December 23, 2004
Israel gave up control of El Al Israel Airlines on Thursday after more than 50 years, the second major firm sold by the government into private hands in a two-year sell-off drive.
Knafaim-Arkia Holdings paid USD$21.7 million to exercise 71.29 million options in El Al, bringing its stake up to 40 percent, the largest shareholder in the national carrier, and the government's holding down to 30 percent.
Knafaim-Arkia said in a statement the deal for the airline was financed by two unnamed Israeli financial institutions, which provided USD$40 million in credit for 10 years.
"The aviation industry is changing and going into consolidation and mega-companies," Knafaim head Izzy Borovich said. "The only way for us to be a part of it is through El Al".
He wants El Al to join a major airline alliance such as oneworld, Sky Team or Star. El Al currently has code-sharing agreements with American Airlines, Delta and Swiss.
Knafaim is seeking to sell Arkia, a small carrier that flies domestically and to some European destinations, in order to comply with regulations of the anti-trust authority.
The government started privatizing El Al in mid-2003 and Knafaim, which before this deal had 22 percent of the company, has built up enough options to acquire 52 percent.
Borovich said there was no rush to exercise all the options now since he already controls the airline. The options can be exercised until mid-2007.
He rejected the notion that buying an airline in such difficult times for the industry was a bad investment. He pointed to success stories in the United States such as budget carrier JetBlue.
"That shows one thing: if you manage it right you can be profitable," he said. El Al currently holds 40 percent of the market in flights from Israel.
El Al swung to a net profit of USD$59 million in the first nine months of the year from a loss of USD$3.3 million a year ago, with profits still reined in by high fuel costs. Revenues rose to USD$1.0 billion from USD$864 million as tourism to Israel revived.
Borovich said he planned to keep Amos Shapira as El Al's chief executive officer, although he has called for a shareholder meeting in early January to vote on a new board.
He will also look at restarting flights on the Jewish Sabbath holy day -- a 25 hour period beginning on Friday at sundown. These have been banned since 1982 and resumption could anger the religious Jewish community, major customers for El Al.
(Reuters)
