ISRAEL - Sep 20 - Israel Seeks Buyers For Arms Maker.

The Israeli government advertises for potential local and foreign buyers for Israel Military Industries, a struggling state-owned defence manufacturer that has failed to recover despite an injection of $2.2 bn (1.8bn, [pounds sterling]1.2bn) of public funds in the past decade. Foreign companies registered in Israel would be allowed to participate in an eventual competitive tender, although majority control of IMI would have to remain in Israeli hands. The defence ministry would also have the right to veto a potential investor on security grounds. The company that developed the Uzi submachine gun has suffered from severe financial problems that stemmed in part from a heavy pension burden and exposure to competition for sales of ammunition and other equipment at the low-technology end of the industry. "For years, IMI has been experiencing difficulties and has been in one recovery programme or another but without leading to an improvement in the company's situation", the finance ministry said. If would-be buyers fail to come forward by a deadline of Oct 27, the government is expected to open negotiations with a single investor, most likely Elbit Systems, Israel's biggest private defence company. In either case, IMI's strategically sensitive rocket and advanced defence systems divisions will be sold to government-owned Rafael ahead of the privatisation. Eyal Gabbai, the head of the government companies authority, said IMI had many orders on its books. He acknowledged, however, that its current liabilities were close to the value of its assets. The company this year faced a wave of unrest among its 2,900-strong labour force after it failed to pay salaries on time. A leading local creditor meanwhile filed to have IMI liquidated. The government decided to examine the prospects of a competitive tender after shelving a plan to split the company. As part of the privatisation terms, the government would retain valuable real estate in central Israel presently used by the company, while paying for the relocation of plants to the southern Negev region. IMI received a boost in August when it secured a $300m share in a $1.2 bn tender, led by General Dynamics of the US, to sell ammunition to the US army. The company supplies parts for Israel's Merkava tank and is also carrying out a $668m upgrade of Turkish army tanks. It is Israel's oldest defence manufacturer, dating back to before the declaration of the state in 1948 when it produced weapons and ammunition for underground Zionist forces during British rule in Palestine.