Moments Before Elections: A Round of Appointments in Defense Companies
The Israeli government is actively shaping the boards of directors of leading defense companies, such as IAI and Rafael, as they prepare for IPOs. These appointments are accompanied by intense political maneuvering.
The eyes of the government are fixed on the defense companies, Israel Aerospace Industries (IAI) and Rafael, which are recording record revenues. Now, with the increasing likelihood that IAI will go public, the seats on their boards of directors have become particularly coveted.
How coveted? It is enough to recall the visceral political battle between David Amsalem and Israel Katz over the identity of the IAI chairman, alongside the unsuccessful attempts to appoint former ministers such as Gilad Erdan and Silvan Shalom. It is not surprising that various names recommended by ministers just before the elections have reached the Appointments Committee for Government Companies, headed by retired judge Shulamit Dotan.
For example, former Deputy Minister from the Likud party, Lea Ness, was chosen by the appointing ministers to serve on the IAI board of directors - but failed to pass the committee's hurdle and remained out. The person who will serve on the company's board is Major General (res.) Itzchak Turgeman, who in his last role served as the head of the Technological and Logistics Directorate in the IDF. His appointment will be approved subject to the cessation of consulting services to the company. Joining him on the board will be Gili Goldstein, a former senior official in the defense establishment.
Preparing for IPOs
At the neighboring company Rafael, the maneuvering has stepped up a gear. Avraham Manela, CEO of the Tel Aviv Chevra Kadisha, is a well-known figure in government corridors: he served two terms on the board of the Israel Electric Corporation, and is close to the Gur Hasidic sect and Avigdor Lieberman. In May, the Appointments Committee rejected another term for him at the Electric Corporation - and now his name has been submitted again, this time for the Rafael board. However, Manela's appointment is contingent upon the parallel appointment of Ella Gur Aryeh, an aeronautical engineer with decades of experience in the defense industries. The government hopes that the esteemed Gur Aryeh will bring a professional counterweight to the political appointment. However, Gur Aryeh serves as a consultant to the government company "Tomer", and is required to cease this as a condition for her appointment.
"Tomer", which was split from Israel Military Industries (IMI) in 2015 and specializes in rocket propulsion systems, made headlines last week after the Government Companies Authority expressed willingness to take it public as well - alongside IAI, whose IPO is the most "mature", and Rafael, whose realization is expected to be delayed.
Taking government companies public requires the publication of a prospectus and increased transparency, which exposes business decisions to investors and requires proper corporate governance. In an era of increasing political intervention - as the current round of appointments illustrates - transparency is essential to ensure a management backbone that will lead these massive moves.
Last month, Brigadier General (res.) Guy Bar-Lev was appointed CEO of IAI, replacing Boaz Levy, who moved to the chairman's seat. At the same time, the government approved the merger of Elta into IAI, with the aim of increasing the company's value, estimated at $20 billion, ahead of the offering of 25%-30% of its shares. The IPO proceeds are intended for the strengthening of the IDF, as part of the Prime Minister's plan to expand the defense budget by 350 billion shekels over the next decade.
Rafael Chairman, former minister Yuval Steinitz, recently said in an interview with Globes that taking the company public is critical to its survival. According to him, the move received a green light from the Government Companies Authority and from Benjamin Netanyahu, and that he understands that companies like Elbit or Lockheed Martin are constantly buying and selling companies - and therefore "Rafael needs flexibility to survive."
