Israel bargaining to sell its shaky airline
Its name means ``skyward,'' but El Al Israel Airlines' profits have generally moved anywhere but up. Accordingly, when El Al had a major strike in 1982 and was placed in receivership, the Israeli government, which owns most of it, decided in principle to sell El Al. Now, almost five years later, the government may actually act on its decision to privatize the airline, which has been Israel's lifeline in wartime and a financial and political albatross at other times.
During a recent visit to the United States, Haim Corfu, Israel's transport minister, was approached by an investor (reportedly Canadian businessman William Belzberg) representing a group interested in buying El Al.
``The bottom line,'' says Yehiel Amitai, a Transport Ministry official, ``is that the investor offered Corfu US$316 million for ElAl.''
The Transport Ministry, however, was looking at a different bottom line: an evaluation by the finance minister that pegged El Al's value at $800 million. Mr. Corfu, therefore, rejected the bid and counteroffered to sell for $750 million.
More accurately, Corfu offered to sell El Al's assets: The airline's board of directors is not allowed to sell shares of El Al, 96 percent of which are owned by the government, but it is empowered to sell its assets. This is an important distinction, because whoever bought El Al's shares would become liable for its debts, which amount to about $300 million. Purchasers of assets are not liable for debts.
Asked to specify assets, Amram Blum, El Al's receiver, enumerated them as six Boeing 707s, two 737s, six 747s, four 767s, and two cargo 747s; El Al's ``goodwill''; and, presumably, landing rights in various countries.
To date, the investors have not responded to Corfu's counteroffer, but the government is in no hurry to consummate the sale - yet.
``The government has apparently decided that the cost of operating El Al was less than the cost of accepting that offer,'' says an unidentified source quoted in the Jerusalem Post. In other words, El Al may actually be clearing a small operating profit before servicing its debt, a feat attributable in large measure to the reduction in the cost of fuel, because of the recent worldwide oil glut, and a dramatic braking of Israel's staggering inflation rate.
This governmental attitude, however, may soon change, because of intense economic pressure. Even if the new agreement by the Organization of Petroleum Exporting Countries does not succeed in dramatically boosting fuel prices, the Israeli administration's efforts to reform its tax system and capital markets will eventually result in pressure to sell the airline.
``For instance,'' says David Rosenberg, a financial news reporter with the Jerusalem Post, ``removal of tax exemptions on various benefits grounded in labor agreements would force employers, including El Al, to raise wages to compensate workers.''
Another time bomb Mr. Rosenberg and others predict is predicated on the 1983 Israeli bank crisis, when the value of bank shares plummeted and the government intervened by guaranteeing the pre-collapse value of the shares.
One-half of those shares are due next October, with the other half falling due in October 1988. Since the pre-collapse value is higher than the current value of the bank shares, the government will be forced to raise large amounts of cash. Some of the more far-thinking government economists, Rosenberg says, may have this in mind when thinking about selling El Al.
As yet the $316 million offer is the only concrete proposal to have surfaced, but Mr. Blum says that the Histadrut, Israel's giant trade union, which owns about 25 percent of the Israeli economy, claims it wants the right to buy before an outsider is permitted to purchase El Al.
But the Israeli economy in general and the Histadrut in particular are not noted these days for financial strength. And the Histadrut, which together with the Jewish National Fund and the Zim shipping company owns about 4 percent of El Al, is not considered a strong candidate. It does have nuisance power, though, and might be able to torpedo a deal it does not like.
Whoever does buy El Al, or at least its assets, will find operating conditions markedly different than those of other airlines. For instance, due to pressure exerted by orthodox political parties which have been a part of every Israeli coalition, El Al no longer operates on the Sabbath, from sundown Friday until after sundown Saturday.
Another factor to consider is that El Al is, in times of war, a vital lifeline connecting Israel with the outside world. During the 1973 Yom Kippur war, as in the 1967 war, many foreign-owned airlines refused to fly into Israel, despite assurances of safety and Israeli control of the skies.
El Al's new owners will be expected to continue operating even during wartime, and to observe the legalized status quo under which draft-age employees (18 to 55) are annually given one month's leave to join their reserve units.