The FIMI fund, which is run by Ishay Davidi, is in negotiations to buy a joint controlling stake in El Al. The fund is reportedly looking at investing $60 million for 42% of the airline's shares.

Such a step would be unusual for the fund - which is formally known as the First Israel Mezzanine Investors Fund - in that FIMI generally invests in export companies that have a technological edge and a strong cash flow.

El Al enjoys a large market share and a relatively strong market position, but it is a player in a highly regulated industry, greatly affecting its ability to compete against its dozens of competitors.

If the letter of understanding that FIMI signed with El Al comes to fruition, the airline will have a new controlling shareholder group in which FIMI will be the dominant player, joined by the current controlling shareholder, Knafaim Holdings (a company controlled by the Borovich family ).

The proposed deal is structured in such a way that the major investment by FIMI - $30 million to $50 million of a total investment of $60 million - would be made only if El Al signs a new collective bargaining agreement with its workers on terms that satisfy the fund. The fund would have sole discretion as to whether the terms meet its approval. FIMI is committing to invest $30 million by the end of August of this year but is entitled to defer the investment until the end of the year.

The deal calls for an immediate investment of $10 million. Five million of it would be given in return for a 5.7% stake in El Al at a 37% premium over the market price of the airline's shares. The other $5 million would be paid in exchange for shares of Knafaim. As a result, at the end of the first phase of the deal, if it proceeds, FIMI would own 11.4% of El Al.

The sole discretion that FIMI has demanded with respect to its satisfactory view of a future collective labor agreement at the airline recalls another potential investment from which FIMI withdrew last October. That was a $25 million deal for the acquisition of a controlling interest in Gadot Biochemical Industries, from the Tshuva group. In that case, FIMI came to the conclusion that without a massive investment to upgrade Gadot's technology, it would not be able to compete in the global marketplace.

It would be expected that a new collective labor agreement at El Al would include wage cuts to make the airline more competitive.