Daily Israel Report

Israel's National Airline Faces Uncertain Future

El Al in trouble as $75 Million investment falls through, amid continuing financial losses.
By David Lev
First Publish: 10/10/2013, 4:15 PM

El Al airplanes
El Al airplanes
Flash 90

El Al will not be receiving a major investment it was counting on, and as a result, the future of Israel's national airline is very unclear. With the airline operating deep in the red for the past two years, analysts said that unless El Al moves quickly to either raise money or cut costs, the airline could find itself in serious financial trouble.

El Al has been a perennial money-loser, usually losing tens of millions of dollars a year.

The last time it made a profit was in 2010. The airline has not been state-owned since 2003, and around half the company's shares are currently in the public's hands, with the balance owned by a private investor group, the government, and the Histadrut labor union.

In April, FIMI, Israel's largest private investment fund, agreed to buy 47% of the airline, for which it would pay up to $75 million. The airline desperately needs the money to modernize its fleet and to prepare to compete with the expected onslaught of European carriers who will be offering discount fares, a result of the “Open Skies” agreement Israel signed with the European Union earlier this year.

The deal with FIMI, however, was contingent on the airline's getting its labor house in order, and specifically negotiating a new contract with workers. Last spring, flights were delayed as employees went on strike over attempts by management to cut $22.5 million from the annual payroll. Unable to do so, the airline turned to the government, which threw El Al a lifeline by agreeing to cover nearly all the airline's security costs.

Still, the airline has lost money in 2013, and analysts say that the only way to make El Al profitable is to reduce the workforce.

The airline has about 6,000 employees and 40 planes, one of the highest ratio of employee to passenger of any airline in the world. But as it has been unable to make a deal with the union, FIMI said in a statement, it has “informed El Al that it is canceling the agreement to invest because the conditions had not been met,” that condition being the failure of reducing a new labor agreement.

El Al has not yet commented on the development.