Like Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA), Intel Corp, Elbit Systems Ltd. (Nasdaq: ESLT; TASE: ESLT) and Check Point Software Technologies Ltd. (Nasdaq: CHKP), Israel Aerospace Industries Ltd. (IAI) (TASE: ARSP.B1) is demanding that the government include it in the list of companies entitled to benefits under the Law for the Encouragement of Capital Investment.
IAI is a defense company fully owned by the government, which does not enjoy the benefits provided by the law even though it is engaged in high-tech and R&D, is a focus of innovative knowhow and exports 80% of its output. The restriction preventing IAI from receiving benefits is that it is a government company even though it competes in Israel and worldwide with the publicly traded Israeli defense company Elbit Systems, which between 2006 and 2011 received NIS 400 million from the government under the Law for the Encouragement of Capital Investment.
IAI CFO Eyal Younian said, "We and Elbit Systems compete on the same markets but we are outside the Law because we are a government company. We ask to be included in the Law so that we can be allowed to compete on world markets on fair terms.
IAI claims that calculations based on the scale of its exports, number of employees and engineers and its contribution to the economy entitle the company to NIS 100 million annually under the Law for the Encouragement of Capital Investment.
Younian said, "If we were included in the Law we would be entitled to these benefits and we would also gain the ability to compete fairly on world markets and we could invest much more in robots and automation that would significantly increase employees' productivity and we could compete better. On the one hand, we are operating in a total business environment and on the other hand, we are subject to the restrictions of a government company. Rafael Advanced Defense Systems Ltd. is in the same boat as us in this situation."
Younian spoke during a visit today to the company's plant by the Knesset Science and Technology Committee headed by MK Moshe Gafni (United Torah Judaism). Gafni promised to weigh up the matter and if necessary change the Law.
Not competitive
This is not the first time that senior IAI executives have protested about the difficulties faced in competing on world markets.
Younian said, "If we are talking about a public offering or privatization in the future it would be reasonable to raise the value of the company through grants that would expand its innovation. Today I'm not competitive in the world because I don't receive the benefits of other companies in the same market. Israel is one of the only countries in the OECD, according to the OECD report, that does not support government companies. The OECD warns about this situation of discrimination against government companies in favor of private companies and that this is not right. We can't compete with our hands tied."
IAI has 15,500 employees including 5,500 engineers. In 2013 revenue reached $3.7 billion of which more than 80% was exported.
Published by Globes [online], Israel business news - www.globes-online.com - on May 12, 2014
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