Private Israeli Equity Fund Could Become El Al's Biggest Shareholder

Under a revised agreement, Ishay Davidi's private equity fund could take up to a 45% stake in Israel's flagship airline if it exercises all its options.

FIMI, a private equity fund controlled by Ishay Davidi, could end up with a stake of as much as 45.1% in El Al Israel Airlines in three years, the two sides said on Tuesday, detailing the final terms of a deal announced in February.

If FIMI exercises all its options under the agreement, it will become the largest shareholder in Israel's flagship airline, displacing the Borowitz family, which has controlled El Al through Knafaim Holdingsfor the past eight years. Knafaim could be left with as little as 19% of the company, with most of the rest traded on the Tel Aviv Stock Exchange.

Under the revised deal, FIMI will in the first stage inject $35 million and $45 million directly into El Al by July, giving it a stake of as much as 3.4%, the two sides said. FIMI may also buy as much as another $5 million in Knafaim shares.

In the second stage of the deal, FIMI has two options to buy more El Al shares – the first for 72 million shares by July 2014 and the second for 47 million shares by June 2016.

Investors were cheered by the news, with El Al shares rising as much as 5.9% to 59.7 agorot on the TASE. The deal is worth between $5 million and $15 million more than the one announced in February. FIMI is paying 62.5 agorot per share for its El Al stock, a 9.5% premium on El Al's opening price on Tuesday.

In addition, FIMI is conditioning its purchase on the airlines' management signing a new collective-wage agreement to cut labor costs and make the company more competitive. El Al's workers committee wants to meet with FIMI's management before the fund makes a final decision on investing in the airline.

The International Air Transport Association said in its December outlook that 2013 would see 4.5% growth in passenger markets and 1.4% growth for cargo demand globally. But El Al and other Israeli carriers face heightened competition if Israel goes ahead with plans to sign an Open Skies agreement with the European Union, which would open up the market to more players.  

Last year, El Al narrowed its losses, but still ended $18.2 million in the red as revenues held edged down 1% to $2.02 billion. In February, shortly after it unveiled the FIBI deal, El Al said it planned to lay off some 200 employees hired on a temporary basis or through personal contracts, as the airline seeks to reduce costs and cope with growing competition. El Al employs about 5,800 people, of whom 2,000 are temporary workers.

Alon Ron