El Al Aims to Cut Payroll Costs by $22.5 Million in Talks With Union

A new labor agreement will play a key role in FIMI's decision on whether to go ahead with the acquisition of the Israeli airline.

El Al is negotiating with its union to slash payroll costs by $22.5 million.

The previous collective employment agreement was signed in November 2008, and expired at the end of 2012. Subsequent talks under way since November broke down in February after the FIMI buyout fund said it intended to invest in El Al and share control of the company with Knafaim Holdings. The union said it wanted to see how the deal would shape up.

A new labor agreement will play a key role in FIMI's decision on whether to go ahead with the acquisition.

According to an understanding signed on April 13, FIMI will invest up to $50 million in El Al for a 38% stake - if it finds the labor agreement satisfactory. It would make this investment by the end of July.

FIMI has the option to postpone closing the deal by another two periods of 45 days each. The fund may also invest up to $25 million in $12.5 million increments to increase its El Al stake to as much as 47%. The deal also needs regulatory approval.

Negotiations with the union and the Histadrut labor federation center around vacation pay, participation in meal costs, car allowances, canceling compensation for evening shifts and reducing it for weekend shifts, and freezing automatic wage increases except where promotions are involved.

El Al insists on aligning vacation pay with the rate commonly used in Israel and vacation-day entitlements with the number of days required by law. EL Al wants to reduce the NIS 570 senior employees receive for each vacation day to NIS 330, as is customary in other industries. This move would save about $3.2 million a year.

El Al also wants employees to contribute between NIS 5 and NIS 12 for meals based on their wages, which would trigger annual savings of $4.3 million. The company also aims to offload the tax on airline tickets and holiday gifts that employees receive; annually, these measures would save $2.2 million and $300,000, respectively. El Al also aims to reduce car allowance payments, which would save $3.6 million annually.

El Al also seeks to end the 50% premium for evening shifts, to reduce the 220% premium for work Friday evenings, and to reduce the 200% premium for work Saturdays. It wants these two latter premiums to be 150%. These changes would reduce expenses by about $4.6 million.

A proposed freeze in automatic 1% annual raises would save another $1.8 million. Other changes would lead to additional $2.5 million is savings annually.

An El Al spokesman said the company would not comment on negotiations with its employees, while a union representative simply noted that talks with management and the Histadrut were continuing and no agreement had been reached.

El Al suffered a $32.5 million loss in the first quarter, compared with a $23.3 million loss the year before. In 2012 it lost $18.8 million, 62% narrower than in 2011. At the end of last year it employed 5,775 people, including 3,785 on a permanent basis and the rest temporary.

Bloomberg