This evening, the ministerial privatization committee approved the plan for the privatization of Israel Aerospace Industries (IAI), the largest of Israel's state-owned companies. The way was opened to approval when Minister of Defense Benny Gantz became persuaded to support it. The plan was due to be decided on by the committee last month, but Gantz asked that the decision should be postponed in order for him to be able to study the plan more closely.
Under the plan approved this evening, the state will be able to sell up to 49% of the shares in IAI through a public offering on the Tel Aviv Stock Exchange. Government Companies Authority deputy director Ori Sheinin estimated that the offering would be able to take place within six months, on condition that a new labor agreement was reached with the company's employees that would resolve the issue of excess salaries that had been paid, and would allow performance-based compensation. The Government Companies Authority does not see the offering going above 35% of the company's shares. Beyond that level, further approval is required from the privatization committee. IAI has been valued in the past at NIS 12 billion.
IAI employs some 15,000 people, and its sales turnover in 2019 was $4.1 billion. 73% of sales were by its military divisions, which are profitable, and 27% from its civil aviation division, which posted an operating loss. The flotation of the company is intended to inject capital into it, improve its corporate governance, and to make its workforce more efficient - with the fear in the background of a process of stagnation and decline such as happened at Israel Military Industries.
Previous attempts to privatize IAI in the 1990s came to nought. The current decision implements a resolution by the economic-social cabinet in 2014 to approve the sale of minority stakes in government companies.
The main difficulties in the way of privatization were on two issues: large amounts in excess salary payments discovered by the commissioner of wages in the Ministry of Finance, and fears on the part of the Ministry of Defense that the imposition of reporting requirements on IAI would lead to the exposure of secrets that might jeopardize national security. Agreements in principle have been reached to resolve both these issues but the details have yet to be finally worked out. Sheinin said that the Ministry of Defense had come to the realization that in order for IAI to be successful from a defense point of view, it had to be successful from a business point of view as well. He said that a final decision on the timing of the company's offering would depend on market conditions.
IAI workers' union secretary Yair Katz said this evening, "In the past few months, the workers' organization has been holding tough negotiations with the Government Companies Authority and the commissioner of wages in which we demanded that the salary excesses should be forgiven and that regulatory relaxations should be introduced allowing the company freedom of action on a business basis. We said from the beginning that the workers are not the problem but the solution to many of the problems. A flotation at this time could be an opportunity to consolidate the company's status as a leading company globally and to let the workers benefit from its success, but we are far from completing the process and many problems need to be solved along the way."
Published by Globes, Israel business news - en.globes.co.il - on November 19, 2020
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