrol and regular security missions.

The Israeli navy procured the Super Dvora, but IAI sources said that no new orders had been made for two years. The Ramta plant, founded in the 1960s to develop sources of employment for the Negev, has 320 employees, half of whom work on the production line making vessels.

In an attempt to safeguard continuous activity on the site, IAI moved some of its production lines for other activities there, including executive jet components, which IAI manufactures and markets through US company Gulfstream.

A sources familiar with the plan being devised by IAI management told "Globes" that Ramta's activity was unprofitable, with losses amounting to several million shekels annually in recent years. "The activity there is very significant for jobs in the outlying areas. If the state wants to preserve it, it should make orders to justify its existence," the source said.

The Ramta plant belongs to IAI's civilian division, but in building and characterizing IAI's new aviation group, "Ramta has not been marked as part of the boom," one company source said, adding, "In any case, any decision about Ramta, whether activity there is shut down completely or in part, or continued, will have only a marginal effect on IAI's financial situation."

According to the source, the main beneficiary from closing down Ramta will be Israel Shipyards. "If IAI stops manufacturing ships, the only company in Israel dealing in the sector and getting future orders for warships will be Israel Shipyards. It will enjoy a domestic market with no competition," the source stated.

Workers' committee against the cutbacks plan

"Globes" last week revealed that IAI was considering the termination of its executive jet activity, following heavy losses over the past decade. Most of the losses resulted from the 2008 global economic crisis, which reduced demand for executive jets.

IAI will have to decide in the coming months whether to invest $80 million in developing a new derivative for this plane in order to maintain its relevance in the executive jet market. If the company decides against doing so, the decision will lead to the closing down of activity in this sector during the coming years, resulting in natural retirement of employees, moving workers to other roles in the company, and laying off those for whom the company is unable to find another place.

IAI currently has 1,000 workers in its executive jet section. It is doubtful whether closing down the section can be accomplished quietly, as can be deduced from what workers' committee chairperson Yair Katz told "Globes": "If IAI does not intend to develop executive jets, there is no point in establishing the new aviation group. We won't agree to this."

The aviation group, scheduled to open one month from now, is designed to consolidate all of the company's civilian activities involving 5,000 workers, one third of IAI's workforce. The group will be headed by EVP and general manager Yossi Melamed.

IAI's MATA helicopters division, a marginal activity conducted by the company at Atarot Airport in northern Jerusalem, is also threatened by the cutbacks in the company. IAI has been active on this site for 40 years, providing maintenance services for helicopters used by the Israeli air force and the US Sixth Fleet.

The volume of IAI' activity on this site fell sharply in recent years, following a series of decisions by the air force to transfer helicopter maintenance to its bases, in some cases through external companies. The US also now sends almost none of its helicopters to Atarot for maintenance.

Despite the many buildings and facilities on the site suitable for aircraft maintenance tasks, IAI currently has only a few dozen workers there. "IAI's continued activity at MATA in Jerusalem and Ramta in Beersheva has been repeatedly discussed in the past several years, but no decisions were taken," a company source told "Globes."

The sources added, "At least in the case of MATA, such a decision is liable to be politically significant, because Atarot Airport is beyond the 1967 border. At the same time, IAI is a business company, not a company whose job is to perpetuate united Jerusalem and hold territory if there is no economic benefit in it."

Cut in the air, at sea, and also on land?

The changes being considered by IAI management were explained by sources associated with the company as an attempt to get rid of unprofitable activities that detract from IAI's profits. Management's goal is concentration solely on profitable core business for which deals and profits are forecast.

There is also no clarity about the future of the land systems administration in IAI's headquarters, an administration that led the development plans for land-based weapons for the IDF and foreign armies. The land systems administration is currently headed by EVP Maj. Gen. (res.) Gad Shamni, who recently notified IAI's management that he would resign his position at the end of the year. Shamni is slated for appointment as vice president of ICTS Europe, a private company that provides security management services and ground and other services to airports around the world.

Company sources said that the land systems section was likely to be closed down as part of streamlining in the company headquarters. They added that IAI was considering developing its land-based business in the framework of activity currently carried out in IAI subsidiary Elta Systems.

It appears that IAI is planning substantial expansion in its air defense business in the coming years, to a large extent because of its Barak 8 missile systems. The company signed a series of deals worth billions of dollars with the Indian Ministry of Defense in recent years for supply of these missiles and accompanying systems. These deals made a substantial contribution to IAI's $12 billion orders backlog.

Despite the big money promised by the huge deals in India, these will not result in increased activity by IAI in Israel. The reason is that according to the Indian government's policy, companies contracting deals with India are obligated to move production lines there. This obligation also applies to IAI.

The restructuring measures at IAI are led by chairperson Harel Locker and CEO Maj. Gen. (res.) Nimrod Sheffer, with the aim of increasing the company's profit margin to 8%.

Despite repeated queries from "Globes," IAI declined comment on the report.

Published by Globes, Israel business news - en.globes.co.il - on November 28, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

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Super Dvora Photo: IAI
Super Dvora Photo: IAI
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