EL AL Boeing 777
El Al's controlling shareholders have been looking for a strategic investor to help it fly through the turbulence of the global economic meltdown. Photo by El Al
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El Al is delaying installation of a new system to protect its airplanes from missile attacks due to a financial dispute with the government.

The airline is in the advanced stages of negotiations with defense electronic firm Elbit Systems for the purchase of the system, which provides enhanced protection against missile attacks. But it has held off on installing the product, known as C-MUSIC, due to a financial dispute between El Al and Elbit, on one hand, and the finance and transportation ministries on the other over the increased fuel costs the system entails.

Earlier technology provided more limited protection against missile threats. It is also heavier and interferes with the aircraft's operation. El Al considered a system that fires flares to deflect missiles, but encountered difficulties getting permission for its deployment in other countries due to environmental concerns.

C-MUSIC, in contrast, uses infrared technology to detect missiles fired at an airplane. But the drag on the aircraft from its presence lowers the airplane's fuel efficiency.

El Al officials discussed the dispute over C-MUSIC with the director of the Civil Aviation Authority, Giora Ram, just before last week's Rosh Hashanah holiday. The system, which is to be made by Elbit's Elop subsidiary, is expected to be fitted on the aircraft of all Israeli airlines, starting with El Al, in a deal worth $76 million. The dispute with the government is over how to fund the cost of the extra fuel El Al planes will have to burn once fitted with the system.

El Al and Elbit both declined to comment for this report, but the Civil Aviation Authority said that development work on the system is on schedule. Several government officials have been enlisted to try to resolve the financial dispute, including Prime Minister Benjamin Netanyahu, and a meeting of all the affected parties was held in Jerusalem in July in an effort to do so. As yet, however, the differences have not been resolved, and as a result, El Al has had Elbit cease trial runs with the airline's aircraft.