The Israeli government has appointed a new chairman of Israel Aerospace Industries, flagship of Israel's defense industry, amid growing speculation that long-running efforts to privatize state-run IAI may be accelerated.

Under the move, overseen by Defense Minister Ehud Barak and Finance Minister Yuval Steinitz, Yair Shamir, IAI's chief for six years, will be replaced by veteran business executive Dov Baharav.

He is the former president and CEO of Amdocs Ltd., one of Israel's largest companies, which provides software and billing and management services.

Shamir, a former air force officer, has served two three-year terms as IAI's chairman. He is the son of the late Yitzhak Shamir, who was prime minister in 1984-84 and 1986-92.

He was appointed IAI chief in 2005 by Defense Minister Shaul Mofaz, a bitter rival of the current defense minister.

In late May, Barak told Shamir, who has been described as "fiercely independent," he would not serve a third time as IAI chairman.

Defense industry sources told the Globes business daily Shamir and Barak were at odds and Shamir had "decided to launch an open struggle against Barak."

Shamir had declared that if he was kept on at IAI for another six years the long-touted privatization plan would succeed.

Barak's choice of Baharav caused some dismay in business circles since he has no experience in the defense sector.

But Globes quoted other defense industry sources as praising Baharav's 20-year sojourn with Amdocs.

"He accumulated vast experience in the management of complex and huge financial systems and for his involvement in high-tech development," Globes observed.

Efforts to privatize IAI have been under way for years but have hit stiff opposition from the company's union.

Shamir, an important figure in Israel's high-tech sector before he took over IAI, was seen as a staunch advocate of privatizing Israel's largest business enterprise with 17,500 employees and growing sales.

Before going to IAI, he had nursed El Al, Israel's national airline, toward privatization.

"Shamir devoted six years of his life to achieving the privatization of IAI," one defense sector source noted.

If that ever happens, it would have a profound impact on Israel's defense industry by prodding the privatization of other key companies such as Rafael Advanced Defense Systems and Israel Military Industries.

There has been talk for some time of merging IAI, Rafael and IMI -- all government-owned -- into what would be the 20th-largest defense conglomerate in the world.

Under Shamir's tutelage, IAI made major gains in a sector that has become increasingly export-oriented.

The Defense Ministry says the defense sector racked up sales of $9.6 billion in 2010 -- 3 percent over 2009 -- and $7.3 billion of those were exports.

Most of the sales were by Israel's four biggest defense companies, IAI, Elbit Systems -- the dominant private company in the defense sector -- Rafael and IMI.

These had an aggregate orders backlog of $18.8 billion in 2010, 9 percent over 2009. IAI had the biggest at $8.9 billion.

But Shamir fell foul of the prickly Barak, a former prime minister, chief of staff and Israel's most decorated war hero, and the bitter rivalries within the defense establishment that have spilled over into the public domain of late.

The transition at IAI is likely to be stormy, some officials say.

Shamir said shortly before he was told to step down that IAI management had "reached a unique situation where we have a basic understanding with the employees and the Government Companies Authority to go public. …

"But the idea is to give us two years of an incubation period to prepare for our initial public offering.

"During that time we'll finalize a detailed agreement with employees, do more streamlining and efficiency, reduce many of the government-imposed barriers and institute other procedures to maximize value before going public."

Baharav has given no clue how he plans to speed up privatization and beef up IAI's capabilities to compete with the likes of Boeing and the Lockheed Martin Corp.

But Globes observed: "Even before the historic privatization of IAI, if it ever happens, Baharav will have to find a way to soften, if only a little, the current tight regulations, because there are no lack of markets in Asia and Latin America and breakthrough technologies to sell them."

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