Israel Aerospace Industries Ltd. (IAI) (TASE: ARSP.B1) reported today that it had reached agreement with the company's workers on a streamlining plan. It seems, however, that the Ministry of Finance is not party to this agreement. The agreement that IAI CEO Joseph (Yossi) Weiss reported to the Tel Aviv Stock Exchange today is conditional on the agreement of Minister of Finance Moshe Kahlon to pay the bridging pension to all the employees who will be asked to leave. At present, the Ministry of Finance has no intention of acceding to this request.
Ministry of Finance sources said that the company had been in a streamlining process for some time, and that further efficiency measures were part of the normal life of a large company and it should finance these from its own resources, whether this was a matter of regular funds or whether it meant floating the company's shares on the Tel Aviv Stock Exchange, despite longstanding opposition from the employees. The resulting funds would finance the streamlining plan and leave available a substantial amount for investing in the advancement of the company.
The streamlining plan reported today includes the layoff of 800 employees, and it comes after months of discussions and disputes between the management and workers. For years, IAI has suffered from a heavy surplus of employees, particularly in the Bedek Aviation Group.
The initial demand of management was for the layoff of 1,200 employees and cuts in pay and conditions. For its part the workers committee demanded that there should also be layoffs of senior managers and an end to the excessive hiring of external consultants (a State Comptroller's report released in October 2015 revealed payments totaling NIS 56 million to various consultants). It is not clear whether the agreement in principle reported by the CEO today relates to both sides.
For the time being, it has been agreed that the agreement signed between the government and the Histadrut (General Federation of Labor in Israel) on a 7.5% pay rise over five years for public sector workers will not apply to IAI employees for the next three years. It has also been agreed that there will be cuts in overtime pay and vacation pay that IAI employees receive beyond the norm in the Israeli economy.
Depending on the number and rank of the employees laid off, the cost of the streamlining plan could reach more than NIS 1.5 billion.
IAI management and Ministry of Finance director-general Shai Babad have already held several meetings, in which the management also reiterated its demand that Law for the Encouragement of Capital Investment should again be made applicable to the company in order to make it eligible for government grants like its more efficient competitor Elbit Systems Ltd. (Nasdaq: ESLT; TASE: ESLT). On this point, it appears that there will be a positive response from the Ministry of Finance and that this will part of the state's support for IAI's large investment plan.
One of IAI's main arguments is that other state-owned defense companies, Israel Military Industries and Rafael Advanced Defense Systems Ltd. have received extensive state aid.
IAI also reported its 2015 results today. It presented a negligible profit of $9 million on sales of $3.7 billion (0.3% of turnover). The company said that the low profit was the result of a one-time loss of $27 million from a settlement with a major customer. This is in fact a fine that IAI had to pay Boeing, one of its main customers, which claimed that work on aviation parts and assemblies had been overpriced.
Published by Globes [online], Israel business news - www.globes-online.com - on March 24, 2016
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