In February, El Al at last emerged from 12 years of receivership. Now, for the first time since the early 1980s, Israel's national airline is under the control of its own board of directors.
Their primary objective is to speed the airline towards privatisation, while at the same time teaching management to work with a board after years of almost total freedom.
Joseph Ciechanover, one-time senior defence official and, more recently, chairman at the Israeli Discount Bank, has been selected as chairman, to see the airline finally rehabilitated from the casualty department of Israeli business into the commercial market.
The task is not a simple one. As the latest financial results confirm, El Al has been profitable for nine consecutive years, but it now faces internal and external problems, which may slow progress towards privatisation.
Plans had called for 15% of the shares to be offered on the Tel Aviv stock exchange during May this year. This looks increasingly problematic as the exchange slips into the worst crisis in its history as a result of crashing share-prices.
According to the Government's plan, the second share package, diluting its stake to 49%, will be offered on the New York stock exchange by the end of the year. The uncertainty, on the Tel Aviv stock market, may lead to a reversal of the present plan, where the public offering, is to be followed by a sale to "strategic partners".
Koor, Israel's largest holding company, is heading a consortium which has shown interest in purchasing a large block of shares. Company sources admit that the issue is "on the agenda" and that a US airline could join a team aiming to purchase the remaining state holding; although it has already been decided that the Government will keep a "golden share", to protect national interests.
Before the process gets under way, however, some essential issues have to be tackled. El Al is the only airline in the world operating for five and a half days a week. As a result of the historic balance of power between the big political parties in Israel and the small religious parties needed to form a coalition, the airline does not fly on the Jewish Sabbath and religious holidays.
El Al president Raphael Harlev's 19 March description of the restriction as "crippling" will put further pressure on the Government to allow the situation to change. Not to do so will affect the price which potential investors are willing to pay. A statement of intent is considered vital if El Al is to satisfy Harlev's contention that the airline's $11 million profit for 1994 would have risen to around $50 million without the flight restrictions.
Another major problem for the Government is the level of state support to maintain the huge security system operated by the airline. The Government has previously covered 75% of the security budget, but that may "...change if its stake in the airline gets smaller". El Al fears that it will be unable to make profits in the future if it has to cover most of the security expenses," says a well-placed airline source.
Ciechanover is still studying the details, but he is already convinced that privatisation is essential, saying that "...only a private airline free from all Government restrictions will be able to shake the heavy weights off its wings and take off".
In spite of his belief that privatisation is vital, Ciechanover says that it will not be undertaken at any price. "We will offer the shares only if the market is ready to pay for them and only if we have the adequate underwriters. At this stage it is impossible to say what the circumstances will be when the prospectus is ready," he says.
As part of the preparations, for the sale El Al's market value has been assessed by, two teams. Both have reached almost the same conclusion, giving it a price tag of around $250 million.
While privatisation is top of the agenda, keeping the airline in profit is hardly less important. "We will have to work hard to keep our share of the traffic and increase the profit. This is by any standard a major challenge," says Ciechanover.
With the growing capacity on the routes to North America and Europe and the lower fares, which are the direct result, this is a challenge no less complicated than privatisation. It is a market becoming increasingly competitive following the "open-skies" policy approved by Tel Aviv in 1994.
Reviewing the present all-Boeing fleet is a major part of this effort. The new board will have to supervise the selection of a new, medium-size, long-range aircraft to serve the North Atlantic and Far East routes. Boeing's 777 and 767-300, the McDonnell Douglas MD-11 and the Airbus A-340 are all in contention.
The Government will also have to transfer six aircraft, which it purchased directly from Boeing, to the airline .These aircraft, four 767-200s and two 737-200s, were acquired immediately after the crisis which led to the airline's receivership. Their return to the fleet could finally see the carrier's fortunes come full circle.
Source: Flight International
