Israel privatizes oldest defense firm, nets $5.7B

Sept. 20, 2013 at 4:00 PM
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TEL AVIV, Israel, Sept. 20 (UPI) -- The board of state-owned Israel Military Industries, maker of the famous Uzi submachine gun and one of Israel's leading weapons manufacturers, has approved a long-debated privatization plan that will secure the state an estimated $5.7 billion amid hefty cuts in military spending.

The plan now awaits final approval from Prime Minister Binyamin Netanyahu, Defense Minster Moshe Yaalon and Finance Minister Yair Lapid, who are scheduled to meet Oct. 15.

IMI is Israel's oldest defense company. It was founded in secrecy in 1933, 15 years before the state was established, to produce small arms for the Jewish underground army that was then forming.

After the Republic of Israel was proclaimed May 14, 1948, the operation was taken over by the Ministry of Defense to develop assault weapons like the compact Uzi, which has since sold all over the world, and the Galil and Tavor assault weapons, both of which are popular with counter-terrorist forces around the globe.

IMI also produces heavy weapons systems, including main battle tanks, armored vehicles, missile and tactical systems like satellite boosters, explosives, propellants and engines. These include the Merkava tank that's the mainstay of Israel's renowned armored corps.

In 1990, IMI was converted into a state-owned company that manufactures some 350 products, with global distribution, and in the early days employed 4,000 people in dozens of plants around Israel.

The privatization plan was first proposed in 1990. The government finally decided to move on the plan in 2005, but ran into fierce opposition from IMI's employees and the Histadrut, Israel's labor confederation.

"In 2005, there was an attempt at a forced privatization of the company by fait accompli," a source close to the negotiations observed.

"This time, the process is the reverse, in which agreements were reached with all the parties involved."

The final privatization blueprint emerged after months of intense negotiations among company executives, IMI workers' committees and the Histadrut.

The new company will be downsized, with 950 employees, about a third of the current workforce, laid off or given early retirement. Some 1,050 more will be provided with a financial safety net guaranteeing their pensions after the company is sold off.

But some of these could face redundancy under whoever takes over the firm.

Under the plan, IMI will quit the prime real estate it currently occupies at Ramat Hasheron in central Israel in the general conurbation around Tel Aviv, Israel's commercial capital, and move to a new plant in the Negev in southern Israel by 2020.

There it will consolidate state-designated technologies into a streamlined operation that will tentatively be known as "New IMI."

The prospective sale of IMI's current 1,875-acre property is expected to net the government $5.7 billion although some of that will be used to cover IMI's pension obligations that have left it in debt for years.

Imri Tov, a former Defense Ministry budget director who specializes in industrial issues, noted The Defense Ministry will have to shoulder "not insignificant costs" for transferring IMI to the Negev and maintain and operating former IMI units designated as critical technology.

Government and IMI officials have given few hints about what IMI programs will be retained when the company's privatized although the U.S. weekly Defense News says the ministry is "unlikely to relinquish heavy propulsion capabilities developed by the firm's Givon Rocket Systems Division."

But production of the Merkava IV, the latest model now in service, is likely to be cut back under a new strategic defense plan that focuses on building up new unconventional weapons systems to meet future challenges and reducing the strength of armored, artillery, naval and air formations.

Reducing Merkava production will not only hit IMI, but also the 200 smaller component providers involved in the program.

The Israeli business daily Globes reported recently at least 1,500 to 2,000 people linked to the Merkava project faced layoff.

The Defense Ministry had planned in 2006 to discontinue the Merkava line by 2010, but decided in August to maintain production for the time being.

However, given the budgetary constraints and the doctrinal changes in play, it seems likely that production will be at least considerably curtailed at some point even as earlier models are being auctioned along with older aircraft like the Kfir jets built by Israel Aircraft Industries -- now Israel Aerospace Industries -- in the 1970s.

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